<PAGE> 1
SCIOTO INVESTMENT COMPANY
COLUMBUS, OHIO
ANNUAL REPORT
YEAR ENDED
DECEMBER 31, 1998
<PAGE> 2
SCIOTO INVESTMENT COMPANY
c/o 4561 Lanes End Street, Columbus, Ohio 43220-4254
- -------------------------------------------------------------------------------
Directors:
Stephen Kellough Marilyn B. Kellough Arthur D. Herrmann
Donald C. Fanta Kent K. Rinker John Josephson
Executive Officers:
Stephen Kellough, President and Treasurer
Marilyn B. Kellough, Vice President and Secretary
Transfer Agent and Registrar for Scioto Investment Company's Class A Common
Stock: National City Bank, Stock Transfer Department, Corporate Trust
Operations, 4100 West 150th Street, 3rd Floor, Cleveland, Ohio 44135-1385
<TABLE>
<CAPTION>
U.S. Average Annual
Inflation Rate, Based
upon the Consumer Price
Index, as a Per Cent,
for Each Year
Class A Common
Stock Market
Weighted Average Price per Share,
Maturity Term of in Dollars,
the Company's Bond at December 31
Portfolio, in Years, --------------
at December 31 Bid
------------- ---
<S> <C> <C> <C> <C>
1976 4.8
1977 6.8
1978 9.0
1981 8.9
1984 3.9
1985 3.8 7.1 7.00
1986 1.1 7.0 7.50
1987 4.4 6.2 7.50
1988 4.4 6.0 8.20
1989 4.6 3.8 9.00 Asked
-----
1990 6.1 3.3 12.00
1991 3.1 3.0 12.00 15.00
1992 2.9 2.8 11.50 14.50
1993 2.7 2.0 11.00 15.00
1994 2.7 1.4 12.00 14.00
1995 2.5 1.4 11.50 14.00
1996 3.0 2.0 8.00
1997 1.7 1.4
1998 1.6 3.5
</TABLE>
<PAGE> 3
SCIOTO INVESTMENT COMPANY
-------------------------
c/o 4561 LANES END STREET
COLUMBUS, OHIO 43220-4254
Dear Fellow Shareholders:
Scioto Investment Company earned net investment income of $0.53 per
share in 1998, unchanged from $0.53 per share in 1997. Dividends paid to
shareholders in 1998 were $0.53 per share versus $0.52 per share in 1997. The
Company's net asset value per share of $17.07 at December 31, 1998 was up from
the $17.04 value at December 31, 1997, while the realized and unrealized
appreciation of investments was $0.03 per share in 1998 compared to no change in
1997. Please refer to the accompanying 1998 financial statements and schedules
as audited by Deloitte & Touche LLP for the additional financial information
relating to the Company.
Arthur D. Herrmann has indicated that he is retiring from the Company's
Board of Directors this year and is not standing for re-election as a Director
at the Company's annual meeting of shareholders to be held in June, 1999. On
behalf of Scioto Investment Company, I would like to take this opportunity to
thank Mr. Herrmann for his insight and outstanding service to the Company for
the past twenty-three years. His professionalism and expert advice will be
greatly missed.
We are pleased to announce that Paul D. Trott has been nominated to
stand for election as a new Director at the annual shareholders' meeting. Mr.
Trott was an employee of Big Bear Stores Company and its successor company, The
Penn Traffic Company, for thirty-four years, the last eight of which were as
Vice President of Finance (1989-1997).
As described in Note 3 to the accompanying financial statements, Scioto
Investment Company could be liable for the payment of certain non-cancelable
lease obligations should The Penn Traffic Company, the lessee under certain
applicable lease agreements, fail to pay the required rents. On March 1, 1999,
The Penn Traffic Company filed a Chapter 11 Bankruptcy Petition in U.S.
Bankruptcy Court in Delaware. According to the Penn Traffic press release
announcing the filing, its purpose is "seeking to implement a pre-negotiated
financial restructuring with the holders of its senior and subordinated notes."
At this time, we are not aware of any plans by Penn Traffic to reject in the
bankruptcy proceeding any of the leases as to which Scioto Investment Company
could have any contingent liability.
