Zions First National Bank

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1 NEW ISSUE Rating: S&P AAA (Ambac Assurance Insured)(underlying rating A ) See CREDIT ENHANCEMENT and MISCELLANEOUS Bond Rating herein. In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, Bond Counsel to the City, based on an analysis of currently existing laws, regulations, decisions and interpretations, and assuming, among other matters, compliance with certain covenants, interest on the 2003 Bonds is excluded from gross income for federal income tax purposes and is not a specific item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, but such interest is included in earnings and profits in computing the federal alternative minimum taxes imposed on certain corporations. Bond Counsel is also of the opinion that, under currently existing law, interest on the 2003 Bonds is exempt from State of Utah individual income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the 2003 Bonds. See LEGAL MATTERS Tax Exemption herein. The 2003 Bonds are not bank qualified. $4,270,000 Washington City Washington County, Utah Sales Tax Revenue Bonds, Series 2003 The $4,270,000 Sales Tax Revenue Bonds, Series 2003 (the 2003 Bonds ) are issued by Washington City, Washington County, Utah (the City ) as fully registered bonds in book entry form and, when initially issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the 2003 Bonds. Principal of and interest on the 2003 Bonds (interest payable May 15 and November 15 of each year, commencing May 15, 2004) are payable by Zions First National Bank, Corporate Trust Department, Salt Lake City, Utah, as Paying Agent, to the registered owners thereof, initially DTC. See THE 2003 BONDS Book Entry System herein. The 2003 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity. See THE 2003 BONDS Redemption Provisions herein. The 2003 Bonds are being issued to (i) finance the costs associated with the acquisition, construction and improvements of a City highway and City park, (ii) fund a debt service reserve fund and (iii) and pay costs of issuing the 2003 Bonds. See THE PROJECT herein. The 2003 Bonds are special limited obligations of the City, payable solely from and secured by a pledge of the Revenues, moneys, securities and funds pledged therefor in the Indenture (as herein defined). The Revenues consist of the Pledged Sales and Use Taxes (as herein defined). No assurance can be given that the Pledged Sales and Use Taxes will remain sufficient for the payment of principal and interest on the 2003 Bonds and the City is limited by Utah law in its ability to increase the rate of such taxes. See INTRODUCTION Risks Inherent In The Ownership Of The 2003 Bonds herein. The 2003 Bonds do not constitute a general obligation indebtedness or a pledge of the ad valorem taxing power or full faith and credit of the City, and are not obligations of the State of Utah or any other agency or other political subdivision or entity of the State of Utah. The City will not mortgage or grant any security interest in the improvements financed with the proceeds of the 2003 Bonds or any portion thereof to secure payment of the 2003 Bonds. See THE 2003 BONDS Security And Sources Of Payment herein. Payment of the principal of and interest on the 2003 Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the 2003 Bonds. See CREDIT ENHANCEMENT herein. Dated: Date of Delivery 1 Due: November 15, as shown on inside front cover See the inside front cover for the maturity schedule of the 2003 Bonds. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire OFFICIAL STATEMENT to obtain information essential to the making of an informed investment decision. This OFFICIAL STATEMENT is dated August 27, 2003, and the information contained herein speaks only as of that date. Zions First National Bank 1 The anticipated date of delivery is Wednesday, September 10, 2003.

2 $4,270,000 Sales Tax Revenue Bonds, Series 2003 Dated: Date of Delivery 2 Due: November 15, as shown below $1,885,000 Serial Bonds Due CUSIP Principal Interest Yield/ Due CUSIP Principal Interest Yield/ Nov Amount Rate Price Nov Amount Rate Price AA 6 $145, % 1.05% AG 3 $175, % 3.65% AB 4 150, AH 1 180, AC 2 155, AJ 7 185, AD 0 160, AK 4 195, AE 8 165, AL 2 205, AF 5 170, $680, % Term Bond due November 15, 2017 Price % (CUSIP AM 0) $790, % Term Bond due November 15, 2020 Price % (CUSIP AN 8) $915, % Term Bond due November 15, 2023 Price % (CUSIP AP 3) 2 The anticipated date of delivery is Wednesday, September 10, ii

