AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 2004

REGISTRATION NO. 333-18397
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT

NO. 16 ON FORM S-1

TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRUSERV CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>

DELAWARE 5070 36-2099896
(State of Incorporation) (Primary Industrial Classification Code Number) (I.R.S. Employer Identification
No.)
</Table>

8600 WEST BRYN MAWR AVENUE
CHICAGO, IL 60631-3505
(773) 695-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

PAMELA FORBES LIEBERMAN
President and Chief Executive Officer
TruServ Corporation
8600 West Bryn Mawr Avenue
Chicago, IL 60631-3505
(773) 695-5000
Fax: (773) 695-6563
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
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Copy to:

NATALIA DELGADO
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 E. Monroe Street, Suite 3700
Chicago, Illinois 60603-5802
(312) 201-3989
Fax: (312) 332-2196
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As soon as practicable after the effective date of this Post-Effective Amendment
to the Registration Statement.
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(Approximate date of commencement of proposed sale to the public)

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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TRUSERV CORPORATION
239,940 SHARES OF CLASS A COMMON STOCK, $100 PAR VALUE
(IN UNITS OF 60 SHARES)

THE CLASS A COMMON STOCK IS OFFERED EXCLUSIVELY TO RETAILERS AND RENTERS OF
HARDWARE AND RELATED PRODUCTS, WHEN THEY BECOME MEMBERS OF TRUSERV CORPORATION.

THE CLASS A COMMON STOCK CANNOT BE TRANSFERRED WITHOUT TRUSERV'S CONSENT.
TRUSERV RETAINS AN AUTOMATIC LIEN OR RIGHT OF SET OFF AGAINST THE CLASS A COMMON
STOCK AND ANY ACCRUED PATRONAGE DIVIDENDS FOR ANY DEBTS THAT MEMBERS OWE
TRUSERV. TRUSERV HAS NOT PAID NOR DOES TRUSERV PLAN TO PAY IN THE FUTURE ANY
DIVIDENDS ON THE CLASS A COMMON STOCK.

THERE IS NO EXISTING MARKET FOR THE CLASS A COMMON STOCK AND TRUSERV DOES
NOT EXPECT THAT ONE WILL DEVELOP.

CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5 IN THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

IN FLORIDA THE SECURITIES COVERED BY THIS PROSPECTUS HAVE NOT BEEN REGISTERED
WITH THE STATE OF FLORIDA BUT ARE BEING OFFERED UNDER A LIMITED OFFERING
EXEMPTION WHICH ALLOWS FLORIDA PURCHASERS TO CANCEL THEIR PURCHASES OF THIS
STOCK WITHIN 3 DAYS AFTER MAKING ANY PAYMENT ON ACCOUNT OF THE PURCHASE PRICE.

WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN, OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING. THIS PROSPECTUS IS NOT AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY STATE WHERE IT
IS UNLAWFUL TO MAKE THAT TYPE OF SOLICITATION. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN OUR COMPANY'S
AFFAIRS AFTERWARD.
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<Table>
<Caption>
PER UNIT TOTAL

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Public price............................................ $6,000 $23,994,000(1)(2)
Underwriting discounts.................................. none none (3)
Proceeds to TruServ..................................... $6,000 $23,994,000(4)
</Table>

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(1) The offering price for the Class A common stock is $100 per share, which is
the par value per share. The offering price is determined pursuant to the
Retail Member Agreement between TruServ and its members. The par value of
the Class A common stock was arbitrarily determined.

(2) The shares of Class A common stock are offered in units of 60 shares each.
The minimum purchase is 60 shares for each store owned up to the maximum of
300 shares per member (five units).

(3) There are no underwriters in this offering. TruServ is offering the Class A
common stock directly to potential members.

(4) There are no firm commitments for the sale of these securities. If the whole
offering is sold, TruServ will receive $23,994,000 before estimated expenses
of $180,000.

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THESE SECURITIES ARE OFFERED THROUGH

TRUSERV CORPORATION
8600 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631-3505
(773) 695-5000
THE DATE OF THIS PROSPECTUS IS

, 2004

SUMMARY
($ IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

This summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all the information that you
should consider before buying shares in this offering. You should read the
entire prospectus carefully, including TruServ's Consolidated Financial
Statements and the related Notes beginning at page F-1.

TRUSERV

TruServ is principally engaged as a wholesaler of hardware and related
products and is a manufacturer and distributor of paint products. TruServ is one
of the largest hardware/home center cooperatives in the United States. While
TruServ is organized as a Delaware corporation, it functions as a cooperative of
its members.

FINANCING AGREEMENTS

On August 29, 2003, TruServ closed a new four-year $275,000 asset-based
revolving credit facility (the "Bank Facility"). The Bank Facility was used to
refinance the existing senior revolving credit facility and senior notes.
Borrowings under the Bank Facility are limited to the lesser of $275,000 or a
borrowing base comprised of the calculated collateral value of eligible assets.
Under the terms of the Bank Facility agreement, the interest rate is variable at
TruServ's option of LIBOR (London Interbank Offering Rate) plus 2.25% or prime
plus 0.25%. The unused commitment fee is 0.375%. The Bank Facility pricing
includes a performance grid based upon a fixed charge coverage ratio, measured
quarterly beginning in March 2004. Fees paid for closing the Bank Facility
totaled $3,752 and TruServ will amortize these fees over the four-year term.
Substantially all of the assets of TruServ and a pledge of 100% of the stock of
TruServ's subsidiaries secure the Bank Facility.

Upon closing the Bank Facility, TruServ incurred a net expense of $19,221
related to replacing its prior credit agreements. The net expense consisted of
$26,927 of interest expense relating to the write-off of old and new senior note
make-whole obligations and prepaid bank fees offset by $7,706 of other income
TruServ achieved by negotiating partial debt forgiveness from the lenders under
its prior credit agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

As a result of the lower interest rate of this new financing agreement and
the elimination of make-whole amortization, TruServ benefitted from $7,689 of
interest expense savings in the last four months of 2003 and based upon the
expected borrowing levels and assuming market rates (i.e., LIBOR) remain in
relatively the same range as they were in 2003, is projecting $15,400 of
interest savings in 2004. (The $7,689 and $15,400 of interest expense savings
are a non-GAAP financial measure. It is management's estimate, based on actual
borrowing levels in 2003 and projected borrowing levels in 2004, of the interest
savings generated from the lower interest rate of 4% on the new Bank Facility
compared to the 13% average rate on the old lending agreement.)

RECENT FINANCIAL RESULTS

For the fiscal year ended December 31, 2003, TruServ had a net margin of
$21,221 compared to $21,153 at December 31, 2002. TruServ maintained its net
margin despite a $151,111 revenue reduction, including $9,884 in wholesale price
reductions. The adverse effect of the revenue reduction on gross margin due to
the wholesale price reductions and lower volume were offset by expense
reductions from logistic and manufacturing efficiencies, other productivity
improvements and the net effect of the December 2002 sale leaseback transaction,
see "Properties -- Sale Leaseback Transaction." Further, net margin was impacted
by the net expense of $19,221 from refinancing the Senior Debt, which generated
the calculated interest expense savings of $7,689. This amount, however, was
offset by the gain of $7,133 from the termination of the long-term BMA
agreements and gains from litigation settlements in the aggregate amount of
$5,538.

COMMON STOCK

TruServ has authorized Class A common stock and Class B common stock.
TruServ sells the Class A common stock to its members pursuant to this
prospectus. The Class B common stock, which is non-voting, is issued to members
as part of their patronage dividends. See "Description of Common Stock."

TruServ's Class A common stock has a $100 par value per share. The Class A
common stock is the sole voting stock of TruServ Corporation. Generally, TruServ
offers the Class A common stock in units of 60 shares each to new members. The
minimum purchase amount is 60 shares for each store; however, no TruServ member
is permitted to acquire more than five units of Class A common stock for a
maximum of 300 shares. Since October 2000, TruServ has temporarily waived the
stock ownership requirement for new members. TruServ will resume selling shares
of Class A common stock to new members when the registration statement for the
Class A common stock has been declared effective.

Members must pay cash for all Class A common stock purchases. However,
pursuant to the Retail Member Agreement, Members may pay for the Class A common
stock with a down payment and satisfy the balance in monthly installment
payments.

Neither the Class A common stock or the Class B common stock can be
transferred without TruServ's consent. TruServ retains an automatic lien or
right of set-off against both classes of common stock and any accrued dividends
for any debts that members owe TruServ. See "Description of Common Stock -- Set
Off Rights of TruServ" and "-- Other Restrictions and Rights."

Either TruServ or its members may terminate the Retail Member Agreement
with 60 days' written notice. Pursuant to TruServ's By-Laws, if the Retail
Member Agreement is terminated, TruServ will repurchase members' Class A common
stock, and members are required to sell the stock back to TruServ. Also,
pursuant to TruServ's By-Laws, the board of directors may delay the repurchase
of both classes of common stock if it believes the action is in the best
interest of TruServ. TruServ cannot terminate any Retail Member Agreement unless
two-thirds of its board of directors approves the termination. The only
exceptions to this requirement are if a member:

- becomes insolvent;

- commits any act of bankruptcy;

- files a voluntary petition in bankruptcy;

- is adjudicated as bankrupt; or

- commits a breach of any obligation under the Retail Member Agreement or
any other agreement with TruServ or one of its subsidiaries that is not
corrected within 30 days after TruServ gives the member written notice (10 days
in case of nonpayment of accounts receivable statements or other financial
obligations to TruServ, or within the applicable cure periods in an agreement
with a TruServ subsidiary).

MORATORIUM ON THE REDEMPTION OF COMMON STOCK

In 2000, TruServ's board of directors initiated a moratorium on the
redemption of its stock. In light of the current financial circumstances of
TruServ, the board of directors is reviewing the continued need for the stock
moratorium and has informed its members that a decision whether to maintain or
lift the moratorium will be made prior to and announced at the March 28, 2004
annual shareholders' meeting. If a decision is made to lift the stock
moratorium, the effective date of the end of the moratorium would be determined
by March 28, 2004 and announced at such time. Therefore, a member should be
prepared to hold shares of Class A common stock for an indefinite period of
time, even if the member terminates the Retail Member Agreement. See "Risk
Factors -- TruServ has a moratorium on stock redemption in place and you will
not be able to have TruServ repurchase your stock should you wish to terminate
your membership until the moratorium ends" and "Description of Common
Stock -- Moratorium on Redemptions of Capital Stock."

Certain former members of TruServ have contested in legal proceedings the
validity of the moratorium. See "Legal Proceedings."

RESTRICTIONS ON TRANSFERABILITY AND DIVIDEND POLICIES

TruServ's stock is not listed or traded on any national securities exchange
or on the national market system. It is offered exclusively to potential members
in connection with joining the cooperative as a member. The purchase price and
redemption price of the Class A common stock are equal to its par value. The par
value of the stock, including the Class A common stock, was arbitrarily
determined. The Class A common stock is restricted as to transferability and
there is no public market for it. TruServ has a right of first offer to
repurchase at par value a member's stock before the member can offer the stock
to another member. Historically, TruServ has always exercised this right. In any
event, a member may not transfer the Class A common stock to anyone without
TruServ's consent. See "Risk Factors -- TruServ has a moratorium on stock
redemption in place and you will not be able to have TruServ repurchase your
stock should you wish to terminate your membership until the moratorium ends."

TruServ retains an automatic lien on the Class A common stock and any
patronage dividends that might have accrued to a member from TruServ to secure
the member's debt, if any, payable to TruServ. See "Description of Common
Stock -- Other Restrictions and Rights."

TruServ does not pay dividends with respect to the Class A common stock.
See "Description of Common Stock -- Dividend Rights" and "-- Distribution of
Patronage Dividends."

ALLOCATION OF LOSSES TO CAPITAL STOCK

The board of directors determined that TruServ will retain the 2001 loss as
part of the accumulated deficit account. All or a portion of patronage income
and all non-patronage income, if any, may be retained in the future to reduce
the accumulated deficit account. In the event a member terminates its status as
a stockholder of TruServ, any remaining 2001 loss in the accumulated deficit
account that is allocable to the terminating member will be distributed to the
terminating member and satisfied by reducing the redemption amount paid for the
member's stock investment in TruServ. While it may be that reductions of
patronage income will be limited to those members who were stockholders in 2001,
the board of directors could determine that all or a portion of any such
reductions should be allocated in a manner that would affect all stockholders,
including purchasers of Class A common stock pursuant to this prospectus. See
"Description of Common Stock -- Allocation of Patronage Dividends against Loss
Allocation Account."

A member's proportionate share of the 1999 and/or 2001 losses has been
limited to the extent of their equity investment in TruServ, as of the end of
1999 and/or 2001. Any portion of a loss allocation that exceeds a member's
equity investment is retained by TruServ in the accumulated deficit account. All
or a portion of patronage income and all non-patronage income, if any, may be
retained in the future to reduce the accumulated deficit account.

RISK FACTORS
($ IN THOUSANDS)

You should consider the following risks before investing in TruServ's Class
A common stock:

THERE IS NO MARKET FOR THE CLASS A COMMON STOCK, THE CLASS A COMMON STOCK IS
SUBJECT TO VARIOUS RESTRICTIONS INCLUDING A RIGHT OF SETOFF BY TRUSERV, AND YOU
MAY NOT BE ABLE TO SELL YOUR CLASS A COMMON STOCK.

There is currently no trading market for any of our common stock and we do
not foresee a market developing at any time in the future. Therefore, you will
not be able to liquidate your investment in the common stock for an indefinite
period of time. You may not transfer the common stock without first offering it
to TruServ for repurchase at its par value. TruServ is not currently
repurchasing common stock as it has in effect a moratorium on repurchases. See
following risk factor.

Investors should be aware that TruServ retains automatic liens on the Class
A common stock and any patronage dividends, including all shares of Class B
common stock, that might have accrued to the members. The By-Laws, the Retail
Member Agreement and the Subscription to Shares Agreement that each member signs
with TruServ provide that TruServ shall have a lien on, and a right of setoff
against, any stock or notes issued to the member, including those issued as
patronage dividends. With regard to patronage dividends, this lien and right of
setoff encompasses any portion of the patronage dividend that is issued and
exceeds 20% of the overall patronage dividend payable in any year. TruServ takes
this lien/right of setoff in order to secure any member indebtedness that may,
for whatever reason, exist in favor of TruServ or its subsidiaries.

TRUSERV HAS A MORATORIUM ON STOCK REDEMPTION IN PLACE, AND YOU WILL NOT BE ABLE
TO HAVE TRUSERV REPURCHASE YOUR STOCK SHOULD YOU WISH TO TERMINATE YOUR
MEMBERSHIP, UNTIL THE MORATORIUM ENDS.

In March 2000, the board of directors of TruServ declared a moratorium on
redemption of all of its capital stock. The board of directors declared the
moratorium as the capital stock was then worth substantially less than its par
value and redemption at par value would likely violate legal prohibitions
against an impairment of capital. The board of directors concluded that it would
be a violation of its fiduciary duties to proceed with redemptions of capital
stock. The board of directors will consider the financial condition of TruServ,
and will not lift the moratorium unless it can conclude that effecting
redemptions of TruServ's capital stock will not "impair the capital" of TruServ,
unfairly advantage some members to the disadvantage of others, or violate the
terms and conditions of its debt agreements. As a result of such moratorium, you
will not be able to have TruServ repurchase your Class A common stock or your
Class B common stock, if any, should you wish to terminate your membership,
until the moratorium is lifted. See "Description of Common Stock -- Moratorium
on Redemptions of Capital Stock."

TRUSERV HAS A MORATORIUM ON STOCK REDEMPTIONS THAT HAS CREATED DEFERRED STOCK
REDEMPTIONS OF APPROXIMATELY $33,725 THAT WILL BE PAID WHEN, AND IF, THE
MORATORIUM IS LIFTED. IF AFTER THE STOCK MORATORIUM IS LIFTED TRUSERV FALLS
SIGNIFICANTLY SHORT OF ITS OPERATING PLAN, THEN SUCH PAYMENTS COULD CAUSE
TRUSERV'S BOARD OF DIRECTORS TO REINSTATE THE STOCK MORATORIUM OR COULD CAUSE
TRUSERV TO DEFAULT ON ITS CURRENT DEBT AGREEMENTS.

TruServ's board of directors is currently reviewing the continued need for
the stock moratorium and expects to announce at the annual shareholders meeting
on March 28, 2004 whether it will lift or maintain the moratorium. At the time
the moratorium is lifted, the normal redemption procedures, as outlined in the
By-Laws, will be followed. If the moratorium were lifted now, TruServ expects
the normal redemption process to require it to make an initial cash payment of
$7,458 at the time of the lifting of the moratorium and to pay the remaining
balance of $26,267 by the issuance of 5-year subordinated installment notes. The
first year payment on the subordinated installment notes is due at the end of
the calendar year the moratorium is lifted.

TRUSERV HAS OUTSTANDING DEBT, THAT IS SENIOR TO THE CLASS A COMMON STOCK AND, IN
THE EVENT OF THE BUSINESS FAILURE OF TRUSERV, IT MAY NOT HAVE SUFFICIENT ASSETS
TO REDEEM THE CLASS A COMMON STOCK.

TruServ is financed by debt capital obtained from various external sources
principally under the Bank Facility and trade creditors. As a stockholder, your
investment is subordinate to senior, secured debt, trade creditors and other
unsecured liabilities and subordinated debt of TruServ. In the event of the
business failure of TruServ, there may not be sufficient assets to redeem all or
a portion of the Class A common stock after payment of TruServ debt and other
liabilities.

As of December 31, 2003, the book value of net tangible assets was $589,986
and debt and other liabilities were $677,571. The liquidation value of the
assets, especially if the assets are not sold as part of the ordinary course of
business, may be less than the book value of the assets. These balances will
change in the ordinary course of business.

TRUSERV HAS EXPERIENCED A DECLINE IN ITS MEMBER BASE AND ITS MEMBERS FACE STIFF
RETAIL COMPETITION, AND TRUSERV'S SUCCESS DEPENDS ON THE SUCCESS OF ITS MEMBERS
IN THE RETAIL MARKETPLACE.

The success of TruServ Corporation is dependent upon continued support from
its members in the form of purchases for their retail outlets to generate
positive net margin and cashflow for TruServ. TruServ has a net decline of
approximately 5.9% and 8.7% of its total number of outlets in 2003 and 2002,
respectively. The number of retail and industrial distribution outlets that were
members of TruServ at December 31, 2003 is approximately 6,200. The reduction in
membership is due to retailer competition, TruServ's discontinuing relationships
with members that did not meet the minimum purchase requirements and members'
leaving TruServ to find an alternate source of supply. The retail hardware
industry is characterized by intense competition. Independent hardware
retailers, such as TruServ members, must remain competitive with the so-called
"Big Box" stores such as Home Depot, Menards and Lowe's, as well as the
diversified retailers such as Sears and Wal-Mart. These retail competitors may
have greater resources, larger market shares and more widespread presence than
TruServ members. The success of TruServ is highly dependent upon the success of
its members' retail and industrial outlets in the marketplace.

BUSINESS
($ IN THOUSANDS)

TRUSERV HISTORY

TruServ Corporation was organized as Cotter & Company, 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"). SCC
was a hardware wholesaler incorporated in 1935, under the name American Hardware
Supply Company, with a strong presence in retail lumber and building materials.
Following the merger, Cotter & Company was renamed TruServ Corporation.
TruServ's main executive offices are located at 8600 West Bryn Mawr Avenue,
Chicago, Illinois, 60631-3505. Its main telephone number is (773) 695-5000. Its
web page address is www.truserv.com.

The merger united two similar organizations under the name of TruServ
Corporation, creating one of the largest hardware/home center cooperatives in
the United States. The goals were to: (i) lower pricing for the members by
increasing buying power, (ii) increase potential for rebates by combining vendor
purchases, and (iii) better leverage operating expenses by consolidating
distribution centers and reducing duplicate corporate overhead costs.

GENERAL DESCRIPTION OF THE BUSINESS

TruServ, organized as a cooperative, is one of the largest member-owned
wholesalers of hardware and related merchandise in the United States, serving
approximately 6,200 retail and industrial distribution outlets of its members as
of December 31, 2003. TruServ also manufactures and sells paint and paint
applicators.

TruServ sells its products to hardware retailers, industrial distributors,
garden centers and rental stores with whom it has entered into Retail Member
Agreements. TruServ serves its members by principally functioning as a low cost
distributor of goods, 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. TruServ also provides to its members value-added
services such as marketing, advertising, merchandising, and store location and
design services.

Generally, members are entitled to use one of certain TruServ trademarks
and trade names, including the federally registered True Value(R), Grand Rental
Station(R), Taylor Rental(R), Party Central(R), Home & Garden Showplace(R) and
Induserve Supply(R) trademarks, service marks and collective membership marks.
See "Trademarks, Service Marks and Collective Membership Marks" below. Members
have access to certain TruServ private label products. When there are annual
profits members are entitled to receive annual patronage dividends based upon
their purchases from TruServ. In accordance with TruServ's By-Laws and the
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 other provisions as may be authorized by
the board of directors. See "Description of Common Stock -- Distribution of
Patronage Dividends" below.

In 2000, TruServ sold its lumber and building materials business (the
"Lumber Business"), consisting primarily of intangibles and inventory, to
Builder Marts of America, Inc. ("BMA"). TruServ concluded that BMA would be able
to provide lumber and building materials to TruServ members at lower cost.
Moreover, the Lumber Business had been a low-margin and working capital
intensive business for TruServ. In connection with the sale of the Lumber
Business to BMA, TruServ entered into non-compete, cooperation, trademark
license and lease agreements with BMA for various terms ranging from five to ten
years. TruServ and BMA terminated these agreements in April 2003.

In 2001, TruServ sold its ownership interest in TruServ Canada Cooperative,
Inc. (the "Canadian Business") and related real estate interests in Winnipeg,
Manitoba to the current member group of the cooperative. The proceeds received
enabled TruServ to recover its capital investment in the Canadian Business as
well as the appraised value of the real estate and to retire all indebtedness
relating to Canadian activities. TruServ has a licensing agreement with the
Canadian Business to enable it and its members to continue to do business under
the principal TruServ trademarks. In addition, TruServ continues to provide True
Value paints and supplies to the Canadian Business.

On December 31, 2002, TruServ completed a sale leaseback transaction of
seven of its distribution centers. The sale generated net proceeds of $121,438,
which were used to pay down the revolving credit facility, senior notes and
synthetic lease obligation (the "Senior Debt"), pursuant to an intercreditor
agreement between all parties of the Senior Debt. The facilities are being
leased back by TruServ under 20-year lease agreements that contain extension
periods on the lease at TruServ's option. See "Properties -- Sale Leaseback
Transaction."

As of December 31, 2003, TruServ serves approximately 6,200 retail and
industrial distribution outlets for its members throughout the United States and
in 54 other countries. Primary concentrations of members exist in New York
(approximately 9%), Pennsylvania (approximately 7%), California (approximately
6%), Texas (approximately 5%), Illinois, Michigan, Massachusetts, Minnesota and
Wisconsin (approximately 4% each) and New Jersey, Ohio and Washington
(approximately 3% each).

SALES AND SUPPLIERS

TruServ provides each of its members with an illustrated price catalog
showing the products available from TruServ, which the members can access
through the member Internet site. Upon request, a member will also receive a
printed or CD version of the catalog. These products, comprised of more than
70,000 stockkeeping units ("SKUs") maintained at TruServ's distribution centers,
are divided into seven categories of merchandise. In addition to purchasing
products, which are maintained at the distribution centers, members can purchase
additional SKUs directly from TruServ approved vendors and have those purchases
drop shipped directly to them, but have the product billed through TruServ.
Collectively, these products represent the

products sold by TruServ's two operating segments in 2003 and 2002 and three
operating segments in 2001. See Note 10, "Segment Information" to the
Consolidated Financial Statements beginning at page F-1 for additional segment
information.

The seven product categories are set forth in the following table, along
with the corresponding dollars of total revenues for each category during the
last three years:

<Table>
<Caption>
FOR THE FISCAL YEARS ENDED
DECEMBER 31,
------------------------------------
2003 2002 2001(1)
---------- ---------- ----------
($ IN THOUSANDS)

Hardware goods....................... $ 485,374 $ 521,450 $ 608,903
Farm and garden...................... 429,161 443,062 514,233
Electrical and plumbing.............. 353,332 385,853 441,259
Painting and cleaning................ 312,834 331,029 379,394
Appliances and housewares............ 228,929 247,786 285,855
Sporting goods and toys.............. 107,862 125,555 148,764
Other................................ 106,848 120,716 241,026
---------- ---------- ----------
$2,024,340 $2,175,451 $2,619,434
========== ========== ==========
</Table>

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(1) The Canadian Business was sold on October 22, 2001. Total sales from
Canadian operations were $84,397 in 2001 and such sales are reflected in the
above amounts for each of the seven categories.

TruServ's merchandise sales to its members are divided into three logistics
categories, as follows:

<Table>
<Caption>
2003 2002 2001
---- ---- ----

Warehouse shipment sales............................... 65% 65% 63%
Direct shipment sales.................................. 31% 31% 33%
Relay shipment sales................................... 4% 4% 4%
</Table>

Warehouse shipment sales are sales of products that are purchased,
warehoused and resold by TruServ in response to orders from the members. Direct
shipment sales are sales of products that are purchased through TruServ by the
members but delivered directly to members from vendors and TruServ accepts the
credit risk. Relay sales are sales of products that are purchased through
TruServ in response to the requests of several members for a product that
typically is:

- to be included in future promotions,

- seasonal in nature,

- not normally held in inventory, and

- not conducive to direct shipment.

Generally, TruServ will give notice to all members of its intention to
purchase products for relay shipment and will then purchase only as many items
as the members order. When the product shipment arrives at TruServ, it is not
warehoused; rather, TruServ breaks up the shipment and "relays" the appropriate
quantities to the members who placed orders.

TruServ has numerous individual agreements with or commitments from its
vendors, most of which are terminable by the vendors or TruServ without cause.
These termination provisions, either individually or in the aggregate, have not
had any material adverse effect on TruServ's ability to conduct its business.
The goods and services purchased by TruServ from these suppliers are generally
available from a wide variety of sources. TruServ is not dependent upon any one
supplier or group of suppliers.

TruServ also manufactures and sells paint and paint applicators. The
principal raw materials used by TruServ in its paint manufacturing activities
are chemicals. All raw materials are purchased from outside

sources. In the past, TruServ has been able to obtain adequate sources of raw
materials and other items used in production. TruServ does not currently
anticipate shortages of materials that would materially impact its paint
manufacturing operations.

OTHER SERVICES

TruServ annually sponsors two principal "markets", a separate rental market
and an outdoor power equipment show all funded primarily by vendors through
booth fees, at which it features the products available for purchase by members,
including new merchandise and seasonal items. In addition, the markets permit
members and prospective members to keep better informed as to industry trends,
attend continuing education classes and network with other members. In the year
2004, one of the principal markets will be held in Dallas, Texas, and the other
principal market will be held in Orlando, Florida, where the 2004 rental market
was recently held. As the markets generate income and stimulate member
purchases, the timing of markets impact the timing of sales and income
recognition for TruServ. All members are invited to the markets and attending
members generally place substantial orders for delivery of merchandise during
the period between markets.

BACKLOG

As of January 31, 2004 and January 25, 2003, TruServ had a backlog of firm
orders (including relay orders) of approximately $18,149 and $11,260,
respectively. TruServ's backlog at any given time is made up of two principal
components:

- normal resupply orders; and

- market orders for future delivery.

Normal resupply orders are orders from members for merchandise to keep
store inventories at normal levels. Generally, such orders are filled the day
following receipt, except that relay orders for future delivery are not intended
to be filled for several months. Market orders for future delivery are member
orders placed at TruServ's markets for new or seasonal merchandise, to be
delivered during the subsequent period between markets. Thus, TruServ generally
has a relatively high backlog at the end of each market, which decreases in
subsequent months until the next market occurs.

COMPETITION

The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses, including those served by TruServ, face
intense competition from chain stores, discount stores, home centers and
warehouse operations such as Wal-Mart, Home Depot, Menards, Sears and Lowe's.
Increased operating expenses for the retail stores, including increased costs
due to longer store hours and higher retail occupancy costs, have cut into
operating margins for members and brought pressure on TruServ to achieve lower
merchandise costs for its members. In response, TruServ works with its members
to drive profitability through operational improvement programs such as AIM
(advanced inventory management) which focuses on assortments of fast turning
products as well as retail programs which focus on areas such as pricing,
merchandising, store design and signage. In addition, TruServ has introduced
wholesale pricing strategies, Priced 2 Win(TM) and Connect 4 Profit(R), which
are designed to improve retail competitiveness. In 2002, TruServ developed the
program Store of First Choice(R) to focus on incentivizing members to adopt
retail best practices.

Competitive conditions in the wholesale hardware industry are similarly
intense and increasing, particularly as a result of the intense pressure on
hardware retailers to obtain low-cost wholesale supply sources for merchandise
acquisition. TruServ competes with other member-owned and non-member-owned
wholesalers to be 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, quality and patronage dividends. TruServ is
concentrating on its supply channel strategies and practices for gaining
sustainable competitive advantage. In many markets in the United

States, TruServ competes directly with other member-owned wholesalers such as
Ace Hardware Corporation and Do-it-Best Corporation, as well as independently
owned wholesalers.

TRADEMARKS, SERVICE MARKS AND COLLECTIVE MEMBERSHIP MARKS

TruServ's trademarks, service marks and collective membership marks are of
prime importance to TruServ. Many of the marks are highly recognized and
utilized in extensive advertising and marketing campaigns, and TruServ
vigorously defends its marks. As of December 31, 2003, TruServ's members have
approximately 6,200 retail and industrial distribution outlets that operate
predominately as retail hardware stores, rental facilities, horticulture outlets
as well as commercial and industrial distributors, throughout the United States
and in 54 other countries, most of which sell merchandise and services under the
marks.

The marks include the True Value(R) marks, the ServiStar(R) mark, the Coast
to Coast(R) mark, the Induserve Supply(R) mark, the Party Central(R) mark, the
Grand Rental Station(R) mark, the Taylor Rental(R) mark, the Home & Garden
Showplace(R) mark and the Commercial Sales(R) mark. The marks also include E-Z
Kare(R), Weatherall(R), and Easy Color(R) for paint. All of the marks are
currently used in commerce and TruServ intends to use the marks in commerce in
the future. Each of the marks is renewable at TruServ's option and TruServ
intends to renew them upon expiration. Members have continued to conduct their
businesses under the same retail banners as before the merger of Cotter &
Company and SCC; however, beginning in year 2000, many 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). TruServ's marks also include
Help is Just Around the Corner(R), Christmas is Just Around the Corner(R) and
Summer is Just Around the Corner(R).

EMPLOYEES

As of December 31, 2003, TruServ employed approximately 3,000 persons in
the United States on a full-time basis. Due to the widespread geographical
distribution of TruServ's operations, employee relations are governed by the
practices prevailing in the particular area where the employees are located and
are generally implemented locally. Approximately 35% of TruServ's 2,100
hourly-wage employees are covered by collective bargaining agreements that are
generally effective for periods of three or four years. In general, TruServ
considers its relationship with its employees to be good.

RETAIL MEMBER AGREEMENT

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

- will be required to purchase 60 shares of Class A common stock at a
purchase price of $100 per share for each store owned by the member, up
to a maximum of 300 shares for five or more stores that are owned by a
member;

- will conduct its businesses subject to the terms of the Retail Member
Agreement;

- will conduct a retail hardware store, home or garden center, a
commercial/industrial distribution business or a full-service rental
operation at a designated location;

- will comply with TruServ's By-Laws, as may be amended from time to time;

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

- may receive different services or charges based upon the amount of
merchandise purchased by the member;

- agrees to have its Retail Member Agreement terminated unilaterally in
certain circumstances by TruServ's board of directors;

- agrees to have its Retail Member Agreement automatically modified upon
notice from TruServ to the member of any relevant change in the
Certificate of Incorporation and/or By-Laws of TruServ, or by resolution
of the board of directors;

- agrees to utilize TruServ as its primary supplier for the types of
merchandise offered by TruServ;

- agrees to have its Retail Member Agreement governed by Illinois law,
enforced only in courts located in Cook County, Illinois or any Illinois
county contiguous to Cook County and only interpreted in accordance with
the substantive laws of Illinois without giving effect to its conflict of
laws principles; and

- may terminate the Retail Member Agreement upon 60 days written notice
mailed to any executive officer of TruServ at TruServ's principal office.

