<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

     (MARK ONE)
       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
         OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR

       [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
         OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM             TO
                            ------------------------
COMMISSION FILE NUMBER 2-20910

                              TRUSERV CORPORATION
               (PRIOR TO JULY 1, 1997 KNOWN AS COTTER & COMPANY)

             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                         <C>
                      DELAWARE                                                   36-2099896
           (State or other jurisdiction of                                    (I.R.S. Employer
           incorporation or organization)                                    Identification No.)
</TABLE>

<TABLE>
<S>                                                          <C>
       8600 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS                   60631-3505
          (Address of principal executive offices)                     (Zip Code)
</TABLE>

Registrant's telephone number, including area code:        (773) 695-5000

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

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

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.        YES X .  NO __.

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SEC.229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.                                [X]

     STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.

          THERE IS NO PUBLIC MARKET FOR REGISTRANT'S CLASS A COMMON STOCK. SUCH
     SHARES ARE OFFERED BY THE REGISTRANT IN SIXTY-SHARE UNITS, EXCLUSIVELY TO
     RETAILERS OF HARDWARE AND RELATED MERCHANDISE, IN CONNECTION WITH BECOMING
     MEMBERS OF THE COMPANY. SAID STOCK IS LIMITED AS TO TRANSFERABILITY BY ITS
     TERMS.

     INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

<TABLE>
<CAPTION>
                                                        OUTSTANDING AT
                       CLASS                           FEBRUARY 26, 2000
                       -----                           -----------------
<S>                                                    <C>
CLASS A COMMON STOCK, $100 PAR VALUE................         399,600
CLASS B NONVOTING COMMON STOCK, $100 PAR VALUE......       1,730,586
</TABLE>

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<PAGE>   2

                                     PART I

     THIS ANNUAL REPORT AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONTAIN FORWARD-LOOKING STATEMENTS ABOUT FUTURE RESULTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES. TRUSERV'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.

ITEM 1. BUSINESS.

     TruServ Corporation ("TruServ" or the "Company") was organized as Cotter &
Company ("Cotter"), a Delaware corporation, in 1953. Upon its organization, it
succeeded to the business of Cotter & Company, an Illinois corporation organized
in 1948. On July 1, 1997 Cotter & Company merged with ServiStar Coast to Coast
Corporation ("SCC") (the "Merger"). SCC was a hardware wholesaler organized in
1935 with a strong presence in retail lumber and building materials. Following
the Merger, the Company was renamed TruServ Corporation. The Company's principal
executive offices are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois,
60631-3505. Its telephone number is (773) 695-5000.

     The Company is a Member-owned wholesaler of hardware, lumber/building
materials and related merchandise. It is the largest wholesaler of hardware,
lumber/building materials and related merchandise in the United States. The
Company also manufactures paint and paint applicators. For reporting purposes,
the Company operates in a single industry as a Member-owned wholesaler
cooperative.

     Membership, depending on the terms of the Member's Retail Member Agreement
with TruServ (the "Retail Member Agreement"), entitles TruServ Members to use
certain TruServ trademarks and trade names, including the federally registered
Coast to Coast(R), ServiStar(R) and True Value(R) trademarks, service marks and
collective membership marks. The True Value(R) collective membership mark has a
present expiration date of January 2, 2003; the ServiStar(R) mark has a present
expiration date of September 13, 2003; the Coast to Coast(R) mark expires on
November 3, 2004; the InduServe Supply(R) mark has a present expiration date of
January 23, 2006; the Grand Rental Station(R) mark has a present expiration date
of June 4, 2005; the Taylor Rental(R) mark has a present expiration date of
January 15, 2004; the Home & Garden Showplace(R) mark has a present expiration
date of February 13, 2009 and the Commercial Sales(R) mark has a present
expiration date of December 16, 2007. Members are continuing to conduct their
businesses under the same retail banners as before the Merger but, beginning in
year 2000, all Members with the retail banners of Coast to Coast(R) and
ServiStar(R) started to conduct their business under the single retail banner of
True Value(R). Membership entitles the Members to have access to all private
label product and entitles a Member to receive annual patronage dividends based
upon the Member's purchases from TruServ (See Distribution of Patronage
Dividend). In accordance with TruServ's By-Laws and the Retail Member
Agreements, the annual patronage dividend is paid to Members out of the gross
margins from operations and other patronage source income, after deduction for
expenses, reserves and provisions authorized by the Board of Directors.

     The Company serves approximately 8,700 Coast to Coast(R), ServiStar(R) and
True Value(R) Hardware Stores throughout the United States. Primary
concentrations of Members exist in New York (approximately 9%), Pennsylvania
(approximately 8%), California, Florida, Illinois, Massachusetts, Michigan, Ohio
and Texas (approximately 4% each).

                                        1
<PAGE>   3

     The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:

<TABLE>
<CAPTION>
                                                   FOR THE FISCAL YEARS
                                                 ------------------------
                                                  1999     1998     1997
                                                 ------   ------   ------
<S>                                              <C>      <C>      <C>
Lumber and Building Materials..................   33.2%    30.2%    24.5%
Hardware Goods.................................   16.1%    17.8%    19.5%
Farm and Garden................................   15.9%    14.5%    13.1%
Electrical and Plumbing........................   12.7%    13.4%    15.8%
Painting and Cleaning..........................   10.0%    10.8%    12.0%
Appliances and Housewares......................    8.6%     8.4%     9.4%
Sporting Goods and Toys........................    3.5%     4.9%     5.7%
</TABLE>

     The Company serves its Members by functioning as a low cost distributor of
goods and maximizing its volume purchasing abilities, primarily through vendor
rebates and discount programs, for the benefit of its Members. These benefits
are passed along to its Members in the form of lower prices and/or patronage
dividends. The Company has numerous individual agreements or commitments from
its suppliers, virtually all of which are terminable by such suppliers or the
Company without cause. Such provisions, either individually or in the aggregate,
have not had any material adverse effect on the Company's ability to conduct its
business. The goods and services purchased by the Company from these suppliers
are generally available from a wide variety of sources. The Company is not
dependent upon any one supplier or group of suppliers and has not experienced a
problem in obtaining necessary goods. The Company holds conventions and meetings
for its Members in order to keep them better informed as to industry trends and
the availability of new merchandise. The Company also provides each of its
Members with an illustrated price catalog showing the products available from
the Company. The Member can access this catalog through the newly developed
internet site for Members or a printed version can be sent to them. The
Company's sales to its Members are divided into three categories, as follows:
(1) warehouse shipment sales (approximately 37% of total sales); (2) direct
shipment sales (approximately 58% of total sales); and (3) relay sales
(approximately 5% of total sales). Warehouse shipment sales are sales of
products purchased, warehoused, and resold by the Company upon orders from the
Members. Direct shipment sales are sales of products purchased by the Company
but delivered directly to Members from manufacturers. Relay sales are sales of
products purchased by the Company in response to the requests of several Members
for a product which is (i) included in future promotions, (ii) not normally held
in inventory and (iii) is not susceptible to direct shipment. Generally, the
Company will give notice to all Members of its intention to purchase products
for relay shipment and then purchases only so many of such products as the
Members order. When the product shipment arrives at the Company, it is not
warehoused; rather, the Company breaks up the shipment and "relays" the
appropriate quantities to the Members who placed orders.

     The Company also manufactures paint and paint applicators. The principal
raw materials used by the Company are chemicals. All raw materials are purchased
from outside sources. The Company has been able to obtain adequate sources of
raw materials and other items used in production and no shortages of such
materials which will materially impact operations are currently anticipated.

     The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 2000, these markets will be held in Dallas, Texas and
New Orleans, Louisiana. Members are invited to the markets and generally place
substantial orders for delivery during the period prior to the next market.
During such markets, new merchandise and seasonal merchandise for the coming
season is displayed to attending Members.

     As of February 26, 2000 and February 27, 1999, respectively, the Company
had a backlog of firm orders (including relay orders) of approximately
$21,514,000 and $18,700,000. It is anticipated that the entire backlog existing
at February 26, 2000 will be filled by April 30, 2000. The Company's backlog at
any given time is made up of two principal components: (i) normal resupply
orders and (ii) market orders for future delivery. Resupply orders are orders
from Members for merchandise to keep inventories at normal levels.

                                        2
<PAGE>   4

Generally, such orders are filled the day following receipt, except that relay
orders for future delivery (which are in the nature of resupply orders) are not
intended to be filled for several months. Market orders for future delivery are
Member orders for new or seasonal merchandise given at the Company's two
markets, for delivery during the several months subsequent to the markets. Thus,
the Company will have a relatively high backlog at the end of each market which
will diminish in subsequent months until the next market.

     The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses served by the Company continue to face
intense competition from chain stores, discount stores, home centers, and
warehouse operations. Increased operating expenses for the retail stores,
including increased costs due to longer open-store hours and higher rental costs
of retail space, have cut into operating margins and brought pressures for lower
merchandise costs, to which the Company has been responsive through a
retail-oriented competitive pricing strategy on high-turnover, price-sensitive
items. The trueAdvantage(R) program was introduced in 1995 and upgraded in 1997
to promote higher retail standards in order to build consumer goodwill and
create a positive image for all Member stores.

     The Company competes with other Member-owned and non-member-owned
wholesalers as a source of supply and merchandising support for independent
retailers. Competitive factors considered by independent retailers in choosing a
source of supply include pricing, servicing capabilities, promotional support
and merchandise selection and quality. Increased operating expenses and
decreased margins have resulted in several non-member-owned wholesalers
withdrawing from business.

     The Company, through a Canadian subsidiary, owns a majority equity interest
in TruServ Canada Cooperative, Inc., a Canadian wholesaler of hardware, variety
and related merchandise. This cooperative serves approximately 550 True Value(R)
and V&S(R) Stores, all located in Canada. The cooperative has approximately 335
employees and generated less than 5% of the Company's consolidated revenue in
fiscal year 1999.

     The Company operates several other subsidiaries, most of which are engaged
in businesses providing additional services to the Company's Members. In the
aggregate, these subsidiaries are not significant to the Company's results of
operations.

     The Company employs approximately 5,500 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of the
Company's operations, employee relations are governed by the practices
prevailing in the particular area and are generally dealt with locally.
Approximately 22% of the Company's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, the Company considers its relationship with its
employees to be good.

RETAIL MEMBER AGREEMENT; FRANCHISE AND LICENSE AGREEMENTS

     The TruServ Retail Member Agreement provides, among other things, that each
Member:

          (i) will be required to own 60 shares of Class A common stock of
     TruServ for each store owned by such Member (up to a maximum of 300 shares
     for five or more stores);

          (ii) will conduct its businesses under the True Value(R), ServiStar(R)
     or Coast to Coast(R) names (or other affiliated names or marks) subject to
     the terms of the Retail Member Agreement;

          (iii) will conduct a retail hardware, lumber, building materials, home
     center, rental or industrial/ commercial operation at a designated
     location;

          (iv) will comply with TruServ's By-Laws as in effect from time to
     time;

          (v) will accept patronage dividends in a form complying with the
     requirement of the Internal Revenue Code for deduction from gross income by
     TruServ;

          (vi) may receive different services and pay different charges based on
     the volume of merchandise purchased by the Member;

                                        3
<PAGE>   5

          (vii) agrees to have its Retail Member Agreement terminated in certain
     circumstances by unilateral action by TruServ's Board of Directors;

          (viii) agrees to have its Retail Member Agreement automatically
     modified upon notice to the Member by TruServ of any change in its
     Certificate of Incorporation or By-Laws or any resolution of the Board of
     Directors;

          (ix) agrees to have its Retail Member Agreement governed by Illinois
     law, and enforced or interpreted only in courts located in Cook County,
     Illinois or any contiguous county; and

          (x) may terminate the Retail Member Agreement upon 60 days written
     notice to TruServ.

     In view of current circumstances, the Company has initiated a moratorium on
the redemption of its stock. The Board of Directors will review this matter from
time to time in light of the then current financial circumstances of the
Company.

     Some of the licenses and franchise agreements of former SCC Members have
been assigned by TruServ to a new wholly-owned limited liability company which
was created for the purpose of continuing to operate any license or franchise
activities, which have been continued in that format after July 1, 1997. TruServ
will review any retail activities which continue to be carried out as
franchises. It is anticipated that additional licenses may be entered into
periodically with respect to the Taylor Rental Centers and Grand Rental
Stations. It is less likely that any additional franchise or license agreements
will be entered into with respect to the other retail programs operated as
franchises by SCC prior to the Merger. Rather, it is contemplated that these
programs will initially be operated as part of the cooperative activities of
TruServ.

                      DISTRIBUTION OF PATRONAGE DIVIDENDS

     TruServ operates on a cooperative basis with respect to business transacted
with or for Members. All Members are entitled to receive patronage dividend
distributions from TruServ on the basis of gross margins of merchandise and/or
services purchased by each Member. In accordance with TruServ's By-Laws and
Retail Member Agreement, the annual patronage dividend is paid to Members out of
the gross margins from operations and other patronage source income, after
deduction for expenses, reserves and provisions authorized by the Board of
Directors. No dividend will be distributed for 1999.

