<PAGE> 1
SCIOTO INVESTMENT COMPANY
C/O 4561 LANES END ST., COLUMBUS, OHIO 43220
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS:
The accompanying Scioto Investment Company unaudited condensed
financial statements for the six month periods ended June 30, 1999, 1998 and
1997 have been compiled by management in accordance with the instructions for
interim financial reporting of the Securities and Exchange Commission and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These compilations
should be read in conjunction with the Company's annual audited financial
statements and the notes thereto included in the previously released Annual
Reports to Shareholders and the Securities and Exchange Commission for the years
ended December 31, 1998, 1997 and 1996.
In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the
financial information have been included in the accompanying financial
statements. A summary of the portfolio positions as of June 30, 1999; summaries
of the Annual Meeting of Shareholders; and, the Penn Traffic Company (Federal ID
#25-0716800) matter are attached hereto as pages 3-6. A schedule of investments
as of December 31, 1998 was included in the Company's Annual Report for 1998.
Net investment income per share for the six month periods ended June 30, 1999,
1998 and 1997 was $0.178, $0.242 and $0.256 respectively.
Respectfully submitted,
SCIOTO INVESTMENT COMPANY
/s/ Stephen Kellough
Stephen Kellough, Chairman and President
UNAUDITED CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
----------------------------------------------------------
1999 1998 1997
--------------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in tax exempt bonds, at quoted market
values (amortized cost: 1999, $6,538,731;
1998, $7,511,436; 1997, $7,468,901) $6,470,542 $7,530,198 $7,468,729
Cash and cash equivalents 1,029,879 60,876 102,663
Accrued interest receivable 47,393 50,222 46,094
Prepaid expenses 284 283 283
-------------- -------------- -------------
TOTAL ASSETS 7,548,098 7,641,579 7,617,769
-------------- -------------- --------------
LIABILITIES:
Accrued expenses 21,841 14,427 18,921
-------------- -------------- -------------
TOTAL LIABILITIES 21,841 14,427 18,921
-------------- -------------- -------------
NET ASSETS (net asset value per common
share, based upon 447,950 common shares outstanding:
1999, $16.80; 1998, $17.03; 1997, $16.96) $ 7,526,257 $7,627,152 $7,598,848
============== ============= ============
</TABLE>
Page 1 of 6
<PAGE> 2
SCIOTO INVESTMENT COMPANY
C/O 4561 LANES END ST., COLUMBUS, OHIO 43220
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1999
-------------------------------------------------------------
1999 1998 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME - Nontaxable interest income, net of
bond premium amortization and discount accretion
of $14,013 in 1999; $12,731 in 1998; and
$15,439 in 1997 $ 139,774 $ 151,291 $ 156,841
-------------- -------------- -------------