Scioto Investment Company is a non-diversified closed-end management
company, registered under the Investment Company Act of 1940, which generally
invests in federal income tax-exempt bonds rated "A" or better by Moody's before
the effect of insurance coverage on the bonds, if applicable. It has qualified
as a regulated investment company under the Internal Revenue Code since 1976 and
expects to again so qualify in 1999. Therefore it is expected that virtually all
of the Company's 1999 net investment income will be paid out to shareholders in
the form of tax-exempt interest dividends in 1999.
Sincerely,
SCIOTO INVESTMENT COMPANY
by Stephen Kellough, Chairman,
President and CEO, May 5, 1999
<PAGE> 4
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Scioto Investment Company:
We have audited the accompanying statements of assets and liabilities of Scioto
Investment Company, including the schedules of investments, as of December 31,
1998 and 1997, and the related statements of operations and of changes in net
assets, and the financial highlights for each of the five years in the period
ended December 31, 1998. These financial statements and the financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation by correspondence with the
custodian of securities owned at December 31, 1998 and 1997. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Scioto Investment
Company at December 31, 1998 and 1997, and the results of its operations, the
changes in its net assets, and the financial highlights for each of the five
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
March 19, 1999
<PAGE> 5
<TABLE>
SCIOTO INVESTMENT COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS:
Investments in money market funds and securities - at
quoted market value (amortized cost, 1998 - $7,548,716;
1997 - $7,580,871) (see accompanying schedules) $7,582,830 $7,600,388
Interest receivable 43,653 39,531
Cash 27,579 2,455
Prepaid expenses 584 584
---------- ----------
Total assets 7,654,646 7,642,958
---------- ----------
LIABILITIES:
Accrued expenses - professional and transfer agent fees 7,128 11,680
---------- ----------
Total liabilities 7,128 11,680
---------- ----------
NET ASSETS (net asset value per common share based
on 447,950 common shares outstanding, 1998 - $17.07;
1997 - $17.04) $7,647,518 $7,631,278
========== ==========
</TABLE>
See notes to financial statements.
- 2 -
<PAGE> 6
<TABLE>
SCIOTO INVESTMENT COMPANY
SCHEDULES OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------------
MOODY'S
INVESTORS YIELD TO
SERVICE, INC. MOODY'S MATURITY
BOND RATING INVESTORS (BASED ON
BEFORE SERVICE, INC. QUOTED COUPON
NAME OF ISSUER AND INSURANCE BOND RATING MARKET INTEREST DUE PRINCIPAL
TITLE OF ISSUE (UNAUDITED) (UNAUDITED) (VALUE) RATE DATE AMOUNT
<S> <C> <C> <C> <C> <C> <C>
