INDEPENDENT SCHOOL DISTRICT NO (N.R.H.E.G.), MINNESOTA

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1 ADDENDUM DATED AUGUST 19, 2008 TO OFFICIAL STATEMENT DATED AUGUST 7, 2008 New Issue MN Credit Enhancement Rating: Standard & Poor's Credit Markets "AAA" Underlying Rating: Non-Rated $3,045,000 GENERAL OBLIGATION ALTERNATIVE FACILITIES BONDS, SERIES 2008A INDEPENDENT SCHOOL DISTRICT NO (N.R.H.E.G.), MINNESOTA Schedule of Maturity Dates, Principal Amounts, Interest Rates and Yields Serial Bonds Maturity (February 1) Amount Interest Rate Yield CUSIP Base Maturity (February 1) Amount Interest Rate Yield CUSIP Base $170,000 $175,000 $180,000 $185,000 $195,000 $200,000 $210, % 3.500% 3.500% 3.500% 3.500% 3.500% 4.000% 2.100% 2.500% 2.700% 3.000% 3.100% 3.250% 3.400% BC3 BD1 BE9 BF6 BG4 BH2 BJ $220,000 $225,000 $235,000 $245,000 $255,000 $270,000 $280, % 4.000% 4.000% 4.000% 4.150% 4.200% 4.250% 3.600% 3.750% *3.850% 4.000% 4.150% 4.200% 4.250% BK5 BL3 BM1 BN9 BP4 BQ2 BR0 *Priced to call Wells Fargo Brokerage Services, LLC, Syndicate Manager, has agreed to purchase the Bonds from the School District for an aggregate price of $3,071, plus accrued interest to the date of delivery. It is expected that the Bonds will be available for delivery on or about September 10, Book-Entry-Only: This offering will be issued as fully registered Bonds and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, to which principal and interest payments on the Bonds will be made. Paying Agent: U.S. Bank National Association, St. Paul, Minnesota. THIS ADDENDUM TOGETHER WITH THE OFFICIAL STATEMENT DATED AUGUST 7, 2008, SHALL CONSTITUTE A "FINAL OFFICIAL STATEMENT" OF THE ISSUER WITH RESPECT TO THE BONDS AS THAT TERM IS DEFINED IN RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION. WELLS FARGO BROKERAGE SERVICES, LLC Minneapolis, Minnesota CRONIN & CO., INC. Minneapolis, Minnesota

2 ADDENDUM DATED AUGUST 19, 2008 TO OFFICIAL STATEMENT DATED AUGUST 7, 2008 New Issue MN Credit Enhancement Rating: Standard & Poor's Credit Markets "AAA" Underlying Rating: Non-Rated $510,000 GENERAL OBLIGATION CAPITAL FACILITIES BONDS, SERIES 2008B INDEPENDENT SCHOOL DISTRICT NO (N.R.H.E.G.), MINNESOTA Schedule of Maturity Dates, Principal Amounts, Interest Rates and Yields Serial Bonds Maturity (February 1) Amount Interest Rate Yield CUSIP Base Maturity (February 1) Amount Interest Rate Yield CUSIP Base $40,000 $50,000 $55,000 $55,000 $55, % 3.500% 3.500% 3.500% 3.500% 2.100% 2.500% 2.700% 3.000% 3.100% BS8 BT6 BU3 BV1 BW $60,000 $60,000 $65,000 $70, % 4.000% 4.000% 4.000% 3.250% 3.400% 3.600% 3.750% BX7 BY5 BZ2 CA6 Wells Fargo Brokerage Services, LLC, Syndicate Manager, has agreed to purchase the Bonds from the School District for an aggregate price of $511, plus accrued interest to the date of delivery. It is expected that the Bonds will be available for delivery on or about September 10, Book-Entry-Only: This offering will be issued as fully registered Bonds and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, to which principal and interest payments on the Bonds will be made. Paying Agent: U.S. Bank National Association, St. Paul, Minnesota. THIS ADDENDUM TOGETHER WITH THE OFFICIAL STATEMENT DATED AUGUST 7, 2008, SHALL CONSTITUTE A "FINAL OFFICIAL STATEMENT" OF THE ISSUER WITH RESPECT TO THE BONDS AS THAT TERM IS DEFINED IN RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION. WELLS FARGO BROKERAGE SERVICES, LLC Minneapolis, Minnesota CRONIN & CO., INC. Minneapolis, Minnesota

3 In the opinion of Bond Counsel, under present federal and State of Minnesota laws, regulations and rulings, the interest to be paid on the Series 2008A Bonds and the Series 2008B Bonds of this offering is not includible in gross income of the recipient for United States or in taxable net income of individuals, estates or trusts for State of Minnesota income tax purposes. Interest on the Series 2008A Bonds and the Series 2008B Bonds is includible in taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. See "Tax Exemption" herein for a discussion of federal tax legislation. The District will designate the Series 2008A Bonds and the Series 2008B Bonds as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended, relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. New Issues Rating Application Made: Standard & Poor's (Minnesota School District Credit Enhancement Program) PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 7, 2008 INDEPENDENT SCHOOL DISTRICT NO (N.R.H.E.G.), MINNESOTA $3,045,000* GENERAL OBLIGATION ALTERNATIVE FACILITIES BONDS, SERIES 2008A $510,000** GENERAL OBLIGATION CAPITAL FACILITIES BONDS, SERIES 2008B PROPOSAL OPENING: August 18, 2008, 12:00 Noon, C.T. CONSIDERATION: August 18, 2008, 7:30 P.M., C.T. PURPOSE/AUTHORITY/SECURITY: The $3,045,000 General Obligation Alternative Facilities Bonds, Series 2008A (the "Series 2008A Bonds") are being issued pursuant to Minnesota Statutes, Section 123B.59 (alternative facilities bonding and levy program) by Independent School District No (N.R.H.E.G.), Minnesota (the "District") to provide funds for health and safety projects included in the five-year health and safety plan of the District and approved by the Commissioner of Education. The $510,000 General Obligation Capital Facilities Bonds, Series 2008B (the "Series 2008B Bonds") are being issued pursuant to Minnesota Statutes, Section 123B.61 and Chapter 475, to finance certain capital projects and related financing costs, consisting of the acquisition and betterment of school facilities. The Series 2008A Bonds and the Series 2008B Bonds will be general obligations of the District for which its full faith, credit and taxing powers are pledged. Delivery is subject to receipt of approving legal opinions of Knutson, Flynn & Deans, P.A., Mendota Heights, Minnesota. SERIES 2008A BONDS SERIES 2008B BONDS DATE OF SERIES 2008A BONDS: September 10, 2008 DATE OF SERIES 2008B BONDS: September 10, 2008 MATURITY: February 1 as follows: MATURITY: February 1 as follows: Year Amount* Year Amount* Year Amount** Year Amount** 2010 $170, $220, $40, $65, , , , , , , , , , , , , , , , , , , ,000 ADJUSTMENT: * See "Adjustment Option" herein. ADJUSTMENT: ** See "Adjustment Option" herein. TERM BONDS: See "Term Bond Option" herein. TERM BONDS: See "Term Bond Option" herein. INTEREST: August 1, 2009 and semiannually thereafter. INTEREST: August 1, 2009 and semiannually thereafter. REDEMPTION: Series 2008A Bonds maturing February 1, 2019 and thereafter are subject to call for prior redemption on February 1, 2018 REDEMPTION: The Series 2008B Bonds are being offered without option of prior redemption. and any date thereafter, at par. MINIMUM PROPOSAL: $3,014,550. MINIMUM PROPOSAL: $503,880. GOOD FAITH DEPOSIT: $60,900. GOOD FAITH DEPOSIT: $10,200. PAYING AGENT: U.S. Bank National Association, St. Paul, Minnesota. PAYING AGENT: U.S. Bank National Association, St. Paul, Minnesota. BOOK-ENTRY-ONLY: See "Book-Entry-Only System" herein. BOOK-ENTRY-ONLY: See "Book-Entry-Only System" herein. This Preliminary Official Statement will be further supplemented by an addendum specifying the offering prices, interest rates, aggregate principal amount, principal amount per maturity, anticipated delivery date, and Syndicate Manager and Syndicate Members, together with any other information required by law, and, as supplemented, shall constitute a "Final Official Statement" of the District with respect to the Series 2008A Bonds and Series 2008B Bonds, as defined in S.E.C. Rule 15c2-12.