     Patronage dividends are usually paid to Members within 90 days after the
close of TruServ's fiscal year; however, the Internal Revenue Code (the "Code")
permits distribution of patronage dividends as late as the 15th day of the ninth
month after the close of TruServ's fiscal year, and TruServ may elect to
distribute the annual patronage dividend at a later time than usual in
accordance with the provisions of the Code.

     TruServ's By-Laws provide for the payment of year-end patronage dividends,
after payment of at least 20% of such patronage dividends in cash, in qualified
written notices of allocation including (i) Class B common stock based on par
value thereof, to a maximum of 2% of the Member's net purchases of merchandise
from TruServ for the year (except in unusual circumstances of individual
hardships, in which case the Board of Directors reserves the right to make
payments in cash), (ii) promissory (subordinated) notes, or (iii) other
property. Such promissory (subordinated) notes are for a five year term, bear
interest at a fixed rate based on a premium spread above comparable U.S.
Treasury notes as approved by the Board of Directors, and are subordinated to
all other debt of TruServ. TruServ may also issue nonqualified written notices
of allocation to its Members as part of its annual patronage dividend. See
"Payment of Patronage Dividends in Accordance with the Internal Revenue Code."

     In determining the form of the annual patronage dividend, a Member's
required investment in Class B common stock of TruServ had historically been
limited by the Board of Directors to an amount, the cumulative value of which
will not exceed two percent (2%) of the Member's net purchases of merchandise
from the Company. Commencing in 1996, the Board established minimum Class B
ownership requirements (currently $25,000 for hardware stores and $15,000 for
lumber stores) which may be varied from time to time and is comprised of the
aggregate of a Member's various types of annual purchases multiplied by a
specific percentage, that varies from 1% to 14%, decreasing as total dollar
purchases by category increase. The amount of such required investment is
determined by majority vote of the Board of Directors, and may be increased or

                                        4
<PAGE>   6

decreased by such vote. The basis for determining the necessity of an increase
or decrease is through evaluation of the financial needs of TruServ, while
considering the needs of its membership. The consideration and method of payment
for such shares is by way of the required amount being calculated as part of the
annual patronage dividend distribution amount.

PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE

     The Code specifically provides for the taxation of cooperatives (such as
TruServ) and their patrons (such as TruServ's Members) so as to ensure that the
business earnings of cooperatives are currently taxable either to the
cooperatives or to the patrons.

     The shares of Class B nonvoting common stock and other written notices,
which disclose to the recipient the stated amount allocated to him by TruServ
and the portion thereof which is a patronage dividend, distributed by TruServ to
its Members are "written notices of allocation" within the meaning of that
phrase as used in the Code. For such written notices to be "qualified written
notices of allocation" within the meaning of the Code, it is necessary that
TruServ pay 20% or more of the annual patronage dividend in cash and that the
Members consent to having the allocations (at their stated dollar amount)
treated as being constructively received by them and includable in their gross
income. Such written notices that do not meet these requirements are
"nonqualified written notices of allocation" within the meaning of the Code.
Cash, qualified written notices, and other property (except nonqualified written
notices of allocation) are currently deducted from earnings in determining the
taxable income of TruServ and, accordingly such qualified written notices of
allocation are includable in gross income of the patron (Member). Section
1385(a) of the Code provides, in substance, that the amount of any patronage
dividend which is paid in cash, qualified written notices of allocation or other
property (except nonqualified written notices of allocation) shall be included
in the gross income of the patron (Member) for the taxable year in which it
receives such cash or such qualified written notices of allocation. In general,
with respect to nonqualified written notices of allocation, no amounts are
deductible by TruServ or includable in gross income of the patron (Member) until
redeemed by TruServ.

     Thus, every year each Member may receive, as part of the Member's patronage
dividend, non-cash "qualified written notices of allocation", which may include
Class B nonvoting common stock, the stated dollar amount of which must be
recognized as gross income for the taxable year in which received. The portion
of the patronage dividend paid in cash (at least 20%) may be insufficient,
depending on the tax bracket in each Member's case, to provide funds for the
payment of income taxes for which the Member will be liable as a result of the
receipt of the entire patronage dividend, including cash and Class B nonvoting
common stock.

     In response to the provisions of the Code, TruServ's By-Laws provide for
the treatment of the shares of Class B nonvoting common stock and such other
notices as the Board of Directors may determine, distributed in payment of
patronage dividends as "qualified written notices of allocation." The By-Laws
provide in effect:

          (i) for payment of patronage dividends partly in cash, partly in
     qualified written notices of allocation (including the Class B nonvoting
     common stock as described above), other property or in nonqualified written
     notices of allocation, and

          (ii) that membership in the organization (i.e. the status of being a
     Member of TruServ) shall constitute consent by the Member to take the
     qualified written notices of allocation or other property into account in
     the Member's gross income as provided in Section 1385(a) of the Code.

     Under the provisions of the Code, persons who become or became Members of
TruServ or who retained their status as Members after adoption of the By-Laws
providing that membership in the organization constitutes consent, and after
receiving written notification and a copy of the By-Laws are deemed to have
consented to the tax treatment of the cash and the qualified written notices of
allocation in which the patronage dividends are paid, in accordance with Section
1385(a) of the Code. Written notification of the adoption of the By-Laws and its
significance, and a copy of the By-Laws, were sent to each then existing Member
and have been, and will continue to be, delivered to each party that became, or
becomes a Member thereafter. Such consent is then effective except as to
patronage occurring after the distributee ceases to be a Member of the
organization or after the By-Laws of the organization cease to contain the
provision with

                                        5
<PAGE>   7

respect to the above described consent. Such consent may be revoked by the
Member only by terminating its membership in TruServ in the manner provided in
its Retail Member Agreement.

     Each year since 1978, TruServ has paid its Members 30% of the annual
patronage dividend in cash in respect to patronage (excluding nonqualified
written notices of allocation) occurring in the preceding year. It is the
judgment of management that the payment of 30% or more of patronage dividends in
cash will not have a material adverse effect on the operations of TruServ or its
ability to maintain adequate working capital for the normal requirements of its
business. However, TruServ is obligated to distribute only 20% of the annual
patronage dividend (excluding nonqualified written notices of allocation) in
cash and it may distribute this lesser percentage in future years.

     In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B nonvoting common stock to
each Member, TruServ deposits a bulk certificate with Harris Trust and Savings
Bank, Chicago, Illinois for safekeeping for and on behalf of its Members and
sends a written notice to each Member of these deposits and the allocation
thereof to such Member.

                                        6
<PAGE>   8

ITEM 2. PROPERTIES.

     The Company's national headquarters is located in Chicago, Illinois.
Information with respect to the Company's owned and leased warehousing and
office facilities is set forth below:

<TABLE>
<CAPTION>
                                                       SQUARE FEET OF                          LEASE
                                                       WAREHOUSE AND                        EXPIRATION
                      LOCATION                          OFFICE AREA        INTEREST            DATE
                      --------                         --------------      --------         ----------
   <S>                                                 <C>                 <C>           <C>
   Brookings, South Dakota.......................          518,000           Owned
   Chicago, Illinois.............................          228,100          Leased       December 31, 2010
   Corsicana, Texas..............................          775,000           Owned
   Denver, Colorado..............................          360,000          Leased       June 30, 2004
   East Butler, Pennsylvania.....................          476,200           Owned
   Fogelsville (Allentown), Pennsylvania.........          600,000           Owned
   Ft. Smith, Arkansas...........................          206,500          Leased       November 30, 2002
   Hagerstown, Maryland..........................          840,000          Leased       April 28, 2003
   Harvard, Illinois.............................        1,310,000          Leased       August 23, 2013
   Harvard, Illinois.............................          160,000          Leased       August 23, 2005
   Henderson, North Carolina.....................          300,000          Leased       November 11, 2001
   Indianapolis, Indiana.........................          420,000           Owned
   Jonesboro (Atlanta), Georgia..................          670,000           Owned
   Kansas City, Missouri.........................          415,000           Owned
   Kingman, Arizona..............................          375,000           Owned
   Manchester, New Hampshire.....................          730,000           Owned
   Mankato, Minnesota............................          320,000           Owned
   Peachtree City, Georgia.......................           60,500          Leased       November 24, 2005
   Schiller Park, Illinois.......................           42,500          Leased       April 30, 2001
   Springfield, Oregon...........................          504,000           Owned
   Westfield, Massachusetts......................          448,700           Owned
   Westlake (Cleveland), Ohio....................          405,000           Owned
   Winnipeg, Manitoba............................          432,000           Owned
   Woodland, California..........................          350,000           Owned
</TABLE>

     No location owned by the Company is subject to a mortgage.

     In December 1983, the Company completed construction of a 150,000 square
foot addition to its regional distribution center in Manchester, New Hampshire.
This addition was financed with the proceeds from the sale of $4,000,000 State
of New Hampshire Industrial Development Authority Revenue Bonds (TruServ
Corporation Project) Series 1982. On October 1, 1997, and every three-year
period thereafter, the interest rate on the 4.50% industrial revenue bonds will
be adjusted based on a bond index. These bonds may be redeemed at face value at
either the option of the Company or the bondholders at each interest reset date
through maturity in 2003.

     The Ft. Smith, Arkansas and Peachtree City, Georgia properties, which were
closed in 1997, are under lease and are currently under a sublease. The Butler,
Pennsylvania office building was closed in 1997 and sold in 1999. The
Parkesburg, Pennsylvania; Piedmont, South Carolina and Portland, Oregon
properties were closed in 1998 and sold in 1999. In 1999, the Company announced
the closing of its Westfield, Massachusetts distribution center. The Henderson,
North Carolina distribution center was sold in 1999 and is currently being
leased back to the Company.

                                        7
<PAGE>   9

     Information with respect to the Company's manufacturing facilities is set
forth below:

<TABLE>
<CAPTION>
                                                  SQUARE FEET OF
                                                  MANUFACTURING         PRINCIPAL
                   LOCATION                            AREA              PRODUCT         INTEREST
                   --------                       --------------        ---------        --------
<S>                                               <C>               <C>                  <C>
Chicago, Illinois.............................       105,000              Paint          Owned
Cary, Illinois................................       580,000            Paint and        Owned
                                                                    Paint Applicators
</TABLE>

     The Company's facilities are suitable for their respective uses and are, in
general, adequate for the Company's present needs.

     The Company owns and leases transportation equipment for use at its
regional distribution centers for the primary purpose of delivering merchandise
from the Company's regional distribution centers to its Members. Additional
information concerning these leases can be found in note 5 to the consolidated
financial statements included elsewhere herein.

ITEM 3. LEGAL PROCEEDINGS.

     There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     There is no existing market for the common stock of the Company and there
is no expectation that any market will develop. The Company's Class A common
stock is owned exclusively by retailers of hardware, lumber/building materials
and related products each of whom is a Member of the Company and purchases sixty
shares of the Company's Class A common stock (the only class of voting stock)
upon becoming a Member. The Company is organized as a Delaware stock corporation
and operates as a Member-owned wholesaler cooperative corporation. The shares of
the Company's Class B nonvoting common stock now outstanding were issued to
Members in partial payment of the annual patronage dividend to which they became
entitled as a result of patronage business transacted by such Members with the
Company. In accordance with the Company's By-Laws, the annual patronage dividend
is paid to Members out of the gross margins from operations and other patronage
source income, after deduction for expenses, reserves and provisions authorized
by the Board of Directors.

     The number of holders of record (as of February 26, 2000) of each class of
stock of the Company is as follows:

<TABLE>
<CAPTION>
                                                                 NUMBER OF
                                                                HOLDERS OF
                                                                  RECORD
                       TITLE OF CLASS                           ----------
<S>                                                          <C>
Class A common stock, $100 Par Value........................       7,540
Class B nonvoting common stock, $100 Par Value..............       7,500
</TABLE>

     Dividends (other than patronage dividends) on the Class A common stock and
Class B nonvoting common stock, subject to the provisions of the Company's
Certificate of Incorporation, may be declared out of gross margins of the
Company, other than gross margins from operations with or for Members and other
patronage source income, after deduction for expenses, reserves and provisions
authorized by the Board of Directors. Dividends may be paid in cash, in
property, or in shares of the common stock, subject to the

                                        8
<PAGE>   10

provisions of the Certificate of Incorporation. Other than the payment of
patronage dividends, including the redemption of all nonqualified written
notices of allocation, the Company has not paid dividends on its Class A common
stock or Class B nonvoting common stock. The Board of Directors does not plan to
pay dividends on either class of stock. See the discussion of patronage
dividends under Item 1--Business.

ITEM 6. SELECTED FINANCIAL DATA.

