BofA Finance Issues Capped Buffered Enhanced Return Notes Linked to MSCI EAFE Index

Structured Investment Terms and Payoff Mechanics

The Capped Buffered Enhanced Return Notes are designed as a contingent return security with specific performance thresholds that determine investor payoffs at maturity on August 3, 2028. The notes are linked to the MSCI EAFE Index, a price return index representing developed market equities outside the United States and Canada. The filing discloses that if the index's ending value exceeds its starting value on the pricing date, investors receive 200% upside participation, meaning for every 1% gain in the underlying index, the notes return 2%. However, this enhanced return is subject to a maximum redemption amount of $12.925 per $10.00 principal, representing a capped return of 29.25% regardless of the index's actual performance.

The downside protection mechanism incorporates a 10% buffer, meaning investors do not lose value until the index declines more than 10% from its starting level. If the ending value is greater than or equal to the threshold value (90% of starting value), investors receive their full principal of $10.00 per note. The filing states that if the index declines more than 10%, the notes are exposed on a leveraged basis to decreases beyond this threshold, with investors facing exposure to 100% principal loss. This structure creates an asymmetrical risk-reward profile where gains are amplified but capped, while losses below the 10% threshold are fully absorbed by the issuer up to that point, with complete principal loss possible if the underlying index falls sufficiently.

Pricing and Initial Valuation Gap

The notes were priced at $10.00 per note with zero underwriting discount, as disclosed in the pricing supplement. However, the filing reveals a significant distinction between the public offering price and the notes' initial estimated value. The initial estimated value of the notes as of the pricing date is expected to range between $9.409 and $9.909 per $10.00 in principal amount, substantially below the $10.00 offering price. This valuation gap of approximately $0.09 to $0.59 per note reflects the costs embedded in the structured product, including Bank of America's internal funding rate differential, hedging-related charges, and other structuring expenses.

The filing explains that Bank of America's internal funding rate—the rate at which the bank funds these products internally—is typically lower than the rate it would pay when issuing conventional fixed or floating rate debt securities. This funding rate advantage, combined with hedging costs and other economic adjustments, reduces the value of the notes to investors immediately upon issuance. The disclosure clarifies that the public offering price investors pay will be greater than the initial estimated value, representing the economic cost of the structured product's embedded optionality and the issuer's profit on the transaction. This distinction is material for investors evaluating the true economic cost of their investment at inception.

Credit Risk and Guarantee Structure

All payments on the notes are explicitly subject to the credit risk of BofA Finance LLC as the issuer and Bank of America Corporation as the unconditional guarantor. The filing states that the notes are not FDIC insured and are not bank guaranteed, despite being issued by Bank of America subsidiaries. This dual credit risk structure means that investors are exposed not only to the performance of the MSCI EAFE Index but also to the creditworthiness of both entities. If either BofA Finance or its parent Bank of America Corporation experiences a credit event or default, the ability to receive the promised redemption amount could be impaired.

The guarantee by Bank of America Corporation provides a backstop to BofA Finance's obligations, but it does not eliminate credit risk—it substitutes the parent company's credit for the subsidiary's credit. The filing notes that in the event of default in payment of the notes at maturity or upon acceleration, the notes will not bear a default interest rate. This means that if there is a payment default, investors will not accrue additional interest as compensation for the late or non-payment. The credit risk structure is essential context for investors to understand that even if the underlying MSCI EAFE Index performs favorably, actual redemption depends on Bank of America's ability and willingness to honor its obligations.

Index Performance and Valuation Mechanics

The MSCI EAFE Index serves as the underlying reference for these notes, with the filing identifying it by its Bloomberg symbol "MXEA." The index is treated as a price return index, meaning the redemption amount calculation is based solely on changes in the index level itself, not including any income or distributions. The filing explicitly states that "the Ending Value of the Underlying will not include any income generated by dividends or other distributions paid with respect to shares or units of the Underlying or on the securities included in the Underlying." This distinction is important because the MSCI EAFE Index comprises dividend-paying equities, but investors in these notes receive no benefit from those distributions—only from price appreciation or depreciation.

The filing provides a hypothetical payout table illustrating how redemption amounts are calculated based on various ending index values. For example, if the underlying index produces a 60% return from its starting value (ending value of 160 on a hypothetical starting value of 100), the notes would pay their maximum amount of $12.925 per $10.00 principal, or a 29.25% return. Conversely, if the index rises 50% (ending value of 150), the notes still pay the capped maximum of $12.925 per note. The filing notes that recent actual values of the underlying index should be consulted by investors to assess the notes' likelihood of reaching various performance scenarios, though actual starting, ending, and threshold values will only be determined on the specific valuation dates disclosed in the prospectus.