UNAFFILIATED MONEY MARKET FUNDS:
Cardinal Government Securities Trust 4.46% 4.46% Demand $ 149
Cardinal Tax-Exempt Money Fund 2.49% 2.49% Demand 1,336,367
----------
Total unaffiliated money market funds 1,336,516
----------
UNAFFILIATED MUNICIPAL BONDS:
Hilliard, Ohio City School District (CSD) Series A A1 Aa3 3.96 4.000 12/1/99 300,000
Clermont County, Ohio Hospital FACS-B NR Aa3 4.74 4.850 9/1/00 300,000
Napoleon, Ohio CSD A NR 4.09 4.150 12/1/00 100,000
Dublin, Ohio CSD NR A1 5.07 5.250 12/1/00 150,000
Dublin, Ohio Local School District (LSD) NR A1 6.67 7.125 12/1/00 200,000
Hamilton County, Ohio Sewer System A1 Aa3 5.91 6.400 12/1/05 125,000
Big Walnut, Ohio LSD NR NR 3.96 4.000 12/1/99 100,000
Big Walnut, Ohio LSD NR NR 4.12 4.200 12/1/01 100,000
Columbus, Ohio RFDG-C NR AAA 4.50 4.550 9/15/99 300,000
Findlay, Ohio Water REV RFDG NR NR 4.34 4.400 11/1/99 125,000
Liberty, Ohio NR NR 4.09 4.150 12/1/00 100,000
Toledo, Ohio SER-A RFDG Baa1 A3 4.05 4.100 12/1/99 300,000
Youngstown, Ohio NR Baa3 6.76 7.000 12/1/99 200,000
Montgomery County, Ohio Beaver Creek Sewer NR NR 4.74 4.900 9/1/01 200,000 (1)
Akron, Ohio Sewer Systems NR NR 3.95 4.000 12/1/01 200,000 (1)
Cleveland, Ohio A2 A2 3.69 3.700 10/1/01 650,000 (1)
Dayton, Ohio G/O FGIC NR A2 3.59 3.600 12/1/01 300,000 (1)
Dayton, Ohio G/O FGIC NR A2 3.65 3.650 12/1/02 400,000 (1)
Wooster, Ohio CSD NR NR 4.21 4.300 12/1/02 100,000 (1)
Columbus, Ohio Mun. Arpt. A A2 4.41 4.150 1/1/03 200,000 (1)
Ohio State PUB FACS Commn. A1 Aa3 4.37 4.500 12/1/03 300,000 (1)
Hamilton County, Ohio Waste Water System NR NR 4.22 4.300 10/15/04 200,000 (1)
Barberton, Ohio CSD A3 A3 4.26 4.350 11/1/04 300,000 (1)
University of Cincinnati, Ohio A2 A2 4.31 4.400 12/1/05 400,000 (1)
Ohio State PUB FACS Commn. Higher A1 Aa3 4.03 4.000 6/1/06 300,000 (1)
Ohio State PUB FACS Commn. Higher A1 Aa3 4.12 4.100 6/1/07 200,000 (1)
Lucas County, Ohio, Improvement Revenue 5.250 2/1/98 (2)
Ohio State FACS Vern Riffe A 4.000 10/1/98 (2)
Montgomery County, Ohio Waste 4.100 11/1/98 (2)
Cuyohoga County, Ohio, LTGO 4.100 11/15/98 (2)
Toledo, Ohio Waterworks REV 4.250 11/15/98 (2)
Marietta, Ohio Water REV 4.300 12/1/98 (2)
Canton, Ohio Waterworks System Import 5.000 12/1/98 (2)
Montgomery County, Ohio 5.300 12/1/98 (2)
Westerville, Ohio 4.250 12/1/98 (2)
Springfield, Ohio LSD IMPT UT 6.125 12/1/98 (2)
Columbus, Ohio CSD RFDG 4.450 12/1/98 (2)
Springboro Community, Ohio 3.800 12/1/98 (2)
Hilliard, Ohio Series A 3.900 12/1/98 (2)
Upper Arlington, Ohio 3.800 12/1/98 (2)
----------
Total unaffiliated municipal bonds 6,150,000
----------
TOTAL $7,486,516
==========
</TABLE>
Ratings shown have not been audited by Deloitte & Touche LLP.
(1) Total principal amount of 1998 purchases - $3,750,000.
(2) Total principal amount of 1998 maturities - $3,885,000.
See notes to financial statements.
