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ARTICLE VIII FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Section 8.01. Fund Designations. The City hereby covenants and agrees that all revenues derived from the operation of the System shall be kept separate from other funds of the City. To that end the City hereby confirms its previous creation and establishment of the following special Funds pursuant to the ordinances authorizing the issuance of the Previously Issued Parity Obligations, to-wit: (a) The City of San Marcos Waterworks and Sewer System Revenue Fund (the "Revenue Fund"). This Fund shall be kept in the City's official depository bank. (b) The City of San Marcos Waterworks and Sewer System Revenue Bonds Interest and Sinking Fund (the "Interest and Sinking Fund"). This Fund shall be kept at an official depository bank of the City. Money deposited in this Fund shall be used to pay principal of and interest on the Parity Revenue Obligations when and as the same shall become due and payable. (c) The City of San Marcos Waterworks and Sewer System Revenue Bonds Reserve Fund, (the "Reserve Fund"). This Fund shall be kept at an official depository bank of the City. Money deposited in this Fund shall be used to pay principal of and/or interest on the Parity Revenue Obligations falling due at any time when there is not sufficient money available in the Interest and Sinking Fund. The special Funds herein provided shall continue to be maintained at all times while any of the Parity Revenue Obligations remain outstanding. Section 8.02. Initial Deposits: Construction Fund. On the Closing Date, the City shall cause the proceeds from the sale of the Bonds to be deposited as follows: (i) first, all accrued interest on the Bonds from the Original Issue Date until the Closing Date and premium, if any, shall be deposited to the credit of the Interest and Sinking Fund; (ii) second, the remaining balance, less any amounts paid at Closing as costs of issuance, shall be deposited to the credit of a construction fund or funds. Section 8.03. Revenue Fund. All revenues of every nature received through the operation of the System shall be deposited from day to day as collected into the Revenue Fund, to be kept separate and apart from all other City funds and accounts. Moneys deposited in the Revenue Fund shall be pledged and appropriated to the following uses and in the order of precedence sho\\-n: (a) To the payment of all reasonable and proper expenses of operating and maintaining the System as set forth in the definition of "Net Revenues" contained in Section 1.01 hereof. R:\SA.....MAR\WWSS.98UJOCS\ORDNCE 21