Landeskreditbank Baden-Württemberg - L-Bank

using the constant yield method described in “—Debt Securities Denominated in U.S. Dollars—Original Issue
Discount.” Accrued original issue discount is translated into U.S. dollars and the amount of Foreign Currency
gain or loss on the accrued original issue discount in the same manner as described in “—Interest—Accrual
Method” above for qualified stated interest accrued by an accrual method U.S. Holder. U.S. Holders should note
that because the cash payment in respect of accrued original issue discount generally will not be made until
maturity or other disposition of the Discount Debt Security, a greater possibility exists for fluctuations in foreign
currency exchange rates (and the required recognition of exchange gain or loss) than in the case of Foreign
Currency Debt Securities issued without original issue discount. U.S. Holders are urged to consult their tax
advisors regarding the interplay between the application of the original issue discount and foreign currency
exchange gain or loss rules.
Sale, Retirement or other Disposition of Foreign Currency Debt Securities. Except as discussed above with
respect to Short-Term Debt Securities, upon the sale, retirement or other disposition of a Debt Security, a U.S.
Holder will recognize taxable gain or loss equal to the difference between the amount realized on the sale,
retirement or other disposition and the U.S. Holder’s adjusted tax basis in the Debt Security. To the extent the
amount realized represents accrued but unpaid interest, however, such amounts must be taken into account as
interest income as described above. The amount realized will be based on the U.S. dollar value of the Foreign
Currency on the date the payment is received or the Debt Security is disposed of (or deemed disposed of as a
result of a material change in the terms of the Debt Security). In the case of a Debt Security that is denominated
in Foreign Currency and is traded on an established securities market, a cash basis U.S. Holder (or, upon election,
an accrual basis U.S. Holder) will determine the U.S. dollar value of the amount realized by translating the
Foreign Currency at the spot rate on the settlement date of the sale.
A U.S. Holder’s initial tax basis in a Debt Security will be the U.S. dollar value of the Foreign Currency
amount paid for such Debt Security, determined on the date of such purchase. A U.S. Holder’s adjusted tax basis
in a Debt Security generally will equal the cost of the Debt Security to such Holder, increased by the amounts of
original issue discount previously included in income by the Holder with respect to such Debt Security and
reduced by any payment under the Debt Security other than a payment of qualified stated interest. In the case of a
Debt Security that is denominated in Foreign Currency and is traded on an established securities market, a cash
basis U.S. Holder (or, upon election, an accrual basis U.S. Holder) will determine the U.S. dollar value of the
amount paid by translating the Foreign Currency at the spot rate on the settlement date of the purchase.
Except as discussed in the following paragraph with respect to exchange gains or losses, any gain or loss
recognized upon the sale, retirement or other disposition of a Debt Security generally will be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, retirement or other disposition the Debt Security
has been for more than one year. The deductibility of capital losses is subject to significant limitations.
Gain or loss realized upon the sale, retirement or other disposition of a Debt Security that is attributable to
fluctuations in currency exchange rates will constitute exchange gain or loss with respect to the principal amount
and generally will be taxable as U.S. source ordinary income or loss and will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates generally will equal the difference between
the U.S. dollar value of the Foreign Currency purchase price of the Debt Security, determined on the date the
payment is received or the Debt Security is disposed of, and the U.S. dollar value of the Foreign Currency
purchase price of the Debt Security, determined on the date the U.S. Holder acquired the Debt Security. Such
exchange gain or loss will be recognized only to the extent of the total gain or loss realized by the U.S. Holder on
the sale, retirement or other disposition.
Disposition of Foreign Currencies. A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, retirement or other disposition of a Debt Security equal to the U.S. dollar value of such
Foreign Currency at the spot rate on the date the Foreign Currency is received. Any exchange gain or loss
realized by a U.S. Holder on a subsequent conversion of Foreign Currency generally will be ordinary income or
loss.
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