- 3 -
<PAGE> 7
<TABLE>
- --------------------------------------------------------------------------------------- --------------------------------------------
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------- --------------------------------------------
% OF TOTAL % OF TOTAL
PORTFOLIO PORTFOLIO
ANNUAL (BASED ON (BASED ON
COUPON QUOTED QUOTED QUOTED QUOTED
NAME OF ISSUER AND INTEREST AMORTIZED MARKET MARKET PRINCIPAL AMORTIZED MARKET MARKET
TITLE OF ISSUE INCOME COST VALUE VALUE) AMOUNT COST VALUE VALUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNAFFILIATED MONEY MARKET FUNDS:
Cardinal Government Securities Trust $ 7 $ 149 $ 149 $ 142 $ 142 $ 142
Cardinal Tax-Exempt Money Fund 33,276 1,336,367 1,336,367 17.63% 1,241,166 1,241,166 1,241,166 16.33%
-------- ---------- ---------- ------ ---------- ---------- ---------- ------
Total unaffiliated money market
funds 33,283 1,336,516 1,336,516 17.63 1,241,308 1,241,308 1,241,308 16.33
-------- ---------- ---------- ------ ---------- ---------- ---------- ------
UNAFFILIATED MUNICIPAL BONDS:
Hilliard, Ohio City School District (CSD)
Series A 12,000 300,000 302,712 3.99 300,000 300,000 300,375 3.95
Clermont County, Ohio Hospital FACS-B 14,550 303,200 306,573 4.04 300,000 305,120 305,904 4.02
Napoleon, Ohio CSD 4,150 100,000 101,406 1.34 100,000 100,000 100,546 1.32
Dublin, Ohio CSD 7,875 153,288 155,131 2.04 150,000 155,004 154,992 2.04
Dublin, Ohio Local School District (LSD) 14,250 210,216 213,468 2.82 200,000 215,546 216,656 2.85
Hamilton County, Ohio Sewer System 8,000 131,963 135,225 1.78 125,000 134,844 136,386 1.79
Big Walnut, Ohio LSD 4,000 100,000 100,867 1.33 100,000 100,000 100,031 1.32
Big Walnut, Ohio LSD 4,200 100,000 101,798 1.34 100,000 100,000 100,359 1.32
Columbus, Ohio RFDG-C 13,650 301,085 303,276 4.00 300,000 302,617 303,375 4.00
Findlay, Ohio Water REV RFDG 5,500 125,396 126,443 1.67 125,000 125,870 125,995 1.66
Liberty, Ohio 4,150 100,000 101,391 1.34 100,000 100,000 100,218 1.32
Toledo, Ohio SER-A RFDG 12,300 300,000 302,964 4.00 300,000 300,000 300,936 3.97
Youngstown, Ohio 14,000 204,561 206,944 2.73 200,000 209,537 210,280 2.77
Montgomery County, Ohio Beaver Creek Sewer 9,800 206,945 206,610 2.73
Akron, Ohio Sewer Systems 8,000 200,000 202,196 2.66
Cleveland, Ohio 24,050 655,987 651,157 8.58
Dayton, Ohio G/O FGIC 10,800 300,000 300,324 3.96
Dayton, Ohio G/O FGIC 14,600 400,000 399,268 5.26
Wooster, Ohio CSD 4,300 102,724 102,015 1.35
Columbus, Ohio Mun. Arpt 9,000 201,421 203,816 2.69
Ohio State PUB FACS Commn. 13,500 311,387 308,796 4.07
Hamilton County, Ohio Waste Water System 8,600 200,000 203,666 2.69
Barberton, Ohio CSD 13,050 300,000 306,282 4.04
University of Cincinnati, Ohio 17,600 402,617 407,736 5.38
Ohio State PUB FACS Commn. Higher 12,000 300,000 297,522 3.92
Ohio State PUB FACS Commn. Higher 8,200 201,410 198,728 2.62
Lucas County, Ohio, Improvement Revenue 120,000 119,966 120,168 1.58
Ohio State FACS Vern Riffe A 700,000 698,751 701,638 9.23
Montgomery County, Ohio Waste 100,000 100,077 100,281 1.32
Cuyohoga County, Ohio, LTGO 300,000 300,000 301,029 3.97
Toledo, Ohio Waterworks REV 200,000 200,000 200,780 2.64
Marietta, Ohio Water REV 100,000 100,000 100,515 1.32
Canton, Ohio Waterworks System Import 115,000 115,000 116,294 1.53
Montgomery County, Ohio 200,000 202,149 202,750 2.67
Westerville, Ohio 200,000 200,000 200,936 2.64
Springfield, Ohio LSD IMPT UT 250,000 253,934 255,663 3.36
Columbus, Ohio CSD RFDG 300,000 301,148 301,875 3.97
Springboro Community, Ohio 300,000 300,000 300,138 3.95
Hilliard, Ohio Series A 400,000 400,000 400,684 5.26
Upper Arlington, Ohio 600,000 600,000 600,276 7.90
-------- ---------- ---------- ------ ---------- ---------- ---------- ------
Total unaffiliated municipal
bonds 272,125 6,212,200 6,246,314 82.37 6,285,000 6,339,563 6,359,080 83.67
-------- ---------- ---------- ------ ---------- ---------- ---------- ------
TOTAL $305,408 $7,548,716 $7,582,830 100.00% $7,526,308 $7,580,871 $7,600,388 100.00%
======== ========== ========== ====== ========== ========== ========== ======
</TABLE>
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<PAGE> 8
<TABLE>
SCIOTO INVESTMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Nontaxable interest (net of bond premium amortization and
