School District of Palm Beach County - Swap Update

Photo Here School District of Palm Beach County - Swap Update May 20, 2005 presented by Public Financial Management Citigroup & UBS Financial Services Public Financial Management, Inc. PFM Asset Management LLC PFM Advisors

Presentation Outline I. Citigroup Swap Update a) COPs, Series 2002B - Cancelable MSL Swap b) Series 2002D Basis Swap II. UBS Swap Update a) Series 2003B- Knock-out Swap III. Other Items - Staff/PFM I. Update on Refunding II. Moving Forward

I. Citigroup Update

Swap Program History & Objectives HISTORY OF SWAP PROGRAM The District executed a $115.35 million Market Spread Language (MSL) floating-to-fixed rate swap in connection with its Series 2002B COPs in March 2002 In January of 2003, the District entered into a $100 million Fixed Spread Basis Swap (FSBS) in connection with its Series 2002D COPs SWAP PROGRAM STATUS Swap Program Goal Generate Interest Cost Savings Manage tax risk Monitor swap program to take advantage of market opportunities Swap Program Status Over $8.25 million cash flow savings to date $215.35 million in outstanding swaps subject to tax risk (16.42% of total debt) Ongoing 1

Overview of Swap Program $115.35 million Market Spread Language (MSL) floating-to-fixed swap equal to 8.8% of total debt $100 million FSBS equal to 7.6% of total debt Transactions & modifications since last report dated 3/18/05: None OUTSTANDING SWAPS Transaction Effective Date Termination Date Original Term (yrs) Remaining Term (yrs) Notional ($mil) Receive Pay Counterparty 1. MSL Floating to Fixed Swap 03/20/02 08/01/27 25.36 22.24 115.35 BMA or 67% of LIBOR 1 4.22% Citigroup Financial Products Inc. 2. Fixed Spread Basis Swap 01/14/03 06/30/28 25.46 23.15 100 67% of LIBOR + 0.665% BMA Citibank, N.A. Total 215.35 TERMINATED SWAPS Transaction Effective Date Stated Termination Date Early Termination Date Termination Receipt / (Payment) Notional ($mil) None Total 2 1 Subject to Alternate Rate Event, see page 5.

MSL Swap Performance On March 30, 2002, the District executed a $115.35 million floating-to-fixed MSL Swap in connection with its Series 2002B COPs Citigroup purchased the option to cancel the swap at par at any time on or after February 1, 2007 for an upfront payment of $6.142 million At execution, the use of a synthetic fixed transaction was estimated to save the District 42 basis points (0.42%) vs. conventional, non-callable fixed rate COPs Under the existing floating-to-fixed MSL swap, if the BMA Index averages more than 67% of LIBOR for 180 days, Citigroup may pay the Alternate Rate of 67% of LIBOR The Alternate Rate was triggered in September 2002. However, Citigroup continued to pay BMA through January 2003. Receiving 67% of LIBOR since then instead of BMA has increased the District s interest cost by approximately $415,000 or 12 basis points (0.12%) Over the past 180 days the BMA Index has averaged 74.22% of 1-Month LIBOR 1. This continues to result in an alternate rate event. Citigroup will pay 67% of LIBOR instead of BMA The total savings generated from this transaction, including upfront premium, benefit of synthetic fixed vs. conventional COPs, less any basis cost, is approximately $7.24 million 3.50% 3.00% 2.50% 2.00% 1.50% Upfront Premium $ 6,142,000 Savings vs Conventional Non-Callable COPs 3 1,517,121 Less Basis Cost on Alternate Rate (415,183) Total $ 7,243,938 1.00% 0.50% May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 BMA 67% of LIBOR 3 The mark-to-market value of the District s floating-to-fixed MSL swap is ($13,591,594) 2 1 180 days ending 5/06/2005. 2 Mark-to-market value as of 5/02/05. Please see Valuation Disclaimer at the end of the presentation. A positive mark is in favor of the District, a negative mark is against the District. 3 Represents the estimated annual benefit vs. non-callable fixed rate COPs of 0.42% per annum on 115.35 million for 3.14 years (time elapsed on the trade through 5/06/05). Please refer to the Valuation Disclaimer at the end of the book for a full mark-to-market disclosure. For illustration purposes only; actual results will depend on future market conditions. Past performance may not indicate future results.