3 INTRODUCTION...1 The City...1 The 2003 Bonds...1 Authority And Purpose Of The 2003 Bonds; Outstanding Parity Bonds...1 Security And Source Of Payment...2 Pledged Sales and Use Taxes...2 Redemption Provisions...3 Registration, Denominations, Manner Of Payment...3 Tax Exempt Status...3 Professional Services...3 Conditions Of Delivery, Anticipated Date, Manner, And Place Of Delivery...4 Risks Inherent In The Ownership Of The 2003 Bonds...4 Continuing Disclosure Agreement...5 Basic Documentation...5 Contact Persons...5 CREDIT ENHANCEMENT...6 Payment Pursuant To Financial Guaranty Insurance Policy...6 Ambac Assurance Corporation...7 Available Information...7 Incorporation Of Certain Documents By Reference...7 THE 2003 BONDS...8 General...8 Sources And Uses Of Funds...8 Security And Sources Of Payment...9 Flow Of Funds...10 Pledged Sales and Use Taxes...11 Other Sales And Use Taxes...12 Debt Service Reserve Fund...12 Issuance Of Additional Bonds...13 Redemption Provisions...14 Registration And Transfer...16 Book Entry System...17 Debt Service On The 2003 Bonds...18 DEBT SERVICE COVERAGE...19 THE PROJECT...19 WASHINGTON CITY...20 General...20 Form Of Government...20 Employee Workforce And Retirement System...21 Risk Management...21 Investment Of Funds...21 Population...22 Largest Employers...23 Property Value Of Pre Authorized Construction Within The City...25 Economic Indicators Of Washington County...25 Labor Market Data Of Washington County...26 Rate Of Unemployment Annual Average...26 DEBT STRUCTURE OF WASHINGTON CITY...27 Outstanding Sales Tax Revenue Bonded Indebtedness...27 Outstanding Revenue Bonded Indebtedness...27 Outstanding Revenue Bonded Indebtedness continued...28 Outstanding Special Assessment Bonded Indebtedness...28 Table Of Contents Page Page Outstanding Motor Fuel Excise Tax Revenue Bonded Indebtedness Debt Service Schedule Of Outstanding Sales Tax Revenue Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Water Revenue Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Sewer Revenue Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Electric Revenue Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Golf Course Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Special Assessment Bonds (Fiscal Year) Debt Service Schedule Of Outstanding Motor Fuel Excise Tax Revenue Bonds (Fiscal Year) The Municipal Building Authority of Washington City, Utah Debt Service Schedule of Outstanding Municipal Building Authority of Washington City Lease Revenue Bonds (Fiscal Year) Other Financial Considerations Overlapping And Underlying General Obligation Debt Debt Ratios No Defaulted Obligations FINANCIAL INFORMATION REGARDING WASHINGTON CITY Fund Structure; Accounting Basis Budget And Appropriation Process Financial Controls City s Discussion And Analysis Of Financial Condition And Results Of Operations Sources Of General Fund Revenues Five Year Financial Summaries Taxable, Fair Market And Market Value Of Property Historical Summaries Of Taxable Value Of Property LEGAL MATTERS Absence Of Litigation Tax Exemption General MISCELLANEOUS Bond Rating Trustee Underwriter Independent Auditors Additional Information APPENDIX A GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, A 1 APPENDIX B BASIC BOND DOCUMENTATION...B 1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL...C 1 APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT... D 1 APPENDIX E BOOK ENTRY SYSTEM...E 1 iii

4 This OFFICIAL STATEMENT does not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of, the 2003 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. No dealer, broker, salesman or other person has been authorized to give any information or to make any representations other than those contained herein, and if given or made, such other informational representations must not be relied upon as having been authorized by either the City, Zions First National Bank (as Trustee and Paying Agent), Ambac Assurance Corporation, Zions First National Bank (the Underwriter ) or any other entity. All other information contained herein has been obtained from the City, DTC and from other sources which are believed to be reliable. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this OFFICIAL STATEMENT nor the issuance, sale, delivery or exchange of the 2003 Bonds, shall under any circumstance create any implication that there has been no change in the affairs of the City since the date hereof. The 2003 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exemptions contained in such act. Any registration or qualification of the 2003 Bonds in accordance with applicable provisions of the securities laws of the states in which the 2003 Bonds have been registered or qualified and the exemption from registration or qualification in other states cannot be regarded as a recommendation thereof. The 2003 Bonds have not been recommended by any federal or state securities commission or regulatory agency. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this OFFICIAL STATEMENT. Any representation to the contrary is a criminal offense. In connection with the offering of the 2003 Bonds, the Underwriter may engage in transactions that stabilize, maintain, or otherwise affect the price of the 2003 Bonds. Such transactions may include overallotments in connection with the purchase of 2003 Bonds, the purchase of 2003 Bonds to stabilize their market price and the purchase of 2003 Bonds to cover the Underwriter s short positions. Such transactions, if commenced, may be discontinued at any time. Certain statements included or incorporated by reference in this OFFICIAL STATEMENT constitute forward looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such Statements are generally identifiable by the terminology used, such as plan, project, forecast, expect, estimate, budget, assume or other similar words. The achievement of certain results or other expectations contained in such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future resulting performance or achievements expressed or implied by such forward looking statements. The City does not plan to issue any updates or revisions to those forward looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. Investors are cautioned not to place undue reliance on any such forward looking statements. This OFFICIAL STATEMENT has been designed to conform, where applicable, to the guidelines presented in Disclosure Guidelines for State and Local Government Securities, published by the Government Finance Officers Association in 1991, as revised. iv

