<PAGE>
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, 2000, 1999 and 1998 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,
1999, 1998 and 1997.
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, 2000, a summary
of the Annual Meeting of Shareholders, and a summary of the Penn Traffic Company
matter are attached hereto as pages 3-6. A schedule of investments as of
December 31, 1999 was included in the Company's Annual Report for 1999. Net
investment income per share for the six month periods ended June 30, 2000, 1999
and 1998 was $0.214, $0.178 and $0.242 respectively.
Respectfully submitted,
SCIOTO INVESTMENT COMPANY
Stephen Kellough, Chairman and President
<PAGE>
UNAUDITED CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
----------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in tax exempt bonds, at quoted market
values (amortized cost: 2000, $7,232,443;
1999, $6,538,731; 1998, $7,511,436) 7,110,699 $ 6,470,542 7,530,198
Cash and cash equivalents 342,631 1,029,879 60,876
Accrued interest receivable 54,656 47,393 50,222
Prepaid expenses 167 284 283
----------- ----------- -----------
TOTAL ASSETS 7,508,153 7,548,098 7,641,579
----------- ----------- -----------
LIABILITIES:
Accrued expenses 13,378 21,841 14,427
----------- ----------- -----------
TOTAL LIABILITIES 13,378 21,841 14,427
----------- ----------- -----------
NET ASSETS (net asset value per common share, based upon
447,950 common shares outstanding:
2000, $16.73; 1999, $16.80; 1998, $17.03) $ 7,494,775 $ 7,526,257 $ 7,627,152
=========== =========== ===========
</TABLE>
<PAGE>
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
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME - Nontaxable interest income,
net of bond premium amortization and discount
accretion of $10,799 in 2000; $14,013 in 1999;
and $12,731 in 1998 $ 150,955 $ 139,774 $ 151,291
---------- ---------- ----------
OPERATING EXPENSES:
Professional services 35,268 44,081 34,670
Directors' fees 6,000 5,750 5,000
Other expenses 5,111 10,352 3,005
---------- ---------- ----------
TOTAL OPERATING EXPENSES 46,379 60,183 42,675
---------- ---------- ----------
NET INVESTMENT INCOME 104,576 79,591 108,616
NET GAIN (LOSS) ON INVESTMENTS:
Realized loss on sale of bonds (8,699) - -
Unrealized appreciation (depreciation) of investments 14,228 (102,303) (754)
---------- ---------- ----------
TOTAL NET GAIN (LOSS) ON INVESTMENTS 5,529 (102,303) (754)
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 115,633 $ (22,712) $ 107,862
========== ========== ==========
</TABLE>
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income $ 104,576 $ 79,591 $ 108,616
Realized loss on sale of bonds (8,699) - -
Unrealized appreciation (depreciation) of investments 14,228 (102,303) (754)
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 110,105 (22,712) 107,862
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME 94,070 98,549 111,988
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS 16,035 (121,261) (4,126)
NET ASSETS, BEGINNING OF PERIOD 7,478,740 7,647,518 7,631,278
---------- ---------- ----------
NET ASSETS, END OF PERIOD, including undistributed
net investment income of $ 191,876, $171,104 and
$183,749 respectively $7,494,775 $7,526,257 $7,627,152
========== ========== ==========
</TABLE>
<PAGE>