MSL Floating-to-Fixed Interest Rate Swap Synthetic Fixed Rate Structure Citibank pays the District the BMA Index 1 The District pays a fixed rate to Citigroup Cancellation option enables Citigroup to cancel at par on or after February 1, 2007 Variable COPs Rate District District Variable Rate Citibank Citibank VRDOs VRDOs 4 Benefits Lower, long term fixed rate than natural fixed rate COPs resulting in greater savings Budgetary certainty no basis risk under normal conditions Make-whole call flexibility swap may be terminated for market value and the COPs redeemed for par prior to maturity Embedded options can increase savings or flexibility Diversifies investor universe 1 Subject to Alternate Rate Event, see page 5. For illustration purposes only; actual results will depend on future market conditions. Considerations Alternate Rate Events entail potential tax and basis risk Credit risk to Aa1/AA-/AA+ rated Citigroup Financial Products Inc. Credit supports required for variable rate COPs Liquidity renewal and remarketing risk (mitigated by insurance and/or long-term liquidity facility, if available Tax and basis risk of % of LIBOR structure Potential make-whole payment by the District for early termination Cancellation option entails contingent variable rate exposure Consult auditors regarding accounting treatment

Alternate Rate Events Reduce Savings After an Alternate Rate Event, Citigroup may pay an indexed rate, rather than BMA; this creates basis risk, the possibility that the floating rate received will be less than the COPs rate An Alternate Rate Event can cause the District s interest cost to be higher - reducing savings If the Alternate Rate Event is no longer occurring, Citigroup can return to paying the BMA Index Bond Rate Swap with Market Spread Language (MSL) 1 The District Pays Citibank Nominally Pays Fixed Rate BMA Index Alternate Rate 67% LIBOR 2 Alternate Rate Event BMA exceeds 67% LIBOR on average for 180 days (MSL) Citigroup is obligated to pay the BMA Index. This obligation remains so long as an Alternate Rate Event has not occurred. Otherwise, Citigroup can pay an Alternate Rate that is typically a percentage of LIBOR. Since the Alternate Rate is likely to be less than the actual COPs rate in these circumstances, the District's interest cost would increase. Recently, historically low rates and excess supply has increased tax-exempt rates relative to taxable rates. The COPs rate has averaged 0.12% above the alternate rate over the last 6 months. 1 See swap documents for full description. 2 The London Inter-Bank Offered Rate, a taxable index reflecting yields on US Dollar deposits at London Banks. 5

Fixed Spread Basis Swap Performance Ratios have declined through much of the first quarter as short and intermediate term interest rates have risen, reflecting an unwinding of compression, slightly improving cash flows. However, the April Tax Effect has reverted this trend. Transaction Trade Date Effective Date Notional Receive Pay Total Cash Flow / Accruals Since Inception Mark-to- Market 3/01/2005 2 Mark-to- Market 5/02/2005 2 Mark-to- Market Change 1. Fixed Spread Basis Sw ap 01/10/03 01/14/03 100 67% of LIBOR + 0.665% BMA 1.005 (0.700) (0.344) 0.356 Total 100 1.005 (0.700) (0.344) 0.356 ($millions) 4.00% BMA vs. LIBOR 8.00% 23-YEAR BMA/LIBOR SWAP FIXED RATES 80.00% 3.50% 7.00% 78.00% 3.00% 6.00% 76.00% 2.50% 5.00% 74.00% 2.00% 4.00% 1.50% 3.00% 72.00% 1.00% 2.00% 70.00% 0.50% 1.00% 68.00% 0.00% Jan-03 Apr-03 Aug-03 Nov-03 Mar-04 Jun-04 Oct-04 Jan-05 May-05 0.00% 66.00% Jan-03 Apr-03 Aug-03 Nov-03 Mar-04 Jun-04 Oct-04 Jan-05 May-05 6 BMA 67.0% of LIBOR + 0.665% 1 Cash flow and accruals are estimates based on Citigroup models; actual amounts will vary. 2 MTM is in USD and given from the client's perspective, (i.e. positive mark = asset / negative mark = liability). Please refer to the Valuation Disclaimer at the end of the book for full mark-to-market disclosure. Past performance may not indicate future results; actual results will depend on future market conditions and may differ. 23-Year LIBOR Swap 23-Year BMA Swap 23-Year Basis Swap Ratio