5 OFFICIAL STATEMENT RELATED TO $4,270,000 Washington City Washington County, Utah Sales Tax Revenue Bonds, Series 2003 INTRODUCTION This introduction is only a brief description of the 2003 Bonds, as hereinafter defined, the security and source of payment for the 2003 Bonds and certain information regarding Washington City, Washington County, Utah (the City ). The information contained herein is expressly qualified by reference to the entire OFFICIAL STATEMENT. Investors are urged to make a full review of the entire OFFICIAL STATEMENT as well as the documents summarized or described herein. See the following appendices that are attached hereto and incorporated herein by reference: AP- PENDIX A GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2002; APPENDIX B BASIC BOND DOCUMENTATION; APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL; APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT and APPENDIX E BOOK ENTRY SYSTEM. Unless otherwise indicated, capitalized terms used in this OFFICIAL STATEMENT shall have the meaning established in the Indenture (as hereinafter defined). See APPENDIX B BASIC BOND DOCUMENTATION Indenture Definitions below. The City The City, incorporated in 1858, covers an area of approximately 25 square miles and is located in the south central portion of Washington County, Utah (the County ). The County is located in the southwest corner of the State, with Nevada bordering on the west and Arizona on the south. The City had 9,683 residents according to the 2002 population estimate by the Bureau of the Census and the City ranked as the 43 rd largest municipal entity in the State. The 2003 Bonds This OFFICIAL STATEMENT, including the cover page, introduction and appendices, provides information in connection with the issuance and sale by the City of its $4,270,000 Sales Tax Revenue Bonds, Series 2003 (the 2003 Bonds or 2003 Bond ), initially issued in book entry form. Authority And Purpose Of The 2003 Bonds; Outstanding Parity Bonds The 2003 Bonds are being issued pursuant to (i) the Utah Municipal Bond Act (the Act ), Title 11, Chapter 14, Utah Code Annotated 1953, as amended (the Utah Code ), (ii) a General Indenture of Trust, dated as of December 1, 2001, as previously supplemented and amended, (the General Indenture ) between the City and Zions First National Bank, Corporate Trust Department, Salt Lake City, Utah, as trus- 1

6 tee (the Trustee ), and as further supplemented by a Second Supplemental Indenture of Trust, dated as of September 1, 2003 between the City and the Trustee (the Second Supplemental Indenture of Trust ) providing for the issuance of the 2003 Bonds. The General Indenture, together with all amendments or supplements thereto, including without limitation the Second Supplemental Indenture of Trust, are sometimes referred to collectively herein, as the Indenture. The 2003 Bonds are being issued to (i) finance the costs of designing and constructing a city street that will run south from the new Interstate Highway I 15 Interchange at mile marker 13 and the costs of improving and equipping a city park and related improvements, (ii) fund a debt service reserve fund, and (iii) pay costs of issuing the 2003 Bonds. See THE 2003 BONDS Sources And Uses Of Funds and THE PROJECT below. The City has outstanding under the Indenture its $1,000,000, Sales Tax Revenue Bonds, Series 2001 (the 2001 Bonds or the Outstanding Parity Bonds ). The Outstanding Parity Bonds are payable from and secured by the Revenues on a parity with the 2003 Bonds. The City expects that the Outstanding Parity Bonds will be outstanding in the aggregate principal amount of $970,000 on Wednesday, September 10, 2003, the expected delivery date of the 2003 Bonds. Security And Source Of Payment The 2003 Bonds will be special limited obligations of the City, payable, on a parity with the Outstanding Parity Bonds, solely from and secured solely by a pledge of the Revenues and certain funds and accounts established by the Indenture between the City and the Trustee. The Revenues consist of all the revenues produced by the sales and use taxes levied by the City under the Local Sales and Use Tax Act, Title 59, Chapter 12, Part 2, Utah Code (the Local Sales and Use Tax Act ), as amended (the Pledged Sales and Use Taxes ). No assurance can be given that the Pledged Sales and Use Taxes will remain sufficient for the payment of the principal or interest on the 2003 Bonds and the City is limited by Utah law in its ability to increase the rate of such taxes. See in this section Risks Inherent In The Ownership Of The 2003 Bonds below. The 2003 Bonds do not constitute a general obligation indebtedness or a pledge of the ad valorem taxing power or the full faith and credit of the City, and are not obligations of the State of Utah or any other agency or other political subdivision or entity of the State of Utah. The City will not mortgage or grant any security interest in the improvements financed with the proceeds of the 2003 Bonds or any portion thereof to secure payment of the 2003 Bonds. See THE 2003 BONDS Security And Sources Of Payment below. The 2003 Bonds are secured on a parity lien with the Outstanding Parity Bonds and with any additional bonds, notes or other obligations that may be issued from time to time under the Indenture ( Additional Bonds ). See THE 2003 BONDS Issuance Of Additional Bonds below. The 2003 Bonds, the Outstanding Parity Bonds and any Additional Bonds which may be issued from time to time under the Indenture are collectively referred to herein as the Bonds. Credit Enhancement. The scheduled payment of principal of and interest on the 2003 Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the 2003 Bonds by Ambac Assurance Corporation. See CREDIT ENHANCEMENT below. Pledged Sales and Use Taxes The City presently levies a local option sales and use tax (representing all of the Pledged Sales and Use Taxes) at the rate of 1% on all taxable sales of goods and services in the City. The sales and use tax is collected by the Utah State Tax Commission and distributed monthly to the City, as provided by law. 2