PROPERTIES
($ IN THOUSANDS)

WAREHOUSING AND OFFICE FACILITIES

TruServ's worldwide headquarters is located in Chicago, Illinois.
Information with respect to TruServ's owned and leased warehousing and office
facilities used for the continuing operations of its business at December 31,
2003 is set forth below:

<Table>
<Caption>
SQUARE FEET OF
WAREHOUSE AND LEASE
LOCATION OFFICE AREA INTEREST EXPIRATION DATE
-------- -------------- -------- -----------------

Chicago, Illinois(1).......................... 228,100 Leased December 31, 2010
Corsicana, Texas(2)........................... 775,000 Leased December 31, 2022
Denver, Colorado.............................. 360,000 Leased June 30, 2005
Fogelsville (Allentown), Pennsylvania(2)...... 600,000 Leased December 31, 2022
Harvard, Illinois............................. 1,032,000 Leased August 23, 2013
Harvard, Illinois............................. 163,000 Leased August 23, 2005
Jonesboro (Atlanta), Georgia(2)............... 670,000 Leased December 31, 2022
Kansas City, Missouri(2)...................... 415,000 Leased December 31, 2022
Kingman, Arizona(2)........................... 375,000 Leased December 31, 2022
Springfield, Oregon(2)........................ 504,000 Leased December 31, 2022
Woodland, California(2)....................... 350,000 Leased December 31, 2022
Manchester, New Hampshire(3).................. 730,000 Owned
Mankato, Minnesota(3)......................... 320,000 Owned
Westlake (Cleveland), Ohio(3)................. 405,000 Owned
</Table>

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

(1) TruServ has subleases with third parties for approximately 72,000 of the
228,100 square feet of the Chicago, Illinois space.

(2) Facility was part of the December 31, 2002 sale leaseback transaction. See
"Properties -- Sale Leaseback Transaction" below.

(3) Facility is assigned as collateral under the Bank Facility.

Facilities not used in the operations of the business consist of:

- 476,200 sq. ft. of owned office and warehouse space in East Butler,
Pennsylvania that is currently for sale;

- 840,000 sq. ft. of vacant facility space in Hagerstown, Maryland that is
leased until July 2005 and is subject to landlord cancellation upon 10
days notice. TruServ received on January 12, 2004 a notice of
cancellation with respect to 454,000 sq. ft. of the facility that is
effective April 1, 2004, which will reduce the obligation under the lease
to 386,000 sq. ft.; and

- 60,500 sq. ft. facility in Peachtree City, Georgia leased until November
2005 that is sublet to third parties.

See Note 13, "Restructuring Charges and Other Related Expenses," to the
Consolidated Financial Statements, beginning at page F-1 for a further
discussion of the Hagerstown, Maryland facility.

SALE LEASEBACK TRANSACTION

On December 31, 2002, TruServ sold seven of its distribution centers to
unrelated third parties for an aggregate purchase price of $125,753. The sale
resulted in net proceeds to TruServ of $121,438, which were used to pay Senior
Debt. The net reduction in Senior Debt was $108,743, as a result of new
make-whole notes of $12,695 issued due to the prepayment on senior notes.
TruServ concurrently agreed to lease the distribution centers for a period of 20
years. The transaction was recorded as a real property sale and as operating
leases in TruServ's financial statements. The resulting gain on sale of $55,564
was recorded as deferred gain in the balance sheet and is being amortized to
income on a straight line basis over the initial 20 year lease term.

TruServ sold the distribution facilities located in Corsicana, Texas and
Woodland, California to and now leases them from Wrench (DE) Limited
Partnership. TruServ sold the distribution facilities located in Kingman,
Arizona, Fogelsville, Pennsylvania and Springfield, Oregon to and now leases
them from Bolt (DE) Limited Partnership. TruServ sold the distribution
facilities located in Jonesboro, Georgia and Kansas City, Missouri to and now
leases them from Hammer (DE) Limited Partnership. The three limited partnerships
are affiliated with W.P. Carey Investments, an investment firm independent of
TruServ. TruServ pays rent under each lease quarterly in January, April, July
and October. The aggregate annual rent payments under all three leases for 2003,
the first year of the lease, totals $12,007. Rent payments under the leases
increases 2% each year during the initial 20 year lease term.

Each lease is a "triple-net" lease under which TruServ is obligated to pay
all operating expenses of the property, all taxes and other impositions related
to the property, to maintain and insure the property and, with minor exceptions,
to rebuild the improvements after a casualty or condemnation. TruServ also
indemnifies the landlord from any loss, cost, damage or liability arising out of
the use, ownership or operation of the property, including any liability related
to hazardous materials.

TruServ's obligation to pay rent under the leases is absolute, with no
right to offset or abatement. The three leases are cross-defaulted, such that a
default under one of the leases constitutes a default under each of the other
leases. Events of default under the leases relate to TruServ's "triple-net"
lease obligations, as described above, and do not include any financial
covenants. TruServ has no right to terminate any of the leases, with minor
exceptions as described in the leases.

TruServ has the right to extend each lease for two additional periods of
approximately 10 years each. TruServ may elect to renew a lease or leases with
respect to any one or more of the properties without renewing the lease or
leases with respect to all of the properties subject thereto. TruServ has the
right to assign the lease without the landlord's prior written consent, but
subject to certain conditions described in the leases. Provided that TruServ
assigns the rent thereunder to the landlord, TruServ may sublet all or any part
of any property without the landlord's consent.

TruServ continues to evaluate opportunities to capitalize on the increase
in market value over the historical book value of its owned real estate assets
through additional sale leaseback transactions, mortgages or other financing
methods.

OTHER PROPERTY SALES

The Brookings, South Dakota regional distribution center was closed and
sold in 2002. In 2001, TruServ closed its Henderson, North Carolina distribution
center and the lease agreement on the facility expired on November 11, 2001. The
Indianapolis, Indiana distribution center was closed and sold in 2001. TruServ's
interest in the Canadian Business was sold in October of 2001, which included
the sale of the Winnipeg, Manitoba property. TruServ had been exiting and
consolidating distribution facilities since the merger with SCC in 1997 to both
realize the benefit of reduced operating costs of the merged cooperatives and to
reflect a level of contraction of its operations.

MANUFACTURING FACILITIES

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

<Table>
<Caption>
SQUARE FEET OF
MANUFACTURING
AND OFFICE PRINCIPAL
LOCATION AREA PRODUCT INTEREST
- -------- -------------- --------- --------

Chicago, Illinois(1)....................... 105,000 Oil based Paint Owned
Cary, Illinois(1).......................... 612,000 Latex based Paint Owned
and Paint
Applicators
</Table>

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

(1) Assigned as collateral under the Bank Facility.

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

OTHER LEASES

TruServ owns and leases transportation equipment for use at its
distribution centers for the primary purpose of delivering merchandise from
TruServ's distribution centers to its members. Additional information concerning
these leases can be found in Note 5 "Lease Commitments" to the Consolidated
Financial Statements beginning at page F-1.

LEGAL PROCEEDINGS
($ IN THOUSANDS)

BESS ACTION

In May 2000, TruServ filed a complaint in the Circuit Court of McHenry
County, Illinois against Bess Hardware and Sports, Inc.("Bess"), to recover an
accounts receivable balance in excess of $400. Bess filed a counterclaim,
seeking a setoff against its accounts receivable balance for the par redemption
value of Bess' shares of TruServ Stock. Bess contested the validity of a March
17, 2000 corporate resolution declaring a moratorium on the redemption of all
TruServ capital stock, as well as an allocation of Bess' proportionate share of
the loss, which TruServ declared for its fiscal year 1999. On August 2, 2003,
the Circuit Court entered judgment in favor of TruServ on its accounts
receivable claim in the amount of $392, and entered judgment in favor of Bess on
its counterclaim. Bess did not appeal the judgment on the accounts receivable
claim. TruServ appealed the judgment on Bess's counterclaim. On January 21,
2004, the Second District of the Illinois Appellate Court issued a decision
reversing the portion of the Circuit Court's ruling that had refused to enforce
the Moratorium. In validating the Moratorium, the Second District found that
TruServ's capital was impaired, and held that TruServ "was prohibited from
immediately remitting the redemption price for [Bess's] TruServ stock." The
Second District also held that as of April 10, 2000 -- the effective date of the
termination of Bess's membership -- Bess ceased to be a TruServ stockholder and
thus was not subject to the loss allocation plan passed by resolution of the
TruServ board of directors on August 29, 2000. On February 9, 2004, Bess filed a
Petition For Rehearing in the Second District of the Illinois Appellate Court.
The Petition For Rehearing was denied on March 3, 2004.

KENNEDY ACTION

allocation accounts for the plaintiffs. The plaintiffs have each asserted claims
for fraud/misrepresentation, negligent misrepresentation, claims under the state
securities laws applicable to each plaintiff, claims under the state
franchise/dealership laws applicable to each plaintiff, breach of fiduciary
duty, unjust enrichment, estoppel and recoupment. Similar claims were filed
against TruServ as counterclaims to various complaints filed by TruServ in
McHenry County to recover accounts receivable balances from other former
members. Those claims were consolidated with the Kennedy action. In March 2001,
the Kennedy complaint was amended to add additional plaintiffs. Also in March
2001, another action was filed against TruServ on behalf of additional former
members, in the same court, by the same law firm (the "A-Z action"). The A-Z
complaint alleges substantially similar claims as those in the Kennedy action,
with the principal difference being that the claims relate to the elimination of
the ServiStar brand name. The Kennedy and A-Z actions have been consolidated for
purposes of discovery, which is ongoing. The plaintiffs seek damages for stock
repurchase payments, lost profits and goodwill, out of pocket expenses, attorney
fees and punitive damages. In July 2002, the plaintiffs in these consolidated
actions amended their complaints to name as defendants two former officers of
TruServ.

TruServ intends to vigorously defend the remaining cases. Litigation is
subject to many uncertainties, and the outcome of the individual litigated
matters is not predictable with assurance. It is possible that the matters
discussed above could be decided unfavorably to TruServ. Although the amount of
liability with respect to these matters cannot be ascertained, potential
liability is not expected to materially affect the consolidated financial
position or results of operations of TruServ, in light of TruServ's insurance
coverage.

DERIVATIVE ACTION

In August 2000, an action was brought in Delaware Chancery Court (New
Castle County) by a former TruServ member ("Hudson City Properties") against
certain present and former directors and certain former officers of TruServ and
against TruServ. The complaint was brought derivatively on behalf of TruServ and
alleged that the individual defendants breached fiduciary duties in connection
with the accounting adjustments made by TruServ in the fourth quarter of 1999.
Hudson City Properties also sought to proceed on a class-action basis against
TruServ on behalf of all those affected by the moratorium on stock redemption
and the creation of the loss allocation accounts. Hudson City Properties alleged
that TruServ breached, and the named directors caused TruServ to breach,
agreements with members by suspending payment of the members' 1999 annual
patronage dividend, by declaring the moratorium on the redemption of members'
TruServ stock and by imposing annual minimum purchase requirements upon members.
On May 12, 2003, the parties to this action signed a Stipulation of Settlement
resolving the lawsuit, subject to court approval. On May 15, 2003, the Delaware
Chancery Court entered an Order preliminarily approving the Settlement. The
Court conducted a Settlement Hearing on July 8, 2003, and approved the
Stipulation of Settlement as fair, reasonable, adequate and in the best interest
of TruServ and the class. On July 14, 2003, the Court entered a Final Order and
Judgment dismissing the lawsuit with prejudice. The Stipulation of Settlement
became final and binding 30 days after the date the Final Order and Judgment was
entered. Under the terms of the Stipulation of Settlement, at such time as
TruServ's board of directors determines that it is in the best interests of
TruServ to lift the moratorium on stock redemptions, the loss allocation
accounts for all current and former members who are parties to the Stipulation
of Settlement will be reduced by approximately $5 million on a pro rata basis as
more fully described in the Stipulation of Settlement agreement. The majority of
the settlement was provided by TruServ's insurance carrier. Additionally, all of
the current and former members who participated in the Stipulation of Settlement
released TruServ and its current and former officers and directors from any
liability with respect to the moratorium on stock redemptions and the creation
of the 1999 loss allocation accounts.

CLAIM AGAINST ERNST & YOUNG LLP

amount of $121,333 (the "Fourth Quarter Charge"). As a result, TruServ reported
a net loss of $130,803 for the fiscal year ended December 31, 1999. It is
TruServ's belief that had E&Y properly discharged its duties, the scope and
breadth of the Fourth Quarter Charge, as well as the accounting and operational
control deficiencies that necessitated the charge, would have been substantially
lessened. As a result of E&Y's failures, TruServ has suffered significant
financial damages. The factual allegations that form the basis for TruServ's
claim against E&Y include, in part, the issues identified in the Securities and
Exchange Commission (the "Commission") cease and desist order described below.
TruServ began discussion of its claims with E&Y early in the fall of 2001.
Pursuant to the dispute resolution procedures required by TruServ's engagement
letter with E&Y, TruServ and E&Y attempted to mediate this dispute during the
first six months of 2002. When those attempts proved unsuccessful, and again
pursuant to the dispute resolution procedures, TruServ filed its claim with the
American Arbitration Association on July 31, 2002. The arbitration, which is
subject to certain confidentiality requirements, is currently pending. Hearings
are currently scheduled to begin in the spring of 2004. Recoveries under this
matter, if any, may be subrogated to the rights of TruServ's insurer to the
extent that it has made payments to or on behalf of TruServ associated with the
1999 loss.

TRUSERV ORDER

On March 4, 2003, the Commission entered an Order Instituting
Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist
Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to
TruServ Corporation, SEC File No. 3-11050 (the "Order"). TruServ consented to
the entry of the Order without admitting or denying the findings in the Order.

The Commission entered the Order following an investigation by the staff of
the Commission of the circumstances that led to significant financial
adjustments resulting in the 1999 loss of $130,803. The Order found that, from
approximately July 1997 through the end of 1999, TruServ's accounting systems
and internal controls related to inventory management were inadequate. The Order
also found that these deficiencies caused TruServ to understate expenses, which
resulted in overstatement of net income, during 1998 and 1999. According to the
Order, TruServ filed erroneous reports on Form 10-Q for the first, second and
third quarters of 1998 and 1999 and an erroneous report on Form 10-K for 1998.
In 1999, TruServ reported a loss, caused by weaknesses in the accounting
practices and internal controls at TruServ, of approximately $130,803.

Pursuant to the Order, TruServ has agreed to continue to maintain the
procedures that it has adopted since the Spring of 2000 and otherwise to comply
with the accounting, record keeping and internal control provisions of the
Securities and Exchange Act of 1934 (the "Exchange Act"). In addition, TruServ
will continue to employ as a member of its management team, during the fiscal
years ending 2002, 2003 and 2004, a Director of Internal Audit who will be
responsible for executing TruServ's internal audit plan and will continue to
engage a public accounting firm to assist the Director of Internal Audit in
performing internal audit procedures.

Also pursuant to the Order, within 90 days after the close of each fiscal
year ending 2002, 2003 and 2004, the Director of Internal Audit prepared or will
prepare and deliver to TruServ's board audit committee, with copies to the
Commission, TruServ's auditors and the public accounting firm assisting the
Director of Internal Audit, a report describing the scope of the audit plan
during the preceding year, confirmation that the audit plan was carried out, an
overview of significant control weaknesses identified that require improvement
and a review of the steps taken to improve the system of internal controls.

On March 4, 2003, the Commission also entered an Order Instituting
Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist
Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to
Kerry Kirby, File No. 3-11053 (the "Kirby Order"). The Kirby Order made
substantially all of the findings that were made in the Order. In addition, the
Kirby Order found that Kerry Kirby, the chief financial officer of TruServ from
July 1997 to May 1999, in part due to his failure to act on the internal audit
report that TruServ's accounting systems were flawed, was a cause of TruServ's
violations of securities laws requiring the accurate financial reporting,
accurate books and records and adequate internal controls.

DESCRIPTION OF COMMON STOCK
($ IN THOUSANDS)

CAPITAL STOCK

In general, members of TruServ own shares of Class A and Class B common
stock. Each of the two classes of stock has a par value of $100 per share. The
Class A common stock is sold in units of 60 shares. Each TruServ member is
required to purchase one unit of Class A common stock for each store owned;
however, no TruServ member is permitted to acquire more than five units of Class
A common stock. (TruServ has waived the Class A common stock ownership
requirement for new members pending effectiveness of a new registration
statement for the Class A common stock.) The Class B common stock is issued only
to members in connection with the patronage dividend distributed to them for
purchases in the year of the patronage dividend, as discussed below. See
"Distribution of Patronage Dividends" below.

Neither class of TruServ common stock accrues dividends and each has
limited transferability. TruServ has a right of first offer to repurchase at par
value a member's stock before the member can offer the stock to another member.
Historically, TruServ has always exercised this right. In any event, a member
may not transfer the Class A common stock to anyone without TruServ's consent.
TruServ also retains an automatic lien on both classes of stock for any
indebtedness due to TruServ by a member. Therefore, there is no existing market
for either class of TruServ common stock.

Participation in the earnings or losses of a cooperative is based on member
patronage purchasing and reflected by the payment of patronage dividends. In
general, these patronage dividends are based on a member's purchasing volume and
margins applicable to merchandise purchased by the member, less any expenses
related to such business and less certain cooperative reserves. Patronage
dividends are determined on a yearly basis for purchasing activity conducted the
prior year, and are allocated no later than the 15th day of the ninth month
following the end of the calendar year. TruServ has been paying patronage
dividends in a combination of cash and Class B common stock. As TruServ reported
a net loss for 2001, there was no patronage dividend payable in 2002 related to
2001 results. TruServ paid a patronage dividend for 2002 results in 2003 and for
2003 results in 2004. Such dividends were a combination of cash, Class B common
stock and loss allocation account reduction (for members with such an account).
See "Allocation of Patronage Dividends against Loss Allocation Account" below.

MORATORIUM ON REDEMPTIONS OF CAPITAL STOCK

In March 2000, the board of directors of TruServ declared a moratorium on
redemptions of the capital stock. In reaching its decision to declare the
moratorium, the board of directors of TruServ reviewed the financial condition
of TruServ and considered its fiduciary obligations and corporate law principles
under Delaware law. The board of directors concluded that it should not redeem
any of the capital stock (which TruServ's By-Laws required to be redeemed at par
value) while its net asset value was substantially less than par value, as that
would likely violate legal prohibitions against "impairment of capital." In
addition, the board of directors concluded that it would be a violation of its
fiduciary duties to all members and that it would constitute a fundamental
unfairness to members if some members were allowed to have their shares redeemed
before the 1999 loss was allocated to them and members who did not request
redemption were saddled with the losses of those members who requested
redemption. Moreover, the board of directors considered TruServ's debt
agreements and, in particular, the financial covenants thereunder, which
prohibited redemption when TruServ, among other things, did not attain profit
margins.

At the time the board of directors declared the moratorium on redemptions,
TruServ's By-Laws did not impose limitations on the board's discretion to
initiate or to continue a moratorium on redemption. The By-Laws merely provided
that, upon termination of a member's agreement, TruServ was to redeem the
member's shares at par value. Nevertheless, the board of directors concluded
that its fiduciary obligations to TruServ and its members would not permit it to
effect redemptions under the circumstances described above. After the board of
directors declared the moratorium, the board of directors amended the By-Laws to
provide that if TruServ's funds available for redemption are insufficient to pay
all or part of the redemption price of

shares of capital stock presented for redemption, the board of directors may, in
its sole discretion, delay the payment of all or part of the redemption price.

The board of directors will consider the financial condition of TruServ,
and will not lift the moratorium unless it can conclude that effecting
redemptions of TruServ's capital stock will not "impair the capital" of TruServ,
unfairly advantage some members to the disadvantage of others, or violate the
financial covenants under its debt agreements. In light of the current financial
circumstances of TruServ, the board of directors is reviewing the continued need
for the stock moratorium and has informed its members that a decision whether to
maintain or lift the moratorium will be made prior to and announced at the March
28, 2004 annual shareholders' meeting. If a decision is made to lift the stock
moratorium, the effective date of the end of the moratorium would be determined
by the date of the annual shareholders' meeting and announced at such time.

As of December 31, 2003, the deferred stock redemption liability on
TruServ's financial statements totals $33,725. Historically, TruServ has offset
amounts due by its members against amounts that it pays to the members on
redemption of their stock. The deferred stock redemption liability is the
aggregate value of the terminated members' equity investments after the offset
of the loss allocations resulting from the 1999 loss, the 2001 loss and the
accounts receivable owed by the former members. In accordance with TruServ's By-
Laws, certain equity interests are paid in cash at the time of redemption and
the remaining equity interests are paid out by means of a five-year subordinated
installment note, with annual installments commencing December 31 of the year
the moratorium is lifted. The December 31, 2003 deferred stock redemption
liability of $33,725 has approximately $7,458 payable in cash at the time the
moratorium is lifted and TruServ will issue the remaining balance in
subordinated installment notes with an aggregate principal amount of $26,267.

DIVIDEND RIGHTS

TruServ pays patronage dividends, which are calculated based on a member's
patronage with the cooperative. In February 2004, the board of directors
authorized the payment of a patronage dividend related to 2003. The patronage
dividend was paid in March 2004. See "-- Distribution of Patronage Dividends",
and "-- Allocation of Patronage Dividends Against Loss Allocation Account"
below.

Dividends (other than patronage dividends) on the Class A common stock and
Class B common stock, subject to the provisions of TruServ's Certificate of
Incorporation, may be declared out of gross margins of TruServ, other than gross
margins from operations with or for members and other patronage source income,
after deduction for expenses, reserves and provisions as may be authorized by
the board of directors. Dividends may be paid in cash, in property, or in shares
of the Class B common stock, subject to the provisions of the Certificate of
Incorporation and the By-Laws. Other than the payment of patronage dividends,
including the redemption of all nonqualified written notices of allocation,
TruServ has not paid dividends on its Class A common stock or Class B common
stock. The board of directors does not plan to pay non-patronage dividends on
either class of stock.

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, calculated on the basis of gross margins of
merchandise purchased by each member. In accordance with TruServ's By-Laws and
Retail Member Agreement, the annual patronage dividend, as authorized by the
board of directors, is paid to members out of patronage source income, less
certain deductions, calculated as provided in the following sentence. The total
patronage dividend paid to members is based on pre-tax net margins calculated in
accordance with accounting principles generally accepted in the United States of
America after reducing or increasing net margins for non-member income/(losses),
reasonable reserves and deferred patronage amortization. The total dividend is
allocated to each purchase category, with the main purchase categories being
warehouse, relay, direct shipment and paint. Once the patronage dividend is
allocated to the purchase categories, it is distributed to members based on the
relative gross margin participation of the member for each type of purchase
category.

Patronage dividends are usually paid to members within 90 days after the
close of TruServ's year; however, the Code permits distribution of patronage
dividends as late as the 15th day of the ninth month after the close of
TruServ's 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 annual patronage dividends,
after payment of at least 20% of such patronage dividends in cash, in "qualified
written notices of allocation" including:

- Class B common stock based on its par value, up to a maximum of 2% of the
member's net purchases of merchandise from TruServ for the year (except
in unusual circumstances of individual hardship, in which case the board
of directors reserves the right to make payments in cash),

- Promissory (subordinated) notes, or

- Other property.

Promissory (subordinated) notes are customarily issued for a five-year term
and bear interest at a rate fixed from time to time by the board of directors.
The notes 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. "Non-qualified written notices of allocation" are
usually issued in the form of Class B common stock. See "Payment of Patronage
Dividends in Accordance with the Internal Revenue Code" below.

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 a certain amount, the cumulative value of
which would not exceed 2% of the member's net purchases of merchandise from
TruServ. Commencing in 1996, the board established a minimum Class B common
stock ownership requirement for each type of retail member, which may be varied
from time to time. However, not all members have achieved the minimum target.
This minimum is generally the greater of (1) $25 or (2) the aggregate of a
member's various types of annual purchases, each multiplied by a specific
percentage, which varies from 1% to 14% and which decreases as total dollar
purchases by category increase. The board of directors determined the amount of
the minimum required investment by majority vote, and the minimum may be
increased or decreased from time to time. TruServ will make an increase or
decrease determination based on an evaluation of its financial needs and the
needs of its membership.

ALLOCATION OF PATRONAGE DIVIDENDS AGAINST LOSS ALLOCATION ACCOUNT

During the third quarter of 2000, TruServ management developed and the
board of directors approved a plan to equitably allocate to members the loss
incurred in 1999. This loss was previously recorded as a reduction of retained
earnings. TruServ has distributed the 1999 loss allocation among its members by
establishing a loss allocation account as a contra-equity account in the
consolidated balance sheet with the offsetting credit recorded to the
accumulated deficit account. The loss allocation account reflects the sum of
each member's proportionate share of the 1999 loss, after being reduced by
certain amounts that were not allocated to members. The allocation was generally
based on a member's proportionate equity investment relative to the total equity
investments of all the members, and therefore a member could not be allocated a
loss in excess of their equity investment. The loss allocation account will be
satisfied, on a member by member basis, by applying the portion of future
non-cash patronage dividends as a reduction to the loss allocation account until
fully satisfied. The loss allocation amount may also be satisfied, on a member
by member basis, by applying the par value of maturing member notes and related
interest payments as a reduction to the loss allocation account until such
account is fully satisfied. However, in the event a member should terminate as a
stockholder of TruServ, any unsatisfied portion of that member's loss allocation
account will be satisfied by reducing the redemption amount paid for the
member's stock investment in TruServ. See related discussion in "Legal
Proceedings."

2001 loss was allocated based upon both the member's proportionate stock
investment, net of any 1999 loss allocation account, and also based on the
member's purchases from the co-op in 2001. No member was allocated a loss amount
greater than their net equity investments held as of year end 2001. In the event
a member terminates its status as a stockholder of TruServ, any remaining 2001
loss in the accumulated deficit account that is allocable to the terminating
member will be distributed to the terminating member and satisfied by reducing
the redemption amount paid for the member's stock investment in TruServ. While
it may be that reductions of patronage income will be limited to those members
who were stockholders in 2001, the board of directors could determine that all
or a portion of any such reductions should be allocated in a manner that would
affect all stockholders, including purchasers of Class A common stock pursuant
to this prospectus.

A member's proportionate share of the 1999 and/or 2001 losses has been
limited to the extent of their equity investment in TruServ. Any portion of a
loss allocation that exceeds a member's equity investment is retained by TruServ
in the accumulated deficit account. All or a portion of patronage income and all
non-patronage income, if any, may be retained in the future to reduce the
accumulated deficit account.

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 a cooperative are currently taxable either to the
cooperative or to its patrons, but not both.

The shares of Class B common stock and other written notices distributed by
TruServ to its members, which disclose to the recipient the stated amount
allocated to the member by TruServ and the portion thereof that is a patronage
dividend, are "written notices of allocation" as that phrase is 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 amounts) treated as being constructively
received by them and includable in their gross income. Any written notices that
do not meet these requirements are "nonqualified written notices of allocation"
within the meaning of the Code.

TruServ deducts the sum of cash, the face value of qualified written
notices and the fair market value of any other property distributed to the
members (except nonqualified written notices of allocation) from its earnings in
determining its taxable income. Accordingly, all of these items, including such
qualified written notices of allocation, are includable in the gross income of
the members. 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 the patron (member) receives such distribution. In general, for
nonqualified written notices of allocation, no amounts are either deductible by
TruServ or includable in a member's gross income until the notices are redeemed
by TruServ. TruServ itself therefore includes any earnings reflected in
nonqualified written notices of allocation in its own gross income and pays tax
on them.

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 common stock (which is determined to be qualified for tax purposes), the
stated dollar amount of which must be recognized as gross income by the member
for the taxable year in which received. The portion of the patronage dividend
paid in cash (at least 20%) may be insufficient, depending on a member's
individual tax bracket, to pay income taxes due from the member on its receipt
of the full amount of the patronage dividend, including cash and Class B common
stock.

TruServ has historically paid its members approximately 30% of the
patronage dividend in cash (excluding nonqualified written notices of
allocation). However, TruServ is only obligated to distribute 20% of the annual
patronage dividend (excluding nonqualified written notices of allocation) in
cash, and it may distribute this lesser percentage in future years.

TruServ's By-Laws reflecting the Code provision applicable to cooperatives,
usually treat shares of Class B common stock and such other notices as the board
of directors may determine, if distributed in payment of patronage dividends, as
"qualified written notices of allocation." The By-Laws provide:

(1) for payment of patronage dividends in a combination of cash,
qualified written notices of allocation (including Class B common stock),
other property and nonqualified written notices of allocation; and

(2) that membership in the organization (i.e., the status of being a
member of TruServ) constitutes the member's consent to recognize the stated
amount of any qualified written notices of allocation or other property
distributed to it as includable in the member's gross income as provided in
Section 1385(a) of the Code.

Under the Code, any person who becomes or became a member of TruServ, or
who remains a member after adoption of the By-Laws, providing that membership in
TruServ constitutes consent to be taxed on receipt of qualified written notices
of allocation, is deemed to have consented to be taxed on receipt of patronage
dividends in cash and in qualified written notices of allocation, 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 person
prior to becoming a member. Such consent is then effective as to patronage
dividends. Such consent may be revoked by the member only by terminating its
membership in TruServ in the manner provided in his or its Retail Member
Agreement. See "Business -- Retail Member Agreement" above.

In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B common stock to each
member, TruServ deposits a certificate, representing all the shares of Class B
common stock then being issued, with Harris Trust and Savings Bank, Chicago,
Illinois, for safekeeping for and on behalf of its members. TruServ keeps the
allocations of Class B common stock in book entry form. TruServ then sends a
written notice to each member of these deposits and the allocation thereof to
the member.

SET OFF RIGHTS OF TRUSERV

TruServ's Certificate of Incorporation and By-Laws specifically provide
that TruServ, but not the member, may set off its obligation to make any payment
to a member for such member's stock, notes, interest and declared and unpaid
dividends against any obligation owed by the member to TruServ. TruServ
exercised these set off rights in 2003 and 2002, when TruServ notes and interest
came due to former members with outstanding merchandise accounts receivable to
TruServ and current members with past due merchandise accounts receivable to
TruServ. TruServ also set off its obligation to former members against their
related loss allocation balance. The set off rights were exercised in an
aggregate amount of $8,329 during 2003 and $16,526 during 2002.

As TruServ maintains stock records for its members on a store-by-store
basis, members with multiple stores who elect to sell one or more, but not all,
of their stores can transfer the stock registered on TruServ's records with
respect to a store location that is terminating its relationship with TruServ,
to the store locations that are not being terminated, with proper evidence of
succession, assignment or authority to transfer. Otherwise, TruServ may exercise
its right to offset the par value of the stock recorded for the store location
to be closed against the loss allocation account balance.

CALCULATION OF BOOK VALUE

TruServ calculates book value per share as follows: We take the aggregate
par value of the outstanding Class A common stock and Class B common stock, and
we add that total to the sum of the deferred patronage dividends, retained
earnings (accumulated deficit) and accumulated other comprehensive loss, and
divide that sum by the total number of outstanding shares of Class A common
stock and Class B common stock.

Book value excludes the loss allocation account, since shareholders do not
share equally in the account. The loss allocation account is not a receivable
from members and does not represent an amount currently due

from members. Rather, the loss allocation account will be satisfied, on a member
by member basis, by withholding the portion of future patronage dividends or
member note payments that would have been paid to the members at par value, and
applying such amount as a reduction in the loss allocation account until fully
satisfied. However, in the event a member should terminate as a stockholder of
TruServ, any unsatisfied portion of that member's loss allocation account will
also be satisfied by reducing the redemption amount paid for the member's stock
investment in TruServ.

