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71 <br /> on a Discount Bond is interest not includable in the gross income of an owner who purchases such Discount <br /> Bond in the original offering at the initial public offering price thereof and holds it to maturity, and such <br /> owner will not realize taxable gain upon payment of such Discount Bond at maturity. Owners who purchase <br /> Discount Bonds at a price other than the initial offering price or who do not purchase Discount Bonds in <br /> the initial public offering should consult their tax advisors with respect to the consequences of the ownership <br /> of such Discount Bonds. An owner who purchases a Discount Bond in the initial offering at the initial <br /> offering price and holds such Discount Bond to maturity is deemed under existing federal tax laws and <br /> regulations to accrue original issue discount on a constant yield basis under Section 1288 of the Code from <br /> the date of original issue. An owner's adjusted basis in a Discount Bond is increased by accrued original <br /> issue discount for purposes of determining gain or loss on sale, exchange or other disposition of such <br /> Discount Bond. Accrued original issue discount may be taken into account as an increase in the amount of <br /> tax-exempt interest received or deemed to have been received for purposes of determining various other <br /> tax consequences of owning a Discount Bond, including in the calculation of adjusted current earnings of <br /> corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations, <br /> even though there will not be a corresponding cash payment. <br /> Bond Counsel's opinion will not address issues relating to the treatment of original issue discounts <br /> on Discount Bonds. Owners and prospective purchasers of Discount Bonds should consult their own <br /> tax advisors regarding the calculation of accrued original issue discount for federal income tax <br /> purposes and any North Carolina or other state and local tax consequences in connection with the <br /> ownership or disposition of Discount Bonds. <br /> PREMIUM BONDS <br /> The initial public offering prices of the 2020 Bonds maturing on October 1, 20_through October <br /> 1, 20 , inclusive (collectively, the "Premium Bonds"), are greater than the amounts payable at maturity. <br /> The difference between (a) the initial offering prices to the public (excluding bond houses, brokers or <br /> similar persons or organizations acting in the capacity of underwriters, placement agents, wholesalers or <br /> other intermediaries) at which a substantial amount of each maturity of the Premium Bonds is sold and(b) <br /> the principal amount payable at maturity of such Premium Bonds constitutes original issue premium. In <br /> general, an owner of a Premium Bond must amortize the bond premium over the remaining term of the <br /> Premium Bond based on the owner's yield over the remaining term of the Premium Bond,determined based <br /> on constant yield principles(in certain cases involving a Premium Bond callable prior to its stated maturity <br /> date,the amortization period and yield may be required to be determined on the basis of an earlier call date <br /> that results in the lowest yield on such Premium Bond). An owner of a Premium Bond must amortize the <br /> bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the <br /> owner's regular method of accounting against the bond premium allocable to that period and subtract such <br /> bond premium from the owner's basis in such Premium Bond. If the bond premium allocable to an accrual <br /> period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible <br /> loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon <br /> disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the <br /> owner's original acquisition cost. <br /> Bond Counsel's opinion will not specifically address any issues relating to the treatment of <br /> premium paid on, or attributable to, Premium Bonds. Owners and prospective purchasers of Premium <br /> Bonds should consult their own tax advisors regarding the treatment of bond premium for federal <br /> income tax purposes and any North Carolina or other state and local tax consequences in connection <br /> with receipt of bond premium or otherwise with respect to the ownership and disposition of Premium <br /> Bonds. <br /> 17 <br />