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RISK FACTORS <br />Following is a description of possible risks to holders of these Bonds without weighting as to probability. This <br />description of risks is not intended to be all- inclusive, and there may be other risks not now perceived or listed here. <br />Taxes: The Bonds of this offering are general obligations of the City, the ultimate payment of which rests in the <br />City's ability to levy and collect sufficient taxes to pay debt service should other revenue (special assessments) be <br />insufficient. <br />State Actions: Many elements of local government finance, including the issuance of debt and the levy of property <br />taxes, are controlled by state government. Past and future actions of the State may affect the overall financial <br />condition of the City, the taxable value of property within the City, and the ability of the City to levy property taxes. <br />Ratings; Interest Rates: In the future, the City's credit rating may be reduced or withdrawn, or interest rates for this <br />type of obligation may rise generally, both possibilities resulting in a reduction in the value of the Bonds for resale <br />prior to maturity. <br />Tax Exemption: If the federal government or the State of Minnesota taxes the interest on municipal obligations, <br />directly or indirectly, or if there is a change in federal or state tax policy, the value of the Bonds may fall for purposes <br />of resale. Noncompliance following the issuance of the Bonds with certain requirements of the Code and covenants <br />of the bond resolution may result in the inclusion of interest on the Bonds in gross income of the recipient for United <br />States or in taxable net income of individuals, estates or trusts for State of Minnesota income tax purposes. No <br />provision has been made for redemption of the Bonds, or for an increase in the interest rate on the Bonds, in the event <br />that interest on the Bonds becomes subject to United States or State of Minnesota income taxation, retroactive to the <br />date of issuance. <br />The 1995 Minnesota Legislature enacted a statement of intent that interest on obligations of Minnesota governmental <br />units and Indian tribes be included in net income of individuals, estates and trusts for Minnesota income tax purposes <br />if a court determines that Minnesota's exemption of such interest unlawfully discriminates against interstate <br />commerce because interest on obligations of governmental issuers located in other states is so included. This <br />provision applies to taxable years that begin during or after the calendar year in which any such court decision <br />becomes final, irrespective of the date on which the obligations were issued. The City is not aware of any judicial <br />decision holding that a state's exemption of interest on its own bonds or those of its political subdivisions or Indian <br />tribes, but not of interest on the bonds of other states or their political subdivisions or Indian tribes, unlawfully <br />discriminates against interstate commerce or otherwise contravenes the United States Constitution. Nevertheless, <br />the City cannot predict the likelihood that interest on the Bonds would become taxable under this Minnesota statutory <br />provision. <br />Continuing Disclosure: A failure by the City to comply with the Undertaking for continuing disclosure (as <br />described herein) will not constitute an event of default on the Bonds. Any such failure must be reported in <br />accordance with the Rule and must be considered by any broker, dealer, or municipal securities dealer before <br />recommending the purchase or sale of the Bonds in the secondary market. Such a failure may adversely affect the <br />transferability and liquidity of the Bonds and their market price. <br />State Economy; State Aids: State cash flow problems could affect local governments and possibly increase property <br />taxes. <br />5 <br />