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                                                             EXHIBIT-99.C



COVER:
Cotter & Company 1996 Annual Report

INSIDE FRONT COVER: DENISE L GIBBONS  DENNIS J VAN FLEET  JOSEPH D CLARK  JOHN T
ROGERS  KARA L MACKIE  MICHAEL J SOCHA  SAMUEL A CONRY  DONALD F RILEY
KATHERINE L VERMETT JOSEPH P JUSTEN  CHERYL DREDSKE  GUY E HUDSON  LLOYD A SMITH
LARRY R KORTTE KURT A WILKENING  CERES C MORGAN  JACK E HORGAN  DEANNA L
THOMPSON  RICHARD L GATREL  MARY C MILLER  MICHAEL W MARKO  DARCY A BUSH  RUSTY
L MARTIN  ROSEMARIE A CARLSON  KATHRYN L JOHNSON  RANDY A HORTER  CORINNE K ORR
TERRY F CREMEENS WILLIAM E MELTON  THOMAS J WHITE  BARBARA K CAMREN  DONALD K
WILSON  SANDRA L DUNHAM  SCOTT R SHANHOLTZER  DEBRA K CALDWELL  JANICE A SCHMIDT
KENNETH G MOLLER  BARBARA SOUCIE  KEVIN L SOVA  JAMES G MOORE  SCOTT L HERMANN
JEAN A BOVIALL  ALEJANDRO ZAMORA  HERMAN F EICHHOLZ  BECKYJ THOMAS  RICHARD W
PIERCE RAY B SMITH  DAVID A KAMHOLTZ  THERESAM KRUEGER  DONALD A BUSCH  DALE A
MEYER STEVEN J SORENSEN  LONNIE W RETHERFORD  DEBORAA HOPPE  LINDA M WEBB
KENNETH W REYNOLDS  CHRIS SHIPPEE  DAPHNEJ KELLETT  ROBINM BISLEW  WALTERE
TAYLOR  BRENDA L RAGLIN  JULIE M KORTTE  GEORGE C KORTTE JR  KATHRYN M JONES
DAVIDM GARCIA REBECCA L WADE  KIMBERLY S HERNES  MICHAEL V SMITH  SUSANE FIEPKE
PATRICIA M EICHHOLZ  JOHN M PETERSON JR  EVA BOYKIN  SHELLEY M BOUNDS  RUTHANN M
VEST MARSHA H KING  JULIANN M WOOD  BOBBI-JO ENGELKE  MICHAEL D GREENLEE  JANE L
GALLAGLY  KATHRYN JOHANSEN  EDITH L ABARCA  DENNIS W MORGAN  RONALD D RYMAN JOE
NINO JR  WANDA K GREENLEE  DARHL D THOMAS JR  PAULINE S DALEY  MELISSA A ABARCA
MICHAEL E ROUSH  TIM J ELLER  DOUGLAS C NOBLE  JEFFERY S KLEIN  JANETTE L HASS
RAYMUND G DURICIC  WILLIAM L MORELLI JR  BARBARA J HALLMAN  DENNIS E FORSYTHE
JOHN D SMITH  MICHELLE M ROSE  THOMAS D BLOOMGREN  ROBIN G ENGELKE PAUL R WHITE
JAMES W HUTCHINSON  SANDRA A BURTMAN  CHRISTOPHER E JONES  THOMAS C DAVIE  GARY
D HAMMOND  SHEILA A RAAB  MARIE P ANDERSON  KATHLEEN CLARK BIBIANNE J VERBA
SAMANTHA L JOHNSON  KATHRYN WALSTRA  CHRISTOPHER M RUHFF JOANN TIMM  MYRNA L
BARBER  SHARON S BORTH  MARY L DAVIS  JANET JUNGBLUT BARBARA J CRADIC  SHERRIL A
NAY  JOAN A SCHMID  MARGARET F JACOBSON  TAMMY M EDMONDS  CAROLE S MOORE  JULIE
ZELL  MARY K LEONARD  NATHAN A BRUGGER  JACKI R WENZEL  MARGRET M KAZORT
KRISTINA P DAVIS  DALE K ALTEN  DARCY L BUCHANAN KATHERINE FERGER  GLENN D
KENDALL  PAMALA S SIMONSON  WILLIAM D JONES  MICHELE R PETTY  JAMIE A SCHROETER
ANTHONY C URBAS  BRENDAR GORTER  JACKIE L AUSTIN JENNIFER L KOHLIN  SANDRA L
LANE  MICHELE L MORRIS  JOSEPH W MORGAN  JAMES E MASON  ROXANNE G MIDDLETON
JOYCE L BURD  DONALD H JONES  MIKE S REYNOLDS GERALD A KAMLAGER  MICHAEL J
KAZORT  KEVIN L MASON  SHELLEY M GATREL  KATHRYN J EMMER  PATSY S MULLIN
MICHAEL G WESSELS  CHARLES W DUKEY  DEBRA K WHITE MICHAEL A HURRLE  LISA R
MELSON  LLOYD SMITH  DAWN E MORRIS  LINDA J RETHERFORD JEFF SMITH  TIMOTHY G
KILPS  STEPHEN M HAVENS  JAMIE M DAVIS  BRIAN L ROHRER THOMAS E WILLIAMS  RONALD
L DITZENBERGER  DONALD L KUNATH  LARRY L MACKEBEN JOSEPH E SINKOVIC  FRANKLIN
HARRIS  RONALD A FILKILL  STEVE MARSHALL CHRISTOPHER S GOAN  DENNIS L BEHNER
SHERRY L HAYES  SHELLY Y SLAGLE  RITA C REESE  LONNIE E ESTEP  DALE A STEIN
DEREK TROY DECLUETT  TONY R BOWIE  STEVEN L GALLIS  DENISE M BAXTER  ROBERT A
RUSNAK  ALVIN J SCHWEIDT  ALONZO BOGGAN SERGIO EDUARDO FUENTES  JOHN E STEINMAN
DAVID J WOLFS  MARK D BISHOP  JAMES T SUTHARD  THERESA M GOSSETT  TAMMY L
TERNOIR  WANDA J JEFFERSON  JENNIFER L LAROCHELLE  DANIEL J SKUBOVIUS
CHRISTOPHER BUTLER  DENNIS M KUKO  TYRONE WOODRUFF  GERALD L FABER  CARL WILLIAM
AUVIL  SARA J LOUIS  TYRONE MCCLAIME DONNA J SIMMONS  ROSA L BREWER  RENWICK
LYDELL RUSH  THOMAS F DUDKOWSKI CLOGGIE A CROWDER  ROBERT S PFENNINGER  MICHAEL
KAZIMER  JACQUELINE MARIE GROH MICHAEL R FILKILL  WILLIE C MCMILLON  MICHELLE M
GRISANTI  JOSEPH CARL PALETTA DOROTHY MION  TIMOTHY JR. SWARTWOOD  DAVID A REPKO
CHARLES R NEWMAN  JOSEPH J MENDONSA  BETTY COOPER  MIGUEL A SUAREZ  GEORGE R
DUNCKEL  ROBERT J ENGLISH ALAN S LOCKSEY  CLARICE RUCKER  KAREN L SOTKA
CLIFFORD D MCINTOSH  ROY E RASHKE  DERRICK L MUSE  DAVID D CHIDO  JAMES D
HAMILTON  ROBERT BROWN  LARRY D MARSHALL  PERCY HATCHER  SCOTT M MACK  DONNA M
PARSONS  CLARENCE SCHULTZ JR LEE A MCCOY  DAVID K GAUM  PHILLIP A HARDING
RICHARD J MIROLA  GREGORY BUTE JAMES A LINN  DENISE L CONWAY  TRACEY A DIFILIPPO
KAREN L KRATT  FREDERICK A PAPENFOTH SR  SHERMAN DEROSHA JR  THOMAS P JUERGENS
JOSEPH E COOKE  FRANK J SMITH  RICHARD A SCHMIDT  TONY L MION  PETER C ZIKELI
PETER J SIGAL SR MICHELLE R ALMAS  VICTOR R OSGOOD II  SAMUEL E MCCOY  RODNEY S
HULSEY  TERESA L BUTLER  TERRI HAHN  LYNN M WILMS  DENISE SURRENA  JUDY K DRIGGS
ROSE M RADVANSKY  MARY E THOMAS  LINDA LEE HANNON  NANCY J KUNKLE  MARY ANNE
JONAS SHARON M KELTY  SUSAN J SIEFKE  MARK J FEYERCHAK  LINDA J WARANAI
CHRISTINE A IPPOLITO  EDWARD RADVANSKY  STANLEY C HUNTINGTON  TERENCE E GASKEY
JEFFERSON D SMITH  WILLIAM T BARRY JR  DENNIS W NACARATO  WILLIAM J MCINTIRE
JOSEPH E KNECHTGES  KRISTEN D GUNVALSEN  THEODORE A CSINCSAK JR  TONY R PETITT
GARRY J MARSH  FREDERICK D CIPOLLA  JAMES E LAUBERT  JAIME J KOPCZYK  EDWARD P
BUTCHER DARRELL R BAON  CLAUDE M PITMAN  DAVID A SCOTT  RODNEY ALAN BOONE  FRANK
DEAN TOY  ROBERT J TRISKA  ROBERT B BAIRD  BRIAN A LANCASTER  RICHARD N JONES
RUSSELL L GRAHAM  JOHN M PERRETTI  RAYMOND DUTTKO  ALAN J FEENEY  EDWARD J
MACHOVINA  GEOFFREY W SHANKS  JAMES D BROWN  DOUGLAS E RUNYON  ERIC R JANUS
TIMOTHY J CLARK  BERNARD J ULINE  CHARLES C SUTZ  RICHARD LEMMEYER  CLAUDIA A
JOZEFKOWICZ  BRIAN M WRIGHT  LINDA ANN WALLS  MICHAEL P ELLIS  CANDUS M OLSON
MICHAEL J ROMANSKI  DAVID S STANLEY  DONALDR LOVING JR  CRAIG J BALOG  JAY D
RHODES  STANLEY TATE JR  WILLIAM B LIPFIRD  CY D YOUNG  RONALD J SABIN JR  JOHN
WEINMANN  MARTHA L PARSONS  GREGORY E JAMES  PAUL D FRANKIEWICZ  JEFFREY M
SCHULTZ  JAMES G STEIGERWALD  ROY J RASHKE  ADAM D CSONGEDI  HENRY O BUEHNER
KENNETH R COOK MICHELLE L MERKOSKY  LYNNE M SHAFFER  MARY C CALLIHAN  MARK P
BINDER  PAUL D DILLS  MICHAEL D MACNEAL  DAVID A KUTNER  JOHN M CRAWFORD JR
ROBERT A SZABO CURTIS J BALOG  ROBERT H GARCIA  ROBERT L GRIFFIN  TONI TASHE
NICKOLOFF  JAMES E NEELY  RICHARD L 

