$15,740,000* CITY OF ASHEVILLE, NORTH CAROLINA Special Obligation Bonds Series 2017

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1 THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT IN A FINAL OFFICIAL STATEMENT. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the 2017 Bonds offered hereby in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 4, 2017 New Issue/Book-Entry-Only Ratings: Moody s: S&P: AA (See RATINGS herein) $15,740,000* CITY OF ASHEVILLE, NORTH CAROLINA Special Obligation Bonds Series 2017 Dated: Date of Delivery Due: October 1, as shown below This Official Statement has been prepared by the City of Asheville, North Carolina (the City ) and the Local Government Commission of the State of North Carolina (the Local Government Commission or the LGC ) to provide information on the City s Special Obligation Bonds, Series 2017 (the 2017 Bonds ). Selected information is presented on this cover page for convenience of the user. To make an informed decision regarding the purchase of the 2017 Bonds, prospective investors should read this Official Statement in its entirety. Unless indicated, capitalized terms used on this cover page have the meanings given in this Official Statement. Security: Tax Treatment: Redemption: The 2017 Bonds are special obligations of the City, payable solely from the Trust Estate (including the Pledged Funds) as described herein. Neither the general credit nor the taxing power of the City or the State of North Carolina or any political subdivision thereof is pledged for the payment of the 2017 Bonds, nor will the 2017 Bonds be or be deemed to be an obligation of the City or the State of North Carolina or any political subdivision thereof other than of the City to the extent of the aforementioned Trust Estate. See SECURITY FOR THE BONDS herein. In the opinion of Parker Poe Adams & Bernstein LLP, Bond Counsel, under existing law (1) assuming compliance by the City with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), interest on the 2017 Bonds (a) is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2017 Bonds is exempt from State of North Carolina income taxation. See TAX TREATMENT herein. The 2017 Bonds are subject to optional redemption prior to their maturities as more fully described herein. Purpose: The proceeds from the sale of the 2017 Bonds will be used to (1) prepay a portion of the outstanding 2016 Bond (as defined herein) and (2) pay the costs of issuing the 2017 Bonds. Interest Payment Date: April 1 and October 1, commencing April 1, Record Date: The 15th day (whether or not a Business Day) of the month next preceding an Interest Payment Date. Denominations: $5,000 and any integral multiple thereof. The 2017 Bonds initially will be issued as fully registered bonds and when delivered will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company. See Appendix F hereto. Delivery Date: On or about November 9, Trustee: The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida. Bond Counsel: Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina. City Attorney: Robin Currin, Esq., Asheville, North Carolina. Underwriter s Counsel: Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina. Financial Advisor: DEC Associates, Inc., Charlotte, North Carolina. October, 2017 * Preliminary; subject to change. BofA Merrill Lynch

2 Due October 1 Principal Amount MATURITY SCHEDULE* $15,740,000 Bonds Interest Rate Yield CUSIP ** 2018 $790, , , , , , , , , , , , , , , , , , , ,000 *Preliminary; subject to change. ** CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2017 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by S&P Capital IQ, a division of McGraw Hill Financial, Inc. The CUSIP data herein is provided solely for the convenience of reference only, and neither the City nor the Underwriter takes responsibility for the accuracy of such data.

3 In connection with this offering, the Underwriter may overallot or effect transactions that stabilize or maintain the market price of the 2017 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the 2017 Bonds by any person in any jurisdiction in which it is not lawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Corporation, the City and other sources that are deemed to be reliable. The electronic distribution of this Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the 2017 Bonds described herein to the residents of any particular state and is not specifically directed to the residents of any particular state. The 2017 Bonds shall not be offered or sold in any state unless and until they are either registered pursuant to the laws of such state, or qualified pursuant to an appropriate exemption from registration in such state. The information set forth herein has been obtained from sources which are believed to be reliable and is in form deemed final by the City for the purpose of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (except for certain information permitted to be omitted under Rule 15c2-12(b)(1)). Neither the 2017 Bonds nor the Indenture (as defined herein) have been registered with the Securities and Exchange Commission by reason of the provisions of Section 3(a)(2) of the Securities Act of 1933, as amended. The registration or qualification of the 2017 Bonds and the Indenture in accordance with applicable provisions of securities laws of the states in which the 2017 Bonds and the Indenture have been registered or qualified, and the exemption from registration or qualification in other states, shall not be regarded as a recommendation thereof. In making an investment decision, investors must rely on their own examination of the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the 2017 Bonds shall under any circumstances create any implication that there has been no change in the affairs of the City since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