4 REPRESENTATIONS No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representation other than those contained in this Preliminary Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the District. This Preliminary Official Statement does not constitute an offer to sell or a solicitation of an offer to buy any of the Series 2008A Bonds and the Series 2008B Bonds in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. This Preliminary Official Statement is not to be construed as a contract with the Syndicate Manager or Syndicate Members. Statements contained herein which involve estimates or matters of opinion are intended solely as such and are not to be construed as representations of fact. Ehlers & Associates, Inc. prepared this Preliminary Official Statement and any addenda thereto relying on information of the District and other sources for which there is reasonable basis for believing the information is accurate and complete. Bond Counsel has not participated in the preparation of this Preliminary Official Statement except as described herein and is not expressing any opinion as to the completeness or accuracy of the information contained therein. Compensation of Ehlers & Associates, Inc., payable entirely by the District, is contingent upon the sale of the issue. COMPLIANCE WITH S.E.C. RULE 15c2-12 Certain municipal obligations (issued in an aggregate amount over $1,000,000) are subject to General Rules and Regulations, Securities Exchange Act of 1934, Rule 15c2-12 Municipal Securities Disclosure (the "Rule"). Preliminary Official Statement: This Preliminary Official Statement was prepared for the District for dissemination to potential customers. Its primary purpose is to disclose information regarding the Series 2008A Bonds and the Series 2008B Bonds to prospective underwriters in the interest of receiving competitive proposals in accordance with the sale notice contained herein. Unless an addendum is posted prior to the sale, this Preliminary Official Statement shall be deemed nearly final for purposes of the Rule subject to completion, revision and amendment in a Final Official Statement as defined below. Review Period: This Preliminary Official Statement has been distributed to members of the legislative body and other public officials of the District as well as to prospective bidders for an objective review of its disclosure. Comments or requests for the correction of omissions or inaccuracies must be submitted to Ehlers & Associates at least two business days prior to the sale. Requests for additional information or corrections in the Preliminary Official Statement received on or before this date will not be considered a qualification of a proposal received from an underwriter. If there are any changes, corrections or additions to the Preliminary Official Statement, interested bidders will be informed by an addendum at least one business day prior to the sale. Final Official Statement: Upon award of sale of the Series 2008A Bonds and the Series 2008B Bonds, the Preliminary Official Statement together with any previous addendum of corrections or additions will be further supplemented by an addendum specifying the offering prices, interest rates, aggregate principal amount, principal amount per maturity, anticipated delivery date, and Syndicate Manager and Syndicate Members, together with any other information required by law, and, as supplemented, shall constitute a "Final Official Statement" of the District with respect to the Series 2008A Bonds and the Series 2008B Bonds, as defined in S.E.C. Rule 15c2-12. Copies of the Final Official Statement will be delivered to the underwriter (Syndicate Manager) within seven business days following the proposal acceptance. Continuing Disclosure: Subject to certain exemptions, issues in an aggregate amount over $1,000,000 may be required to comply with provisions of the Rule which require that underwriters obtain from the issuers of municipal securities (or other obligated party) an agreement for the benefit of the owners of the securities to provide continuing disclosure with respect to those securities. This Preliminary Official Statement describes the conditions under which the Series 2008A Bonds and the Series 2008B Bonds are exempt or required to comply with the Rule. CLOSING CERTIFICATES Upon delivery of the Series 2008A Bonds and the Series 2008B Bonds, the purchaser (underwriter) will be furnished with the following items: (1) a certificate of the appropriate officials to the effect that at the time of the sale of the Series 2008A Bonds and the Series 2008B Bonds and all times subsequent thereto up to and including the time of the delivery of the Series 2008A Bonds and the Series 2008B Bonds, this Preliminary Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (2) a receipt signed by the appropriate officer evidencing payment for the Series 2008A Bonds and the Series 2008B Bonds; (3) a certificate evidencing the due execution of the Series 2008A Bonds and the Series 2008B Bonds, including statements that (a) no litigation of any nature is pending, or to the knowledge of signers, threatened, restraining or enjoining the issuance and delivery of the Series 2008A Bonds and the Series 2008B Bonds, (b) neither the corporate existence or boundaries of the District nor the title of the signers to their respective offices is being contested, and (c) no authority or proceedings for the issuance of the Series 2008A Bonds and the Series 2008B Bonds have been repealed, revoked or rescinded; and (4) a certificate setting forth facts and expectations of the District which indicates that the District does not expect to use the proceeds of the Series 2008A Bonds and the Series 2008B Bonds in a manner that would cause them to be arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, or within the meaning of applicable Treasury Regulations. ii