Events of Default and Acceleration Provisions

The filing discloses that if an Event of Default occurs with respect to the notes, the amount payable upon acceleration will be calculated as if the acceleration date were the maturity date and as if the valuation date were the third trading day prior to the acceleration date. This provision means that if an Event of Default triggers early redemption, the redemption amount will be determined based on the underlying index level three trading days before acceleration, not the level on the actual acceleration date. This creates timing risk for investors, as the index value could move significantly in three days, potentially between the triggering event and the actual calculation of the redemption amount.

The filing does not specify what constitutes an Event of Default but cross-references the senior indenture relating to the notes and the prospectus section titled "Description of Debt Securities of BofA Finance LLC—Events of Default and Rights of Acceleration." Events of Default typically include failures to pay principal or interest when due, breaches of covenants, bankruptcy or insolvency proceedings, and other credit events. The acceleration provision represents a contractual right that may be exercised by note holders or may be triggered by automatic provisions, but the filing does not detail the specific triggers or the timeline for exercising acceleration rights.

Regulatory Status and Registration Framework

The notes are being offered pursuant to a Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933, with registration statement numbers 333-290665 and 333-290665-01. The pricing supplement filed on July 29, 2026, is a preliminary document marked "Subject to Completion," indicating that certain terms may change before the final pricing supplement is issued. The filing is made pursuant to SEC Rule 424(b)(2), which governs the filing of pricing supplements for registered securities offerings. The prospectus materials include a base prospectus dated December 8, 2025, a Series A Prospectus Supplement dated December 8, 2025, and a Product Supplement EQUITY-1 also dated December 8, 2025.

The filing includes a standard regulatory disclaimer stating that the SEC, state securities commissions, and other regulatory bodies have not approved or disapproved the securities or determined whether the pricing supplement and related prospectus materials are truthful or complete. The notes have not been listed on any securities exchange and will trade in the over-the-counter market, if at all. The CUSIP number assigned to the notes is 09712A321, which serves as the standard identifier for these securities. The filing explicitly states that the pricing supplement and accompanying materials are "not an offer to sell these Notes in any country or jurisdiction where such an offer would not be permitted," indicating that distribution is restricted to certain jurisdictions based on securities regulations.

Structural Features and Investor Considerations

These notes do not provide periodic interest payments, distinguishing them from conventional debt securities that typically pay coupons throughout their term. The filing emphasizes that "there are important differences between the Notes and a conventional debt security" and directs potential purchasers to review the Risk Factors section in multiple prospectus documents. The minimum denomination is $10.00 with whole multiples of $10.00 in excess thereof, making these notes accessible to a range of investors but requiring a $10.00 minimum investment per note unit.

The filing highlights that the initial estimated value of the notes—between $9.409 and $9.909 per $10.00 principal—is less than the public offering price, and that "the actual value of your Notes at any time will reflect many factors and cannot be predicted with accuracy." This caveat acknowledges that secondary market value may diverge significantly from the offering price and initial estimated value due to changes in interest rates, credit spreads, underlying index volatility, and time to maturity. Investors should understand that market-linked notes typically exhibit declining value as maturity approaches unless the underlying performs exceptionally well, and liquidity in secondary markets for these instruments may be limited or absent.

Key Dates and Timeline for Issuance

The pricing date for these notes is July 29, 2026, which is the date used to establish the starting value of the MSCI EAFE Index for performance measurement purposes. The issue date is expected to be August 3, 2026, a five business-day settlement period from pricing. The valuation date—when the ending index level is determined—is July 31, 2028, subject to postponement as described in the prospectus materials. The maturity date is August 3, 2028, exactly two years after the expected issue date, which aligns with the "approximate 2 year term" disclosed on the cover page. The valuation date precedes the maturity date by three calendar days, consistent with the standard settlement timeline for these products, and the filing notes that the valuation date is subject to postponement due to events relating to calculation days, such as market holidays or disruptions affecting the index calculation.

Risk Factors and Investment Suitability

The filing emphasizes that investors must carefully review the Risk Factors sections beginning on page PS-6 of the pricing supplement, page PS-3 of the accompanying product supplement, page S-7 of the accompanying prospectus supplement, and page 7 of the accompanying prospectus. These sections are referenced repeatedly throughout the disclosure documents, underscoring the significant risks inherent in these structured products. While the filing itself does not enumerate all specific risks, it establishes that credit risk of both the issuer and guarantor, market risk of the underlying index, leveraged downside exposure beyond the 10% buffer, and the structural cost embedded in the product's initial valuation all represent material considerations for investors.

The filing includes a final statement that these notes are not suitable for all investors and that "potential purchasers of the Notes should consider the information" in the designated Risk Factors sections. The public offering price of $10.00 is presented with the caveat that investors immediately experience a loss if they must sell notes at their initial estimated value range of $9.409 to $9.909. This structure benefits Bank of America and protects its internal funding cost advantage but creates an immediate valuation disadvantage for investors. Investors considering these notes should understand the leveraged downside exposure and the capped upside, and should evaluate whether the risk-reward profile aligns with their investment objectives and risk tolerance.