VOTING RIGHTS

Our Class A common stock is the sole voting stock of TruServ. A quorum of
33.3% of the issued and outstanding Class A common stock is required for taking
action by stockholders. Once a quorum is present, a vote of over 50% of the
outstanding Class A common stock present is necessary to take action. Our Class
B common stock has no voting rights. Class A common stock is offered only in
60-share units, and no member may acquire more than five units or a total of 300
shares of Class A common stock.

LIQUIDATION RIGHTS

If TruServ should dissolve or liquidate TruServ, the assets remaining after
paying our outstanding debts will be divided ratably among all shareholders of
Class A common stock and Class B common stock, in accordance with their holdings
and without preference to class of stock.

MEMBERSHIP

To become a member, a potential member must purchase 60 shares of Class A
common stock for each store that a potential member owns, up to a maximum of 300
shares for five or more stores that are under the same I.R.S. Employer
Identification Number.

REDEMPTION PROVISIONS

The Retail Member Agreement may be terminated by a member or by TruServ
Corporation on 60 days' written notice. TruServ cannot terminate a membership
unless TruServ receives approval by a two-thirds vote of its board of directors,
except if a member:

- becomes insolvent;

- commits any act of bankruptcy;

- files a voluntary petition in bankruptcy;

- is adjudicated as bankrupt; or

- commits a breach of any obligation under the Retail Member Agreement or
any other agreement with TruServ or one of its subsidiaries that is not
corrected within 30 days (10 days in case of nonpayment of accounts
receivable statements or other financial obligations to TruServ, or
within the applicable cure periods in an agreement with a TruServ
subsidiary) after TruServ has given the member written notice of breach.

Pursuant to TruServ's By-Laws, upon termination of the Retail Member
Agreement, TruServ will repurchase and a member is required to sell to TruServ,
all of the member's Class A common stock and Class B common stock at par value.
Subject to the moratorium, as required by TruServ's By-Laws and applicable laws,
payment for the Class A common stock will be in cash. Payment for the Class B
common stock will be a note payable in five equal annual installments bearing an
interest rate determined by TruServ's board of directors. Also, pursuant to
TruServ's By-Laws, the board of directors may delay the repurchase/redemption of
stock if it believes the action is in the best interest of TruServ Corporation.

OTHER RESTRICTIONS AND RIGHTS

We have no conversion rights, sinking fund provisions or liability for
further assessment in regard to the Class A common stock or the Class B common
stock.

Pursuant to the terms and conditions of membership, TruServ has an
automatic lien or right of set off to secure the payment of any indebtedness due
from any stockholder of record upon the Class A common stock, the Class B common
stock and any declared and unpaid dividends.

There is no existing market for the Class A common stock. TruServ has the
right of first refusal, exercisable within 90 days following the date TruServ
receives written notice, to repurchase all shares at par value. Any disposition
or attempted disposition or transfer, voluntary or involuntary, of Class A
common stock or Class B common stock is invalid. No rights are transferred
unless and until TruServ has been given the required notice and TruServ has
failed to exercise its option to purchase the stock within the specified time.

MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

There is no existing market for the common stock of TruServ and there is no
expectation that any market will develop. TruServ's Class A common stock is
owned exclusively by retailers of hardware and related products, garden center
retailers and industrial distributors as well as rental retailers, each of whom
is a member or former member of TruServ and purchased at least 60 shares of
TruServ's Class A common stock (the only class of voting stock) upon becoming a
member. TruServ is organized as a Delaware stock corporation and operates as a
member-owned wholesaler cooperative corporation. The shares of TruServ's Class B
common stock now outstanding were issued to members in partial payment of the
annual patronage dividend that accrued as a result of patronage business
transacted by such members with TruServ. In accordance with TruServ'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 other provisions authorized by the board of directors. See
"Description of Common Stock -- Distribution of Patronage Dividends."

The number of holders of record (as of February 28, 2004) of each class of
stock of TruServ is as follows:

<Table>
<Caption>
NUMBER OF
HOLDERS OF
TITLE OF CLASS RECORD(1)
-------------- ----------

Class A common stock, $100 Par Value........................ 7,621
Class B common stock, $100 Par Value........................ 7,919
</Table>

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

(1) Includes holders of record whose shares have been reclassified from member's
equity to liabilities due to the adoption of Statement of Financial
Accounting Standards No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity." See Note 1,
"Description of Business and Accounting Policies -- New Accounting
Pronouncements," to the Consolidated Financial Statements beginning at page
F-1 for a further discussion of the adoption of this standard.

In February 2004, the board of directors authorized the payment of a
patronage dividend related to 2003. The patronage dividend was paid in March
2004. See "Description of Common Stock -- Distribution of Patronage Dividends."

SELECTED FINANCIAL DATA
($ IN THOUSANDS)

<Table>
<Caption>
AS OF AND FOR THE FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001(1) 2000 1999(2)
---------- ---------- ---------- ---------- ----------

Net revenues......................... $2,024,340 $2,175,451 $2,619,434 $3,993,642 $4,502,326
Gross margin......................... 221,891 248,632 273,975 288,063 191,359
Net margin/(loss).................... 21,221 21,153 (50,687) 34,117 (130,803)
Patronage dividends(3)............... 18,269 20,541 -- 34,705 --
Total assets......................... 681,460 703,371 1,020,837 1,236,014 1,335,397
Current and non-current long-term
third party debt and borrowings.... 132,423 191,315 431,681 446,354 495,719
Current and non-current promissory
(subordinated) and installment
member notes payable(4)............ 59,859 64,886 82,606 107,856 152,976
Deferred stock redemptions and
Redeemable nonqualified Class B
common stock(5).................... 56,864 -- -- -- --
Class A common stock(5).............. 31,440 50,120 49,896 49,084 47,270
Class B common stock(5).............. 96,542 176,945 174,448 174,448 177,779
</Table>

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

(1)The Lumber Business was sold on December 29, 2000.

(2)TruServ had for several years, from at least February 1997 through at least
the end of 1999, inadequate internal controls relating to, among other
things, various aspects of inventory management, accounts payable, cost of
goods sold and accounting for certain income and expense items. Principally
as a result of these deficiencies, TruServ reported a loss of $130,803 for
1999. Because the problems identified above were caused by systemic flaws in
internal controls, TruServ does not have information available to confirm the
accuracy of these results or that would cause it to conclude that the 1999
and 1998 financial statements for the 1999 and 1998 years, respectively, can
or should be modified.

On March 4, 2003, the Commission entered the Order following an investigation
by the staff of the Commission of the circumstances that led to significant
financial adjustments resulting in the 1999 loss. Pursuant to the Order,
TruServ will be required to maintain books and records in accordance with the
record keeping requirements of the Exchange Act and to perform certain other
undertakings. See "Legal Proceedings."

(3)No patronage dividends were issued in 2001 or 1999 due to net losses of
$50,687 and $130,803, respectively, which were reported for those years.

(4)The non-current portion of promissory and installment notes payable to
members is included in members' capitalization on the balance sheet for
1999 -- 2002 and in long-term debt for 2003. See Note 1, "Description of
Business and Accounting Policies -- Capitalization" to the Consolidated
Financial Statements beginning at Page F-1 for additional information.

(5)In 2003, Class A common stock and Class B common stock excludes approximately
$18,841 and $82,718, respectively, of amounts not redeemed due to the stock
moratorium. Class B common stock also excludes $33,868 of non-qualified Class
B common stock. These amounts are included in Deferred stock redemptions and
Redeemable nonqualified Class B common stock and are offset by Loss
allocation of $27,941, Accumulated deficit of $9,933 and an offset of
accounts receivable of $6,821 pursuant to TruServ's contracts with its
members. In 2002, Class A common stock and Class B common stock include
approximately $15,475 and $47,033, respectively, of amounts not redeemed due
to the stock moratorium. In 2001, Class A common stock and Class B common
stock include approximately $11,699 and $34,712, respectively, of amounts not
redeemed due to the stock moratorium. See "Business -- Moratorium on
Redemptions of Capital Stock."

QUARTERLY FINANCIAL SUMMARY
($ IN THOUSANDS)

Selected quarterly financial information for each of the four quarters in
2003 and 2002 is as follows:

<Table>
<Caption>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
($ IN THOUSANDS)

2003
Revenues............................. $452,127 $573,162 $478,811 $520,240 $2,024,340
Gross Margin......................... 43,885 67,866 55,924 54,216 221,891
Net margin before income taxes....... (3,833) 24,759 (9,628) 10,256 21,554
Net margin........................... (3,917) 24,697 (9,770) 10,211 21,221
2002
Revenues............................. $553,228 $597,856 $499,818 $524,549 $2,175,451
Gross Margin......................... 54,186 74,401 62,141 57,904 248,632
Net margin before income taxes....... 4,738 10,493 6,031 150 21,412
Net margin........................... 4,648 10,433 5,934 138 21,153
</Table>

Certain reclassifications have been made to the 2002 amounts shown in the
Quarterly Financial Summary to conform to the 2003 presentation. These
reclassifications had no effect on Net margin/(loss) for any period or on Total
members' equity at the balance sheet dates.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($ IN THOUSANDS)

OVERVIEW

TruServ continues to make progress towards completing the turnaround of its
business. Operational, financial and internal control breakdowns during the
integration period following the merger of Cotter & Company and ServiStar Coast
to Coast Corporation on July 1, 1997 culminated in a $130,803 loss in 1999.
Since then, new management has returned TruServ to profitability by reducing
costs significantly, restructuring operations, improving operational
performance, reducing and refinancing its debt, improving internal accounting
controls and changing its corporate culture. These accomplishments, as well as
other management actions, have slowed the rate of membership attrition in the
co-op, which increased after the 1999 loss, and have increased the rate of
member accretion.

TruServ achieved several milestones of the turnaround in 2002 and 2003.
Management restored TruServ to profitability in 2002 by reducing costs,
implementing efficiency initiatives, amending the Senior Debt agreements
(following a 2001 debt default), completing a sale leaseback transaction,
closing two regional distribution centers and significantly reducing excess and
obsolete inventory. All of these initiatives produced cash to reduce Senior
Debt. In 2003, TruServ entered into a new debt agreement that consolidated and
refinanced its third party senior notes and revolving credit facility, reducing
its weighted average interest rate to 4% from the prior rate of 13% and
negotiating cash savings of $21,291 in senior lender obligations. The amount of
$7,706 of this savings related to forgiveness of existing indebtedness and
$13,585 related to negotiating a reduction in refinancing related make-whole
obligations. (The $13,585 is a non-GAAP financial measure. It represents the
difference between the contractual amount of the make-whole obligation in
accordance with the old senior note agreements compared to the amounts
negotiated with the old senior note holders.) In 2003, TruServ settled a
derivative action against it for the benefit of nearly all TruServ members,
reduced pricing to members nearly $10,000, and continued implementing efficiency
initiatives and improving operational profitability.

Management utilizes a variety of key performance measures to monitor the
health and progress of TruServ's business. These measures are store count,
revenue, operational and interest expense reductions and debt reduction.

The following is a summary of the trends of the most significant key
performance measures identified above:

STORE COUNT:

(YEAR END STORE COUNT GRAPH)

YEAR END STORE COUNT

<Table>

2000 8,096
2001 7,196
2002 6,567
2003 6,178
</Table>

Management begins its analysis of the financial health of TruServ by
measuring the number of stores and the level of patronage from TruServ members.
Management considers that one of the critical elements of a turnaround has been
stabilizing the membership base. As demonstrated on the preceding chart, the
rate of TruServ's net store count decline has tapered off significantly in the
last few years. The net store count decline reflects store gains of 116, 148 and
212 in 2001, 2002 and 2003, respectively. Management is projecting a modest 3%
net decline in overall store count in 2004, assuming general economic conditions
and current competitive conditions remain constant and the continued improvement
of the financial condition of TruServ. Management considers this a modest
decline, as the number of industry-wide independent hardware stores is projected
to decline at about a 1.5% rate for the next several years. With the improvement
in the financial condition of TruServ, management expects new store revenues to
be greater in 2004 than in 2003.

REVENUE:

(REVENUE CHART)

REVENUE ($ IN MILLIONS)

<Table>
<Caption>
HARDWARE AND PAINT CANADA BUSINESS LUMBER BUSINESS TOTAL

2000 $2,800 $109 $1,085 $3,994
2001 $2,514 $ 84 $ 21 $2,619
2002 $2,175 $2,175
2003 $2,024 $2,024
</Table>

Consistent with the tapering off of the rate of member attrition, the rate
of same store revenue decline has been improving over the last few years. As
demonstrated by the preceding chart, the decline in hardware and paint revenue
decreased from a rate of 13.5% in 2002 to a rate of 7.0% in 2003. Assuming
general economic

conditions and current competitive conditions remain constant, management
believes that the decline in revenue has stopped and that TruServ will
experience nearly flat revenue in 2004.

OPERATING AND INTEREST EXPENSES:

(OPERATING AND INTEREST EXPENSES CHART)

OPERATING AND INTEREST EXPENSES
($ IN MILLIONS)

<Table>

2000 $286
2001 $291
2002 $225
2003 $220
</Table>

A key component of management's turnaround strategy has been to reduce the
cost structure of TruServ. Management's actions, including restructuring
actions, have focused on reducing the following expenses: logistic and
manufacturing, selling, general and administrative, and interest paid to members
and third parties. In 2003, third party interest expense includes the cost of
$26,927 incurred with the refinancing of the Senior Debt, resulting from the
write-off of the remaining unamortized balance of prepaid bank fees and old and
new senior note make-whole interest costs. In 2000 and 2001, TruServ incurred
sizable restructuring charges mainly in connection with distribution facility
closures and corporate layoffs. These restructuring actions and other corporate
cost reductions have been key to the improved profitability of TruServ.
Management estimates that the interest rate reduction resulting from the
refinancing completed August 29, 2003, together with continuous improvement in
working capital management resulting in lower borrowing levels, and projected
product cost reductions will be the primary drivers of further cost reductions
in 2004.

DEBT:

(YEAR-END DEBT CHART)

TOTAL YEAR-END DEBT INCLUDING MEMBER DEBT
($ IN MILLIONS)

<Table>
<Caption>
Third Party Debt Member Debt Total
---------------- ----------- -----

2000 $446.4 $107.9 $554.3
2001 $431.7 $ 82.6 $514.3
2002 $191.3 $ 64.9 $256.2
2003 $132.4 $ 59.9 $192.3
</Table>

Many of the actions management initiated in 2001 and 2002 in connection
with the turnaround were intended to generate cash to pay down debt. TruServ has
reduced its year-end debt levels by approximately

two-thirds in the last three years and anticipates further reduction in the next
several years. Total debt as shown above includes all third party debt and the
current and long-term portions of subordinated member debt. Improved working
capital management, the sale of idle or underutilized assets, the sale leaseback
of seven distribution centers at the end of 2002 and lower payroll costs from
headcount reductions were the primary contributors to TruServ's effort to reduce
debt. The combination of improved operating performance and lower debt levels
allowed TruServ to refinance its third party senior notes and revolving credit
facility and reduce the interest rate on these borrowings from an average
interest rate of 13% to 4%. The interest rate reduction resulting from the
refinancing transaction will be a major contributor to improved profitability in
2004 due to lower interest expense, assuming general economic conditions and
current competitive conditions remain constant.

TruServ's revenues consist of the following:

- Warehouse and relay revenue consists of revenue generated from the sale
of product from the warehouses to the members. The product is either
shipped from stock or relay inventory, and revenue is recognized upon
delivery of the product to the members.

- Vendor direct revenue consists of revenue generated from the sale of
product that is shipped directly from the vendor to the member, and
revenue is recognized upon TruServ's receipt of validated invoice from
the vendor for product delivered to the members.

- Paint revenue consists of revenue generated through the sale of paint and
paint related products to the members, and revenue is recognized upon
delivery of the product to the members.

- Advertising, transportation and other revenue consists of revenue
generated from other services provided to the members. These services
include various forms of advertising, from national advertising to local
direct mail circulars. The advertising revenue is recognized when the
underlying advertisement is run or when the related circulars are
provided to the members. Transportation revenue is recognized when
services are provided to the members.

TruServ's expenses consist of the following:

- Cost of revenue includes the acquisition costs of the products, costs
related to readying the product for sale, net of any purchase discounts
and certain financial incentives received from the vendor, and costs
related to the services provided to the members.

- Logistics (outbound to the members' stores) and manufacturing expenses
(the paint business) include the costs related to the warehousing and
delivery of products to the members and the overhead costs related to the
paint manufacturing facility. These expenses include warehouse and
transportation and manufacturing personnel expenses, depreciation and
lease expense, repair and maintenance expenses and other facility
expenses.

- Selling, general and administrative expenses consist of headquarters and
field personnel expenses and advertising and marketing expenses.

- Restructuring charges consist of expenses incurred as a result of the
closure of distribution centers and workforce reductions.

- Third party interest expenses include interest and related costs for the
respective debt financing owed to parties other than members.

The success of TruServ is dependent upon continued support from its members
in the form of purchases of merchandise and services for their retail and/or
industrial distribution outlets. Significant declines in membership or in the
levels at which members purchase from TruServ, or both; an increase in market
share of the various entities that compete in the hardware industry; and a
decline in the general U.S. economy could have a significant negative effect on
TruServ's profitability.

The following discussion and analysis provides information that management
believes to be relevant to understanding TruServ's financial condition and
results of operations. This discussion should be read in

conjunction with TruServ's consolidated financial statements and the related
notes thereto included in this report, beginning at page F-1.

RESULTS OF OPERATIONS FOR 2003 COMPARED TO 2002

TruServ experienced a net decline of its total number of outlets of 5.9% in
2003 and 8.7% in 2002. The decline can be attributed to retailer competition and
members leaving TruServ to find an alternate source of supply principally due to
concerns about TruServ's financial health. TruServ's improved financial
stability with the new financing in place, its ability to lower prices
(reversing a substantial portion, to date, of the price increases put in place
in 2001, its improved profitability and its enhancement and introduction of
marketing programs have served to slow member attrition, increase member
accretion and slow the reduction of market share of members' purchases. Further,
members are buying more merchandise from the distribution centers resulting in a
favorable mix of higher margin warehouse sales and fewer low margin direct
sales. The price reductions, which commenced in October 2002 and continue
incrementally in 2003, have resulted in a net decline in revenue and gross
margin, but have been of benefit to the members.

During 2003, TruServ was successful in completing a refinancing of the
existing senior credit facility and senior notes with a four-year revolving
credit facility. The new Bank Facility resulted in a substantial reduction in
interest expense as a result of a lower interest rate from September 2003
through December 2003. TruServ believes the new Bank Facility will continue to
provide interest savings of approximately $15,400 in 2004, based upon the
expected borrowing levels and assuming market rates (i.e., London Interbank
Offering Rate ("LIBOR")) remain in relatively the same range as they were in
2003. (The $15,400 of interest expense savings is a non-GAAP financial measure.
It is management's estimate, based on projected borrowing levels in 2004, of the
interest savings generated from the lower interest rate of 4% on the new Bank
Facility compared to the 13% average rate on the old lending agreements.)

REVENUES AND GROSS MARGIN

A reconciliation of revenue and gross margin between 2003 and 2002 follows:

<Table>
<Caption>
% OF GROSS
NET REVENUE 2002 NET GROSS MARGIN %
$ REVENUE MARGIN $ OF REVENUE
----------- -------- -------- ----------
($ IN THOUSANDS)

2002 RESULTS...................................... $2,175,451 100.0% $248,632 11.4%
---------- ----- --------
Same store sales:
Warehouse and relay shipment revenue............ (11,177) (0.5) 3,065
Direct shipment revenue......................... (21,995) (1.0) (858)
Paint revenue................................... (6,904) (0.3) (3,850)
---------- ----- --------
Net same store sales......................... (40,076) (1.8) (1,643)
---------- ----- --------
Change in participating members:
Terminated members:
Warehouse and relay shipment revenue......... (78,414) (3.6) (12,587)
Direct shipment revenue...................... (33,614) (1.5) (344)
Paint revenue................................ (6,359) (0.3) (3,110)
---------- ----- --------
Net terminated members..................... (118,387) (5.4) (16,041)
---------- ----- --------
New members:
Warehouse and relay shipment revenue......... 13,429 0.6 2,155
Direct shipment revenue...................... 9,959 0.5 52
Paint revenue................................ 986 -- 460
---------- ----- --------
Net new members............................ 24,374 1.1 2,667
---------- ----- --------
Net change in participating members..... (94,013) (4.3) (13,374)
---------- ----- --------
Advertising, transportation and other revenue..... (17,022) (0.8) 1,641
Indirect cost of revenue.......................... -- -- (13,365)
---------- ----- --------
Total change................................. (151,111) (6.9) (26,741)
---------- ----- --------
2003 RESULTS...................................... $2,024,340 93.1% $221,891 11.0%
========== ===== ========
</Table>

Net revenue for the year ended December 31, 2003 totaled $2,024,340, a
decrease of $151,111, or 6.9%, as compared to the same period last year. The
overall decline in revenue was predominately due to a decline in the number of
participating member retail outlets. TruServ had a net decline in the number of
participating member outlets of 5.9% compared to the prior year that resulted in
a revenue reduction of $94,013, or 4.3%. Same store sales declined $40,076, or
1.8%, as compared to the prior year, due to TruServ members shifting some of
their merchandise purchases to other sources and the effect of a slow economy
through the first three quarters. A contributing factor in the decline of
revenue in same store sales and participating member outlets was a product price
reduction that lowered revenue by approximately $9,884, as compared to the prior
year. Advertising, transportation and other revenue declined $17,022, or 0.8%,
primarily due to lower advertising dollars as a result of TruServ experiencing
lower merchandise sales on which the advertising amount is calculated and due
from members. Also, the adoption of the accounting rule EITF Issue No. 02-16
(See Note 1, "Description of Business and Accounting Policies -- New Accounting
Pronouncements," to the Consolidated Financial Statements beginning at page F-1
for a further discussion of the adoption of this standard) had an impact of
reducing revenue by $4,284. Further, reduced volume shipments to members reduced
freight revenue from members by $3,049.

Gross margin for the year ended December 31, 2003 decreased by $26,741, or
10.8%, over the prior year. The net decline in participating member outlets
contributed $13,374 of the reduction in gross margin. Gross

margin from same store sales was impaired by $1,643. A contributing factor in
the decline of gross margin in same store sales and participating member retail
outlets was a product price reduction that lowered gross margin by approximately
$9,884, as compared to the prior year. The product price reduction was partially
offset by lower product acquisition costs from both domestic and global
suppliers.

Advertising, transportation and other gross margin increased $1,641, as a
result of advertising costs being reduced by an amount greater than the related
revenue reduction. Indirect costs of revenue, which is comprised of freight-in,
vendor rebates, cash discounts and other costs incurred to prepare goods for
resale, negatively impacted gross margin by $13,365, as compared to the same
period last year. This negative impact was due to an increase in freight costs
and lower discounts and rebates associated with the global sourcing of product
and lower purchasing volume.

<Table>
<Caption>
$ EXPENSE
2003 2002 (DECREASE)
------- ------- ----------

Logistics and manufacturing expenses.................... $63,031 $69,464 ($6,433)
</Table>

Logistics and manufacturing expenses decreased by $6,433, or 9.3%, as
compared to the prior year. TruServ experienced a decrease in expense due to
lower operating costs resulting from the closure of two distribution centers
during 2002, together with increased labor productivity resulting from ongoing
process changes. In 2001, TruServ had implemented a distribution center closure
plan in response to a reduction in the member base. These savings, which started
to be recognized in 2002, were partially offset in 2003 by increased rent
expense of $14,442, net of reduced depreciation expense of $1,814 and gain
amortization of $2,646, as a result of a sale leaseback transaction, which
occurred on December 31, 2002. See "Interest expense" below for a discussion of
the related impact from the sale leaseback transaction.

<Table>
<Caption>
$ EXPENSE
2003 2002 INCREASE
------- -------- ---------

Selling, general and administrative expenses........... $99,782 $ 93,209 $ 6,573
</Table>

Selling, general and administrative ("SG&A") expenses increased $6,573, or
7.1%, as compared to the prior year. The increase in SG&A expenses was due
mainly to higher health care cost, which reflects the upward trends in health
care self insurance cost in the year compared to the same period last year. Also
professional fees, which relate to higher litigation costs as well as
professional outside services work related to Sarbanes-Oxley preparations were
unfavorable compared to the prior year.

<Table>
<Caption>
$ EXPENSE
2003 2002 (DECREASE)
------- -------- ----------

Interest expense:
Member............................................... $ 5,799 $ 6,611 ($ 812)
Third parties........................................ 51,724 55,284 (3,560)
</Table>

Interest expense to members decreased by $812, or 12.3%, as compared to the
prior year, due to a lower average principal balance of debt outstanding,
partially offset by a higher average interest rate. The 8.3% interest rate that
TruServ offered to members to renew their maturing subordinated debt for an
additional three years was higher than the 7.9% average coupon rate of their
maturing debt.

Third party interest expense decreased $3,560, or 6.4%, as compared to the
same period last year. On August 29, 2003, TruServ completed the refinancing of
the Senior Debt resulting in the write-off of the remaining unamortized balance
of prepaid bank fees and old and new senior note make-whole interest costs
totaling $26,927. See "Other income, net" below for related debt forgiveness. In
addition, the amortization of make-whole costs incurred by the early pay down of
debt from the asset sales that occurred in the second half of 2002 are included
in interest expense. These write-offs and increased amortization were offset by
lower interest costs of approximately $30,486 as a result of lower average
principal balance of senior debt outstanding, as compared to the prior year, and
lower interest rates on the new Bank Facility. TruServ achieved the lower
average principal balance by generating cash from operations and asset sales,
which includes the sale leaseback of seven facilities at December 31, 2002.

<Table>
<Caption>
$ INCOME
2003 2002 INCREASE
-------- ------- --------

Other income, net...................................... $(22,309) $(3,723) $18,586
</Table>

Other income, net increased by $18,586, as compared to the same period last
year. This increase in other income included $7,706 of debt forgiveness from the
refinancing of the Senior Debt. Additionally, TruServ recognized $7,133 of
income from deferred credits related to the termination in April 2003 of the
non-compete, cooperation and trademark license agreements that were part of the
sale of the Lumber Business to BMA in 2000. These agreements with BMA had terms
ranging from five to ten years and the related amounts received for these
agreements were being amortized over those terms. Also, TruServ recorded income
from litigation settlements of $5,538. The Derivative Action Settlement requires
on the effective date of lifting the moratorium that TruServ reduce the loss
allocation accounts for all current and former members who are parties to the
Stipulation of Settlement by approximately $5,000. TruServ's board of directors
is considering whether to continue the moratorium and has informed its members
that a decision whether to maintain or lift the moratorium will be made prior to
and announced at the March 28, 2004 annual shareholders' meeting. The income of
$3,000 relates to the receipt of insurance proceeds in 2003 to fund a portion of
this adjustment between the loss allocation account and retained deficit. The
remaining $2,538 of income relates to settlement of a dispute with vendors.

<Table>
<Caption>
$ NET MARGIN
2003 2002 INCREASE
------- ------- ------------

Net margin............................................ $21,221 $21,153 $68
</Table>

The net margin of $21,221 was up from a net margin of $21,153 for the same
period a year ago. TruServ maintained its net margin in light of a $151,111
revenue reduction including $9,884 in wholesale price reductions. The adverse
effect of revenue reductions on gross margin due to the wholesale price
reductions and lower volume were offset by expense reductions from logistic and
manufacturing efficiencies, other productivity improvements and the net effect
of the sale leaseback transaction. Further, net margin was impacted by the net
cost of $11,531 from refinancing the Senior Debt. This amount, however, was
offset by the gain of $7,133 from the termination of the long-term BMA
agreements and gains from litigation settlements in the aggregate amount of
$5,538.

RESULTS OF OPERATIONS FOR 2002 COMPARED TO 2001

TruServ has experienced a net decline of its total number of outlets of
8.7% in 2002 and 11.1% in 2001. The decline can be attributed to retailer
competition and members leaving TruServ to find an alternate source of supply
principally out of concerns about TruServ's financial stability. TruServ is
regaining financial stability and is starting to lower prices to members on
select items and implementing certain marketing programs and sales initiatives.
Management believes that as a result of these programs and initiatives,
retention of members is continuing to improve and members are buying more
merchandise from the distribution centers and in a favorable mix of higher
margin warehouse sales and less low margin direct sales. The price reductions,
which commenced in October 2002, have resulted in a net decline in revenue and
gross margin during the fourth quarter, but have been of benefit to the members.

At the close of 2002, TruServ was successful in completing a sale leaseback
of seven of its distribution centers and applying the proceeds to pay down the
Senior Debt.

REVENUES AND GROSS MARGIN

A reconciliation of revenue and gross margin between 2002 and 2001 follows:

<Table>
<Caption>
% OF GROSS
NET 2001 NET GROSS MARGIN %
REVENUE $ REVENUE MARGIN $ OF REVENUE
---------- -------- -------- ----------
($ IN THOUSANDS)

2001 RESULTS...................................... $2,619,434 100.0% $273,975 10.5%
---------- ----- --------
Same store sales:
Warehouse and relay shipment revenue............ (56,234) (2.2) (6,026)
Direct shipment revenue......................... (60,265) (2.3) (1,256)
Paint revenue................................... (3,085) (0.1) 1,301
---------- ----- --------
Net same store sales......................... (119,584) (4.6) (5,981)
---------- ----- --------
Change in participating members:
Terminated members:
Warehouse and relay shipment revenue......... (148,316) (5.7) (21,733)
Direct shipment revenue...................... (66,496) (2.5) (746)
Paint revenue................................ (13,302) (0.5) (6,214)
---------- ----- --------
Net terminated members..................... (228,114) (8.7) (28,693)
---------- ----- --------
New members:
Warehouse and relay shipment revenue......... 12,367 0.5 1,929
Direct shipment revenue...................... 7,619 0.3 80
Paint revenue................................ 1,072 -- 483
---------- ----- --------
Net new members............................ 21,058 0.8 2,492
---------- ----- --------
Net change in participating members..... (207,056) (7.9) (26,201)
---------- ----- --------
Lumber Business (1)............................... (21,422) (0.8) --
Canadian Business (2)............................. (84,397) (3.2) (12,344)
Advertising, transportation and other revenue..... (11,524) (0.4) (7,820)
Indirect cost of revenues......................... -- -- 27,003
---------- ----- --------
Total change................................. (443,983) (16.9) (25,343)
---------- ----- --------
2002 RESULTS...................................... $2,175,451 83.1% $248,632 11.4%
========== ===== ========
</Table>

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

(1) The Lumber Business was sold on December 29, 2000. The revenue and the cost
of revenue from merchandise shipped and billed in 2001, but negotiated prior
to December 29, 2000, were recorded in TruServ's results of operations in
2001.

(2) The Canadian Business was sold on October 22, 2001. The amount of $84,397 in
revenue reduction represents sales from the Canadian Business from January
1, 2001 through October 22, 2001, the date of sale of the Canadian Business.

Revenues for 2002 totaled $2,175,451. This represented a decrease in
revenues of $443,983, or 16.9%, from 2001. A key contributor to the decrease in
revenue was a 8.7% net decline in the number of participating member retail
outlets in 2002, representing a 7.9% revenue reduction. Additional contributors
to the decrease in revenue were a 4.6% decline in same store sales and the
effect of the sale of the Canadian and Lumber businesses, representing a 4.0%
revenue reduction. TruServ increased prices in September 2001. The direct impact
of these price increases on 2002 member purchases was $13,340. In October 2002,
TruServ announced it would commence lowering prices monthly in 2002 and continue
price reductions into 2003. The direct impact of the reduction in pricing on
fourth quarter 2002 sales to members was a $1,100 reduction. A

favorable trend that TruServ management has observed is that as a result of
marketing programs and sales initiatives, together with the impact of a
slow-down in the national economy, members are buying more merchandise from the
distribution centers. This trend has favorably improved the sales mix toward
more warehouse sales from the less profitable direct sales and has minimally
affected revenues, as the lower volume has been offset by higher prices
positively impacting gross margin.

