Bank of America-Guaranteed Capped Buffered Enhanced Return Notes on S&P 500 Launched for 2026 Issuance

Structured Note Terms and Underlying Performance Mechanics

The preliminary pricing supplement details the mechanics by which the Capped Buffered Enhanced Return Notes will be calculated and settled at maturity. The notes' redemption amount depends entirely on the performance of the S&P 500 Index between the pricing date—July 29, 2026—and the valuation date of July 31, 2028. The filing discloses that investors receive 200% upside participation if the ending value of the index exceeds its starting value, meaning that for every 1% the S&P 500 rises, investors capture 2% of that gain. However, this upside is subject to a maximum return of $12.55 per $10.00 in principal amount, representing a 25.50% cap on total returns regardless of how much the underlying index appreciates during the two-year period.

The notes incorporate a downside buffer that protects investors if the S&P 500 declines modestly. The filing states that if the ending value remains at or above 90% of the starting value—a 10% decline threshold—investors will receive their full principal of $10.00 per note at maturity. This buffer means that investors can absorb up to a 10% negative performance from the S&P 500 without any loss of principal. However, if the index closes below this 90% threshold at maturity, investors face leveraged downside exposure, with the filing warning that losses could reach up to 100% of the principal invested. This asymmetric payoff structure—generous upside but catastrophic downside if the index falls more than 10%—represents the core risk-return profile that investors must evaluate.

Credit Risk and Issuer Guarantees

The preliminary pricing supplement emphasizes that all payments on the Capped Buffered Enhanced Return Notes are subject to the credit risk of both BofA Finance LLC, the issuer, and Bank of America Corporation, the guarantor. The notes are not FDIC insured, not bank guaranteed in the traditional sense, and may lose value, according to the filing's risk disclosures. This structural arrangement means that even if the S&P 500 Index performs as expected and triggers a full payout, investors receive their redemption amount only if both the issuer and guarantor meet their payment obligations at maturity on August 3, 2028.

The filing discloses that the economic terms of the notes are based on Bank of America's internal funding rate—the rate at which the bank borrows funds through market-linked note issuance—rather than the higher rates it would pay for conventional fixed or floating rate debt. The preliminary pricing supplement notes that this internal funding rate, combined with hedging-related charges and any underwriting discounts, reduces the economic value of the notes to investors. Consequently, the public offering price of $10.00 per note exceeds the initial estimated value range of $9.435 to $9.935 per note, representing a discount between $0.065 and $0.565 per $10.00 principal amount from day one.

Pricing, Issue, and Maturity Timeline

According to the filing, the notes are expected to price on July 29, 2026, with an issue date of August 3, 2026. The maturity date is set for August 3, 2028, providing investors with an approximate two-year holding period. The valuation date—the date on which the S&P 500 Index level will be measured to determine final payouts—is scheduled for July 31, 2028, though the filing notes this date is subject to postponement under certain circumstances described in the accompanying product supplement. All dates are subject to change, the filing cautions, and the preliminary nature of the pricing supplement means final terms may differ from those currently disclosed.

The notes will not be listed on any securities exchange, meaning they will trade over-the-counter if at all. The filing identifies the CUSIP number as 09712A289, enabling investors and financial professionals to track and identify the securities. Minimum purchase amounts are set at $10.00 with whole multiples available, making the notes accessible to retail and institutional investors. The preliminary pricing supplement confirms that no periodic interest payments will be made during the two-year term; investors receive a single cash payment upon maturity based on the redemption formula.

Hypothetical Payout Examples and Return Scenarios

The filing includes a hypothetical payout table illustrating how the notes would perform under various S&P 500 return scenarios. Using a hypothetical starting value of 100, the table demonstrates that an ending value of 160 (a 60% gain in the underlying index) would result in a redemption amount of $12.55 per $10.00 principal, representing a 25.50% return—the maximum capped return. Similarly, ending values of 150 and 140 also produce the same $12.55 redemption amount and 25.50% return, confirming the upside cap structure. The filing explicitly states that these examples are for illustration purposes only and do not account for tax consequences or issuer and guarantor credit risk.

