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To the City Council and Citizens of the City of Orono <br />May 14,1999 <br />The summary of operations for 1998 and 1997 is as follows: <br />December 31 <br />1998 1997 <br />Gross profit and operating revenue $ 211,166 $ 206,464 <br />Operating expenses 168,311 152,436 <br />Operating income $ 42,855 $ 54,028 <br />The operating income for 1998 does not include nonoperating revenue of $14,976. The operating <br />income for 1997 does not include nonoperating revenue of $15,687. Retained earnings as of <br />December 31,1998 were $455,505, which represents an increase of $58,484 from 1997, net of the <br />eifects of depreciation on contributed assets and nonoperating items. <br />D ebt A dministration <br />At December 31, 1998 the City had seven bond issues outstanding. The City’s legal debt limitation, based <br />on state statutes, equals 2% of market value. All City bonded debt at December 31, 1998 is special <br />assessment or revenue funded and therefore is excluded from the limit. The City bond rating from Moody’s <br />Investors Service is Aal for all bond issues except the 1991 Public Facilities Revenue Bond and the 1998 <br />Public Facilities Revenue Refunding Bond which both have a bond rating from Moody’s Investors Service <br />of Aa2. <br />C ash Management <br />Cash temporarily idle during the year was invested in demand deposits, money market funds, obligations <br />of federal agencies, the U.S. Treasury, obligations of local governmental units, the State of Minnesota, <br />repurchase agreements, bankers’ acceptances, and commercial paper. The City’s investment objective as <br />stated in the investment policy is to first ensure the preservation of capital in the overall portfolio, second <br />to maximize yield while matching maturity dates with expenditure needs, and third to diversify the <br />investment portfolio by financial institution, government agency, or by the corporation in the case of <br />commercial paper to reduce the exposure to risk of loss. At December 31,1998, the City had an investment <br />portfolio including certificates of deposit of $11,895,286, at carrying value diversified as shown in the <br />following table: <br />Type of Investment <br />Carrying <br />Value Percent <br />I <br />Investment Pool - Money Market Fimds $ 52,373 0.4% <br />Certificates of Deposit 971,953 8.2 <br />U.S. Federal Agencies 6,058,579 50.9 <br />U.S. Treasury Obligations 2,755,549 23.2 <br />Commercial Paper 2.056,832 17.3 <br />$ 11,895,286 100.0% <br />-12-