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Subject to Completion
Preliminary Term Sheet
dated August 2, 2023
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Filed Pursuant to Rule 424(b)(2)
Registration Statement Nos. 333-268718
and 333-268718-01
(To Prospectus dated December 30, 2022,
Prospectus Supplement dated December 30, 2022 and
Product Supplement STOCK CYN-1 dated August 2, 2023) |
Units
$10 principal amount per unit CUSIP No. |
Pricing Date*
Settlement Date* Maturity Date* |
August , 2023
August , 2023 August , 2026 |
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*Subject to change based on the actual date the notes are priced for initial sale to the public (the pricing date)
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BofA Finance LLC
Autocallable Contingent Coupon (with Memory) Barrier Notes Linked to a Basket of Three Energy Sector Stocks
Fully and Unconditionally Guaranteed by Bank of America Corporation
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Contingent Coupon Payments (with Memory) payable on the applicable Coupon Payment Date if the Observation Value of the Basket on the applicable quarterly Coupon Observation Date is greater than or equal to 80% of the Starting Value.
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The Contingent Coupon Payment (with Memory) payable on any Coupon Payment Date will be calculated according to the following formula: (i) the product of the Contingent Coupon Payment (with Memory) applicable to a single Coupon Payment Date and the number of Coupon Payment Dates that have occurred up to the relevant Coupon Payment Date (inclusive of the relevant Coupon Payment Date) minus (ii) the sum of all Contingent Coupon Payments (with Memory) previously paid. The Contingent Coupon Payment (with Memory) applicable to a single Coupon Payment Date will be between [$0.2875 and $0.3125] per unit.
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Automatically callable if the Observation Value of the Basket on any quarterly Call Observation Date beginning approximately one year after the pricing date is at or above the Starting Value. If the notes are called, on the applicable Call Payment Date you will receive the principal amount of your notes plus the Contingent Coupon Payment (with Memory) otherwise due. No further amounts will be payable following an automatic call.
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If not called, a maturity of approximately three years.
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If not called, at maturity, if the value of the Basket has not decreased by more than 20%, a return of principal plus the final Contingent Coupon Payment (with Memory); otherwise, 1-to-1 downside exposure to decreases in the Basket from the Starting Value, with up to 100.00% of the principal amount at risk.
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The Basket will be comprised of the common stock of each of Halliburton Company, Schlumberger N.V. (Schlumberger Limited) and Exxon Mobil Corporation (the Basket Stocks). Each Basket Stock will be given an approximately equal weight.
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All payments are subject to the credit risk of BofA Finance LLC, as issuer of the notes, and the credit risk of Bank of America Corporation, as guarantor of the notes
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Limited secondary market liquidity, with no exchange listing
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Per Unit
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Total
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Public offering price
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$10.00
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$
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Underwriting discount
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$ 0.10
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$
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Proceeds, before expenses, to BofA Finance
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$ 9.90
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$
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Terms of the Notes
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Issuer:
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BofA Finance LLC (BofA Finance)
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Guarantor:
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Bank of America Corporation (BAC)
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Principal Amount:
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$10.00 per unit
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Term:
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Approximately three years, if not previously called
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Market Measure:
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An approximately equally weighted basket of three energy sector stocks comprised of the common stock of each of Halliburton Company (NYSE symbol: HAL), Schlumberger N.V. (Schlumberger Limited) (NYSE symbol: SLB) and Exxon Mobil Corporation (NYSE symbol: XOM) (each, a Basket Stock).
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Call Feature:
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Autocallable Notes
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Coupon Feature:
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Contingent Coupon Payments (with Memory)
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Barrier:
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Applicable
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Coupon Barrier:
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80% of the Starting Value
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Threshold Value:
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80% of the Starting Value
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Call Value:
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100% of the Starting Value
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Contingent Coupon Payments (with Memory):
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The notes will pay a Contingent Coupon Payment (with Memory) on the applicable Coupon Payment Date if the Observation Value of the Market Measure on the applicable quarterly Coupon Observation Date is greater than or equal to the Coupon Barrier. The Contingent Coupon Payment (with Memory) payable on any Coupon Payment Date will be calculated according to the following formula: (i) the product of the Contingent Coupon Payment (with Memory) applicable to a single Coupon Payment Date and the number of Coupon Payment Dates that have occurred up to the relevant Coupon Payment Date (inclusive of the relevant Coupon Payment Date) minus (ii) the sum of all Contingent Coupon Payments (with Memory) previously paid. The Contingent Coupon Payment (with Memory) applicable to a single Coupon Payment Date will be between [$0.2875 and $0.3125] per unit (to be set on the pricing date).