5 TABLE OF CONTENTS INTRODUCTORY STATEMENT... 1 THE SERIES 2008A BONDS... 1 GENERAL... 1 OPTIONAL REDEMPTION... 2 AUTHORITY; PURPOSE... 2 ESTIMATED SOURCES AND USES... 2 SECURITY... 2 THE SERIES 2008B BONDS... 3 GENERAL... 3 OPTIONAL REDEMPTION... 3 AUTHORITY; PURPOSE... 3 ESTIMATED SOURCES AND USES... 4 SECURITY... 4 PROVISIONS COMMON TO BOTH THE SERIES 2008A BONDS AND THE SERIES 2008B BONDS... 5 RATING... 5 MINNESOTA CREDIT ENHANCEMENT PROGRAM FOR SCHOOL DISTRICTS... 5 CONTINUING DISCLOSURE... 6 LEGAL OPINION... 6 TAX EXEMPTION AND RELATED CONSIDERATIONS. 6 QUALIFIED TAX-EXEMPT OBLIGATIONS... 7 FINANCIAL ADVISOR... 7 RISK FACTORS... 7 VALUATIONS... 9 CURRENT PROPERTY VALUATIONS /08 NET TAX CAPACITY BY CLASSIFICATION TREND OF VALUATIONS LARGER TAXPAYERS THE ISSUER EMPLOYEES PENSIONS; UNIONS LIABILITIES FOR OTHER POST EMPLOYMENT BENEFITS FUNDS ON HAND STUDENT SCHOOL BUILDINGS LITIGATION SUMMARY GENERAL FUND INFORMATION GENERAL INFORMATION LOCATION LARGER EMPLOYERS POPULATION TREND U.S. CENSUS DATA EMPLOYMENT/UNEMPLOYMENT DATA AGRICULTURAL STATISTICS FINANCIAL SERVICES MEDICAL FACILITIES EXCERPTS FROM FINANCIAL STATEMENTS...A-1 FORM OF LEGAL OPINIONS... B-1 BOOK-ENTRY-ONLY SYSTEM... C-1 FORM OF CONTINUING DISCLOSURE CERTIFICATE. D-1 TERMS OF PROPOSAL SERIES 2008A BONDS... E-1 TERMS OF PROPOSAL SERIES 2008B BONDS... E-6 DEBT DIRECT DEBT EQUALIZED DEBT SERVICE SCHEDULE OF BONDED INDEBTEDNESS BONDED DEBT LIMIT OVERLAPPING DEBT DEBT PAYMENT HISTORY DEBT RATIOS FUTURE FINANCING LEVY LIMITS TAX LEVIES AND COLLECTIONS TAX COLLECTIONS TAX CAPACITY RATES iii

6 BOARD OF EDUCATION Rick Schultz Rick Firme Sandy Tollefson Richard Mueller Richard Chicos John Harrington Neil Schlaak Chairperson Vice Chairperson Clerk Treasurer Director Director Director ADMINISTRATION Kevin Wellen, Superintendent of Schools Karla Christopherson, Business Manager PROFESSIONAL SERVICES Knutson, Flynn & Deans, P.A., Bond Counsel, Mendota Heights, Minnesota Ehlers & Associates, Inc., Financial Advisors, Roseville, Minnesota (Other offices located in Brookfield, Wisconsin and Lisle, Illinois) iv

7 INTRODUCTORY STATEMENT This Preliminary Official Statement contains certain information regarding Independent School District No (N.R.H.E.G.), Minnesota (the "District") and the issuance of its $3,045,000 General Obligation Alternative Facilities Bonds, Series 2008A (the "Series 2008A Bonds") and $510,000 General Obligation Capital Facilities Bonds, Series 2008B (the "Series 2008B Bonds"), collectively referred to herein as the "Bonds." Any descriptions or summaries of the Bonds, statutes, or documents included herein are not intended to be complete and are qualified in their entirety by reference to such statutes and documents and the forms of the Series 2008A Bonds and the Series 2008B Bonds to be included in the resolutions awarding the sale of the Series 2008A Bonds and the Series 2008B Bonds to be adopted by the Board of Education on August 18, Inquiries may be directed to Ehlers & Associates, Inc. ("Ehlers" or the "Financial Advisor"), Roseville, Minnesota, (651) , the District's Financial Advisor. A copy of this Preliminary Official Statement may be downloaded from Ehlers web site at by connecting to the link to the Bond Sales and following the directions at the top of the site. THE SERIES 2008A BONDS GENERAL The Series 2008A Bonds will be issued in fully registered form as to both principal and interest in denominations of $5,000 each or any integral multiple thereof, and will be dated, as originally issued, as of September 10, The Series 2008A Bonds will mature on February 1 in the years and amounts set forth on the cover of this Preliminary Official Statement. Interest will be payable on February 1 and August 1 of each year, commencing August 1, 2009, to the registered owners of the Series 2008A Bonds appearing of record in the bond register as of the close of business on the 15th day (whether or not a business day) of the immediately preceding month. Interest will be computed upon the basis of a 360-day year of twelve 30-day months and will be rounded pursuant to rules of the MSRB. All Series 2008A Bonds of the same maturity will bear interest from date of issue until paid at a single, uniform rate. The Series 2008A Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). (See "Book-Entry-Only System" herein.) As long as the Series 2008A Bonds are held under the book-entry system, beneficial ownership interests in the Series 2008A Bonds may be acquired in book-entry form only, and all payments of principal of, premium, if any, and interest on the Series 2008A Bonds shall be made through the facilities of DTC and its Participants. If the book-entry system is terminated, principal of, premium, if any, and interest on the Series 2008A Bonds shall be payable as provided in the resolution awarding the sale of the Series 2008A Bonds. The District has selected U.S. Bank National Association, St. Paul, Minnesota, to act as paying agent (the "Paying Agent"). The District will pay the charges for Paying Agent services. The District reserves the right to remove the Paying Agent and to appoint a successor. 1

8 OPTIONAL REDEMPTION At the option of the District, Series 2008A Bonds maturing on or after February 1, 2019 shall be subject to prior payment on February 1, 2018 or on any date thereafter, at a price of par plus accrued interest. Redemption may be in whole or in part of the Series 2008A Bonds subject to prepayment. If redemption is in part, the selection of the amounts and maturities of the Series 2008A Bonds to be prepaid shall be at the discretion of the District. If only part of the Series 2008A Bonds having a common maturity date are called for redemption, the District or Paying Agent, if any, will notify DTC of the particular amount of such maturity to be redeemed. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interest in such maturity to be redeemed. Notice of such call shall be given by mailing a notice not more than 60 days and not fewer than 30 days prior to the date fixed for redemption to the registered owner of each Series 2008A Bond to be redeemed at the address shown on the registration books. AUTHORITY; PURPOSE The $3,045,000 General Obligation Alternative Facilities Bonds, Series 2008A (the "Series 2008A Bonds") are being issued pursuant to Minnesota Statutes, Section 123B.59 (alternative facilities bonding and levy program) by Independent School District No (N.R.H.E.G.), Minnesota (the "District") to provide funds for health and safety projects included in the five-year health and safety plan of the District and approved by the Commissioner of Education. ESTIMATED SOURCES AND USES Sources Uses Par Amount of Series 2008A Bonds $3,045,000 Total Sources $3,045,000 Project Costs $2,939,273 Discount Allowance 30,450 Finance Related Expenses 26,807 Capitalized Interest 48,470 Total Uses $3,045,000 SECURITY In accordance with Minnesota Statutes, the District will levy each year an amount not less than 105% of the debt service requirements on the Bonds. In the event funds on hand for payment of principal and interest are at any time insufficient, the District is required to levy additional taxes upon all taxable properties within its boundaries without limit as to rate or amount to make up any deficiency. The Bonds are general obligations of the District to which its full faith, credit and taxing powers are pledged. 2