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SINDELAR  GARY JOSEPH GARZA  SHANNON L MURRAY  MICHELLE C DRUDZINSKI  ROBERT C
EARLY  LARRY A WATERS  MARK J KUZMANOVICH  WILLIAM A RISHEL  SAUL A HERNANDEZ
JAMES D SOTHERLAND  STEVEN M FOSTER  DONNA S BRISSON GEORGE A DUBOIS
CHRISTOPHER S OLEARY  SUZAN M HINTON  RUSSELL L GLIDDEN DANIEL J BATTISTELLI
ARMAND R L'HEUREUX  LAWRENCE D CARTY  RICHARD D WALEGA DANA R FRASER  WILLIAM H
TREMBLAY  JACQUES R BOISVERT  DANIEL R LAWRENCE  JOHN J KILLAY  PHILIP D
BALDINELLI  GREGORY J FEEHAN  ADELAIDE E RILEY  STEVEN A GOUPIL  ROBERT E LABRIE
DOUGLAS A BALDINELLI  BRENDA K BOLDUC  RALF J BAUMANN WILLIAM A ZYGADLO  HORACIO
L KIEP  ANNE L HOULE  ROBERT A PHANEUF  THOMAS HUNT DANIEL J NOLL  DAVID J
JEROME  ROBERT F BEECHER  RAYMOND T BRISSON  GERARD J CHALIFOUR  GILBERT
BOISVERT  DANIEL J COSMA  SCOTT R HENAULT  DAN R HUPPE WENDY L MERRILL  JAMES M
ALDRIDGE  MARK P TURGEON  DAVID L LANGLOIS  RAYMOND P SEVIGNY  JOHN N NACOS
MICHAEL D BOISVERT  JOHN A MADDEN  PHILIP C BEAUDET JAMES R YOUNG  BARRY R
FAUCHER  TINA M SARETTE  GERALD M VEILLEUX  ALAN R COTE LUCIEN A DESRUISSEAUX
JOHN M PERSONS  ROBERT R MORIN  ROLAND L MIVILLE CATHERINE A CARCHIDE  MICHAEL J
OTOOLE  ROBERT N MOREAU  PAUL LAMPRON  JAMES J HAWES  DARRYL B CHAMPNEY  ERIK P
RANSOM  DANNY C WEBSTER  KENNETH J SKIDMORE SR RAYMOND R PROVENCHER  WILLIAM O
PETTERSON JR  ELAINE M BOBULA  ROBERT STEVENS RAY M CAMPBELL  HENRY HEBERT
DAVID J BILODEAU  CINDY L LITTLE  LUC L LABRIE MARY WEBSTER  DANIEL T HALL  MARK
BEDARD  HARRY J LORANGER JR  EDWARD A RICHARD THEODORE W ROBINSON  MARK A JORDAN
RUSSELL J SMALL  BRICE R CUNNINGHAM RICHARD R ST HILAIRE  BELLA M MORIN  ELAINE
PYATT  DAVID M SHEA  MARLENE R WHITE  PATRICIA A BILODEAU  MELISSA M VINCENT
JOAN A GOLABIEWSKI  DOROTHY G MURRAY  DEBRA J TIRRELL  RICHARD P GURTNER  JUDITH
C SALACH  DAVID MUZEROLL CHARLOTTE J FRIZZELL  TERI A SMITH  CAROL A MILLER
JOYCE M BARIBEAU  ANN-MARIE THERRIEN  LINDA M DAY  MICHAEL C DUFF  COLLETTE J
MCKENNA  LYNDA M SANBORN  ANN M JORDAN  GERALD E JALBERT  NORMAN D ROSS  OWEN R
BELLOWS  TODD A LETOURNEAU PAUL D AGRELL  NORMAN R PROULX  THOMAS D KELLETT
SHEILA M COOK  JEFFREY A SAVAGE  JOSEPH C RIENERT  ROBERT E WEBB  ROBERT A LA
BARRE  WILLIAM E HUTTON HARRY M WEAVER  ROBERT C BROWN  JOSEPH C GANCARZ  ALBERT
J PROVENCHER  RUSSELL PHILLIPS  RAYMOND V AYOTTE  ERNEST E PEPIN  GERARD J BIRON
DAVID A BURGESS MARK SILEGY  CLAUDE A ST PIERRE  CHRISTOPHER J BURDIN  GREGORY J
HUNT  MICHAEL J PROVOST  DAVID J ENRIGHT  HOWARD A ZERBER  BRIAN ROBIDOUX
GLORIA M NOLAN RICHARD L DUHAIME  JOSEPH F KATZ  GARY K BOLDUC  CARRIE I NOLAN
KRISTINE L BERGERON  RUSSELL F FEDERICO  STEPHEN DELBENE  WILLIAM P COOK  ROBERT
P DALTON STEVE C GIBSON  NICHOLE L COLTEY  PAULINE TANCREDE  CHARLES T LACKEY
EDWARD S RAND  LINDA B UNDERWOOD  RUSSELL W SPAIN  THEODORE A TODD  ERIC V
JACOBS CHRISTOPHER J LE MAUK  RICHARD A MELANSON  RANDY COWLES  WAYNE BARSS
ROGER E HUARD  LEO L DEMERS  CRISH BUXTON  JAMES P BARTLETT  ARTHUR G MAKRIS
THOMAS E CARNEY  GILLIS L UPTON  JO A VAUX  PAUL A DIROSA  FERDINAND P DLUGOSZ
III EDWARD T JUDGE  GLENN A LAWRENCE  DAVID W CRAMER  MELISSA A MATHERNE
DOUGLAS R CHAUVETTE  MICHAEL K DUNKER  PAMELA A PROKOS  JACK J VILLEMURE  CORY F
SAMBLE KEVIN R DEROCHER  RICHARD T DUCHARME  DONALD E LABRECQUE  RICHARD P
DUMOULIN ALLAN YIANAKOPOLOS  CHRISTOPHER F LABORE  BETSY L MARTEL  DAVID K
SCHNEIDER JOANNE C YOUNG  RONALD M CLENDENNING  THOMAS W SCHLEAR JR  OSCAR R ROY
III PAULINE A JACOB  DAVID A PHILBROOK  DANIEL M BOLDUC  ROGER G YOUNG  LORETTA
A SESTITO  JAMES D III LEATH  DAMITA A ANDREWS  DAVID L BROWN  CAROL A MCBURNETT
GWENDOLYN A RICHARDSON  CLAUDIE B JONES  JOHN FITZGERALD BARTON  LINDA V RANSOM
WILLIE N MARTIN  JEREMY D GOBER  DAVIS M DUNBAR  FREDRICK O LEE  AGNES J WEEMS
SCOTT M WRIGHT  LARRY P HAMILTON  JEFF C FOX  TERRANCE L OWENS  KEVIN R
SATTAZAHN  WILFRED BROWN  RODDRICK K JOHNSON  MICKY E BALES  NEHEMIAH JOHNSON
JOHNNY D THOMPSON  SANDI J HAYES  WILLIAM S MCALLISTER  WILLIAM H DUTTENHOFFER
MELVIN A JORDAN  AKUA T METZGER  ROBERT JACK MILNER  KIMSEY A HARMON  IRMA S
JACKSON  MARCUS A EMORY  DONNA J FRAZIER  MICHAEL E WYATT  TERRY L TUTTON
MICHAEL D WHITLOCK  DONNY R PARHAM  TOMMY A ROE  JANET M JACKSON  JOEL D
MARSHALL  MARCUS L BROWN  DALE M BOOTON  LISA C MILANI  CYNTHIA E GLASS  SHEILA
G HARRIS  EDWARD S BLANTON  LEWIS E VOYLES  MICHELLE M WALDROP  FARRON L
WHISENANT  CHARLES B CANNADY JR  JERRY W SMITH  ROBERT V ANDREWS  DELFIN DIAZ
JAMES H LUMBUS  DARREL F MILLER  GREGORY A CHAMBERS  JAMES FULLER  GREGORY S
LANIER  MONA J BROTHERTON  MICHAEL FLETCHER  MICHAEL W JONES JR  GEORGIA L
STOREY  LINDA G BONNER  RONDA J BURT  NANCY D WEEKS  TERRILYN ELLIOTT  CARLENE
CLINTON  MICHELLE LOWRIMORE  CAROLYN G DUKES  RUBY CLEMMONS  NANNETTE J MARTIN
DIANE M GIBSON  TONIE WAYNE JARRELL  NELLA M BARTON  LYDIA M HEAD  REGINA V
THOMPSON  JOHN H BYRON JR  JOHN L COOPER  LARRY SHULTZ  DONALD HAMM  THOMAS FAIN
JAMES D CAMPBELL  ERNEST M POPE JR  WILLIAM H SCHENCK  FLOYD G HAY  BRUCE L KARR
JOHN O MOORE  MICHAEL D SCHENCK  CLEOPHAS SMITH  LONNIE S DICKERSON STEVEN E
ATKINSON  NEIL L SCOTT  THOMAS E MILLER II  KEVIN PANGBURN  JAMES E HOBBS  COLEY
BANKS  STEPHEN P PRESTON  JONATHAN JOHNSON  DANNY L SMITH  DEBRA KAYE CLAYTON
DAVID REID  MARSHA D GRAY  ANGELA R HAYNES  ZAKIYYAH KHALIFAH AQUIL  BYRON JAMES
ADDERLEY  WANDA BOLER  ANTONIO BURNEY  TONYA MICHELLE WILLIAMS  SYEPHEN
CHRISTOPHER FOLDS  CHRIS RAMIREZ  MARY ANN HUNTER  MELANIE ELIZABETH SHANNON
TOBY C HENDRICKS  ROBERT B WOOD  LARRY DARNELL WOODS  SCOTT JOHN PALICKI  CRAIG
CLAY RAMBERT  JAMES LEONARD ASBERRY  JOSEPH THOMPSON III WAYMAN HUNT  ANTHONY C
HUNT  BRADLEY ALLEN HOBBS  ANTHONY PAUL BASTIAN  ANGELA RENEE ARNOLD  CHARLIE M
RICE  MICHAEL ANTHONY WILLIAMS SHEEWAN DENISE DAVIS  LEMUEL CRAIG EUBANKS
DEBORAH ANN WATSON  TERRY LEWIS WALLER  WANDA SALLEY  PORTIA ELAINE DAVIS
DEXTER DURANT CLARK  MICHELLE L HENSON  KAREN JAN

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WORKING TOGETHER BUILDING DREAMS
HOLLIS  JEREMY JOHN TAYLOR  JOSH R HEARD  DONALD M BISSELL  LISA J KENT
ANASTASIOS AIVALIOTIS  ROGER W CARLILE  DEAN A GEARY  GREGORY R SLY  GARY D
GRIER  CHARLES D HOTALING  LOUIS J MACDONALD  JEFFREY T 

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BERKS  DAVID L DUNCAN SABINO CASTELLANO  JAY PETTIS  JOHN A SELLIN  JEROME R
RYNNING  DAVID L BERGER EDWARD P TAMLIN  LEONARD W GRANT  JOE COPPOLA  RICHARD W
KEEFER JR  MICHAEL D FARRELL  DENNIS R BURG  DAVID R ORTH  RANDOLFF MOREY  GLENN
R MADSEN  WILLIAM R TERRIEN  CHAD W MOORE  GEORGE D BAYNARD  CHARLES E THOMAS
WILLIAM J ELDRIDGE DONALD M SPARKS  DOUGLAS A BISSELL  RICHARD E DYAS  VASILIOS
KLADOUCHOS RAYMOND G GILL  BRUCE W RICHARDSON  RONALD L RATHKE  ROBERT B MOEN
GARY A SASSER  EARL J MEWING  DAVID E SMITH  LOUIS L SEIDL  JOHN W ZIMMERMAN
FORREST G MOSS  ROY E BYRD  LONNIE SHELLENBARGER  CHARLES W SCHMIDT JR  MERLIN V
KOST BOB E DEVEREUX  RUSSELL L SICHLEY  MICHAEL W KEEL  ROBERT M FARLEY  RYAN
HORDICHOK  DANNY D PROCTOR  GAYLE J DITTLER  SCOTT J DANELL  JAMES J GUERARD
STEVEN W FLOURA  BRIAN M GARRY  RONALD G CALDER  WILLIAM K LABRECQUE  CHARLES A
CECILIANI  KENNETH FELTON JR  TREVOR A CASWELL  BRIAN M LUBY  JAMES G HUDDLESTON
JASON A BIRMAN  KEN D COCKRIEL  JOHN D HUDDLESTON  LARRY H HUNT KENNETH C SEIBEL
BRENT D LAWRENCE  THOMAS HAYS  NICHOLAS A BANKS  THOMAS C SLOOP  CASSANDRA J
WARREN  KENT R SALYER  MICHAEL E MCMAHAN  KENNETH A CROUSE JR  CHARLOTTE C SEIDL
JOYCE I BANANTO  DEBORAH L NORDYKE  PAULA A CADY KATHLEEN E FARLEY  MARCIA N
MAES  WANDA SUE GRAVES HALLGRIMSON  SYLVIA J MITCHELL  MARJORIE L PERRINE  DONNA
C MOSS  COLLETTE J MCDOWELL  SUSAN A DALTON GORDONK HAUGEN  STEVEN D GATES
BRIAN R HAGEY  WILLIAM D LAYTON  JOSEPH C D'AMICO  R MITCHELL MANN  DAVID J MENG
WILLIS S RILEY III  JONATHAN P MILLER DANIEL J HOFFMAN  BRIAN P ROOF  NICK W
HARMS  ROGER L NICHOLSON  MICHAEL J ENDNER  ROBERT DIDIER JR  MICHAEL D
BILLERBECK  LARRY LUKESH  BENJAMIN E HARMAN JASON A ALDERMAN  DANIEL H BETTS
RICK D BYRAM  JON M BUDDE  DOUG D URBICK ROBERT HEWITT  BRAD A NEWBREY  EDWARD A
HAMMERBERG  STEVE A MEYER  RAYMOND W HARMAN  RANDALL M WALLACE  RAE J NORTON
STEPHEN J RYAN  DONALD L BURNS  FRED M FISHER  LOREN R PETTIS  ERIC D VAN DYKE
DAVID J GENTZLER  TOM D VEAL  BRUCE M GATES  ROCKY L ROGERS  MARK V SAVRE
ROBERT M KEENE  BECKY L MOREY  JAMES STEVENS  JERRY HARMS  CHRISTOPHER R NEELY
RICHARD A LAINE  DAVE R BROUGHTON KATHY L GRUBER  LORNA M ROTH  MARCIE R BESZ
CHRISTINE M BRINGENBERG  MICHELLE M HUBBARD  CHARLENE J HILBERT  SANDRA R KUCSAN
JOHN A MORRISON  COLLEEN FLUESO SUSAN A WADDING  JOANN R MOLL  BARBARA T KLIMEK
DAVID E ROTH  GLORIA A BAUER JUNE E CESSNA  LINDA K KLEMAN  CATHY A KLINE
DANIELLE KROLL  LORETTA A BOYER RONALD M GREENZWEIG  KEVIN B MILLER  SHANNON Y
FRITZ  BRENDA L STITZER  MICHAEL A KINDT  RODGER M DUNSE  DAVID C FRITZINGER JR
EDWARD J FYNES  DAVID M KNOBLACH  LEON K BUFFINGTON  BEATRICE M LOPATA  LINCOLN
D LABAR  PATRICK MOORE BERNICE J RAUCH  DEBORAH M EASTMAN  BRETTG ZEHNER  TODD A
BURKETT  MICHAEL K NONNEMACHER  RICKY L DERR  JOHN KREMSNER  SHARON ZEHNER
THOMAS C KUTZ  JEFFERY S FOX  JOSEPH T NARATIL  ROBERT G LICK  ROSALIE B
BILLHEIMER  JEFFREY W BAUCHSPIES  JAMES M TOTANI  M RICHARD BIEHL  DENNIS J
CHECK  BRUCE D YODER DENNIS G RAUCH  RICKY FRITZ  ROBERT M SMITH  CARL D HAMANN
ROBERT J NEIFERT JR FREDERICK D RUPP  DORA L HOPPES  DARVIN J SCHOENBERGER  JOHN
EVANKO JR  LEE C BITTNER  EDDY L FISHER  KIP R KOGELMAN  JOSEPH A FREY  RENEEA
WERKHEISER MICHAEL GALANTI  ROBERT J CSENCITZ  JEREMY W SCHAUS  DIANE L HARTUNG
DONNA M STROHL  FRANCIS E ZEHNER  DONALD E NESTER  MICHAEL J EGAN  MILTON C
BAILEY KEITH SNYDER  PAUL RUSSELL BROPHY  BRENT S KLECKNER  CARL C MOYER  BARRY
L SILFIES  MICHELLE ZETTLE  THOMAS S RUHE  JOSEPH S CSENCITZ  JERRY W HEIM
ROGER L HOFFMAN  KIRBY E MILLER  RYAN K THOMSON  DONALD B MAIROSE  ROBERT D BEST
ARTHUR E RUDELITSCH  GREGORYJ MATYASCIK  STERLING S CHRISTMAN  MICHAEL B
SHIPWASH  BETH A PAJAKINAS  KENNETH W SCHAUS  CHRISTOPHER S MITCHELL  JOHN P
ROWLAND  MICHAEL P HALDEMAN  DENNIS POHRANICHNY  JOYCE J STEIGERWALT  JAMES D
YOURGAL  ANGELO GEORGE ZERVOS  SALVATORE E TAIBI  MAUREEN R REX  GARY J BRODE
BRUCE E STEIGERWALT  KEITH L HESS  ROBERT F FLUESO  GARY C HOCH  ROBERT J BEVICH
ROBERTA J SCHLEGEL  JOEL F GEORGE  WILLIAM D HAUSMAN  DONALD W MARTIN MARY K
BEDNARIK  STANLEY P TORBEY  THOMAS R SOMMERS  TERRY L ROTH  JEANINE C BRAREN
WUCHTER  DANIEL A SWEITZER  DALE K STOKES  MICHAEL E BUSKIRK  JASON C RIEPENSELL
MICHAEL TOMECEK  ALLEN K MECKES  GLENN E MITCHELL  MICHAEL J BURNS LOUISE R
BRAREN  JEFFREY A SCHALLES  LINDA L VICTORY  WILLIAM J FARBER  JILL PARKER TODD
A CHEESE  DAVID E JOHN  ROBERT E MILLER JR  GARY S LONG  RICKY E SMITH  DAVID R
MOORE  CAROL J LYNN  DOUGLAS T BOBENKO  RONALD E MUIK  KAY E HAMM  DEBRA L AHNER
DONALD J LEIBY  TINA M MARKO  ROGER A RUHE  TODD D QUALLEY TERRY S KUNKLE  FRANK
J GESECK III  RANDALL A RUHE  DENISE A BEVICH  MICHAEL J HANZARIK JR  SYBIL M
CORRELL  GERALD L NAGLE  JOHN T MINCHHOFF  MILTON C BAILEY JR  JAMES D VARNER
MICHAEL R MANOGUE  SUELLEN M HESS  GARY S STROHL  RICHARD SCHOENEBERGER JR  GARY
M BENNER  ANDREA L SHUMACK  ROBERT W LEDFORD  PATRICIA A SCHWARTZ  WILLIAM J
OCHS  LINDA K WECHSLER  DAVID L MAKOVSKY JR  JASON D ZELIFF MIGUEL A ROSARIO
MICHAEL J MELLEY  LISA J   COSTENBADER  PATRICK A FARBER MITCHELL W MILLER
SHELLY A WILLIAMS  KIM L MAY  DENNIS M KERN  STEVE V GOWEN KAY A KNAPPENBERGER
JONATHAN N SKELTON  MARK A BENNER  GLEN A PAULES  RANDY P TROXELL  MARK L PAULES
MICHAEL T WILLIAMS  LOUIS L AMICI JR  DENNIS W TROXELL JACKIE L GILDNER  MILES I
ENGLEMAN  BERLYN R TROXELL JR  SHAWN D LINDLEY JEREMY WHITE  JEFFREY E MILLER
PAUL S MILLER  JAMIE D HOMYAK  JEFFREY G MILLER  LESLIE L GEORGE  BRIAN C
ONUSHCO  WENDY L DAVIES JOSEPH B YASHUR JR  JASON K HOMYAK  SHAWN M KELLER
BRIAN P MCAVOY  MARK G POLKOWSKI  MICHAEL D STEIGERWAIT  THOMAS J STEIGERWALT
JASON L MUFFLEY  JUSTIN M MUFFLEY  PHILIP H BRINK  MICHAEL J SERINA  JASON M
ALLENDER  LEROY CROUCH MICHAEL D MOORE  CLAUDE W MOORE  ROSANNA HERNANDEZ
TIMOTHY J SIPES  GEORGE S BRYSON  LARRY D BLICKHAN  RICK D PARRIS  FRANK A KUHL
JESSIE D CERVANTES CONNIE TSE DRBOHLAV  DANNY G CONNER  DAVID L SEBASTIAN
STEVEN H BENNETT  JASON A TREOLO  LISA A MURDOCK  SHAWN C MCGINNIS  JAMES H
CRUNK  WILLIAM L FOREMAN CRAIG D SMITH  TONIA E STUKES  LEROY A BRONSON  ERICK M
EATON  KENNETH L HALL KATHY L BRILLHART  JOSE A LUCERO  SAMUEL ALLEN  DONALD R
LYNN  LARRY D PRIDEMORE  LISA K WARDEN  ROBERTO VILLALOBOS  DARIN L ELLISON
BILLY J MCTEER RICHARD K CORAM  RAYMOND C MITCHELL  MARION D HECKADON  PAUL M
WENDLANDT JOSEPH M MADISON  JAMES H JOHNSON  DAVID W CHARLES  TED H DAVIS  LARRY
R STEWART  TERRY A KOOKER  JAMES GILLESPIE JR  JOSEPHA PINTER  RICHARD BERRY JR
DEWEY L HENRY III  