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Call Payment:
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The principal amount plus the Contingent Coupon Payment (with Memory) otherwise due on the applicable Call Payment Date.
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Starting Value:
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The Starting Value will be set to 100.00 on the pricing date.
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Ending Value:
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The value of the Market Measure on the Final Calculation Day, calculated as specified in The Basket on page TS-10 of this term sheet and in Description of the NotesBaskets—Observation Value or Ending Value of the Basket on page PS-42 of the accompanying product supplement. The scheduled Final Calculation Day is subject to postponement in the event of Market Disruption Events, as described beginning on page PS-42 of the accompanying product supplement.
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Observation Value:
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The value of the Market Measure on the applicable Coupon Observation Date or Call Observation Date, calculated as specified in The Basket on page TS-10 of this term sheet and in Description of the NotesBaskets—Observation Value or Ending Value of the Basket on page PS-42 of the accompanying product supplement.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-2
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Coupon Observation Dates:
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On or about November , 2023, February , 2024, May , 2024, August , 2024, November , 2024, February , 2025, May , 2025, August , 2025, November , 2025, February , 2026, May , 2026 and August , 2026 (the final Coupon Observation Date), which dates occur quarterly, beginning approximately three months after the pricing date, through the final Coupon Observation Date. The scheduled Coupon Observation Dates are subject to postponement in the event of Market Disruption Events, as described beginning on page PS-42 of the accompanying product supplement.
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Call Observation Dates:
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The Coupon Observation Dates beginning on August , 2024 and ending on May , 2026.
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Final Calculation Day/Maturity Valuation Period:
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Approximately the fifth scheduled trading day immediately preceding the maturity date (which will also be the final Coupon Observation Date).
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Coupon Payment Dates:
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Approximately the fifth business day following the applicable Coupon Observation Date, subject to postponement as described beginning on page PS-30 of the accompanying product supplement; provided however, that the Coupon Payment Date related to the final Coupon Observation Date will be the maturity date.
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Call Payment Dates:
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The Coupon Payment Dates applicable to the relevant Call Observation Dates
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Price Multiplier:
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For each Basket Stock, 1, subject to adjustments for certain corporate events relating to that Basket Stock described beginning on PS-33 of the accompanying product supplement.
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Fees and Charges:
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The underwriting discount of $0.10 per unit listed on the cover page.
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Calculation Agent:
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BofA Securities, Inc. (BofAS), an affiliate of BofA Finance.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-3
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-4
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Product supplement STOCK CYN-1 dated August 2, 2023:
https://www.sec.gov/Archives/edgar/data/70858/000119312523201261/d518933d424b2.htm |
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Series A MTN prospectus supplement dated December 30, 2022 and prospectus dated December 30, 2022:
https://www.sec.gov/Archives/edgar/data/1682472/000119312522315195/d409418d424b3.htm |
You may wish to consider an investment in the notes if:
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The notes may not be an appropriate investment for you if:
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You anticipate that the Observation Value of the Market Measure will be greater than or equal to its Coupon Barrier on most or all of the Coupon Observation Dates.
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You anticipate that the notes will be automatically called, in which case you accept an early exit from your investment, or if not automatically called that the Market Measure will not decrease from the Starting Value to an Ending Value that is below the Threshold Value.
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You accept that the return on the notes will be limited to the return represented by the Contingent Coupon Payments (with Memory) even if the percentage change in the value of the Market Measure is significantly greater than such return.
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You are willing to lose up to 100% of the principal amount if the notes are not called.
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You are willing to forgo dividends or other benefits of owning shares of the Basket Stocks.