7 The Pledged Sales and Use Taxes for the fiscal year of the City ended June 30, 2003 are anticipated to be approximately $1,438,000 and would, if maintained, provide projected coverage of approximately 4.2 times the expected average annual debt service ($345,228) of the Bonds. See THE 2003 BONDS Security And Sources Of Payment and Pledged Sales And Use Taxes and DEBT SERVICE COVERAGE below. Redemption Provisions The 2003 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity. See THE 2003 BONDS Redemption Provisions below. Registration, Denominations, Manner Of Payment The 2003 Bonds are issuable only as fully registered bonds and, when initially issued, will be registered in the name of Cede & Co., as nominee for DTC. DTC will act as securities depository of the 2003 Bonds. Purchases of 2003 Bonds will be made in book entry form only, in the principal amount of $5,000 or any whole multiple thereof, through brokers and dealers who are, or who act through, DTC Participants. Beneficial Owners of the 2003 Bonds will not be entitled to receive physical delivery of bond certificates so long as DTC or a successor securities depository acts as the securities depository with respect to the 2003 Bonds. Principal of and interest on the 2003 Bonds (interest payable May 15 and November 15 of each year, commencing May 15, 2004) are payable by Zions First National Bank, Corporate Trust Department, Washington City, Utah, as Paying Agent, to the registered owners of the 2003 Bonds. So long as DTC is the registered owner, it will, in turn, remit such principal and interest to its Participants, for subsequent disbursements to the Beneficial Owners of the 2003 Bonds, as described under the caption THE 2003 BONDS Book Entry System below. Tax Exempt Status In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, Bond Counsel to the City, based on an analysis of currently existing laws, regulations, decisions and interpretations, and assuming, among other matters, compliance with certain covenants, interest on the 2003 Bonds is excluded from gross income for federal income tax purposes and is not a specific item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, but such interest is included in earnings and profits in computing the federal alternative minimum taxes imposed on certain corporations. Bond Counsel is also of the opinion that, under currently existing law, interest on the 2003 Bonds is exempt from State of Utah individual income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the 2003 Bonds. The 2003 Bonds are not bank qualified. Professional Services As of the date of this OFFICIAL STATEMENT, the following (other than the independent auditor which conducted the audit of the City s general purpose financial statements for the fiscal year ended June 30, 2002) have served the City in the capacity indicated in connection with the issuance of the 2003 Bonds: 3

8 Independent Auditor Bond Counsel Wilson & Company Ballard Spahr Andrews & Ingersoll LLP 360 W 200 N 201 S Main St Ste 600 Cedar City UT Salt Lake City UT Fax Fax rswilson@infowest.com carltonb@ballardspahr.com Trustee, Bond Registrar and Paying Agent Underwriter Zions First National Bank Zions First National Bank Corporate Trust Department Municipal Underwriting 10 E S Temple 3 rd Fl 10 E S Temple Ste 1300 Salt Lake City UT Salt Lake City UT Fax Fax snielson1@zionsbank.com clclr@bloomberg.net Conditions Of Delivery, Anticipated Date, Manner, And Place Of Delivery The 2003 Bonds are offered, subject to prior sale, when, as and if issued and received by the Underwriter, subject to the approval of legality by Ballard Spahr Andrews & Ingersoll, LLP, Bond Counsel to the City, and certain other conditions. Certain legal matters will be passed on for the City by Chris Engstrom, City Attorney. It is expected that the 2003 Bonds, in book entry form, will be available for delivery to DTC or its agent on or about Wednesday, September 10, Risks Inherent In The Ownership Of The 2003 Bonds The purchase of the 2003 Bonds involves certain investment risks which are discussed throughout this OFFICIAL STATEMENT. Accordingly, each prospective purchaser of the 2003 Bonds should make an independent evaluation of all of the information presented in this OFFICIAL STATEMENT in order to make an informed investment decision. Certain of these risks are described below. Uncertainty of Economic Activity The amount of Pledged Sales and Use Taxes collected by the City is dependent on a number of factors beyond the control of either the City or the State of Utah (the State ), including, but not limited to, the state of the U.S. economy and the economy of the State. Any one or more of these factors could result in the City receiving less Pledged Sales and Use Taxes than anticipated. National and local economic downturns, the effects of terrorist attacks or a declaration of war, may result in the City collecting less Pledged Sales and Use Taxes than originally anticipated. During periods in which economic activity declines, Pledged Sales and Use Taxes may also decline. In addition, Pledged Sales and Use Taxes are dependent on the volume of the transactions subject to the tax. From time to time, proposals have been made by the Utah State Legislature (the Legislature ) to add or remove certain types of purchases from the sales tax and the State (like many other states) has recognized the potential reduction in sales tax revenues as a result of purchases made through the internet and other non traditional means. The City cannot predict what impact these items may have on the Pledged Sales and Use Taxes it receives. The 2003 Bonds are Limited Obligations The 2003 Bonds are special limited obligations of the City, payable solely from the Pledged Sales and Use Taxes, moneys, securities and funds pledged therefor in the Indenture. No assurance can be given that the Pledged Sales and Use Taxes will remain sufficient for the payment of the principal or interest on the 2003 Bonds and the City is limited by State law in its ability to increase the rate of such taxes. The 2003 Bonds do not constitute a general obligation indebtedness or a pledge of the ad valorem taxing power or the full faith and credit of the City, and are not obligations of the State or any other 4