Gross margin for 2002 totaled $248,632. This represented a decrease in
gross margin dollars of $25,343, or 9.3%, as compared to 2001. The sale of the
Canadian Business and the decline in the number of participating member retail
outlets are the key contributors to the negative variance relative to the prior
year. However, the gross margin as a percent of revenue increased to 11.4% in
2002 from 10.5% for 2001. The shift in the sales mix to warehouse sales from
vendor direct orders and certain product price increases initiated in September
2001 contributed to the increase in gross margin as a percent of revenue. Price
reductions commenced in October 2002. The indirect cost of revenues favorably
impacted the gross margin dollars as a result of distribution center closures
and headcount reduction, which reduced the direct inbound logistics costs and
labor and related overhead incurred to bring merchandise to the distribution
centers. Additional impact to gross margin was due to a reduction in advertising
support fees of $7,956, which was partially offset by a reduction in gross
advertising costs of $2,868. These reductions reflect lower member participation
in the distribution of direct mail circulars, but these costs were partially
offset by additional expenditures for network advertising for the new power
event promotions.

<Table>
<Caption>
$ EXPENSE
2002 2001 (DECREASE)
------- ------- ----------

Logistics and manufacturing expenses................... $69,464 $89,637 $(20,173)
</Table>

Logistics (outbound to members' stores) and manufacturing (the paint
business) expenses decreased $20,173, or 22.5%, as compared to the prior year.
Approximately $11,223 of this decrease resulted from the exclusion of expenses
associated with the Canadian Business, which was sold in October 2001. An
additional $3,444 was due to the closure of several distribution centers in late
2001 through 2002, in response to a reduction in the member base. Also, a
decrease of approximately $4,388 was caused by lower expense spending related to
the manufacturing operations, predominately related to lower advertising.

<Table>
<Caption>
$ EXPENSE
2002 2001 (DECREASE)
------- -------- ----------

Selling, general and administrative expenses.......... $93,209 $137,807 $(44,598)
</Table>

Selling, general and administrative expenses ("SG&A") decreased by $44,598,
or 32.4%, in 2002, as compared to the prior year. TruServ achieved significant
reductions in SG&A as a result of lower labor costs and reduced benefit
expenses. TruServ's restructuring initiatives in 2000 and 2001, which included
headcount reductions, generated a savings of $4,090 in labor costs. The $15,126
reduction in benefit plan costs were generated from lower headcount, changes in
the benefits, a reduction in pension settlements with terminated employees, and
the elimination in 2002 of a requirement that existed in 2001 to cover exposure
of an insurance carrier in liquidation. An additional reduction of $6,041 in
SG&A expenses for 2002, as compared to 2001, is the result of lower bad debt
expense due to TruServ's improved ability to collect receivables. Also in 2002,
TruServ adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," which changed the accounting for
goodwill from an amortization method to an impairment only approach. Goodwill
amortization for 2001 was $2,577. Other areas of reductions in SG&A include
lower refinancing fees of $7,368, lower software license fees of $2,483 relating
to retail point of sale software and lower non-restructuring related severance
of $1,386.

<Table>
<Caption>
$ EXPENSE
2002 2001 (DECREASE)
------ ------- ----------

Restructuring charges and other related expenses........ $6,284 $38,522 $(32,238)
</Table>

In 2002, TruServ incurred restructuring charges and other related expenses
of $6,284, of which $3,313 related to restructuring, and $2,971 related to other
post-employment and asset impairment charges. The restructuring charge of $3,313
in 2002 resulted from TruServ's continued workforce reductions initiated in 2000
and 2001 and related to distribution center closures and workforce reductions in
the organization. This

charge was comprised of $2,316 for severance and $2,296 for facility exit costs,
offset by a $1,299 reduction in asset impairment charges. The severance charges
of $2,316 primarily consisted of additional workforce reductions at the
corporate headquarters in Chicago, Illinois. The facility exit costs of $2,296
related to closing the Hagerstown, Maryland distribution center, which was
completed prior to December 31, 2002. The $1,299 reduction of asset impairment
charges consisted of a $927 favorable adjustment to the asset value for the
closing of the Brookings, South Dakota distribution center, based on actual
proceeds received on the sale of this facility in 2002. The other charges of
$2,971 consisted of $1,769 for asset impairment and $1,202 for post-employment
charges. The asset impairment charge of $1,769 related to the write-down of the
East Butler, Pennsylvania facility. The post-employment charge of $1,202 was
comprised of $352 relating to severance charges for the Cary, Illinois facility,
and $850 relating to severance charges for the corporate headquarters in
Chicago, Illinois.

In 2001, TruServ recorded a charge to income of $38,522, of which $10,722
was for severance, $18,901 was for facility exit costs for the distribution
centers, and $8,899 was for asset impairments. The largest component of these
exit costs related to the Hagerstown, Maryland distribution center closure,
which is subject to a synthetic lease. The difference of approximately $14,800
between the lease obligation at December 31, 2001 of $40,000 and management's
estimate of the fair value of the building was the major component of its
facility exit costs in 2001. This obligation and the original cost of the
facility are not recorded on TruServ's balance sheet because it does not meet
the requirement for capital lease treatment under SFAS No. 13, "Accounting for
Leases." At December 31, 2002, the synthetic lease had a balance of $33,383,
which is due at the end of the amended lease term, which is the earlier of
December 31, 2003 or the termination of the existing revolving credit facility.

As a result of management's effort in restructuring and accomplishing
operating efficiencies, TruServ achieved an estimated annualized cost saving of
$28,957, relating to charges reserved through 2001, with $4,350 of cost saving
relating to additional reserve charges in 2002. Headcount reductions of 909 were
related to charges reserved through 2001, with additional headcount reductions
of 80 related to charges reserved for in 2002.

<Table>
<Caption>
$ EXPENSE
2002 2001 (DECREASE)
------- ------- ----------

Interest expense:
Member............................................... $ 6,611 $ 7,842 $(1,231)
Third parties........................................ 55,284 55,431 (147)
</Table>

Interest paid on member debt decreased by $1,231, or 15.7%, as compared to
the prior year, due to a decrease in the average balance of debt outstanding of
approximately $26,628, which was partially offset by a higher average interest
rate (8.49% average in 2002 compared to 7.50% average in 2001).

Third party interest expense decreased by $147, or 0.3%, as compared to the
prior year. TruServ experienced an interest expense savings of $11,629, as a
result of the lower average balance outstanding of Senior Debt as compared to
2001. However, this amount was substantially offset by higher financing fee
amortization and higher interest rates, which increased the effective interest
rate by approximately 2.9%, as compared to 2001, resulting in increased interest
expense of $11,482. TruServ achieved the lower average debt balances in 2002 by
generating cash from operations and asset sales. These amounts were offset in
part, however, by the fees resulting from TruServ amending its Senior Debt
agreements due to the debt covenant violation under these agreements in 2001.

<Table>
<Caption>
$ GAIN
2002 2001 (DECREASE)
---- ------- ----------

Loss/(gain) on sale of assets............................. $91 $(1,958) $(2,049)
</Table>

Loss/(gain) on sale of assets decreased $2,049, from a gain of $1,958 in
2001 to a loss of $91 in 2002. The variance was mainly due to the non-recurrence
of 2001 gains of $1,588 and $472 recorded upon the sale of the Canadian Business
and the Indianapolis distribution center, respectively.

<Table>
<Caption>
$ NET
MARGIN
2002 2001 INCREASE
------- -------- ------------

Net margin/(loss).................................... $21,153 $(50,687) $71,840
</Table>

The net margin in 2002 was $21,153, as compared to a net loss of $50,687 in
2001, an increase in net margin/(loss) of $71,840. Net margin/(loss) was
favorably impacted by the closure of distribution centers and headcount
reductions that occurred from the restructuring activities in 2001, the
non-recurrence of the significant 2001 restructuring charges and a better gross
margin percentage. These favorable impacts were partially offset by the loss of
participating member retail outlets.

LIQUIDITY AND CAPITAL RESOURCES

The information provided below describing TruServ's debt, credit
facilities, guarantees and future commitments is included in order to facilitate
a review of TruServ's liquidity.

TruServ generated cash from operating activities for 2003, 2002 and 2001 in
the amounts of $32,807, $103,204 and $179,441, respectively. The reduction in
cash generated from operating activities in 2003 in comparison to the prior two
years was due principally to the non-recurrence of significant cash generation
from the liquidation of excess inventory in 2002 and 2001. The cash generated
from the sale of inventory in 2002 and 2001 was $88,908 and $85,715,
respectively. TruServ also generated cash in 2002 and 2001 through initiatives
to improve inventory turns and eliminate excess and/or obsolete inventory, as
well as by closing regional distribution centers, which in turn reduced stock
levels. In addition, TruServ initiated several inventory reduction programs to
keep inventory levels in line with a reduction in membership. While TruServ
disposed of excess inventory during 2003, it did so at a lower level than in
2002 and 2001.

TruServ generated cash as a result of a decrease in accounts and notes
receivable for 2002 and 2001 in the amount of $32,926 and $127,000,
respectively. TruServ's 13 month average member receivable DSO (Days Sales
Outstanding) was 39.6, 39.7, and 43.9 days for 2003, 2002 and 2001,
respectively. Accounts and notes receivable in 2003 remained constant with 2002,
as DSO remained at 2002 levels. The cash improvement in 2002 was related to the
improved DSO of 4.2 days. In 2001, the sale of the Lumber Business significantly
impacted cash generated from accounts and notes receivable by approximately
$64,000. The remaining decrease in accounts and notes receivable is mainly due
to a decline in sales, change in sales mix from direct sales to warehouse sales
and the implementation of improved collection efforts.

The other significant impact on cash from operating activities was in
accounts payable. In 2003, accounts payable increased $38,614. In 2002 and 2001,
TruServ used cash to fund the decrease in accounts payable, which were $52,091
and $92,216, respectively. This use of cash partially offset the cash generated
from inventory sales and accounts receivable. The decrease in cash used for
accounts payable in 2002 is primarily due to lower inventory purchases in that
period. The decrease in cash used for accounts payable in 2001 is partially due
to the sale of the Lumber Business, which accounts for approximately $39,000 of
the decrease. The remaining decrease is a result of lower inventory purchases.

TruServ's major working capital components individually move in the same
direction with the seasonality of the business. The spring and early fall are
the most active periods for TruServ and require the highest levels of working
capital. The low point for accounts receivable, inventory and accounts payable
is at the end of the calendar year. The cash needed to meet the future payments
for accounts payable will be provided by the cash generated from collections of
accounts receivable and from the future sale of inventory.

TruServ generated cash from investing activities for 2003 and 2002 in the
amount of $13,065 and $146,851, respectively. Cash used for investing activities
for 2001 was $26,502. Investing activities include capital expenditures,
proceeds from sales of properties, restricted cash activities and changes in
other assets. Total capital expenditures, including expenditures under capital
leases, were $6,825, $12,838 and $15,151 for

the years 2003, 2002 and 2001, respectively. Capital expenditures are comprised
of various building improvements and purchases of additional equipment and
technology at TruServ's distribution centers and at its corporate headquarters.
TruServ's management has forecasted that the capital expenditure investment for
2004 will return to the levels of 2001 and 2002. In 2002, the gross proceeds
from the sale of properties were $127,941, which principally related to the sale
leaseback of seven properties (See Note 11, "Asset Sales", to the Consolidated
Financial Statements beginning at page F-1) and the sale of the Brookings, South
Dakota distribution center. In 2001, the proceeds from sale of properties were
$10,511, which were generated from the sale of the Canadian Business and the
sale of its Indianapolis, Indiana property. In 2002, cash generated from other
assets was provided by the early payment of the note receivable from BMA.

TruServ had no restricted cash at December 31, 2003 compared to restricted
cash of $15,755 at December 31, 2002. The Bank Facility secures $12,221 of
letters of credit at December 31, 2003, as a reduction against borrowing
availability, whereas at year end 2002 $11,691 of letters of credit, had been
collaterallized with restricted cash. The remaining $4,064 of restricted cash at
December 31, 2002, primarily related to securing banking and cash management
deposit requirements, was eliminated as a result of the refinancing of the
Senior Debt.

TruServ generated cash from operating and investing activities in 2003 and
2002 and from operating activities in 2001 and used cash primarily for financing
activities. In particular, TruServ applied the cash to reducing its long-term
and short-term financing and the level of drafts payable at year end, which
collectively were $45,639, $329,870 and $79,614 for 2003, 2002 and 2001,
respectively.

Cash and cash equivalents at December 31, 2003 and 2002 were $9,234 and
$9,001, respectively. As of December 31, 2003 the borrowings under the Bank
Facility were at $131,600.

At December 31, 2003, TruServ's working capital was $50,602, as compared to
$84,051 at December 31, 2002, and $25,740 at December 31, 2001. The current
ratio was 1.11 at December 31, 2003, as compared to 1.21 at December 31, 2002,
and 1.04 at December 31, 2001. This reduction in both the working capital and
the current ratio between 2003 and 2002 was primarily due to TruServ refinancing
its Senior Debt by a new Bank Facility. The new Bank Facility moved a
significant portion of TruServ's debt from a long-term liability to a current
liability.

TruServ's management believes that its cash from operations and existing
credit facilities will provide sufficient liquidity to meet its working capital
needs, planned capital expenditures and debt obligations due to be repaid in
2004. The Bank Facility should provide sufficient liquidity for future needs
until it expires in 2007, including the ability to fund the deferred stock
redemption account should TruServ's board of directors decide to lift the
moratorium and begin redeeming stock. TruServ's management currently expects to
refinance the Bank Facility when it expires in 2007.

CASH REQUIREMENTS

Below is the current schedule of the expected cash outflows necessary to
meet financial commitments for 2004 and thereafter:

<Table>
<Caption>
2005 & 2007 &
2004 2006 2008 THEREAFTER TOTAL
-------- ------- -------- ---------- --------
($ IN THOUSANDS)

Bank Facility(1)........................... $ 71,600 $ -- $ 60,000 $ -- $131,600
Promissory (subordinated) and installment
notes.................................... 19,917 39,942 -- -- 59,859
Capital lease obligations.................. 464 443 -- -- 907
Operating lease obligations................ 32,623 52,400 45,530 238,748 369,301
Purchase obligations....................... 106,797 -- -- -- 106,797
Redeemable nonqualified Class B non-voting
common stock............................. -- -- -- 23,139 23,139
-------- ------- -------- -------- --------
Total...................................... $231,401 $92,785 $105,530 $261,887 $691,603
======== ======= ======== ======== ========
</Table>

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

(1) The amount shown due in 2004 represents the amount necessary to reduce the
outstanding balance at December 31, 2003 to the expected lowest level of
borrowings during the next twelve months. There are no required payments
until the maturity of the Bank Facility in August 2007.

TruServ also has cash requirements related to a moratorium on stock
redemptions that has created deferred stock redemptions of $33,725 that will be
paid when, and if, the moratorium is lifted. TruServ's board of directors
expects to announce at the March 28, 2004 annual shareholders' meeting whether
it will lift or maintain the stock moratorium. In accordance with TruServ's
By-Laws, certain equity interests are paid in cash at the time of redemption and
the remaining equity interests are paid out by means of a five-year subordinated
installment note, with annual installments commencing December 31 of the year
the moratorium is lifted. The December 31, 2003 deferred stock redemption
liability of $33,725 has approximately $7,458 payable in cash at the time of
lifting the moratorium and TruServ will issue the remaining balance in
subordinated installment notes with an aggregate principal amount of $26,267.

DEBT DISCUSSION

TruServ's total debt, including member subordinated notes, whose long-term
component is a component of long-term debt in 2003 and a component of Members'
capitalization in 2002, was $192,282 and $256,201 at December 31, 2003 and 2002,
respectively. TruServ achieved this reduced level of debt with cash generated
from operations, reduction in excess cash, asset sales and sale leaseback
transaction proceeds. See "Properties -- Sale Leaseback Transaction."

TruServ's debt consisted of the following at December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Revolving credit facility................................... $131,600 $ 27,852
Senior notes................................................ -- 158,920
Redeemable (subordinated) term notes........................ -- 3,296
Capital lease obligations................................... 823 1,247
-------- --------
Total debt.................................................. 132,423 191,315
Promissory (subordinated) and installment notes(1).......... 59,859 64,886
-------- --------
Total debt, including member debt........................... $192,282 $256,201
======== ========
</Table>

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

(1) $43,531 of the amount shown as of December 31, 2002 is reflected in member
capitalization on the balance sheet as of that date. $39,942 of the amount
shown as of December 31, 2003 is reflected in long-term debt on the balance
sheet as of that date.

The change in TruServ's debt balances were as follows for years ending
December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Beginning balance........................................... $256,201 $514,287
Miscellaneous asset sale payments (net of make-whole of $0
and $5,989)............................................... (1,917) (27,802)
Sale leaseback payments (net of make-whole of $0 and
$12,695)(1)............................................... -- (103,624)
Excess cash................................................. -- (57,000)
Debt forgiveness............................................ (7,706) --
Use of restricted funds..................................... (15,755) (13,320)
Pay down from cash generated from operations, net of other
uses...................................................... (38,541) (56,340)
-------- --------
Ending balance.............................................. $192,282 $256,201
======== ========
</Table>

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

(1) Excludes prepayments on synthetic lease obligation of $5,119.

TruServ had outstanding borrowings under its revolving credit facility of
$131,600 and $27,852 at December 31, 2003 and 2002, respectively. The new Bank
Facility was used to refinance senior notes, which caused a significant portion
of TruServ's debt that was classified as long-term liability to borrowings under
the revolving credit facility. The weighted average interest rate on these
borrowings was 5.9% and 10.0% for the years ended December 31, 2003 and 2002,
respectively.

TruServ's Hagerstown, Maryland distribution center was subject to a
synthetic lease. The synthetic lease had a principal balance of $33,383 as of
December 31, 2002 and no balance at December 31, 2003 as it was sold by the
landlord. This obligation and the original cost of the facility were not
recorded in TruServ's balance sheet because the synthetic lease does not meet
the requirement for capital lease treatment under SFAS No. 13, "Accounting for
Leases." The difference between the lease obligation and management's estimate
of the fair value of the building at December 31, 2002 was approximately $8,183
and was the December 31, 2002 balance in the restructuring reserve that was
accrued in 2001. On July 17, 2003, the Hagerstown, Maryland distribution
facility was sold by the legal titleholder, a Delaware Business trust unrelated
to TruServ. Title to the facility was acquired by the purchasing party through a
Massachusetts Nominee trust, both of which are parties unrelated to TruServ.
TruServ's remaining obligation to the third-party that had established the
Delaware Business trust, which was previously accrued for in the restructuring
reserve, was reduced by the amount of the net sales proceeds of the facility to
a $9,368 senior term loan that matured upon the early refinancing of TruServ's
senior debt. Concurrently with the sale of the facility, TruServ entered into a
two year triple net operating lease agreement for the Hagerstown facility with
the new trust now owning the facility, with monthly base lease payments of $223.
On January 12, 2004, TruServ received a cancellation notice from the landlord on
a portion of the Hagerstown facility that reduces the monthly lease payment to
$100 effective April 2004.

BANK FACILITY

On August 29, 2003, TruServ entered into a new four-year $275,000 Bank
Facility. TruServ used the Bank Facility to refinance the Senior Debt.
Borrowings under the Bank Facility are limited to the lesser of $275,000 or a
borrowing base comprised of the calculated collateral value of eligible assets
less the outstanding borrowings, letters of credit and reserves against
availability that may be imposed at the reasonable discretion of the lenders.
Availability at December 31, 2003, after outstanding borrowings of $131,600 and
letters of credit and reserves of $13,221, was $122,760. TruServ is in
compliance with all terms and conditions of the Bank Facility.

Under the terms of the Bank Facility agreement, the interest rate is
variable at TruServ's option of LIBOR plus 2.25% or prime plus 0.25%. As of
December 31, 2003, this interest rate was 3.58%. The Bank Facility pricing
includes a performance grid based upon a fixed charge coverage ratio, measured
quarterly beginning in March 2004. The unused commitment fee is 0.375%. Fees
paid for closing the Bank Facility

totaled $3,752 and these fees are being amortized by TruServ over the four-year
term. Substantially all of the assets of TruServ and a pledge of 100% of the
stock of TruServ's subsidiaries secure the Bank Facility.

Upon entering into the Bank Facility, TruServ incurred a net expense of
$19,221 in connection with the prepayment of the Senior Debt. The net expense
consisted of $26,927 of interest expense relating to the write-off of old and
new senior note make-whole obligations and prepaid bank fees offset by $7,706 of
other income relating to debt forgiveness for a portion of the Senior Debt.

As a result of the lower interest rate under the Bank Facility and the
elimination of the make-whole amortization, TruServ benefited from $7,689 of
interest savings through December 31, 2003 and based upon the expected borrowing
levels and assuming market rates (i.e., LIBOR) remain in relatively the same
range as they were in 2003, is projecting $15,400 of interest savings in 2004.
(The $7,689 and $15,400 of interest expense savings are a non-GAAP financial
measure. It is management's estimate, based on actual borrowing levels in 2003
and projected borrowing levels in 2004, of the interest savings generated from
the lower interest rate of 4% on the new Bank Facility compared to the 13%
average rate on the old lending agreements.)

SENIOR DEBT

The Senior Debt was refinanced by the Bank Facility on August 29, 2003. On
December 30, 2002 and again on March 13, 2003, TruServ amended the Senior Debt
agreements in order to allow for a sale leaseback transaction that was completed
on December 31, 2002 and extended the maturity date of the Hagerstown facility's
synthetic lease obligation to the earlier of December 31, 2003 or the
refinancing of the revolving credit facility. TruServ applied the net proceeds
of the sale leaseback transaction, $121,438, to pay down the Senior Debt. The
net reduction in Senior Debt was $108,743, as a result of the then new
make-whole notes of $12,695 issued due to the prepayment on senior notes.

The Senior Debt agreements were previously amended on April 11, 2002, when
TruServ entered into various amendments that eliminated the event of default
created when TruServ failed to comply with a covenant as of February 24, 2001
(the "April 2002 Amendments"). The April 2002 Amendments to the revolving credit
facility extended the term of the facility from June 2002 to June 2004. The
amount of the commitment at the time of amendment was $200,000. The commitment
under the revolving credit facility was permanently reduced by the amount of any
prepayments allocated to and paid on the revolving credit facility.

The April 2002 Amendments to the various senior note agreements maintained
the existing debt amortization schedules of the various notes. Interest rates on
the notes were at the pre-default rates, which ranged at December 31, 2002 from
10.04% to 11.85%. The senior notes and revolving credit facility amendments also
required initial, quarterly and annual maintenance fees. All of the cash
proceeds from certain asset sales and certain notes receivable were to be used
to prepay all parties to these amendments in accordance with an amended
intercreditor agreement.

For 2002, cash proceeds from certain asset sales and notes receivable
totaling $157,312 were used to prepay all parties to the intercreditor
agreement. The intercreditor agreement established how the assets of TruServ,
which were pledged as collateral, were to be shared and how certain debt
prepayments were to be allocated among the senior lenders. For the year ended
December 31, 2002, the prepayments to senior note holders of $93,915 resulted in
make-whole liabilities of $18,710, which were recorded as additional debt with
an offsetting entry to a prepaid interest account. As previously described, the
$12,695 of make-whole notes from the sale leaseback transaction was a component
of the $18,710. The prepaid interest account was being amortized to interest
expense over the remaining life of the original notes.

The terms of the senior note agreements, that comprised a portion of the
Senior Debt, had always provided that in the event of early termination or a
prepayment of all or a portion of the notes, make-whole liabilities are
triggered. The nature of the transaction giving rise to the prepayment, the
length of time to maturity of a particular note, the magnitude of the prepayment
relative to the remaining debt outstanding and

prevailing market interest rates relative to the interest rates on the senior
notes were factors in determining the amount of potential make-whole
liabilities. In the event of full prepayment of the senior notes, the entire
prepaid interest amount would be immediately charged to interest expense and
this occurred upon the refinancing in August 2003. TruServ management negotiated
a reduction of approximately 50% in the make-whole notes when it made
prepayments on the senior notes from the proceeds of the sale leaseback
transaction and upon the full prepayment in August 2003.

At December 31, 2002, the total Senior Debt outstanding was $220,237 and
the related commitments outstanding totaled $335,595. The revolver portion of
total Senior Debt outstanding could have fluctuated with the seasonal cash
requirements of the business.

GUARANTEES

TruServ provides guarantees for certain member loans, but is not required
to provide a compensating balance for the guarantees. TruServ is required to pay
off a portion of the full amount of these loans under these guarantees, ranging
from 0-50% of the member's outstanding balance, in the event that a member
defaults on its loan, in which case the member will be liable to TruServ for the
guaranteed amount. The amount of the guaranteed portion of these member loans,
which are not recorded in TruServ's balance sheet, was approximately $796 and
$2,172 as of December 31, 2003 and 2002, respectively. The balance of $796 as of
December 31, 2003 includes approximately $270 that will mature in 2004. The
remaining guarantees will expire periodically through 2013. TruServ carries a
reserve of $82 relating to these guarantees.

Additionally, TruServ sold certain member note receivables to a third party
in 2002, payment of which TruServ has fully guaranteed. TruServ is required to
pay off 100% of the outstanding balance of the member note under these
guarantees in the event that a member defaults on its notes, after which the
member will be liable to TruServ for the guaranteed amount. The balance of these
notes at December 31, 2003 was $515. TruServ has recorded a liability and
related receivable for $515 relating to these member notes, and carries a $51
reserve relating to these guarantees. The balance of $515 as of December 31,
2003 includes approximately $233 that will mature in 2004. The remaining
guarantees will expire periodically through 2007.

CRITICAL ACCOUNTING POLICIES

TruServ's significant accounting policies are contained in the accompanying
Notes to Consolidated Financial Statements. The financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America and, accordingly, include amounts based on informed
estimates and judgments of management with due consideration given to
materiality. Accordingly, actual results could differ from those estimates. The
following represents those critical accounting policies where materially
different amounts would be reported under different conditions or using
different assumptions.

- Receivables, net of valuation allowances -- At December 31, 2003,
accounts receivable, net of $8,395 in allowance for doubtful accounts,
were $203,010. TruServ determined the valuation allowance based upon its
evaluation of known requirements, aging of receivables, historical
experience, the current economic environment and its ability to set off
against any unpaid receivable amounts due to members for stock, notes,
interest and declared and unpaid dividends. While TruServ believes it has
appropriately considered known or expected outcomes, its members' ability
to pay their obligations, including those to TruServ, could be adversely
affected by declining sales of hardware at retail resulting from such
factors as contraction in the economy, loss of memberships or intense
competition from chain stores, discount stores, home centers and
warehouse stores.

- Inventory valuation -- At December 31, 2003, inventories, net of $6,718
in valuation reserves, were $276,725, and reflect the reductions from
cost in order to state inventories at the lower of cost or market. The
lower of cost or market valuation considers the estimated realizable
value in the current economic environment associated with disposing of
surplus and/or damaged/obsolete inventories. TruServ estimated realizable
value based on an analysis of historical trends related to its distressed
inventory. This analysis considers trends to return merchandise to
suppliers, transfers to other distribution centers, the sell-down of
product through the price reduction process and final liquidation

price. Should the current economic climate significantly contract further
resulting in retailers being unwilling to accept deliveries of advance
orders placed or should TruServ elect not to ship inventories to
retailers who pose a greater credit risk than appropriate, or should
there occur an unanticipated decline in retail outlets or a significant
contraction in TruServ's warehouse stock replenishment business for
selected product categories, TruServ may need to make additional downward
valuation adjustments. Potential additional downward valuation
adjustments would be required by TruServ in the event of unanticipated
additional excess quantities of finished goods and raw materials, and/or
from lower disposition values offered by the parties who normally
purchase surplus inventories.

- Asset impairment -- For purposes of determining property impairment,
management reviews long-lived assets based on a geographic region or a
revenue producing activity, as appropriate. The impairment 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) are not sufficient to recover
the carrying value of the long-lived assets of the region or activity,
such assets would be determined to be impaired and would be written down
to their fair value. TruServ utilized current real estate market values
in writing down the value of the East Butler, Pennsylvania facility which
is currently for sale. Should real estate values continue to decline, an
additional provision may be required. In 2003, TruServ recorded asset
impairment charges of $2,005 relating primarily to equipment at the East
Butler, Pennsylvania facility. In 2002, TruServ recorded asset impairment
charges that netted to $470, consisting of a $1,769 charge relating to
the East Butler, Pennsylvania facility. TruServ offset this amount by a
$1,299 reduction of asset impairment charges, consisting predominately of
a favorable adjustment to the asset value for the closing of the
Brookings, South Dakota distribution center based on actual proceeds
received on the sale of this facility in 2002. In 2001, TruServ recorded
asset impairment charges aggregating $8,899 related to its Brookings,
South Dakota distribution center, which was subsequently sold, and
certain equipment at its leased Hagerstown, Maryland distribution center.

- Goodwill -- At December 31, 2003, the accompanying Consolidated Balance
Sheet reflects $91,474 of goodwill. Goodwill is tested for impairment
using a discounted cash flow analysis by each reporting unit. This test
is completed annually, unless significant events necessitate a more
frequent test. The test completed at December 31, 2003 used a discount
rate of 10% and assumed declining revenue in future years. A 100 basis
point movement in the discount rate did not significantly impact the
analysis. TruServ determined that no impairment exists. In evaluating the
recoverability of goodwill, management estimates each reporting unit's
fair value. In making this estimate, TruServ's management relies on a
number of factors including operating results, business plans and present
value techniques, to discount anticipated future cash flows. Rates used
to discount cash flows are dependent upon interest rates and the cost of
capital at a point in time. There are inherent uncertainties related to
these factors and management's judgment in applying them to the analysis
of goodwill impairment. It is possible that assumptions underlying the
impairment analysis will change in such a manner that impairment in value
may occur in the future.

- Deferred tax assets -- At December 31, 2003, the accompanying
Consolidated Balance Sheet reflects $81,732 of deferred tax assets,
principally related to net operating loss carryforwards, deferred gain
recognition and nonqualified notices of allocation. These deferred tax
assets, net of deferred tax liabilities of $2,211, are offset by a full
valuation allowance at December 31, 2003. TruServ had approximately
$50,571 of tax operating loss carryforwards available to offset future
taxable income. In general, such carryforwards must be utilized within 20
years of incurring the net operating loss. At December 31, 2003, TruServ
concluded that, based on the weight of available evidence, it is more
likely than not that the deferred tax assets will not be realized, and
that a full valuation allowance is required. Deferred tax assets will
only be realized to the extent future earnings are retained by TruServ
and not distributed to members as patronage dividends.

- Accrued expenses -- At December 31, 2003, the accompanying Consolidated
Balance Sheet reflects $72,931 of accrued expenses, principally related
to restructuring, pension, health and other benefits. TruServ works with
an actuarial firm in the valuation of benefit obligations. TruServ
selects certain

actuarial assumptions on which to base the calculation of the actuarial
valuation of the obligation, such as the discount rate (interest rate
used to determine present value of obligations payable in the future),
medical trend rate, expected return on assets and mortality tables to
determine the expected future benefit obligations. The discount rate was
based on an analysis of bond rates with terms that have similar duration
as the pension liabilities. The medical trend rate was based on an
analysis of inflation rates and medical inflation rates and the long-term
trend for these rates. The expected return on assets was based on an
analysis of historical real returns on TruServ's portfolio mix over 30
year periods. This analysis produced a range of rates that TruServ
adjusted for a future inflation factor and the impact of trust fees.
TruServ used a rate within this range of rates. To the extent that the
actual rates and mortality vary from the assumptions used to determine
the present actuarial valuation of these benefits, TruServ may have to
increase its provision for expenses.