9 THE SERIES 2008B BONDS GENERAL The Series 2008B Bonds will be issued in fully registered form as to both principal and interest in denominations of $5,000 each or any integral multiple thereof, and will be dated, as originally issued, as of September 10, The Series 2008B Bonds will mature on February 1 in the years and amounts set forth on the cover of this Preliminary Official Statement. Interest will be payable on February 1 and August 1 of each year, commencing August 1, 2009, to the registered owners of the Series 2008B Bonds appearing of record in the bond register as of the close of business on the 15th day (whether or not a business day) of the immediately preceding month. Interest will be computed upon the basis of a 360-day year of twelve 30-day months and will be rounded pursuant to rules of the MSRB. All Series 2008B Bonds of the same maturity will bear interest from date of issue until paid at a single, uniform rate. The Series 2008B Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). (See "Book-Entry-Only System" herein.) As long as the Series 2008B Bonds are held under the book-entry system, beneficial ownership interests in the Series 2008B Bonds may be acquired in book-entry form only, and all payments of principal of, premium, if any, and interest on the Series 2008B Bonds shall be made through the facilities of DTC and its Participants. If the book-entry system is terminated, principal of, premium, if any, and interest on the Series 2008B Bonds shall be payable as provided in the resolution awarding the sale of the Series 2008B Bonds. The District has selected U.S. Bank National Association, St. Paul, Minnesota, to act as paying agent (the "Paying Agent"). The District will pay the charges for Paying Agent services. The District reserves the right to remove the Paying Agent and to appoint a successor. OPTIONAL REDEMPTION The Series 2008B Bonds are being offered without option of prior redemption. AUTHORITY; PURPOSE The $510,000 General Obligation Capital Facilities Bonds, Series 2008B (the "Series 2008B Bonds") are being issued pursuant to Minnesota Statutes, Section 123B.61 and Chapter 475, to finance certain capital projects and related financing costs, consisting of the acquisition and betterment of school facilities. 3

10 ESTIMATED SOURCES AND USES Sources Par Amount of Series 2008B Bonds $510,000 Total Sources $510,000 Uses Project Costs $492,570 Discount Allowance 6,120 Finance Related Expenses 11,310 Total Uses $510,000 SECURITY The Bonds are general obligations of the District to which its full faith, credit and taxing powers are pledged. In accordance with Minnesota Statutes, the District will levy each year an amount not less than 105% of the debt service requirements on the Bonds. 1 In the event funds on hand for payment of principal and interest are at any time insufficient, the District is required to levy an ad valorem tax upon all taxable properties within its boundaries without limit as to rate or amount to make up any deficiency. 1 For Capital Facilities Bonds issued pursuant to Minnesota Statutes Section 123B.62, the District is required to make an annual debt service levy equal to 105% of the debt service requirements on the Bonds. There will be an offsetting reduction each year in the District s general fund tax levy. 4

11 PROVISIONS COMMON TO BOTH THE SERIES 2008A BONDS AND THE SERIES 2008B BONDS The following information pertains to both the Series 2008A Bonds and the Series 2008B Bonds which are collectively referred to hereinafter as the "Bonds." RATING The District will be participating in the State of Minnesota Credit Enhancement Program ("MNCEP") for the Bonds and is requesting a rating from Standard & Poor s. Standard & Poor s has a policy which assigns a minimum rating of "AAA" to issuers participating in the State of Minnesota Credit Enhancement Program. The "AAA" rating is based on the State of Minnesota s current "AAA" rating from Standard & Poor s. See "Minnesota Credit Enhancement Program" for further details. The District does not currently have an underlying rating. MINNESOTA CREDIT ENHANCEMENT PROGRAM FOR SCHOOL DISTRICTS By resolution adopted for the Bonds on July 21, 2008 (the "Resolution"), the District has covenanted and obligated itself to be bound by the provisions of Minnesota Statutes, Section 126C.55, which provides for payment by the State of Minnesota in the event of a potential default of a school district obligation (herein referred to as the "State Payment Law" or the "Law"). The provisions of the State Payment Law shall be binding on the District as long as any obligations of the issue remain outstanding. Under the State Payment Law, if the District believes it may be unable to make a principal or interest payment for this issue on the due date, it must notify the Commissioner of the Department of Education as soon as possible, but not less than 15 working days prior to the due date, (which notice is to specify certain information) and will use the provisions of the Law to guarantee payment of the principal and interest when due. The District also covenants in the Resolution to deposit with the paying agent for the issue three business days prior to the date on which a payment is due an amount sufficient to make that payment or to notify the Commissioner of the Department of Education that it will be unable to make all or a portion of the payment. The Law also requires the paying agent for this issue to notify the Commissioner of the Department of Education if it becomes aware of a potential default in the payment of principal and interest on these obligations, or if, on the day two business days prior to the payment date, there are insufficient funds to make the payment or deposit with the paying agent. After receipt of a notice which requests a payment pursuant to the Law, after consultation with the paying agent and District, and after verifying the accuracy of the information provided, the Commissioner of the Department of Education shall notify the Commissioner of Finance of the potential default. The State Payment Law provides that "upon receipt of this notice... the Commissioner of Finance shall issue a warrant and authorize the Commissioner of the Department of Education to pay to the paying agent for the debt obligation the specified amount on or before the date due. The amounts needed for purposes of subdivision are annually appropriated to the Department of Education from the state general fund." 5

12 CONTINUING DISCLOSURE In order to assist the Underwriters in complying with SEC Rule 15c2-12 promulgated by the Securities and Exchange Commission, pursuant to the Securities Exchange Act of 1934 (the "Rule"), the District shall covenant pursuant to a Resolution adopted by the Governing Body to enter into an undertaking (the "Undertaking") for the benefit of holders of the Bonds to provide certain financial information and operating data relating to the District upon request, and to provide notices of the occurrence of certain events enumerated in the Rule to certain information repositories or the Municipal Securities Rulemaking Board and to any state information depository. The details and terms of the Undertaking, as well as the information to be contained in any requested report or the notices of material events and the name, address and telephone number of the person to contact to request a report, are set forth in the Continuing Disclosure Certificate to be executed and delivered by the District at the time the Bonds are delivered. Such Certificate will be in substantially the form attached hereto as Appendix D. The District has never failed to comply in all material respects with any previous undertakings under the Rule to provide requested reports or notices of material events. A failure by the District to comply with the Undertaking will not constitute an event of default on the Bonds (although holders will have any available remedy at law or in equity). Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. LEGAL OPINION An opinion as to the validity of the Bonds and the exemption from taxation of the interest thereon will be furnished by Knutson, Flynn & Deans, P.A., Mendota Heights, Minnesota, bond counsel to the District, and will accompany the Bonds. The legal opinion will state that the Bonds are valid and binding general obligations of the District enforceable in accordance with their terms, except to the extent to which enforceability may be limited by Minnesota or United States laws relating to bankruptcy, reorganization, moratorium or creditors' rights generally. TAX EXEMPTION AND RELATED CONSIDERATIONS In the opinion of Knutson, Flynn & Deans, P.A., as Bond Counsel, on the basis of laws in effect on the date of issuance of the Bonds, interest on the Bonds is not includible in gross income for federal income tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. Interest on the Bonds is includible in taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. Certain provisions of the Internal Revenue Code of 1986, as amended (the Code), however, impose continuing requirements that must be met after the issuance of the Bonds in order for interest thereon to be and remain not includible in federal gross income and in Minnesota taxable net income. Noncompliance with such requirements by the District may cause the interest on the Bonds to be includible in federal gross income and in Minnesota taxable net income, retroactive to the date of issuance of the Bonds, irrespective in some cases of the date on which such noncompliance occurs or is ascertained. No provision has been made for redemption of or for an increase in the interest rate on the Bonds in the event that interest on the Bonds becomes includible in federal gross income or Minnesota taxable net income. Interest on the Bonds is not an item of tax preference includible in alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternative minimum tax applicable to individuals, estates and trusts, but is includible in adjusted current earnings in determining the alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax and the environmental tax imposed by Section 59A of the Code. Interest on the Bonds may be includible in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code and is includible in 6