<PAGE>   4

BOBBY R WILKINS JR  TIMOTHY E CUSHING  MARY L HARPER CHARLES A YOKLEY  MICHAEL O
LEFFINGWELL  JAMES D HARRILL JR  KARYN S BOWER VONDA S NOLAND  LISA STODGELL
MARY C LOCKARD  MARK A DEARDORFF  BRIANK KURLE HAL M HYDEN  VICKI L BRYSON
KAREN I STEWART  JOHNR SMITH  PATRICIA BELCHER SARAH J STATLER  HAROLDL CLEMENS
REBECCA L WRIGHT  EDWIN M RODRIGUEZ  MARK A SCHICK  JOHN W DARLING  KIM AUGUSTIN
CAROLYN S SMITH  JANICE J BRINDLE  SHAWNT ALFORD  MARY A MILBURN  MICHAEL L
GILLESPIE  BOBBI S JOHNSON  CHRISTOPHER A HOFF  JAMES R HIXSON II  LUU T LOWRY
DARRELL L SHAFER  JOHN A GASTON  CHARLES E KNIGHT  JOSEPH F SPICER  BENJAMIN D
CHAI  MICHAEL C SCOTT  ROBERT J MORRIS BRIAN BITTNER  JAMES D MURDOCK  TIMOTHY M
CERVANTES  JEREMIAHJ WILLIAMS  KEVIN D NELSON  RUSSELL L FISHER  ORLANDO E
COLEMAN  HENRY R HERNANDEZ  MARK BURGER JASON M CHERRY  DANIELG HALL  LEANNA J
CHAMBERLAIN  SANDRA K CORRISTON  DIANA K SMITH  BARBARA MITCHELL  SHIRLEY I
THIELE  SANDRA S MELENSON  VELMA I BARNUM ROSE M REEVES  PAMELA M ARCHER
KIMBERLY R JUNKIN  ROSE A CERVANTES  BRENDA K BREMER  AMIEM BAUGHER  TARA N
GRAHAM  DONNA J TUBBS  CYNTHIA L BEASLEY  ROBERT J FRANK  RICHARD L VOWELLS
JAMES A SIEKER  VERN E SHEETS  MICHAEL L DAVIS LARRY D BULLARD  BENNY L KUEHN
THURMAN J KUYKENDALL  MICHAEL K HOPKINS  DONALD E CANNAFAX  CHARLES V DOWNEY
DENNIS E DORWEILER  EDWIN D WHITE  JOSEPH B ANCRUM  ROGER D HATTON  DWIGHT O
COLEMAN  DEANG JONES II  EZEQUIEL URESTI DAVID L SMITH  DALE A BERRY  JAMES A
FEITZ  ROBERT HARRILL  DEANNA M ELLISON RONALD L JOHNSON  KENNETH L SHAY  JOHN R
VINSON  CRAIG A BROWN  KIMBERLY R BUCKNER  JOESPH L CLARY  JAMES S BAKER  LARRY
DUNCAN  GREGORY M WEEDEN  PAUL A SAFFELL  MARYANN CAVENDER  JAMIE W CLARK  SARAH
J WHITE  DANIEL J HEITMAN AUBREY J DAVIS  VALERIE A WALKER  MICHAEL J
CHRISTACOPULOS  MICHAEL A COTE RALPH D GEDDES  TERRY N TURNER  SCOTT LE MAY
DEBORAH A MURCHISON  MISTY J NILES  DANIEL S AVILA  CARL MECOM  LAURA K MILLER
HERMAN P WHEELER  KENNETH L BRAZIEL  JOHN V PETCULESCU  LELAND HART  CHARLES R
HEITMAN  KATHY GADE  ANN L CARD  RICK E POLLEY  HOLLY L VINES  MICHAEL J KOERNER
JUDY LYNN PADILLA DENNIS D DONOVAN  TAMMY LYNN HASTINGS  BRYAN L CRAIG  ALBERT
LEGAULT  JAMES S DUNHAM  JOHN F TILLIS  CHAUN D WILLIAMS  MARK HARRINGTON  JAMES
E BENSON SHARON B WYNNE  RAELYN S RYAN  ROBERT BRANIGAN  RUBY C HEITMAN  BERNARD
RAMOS LINDA K MISKILL  PATRICIAF YOUNG  ERIC JARVIS  JEROME I KLAFTER  LINDA L
SUTTON SHIELA S SMITH  ZORAYDA LEE STACKHOUSE  JAY R MACNIELL  VERNE KANNIANEN
KEVIN R CURTIS  JON P PITTMAN  DAVID HATTON  SARA E CONAWAY  DEBBIE A SORG
WENDI B SELANA  SCOTT E RHODA  DEBRA A BAILEY  THOMAS E ANDERSON  ALANNA J
MCCRARY MELISSA K FESSENDEN  TRACY A FRIEND  SALLY A EVANS  ROBERT R HUNSAKER
RICHARD R FORTIER  LINDA FITZL  LYNN KANNIANEN  JAMES CRONIN  DONNA M SIMPSON
SUZANNE MCCLINTOCK  KAREN L RAINWATER  STACY L SWANSON  YVONNE BARRON  FREIDA
DELAHOYDE MICHELE HUTH  MARJORIE M PITTMAN  LANCE D MATZDORFF  MANUEL ARREDONDO
CLEOPHUS M HERMES  WALTER COLLINS  MICHAEL E SCHMIDT  KENNETH S HUNTER  LESLIE F
RIECK  DAVID A BURKE  DENNIS W CLARK  FRANK A CIOLKOSZ  ALLAN C MORRIS
CHRISTOPHER HORNBROOK  JAMES J ENGSTROM  MICHAEL E HOSKINS  LONNIE R JONES ROGER
L ROBERSON  JAMES E ROBERSON  BILL F BRIDGER  LARRY J SULLIVAN  PETE T GALVAN
ELIJAH BRADLEY  ROBERT O WILKINS  LESLIE A TAYLOR  DAVID E RAGSDALE JERRY U
ESTRIDGE  JOEL S DUBOSE  LARRY S RAGLAND  CECIL R BEASLEY  JOHN D BRATCHER  JOHN
W CAREY JR  FREDDIE L PRUITT  JOHNNY C WHITE JR  JOHN W BRIGGS CYNTHIA D
MCCARTER  JULIUS G MUSICK  LOUIS J ROBERTS JR  JEFF W DOVER  ROBERT L REAM
WILLIAM W BAILEY  GARY T LEHMAN JR  LORI J EMERSON  KEVIN V CLARY  MARTHA L
NICHOLS  RANDY S WATTERS  WILLIAM T WARD  JEFFERY D CHANDLER  WAYNE J WOLF
DARRELL G TEMPLIN  JERRY D FORD  DAVIDG ROSE  TOMMIE J BATSON  FREDE RICHARDSON
RUTHIE RICHARDS  KATHY L MORGAN  TENA M THOMAS  BILLY E AULDS  DEBORAH J OBRIEN
BARBARA A FAULK  DAVID K THOMAS  PAUL S COTTAR  LEE E GRIFFIN  JOE L HARRELL
LIZZIE M LAWRENCE  GABRIEL OVALLE  KERRY D CARRICO  ROBERT L JONES RANDALL M
FARMER  MARVIN R DANIELS SR  KEVIN A GETTEL  THOMAS E WILLIAMS STANFORD L
DANIELS  CHARLES L BARHAM  RICHARD E FERRELL  BRANDON R FRANKS RICHARD A PAIR
STEPHEN C MCQUARY  ROBERT B THOMAS JR  CHARLES BURNS JR  DONALD W NUNAMAKER
ERNESTO NAJERA  ALVIN C MULLICAN JR  JOE C MILAM  JOHN W PITTS DARYN W NICHOLSON
BRIAN W NORTHERN  MELVIN D THOMPSON  DANNY L HAYES  MATTHEW C MORGAN  RICKY L
POGUE  KELLEY P MITCHELL  CRAIG M BRIGGS  JAMIL W JOHNSON DONALD E WILLIAMS JR
SHANE ERIC EUDY  LORI A MURRAY  JAMES W NEAL JR  CHARLES J FRANKLIN  MARY C
WOODCOCK  ERIC K KRANTZ  GREGORY C WOODS  JAMES E TOLLIVER MARY L KENNEMORE
RICHARD W GRANT JR

PAGE 2:
PHOTO OF ROBERT LADNER AND DANIEL COTTER

PAGE 3:
A LETTER TO OUR MEMBERS
Chart: Average Member Return (in thousands) (for the years 1992-1996)

Perhaps it was anticipating the future when your Chairman and President's 1995
letter noted "the measure of a company's success in any given period... is how
well the company prepared... for the years ahead." If that was correct, then it
is undoubtedly true 1996 was the most successful year in the history of Cotter
& Company.
When the announcement was made on December 9 that Cotter & Company was planning
to merge with ServiStar Coast to Coast to make the world's largest and most
efficient hardware co-op, to be named TruServ(TM) Corporation, your company
took the greatest step ever in its quest to serve Members well into the next
century. We are very proud of the work that went into that merger plan. It was
not easy to accomplish this at the same time we continued with all the other
important work essential to giving you the products, programs and services that
you expect every day.
<PAGE>   5

The work involved in planning the merger and preparing for the announcement did
not get in the way of day-to-day operations. For scores of your executives,
managers and others, the planning process meant an extraordinary work load. For
everyone there was a great deal of satisfaction in the knowledge that they had
done something very important for the future success of all Members.
The effort put forth to make TruServ a reality is indicative of the dedication
and energy Cotter & Company employees demonstrate every day on your behalf. All
of these employees are named in this report. Many of them are pictured. The
names and faces you see throughout this publication belong to the voices you
hear when you call Chicago headquarters or one of our Distribution Centers.
They belong to the hands that create your advertising, or the minds that devise
the services that help you compete. Whoever they are, pictured or not, every
employee shares one goal in common, and that is to serve the Membership. They
are part of the team that put 1996 in the history books.
When you look at Cotter & Company financial statements for 1996, you will see
figures showing a good, but not great, year. You should be even more impressed
when you look behind the numbers. Total revenues were virtually flat at $2.44
billion, an increase of only 0.2 percent from the year before. However, your
company's Membership base was significantly larger during a big part of 1995,
before the variety division was closed (and General Power sold). That's why we
emphasize the "comparable stores" figure, showing that stores that were Members
for all of 1995 and 1996 increased their purchases from Cotter & Company 4.4
percent.
One of the first questions our Members always ask at year end is "how is the
patronage dividend?" We believe you will be pleased with the answer. The total
patronage dividend is $53.3 million, and the number of Members participating is
down considerably from a year earlier. The result is impressive: The average
patronage dividend is up 10.3 percent over a year earlier!
And that's not all. Your company's gross margins as a percent of revenues were
driven down again for the fifth consecutive year, so you have a lower cost from
the time you receive merchandise instead of waiting a year to get a bigger
patronage dividend.
The $7.1 million you Members saved in your purchases as a result of Cotter &
Company's lower margins is significant,

PAGE 4:
Chart: Operating Expenses as a Percent of Revenues (for the years 1992-1996)

whether you used it to increase your profit or improve your competitive
position. 
The dividend on Tru-Test Manufacturing purchases increased to 12.5
percent from 11.9 percent while Baltimore Brush remained at 12.3 percent.
Before we discuss programs and services, we'd like to emphasize one performance
category in which we take particular pride. That is expense control. There were
a lot of extraordinary expenses, such as the one-time cost of moving to a new
national headquarters, and upgrades in information services. Yet overall, your
executives, managers and staff did an excellent job of controlling costs.
We were particularly pleased when CFO magazine, which serves Chief Financial
Officers nationally, recognized Cotter & Company as a leader in holding down
selling, general and administrative (SG&A) costs. The annual survey, conducted
by Arthur Andersen LLP, lists leading "Lean SG&A Machines" in 33 industries,
and your company was No. 1 in its category.
We believe the best measure of your company's performance during 1996 is the
way programs and services have progressed. trueAdvantage has been remarkable.
Today there are 1,403 Members who have committed to trueAdvantage, and 624 of
those Members meet all the standards and are eligible for all the benefits of
the program. The remaining 779 are in the process of being approved for full
participation. The count of committed stores rose 38 percent last year; the
number of approved trueAdvantage Members soared 232 percent! This shows Members
are not just signing up for the program, they are taking action in their stores
to meet customer expectations and enhance the name of True Value everywhere.
trueAdvantage stores earned $1.5 million in credits during 1996 by increasing
their warehouse purchases, and most of the stores were eligible for these
credits for only a portion of the year. trueAdvantage stores' stock purchases
in 1996 were up over 14 percent.
Additionally, 13 percent of the trueAdvantage Members have made use of the
below-market-rate business improvement financing, with interest savings
averaging $500 a month per store, or $6,000 a year. The number of participants
in the loan buy-down program still is growing rapidly. trueAdvantage is a
voluntary program and the benefits are available to every True Value Member.
Store size is not a major factor, and the standards are based on customer
expectations.