The assumptions used to determine TruServ's pension obligations for all
plans were as follows for the years ended December 31:

<Table>
<Caption>
2003 2002
---- ----

Weighted average assumptions:
Discount rate............................................. 6.00% 6.50%
Expected return on assets................................. 8.00% 8.00%
Rate of compensation increase............................. 3.50% 3.50%
</Table>

Assumed discount rates and expected return on assets have a significant
effect on the amounts reported for the pension plans. A one-percentage
point change in assumed discount rates and expected return on assets would
have the following effects:

<Table>
<Caption>
ONE ONE
PERCENT PERCENT
DECREASE INCREASE
----------- -----------
($ IN THOUSANDS)

Discount Rate
Projected Benefit Obligation as of 12/31/2003............. $6,829 $(6,216)

2004 Pension Expense...................................... 756 (733)
2004 FAS88 Expense........................................ 433 (464)
------ -------
Total 2004 Pension Expense................................ 1,189 (1,197)
Expected Return on Assets
2004 Pension Expense...................................... 547 (547)
</Table>

NEW ACCOUNTING PRONOUNCEMENTS

deferred due to the moratorium are now included in long-term liabilities in
deferred stock redemptions. Deferred stock redemptions contain the par value of
Class A common stock, Class B common stock that is qualified and Nonqualified
Class B common stock reduced by the legal right of offsets from the loss
allocation, accumulated deficit and accounts receivable accounts for each
shareholder who has presented its stock for redemption but has been deferred due
to the moratorium. These amounts were recorded in each of the respective
categories. As of December 31, 2003, the aggregate value of the terminated
members' equity investments presented for redemption but deferred due to the
moratorium was approximately $33,725, after the offset of the loss allocations
resulting from the 1999 loss, the 2001 loss and accounts receivable owed by the
former members. TruServ's By-Laws allow it to offset amounts due by its members
against amounts that it pays to the members on redemption of their stock.
According to TruServ's By-Laws, the Class A common stock and the Non-Qualified
Class B common stock are paid out at the date members have requested redemption
and the Class B common stock that is qualified is paid out by means of a
five-year subordinated installment note, which has the first installment due at
the end of the calendar year of the date members have requested redemption. On a
member by member basis, the net amount of $33,725 owed to members who had left
the co-op would be payable approximately $7,458 at the time of redemption, and
$26,267 in five-year installment notes. Additionally, adoption of this standard
did not have a material impact on TruServ's results of operations or cash flow.

In 2003, TruServ adopted SFAS No. 132 (revised 2003); "Employers'
Disclosures about Pensions and Other Postretirement Benefits," for its defined
benefit pension plans and other postretirement benefit plans. SFAS No. 132, as
revised, requires additional disclosures about assets, obligations, cash flows
and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. This statement did not change the measurement or
recognition of those plans required by SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits," or SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."

On January 1, 2003, TruServ adopted Emerging Issues Task Force ("EITF")
Issue No. 02-16 "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor" ("EITF 02-16"), which addresses the
accounting and income statement classification for consideration given by a
vendor to a retailer in connection with the sale of the vendor's products or for
the promotion of sales of the vendor's products. The EITF concluded that such
consideration received from vendors should be reflected as a decrease in prices
paid for inventory and recognized in cost of sales as the related inventory is
sold, unless specific criteria are met qualifying the consideration for
treatment as reimbursement of specific, identifiable incremental costs. In
January 2003, the EITF clarified that this issue is effective for arrangements
with vendors initiated on or after January 1, 2003. In March 2003, the EITF
addressed the issue again with respect to the reclassification of prior period
amounts and determined that reclassification is only permitted provided that
previously reported net income would not change as a result of applying the
consensus. The adoption of EITF 02-16 has not had a material impact on TruServ's
2003 results of operations, financial position or cash flows as most
arrangements with vendors in 2003 were initiated before January 1, 2003. Since
most arrangements with vendors in 2004 were initiated in fourth quarter of 2003,
the adoption of EITF 02-16 will impact first quarter 2004 results of operations
and financial position, in excess of $4,500 that in prior years would have been
recorded as advertising revenue will now be reflected as a decrease in prices
paid for inventory and will not be recognized in cost of sales until the related
inventory is sold. Additionally, net revenues will be impacted by the adoption
of EITF 02-16, as the advertising revenue that was recognized as the advertising
occurred will now be classified as part of the cost of the product. Partially
offsetting this impact to net revenues is the classification of monies earned
for holding markets for vendors and members, which are recognized when the
markets occur, from an offset in SG&A expenses into net revenues. Also, the
expenses related to providing the markets that were classified in SG&A expenses
will now be classified in cost of revenues.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

($ IN THOUSANDS)

TruServ's operations are subject to certain market risks, primarily
interest rate risk and credit risk. Interest rate risk pertains to TruServ's
variable rate debt, which had approximately $131,600 outstanding at December 31,
2003. A 50 basis point movement in interest rates would result in an approximate
$658 annualized increase or decrease in interest expense and cash flows based on
the outstanding balance at December 31, 2003.

For the most part, TruServ manages interest rate risk through a combination
of variable and fixed-rate debt instruments with varying maturities. As required
by the Bank Facility, TruServ has purchased interest rate caps that limit its
risk on $25,000 of variable rate debt for the entire term of the Bank Facility
to a maximum underlying LIBOR rate of 3.5%, approximately 2.25% increase over
current LIBOR. Credit risk pertains primarily to TruServ's trade receivables.
TruServ extends credit to its members as part of its day-to-day operations.
TruServ's management 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, TruServ's management
believes that its allowance for doubtful accounts is adequate with respect to
member credit risks. TruServ performs no speculative hedging activities. TruServ
does not have any interest in variable interest entities ("VIE's") and all
related party transactions (i.e., transactions with members) are at arm's
length.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TruServ's consolidated financial statements and report of independent
auditors are listed in the index on page F-1.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Each current director's term expires at the 2004 annual stockholders'
meeting. The directors and senior executive officers (officers who report
directly to the CEO) of TruServ or are nominated or selected to be directors and
senior executive officers of TruServ as of the date of this filing are:

<Table>
<Caption>
POSITIONS HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------

Bryan R. Ableidinger............... 55 Chairman since April 29, 2003. Director since August 2000.
Owner/operator of retail hardware business since 1975.
Cathy C. Anderson.................. 54 Senior Vice President, General Counsel and Secretary since
February 17, 2003. Previous position was Executive Vice
President, General Counsel and Secretary, Alliant
Foodservice, Inc. 1995 - 2002.
Laurence L. Anderson............... 62 Director since April 2002. Consultant for Associated
Wholesale Grocers, a $3.1 billion wholesale cooperative
that serves more than 1,000 grocery stores. Prior positions
include Executive Vice President and President of Super
Kmart from 1997 to 1999 and from 1975 to 1997 held several
positions at SuperValu, Inc., with the final position being
Executive Vice President of the corporation and President
of its retail food companies.
</Table>

<Table>
<Caption>
POSITIONS HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------

Joe W. Blagg....................... 54 Director since April 1996. Chairman January 2000 to April
29, 2003. Owner/operator of retail hardware business since
1979. Acting Chief Executive Officer from July 3, 2001 to
November 16, 2001. Mr. Blagg will not stand for re-election
at the 2004 annual stockholders' meeting.
Michael S. Glode................... 54 Director since April 2003. Owner/operator of retail
hardware business since 1970.
Michael Haining.................... 48 Senior Vice President, Distribution/Logistics and
Manufacturing since January 1, 2004. Senior Vice President,
Distribution and Logistics from April 21, 2003 to December
31, 2003. Prior positions include independent consultant
providing supply chain consulting to Fortune 500 companies,
2002-2003; Vice President Supply Chain, 1999-2002; Senior
Director, Distribution and Supply Chain 1998-1999; and
Director of Operations, Strategic, 1996-1998, Kraft Foods
North America.
Thomas S. Hanemann................. 64 Director since October 2002. Chief manager of Chander-
Hannemann, LLC since 1996. Prior positions include
President and Director of AutoZone, a Fortune 500 national
chain of auto parts stores, and President of Super D
Drugstores, a division of Malone & Hyde.
Judith S. Harrison................. 50 Director since August 2002. Principal of and Senior
Consultant for WayPoint Partners, Inc., a management
consulting firm that provides strategic, operations and
investment advice, since 2000. Prior positions include
Chief Executive Officer of Zanybrainy.com from 1999 to
2000, President of General Cigar Enterprises from 1998 to
1999 and President and Chief Executive Officer of the Monet
Group from 1994 to 1997.
Peter G. Kelly..................... 60 Vice-Chairman since April 2002. Director since July 1997.
Owner/operator of retail hardware business since 1964.
Formerly director of Servistar from 1982 to 1990 and
Chairman and director of Servistar Coast to Coast from 1990
to 1997. Formerly Co-Vice Chairman for TruServ from 1997 to
1999. Mr. Kelly will not stand for re-election at the 2004
annual stockholders' meeting.
Brian Kiernan...................... 46 Vice President, Retail Development since July 2002.
Previous position was director of the Ortho Business Group
of The Scotts Company.
Fred Kirst......................... 52 Vice President, Specialty Businesses since October 1, 2003.
Previous positions with TruServ include Vice President of
Maintenance, Repair and Operations and Home & Garden
Showplace December 2001 - October 2003, Vice President,
Advertising and Merchandising, April 2001 - December 2001,
Vice President, Global Development and Emerging Business,
June 2000 - March 2001, Assistant Vice President,
International, March 1997 - May 2000.
</Table>

<Table>
<Caption>
POSITIONS HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------

Pamela Forbes Lieberman............ 49 President and Chief Executive Officer and Director since
November 16, 2001. Prior positions with TruServ were Senior
Vice President, Chief Operating Officer and Chief Financial
Officer from July 3, 2001 to November 16, 2001, Senior Vice
President and Chief Financial Officer from April 18, 2001
to July 3, 2001 and Senior Vice President, Finance from
March 12, 2001 to April 18, 2001. Previous positions were
Senior Vice President, Finance and Chief Financial Officer
of Shoptalk, Inc. from 2000 to 2001 and of Martin-Brower
Company in 1999, consultant in the automotive industry
April - December 1998 and Vice-President Finance and Chief
Financial Officer of Fel-Pro Incorporated from 1993 through
March 1998.
Steven L. Mahurin.................. 44 Senior Vice President and Chief Merchandising Officer since
March 3, 2004. Previous positions include Vice
President - Merchandising, Building Materials from 2001 to
2002, Senior Vice President - Merchandising, Decor from
2000 to 2001, Senior Vice President - Merchandising,
Hardlines from 1999 - 2000 for The Home Depot, Inc.
Amy W. Mysel....................... 51 Senior Vice President of Human Resources and Communications
since October 1, 2003. Previous position with TruServ was
Vice President of Human Resources from September 2002 to
October 2003. Previous position was Executive Vice
President, Human Resources, Planning and Communication for
Market Day, Inc. from 1996 to 2002.
Kenneth A. Niefeld................. 61 Nominated to the Board of Directors and will stand for
election at the 2004 annual stockholders' meeting.
Owner/operator of retail hardware business.
David Y. Schwartz.................. 63 Director since April 2002. Independent business advisor and
consultant, primarily in the retail, direct marketing and
services industries, since 1997. Prior position was Senior
Partner and Managing Partner of the Chicago Office Audit
and Business Consulting Practice for Arthur Andersen. He is
also a member of the board of directors of Walgreen Co. and
Foot Locker, Inc. and sits on the boards of several
privately held companies.
David A. Shadduck.................. 43 Senior Vice President and Chief Financial Officer since
November 16, 2001. Prior position with TruServ was Vice
President, Corporate Controller from May 30, 2001 to
November 15, 2001. Prior positions were Controller for
Tenneco Automotive North American Aftermarket and
Controller for Original Equipment Business at Fel-Pro
Incorporated.
Gilbert Wachsman................... 56 Director since March 2002. Retired Vice Chairman and
Director of Musicland Group, Inc. Prior positions include
Senior Vice President of Kmart Corporation from 1995 to
1996.
</Table>

<Table>
<Caption>
POSITIONS HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------

Brian A. Webb...................... 47 Nominated to the Board of Directors and will stand for
election at the 2004 annual stockholders' meeting.
Owner/operator of retail hardware business.
Leslie A. Weber.................... 47 Senior Vice President and Chief Information Officer since
September 2, 2003. Previous positions include Chief
Information Officer at Wheels, Inc. from 2001 to 2003 and
Chief Information Officer at Quill Corporation from 1998 to
2001.
Charles W. Welch................... 53 Director since April 2003. Owner/operator of retail
hardware business since 1974.
Carol Wentworth.................... 46 Vice president of Marketing and Advertising since June 3,
2002. Previous positions include Vice President of Sales
Promotion and Marketing from 1998 to 2002 and Assistant
Vice President of Sales Promotion from 1997 to 1998 at Fred
Meyer, in Portland Oregon.
</Table>

Each current director's term expires at the 2004 Annual Stockholders'
meeting.

BOARD AUDIT COMMITTEE

The audit committee of TruServ's board of directors is comprised of three
non-employee and independent directors. David Y. Schwartz is the "audit
committee financial expert" serving on the audit committee. Mr. Schwartz is an
independent member of the board of directors of TruServ, as that term is used in
Item 7 (d) (3) (iv) of Schedule 14A under the Exchange Act and is defined in
Section 303.01 (B) (2) (a) and (3) of the New York Stock Exchange, Inc. Listed
Company Manual.

CODE OF ETHICS

TruServ has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller and any other person performing a similar function. The code of
ethics was filed as an exhibit (Ex. 99.3) to the Annual Report on Form 10-K for
the year ended December 31, 2002.

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE

The Compensation Committee of the board of directors consists of four
non-employee directors. The committee assists the board of directors in
fulfilling its responsibilities for setting and administering the policies which
govern annual executive compensation and monitoring TruServ's benefit plans. The
committee, which meets regularly, calls upon outside consultants for assistance
in carrying out its obligations.

The philosophy of the committee is to maintain an executive compensation
program to help TruServ attract, retain and motivate the executive resources
needed to maintain industry leadership, provide high levels of service to
members and achieve the financial objectives determined by the board of
directors. The committee sets performance goals, assesses achievement relative
to the performance goals and recommends to the board salary, bonus or retention
incentives and long-term incentives for the senior executives of TruServ.

To achieve its goals, the committee has developed three executive
compensation policies for TruServ:

- Salaried compensation should be competitive with the median for
executives of companies of a comparable size within TruServ's industry;

- Annual incentive compensation should vary and reflect TruServ's
performance; and

- A long-term (multiple year) incentive program should be available to help
TruServ retain selected executives.

The combination of these three compensation policies is intended to provide
competitive earning opportunities when performance reaches desired levels. Both
the annual and long-term incentive plans may be terminated by the board of
directors at any time. The annual incentive and long-term components of the
total compensation package are accrued for during the year in which they are
earned based upon a forecast of the year's performance. A final computation is
made in the year following the year in which the incentives are earned. The
annual incentive, if earned, will be paid out on or before March 31st of the
following year. Any potential pay out on the long-term incentive plan would
occur on or before March 31st following the last year of a performance cycle and
the cumulative performance over the performance period of these two-year and
three-year plans has met the required achievement, at least at the threshold
level.

TruServ provides salary levels that are intended to fall within the median
(between the 50th and 60th percentile) of the executive marketplace of
comparable size in TruServ's industry. The following types of organizations are
considered within TruServ's industry: member-owned organizations, wholesale
distribution firms, mass merchandising retail firms and general manufacturing
organizations. Competitiveness is measured using data from a number of sources,
including published information, proxy statements and surveys by consulting
firms.

The 2003 compensation of Pamela Forbes Lieberman, TruServ's President and
Chief Executive Officer, consisted of a base salary of $700,000, effective April
1, 2003. This amount is comparable to base salaries for persons holding this
position at companies of comparable size within TruServ's industry. The
incentive component of Ms. Forbes Lieberman's compensation was set by the
compensation committee to reflect the achievement of TruServ's performance goals
determined by the committee, including the attainment of targets for net sales,
net margin and average net debt, together with individual goals relating to
organizational strengthening. The annual incentive portion of the 2003
compensation to be paid to Ms. Forbes Lieberman will be paid out on or before
March 31, 2004. The long-term compensation payment scheduled to be paid out in
2004 for a partial pay out for her performance in 2003 and 2002 will be paid out
on or before March 31, 2004.

COMPENSATION COMMITTEE

Gilbert L. Wachsman, Chairman

Judith S. Harrison

Peter G. Kelly

Charles W. Welch

EXECUTIVE COMPENSATION

The following table sets forth the total annual compensation earned by
individuals serving as TruServ's Chief Executive Officer and the four most
highly compensated executive officers of TruServ during 2003 and the total
compensation earned by each such individual for TruServ's two previous years:

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
NAME AND OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3)
------------------ ------ --------- -------- ---------------

Pamela Forbes Lieberman......................... 2003 $687,500 $252,656 $39,292
President, Chief Executive Officer............ 2002 643,750 531,006 53,402
and Director.................................. 2001(6) 318,868 211,657 22,756
William F. Godwin(5)............................ 2003 305,000 108,324 33,705
Senior Vice President,........................ 2002 293,000 150,916 32,373
Merchandise Supply Chain...................... 2001 266,249 159,808 22,867
David A. Shadduck............................... 2003 293,000 164,962 26,672
Senior Vice President and..................... 2002 266,500 205,735 28,067
Chief Financial Officer....................... 2001(6) 124,964 96,690 11,707
Michael D. Rosen(4)............................. 2003 256,000 84,685 18,870
Senior Vice President,........................ 2002 245,250 124,270 35,009
Sales and Manufacturing....................... 2001 227,500 113,128 20,081
Cathy C. Anderson............................... 2003(6) 255,375 115,403 60,024
Senior Vice President,........................ 2002 -- -- --
General Counsel and Secretary................. 2001 -- -- --
</Table>

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

(1)Earned and paid in year shown.

(2)Annual incentive amounts are earned and accrued during the years indicated,
and paid subsequent to the end of each year. To attain achievement of the
business plan objectives necessary to continue to turn TruServ around, the
board of directors approved, effective January 1, 2003, a key associate
annual incentive plan for identified key associates and officers employed by
TruServ in 2003 or who joined TruServ by September 30, 2003, and remained
employed through the payment date of the plan (on or before March 31, 2004).
The 2003 incentive plan had targets related to individual-specific goals
associated with leadership and one or more of TruServ's initiatives and
either sales and EBITDA or sales, net margin and net debt established as of
the effective date of each respective plan. Both the 2002 and 2001 incentive
plans had targets related to fill rates, sales, EBITDA, and
individual-specific goals associated with one or more of TruServ's key
initiatives established as of the effective date of each respective plan.

(3)Other compensation consists of TruServ's contributions to the TruServ
Corporation Employee's Savings and Compensation Deferral Plan (the "401k
Plan"), life insurance plan, financial planning services, adoption assistance
and automobile allowances. Under the 401k Plan, each participant may elect to
make a contribution in an amount of up to 50% of the participant's annual
compensation, not to exceed $40,000 (including TruServ's contributions) per
year, of which $12,000, $11,000 and $10,000 in 2003, 2002 and 2001,
respectively, of the executive officer's salary in any year may be deferred.
Effective July 1, 2000, the 401k Plan was amended to apply only a profit
sharing match tied to TruServ's net earnings. Officers and associates did not
earn a profit sharing match for 2001. In 2002, the 401k Plan was changed to
include a guaranteed match of one-third of a participant's contribution up to
a total of 2% of the participant's annual compensation. Based on TruServ
achieving certain financial goals, a match of greater than one-third of a
participant's contribution can be earned. For 2002, a match equaling
two-thirds of a participant's contribution, up to a total of 4% of the
participant's annual compensation, was earned and contributed to the
participants' accounts in March 2003. For 2003, a match equaling two-thirds
of a participant's contribution, up to a total of 4% of the participant's
annual compensation, was earned and will be funded by March 2004.

(4) Michael D. Rosen resigned his position with TruServ as of January 23, 2004.

(5) William F. Godwin's last day of employment with TruServ was February 27,
2004.

(6) Pamela Forbes Lieberman, David A. Shadduck and Cathy C. Anderson joined
TruServ March 12, 2001, May 30, 2001 and February 17, 2003, respectively;
compensation is for a partial year.

TruServ has a severance policy providing termination benefits based upon
annual compensation and years of service. Certain officers of TruServ are also
offered agreements providing for severance in the event of involuntary
termination without cause with the imposition of certain restrictions regarding
competition and confidentiality. The officer severance agreements provide for 12
months, 18 months or 24 months of base compensation based on length of service.

TruServ did not make loans to its executive officers or to its directors
during the last three years.

LONG-TERM PERFORMANCE CASH AWARDS

Under the long-term incentive compensation plan for the officers of
TruServ, officers are eligible for cash pay outs calculated on a percentage of
their annual salary based upon cumulative performance over the performance
period of these multi-year plans. Any potential pay out would occur on or before
March 31st following the last year of a performance cycle. Performance goals for
the current plans relate to the achieving of financial goals pertaining to a
combination of sales and EBITDA.

The officers of TruServ received a pay out in March 2004 based upon a
partial pay out for the aggregate of performance in 2002 and 2003. There were no
pay outs of long-term incentive compensation to TruServ officers in 2001, 2002
or 2003. Target pay outs, shown as a percentage of salary, which could be earned
by the current officers listed in the Summary Compensation Table for the current
plans are as follows: Pamela Forbes Lieberman at 100%, David A. Shadduck at 60%
and Cathy C. Anderson at 60%.

BOARD COMPENSATION

In 2003, directors of TruServ (except the Chairman and Vice Chairman) were
each paid an annual retainer of $30,000 per year. The Chairman of the Board was
paid $100,000 in consideration for his services as chairman and the
Vice-Chairman of the Board was paid $54,000 in consideration for his services as
vice chairman for 2003. Committee Chairmen were each paid $5,000 per year, in
addition to their annual retainer. Each director receives a payment for
attending meetings or participating in telephonic board or board committee calls
that range from $500 to $1,500 per meeting. Outside directors are paid an
additional $500 for each company-related event they attend, up to four events
per year. All directors are reimbursed for company-related travel expenses.

The President and Chief Executive Officer does not receive additional
compensation for serving in the capacity of director.

DEFINED BENEFIT RETIREMENT PLANS

TruServ has a defined benefit pension plan, the TruServ Corporation Defined
Lump Sum Pension Plan, which is qualified under the Code. The plan was amended
and restated effective January 1, 1998 (including amendments effective after
January 1, 1998 where indicated). The amount of TruServ'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
been employed a minimum of five years. 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.

In accordance with the Defined Lump Sum Pension Plan, as amended as of
February 28, 2002, for service after December 31, 2001 the percentage ranges
from 1% of average compensation for years of service performed prior to age 26
to 9% of average compensation for years of service performed at or after age 56.
For

service prior to January 1, 2002 the percentages range from 2% of average
compensation for years of service performed prior to age 26 to 12% 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 one-half of the
percentage earned as of December 31, 2001. For participants who had attained age
50 and completed at least 15 years of service as of January 1, 1996, the sum of
their annual pension credit percentage is increased by 25 percentage points. The
benefits under the plan cannot be less than the benefits already earned by the
participant under the plan as it existed prior to its amendment.

The plan was amended effective January 1, 1998 to include former employees
of ServiStar Coast to Coast (SCC). These employees received credit under the
plan for all years for which they received credit under the SCC Retirement
Income Plan (the "ServiStar Plan"). In addition, for any ServiStar (but not
Coast to Coast) employees who had attained age 50 and completed at least 15
years of service as of January 1, 1998, the sum of their annual pension credit
percentage is increased by 25 percentage points. 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 calendar years within the 10 calendar
years immediately preceding the date of termination of employment. Compensation
considered in determining benefits includes salary, overtime pay, commissions,
short-term incentive-based bonuses, deferral contributions under the 401k Plan
and pre-tax Section 125 plan premiums.

The estimated annual retirement benefits which may be payable pursuant to
the qualified 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 qualified plan in
determining retirement benefits. This limit was $200,000 for 2003. Section 415
of the Code outlines the maximum annual benefit which may be payable from the
qualified plan during the year. The dollar limit is $160,000 for 2003 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.

No year of service will be credited to any participant for any period of
employment with Coast to Coast, Inc. occurring prior to July 1, 1996 or any
period of employment with Advocate Services, Inc. occurring prior to January 1,
1998.

TruServ maintains a Supplemental Retirement Plan for officers of the
corporation. The supplemental plan provides participants with a benefit equal to
33% of their "average compensation" multiplied by their years of service,
reduced by any benefits payable under the qualified plan. Service is limited to
20 years and the maximum aggregate percentage is 660%. "Average Compensation"
for the supplemental plan is defined similarly to the qualified plan, as
discussed above. Benefits are payable in a lump sum, following termination of
employment.

The supplemental plan is not a qualified plan under the Code. Benefits
payable under the supplemental plan are financed through operations.

The following table reflects the combined estimated annual retirement
benefits which may be payable pursuant to the qualified 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
-----------------------------------------
COMPENSATION 5 10 15 20
------------ -------- -------- -------- --------

$1,500,000......................................... $211,982 $423,965 $635,947 $847,929
$1,450,000......................................... 204,916 409,833 614,749 819,665
$1,400,000......................................... 197,850 395,700 593,551 791,401
$1,350,000......................................... 190,784 381,568 572,352 763,136
$1,300,000......................................... 183,718 367,436 551,154 734,872
$1,250,000......................................... 176,652 353,304 529,956 706,608
$1,200,000......................................... 169,586 339,172 508,758 678,344
$1,150,000......................................... 162,520 325,040 487,559 650,079
$1,100,000......................................... 155,454 310,907 466,361 621,815
$1,050,000......................................... 148,388 296,775 445,163 593,551
$1,000,000......................................... 141,322 282,643 423,965 565,286
$ 950,000.......................................... 134,255 268,511 402,766 537,022
$ 900,000.......................................... 127,189 254,379 381,568 508,758
$ 850,000.......................................... 120,123 240,247 360,370 480,493
$ 800,000.......................................... 113,057 226,115 339,172 452,229
$ 750,000.......................................... 105,991 211,982 317,974 423,965
$ 700,000.......................................... 98,925 197,850 296,775 395,700
$ 650,000.......................................... 91,859 183,718 275,577 367,436
$ 600,000.......................................... 84,793 169,586 254,379 339,172
$ 550,000.......................................... 77,727 155,454 233,181 310,907
$ 500,000.......................................... 70,661 141,322 211,982 282,643
$ 475,000.......................................... 67,128 134,255 201,383 268,511
$ 450,000.......................................... 63,595 127,189 190,784 254,379
$ 425,000.......................................... 60,062 120,123 180,185 240,247
$ 400,000.......................................... 56,529 113,057 169,586 226,115
$ 375,000.......................................... 52,996 105,991 158,987 211,982
$ 350,000.......................................... 49,463 98,925 148,388 197,850
</Table>

The present credited years of service for the officers listed in the above
table are as follows: William F. Godwin, 9 years (William F. Godwin's last day
of employment with TruServ was February 27, 2004); Pamela Forbes Lieberman, 3
years; David A. Shadduck, 3 years; Michael D. Rosen, 8 years (Michael D. Rosen's
last day of employment with TruServ was January 23, 2004); Cathy C. Anderson, 1
year.

PERFORMANCE GRAPH

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

EMPLOYMENT AND SEPARATION AGREEMENTS

On November 15, 2001, TruServ entered into an employment agreement
effective November 16, 2001 with Pamela Forbes Lieberman, in connection with her
assuming the duties of President and Chief Executive Officer of TruServ. The
employment agreement specifies that Ms. Forbes Lieberman will serve in those
capacities at the will of the board of directors.

Pursuant to the employment agreement, the Board of Directors awarded to Ms.
Forbes Lieberman an annual base salary of $700,000 effective April 1, 2003. In
addition, Ms. Forbes Lieberman will be eligible for an annual incentive, if and
when approved by the board of directors of TruServ. At achievement of pre-
established targets, the annual incentives are in an amount of 60% of her base
salary for year 2001 and 70% of her base salary for calendar years thereafter.
There are thresholds and maximums for each year. In addition, Ms. Forbes
Lieberman will be eligible to receive a long-term incentive of 50% of her annual
base salary if TruServ meets a certain threshold financial performance level,
100% of her annual base salary if TruServ attains a targeted financial
performance level with a maximum 150% of her annual base salary at the specified
maximum performance level. See "Summary Compensation Table" under the item
"Executive Compensation" for the amount of salary and incentive earned by Ms.
Forbes Lieberman in 2003, 2002 and 2001. There were no pay outs of long-term
incentive compensation to TruServ officers in 2001, 2002 or 2003. Long-term
compensation was earned by Ms. Forbes Lieberman and other officers of TruServ
for year 2003 and 2002 performance. Any ultimate pay out is based upon
cumulative performance over the performance period of these multi-year plans.
Any potential pay out would occur on or before March 31st following the last
year of a performance cycle. The first such pay out occurred in March 2004 based
upon a partial pay out for the aggregate of performance in 2002 and 2003. Ms.
Forbes Lieberman is also eligible to participate in the other benefit plans
available from time to time to executives of TruServ.

In the event that TruServ terminates Ms. Forbes Lieberman's employment
without "cause," she is entitled to receive a severance payment, payable over 24
months, in an amount equal to two times her base salary, but only if she signs a
release of claims against TruServ and agrees to comply with certain obligations
upon her departure. "Cause" includes her inability or unwillingness to perform
the material duties of her position or her performance of any action injurious
to TruServ.

If within one year following a "change of control" of TruServ, Ms. Forbes
Lieberman terminates her employment with TruServ for "good reason," she may be
entitled to a severance payment equal to an amount up to two times her base
salary and, in certain cases, a percentage of incentives received in prior
years, but only if she signs a release and agrees to comply with certain
obligations upon her departure. "Change of control" is defined as a business
combination through a merger, consolidation or share exchange in which TruServ
or its shareholders after the combination do not own 51% or more of the voting
equity of the entity. "Good reason" is defined to include a demotion or a
substantial reduction in compensation and benefits within a year after the
change of control.

William F. Godwin's last day of employment with TruServ was February 27,
2004. Pursuant to the terms of his termination agreement with TruServ, Mr.
Godwin is entitle to receive $614,000 as severance pay to be paid over two
years. In addition, TruServ will pay certain of Mr. Godwin's accrued retirement
benefits within 90 days of the effective date of the termination agreement. The
termination agreement also provides for outplacement services of the kind
provided to other former senior executives of TruServ. Mr. Godwin in the
termination agreement, provides TruServ among other things, with a general
release, a covenant not to sue, not to solicit, non-disparagement, honoring of
confidentiality, as well as a cooperation covenant and an indemnification
agreement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of February 28, 2004, each of the member directors of TruServ was the
owner of at least 60 shares of Class A common stock of TruServ (but no more than
300 shares), constituting in the aggregate less than 1% of the issued and
outstanding shares of Class A common stock. No non-member director or senior
officer owns any shares of Class A common stock.

The member directors own, in the aggregate, less than 1% of Class B common
stock as of February 28, 2004. No non-member director or senior officer owns any
shares of Class B common stock.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as disclosed below, TruServ does not enter into any transaction
with directors or officers other than in their capacity as such.

TruServ sells hardware and related merchandise and provides value-added
services such as marketing, advertising, merchandising, and store location and
design services to member directors of TruServ on the same basis as it provides
these merchandise and services to other members.

USE OF PROCEEDS

We plan to use the proceeds from the offering of the Class A common stock
for general working capital, including the purchase of merchandise for resale to
our members.

PLAN OF DISTRIBUTION

TruServ is offering the Class A common stock to you at $100 per share, in
connection with becoming a member of our cooperative. To become a member you
must subscribe for 60 shares of Class A common stock for each retail store you
operate. You may purchase a maximum of 300 shares of Class A common stock for
$30,000 if you own five or more stores. All sales of Class A common stock are
being made for cash. Each share has a par value of $100.

The Class A common stock is being sold directly by TruServ after membership
has been approved by TruServ's executive officers. No one will receive a
commission on the sale of any Class A common stock.

LEGAL MATTERS

The legality of the issuance of the Class A common stock offered has been
passed upon for us by Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.,
Chicago, Illinois.

INDEMNIFICATION

TruServ's Certificate of Incorporation and By-Laws provide for
indemnification of directors and officers to the full extent permitted by
Delaware law.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling TruServ as described above, TruServ has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, and other information with
the SEC. Our SEC filings are available over the Internet on the SEC's web site
at http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Each year, we distribute an annual report
containing consolidated financial statements reported upon by our independent
auditors to our stockholder-members. We may, from time to time, also furnish to
our stockholder-members interim reports, as determined by our management. Our
web site address is http://www.truserv.com.

Requests for additional information from TruServ should be made to the
Chief Financial Officer, TruServ Corporation, 8600 West Bryn Mawr Avenue,
Chicago, Illinois 60631-3505, Telephone: 773-695-5000, Facsimile: 773-695-6559.

