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Arbitrage Report GILMORE 8c BELL A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 816-221-1000 ST.LOUIS,MISSOURI FAX:516-221-1018 2405 GRAND BOULEVARD,SUITE 1100 WICHITA,KANSAS WWW.GILMOREBELL.COM KANSAS CITY, MISSOURI 64108-2521 LINCOLN,NEBRASKA October 9, 2012 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 • Re: $3,400,000 City of Salina, Kansas General Obligation Temporary Notes, Series 2011-1 (the"Notes") Dear Rod: Enclosed are the following documents related to our computation of arbitrage in connection with the above-referenced Notes: • Legal Opinion of Gilmore& Bell Regarding the Arbitrage Rebate Analysis • Exhibit A -Explanation of Arbitrage Rebate Analysis • Exhibit B -Arbitrage Rebate Analysis as of August 1,2012(the"Computation Date") As of the Computation Date, no rebate payment or yield reduction payment is required to be made for the Notes. The amount accrued as of the Computation Date as a rebate liability attributable to the investment of the gross proceeds of the Notes subject to arbitrage rebate was negative $4,665.38. No future rebate computations are required for the Notes. The Notes were redeemed in full on August 1,2012. Please call me if you have any questions. Very truly yours,9,e/wA&A—bAt_ VOLLit0 lm Jennifer L. Moehlman - JLM:th Enclosures cc: Lynd K. Mische Randy Irey Gina Riekhof • GILMORE & BELL • A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 816-221-1000 ST.LOUIS,MISSOURI FAX:816-221.1018 2405 GRAND BOULEVARD,SUITE 1100 WICHITA,KANSAS .WWW.GILMOREBELL.COM KANSAS CITY, MISSOURI 64108-2521 LINCOLN,NEBRASKA October 9, 2012 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 Re: $3,400,000 City of Salina, Kansas General Obligation Temporary Notes, Series 2011-1 (the"Notes") Dear Rod: Enclosed are the following documents related to our computation of arbitrage in connection with the above-referenced Notes: • Legal Opinion of Gilmore &Bell Regarding the Arbitrage Rebate Analysis • Exhibit A - Explanation of Arbitrage Rebate Analysis • Exhibit B -Arbitrage Rebate Analysis as of August 1,2012(the "Computation Date") As of the Computation Date, no rebate payment or yield reduction payment is required to be made for the Notes. The amount accrued as of the Computation Date as a rebate liability attributable to the investment of the gross proceeds of the Notes subject to arbitrage rebate was negative $4,665.38. No future rebate computations are required for the Notes. The Notes were redeemed in full on August 1, 2012. Please call me if you have any questions. Very truly yours, 9.epAA&A— MilajtO Man Jennifer L. Moehlman JLM:th Enclosures cc: Lynd K. Mische Randy Irey Gina Riekhof 1 - C\ K GILMORE & BELL A PROFESSIONAL CORPORATION ATTORNEYS AT LAW B16-221-1000 ST.LOUIS,MISSOURI FA%:016-221-1018 2405 GRAND BOULEVARD,SUITE 1100 WICHITA,KANSAS wwW.G1LMOREBELL.COM KANSAS CITY, MISSOURI 64108-2521 LINCOLN,NEBRASKA 'ft' • October 9, 2012 City of Salina, Kansas Re: $3,400,000 City of Salina, Kansas General Obligation Temporary Notes, Series 2011-1 (the "Notes")— Legal Opinion Regarding Arbitrage Rebate Analysis as of August 1, 2012 Ladies and Gentlemen: We have acted as counsel to the City of Salina, Kansas (the `Issuer") in connection with the preparation of the Arbitrage Rebate Analysis dated August 1, 2012 (the "Arbitrage Analysis") for the above-referenced Notes. Attached as Exhibit A is our Explanation of Arbitrage Rebate Analysis and as Exhibit B is our Arbitrage Rebate Analysis. Our opinion is based on the facts and assumptions stated in the Explanation of Arbitrage Rebate Analysis. Capitalized terms used in this opinion have the same meaning as described in the Explanation of Arbitrage Rebate Analysis. We have assumed that the financial records provided to us and the incorporation of those records into the Arbitrage Analysis are accurate and correct. Unless otherwise noted in the Explanation of Arbitrage Rebate Analysis, we have also assumed that the proceeds of the Notes and other funds were used and invested in accordance with the documents contained in the Transcript, including but not limited to the Federal Tax Certificate. Based upon the foregoing,we are of the opinion that, under existing law: 1. The accounting method, identification of funds and accounts subject to rebate or yield reduction payment restrictions and the overall methodology employed in the preparation of the Arbitrage Analysis are in accordance with Section 148 of the Internal Revenue Code of 1986, as amended (the "Code") and United States Treasury Regulations and decisions. 2. As of the Computation Date, no rebate payment is required to be made for the Notes. 3. As of the Computation Date, no yield reduction payment is required to be made for the Notes. 4. No arbitrage rebate will be generated in the future under Section 148(f)of the Code, and no further computation of rebate will be required for the Notes. Our opinion is based on statutes, regulations and decisions in effect as of this date, and is intended for and can be relied on only by the parties to whom it is addressed. We understand that the Issuer will use this opinion and the Arbitrage Analysis to determine whether any rebate liability or yield reduction payment is due and the amount and timing of that payment. Very truly yours,C LKM;jIm /Y+i.�n..e �VN `Q� f c. GILMORE 8c BELL, P.C. 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 August 1, 2012 (the "Arbitrage Analysis") for the $3,400,000 City of Salina, Kansas (the "Issuer") General Obligation Temporary Notes, Series 2011-1 (the"Notes"). This explanation accompanies our legal opinion dated August 1, 2012. General Matters The time period covered by the Arbitrage Analysis (the "Computation Period") began July 28, 2011 and ended August 1, 2012, the date the Notes were redeemed in full. (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 Notes 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 a rebate computation installment payment date. The computation of yield on the Notes 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 Notes 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,Note proceeds were allocated to expenditures on the dates reflected in the Investment Records for the Improvement Fund. Note proceeds were assumed to have been spent in accordance with the various documents contained in the Transcript. In general these rules permit Note 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 Notes), 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 Notes were calculated based on the unspent balance of Note proceeds and the average monthly interest rate on Issuer's investments, as reported by the Issuer. The average monthly interest rates provided by the Issuer are included in Exhibit B. We understand that Investment earnings on proceeds of the Notes are initially deposited to the General Fund of the Issuer. Amounts in the General Fund were reasonably expected to be spent (using a "Note proceeds spent first" method of accounting) within six months of the date of deposit. Since the Notes 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 Note proceeds as spent on the date they were earned in accordance with Treasury Regulation §1.148-6(d)(6). Yield Reduction Payment–Restricted Investment No funds or accounts were identified as subject to investment yield restrictions. Exemption of Funds from Rebate–Bona Fide Debt Service Fund 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 Note 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 note year; and (2) is depleted at least once each note year, except for a reasonable carryover amount not to exceed the greater of(A) the earnings on the fund for the preceding note year, or (B) one- twelfth of the principal and interest payments on the bond issue for the preceding note year. We understand that the Debt Service Account qualified as a bona fide debt service fund for all Note years during the Computation Period. 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