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5 TABLE OF CONTENTS INTRODUCTION... 1 The City... 1 Purpose... 1 Security... 1 The 2017 Bonds... 2 Book-Entry Only... 2 Tax Status... 2 Professionals... 2 Continuing Disclosure... 3 SECURITY FOR THE BONDS... 3 The Trust Estate; Pledged Funds... 3 Coverage of Special Obligations... 4 Covenants Concerning Pledged Funds... 4 Additional Bonds; Parity Obligations... 5 Subordinated and Other Indebtedness... 6 Limited Liability... 6 Funds and Accounts... 6 Bankruptcy... 8 THE 2017 BONDS... 8 General... 8 Book-Entry Only System... 9 Redemption Provisions... 9 THE CITY THE PLAN OF FINANCE ESTIMATED SOURCES AND USES OF FUNDS ANNUAL INSTALLMENT PAYMENT REQUIREMENTS LEGAL MATTERS Litigation Contingent Liabilities Opinions of Counsel Relationships TAX TREATMENT General Original Issue Discount Original Issue Premium CONTINUING DISCLOSURE UNDERWRITING FINANCIAL ADVISOR RATINGS MISCELLANEOUS Page APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F The City Financial Information Concerning the City Summary of Principal Legal Documents Form of Opinion of Bond Counsel The North Carolina Local Government Commission Book-Entry Only System i

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7 OFFICIAL STATEMENT $15,740,000* CITY OF ASHEVILLE, NORTH CAROLINA Special Obligation Bonds Series 2017 INTRODUCTION This Official Statement, including the Appendices attached hereto, is furnished by the Local Government Commission of the State of North Carolina and the City of Asheville, North Carolina (the City ) in connection with the offering and sale of $15,740,000* aggregate principal amount of the City s Special Obligation Bonds, Series 2017 (the 2017 Bonds ). The 2017 Bonds will be issued pursuant to the General Statutes of North Carolina, Chapter 159I-30 et seq., as amended (the Act ), the General Trust Indenture, dated as of November 1, 2017 (the General Indenture,) between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ), a bond order of the City adopted September 26, 2017, and Series Indenture, Number 1, dated as of November 1, 2017 (the Series Indenture and, collectively with the General Indenture, the Indenture ), among the City and the Trustee. This introduction provides only certain limited information with respect to the contents of this Official Statement and is expressly qualified by the Official Statement as a whole. Prospective investors should review the full Official Statement and each of the documents summarized or described herein. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Capitalized terms used in this Official Statement, unless otherwise defined herein, have the meanings set out in Appendix C hereto. The City See Appendix A hereto for certain information regarding the City. The City s most recent audited financial statements are contained in Appendix B hereto. Purpose Proceeds from the sale of the 2017 Bonds will be used, together with other available funds, to (1) prepay a portion of the outstanding Limited Obligation Bond, Series 2016 (the 2016 Bond ), the proceeds of which were used, among other purposes, to pay the costs of downtown revitalization projects and urban area revitalization projects in municipal service districts known as the Central Business District and the River Arts District (collectively, the Prior Projects ) and (2) pay certain costs of issuance of the 2017 Bonds. See THE PLAN OF FINANCE herein. Security The 2017 Bonds are special obligations of the City, payable solely from the Trust Estate pledged under the Indenture (including the Pledged Funds), as described under the caption SECURITY FOR THE BONDS The Trust Estate; Pledged Funds herein. The principal of, premium, if any, and interest on the 2017 Bonds are not payable from the general funds of the City, nor do they constitute a legal or equitable pledge, charge, lien, or encumbrance upon any of its property or upon any of its income, receipts, or revenues, except the Trust Estate pledged under the Indenture. Neither the credit nor the taxing power of the City or the State of North Carolina (the State ) or any political subdivision thereof is pledged for the payment of the principal of, premium, if any, or interest of the 2017 Bonds, and no owner *Preliminary; subject to change