discount accretion, 1998 - $26,421; 1997 - $30,280;
1996 - $21,513; 1995 - $43,899; 1994 - $33,494; 1993 -
$22,782) (Note 1) $303,234 $311,905 $319,450 $332,004 $ 343,179
Taxable interest 2 6 6 6 4
-------- -------- -------- -------- ---------
Total investment income 303,236 311,911 319,456 332,010 343,183
-------- -------- -------- -------- ---------
OPERATING EXPENSES:
Professional services:
Accounting and bookkeeping 16,775 17,840 16,245 16,550 17,810
Audit and tax 17,793 13,479 14,800 13,250 17,400
Legal 13,010 20,411 11,101 18,139 35,622
Transfer agent fees 4,705 7,352 7,135 6,207 6,341
Directors' fees 9,000 9,500 8,500 8,000 8,000
Miscellaneous 4,285 4,863 3,631 2,514 2,455
-------- -------- -------- -------- ---------
Total operating expenses 65,568 73,445 61,412 64,660 87,628
-------- -------- -------- -------- ---------
INVESTMENT INCOME - NET 237,668 238,466 258,044 267,350 255,555
-------- -------- -------- -------- ---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS -
Unrealized appreciation (depreciation) of investments 13,298 (1,132) (22,324) 65,933 (182,473)
-------- -------- -------- -------- ---------
Net gain (loss) on investments 13,298 (1,132) (22,324) 65,933 (182,473)
-------- -------- -------- -------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $250,966 $237,334 $235,720 $333,283 $ 73,082
======== ======== ======== ======== =========
</TABLE>
See notes to financial statements.
- 5 -
<PAGE> 9
<TABLE>
SCIOTO INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Investments income - net $ 237,668 $ 238,466 $ 258,044 $ 267,350 $ 255,555
Realized and unrealized appreciation
(depreciation) of investments 13,298 (1,132) (22,324) 65,933 (182,473)
---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting
from operations 250,966 237,334 235,720 333,283 73,082
DIVIDENDS TO SHAREHOLDERS FROM INVESTMENT
INCOME - Net (234,726) (236,518) (258,019) (261,603) (253,988)
---------- ---------- ---------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 16,240 816 (22,299) 71,680 (180,906)
NET ASSETS AT BEGINNING OF YEAR 7,631,278 7,630,462 7,652,761 7,581,081 7,761,987
---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR (Including
undistributed net investment income, 1998 -
$190,062; 1997 - $187,120; 1996 - $185,172;
1995 - $185,147; 1994 - $179,400) $7,647,518 $7,631,278 $7,630,462 $7,652,761 $7,581,081
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
- 6 -
<PAGE> 10
SCIOTO INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
ORGANIZATION - The Company was incorporated in 1933 in Ohio. In September
1976 the Company registered under the Investment Company Act of 1940 and
presently operates as a non-diversified, closed-end management company. See
Note 3 regarding sale of Company assets on August 30, 1976, change of
business and name.
SECURITY VALUATION - Investments in municipal bonds are stated at the bid
price as of the end of the year. The bid price (used to determine quoted
market value in the accompanying schedule of investments) is determined
from written quotations received from a reputable broker. Investments in
money market funds are stated at cost which equals market value. At
December 31, 1998, unrealized appreciation of investments of $34,151
consisted of $47,776 of unrealized gains and $13,625 of unrealized losses.
Cost of investments is the same for Federal income tax purposes.
SECURITY TRANSACTIONS - Security transactions are accounted for on the
trade date. Purchases and sales (including maturities) of investments,
excluding money market funds, for the year ended December 31, 1998 were
$3,750,000 and $3,885,000, respectively. Cost of securities sold is
determined using the identified amortized cost basis.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FEDERAL INCOME TAX - The Company's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, principally Sections 851 and 852 of Subchapter M, and
to annually distribute substantially all of its investment income to its
shareholders; accordingly, no Federal income tax provision is required on
net investment income. Realized capital gains are subject to Federal income
tax at regular corporate capital gains tax rates. Realized capital losses
can only be used to offset capital gains.