9 agency or other political subdivision or entity of the State. The City will not mortgage or grant any security interest in the improvements financed with the proceeds of the 2003 Bonds or any portion thereof to secure payment of the 2003 Bonds. Limitation on Increasing Rates for Pledged Taxes The City currently levies the maximum rate allowed under State law for all component taxes making up the Pledged Sales and Use Taxes. No assurance can be given that the Pledged Sales and Use Taxes will remain sufficient for the payment of the principal or interest on the 2003 Bonds and the City is limited by State law in its ability to increase the rate of such taxes. Continuing Disclosure Agreement The City will enter into a Continuing Disclosure Agreement (the Agreement ) for the benefit of the beneficial owners of the 2003 Bonds to send certain information annually and to provide notice of certain events to certain information repositories pursuant to the requirements of Section (b)(5) of Rule 15c2 12 (the Rule ) adopted by the Securities and Exchange Commission (the Commission ) under the Securities Exchange Act of The information to be provided on an annual basis, the events which will be noticed on an occurrence basis and a summary of other terms of the Agreement, including termination, amendment and remedies, are set forth in the form of Agreement attached as APPENDIX D. The City has not previously been required to deliver an undertaking pursuant to the Rule. A failure by the City to comply with the Agreement will not constitute a default under the Indenture and beneficial owners of the 2003 Bonds are limited to the remedies described in the Agreement. A failure by the City to comply with the annual disclosure requirements of the Agreement must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the 2003 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the 2003 Bonds and their market price. See APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT, hereto, for a copy of the proposed form of Agreement. Basic Documentation The basic documentation, which includes the Indenture, and other documentation authorizing the issuance of the 2003 Bonds and establishing the rights and responsibilities of the City and other parties to the transaction, may be obtained from the contact persons as indicated below. Contact Persons As of the date of this OFFICIAL STATEMENT, the chief contact person for the City concerning the 2003 Bonds is: Kevin Watt kwatt@ci.washingtoncity.state.ut.us City Manager Washington City 111 N 100 E Washington UT x310 Fax As of the date of this OFFICIAL STATEMENT, additional requests for information may be directed to the Underwriter: 5

10 Jon Bronson, Vice President, Eric John Pehrson, Vice President, Zions Bank Public Finance 215 S State St Ste 700 Salt Lake City UT Fax CREDIT ENHANCEMENT Payment Pursuant To Financial Guaranty Insurance Policy Ambac Assurance Corporation ( Ambac Assurance ) has made a commitment to issue a financial guaranty insurance policy (the Financial Guaranty Insurance Policy ) relating to the 2003 Bonds effective as of the date of issuance of the 2003 Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the Insurance Trustee ) that portion of the principal of and interest on the 2003 Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Paying Agent. The insurance will extend for the term of the 2003 Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the 2003 Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding 2003 Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstanding 2003 Bonds on the originally scheduled interest and principal payment dates including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the 2003 Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration. In the event the Paying Agent has notice that any payment of principal of or interest on an Bond which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium. 3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of 2003 Bonds to the Insurance Trustee together with an appropriate instrument of 6