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                              FOR THE FISCAL YEARS
                                       ------------------------------------------------------------------
                                          1999          1998          1997          1996          1995
                                       ----------    ----------    ----------    ----------    ----------
                                                                 (IN THOUSANDS)
<S>                                    <C>           <C>           <C>           <C>           <C>
Revenues...........................    $4,502,326    $4,328,238    $3,331,686    $2,441,707    $2,437,002
Gross margins......................       181,465       298,135       241,020       196,636       202,068
Net margins(loss)(a)...............      (131,143)       20,480        42,716        52,410        59,037
Patronage dividends(b).............            --        35,024        43,782        53,320        60,140
Total assets.......................     1,348,147     1,600,764     1,438,913       853,985       819,576
Long-term debt.....................       309,796       316,959       169,209        80,145        79,213
Promissory (subordinated) and
  installment notes payable........        83,804       124,422       172,579       185,366       186,335
Redeemable Class A common stock....        47,270        49,880        47,423         4,876         5,294
Redeemable Class B nonvoting common
  stock............................       177,779       195,643       187,259       114,053       113,062
</TABLE>

---------------
(a) The net margins (loss) for fiscal years 1999, 1998 and 1997 include
    deductions of $26,196,000, $20,034,000 and $13,650,000, respectively, for
    merger integration costs.
(b) No patronage dividend was issued in 1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BUSINESS COMBINATION

     On July 1, 1997, TruServ Corporation (the "Company"), formerly Cotter &
Company ("Cotter") merged with Servistar Coast to Coast Corporation ("SCC") (the
"Merger"). The transaction was accounted for using the purchase accounting
method. Accordingly, the financial information for the years ended December 31,
1998 and 1999 reflect the results of the post-Merger Company and the financial
information for the year ended December 31,1997 reflects the results of the
pre-Merger Company for the twenty-six weeks ended June 28, 1997 and the results
of the post-Merger Company for the twenty-six weeks ended December 31, 1997. To
facilitate the comparison of results for 1999, 1998 and 1997, supplemental
comparisons have been provided using pro forma financial information. This pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of the results of operations that actually would have
resulted had the Merger been in effect on the dates indicated, or which may
result in the future.

<TABLE>
<CAPTION>
                                            YEAR ENDED           YEAR ENDED                YEAR ENDED
                                         DECEMBER 31, 1999    DECEMBER 31, 1998        DECEMBER 31, 1997
                                         -----------------    -----------------    --------------------------
                                              ACTUAL               ACTUAL            ACTUAL      PRO FORMA(1)
                                         -----------------    -----------------    ----------    ------------
                                                                   (000'S OMITTED)
<S>                                      <C>                  <C>                  <C>           <C>
Revenue..............................       $4,502,326           $4,328,238        $3,331,686     $4,224,215
Gross margin.........................          181,465              298,135           241,020        284,356
Warehouse, general and administrative
  expense............................          215,560              204,520           148,767        175,774
Interest expense.....................           60,702               55,100            36,965         43,459
Merger integration costs.............           26,196               20,034            13,650             --
Net margin (loss)....................         (131,143)              20,480            42,716         67,357
</TABLE>

---------------
(1) Assumes the Merger was consummated at January 1, 1997.

                                        9
<PAGE>   11

FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

  RESULTS OF OPERATIONS

     Revenues for the fiscal year 1999 totaled $4,502,326,000. This represented
an increase of $174,088,000 or 4.0% compared to the comparable period last year.
The increase was due primarily to increases in direct shipment sales, which
increased 7.8% and lumber/building materials sales which increased 15.1%.

     Gross margins decreased by $116,670,000 or 39.1%, and as a percentage of
revenues, decreased to 4.0% from 6.9% for the comparable period last year. The
decrease in gross margin percentage was due to a change in sales mix, which
consisted of an increase in direct shipment and lumber sales, which have lower
gross margin percentages compared to handled merchandise. Also, gross margin was
impacted by increased Member claims and other inventory adjustments that were
related to the closing of distribution centers caused by the finalization of the
distribution network strategy.

     Warehouse, general and administrative expenses remained consistent as a
percent of revenue with the prior year at 4.8% and 4.7% respectively. The
reduction of expense that began in 1998 continued in 1999 with headcount
reductions and the elimination of fixed costs by closing and selling idle
distribution centers and was offset by a $15.6 million reduction in capitalized
warehouse, general and administrative expense due to inventory reduction.

     Interest paid to Members decreased by $1,892,000 or 11.5% primarily due to
a lower average interest rate and lower principal balance. Other interest
expense increased $7,494,000 due to an increase in the Company's borrowing rate.

     The gain on sale of properties totaled $11,724,000 for fiscal year 1999,
and is attributable to the sale of redundant distribution centers and associated
property.

     Income tax expense increased by $16,423,000 because of the uncertainty of
the future realization of the tax benefit. The previously recorded tax asset
related to the merger was written off due to the extent of the net operating
loss that has occurred in 1999.

     The cumulative effect on prior years of a change in accounting principle of
$6,484,000 reflects the start-up costs of converting the systems used by SCC
distribution centers prior to the merger to those systems currently used by the
Company. This reduction in net margins is in compliance with SOP 98-5, Reporting
the Costs of Start-up Activities.

     Merger integration costs for the fiscal year 1999 were $26,196,000 compared
to $20,034,000 for the comparable period last year. Merger integration costs
consist of one time non-recurring expenses directly attributable to the Merger
including distribution center closings, severance pay, information systems costs
and general and administrative costs.

     The combination of decreased gross margins, as well as increased borrowing
costs, increased income tax expense and the cumulative effect of a change in
accounting principle resulted in a net loss of $131,143,000 compared to a net
margin of $20,480,000 for the same period last year.

                                       10
<PAGE>   12

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

  RESULTS OF OPERATIONS

     Revenues in fiscal year 1998 totaled $4,328,238,000. This represented an
increase of $996,552,000 or 29.9% compared to the comparable period last year.
The increase was primarily due to the addition of Servistar Coast to Coast
revenues that resulted from the July 1, 1997 merger of Cotter and SCC. The
departments with the largest increase are the lumber/building material
department, manufactured products, and the Canadian business. In the hardware
department the largest increase was reflected in the direct shipment categories
with TruServ Members responding to improved pricing programs.

     Gross margins increased by $57,115,000 or 23.7% but as a percentage of
revenues decreased to 6.9% from 7.2% for the comparable period last year. This
is the seventh year in a row that the gross margin as a percentage of revenue
has decreased. The decrease in gross margin percentage resulted primarily from a
change in the sales mix. The change in sales mix consisted of large volume
increases in Lumber/Building Materials and Direct Shipments, which have lower
gross margins. Pricing improvements resulted in lower direct shipment markups
and a lower pricing on manufactured products.

     Warehouse, general and administrative expenses as a percentage of revenues
increased to 4.7% from 4.5% compared with the prior year. The Company incurred
additional warehousing expenses in association with commonizing inventory
assortments, increased inventory levels, and the implementation of the
distribution network strategy. Many of the potential cost efficiencies related
to the Merger have not yet been realized and costs should be reduced as the
Merger strategy is further implemented.

     Certain estimates of warehouse, general and administrative expenses are
recorded throughout the year including expenses related to capitalizable
inventory related costs and other expense items. During the fourth quarter of
fiscal 1998, the Company recorded approximately $60,000,000 of net reductions in
warehouse, general and administrative expenses relating to the refinement of
these estimates recorded in the prior three quarters.

     Interest paid to Members decreased by $1,475,000 or 8.3% primarily due to a
lower average interest rate and lower principal balance. Other interest expense
increased $19,610,000 due to higher borrowings compared to the same period last
year. The higher borrowings were required because of the increased cash
requirement resulting from the merger and increased inventory levels. The
effective borrowing rate for 1998 was lowered due to the renegotiation of the
rates since the date of the Merger. The Company is required to meet certain
financial ratios and covenants pertaining to certain debt arrangements. The
Company's lenders have waived compliance with a covenant as of December 31, 1998
in lieu of amendments to the debt agreements, which were finalized by the
Company during the first quarter of 1999.

     The combination of increased gross margins, offset by increased expenses
and increased borrowing costs, resulted in a net margin before Merger
integration costs of $40,514,000 in fiscal year 1998 compared to $56,366,000 in
fiscal year 1997. Merger integration costs consist of one time non-recurring
expenses directly attributable to the Merger including distribution center
closings, severance pay, information systems costs and general and
administrative costs. Merger integrations costs were $20,034,000 and $13,650,000
for fiscal years 1998 and 1997, respectively. The net margin after Merger
integration cost was $20,480,000 and $42,716,000 for fiscal year 1998 and 1997,
respectively.

ACTUAL FISCAL 1998 COMPARED TO PRO FORMA FISCAL 1997

  RESULTS OF OPERATIONS

     Revenues for the fiscal year totaled $4,328,238,000. This represented an
increase of $104,023,000 or 2.5% compared to the prior year on a pro forma
basis. The increase was attributable to revenue increases in lumber/ building
materials and direct shipments.

     Gross margins increased by $13,779,000 or 4.8% and as a percentage of
revenues, increased to 6.9% from 6.7% for the prior year on a pro forma basis.
The increased gross margins came about primarily from the increase in revenue
along with a reduction in the estimated capitalizable inventory-related costs.
                                       11
<PAGE>   13

     Warehouse, general and administrative expenses increased by $28,746,000 or
16.4% and as a percentage of revenues increased to 4.7% from 4.2% for the prior
year on a pro forma basis. The Company incurred additional warehousing expenses
in association with commonizing inventory assortments, increased inventory
levels, and the implementation of the distribution network strategy. Many of the
potential cost efficiencies related to the Merger have not yet been realized and
costs should be reduced as the Merger strategy is further implemented.

     Interest expense increased from $43,459,000 to $55,100,000 primarily due to
higher short-term borrowings because of the increased cash requirement resulting
from increased inventory levels.

     Integration costs consist of costs associated with the implementation of
the Merger plan.

     The combination of increased gross margin partially offset by higher
warehouse, general and administrative expense and higher interest expense,
resulted in a net margin of $20,480,000 compared to $67,357,000 for the prior
year on a pro forma basis.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities for the year end December 31, 1999
was $177,695,000 compared to cash used for operating activities of $102,092,000
for the year ended December 31, 1998. As of December 31, 1999, inventories
decreased by $112,703,000 as the Company completed its efforts to commonize
inventory assortment and implement the Company's distribution network strategic
plan. Accounts and notes receivable decreased by $63,059,000 due to improved
collection efforts. The accounts payable increase of $52,175,000 is associated
with improved terms with vendors and better inventory turns.

     Cash flows used for investing activities were $10,532,000. Total capital
expenditures, including those made under capital leases, were $45,235,000 for
the fiscal year 1999 compared to $71,343,000 during the comparable period in
1998. These capital expenditures relate to additional equipment and
technological improvements at the regional distribution centers and at the
corporate headquarters. Additionally, the company has sold four redundant
distribution centers during fiscal 1999. Proceeds from the sale of these
properties were $39,714,000. The Parksburg, Pennsylvania; Piedmont, South
Carolina and Portland, Oregon distribution centers were sold in 1999. The
Henderson, North Carolina distribution center was sold in 1999 and is currently
being leased back to the Company.

     The cash flows generated from operations was used to reduce the Company's
financing activities by $166,998,000. This decrease was in both long and
short-term debt.

     At July 1, 1997, the Company had established a $300,000,000 five-year
revolving credit facility with a group of banks. These agreements were amended
during March 1999. The borrowings under these agreements were $135,000,000 and
$227,000,000 at December 31, 1999 and December 31, 1998, respectively.

     Under the senior notes and revolving credit facility the Company is
required to meet certain financial ratios and covenants. The Company's lenders
have waived compliance with certain covenants as of December 31, 1999 and
amended and restated the debt agreements including increased interest rates, new
financial ratios and covenants and the securitization of the Company's assets,
which were finalized by the Company during April of 2000.

     At December 31, 1999, net working capital decreased to $79,240,000 from
$241,533,000 at December 31, 1998. The current ratio decreased to 1.09 at
December 31, 1999 compared to 1.26 at December 31, 1998.

     The Company's capital is primarily derived from Class A common stock and
retained earnings, together with promissory (subordinated) notes and nonvoting
Class B common stock issued in connection with the Company's annual patronage
dividend. The Company believes the funds derived from these capital resources,
as well as operations and the credit facilities noted above, will be sufficient
to satisfy capital needs.

