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8.B. - Page 34 Limited Obligation The Bonds are limited obligations of the City on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues (except for the Annual Administrative Expense Deposit) and the amounts in the Bond Fund, the Reserve Fund and the Special Tax Fund created pursuant to the Fiscal Agent Agreement. The Annual Administrative Expense Deposit and amounts in the Administrative Expense Fund, the Surplus Fund and the Costs of Issuance Fund are not pledged to the repayment of the Bonds. The Improvements are not pledged to pay the Debt Service on the Bonds. The proceeds of condemnation or destruction of any of the Improvements are not pledged to pay the Debt Service on the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to repay the Bonds are amounts held by the Fiscal Agent under the Fiscal Agent Agreement in the Bond Fund, the Special Tax Fund and the Reserve Fund, and the proceeds, if any, from foreclosure sales of Taxable Parcels with delinquent Special Tax levies. Special Taxes In accordance with the provisions of the Act, the Rate and Method was approved in 1999 by the then qualified electors of the District (being the then owners of the land in the District), and is set forth in its entirety in Appendix B. Under the Fiscal Agent Agreement, the City is obligated to fix and levy the amount of Special Taxes within the District required for the timely payment of principal of and interest on the outstanding Bonds becoming due and payable, including any necessary replenishment of the Reserve Fund and an amount estimated to be sufficient to pay the Administrative Expenses during the applicable year, all in accordance with the Rate and Method and Ordinance No. 2180, adopted by the City Council on August 23, 1999, authorizing the levy of Special Taxes on the Taxable Parcels. The Special Taxes levied on any Taxable Parcel may not exceed the maximum allowed under the Rate and Method. See "SECURITY FOR THE BONDS—Summary of Rate and Method" and Appendix B—Rate and Method." The Special Taxes are payable and are collected in the same manner, at the same time and in the same installment as the County ad valorem taxes on property levied on the secured tax roll are payable, and pursuant to the Act have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the taxes levied on the tax roll; provided, however, that the Special Taxes may be collected in such other manner as the City shall prescribe if necessary to pay the debt service on the Bonds Although the Special Taxes will constitute a lien on Taxable Parcels within the District, they do not constitute a personal indebtedness of the owners of the Taxable Parcels. Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of the Special Tax on a Taxable Parcel, the City may order the institution of a superior court action to foreclose the lien on the Taxable Parcel within specified time limits. In such an action, the Taxable Parcel may be sold at judicial foreclosure sale. The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem property taxes. See "SECURITY FOR THE BONDS—Summary of Rate and Method," "—Covenant for Superior Court Foreclosure" and "SPECIAL RISK FACTORS—Parity Taxes and Special Assessments." -12-