11 assignment so as to permit ownership of such 2003 Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Holder entitlement to interest payments and an appropriate assignment of the Holder s right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the 2003 Bonds, appurtenant coupon, if any, or right to payment of principal or interest on such 2003 Bonds and will be fully subrogated to the surrendering Holder s rights to payment. Ambac Assurance Corporation Ambac Assurance is a Wisconsin domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $6,362,000,000 (unaudited) and statutory capital of approximately $3,945,000,000 (unaudited) as of March 31, Statutory capital consists of Ambac Assurance s policyholders surplus and statutory contingency reserve. Standard & Poor s Credit Markets Services, a Division of The McGraw Hill Companies, Moody s Investors Service and Fitch, Inc. have each assigned a triple A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its Financial Guaranty insurance policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the 2003 Bonds. Ambac Assurance makes no representation regarding the 2003 Bonds or the advisability of investing in the 2003 Bonds and makes no representation regarding, nor has it participated in the preparation of, the OFFICIAL STATEMENT other than the information supplied by Ambac Assurance and presented under the heading CREDIT ENHANCEMENT. Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the Company ), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the SEC ). These reports, proxy statements and other information can be read and copied at the SEC s public reference room at 450 Fifth St, NW, Washington, D.C Call the SEC at SEC.0330 for further information on the public reference room. The SEC maintains an internet site at sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc. (the NYSE ) at 20 Broad St, New York, NY Copies of Ambac Assurance s financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance s administrative offices and its telephone number are One State St Plaza, 19 th Fl, New York, NY and Incorporation Of Certain Documents By Reference The following documents filed by the Company with the SEC (File No ) are incorporated by reference in this OFFICIAL STATEMENT: 7

12 (1) The Company s Current Report on Form 8 K dated January 23, 2003 and filed on January 24, 2003; (2) The Company s Current Report on Form 8 K dated February 25, 2003 and filed on February 28, 2003; (3) The Company s Current Report on Form 8 K dated February 25, 2003 and filed on March 4, 2003; (4) The Company s Current Report on Form 8 K dated March 18, 2003 and filed on March 20, 2003; (5) The Company s Current Report on Form 8 K dated March 19, 2003 and filed on March 26, 2003; (6) The Company s Annual Report on Form 10 K for the fiscal year ended December 31, 2002 and filed on March 28, 2003; (7) The Company s Current Report on Form 8 K dated March 25, 2003 and filed on March 31, 2003; (8) The Company s Current Report on Form 8 K dated April 17, 2003 and filed on April 21, 2003; (9) The Company s Quarterly Report on Form 10 Q for the fiscal quarterly period ended March 31, 2003 and filed on May 15, 2003; and (10) The Company s Current Report on Form 8 K dated July 17, 2003 and filed on July 18, All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this OFFICIAL STATEMENT will be available for inspection in the same manner as described above in Available Information. General THE 2003 BONDS The 2003 Bonds will be dated the date of their initial delivery 3 and will mature on November 15 of the years and in the amounts as set forth on the inside cover page of this OFFICIAL STATEMENT. The 2003 Bonds shall bear interest from their date at the rates set forth on the inside cover page of this OFFICIAL STATEMENT. Interest on the 2003 Bonds is payable on May 15, 2004, and semi annually thereafter on each May 15 and November 15. Interest on the 2003 Bonds shall be computed on the basis of a 360 day year comprised of twelve 30 day months. Zions First National Bank, Corporate Trust Department, Salt Lake City, Utah is the Bond Registrar and Paying Agent for the 2003 Bonds under the Indenture (in such respective capacities, the Bond Registrar and Paying Agent ). The 2003 Bonds will be issued as fully registered bonds, initially in book entry form, in the denomination of $5,000 or any whole multiple thereof, not exceeding the amount of each maturity. Sources And Uses Of Funds The sources and uses of funds in connection with the issuance of the 2003 Bonds are estimated to be as follows: Sources: Par amount of 2003 Bonds... $4,270, Original issue premium... 48, Total... $4,318, The anticipated date of delivery is Wednesday, September 10,