13 the net investment income of foreign insurance companies for purposes of Section 842(b) of the Code. In the case of an insurance company subject to the tax imposed by Section 831 of the Code, the amount which otherwise would be taken into account as losses incurred under Section 832(b)(5) of the Code must be reduced by an amount equal to fifteen percent of the interest on the Bonds that is received or accrued during the taxable year. Section 86 of the Code requires recipients of certain Social Security and railroad retirement benefits to take into account interest on the Bonds in determining the taxability of such benefits. Passive investment income, including interest on the Bonds, may be subject to federal income taxation under Section 1375 of the Code for an S corporation that has Subchapter C earnings and profits at the close of the taxable year if more than twenty-five percent of its gross receipts is passive investment income. Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds. The foregoing is not intended to be an exhaustive discussion of collateral tax consequences arising from receipt of interest on the Bonds. Prospective purchasers or Bondholders should consult their tax advisors with respect to collateral tax consequences, including without limitation the calculations of alternative minimum tax, environmental tax or foreign branch profits tax liability or the inclusion of Social Security or other retirement payments in taxable income. QUALIFIED TAX-EXEMPT OBLIGATIONS The District will designate the Bonds as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Code relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. FINANCIAL ADVISOR Ehlers has served as Financial Advisor to the District in connection with the issuance of the Bonds. The Financial Advisor will not participate in the underwriting of the Bonds. The financial information included in this Preliminary Official Statement has been compiled by the Financial Advisor. Such information does not purport to be a review, audit or certified forecast of future events and may not conform with accounting principles applicable to compilations of financial information. Ehlers is not a firm of certified public accountants. RISK FACTORS Following is a description of possible risks to holders of these Bonds without weighting as to probability. This description of risks is not intended to be all-inclusive, and there may be other risks not now perceived or listed here. Taxes: The Bonds of this offering are general obligations of the District, the ultimate payment of which rests in the District's ability to levy and collect sufficient taxes to pay debt service. State Actions: Many elements of local government finance, including the issuance of debt and the levy of property taxes, are controlled by state government. Past and future actions of the State may affect the overall financial condition of the District, the taxable value of property within the District, and the ability of the District to levy property taxes. Ratings; Interest Rates: In the future, the District's credit rating may be reduced or withdrawn, or interest rates for this type of obligation may rise generally, either possibility resulting in a reduction in the value of the Bonds for resale prior to maturity. 7

14 Tax Exemption: If the federal government or the State of Minnesota taxes the interest on municipal obligations, directly or indirectly, or if there is a change in federal or state tax policy, the value of the Bonds may fall for purposes of resale. Noncompliance following the issuance of the Bonds with certain requirements of the Code and covenants of the bond resolution may result in the inclusion of interest on the Bonds in gross income of the recipient for United States or in taxable net income of individuals, estates or trusts for State of Minnesota income tax purposes. No provision has been made for redemption of the Bonds, or for an increase in the interest rate on the Bonds, in the event that interest on the Bonds becomes subject to United States or State of Minnesota income taxation, retroactive to the date of issuance. Continuing Disclosure: A failure by the District to comply with the Undertaking for continuing disclosure (as described herein) will not constitute an event of default on the Bonds. Any such failure must be reported in accordance with the Rule and must be considered by any broker, dealer, or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. State Economy; State Aids: State cash flow problems could affect local governments and possibly increase property taxes. Book-Entry-Only System: The timely credit of payments for principal and interest on the Bonds to the accounts of the Beneficial Owners of the Bonds may be delayed due to the customary practices, standing instructions or for other unknown reasons by DTC participants or indirect participants. Since the notice of redemption or other notices to holders of these obligations will be delivered by the District to DTC only, there may be a delay or failure by DTC, DTC participants or indirect participants to notify the Beneficial Owners of the Bonds. Economy: A combination of economic, climatic, political or civil disruptions or terrorist actions could affect the local economy and result in reduced tax collections and/or increased demands upon local government. 8

15 VALUATIONS OVERVIEW All non-exempt property is subject to taxation by local taxing districts. Exempt real property includes Indian lands, public property, and educational, religious and charitable institutions. Most personal property is exempt from taxation (except investor-owned utility mains, generating plants, etc.). The valuation of property in Minnesota consists of two elements. (1) The estimated market value is set by city or county assessors. Not less than 20% of all real properties are to be appraised by local assessors each year. (2) The tax capacity (taxable) value of property is determined by class rates set by the State Legislature. The tax capacity rate varies according to the classification of the property. Tax capacity represents a percent of estimated market value. The property tax rate for a local taxing jurisdiction is determined by dividing the total tax capacity or market value of property within the jurisdiction into the dollars to be raised from the levy. State law determines whether a levy is spread on tax capacity or market value. Major classifications and the percentages by which tax capacity is determined are: Type of Property 2005/ / /08 Residential homestead 1 First $500, % Over $500, % Agricultural homestead 1 First $500,000 HGA % Over $500,000 HGA % First $600, % 2 Over $600, % 2 First $500, % Over $500, % First $500,000 HGA % Over $500,000 HGA % First $690, % 2 Over $690, % 2 First $500, % Over $500, % First $500,000 HGA % Over $500,000 HGA % First $790, % 2 Over $790, % 2 Agricultural non-homestead Land % 2 Land % 2 Land % 2 Seasonal recreational residential First $500, % 3 Over $500, % 3 First $500, % 3 Over $500, % 3 First $500, % 3 Over $500, % 3 Residential non-homestead: 1 unit - 1st $500, % Over $500, % 2-3 units % 4 or more % Small City % Industrial/Commercial/Utility 5 First $150, % Over $150, % 1 unit - 1st $500, % Over $500, % 2-3 units % 4 or more % Small City % First $150, % Over $150, % 1 unit - 1st $500, % Over $500, % 2-3 units % 4 or more % Small City % First $150, % Over $150, % A residential property qualifies as "homestead" if it is occupied by the owner or a relative of the owner on the assessment date. Applies to land and buildings. Exempt from referendum market value tax. Exempt from referendum market value tax. Cities of 5,000 population or less and located entirely outside the seven-county metropolitan area and the adjacent nine-county area and whose boundaries are 15 miles or more from the boundaries of a Minnesota city with a population of over 5,000. The estimated market value of utility property is determined by the Minnesota Department of Revenue. 9