PAGE 5:
The growth and in-store success of Just Ask Rental has become the envy of the
industry. In 1996, 100 new Just Ask Rentals opened, bringing the total to 350.
Many more started the process of market analysis, preparation of in-store
space, writing opening stock orders and training employees, and we expect about
500 Just Ask Rental Departments will be operating before the end of 1997. The
Commercial Supply Network shows an even faster development and growth rate.
The Paint Shop concept developed by Tru-Test Manufacturing at the end of 1994
is taking off, with 297 Paint Shops added during 1996, expanding the program to
432 Member stores.
The new "joint venture" Cabot Stain Program has been extremely successful.
Almost 1,000 stores were shipped $2.1 million in Cabot products after the Fall
Market. This seven weeks of business compares with $3.5 million in Enrich
Varnish and Stains products for an entire year.
Efforts to improve service levels on your merchandise orders continued, and
while the numbers were nearly the same the last two years, growing to 93.2
percent, the emphasis on how your needs were met has been fine-tuned. Items
considered "seasonal" often are sold year-round in many stores, so your
management has taken steps to provide year-round order fill in those areas.
Basic departments have been given extra attention. We know that an unfilled
order is a lost sale and a disappointed customer to you, so we have expanded
our efforts to deliver 100 percent complete orders immediately.
Two major accomplishments -- the introduction of True Start(TM) and negotiation
of an alliance with Triad to provide enhanced technical support for Tru-Trac
and Triad users-- made 1996 a year of important advances in Information
Services. In the Information Services section of this report you will find
details about your new affordable True Start store automation system. The
rollout at the Fall Market was quite successful, with a hundred Members
installing the system in the busy closing months of the year.

<PAGE>   6

Establishment of new regional advertising and merchandising programs was a
major 1996 accomplishment. The Marketing and Merchandising sections of this
report give details of these programs, which help Members do a better job of
serving the unique wants and needs of customers, whether the store is in
Portland, Ore., or Portland, Maine, in Minneapolis, Minn., or Miami, Fla.
Cotter Canada has completed another excellent year, with membership at year-end
reaching 505, a net gain of 12 percent for the year.
True Value International continued to expand, now serving stores in more than
50 foreign countries and U.S. territories, an increase of 10 countries from a
year earlier.
To summarize, 1996 might be described as the most exciting time in the 49-year
history of your company. There were outstanding accomplishments, some with an
immediate impact and others that will ensure the future prosperity and security
of True Value Members. None of this could have been accomplished without the
support of Members, and the dedication and hard work of management, staff and
all employees of Cotter & Company.
We thank all of you for your cooperation and loyalty.

Robert J. Ladner
Chairman of the Board

Daniel A. Cotter
President and Chief Executive Officer

Chart: Gross Margins as a Percent of Revenues (for the years 1992-1996)

PAGE 6:
Photo of  Kevin Houlihan, Richard Matzke, & Frank Rothing

PAGE 7:
Photo of tape measure
Photo of Master Mechanic Packaging

The true measure of a successful merchandising program is the value it delivers
at retail.
Can the customer find the right product choices at True Value? Is the price
competitive? What about quality?
These are the key questions we ask whenever we plan, negotiate or purchase
merchandise for our retail Members. It's simply not enough to provide a broad
selection of merchandise at competitive prices. We need to know that the
merchandise has the power to draw paying customers into True Value.
In 1996 Dave Christmas led the Merchandising group in an aggressive pursuit to
expand SKUs and negotiate better prices for True Value Members.
We successfully added thousands of new items, achieving a product offering that
exceeds 60,000 SKUs.
And by flexing the purchasing muscle of 5,000 retailers, Cotter & Company
negotiated lower prices on thousands of items. By year's end, we reduced
Members' merchandise costs by $7.1 million--savings that simultaneously improve
retail margins and earn loyal customers.
Commercial Supply is another success story. Serving the growing industrial and
commercial supply customer has created advantageous profit centers for nearly
200 True Value retailers. Cotter & Company supports these Members with a
comprehensive training seminar, catalogs, support literature and a team selling
approach.
We strengthened the merchandise program in 1996 by deploying seven regional
merchandise managers across the country. These local experts serve as liaisons
to the corporate merchants, generating a merchandise mix tailored to local
demands.
Customer demand for choices was also enhanced with the addition of
popular national brands. These items complement the offering of nationally
renowned private labels exclusive to True Value, including Tru-Test(R) Paints,
Master Mechanic(R) and Green Thumb(R).
An important key to our successful merchandising efforts is the strong and
lasting relationships we build with our manufacturing partners. We continue to
work with vendors who share our commitment to provide a quality product
offering at lower prices.
There's much more to a successful merchandising equation. We consider
packaging, display, vendor programs that reward Members and much more. But the
bottom line is always the value we can deliver at retail, because earning
customers for our Members is the cornerstone of retail success.

Kevin Houlihan
Richard Matzke
Frank Rothing
Merchandising

Photo of Merchandising department employees

PAGE 8:
Photo of Danny R. Burton

PAGE 9:


<PAGE>   7

Photo of woman shopping
Cover of Just Ask Rental Brochure

The greatest balance we achieve at Cotter & Company is to act like a wholesaler
and think like a retailer. That means we have to understand both sides of the
business--gaining the advantages of a national wholesaler while improving every
retail enterprise. It means we have to listen. We have to be flexible. We have
to be creative. In that sense, 1996 was a Leap Year in more ways than one.
trueAdvantage is our Company's most aggressive retail support program. We
concluded 1996 with 624 retailers meeting all 12 retail standards. These Members
not only qualify for rebates and other incentives, they also report tremendous
customer response to their retail improvements. There are countless other
opportunities to help our Members compete more aggressively at retail. We learn
more every day through our Retail Development and Operations Team which is in
the field talking to Members, observing customers, listening to questions,
exploring new opportunities and finding answers and solutions.
In 1996 we responded to Member feedback and the changing retail environment,
generating new programs to appeal to female consumers, ideas for competing
against big boxes and national chains, buying markets with broader appeal, a new
price shopping program called Hardware Education Leadership Program (HELP) and
much more.
The field Retail Support Team assisted Members with 90 changes of ownership and
established 32 branch locations with nearly 400,000 square feet of new retail
space. Another 78 Members expanded their retail locations, adding over 630,000
square feet of selling space. And another 92 Members remodeled their existing
stores.
The Just Ask Rental program became the No. 1 in-store program in the rental
industry this year. This dynamic program came about because Members told us
there were big opportunities in rental.
We listened, and committed resources to rental--providing advertisingtraining
and market evaluations for Members considering this business. By year's end,
there were 350 Just Ask Rental operations.
That's what comes from performing like a wholesaler, while thinking like a
retailer.

Danny R. Burton
Vice President, Retail Development
and Operations/Markets

Photo of Retail Development department employees

PAGE 10:
Photo of Robert F. Johnson

PAGE 11:
Photo collage of globe, keyboard, and numbers
Photo of keyboard closeup

The benefits of retail automation are so evident, industry analysts routinely
question why automation is not mandated in each of the hardware co-ops.
It's a fair question, but what industry analysts fail to understand is the
financial challenge of automating a store, particularly a small, neighborhood
hardware store. It's an obstacle we overcame in 1996.
Cotter & Company entered the year with a mission to develop an entry-level
computer system that would simultaneously help True Value retailers gain the
advantages of electronic systems, but would also protect our Members' bottom
line and ease their initial automation investments. We closed the year with an
affordable, accessible, highly compatible system called True Start(TM).
The system is appropriately named because it essentially gives Members--large
and small--a place to start.
True Start requires a modest investment of less than $6,000. It is provided
with training, service and support. It is user-friendly, so even the most
new-to-automation retailer can put it to use quickly and easily.
True Start consists of an electronic catalog, complete with the 60,000 items
included in the Fine Line Catalog. It provides electronic ordering for speedy,
accurate processing without errors. Plus it allows retailers to communicate
electronically with Cotter & Company.
The implications of True Start are immense. It will eliminate duplication of
effort at the store level, reduce order processing time, improve tracking and
follow-up. And perhaps most important, True Start will give Members more time
to spend with their customers and minding the store.
With full automation will come the efficiencies and savings that will help us
compete more successfully against the big boxes and national chains. That's why
retail automation exists. And that's why Cotter & Company has been a leader in
developing it.

Robert F. Johnson
Vice President, Information Services

PAGE 12:
Photo of Charles L. Kremers

PAGE 13:
True Value MasterCard graphic
The Story of Santa Claus poster graphic
Photo of World Series/Man of theYear Flip card stunt

<PAGE>   8


Building the True Value brand in the hotly contested DIY market is a
multi-faceted responsibility... one that requires national, regional and local
components.
To effectively reach the do-it-yourself customer, we have to be everywhere our
customers are. In 1996, we were.
The launch of the regional program was a milestone, because it allows retailers
to tailor marketing efforts to their specific market with low-cost regional
circulars. More than 1,300 stores took advantage of the regional circulars in
1996.
In 1996, True Value launched the industry's first co-branded MasterCard(R) that
not only provided one of the lowest annual percentage rates, but also rewarded
customers for shopping at True Value stores with rebates in the form of gift
certificates redeemable only at True Value. By the end of the year, there were
nearly 75,000 active customers in the U.S. carrying True Value MasterCards.
True Value reached millions of consumers in 1996 on national television with
dramatic commercials positioning True Value as a helpful do-it-yourself
resource. We also ran national commercials to generate store traffic during our
major holiday sales.
In the spring, True Value virtually owned Opening Day of Major League
Baseball(R). We rebuilt 115 local Fields of Dreams in the first summer of our
baseball sponsorship. We honored local heroes and benefited hundreds of
charities across the country through our Man of The Year sponsorships in Major
League Baseball, NASCAR(R) and the NFL(TM).
Then we dominated the fourth game of the World Series in October with a card
stunt orchestrated by 55,000 fans and watched by millions of viewers around the
world.
True Value made history again in December, sponsoring the new animated CBS
special, "The Story Of Santa Claus," viewed by millions of families during the
busy holiday shopping season. We brought the theme of the program home to local
stores by serving as drop sites for the U.S. Marine Corps' Toys For Tots
program.
At every level, in every season, True Value was a dominant presence in 1996,
with even more to come in 1997.

Charles L. Kremers
Vice President, Advertising and Marketing

PAGE 14:
Photo of John P. Semkus

PAGE 15:
Photo of Inside of Warehouse
Chart: Service Levels (for the years 1993-1996)


Distribution accounts for 50 percent of your company's operating costs. Going
into 1996, one of our primary business objectives was to drive costs out of the
distribution and transportation channels while preserving the reliable service
we provide the Members. By all accounts, we exceeded our goals.
Overall, system-wide labor and operating expenses were maintained in 1996,
while the organization handled over $100 million more merchandise than the
previous year.
By putting our trucks to more efficient use and revising our route structure,
we also eliminated 1.2 million miles and 17 tractors from the distribution
cycle. And we did this while delivering 31 million more pounds of merchandise
than was delivered in 1995. These achievements were particularly important
because they allowed us to lessen the impact of the significant and unexpected
increases in the cost of diesel fuel.
In the third quarter of 1996, Cotter & Company introduced a new and simplified
system for assigning freight charges to the Membership. The system is based on
14 purchase brackets which are calculated against a Member's total purchase
dollars. Essentially, the system gives Members more control because they can
ultimately manage their freight rates by maximizing their Cotter & Company
purchases.
One of the most advantageous programs in 1996 was the Gainsharing initiative.
This employee empowerment program has proven so successful, it has been
introduced in 10 of our 15 Distribution Centers. Gainsharing is a program which
awards monetary bonuses to employees who meet and exceed performance goals.
Manchester is a prime example of how Gainsharing benefits the employees and the
company. The empowered Manchester DC staff capitalized on the incentives with
such enthusiasm they earned individual bonuses and still managed to achieve an
8 percent reduction in operating costs for the Membership.
In 1996 we also developed an infrastructure for our Quick Response strategy, an
initiative that will pivot on the Central Ship system. By year-end we had
prepared the Central Ship facility, located inside the former General Power
factory, to receive slower-moving SKUs; and we tested technological systems
that could successfully manage the new distribution format. By laying this
groundwork in 1996, we are confident that the launch of Central Ship will occur
on schedule in the second quarter of 1997.
There were other achievements that put 1996 in the history books. The RDCs
posted a significant improvement in quality by achieving a 10 percent gain for
the year. Service levels reached 93.2 percent, and we also realized a
productivity improvement in both lines filled and dollars shipped.
These are successes that achieve greater service and cost control for the
membership. The dedicated employees who made it happen should be very proud of
what they accomplished in 1996.

John P. Semkus
Vice President, Distribution
and Transportation

<PAGE>   9

PAGE 16:
Photo of Kerry J. Kirby, Karen M. Agnew & Daniel T. Burns

PAGE 17:
Managing the financial performance of a co-op is a complex business. At Cotter
& Company, there are essentially 5,000 bottom lines to consider in every
business decision.
At the wholesale level, our primary mission in 1996 has been to fortify the
financial strength of Cotter & Company and improve our permanent capital. We
achieved this goal through many efforts: controlling expenses, realizing
operating efficiencies and modifying the Members' stock requirement. These and
other changes will make Cotter & Company a healthier company, and every
improvement has been pursued with a parallel interest in protecting our
Members' interests. We need to maximize their patronage dividends, and put cash
back into their businesses as quickly as possible so they can invest in their
futures.
1996 was a milestone for True Value, and with the emergence of TruServ(TM) in
the years ahead, we are building on a solid foundation that is remarkably firm.
Kerry J. Kirby
Vice President
Finance, Treasurer and
Chief Financial Officer

To take the pulse of a company, you should look in its mail room. Or check out
the switchboard and the duplicating center. That's where chaos tends to
migrate, because that's where the deadlines are ultimately met and where all
the make-or-break services that hold a company together are performed.
Cotter & Company has always invested in these vital services, and the new West
Loop center that opened in 1996 is a prime example.
This facility houses accounts payable, claims administration, member and
manufacturer relations, collating, credit card operations, mail services,
maintenance, payroll, printing and shipping/receiving.
In 1996 the group of professionals who occupy West Loop accomplished hundreds
of thousands of small, often invisible feats. And thanks to them the Members
were heard, the bills got paid, the mail was delivered, information was
disseminated, data was processed, staff was paid and Cotter & Company enjoyed a
banner year.
Karen M. Agnew
Vice President
Management Services;
Assistant Secretary

The Human Resources, Benefits and Law Departments impact nearly every aspect of
Cotter & Company's business, providing legal advice or training in areas of
corporate and commercial law, trademark or real estate law, benefit plans,
labor relations or human resources.
The Law Department concluded some significant projects in 1996, including the
Triad Agreement, the Member Finance Agreement with the National Consumer
Cooperative Bank and the new True Value credit card agreement.
Labor agreements with unions were negotiated at our West Loop Center and the
Portland and Parts Central facilities. And managers were trained on management
relations practices.
The Human Resources and Benefits team provided empowerment training, career
development programs and GainSharing systems.
In its ongoing commitment to provide competitive benefits, the Benefits
Department amended the pension plan to provide lump sum payments, and
established a point of service medical plan. Along with the 401K plan, these
plans provide benefits that meet contemporary needs of our associates.
Daniel T. Burns
Vice President
Legal and Human Resources;
Secretary