The hypothetical table serves as an important disclosure vehicle for investor understanding, though the filing cautions that actual returns will depend on the real starting value, threshold value, and ending value of the S&P 500 Index on the relevant calculation dates. The filing notes that the ending value of the underlying will not include any income generated by dividends or other distributions paid with respect to shares or the securities included in the S&P 500, meaning investors do not benefit from index dividend yield during the holding period. This is a material distinction from owning the index directly through an exchange-traded fund or index fund, which would capture dividends. Investors comparing the notes to conventional index investing should factor in the lost dividend income alongside the capped upside structure.

Downside Risk and Loss Scenarios

The preliminary pricing supplement provides explicit warnings about the catastrophic downside risk embedded in the notes' structure. If the S&P 500 Index declines by more than 10% from its starting value—falling below the 90% threshold—investors face leveraged losses on amounts exceeding that buffer threshold. The filing states that investors could lose "up to 100.00% of your investment in the Notes" in such a scenario, meaning a sufficiently severe market decline could result in complete loss of principal. This leverage effect on downside means that while the notes cap upside gains at 25.50%, they do not cap downside losses in the same manner, creating an asymmetric risk profile that heavily favors catastrophic scenarios for investors.

The filing notes that the redemption amount calculation for downside scenarios is determined as follows: if the ending value of the underlying falls below the threshold value of 90%, "the Redemption Amount will be less than the principal amount." The threshold rate disclosed in the filing is approximately 111.11111%, which represents the quotient of the starting value divided by the threshold value. This mathematical structure means that as the index declines past the 10% buffer point, losses multiply at an accelerated rate relative to the index decline. For a hypothetical market crash scenario—say, a 50% decline in the S&P 500—the notes would deliver losses far exceeding 50% of principal, illustrating the leveraged downside mechanics that distinguish these notes from simpler structured products or direct index ownership.

Events of Default and Acceleration Provisions

The preliminary pricing supplement discloses the mechanism for calculating payouts if an event of default occurs prior to maturity. The filing states that if an event of default as defined in the senior indenture relating to the notes occurs and is continuing, the amount payable to a holder upon acceleration will equal "the amount described under the caption 'Redemption Amount' above, calculated as though the date of acceleration were the Maturity Date of the Notes and as though the Valuation Date were the third Trading Day prior to the date of acceleration." This provision means that if Bank of America or BofA Finance experiences a credit event requiring acceleration before August 3, 2028, the payout would be calculated using the S&P 500 index level as of the third trading day before acceleration rather than the originally scheduled July 31, 2028, valuation date.

Additionally, the filing specifies that in the case of a default in payment of the notes—whether at maturity or upon acceleration—"the Notes will not bear a default interest rate." This means investors will not receive additional compensation if payments are delayed or defaulted. This provision underscores the structural subordination and credit risk inherent in the notes. Investors relying on the Bank of America guarantee should understand that the guarantee does not extend to additional compensation for payment defaults, only to the underlying payment obligation itself. The filing's emphasis on events of default and acceleration procedures indicates that legal remedies for non-payment are limited to collection against the issuer and guarantor under the indenture terms.

Regulatory Status and SEC Disclosure Requirements

The preliminary pricing supplement is filed pursuant to Securities Act Rule 424(b)(2), indicating it relates to an effective registration statement. The filing references registration statement numbers 333-290665 and 333-290665-01, establishing the regulatory foundation under which these securities are being offered. The filing was prepared in relation to a prospectus dated December 8, 2025, a Series A Prospectus Supplement dated December 8, 2025, and Product Supplement EQUITY-1 dated December 8, 2025. These accompanying documents comprise the complete offering documentation that investors must review before making investment decisions.