16 CURRENT PROPERTY VALUATIONS Estimated Full Value of Taxable Property, 2007/08 $824,165, /08 Assessor's Taxable Market Value Waseca County Steele County Freeborn County Total Real Estate $318,129,200 $228,284,200 $184,889,000 $731,302,400 Personal Property 10,048,600 6,064,900 8,954,500 25,068,000 Total Valuation $328,177,800 $234,349,100 $193,843,500 $756,370,400 Mobile Home Valuation 2 $2,349,500 $122,500 $0 $2,472, /08 Net Tax Capacity Waseca County Steele County Freeborn County Total Real Estate $ 2,777,647 $ 2,138,528 $1,619,574 $ 6,535,749 Personal Property 200, , , ,968 Net Tax Capacity $ 2,977,853 $ 2,259,359 $1,797,505 $ 7,034,717 Less: Captured Tax Increment Tax Capacity 3 (24,849) (10,995) 0 (35,844) Taxable Net Tax Capacity $ 2,953,004 $ 2,248,364 $1,797,505 $ 6,998,873 Mobile Home Valuation 2 $23,495 $34,800 $0 $58,295 1 According to the Minnesota Department of Revenue, the Assessor's Taxable Market Value (the "ATMV") for Independent School District No (N.R.H.E.G.) is about 91.8% of the actual selling prices of property most recently sold in the District. That sales ratio was calculated by comparing the selling prices with the ATMV. Dividing the ATMV of real estate by and adding personal property and mobile home ATMV, if any, results in an "Estimated Full Value of Taxable Property" for the District of $824,165, Mobile home valuations are not included in the net tax capacity for purposes of determining tax capacity rates. However, valuations of mobile homes are determined at the beginning of the collection year, and the same tax capacity rates are applied to mobile home net tax capacity valuations as to real estate and personal property. 3 The captured tax increment value shown above represents the captured net tax capacity of tax increment financing districts located in the District. 10

17 2007/08 NET TAX CAPACITY BY CLASSIFICATION 2007/08 Net Tax Capacity Percent of Total Net Tax Capacity Residential homestead $ 1,846, % Agricultural 4,038, % Commercial/industrial 175, % Public utility 141, % Railroad operating property 40, % Non-homestead residential 181, % Commercial & residential seasonal/rec. 110, % Personal property 498, % Total $ 7,034, % TREND OF VALUATIONS Levy Year Assessor's Taxable Market Value Net Tax Capacity 1 Taxable Net Tax Capacity 2 Percent +/- in Assessor's Taxable Market Value 2003/04 $517,893,500 $ 4,830,476 $ 4,830, % 2004/05 560,508,900 5,316,158 5,316, % 2005/06 629,791,900 5,913,240 5,913, % 2006/07 698,380,700 6,530,342 6,505, % 2007/08 756,370,400 7,034,717 6,998, % 1 Net Tax Capacity includes tax increment values. 2 Taxable Net Tax Capacity does not include tax increment values. 11

18 LARGER TAXPAYERS 1 Taxpayer Type of Property 2007/08 Assessor's Taxable Market Value 2007/08 Net Tax Capacity Alliance Pipeline Utility $14,319,300 $285,636 Northern Natural Gas Company Utility 13,447, ,203 Individual Agricultural/Residential 4,328,000 43,280 Individual Agricultural 3,507,300 27,027 Demmer's Rolling Acres Agricultural 2,921,900 25,665 Individual Agricultural 2,884,300 25,288 Individual Residential/Agricultural 2,527,800 21,723 Individual Agricultural/Residential 2,429,000 21,624 Individual Agricultural 2,472,600 21,100 Individual Agricultural 2,333,400 19,779 Source: Current Property Valuations, Net Tax Capacity by Classification, Trend of Valuations and Larger Taxpayers have been furnished by Freeborn, Steele and Waseca Counties. 1 In 2006, the estimated median commercial and industrial sales ratio used to equalize utility values in Freeborn County dropped below 90% to 86.50% and below 90% to 74.89% in Waseca County, thereby resulting in lower valuations for this classification of property. Depreciation may also have affected the decrease in valuations. 12

19 DEBT DIRECT DEBT 1 General Obligation Debt (see schedule following) Total g.o. debt being paid from taxes (includes the Bonds of this offering) $ 6,045,000 EQUALIZED DEBT SERVICE The Minnesota Debt Service Equalization program provides for state participation in the payment of principal and interest on bonds. Under the Debt Service Equalization Formula (the Formula) adopted by the 2001 Minnesota State Legislature, each school district is responsible for the amount of its annual debt service which is equal to 15% of its Adjusted Net Tax Capacity (ANTC). The District does not currently qualify for debt service equalization aid. 1 Outstanding debt is as of the dated date of the Bonds. 13

20 INDEPENDENT SCHOOL DISTRICT NO (N.R.H.E.G.), MINNESOTA Schedule of Bonded Indebtedness General Obligation Debt Being Paid From Taxes (As of 9/10/08) This Issue This Issue Refunding 1) Refunding 2) Series 2008A Series 2008B Dated Amount 11/01/02 11/01/07 9/10/08 9/10/08 $2,075,000 $1,840,000 $3,045,000 $510,000 Maturity 2/01 2/01 2/01 2/01 Fiscal Year Estimated Estimated Total Total Total Principal Fiscal Year Ending Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest P & I Outstanding % Paid Ending ,000 12, ,000 37, , ,000 97, ,853 5,510, % ,000 12, ,000 66, , ,753 40,000 29, , ,287 1,012,287 4,730, % ,000 57, , ,908 50,000 20, , , ,310 4,260, % ,000 47, , ,395 55,000 18, , , ,998 3,760, % ,000 37, , ,275 55,000 16, , , ,078 3,245, % ,000 25, , ,615 55,000 14, , , ,530 2,705, % ,000 13, ,000 93,205 60,000 11, , , ,238 2,135, % ,000 85,205 60,000 9, ,000 94, ,273 1,865, % ,000 76,805 65,000 6, ,000 83, ,083 1,580, % ,000 67,730 70,000 3, ,000 70, ,985 1,285, % ,000 58, ,000 58, ,168 1,050, % ,000 47, ,000 47, , , % ,000 37, ,000 37, , , % ,000 25, ,000 25, , , % ,000 13, ,000 13, , % ,000 24,570 1,840, ,699 3,045,000 1,116, , ,004 6,045,000 1,557,248 7,602,248 1) This issue refunded the 2004 through 2010 maturities of former Independent School District No. 827 (New Richland-Hartland)'s $3,100,000 General Obligation Refunding Bonds, Series 1993A, dated April 1, ) This issue refunded the 2009 through 2015 maturities of the District's $2,860,000 General Obligation School Building Refunding Bonds, Series 1998A, dated March 1, Prepared by Ehlers 8/7/2008 G.O. Taxes 14