OPERATING EXPENSES:
Professional services 44,081 34,670 34,551
Directors' fees 5,750 5,000 4,500
Other expenses 10,352 3,005 3,122
-------------- -------------- -------------
TOTAL OPERATING EXPENSES 60,183 42,675 42,173
-------------- -------------- -------------
NET INVESTMENT INCOME 79,591 108,616 114,668
NET LOSS ON INVESTMENTS:
Unrealized depreciation of investments (102,303) (754) (20,856)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (22,712) $ 107,862 $ 93,812
============== ============== ==============
</TABLE>
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income $ 79,591 $ 108,616 $ 114,668
Unrealized depreciation of investments (102,303) (754) (20,856)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (22,712) 107,862 93,812
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME 98,549 111,988 125,426
----------- ----------- -----------
NET DECREASE IN NET ASSETS (121,261) (4,126) (31,614)
NET ASSETS, BEGINNING OF PERIOD 7,647,518 7,631,278 7,630,462
----------- ----------- -----------
NET ASSETS, END OF PERIOD, including undistributed
net investment income of $171,104, $183,749
and $174,414 respectively $ 7,526,257 $ 7,627,152 $ 7,598,848
=========== =========== ===========
</TABLE>
Page 2 of 6
<PAGE> 3
<TABLE>
<CAPTION>
SCIOTO INVESTMENT COMPANY
FIFTH THIRD SECURITIES, INC. ACCOUNT PORTFOLIO SUMMARY
ACCT CURRENT MARKET EST. ANNUAL EST
TYPE QUANTITY DESCRIPTION SYMBOL PRICE VALUE INCOME YLD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash 200,000 AKRON OHIO SWR SYS REV OHI010086CQ7 99.768 199,536.00 8,000.00 4.00%
BOOK ENTRY ONLY FGIC
4% 12/01/01
Cash 300,000 BARBERTON OHIO CITY SCH DIST OHI067203BV0 99.129 297,387.00 13,050.00 4.38%
BOOK ENTRY ONLY FGIC
4.35% 11/01/04
Cash 100,000 BIG WALNUT OHIO LOC SCH DIST D OHI089707FV0 100.292 100,292.00 4,000.00 3.98%
BOOK ENTRY ONLY AMBAC BNKQL
4% 12/01/99
Cash 100,000 BIG WALNUT OHIO LOC SCH DIST D OHIO89707FX6 100.411 100,411.00 4,200.00 4.18%
BOOK ENTRY ONLY AMSAC BNKQL
4.2% 12/01/01
Cash 300,000 CLERMONT CNTY OHIO HOSP FACS R CLOH4.85%00 101.408 304,224.00 14,550.00 4.78%
MERCY HEALTH SYS SER B AMBAC R
4.85% 09/01/00
Cash 650,000 CLEVELAND OHIO MBIA BOOK ENTRY CLOH3.70%01 99.112 644,228.00 24,050.00 3.73%
REOF @ PAR UT N/C
3.7% 10/01/01
Cash 200,000 COLUMBUS OHIO MUN ARPT AUTH RE OHI199521AW5 99.646 199,292.00 9,000.00 4.51%
BOOK ENTRY ONLY AMBAC
4.5% 01/01/03
Cash 300,000 COLUMBUS OHIO RFDG SER C BOOK COOH4.55%99 100.265 300,795.00 13,650.00 4.53%
ONLY LT NON CALLABLE
4.55% 09/15/99
Cash 300,000 DAYTON OHIO G/O FGIC DAOH3.60%01 98.892 296,676.00 10,800.00 3.64%
BOOK ENTRY ONLY N/C
3.6% 12/01/01
Cash 400,000 DAYTON OHIO B/O FGIC DAOH3.65%02 98.068 392,272.00 14,600.00 3.72%
BOOK ENTRY ONLY N/C
3.65% 12/01/02
Cash 340,000 DELAWARE CNTY OHIO SWR DIST IM DEOH3.30%00 99.402 337,966.80 11,220.00 3.31%
BOOK ENTRY ONLY REOF @PAR N/C
3.3% 12/01/00
Cash 150,000 DUBLIN OHIO CITY SCH DIST OHI2637IGBE9 102.070 153,105.00 7,875.00 5.14%
BOOK ENTRY ONLY AMBAC