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.

<Table>
<Caption>
PAGE(S)
-------

Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet at December 31, 2003 and December
31, 2002.................................................. F-3
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 2003............... F-4
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 2003............... F-5
Consolidated Statement of Members' Equity for each of the
three years in the period ended December 31, 2003......... F-6
Notes to Consolidated Financial Statements.................. F-7 to F-35

Schedule II -- Valuation and Qualifying Accounts............ F-36
</Table>

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and

Members of TruServ Corporation:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of TruServ Corporation and its subsidiaries at December 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the Consolidated Financial Statements, on January
1, 2002, the Company adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets." As discussed in Note 1 to the
Consolidated Financial Statements, on January 1, 2003, the Company adopted
Emerging Issues Task Force Issue No. 02-16, "Accounting by a Customer (including
a Reseller) for Certain Consideration Received from a Vendor." As discussed in
Note 1 to the Consolidated Financial Statements, on July 1, 2003, the Company
adopted Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity."

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Chicago, Illinois

February 13, 2004

F-2

TRUSERV CORPORATION

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2003 AND 2002

($ IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

ASSETS

<Table>
<Caption>
2003 2002
-------- --------

Current assets:
Cash and cash equivalents................................. $ 9,234 $ 9,001
Restricted cash........................................... -- 15,755
Accounts and notes receivable, net of allowance for
doubtful accounts of $8,395 and $8,553................. 203,010 207,709
Inventories, net of valuation reserves of $6,718 and
$10,434................................................ 276,725 234,448
Other current assets...................................... 18,225 23,440
-------- --------
Total current assets.............................. 507,194 490,353
Properties, net............................................. 73,055 91,116
Goodwill, net of accumulated amortization of $11,549........ 91,474 91,474
Other assets................................................ 9,737 30,428
-------- --------
Total assets...................................... $681,460 $703,371
======== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable.......................................... $238,180 $199,566
Drafts payable............................................ 44,540 28,884
Accrued expenses.......................................... 72,931 84,082
Current maturities of long-term debt, notes, borrowings
and capital lease obligations.......................... 91,958 87,649
Patronage dividend payable in cash........................ 8,983 6,121
-------- --------
Total current liabilities......................... 456,592 406,302
-------- --------
Long-term liabilities and deferred credits: Long-term debt,
including capital lease obligations, less current
maturities................................................ 100,324 125,021
Deferred gain on sale leaseback........................... 50,135 52,786
Deferred credits and other long-term liabilities.......... 13,656 20,282
Deferred stock redemptions................................ 33,725 --
Redeemable nonqualified Class B non-voting common stock,
$100 par value; 231,392 shares issued and fully paid... 23,139 --
-------- --------
Total long-term liabilities and deferred
credits.......................................... 220,979 198,089
-------- --------
Total liabilities and deferred credits............ 677,571 604,391
-------- --------
Commitments and contingencies............................... -- --
Members' capitalization:
Promissory (subordinated) and installment notes, net of
current portion........................................ -- 43,531
Members' equity:
Redeemable Class A voting common stock, $100 par value;
750,000 shares authorized; 304,560 and 474,360 shares
issued and fully paid; 17,123 and 35,700 shares issued
(net of subscriptions receivable of $728 and $886)..... 31,440 50,120
Redeemable Class B non-voting common stock and paid in
capital, $100 par value; 4,000,000 shares authorized;
952,436 and 1,756,457 shares issued and fully paid..... 96,542 176,945
Loss allocation........................................... (40,502) (75,966)
Deferred patronage........................................ (25,045) (25,793)
Accumulated deficit....................................... (56,567) (68,704)
Accumulated other comprehensive loss...................... (1,979) (1,153)
-------- --------
Total members' equity............................. 3,889 55,449
-------- --------
Total members' capitalization..................... 3,889 98,980
-------- --------
Total liabilities and members' capitalization..... $681,460 $703,371
======== ========
</Table>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

F-3

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<Table>
<Caption>
2003 2002 2001
------------ ------------ ---------------
($ IN THOUSANDS)

Net revenues.......................................... $2,024,340 $2,175,451 $2,619,434
Cost of revenues...................................... 1,802,449 1,926,819 2,345,459
---------- ---------- ----------
Gross margin.......................................... 221,891 248,632 273,975
Operating expenses:
Logistics and manufacturing expenses................ 63,031 69,464 89,637
Selling, general and administrative expenses........ 99,782 93,209 137,807
Restructuring charges and other related expenses.... 1,883 6,284 38,522
Loss/(gain) on sale of assets....................... 427 91 (1,958)
Other income, net................................... (22,309) (3,723) (3,996)
---------- ---------- ----------
Operating income...................................... 79,077 83,307 13,963
Interest expense to members......................... 5,799 6,611 7,842
Third party interest expense........................ 51,724 55,284 55,431
---------- ---------- ----------
Net margin/(loss) before income taxes................. 21,554 21,412 (49,310)
Income tax expense.................................... 333 259 1,377
---------- ---------- ----------
Net margin/(loss)..................................... $ 21,221 $ 21,153 $ (50,687)
========== ========== ==========
</Table>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

F-4

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<Table>
<Caption>
2003 2002 2001
--------- --------- --------
($ IN THOUSANDS)

Operating activities:
Net margin/(loss)......................................... $ 21,221 $ 21,153 $(50,687)
Adjustments to reconcile net margin/(loss) to net cash and
cash equivalents provided by/(used for) operating
activities:
Depreciation and amortization.......................... 26,060 34,851 41,519
Provision for losses on accounts and notes
receivable........................................... 927 120 6,275
Provision for inventory reserves....................... 8,603 10,620 14,977
Restructuring charges(credits) and other related
expenses............................................. (122) 5,814 29,623
(Gain)/loss on sale of assets.......................... 427 91 (1,958)
Amortization of deferred gain on sale leaseback........ (2,646) -- --
Gain on debt forgiveness............................... (7,706) -- --
Write off of make-whole and prepaid bank fees.......... 17,708 -- --
Termination of deferred credit agreements.............. (7,133) -- --
Asset impairment charge................................ 2,005 470 8,899
Changes in operating assets and liabilities:
Accounts and notes receivable........................ (3,842) 32,926 127,000
Inventories.......................................... (50,880) 88,908 85,715
Other current assets................................. (94) (2,550) 3,836
Accounts payable..................................... 38,614 (52,091) (92,216)
Accrued expenses..................................... (10,621) (36,268) 7,525
Other adjustments, net............................... 286 (840) (1,067)
--------- --------- --------
Net cash and cash equivalents provided by
operating activities............................ 32,807 103,204 179,441
--------- --------- --------
Investing activities:
Additions to properties................................... (6,825) (12,838) (15,151)
Proceeds from sale of properties.......................... 513 127,941 10,511
Changes in restricted cash................................ 15,755 13,320 (25,250)
Other..................................................... 3,622 18,428 3,388
--------- --------- --------
Net cash and cash equivalents provided by/(used
for) investing activities....................... 13,065 146,851 (26,502)
--------- --------- --------
Financing activities:
Payment of patronage dividend............................. (5,790) -- (9,483)
Payment of notes, long-term debt and lease obligations.... (163,072) (157,690) (40,138)
(Decrease)/increase in drafts payable..................... 15,656 (58,501) (42,105)
(Decrease)/increase in senior revolving credit facility,
net.................................................... (24,194) (113,903) 11,300
Increase in asset based revolving credit facility, net.... 131,600 -- --
Proceeds from sale of Redeemable Class A common stock and
subscription receivable................................ 161 224 812
--------- --------- --------
Net cash and cash equivalents used for financing
activities...................................... (45,639) (329,870) (79,614)
--------- --------- --------
Net (decrease)/increase in cash and cash equivalents........ 233 (79,815) 73,325
Cash and cash equivalents at beginning of year.............. 9,001 88,816 15,491
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 9,234 $ 9,001 $ 88,816
========= ========= ========
</Table>

The accompanying notes are an integral part of the Consolidated Financial
Statements.

F-5

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF MEMBERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<Table>
<Caption>
REDEEMABLE COMMON STOCK
-----------------------------------------------
CLASS A CLASS B
---------------------- ---------------------- LOSS DEFERRED ACCUMULATED
# OF SHARES AMOUNT # OF SHARES AMOUNT ALLOCATION PATRONAGE DEFICIT
----------- -------- ----------- -------- ---------- --------- -----------
($ IN THOUSANDS)

Balances at and for the year ended
December 31, 2000................ 510,060 $ 49,084 1,731,482 $174,448 $(92,460) $(27,288) $(17,134)
Net loss........................... -- -- -- -- -- -- (50,687)
Foreign currency translation
adjustment....................... -- -- -- -- -- -- --
Amortization of deferred
patronage........................ -- -- -- -- -- 747 (747)
Payments from stock subscriptions
receivable....................... -- 812 -- -- -- -- --
Other.............................. -- -- 8 -- -- -- --
Matured notes applied against loss
allocation....................... -- -- -- -- 2,488 -- --
-------- -------- --------- -------- -------- -------- --------
Balances at and for the year ended
December 31, 2001................ 510,060 49,896 1,731,490 174,448 (89,972) (26,541) (68,568)
Net margin......................... 21,153
Foreign currency translation
adjustment....................... -- -- -- -- -- -- --
Amortization of deferred
patronage........................ -- -- -- -- -- 748 (748)
Minimum pension liability
adjustment....................... -- -- -- -- -- -- --
Patronage dividend................. -- -- 144,196 14,420 -- -- (20,541)
Payments from stock subscriptions
receivable....................... -- 224 -- -- -- -- --
Class B stock applied against loss
allocation....................... -- -- (119,229) (11,923) 11,923 -- --
Matured notes applied against loss
allocation....................... -- -- -- -- 2,083 -- --
-------- -------- --------- -------- -------- -------- --------
Balances at and for the year ended
December 31, 2002................ 510,060 50,120 1,756,457 176,945 (75,966) (25,793) (68,704)
Net margin......................... -- -- -- -- -- -- 21,221
Reclass Non-qualified Class B stock
to Liabilities................... -- -- (231,392) (23,139) -- -- --
Reclass Deferred stock redemptions
to Liabilities................... (188,377) (18,841) (595,785) (59,579) 27,941 -- 9,933
Amortization of deferred
patronage........................ -- -- -- -- -- 748 (748)
Minimum pension liability
adjustment....................... -- -- -- -- -- -- --
Patronage dividend................. -- -- 92,861 9,286 -- -- (18,269)
Payments from stock subscriptions
receivable....................... -- 161 -- -- -- -- --
Class B stock applied against loss
allocation....................... -- -- (69,705) (6,971) 6,971 -- --
Matured notes applied against loss
allocation....................... -- -- -- -- 552 -- --
-------- -------- --------- -------- -------- -------- --------
Balances at and for the year ended
December 31, 2003................ 321,683 $ 31,440 952,436 $ 96,542 $(40,502) $(25,045) $(56,567)
======== ======== ========= ======== ======== ======== ========

ACCUMULATED
OTHER TOTAL TOTAL
COMPREHENSIVE MEMBERS' COMPREHENSIVE
LOSS EQUITY INCOME/(LOSS)
------------- -------- -------------
($ IN THOUSANDS)

Balances at and for the year ended
December 31, 2000................ $ (972) $85,678 $ 33,991
========
Net loss........................... -- (50,687) $(50,687)
Foreign currency translation
adjustment....................... 969 969 969
Amortization of deferred
patronage........................ -- -- --
Payments from stock subscriptions
receivable....................... -- 812 --
Other.............................. -- -- --
Matured notes applied against loss
allocation....................... -- 2,488 --
------- -------- --------
Balances at and for the year ended
December 31, 2001................ (3) 39,260 $(49,718)
========
Net margin......................... 21,153 $ 21,153
Foreign currency translation
adjustment....................... 3 3 3
Amortization of deferred
patronage........................ -- -- --
Minimum pension liability
adjustment....................... (1,153) (1,153) (1,153)
Patronage dividend................. -- (6,121) --
Payments from stock subscriptions
receivable....................... -- 224 --
Class B stock applied against loss
allocation....................... -- -- --
Matured notes applied against loss
allocation....................... -- 2,083 --
------- -------- --------
Balances at and for the year ended
December 31, 2002................ (1,153) 55,449 $ 20,003
========
Net margin......................... -- 21,221 $ 21,221
Reclass Non-qualified Class B stock
to Liabilities................... -- (23,139) --
Reclass Deferred stock redemptions
to Liabilities................... -- (40,546) --
Amortization of deferred
patronage........................ -- -- --
Minimum pension liability
adjustment....................... (826) (826) (826)
Patronage dividend................. -- (8,983) --
Payments from stock subscriptions
receivable....................... -- 161 --
Class B stock applied against loss
allocation....................... -- -- --
Matured notes applied against loss
allocation....................... -- 552 --
------- -------- --------
Balances at and for the year ended
December 31, 2003................ $(1,979) $ 3,889 $ 20,395
======= ======== ========
</Table>

Redeemable Class A Common Stock amounts are net of unpaid subscription amounts
of $728 relating to 17,123 issued shares at December 31, 2003; $886 relating to
35,700 issued shares at December 31, 2002; $1,110 relating to 54,480 issued
shares at December 31, 2001 and $1,922 relating to 98,880 issued shares at
December 31, 2000.

The accompanying notes are an integral part of the Consolidated Financial
Statements.

F-6

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)

1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

Principal business activity

TruServ Corporation ("TruServ") is a member-owned wholesaler cooperative of
hardware and related merchandise. TruServ also manufactures and sells paint and
paint applicators. TruServ's goods and services are sold predominantly within
the United States, primarily to retailers of hardware, industrial distributors
and rental retailers who have entered into retail agreements with it. TruServ
also provides to its members value-added services such as marketing,
advertising, merchandising and store location and design services. Generally,
members are required to purchase upon becoming a member 60 shares of TruServ's
Class A common stock per store (up to a maximum of 5 stores (300 shares)). The
Class A common stock is redeemable by TruServ and has voting rights (the
"Redeemable Class A voting common stock"). When there are annual profits,
members in good standing are entitled to receive patronage dividend
distributions from TruServ on the basis of gross margins of merchandise
purchased by each member. In accordance with TruServ'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. TruServ issues Class B common stock as
part of its patronage dividend. The Class B common stock is redeemable and has
no voting rights (the "Redeemable Class B non-voting common stock").

Consolidation

The consolidated financial statements include the accounts of TruServ and
all wholly owned subsidiaries. The consolidated statement of operations and cash
flows also include the activities of TruServ Canada Cooperative, Inc., a
Canadian member-owned wholesaler of hardware, through the date of its sale,
October 22, 2001. The consolidated balance sheets at December 31, 2003 and 2002
excludes TruServ Canada Cooperative, Inc.

Reclassifications

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year's presentation. These
reclassifications had no effect on Net margin/(loss) for any period or on Total
members' equity at the balance sheet dates.

Capitalization

TruServ's capital (Capitalization) is derived from Members' equity and
Promissory (subordinated) and installment notes. Members' equity is comprised of
Redeemable Class A voting common stock, Redeemable Class B non-voting common
stock, Accumulated deficit, Loss allocation, Deferred patronage and Accumulated
other comprehensive loss. 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 costs associated with the merger of Cotter & Company and
Servistar Coast to Coast Corporation to form TruServ (the "Merger"), which are
included in the computation of net margin/(loss) in different periods for
financial statement purposes than for patronage purposes. Promissory
(subordinated) notes and Redeemable Class B non-voting common stock had been
issued in connection with TruServ's annual patronage dividend. For the year
ended December 31, 2003, only Cash and Redeemable Class B non-voting common
stock will be issued in 2004 in connection with TruServ's 2003 patronage
dividend. The By-Laws provide TruServ the right to allow a member to meet
TruServ's Redeemable Class B non-voting common stock requirement by the issuance
of Redeemable Class B non-voting common stock in payment of the year-end
patronage dividend.

F-7

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The shares of Redeemable Class B non-voting common stock and other written
notices distributed by TruServ to its members, which disclose to the recipient
the stated amount allocated to the member by TruServ and the portion thereof
that is a patronage dividend, are "written notices of allocation" as that phrase
is used in the Internal Revenue Code (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 amounts) treated as being constructively received by them and includable
in their gross income. TruServ has usually issued qualified Redeemable Class B
non-voting common stock with its patronage dividend and the current amount
issued and outstanding are classified in the balance sheet as Redeemable Class B
non-voting common stock. Any written notices that do not meet these requirements
are "nonqualified written notices of allocation" within the meaning of the Code.
TruServ did issue these "nonqualified written notices of allocation" with the
patronage dividend for the years 1997 and 1998 in the form of Redeemable Class B
non-voting common stock and the current amount issued and outstanding are
classified in the balance sheet as Redeemable nonqualified Class B non-voting
common stock.

In the third quarter of 2003, TruServ adopted Statement of Financial
Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Adoption of this standard impacted the classification in the Consolidated
Balance Sheet of Promissory (subordinated) and installment notes, net of current
portion; Redeemable nonqualified Class B non-voting common stock; and stock
presented for redemption but deferred due to the moratorium. Promissory
(subordinated) and installment notes, net of current portion, which are notes
with three year durations with current owners of TruServ's Class A common stock,
are now included in Long-term debt. Promissory (subordinated) and installment
notes, net of current portion previously was recorded under the caption of
Members' capitalization. Redeemable nonqualified Class B non-voting common stock
is now included in long-term liabilities as these shares of stock have a planned
redemption schedule. Redeemable nonqualified Class B non-voting common stock
previously was recorded under the caption of Members' equity. Redeemable
nonqualified Class B non-voting common stock has a planned redemption schedule
of at least 10% of the shares by December 31, 2011; at least 40% of the shares
by December 31, 2019 and all of the shares by December 31, 2029. Shares of stock
presented for redemption but deferred due to the moratorium are now included in
long-term liabilities in Deferred stock redemptions. Deferred stock redemptions
contain the par value of Class A, Qualified Class B and Nonqualified Class B
common stock reduced by the legal right of offsets from the Loss allocation,
Accumulated deficit and Accounts receivable accounts for each shareholder who
has presented their stock for redemption but has been deferred due to the
moratorium. These amounts were recorded in each of the respective categories. As
of December 31, 2003, the aggregate value of the former members' equity
investments presented for redemption but deferred due to the moratorium was
approximately $33,725, after the offset of the loss allocations resulting from
the 1999 loss, the 2001 loss and accounts receivable owed by the former members.
Historically, TruServ has offset amounts due by its members against amounts that
it pays to the members on redemption of their stock.

Either TruServ or the member upon 60 days' written notice may terminate
membership without cause. In the event membership is terminated, TruServ
undertakes to purchase, and the member is required to sell to TruServ, all of
the member's Redeemable Class A voting common stock and Redeemable Class B
non-voting common stock at par value. Payment for the Redeemable Class A voting
common stock has historically been in cash. In accordance with TruServ's
By-Laws, payment for the qualified Redeemable Class B non-voting common stock is
in the form of a note payable in five equal annual installments and with
interest set at comparable treasury rates plus 1.0%.

F-8

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Patronage dividend

Patronage dividends related to the year ended December 31, 2003 were
$18,269, as TruServ retained the $3,000 gain relating to insurance proceeds in
2003 in order to cover a portion of the adjustment between the loss allocation
account and retained deficit account in connection with the Settlement of the
Derivative action. Approximately $8,983 or 49% of the dividend will be paid in
cash, which was 30% of the dividend before the net effect of the refinancing of
the revolving credit facility, senior notes and synthetic lease obligation ("the
Senior Debt"). TruServ By-Laws and the Internal Revenue Service (the "IRS")
require that the payment of at least 20% of patronage dividends be in cash.
TruServ will pay the remainder through the issuance of TruServ's Redeemable
Class B non-voting common stock and, to those members who have loss allocation
accounts, offset against those accounts. Patronage dividends of $20,541 related
to the year ended December 31, 2002 were paid in March, 2003; approximately 30%
of which were paid in cash. TruServ paid the remainder through the issuance of
TruServ's Redeemable Class B non-voting common stock, and offsetting that
against the loss allocation accounts of those members that had such accounts. No
patronage dividends were declared for the year ended December 31, 2001, as
TruServ incurred a loss for the year 2001 that was retained on the books of
TruServ. The Redeemable Class B non-voting common stock issued for the December
31, 2003 and 2002 patronage dividend have been designated as qualified notices
of allocation and, in certain cases, for the December 31, 2002 patronage
dividend, a small portion of the dividend was paid by means of Promissory
(Subordinated) Notes of TruServ.

Moratorium

In March 2000, the board of directors of TruServ declared a moratorium on
redemptions of the capital stock. In reaching its decision to declare the
moratorium, the board of directors of TruServ reviewed the financial condition
of TruServ and considered its fiduciary obligations and corporate law principles
under Delaware law. The board of directors concluded that it should not redeem
any of the capital stock (which TruServ's By-laws required to be redeemed at par
value) while its net asset value was substantially less than par value, as that
would likely violate legal prohibitions against "impairment of capital." In
addition, the board of directors concluded that it would be a violation of its
fiduciary duties to all members and that it would constitute a fundamental
unfairness to members if some members were allowed to have their shares redeemed
before the 1999 loss was allocated to them and members who did not request
redemption were saddled with the losses of those members who requested
redemption. Moreover, the board of directors considered TruServ's debt
agreements in existence at that time and, in particular, the financial covenants
thereunder, which prohibit redemptions when TruServ, among other things, did not
attain certain profit margins.

F-9

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares at par value. Nevertheless, the board of directors concluded that its
fiduciary obligations to TruServ and its members would not permit it to effect
redemptions under the circumstances described above. After the board of
directors declared the moratorium, the board of directors amended the By-Laws to
provide that if TruServ's funds available for redemption are insufficient to pay
all or part of the redemption price of shares of capital stock presented for
redemption, the board of directors may, in its sole discretion, delay the
payment of all or part of the redemption price.

Loss allocation to members and Accumulated deficit

During the third quarter of 2000, TruServ management developed and the
board of directors approved a plan to equitably allocate to members the loss
incurred in 1999. This loss was previously recorded as a reduction of retained
earnings. TruServ has distributed the 1999 loss allocation among its members by
establishing a loss allocation account as a contra-equity account in the
consolidated balance sheet with the offsetting credit recorded to the
accumulated deficit account. The loss allocation account reflects the sum of
each member's proportionate share of the 1999 loss, after being reduced by
certain amounts that were not allocated to members. The allocation was generally
based on a member's proportionate equity investment relative to the total equity
investments of all the members, and therefore a member could not be allocated a
loss in excess of its equity investment. The loss allocation account will be
satisfied, on a member by member basis, by applying the portion of future
non-cash patronage dividends as a reduction to the loss allocation account until
fully satisfied. The loss allocation amount may also be satisfied, on a member
by member basis, by applying the par value of maturing member notes and related
interest payments as a reduction to the loss allocation account until such
account is fully satisfied. However, in the event a member should terminate as a
stockholder of TruServ, any unsatisfied portion of that member's loss allocation
account will be satisfied by reducing the redemption amount paid for the
member's stock investment in TruServ.

The board of directors determined that TruServ will retain the 2001 loss as
part of the accumulated deficit account. All or a portion of patronage income
and all non-patronage income, if any, may be retained in the future to reduce
the accumulated deficit account. TruServ has determined for each member that was
a stockholder in 2001, its share of the 2001 loss that has been retained in the
accumulated deficit account. The 2001 loss was allocated based upon both the
member's proportionate stock investment, net of any 1999 loss allocation
account, and also based on the member's purchases from the co-op in 2001. No
member was allocated a loss amount greater than its net equity investments held
as of year end 2001. In the event a member terminates its status as a
stockholder of TruServ, any remaining 2001 loss in the accumulated deficit
account that is allocable to the terminating member will be distributed to the
terminating member and satisfied by reducing the redemption amount paid for the
member's stock investment in TruServ.

A member's proportionate share of the 1999 and/or 2001 losses have been
limited to the extent of its equity investment in TruServ. Any portion of a loss
allocation that exceeds a member's equity investment is retained by TruServ in
the accumulated deficit account. All or a portion of patronage income and all
non-patronage income, if any, may be retained in the future to reduce the
accumulated deficit account.

F-10

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash equivalents

TruServ classifies all highly liquid investments 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 value. The lower of cost or market value considers
the estimated realizable value in the current economic environment associated
with disposing of surplus and/or damaged/obsolete inventories. TruServ
calculated the estimated realizable value based on an analysis of historical
trends related to its distressed inventory. In its analysis, TruServ considers
historical data on its ability to return inventory to suppliers, to transfer
inventory to other distribution centers, to sell inventory to members through
the price reduction process and to sell remaining inventory to liquidators. The
cost of inventory also includes indirect costs (such as logistics,
manufacturing, freight-in, vendor rebates and support costs) incurred to bring
inventory to its existing location for resale. These indirect costs are treated
as product costs, classified in inventory and subsequently recorded as cost of
revenues as the product is sold (see Note 2, "Inventories").

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 and software -- 3 to 10 years; transportation
equipment -- 3 to 12 years; and leasehold improvements -- the lesser of the life
of the lease, without regard to options for renewal, or the useful life of the
underlying property.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets
acquired and this amount was amortized using the straight-line method over 40
years. In January 2002, TruServ adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changed the accounting for goodwill and certain
other intangible assets from an amortization method to an impairment only
approach. In accordance with the adoption of SFAS No. 142, TruServ stopped
amortizing goodwill at the beginning of 2002. TruServ has completed its annual
impairment assessment at the end of the year as required by SFAS No. 142 and has
determined that no impairment exists. The reported Net margin/(loss), Goodwill
amortization and the resulting adjusted Net margin/(loss) are as follows:

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2003 2002 2001
------- ------- --------
($ IN THOUSANDS)

Reported Net margin/(loss)............................. $21,221 $21,153 $(50,687)
Add back: Goodwill amortization........................ -- -- 2,577
------- ------- --------
Adjusted Net margin/(loss)............................. $21,221 $21,153 $(48,110)
======= ======= ========
</Table>

Goodwill amortization related to the hardware segment for 2001 was $2,210.
Goodwill amortization related to the paint segment for 2001 was $367. At
December 31, 2003 and 2002, Goodwill was comprised of $78,429 for the hardware
segment and $13,045 for the paint segment.

Conversion funds

In connection with the Merger, TruServ made funds available to the members
to defray various conversion costs (i.e., costs to change store signage and
branding to True Value) associated with the Merger

F-11

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and costs associated with certain upgrades and expansions of their stores. The
total amount of funds distributed was $27,175 for these conversion costs. The
funds are amortized over a 5 year period, the period of time during which
members committed to stay with TruServ. The annual amortization expense for
2003, 2002 and 2001 was $4,060, $6,056, and $5,747, respectively. The
unamortized balance at December 31, 2003 was approximately $1,036. The members
agree to refund to TruServ all or a portion of the conversion funds in the event
they defaulted on their obligations to TruServ or terminated their membership
during the five years following the date of the agreement. TruServ has written
off to expense uncollected amounts pursuant to these arrangements.

Asset impairment

For purposes of determining impairment, management reviews long-lived
assets based on a geographic region or a revenue producing activity, as
appropriate. The impairment 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) are not sufficient
to recover the carrying value of the long-lived assets of the region or
activity, such assets would be determined to be impaired and would be written
down to their fair value. In 2003, TruServ recorded asset impairment charges of
$2,005 relating primarily to equipment at the East Butler, Pennsylvania
facility. In 2002, TruServ recorded asset impairment charges that netted to
$470, consisting of a $1,769 charge relating to the East Butler, Pennsylvania
facility. TruServ offset this amount by a $1,299 reduction of asset impairment
charges, consisting predominately of a favorable adjustment to the asset value
for the closing of the Brookings, South Dakota distribution center based on
actual proceeds received on the sale of this facility in 2002. In 2001, TruServ
recorded asset impairment charges aggregating $8,899 related to its Brookings,
South Dakota distribution center, which was subsequently sold, and certain
equipment at its leased Hagerstown, Maryland distribution center.

Revenue recognition

TruServ's policy is to recognize revenues from product sales and services
when earned, in accordance with SEC Staff Accounting Bulletin ("SAB") No. 104.
Specifically, product revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable,
and collectibility is reasonably assured. Revenue is not recognized until title
and risk of loss have transferred to the customer, which is upon delivery of
products. Provisions for discounts, rebates to customers, and returns are
provided for at the time the related sales are recorded, and are reflected as a
reduction of sales. Service revenue is comprised of advertising and
transportation and amounted to $58,131 and $49,305 for 2003, respectively,
$69,463 and $52,665 for 2002, respectively, and $77,419 and $56,978 for 2001,
respectively. Advertising revenue is recognized when the underlying
advertisement is run or when the related circulars are dropped. Transportation
revenue is recognized when the services are provided. Effective for arrangements
with vendors initiated on or after January 1, 2003 and in accordance with EITF
Issue No. 02-16 "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor," consideration received from vendors that
was previously classified as advertising revenue is applied as a decrease in the
price paid for inventory and is recognized in cost of sales as the related
inventory was sold.

Advertising expenses

Amounts billed to members for advertising are included in revenues.
Advertising costs are expensed in the period the advertising takes place. Such
costs amounted to $44,817, $56,407 and $59,275 in 2003, 2002 and 2001,
respectively, and are included in Cost of revenues.

F-12

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization of financing fees

Amounts paid for financing fees incurred in connection with TruServ's
financing arrangements are capitalized and amortized to interest expense over
the remaining lives of the underlying financing agreements. During the third
quarter of 2003, TruServ expensed the financing fees related to the Senior Debt
as a result of refinancing the Senior Debt with a new asset-based revolving
credit facility ("Bank Facility"). The costs incurred in the fourth quarter of
2001 for an asset-based lending refinancing that TruServ was then considering
were expensed in the fourth quarter of 2001, when TruServ determined that it
would instead amend its existing debt agreements. TruServ purchased interest
rate caps in 2003 that limit its risk on $25,000 of variable rate debt for the
entire term of the Bank Facility to a maximum underlying LIBOR rate of 3.5%,
which represents approximately 2.25% increase over current LIBOR. This interest
rate cap instrument is considered speculative and is carried at current market
value.

Repairs and maintenance expense

Expenditures which extend the useful lives of TruServ's property and
equipment are capitalized and depreciated on a straight line basis over the
remaining useful lives of the underlying assets. Otherwise, repair and
maintenance expenditures are expensed as incurred.

Research and development costs

Research and development costs related to TruServ's manufacturing
operations are expensed as incurred. Such costs amounted to $911, $941 and
$1,003 in 2003, 2002 and 2001, respectively, and are included in Logistic and
manufacturing expenses.

Shipping and handling costs

Amounts billed to members for shipping and handling costs are included in
Revenues. Amounts incurred for shipping and handling are included in Cost of
revenues.

Income taxes

Deferred tax assets and liabilities are determined based on the differences
between the amounts shown on the financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. At December 31, 2003, TruServ concluded
that, based on the weight of available evidence, it is more likely than not that
the deferred tax assets will not be realized, and that a full valuation
allowance is required. Deferred tax assets will only be realized to the extent
future earnings are retained by TruServ and not distributed to members as
patronage dividends.

Per share information

There is no existing market for the TruServ common stock and there is no
expectation that any market will develop. TruServ's Redeemable Class A voting
common stock is owned by members and former members whose stock has not yet been
redeemed as a result of the moratorium. TruServ's Redeemable Class B non-voting
common stock now outstanding was issued to members in partial payment of the
annual patronage dividend. Accordingly, no earnings per share information is
presented in the consolidated financial statements.

Retirement plans

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

F-13

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair value of financial instruments

The carrying amounts of TruServ's financial instruments, which were
comprised primarily of accounts and notes receivables, accounts payable,
short-term borrowings, long-term debt and promissory (subordinated) and
installment notes, approximate fair value. Fair value was estimated using
discounted cash flow analyses, based on TruServ's incremental borrowing rate for
similar borrowings. The carrying amount of debt and credit facilities
approximate fair value due to their stated interest rates approximating market
rates. These estimated fair value amounts have been determined using available
market information or other appropriate valuation methodologies.

