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/07.61= TAX MA 'ITERS Opinion On the date of initial delivery of the Bonds, Fisher & Newsom, P.C., Austin, Texas, Bond Counsel, will render their opinion that, in accordance with statutes, regulations, published rulings and court dedsions existing on the date thereof, (1) interest on the Bonds for federal income ta.x purposes will be excludable from the "gross income" of the holders thereof and (2) the Bonds will not be treated as "private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(aX5) of the Internal Revenue Code of 1986 (the "Code"). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds. See Appendix C - Fonn of Opinion of Bond Counsel. In rendering their opinion, Bond Counsel will rely upon (a) the City's no-arbitrage certificate and the verification report prepared by Grant Thronton, and (b) covenants of the City with respect to arbitrage, the application of the proceeds to be received from the issuance and sale of the Bonds and certain other matters. Failure of the City to comply with these representations or covenants could cause the interest on the Bonds to become includable in gross income retroactively to the date of issuance of the Bonds. The law upon which Bond Counsel have based their opinion is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Bonds. Federal Income Tax Accounting Treatment of Original Issue Discount The initial public offering price to be paid for one or more maturities of the Bonds (the "Original Issue DiscoWlt Bonds") may be less than the principal amoWlt thereQf. In such event, the difference between (i) the amoWlt payable at the maturity of each Original Issue DiscoWlt Bond, and (ii) the initial offering price to the public of such Original Issue DiscoWlt Bond would constitute original issue discount with respect to such Original Issue Discount Bond in the hands of any owner ,..rho has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Under existing law, such iIÌitial owner is entitled to exclude trom gross income (as derIDed in section 61 of the Code) an amount otlncome with respect to such Original Issue DiscoWlt Bond equal to that portion of the amount of such original issue discount allocable to the peiiod that such Original Issue Discount Bond continues to be owned by such owner. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other ta.xable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such o\llner in excess of the basis of such Original Issue Discount Bond in the hands of such o\llner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial o....ner) is includable in gross income. ( Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond fòr purposes of detennining the amoWlt of gain or loss ~g:nized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discoWlt accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond. The federal income ta.'C consequences of the purchase, o\llnership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ trom those described above. All o\llners of Original Issue DiscoWlt Bonds should consult their o\vn tax advisors with respect to the determination for federal, state and local income ta.x purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, o\ll1lership, redemption, sale or other disposition of such Original Issue Discount Bonds. Collateral Federal Income Tax Consequences The follo\lling discussion is a summary of certain collateral federal income ta.x consequences resulting from the purchase, ownership or disposition of the Bonds. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively.