BofA Finance Launches 13-Month Auto-Callable Yield Notes Tied to Nasdaq-100 Tech Index and S&P 500

Dual Index Linkage and Monthly Coupon Structure

The notes are structured to track the performance of two distinct equity benchmarks: the Nasdaq-100 Technology Sector Index (NDXT) and the S&P 500 Index (SPX). The filing states that payments on the notes depend on the individual performance of both underlyings, with monthly observation dates determining whether contingent coupon payments are made. The contingent coupon rate is fixed at 11.15% per annum, translating to $9.292 per $1,000 in principal amount per month, provided that the closing level of each underlying on the applicable observation date is greater than or equal to 80% of its starting value on the pricing date.

The dual-index requirement creates a scenario in which both indices must maintain their performance thresholds for investors to receive the full contingent coupon payments. The filing indicates that if either underlying falls below the 80% coupon barrier on any monthly observation date, no contingent coupon payment is made for that month. This structure ties investor income directly to the health of both the technology sector and the broader equity market, creating interdependent payment conditions that distinguish these notes from single-index structured products.

Automatic Call Provisions and Early Redemption

Beginning with the February 1, 2027 call observation date, the notes become subject to automatic monthly call provisions. According to the disclosure, if the closing level of each underlying is greater than or equal to 100% of its starting value on any call observation date, all of the notes will be automatically called. When the notes are called, holders receive the early redemption amount, which equals the principal amount plus the applicable contingent coupon payment for that period.

The automatic call feature effectively caps investor returns at the $1,000 principal plus the monthly coupon, limiting upside participation if either index appreciates significantly above its starting level. The filing states that no further amounts will be payable following an automatic call, meaning investors cannot benefit from subsequent market gains. This structure reflects a typical structured product design where issuers retain the benefit of strong market performance while providing investors with predetermined income.

Principal Risk at Maturity and Least Performing Underlying Mechanism

The notes incorporate substantial principal risk if the least performing underlying declines more than 20% from its starting value by the maturity date. The filing explains that at maturity, if either underlying declines by more than 20% from its starting value, the investor's investment becomes subject to 1:1 downside exposure to decreases in the value of the least performing underlying, with up to 100% of the principal at risk. This means that losses are measured against the index that performs worse between the two, creating an asymmetric risk profile.

Conversely, if both indices remain at or above 80% of their starting values at maturity, investors receive full principal repayment. The filing indicates that at maturity, investors will also receive a final contingent coupon payment if the closing level of each underlying on the final observation date is greater than or equal to 80% of its starting value. This design suggests that the 80% threshold serves as a critical waypoint for determining whether investors receive their final coupon payment, while the 20% decline threshold determines whether principal is fully protected or subject to index-linked losses.

Pricing, Valuation, and Discount to Intrinsic Value

The notes are being offered at a public offering price of $1,000 per $1,000 principal amount, with an underwriting discount of $21.50 per note. The filing discloses that certain dealers purchasing notes for fee-based advisory accounts may forgo some or all of their selling concessions, allowing those investors to purchase at prices as low as $978.50 per $1,000 principal amount. Additionally, an affiliate of BofA Finance may pay referral fees of up to $6.50 per $1,000 principal amount to other registered broker-dealers involved in distribution.

The filing states that the initial estimated value of the notes as of the pricing date is expected to be between $915 and $965 per $1,000 principal amount, which is less than the public offering price. This valuation gap reflects the structured product's embedded costs, the issuer's profit margin, and the value of the automatic call feature retained by the issuer. The disclosure explicitly warns that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, emphasizing the complexity involved in pricing these instruments.

Credit Guarantees and Issuer Structure

All payments on the notes are fully and unconditionally guaranteed by Bank of America Corporation, the parent company of BofA Finance LLC. The filing notes that the notes are subject to the credit risk of both BofA Finance as the issuer and Bank of America Corporation as the guarantor. This dual-layer structure provides investors with recourse to one of the largest financial institutions in the United States, though it does not eliminate credit risk entirely.

The guarantee means that if BofA Finance becomes unable to meet its obligations, Bank of America Corporation is contractually obligated to step in and make payments. However, the filing emphasizes through its risk warnings that these notes are not FDIC insured, not bank guaranteed in the traditional sense, and may lose value. This language distinction is important: while Bank of America guarantees the notes' payments, the guarantee itself is not backed by federal deposit insurance or the broader "bank guarantee" protections available for traditional bank deposits.

Timeline and Settlement Details

The notes are expected to price on July 31, 2026, and issue on August 5, 2026, creating a five-business-day settlement period. The maturity date is set for September 3, 2027, providing an approximately 13-month holding period assuming the notes are not called early. The valuation date, used to determine the ending values of the underlyings for final redemption calculations, is set for August 31, 2027, subject to postponement as described in the accompanying product supplement.

The filing establishes monthly observation dates and call observation dates throughout the note term. Monthly contingent payment dates correspond to observation dates, beginning in September 2026 and continuing through maturity. Call observation dates begin on February 1, 2027, and occur monthly thereafter, with corresponding call payment dates that are also counted as contingent payment dates. This monthly cadence provides regular checkpoints for determining coupon payments and call eligibility, distinguishing these notes from quarterly or annual observation products.

Calculation Agent and Administration

BofA Securities, Inc., an affiliate of BofA Finance, serves as both the calculation agent and the selling agent for the notes. The calculation agent bears responsibility for determining observation values, ending values, whether contingent coupon payments are owed, whether automatic call conditions are met, and final redemption amounts. The filing states that underlying returns are calculated with respect to each underlying, and the least performing underlying is determined as the one with the lowest underlying return.

The use of an affiliate as the calculation agent creates potential conflicts of interest, as the calculation agent makes determinations that directly affect investor returns. The product supplement and prospectus contain detailed descriptions of the calculation methodology and the calculation agent's duties, but the preliminary pricing supplement does not elaborate on dispute resolution mechanisms or procedures for addressing calculation agent errors. Investors relying on these notes should review the complete product documentation for information on how disputes regarding calculations are handled.

Events of Default and Acceleration

If an event of default occurs with respect to the notes, the amount payable upon acceleration is calculated as though the acceleration date were the maturity date, with the valuation date deemed to be the third trading day prior to acceleration. The filing explains that the calculation agent determines whether a final contingent coupon payment is payable based on the levels of the underlyings on the deemed valuation date, with any such payment prorated to reflect the length of the final contingent payment period.

This acceleration mechanism ensures that in default scenarios, investors receive a redemption amount based on index levels proximate to the acceleration, rather than at a potentially arbitrary point in time. However, the disclosure does not detail the specific events triggering default, which are defined in the senior indenture and referenced in the accompanying prospectus. Investors should review the full prospectus documentation to understand all events that could trigger acceleration and the corresponding payment calculations.

Market Conditions and Structural Considerations

The filing emphasizes significant differences between these notes and conventional debt securities, warning prospective purchasers to carefully consider risk factors. The preliminary pricing supplement indicates that the notes will not be listed on any securities exchange, meaning they cannot be traded on standardized secondary markets. This lack of liquidity could make it difficult for investors to sell their notes before maturity, creating a potential liquidity premium or discount if secondary market transactions do occur.

The dual-index structure and contingent payment mechanics introduce complexity that may not be immediately apparent from the headline coupon rate. The 11.15% annualized rate only applies if both indices remain above their coupon barriers every single month. Any month in which either index falls below 80% of its starting value results in zero coupon payment for that month, creating an all-or-nothing monthly outcome. Investors should model various market scenarios to understand the range of potential returns and losses across different market conditions before committing capital.