The filing includes an explicit regulatory disclaimer stating: "None of the Securities and Exchange Commission (the 'SEC'), any state securities commission, or any other regulatory body has approved or disapproved of these securities or determined if this pricing supplement and the accompanying product supplement, prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense." This standard but important language clarifies that SEC review and acceptance of the registration statement does not constitute an approval of the notes' terms or an endorsement of their investment merits. The preliminary nature of the pricing supplement indicates that final terms and conditions may differ from those disclosed in this filing, and investors should review the final pricing supplement before purchase.

Comparison of Estimated Value to Public Offering Price

A critical disclosure in the preliminary pricing supplement concerns the gap between the initial estimated value of the notes and their public offering price. The filing states that "the initial estimated value of the Notes as of the pricing date is expected to be between $9.435 and $9.935 per $10.00 in principal amount of Notes, which is less than the public offering price listed below." The public offering price is set at $10.00 per note with zero underwriting discount, meaning the entire price spread represents the valuation gap between what the notes are estimated to be worth versus what investors are asked to pay for them.

The filing explains that this valuation gap arises from three sources: Bank of America's internal funding rate (which is lower than the conventional debt rate), underwriting-related charges, and hedging-related charges incurred to structure the notes. The filing notes that the actual value of the notes at any time "will reflect many factors and cannot be predicted with accuracy." This disclosure is material because it demonstrates that investors immediately sustain an economic loss of between $0.065 and $0.565 per $10.00 of principal upon purchase, before any market movements in the S&P 500 occur. This initial haircut represents the cost of the structured product engineering and the bank's profit margin baked into the offering price from inception.

Calculation Agent Role and Operational Administration

The filing identifies BofA Securities, Inc.—an affiliate of BofA Finance—as both the calculation agent responsible for determining redemption amounts and the selling agent marketing the notes to investors. This dual role creates potential conflicts of interest that investors should consider, as the same entity responsible for accurately calculating payouts at maturity also has incentives to sell as many notes as possible. The calculation agent's responsibilities include determining the starting value (closing level of the S&P 500 on pricing date), the ending value (closing level on the valuation date of July 31, 2028), and applying the complex formulas to determine whether the maximum return cap or downside buffer thresholds are triggered.

The filing provides sufficient specificity about the calculation mechanics that investors and financial advisors can independently verify calculations at maturity. The threshold value is explicitly set at 90% of the starting value, the upside participation rate is 200%, and the maximum return is capped at $12.55 per $10.00 principal (25.50%). These fixed parameters are disclosed in the preliminary pricing supplement and cannot be changed retroactively. However, the filing notes that events relating to calculation days, valuation dates, and other procedural matters are described in more detail in the accompanying product supplement, suggesting that investors should review that supplementary document for operational details beyond the scope of this preliminary pricing disclosure.

Investor Considerations and Suitability for Different Investor Profiles

The preliminary pricing supplement's risk factor disclosures suggest these notes are designed for investors with specific return objectives and risk tolerances. The capped upside structure appeals to investors who believe the S&P 500 will appreciate but want to cap potential gains in exchange for downside protection—though the 10% buffer is relatively modest and provides false security if markets experience significant declines. The filing's emphasis on the notes being "not listed on any securities exchange" indicates limited liquidity; investors intending to hold these notes should assume they cannot easily exit before maturity on August 3, 2028.

The filing's repeated warnings about credit risk of both the issuer and guarantor suggest these notes are most suitable for investors with conviction that Bank of America's credit quality will remain sound through 2028. The notes provide no income stream during the holding period, so investors seeking periodic distributions or coupon payments would find them unsuitable. Conversely, the leveraged downside structure makes these notes inappropriate for risk-averse investors or those with short-term liquidity needs, as a major market decline during the two-year term could result in substantial or total loss of capital. The filing does not provide suitability recommendations, but the structural mechanics disclosed indicate that institutional investors and sophisticated individuals comparing options between conventional index funds, leveraged ETFs, and protective puts may find the risk-return tradeoff relevant to their decision-making.