8 of 2017 Bonds has the right to compel the exercise of the taxing power by the City, or the forfeiture of any of its property in connection with any default on the 2017 Bonds. Under the Indenture, the City may issue additional Bonds ( Additional Bonds ) payable from the Trust Estate on a parity with the 2017 Bonds and any Additional Bonds hereafter issued. The 2017 Bonds and any Additional Bonds are referred to collectively herein as the Bonds. In addition, the City may incur obligations for payments of Principal and Interest (each as defined in the General Indenture) with respect to borrowed money or for payments under Derivative Agreements (as defined below), leases that are required to be capitalized in accordance with generally accepted accounting principles or installment financing contracts (together with any Bonds, Parity Obligations ), which obligations are secured by a lien on and payable from Pledged Funds on a parity with the 2017 Bonds. See the caption SECURITY FOR THE BONDS Additional Bonds; Parity Obligations herein. Derivative Agreements are defined in the Indenture to mean an interest rate swap, cap, collar, floor, forward, option, put, call or other agreement, however denominated, relating to any Bonds or, to the extent permitted by law, any other agreement so designated as a Derivative Agreement under the General Indenture. The 2017 Bonds The 2017 Bonds will be dated their date of initial execution and delivery. Interest is payable on April 1 and October 1 of each year, beginning April 1, 2018, at the rates set forth on the inside cover page of this Official Statement. Principal is payable on October 1 in the years and in the amounts set forth on the inside cover page of this Official Statement. Book-Entry Only The 2017 Bonds will be delivered in book-entry form only, without physical delivery of bonds. Payments to beneficial owners of the 2017 Bonds will be made by the Trustee through The Depository Trust Company ( DTC ) and its participants. See BOOK-ENTRY ONLY SYSTEM in Appendix F hereto. Tax Status In the opinion of Parker Poe Adams & Bernstein LLP, Bond Counsel, under existing law (1) assuming compliance by the City with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), interest on the 2017 Bonds (a) is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2017 Bonds is exempt from State of North Carolina income taxation. See TAX TREATMENT herein. Professionals Merrill Lynch, Pierce, Fenner & Smith Incorporated (the Underwriter ) is serving as underwriter for the 2017 Bonds. The Bank of New York Mellon Trust Company, N.A. is serving as Trustee. Parker Poe Adams & Bernstein LLP is serving as Bond Counsel to the City. Robin Currin, Esq., City Attorney, is serving as counsel to the City and will pass on certain legal matters relating to the City. Womble Carlyle Sandridge & Rice, LLP is serving as counsel to the Underwriter. DEC Associates, Inc. is serving as financial advisor to the City. 2

9 Continuing Disclosure The City will undertake in the Series Indenture to provide continuing disclosure of certain annual financial information and operating data and material events regarding the 2017 Bonds. See the caption CONTINUING DISCLOSURE herein. The Trust Estate; Pledged Funds SECURITY FOR THE BONDS The 2017 Bonds are special obligations of the City, payable solely from the Trust Estate pledged under the Indenture, which includes the Pledged Funds. In addition to the Pledged Funds, the Trust Estate consists of certain monies held by the Trustee in funds or accounts created under the Indenture. The Pledged Funds are described in the following paragraph. The principal of, premium, if any, and interest on the 2017 Bonds are not payable from the general funds of the City, nor do they constitute a legal or equitable pledge, charge, lien, or encumbrance upon any of its property or upon any of its income, receipts, or revenues, except the Trust Estate pledged under the Indenture. Neither the credit nor the taxing power of the City are pledged for the payment of the principal or interest of the 2017 Bonds, and no owner of 2017 Bonds has the right to compel the exercise of the taxing power by the City, or the forfeiture of any of its property in connection with any default on the 2017 Bonds. The Pledged Funds currently consist of: (1) that portion of the proceeds of the 1% sales and use tax levied by Buncombe County pursuant to Article 39 of Chapter 105 of the General Statutes of North Carolina which are distributed to the City; (2) that portion of the proceeds of the 0.5% sales and use tax levied by Buncombe County pursuant to Article 40 of Chapter 105 of the General Statutes of North Carolina which are distributed to the City; (3) that portion of the proceeds of the 0.5% sales and use tax levied by Buncombe County pursuant to Article 42 of Chapter 105 of the General Statutes of North Carolina which are distributed to the City; (4) that portion of the proceeds pursuant to the Local Government Hold Harmless Provisions in Article 44 of Chapter 105 of the General Statutes of North Carolina which are distributed to the City; and (5) that portion of the proceeds of the following utilities taxes levied by the State of North Carolina pursuant to Article 5 of Chapter 105 of the General Statutes of North Carolina which are distributed to the City: a franchise tax on electricity, a sales tax on telecommunications and video services, and an excise tax on piped natural gas. The sales and use taxes levied by Buncombe County pursuant to Articles 39, 40 and 42 of Chapter 105 of the General Statutes of North Carolina may be repealed pursuant to the procedure provided in Article 39. The General Assembly of the State may amend or repeal the authority for levying all or a portion of the taxes from which the Pledged Funds are derived. Except to the limited extent described herein, the City is not required under the General Indenture to set aside or deposit the Pledged Funds in any fund for the payment of the 2017 Bonds. The City may, without the consent of the Owners, amend the definition of Pledged Funds to add to the revenues listed therein. See the caption SECURITY FOR THE BONDS- Covenant Concerning Pledged Funds herein. 3