21 BONDED DEBT LIMIT Minnesota Statutes, Section , subdivision 4, presently limits the "net debt" of a school district to 15% of its Estimated Full Value of Taxable Property and certain exempt property situated within the school district. The current debt limit of the District is computed as follows: 2007/08 Estimated Full Value of Taxable Property $ 824,165,708 Multiply by 15% 0.15 Statutory Debt Limit $ 123,624,856 Less: Long-Term Debt Outstanding Being Paid Solely from Taxes (includes the Bonds of this offering) (6,045,000) Unused Debt Limit $ 117,579,856 OVERLAPPING DEBT 1 Taxing District 2007/08 Taxable Net Tax Capacity % In District Total G.O. Debt District's Proportionate Share Freeborn County $ 27,653, % $ 11,225,000 $ 729,625 Steele County 33,810, % 17,865,000 1,187,992 Waseca County 17,688, % 4,065, ,171 City of Ellendale 352, % 180, ,000 City of Heartland 127, % 65,000 65,000 City of New Richland 452, % 1,785,000 1,785,000 District's Share of Total Overlapping Debt $ 4,628,788 DEBT PAYMENT HISTORY The District has never defaulted in the payment of principal and interest on its debt. 1 Only those taxing jurisdictions with general obligation debt outstanding are included in this section. Does not include non-general obligation debt, self-supporting g.o. revenue debt, short-term general obligation debt, or general obligation tax/aid anticipation certificates of indebtedness. 15

22 DEBT RATIOS Debt/Estimated Full Value of Taxable Property ($824,165,708) Debt/5,255 Estimated Population G.O. Debt Direct G.O. Debt Being Paid From: Taxes $6,045,000 Less: Funds on Hand 1 (176,294) Net General Obligation Debt $5,868, % $1, District's Share of Total Overlapping Debt $4,628, % $ FUTURE FINANCING The District reports no plans for additional financing in the next three months. LEVY LIMITS Minnesota school district tax levies for most purposes are subject to statutory limitations. No limit, however, is placed on the debt service levy, and districts are required to levy 105% of actual principal and interest requirements to allow for delinquencies. School districts receive a basic revenue amount per pupil unit from aid and levy proceeds in a variety of categorical state aids. They are also allowed to certify additional levies within limits for certain specified purposes. The State Department of Education and the applicable County Auditors review the levies of each school district to determine compliance with state levy limits. 1 Funds on hand for debt redemption (available for payment of principal and interest) have been deducted from total general obligation debt to determine net general obligation debt. 16

23 TAX LEVIES AND COLLECTIONS TAX COLLECTIONS Tax Year Original Gross Tax Levy 1 Total Collected Following Year Collected to Date 2 % Collected 2003/04 $ 827,895 $ 817,283 $ 827, % 2004/05 775, , , % 2005/06 878, , , % 2006/07 1,015,018 1,008,776 1,010, % 2007/08 1,053,194 In process of collection Property taxes are collected in two installments in Minnesota--the first by May 15 and the second by October 15. Mobile home taxes are collectible in full by August 31. Minnesota Statutes require that levies (taxes and special assessments) for debt service be at least 105% of the actual debt service requirements to allow for delinquencies. 1 The Original Gross Tax Levy reflects the property tax levy certified by the District prior to reductions for state credits and aids, e.g. disparity reduction aid, education homestead credit, and education agricultural credit, etc. 2 Collections are through May 31, 2008 for Freeborn County and through December 31, 2007 for Steele and Waseca Counties, and include abatements, cancellations, mobile home collections, and homestead and agricultural credits. 17

24 TAX CAPACITY RATES / / / / /08 I.S.D. No (N.R.H.E.G.) % % % % % Freeborn County % % % % % Steele County % % % % % Waseca County % % % % % City of Ellendale % % % % % City of Geneva % % % % % City of Hartland % % % % % City of New Richland % % % % % Town of New Richland % % 9.128% 8.179% 7.571% Region % 0.240% 0.222% 0.202% 0.196% Turtle Creek Watershed 0.613% 0.540% 0.575% 1.057% 1.172% Waseca County HRA 0.540% 0.504% 0.472% 0.434% 0.416% Referendum Market Value Rates: I.S.D. No (N.R.H.E.G.) % % % % % Source: Tax Collections and Tax Capacity Rates have been furnished by Freeborn, Steele and Waseca Counties. 1 After reduction for state aids. Does not include the statewide general property tax against commercial/industrial, non-homestead resorts and seasonal recreational residential property. 2 Representative town rate. 18

25 THE ISSUER EMPLOYEES The District is governed by an elected school board and employs a staff of 157, including 75 non-licensed employees and 82 licensed employees (74 of whom are teachers). The District provides education for 970 students in grades kindergarten through twelve. PENSIONS; UNIONS Teachers Retirement Association (TRA) All teachers employed by the District are covered by defined benefit pension plans administered by the State of Minnesota Teachers Retirement Association (TRA). TRA members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Security and Basic members are not. All new members must participate in the Coordinated Plan. These plans are established and administered in accordance with Minnesota Statutes, Chapter 354 and 356. Public Employees Retirement Association (PERA) All full-time and certain part-time employees of the District (other than those covered by TRA) are covered by a defined benefit plan administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Fund (PERF) which is a cost-sharing, multiple-employer retirement plan. This plan is established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. Recognized and Certified Bargaining Units Expiration Date of Bargaining Unit Current Contract Education Minnesota - Teachers June 30, 2009 Education Minnesota - Paraprofessionals June 30, 2008 AFSCME, Local No June 30, 2008 Status of Contracts Contracts which expired on June 30, 2008 are currently in negotiations. 19

26 LIABILITIES FOR OTHER POST EMPLOYMENT BENEFITS The District has obligations for some post-employment benefits based on contractual agreements and State Statutes. Accounting for these obligations will be dictated by new Governmental Accounting Standards Board Statements Nos. 43 and 45 (GASB 43 and 45). Although the District is not yet required to implement GASB 43 and 45, it has undertaken a review of its OPEB liabilities and has established a reserved fund balance to begin reserving funds to cover future health insurance expenses for qualifying retired staff. FUNDS ON HAND (as of June 30, 2007) Total Cash Fund and Investments General Fund $ 2,256,488 Food Service 23,496 Community Service (9,422) Debt Service 176,294 Trust & Agency Fund 127,831 Total Funds on Hand $ 2,574,687 20

27 STUDENT BODY The number of students enrolled for the past four years and for the current year have been as follows: Year Kindergarten-Grade 6 Grades 7-12 Total 2003/ / / / / Enrollments for the next three years are projected to be as follows: Year Kindergarten-Grade 6 Grades 7-12 Total 2008/ / / SCHOOL BUILDINGS School Building Year Constructed Years of Additions/ Remodelings New Richland Elementary & N.R.H.E.G. High School , 1969, 1990 Ellendale Elementary & N.R.H.E.G. Middle School , 1992 LITIGATION There is no litigation threatened or pending questioning the organization or boundaries of the District or the right of any of its officers to their respective offices or in any manner questioning their rights and power to execute and deliver these Bonds or otherwise questioning the validity of these Bonds. 21