                                       12
<PAGE>   14

YEAR 2000

     In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $3,800,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's operations are subject to certain market risks, primarily
interest rate risk and credit risk. Interest rate risk pertains to the Company's
variable rate debt which totals approximately $150 million at December 31, 1999.
A 50 basis point movement in the interest rates would result in an approximate
$750,000 annualized increase or decrease in interest expense and cash flows. For
the most part, interest rate risk is managed through a combination of variable
and fixed-rate debt instruments with varying maturities. Credit risk pertains
mostly to the Company's trade receivables. The Company extends credit to its
members as part of its day-to-day operations. The Company believes that as no
specific receivable or group of receivables comprises a significant percentage
of total trade accounts, its risk in respect to trade receivables is limited.
Additionally, the Company believes that its allowance for doubtful accounts is
adequate in respect to member credit risks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Company's consolidated financial statements and report of independent
auditors are listed on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The directors and senior and executive officers of the Company are:

<TABLE>
<CAPTION>
                                                                   POSITION(S) HELD AND
               NAME                    AGE                          BUSINESS EXPERIENCE
               ----                    ---                         --------------------
<S>                                    <C>      <C>
Donald C. Belt.....................     53      Senior Vice President, Strategic and Business Initiatives
                                                since July, 1997. Prior position was with SCC as Senior
                                                Vice President, Marketing and Strategic Planning since
                                                1985.
Joe W. Blagg.......................     50      Chairman since January, 2000. Director since April, 1996.
                                                Term expires April, 2001.
James D. Burnett...................     64      Director since April, 1998. Term expires April, 2000.
                                                Nominated by the Board of Directors for reelection to a
                                                three-year term.
William M. Claypool, III...........     77      Director since March, 1970. Term expires April, 2000.
Jay B. Feinsod.....................     56      Director since July, 1997. Term expires April, 2001.
                                                Formerly Director of SCC since October, 1986.
</TABLE>

                                       13
<PAGE>   15

<TABLE>
<CAPTION>
                                                                   POSITION(S) HELD AND
               NAME                    AGE                          BUSINESS EXPERIENCE
               ----                    ---                         --------------------
<S>                                    <C>      <C>
Thomas J. Filipski.................     51      Senior Vice President of Sales, Advertising and Marketing
                                                since August, 1999. Prior position was Vice President of
                                                Business Development since 1997.
Neil A. Hastie.....................     51      Senior Vice President, Chief Information Officer since
                                                December, 1999. Prior position was Director of E-Business
                                                since 1998.
William H. Hood....................     60      Director since July, 1997. Term expires April, 2000.
                                                Formerly Director of SCC since July, 1996. Nominated by the
                                                Board of Directors for reelection to a three-year term.
James D. Howenstine................     56      Vice-Chairman since January, 2000. Director since July,
                                                1997. Term expires April, 2002. Formerly Director of SCC
                                                since October, 1995.
Donald J. Hoye.....................     51      President and Chief Executive Officer since July, 1999.
                                                Director since January, 1999. Term expires April, 2002.
                                                Chief Operating Officer since January, 1999. Executive Vice
                                                President, Business Development since July, 1997. Prior
                                                position was with SCC as Executive Vice President.
Jerrald T. Kabelin.................     62      Director since April, 1985. Term expires April, 2002.
Peter G. Kelly.....................     56      Director since July, 1997. Term expires April, 2002.
                                                Formerly Director and Chairman of SCC since January, 1981.
                                                Formerly Vice-Chairman of the Company.
Leonard G. Kuhr....................     41      Senior Vice President, Finance and Chief Financial Officer
                                                since January, 2000. Prior position was Vice President, and
                                                Treasurer of a diversified health care distribution and
                                                services company.
Robert J. Ladner...................     53      Director since April, 1994. Term expires April, 2002.
                                                Formerly Chairman of Cotter & Company. Formerly
                                                Vice-Chairman of the Company.
Robert Ostrov......................     50      Chief Administrative Officer since April, 2000 and Senior
                                                Vice President since February, 1997. Prior position was
                                                Vice President of Human Resources for a retail company.
Brian T. Schnabel..................     47      Chief Operating Officer since March, 2000. Executive Vice
                                                President, Business Development since October, 1998. Prior
                                                position was President, and Chief Executive Officer for a
                                                manufacturing company.
John P. Semkus.....................     53      Senior Vice President, Operations since July, 1997. Prior
                                                position was Vice President Distribution and Transporta-
                                                tion.
George V. Sheffer..................     47      Director since July, 1994. Term expires April, 2000.
                                                Nominated by the Board of Directors for reelection to a
                                                three-year term.
Dennis A. Swanson..................     60      Director since April, 1995. Term expires April, 2001.
John B. Wake, Jr.  ................     44      Director since July, 1997. Term expires April, 2000.
                                                Formerly Director of SCC since May, 1996. Nominated by the
                                                Board of Directors for reelection to a three-year term.
</TABLE>

                                       14
<PAGE>   16

<TABLE>
<CAPTION>
                                                                   POSITION(S) HELD AND
               NAME                    AGE                          BUSINESS EXPERIENCE
               ----                    ---                         --------------------
<S>                                    <C>      <C>
John M. West, Jr. .................     47      Director since October, 1991. Term expires April, 2001.
Barbara B. Wilkerson...............     52      Director since July, 1997. Term expires April, 2001.
                                                Formerly Director of SCC since October, 1986.
</TABLE>

---------------
During the past five years, the principal occupation of each director of the
Company, other than Donald J. Hoye, was the operation of retail hardware stores
or lumber/building materials stores.

ITEM 11. EXECUTIVE COMPENSATION.

COMPENSATION COMMITTEE

     The Human Resource Development Committee of the Board of Directors (the
"Committee") consists of four non-employee directors: Jay B. Feinsod, Jerrald T.
Kabelin, Peter G. Kelly and Robert J. Ladner. In addition, Joe W. Blagg, served
as an ex-officio member of the Committee. The Committee assists the Board of
Directors in fulfilling its responsibilities for setting and administering the
policies which govern annual compensation and monitoring the Company's pension
and certain other benefit plans. The Committee calls upon outside consultants
for assistance, as necessary.

     The Committee meets at least annually. Primary responsibilities of the
Committee include:

     - Establishing the Chairman and President's salary and annual and long-term
      incentive opportunities.

     - Approving other executive officer salaries recommended by the President.

     - Setting performance goals for the annual and long-term incentive plans.

     - Assessing performance achievement relative to goals and approving
      incentive payments.

     The Committee makes recommendations to the Board of Directors regarding
compensation of the Company's executive officers. The philosophy of the
Committee is to maintain an executive compensation program to help the Company
attract, retain and motivate the executive resources needed to maintain industry
leadership, provide high levels of service to Members, and achieve the financial
objectives as determined by the Board of Directors.

     To achieve its stated goals, the Company has developed three executive
compensation policies.

     - The Company provides levels of salaried compensation that are
      competitive.

     - The Company provides annual incentive compensation for executives that
      vary in a consistent and predictable manner with the performance of the
      Company.

     - The Company provides an incentive program which enables selected
      executives to achieve incentive awards based on the long-term (multiple
      year) performance of the Company.

     The combination of these three compensation policies is intended to provide
competitive earnings opportunities when performance reaches desired levels. Both
the annual and long-term incentive plans are cancelable by the Board of
Directors at any time.

     The Company provides salary levels that are competitive with the median
(50th percentile) of the executive marketplace. The industry comparison groups
used to evaluate competitiveness include: member owned organizations, wholesale
distribution firms, mass merchandising firms and general industry and
manufacturing organizations. Competitiveness is measured using data from a
number of sources, including published information, proxies and surveys by
consulting firms.

     The annual incentive plan is designed to ensure that executive compensation
varies in relation to achievement of annual performance goals. Each executive's
incentive award is determined by Company results and individual goals.

                                       15
<PAGE>   17

     The long-term incentive plan assures a continuing focus on the Company's
future. Goals are set for performance achievement over three-year intervals. A
new performance period starts each year and goals for each three-year cycle
currently underway are related to achievement of financial goals.

EXECUTIVE COMPENSATION

     The following table sets forth the total annual compensation paid to the
Company's five most highly compensated executive officers during fiscal year
1999 and the total compensation paid to each such individual for the Company's
two previous fiscal years:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                NAME AND                                                          OTHER          LONG-TERM
           PRINCIPAL POSITION               YEAR    SALARY(1)    BONUS(2)    COMPENSATION(3)    INCENTIVE(4)
           ------------------               ----    ---------    --------    ---------------    ------------
<S>                                         <C>     <C>          <C>         <C>                <C>
Daniel A. Cotter(5).....................    1999    $687,500     $     --       $ 21,271          $     --
  Chairman of the Board                     1998     655,000           --         29,786                --
  Chief Executive Officer thru 6/30/99      1997     612,500      345,000         13,100           843,750
Donald J. Hoye..........................    1999     500,000           --         38,418                --
  President and                             1998     408,750           --         58,395                --
  Chief Executive Officer as of 7/1/99      1997     180,000      144,300         89,000            29,880
Brian T. Schnabel.......................    1999     304,400      195,000         37,372                --
  Executive Vice President,                 1998      75,800       72,000        230,729                --
  Business Development                      1997          --           --             --                --
Daniel T. Burns(5)......................    1999     306,000       36,000         17,901                --
  Executive Vice President, Secretary       1998     263,500           --         26,085                --
  and General Counsel                       1997     252,800      188,020         11,125           139,040
Donald C. Belt..........................    1999     274,100       24,000         28,421                --
  Senior Vice President                     1998     262,800           --         59,520                --
  Strategic and Business Initiatives        1997     130,000       97,300         82,220            17,420
Robert Ostrov...........................    1999     244,000       36,000         19,302                --
  Senior Vice President,                    1998     234,000           --         15,020                --
  Human Resources                           1997     200,000       75,000          5,357                --
</TABLE>

---------------
(1) Fiscal 1997 salary for Donald J. Hoye and Donald C. Belt is for the period
    from July 1, 1997 to December 31, 1997.

(2) Annual bonus amounts are earned and accrued during the fiscal years
    indicated, and paid subsequent to the end of each fiscal year. In 1997
    special one-time bonuses were granted for the successful completion of the
    merger.

(3) Other compensation consists of Company contributions to the TruServ
    Corporation Employee's Savings and Compensation Deferral Plan (the "Savings
    Plan") and automobile allowances. Under the Savings Plan, each participant
    may elect to make a contribution in an amount of up to fifteen percent (15%)
    of his annual compensation, not to exceed $30,000 (including Company
    contributions) a year, of which $10,000 of the executive officer's salary in
    fiscal year 1999 may be deferred. The Company's contribution to the Savings
    Plan is equal to seventy-five percent (75%) of the participant's
    contribution, but not to exceed four and one-half percent (4 1/2%) of the
    participant's annual compensation.

    In 1999 other compensation for Mr. Hoye and Mr. Belt consists primarily of a
    transition bonus of $20,000 and $10,000, respectively. For Mr. Schnabel the
    1999 other compensation consists primarily of relocation payments of
    $23,380.

    In 1998 other compensation for Mr. Hoye and Mr. Belt consists primarily of a
    transition bonus of $40,000 and $20,000, respectively. For Mr. Schnabel the
    1998 other compensation consists primarily of relocation payments of
    $228,116.

                                       16
<PAGE>   18

    In 1997 other compensation for Mr. Hoye and Mr. Belt consists primarily of
    $61,491 and $47,286, respectively for relocation payments.

(4) Long-term incentives for each open three year cycle were computed as of the
    effective date of the merger and paid on a pro-rata basis during the fiscal
    year.

(5) Daniel A. Cotter retired on December 31, 1999 and Daniel T. Burns retired on
    February 29, 2000.

     The Company has a severance policy providing termination benefits based
upon annual compensation and years of service. Officers of the Company are also
offered agreements providing for severance in the event of termination with the
imposition of certain restrictions regarding competition and confidentiality.

     No loans were made by the Company to its executive officers or to its
directors during the last three fiscal years.

LONG-TERM PERFORMANCE CASH AWARDS

     The Board of Directors adopted a long-term incentive plan for the officers
of the Company. Officers are eligible for cash payouts based on a percentage of
their annual salary if performance goals established for the plan are met.
Performance goals for the current plans relate to the achievement of financial
goals of sales growth, net earnings and cash flow. No awards were earned in
1999.

DEFINED BENEFIT RETIREMENT PLANS

     The Company has a defined benefit pension plan, the TruServ Corporation
Defined Lump Sum Pension Plan (the "Plan"), which is qualified under the Code.
The Plan was amended and restated effective January 1, 1998. The amount of the
Company's annual contribution to the Plan is determined for the total of all
participants covered by the Plan, and the amount of payment with respect to a
specified person is not and cannot readily be separated or individually
calculated by the actuaries for the Plan. The Plan provides fully vested lump
sum benefits to eligible employees who have served a minimum of five years of
service. Annuities are also available and are the actuarial equivalent of the
lump sum payment. Each of the executive officers listed in the foregoing Summary
Compensation Table is a participant in the Plan.

     For each year of service, a participant receives a percentage of his or her
"average compensation" in the form of a lump sum. The percentages range from two
percent of average compensation for years of service performed prior to age 26,
to twelve percent of average compensation for years of service performed at or
after age 61. Participants with average compensation in excess of two-thirds of
the Social Security Taxable Wage Base in the year of termination of employment
or retirement receive an additional benefit on this excess compensation equal to
half of the percentage applied to their full average compensation. Participants
who were age 50 with at least fifteen years of service as of January 1, 1996
receive an additional 25% of their average compensation. The benefits under the
Plan cannot be less than benefits already earned by the participant under the
Plan as it existed prior to its amendment.

     The Plan was amended effective January 2, 1998 to include former employees
of SERVISTAR/Coast to Coast. These employees get credit under the Plan for all
years for which they received credit under the SERVISTAR/Coast to Coast
Retirement Income Plan ("the SERVISTAR Plan"). In addition, any of these
employees who had attained age 50 and completed 15 years of service as of
January 1, 1998 receive an additional 25% of their average compensation. Also,
the benefits under this Plan cannot be less than benefits already earned by the
participant under the SERVISTAR Plan as of December 31, 1997.

     "Average compensation" means the average of the compensation paid to an
eligible employee during the three highest consecutive calendar years within the
ten consecutive calendar years immediately preceding the date of termination of
employment. Compensation considered in determining benefits includes salary,
overtime pay, commissions, bonuses, deferral contributions under the Savings
Plan, and pre-tax medical premiums.