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You are willing to accept a limited or no market for sales for the notes prior to maturity, and understand that the market prices for the notes, if any, will be affected by various factors, including our and BAC’s actual and perceived creditworthiness, BAC’s internal funding rate and fees and charges on the notes.
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You are willing to assume our credit risk, as issuer of the notes, and BAC’s credit risk, as guarantor of the notes. for all payments under the notes, including the Redemption Amount.
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You anticipate that the Observation Value of the Market Measure will be less than its Coupon Barrier on each Coupon Observation Date.
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You wish to make an investment that cannot be automatically called prior to maturity.
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You seek an uncapped return on your investment.
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You seek principal repayment or preservation of capital.
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You want to receive dividends or other distributions paid on the Basket Stocks.
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You seek an investment for which there will be a liquid secondary market.
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You are unwilling or are unable to take market risk on the notes, to take our credit risk, as issuer of the notes, or to take BAC’s credit risk, as guarantor of the notes.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-5
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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1)
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the Starting Value of 100.00;
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2)
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the Coupon Barrier of 80.00;
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3)
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the Threshold Value of 80.00;
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4)
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the Call Value of 100.00;
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5)
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an expected term of the notes of approximately three years if the notes are not called on any Call Observation Date;
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6)
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a Contingent Coupon Payment (with Memory) applicable to a single Coupon Payment Date of $0.30 per unit (the mid-point of the Contingent Coupon Payment (with Memory) range);
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7)
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the Coupon Observation Dates occurring quarterly during the term of the notes; and
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8)
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the Call Observation Dates occurring quarterly beginning approximately one year after the pricing date.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-6
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-7
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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If the notes are not called and the Ending Value is less than the Threshold Value, you will lose up to 100% of the principal amount.
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Your investment return is limited to the return represented by the Contingent Coupon Payments (with Memory) and may be less than a comparable investment directly in the Basket Stocks.
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Payments on the notes will not reflect changes in the value of the Market Measure other than on the Coupon Observation Dates, the Call Observation Dates or the Final Calculation Date.
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You may not receive any Contingent Coupon Payments (with Memory).
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Changes in the prices of one or more of the Basket Stocks may be offset by changes in the prices of one or more of the other Basket Stocks.
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If the notes are called, you will be subject to reinvestment risk, and you will lose the opportunity to receive Contingent Coupon Payments (with Memory), if any, that otherwise might have been payable after the date of the call.
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Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.
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Payments on the notes are subject to our credit risk, and the credit risk of BAC, and any actual or perceived changes in our or BAC’s creditworthiness are expected to affect the value of the notes. If we and BAC become insolvent or are unable to pay our respective obligations, you may lose your entire investment.
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We are a finance subsidiary and, as such, have no independent assets, operations or revenues.
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BAC’s obligations under its guarantee of the notes will be structurally subordinated to liabilities of its subsidiaries.
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The notes issued by us will not have the benefit of any cross-default or cross-acceleration with other indebtedness of BofA Finance or BAC; events of bankruptcy or insolvency or resolution proceedings relating to BAC and covenant breach by BAC will not constitute an event of default with respect to the notes.
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The initial estimated value of the notes considers certain assumptions and variables and relies in part on certain forecasts about future events, which may prove to be incorrect. The initial estimated value of the notes is an estimate only, determined as of a particular point in time by reference to our and our affiliates’ pricing models. These pricing models consider certain assumptions and variables, including our credit spreads and those of BAC, BAC’s internal funding rate on the pricing date, mid-market terms on hedging transactions, expectations on interest rates and volatility, price-sensitivity analysis, and the expected term of the notes. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect.
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The public offering price you pay for the notes will exceed the initial estimated value. If you attempt to sell the notes prior to maturity, their market value may be lower than the price you paid for them and lower than the initial estimated value. This is due to, among other things, changes in the price of the Underlying Stock, changes in BAC’s internal funding rate, and the inclusion in the public offering price of the underwriting discount and costs associated with hedging the notes, all as further described in Structuring the Notes on page TS-16. These factors, together with various credit, market and economic factors over the term of the notes, are expected to reduce the price at which you may be able to sell the notes in any secondary market and will affect the value of the notes in complex and unpredictable ways.