PAGE 18:
Photo of the Board of Directors
Cotter & Company Board of Directors

First Row: (left to right)
Leonard C. Farr, William M. Claypool, III, Robert J. Ladner, Daniel A. Cotter,
Jerrald T. Kabelin, Samuel D. Costa
Second Row: (left to right)
John M. West, Jr., Richard L. Schaefer, Joe W. Blagg, George V. Sheffer, Dennis
A. Swanson, Kenneth M. Noble, William M. Halterman,
John F. Lottes, III

Joe W. Blagg3
Weakley-Watson
True Value
Brownwood, TX (915) 646-0536
Director since 1996
William M. Claypool, III1,2
Claypool True Value Hardware

<PAGE>   10
Needles, CA (619) 326-2110
Director since 1970
Samuel D. Costa, Jr.4
Costa's True Value Hardware
Smethport, PA (814) 887-5542
Director since 1988
Daniel A. Cotter*
President and
Chief Executive Officer
Cotter & Company
Chicago, IL (773) 695-5000
Director since 1989
Leonard C. Farr3
Farr's True Value Hardware
Coos Bay, OR (541) 267-2137
Director since 1972

William M. Halterman3
Halterman's True Value Hardware
Petersburg, WV (304) 257-4552
Director since 1990
Jerrald T. Kabelin1,4,5
Kabelin True Value Hardware
LaPorte, IN (219) 324-5251
Director since 1985
Robert J. Ladner, Chairman*
Ladner's True Value Hardware
Granite Falls, MN (320) 564-3130
Director since 1994
John F. Lottes, III2
Rozier True Value
Perryville, MO (573) 547-6521
Director since 1996
Lewis W. Moore1,4
Moore's True Value
Rochelle, IL (815) 562-7682
Director since 1948
(Not pictured)

Kenneth M. Noble4
Noble True Value Hardware
South Glens Falls, NY
(518) 761-6777
Director since 1995
Richard L. Schaefer3
Carroll-Ames True Value Hardware
Bryan, OH  (419) 636-1149
Director since 1976
George V. Sheffer2
Murdale True Value Hardware
Carbondale, IL (618) 529-3400
Director since 1994
Dennis A. Swanson4
Steamboat True Value Hardware
Steamboat Springs, CO
(970) 879-8014
Director since 1995
John M. West, Jr.2
Gulf Coast True Value Hardware
Englewood, FL (941) 474-1807
Director since 1991

Corporate Officers
Karen M. Agnew

<PAGE>   11

Vice President, Management Services; Assistant Secretary
Daniel T. Burns
Vice President, Legal and
Human Resources; Secretary
Danny R. Burton
Vice President, Retail Development and Operations/Markets



David W. Christmas
Vice President, Merchandising
Daniel A. Cotter
President;
Chief Executive Officer
Robert F. Johnson
Vice President,
Information Services



Kerry J. Kirby
Vice President, Finance; Treasurer; Chief Financial Officer
Charles L. Kremers
Vice President,
Advertising and Marketing



Steven J. Porter
Executive Vice President;
Chief Operating Officer
John P.  Semkus
Vice President, Distribution
and Transportation

Committee Memberships:
1-Executive Committee, 2-Long Range Planning Committee, 3- Audit and Finance
Committee
4-Management Development and Compensation Committee 5-Business Development
Committee
* Ex officio member of all committees

PAGE 19:
WORKING TOGETHER BUILDING DREAMS
JAMES C SAYLES  CHRISTINE M LANGE  VALLAY BOWDEN  BILLY RAY BARBER  ALVIN CHAD
RICHARDS  DOUGLAS WARREN WHITTEN  KEVIN R COLLIER  JEREMY A ZILLS  DORIS F
DOMINGUEZ  CATHYSTUTTS JONES  STEVENS SMITH  CARL M CASBEER JR  JAMES E
WIELKENS  RAUL PEREZ  CRISSAL DUVALL  JOHNC RITTER  JARRODD COKER  KEVIN LEE
LARRY E CARNLEY  MARSHALL HENSLEY  RANDY J WARREN JR  JOHN L WEAVER  ANDY G
MIKULA  EMMA F RALEY  RUBY K DRAUGHN  ANNAM TANNER  RONALD C ZILLS  LINDA J
DERDEN  ROGER W HARTMAN  RONALD DALE JORDAN  JOSEPH R KLECKA II  JAYNE A WHITE
EDDIE B FARMER  ROY E WISEMAN  TERESA A ROPER  MICHAEL R KIDWELL  CHARLES E
ALLEN  RANDALL J CARVER  STEPHEN W MUNCY  GARY A POE  DWAIN R SMITH  WANDA F
SPAIN  JAIME RIOS  SCOTTY L MAYO  CLINTON J BELL JR  PAULA G WATSON  VICTOR M
SLOVAK  PAULINO MORENO  REID A TOLLEFSON  PETER A GONZALES  JAMEY L TIPPING
GEORGE W MITCHELL  EDDIE J WATSON  TOMMY E SIMS  ROBERT K FARRIS  STEVEN W
HAYNIE  DARLENE WARREN  VICKI L BRANCH  MARK A BATES  KENNETH W VALENTINE
DAVID G SEALE  WILLIAM D BURNETT III  LEONEL P GARCIA  JERRY W REDMON  MAURICE
A SMITH  VIRGIL C JOHNSON  JIMMY E DRIVER  CHARLENE DENNIS  MICHAEL D MCCARTER
GILBERTO MEDRANO JR  DARRELL J FREDERICK  BRIAN D NETT  WILLIAM H WAKEFIELD
RANDY W NEREM  MICHAEL J KREMER  RONALD J SMOOK  EDWARD J JACOBSON  DAVID L
THRUN  SAM E BODE  KEVIN J DORN  BRUCE J HEMINOVER  MITCHELL J LAVEN  KEVIN K
KENT  PAUL C DUMKE  DANNY L HOPP  BRYON C BAUMAN  KENNETH D ZERNECHEL  JAMES J
RYAN  NEIL G HEILMAN  JOHN C CARLSON  GERRIT N HOOGENRAAD  LARRY L LAMM  RONALD
L STATHAM  ROBERT A DITTRICH  DARCEY L BAUMAN  ROYAL C PAHNISCH  KELLY J
TRUDEAU  DANNY A KOLLMANN  RICHARD A FRENZEL  MARLYN J PETERSON  DANIEL L
THORSON  ROBERT P MULDOON  DOUGLAS S SARGENT  HUGH B GAPPA  MICHAEL L LUTTER
KEITH G ANDERSON  BRUCE E LOKKEN  THOMAS J HOERR  LYNN W OLSON  THEODOOR K
HOOGENRAAD  STEVEN D VISHER  JAMES A REED  JEFFREY S LUTTER  LARRY L HOLTZ
GERALD STOFFREGEN  THOMAS D TESKE  KEITH J DORN  DALE E MARBLE  DENNIS D
METTLER  DANIEL P GEMMILL  DANIEL C SARGENT  DENNY J WELLER  SCOTT D JOHNSON
DONALD D SOLYNTJES  CHRISTOPHER S BLEGEN  ROBERT A REED  DAVID C SCHULTZE  RYAN
M KIRBY  CHRISTOPHER T EMICH  GARY D KLINDER  CRAIG T WOITAS  WILLIAM W LLOYD
WILLIAM J KINDLER  JONATHAN 

<PAGE>   12

G EMICH  DANIEL K WILLIAMS  MICHAEL J HESTON THOMAS J PERRIZO  MARK A ENTER
STEVEN G KREMER  KEVIN J JONES  JERRY H BEEMAN JACE R FRANKLIN  PAUL E NELSON
PATSY A ZIWISKY  CINDY R SCHMIT  JANET L HOFFMAN  SHARON M JACOBSEN  CARMEN A
OEFFLER  COLLEEN MCVENES  VICTORIA A JUHLIN  CATHERINE A HEMINOVER  MARY A
WIDELL  DENISE M THOMPSON  MAXINE L ANDERSON  SHARI L HADLER  JANS KOR JR
ARNOLD W MENSE  CHARLES E HOFFMAN  JAMES L BURNS  RAYMOND L WARD  ELDON J JONES
GENE H STRUCK  TERRY L MENK  RONALD D WILLIAMS  THOMAS J ELBERT  GERALD B
WAISANEN  DUANE J HANSON  WALTER J BAUER GORDON J GOEBEL  TIMOTHY J ELBERT
BILLY A RAMUS  THOMAS J NEUBERT  RANDY KEIM HARRY E STEVENSON  DANIEL V SONNEK
ALAND STENCEL  BARRY W KEIM  RANDALL S BESKE  DOUGLAS J THOMPSON  DONALD ACTON
HAROLD M ALLEN  ROYCE BAUER  BYRON CLEMENS  JEFFERY D MILLER  DANNY W MCMAHON
TOM B FISHER  DWAYNE W BEDWELL DENNIS HILAND  BRIAN H SCHWARTZ  ROBERT L WAGNER
RICHARD T HENRY  MEACHELE L GREATHOUSE  JERRY MCCONNELL  JAMES E CALDWELL
DONALD MARTIN  CAROL A WESTRICH ESTEL MARTIN  STERLING STEWART JR  TIM J
COURTNEY  BRUCE SCHAEDEL  ROBERT G CAIN  LARRY W LEE II  TINA M WILLIAMS  RANDY
WAYNE GILL  JOE A REED  BRIAN C SNIDER  JACK B EMMONS  JON D GILES  JOHN L VARGO
LLOYD R HORLACZER  MICHAEL MURPHY III  ROYCE A HUG  JOHN P COX  BARRY W
MCCONNELL  GREG M UNGER  JOHN L MCDONALD  JAMES K LIEBERT  ROBERT R KANE  TROY W
GLENDENNING  STEVEN D GORE TODD B DILLINGHAM  MATTHEW D LYONS  DAVID R BRENTON
RANDALL G HALCOMB  JAMES L TRAYLOR  ROOSEVELT SELLERS JR  TIMOTHY A RUSSELL
DANIEL J ZIMMERMANN  KURT A HARRIS  DARRELL C MYNATT  DAVID P MASON JR  SHARON K
DUKE  BRIAN SWIHART ROBERT D SNAPP JR  ARCY J CASADA  JIM F SPEARS  TOMMY J
OLIVE  DAVID L ROLFSON MICHAEL C HOBEIN  MARK E WRIGHT  JAMES M WHITE JR  ERIN L
COOK  JOHN M DANIELS KEITH L DURHAM  SHANNON L MCKINNEY  KATHY J JOHNSON  KEITH
A DOWELL  JACK GAMMON  JAMES C JANSEN  THERESA ANN CLINE  JAMES C MAVERICK
BRIAN DOUGLAS MASON  GIRMA SEIFU  DOUGLAS J PRIVETTE  CHRISTINA M DEMOTT  ROBERT
A ROBERTSON LARRY WALLACE  MARTHA BARRETT  CHERRYL MAYFIELD  DIANA ROBERTS
JANET K GILES JAN MARTIN  SHIRLEY J LUSK  RUTH B SMITH  PAULA L RAGAR  KATRINA
BREEDEN  SUSAN D LITTLE  YVONNE J MAHONEY  MARVIN D TERRELL  FLOYD P ANDERSON
JOHN D HOLT DANIEL MOORE  DALLAS L MEDENWALD  CHARLES S BUSH  CHARLES D BOOTH
DUANE W BRIAR  JERRY A YOST  RICHARD D COPE  TANYAS PARMALEE  STEVEN K WEST
EDWARD H BURTON  EDWARD J AHERN JR  CURTIS COOK  RICK R ABNEY  TIMOTHY O'CONNOR
STEPHEN T MEYER  JAMES W HEFFLEY  CHARLES B COOPER  GARY D PRUESS  FRANK L
THOMPSON TERRY TROSPER  KYLE S MCKINNIES  MICHAEL E MAHOY  MARK D WYLD  JAY A
BUSER SCOTT C HARROD  ERIC E WATSON  JON T REIFF  THOMAS L CARY  ROBERT DOUGLAS
PLACE TROY W LUSK  ROBERT G HARRIS  EDWARD J GERKEN  DARWIN H SCHLEHUBER  JASON
A WALKER  BRIAN J O'DONNELL  DELTON G SCHLEHUBER  JACK BREMER  KENNETH H MC
CLAIN HENRY J VARGAS  ROY F BESSEY  KEVIN E BASS  ROBERT J PETERSON  BRYCE R
PURCHASE  ANTHONY C MURPHY  CHRISTOPHER P WOLF  ODDIE B MEDLOCK  ANDREW C
JENKINS  ARNOLD SENA  LAWRENCE H PORTER  BRIAN D NELSON  JOHN L THOMPSON  STEVE
GOMEZ  CARL G MEDLOCK  DANNY J PAWLETZKI  ROBERT S LOPEZI  ROGER A SJOSTRAND
MICHAEL J TATE  JAMES D BOUSKA  PATRICK K TOW  MICHAEL R RONDEAU  REED M HABERL
RICK C TAFOYA  DARCY  JOANNE  DAVID W SCHNEIDER  NICHOLAS J GUADAGNOLI CHARLES P
HIXENBAUGH  DANIEL A BLOHM  DAVID JAMES BOWES  KENDRA S GRISCHKOWSKY FRANK E
BRICKHOUSE  DEON R ROGERS  DAVID W PARKS  AMBER D MORRIS  ANNIE M BALDWIN  SHAWN
D TOW  TIMOTHY M BONE  EDITH R STOUT  THOMAS V TOEWS  SHARON L SIMMONS  MANUEL A
GUTIERREZ  JAMES D BENNETT  DONALD A COSTER  SCOTT D SMITH MICHAEL E MENDEZ
DARWIN D KRAMER  DANIEL T ORTEGA JR  NORMAN D WHEELER GREGORY VIDAL LEAL  SCOTT
E BROSIER  PAUL F THORNTON  ROY N HARRIS  REBECCA L BOLTON  ELINA M FRESQUEZ
MELANIE M STOWELL  CAROL L PROUTY  CONNIE A REISENBIGLER  JESSICA E FADEYI
PAMELA SINNER  SHARON M FRIEDLI  PAULINE L STOWELL  TAMMIE L TAYLOR  JEROME L
REISENBIGLER  DENNIS F SITTER  DALE J DAVIS SHAWN T SCOTT  DALE R HOHN  PAUL L
DELK  PAUL A BECKER  ARTHUR M WALLEVIK MARVIN M EDELMAN  VERNON L RAUDABAUGH
MIKEL R CONNOR  KENNETH J POOLER  JAMES S PIMPLE  WILLIAM D TAYLOR  VIRGIL L
KRUGER  WILLIAM T WYATT  THOMAS NICHOLAS GEURTS  RICHARD S REISENBIGLER  JOHN
HARVEY ELLIS  RICHARD P THOMAS  JOHN W MURPHY  ROCKY D WOOD  DUANE ALLEN
CLEARWATER  MICHAEL M ZUNIGA  THOMAS HICKS GARY GENE SCHAFER  RICK L GASPERSON
MARION E MERIDETH  DAVID DAY GUERRERO NEWTON J HOLT  MARK PAUL BIGGS  ROBERT E
POLKIV  HOSEA JEROME DAVIS  DARLA TAFOYA  LISA J CORREIA  MICHAEL G WESTRAY
RICHARD A TURNER  GENE A DINGER SERGIO MARTINEZ  GORDON L MUMMA  DAVE A ENGLAND
MICHAEL J PATENAUDE  HOWARD W DOYLE  JEFFERY M SMITH  DON WESLEY WARNKE  CHARLES
E PIAZZA  URIAH WALTER HARRISON CLARK  JODY A KING  MICHAEL B COTNER  ANGELA
KATHRINE RYAN  HENRY D RATHJEN JR  EDELMIRA AMISTANI  ERNESTO MARTINEZ  DAVID M
HAMER  CARLOS G HERNANDEZ  ADRIAN RODRIGUEZ  KENISE M NICHOLS  DEBRA L KING
MICHAEL A CORDONE JOHN A TIESMAN  JIM D HAIRSTON  ROBERT J ALVAREZ  KEVIN J
HAMER  MEREDITH R RUTHERFORD  TIMOTHY W HAYES  BEN I HIGA JR.  GREG L MIKAELSEN
ROBERT R CARTER DALE T GAULDIN  ROBERT H DUNCAN JR  NICOLAS MARMOLEJO  HENRY G
HUNTER  GWEN K HATZFELD PARKER  JOHN A HILL  MARTIN J JOHANNECK CABRERA  JAMES L
CRESAP KARRIE L HATZFELD  LYDIA LOSOYA  ROBERTO LOSOYA  BILLY W GAGE  MATTHEW J
WUNDER VIKTOR W ANDERSON  STEPHEN P GILLESPIE  DENNIS D HUBBARD  GEORGE N
SANDOVAL JR MARK C PIPKIN  ESTELA MARTINEZ  JEFFREY S HILL  RICARDO PIZANO
BENJAMIN J DELEON  ADRIAN E PEREZ  ANTONIO M OLVERA  LOUIS C STEINMETZ  LUIS C
VILLA JOSHUA K SCHAFER  CINDY MARTINEZ  HERTIS M BOYD  GARY S GADDIE  ROBERT
URIBES TERRANCE L PARKHURST JR  MICHAEL R ROACH  DONALD D WEEKS  RICHARD O
GUTIERREZ MELISSA L MENDOZA  TERRY R PIXTON  ANNETTE POLK  LAURA M HENRIQUEZ
ALBERTA R SAVALA  TERESA H TORRES  MARILYN K NAVARRO  DEBRA A LANDERS  LYNDA L
COOK DANIEL E GREY  CATHY R MONTOYA  TOM A ROACH  RAUL MARTINEZ  ANTONIO MONTOYA
JR RANDY L LEEPER  JAVIER M JACOBO  RYAN K STEWART  MARK L PRESTON  HENRY R
DAVIS TIMOTHY D SEXTON  KENNETH J BROWN  MONROE THOMPSON  RAUL R CASTANEDA
STEVEN D PEARSON  GARY O SURRATT  DORREN D THRUSH  THOMAS C WILLIAMS  STEVEN C
ANDERSON DELBERT E SURRATT  EDWARD L TATUM  MICHAEL E BOWERS  ERIC R JACOBSEN
DAVID A MELLO  MELVIN WINROW  MARK A GALLEGO  JOHN C HUMPHREY  RONALD C HESELTON
DAN T PARSONS  DAVID A TRUJILLO  TIMOTHY WAYNE BECKWITH  MARY C WALKER  BRENDA F