28 SUMMARY GENERAL FUND INFORMATION Following are summaries of the revenues and expenditures and fund balances for the District's General Fund for the past five fiscal years. These summaries are not purported to be the complete audited financial statements of the District. Copies of the complete audited financial statements are available upon request. See Appendix A for excerpts from the District's 2007 audited financial statement. Beginning in 2004 the District prepared their financial statements in accordance with Governmental Accounting Standards Board Statement No. 34. FISCAL YEAR ENDING JUNE 30 COMBINED STATEMENT Revenues Local Property Tax Levies $ 69,729 $ 40,964 $ 70,066 $ 209,458 $ 239,150 Other Local and County Sources 339, , , , ,279 State Sources 6,349,276 6,351,763 6,228,795 6,607,901 6,836,327 Federal Sources 149, , , , ,844 Local Sales and Insurance Recovery 0 106,095 87,786 22,283 46,703 Total Revenues $ 6,908,183 $ 7,100,258 $ 7,077,262 $ 7,663,310 $ 7,890,303 Expenditures Administration $ 538,151 $ 572,178 $ 595,092 $ 517,345 $ 551,575 District Support Services 140, , , , ,309 Regular Instruction 3,638,348 3,554,214 3,725,937 3,919,403 3,962,964 Vocational Instruction 140, , , , ,369 Special Education Instruction 1,215,501 1,332,924 1,325,857 1,390,547 1,364,628 Instructional Support Services 207, , , , ,082 Pupil Support Services 595, , , , ,292 Sites and Buildings 807, ,875 1,093, , ,723 Fiscal and Other Fixed Cost Programs 30,148 35,687 45,690 41,118 37,058 Total Expenditures $ 7,313,625 $ 7,617,089 $ 7,888,706 $ 7,760,224 $ 7,959,000 Excess of revenues over (under) expenditures $ (405,442) $ (516,831) $ (811,444) $ (96,914) $ (68,697) Other Financing Sources (Uses) Sale of Equipment $ 0 $ 9,000 $ 0 $ 0 $ 1,700 Operating transfers in Operating transfers out Total Other Financing Sources (Uses) $ 0 $ 9,000 $ 0 $ 0 $ 1,700 Excess of revenues and other financing sources over (under) expenditures and other financing uses $ (405,442) $ (507,831) $ (811,444) $ (96,914) $ (66,997) General Fund Balance July 1 4,145,116 3,739,674 3,231,843 2,420,399 2,323,485 Prior Period Adjustment Residual Equity Transfer in (out) General Fund Balance June 30 $ 3,739,674 $ 3,231,843 $ 2,420,399 $ 2,323,485 $ 2,256,488 DETAILS OF JUNE 30 FUND BALANCE Reserved $ 1,805,359 $ 1,550,384 $ 1,218,262 $ 1,163,940 $ 1,182,124 Unreserved: Designated 688, , , Undesignated 1,245, , ,436 1,159,545 1,074,364 Total $ 3,739,674 $ 3,231,843 $ 2,420,399 $ 2,323,485 $ 2,256,488 For fiscal year 2008, the District experienced slightly declining enrollment, increased costs associated with heating, transportation and special education. In addition, State funding has not kept up with inflation. The District has a fund balance that is greater than 20 percent of its general fund budget. This allowed the District to spend down its fund balance instead of reducing costs allowing them to maintain the current quality of programming. In addition, the District will be holding a levy referendum election on November 4, If the election is successful, this will generate over $500,000 a year for the next ten years in new revenue for the District. 22

29 GENERAL INFORMATION LOCATION The District, with a 2000 estimated population of 5,255 and comprising an area of 240 square miles, is located approximately 100 miles south of the Minneapolis-St. Paul metropolitan area. LARGER EMPLOYERS Larger employers in the District include the following: Firm Type of Business/Product No. of Employees 1 I.S.D. No (N.R.H.E.G.) Elementary and secondary education 157 New Richland Care Center Nursing home 108 All Generations Home Care, Inc. In-home health care services 90 Zareba Systems Manufacture and install electric fence systems 86 L & D Ag Services Fertilizer and chemical application equipment 25 George's of Geneva Restaurant 24 Richards Wood Products Wood crates and corporate headquarters 24 Watonwan Farm Services Fertilizer and feed blending 24 Central Valley Co-op Fertilizer products and agronomy inputs 23 Steve's Meat Market Meat processing and store 22 Source: Written and telephone survey (July, 2008), the 2008 Minnesota State Business Directory and the 2008 Minnesota Manufacturers Register. 1 Includes full-time, part-time and seasonal. 23

30 POPULATION TREND Population Trend: Independent School District No (N.R.H.E.G.), Minnesota 1990 Estimated population 5, Estimated population 5,255 Percent of Change % U.S. CENSUS DATA Income and Age Statistics (2000) N.R.H.E.G. School District City of New Richland Waseca County State of Minnesota 1999 per capita income $18,219 $18,106 $18,631 $23, median household income $41,467 $36,406 $42,440 $47, median family income $48,175 $46,339 $50,081 $56,874 Median gross rent $334 $315 $402 $566 Median value owner occupied housing $80,400 $66,500 $87,700 $122,400 Median age N/A 41.6 yrs yrs yrs. Source: 2000 Census of Population and Housing, U.S. Department of Commerce. EMPLOYMENT/UNEMPLOYMENT DATA Rates are not compiled for individual communities within counties. Average Employment Average Unemployment Year Waseca County Waseca County State of Minnesota , % 4.6% , % 4.2% , % 4.0% , % 4.6% 2008, June 9, % 5.3% Source: Minnesota Department of Employment and Economic Development. 24

31 AGRICULTURAL STATISTICS The 2007 Minnesota Agricultural Statistics reports the following production in Waseca County in 2006: Waseca County State of Minnesota Crop Acres Harvested Total Production Yield Per Acre Yield Per Acre Corn 117,900 21,339,900 bu bu bu. Soybeans 97,100 5,340,500 bu bu bu. Hay 6,100 24,900 tons 4.1 tons 2.7 tons Sweet Corn 5,600 41,780 tons 7.46 tons 7.34 tons Green Peas 2,500 3,670 tons 1.47 tons 1.62 tons FINANCIAL SERVICES Financial institutions located in the District include the following: City of Ellendale: City of Geneva: City of Hartland: City of New Richland: First National Bank (Branch of Waseca) Commerce Bank Farmers State Bank of Hartland State Bank of New Richland Source: American Financial Directory. MEDICAL FACILITIES Following is a summary of in-patient health care facilities located in the District: Name of Facility Type of Facility Location No. of Beds New Richland Care Center Nursing Home New Richland 56 Source: Minnesota Department of Health. N:\MNSD\NRHEG\BISUM\2008A$3045.sept (alt fac)\os.mtr.2008a&b.wpd KH:GO/dll:wl 25

32 APPENDIX A EXCERPTS FROM FINANCIAL STATEMENTS Reproduced on the following pages are excerpts from the District's audited Financial Statements for the fiscal year ending June 30, The Financial Statements have been prepared by the District and audited by a certified public accountant. The Management s Discussion and Analysis and the Notes to Financial Statements are an integral part of the audit and any judgment of the Financial Statements should be based on the Financial Statements as a whole. Copies of the complete audited financial statements for the past three years and the current budget are available upon request from Ehlers. A-1

33 A - 2

34 A - 3

35 A - 4

36 A - 5

37 A - 6

38 A - 7

39 A - 8

40 A - 9

41 A - 10

42 A - 11

43 A - 12

44 A - 13

45 A - 14