The Tax Reform Act of 1984 permits certain regulated investment companies
to be personal holding companies as defined in Section 542 of the Internal
Revenue Code. The Company will be able to retain regulated investment
company status for Federal income tax purposes even if it is a personal
holding company. As a personal holding company, the Company is permitted to
invest in taxable investments. If, at the close of each quarter of its
taxable year, at least 50 percent of the value of the total assets of the
Company consist of tax exempt obligations, a pro-rata portion of the
Company's distributions will qualify as exempt interest dividends.
INCOME AND EXPENSE RECOGNITION - Interest income and related expenses are
recognized on the accrual basis. Amortization of bond premiums and
accretion of bond discounts, calculated by the straight-line method, are
charged or credited against interest income over the term of the bond.
- 7 -
<PAGE> 11
2. FINANCIAL HIGHLIGHTS
Selected data for each of the 447,950 common shares of Scioto Investment
Company outstanding for each of the five years in the period ended December
31, 1998 is as follows:
<TABLE>
<CAPTION>
PER SHARE DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $17.04 $17.03 $17.08 $16.92 $17.33
Income from investment
operations:
Investment income (bond interest) 0.68 0.69 0.71 0.74 0.77
Operating expenses (0.15) (0.16) (0.13) (0.15) (0.20)
------ ------ ------ ------ ------
Investment income - net 0.53 0.53 0.58 0.59 0.57
Unrealized and realized gain
(loss) on investments 0.03 .00 (0.05) 0.15 (0.41)
------ ------ ------ ------ ------
Total from investment
operations 0.56 0.53 0.53 0.74 0.16
------ ------ ------ ------ ------
Distributions of investment
income - net (dividends) (0.53) (0.52) (0.58) (0.58) (0.57)
------ ------ ------ ------ ------
Net asset value at end of year $17.07 $17.04 $17.03 $17.08 $16.92
====== ====== ====== ====== ======
Total return (aggregate) 3.29% 3.11% 3.08% 4.40% 0.94%
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating expenses 0.86% 0.96% 0.80% 0.85% 1.14%
Investment income - net 3.11% 3.13% 3.38% 3.51% 3.33%
SUPPLEMENTAL DATA:
Net assets at end
of year $7,647,518 $7,631,278 $7,630,462 $7,652,761 $7,581,081
Number of shares
outstanding at end
of year 447,950 447,950 447,950 447,950 447,950
Portfolio turnover rate 52.86% 16.97% 50.96% 27.71% 20.60%
</TABLE>
- 8 -
<PAGE> 12
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.
4. COMMON SHARES
The status of common shares, stated value of $66 per share, at December 31,
1998 follows:
<TABLE>
<CAPTION>
PAR SHARES
TITLE VALUE AUTHORIZED OUTSTANDING
<S> <C> <C> <C>
Class A $.0066-2/3 4,000,000 108,800
Class B $.0066-2/3 1,000,000 339,150
</TABLE>
On July 29, 1981, the shareholders approved a 25 for 1 reverse stock split
(this adjusted the post reverse split June 30, 1976 equivalent purchase
price to $825 per share) which was effective August 3, 1981 and fractioned
shares were purchased (total of $119,950) by the Company at the rate of
$23.30 per pre-reverse split share based on the June 30, 1981 book value
per share.
- 9 -
<PAGE> 13
On December 13, 1989, the shareholders approved an amendment to the
Articles of Incorporation to increase the authorized number, and reduce the
par value, of the Company's common shares and to eliminate provisions
relating to the authorization of prior preferred stock and preferred stock.
A 50-for-1 stock split, effective on December 14, 1989 (this adjusted the
post split June 30, 1976 equivalent purchase price to $16.50 per share),
was approved by the shareholders. Each share of Class A stock is entitled
to one vote and each share of Class B stock is entitled to ten votes.
******