<PAGE>   13

LIMER  LARRY D BULLOCK  DEBORAH H MADDOX  CLISTON KEARNEY  CLAUDINE A ALSTON
JONATHAND STEVENSON  SAMUEL T MEADOR  FELICIA A DUNSTON  RAYMOND T BULLOCK
REBECCA A RAY  JULIAN W PEGRAM  BRIAN J STEVENSON  EMMA P TOWNSEND  LARRY A
JORDAN  MARILYN PENDERGRASS  JOSEPH SHEARIN  SOPHIA D RICHARDSON  DEBRA G TOWNS
SHEILA R TURNER  RONALD W BATES  JAMES T PENNY  JOHN E HAWLEY  HERMAN A MARTIN
WAYNE H THOMAS  WILLIAM C PATTON  CURTIS T DURHAM  CONVIE E HOWARD  LEROY
RICHARDSON  OLANDIS T HARRIS  CRAIG H CLARK  MARY M PERRY  TIMOTHY L COMPTON
LLOYD WATKINS  MARIE K JONES  EUGENE NEWELL  ALFRED TAYLOR III  JEANETTE E
GRIMALDI  DERRICK L HAWKINS  RENITA D PEACE  SANDRA KAY LEDESMA  LARRY HENDERSON
KENNETH HENDERSON  DOUGLAS R ROBERTS  DEBORAH F BROOKS  RICHARD J TAYLOR  RONALD
F LYNN  DAVID K AVERY  DANNY L RIGGAN  STANLEY RICE  TIGKIN R RICHARDSON
KENNETH L BALL  BENJAMIN W PULLEY  BETTY J WIMBUSH  LARRY D OWENS JENNIFER B
LAYTON  MICHAEL R WINTERS  MARGARET F RICHARDSON  JAMES ALLEN JR WILLIAM T WYCHE
JOANN D HENDRICKS  JUDITH MARIE EDWARDS  GAIL N TIPPETT  LORI V NULL  VICKY C
STOKES  KRISTAL M DICKERSON  MICHELLE R NEWTON  EDNA F BISHOP MELINDA J CURTIS
GEORGE E BAGBY  MARSHALL N BRADLEY  ARCHIE SMITH  MICHAEL E JONES  JIMMIE L
THORNTON  JERRY ANDREWS  MELVIN L LEWIS  RICHARD E WAVERLY JOHN C HENDERSON
JERRY W PRATHER SR  OTHA P WILKINS JR  GEORGE WHITFIELD III MICHAEL G ROBERTS
HAROLD L PLUMMER  AUBREY D RODWELL  DARYL K HORNE  RICHARD L MASSON  DAVID W
BJORK  LLOYD A ENGLETON  WILBERT R SWIFT  DAVID FLUKER  JAMES H THURNGUIST
BRIAN S JONES  WILLIE WASHINGTON JR  SANDRA K LITTLE  SUSAN R ALGER MARK C
DZURIK  BERNARD E GRAHAM  DAVID L HERNANDEZ  ROBERT L MCGLYNN  SHANNON A REWERTS
HENRY D SMITH JR  DORIS ELIZABETH STEGALL  DENCOV BRYANT II  TINA M WILLIS  MARY
A ENGLETON  CHARLES ANTHONY HOUSER  BRUCE S TOSCANO  CAROLYN D REICH  TERESA A
RIAUBIA  ANGELA R GAGNE  JOSE R SOTO  NOEL RICKY SMITH  RICHARD C EYLER  VUSHNU
PERSAUD  ROSLYN M SMITH  MARY A ST LAURENT  JEANNE M MC KENZIE PATRICIA ANNE
CATHCART  CAROLYN S SHANNON  KIMBERLY A BAYNE  TERESA K ALLEN GARY M CHAPMAN
ROBERT E WOODRING  JERRY W TIDWELL JR  GARRY L SUMMERS  STEPHEN J SCHMIDT SR
CHRISTOPHER E OLIVER  ARTHUR W BROWN  LORIL DAVIS  JEFFREY PATRIZI  KATHYM
ORZECH  JOSHUA B LEMON  SHANNONM KEANE  SCOTT HUMPHREY  SANDRAD GAIC  JANEA
NADOLNY  APRILM APLAND  SARAHE MAJKZAK  LORNA J SIMPSON  HAROLD M LAMBKEE
ELIZABETH A CAMPBELL  MICHELLE A BURMAN  CRISTIE L KETCHAM  JERI B APLAND
BARBARA M SYPIEN  IRENE A BREUTZMANN FRANK E GIERUT  SUZANN HENKEL  MARYANN E
RAMIREZ  WENDY J WEBER  REGINA S RADKE  CHERYL A GRUEBNAU  DEBRA J DERDZINSKI
CHERYL L PHILLIPS  MARILYN FUENTES

PAGE 20:
COTTER & COMPANY 1996 ANNUAL REPORT

FINANCIAL REVIEW

  REVENUES
  In fiscal year 1996, Cotter & Company revenues were $2,441,707,000, an
  increase of 0.2% from fiscal year 1995.  Current year revenues were
  influenced by the 1995 phase-out of the V&S Variety and General Power
  Equipment divisions. Comparable store revenues increased 4.4% due to improved
  member participation. Fiscal year 1996 revenue increases were concentrated in
  the core merchandise categories of Electrical and Plumbing, up 4.0%, Painting
  and Cleaning, up 5.0%, Farm and Garden, up 3.8% and Lumber and Building
  Materials, up 2.4%.  Additionally, Cotter & Company continued to pursue
  business opportunities such as International, which increased 14.2% and
  trueAdvantage, which increased 14.2%. In addition, the Company continued to
  expand the Pinpoint Pricing program, which reduced the selling price of many
  core hardware and related products.

  OPERATIONS
  Overall gross margins, as a percentage of revenues, decreased for the
  fifth year in a row, to 8.1% from 8.3% last year.  This reduction in gross
  margin was the result of a more competitive pricing strategy, which included
  the expanded Pinpoint Pricing program that resulted in a $7.1 million price
  reduction to the Members.  Other pricing strategies returned an additional
  $2.0 million to the Members, predominately generated from the trueAdvantage
  program. Warehouse, general and administrative expenses increased slightly
  compared to the prior year, but as a percentage of revenues remained
  comparable to 4.7% in 1995, reduced from  5.2% in 1994.

  PATRONAGE DIVIDEND AND MEMBER PAYOUT
  The annual patronage dividend for fiscal year 1996 was $53,320,000 compared
  to $60,140,000 last year. Despite the decrease in the total dividends, the
  average patronage dividend return per Member increased over 10.0% for fiscal
  year 1996 compared to fiscal year 1995.  Total Member payout, which includes
  interest paid semi-annually on previously issued promissory (subordinated)
  notes in addition to the patronage dividend, totaled $71,780,000 compared to
  $80,767,000 last year.  Presented in the table below are the sources and
  components of Member payout for fiscal years 1996 and 1995.

  The patronage dividend paid to each Member will vary depending upon the
  volume and type of purchases, the method of shipment and extent of
  participation in each of the source programs listed below.  As a result, each
  Member's patronage dividend will differ slightly from the overall Company
  averages.  In fiscal year 1996, the average dividend percentages from stock,
  relay and direct shipment purchases were 2.7%, 1.5% and 0.4%, respectively.
  Purchases of Tru-Test Manufacturing and Baltimore Brush products earned
  Members an average manufacturing patronage dividend of 12.5% and 12.3%,
  respectively, in fiscal year 1996.  In fiscal year 1995, the average dividend
  percentages for stock, relay, direct shipment, Tru-Test Manufacturing and
  Baltimore Brush purchases were 3.6%, 1.5%, 0.4%, 11.9% and 12.3%,
  respectively.

  The Company considers promissory (subordinated) notes and Class B common
  stock important parts of its patronage dividend. The five-year notes provide
  Members a recurring return on their investment and the Class B common stock
  provides the Company a source of permanent 

<PAGE>   14

  capital.  Reflecting comparable market interest rates, promissory
  (subordinated) notes issued as part of the fiscal year 1996 patronage dividend
  bear interest at an annual rate of 8.1% compared to 7.6% in 1995.


<TABLE>
<CAPTION>
                                                                             Fiscal Year  Fiscal Year
MEMBER PAYOUT                                                                   1996         1995
-------------                                                                -----------  -----------
                                                                                 (000's omitted)
<S>                                                                          <C>           <C>
   Sources of Member payout:
   Patronage dividend from:
      Stock shipments................................................           $30,108       $37,410
      Relay shipments................................................             3,282         3,473
      Direct shipments...............................................             3,463         3,603
      Tru-Test Manufacturing.........................................            13,919        13,276
      Baltimore Brush................................................             2,548         2,378
                                                                                -------       -------
   Total patronage dividend..........................................            53,320        60,140
   Interest paid to Members..........................................            18,460        20,627
                                                                                -------       -------
   Total Member payout...............................................           $71,780       $80,767
                                                                                =======       =======

   Components of Member payout:
   Cash payout:
      Interest paid to Members.......................................           $18,460       $20,627
      Cash patronage dividend........................................            16,142        18,315
                                                                                -------       -------
   Total Member cash payout..........................................            34,602        38,942
   Promissory (subordinated) notes...................................            25,123        32,047
   Class B common stock..............................................             8,645         6,422
   Member indebtedness...............................................             3,410         3,356
                                                                                -------       -------
   Total Member payout...............................................           $71,780       $80,767
                                                                                =======       =======

</TABLE>




<PAGE>   15
PAGE 21:
COTTER & COMPANY 1996 ANNUAL REPORT

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                           December 28,     December 30,
                                                                               1996            1995
                                                                           ------------    ------------
                                                                                (000's omitted)
<S>                                                                          <C>            <C>
   ASSETS
   Current assets:
      Cash and cash equivalents ....................................           $  1,662      $ 22,473
      Accounts and notes receivable ................................            307,205       287,888
      Inventories ..................................................            347,554       315,311
      Prepaid expenses .............................................             13,517        11,180
                                                                               --------      --------
       Total current assets ........................................            669,938       636,852
   Properties owned, less accumulated depreciation .................            167,331       165,683
   Properties under capital leases, less accumulated amortization ..              3,680         5,393
   Other assets.....................................................             13,036        11,648
                                                                               --------      -------- 
       Total assets ................................................           $853,985      $819,576
                                                                               ========      ========

   LIABILITIES AND CAPITALIZATION
   Current liabilities:
      Accounts payable .............................................           $287,291      $297,884
      Accrued expenses .............................................             51,149        53,363
      Short-term borrowings ........................................             70,594         2,657
      Current maturities of notes, long-term debt and lease
       obligations .................................................             43,458        61,634
      Patronage dividend payable in cash ...........................             16,142        18,315
                                                                               --------      --------
       Total current liabilities ...................................            468,634       433,853
   Long-term debt ..................................................             77,680        75,449
   Obligations under capital leases ................................              2,465         3,764
   Capitalization:
      Promissory (subordinated) and instalment notes ...............            185,366       186,335
      Class A common stock and partially paid subscriptions
       (Authorized 100,000 shares; issued and fully paid
        48,480 and 52,710 shares) ..................................              4,876         5,294
      Class B nonvoting common stock and paid-in capital
       (Authorized 2,000,000 shares; issued and fully paid
        1,043,521 and 1,055,700 shares; issuable as partial
        payment of patronage dividends, 84,194 and 62,005 shares) ..            114,053       113,062
      Retained earnings ............................................              1,751         2,661
                                                                               --------      --------
                                                                                306,046       307,352
      Foreign currency translation adjustment ......................               (840)         (842)
                                                                               --------      --------
       Total capitalization ........................................            305,206       306,510
                                                                               --------      --------
       Total liabilities and capitalization ........................           $853,985      $819,576
                                                                               ========      ========
</TABLE>

See Notes to Consolidated Financial Statements.
<PAGE>   16
PAGE 22:
COTTER & COMPANY 1996 ANNUAL REPORT

CONSOLIDATED STATEMENT OF OPERATIONS



<TABLE>
<CAPTION>
                                                        For the Years Ended
                                            -------------------------------------------
                                            December 28,   December 30,    December 31,
                                                1996           1995            1994
                                            ------------  ---------------  ------------
                                                          (000's omitted)
<S>                                         <C>           <C>              <C>
Revenues .................................    $2,441,707       $2,437,002    $2,574,445
                                            ------------  ---------------  ------------
Cost and expenses:
  Cost of revenues .......................     2,245,071        2,234,934     2,351,114
  Warehouse, general and administrative ..       115,457          114,107       132,759
  Interest paid to Members ...............        18,460           20,627        22,894
  Other interest expense .................        10,175            9,298         7,493
  Gain on sale of properties owned .......            --               --          (692)
  Other income, net ......................          (228)          (1,177)         (604)
  Income tax expense .....................           362              176         1,163
                                              ----------       ----------    ----------
                                               2,389,297        2,377,965     2,514,127
                                              ----------       ----------    ----------
Net margins ..............................    $   52,410       $   59,037    $   60,318
                                              ==========       ==========    ==========
</TABLE>



                See Notes to Consolidated Financial Statements.