     The Company amended and restated effective July 24, 1998, a Supplemental
Retirement Plan (the "Supplemental Plan") for certain employees as designated by
the Company's President and Chief Executive Officer. The Plan was amended on
July 1, 1997 to include certain former SCC employees. For each year of

                                       17
<PAGE>   19

service, participants receive a percentage of their "average compensation" in
the form of a lump sum. The percentages are 33 percent of average compensation
for years of service performed prior to age 55, to 42 percent of average
compensation for years of service performed at or after age 55. Service is
limited to 20 years, and the maximum aggregate percentage is 660%. This amount
is reduced by any benefits payable under the Plan and eight times the
participant's primary Social Security benefit. "Average Compensation" for the
Supplemental Plan is defined the same as for the Plan, as discussed above. The
benefits under the Supplemental Plan cannot be less than benefits already earned
by the participant under the Supplemental Plan as it existed prior to its
amendment.

     The Supplemental Plan is not a qualified plan under the Code. Benefits
payable under the Supplemental Plan will be financed through internal
operations. The estimated annual retirement benefits which may be payable
pursuant to the Plan to the officers named in the Summary Compensation Table is
currently limited under Section 401(a)(17) of the Code, which outlines the
maximum earnings amounts which may be considered under the Plan in determining
retirement benefits. This limit was $160,000 for 1999. Section 415 of the Code
outlines the maximum annual benefit which may be payable from the Plan during
the year; the dollar limit is $135,000 for 2000 for a participant retiring at
age 65, with reduced amounts at younger ages. The actuarial equivalent of the
annual amount may be payable as a lump sum.

     The following table reflects the combined estimated annual retirement
benefits which may be payable pursuant to the Plan and the Supplemental Plan to
the officers named in the Summary Compensation Table at retirement under various
assumed conditions, assuming retirement at age 65.

<TABLE>
<CAPTION>
                                                                  YEARS OF SERVICE
                 AVERAGE                      --------------------------------------------------------
               COMPENSATION                      10          15          20          25          30
------------------------------------------    --------    --------    --------    --------    --------
<S>                                           <C>         <C>         <C>         <C>         <C>
$1,000,000................................    $392,152    $545,467    $613,260    $613,260    $613,260
   900,000................................     352,242     489,878     550,544     550,544     550,544
   800,000................................     312,331     434,288     487,827     487,827     487,827
   700,000................................     272,421     378,699     425,111     425,111     425,111
   600,000................................     232,511     323,110     362,395     362,395     362,395
   500,000................................     192,600     267,520     299,679     299,679     299,679
   400,000................................     152,690     211,931     236,962     236,962     236,962
   300,000................................     112,780     156,341     174,246     174,246     174,246
   200,000................................      72,869     100,752     111,530     111,530     111,530
   100,000................................      32,959      45,163      48,814      48,814      48,814
</TABLE>

     The present credited years of service for the officers listed in the above
table are as follows: Daniel A. Cotter, 33 years; Donald J. Hoye, 29 years;
Daniel T. Burns, 19 years; Donald C. Belt, 15 years; Robert Ostrov, 3 years;
Brian T. Schnabel, 1 year.

     There is no existing market for the Company's common stock and there is no
expectation that any market will develop. There are no broad market or peer
group indexes the Company believes would render meaningful comparisons.
Accordingly, a performance graph of the Company's cumulative total shareholder
return for the previous five years, with a performance indicator of the overall
stock market for the Company's peer group, has not been prepared.

     In fiscal year 1999 directors of the Company were each paid $2,000 per
month and advisory board members received $1,000 per month. The two Vice
Chairmen of the Board are each paid to a maximum of $54,000 per year, when
serving in the capacity as Vice Chairmen.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     As of February 26, 2000, each of the directors of the Company, except for
Donald J. Hoye, was the beneficial owner of 60 shares of Class A common stock of
the Company comprising .3% of such shares issued and outstanding. No executive
officer owns any shares of Class A common stock.

     The directors own in the aggregate approximately .5% of Class B nonvoting
common stock as of February 26, 2000. No executive officer owns any shares of
Class B nonvoting common stock.

                                       18
<PAGE>   20

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     [None]

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (A) 1. FINANCIAL STATEMENTS

            The consolidated financial statements listed in the accompanying
            index (page F-1) to the consolidated financial statements are filed
            as part of this annual report.

         2. FINANCIAL STATEMENT SCHEDULES

            No schedules have been filed because the required information is not
            applicable or is not material or because the required information is
            included in the consolidated financial statements or the notes
            thereto.

         3. EXHIBITS

            The exhibits listed on the accompanying index to exhibits (pages E-1
            and E-2) are filed as part of this annual report.

     (B) REPORTS ON FORM 8-K

           None.

                                       19
<PAGE>   21

                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                        TRUSERV CORPORATION

                                        By:         /s/  LEONARD G. KUHR
                                          --------------------------------------
                                                     Leonard G. Kuhr,
                                                Senior Vice President and
                                                 Chief Financial Officer
DATED: April 14, 2000

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
                      SIGNATURE                                       TITLE                      DATE
                      ---------                                       -----                      ----
<C>                                                      <S>                                <C>

                 /s/ DONALD J. HOYE                      President, Chief Executive         April 14, 2000
-----------------------------------------------------      Officer and Director
                   Donald J. Hoye

                 /s/ LEONARD G. KUHR                     Senior Vice President and Chief    April 14, 2000
-----------------------------------------------------      Financial Officer
                   Leonard G. Kuhr

                  /s/ JOE W. BLAGG                       Director                           April 14, 2000
-----------------------------------------------------
                    Joe W. Blagg

                /s/ JAMES D. BURNETT                     Director                           April 14, 2000
-----------------------------------------------------
                  James D. Burnett

            /s/ WILLIAM M. CLAYPOOL, III                 Director                           April 14, 2000
-----------------------------------------------------
              William M. Claypool, III

                 /s/ JAY B. FEINSOD                      Director                           April 14, 2000
-----------------------------------------------------
                   Jay B. Feinsod

                 /s/ WILLIAM H. HOOD                     Director                           April 14, 2000
-----------------------------------------------------
                   William H. Hood

               /s/ JAMES D. HOWENSTINE                   Director                           April 14, 2000
-----------------------------------------------------
                 James D. Howenstine

               /s/ JERRALD T. KABELIN                    Director                           April 14, 2000
-----------------------------------------------------
                 Jerrald T. Kabelin

                 /s/ PETER G. KELLY                      Director                           April 14, 2000
-----------------------------------------------------
                   Peter G. Kelly

                /s/ ROBERT J. LADNER                     Director                           April 14, 2000
-----------------------------------------------------
                  Robert J. Ladner
</TABLE>

                                       20
<PAGE>   22

<TABLE>
<CAPTION>
                      SIGNATURE                                       TITLE                      DATE
                      ---------                                       -----                      ----
<C>                                                      <S>                                <C>

                /s/ GEORGE V. SHEFFER                    Director                           April 14, 2000
-----------------------------------------------------
                  George V. Sheffer

                /s/ DENNIS A. SWANSON                    Director                           April 14, 2000
-----------------------------------------------------
                  Dennis A. Swanson

                /s/ JOHN B. WAKE, JR.                    Director                           April 14, 2000
-----------------------------------------------------
                  John B. Wake, Jr.

                /s/ JOHN M. WEST, JR.                    Director                           April 14, 2000
-----------------------------------------------------
                  John M. West, Jr.

              /s/ BARBARA B. WILKERSON                   Director                           April 14, 2000
-----------------------------------------------------
                Barbara B. Wilkerson
</TABLE>

                                       21
<PAGE>   23

ITEM 14(A). INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
                                                                  PAGE(S)
                                                                  -------
<S>                                                             <C>
Report of Independent Auditors..............................    F-2
Consolidated Balance Sheet at December 31, 1999 and December
  31, 1998..................................................    F-3
Consolidated Statement of Operations for each of the three
  years in the period ended December 31, 1999...............    F-4
Consolidated Statement of Cash Flows for each of the three
  years in the period ended December 31, 1999...............    F-5
Consolidated Statement of Capital Stock and Retained
  Earnings (Deficit) for each of the three years in the
  period ended December 31, 1999............................    F-6
Notes to Consolidated Financial Statements..................    F-7 to F-19
</TABLE>

                                       F-1
<PAGE>   24

                         REPORT OF INDEPENDENT AUDITORS

To the Members and the Board of Directors
TruServ Corporation

     We have audited the accompanying consolidated balance sheets of TruServ
Corporation (formerly Cotter & Company) as of December 31, 1999 and 1998, and
the related consolidated statements of operations, cash flows, and capital stock
and retained earnings (deficit) for each of the three years in the period ended
December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 TruServ
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

     As discussed in Note 1 to the financial statements, in 1999 the Company
changed its method of accounting for start-up costs.

                                          /s/ Ernst & Young LLP

Chicago, Illinois
April 14, 2000

                                       F-2
<PAGE>   25

                              TRUSERV CORPORATION

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................   $    1,815     $    1,650
  Accounts and notes receivable, net........................      460,419        537,811
  Inventories...............................................      482,415        595,118
  Other current assets......................................        9,937         36,047
                                                               ----------     ----------
          Total current assets..............................      954,586      1,170,626
Properties, less accumulated depreciation...................      244,845        255,405
Goodwill, net...............................................      114,537        117,468
Other assets................................................       34,179         57,265
                                                               ----------     ----------
          Total assets......................................   $1,348,147     $1,600,764
                                                               ==========     ==========

                             LIABILITIES AND CAPITALIZATION

Current liabilities:
  Accounts payable..........................................   $  544,904     $  492,729
  Accrued expenses..........................................       75,347         73,092
  Short-term borrowings.....................................      167,007        258,147
  Current maturities of notes, long-term debt and capital
     lease obligations......................................       88,088         90,618
  Patronage dividend payable in cash........................           --         14,507
                                                               ----------     ----------
          Total current liabilities.........................      875,346        929,093
Long-term debt, including capital lease obligations.........      309,796        316,959
Capitalization:
  Promissory (subordinated) and installment notes...........       83,804        124,422
  Class A common stock, net of subscriptions receivable;
     authorized 750,000 shares; issued and fully paid
     405,060 and 379,680 shares; issued 106,380 shares and
     178,020 shares (net of receivable of $3,874,000 and
     $5,890,000)............................................       47,270         49,880
  Class B nonvoting common stock and paid-in capital;
     authorized 4,000,000 shares; issued and fully paid
     1,764,797 and 1,748,326 shares; issuable as partial
     payment of patronage dividends 195,118 shares at
     December 31, 1998......................................      177,779        195,643
Deferred patronage..........................................      (14,063)       (14,438)
Retained Earnings (Deficit).................................     (130,939)           579
Accumulated other comprehensive loss........................         (846)        (1,374)
                                                               ----------     ----------
          Total capitalization..............................      163,005        354,712
                                                               ----------     ----------
          Total liabilities and capitalization..............   $1,348,147     $1,600,764
                                                               ==========     ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-3
<PAGE>   26

                              TRUSERV CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED
                                                          ------------------------------------------
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                              1999           1998           1997
                                                          ------------   ------------   ------------
                                                                       (000'S OMITTED)
<S>                                                       <C>            <C>            <C>
Revenues................................................   $4,502,326     $4,328,238     $3,331,686
                                                           ----------     ----------     ----------
Cost and expenses:
  Cost of revenues......................................    4,320,861      4,030,103      3,090,666
  Warehouse, general and administrative.................      215,560        204,520        148,767
  Interest paid to Members..............................       14,498         16,390         17,865
  Other interest expense................................       46,204         38,710         19,100
  Gain on sale of properties............................      (11,724)          (954)          (990)
  Other income, net.....................................       (1,630)        (1,642)        (1,688)
  Income tax expense....................................       17,020            597          1,600
                                                           ----------     ----------     ----------
                                                            4,600,789      4,287,724      3,275,320
                                                           ----------     ----------     ----------
Net margin (loss) before merger integration costs and
  cumulative effect of a change in accounting
  principle.............................................      (98,463)        40,514         56,366
Merger integration costs................................       26,196         20,034         13,650
                                                           ----------     ----------     ----------
Net margin (loss) before cumulative effect of a change
  in accounting principle...............................     (124,659)        20,480         42,716
Cumulative effect on prior years of a change in
  accounting principle..................................        6,484             --             --
                                                           ----------     ----------     ----------
Net margin (loss).......................................   $ (131,143)    $   20,480     $   42,716
                                                           ==========     ==========     ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-4
<PAGE>   27

