Bank of America Finance Launches 23-Month Callable Yield Notes Tied to Stock Market Indices and Semiconductor ETF

Structured Note Characteristics and Underlying Indices

BofA Finance LLC is issuing Contingent Income Issuer Callable Yield Notes due July 6, 2028, with performance linked to three distinct market indicators. The note structure tracks the Dow Jones Industrial Average as a price return index, the Russell 2000 Index as a price return index, and the VanEck Semiconductor ETF by closing price. The filing indicates that the notes will be issued in minimum denominations of $1,000.00 and whole multiples thereof, with a CUSIP number of 09712GZU1. The calculation agent for the notes is BofA Securities, Inc., an affiliate of the issuer, responsible for determining all index observations and payment calculations throughout the note's lifecycle.

The design of the notes reflects a multi-index strategy rather than a single underlying, introducing complexity in how returns are calculated and payments distributed. Investors purchasing these notes are exposed to the combined performance of large-cap stocks through the Dow Jones Industrial Average, small-cap stocks via the Russell 2000 Index, and the semiconductor sector through the VanEck ETF. This diversified underlying approach means that the final payoff depends not on the strongest performer but rather on the weakest, a structure that amplifies risk during broad market downturns or sector-specific weakness. Bank of America Corporation serves as unconditional guarantor of all obligations under the notes.

Monthly Coupon Payments and Income Contingencies

The notes offer a contingent coupon payment of $16.667 per $1,000.00 in principal amount each month, equivalent to 1.6667% monthly or 20.00% annualized. However, this attractive yield is contingent on a specific performance threshold: the filing states that monthly coupon payments occur only if the observation value of each of the three underlying indices remains greater than or equal to 70.00% of its starting value on the applicable observation date. This means that if any single underlying—whether the Dow Jones Industrial Average, Russell 2000 Index, or VanEck Semiconductor ETF—falls below the 70% barrier at any monthly measurement point, no coupon payment is made for that month, regardless of the performance of the other two indices.

The contingency structure creates an asymmetric risk profile where investors must monitor three different market segments simultaneously. A sharp decline in semiconductor stocks alone, even if blue-chip and small-cap equities remain stable, would result in a missed coupon payment for all holders. The filing indicates that contingent coupon payments are made on the applicable contingent payment date, which occurs monthly throughout the approximately 23-month term unless the notes are called early by the issuer. This design transfers index performance risk directly to note holders in a way that differs significantly from conventional fixed-income securities, where coupon payments are typically not subject to market performance conditions.

Early Call Rights and Redemption Framework

Beginning November 4, 2026, BofA Finance LLC retains the option to redeem all outstanding notes on any monthly call payment date at the early redemption amount, which equals $1,000.00 per note in principal plus any applicable contingent coupon payment if the observation value of each underlying meets or exceeds its coupon barrier. The issuer must provide notice to the trustee between five business days and 60 calendar days before the applicable call payment date. This call feature is exercisable only on a whole-note basis, meaning the issuer cannot selectively redeem a portion of the outstanding issuance; either all notes are redeemed or none are.

The optional early redemption structure favors the issuer and disadvantages note holders in rising market environments. If all three underlying indices appreciate significantly above their starting values, the issuer has strong incentive to call the notes early, capping investor upside while protecting the issuer from further coupon obligations. The filing discloses that once an early redemption occurs, no further amounts are payable to note holders, effectively terminating the investment at that point. This asymmetry is typical in callable structured products but represents an important consideration for investors who might otherwise expect to receive the full 23-month stream of payments.

Principal Risk and Downside Exposure Mechanics

The capital protection structure of the notes introduces significant downside exposure if market conditions deteriorate. According to the filing, assuming the notes are not called prior to maturity, if any single underlying declines by more than 40% from its starting value, note holders face 1:1 downside exposure to decreases in the least-performing underlying at maturity, with up to 100% of principal at risk. This means that if the VanEck Semiconductor ETF declines 50% while the Dow Jones Industrial Average and Russell 2000 Index remain relatively stable, investors would lose 50% of their principal investment because the semiconductor ETF is the worst performer.

The filing establishes a threshold value of 60.00% of the starting value for each underlying. If the ending value of the least-performing underlying on the valuation date of June 30, 2028 falls below this threshold, the redemption amount will be less than 60.00% of the principal amount, meaning investors could lose more than 40% of their initial capital. The filing does not disclose the complete mathematical formula for redemption amounts below the threshold, only that losses could be substantial. This structure transfers significant tail risk to note holders and contrasts sharply with the conventional bond structure where principal repayment is not contingent on market performance.