SCIOTO INVESTMENT COMPANY
FIFTH THIRD/THE OHIO COMPANY ACCOUNT PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
CURRENT MARKET EST. ANNUAL EST
SYMBOL QUANTITY DESCRIPTION PRICE VALUE INCOME YLD
<S> <C> <C> <C> <C> <C> <C>
BONDS - MUNICIPAL
OHI010086CQ7 200,000 AKRON OHIO SWR SYS REV 99.034 198,068.00 8,000.00 4.03%
BOOK ENTRY ONLY FGIC
4% 12/01/01
OHI067203BV0 300,000 BARBERTON OHIO CITY SCH DIST 97.455 292,365.00 13,050.00 4.46%
BOOK ENTRY ONLY FGIC
4.35% 11/01/04
OHIO89707FX6 100,000 BIG WALNUT OHIO LOC SCH DIST D 99.430 99,430.00 4,200.00 4.22%
BOOK ENTRY ONLY AMSAC BNKQL
4.2% 12/01/01
CLOH5.125%06 255,000 CINCINNATI OHIO BOOK ENTRY ONL 101.664 259,243.20 13,068.75 5.04%
@ 101.648 TO YLD 4.83% UT N/C
5.125% 12/01/06
CLOH4.85%00 300,000 CLERMONT CNTY OHIO HOSP FACS R 100.059 300,177.00 14,550.00 4.84%
MERCY HEALTH SYS SER B AMBAC R
4.85% 09/01/00
CLOH3.70%01 650,000 CLEVELAND OHIO MBIA BOOK ENTRY 98.528 640,432.00 24,050.00 3.75%
ONLY LT NON CALLABLE
4.55% 09/15/99
OHI199521AW5 200,000 COLUMBUS OHIO MUN ARPT AUTH RE 98.627 197,254.00 9,000.00 4.56%
BOOK ENTRY ONLY AMBAC
4.5% 01/01/03
daoh3.60%01 300,000 DAYTON OHIO G/O FGIC 98.318 294,954.00 10,800.00 3.66%
BOOK ENTRY ONLY N/C
3.6% 12/01/01
DAOH3.65%02 400,000 DAYTON OHIO B/O FGIC 96.694 290,079.00 10,950.00 3.77%
BOOK ENTRY ONLY N/C
3.65% 12/01/02
DEOH3.30%00 340,000 DELAWARE CNTY OHIO SWR DIST IM 99.441 338,099.40 11,220.00 3.31%
BOOK ENTRY ONLY REOF @PAR N/C
3.3% 12/01/00
OHI2637IGBE9 150,000 DUBLIN OHIO CITY SCH DIST 100.347 150,520.50 7,875.00 5.23%
BOOK ENTRY ONLY AMBAC
5.25% 12/01/00
OHI263715EH3 200,000 DUBLIN OHIO LOC SCH DIST 101.105 202,210.00 14,250.00 7.04%
REGISTERED
7.125% 12/01/00
HMOH6.40%05 125,000 HAMILTON CNTY OHIO SWR SYS REV 103.720 129,228.00 8,000.00 6.17%
RFDG SER A REG O.I.D. REOF @97
6.4% 12/01/05
OHI407837AZ6 200,000 HAMILTON OHIO WASTEWTR SYS REV 97.114 194,228.00 8,600.00 4.42%
BOOK ENTRY ONLY
4.3% 10/15/04
HIOH5.20%08 300,000 HILLIARD OHIO SCH DIST SCH IMP 101.357 304,071.00 15,600.00 5.13%
ENTRY ONLY REOF @ PART UT N/C
5.2% 12/01/98
LEOH4%01 100,000 LEBANON OHIO MTG SWR SYS REV F 98.848 98,848.00 4,000.00 4.04%
AMBAC BOKO ENTRY ONLY REOF CIO
4% 12/01/01
HIOH5.15%07 300,000 HILLIARD OHIO SCH DIST SCH IMP 101.226 303,678.00 15,450.00 5.08%
ENTRY ONLY REOFC PAR UT N/C
5.15% 12/01/07
OCOH4.80%04 200,000 LOCKLAND OHIO CTY SCH DIST RF 100.020 200,040.00 9,600.00 4.79%
IMP & AMBAC BOOK ENTRY ONLY REO
4.8% 12/01/04
OHI531150CR9 100,000 LIBERTY OHIO LOC SCH DIST 99.880 99,880.00 4,150.00 4.15%
BOOK ENTRY ONLY FGIC
4.15% 12/01/00
MOOH4.90%01 200,000 MONTGOMERY CNTY OHIO GTR MORAI 100.020 200,040.00 9,600.00 4.79%
BEAVER CREEK SWR REV RFDG FGIC
4.9% 09/01/01
</TABLE>
<PAGE>
SCIOTO INVESTMENT COMPANY
FIFTH THIRD/THE OHIO COMPANY ACCOUNT PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
CURRENT MARKET EST. ANNUAL EST
SYMBOL QUANTITY DESCRIPTION PRICE VALUE INCOME YLD
<S> <C> <C> <C> <C> <C> <C>
OHI630684CP1 100,000 NAPOLEON OHIO CITY SCH DIST 99.855 99,885.00 4,150.00 4.15%
BOOK ENTRY ONLY AMBAC BNKQL
4.15% 12/01/00
OHOH4%06 300,000 OHIO ST PUB FACS COMMN HIGHER 93.218 279,654.00 12,000.00 4.29%
FACS SER II C FSA BOOK ENTRY ONLY
4% 06/01/06
OHOH4.1%07 200,000 OHIO ST PUB FACS COMMN HIGHER 92.710 185,420.00 8,200.00 4.42%
FACS SER II C FSA BOOK ENTRY ONLY
4.1% 06/01/07