Fixed Spread Basis Swap (FSBS) Structure The District embeds basis and tax risk on its outstanding Series 2002D COPs in return for an expected interest cost reduction of 0.665% 1 The District pays the BMA Index (assumed to equal 67% of LIBOR) 3, and receives 67% of LIBOR plus a fixed spread of 0.665% When BMA is less than or equal to 67% of LIBOR, the District s interest cost is reduced by at least the fixed spread Benefits Expected to provide interest cost savings Simple transaction, may be executed quickly Benefits from any increase in marginal tax rates Benefits from changes in tax/securities rules that increase demand or reduce supply of tax-exempt floaters (e.g. de minimus, AMT) District Series 2002D COPs 0.665% 1 67% of LIBOR 4.95% 2 BMA Index Citibank Considerations Exposure to any decrease in marginal tax rates Exposure to changes in tax/securities rules that reduce demand or increase supply of tax-exempt floaters (e.g. de minimus, AMT) Credit risk to Citibank, N.A. (mitigated by Aa1/AA/AA+ credit ratings) Potential cost or benefit from early termination Consult auditors, tax counsel for accounting and tax treatment COPs Pricing Fixed Spread Series 2002D 0.655% Paid Annually 1 7 Rates based on trade dated 1/10/03; rates and terms subject to market conditions, documentation, and credit approval. 1 Net fixed spread for a 25-year average life 67% of LIBOR FSBS. 2 Average coupon on $100 million of Series 2002D COPs (average life of 25 years). 3 Assumes BMA equals 67% of 1-month LIBOR, actual results may differ.

Valuation Disclaimer All valuations are as of the valuation date indicated and represent an estimated mid-market for each transaction listed herein. Mid-market valuations may be derived from broker quotations or from proprietary models that take into consideration estimates about relevant present and future market conditions as well as the size and liquidity of the position and any related actual or potential hedging transactions. Although the information is derived from sources believed to be reliable, we have not assumed any responsibility to independently verify. Valuations based upon other models or assumptions or calculated as of another date and time may yield significantly different results. Any of the valuations may be affected by our transactions either in similar or the underlying securities or other instrument(s) and/or be based on our own quotations. All valuations are provided for information purposes only as an accommodation without charge and are intended solely for your use. Unless otherwise agreed in writing, Citigroup is under no obligation to agree with you to the early termination or assignment of any transaction. Any early termination or assignment of any transaction may take into consideration any market inputs Citigroup deems relevant to this transaction. Accordingly, in any such case, it is likely that the actual price, if any, at which Citigroup would be willing agree to the termination or assignment of any transaction will vary substantially from the valuation provided herewith. We expressly disclaim any responsibility for (i) the accuracy of the models, market data input into such models or estimates used in deriving the valuations, (ii) any errors or omissions in computing or disseminating the valuations and (iii) any uses to which the valuations are put. Due to the varying size of bid-offer spreads, the mid-market valuation may be significantly higher (or lower) than the levels at which new transactions could be effected. These valuations may take into account such factors as the length of time that has elapsed since the transaction was entered into, potential reduction to us of market and other risks that may be realizable through an unwind, and other product pricing considerations relevant to the specific transaction which may lead us to forego the full profit potentially realizable if the transaction ran full term. Accordingly, these transactions may be valued at more attractive levels to you than we would quote to others or than would be available from other dealers. Further, these valuations do not represent (i) the actual prices at which new transactions could be entered into, (ii) the actual prices at which the existing transaction could be liquidated or unwound, or (iii) an estimate of an amount that would be payable following the early termination date of any transaction. These valuations may differ from the prices we use to value our positions on our books and records or for purposes of collateral calls.

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II. UBS Swap Update

Palm Beach County School District Series 2003 Swap: $124,295,000 BMA Swap with a Knock-out Option Strategy to Reduce Cost of Capital and Supplement Operating Revenues District Swap Cashflows + Pays BMA Fixed Swap Rate 3.91% + Pays Variable Rate Support Costs 0.28% + Pays Variable Rate COPs +BMA Index 0.02% Receives Variable Swap Rate -BMA Index = All-in Synthetic Fixed Rate 4.17% Plus Upfront Premium $3.0 MM Considerations Notional amount: $124,295,000; Final Maturity: August 1, 2029 25-year BMA floating-to-fixed rate swap, no tax risk The District received an upfront premium of $3.0 MM by embedding a 15-year knock-out option UBS can cancel the swap at par if BMA averages above 7% for 180 consecutive days If the barrier is breached, the District can: Fix out the COPs (new swap or in the cash market) Maintain floating rate exposure Purchase interest rate caps L:\CVD\FL\PBCS015.DOC\1 1 5/18/2005 3:10 PM