                              TRUSERV CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED
                                                          ------------------------------------------
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                              1999           1998           1997
                                                          ------------   ------------   ------------
                                                                       (000'S OMITTED)
<S>                                                       <C>            <C>            <C>
Operating activities:
  Net margins (loss)....................................   $(131,143)     $  20,480      $  42,716
  Adjustments to reconcile net margins (loss) to cash
     and cash equivalents from operating activities:
     Depreciation and amortization......................      41,471         32,452         25,451
     Provision for losses on accounts and notes
       receivable.......................................       5,148          2,808          2,361
     Changes in operating assets and liabilities -- net
       of acquisition in 1997:
       Accounts and notes receivable....................      63,059        (69,585)        47,288
       Inventories......................................     112,703        (52,572)       (33,953)
       Accounts payable.................................      52,175         36,823        (28,464)
       Other current assets.............................      26,110        (19,795)         1,277
       Accrued expenses.................................       2,229        (50,498)       (35,463)
     Other adjustments, net.............................       5,943         (2,205)        (1,442)
                                                           ---------      ---------      ---------
          Net cash and cash equivalents provided by
            (used for) operating activities.............     177,695       (102,092)        19,771
                                                           ---------      ---------      ---------
Investing activities:
  Additions to properties owned.........................     (44,930)       (70,733)       (38,493)
  Proceeds from sale of properties owned................      39,714         32,645          2,628
  Changes in other assets...............................      (5,316)        (5,923)        (8,494)
                                                           ---------      ---------      ---------
          Net cash and cash equivalents used for
            investing activities........................     (10,532)       (44,011)       (44,359)
                                                           ---------      ---------      ---------
Financing activities:
  Payment of patronage dividend.........................     (14,507)       (12,142)       (20,619)
  Payment of notes, long-term debt and lease
     obligations........................................     (57,340)       (41,966)      (179,363)
  Proceeds from long-term borrowings....................         731        158,821        102,897
  Increase (decrease) in short-term borrowings..........     (91,140)        42,680        142,755
  Purchase of common stock..............................      (5,359)        (3,618)       (24,585)
  Proceeds from sale of Class A common stock............         617          1,754          4,065
                                                           ---------      ---------      ---------
          Net cash and cash equivalents provided by
            (used for) financing activities.............    (166,998)       145,529         25,150
                                                           ---------      ---------      ---------
Net increase (decrease) in cash and cash equivalents....         165           (574)           562
Cash and cash equivalents at beginning of year..........       1,650          2,224          1,662
                                                           ---------      ---------      ---------
Cash and cash equivalents at end of year................   $   1,815      $   1,650      $   2,224
                                                           =========      =========      =========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-5
<PAGE>   28

                              TRUSERV CORPORATION

    CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS (DEFICIT)

<TABLE>
<CAPTION>
                                    COMMON STOCK                               ACCUMULATED        TOTAL
                                   $100 PAR VALUE                 RETAINED        OTHER       COMPREHENSIVE
                                 ------------------   DEFERRED    EARNINGS    COMPREHENSIVE      INCOME
                                 CLASS A   CLASS B    PATRONAGE   (DEFICIT)       LOSS           (LOSS)
                                 -------   --------   ---------   ---------   -------------   -------------
                                                              (000'S OMITTED)
<S>                              <C>       <C>        <C>         <C>         <C>             <C>
Balances at December 28,
  1996.........................  $ 4,876   $114,053   $     --    $   1,751      $ (840)
Net margins....................                                      42,716                     $  42,716
Foreign currency translation
  adjustment...................                                                    (216)             (216)
Patronage dividend.............              26,304                 (43,782)
Stock issued for increase in
  Class A requirements.........   23,100    (23,100)
Stock issued for paid-up
  subscriptions................    8,386
Stock issued due to
  acquisition, net of stock
  subscription receivable......   13,608    117,067
Stock purchased and retired....   (2,547)   (47,065)
                                 -------   --------   --------    ---------      ------         ---------
Balances at December 31,
  1997.........................   47,423    187,259         --          685      (1,056)        $  42,500
                                                                                                =========
Net margins....................                                      20,480                     $  20,480
Foreign currency translation
  adjustment...................                                                    (318)             (318)
Patronage dividend.............              19,512    (14,438)     (20,586)
Stock issued for increase in
  Class A requirements.........      781       (781)
Stock issued for paid-up
  subscriptions................    6,637
Stock purchased and retired....   (4,961)   (10,347)
                                 -------   --------   --------    ---------      ------         ---------
Balances at December 31,
  1998.........................   49,880    195,643    (14,438)         579      (1,374)        $  20,162
                                                                                                =========
Net (loss).....................                                    (131,143)                    $(131,143)
Foreign currency translation
  adjustment...................                                                     528               528
Amortization of deferred
  patronage....................                            375         (375)
Stock issued for paid-up
  subscriptions................    2,881
Stock purchased and retired....   (5,491)   (17,864)
                                 -------   --------   --------    ---------      ------         ---------
Balances at December 31,
  1999.........................  $47,270   $177,779   $(14,063)   $(130,939)     $ (846)        $(130,615)
                                 =======   ========   ========    =========      ======         =========
</TABLE>

Class A common stock amounts are net of unpaid amounts of $3,874,000 relating to
106,380 issued shares at December 31, 1999; $5,890,000 relating to 178,020
issued shares at December 31, 1998; $6,289,000 relating to 149,875 issued shares
at December 31, 1997; and $1,000 for 290 subscribed shares at December 28, 1996.

                See Notes to Consolidated Financial Statements.

                                       F-6
<PAGE>   29

                              TRUSERV CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

     TruServ Corporation ("TruServ" or the "Company") is a Member-owned
wholesaler of hardware, lumber/building materials 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, lumber/building materials and related lines, each of whom has
purchased 60 shares per store (up to a maximum of 5 stores) 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 July 1, 1997, TruServ Corporation, formerly Cotter & Company ("Cotter"),
merged with ServiStar Coast to Coast Corporation ("SCC") (the "Merger"). SCC was
a hardware wholesaler with a strong presence in retail lumber and building
materials. The transaction was accounted for using the purchase accounting
method. The Consolidated Balance Sheet at December 31, 1999 and December 31,
1998 reflect the post-Merger Company. The Consolidated Statements of Operations
and Cash Flows for the years ended December 31, 1999 and December 31, 1998
reflect the results of the post-Merger Company. The Consolidated Statements of
Operations and Cash Flows for the year ended December 31, 1997 reflect the
results of the post-Merger Company, which include the results of the former SCC
since July 1, 1997. The significant accounting policies of the Company are
summarized below:

  Business Combination

     On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December
9, 1996 between Cotter, a Delaware corporation, and SCC, SCC merged with and
into Cotter, with Cotter being the surviving corporation. Cotter was renamed
TruServ Corporation effective with the Merger. Each outstanding share of SCC
common stock and SCC Series A stock (excluding those shares canceled pursuant to
Article III of the Merger Agreement) were converted into the right to receive
one fully paid and nonassessable share of TruServ Class A common stock and each
two outstanding shares of SCC preferred stock were converted into the right to
receive one fully paid and non-assessable share of TruServ Class B common stock.
A total of 270,500 and 1,170,670 shares of TruServ Class A common stock and
Class B common stock, respectively, were issued in connection with the Merger.
Also 231,000 additional shares of TruServ Class A common stock were issued in
exchange for Class B common stock to pre-Merger stockholders of Cotter to
satisfy the Class A common stock ownership requirement of 60 shares per store
(up to a maximum of 5 stores) applicable to such Members as a result of the
Merger.

     In connection with the purchase business combination, an estimated
liability of $38,200,000 was recognized for costs associated with the Merger
plan. During 1998, an adjustment was recorded reducing this liability and
goodwill by $2,500,000. The Merger plan specifies the elimination of certain
former SCC employment positions, approximately 1,500 in total, substantially
within one year. As of December 31, 1999, approximately 99% of these employees
have been terminated resulting in a $13,648,000 charge against the liability.
The Merger plan specifies the closure of four redundant former SCC distribution
centers substantially within a one-year period. Distribution center closing
costs include net occupancy and other costs after facilities are vacated. As of
December 31, 1999, four distribution centers have been closed and $3,569,000
relating to distribution center closing costs has been charged against the
liability. As of December 31, 1999, additional costs of $17,800,000 related to
moving and relocation and the closure of the former SCC headquarters have been
charged against the liability. The remaining liability balance at December 31,
1999 of $683,000 is for costs expected to be incurred in the first quarter of
2000 in connection with elimination of the remaining employment positions.
Merger integration costs of $26,196,000 and $20,034,000 for the years ended

                                       F-7
<PAGE>   30
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1999 and 1998, respectively, consist of one time non-recurring
expenses directly attributable to the Merger including former Cotter
distribution center closings, severance pay, information service costs and
general and administrative costs.

  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 TruServ Canada Cooperative, Inc., a Canadian
Member-owned wholesaler of hardware, variety and related merchandise, in which
the Company has a majority equity interest.

  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.

  Patronage Dividend

     No Patronage dividends were declared for fiscal year ended December 31,
1999. Patronage dividends earned for fiscal year 1998 were declared and were
paid to TruServ Members in the first quarter of 1999 with at least thirty
percent of the patronage dividend paid in cash and the remainder paid through
the issuance of the Company's Class B nonvoting common stock. The Class B
nonvoting common stock for December 31, 1998 patronage dividend has been
designated as non-qualified notices of allocation and are not taxable to the
Member until redeemed at a future date. The non-qualified notices in addition to
not being taxable will be included as part of a Member's required investment in
Class B nonvoting common stock. Any further distributions after meeting the
Class B nonvoting common stock requirements agreed upon in the Merger Agreement
will be in cash rather than in promissory notes. TruServ follows the practice of
accounting for deferred patronage charges and credits as a separate component of
capitalization. Deferred patronage consists of net charges and expenses
primarily related to the merger integration process which are included in the
computation of net margin in different periods for financial statement purposes
than for patronage purposes.

     Membership may be terminated without cause by either the Company or the
Member upon ninety 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 nonvoting common
stock at par value. Payment for the Class A common stock will be in cash.
Payment for the qualified Class B nonvoting common stock will be a note payable
in five equal annual installments.

     In view of current circumstances, the Company has initiated a moratorium on
the redemption of its stock. The Board of Directors will review this matter from
time to time in light of the then current financial circumstances of the
Company.

  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.

                                       F-8
<PAGE>   31
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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.

  Goodwill

     Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over 40 years.
Amortization of goodwill was approximately $2,931,000 and $2,738,000 for the
years ended December 31, 1999 and 1998, respectively.

  Asset Impairment

     For purposes of determining impairment, management groups long-lived assets
based on a geographic region or revenue producing activity as appropriate. Such
review includes, among other criteria, management's estimate of future cash
flows for the region or activity. If the estimated future cash flows
(undiscounted and without interest charges) were not sufficient to recover the
carrying value of the long-lived assets, including associated goodwill, of the
region or activity, such assets would be determined to be impaired and would be
written down to fair value. There was no asset impairment as of December 31,
1999.

  Start-up Costs

     In April 1998, the AICPA issued SOP 98-5, Reporting the Costs of Start-up
Activities. The SOP is effective beginning on January 1, 1999, and requires that
start-up costs capitalized prior to January 1, 1999 be written-off and any
future start-up costs to be expensed as incurred. The unamortized balance of
start-up costs were written off as a cumulative effect of an accounting change
as of January 1, 1999 and resulted in an increase of 1999 net loss of
approximately $6,500,000.

  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
accompanying notes. Actual results could differ from those estimates.

  Reporting year

     The Company's reporting year-end was changed to December 31 from the
Saturday closest to December 31 starting December 31, 1997.

                                       F-9
<PAGE>   32
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES

     Inventories consisted of:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Manufacturing inventories:
  Raw materials.............................................    $  2,473       $  4,331
  Work-in-process and finished goods........................      39,945         46,942
                                                                --------       --------
                                                                  42,418         51,273
Merchandise inventories.....................................     439,997        543,845
                                                                --------       --------
                                                                $482,415       $595,118
                                                                ========       ========
</TABLE>

3. PROPERTIES

     Properties consisted of:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Buildings and improvements..................................    $193,676       $216,765
Machinery and warehouse equipment...........................     100,705         96,513
Office and computer equipment...............................     152,439        151,515
Transportation equipment....................................      38,913         40,013
                                                                --------       --------
                                                                 485,733        504,806
Less accumulated depreciation...............................     252,834        263,668
                                                                --------       --------
                                                                 232,899        241,138
Land........................................................      11,946         14,267
                                                                --------       --------
                                                                $244,845       $255,405
                                                                ========       ========
</TABLE>

                                      F-10
<PAGE>   33
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

     Long-term debt consisted of:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Senior Notes:
  9.10%/8.60%...............................................    $ 36,000       $ 40,000
  7.88%/7.38%...............................................      50,000         50,000
  7.41%/6.91%...............................................      25,000         25,000
  7.35%/6.85%...............................................     105,000        105,000
  7.29%/6.79%...............................................      50,000         50,000
  7.23%/6.73%...............................................      25,000         25,000
Variable term loan (6.21%)..................................          --          6,200
Redeemable (subordinated) term notes:
  Fixed interest rates ranging from 5.15% to 7.47%..........      28,712         28,655
Industrial Revenue Bonds (4.50%)............................       4,000          4,000
Other, including capital lease obligations..................       5,000          9,456
                                                                --------       --------
                                                                 328,712        343,311
Less amounts due within one year............................      18,916         26,352
                                                                --------       --------
                                                                $309,796       $316,959
                                                                ========       ========
</TABLE>

     The principal payments for the 9.10/8.60% senior note are due quarterly in
incrementally increasing amounts through maturity in 2007, the 7.88%/7.38%
senior note are due annually in the amount of $4,545,000 starting in 2002
through maturity in 2012, the 7.41%/6.91% senior note are due annually in the
amount of $3,571,000 starting November 2001 until maturity in 2007, the
7.35%/6.85% senior note are due annually in the increasing amounts starting
January 2002 through maturity in July 2008, the 7.29%/6.79% senior note are due
annually in the amount of $10,000,000 starting June 2006 until June 2010, and
the 7.23%/6.73% senior note is due in full in November 2002. The variable term
loan was paid 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. They
are also available 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 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 2000, 2001, 2002, 2003,
2004 and thereafter are $18,916,000 $18,948,000, $51,329,000, $34,871,000,
$28,217,000, and $176,431,000, respectively.