10 Coverage of Special Obligations Funds: The following table presents historical information on the City s historical receipt of the Pledged Fiscal Year Article 39 Sales Tax Article 40 Sales Tax Article 42 Sales Tax Article 44 Hold Harmless Article 5 Franchise Total 2013 $ 7,499,549 $2,902,335 $3,606,133 $2,204,050 $6,885,145 $23,097, ,140,996 3,015,986 3,926,178 2,160,384 7,032,103 24,275, ,811,781 3,319,511 4,254,584 2,427,690 8,291,583 27,105, ,829,455 3,510,839 4,761,426 2,449,343 8,849,139 29,400, ,806,686 3,824,632 5,236,884 2,727,267 8,580,404 31,175,873 1 Unaudited. Assuming the 2017 Bonds are issued in the principal amount of $15,740,000 with a final maturity of October 1, 2037 and a true interest cost of 3.06% * per annum, the coverage of maximum annual Principal and Interest Requirements by the unaudited Pledged Funds for the fiscal year ended June 30, 2017 would have been approximately * times. For information on the debt service requirements for the 2017 Bonds, see ANNUAL INSTALLMENT PAYMENT REQUIREMENTS herein. The City has general obligation bonds outstanding and may issue additional general obligation bonds and notes in the future. The City has pledged and will pledge its faith and credit and taxing power to the payment of its general obligation bonds and notes issued or to be issued. See the caption THE CITY OF ASHEVILLE Debt Information in Appendix A hereto for a description of the City s outstanding and authorized but unissued general obligation bonds and notes. Covenants Concerning Pledged Funds The City has covenanted in the General Indenture that Pledged Funds in each Fiscal Year will not be less than (1) 200% of (2.00 times) the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations and (2) after deducting the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations, (a) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness in that Fiscal Year and (b) 100% of (1.00 times) the Principal and Interest Requirements for Other Indebtedness in that Fiscal Year and (c) 100% of (1.00 times) the amount required to reimburse the provider of a Qualified Reserve Fund Substitute for any amounts owing under the General Indenture. The City has further covenanted in the General Indenture that if Pledged Funds in any Fiscal Year are less than the amount necessary to satisfy the covenant described in the preceding paragraph, the City will amend the definition of Pledged Funds under the General Indenture, subject to the approval of the LGC as may be required by the Act, so as to add the revenues derived from a source other than the exercise of the taxing power of the City and sufficient for the Pledged Funds in that Fiscal Year to be at least equal to (1) 200% of (2.00 times) the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations and (2) after deducting the maximum annual Principal and Interest Requirements on the Bonds and the maximum Preliminary; subject to change. 4

11 annual Principal and Interest Requirements on Parity Obligations, (a) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness in that Fiscal Year and (b) 100% of (1.00 times) the Principal and Interest Requirements for Other Indebtedness in that Fiscal Year and (c) 100% of (1.00 times) the amount required to reimburse the provider of a Qualified Reserve Fund Substitute for any amounts owing under the General Indenture. Additional Bonds; Parity Obligations The City may issue Additional Bonds and Parity Obligations payable on a parity under the General Indenture with the 2017 Bonds upon satisfying certain requirements in the Indenture. The City may issue Bonds to refund all or any principal amount of the Bonds; if, however, the Principal and Interest Requirements on the Bonds in any year remaining Outstanding after the issuance of the refunding Bonds will increase as a result of such refunding, then the City must satisfy the requirements in the immediately following paragraph. No Series of Bonds, other than the Bonds described in the immediately preceding paragraph, will be issued under the Indenture unless no Event of Default has occurred and is continuing under the Indenture and either: (i) the Pledged Funds for the most recent Fiscal Year for which audited financial statements are available were at least (A) 200% (2.00 times) the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations, including the Series of Bonds to be issued, and (B) after deducting the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations, (i) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness in that Fiscal Year and (ii) 100% of (1.00 times) the Principal and Interest Requirements for Other Indebtedness in that Fiscal Year; or (ii) the City has amended the definition of Pledged Funds under the Indenture so as to add to the definition revenues derived from a source other than the exercise of the taxing power of the City sufficient for the Pledged Funds for the most recent Fiscal Year for which audited financial statements are available to be at least (A) 200% of (2.00 times) the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations, including the Series of Bonds to be issued, and (B) after deducting the maximum annual Principal and Interest Requirements on the Bonds and the maximum annual Principal and Interest Requirements on Parity Obligations, (i) 100% of (1.00 times) the Principal and Interest Requirements for Subordinate Indebtedness in that Fiscal Year and (ii) 100% of (1.00 times) the Principal and Interest Requirements for Other Indebtedness in that Fiscal Year. 5