Palm Beach County School District Historical BMA Index Knock-out option expires in 2018 BMA Index Since 1982 Yield (%) 9.00 8.00 7.00 BMA Index 180-Day BMA Rolling Average 7% Barrier Level 7% Barrier Level 6.00 5.00 4.00 BMA Index = 3.00% 3.00 2.00 1.00 Rolling Semi-Annual Averages Maximum 7.49% Minimum 0.94 10-Year Average 2.79 Current 2.00 0.00 180-Day BMA Avg. = 2.00% 05/05/82 08/18/85 12/01/88 03/16/92 06/30/95 10/13/98 01/26/02 05/11/05 L:\CVD\FL\PBCS015.DOC\2 2 5/18/2005 3:10 PM

Palm Beach County School District Series 2003 Swap: $124,295,000 BMA Swap with Knock-out Option Summary of Risk/Benefit Analysis Benefits $3.0 MM upfront premium used to supplement operating revenues Lower fixed rate compared to natural fixed rate at time of issuance 28 bps lower than natural fixed rate $660,000 savings since inception Low probability of option being triggered Risks Contingent floating rate exposure Mitigated by District s cash reserves and capital outlay millage coverage Tax risk (only if option triggered) with VRDBs Basis risk Mitigated with District s variable rate COPs trading 2 bps better than BMA Index Counterparty credit risk Mitigated with UBS AG credit ratings of Aa2/AA+/AA+ Termination Risk MTM valuation of ($6.8 MM) (1) Mitigated with termination insurance Liquidity facility renewal risk w/ VRDBs 3 years remaining on existing liquidity facility Auction Rate Certificates (1) Indicative value as of April 30, 2005. See valuation disclaimer in Appendix. L:\CVD\FL\PBCS015.DOC\3 3 5/18/2005 3:10 PM

Palm Beach County School District Appendix L:\CVD\FL\PBCS015.DOC\4 4 5/18/2005 3:10 PM

Palm Beach County School District Valuation The information provided in this report including the indicative values (the Valuation Information) is being provided to you at your request for information purposes only by UBS Investment Bank, a business group of UBS AG. Please note that this information may also include transactions that you have entered into with other entities within the UBS business group. The Valuation Information is provided to you without charge and is not intended to be used by, and should not be relied upon in any way by the recipient hereof or any third party. We have no obligation to provide Valuation Information to you and may cease doing so at any time in our sole discretion. The indicative values shown herein represent UBS' good faith estimate of the value of the subject transactions as at the date shown herein and are subject to change without notice. UBS makes no representation or warranties with respect to the accuracy or reliability of the indicative valuations. These valuations were calculated using our standard methodology for estimating the value of transactions of this kind. That methodology forms a step in the process of setting our books and records valuations and relies on models, empirical data and assumptions. We make no representation or warranty as to the accuracy, reliability, completeness or appropriateness of our methodology, models or of the underlying data and assumptions. Use of different methods, models, data and/or assumptions may yield substantially different results. The valuations do not necessarily reflect UBS' internal books and records or its theoretical valuation models and may not reflect reserves and other adjustments made to model valuations in our books and records. The indicative valuations do not constitute an offer by us, or represent the price which we will be willing to purchase, sell, enter into, assign, terminate or settle any transaction. The valuations herein are not indicative price quotations and do not necessarily reflect such factors as hedging and transaction costs, credit considerations, market liquidity and bid-ask spreads, all of which could be relevant in establishing price quotations. A valuation estimate for any transaction does not necessarily suggest that a market exists for the transaction. No polling of dealers was conducted in determining the indicative valuations shown herein. UBS indicative valuations may vary significantly from valuation estimates available from other sources and we make no representation or warranty as to which any other person may ascribe to the subject transactions. UBS is not responsible for any loss or damage arising out of any person s use or, or reliance upon, the Valuation Information, including, but not limited to, errors (including errors of transmission), inaccuracies, omissions, changes in market factors or other circumstances, whether or not within UBS' control. Under no circumstances shall UBS be liable for special or consequential damages that arise from any person s use or reliance upon the Valuation Information, even if UBS has been advised of the possibility of such damages. L:\CVD\FL\PBCS015.DOC\5 5 5/18/2005 3:10 PM

III. Update on Refunding and Moving Forward

Refunding Update and Other Action Items Update on Series 2005 Refunding Finance Committee and Board moved quickly to authorize more flexible savings threshold Market improved as details were finalized Result $124 million refunding sold on February 24 th PV Savings - $3.8 million Percent Savings 3.09% Moving Forward Revaluate swaps as market conditions change Review BMA/LIBOR relationships for other opportunities Continue to budget with a cushion to allow mismatches Alternatively, build a reserve to provide for temporary mismatches Consider converting VRDOs to Auction Rate securities if current trading relationships persist