PAGE 23:
COTTER & COMPANY 1996 ANNUAL REPORT

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         For the Years Ended
                                                             -------------------------------------------
                                                             December 28,   December 30,    December 31,
                                                                 1996           1995            1994
                                                             ------------  ---------------  ------------
                                                                           (000's omitted)
<S>                                                          <C>           <C>              <C>
Operating activities:
   Net margins ............................................      $ 52,410         $ 59,037      $ 60,318
   Adjustments to reconcile net margins to cash and cash
     equivalents from operating activities:
     Depreciation and amortization ........................        20,561           20,706        21,613
     Provision for losses on accounts and notes
       receivable .........................................         3,201            3,741         4,233
     Changes in operating assets and liabilities:
       Accounts and notes receivable ......................       (38,581)         (13,921)      (33,112)
       Inventories ........................................       (32,243)          69,436       (49,145)
       Accounts payable ...................................       (10,593)         (36,584)       79,957
       Accrued expenses ...................................        (2,563)           7,552         6,022
       Other adjustments, net .............................        (1,801)          (3,327)       (1,223)
                                                                 --------         --------      --------
       Net cash and cash equivalents provided by
         (used for) operating activities ..................        (9,609)         106,640        88,663
                                                                 --------         --------      --------

Investing activities:
   Additions to properties owned ..........................       (23,530)         (24,904)      (21,427)
   Proceeds from sale of properties owned .................         3,151            5,022         2,174

</TABLE>
<PAGE>   17
<TABLE>
<CAPTION>
<S>                                                            <C>              <C>           <C>
   Changes in other assets ................................       (1,388)              617         1,132
                                                                --------         ---------     ---------

       Net cash and cash equivalents (used for)
         investing activities .............................      (21,767)          (19,265)      (18,121)
                                                                --------         ---------     ---------

Financing activities:
   Payment of annual patronage dividend ...................      (18,315)          (18,383)      (16,614)
   Payment of notes, long-term debt and lease
     obligations ..........................................      (40,271)          (43,106)      (39,632)
   Proceeds from long-term borrowings .....................        1,693             3,000            --
   Increase (decrease) in short-term borrowings ...........       67,937            (6,672)      (13,851)
   Purchase of  common stock ..............................         (660)           (1,740)         (216)
   Proceeds from sale of Class A common stock .............          181               168           288
                                                                --------         ---------     ---------

       Net cash and cash equivalents provided by (used for)
         financing activities .............................       10,565           (66,733)      (70,025)
                                                                --------         ---------     ---------

Net increase (decrease) in cash and
   cash equivalents .......................................      (20,811)           20,642           517
                                                                --------         ---------     ---------

Cash and cash equivalents at beginning of year ............       22,473             1,831         1,314
                                                                --------         ---------     ---------

Cash and cash equivalents at end of year ..................      $ 1,662           $22,473        $1,831
                                                                ========         =========     ========= 
</TABLE>




                See Notes to Consolidated Financial Statements.
PAGE 24:
COTTER & COMPANY 1996 ANNUAL REPORT

CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS


                For the Three Years Ended December 28, 1996


<TABLE>
<CAPTION>
                                       Common Stock, $100 Par Value
                                  ---------------------------------------
                                         Class A             Class  B
                                  ----------------------  ---------------
                                                              Issued                   Foreign
                                                                and                   Currency
                                                               to be       Retained  Translation
                                    Issued    Subscribed      Issued       Earnings  Adjustment
                                  ----------  ----------  ---------------  --------  -----------
                                                          (000's omitted)
<S>                               <C>         <C>         <C>              <C>       <C>

Balances at January 1, 1994 ....      $6,588      $   45         $110,773  $  3,867       $(670)

 Net margins ...................                                             60,318
 Foreign currency translation
  adjustment ...................                                                           (245)
 Patronage dividend ............                                   10,829   (60,421)
 Stock issued for paid-up
  subscriptions ................         275        (275)
 Stock subscriptions ...........                     265
 Stock purchased and retired ...        (528)                      (4,939)
                                    --------    --------      -----------   -------     -------






Balances at December 31, 1994 ..       6,335          35          116,663     3,764        (915)

 Net margins ...................                                             59,037
 Foreign currency translation
  adjustment ...................                                                             73
 Patronage dividend ............                                    6,422   (60,140)
 Stock issued for paid-up
  subscriptions ................         168        (168)
 Stock subscriptions ...........                     156

</TABLE>

<PAGE>   18

<TABLE>
<S>                                <C>         <C>           <C>          <C>          <C>
 Stock purchased and retired ...     (1,232)                     (10,023)
                                    --------    --------      ----------   --------    ---------

Balances at December 30, 1995 ..       5,271          23          113,062     2,661         (842)

 Net margins ...................                                             52,410
 Foreign currency translation
  adjustment ...................                                                               2
 Patronage dividend ............                                    8,645   (53,320)
 Stock issued for paid-up
  subscriptions ................         184        (184)
 Stock subscriptions ...........                     189
 Stock purchased and retired ...       (607)                      (7,654)
                                    --------    --------      ----------   --------    ---------

Balances at December 28, 1996 ..      $4,848         $28         $114,053    $1,751       $ (840)
                                    ========    ========      ===========  ========    ========= 
</TABLE>




  Subscribed Class A common stock amounts are net of unpaid amounts of $1,000
  at December 28, 1996, December 30, 1995 and  December 31, 1994 and $14,000 at
  January 1, 1994 (for 290, 240, 360 and 590 shares subscribed, respectively).


See Notes to Consolidated Financial Statements.


PAGE 25:
COTTER & COMPANY 1996 ANNUAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

  Cotter & Company (the Company) is a Member-owned wholesaler of hardware and
  related merchandise. The Company also manufactures paint and paint
  applicators.  The Company's goods and services are sold predominantly within
  the United States, primarily to retailers of hardware and related lines, each
  of whom has purchased ten shares of the Company's Class A common stock upon
  becoming a Member.  The Company operates in a single industry as a
  Member-owned wholesaler cooperative.  All members are entitled to receive
  patronage dividend distributions from the Company on the basis of gross
  margins of merchandise and/or services purchased by each member. In
  accordance with the Company's By-laws, the annual patronage dividend is paid
  to Members out of gross margins from operations and other patronage source
  income, after deduction for expenses and provisions authorized by the Board
  of Directors.

  On December  9, 1996, the Boards of Directors of the Company and ServiStar
  Coast to Coast Corporation agreed to merge the two companies.  ServiStar
  Coast to Coast is a $1,700,000,000 hardware wholesaler with a strong presence
  in retail lumber and building materials. The transaction is subject to
  customary closing conditions, including approval by the stockholders of both
  companies, and is expected to be completed on July 1, 1997. Following
  completion of the merger, the Company will be renamed TruServ Corporation.

  The significant accounting policies of the Company are summarized below:

  Consolidation
  The consolidated financial statements include the accounts of the Company and
  all wholly-owned subsidiaries. The consolidated financial statements also
  include the accounts of Cotter Canada Hardware and Variety Cooperative, Inc.,
  a Canadian Member-owned wholesaler of hardware, variety and related
  merchandise, in which the Company has a majority equity interest.

  On January 13, 1995, the Company agreed to the sale of certain inventory of
  its V&S Variety division to a national wholesaler who  agreed to supply the
  majority of the V&S Stores.  Also, on January 31, 1995, the Company sold
  certain assets of its outdoor power equipment manufacturing division to a
  nationally recognized company and secured a favorable supply agreement for
  such equipment.  These transactions did not have a material impact on the
  Company's results of operation or financial position.


  Capitalization
  The Company's capital (Capitalization) is derived from Class A voting common
  stock and retained earnings, together with promissory (subordinated) notes
  and Class B nonvoting common stock issued in connection with the Company's
  annual patronage dividend. The By-laws provide for partially meeting the
  Company's capital requirements by payment of the year-end patronage dividend,
  of which at least twenty percent must be paid in cash, and the balance in
  five-year promissory (subordinated) notes and $100 par value Class B common
  stock.

<PAGE>   19


  Membership may be terminated without cause by either the Company or the
  Member upon sixty days' written notice. In the event membership is
  terminated, the Company undertakes to purchase, and the Member is required to
  sell to the Company, all of the Member's Class A common stock and Class B
  common stock at book value. Payment for the Class A common stock will be in
  cash. Payment for the Class B common stock will be a note payable in five
  equal annual instalments bearing interest at the same rate per annum as the
  promissory (subordinated) notes most recently issued as part of the Company's
  patronage dividend.


  Cash equivalents
  The Company classifies its temporary investments in highly liquid debt
  instruments, with an original maturity of three months or less, as cash
  equivalents.


  Inventories
  Inventories are stated at the lower of cost, determined on the `first-in,
  first-out' basis, or market.


  Properties
  Properties are recorded at cost.  Depreciation and amortization are computed
  by using the straight-line method over the following estimated useful lives:
  buildings and improvements - 10 to 40 years; machinery and warehouse, office
  and computer equipment - 5 to 10 years; transportation equipment - 3 to 7
  years; and leasehold improvements - the life of the lease without regard to
  options for renewal.


  Revenue Recognition
  The Company recognizes revenue when merchandise is shipped or services are
  rendered.

  Retirement plans
  The Company sponsors two noncontributory defined benefit retirement plans
  covering substantially all of its employees. Company contributions to
  union-sponsored defined contribution plans are based on collectively
  bargained rates times hours worked. The Company's policy is to fund annually
  all tax-qualified plans to the extent deductible for income tax purposes.

  Use of estimates
  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the amounts reported in the financial statements and

PAGE 26:

COTTER & COMPANY 1996 ANNUAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  accompanying notes.  Actual results could differ from those estimates.


  Reporting year
  The Company's reporting year-end is the Saturday closest to December 31.









  2. INVENTORIES


<TABLE>
<CAPTION>
    Inventories consisted of:
                                December 28,                   December 30,
                                     1996                           1995
                                --------------                 --------------
                                              (000's omitted)
    <S>                            <C>                           <C>
    Manufacturing inventories:
     Raw materials ...........      $  2,797                       $  2,139
     Work-in-process and
      finished goods .........        24,558                         19,407
                                    --------                       --------
                                      27,355                         21,546
    Merchandise inventories ..       320,199                        293,765
                                    --------                       --------

                                    $347,554                       $315,311
                                    ========                       ========
</TABLE>


<PAGE>   20
  3. PROPERTIES

  Properties owned or leased under capital leases consisted of:


<TABLE>
<CAPTION>
                                                    December 28,      December 30,
                                                        1996              1995
                                                   --------------    --------------
                                                   Owned    Leased   Owned    Leased
                                                   ------    ------  ------    ------
                                                             (000's omitted)       
<S>                                                <C>       <C>     <C>       <C>
Buildings and improvements ......................  $179,206  $   --  $173,568  $   --
Machinery and warehouse equipment ...............    61,183      --    60,197      --
Office and computer equipment ...................    74,065      --    77,340      --
Transportation equipment ........................    16,561  11,202    21,076  11,454
                                                   --------  ------  --------  ------
                                                    331,015  11,202   332,181  11,454
Less accumulated depreciation and amortization ..   175,730   7,522   178,793   6,061
                                                   --------  ------  --------  ------
                                                    155,285   3,680   153,388   5,393
Land ............................................    12,046      --    12,295      --
                                                   --------  ------  --------  ------

                                                   $167,331  $3,680  $165,683  $5,393
                                                   ========  ======  ========  ======
</TABLE>

  4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consisted of:
                                                             December 28,   December 30,
                                                               1996             1995
                                                            ------------    -----------    
                                                                   (000's omitted)

<S>                                                          <C>           <C>
Senior note at 8.60% ................................          $47,000        $49,000
Term loans:
  5.97% .............................................            2,437          3,000
  Variable (7.33% and 7.60%, respectively) ..........            6,200          6,200
  Canadian prime at 7.50% ...........................               --          3,665
Redeemable (subordinated) term notes,
  fixed Interest rates ranging from 6.85% to 7.61% ..           26,683         16,697
Industrial Revenue Bonds (5.28%) ....................            4,000          4,000
                                                               -------        -------
                                                                86,320         82,562
Less amounts due within one year ....................            8,640          7,113
                                                               -------        -------
                                                               $77,680        $75,449
                                                               =======        =======
</TABLE>

  Principal payments for the 8.60% senior note are due quarterly in
  incrementally increasing amounts through maturity in 2007.

  Principal payments for the 5.97% term loan are due quarterly beginning in
  1996 through maturity in 1999.  Payment for the variable term loan is due in
  1999.

  The redeemable (subordinated) term notes have two to four year terms and are
  issued in exchange for promissory (subordinated) notes that were held by
  promissory note holders, who do not own the Company's Class A Common Stock.
  Also, effective October 1, 1996 the term notes were  opened for purchase by
  investors that are affiliated with the Company.

  On October 1, 1997, and every three-year period thereafter, the interest rate
  on the 5.28% industrial revenue bonds will be adjusted based on a bond index.
  These bonds may be redeemed at face value at the option of either the
  Company or the bondholders at each interest reset date through maturity in
  2003.

  Total maturities of long-term debt for fiscal years 1997, 1998, 1999, 2000,
  2001 and thereafter are $8,640,000 $16,481,000, $17,574,000, $7,625,000,
  $4,000,000 and $32,000,000, respectively.

PAGE 27:

COTTER & COMPANY 1996 ANNUAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>   21


  The Company has established a $125,000,000 five-year revolving credit
  facility with a group of banks.  In addition, the Company has various
  short-term lines of credit available under informal agreements with lending
  banks, cancelable by either party under specific circumstances.  The
  borrowings under these agreements were $70,594,000 at December 28,1996 and
  were at a  weighted average interest rate of 5.5%.   At December 30, 1995,
  the Company's Canadian subsidiaries had short- term borrowings at an interest
  rate of 7.5%.

  The Company is required to meet certain financial ratios and covenants
  pertaining to certain debt arrangements.