12 Subordinated and Other Indebtedness Under the conditions and limitations set forth in the Indenture and without the approval or consent of the Owners or persons entitled to payment with respect to Subordinated Indebtedness or Other Indebtedness, including the Owners of the 2017 Bonds, the City may incur Subordinated Indebtedness or Other Indebtedness secured by a pledge, charge and lien upon Pledged Funds subordinate to the payment of Parity Indebtedness. See Issuance of Additional Indebtedness in Appendix C hereto. Limited Liability Neither the general credit nor the taxing power of the City or the State or any political subdivision thereof is pledged for the payment of the 2017 Bonds. The 2017 Bonds are special obligations of the City payable solely from the Trust Estate. Funds and Accounts Pursuant to the Indenture, the City establishes and creates the following special funds: (1) Bond Fund; (2) Construction Fund; (3) Rebate Fund; and (4) Reserve Fund. The Trustee or the City may also create such other Funds or Accounts as it deems necessary or desirable in the administration of the Indenture. The Bond Fund, the Construction Fund, the Reserve Fund and the Rebate Fund will be held by the Trustee. There will be deposited into each fund created under the Indenture all amounts required to be deposited therein pursuant to the Indenture and any other amounts available therefor and determined by the City to be deposited therein. Use of Pledged Funds. The City will apply the Pledged Funds in the following manner and order of priority: FIRST: On the date set for payment thereof, (a) commencing on the date set in the Series Indenture for each Series of Bonds, to the Trustee for deposit in the Bond Fund, an amount (after taking into consideration amounts then on deposit in the Bond Fund allocated to pay Interest) equal to the Interest due and (b) to the appropriate party as determined by the City, an amount (after taking into consideration amounts then on deposit allocated to pay interest on the Parity Obligations) equal to the interest due on the outstanding Parity Obligations, provided that if the Pledged Funds are insufficient to satisfy all such deposits and payments, such deposits and payments will be made to each such fund and account ratably according to the amount so required to be deposited; SECOND: On the date set for payment thereof, (a) commencing on the date set in the Series Indenture for each Series of Bonds, to the Trustee for deposit in the Bond Fund, an amount (after taking into consideration amounts then on deposit in the Bond Fund allocated to pay Principal due with respect to the Bonds) equal to the Principal Installment due on the Bonds and 6

13 (b) to the appropriate party as determined by the City, an amount (after taking into consideration amounts then on deposit allocated to pay principal on the Parity Obligations) equal to the principal due on the outstanding Parity Obligations, provided that if the Pledged Funds are insufficient to satisfy all such deposits and payments, such deposits and payments will be made to each such fund and account ratably according to the amount so required to be deposited; THIRD: On the date set for payment thereof, to the provider of any Qualified Reserve Fund Substitute in satisfaction of the then current obligations of the City incurred in connection therewith; FOURTH: On each Interest Payment Date, (a) to the Trustee for deposit in the Reserve Fund (1) the amount necessary for the balance therein to equal the Reserve Requirement or (2) if the Reserve Fund is less than 90% of the Reserve Requirement as a result of a valuation of investments therein, the amount necessary for the balance therein to equal the Reserve Requirement; but the City is not required to transfer in any month more than an amount such that if the same amount were deposited in equal monthly installments over the subsequent 11 months, the Reserve Fund would equal the Reserve Requirement, and (b) to the appropriate party as determined by the City for deposit in the reserve fund established with respect to Parity Obligations outstanding or to be issued an amount equal to the reserve requirement with respect to such Parity Obligations; provided, however, that if the Pledged Funds are insufficient to satisfy all deposits required under this subsection, such deposits will be made to each such fund or account ratably according to the amount so required to be deposited; FIFTH: On the date set for the payment thereof, to the Persons entitled to payment on any Subordinate Indebtedness, an amount equal to the principal, premium or interest then due and owing; SIXTH: At any time as may be required, to the Persons entitled to payment with respect to Other Indebtedness, an amount equal to the payment then due and owing; SEVENTH: At any time as may be required, (1) to the Persons entitled to a termination payment with respect to a Derivative Agreement and (2) to purchase or pledge as collateral in connection with a Derivative Agreement; and EIGHTH: At any time as may be determined by the City, for any other lawful purpose for which Pledged Funds may be used by the City. Bond Fund. The Trustee will disburse amounts deposited in the Bond Fund as follows: (1) On each Interest Payment Date, to the Persons entitled thereto, Interest due on such date. (2) Subject to the provisions of the Indenture requiring the application thereof to the payment or redemption of any particular Bond, on each Principal Payment Date, to the Owners, the amounts required for the payment of the Principal due on such date. (3) On each Redemption Date, to the Owners, the amount required for redemption of Bonds called for redemption. 7