5.25% 12/01/00
Cash 200,000 DUBLIN OHIO LOC SCH DIST OHI263715EH3 104.542 209,084.00 14,250.00 6.81%
REGISTERED
7.125% 12/01/00
Cash 125,000 FINDLAY OHIO WTR REV OH1317765BG9 100.374 125,467.50 5,500.00 4.38%
BOOK ENTRY ONLY MBIA
4.4% 11/01/99
Cash 125,000 HAMILTON CNTY OHIO SWR SYS REV HMOH6.40%05 106.085 132,606.25 8,000.00 6.03%
RFDG SER A REG O.I.D. REOF @97
6.4% 12/01/05
Cash 200,000 HAMILTON OHIO WASTEWTR SYS REV OHI407837AZ6 98.911 197,822.00 8,600.00 4.34%
BOOK ENTRY ONLY
4.3% 10/15/04
Cash 300,000 HILLIARD OHIO SCH DIST SER A F HIOH4%99 100.303 300,909.00 12,000.00 3.98%
BOOK ENTRY ONLY UT
4% 12/01/99
Cash 100,000 LIBERTY OHIO LOC SCH DIST OHI531150CR9 100.550 100,550.00 4,150.00 4.12%
BOOK ENTRY ONLY FGIC
4.15% 12/01/00
Cash 200,000 MONTGOMERY CNTY OHIO GTR MORAI MOOH4.90%01 101.670 203,340.00 9,800.00 4.81%
BEAVER CREEK SWR REV RFDG FGIC
4.9% 09/01/01
Cash 100,000 NAPOLEON OHIO CITY SCH DIST OHI630684CP1 100.555 100,555.00 4,150.00 4.12%
BOOK ENTRY ONLY AMBAC BNKQL
4.15% 12/01/00
</TABLE>
Page 3 of 6
<PAGE> 4
<TABLE>
<CAPTION>
SCIOTO INVESTMENT COMPANY
FIFTH THIRD SECURITIES, INC. ACCOUNT PORTFOLIO SUMMARY
ACCT CURRENT MARKET EST. ANNUAL EST
TYPE QUANTITY DESCRIPTION SYMBOL PRICE VALUE INCOME YLD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash 300,000 OHIO ST PUB FACS COMMN HIGHER OHOH4%06 95.440 286,320.00 12,000.00 4.19%
FACS SER II C FSA BOOK ENTRY ONLY
4% 06/01/06
Cash 200,000 OHIO ST PUB FACS COMMN HIGHER OHOH4.1%07 94.879 189,758.00 8,200.00 4.32%
FACS SER II C FSA BOOK ENTRY ONLY
4.1% 06/01/07
Cash 300,000 OHIO ST PUB FACS COMMN FRDG HI OIOH4.50%03 100.236 300,708.00 13,500.00 4.48%
CAP FACS SER II-A FSA BOOK ENTRY ONLY
4.5% 12/01/03
Cash 300,000 TOLEDO OHIO OHI889278AC1 100.332 300,996.00 12,300.00 4.08%
BOOK ENTRY ONLY FGIC
4.1% 12/01/99
Cash 400,000 UNIVERSITY CINCINNATI OHIO CTF OH1914116CS5 98.294 393,176.00 17,600.00 4.47%
BOOK ENTRY ONLY MBIA
4. 4% 12/01/05
Cash 100,000 WOOSTER OHIO CITY SCH DIST OHI981100FC9 100.023 100,023.00 4,300.00 4.29%
BOOK ENTRY ONLY
4.3% 12/01/02
Cash 200,000 YOUNGSTOWN OHIO OHI987643QZ9 101.521 203,042.00 14,000.00 6.89%
REGISTERED
7% 12/01/99
--------------- ---------------
$6,490,000 $6,470,542
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</TABLE>
Page 4 of 6
<PAGE> 5
SCIOTO INVESTMENT COMPANY
SUMMARY OF ANNUAL MEETING OF SHAREHOLDERS
The Company held its 1999 Annual Meeting of Shareholders June 2, 1999.
At the meeting, shareholders present in person and by proxy were as follows: of
the 108,800 Class A common shares outstanding (one vote per share), a total of
80,260 were represented; and of the 339,150 Class B common shares outstanding
(ten votes per share), 339,150 were represented; therefore, 419,410 of the
common shares representing approximately 99.2% of the total voting power of the
Company were represented at the meeting.
A resolution fixing the number of Directors at six passed with
3,471,650 votes FOR, 110 votes AGAINST and 0 votes ABSTAINING.