  5. CAPITAL LEASES AND OTHER LEASE COMMITMENTS

  The Company rents buildings and warehouses, office, computer and
  transportation equipment under operating and capital leases.  The following
  is a schedule of future minimum lease payments under long-term non-cancelable
  leases, together with the present value of the net minimum lease payments, as
  of December 28, 1996:


<TABLE>
<CAPTION>
                                                Capital              Operating
                                                -------              ---------
                                                                   (000's omitted)
<S>                                             <C>                  <C>
Fiscal years
------------
  1997 .......................................   $1,433              $10,387
  1998 .......................................    1,144                9,126
  1999 .......................................      809                7,411
  2000 .......................................      296                6,221
  2001 .......................................      184                5,509
  Thereafter .................................      108               45,651
                                                 ------              -------
Net minimum lease payments ...................    3,974              $84,305
                                                                     =======
Less amount representing interest ............      145
                                                -------
Present value of net minimum lease payments ..    3,829
Less amounts due within one year .............    1,364
                                                 ------
                                                 $2,465
                                                 ======
</TABLE>

                                                                          

  Capital leases expire at various dates and generally provide for purchase
  options but not renewals. Purchase options provide for purchase prices at
  either fair market value or a stated value which is related to the lessor's
  book value at expiration of the lease term.


<TABLE>
<CAPTION>
Rent expense under operating leases was as follows:
                                                                For the Years Ended
                                                     -------------------------------------------
                                                     December 28,  December 30,     December 31,
                                                        1996          1995             1994
                                                     ------------  ---------------  ------------
                                                                   (000's omitted)
<S>                                                  <C>           <C>              <C>

Minimum rent ......................................  $14,476        $ 9,553           $8,487
Contingent rent ...................................      495            510              611
                                                     -------        -------           ------
                                                     $14,971        $10,063           $9,098
                                                     =======        =======           ======
</TABLE>



  6. CAPITALIZATION


<TABLE>
<CAPTION>
Promissory (subordinated) and instalment notes consisted of:
                                                              December 28,       December 30,
                                                                  1996              1995
                                                              ------------       ------------
                                                                     (000's omitted)
<S>                                                           <C>                <C>
                                                                            
Promissory (subordinated) notes -
   Due on December 31, 1996--6.00% .........................  $         --       $    23,588
   Due on December 31, 1996--9.50% .........................            --            27,029
   Due on December 31, 1997-10.00% .........................        16,037            16,660
   Due on December 31, 1997--7.87% .........................        14,832            15,616
   Due on December 31, 1998--7.47% .........................        14,886            16,461
   Due on December 31, 1998--8.00% .........................        25,684            27,048
   Due on December 31, 1999--7.86% .........................        15,349                --
   Due on December 31, 1999--8.00% .........................        24,254            25,470
   Due on December 31, 1999--8.20% .........................        23,431            25,327
   Due on December 31, 2000--6.50% .........................        23,010            23,996
   Due on December 31, 2000--7.58%(issued in 1996) .........        29,315            32,047
   Due on December 31, 2001--8.06%(to be issued) ...........        25,123                --
Instalment notes at interest rates of

</TABLE>

<PAGE>   22
<TABLE>
  <S>                                                           <C>                <C>
     6.50% to 8.20% with maturities through 2000 .............         6,899            5,753
                                                                    --------         --------
                                                                     218,820          238,995
  Less amounts due within one year ...........................        33,454           52,660
                                                                    --------         --------
                                                                    $185,366         $186,335
                                                                    ========         ========
</TABLE>

PAGE 28:
COTTER & COMPANY 1996 ANNUAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The promissory notes are issued principally in payment of the annual
  patronage dividend. Promissory notes are subordinated to indebtedness to
  banking institutions, trade creditors and other indebtedness of the Company
  as specified by its Board of Directors. Notes to be issued relate to the
  patronage dividend which is distributed after the end of the year. Prior
  experience indicates that the maturities of a significant portion of the
  notes due within one year are extended, for a three year period, at interest
  rates substantially equivalent to competitive market rates of comparable
  instruments. The Company anticipates that this practice will continue.

  Total maturities of promissory and instalment notes for fiscal years 1997,
  1998, 1999, 2000 and 2001 are $33,454,000, $42,690,000, $64,603,000,
  $52,950,000 and $25,123,000, respectively.


  7. FAIR VALUE OF FINANCIAL INSTRUMENTS

  Due to the uncertainty of the ultimate maturities of the promissory
  (subordinated) notes, management believes it is impracticable to estimate
  their fair value.  The carrying amounts of the Company's other financial
  instruments approximate fair value.  Fair value was estimated using
  discounted cash flow analyses, based on the Company's incremental borrowing
  rate for similar borrowings.


  8.  INCOME TAXES

  At December 28, 1996, the Company has alternative minimum tax credit
  carryforwards of approximately $900,000 which do not expire.  The
  carryforwards are available to offset future federal tax liabilities.

  Significant components of the Company's deferred tax assets and liabilities
  as of December 28,1996 resulted primarily from alternative minimum tax credit
  carryforwards and temporary differences between income tax and financial
  reporting for depreciation, inventory capitalization, bad debts, vacation pay
  and contributions to fund retirement plans.

  Significant components of the provision (benefit) for income taxes are as
  follows:

<TABLE>
<CAPTION>
                                        For the Years Ended
                            -------------------------------------------
                            December 28,   December 30,    December 31,
                                1996           1995            1994
                            ------------  ---------------  ------------
                                          (000's omitted)
         <S>                <C>           <C>              <C>
         Current:
         Federal .........         $  --           $ (363)       $  486
         State ...........           237              379           462
         Foreign .........           275              273           278
                                   -----           ------        ------
         Total current ...           512              289         1,226
                                   -----           ------        ------

         Deferred:
         Federal .........          (147)            (145)         (147)
         State ...........           (26)             (26)          (26)
         Foreign .........            23               58           110
                                   -----           ------        ------
         Total deferred ..          (150)            (113)         ( 63)
                                   -----           ------        ------
                                   $ 362           $  176        $1,163
                                   =====           ======        ======
</TABLE>

  The Company operates as a nonexempt cooperative and is allowed a deduction in
  determining its taxable income for amounts paid as patronage dividend based
  on margins from business done with or for Members.  The reconciliation of
  income tax expense to income tax computed at the U.S. federal statutory tax
  rate of 35% in fiscal year 1996, 1995 and 1994 is as follows:

<PAGE>   23
<TABLE>
<CAPTION>
                                                                 For the Years Ended
                                                     -------------------------------------------
                                                     December 28,   December 30,    December 31,
                                                         1996           1995            1994
                                                     ------------  ---------------  ------------
                                                                   (000's omitted)
<S>                                                  <C>           <C>              <C>

Tax at U.S. statutory rate ........................       $18,470       $20,725       $21,518
Effects of:
  Patronage dividend ..............................       (18,662)      (21,049)      (21,147)
  State income taxes, net of federal tax benefit ..           137           229           283
  Other, net ......................................           417           271           509
                                                          -------       -------       -------
                                                          $   362       $   176       $ 1,163
                                                          =======       =======       =======
</TABLE>


  9. CASH FLOW

  The Company's non-cash financing and investing activities in fiscal year 1996
  and 1995 include acquisition of transportation equipment by entering into
  capital leases and the acquisition of property for resale. These transactions
  aggregate $178,000 and $4,008,000 in fiscal years 1996 and 1995,
  respectively.  In addition, the annual patronage dividend and promissory
  (subordinated) note renewals relating to non-cash operating and financing
  activities are as follows:


<TABLE>
<CAPTION>
                                                   For the Year Ended
                                       -------------------------------------------
                                       December 28,   December 30,    December 31,
                                           1996           1995            1994
                                       ------------  ---------------  ------------
                                                     (000's omitted)
<S>                                    <C>           <C>                <C>

Patronage dividend payable in cash ..    $16,142        $18,315         $18,383
Promissory (subordinated) notes .....     15,354         23,536          23,213
Class B nonvoting common stock ......      1,248         (2,592)          5,900
Instalment notes ....................      4,605          5,972           3,058
Member indebtedness .................     15,971         14,909           9,867
                                         -------        -------         -------
                                         $53,320        $60,140         $60,421
                                         =======        =======         =======

Note renewals .......................    $27,938        $23,974         $26,191
                                         =======        =======         =======
</TABLE>


  Cash paid for interest during fiscal years 1996, 1995 and 1994 totaled
  $28,694,000, $29,624,000 and $30,583,000, respectively. Cash paid for income
  taxes during fiscal years 1996, 1995 and 1994 totaled $694,000, $1,012,000
  and $1,709,000, respectively.

PAGE 29:
COTTER & COMPANY 1996 ANNUAL REPORT
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  10. RETIREMENT PLANS

  The components of net pension cost for the Company administered pension plans
  consisted of:



<TABLE>
<CAPTION>
                                                                            For the Years Ended
                                                                -------------------------------------------
                                                                December 28,   December 30,    December 31,
                                                                    1996           1995            1994
                                                                ------------  ---------------  ------------
                                                                              (000's omitted)
<S>                                                             <C>           <C>              <C>

Income:
      Actual return (loss) on plan assets ....................       $13,007          $25,564      $ (1,543)
      Amortization of excess plan assets .....................           914              914           920
                                                                     -------          -------      --------
                                                                      13,921           26,478          (623)
                                                                     -------          -------      --------
Expenses:
      Service cost-benefits earned during the year ...........         4,851            4,152         4,765
      Interest on projected benefit obligation ...............         7,623            7,242         6,736
      Deferral of excess (deficiency) of actual
         over estimated return on plan assets ................         4,223           18,021        (8,815)
                                                                     -------          -------      --------
                                                                      16,697           29,415         2,686
                                                                     -------          -------      --------
Net pension cost..............................................       $ 2,776          $ 2,937      $  3,309
                                                                     =======          =======      ========
</TABLE>


<PAGE>   24
The discount rate and the rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
respectively, 7.75% and 4.50% in fiscal year 1996, 7.25% and 4.50%, in fiscal
year 1995 and 8.50% and 4.50% in fiscal year 1994.  These changes in actuarial
assumptions did not have a material impact on net pension cost for fiscal years
1996 and 1995 and the Company does not anticipate that these changes will have a
material impact on net pension cost in future years.  In fiscal years 1996, 1995
and 1994, the expected long-term rate of return on assets was 9.50%. During
1995, the Company amended its pension plan, and such amendment had no material
impact on the projected benefit obligation or pension expense. During 1996, the
Company settled $8,520,000 of pension obligations under it's amended plan that
resulted in a reduction of  $798,000 in pension expense for fiscal year 1996.

Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on years of service and the employee's compensation during
the last ten years of employment, offset by a percentage of Social Security
retirement benefits. Trusteed net assets and actuarially computed benefit
obligations for the Company administered pension plans are presented below:


<TABLE>
<CAPTION>
                                                          December 28,                   December 30,
                                                              1996                           1995
                                                          ------------                   ------------
                                                                        (000's omitted)
<S>                                                       <C>                            <C>
Assets:
  Total plan assets at fair value ......................      $107,954                       $104,396
                                                              ========                       ========

Obligations:
  Accumulated benefit obligations -
     Vested ............................................      $ 70,593                       $ 77,435
     Non-vested ........................................        13,369                         10,830
  Effect of projected compensation increases ...........        21,015                         21,730
                                                              --------                       --------

  Total projected benefit obligations ..................       104,977                        109,995
                                                              --------                       --------

Net excess assets (liabilities):
  Unrecognized -
     Unamortized excess assets at original date ........         6,170                          7,673
     Net actuarial gain (loss) .........................         5,702                         (3,793)
     Prior service costs ...............................        (3,424)                        (4,017)
  Recognized accrued pension cost ......................        (5,471)                        (5,462)
                                                              --------                       --------
  Total net excess assets (liabilities) ................         2,977                         (5,599)
                                                              --------                       --------
Total obligations and net excess assets (liabilities) ..      $107,954                       $104,396
                                                              ========                       ========
</TABLE>


The Company also participates in union-sponsored defined contribution plans.
Pension costs related to these plans were $641,000,  $720,000 and $757,000 for
fiscal years 1996, 1995 and 1994, respectively.

PAGE 30:
COTTER & COMPANY 1996 ANNUAL REPORT
REPORT OF INDEPENDENT AUDITORS


  To the Members and the Board of Directors
  Cotter & Company

  We have audited the accompanying consolidated balance sheets of Cotter &
  Company as of December 28, 1996 and December 30, 1995, and the related
  consolidated statements of operations, cash flows, and capital stock and
  retained earnings for each of the three years in the period ended December
  28, 1996.  These financial statements are the responsibility of the Company's
  management.  Our responsibility is to express an opinion on these financial
  statements based on our audits.

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

  In our opinion, the financial statements referred to above present fairly, in
  all material respects, the consolidated financial position of Cotter &
  Company at December 28, 1996 and December 30, 1995, and the consolidated
  results of its operations and its cash flows for each of the three years in
  the period ended December 28, 1996 in conformity with generally accepted
  accounting principles.

  Ernst & Young LLP
<PAGE>   25

  Chicago, Illinois
  February 10, 1997

PAGE 30:
COTTER & COMPANY 1996 ANNUAL REPORT

SELECTED FINANCIAL DATA



<TABLE>
<CAPTION>
                                                       For the Fiscal Years
                                  ---------------------------------------------------------------
                                     1996        1995          1994           1993        1992
                                  ----------  ----------  ---------------  ----------  ----------
                                                          (000's omitted)
<S>                               <C>         <C>             <C>          <C>         <C>
Revenues                          $2,441,707  $2,437,002       $2,574,445  $2,420,727  $2,356,468

Gross margins                     $  196,636  $  202,068       $  223,331  $  217,921  $  216,608

Net margins                       $   52,410  $   59,037       $   60,318  $   57,023  $   60,629

Total assets                      $  853,985  $  819,576       $  868,785  $  803,528  $  833,372

Member payout:
   Patronage dividend             $   53,320  $   60,140       $   60,421  $   54,440  $   60,901
   Interest paid to Members           18,460      20,627           22,894      24,458      25,716
                                  ----------  ----------       ----------  ----------  ----------

                                  $   71,780  $   80,767       $   83,315  $   78,898  $   86,617
                                  ----------  ----------       ----------  ----------  ----------


Member cash payout:
   Patronage dividend in cash     $   16,142  $   18,315       $   18,383  $   16,614  $   18,570
   Interest paid to Members           18,460      20,627           22,894      24,458      25,716
                                  ----------  ----------       ----------  ----------  ----------

                                  $   34,602  $   38,942       $   41,277  $   41,072  $   44,286
                                  ----------  ----------       ----------  ----------  ----------

Member investment:
   Promissory (subordinated) and
     instalment notes             $  185,366  $  186,335       $  199,099  $  217,996  $  235,695
   Class A common stock                4,876       5,294            6,370       6,633       6,857
   Class B common stock              114,053     113,062          116,663     110,773     108,982
                                  ----------  ----------       ----------  ----------  ----------

                                  $  304,295  $  304,691       $  322,132  $  335,402  $  351,534
                                  ==========  ==========       ==========  ==========  ==========
</TABLE>


BACK COVER:
Cotter & Company
8600 West Bryn Mawr Avenue, Chicago, Illinois 60631-3505