14 If on any Interest Payment Date or Principal Payment Date, there is a deficiency in the Bond Fund, the amount of such deficiency will be made up from the following Funds and in the order or priority set forth below: (1) Reserve Fund, or Account thereof, securing a Series of Bonds to pay the Principal of and Interest on such Series of the Bonds, to the extent such deficiency is attributable to the Series of the Bonds secured thereby; and (2) Construction Fund. Rebate Fund. The Trustee will pay from the Rebate Fund investment income required to be paid to the United States at the times and in the amounts required by the Indenture and the Code. Bankruptcy Reserve Fund. The 2017 Bonds will not be secured by the Reserve Fund. Chapter 9 of the Title 11 of the United States Code (as amended, the Bankruptcy Code ) provides a process for a political subdivision of a state to voluntarily adjust its debts. An involuntary bankruptcy case may not be commenced against a political subdivision under Chapter 9. Section 109(c) of the Bankruptcy Code sets forth certain conditions that must be met for an entity to be a debtor under Chapter 9, including that the entity is specifically authorized to be a debtor under Chapter 9 by state law (or by a governmental officer or organization empowered by state law to authorize the entity to be a debtor under Chapter 9). North Carolina law authorizes any taxing district, local improvement district, school district, county, city, town or village in the State to file a Chapter 9 bankruptcy case, but only with the approval of the LGC. If the City were to initiate a bankruptcy case, the bankruptcy proceedings could have material and adverse effects on owners of the 2017 Bonds, including (a) delay in enforcement of their remedies, (b) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings and (c) imposition without their consent of a plan of reorganization reducing or delaying payment of the 2017 Bonds. The effect of the other provisions of the Bankruptcy Code on the rights and remedies of the owners of the 2017 Bonds cannot be predicted and may be affected significantly by judicial interpretation, general principles of equity (regardless of whether considered in a proceeding in equity or at law) and considerations of public policy. Regardless of any specific adverse determinations in a bankruptcy case of the City, the fact of such a bankruptcy case could have an adverse effect on the liquidity and value of the 2017 Bonds. General THE 2017 BONDS The 2017 Bonds are issuable solely as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof. The 2017 Bonds will be dated as of their date of delivery and will mature (subject to prior redemption) on October 1 of the years and in the amounts and will bear interest (computed on the basis of a 360-day year of twelve 30-day months), all as set forth on the cover hereof. Interest on the 2017 Bonds is payable on April 1, 2018 and semiannually thereafter on each April 1 and October 1. 8

15 2017 Bonds executed in exchange for or upon the registration of transfer of 2017 Bonds will be dated as of the Interest Payment Date preceding the date of authentication thereof, unless (1) the date of such authentication precedes April 1, 2018, in which case they will be dated as of the date of delivery or (2) the date of such authentication is an Interest Payment Date to which interest on the 2017 Bonds has been paid in full or duly provided for in accordance with the terms of the Indenture, in which case they will be dated as of such Interest Payment Date; except that if, as shown by the records of the Paying Agent, interest on the 2017 Bonds is in default, 2017 Bonds executed and delivered in exchange for or upon registration of transfer of 2017 Bonds will be dated as of the date to which interest on the 2017 Bonds has been paid in full. If no interest has been paid on the 2017 Bonds, 2017 Bonds executed and delivered in exchange for or upon the registration of transfer of 2017 Bonds will be dated as of their date of delivery. The Paying Agent for the 2017 Bonds initially will be The Bank of New York Mellon Trust Company, N.A.. Book-Entry Only System The 2017 Bonds will be delivered as fully registered certificates in book-entry only form. See Appendix F hereto for a further description of The Depository Trust Company and the book-entry only system for the 2017 Bonds. Redemption Provisions Optional Redemption. The 2017 Bonds maturing on or before October 1, 20, are not subject to redemption at the option of the City prior to maturity. The 2017 Bonds maturing on or after October 1, 20, are subject to redemption at the option of the City, either in whole or in part on October 1, 20 or on any date thereafter, at a Redemption Price of 100% of the principal amount of the 2017 Bonds to be so redeemed, plus accrued interest thereon to the Redemption Date. Notice of Redemption. Not less than 30 days nor more than 60 days before the Redemption Date, the Trustee shall give notice of redemption (1) by registered or certified mail or otherwise in accordance with DTC s then-existing rules and procedures, to DTC or its nominee or to the then-existing securities depositories, or (2) if DTC or its nominee or another securities depository is no longer the Owner of the 2017 Bonds, by first class mail, postage prepaid to the then-registered Owners of the 2017 Bonds to be prepaid at their addresses appearing on the registration books maintained by the Trustee, (3) to the LGC by first class mail, postage prepaid or such other method acceptable to the LGC, and (4) to the Municipal Securities Rulemaking Board (the MSRB ) through the Electronic Municipal Market Access (EMMA) system in electronic format as prescribed by the MSRB. If notice is given, the failure to receive such notice or any defect therein will not affect the validity of any proceedings for such redemption, and failure to give notice to all Owners will not affect the validity of any proceedings with respect to any Owner to whom such notice is properly given. Any notice mailed as provided in the Indenture will be conclusively presumed to have been given, whether or not the Owner receives the notice. If at the time of mailing of notice of redemption there is not on deposit with the Trustee money sufficient to redeem the 2017 Bonds called for redemption, which money is or will be available for redemption of the 2017 Bonds, such notice will state that it is conditional on the deposit of the redemption money with the Trustee on or before the Redemption Date. Effect of Redemption. If money is on deposit in the Bond Fund to pay the Redemption Price of the 2017 Bonds called for redemption and premium, if any, thereon on a Redemption Date, 2017 Bonds or portions thereof thus called will not bear interest after such Redemption Date and will not be considered to be Outstanding or to have any other rights under the General Indenture other than the right to receive payment. 9