The following persons were elected as members of the Company's Board of
Directors to serve until the annual meeting following their election or until
their successors are duly elected and qualified. Each person received the number
of votes FOR and votes WITHHELD as indicated below.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- ---------------- --------- --------------
<S> <C> <C>
Stephen Kellough 3,471,760 0
Marilyn Brown Kellough 3,471,760 0
Donald C. Fanta 3,471,760 0
Kent K. Rinker 3,471,760 0
John Josephson 3,471,760 0
Paul D. Trott 3,471,760 0
</TABLE>
A resolution to ratify the selection of Deloitte & Touche LLP as the
independent accountants for Scioto Investment Company for the 1999 year passed
with 3,471,760 votes FOR, 0 votes AGAINST and 0 votes to ABSTAIN.
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<PAGE> 6
SUMMARY OF THE PENN TRAFFIC MATTER
As described in Note 3 to the Company's Audited Annual Report for the
year ended December 31, 1998 (repeated in the box below), the Company could be
liable for the payment of certain non-cancelable lease obligations should The
Penn Traffic Company, a lessee under certain applicable lease agreements, fail
to pay the required rents. Penn Traffic filed a Chapter 11 bankruptcy petition
in U.S. Bankruptcy Court in Delaware on March 1, 1999 and completed the process
emerging from Chapter 11 on June 29, 1999. Penn Traffic's Chapter 11
restructuring enabled it to cancel $1.13 billion of debt in exchange for: $100
million of new senior notes; additional shares of common stock; and, warrants to
purchase common stock. None of the leases as to which the Company could have any
contingent liability were rejected in the Chapter 11 reorganization.
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3. SALE OF COMPANY ASSETS, CHANGES IN BUSINESS, AND LEASE LIABILITIES
UNDERTAKING
Prior to August 30, 1976, the Company operated a chain of 54 supermarkets
and 12 discount department stores in Ohio, West Virginia, and Kentucky in
leased premises. On June 30, 1976, the Company and each of its
subsidiaries (the "Company") entered into an Agreement of Sale, pursuant
to which substantially all of the assets of the Company were sold for
$33.00 per Class A and Class B common share cash and assumption of all of
the liabilities of the Company, however, the Company remains contingently
liable for non-cancelable leases entered into previously that are still in
effect. The Company would only be required to make payments under these
leases in the event of non-payment of rent by the existing tenant, The
Penn Traffic Company ("Penn" a Delaware Corporation, Federal ID
#25-0716800, which acquired the Big Bear Stores Company, a Delaware
Corporation, Federal ID #31-0888208), during an existing exercised option
period.
Subsequent to the sale consummation on August 30, 1976, the Company's
subsidiaries were liquidated and merged into the Company, and the
Company's name was changed from Big Bear Stores Company, an Ohio
corporation, to Scioto Investment Company, an Ohio corporation (Federal ID
#31-4128470).
As indicated above, the Company remains contingently liable for
non-cancelable leases entered into prior to the date of sale of
substantially all of the assets of the Company on August 30, 1976. At
December 31, 1998, the remaining minimum future lease rental commitments
during the non-cancelable lease terms are approximately $3,400,000
($3,800,000 at December 31, 1997) and the total of the non-cancelable
leases plus total option periods minimum future lease rental commitments
are approximately $16,920,000 ($17,900,000 at December 31, 1997), before
considering any offsetting rental income the Company might receive if the
Company subsequently directly leases the property to other parties. These
non-cancelable leases require approximately $1,040,000 ($1,000,000 at
December 31, 1997) in annual minimum rentals at December 31, 1998.
In December 1998 Penn defaulted on its debt obligations and, subsequent to
year end, entered into negotiations of a debt restructuring plan with its
creditors. Penn announced on February 4, 1999 that they reached an
agreement and intend to implement the restructuring plan immediately. The
agreement provides for prompt payment in accordance with customary terms
for all of the Penn trade creditors. Based upon the current circumstances
and available information, no losses have been recorded by the company.
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