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Arbitrage Report (2013 - May)816-a2 1 -1000 FAX: 816-221-1018 WWW.GILMORESELL.COM Mr. Rod Franz, C.P.F.O. Director of Finance City of Salina, Kansas 300 West Ash Street, Room 206 P. O. Box 736 Salina, Kansas 67402 -0736 OMMORE & BELL A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 2405 GRAND BOULEVARD, SUITE 1100 KANSAS CITY, MISSOURI 64108-2521 May 29, 2013 ST. LOUIS, MISSOURI WICHITA, KANSAS LINCOLN. NEBRASKA Re: $6,875,000 General Obligation Internal Improvement and Refunding Bonds, Series 2010 - A (the "Bonds ") of the City of Salina, Kansas (the "Issuer ") Dear Rod: Enclosed are the following documents related to our computation of arbitrage rebate in connection with the above - referenced Bonds: Exhibit A - Explanation of Arbitrage Rebate Analysis; and Exhibit B - Arbitrage Rebate Analysis as of October 1, 2012 (the "Computation Date "). As of the Computation Date, no rebate payment or yield reduction payment is required to be made for the Bonds. The amount accrued as of the Computation Date as a rebate liability attributable to the investment of the gross proceeds of the Bonds subject to arbitrage rebate was negative $122,697.11. Under the Internal Revenue Code, the first required installment computation date is the earlier of October 1, 2014 or the date the last Bond is paid. The next annual computation will be October I, 2013. In addition to arbitrage computations, the Issuer needs retain records relating to the expenditure of Bond proceeds for at least as long as any of the Bonds remain outstanding. In this regard requisitions from the Improvement Fund and related backup generally will be sufficient. For as long as the Bonds remain outstanding, the Issuer also needs to be mindful of its covenants to obtain review and an opinion of tax counsel prior to entering into most leases, management and service contracts involving property financed by the Bonds. Please call me if you have any questions. Very truly yours, �CT �t�lf W�GfI Jennifer L. oehlman JLM:vp Enclosures cc: Lynd K. Mische Exhibit A Explanation of Arbitrage Rebate Analysis This Explanation of Arbitrage Rebate Analysis summarizes the methodology and primary assumptions used in the Arbitrage Rebate Analysis dated October 1, 2012 (the "Arbitrage Analysis ") for the $6,875,000 General Obligation Internal Improvement and Refunding Bonds, Series 2010 -A (the "Bonds ") issued by the City of Salina, Kansas (the "Issuer "). General Matters The time period covered by the Arbitrage Analysis (the "Computation Period ") began May 5, 2010 and ended October 1, 2012. (The latter date is referred to as the "Computation Date.") We determined that the funds included in the Arbitrage Analysis were "gross proceeds" subject to rebate and /or yield restriction payments under Section 148 of the Internal Revenue Code of 1986, as amended (the "Code ") and applicable United States Treasury Regulations and decisions. This determination was based on our review of the various documents included in the Transcript of Proceedings at the time the Bonds were issued (the "Transcript'). The Arbitrage Analysis was prepared using financial records provided by the Issuer (the "Investment Records "). The relevant investment data contained in the Investment Records for each fund and account was entered in the Arbitrage Analysis. Multiple procedures were used to analyze and test the accuracy of the Investment Records as well as the accuracy and the overall reasonableness of the investment results for each fund or account that was included in the Arbitrage Analysis. Based on the procedures employed, the results reflected in the Arbitrage Analysis appear to accurately incorporate the information in the Investment Records. However, the Arbitrage Analysis is not intended to be a mathematical verification of the information contained in the Investment Records or an audit of the investment results actually obtained. The Computation Date is not a rebate computation installment payment date The computation of yield on the Bonds used in the Arbitrage Analysis is contained in the Transcript as an exhibit to the Federal Tax Certificate. All investments purchased or sold using gross proceeds of the Bonds were treated as purchased and sold on the dates and at the prices reflected in the Investment Records, and these prices were assumed to be at fair market value of the investment on the purchase or sale date. Unless otherwise noted, investments that were required to be valued on dates other than a date when they actually were purchased or sold, were valued either at par plus accrued interest or at present value as of that date. These values are shown in the Arbitrage Analysis. Accounting for Expenditures and Investments Except as described below, bond proceeds were allocated to expenditures on the dates reflected in the Investment Records for the improvement fund. Bond proceeds were assumed to have been spent in accordance with the various documents contained in the Transcript. In general these rules permit Bond proceeds to be spent only for costs that can or must be capitalized for financial accounting or federal income tax purposes. All expenditures were assumed to have been paid only to third parties directly or as a valid reimbursement of the Issuer for costs previously spent for those purposes. The Issuer generally invests all funds (including proceeds of the Bonds), in a variety of investments without regard to the sources from which the funds were derived (e.g., note proceeds, tax revenues, grants, etc.). Earnings from the investment of proceeds of the Bonds were calculated based on the unspent balance of Bond proceeds and the average monthly interest rate on Issuer's investments, as reported by the Issuer. We understand that Investment earnings on proceeds of the Bonds are initially deposited to the General Fund of the Issuer. Amounts in the General Fund were reasonably expected to be spent (using a "Bond proceeds spent first" method of accounting) within six months of the date of deposit. Since the Bonds are an issue of governmental purpose obligations, and because the General Fund contains tax or other revenues of the Issuer other than the proceeds of issues of tax exempt obligations, we have treated investment earnings on Bond proceeds as spent on the date they were earned in accordance with Treasury Regulation §1.148-6(d)(6). Bond Proceeds Allocated to Refunding Portion Bond proceeds were invested and allocation to the redemption of refunded obligations on the dates reflected in the Investment Records. Yield Reduction Payment — Restricted Investment No funds or accounts were identified as subject to investment yield restrictions. Amounts held in a "bona fide debt service fund" are not taken into account in computing arbitrage rebate if the gross earnings on such fund during a given Bond Year are less than $100,000. If the average annual debt service on the issue does not exceed $2,500,000, the $100,000 earnings test may be treated as satisfied. A "bona fide debt service fund" is a fund that— (1) is used primarily to achieve a proper matching of revenues with principal and interest payments within each bond year; and (2) is depleted at least once each bond year, except for a reasonable carryover amount not to exceed the greater of (A) the earnings on the fund for the preceding bond year, or (B) one - twelfth of the principal and interest payments on the bond issue for the preceding bond year. 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