OIOH4.50%03 300,000 OHIO ST PUB FACS COMMN FRDG HI 99.059 297,117.00 13,500.00 4.54%
CAP FACS SER II-A FSA BOOK ENTRY ONLY
4.5% 12/01/03
OHOH5.00%09 900,000 OHIO ST. UNIV. GEN RCPTS SER A B 99.403 894,627.00 45,000.00 5.03%
ONLY REOFC 99.533 TO YLD 5.06%
5% 12/01/09
OH1914116CS5 400,000 UNIVERSITY CINCINNATI OHIO CTF 96.927 290,781.00 13,200.00 4.53%
BOOK ENTRY ONLY MBIA
4. 4% 12/01/05
WAOH4.85%05 170,000 WARRENSVILLE HEIGHTS OHIO CITY 100.044 170,074.80 8,245.00 4.84%
SCH IMPT FGIC BOOK ENTRY ONLY
4.85% 12/01/05
OHI981100FC9 100,000 WOOSTER OHIO CITY SCH DIST 98.869 98,869.00 4,300.00 4.34%
BOOK ENTRY ONLY
4.3% 12/01/02
</TABLE>
<PAGE>
SCIOTO INVESTMENT COMPANY
SUMMARY OF ANNUAL MEETING OF SHAREHOLDERS
The Company held its 2000 Annual Meeting of Shareholders June 2, 2000. 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
60,139 were represented; and of the 339,150 Class B common shares outstanding
(ten votes per share), 399150 were represented; therefore, 399,289 of the common
shares representing approximately 89.1% of the total voting power of the Company
were represented at the meeting.
A resolution fixing the number of Directors at six passed with 3,451,389
votes FOR, 0 votes AGAINST and 250 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, votes WITHHELD and votes NOT CAST as indicated below.
Name Votes For Votes Withheld
---- --------- --------------
Stephen Kellough 3,451,389 0
Marilyn Brown Kellough 3,451,389 0
Donald C. Fanta 3,451,389 0
John Josephson 3,451,389 0
Kent K. Rinker 3,451,389 0
Paul D. Trott 3,451,389 0
A resolution to ratify the selection of Deloitte & Touche LLP as the
independent accountants for Scioto Investment Company for the 2000 year passed
with 3,451,389 votes FOR, 0 votes AGAINST and 250 votes to ABSTAIN.
<PAGE>
SUMMARY OF THE PENN TRAFFIC MATTER
As described in Note 3 to the Company's Audited Annual Report for the year
ended December 31, 1999 (repeated below), the Company could be liable for the
payment of certain non-cancelable lease obligations should The Penn Traffic
Company (a Delaware corporation), a leasee 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.
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, 1999,
the remaining minimum future lease rental commitments during the non-
cancelable lease terms are approximately $2,940,000 ($3,400,000 at December
31, 1998) and the total of the non-cancelable leases plus total option
periods minimum future lease rental commitments are approximately
$13,840,000 ($16,920,000 at December 31, 1998), 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 $770,000 ($1,040,000 at December
31, 1998) in annual minimum rentals at December 31, 1999.
In December 1998 Penn defaulted on its debt obligations. Subsequently, Penn
reached an agreement with its creditors and implemented the restructuring
plan. Based upon the current circumstances and available information, no
losses have been recorded by the Company or any claims submitted to the
Company. 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; new 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.
*Prior to August 30, 1976.
In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"),
a leading food retailer in Ohio and northern West Virginia. In April 1993, Big
Bear was merged into the Penn Traffic Company.