Concentration of credit risk

Credit risk pertains primarily to TruServ's trade receivables. TruServ
extends credit to its members as part of its day-to-day operations. TruServ
believes that as no specific receivable or group of receivables comprises a
significant percentage of total trade accounts, its risk with respect to trade
receivables is limited. Additionally, TruServ's management believes that its
allowance for doubtful accounts is adequate with respect to member credit risks.
Also, the Certificate of Incorporation and By-Laws specifically provide that
TruServ may set off its obligation to make any payment to a member for such
member's stock, notes, interest and declared and unpaid dividends against any
obligation owed by the member to TruServ. TruServ exercises these set off rights
when its notes and interest become due to former members with outstanding
accounts receivable to TruServ and current members with past due accounts
receivable to TruServ.

Use of estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

New accounting pronouncements

In the third quarter of 2003, TruServ adopted SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. Adoption of this standard impacted the classification in the
Consolidated Balance Sheet of Promissory (subordinated) and installment notes,
net of current portion; Redeemable nonqualified Class B non-voting common stock;
and stock presented for redemption but deferred due to the moratorium.
Promissory (subordinated) and installment notes, net of current portion, which
are notes with three-year duration with current owners of TruServ's Class A
common stock, are now included in Long-term debt. Promissory (subordinated) and
installment notes, net of current portion previously were recorded under the
caption of Members' capitalization. Redeemable nonqualified Class B non-voting
common stock is now included in long-term liabilities as these shares of stock
have a planned redemption schedule. Redeemable nonqualified Class B non-voting
common stock previously was recorded under the caption of Members' equity.
Redeemable nonqualified Class B non-voting common stock has a planned redemption
schedule of at least 10% of the shares by December 31, 2011; at least 40% of the
shares by December 31, 2019 and all of the shares by December 31, 2029. Shares
of stock presented for redemption but deferred due to the moratorium are now
included in long-term liabilities in Deferred stock redemptions. Deferred stock
redemptions contain the par value of Redeemable Class A voting common stock,
Redeemable Class B non-voting common stock that is qualified and Redeemable
nonqualified Class B non-voting common stock reduced by the legal right of
offsets from the Loss allocation, Accumulated deficit and Accounts receivable
accounts for each shareholder who has presented their stock for redemption but
has been deferred due to the moratorium. These amounts were recorded in each of
the respective categories. As of December 31, 2003, the aggregate value of the
terminated

F-14

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

members' equity investments presented for redemption but deferred due to the
moratorium was approximately $33,725, after the offset of the loss allocations
resulting from the 1999 loss, the 2001 loss and accounts receivable owed by the
former members. TruServ's By-Laws allow it to offset amounts due by its members
against amounts that it pays to the members on redemption of their stock.
According to TruServ's By-Laws, the Redeemable Class A voting common stock and
the Redeemable nonqualified Class B common stock are paid out at the time of
redemption. Redeemable Class B non-voting common stock that is qualified has
historically been paid out by means of a five-year subordinated installment
note, which has the first installment due at the end of the calendar year of the
time of redemption. On a member by member basis, the net amount of $33,725 owed
to terminated members would be payable approximately $7,458 at the time of
redemption, and $26,267 in five-year installment notes. Additionally, adoption
of this standard did not have a material impact on TruServ's results of
operations or cash flow.

F-15

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES

Inventories consisted of the following at December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Manufacturing inventories:
Raw materials............................................. $ 1,979 $ 1,473
Work-in-process and finished goods........................ 15,655 19,655
Manufacturing inventory reserves.......................... (258) (1,297)
-------- --------
17,376 19,831
-------- --------
Merchandise inventories:
Warehouse inventory....................................... 265,809 223,754
Merchandise inventory reserves............................ (6,460) (9,137)
-------- --------
259,349 214,617
-------- --------
$276,725 $234,448
======== ========
</Table>

The amount of indirect costs included in ending inventory at December 31,
2003 and 2002 was $18,386 and $15,753, respectively. Indirect costs incurred for
2003 and 2002 were $95,403 and $95,865, respectively.

3. PROPERTIES

Properties consisted of the following at December 31:

<Table>
<Caption>
2003 2002
--------- ---------
($ IN THOUSANDS)

Buildings and improvements.................................. $ 81,723 $ 80,016
Machinery and warehouse equipment........................... 81,142 89,284
Office and computer equipment............................... 155,022 156,961
Transportation equipment.................................... 35,416 36,389
--------- ---------
353,303 362,650
Less accumulated depreciation............................... (283,233) (274,519)
--------- ---------
70,070 88,131
Land........................................................ 2,985 2,985
--------- ---------
$ 73,055 $ 91,116
========= =========
</Table>

Depreciation expense for 2003, 2002 and 2001 was $22,000, $28,795 and
$33,195, respectively.

F-16

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. DEBT AND BORROWING ARRANGEMENTS

Long-term debt consisted of the following at December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Revolving credit facility................................... $ -- $ 27,852
Senior Notes................................................ -- 158,920
Bank Facility............................................... 131,600 --
Redeemable (subordinated) term notes:
Fixed interest rates ranging from 6.68% to 7.79%.......... -- 3,296
Capital lease obligations................................... 823 1,247
-------- --------
Total third party debt and borrowings.................. 132,423 191,315
Promissory (subordinated) and installment notes:
Fixed interest rates ranging from 5.74% to 10.0%(1)....... 59,859 --
-------- --------
192,282 191,315
Less amounts due within one year............................ (91,958) (66,294)
-------- --------
$100,324 $125,021
======== ========
</Table>

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

(1) At December 31, 2002 the promissory (subordinated) and installment notes had
a balance of $64,886. The long term portion of $43,531 was classified in
capitalization, but with the adoption of SFAS 150 in 2003 the 2003 balance
was classified in Debt. See "New Accounting Pronouncements" under Footnote
1, "Description of Business and Accounting Policies" for additional
information. Of the $64,886, the amount due within one year of $21,355 was
classified in Current maturities of long-term debt, notes, borrowings and
capital lease obligations.

At December 31, 2003, TruServ had $131,600 in Bank Facility borrowings with
a weighted average interest rate on these borrowings of 4.16%. The amount of
$71,600 of the Bank Facility borrowings is included in Current maturities of
long-term debt, notes, borrowings and capital lease obligations and the
remaining $60,000 is included in Long-term debt, notes and capital lease
obligations, less current maturities. Based on TruServ's projection of seasonal
working capital needs, the amount classified as Long-term debt, notes and
capital lease obligations, less current maturities represents the expected
lowest level of borrowings during the next twelve months. At December 31, 2002,
TruServ had outstanding borrowings under its revolving credit facility of
$27,852, which was included in Current maturities of long-term debt, notes,
borrowings and capital lease obligations and had a weighted average interest
rate of 10.61%.

BANK FACILITY

On August 29, 2003, TruServ entered into a new four-year $275,000 Bank
Facility. The Bank Facility was used to refinance the Senior Debt. Under the
terms of the Bank Facility agreement, the interest rate is variable at TruServ's
option of LIBOR plus 2.25% or prime plus 0.25%. As of December 31, 2003, this
interest rate is 3.58%. The unused commitment fee is 0.375%. Letters of credit
issued under the Bank Facility have a fee of 2.25%. The Bank Facility pricing
includes a performance grid based upon a fixed charge coverage ratio, measured
quarterly beginning in March 2004.

The Bank Facility has no financial covenants unless daily average excess
availability for the last 60 days of each quarter drops below $35,000. If the
average is below $35,000, TruServ is subject to a fixed charge coverage ratio of
1.1 to 1. As of December 31, 2003, TruServ's average excess availability for the
last 60 days was greater than $35,000 and TruServ is therefore not subject to
the fixed charge coverage ratio test.

F-17

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, TruServ is required to maintain $15,000 of excess availability at
all times. TruServ is in compliance with this requirement and is in compliance
with all terms and conditions of the Bank Facility. Availability is defined as
the lesser of $275,000 or the calculated collateral value of eligible assets
less the outstanding borrowings, letters of credit and reserves against
availability that may be imposed at the reasonable discretion of the lenders.
Availability at December 31, 2003 less outstanding borrowings of $131,600 and
letter of credit and reserves of $13,221 was $122,760.

Substantially all of the assets of TruServ and a pledge of 100% of the
stock of TruServ's subsidiaries collateralize the Bank Facility. Borrowings
under the Bank Facility are subject to borrowing base limitations that fluctuate
in part with the seasonality of the business. Additionally, the qualification of
accounts receivable and inventory items as "eligible" for purposes of the
borrowing base is subject to unilateral change in the discretion of the lenders.
The borrowing base is calculated as follows:

i. 85% of eligible accounts receivable, plus

ii. the lesser of 65% of the value of eligible inventory, 85% of the
net orderly liquidation value of inventory, or $160,000, plus

iii. a fixed asset sublimit, calculated as the lesser of $25,000 or
65% of the fair value of certain real estate, and 80% of orderly
liquidation value of certain machinery and equipment. The sublimit is
subject to a seven-year amortization for the portion predicated on
machinery and equipment and a ten-year amortization for the portion
predicated on real estate.

The Bank Facility imposes certain limitations on and requires compliance
with covenants from TruServ that are usual and customary for similar asset-based
revolving credit facilities. Unless such terms and conditions are waived by a
majority of the lenders, these terms and conditions include, among other things:

i. limitations on additional lease transactions, additional
third-party and subordinated debt, the granting of certain liens and
guarantees, capital expenditures and cash dividend payments and
distributions;

ii. restrictions on mergers, investments, transactions with related
parties, acquisitions and changes in corporate control; and

iii. periodic financial and collateral reporting requirements.

Fees paid for closing the Bank Facility totaled $3,752 and these fees are
being amortized by TruServ over the four-year term. Upon entering into the Bank
Facility, TruServ incurred a net expense of $19,221 upon refinancing the Senior
Debt. The net expense consisted of $26,927 of interest expense relating to the
write-off of old and new senior note make-whole obligations and prepaid bank
fees offset by $7,706 of other income relating to debt forgiveness for a portion
of the Senior Debt.

SENIOR DEBT

The Senior Debt was refinanced by the Bank Facility on August 29, 2003. On
December 30, 2002 and again on March 13, 2003, TruServ amended the Senior Debt
agreements in order to allow for a sale leaseback transaction that was completed
on December 31, 2002 and extend the maturity date of the Hagerstown facility's
synthetic lease obligation to the earlier of December 31, 2003 or a refinancing
of the revolving credit facility. TruServ applied the net proceeds of the sale
leaseback transaction, $121,438, to pay down the Senior Debt. The net reduction
in Senior Debt was $108,743, as a result of new make-whole notes of $12,695
issued due to the prepayment on senior notes.

F-18

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

revolving credit facility extended the term of the facility from June 2002 to
June 2004. The amount of the commitment at the time of amendment was $200,000.
The commitment under the revolving credit facility was permanently reduced by
the amount of any prepayments allocated to and paid on the revolving credit
facility.

The revolving credit facility commitment had been permanently reduced to
$143,200 at December 31, 2002 due to prepayments in 2002 from the proceeds of
asset sales. TruServ had available, under the revolving credit facility,
approximately $115,300 at December 31, 2002. As of December 31, 2002, this
facility had a interest rate of prime plus 3.25% which was 7.50%. The unused
commitment fee on this facility was 0.75%. The senior notes were paid in
connection with the refinancing of the Senior Debt. At December 31, 2002, the
senior notes consisted of $16,403 at 11.85%, $31,610 at 10.63%, $11,745 at
10.16%, $65,309 at 10.11% and $33,853 at 10.04%. The April 2002 Amendments to
Senior Debt also required initial, quarterly and annual maintenance fees, which
makes the aggregate weighted average borrowing rate 12.5% for all the costs
associated with the third party senior notes and revolving credit facility in
2002.

For 2002, cash proceeds from certain asset sales and notes receivable
totaling $157,312 was used to prepay all parties to the intercreditor agreement.
The intercreditor agreement established how the assets of TruServ, which were
pledged as collateral, were shared and how certain debt prepayments were
allocated among the senior lenders. For the year ended December 31, 2002, the
prepayments to senior note holders of $93,915 resulted in make-whole liabilities
of $18,710, which were recorded as additional debt with an offsetting entry to a
prepaid interest account. As previously described, the $12,695 of make-whole
notes from the sale leaseback transaction, is a component of the $18,710. The
prepaid interest account was amortized to interest expense over the remaining
life of the original notes.

REDEEMABLE (SUBORDINATED) TERM NOTES

The redeemable (subordinated) term notes have two to four year terms and
were issued in exchange for promissory (subordinated) notes that were held by
promissory note holders who do not own TruServ's Redeemable Class A voting
common stock. They were also available for purchase by investors that were
affiliated with TruServ. These notes were redeemed as of December 31, 2003 and
no additional notes will be issued.

PROMISSORY (SUBORDINATED) AND INSTALLMENT NOTES

Prior to 2001, 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 TruServ 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. TruServ anticipates that
this practice of extending notes, based on historical results will continue.

F-19

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Promissory (subordinated) and installment notes consisted of the following
as of December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Promissory (subordinated) notes:
Due on December 31, 2003 -- 7.90%......................... $ -- $ 19,413
Due on December 31, 2004 -- 9.00% to 10.00%............... 19,821 19,902
Due on December 31, 2005 -- 7.00% to 10.00%............... 23,463 23,565
Due on December 31, 2006 -- 6.00% to 9.00%................ 16,479 --
Installment notes at interest rates of 5.74% to 7.36% with
maturities through 2004................................... 96 2,006
-------- --------
59,859 64,886
Less amounts due within one year............................ (19,917) (21,355)
-------- --------
$ 39,942 $ 43,531
======== ========
</Table>

At December 31, 2002, the long term portion of $43,531 was classified in
capitalization, but with the adoption of SFAS 150 in 2003 the 2003 balance
$39,942 was classified in Debt. See "New Accounting Pronouncements" under
Footnote 1, "Description of Business and Accounting Policies" for additional
information. The amount due within one year for both years were classified in
Current maturities of long-term debt, notes, borrowings and capital lease
obligations.

Amounts shown below as scheduled repayments are the stated note amounts.
TruServ will seek members' consent in 2004 to extend the Promissory
(subordinated) note due dates at market competitive interest rates.

Principal payment schedule for long-term debt:

<Table>
<Caption>
2004 2005 2006 2007 2008 THEREAFTER
------- ------- ------- ------- ----- ----------
($ IN THOUSANDS)

Bank Facility (1)..................... $71,600 $ -- $ -- $60,000 $ -- $ --
Promissory (subordinated) and
installment notes................... 19,917 23,463 16,479 -- -- --
Capital lease obligations............. 464 358 85 -- -- --
------- ------- ------- ------- ----- -----
Total................................. $91,981 $23,821 $16,564 $60,000 $ -- $ --
======= ======= ======= ======= ===== =====
</Table>

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

RESTRICTED CASH

TruServ had no restricted cash at December 31, 2003 compared to restricted
cash of $15,755 at December 31, 2002. The Bank Facility secures $12,221 of
letters of credit at December 31, 2003, as a reduction against borrowing
availability, whereas at year end 2002, $11,691 of letters of credit, had been
collaterallized with restricted cash. The remaining $4,064 of restricted cash at
December 31, 2002, primarily related to securing banking and cash management
deposit requirements, was eliminated as a result of the refinancing of the
Senior Debt.

5. LEASE COMMITMENTS

TruServ is a lessee of distribution centers, office space, and computer and
transportation equipment under operating and capital leases. The following is a
schedule of future minimum lease payments under capital and

F-20

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

long-term non-cancelable operating leases (including sale leasebacks accounted
for as financing), together with the present value of the net minimum lease
payments under capital leases, as of December 31, 2003:

<Table>
<Caption>
CAPITAL OPERATING
------- ---------
($ IN THOUSANDS)

2004........................................................ $464 $ 32,623
2005........................................................ 358 28,021
2006........................................................ 85 24,379
2007........................................................ -- 22,901
2008........................................................ -- 22,629
Thereafter.................................................. -- 238,748
---- --------
Net minimum lease payments.................................. 907 $369,301
========
Less amount representing interest........................... (85)
----
Present value of net minimum lease payments................. 822
Less amount due within one year............................. (441)
----
$381
====
</Table>

Minimum annual operating lease payments as shown have been reduced by
$5,465 from future sublease rentals due over the term of the subleases, and
include estimated payments for operating costs and real estate taxes due to the
lessor, where applicable.

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 the lessor's
book value at the expiration of the lease term.

Rent expense under operating leases (reduced by sublease rentals) was
$36,366, $25,436 and $25,338 for the years ended December 31, 2003, 2002 and
2001, respectively. The increase in rent in 2003 was due to the rental payments
generated by the sale leaseback transaction of seven of TruServ's distribution
centers.

6. COMMITMENTS AND CONTINGENCIES

TruServ provides guarantees for certain member loans, but is not required
to provide a compensating balance for the guarantees. TruServ is required to pay
off a portion of the full amount of these loans under these guarantees, ranging
from 15% - 50% of the member's outstanding balance, in the event that a member
defaults on its loan, after which the member will be liable to TruServ for the
guaranteed amount. The amount of the guaranteed portion of these member loans,
which is not recorded in TruServ's balance sheet, was approximately $796 and
$2,172 as of December 31, 2003 and 2002, respectively. The balance of $796 as of
December 31, 2003 includes approximately $270 that will mature in 2004. The
remaining guarantees will expire periodically through 2013. TruServ carries a
reserve of $82 relating to these guarantees.

Additionally, TruServ sold certain member note receivables to a third party
in 2002 which it has fully guaranteed. TruServ is required to pay 100% of the
outstanding balance of these member notes under these guarantees in the event
that a member defaults on its notes, after which the member will be liable to
TruServ for the guaranteed amount. The balance of these notes at December 31,
2003 was $515. TruServ has recorded a liability and related receivable for $515
relating to these member notes, and carries a $51 reserve relating to these
guarantees. The balance of $515 as of December 31, 2003 includes approximately
$233 that will mature in 2004. The remaining guarantees will expire periodically
through 2007.

F-21

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TruServ has a lifetime warranty or a customer satisfaction guarantee on the
majority of its TruTest paint products, which covers only replacement material.
TruServ has historically experienced minimal returns on these warranties and
guarantees and has determined any related liability to be immaterial.

TruServ is involved in various claims and lawsuits incidental to its
business. The following significant matters existed at December 31, 2003:

BESS ACTION

In May 2000, TruServ filed a complaint in the Circuit Court of McHenry
County, Illinois against Bess Hardware and Sports, Inc., ("Bess") to recover an
accounts receivable balance in excess of $400. Bess filed a counterclaim,
seeking a setoff against its accounts receivable balance for the par redemption
value of Bess's shares of TruServ Stock. Bess contested the validity of a March
17, 2000 corporate resolution declaring a moratorium on the redemption of all
TruServ capital stock, as well as an allocation of Bess' proportionate share of
the loss, which TruServ declared for its fiscal year 1999. On August 2, 2003,
the Circuit Court entered judgment in favor of TruServ on its accounts
receivable claim in the amount of $391,683.01, and entered judgment in favor of
Bess on its counterclaim. Bess did not appeal the judgment on the accounts
receivable claim. TruServ appealed the judgment on Bess's counterclaim. On
January 21, 2004, the Second District of the Illinois Appellate Court issued a
decision reversing the portion of the Circuit Court's ruling that had refused to
enforce the Moratorium. In validating the Moratorium, the Second District found
that TruServ's capital was impaired, and held that TruServ "was prohibited from
immediately remitting the redemption price for [Bess's] TruServ stock." The
Second District also held that as of April 10, 2000 -- the effective date of the
termination of Bess's membership -- Bess ceased to be a TruServ stockholder and
thus was not subject to the loss allocation plan passed by resolution of the
TruServ board of directors on August 29, 2000. On February 9, 2004, Bess filed a
Petition For Rehearing in the Second District of the Illinois Appellate Court.
The petition is pending.

KENNEDY ACTION

In June 2000, various former members of TruServ filed an action against
TruServ in the Circuit Court of the 19th Judicial Circuit (McHenry County,
Illinois) (the "Kennedy action"). The plaintiffs in the Kennedy action each
allege that, based upon representations made to them by TruServ and its
predecessors that the Coast to Coast brand name would be maintained, they voted
for the merger of ServiStar/Coast to Coast and Cotter & Company. The plaintiffs
allege that after the merger, the Coast to Coast brand name was eliminated and
that each plaintiff thereafter terminated or had its membership in TruServ
terminated. The plaintiffs further claim that TruServ breached its obligations
by failing to redeem their stock and by creating loss allocation accounts for
the plaintiffs. The plaintiffs have each asserted claims for
fraud/misrepresentation, negligent misrepresentation, claims under the state
securities laws applicable to each plaintiff, claims under the state
franchise/dealership laws applicable to each plaintiff, breach of fiduciary
duty, unjust enrichment, estoppel and recoupment. Similar claims were filed
against TruServ as counterclaims to various complaints filed by TruServ in
McHenry County to recover accounts receivable balances from other former
members. Those claims were consolidated with the Kennedy action. In March 2001,
the Kennedy complaint was amended to add additional plaintiffs. Also in March
2001, another action was filed against TruServ on behalf of additional former
members, in the same court, by the same law firm (the "A-Z action"). The A-Z
complaint alleges substantially similar claims as those in the Kennedy action,
with the principal difference being that the claims relate to the elimination of
the ServiStar brand name. The Kennedy and A-Z actions have been consolidated for
purposes of discovery, which is ongoing. The plaintiffs seek damages for stock
repurchase payments, lost profits and goodwill, out of pocket expenses, attorney
fees and punitive damages. In July 2002, the plaintiffs in these consolidated
actions amended their complaints to name as defendant's two former officers of
TruServ.

F-22

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CLAIMS AGAINST ERNST & YOUNG LLP

TruServ is pursuing claims against its former outside auditors, Ernst &
Young LLP ("E&Y"), for professional malpractice, breach of contract, deceptive
business practices and fraud. TruServ contends that E&Y failed to properly
discharge its duties to TruServ and failed to identify, in a timely manner, and
indeed concealed, certain material weaknesses in TruServ's internal financial
and operational controls. As a result, TruServ was forced to make an
unanticipated accounting adjustment in the fourth quarter of 1999 in the total
amount of $121,333 (the "Fourth Quarter Charge"). As a result, TruServ reported
a net loss of $130,803 for the fiscal year ended December 31, 1999. It is
TruServ's belief that had E&Y properly discharged its duties, the scope and
breadth of the Fourth Quarter Charge, as well as the accounting and operational
control deficiencies that necessitated the charge, would have been substantially
lessened. As a result of E&Y's failures, TruServ has suffered significant
financial damages. The factual allegations that form the basis for TruServ's
claim against E&Y include, in part, the issues identified in the Securities and
Exchange Commission (the "Commission") cease and desist order described below.
TruServ began discussion of its claims with E&Y early in the fall of 2001.
Pursuant to the dispute resolution procedures required by TruServ's engagement
letter with E&Y, TruServ and E&Y attempted to mediate this dispute during the
first six months of 2002. When those attempts proved unsuccessful, and again
pursuant to the dispute resolution procedures, TruServ filed its claim with the
American Arbitration Association on July 31, 2002. The arbitration, which is
subject to certain confidentiality requirements, is currently pending. Hearings
are currently scheduled to begin in the spring of 2004. Recoveries under this
matter, if any, may be subrogated to the rights of TruServ's insurer to the
extent that it has made payments to or on behalf of TruServ associated with the
1999 loss.

OTHER MATTERS OF SIGNIFICANCE:

DERIVATIVE ACTION SETTLEMENT

In August 2000, an action was brought in Delaware Chancery Court (New
Castle County) by a former TruServ member ("Hudson City Properties") against
certain present and former directors and certain former officers of TruServ and
against TruServ. The complaint was brought derivatively on behalf of TruServ and
alleged that the individual defendants breached fiduciary duties in connection
with the accounting adjustments made by TruServ in the fourth quarter of 1999.
Hudson City Properties also sought to proceed on a class action basis against
TruServ on behalf of all those affected by the moratorium on stock redemption
and the creation of the loss allocation accounts. Hudson City Properties alleged
that TruServ breached, and the named directors caused TruServ to breach,
agreements with members by suspending payment of the members' 1999 annual
patronage dividend, by declaring the moratorium on the redemption of members'
TruServ stock and by imposing annual minimum purchase requirements upon members.
On May 12, 2003, the parties to this action signed a Stipulation of Settlement
resolving the lawsuit, subject to court approval. On May 15, 2003, the Delaware
Chancery Court entered an Order preliminarily approving the Settlement. The
Court conducted a Settlement Hearing on July 8, 2003, and approved the
Stipulation of Settlement as fair, reasonable, adequate and in the best interest
of TruServ and the class. On July 14, 2003, the Court entered a Final Order and
Judgment, dismissing the lawsuit with prejudice. The Stipulation of Settlement
became final and binding 30 days after the date the Final Order and Judgment was
entered. Under the terms of the Stipulation of Settlement, at such time as
TruServ's board of directors determines that it is in the best interests of
TruServ to lift the moratorium on stock redemptions, the loss allocation
accounts for all current and former members who are parties to the Stipulation
of Settlement will be reduced by approximately $5 million on a pro rata basis as

F-23

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

more fully described in the Stipulation of Settlement agreement. TruServ's
insurance carrier provided the majority of the settlement. Additionally, all of
the current and former members who participated in the Stipulation of Settlement
released TruServ and its current and former officers and directors from any
liability with respect to the moratorium on stock redemptions and the creation
of the 1999 loss allocation accounts.

TRUSERV ORDER

F-24

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

Income tax expense consisted of the following for the years ended December
31:

<Table>
<Caption>
2003 2002 2001
---- ---- ------
($ IN THOUSANDS)

Current:
Federal................................................... $ -- $ -- $ 203
State..................................................... 333 259 194
Foreign................................................... -- -- 641
---- ---- ------
Total current.......................................... 333 259 1,038
---- ---- ------
Deferred:
Federal................................................... -- -- --
State..................................................... -- -- --
Foreign................................................... -- -- 339
---- ---- ------
Total deferred......................................... -- -- 339
---- ---- ------
$333 $259 $1,377
==== ==== ======
</Table>

TruServ operates as a nonexempt cooperative and is allowed a deduction in
determining its taxable income for amounts paid as qualified patronage dividends
based on margins from business done with or on behalf of 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%
was as follows for the years ended December 31:

<Table>
<Caption>
2003 2002 2001
------- ------- --------
($ IN THOUSANDS)

Tax at U.S. statutory rate............................. $ 7,544 $ 7,494 $(19,224)
Effects of:
Patronage dividend................................... (6,656) (7,189) --
State income taxes, net of federal benefit........... 216 168 126
(Decrease)/increase in valuation allowance........... (1,090) (353) 18,353
Non-deductible goodwill.............................. -- -- 902
Other, net........................................... 319 139 1,220
------- ------- --------
$ 333 $ 259 $ 1,377
======= ======= ========
</Table>

Deferred income taxes reflect the net tax effects to TruServ of its net
operating loss carryforwards, which expire in years through 2023; alternative
minimum tax credit carryforwards, which do not expire, nonqualified notices of
allocations, which are deductible when redeemed and 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. The deferred
tax effect of the net operating loss carryforward was reduced in 2003 by $8,136.
This reduction is attributable to the net effect of a $14,185 decrease
attributable to amounts to be charged against members' loss allocation accounts
partially offset by a $6,049 increase primarily in other deferred tax assets and
liabilities.

Total deferred tax assets net of deferred tax liabilities have a full
valuation allowance because TruServ has concluded that, based on the weight of
available evidence, it is more likely than not that the deferred tax assets will
not be realized. Deferred tax assets will only be realized to the extent future
earnings are taxable to TruServ and not allocated to members as tax-deductible
patronage dividends.

F-25

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of TruServ's deferred tax assets and liabilities
were as follows for the years ended December 31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards.......................... $ 20,228 $ 28,364
AMT credit carryforward................................... 784 784
Nonqualified notices of allocation........................ 13,548 13,548
Bad debt provision........................................ 3,358 3,421
Vacation pay.............................................. 3,027 2,889
Contributions to fund retirement plans.................... 6,126 3,051
Deferred gain............................................. 21,114 25,026
Severance and restructuring costs......................... 150 6,846
Rent expense.............................................. 2,706 2,714
Merger-related valuations and accruals.................... -- 1,861
Inventory capitalization.................................. 1,237 3,126
Other..................................................... 9,454 6,055
-------- --------
Total deferred tax assets................................... 81,732 97,685
Valuation allowance for deferred tax assets................. (79,521) (94,952)
-------- --------
Net deferred tax assets..................................... 2,211 2,733
-------- --------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation........... 1,080 1,602
Other..................................................... 1,131 1,131
-------- --------
Total deferred tax liabilities.............................. 2,211 2,733
-------- --------
Net deferred taxes.......................................... $ -- $ --
======== ========
</Table>

8. SUPPLEMENTAL CASH FLOW INFORMATION

The patronage dividend and promissory (subordinated) and redeemable
(subordinated) term note renewals relating to non-cash operating and financing
activities were as follows for the years ended December 31:

<Table>
<Caption>
2003 2002 2001
------- ------- -------
($ IN THOUSANDS)

Patronage dividend payable in cash...................... $ 8,983 $ 6,121 $ (976)
Accrued expenses........................................ (500) (245) (569)
Promissory (subordinated) notes......................... (846) (4,324) (5,888)
Redeemable Class B non-voting common stock.............. 2,315 2,497 --
Installment notes....................................... (12) (34) (50)
Loss allocation......................................... 7,536 14,006 2,488
Accounts receivable..................................... 793 2,520 4,995
------- ------- -------
Patronage dividend.................................... $18,269 $20,541 $ --
======= ======= =======
Member note renewals and interest rollover.............. $16,479 $22,538 $21,936
======= ======= =======
</Table>

F-26

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TruServ may set off its obligation to make any payment to a member for such
member's stock, notes, interest and declared and unpaid dividends against any
obligation owed by the member to TruServ. TruServ exercised its set off rights
in 2003 and 2002 when patronage dividends were declared for members with loss
allocation accounts. Also TruServ exercised set off rights when TruServ notes
and interest came due to former members with outstanding accounts receivable to
TruServ and current members with past due accounts receivable to TruServ.
TruServ also set off its obligation to former members against their related loss
allocation balance. The set off rights were exercised in an aggregate amount of
$8,329 and $16,526 in 2003 and 2002, respectively, which decreased the loss
allocation account by $7,536 and $14,006 in 2003 and 2002, respectively, and
accounts receivable by $793 and $2,520 during 2003 and 2002. The amount of $330
of the offset to accounts receivable in 2003 was generated from the payment of
the 2002 patronage dividend in 2003, which reduced the cash payment from $6,121
to $5,791.

In 2001, TruServ also exercised its set off rights when TruServ notes and
interest came due to former members with outstanding accounts receivable to
TruServ and current members with past due accounts receivable to TruServ.
TruServ also set off its obligation to former members against their related loss
allocation balance. The set off rights were exercised in an aggregate amount of
$7,483, which decreased the loss allocation account by $2,488 and accounts
receivable by $4,995 during 2001. The amount of $976 of the offset to accounts
receivable was generated from the payment of the 2000 patronage dividend in
2001, which reduced the cash payment from $10,459 to $9,483.

TruServ's non-cash financing and investing activities in 2001 include
$1,300 related to a note received for the sale of its Indianapolis, Indiana
property.

Cash paid for interest during 2003, 2002 and 2001 totaled $27,496, $61,989,
and $59,048, respectively. Cash paid for income taxes during 2003, 2002 and 2001
totaled $285, $305 and $133, respectively.