13 Sources And Uses Of Funds continued Uses: Deposit into Construction Fund... $3,800, Deposit into Debt Service Reserve Fund , Costs of Issuance (1) , Original issue discount... 35, Underwriter s Discount... 34, Total... $4,318, (1) Includes legal fees, rating agency fees, bond insurance fees, trustee fees, registrar and paying agent fees, printing fees and other miscellaneous costs of issuance. Security And Sources Of Payment The 2003 Bonds will be special limited obligations of the City, payable, on a parity with the Outstanding Parity Bonds, solely from and secured solely by a pledge of the Revenues and certain funds and accounts established by the Indenture between the City and the Trustee. The Revenues consist of all the revenues produced by the sales and use taxes levied by the City under the Local Sales and Use Tax Act (the Pledged Sales and Use Taxes ). No assurance can be given that the Pledged Sales and Use Taxes will remain sufficient for the payment of the principal or interest on the 2003 Bonds and the City is limited by Utah law in its ability to increase the rate of such taxes. See INTRODUCTION Risks Inherent In The Ownership Of The 2003 Bonds above. The 2003 Bonds do not constitute a general obligation indebtedness or a pledge of the ad valorem taxing power or the full faith and credit of the City, and are not obligations of the State or any other agency or other political subdivision or entity of the State. The City will not mortgage or grant any security interest in the improvements financed with the proceeds of the 2003 Bonds or any portion thereof to secure payment of the 2003 Bonds. Upon the occurrence of an Event of Default specified in the Indenture, the Trustee or the Registered Owners of the 2003 Bonds may pursue certain remedies to enforce the obligations of the City under the Indenture. These remedies do not include the right to declare all of the principal of and interest on the 2003 Bonds to be immediately due and payable. See APPENDIX B BASIC BOND DOCUMENTA- TION below. Credit Enhancement The scheduled payment of principal of and interest on the 2003 Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the 2003 Bonds by Ambac Assurance. See CREDIT ENHANCEMENT above. State Pledge of Nonimpairment In accordance with Section , Utah Code, the State pledges and agrees with the holders of the 2003 Bonds that it will not alter, impair or limit the sales taxes in a manner that reduces the amounts to be rebated to the City which are devoted or pledged for the payment of the 2003 Bonds until the 2003 Bonds, together with applicable interest, are fully met and discharged; provided, however, that nothing shall preclude such alteration, impairment or limitation if and when adequate provision shall be made by law for the protection of the holders of the 2003 Bonds. The City notes that the State attorney general s office has tentatively concluded that this provision is probably enforceable against the State, even though this provision has not been interpreted by a court of law. However, the City cannot predict the extent that such provision would (i) be upheld under constitu- 9

14 tional or other legal attack, (ii) protect the current rates and collection of all Pledged Sales and Use Taxes, or (iii) impact any other aspect of Pledged Sales and Use Taxes. Flow Of Funds In order to secure timely payment of the principal of and interest on the 2003 Bonds, the City has pledged and assigned to the Trustee the Pledged Sales and Use Taxes and all moneys in certain funds and accounts established by the Indenture. The Indenture establishes a Construction Fund, a Bond Fund, and certain other funds and accounts. The Indenture provides that all Pledged Sales and Use Taxes shall be accounted for by the City separate and apart from all other moneys of the City. As a first charge and lien on the Pledged Sales and Use Taxes, the City shall, on or before the 15 th day of each month of each year, allocate out of the Pledged Sales and Use Taxes, an amount equal to: (a) approximately 1/6 th of the interest falling due on the Bonds on the next succeeding Interest Payment Date established for the Bonds; plus (b) approximately 1/12 th of the principal and premium, if any, falling due on the next succeeding principal payment date established for the Bonds; plus (c) approximately 1/12 th of the Sinking Fund Installments, if any, falling due on the next succeeding Sinking Fund Installment payment date. The sum of these allocations is required to be sufficient, when added to the allocations previously made by the City, to pay the principal of, premium, if any, and interest on the Bonds promptly on each such Interest Payment Date as the same become due and payable. Not less than 15 days before each Interest Payment Date, the City shall transfer to the Trustee for deposit into the Bond Fund the amount necessary to pay the principal, premium and interest coming due on the Bonds on such date. The forgoing provision may be revised by a Supplemental Indenture for any Bonds having other than semiannual Interest Payment Dates As a second charge and lien on the Pledged Sales and Use Taxes, the City shall make the following transfers to the Trustee on or before the 15 th day of each month of each year: (i) To the extent the Debt Service Reserve Requirement is not funded with a Reserve Instrument or Instruments, to the Debt Service Reserve Fund any amounts required hereby and by any Supplemental Indenture to equal the Debt Service Reserve Requirement at the times and in the amounts provided in the Indenture and in any Supplemental Indenture. Moneys in the Debt Service Reserve Fund shall be used only to prevent deficiencies in the payment of the principal of or interest on the Bonds resulting from a failure to deposit into the Bond Fund sufficient funds to pay debt service and Sinking Fund Installments on the Bonds. If moneys shall have been withdrawn from the Debt Service Reserve Fund to pay debt service or Sinking Fund Installments, the Issuer shall deposit Pledged Sales and Use Taxes in the Debt Service Reserve Fund sufficient in amount to restore such moneys so withdrawn as provided in the Indenture. (ii) Equally and ratably to the Reserve Instrument Fund, with respect to all Reserve Instruments which are in effect and are expected to continue in effect after the end of such month, such amount of the remaining Pledged Sales and Use Taxes, or a ratable portion (based on the amount to be transferred) of the amount so remaining if less than the amount necessary, that is required to be paid, on or before the next such monthly transfer or deposit of Pledged Sales and Use Taxes into the Reserve Instrument Fund, to the Reserve Instrument Provider pursuant to any Reserve Instrument Agreement, 10