16 Selection of 2017 Bonds to be Redeemed. In the case of any partial redemption of 2017 Bonds, the City will select the maturity or maturities of the 2017 Bonds to be redeemed and DTC will select the 2017 Bonds within the same maturity pursuant to its rules and procedures or, if the book entry system with DTC or any other securities depository has been discontinued, the Trustee will select the 2017 Bonds to be redeemed by lot in such manner as the Trustee in its discretion may deem proper. No Partial Redemption After Default. If an Event of Default occurs under the Series Indenture and is continuing thereunder, there will be no redemption of less than all of the Bonds Outstanding. Payment of Redemption Price. The City will cause to be deposited in the Bond Fund, solely out of the Trust Estate, an amount sufficient to pay the Redemption Price of the 2017 Bonds to be redeemed and interest to become due on the Redemption Date, and such 2017 Bonds will be deemed to be paid within the meaning of the Indenture. THE CITY Information about the City is contained in Appendix A to this Official Statement. The City s basic financial statements have been audited by independent certified public accountants for each Fiscal Year through June 30, The City s basic financial statements and the notes thereto, drawn from the City s comprehensive annual financial report for the Fiscal Year ended June 30, 2016, are included as Appendix B to this Official Statement. The City has not requested nor obtained the consent of its auditor to the inclusion these financial statements in this Official Statement. THE PLAN OF FINANCE The 2017 Bonds are being executed and delivered to provide funds, together with other available funds, to (1) prepay a portion of the 2016 Bond and (2) finance the costs of the initial execution and delivery of the 2017 Bonds. The 2016 Bond was issued to provide funds to pay the costs of various projects in the City including the Prior Projects. Simultaneously with the issuance of the 2017 Bonds, Limited Obligation Bonds (City of Asheville, North Carolina), Series 2017 (the Limited Obligation Bonds ) will be executed and delivered by the Asheville Public Financing Corporation, a portion of the proceeds of which will be used, together with proceeds from the 2017 Bonds, to prepay in whole the outstanding principal amount of the 2016 Bond on the date of issuance of the 2017 Bonds and the Limited Obligation Bonds. The Limited Obligation Bonds will not be executed and delivered pursuant to Indenture and will not be secured by the Pledged Funds. The projects financed with the proceeds of the 2016 Bond and refinanced with the proceeds of the 2017 Bonds and the Limited Obligation Bonds are the first part of a multi-year capital improvement plan undertaken by the City. For more information regarding such capital improvement plan and the funding sources for such plan, see Debt Information Debt Outlook in Appendix A. 10

17 ESTIMATED SOURCES AND USES OF FUNDS The City estimates the sources and uses of funds in connection with the plan of finance to be as follows: Sources: Par Amount of the 2017 Bonds City Contribution Net Original Issue [Premium/Discount] Uses: Total Prepayment of 2016 Bond 1 Costs of Issuance 2 Total 1 $ of the proceeds of the Limited Obligation Bonds will be combined with this amount to prepay the 2016 Bond. 2 Includes underwriter s discount, legal fees, rating agency fees, financial advisor fees, fees and expenses of the Trustee and miscellaneous fees and expenses. 11

18 ANNUAL INSTALLMENT PAYMENT REQUIREMENTS The following schedule sets forth for each fiscal year of the City ending June 30 the amount of principal and interest required to be paid on the 2017 Bonds. Totals may not foot due to rounding Bonds Fiscal Year Ending June 30, Principal Interest Total 2 Total 2 1 Includes principal and interest. 2 Totals may not foot due to rounding. Litigation LEGAL MATTERS No litigation is now pending or, to the best of the City s knowledge, threatened, against or affecting the City which seeks to restrain or enjoin the authorization, execution or delivery of the 2017 Bonds or which contests the City s creation, organization or corporate existence, or the title of any of the present officers thereof to their respective offices or the authority or proceedings for the City s authorization, execution and delivery of the Indenture, or the City s authority to carry out its obligations thereunder or which would have a material adverse impact on the City s condition, financial or otherwise. Contingent Liabilities The City is not aware of any contingent liabilities that would materially adversely affect the City s ability to meet its financial obligations. 12