     At July 1, 1997, the Company had established a $300,000,000 five-year
revolving credit facility with a group of banks. The borrowings under the
agreement were $135,000,000 and $227,000,000 at December 31, 1999 and 1998,
respectively. A commitment fee of .025% per annum is paid on the unused portion
of the commitments. Also, the Company has borrowings from a Commercial Paper
program of $19,000,000 and $25,000,000 at December 31, 1999 and 1998,
respectively. The weighted average interest rate on these borrowings was 7.3%
and 6.0%, respectively.

     Under the senior notes and revolving credit facility the Company is
required to meet certain financial ratios and covenants. The Company's lenders
have waived compliance with certain covenants as of December 31, 1999 and
amended and restated the debt agreements including increased interest rates, new

                                      F-11
<PAGE>   34
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial ratios and covenants and the securitization of the Company's assets,
which were finalized by the Company during April of 2000.

     The Company provides guarantees for certain member loans, but is not
required to provide a compensating balance for the guarantees. The amount
guaranteed was approximately $6,443,000 and $9,224,000 as of December 31, 1999
and 1998, respectively.

     See note 7 regarding the fair value of financial instruments.

5. 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 capital and long-term
non-cancelable operating leases, together with the present value of the net
minimum lease payments as of December 31, 1999:

<TABLE>
<CAPTION>
                                                              CAPITAL   OPERATING
                                                              -------   ---------
                                                                (000'S OMITTED)
<S>                                                           <C>       <C>
  2000......................................................  $2,502    $ 23,002
  2001......................................................   1,076      21,844
  2002......................................................     748      18,988
  2003......................................................     392      14,787
  2004......................................................     378      11,775
  Thereafter................................................     370      67,114
                                                              ------    --------
Net minimum lease payments..................................  $5,466    $157,510
                                                                        ========
Less amount representing interest...........................     466
                                                              ------
Present value of net minimum lease payments.................   5,000
Less amount due within one year.............................   2,300
                                                              ------
                                                              $2,700
                                                              ======
</TABLE>

     Capitalized 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 lessor's book
value at expiration of the lease term. During 1999, the Company entered into an
agreement for the sale and leaseback of its Henderson facility, which resulted
in a recognized loss of $1,295,000. The 30 month Henderson lease commenced in
May, 1999 and has annual payments of approximately $612,000. During 1998, the
Company entered into an agreement for the sale and leaseback of its Harvard
facility. The $2,139,000 gain realized on the sale has been deferred and will be
amortized over the 15-year lease term. The lease commenced in November, 1998 and
has annual payments of approximately $2,700,000.

     The Hagerstown, Maryland distribution center is subject to a synthetic
lease. The lease payment commitments are for three years with two one-year
renewal options. All obligations under this lease arrangement are guaranteed by
the Company.

     Rent expense under operating leases was $31,702,000, $28,291,000 and
$19,890,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

                                      F-12
<PAGE>   35
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. CAPITALIZATION

     Promissory (subordinated) and installment notes consisted of:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Promissory (subordinated) notes:
  Due on December 31, 1999 -- 7.86%.........................    $     --       $ 13,871
  Due on December 31, 1999 -- 8.00%.........................          --         23,361
  Due on December 31, 1999 -- 8.20%.........................          --         21,804
  Due on December 31, 2000 -- 6.50%.........................      21,823         22,157
  Due on December 31, 2000 -- 7.42%.........................      14,019         14,366
  Due on December 31, 2000 -- 7.58%.........................      27,271         27,711
  Due on December 31, 2001 -- 5.74%.........................      14,514         15,785
  Due on December 31, 2001 -- 8.06%.........................      22,448         22,821
  Due on December 31, 2002 -- 7.86%.........................      24,559             --
Term (subordinated) notes
  Due on June 30, 2002 -- 8.06%.............................      12,513         13,001
Installment notes at interest rates of 4.75% to 8.20% with
  maturities through 2003...................................      15,829         13,811
                                                                --------       --------
                                                                 152,976        188,688
Less amounts due within one year............................      69,172         64,266
                                                                --------       --------
                                                                $ 83,804       $124,422
                                                                ========       ========
</TABLE>

     Prior to 1997, promissory notes were issued for partial 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. 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 of extending notes will continue.

     Total maturities of promissory and installment notes for fiscal years 2000,
2001, 2002 and 2003 are $69,172,000, $41,818,000, $40,567,000, and $1,419,000
respectively.

     Term notes were issued in connection with the redemption of excess B stock.
Term notes are subordinated to indebtedness to banking institutions, trade
creditors and other indebtedness of the Company as specified by its Board of
Directors.

     See note 7 regarding the fair value of financial instruments.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's 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.

                                      F-13
<PAGE>   36
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                  ------------------------------------------
                                                  DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                      1999           1998           1997
                                                  ------------   ------------   ------------
                                                               (000'S OMITTED)
<S>                                               <C>            <C>            <C>
Current:
  State.........................................    $   460         $  710         $  491
  Foreign.......................................        281            290            343
                                                    -------         ------         ------
  Total current.................................        741          1,000            834
                                                    -------         ------         ------
Deferred:
  Federal.......................................     14,010             --            703
  State.........................................      2,472             --            124
  Foreign.......................................       (203)          (403)           (61)
                                                    -------         ------         ------
  Total deferred................................     16,279           (403)           766
                                                    -------         ------         ------
                                                    $17,020         $  597         $1,600
                                                    =======         ======         ======
</TABLE>

     The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as qualified patronage
dividend based on margins from business done with or for Members and for the
redemption of nonqualified notices of allocation. The reconciliation of income
tax expense to income tax computed at the U.S. federal statutory tax rate of 35%
in fiscal year 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                  ------------------------------------------
                                                  DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                      1999           1998           1997
                                                  ------------   ------------   ------------
                                                               (000'S OMITTED)
<S>                                               <C>            <C>            <C>
Tax at U.S. statutory rate......................    $    --        $  7,377       $ 15,511
Effects of:
  Patronage dividend............................         --         (12,258)       (15,324)
  State income taxes, net of federal tax
     benefit....................................      1,906             462            400
  Increase in valuation allowance...............     14,010           3,714             --
  Other, net....................................      1,104           1,302          1,013
                                                    -------        --------       --------
                                                    $17,020        $    597       $  1,600
                                                    =======        ========       ========
</TABLE>

     Deferred income taxes reflect the net tax effects of net operating loss
carryforwards which expire in years through 2019; alternative minimum tax credit
carryforwards and nonqualified notices of allocations, which do not expire; and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. To
the extent tax benefits are subsequently recognized in excess of the net
deferred tax assets, approximately $28,800,000 of the reduction in the valuation

                                      F-14
<PAGE>   37
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

allowance for deferred tax assets will result in a reduction of goodwill.
Significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED
                                                          ------------------------------------------
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                              1999           1998           1997
                                                          ------------   ------------   ------------
                                                                       (000'S OMITTED)
<S>                                                       <C>            <C>            <C>
Deferred tax assets:
  Net operating loss carryforwards......................    $ 65,569       $ 15,868       $  9,937
  AMT credit carryforward...............................         553            911            911
  Nonqualified notices of allocation....................      13,830         16,697          6,890
  Bad debt provision....................................       2,129          2,049          3,305
  Vacation pay..........................................       3,460          3,122          3,225
  Contributions to fund retirement plans................         792          3,871            627
  Rent expense..........................................       2,289          2,072          1,819
  Merger-related valuations and accruals................       2,141          5,865         21,656
  Inventory capitalization..............................       2,808             --             --
  Other.................................................       4,156          3,752          1,280
                                                            --------       --------       --------
Total deferred tax assets...............................      97,727         54,207         49,650
Valuation allowance for deferred tax assets.............     (93,213)       (33,067)       (25,000)
                                                            --------       --------       --------
Net deferred tax assets.................................       4,514         21,140         24,650
Deferred tax liabilities:
  Tax depreciation in excess of book....................       3,383          1,450          5,102
  Inventory capitalization..............................          --          1,725          1,725
  Other.................................................       1,131          1,475          1,333
                                                            --------       --------       --------
Total deferred tax liabilities..........................       4,514          4,650          8,160
                                                            --------       --------       --------
Net deferred taxes                                          $     --       $ 16,490       $ 16,490
                                                            ========       ========       ========
</TABLE>

9. CASH FLOW

     On July 1, 1997, the Company merged with SCC. The transaction was accounted
for using the purchase accounting method. The Merger was accomplished by
converting SCC shares into TruServ shares. See note 1 for additional comments.

     The patronage dividend and promissory (subordinated) and redeemable
(subordinated) term note renewals relating to non-cash operating and financing
activities are as follows:

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                  ------------------------------------------
                                                  DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                      1999           1998           1997
                                                  ------------   ------------   ------------
                                                               (000'S OMITTED)
<S>                                               <C>            <C>            <C>
Patronage dividend payable in cash..............    $     --       $14,507        $ 12,142
Promissory (subordinated) notes.................      (5,436)       (3,252)          7,511
Class B nonvoting common stock..................     (15,974)        9,950         (21,592)
Installment notes...............................       9,722         5,532          11,742
Member indebtedness.............................      11,688         8,287          29,502
                                                    --------       -------        --------
                                                    $     --       $35,024        $ 39,305
                                                    ========       =======        ========
Note renewals and interest rollover.............    $ 36,385       $24,058        $ 22,240
                                                    ========       =======        ========
</TABLE>

     The Company's non-cash financing and investing activities in fiscal years
1999 and 1998 include, respectively, a $305,000 and $610,000 acquisition of
transportation equipment by entering into capital leases.
                                      F-15
<PAGE>   38
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Cash paid for interest during fiscal years 1999, 1998, and 1997 totaled
$58,730,000, $52,722,000, and $34,693,000, respectively. Cash paid for income
taxes during fiscal years 1999, 1998, and 1997 totaled $848,000, $903,000, and
$1,148,000, respectively.

10. RETIREMENT PLANS

     The change in the benefit obligation and plan assets for the Company
administered pension plans consisted of:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                              ---------------------------
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
                                                                    (000'S OMITTED)
<S>                                                           <C>            <C>
Change in benefit obligation:
  Projected benefit obligation at beginning of year.........    $200,951       $189,838
  Service cost..............................................       8,377          7,418
  Interest cost.............................................      12,312         13,259
  Benefit payments..........................................      (7,382)        (5,713)
  Actuarial losses (gains)..................................     (23,601)        25,503
  Curtailments..............................................       2,495             --
  Settlements...............................................     (34,022)       (29,354)
  Special Retirement Benefits...............................       1,597             --
                                                                --------       --------
  Projected benefit obligation at end of year...............    $160,727       $200,951
                                                                --------       --------
Change in plan assets:
  Fair value of plan assets at beginning of year............    $196,953       $198,170
  Actual return on assets...................................      16,891         31,454
  Employer contributions....................................       5,986          2,396
  Benefit payments..........................................      (7,382)        (5,713)
  Settlements...............................................     (34,022)       (29,354)
                                                                --------       --------
  Fair value of plan assets at end of year..................    $178,426       $196,953
                                                                --------       --------
Reconciliation of Funded Status:
  Funded status.............................................    $ 17,699       $ (3,998)
  Unrecognized transition asset.............................      (2,642)        (3,883)
  Unrecognized prior service cost...........................       6,743          7,840
  Unrecognized actuarial gain...............................     (23,781)        (6,236)
                                                                --------       --------
  Accrued benefit cost......................................    $ (1,981)      $ (6,277)
                                                                ========       ========
</TABLE>

                                      F-16
<PAGE>   39
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                  ------------------------------------------
                                                  DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                      1999           1998           1997
                                                  ------------   ------------   ------------
                                                               (000'S OMITTED)
<S>                                               <C>            <C>            <C>
Components of net periodic pension cost:
  Service cost..................................    $  8,377       $  7,418       $  6,511
  Interest cost.................................      12,312         13,259         10,386
  Expected return on assets.....................     (15,951)       (16,083)       (12,677)
  Amortization of transition assets.............        (720)          (835)          (835)
  Amortization of prior service cost............         984            984            795
  Amortization of actuarial loss................          53             --             79
  Curtailment loss..............................         112             --             --
  Settlement gain...............................      (5,075)        (1,745)            --
                                                    --------       --------       --------
          Net pension cost......................    $     92       $  2,998       $  4,259
                                                    ========       ========       ========
</TABLE>

     One of the Company's pension plans is the supplemental executive retirement
plan ("SERP"), which is an unfunded defined benefit plan. The funded status in
the table above is net of an accrued pension expense liability of $10,165,000
and $13,266,000 related to the SERP at December 31, 1999 and 1998, respectively.

     The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $315,000, $861,000 and $654,000
for fiscal years 1999, 1998 and 1997, respectively.