9. BENEFIT PLANS

The change in the projected benefit obligation and in the plan assets for
TruServ administered pension plans were as follows for the years ended December
31:

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Change in projected benefit obligation:
Projected benefit obligation at beginning of year......... $ 64,728 $ 63,639
Service cost.............................................. 5,204 5,387
Interest cost............................................. 3,998 3,994
Benefit payments.......................................... (436) (416)
Actuarial losses.......................................... 9,202 5,273
Plan amendments........................................... 35 1
Curtailments.............................................. -- (1,301)
Settlements............................................... (10,067) (11,849)
-------- --------
Projected benefit obligation at end of year............... 72,664 64,728
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year............ 46,928 54,376
Actual return on assets................................... 10,664 (5,573)
Employer contributions.................................... 12,044 10,390
Benefit payments.......................................... (436) (416)
Settlements............................................... (10,067) (11,849)
-------- --------
Fair value of plan assets at end of year.................. 59,133 46,928
-------- --------
</Table>

F-27

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
2003 2002
-------- --------
($ IN THOUSANDS)

Reconciliation of funded status:
Funded status............................................. (13,531) (17,800)
Unrecognized transition asset............................. -- (104)
Unrecognized prior service cost........................... (3,946) (3,889)
Unrecognized actuarial loss............................... 26,402 28,176
-------- --------
Prepaid expense........................................... $ 8,925 $ 6,383
======== ========
</Table>

One of TruServ's pension plans is the supplemental retirement plan ("SRP"),
which is an unfunded unqualified defined benefit plan. The SRP had an
Accumulated Benefit Obligation of $4,717 and $4,195 as of December 31, 2003 and
December 31, 2002, respectively. Since the SRP is an unfunded plan, there were
no plan assets at December 31, 2003 and December 31, 2002.

TruServ recorded in Deferred credits, for the SRP plan, an additional
minimum pension liability of $5,096 and $4,880 as of December 31, 2003 and
December 31, 2002, respectively, which represents the amount by which the
accumulated benefit obligation exceeded the fair value of plan assets plus the
previously recognized prepaid asset. The additional liability has been offset by
an intangible asset, which is included in Other assets, to the extent of
previously unrecognized prior service cost. The amount in excess of previously
unrecognized prior service cost of $1,979 and $1,153 at December 31, 2003 and
December 31, 2002 is recorded as a reduction of Members' equity in Accumulated
other comprehensive loss.

TruServ has a prepaid pension expense for both plans of $8,925 and $6,383
at December 31, 2003 and 2002, respectively. The prepaid pension expense at
December 31, 2003 and December 31, 2002 is classified in "Other current assets."

The components of net periodic pension cost for TruServ administered
pension plans were as follows for the years ended December 31:

<Table>
<Caption>
2003 2002 2001
------- ------- -------
($ IN THOUSANDS)

Components of net periodic pension cost:
Service cost.......................................... $ 5,204 $ 5,387 $ 5,851
Interest cost......................................... 3,998 3,994 4,874
Expected return on assets............................. (4,344) (4,618) (5,986)
Amortization of transition assets..................... (105) (235) (311)
Amortization of prior service cost.................... 93 92 550
Amortization of actuarial loss/(gain)................. 902 182 278
Curtailment gain...................................... -- (1,641) --
Settlement loss/(gain)................................ 3,753 5,179 8,280
------- ------- -------
Net pension cost................................. $ 9,501 $ 8,340 $13,536
======= ======= =======
</Table>

F-28

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PLAN ASSETS

Plan assets consist primarily of publicly traded common stocks and
corporate debt instruments, and the split by asset category is as follows:

<Table>
<Caption>
ASSET CATEGORY 2003 2002
- -------------- ----- -----

Domestic Equities........................................... 64.8% 54.3%
Foreign Equities............................................ 9.1 7.9
Fixed Income................................................ 22.4 19.8
Property.................................................... 0.0 0.0
Cash........................................................ 3.7 18.0
Other....................................................... 0.0 0.0
----- -----
Total..................................................... 100.0% 100.0%
===== =====
</Table>

The target asset allocation of the plan assets is:

<Table>
<Caption>
TARGET ASSET CATEGORY
- ---------------------

Domestic Equities........................................... 65.0%
Foreign Equities............................................ 10.0
Fixed Income................................................ 25.0
Property.................................................... 0.0
Cash........................................................ 0.0
Other....................................................... 0.0
-----
Total..................................................... 100.0%
=====
</Table>

TruServ's SRP is not funded, and does not have any assets.

CONTRIBUTIONS

TruServ expects to contribute $6,500 to its qualified pension plan and
$1,550 to its SRP plan in 2004.

TruServ also participates in union-sponsored defined contribution plans.
Costs related to these plans were $59, $60 and $30 for 2003, 2002 and 2001,
respectively.

The assumptions used to determine TruServ's pension obligations for all
plans were as follows for the years ended December 31:

<Table>
<Caption>
2003 2002
---- ----

The basis used to determine the assumption of overall expected return on
assets was an analysis of the historical real (net of inflation) returns
beginning in 1926 for a portfolio consisting of 60% of large-cap US equities,
20% corporate bonds, 16% US government bonds, and 4% cash, a combination
intended to approximate TruServ's pension asset mix. Using the historical
returns over 30-year periods TruServ calculated the average returns for this
portfolio over 30-year periods, the calculated 25th and 75th percentile were
4.6% and 6.4%, respectively. With the inflation assumption (3.0%) and the
adjustment for expected fees paid from

F-29

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the pension trust (1.00%), the 25th and 75th percentile nominal yields are 6.6%
and 8.4%. The TruServ Corporation Defined Benefit Pension Plan assumes a rate of
return of 8.0%.

TruServ also maintains a defined benefit retirement medical plan for former
SCC employees who met certain age and service criteria that was frozen at the
time of the Merger. TruServ contributes $0.105 per month per person for such
employees who elect coverage for themselves and their dependents to a maximum of
$.210 per month per family. TruServ also maintains similar benefits for some
former SCC executives who were also defined as eligible for such coverage.

The change in the benefit obligation and in the plan's assets for TruServ's
post-retirement plan, as well as the components of net periodic post-retirement
benefit cost, was as follows for the years ended December 31:

<Table>
<Caption>
2003 2002
------- -------
($ IN THOUSANDS)

Change in benefit obligation:
Accumulated post-retirement benefit obligation at
beginning of year...................................... $ 6,266 $ 4,972
Interest cost............................................. 384 415
Claims paid............................................... (547) (597)
Actuarial losses.......................................... 427 1,476
------- -------
Accumulated post-retirement benefit obligation at end of
year................................................... 6,530 6,266
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year............ -- --
Employer contribution..................................... 547 597
Claims paid............................................... (547) (597)
------- -------
Fair value of plan assets at end of year.................. -- --
------- -------
Reconciliation of funded status:
Funded status............................................. (6,530) (6,266)
Unrecognized actuarial losses............................. 2,131 1,757
------- -------
Accrued expenses.......................................... $(4,399) $(4,509)
======= =======
</Table>

<Table>
<Caption>
2003 2002 2001
---- ---- ----
($ IN THOUSANDS)

Component of net periodic post-retirement benefit cost:
Interest cost............................................. $384 $415 $350
Amortization of (gain)/loss............................... 53 45 --
---- ---- ----
Net periodic benefit cost................................. $437 $460 $350
==== ==== ====
</Table>

CONTRIBUTIONS

TruServ expects to contribute $547 to its retirement medical plan to cover
the cost of premiums and subsidies during 2004.

<Table>
<Caption>
2003 2002
---- ----

Health care cost trend rate assumed for next year........... 5.0% 5.0%
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)..................................... 5.0% 5.0%
Year that the rate reaches the ultimate trend rate.......... 2003 2002
</Table>

F-30

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:

<Table>
<Caption>
ONE ONE
PERCENTAGE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
($ IN THOUSANDS)

Effect on total of service and interest cost............... $ 20 $ (17)
Effect on post-retirement benefit obligation............... 301 (259)
</Table>

On December 8, 2003 the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. In accordance with
FASB Staff Position No. FAS 106-1, TruServ has elected to defer accounting for
the effects of the Act until final authoritative guidance on the accounting for
the effect of the Act is issued. When final authoritative guidance is issued, it
could result in changes to the recorded liabilities.

TruServ also contributes to the TruServ Corporation Employee's Savings and
Compensation Deferral Plan (the "401k Plan"). Under the 401k Plan, each
participant may elect to contribute in an amount of up to 50% of the
participant's annual compensation, not to exceed $40 (including TruServ's
contributions) per year, of which $12, $11 and $10, respectively, of the
participant's salary in any year may be deferred. Effective July 1, 2000, the
401k Plan was amended to apply only a profit sharing match tied to TruServ's net
earnings. Participants did not earn a profit sharing match for 2001. In 2002,
the 401k Plan was changed to include a guaranteed match of one-third of a
participant's contribution up to a total of 2% of the participant's annual
compensation. Based on TruServ achieving certain financial goals, a match of
greater than one-third of a participant's contribution can be earned. For 2002,
a match equaling two-thirds of a participant's contribution, up to a total of 4%
of the participant's annual compensation, was earned and contributed to the
participants' accounts in March 2003. For 2003, a match equaling two-thirds of a
participant's contribution, up to a total of 4% of the participant's annual
compensation, was earned and will be funded by March 2004. TruServ recognized
costs of $ 2,928, $ 2,445 and $0 for 2003, 2002 and 2001, respectively, for the
401k Plan.

10. SEGMENT INFORMATION

TruServ is principally engaged as a wholesaler of hardware and related
products and is a manufacturer of paint products. TruServ identifies segments
based on management responsibility and the nature of the business activities of
each component of its business. TruServ measures segment earnings as operating
earnings including an allocation for interest expense and income taxes.
Information regarding the identified segments and the related reconciliation to
consolidated information are as follows:

<Table>
<Caption>
DECEMBER 31, 2003
--------------------------------------------
PAINT
MANUFACTURING CONSOLIDATED
HARDWARE AND DISTRIBUTION TOTALS
---------- ---------------- ------------
($ IN THOUSANDS)

Net sales to external customers....................... $1,921,448 $102,892 $2,024,340
Interest expense...................................... 48,339 9,184 57,523
Depreciation and amortization......................... 24,640 1,420 26,060
Segment net margin.................................... 13,025 8,196 21,221
Identifiable segment assets........................... 632,543 48,917 681,460
Expenditures for long-lived assets.................... 6,367 458 6,825
</Table>

F-31

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
DECEMBER 31, 2002
--------------------------------------------
PAINT
MANUFACTURING CONSOLIDATED
HARDWARE AND DISTRIBUTION TOTALS
---------- ---------------- ------------
($ IN THOUSANDS)

Net sales to external customers....................... $2,060,282 $115,169 $2,175,451
Interest expense...................................... 57,349 4,546 61,895
Depreciation and amortization......................... 33,409 1,442 34,851
Segment net margin.................................... 11,967 9,186 21,153
Identifiable segment assets........................... 652,815 50,556 703,371
Expenditures for long-lived assets.................... 12,061 777 12,838
</Table>

<Table>
<Caption>
DECEMBER 31, 2001
------------------------------------------------------------------------
PAINT ELIMINATION
MANUFACTURING OF INTERSEGMENT CONSOLIDATED
HARDWARE AND DISTRIBUTION CANADA ITEMS TOTALS
---------- ---------------- ------- --------------- ------------
($ IN THOUSANDS)

Net sales to external
customers.................... $2,404,553 $130,484 $84,397 $ -- $2,619,434
Intersegment sales............. -- 1,649 -- (1,649) --
Interest expense............... 58,967 3,819 487 -- 63,273
Depreciation and
amortization................. 39,344 1,671 504 -- 41,519
Segment net margin/(loss)...... (64,562) 12,826 1,049 -- (50,687)
</Table>

TruServ does not have a significant concentration of members in any
geographic region of the United States or in any foreign countries.

11. ASSET SALES

Effective October 22, 2001, TruServ sold its ownership interest in TruServ
Canada Cooperative, Inc. along with the headquarters and warehouse building and
other parcels of real estate to the current member group of the cooperative. Net
proceeds from the transaction were $9,654. TruServ recorded a net gain of $1,550
which is recorded in Gain on sale of assets.

In August 2002, TruServ sold its Brookings, South Dakota regional
distribution center to Rainbow Play Systems Properties of Brookings, LLC. The
net proceeds after all closing costs for this sale of $6,286 were distributed to
the senior lenders in the third quarter in accordance with the amended
intercreditor agreement to pay down short-term borrowings and prepay long-term
senior debt.

12. SALE LEASEBACK

F-32

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

City, Missouri to and now leases them from Hammer (DE) Limited Partnership. The
three limited partnerships are affiliated with W.P. Carey Investments, an
investment firm independent of TruServ. TruServ pays rent under each lease
quarterly in January, April, July and October. The aggregate annual rent
payments under all three leases for 2003, the first year of the lease, totals
$12,007. Rent payments under the leases increases 2% each year during the
initial 20 year lease term.

13. RESTRUCTURING CHARGES AND OTHER RELATED EXPENSES

Net restructuring and other related charges of $1,883 were incurred for
fiscal year ended December 31, 2003, of which $175 related to restructuring
costs, as detailed in the chart below; and $1,708 related to other
post-employment and asset impairment charges. Restructuring charges primarily
consisted of changes in amounts accrued for severance and exit costs at the
Hagerstown, Maryland distribution center and severance costs at TruServ's
corporate headquarters. Post employment and other asset impairment charges
consisted of $2,005 of asset impairment charges related primarily to additional
write-downs of equipment at the East Butler, Pennsylvania facility, offset by a
favorable adjustment of $297 resulting from changes in estimates to previously
accrued post-employment severance charges. During 2003, the largest component of
the use of reserves/cash disbursement was $9,254 related to the remaining lease
obligation to a third party, which was converted into a senior term loan and was
subsequently paid off as part of the refinancing arrangement on August 29, 2003
(see Note 4, "Debt and Borrowing Arrangements"), related buyouts of several
operating leases and a payback of a portion of an existing grant. Additionally,
during 2003, TruServ used previously established post-employment reserves of
$426, primarily related to severance payments for former associates at TruServ's
corporate headquarters and the Cary, Illinois facility.

In 2002, TruServ incurred restructuring and other related charges of
$6,284, of which $3,313 related to restructuring, and $2,971 related to other
post-employment and asset impairment charges. The restructuring charge of $3,313
in 2002 resulted from TruServ's continued workforce reductions initiated in 2000
and 2001 related to distribution center closures and workforce reductions in the
organization. This charge was comprised of $2,316 for severance and $2,296 for
facility exit costs, offset by a $1,299 reduction in asset impairment charges.
The severance charges of $2,316 primarily consisted of additional workforce
reductions at the corporate headquarters in Chicago, Illinois. The facility exit
costs of $2,296 related to exiting the Hagerstown, Maryland distribution center,
which was completed prior to December 31, 2002. The $1,299 reduction of asset
impairment charges consisted predominately of a favorable adjustment to the
asset value for the closing of the Brookings, South Dakota distribution center
based on actual proceeds received on the sale of this facility in

F-33

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002. The other charges of $2,971 consisted of $1,769 for asset impairment and
$1,202 for post-employment charges. The asset impairment charge of $1,769
related to the write-down of the East Butler, Pennsylvania facility. The
post-employment charge of $1,202 was comprised of $352 relating to severance
charges for the Cary, Illinois facility, and $850 relating to severance charges
for the corporate headquarters in Chicago, Illinois.

In 2001, TruServ recorded a charge to income of $38,522, of which $10,722
was for severance, $18,901 was for facility exit costs for the distribution
centers, and $8,899 was for asset impairments. The largest component of these
exit costs related to the Hagerstown, Maryland distribution center closure,
which was subject to a synthetic lease. The difference of approximately $14,800
between the lease obligation at December 31, 2001 of $40,000 and management's
estimate of the fair value of the building was the major component of its
facility exit costs in 2001. This obligation and the original cost of the
facility were not recorded on TruServ's balance sheet because it did not meet
the requirement for capital lease treatment under SFAS No. 13, "Accounting for
Leases."

Restructuring initiatives summary:

<Table>
<Caption>
DECEMBER 31, 2002 ADDITIONAL DECEMBER 31, 2003
RESTRUCTURING RESTRUCTURING RESTRUCTURING
RESERVE CHARGES PAYMENTS RESERVE
----------------- ------------- -------- -----------------
($ IN THOUSANDS)

Closure of Distribution Centers:
Severance and outplacement.............. $ 796 $ 13 $ (630) $179
Facility exit costs..................... 11,030 477 (11,507) --
----- -------- ----
-------
490 (12,137) 179
11,826
----- -------- ----
-------
Corporate headquarter workforce reduction:
Severance and outplacement.............. 3,445 (315) (2,574) 556
----- -------- ----
-------
Total:
Severance and outplacement.............. 4,241 (302) (3,204) 735
Facility exit costs..................... 11,030 477 (11,507) --
----- -------- ----
-------
$ 175 $(14,711) $735
$15,271
===== ======== ====
=======
</Table>

<Table>
<Caption>
DECEMBER 31, 2001 ADDITIONAL DECEMBER 31, 2002
RESTRUCTURING RESTRUCTURING ASSET RESTRUCTURING
RESERVE CHARGES IMPAIRMENTS PAYMENTS RESERVE
----------------- ------------- ----------- -------- -----------------
($ IN THOUSANDS)

Closure of Distribution Centers:
Severance and outplacement.... $ 2,958 $ 686 $ -- $ (2,848) $ 796
Facility exit costs........... 17,979 2,296 -- (9,245) 11,030
Asset impairments............. -- (1,299) 1,299 -- --
------- ------- ------- -------- -------
20,937 1,683 1,299 (12,093) 11,826
------- ------- ------- -------- -------
Corporate headquarter workforce
reduction:
Severance and outplacement.... 5,312 1,630 -- (3,497) 3,445
------- ------- ------- -------- -------
Total:
Severance and outplacement.... 8,270 2,316 -- (6,345) 4,241
Facility exit costs........... 17,979 2,296 -- (9,245) 11,030
Asset impairments............. -- (1,299) 1,299 -- --
------- ------- ------- -------- -------
$26,249 $ 3,313 $ 1,299 $(15,590) $15,271
======= ======= ======= ======== =======
</Table>

F-34

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)

Selected quarterly financial information for each of the four quarters in
2003 and 2002 is as follows:

<Table>
<Caption>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
($ IN THOUSANDS)

F-35

TRUSERV CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

ALLOWANCE FOR DOUBTFUL ACCOUNTS

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
--------- -------- ---------
($ IN THOUSANDS)

Reserve for Doubtful Accounts:
Balance at beginning of year.............................. $ 8,553 $9,402 $ 7,170
Provision for doubtful accounts........................... 927 120 6,275
Write-offs of doubtful accounts(1)........................ (1,085) (969) (4,043)
------- ------ -------
Balance at end of year.................................... $ 8,395 $8,553 $ 9,402
======= ====== =======
</Table>

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

(1)Notes and accounts written off as uncollectible, net of recoveries of
accounts previously written off as uncollectible.

INVENTORY RESERVES

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
2003 2002 2001
-------- -------- --------
($ IN THOUSANDS)

Reserve for Inventory:
Balance at beginning of year.............................. $ 10,434 $ 15,636 $ 12,717
Provision for inventory reserves.......................... 8,603 10,620 14,977
Write-off of inventory.................................... (12,319) (15,822) (12,058)
-------- -------- --------
Balance at end of year.................................... $ 6,718 $ 10,434 $ 15,636
======== ======== ========
</Table>

VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
2003 2002 2001
-------- -------- --------
($ IN THOUSANDS)

Valuation Allowance for Deferred Tax Assets:
Balance at beginning of year.............................. $ 94,952 $110,537 $ 89,844
Provision charged to Expenses............................. 20,465 43,832 29,762
Write-off of allowance.................................... (35,896) (59,417) (9,069)
-------- -------- --------
Balance at end of year.................................... $ 79,521 $ 94,952 $110,537
======== ======== ========
</Table>

F-36

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

NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TRUSERV CORPORATION. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH THIS OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHICH IT IS UNLAWFUL TO MAKE THIS OFFER OR SOLICITATION.

TABLE OF CONTENTS

<Table>
<Caption>
ITEM PAGE
- ---- ----

SUMMARY.................................................... 2
TruServ................................................... 2
Financing Agreements...................................... 2
Recent Financial Results.................................. 2
Common Stock.............................................. 3
Moratorium on Redemption of Common Stock.................. 3
Restrictions on Transferability and Dividend Policies..... 4
Allocation of Losses to Capital Stock..................... 4
RISK FACTORS............................................... 5
BUSINESS................................................... 6
TruServ History........................................... 6
General Description of the Business....................... 6
Sales and Suppliers....................................... 7
Other Services............................................ 9
Backlog................................................... 9
Competition............................................... 9
Trademarks, Service Marks and Collective Membership
Marks................................................... 10
Employees................................................. 10
Retail Member Agreement................................... 10
Properties................................................ 11
Legal Proceedings......................................... 13
DESCRIPTION OF COMMON STOCK................................ 16
Capital Stock............................................. 16
Moratorium on Redemptions of Capital Stock................ 16
Dividend Rights........................................... 17
Distribution of Patronage Dividends....................... 17
Allocation of Patronage Dividends Against Loss Allocation
Account................................................. 18
Payment of Patronage Dividends in Accordance with the
Internal Revenue Code................................... 19
Set Off Rights of TruServ................................. 20
Calculation of Book Value................................. 20
Voting Rights............................................. 21
Liquidation Rights........................................ 21
Membership................................................ 21
Redemption Provisions..................................... 21
Other Restrictions and Rights............................. 21
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 22
SELECTED FINANCIAL DATA.................................... 23
QUARTERLY FINANCIAL SUMMARY................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
Overview.................................................. 25
Results of Operations for 2003 Compared to 2002........... 29
Results of Operations for 2002 Compared to 2001........... 32
Liquidity and Capital Resources........................... 36
Cash Requirements......................................... 38
Critical Accounting Policies.............................. 41
New Accounting Pronouncements............................. 43
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 45
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 45
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 45
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 45
Board Audit Committee..................................... 48
Code of Ethics............................................ 48
EXECUTIVE COMPENSATION..................................... 48
Compensation Committee.................................... 48
Executive Compensation.................................... 50
Long-Term Performance Cash Awards......................... 51
Board Compensation........................................ 51
Defined Benefit Retirement Plans.......................... 51
Performance Graph......................................... 53
Employment and Separation Agreements...................... 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 55
USE OF PROCEEDS............................................ 55
PLAN OF DISTRIBUTION....................................... 55
LEGAL MATTERS.............................................. 55
INDEMNIFICATION............................................ 55
WHERE YOU CAN FIND MORE INFORMATION........................ 55
FINANCIAL STATEMENTS....................................... F-1
Index to Consolidated Financial Statements................ F-1
</Table>

- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
TRUSERV CORPORATION
239,940 SHARES
CLASS A COMMON STOCK

$100 PAR VALUE
(IN UNITS OF 60 SHARES)
------------------
PROSPECTUS
------------------
DATED
, 2004
- ---------------------------------------------------------
- ---------------------------------------------------------

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following are the actual or estimated expenses in connection with the
issuance and distribution of the Class A common stock being registered:

<Table>

Registration Fee............................................ $ 0
Printing of Registration Statement and Prospectus........... 15,000
Accounting Fees and Expenses................................ 46,800
Legal Fees.................................................. 130,000
Fees and Expenses for Qualifying Securities under "Blue Sky"
Laws of Various States.................................... 15,000
--------
Total....................................................... $180,000
========
</Table>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

TruServ's Certificate of Incorporation, as amended, provides that TruServ
shall indemnify, in accordance with and to the full extent permitted by the
Delaware General Corporation Law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of TruServ), by
reason of the fact that the person is or was a director, officer, employee or
agent of TruServ, or is or was serving at the request of TruServ as a director,
officer, employee or agent of another company, partnership, joint venture, trust
or other enterprise, against any liability or expense actually and reasonably
incurred by the person in respect thereof. The indemnification is not exclusive
of any other right of the director, officer, or employee to indemnification
provided by law or otherwise.

Under TruServ's By-Laws, TruServ shall indemnify any director, officer,
employee or agent who is a party to or is involved in a threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding") by reason of the fact that he or she is, or is
the legal representative of, a director, officer, employee or agent of TruServ
or of a partnership, joint venture, trust, or other enterprise, including an
employee benefit plan, whether the basis of the Proceeding is alleged action in
an official capacity or in any other capacity while serving as a director,
officer, employee or agent. The indemnification is to be made by TruServ to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or is thereafter amended or interpreted (but, in the case of any such
amendment or interpretation, only to the extent that the amendment or
interpretation permits TruServ to provide broader indemnification rights than
were permitted prior to the amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
and amounts paid or to be paid in settlement, and any interest assessments, or
other charges imposed thereon, and any federal, state, local, or foreign taxes
imposed on any such person as a result of the actual deemed receipt of any
indemnification payments under the By-Laws) reasonably incurred or suffered by
any such person in connection with investigating, defending, being a witness in,
or participating in or preparing for any of the forgoing in any Proceeding.
Except with respect to an action where the claimant is bringing an action to
enforce indemnification rights as described below, TruServ is required to
indemnify any person seeking indemnification in connection with a Proceeding
initiated by the person seeking indemnification only if the Proceeding is
authorized by the board of directors of TruServ.

Generally, expenses incurred by an officer or director (acting in his or
her capacity as such) in defending a Proceeding are to be paid by TruServ in
advance of the final disposition of such Proceeding. TruServ may advance, in its
sole discretion, on such terms and conditions as are set by the board of
directors, expenses incurred by other persons entitled to indemnification or by
officers and directors not acting in their official capacity.

II-1

If TruServ does not pay a claim in full that is subject to indemnification
within a reasonable period of time after a written claim has been received, the
claimant may bring suit against TruServ to recover the unpaid amount of the
claim and if successful, in whole or in part, the claimant is entitled to be
paid also the expense (including attorneys' fees) of prosecuting such claim.
TruServ may exert a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for TruServ to be required to indemnify the claimant. However,
TruServ shall have the burden of proving such defense.

Additionally, the stockholders of TruServ have approved an amendment to the
Certificate of Incorporation to eliminate personal liability of directors for
monetary damages for breach of fiduciary duty of care. The Certificate of
Incorporation provides that a director of TruServ shall not be liable to TruServ
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the exemption from liability or limitation
thereof is not permitted under the Delaware General Corporation Law as amended
from time to time.

ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES

None

ITEM 16. EXHIBITS.

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

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
TruServ, 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 TruServ, effective July 31, 2003. Incorporated by
reference--Exhibit 4-B to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 27, 2003.
4-C Specimen certificate of Class A common stock. Incorporated
by reference--Exhibit 4-C to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.
4-D Specimen certificate of Class B common stock. Incorporated
by reference--Exhibit 4-D to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.
4-E Promissory (subordinated) note form. Incorporated by
reference--Exhibit 4-E to Post-Effective Amendment No. 15 on
Form S-1 to Registration Statement on Form S-4 (No.
333-18397).
4-F Installment note form. Incorporated by reference--Exhibit
4-F to Post-Effective Amendment No. 15 on Form S-1 to
Registration Statement on Form S-4 (No. 333-18397).
4-G Loan and Security Agreement dated August 29, 2003 for
$275,000,000 revolving credit facility between TruServ
Corporation and various financial institutions. Incorporated
by reference--Exhibit 4-A to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 27,
2003.
4-H 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).
5 Opinion of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz,
Ltd. Incorporated by reference--Exhibit 5 to Post-Effective
Amendment No. 14 to Registration Statement on Form S-2 to
Form S-4 (No. 333-18397).
</Table>

II-2

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

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 the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
10-B Current Form of "Subscription to Shares of TruServ."
Incorporated by reference--Exhibit 10-B to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 to
Form S-4 (No. 333-18397).
10-C TruServ Corporation Defined Lump Sum Pension Plan as Amended
and Restated Effective as of January 1, 1998; including
amendments through December 30, 2002. Incorporated by
reference--Exhibit 10-C to the Registrants's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.
10-D TruServ Corporation Savings and Compensation Deferral Plan
As Amended and Restated Effective January 1, 1998; including
amendments through December 2002. Incorporated by
reference--Exhibit 10-D to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.
10-E TruServ Supplemental Retirement Plan As Amended and Restated
Effective December 15, 2002. Incorporated by
reference--Exhibit 10-E to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.
10-F Retail Conversion Funds Agreement dated as of December 9,
1996 between Cotter and Company and SCC. Incorporated by
reference--Exhibit 10-L to Registration Statement on Form
S-4 (No. 333-18397).
10-G Employment Agreement between TruServ and Pamela Forbes
Lieberman dated November 15, 2001. Incorporated by
reference--Exhibit 10-H to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.
10-H Lease Agreement by and between Hammer (DE) Limited
Partnership, a Delaware limited partnership, as Landlord and
TruServ Corporation as Tenant, dated December 26, 2002.
Incorporated by reference--Exhibit 10-J to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
10-I Lease Agreement by and between Bolt (DE) Limited
Partnership, a Delaware limited partnership, as Landlord and
TruServ Corporation as Tenant, dated December 26, 2002.
Incorporated by reference--Exhibit 10-K to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
10-J Lease Agreement by and between Wrench (DE) Limited
Partnership, a Delaware limited partnership, as Landlord and
TruServ Corporation as Tenant, dated December 26, 2002.
Incorporated by reference--Exhibit 10-L to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
10-K First Amendment of TruServ Corporation Defined Lump Sum
Pension Plan as Amended and Restated Effective as of January
1, 1998. Incorporated by reference--Exhibit 10-K to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
10-L Second Amendment of TruServ Corporation Defined Lump Sum
Pension Plan as Amended and Restated Effective as of January
1, 1998. Incorporated by reference--Exhibit 10-L to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
10-M First Amendment of TruServ Corporation Savings and
Compensation Deferral Plan as Amended and Restated Effective
January 1, 1998. Incorporated by reference--Exhibit 10-M to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
</Table>

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<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

10-N Second Amendment of TruServ Corporation Savings and
Compensation Deferral Plan as Amended and Restated Effective
January 1, 1998. Incorporated by reference--Exhibit 10-N to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
10-O Third Amendment of TruServ Corporation Savings and
Compensation Deferral Plan as Amended and Restated Effective
January 1, 1998. Incorporated by reference--Exhibit 10-O to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
*10-P Separation Agreement and General Release between TruServ and
William F. Godwin dated March 11, 2004.
13-A Annual Report on Form 10-K for the year ended December 31,
2003. Incorporated by reference (No. 2-20910).
21 Subsidiaries. Incorporated by reference--Exhibit 21 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
23-A Consent of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz,
Ltd. Incorporated by Reference--Exhibit 5 to Post-Effective
Amendment No. 14 to Registration Statement on Form S-2 to
Form S-4 (No. 333-18397).
*23-B Consent of PricewaterhouseCoopers LLP.
</Table>

- ---------------
* Filed herewith.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to the information in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each of the post-effective amendments shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

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SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON MARCH 18, 2004.

TRUSERV CORPORATION
By: /s/ PAMELA FORBES LIEBERMAN
------------------------------------
Pamela Forbes Lieberman
President, Chief Executive Officer
and Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----

/s/ BRYAN R. ABLEIDINGER Chairman of the Board and March 18, 2004
- --------------------------------------------------- Director
Bryan R. Ableidinger

/s/ PAMELA FORBES LIEBERMAN President, Chief Executive March 18, 2004
- --------------------------------------------------- Officer and Director
Pamela Forbes Lieberman

/s/ DAVID A. SHADDUCK Senior Vice President and Chief March 18, 2004
- --------------------------------------------------- Financial Officer
David A. Shadduck (Chief Accounting Officer)

/s/ LAURENCE L. ANDERSON Director March 18, 2004
- ---------------------------------------------------
Laurence L. Anderson

/s/ JOE W. BLAGG Director March 18, 2004
- ---------------------------------------------------
Joe W. Blagg

/s/ MICHAEL S. GLODE Director March 18, 2004
- ---------------------------------------------------
Michael S. Glode

/s/ THOMAS S. HANEMANN Director March 18, 2004
- ---------------------------------------------------
Thomas S. Hanemann

/s/ JUDITH S. HARRISON Director March 18, 2004
- ---------------------------------------------------
Judith S. Harrison

/s/ PETER G. KELLY Director March 18, 2004
- ---------------------------------------------------
Peter G. Kelly

/s/ DAVID Y. SCHWARTZ Director March 18, 2004
- ---------------------------------------------------
David Y. Schwartz

/s/ GILBERT WACHSMAN Director March 18, 2004
- ---------------------------------------------------
Gilbert Wachsman

/s/ CHARLES W. WELCH Director March 18, 2004
- ---------------------------------------------------
Charles W. Welch
</Table>

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