19 Opinions of Counsel Legal matters related to the execution, sale and delivery of the 2017 Bonds are subject to the approval of Parker Poe Adams & Bernstein LLP, Bond Counsel. The opinion of Parker Poe Adams & Bernstein LLP, as Bond Counsel, substantially in the form set forth in Appendix D hereto, will be delivered at the time of the delivery of the 2017 Bonds. Certain legal matters will be passed on for the City by Robin Currin, Esq.; and for the Underwriter by its counsel, Womble Carlyle Sandridge & Rice, LLP. Relationships Parker Poe Adams & Bernstein LLP is serving as Bond Counsel for the City and, from time to time it and Womble Carlyle Sandridge & Rice, LLP, counsel to the Underwriter, have represented the Underwriter as counsel in other financing transactions. Neither the City nor the Underwriter have conditioned the future employment of either of these firms in connection with any proposed financing issues for the City or for the Underwriter on the successful execution and delivery of the 2017 Bonds. General TAX TREATMENT On the date of issuance of the 2017 Bonds, Parker Poe Adams & Bernstein LLP ( Bond Counsel ), will render an opinion that, under existing law (1) assuming compliance by the City with certain provisions of the Internal Revenue Code of 1986, as amended (the Code ), (a) interest on the 2017 Bonds is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2017 Bonds is exempt from State of North Carolina income taxation. The interest on the 2017 Bonds will be taken into account in determining adjusted current earnings of certain corporations (as defined for federal income tax purposes), and such corporations are required to include in the calculation of federal alternative minimum taxable income 75% of the excess of such corporation s adjusted current earnings over its federal alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). The Code imposes various restrictions, conditions and requirements relating to the exclusion of interest on obligations, such as the 2017 Bonds, from gross income for federal income tax purposes, including, but not limited to, the requirement that the City rebate certain excess earnings on proceeds and amounts treated as proceeds of the 2017 Bonds to the United States Treasury, restrictions on the investment of such proceeds and other amounts, and restrictions on the ownership and use of the facilities financed or refinanced with proceeds of the 2017 Bonds. The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied by the City subsequent to issuance of the 2017 Bonds to maintain the excludability of the interest on the 2017 Bonds from gross income for federal income tax purposes. Bond Counsel s opinion is given in reliance on certifications by representatives of the City as to certain facts material to the opinion and the requirements of the Code. The City has covenanted to comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2017 Bonds in order that the interest on the 2017 Bonds be, or continue to be, excludable from gross income for federal income tax purposes. The opinion of Bond Counsel assumes compliance by the City such covenants, and Bond Counsel has not been retained to monitor 13

20 compliance by the City with such covenants subsequent to the date of issuance of the 2017 Bonds. Failure to comply with certain of such requirements may cause the interest on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest with respect to the 2017 Bonds. If the interest on the 2017 Bonds subsequently becomes included in gross income for federal income tax purposes due to a failure by the City to comply with any requirements described above, the City is not required to redeem the 2017 Bonds or to pay any additional interest or penalty. The Internal Revenue Service has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includible in gross income for federal income tax purposes. Bond Counsel cannot predict whether the Internal Revenue Service will commence an audit of the 2017 Bonds. Prospective purchasers of the 2017 Bonds are advised that, if the Internal Revenue Service does audit the 2017 Bonds, under current Internal Revenue Service procedures, at least during the early stages of an audit, the Internal Revenue Service will treat the City as the taxpayer, and the owners of the 2017 Bonds may have limited rights, if any, to participate in such audit. The commencement of an audit could adversely affect the market value and liquidity of the 2017 Bonds until the audit is concluded, regardless of the ultimate outcome. Prospective purchasers of the 2017 Bonds should be aware that ownership of the 2017 Bonds and the accrual or receipt of interest on the 2017 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property or casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain Subchapter S Corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the 2017 Bonds. Bond Counsel does not express any opinion as to any such collateral tax consequences. Prospective purchasers of the 2017 Bonds should consult their own tax advisors as to the collateral tax consequences. Proposed legislation is considered from time to time by the United States Congress that, if enacted, would affect the tax consequences of owning the 2017 Bonds. No assurance can be given that any future legislation, or clarifications or amendments to the Code, if enacted into law, will not contain provisions which could cause the interest on the 2017 Bonds to be subject directly or indirectly to federal or State of North Carolina income taxation, adversely affect the market price or marketability of the 2017 Bonds or otherwise prevent the owners of the 2017 Bonds from realizing the full current benefit of the status of the interest on the 2017 Bonds. Bond Counsel s opinion is based on existing law, which is subject to change. Such opinion is further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinion to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention, or to reflect any changes in law that may thereafter occur or become effective. Moreover, Bond Counsel s opinion is not a guarantee of a particular result, and is not binding on the Internal Revenue Service or the courts; rather, such opinion represents Bond Counsel s professional judgment based on its review of existing law, and in reliance on the representations and covenants that Bond Counsel deems relevant to such opinion. Bond Counsel s opinion expresses the professional judgment of the attorneys rendering the opinion regarding the legal issues expressly addressed therein. By rendering its opinion, Bond Counsel does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of the City, nor does the rendering of such opinion guarantee the outcome of any legal dispute that may arise out of the transaction. 14