<TABLE>
<CAPTION>
                                                                   PENSION BENEFITS
                                                                  FOR THE YEARS ENDED
                                                              ---------------------------
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
Weighted average assumptions:
  Discount rate.............................................      8.00%          6.75%
  Expected return on assets.................................      9.50%          9.50%
  Rate of compensation increase.............................      4.50%          4.50%
</TABLE>

<TABLE>
<CAPTION>
                                                                    OTHER BENEFITS
                                                                  FOR THE YEARS ENDED
                                                              ---------------------------
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
Weighted average assumptions:
  Discount rate.............................................      8.00%          6.75%
  Medical trend rate........................................      5.00%          5.00%
</TABLE>

     The Company sponsors a defined benefit retirement medical plan for those
SCC employees and former employees that met certain age and service criteria as
of the Merger dated July 1, 1997. The plan was frozen effective with the Merger.

     The components of the retiree medical plan costs for the Company
administered plan consist of interest cost of $335,000 with no curtailment gain
in 1999, compared to an interest cost of $351,000 and a curtailment gain
totaling $1,582,000 for a $1,231,000 benefit in 1998.

     The accumulated post retirement benefit obligation ("APBO") of $6,646,000
on December 31, 1997 was reduced in 1998 by a curtailment gain of $1,582,000 and
claims paid of $500,000 offset by interest cost of $351,000 and an actuarial
loss of $274,000, for an APBO of $5,189,000 at December 31, 1998. Reductions to
the APBO in 1999 were an actuarial gain of $510,000 and claims paid of $460,000,
offset by interest cost of $335,000, for an APBO of $4,554,000 at December 31,
1999.

                                      F-17
<PAGE>   40
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The funded status at December 31, 1998 was a liability of $4,922,000, which
includes the APBO of $5,189,000 offset by an unrecognized actuarial loss of
$267,000. The funded status at December 31, 1999 was a liability of $4,797,000,
which includes the APBO of $4,554,000 plus an unrecognized actuarial gain of
$243,000.

     The plan has no assets. During 1999 and 1998, the Company contributed to
the plan $460,000 and $500,000, respectively, and there were benefit payments of
$460,000 and $500,000, respectively.

     The effect of a 1% increase in the medical trend rate would increase
service and interest cost components by $16,000 and postretirement benefit
obligation by $234,000. The effect of a 1% decrease in the medical trend rate
would decrease service and interest cost components by $13,000 and
postretirement benefit obligation by $189,000.

11. SEGMENT INFORMATION

     Statement of Financial Accounting Standards No. 131 "Disclosure about
Segments of an Enterprise and Related Information," requires companies to report
financial and descriptive information about its reportable operating segments,
including segment profit or loss, certain specific revenue and expense items,
and segment assets, as well as information about the revenues derived from the
Company's products and services, information about geographic areas and
information about major customers. This statement requires the use of the
management approach to determine the information to be reported. The management
approach is based on the way management organizes the enterprise to assess
performance and make operating decisions regarding the allocation of resources.
It is management's opinion that, at this time, the Company has several operating
segments, however only one reportable segment. The following discussion sets
forth the required single segment information:

          The Company operates as a single reportable segment as the
     largest Member-owned wholesaler cooperative of hardware,
     lumber/building materials and related merchandise in the United
     States, operations outside the United States were immaterial, with
     1999 net sales of $4.5 billion. The Company's sales to its Members are
     divided into three categories, as follows: (1) warehouse shipment
     sales (approximately 37% of total sales); (2) direct shipment sales
     (approximately 58% of total sales); and (3) relay sales (approximately
     5% of total sales). Warehouse shipment sales are sales of products
     purchased, warehoused and resold by the Company upon orders from the
     Members. Direct shipment sales are sales of products purchased by the
     company but delivered directly to Members from manufacturers. Relay
     sales are sales of products purchased by the Company in response to
     the requests of several Members for a product which is (i) included in
     future promotions, (ii) not normally held in inventory and (iii) is
     not susceptible to direct shipment. Generally, the Company will give
     notice to all Members of its intention to purchase products for relay
     shipment and then purchase only so many of such products as the
     Members order. When the product shipment arrives at the Company, it is
     not warehoused; rather, the Company breaks up the shipment and
     "relays" the appropriate quantities to the Members who placed orders.

                                      F-18
<PAGE>   41
                              TRUSERV CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's product offerings, comprised of more than 72,000 stockkeeping
units ("SKUs"), may be divided into seven classes of merchandises which are set
forth, with their corresponding percentage of total revenues in the following
table:

<TABLE>
<CAPTION>
                                                              FOR THE FISCAL YEARS
                                                              ---------------------
                                                              1999    1998    1997
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Lumber and Building Materials...............................   33.2%   30.2%   24.5%
Hardware Goods..............................................   16.1%   17.8%   19.5%
Farm and Garden.............................................   15.9%   14.5%   13.1%
Electrical and Plumbing.....................................   12.7%   13.4%   15.8%
Painting and Cleaning.......................................   10.0%   10.8%   12.0%
Appliances and Housewares...................................    8.6%    8.4%    9.4%
Sporting Goods and Toys.....................................    3.5%    4.9%    5.7%
</TABLE>

                                      F-19
<PAGE>   42

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                              SEQUENTIALLY
  EXHIBITS                                                                      NUMBERED
  ENCLOSED                            DESCRIPTION                                 PAGE
  --------                            -----------                             ------------
  <C>         <S>                                                             <C>
   4-K        Third amendment to Credit Agreement dated July 1, 1997 for
              $300,000,000 Revolving credit between TruServ Corporation,
              various financial institutions, and Bank of America.
   4-M        Amendment dated May 12, 1999 to the Amended and Restated
              Private Shelf Agreement between TruServ Corporation and
              Prudential Insurance of America dated November 13, 1997 for
              $150,000,000.
   4-O        Amendment No. 1 to credit agreement dated September 10, 1998
              for $105,000,000 Note Purchase Agreement between TruServ
              Corporation and various Purchasers.
   10-C       TruServ Corporation Defined Lump Sum Pension Plan as amended
              and restated as of January 1, 1998.
    21        Subsidiaries
    27        Financial Data Schedule
</TABLE>

<TABLE>
<CAPTION>
    EXHIBITS
  INCORPORATED
  BY REFERENCE
  ------------
  <C>           <S>
       2-A      Agreement and Plan of Merger dated as of December 9, 1996
                between the Company and ServiStar Coast to Coast Corporation
                ("SCC"). Incorporated by reference -- Exhibit 2-A to
                Registration Statement on Form S-4 (No. 333-18397).
       4-A      Amended and Restated Certificate of Incorporation of the
                Company, effective July 1, 1997. Incorporated by
                reference--Exhibit 2-A to Registration Statement on Form S-4
                (No. 333-18397).
       4-B      By-laws of the Company, effective April 7, 1998.
                Incorporated by reference--Exhibit 4-B to Post-Effective
                Amendment No. 8 on Form S-2 to Registration Statement on
                Form S-4 (No. 333-18397).
       4-C      Specimen certificate of Class A common stock. Incorporated
                by reference--Exhibit 4-C to Post-Effective Amendment No. 8
                on Form S-2 to Registration Statement on Form S-4 (No.
                333-18397).
       4-D      Specimen certificate of Class B common stock. Incorporated
                by reference--Exhibit 4-D to Post-Effective Amendment No. 8
                on Form S-2 to Registration Statement on Form S-4 (No.
                333-18397).
       4-E      Promissory (subordinated) note form effective for the
                year-ending December 31, 1986 and thereafter. Incorporated
                by reference--Exhibit 4-H to Registration Statement on Form
                S-2 (No. 33-20960).
       4-F      Installment note form. Incorporated by reference--Exhibit
                4-F to Registration Statement on Form S-2 (No. 2-82836).
       4-G      Copy of Note Agreement with Prudential Insurance Company of
                America dated April 13, 1992 securing 8.60% Senior Notes in
                the principal sum of $50,000,000 with a maturity date of
                April 1, 2007. Incorporated by reference--Exhibit 4-J to
                Post-Effective Amendment No. 2 to Registration Statement on
                Form S-2 (No. 33-39477).
       4-H      Cotter & Company $50,000,000 Private Shelf Agreement with
                Prudential Insurance Company of America dated December 29,
                1995 incorporating amendment on existing Note Agreement with
                Prudential Insurance Company of America dated April 13, 1992
                securing 8.60% Senior Notes in the principal sum of
                $50,000,000 with a maturity date of April 1, 2007.
                Incorporated by reference--Exhibit 4-H to Post-Effective
                Amendment No. 5 to Registration Statement on Form S-2 (No.
                33-39477).
</TABLE>

* Filed herewith

                                       E-1
<PAGE>   43

<TABLE>
<CAPTION>
    EXHIBITS
  INCORPORATED
  BY REFERENCE
  ------------
  <C>           <S>
       4-I      Trust Indenture between Cotter & Company and US Bancorp
                (formerly First Trust of Illinois). Incorporated by
                reference--Exhibit T3C to Cotter & Company Form T-3 (No.
                22-26210).
       4-J      Credit Agreement dated July 1, 1997 for $300,000,000
                Revolving credit between TruServ Corporation, various
                financial institutions, and Bank of America. Incorporated by
                reference--Exhibit 4-L to Post-Effective Amendment No. 5 to
                Registration Statement on Form S-4 (H3-333-18397)
       4-K*     Third Amendment to Credit Agreement dated July 1, 1997 for
                $300,000,000 Revolving credit between TruServ Corporation,
                various financial institutions, and Bank of America.
       4-L      Amended and Restated Private Shelf Agreement between TruServ
                Corporation and Prudential Insurance Company of America
                dated November 13, 1997 for $150,000,000. Incorporated by
                reference--Exhibit 4-M to Post-Effective Amendment No. 5 to
                Registration Statement on Form S-4 (No. 333-18397)
       4-M*     Amendment dated May 12, 1999 to the Amended and Restated
                Private Shelf Agreement between TruServ Corporation and
                Prudential Insurance Company of America dated November 13,
                1997 for $150,000,000.
       4-N      Credit Agreement dated September 10, 1998 for $105,000,000
                Note Purchase Agreement between TruServ Corporation and
                various Purchasers. Incorporated by reference--Exhibit 4-L
                to Post-effective Amendment No. 6 to Registration Statement
                on Form S-4 (No. 333-183997)
       4-O*     Amendment No. 1 to Credit Agreement dated September 10, 1998
                for $105,000,000 Note Purchase Agreement between TruServ
                Corporation and various Purchasers.
       4-P      Participation Agreement dated April 30, 1998 for $40,000,000
                between TruServ Corporation, various financial institutions
                and Bank of Montreal. Incorporated by reference--Exhibit 4-M
                to Post-Effective Amendment No. 6 to Registration Statement
                on Form S-4 (No. 333-18397)
      10-A      Current Form of "Retail Member Agreement with TruServ"
                between the Company and its Members that offer primarily
                hardware and related items. Incorporated by reference--
                Exhibit 10-A to Registration Statement on Form S-4 (No.
                333-18397).
      10-B      Current Form of "Subscription to Shares of TruServ".
                Incorporated by reference--Exhibit 10-B to Registration
                Statement on Form S-2 (No. 333-18397).
      10-C*     TruServ Corporation Defined Lump Sum Pension Plan (as
                amended and restated as of January 1, 1998).
      10-D      Cotter & Company Employees' Savings and Compensation
                Deferral Plan (As Amended and Restated Effective April 1,
                1994). Incorporated by reference--Exhibit 10-D to
                Post-Effective Amendment No. 4 to Registration Statement on
                Form S-2 (No. 33-39477).
      10-E      Cotter & Company Supplemental Retirement Plan between Cotter
                & Company and selected executives of the Company (As Amended
                and Restated January 2, 1996 Effective As Of January 1,
                1996). Incorporated by reference--Exhibit 10-E to
                Post-Effective Amendment No. 5 to Registration Statement on
                Form S-2 (No. 33-39477).
      10-F      Employment Agreement between the Company and Daniel A.
                Cotter dated October 15, 1984. Incorporated by
                reference--Exhibit 10-N to Post-Effective Amendment No. 2 to
                Registration Statement on Form S-2 (No. 2-82836).
      10-G      Amendment No. 1 to Employment Agreement between the Company
                and Daniel A. Cotter dated October 15, 1984 effective
                January 1, 1991. Incorporated by reference--Exhibit 10-N to
                Registration Statement on Form S-2 (No. 33-39477).
      10-H      Contract between Daniel T. Burns and the Company.
                Incorporated by reference--Exhibit 10-J to Post-Effective
                Amendment No. 5 to Registration Statement on Form S-2 (No.
                33-39477).
</TABLE>

                                       E-2
<PAGE>   44

<TABLE>
<CAPTION>
    EXHIBITS
  INCORPORATED
  BY REFERENCE
  ------------
  <C>           <S>
      10-I      Retail Conversion Funds Agreement dated as of December 9,
                1996 between the Company and SCC. Incorporated by
                reference--Exhibit 10-L to Registration Statement on Form
                S-4 (No. 333-18397).
</TABLE>

<TABLE>
<CAPTION>
SUPPLEMENTAL
INFORMATION
------------
<S>            <C>                                                           <C>
     Supplemental Information to be Furnished with Reports Filed Pursuant
to Section 15(d) of the Act by Registrants which have not Registered
Securities Pursuant to Section 12 of the Act.
     As of the date of the foregoing Report, no annual report for the
Registrant's year ended December 31, 1999 has been sent to security
holders. Copies of such Annual Report and proxy soliciting materials will
subsequently be sent to security holders and furnished to the Securities
and Exchange Commission.
</TABLE>

                                       E-3