15 other than Reserve Instrument Costs, in order to cause the Reserve Instrument Coverage to equal the Reserve Instrument Limit. As a third charge and lien on the Pledged Sales and Use Taxes, if at any time any money in the Debt Service Reserve Fund is used for the purpose for which said Fund is created or is otherwise dissipated, the resulting deficiency shall be made up from the Pledged Sales and Use Taxes first thereafter received not hereinabove required to be used for debt service requirements, it being the intention hereof that there shall as nearly as possible be at all times in the Debt Service Reserve Fund an amount equal to the Debt Service Reserve Requirement. If because of investment income the amount in the Debt Service Reserve Fund exceeds the Debt Service Reserve Requirement, the excess upon receipt will be transferred to the Bond Fund. The Pledged Sales and Use Taxes remaining in each month after the allocations and deposits listed above have been made (and not required to be used for remedying any deficiencies) may be used at any time and from time to time by the City for any other lawful purpose. Pledged Sales and Use Taxes Sales tax is imposed on the amount paid or charged for sales of tangible personal property in the state and for services rendered in the state for the repair, renovation or installation of tangible personal property. Use tax is imposed on the amount paid or charged for the use, storage or other consumption of tangible personal property in the state, including services for the repair, renovation or installation of such tangible personal property. Sales and use taxes also apply to leases and rentals of tangible personal property if the tangible personal property is in the state, the lessee takes possession in the state or the tangible personal property is stored, used or otherwise consumed in the state. Local Sales and Use Tax. The Local Sales and Use Tax Act currently provides that each county, city and town in the State may levy a sales and use tax of up to 1% on the purchase price of taxable goods and services. The legislative intent contained in the Local Sales and Use Tax Act is (i) to provide the counties, cities and towns of the State with an added source of revenue and to thereby assist them to meet their growing financial needs and (ii) that such added revenue be used to the greatest extent possible by the municipalities to finance their capital outlay requirements and to service their bonded indebtedness. Local sales and use taxes are collected by the Utah State Tax Commission and distributed on a monthly basis to each county, city and town. The distributions are based on a formula that, in general, provides (i) 50% of each dollar of sales and use taxes collections will be distributed to the city and town in which the tax was collected as point of sale and (ii) 50% of each dollar of sales and use taxes collections will be distributed proportionately based on the total population of each county, city and town. The minimum local sales and use taxes a county may receive is a tax revenue distribution not less than ¾ of 1% of the taxable sales within its boundaries. Collections. The following table shows the amount of local sales and use tax collected and received by the City from the Utah State Tax Commission for the selected years. (The remainder of this page has been intentionally left blank.) 11

16 Historical Collections Sales Tax Distribution By Point Total % Increase Fiscal Year of Popula- Sales Tax (Decrease) Ended June 30 Sale tion Revenue from Prior Year 2003 (1)... $864,835 $573,168 $1,438, % , ,379 1,433, , , , , , , , , , , , , ,105 (1) Preliminary; subject to change. (Source: The City.) Some of the Larger Sales Taxpayers. The City is not legally allowed to provide actual dollar figures of sales and use tax collections by specific business. However, the 13 largest sales tax collectors for Fiscal Year Ended June 30, 2002 provided $1,248,288 or approximately 87% of all sales tax revenue. In Fiscal Year Ended June 30, 2003 it is estimated that the 13 largest sales tax collectors provided $1,251,988 or approximately 87% of all sales tax revenue. Those larger sales tax payers includes auto dealers, convenience stores, department stores, golf courses, grocery stores, home improvement centers, nurseries, recreation companies, and sand and gravel companies. Other Sales And Use Taxes Within the City are other county wide sales and use taxes which are not pledged to the repayment of the Bonds. For example, other current County wide tax levies include: (i) a ¼ of 1% county option sales tax; (ii) a 3% transient room sales tax; (iii) a 2.5% motor vehicle rental sales tax; (iv) a 7% tourism short term leasing sales tax; and (iv) a 1% tourism restaurant sales tax. In addition to the above described sales and use taxes, the State levies a statewide sales and use tax, which is currently imposed at a rate of 4.75% of the purchase price of taxable goods and services; with sales of gas, electricity and fuel oil for residential use being taxed at a statewide rate of 2.00%. In addition to the statewide sales and use tax and the gas, electric and fuel oil sales tax, certain governmental entities may also levy a botanical, cultural zoo sales tax; mass transit sales tax; rural hospital sales tax; municipal highways sales tax; resort sales tax; town option sales tax; and local municipal energy tax (discussed below). All other sales and use taxes levied and collected by the Utah State Tax Commission are not pledged to the payment of the Bonds. By law, the City levies also levies a (i) a ¼ of 1% municipal highway sales tax and (ii) a.local 6% municipal energy sales tax. These municipal highway and energy sales tax revenues are not pledged to the payment of the Bonds. Debt Service Reserve Fund The Indenture establishes a Debt Service Reserve Fund and a subaccount within the Debt Service Reserve Fund for each Series of Bonds issued thereunder. With respect to the 2001 Bonds, there is on 12