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In the opinion of Bond c unsel, under present laws and rulings, interest on the <br />Bonds is not includable in gross income for purposes of federal income taxation or <br />In taxable net income of individuals, eptates or trusts for purposes of Minnesota <br />income taxation. However, certain provisions of f-he Internal Revenue Code of 1986, <br />as amended (the "Code") and related Minnesota tax law provisions do affect the tax <br />treatment of interest on the Bonds for certain taxpayers. The status of interest <br />on the Bonds under those provisions is described below: <br />1. Interest on the Bonds is subject to the Minnesota franchise tax imposed upon <br />corporations, including financial institutions, measured by taxable income and the <br />alternative minimum tax base. <br />2. Interest on the Bonds is not all item of tax preference required to be included <br />in the computation of any federal alternative minimum tax applicable to individuals <br />or the Minnesota alternative minimum tax applicable to individuals, trusts and <br />estates. <br />3. In computing the corporate alternative minimum tax, 50% of the excess of a <br />corporation'R adjusted net "book income" for financial statement purposes of its <br />alternative minimum taxable income (determined without regard to this book income <br />adjustment) is treated as a preference item. Interest on the Bonds is included in <br />determining the adjusted net book income (or earnings and profits) of corpCIrantLuits <br />for the purposes of this computation. <br />',. The Donds are "qualified tax-exempt obligations" for purposes of Section 265(b) <br />of the Code and, therefore, financial institutions may deduct a portion of their <br />interest expenses allocable to the interest received from the Bonds. <br />;. Certain deductions for underwriting losses of property and casualty insurance <br />companies are disallowed by an amount equal to 15% of tax-exempt income received or <br />accrued on obligations such as interest on the Bonds. <br />6. Under the Superfund Amendments and Reauthorization Act of 1986 an ade'tional <br />Lax is imposed on corporations equal to 0.12% of a corporation's :alternative <br />minimum taxable income in excess of $2,000,000 (whether or not the corporation is <br />subject to alternative minimum tax). <br />7. Interest on the Bonds will be saabject to federal income taxation to the extent <br />It is included in "effectively connected" U.S. earnings and profits of a foreign <br />corporation for purposes of the branch profits tax imposed by Section 884 of the <br />Code and is includable in the net investment income f foreign insurance companies <br />for purposes of Section 842(b) of the Code. <br />Interest on the Bonds is includable in the calculation of modified adjusted <br />gross income in determining whether Social Security or railroad retirement payments <br />are to be include'. in taxable income if individuals. <br />9. Passive investment income, Including interest on the Bonds, may be subject to <br />federal income taxation ender Section 1375 of the Code fer an S corporation that <br />has Sub-hapter C earnin ind Profits at tâ–º,e close of the ta:tt!e year if more than <br />25% of its gross receipt.. is passive investment income. <br />Purchasers of ti-e Bonds are encouraged to consult with their personal tax advisors <br />regarding the impact of the foregoing on their individual tax liabilities. <br />4 <br />