Pricing, Valuation, and Initial Offering Economics

The filing discloses that the public offering price for the notes is $1,000.00 per $1,000.00 in principal amount, with an underwriting discount of $21.75 per note, resulting in proceeds to BofA Finance of $978.25 per note before expenses. However, the filing also states that the initial estimated value of the notes as of the pricing date is expected to be between $910.00 and $960.00 per $1,000.00 in principal amount, which is materially lower than the public offering price. This discrepancy indicates that the fair market value embedded in the notes is substantially less than the price at which they are being offered to the public, a common characteristic of structured products where issuance costs, embedded derivatives, and issuer profit margins are factored into the upfront valuation.

The filing notes that certain dealers who purchase notes for sale to fee-based advisory accounts may forgo some or all of their selling concessions, with potential public offering prices as low as $978.25 per note for such investors. Additionally, an affiliate of BofA Finance may pay a referral fee of up to $3.00 per $1,000.00 in principal amount in connection with distribution to other registered broker-dealers. These distribution arrangements create potential conflicts of interest and highlight the importance of understanding the full cost structure. The actual value of the notes at any time will reflect numerous factors and cannot be predicted with accuracy, the filing cautions.

Expected Timeline and Issue Parameters

The document indicates that the notes are expected to price on July 30, 2026 and issue on August 4, 2026, with a maturity date of July 6, 2028. This timeline creates an approximately 23-month investment period if the notes are not called early by the issuer. The valuation date for determining whether notes meet payment thresholds and how principal is calculated at maturity is June 30, 2028, subject to postponement for certain events relating to observation dates. The starting value for each underlying is established as the closing level on the pricing date for the Dow Jones Industrial Average and Russell 2000 Index, and the closing market price on the pricing date for the VanEck Semiconductor ETF.

Monthly observation dates determine whether contingent coupon payments are made and, ultimately, whether and how much principal is returned at maturity. The filing references specific observation and payment dates beginning on page PS-4 of the pricing supplement, though these specific dates are not fully enumerated in the sections provided. Call payment dates, which are also contingent payment dates, are referenced as beginning on page PS-5. This monthly observation structure means investors and the issuer must track index performance at regular intervals throughout the note's life, creating administrative complexity compared to conventional securities.

Credit Risk and Guarantee Structure

All payments on the notes, including coupon payments and principal repayment, are subject to the credit risk of BofA Finance LLC as the note issuer and Bank of America Corporation as the unconditional guarantor. The guarantee means that if the issuer fails to pay, Bank of America Corporation is legally obligated to do so. However, the guarantee is only as strong as the financial condition of Bank of America Corporation itself, and no investor protection mechanism insulates note holders from deterioration in the guarantor's creditworthiness. The filing emphasizes that the notes are not FDIC insured and are not bank guaranteed in the traditional savings account sense.

The reliance on a single guarantor introduces concentration risk that investors must evaluate separately from the market risk inherent in the underlying indices. If Bank of America Corporation were to experience financial distress or credit rating downgrade, the market value of the notes would likely decline sharply, even if the underlying indices performed well. The notes will not be listed on any securities exchange, meaning they lack the liquidity and price transparency of exchange-traded securities, making it potentially difficult for investors to sell before maturity or obtain reliable secondary market pricing.

Risk Factors and Investor Considerations

The filing emphasizes that there are important differences between these notes and conventional debt securities, with potential purchasers directed to review risk factor disclosures beginning on page PS-9 of the pricing supplement, page PS-3 of the product supplement, page S-7 of the prospectus supplement, and page 7 of the prospectus. The structured product design means that investors are assuming multiple layers of risk simultaneously: index performance risk across three different market segments, call risk that caps upside participation, contingency risk that eliminates monthly coupons if any single underlying underperforms, and credit risk tied to Bank of America's financial condition.

The filing provides no guarantee that investors will receive their principal at maturity, and explicitly states that principal could be lost up to 100% if the least-performing underlying declines more than 40% from its starting value. The complexity of the note structure means that many retail investors may not fully understand the mechanics of payment calculations, threshold determinations, or the circumstances under which principal is at risk. The absence of exchange listing means reduced price transparency and liquidity compared to publicly traded securities or conventional debt instruments.

Distribution and Regulatory Framework

The pricing supplement is described as preliminary and subject to completion, filed pursuant to Rule 424(b)(2) under the Securities Act of 1933 in connection with registration statement numbers 333-290665 and 333-290665-01. The document is accompanied by a prospectus dated December 8, 2025, a Series A Prospectus Supplement dated December 8, 2025, and a Product Supplement EQUITY-1 dated December 8, 2025. BofA Securities, Inc. serves as the selling agent for the notes, the same affiliate that also serves as calculation agent, creating additional potential conflicts of interest in pricing and valuation determinations.

The filing contains the standard regulatory disclaimer that neither the Securities and Exchange Commission, any state securities commission, nor any other regulatory body has approved or disapproved the notes or determined whether the documentation is truthful or complete. The document cautions that any representation suggesting such approval would constitute a criminal offense. This language underscores that investors must conduct independent due diligence and cannot rely on government or regulatory endorsement of the product's fairness or suitability for their particular circumstances.