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TAX EXEMPTION At closing Bond Counsel will render an opinion that, at the time of their issuance and delivery to the original purchaser, under present federal and State of Minnesota laws, regulations, rulings and deci- sions (which excludes any pending legislation which may have a retroactive effect), the interest on each Bond is excluded from gross income for purposes of United States income tax and is excluded, to the same extent, in computing both gross income and taxable net income for purposes of State of Minnesota income tax (other than Minnesota franchise taxes measured by income and imposed on cor- porations and financial institutions), and that interest on the Bonds is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations or the Minnesota alternative minimum tax applicable to individuals, estates or trusts; provided that inter- est on the Bonds is subject to federal income taxation to the extent it is included as part of adjusted cur - rent earnings for purposes of computing the alternative minimum tax imposed on certain corporations. No opinion will be expressed by Bond Counsel regarding other federal or state tax consequences caused by the receipt or accrual of interest on the Bonds or arising with respect to ownership of the Bonds. Preservation of the exclusion of interest on the Bonds from federal gross income and state gross and taxable net income, however, depends upon compliance by the City with all requirements of the Internal Revenue Code of 1986, as amended, (The "Code ") that must be satisfied subsequent to the is- suance of the Bonds in order that interest thereon be (or continue to be) excluded from federal gross income and state gross and taxable net income. The City will covenant to comply with requirements necessary under the Code to establish and main- tain the Bonds as tax - exempt under Section 103 thereof, including without limitation, requirements re- lating to temporary periods for investments and limitations on amounts invested at a yield greater than the yield on the Bonds. OTHER FEDERAL TAX CONSIDERATIONS Property and Casualty Insurance Companies Property and casualty insurance companies are required to reduce the amount of their loss reserve de- duction by 15% of the amount of tax- exempt interest received or accrued during the taxable year on certain obligations acquired after August 7, 1986, including interest on the Bonds. Foreign Insurance Companies Foreign companies carrying on an insurance business in the United States are subject to a tax on in- come which is effectively connected with their conduct of any trade or business in the United States, including "net investment income." Net investment income includes tax - exempt interest such as inter- est on the Bonds. Branch Profits Tax A foreign corporation is subject to a branch profits tax equal to 30% of the "dividend equivalent amount" for the taxable year. The "dividend equivalent amount" is the foreign corporation's "effec- tively connected earnings and profits," adjusted for increase or decrease in "U.S. net equity." A branch's earnings and profits may include tax- exempt municipal bond interest, such as interest on the Bonds. Passive Investment Income of S Corporations 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 25% of the gross receipts of such S corporation is passive in- vestment income. -15-