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The initial estimated value does not represent a minimum or maximum price at which we, BAC, MLPF&S, BofAS or any of our other affiliates would be willing to purchase your notes in any secondary market (if any exists) at any time. The value of your notes at any time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Market Measure, our and BAC’s creditworthiness and changes in market conditions.
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A trading market is not expected to develop for the notes. None of us, BAC, MLPF&S or BofAS is obligated to make a market for, or to repurchase, the notes. There is no assurance that any party will be willing to purchase your notes at any price in any secondary market.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-8
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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BAC and its affiliates’ hedging and trading activities (including trades in shares of the Basket Stocks) and any hedging and trading activities BAC or its affiliates engage in that are not for your account or on your behalf, may affect the market value and return of the notes and may create conflicts of interest with you.
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There may be potential conflicts of interest involving the calculation agent, which is an affiliate of ours. We have the right to appoint and remove the calculation agent.
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An Underlying Company will have no obligations relating to the notes, and none of us, BAC, MLPF&S or BofAS will perform any due diligence procedures with respect to any Underlying Company in connection with this offering.
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You will have no rights of a holder of the Basket Stocks and you will not be entitled to receive shares of the Basket Stocks or dividends or other distributions by any Underlying Company.
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While BAC and our other affiliates may from time to time own securities of the Underlying Companies, we, BAC and our other affiliates do not control any Underlying Company, and have not verified any disclosure made by any other company.
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Payments on the notes will not be adjusted for all corporate events that could affect the Basket Stocks. See Description of the Notes—Anti-Dilution Adjustments beginning on page PS-33 of the accompanying product supplement.
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The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See Summary Tax Consequences below and U.S. Federal Income Tax Summary beginning on page PS-45 of the accompanying product supplement.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-9
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Basket Stock
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Bloomberg Symbol
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Initial Component Weight
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Closing Market Price(1)(2)
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Hypothetical Component Ratio(1)(3)
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Initial Basket Value Contribution
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Halliburton Company
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HAL
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33.34%
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$39.27
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0.84899414
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33.34
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Schlumberger N.V. (Schlumberger Limited)
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SLB
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33.33%
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$57.61
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0.57854539
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33.33
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Exxon Mobil Corporation
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XOM
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33.33%
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$106.62
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0.31260551
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33.33
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Starting Value
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100.00
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(1)
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The actual Closing Market Price of each Basket Stock and the resulting actual Component Ratios will be determined on the pricing date and will be set forth in the final term sheet that will be made available in connection with sales of the notes.
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(2)
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These were the Closing Market Prices of the Basket Stocks on August 1, 2023.
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(3)
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Each hypothetical Component Ratio equals the Initial Component Weight of the relevant Basket Stock (as a percentage) multiplied by 100, and then divided by the Closing Market Price of that Basket Stock on August 1, 2023 and rounded to eight decimal places.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-10
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-11
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-12
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-13
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-14
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-15
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-16
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Autocallable Contingent Coupon (with Memory) Barrier Notes
Linked to a Basket of Three Energy Sector Stocks, due August , 2026 |
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as a contingent income-bearing single financial contract with respect to the Market Measure.
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Under this characterization and tax treatment of the notes, we intend to take the position that the Contingent Coupon
Payments constitute taxable ordinary income to a U.S. Holder (as defined in the prospectus supplement) at the time received or accrued in accordance with the U.S. Holders regular method of
accounting. Upon receipt of a cash payment at maturity or upon a sale or exchange of the notes prior to maturity (other than
amounts representing accrued Contingent Coupon Payments), a U.S. Holder generally will recognize capital gain or loss. This capital gain or loss generally will be long-term capital gain or loss if you hold the notes for more than one year.
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No assurance can be given that the Internal Revenue Service (IRS) or any court will agree with this characterization and tax treatment.
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Under current IRS guidance, withholding on dividend equivalent payments (as discussed in the product supplement), if any, will not apply to notes that are issued as of the date of this term sheet unless such notes are delta-one instruments.
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Autocallable Contingent Coupon (with Memory) Barrier Notes
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TS-17
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