Structured Notes

Some further detail

• Variety of underlying assets to meet varying financing requirements
  A combination of various options, underlying assets and product structures are available. For example, they can be linked with interest rates (e.g. LIBOR and EURIBOR), currency rates（e.g. EUR/USD, GBP/USD）, individual shares or a basket of shares (e.g. Coca Cola, IBM, equity indexes（e.g. S&P 500, FTSE 100, Hang Seng Index）. A spectrum of different terms, degrees of principal protection and expected returns can be offered to provide a variety of investment choices. The actual return of the products is dependent on the performance of underlying assets.
• High-level protection of investment principal*
  One advantage of structured notes is the mechanism to protect the investment principal, in all or in part. This helps investors to control their investment risks. If investors choose a longer term and hold to maturity, they can usually secure their investment principal* and the returns may still be higher than fixed-term deposit rates.
• Low thresholds and secure transactions
  USD 100,000 or any equivalent amount in any currency is the minimum investment amount.

*The protection of the principal at maturity is offered by the issuer. Investors still need to bear the credit risks of the issuer.

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What you need to know about investment risks associated with structured notes

• Liquidity risks
  Structured notes do not have a liquid market. The actual trading prices of the structured notes may be significantly different from the net asset value of the notes. Therefore, if investors sell their structured notes prior to maturity, they may suffer a loss of principal. As the market is illiquid and trading volume is thin, investors should hold the structured notes until maturity.
• Credit risks
  Structured notes are not deposits and are not covered by the deposit insurance scheme of the Central Deposit Insurance Corporation. Investors should bear the credit risks of the note issuer. HSBC follows the regulations set forth by the Central Bank of the Republic of China by offering structured notes issued by organizations with A grades or above rated by Moody’s or S&P, in order to reduce credit risks.
• Currency risks
  Structured notes are usually denominated in foreign currencies. Any gains or losses due to significant fluctuations of currency exchange rates shall be borne by investors.
• Reinvestment risks
  If the issuer offers a buy-back mechanism prior to maturity, investors may bear the reinvestment risks associated with the possibility that alternative instrument for reinvestment may not offer the same returns.

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Structured Product Example:

Issue date: March 24, 2006
Product: 6 Year Asian High Dividend Share Basket Linked Notes
Currency: USD
Maturity: March 19, 2012
Product structure: 6 Year Asian High Dividend Share Basket Linked Notes are a dynamic investment portfolio with links to an actively managed position and a cash position. The actively managed position is the 20 shares with the highest historical dividend yields selected from the 55 shares with largest market capitalization listed in Hong Kong, Japan, Korea, Singapore, Malaysia and Thailand. The lists of the 55 shares with largest market capitalization and the selected top 20 shares with the highest dividend yields are annually reviewed and re-selected, in order to ensure the desired level of dividend yields.
Principal Protection: 100% principal guaranteed at maturity
Potential highest return: 8.5% p.a.
Potential lowest return :0% p.a.

In addition to the 100% protection on principal, this product also provides a mechanism to protect foreign currency risks agsinst NTD. The change of NTD/USD exchange rate is evaluated on a quarterly basis. If the NTD appreciates against the USD on quarterly valuation date, then the protected value of the USD at maturity will be adjusted upward according to the change of NTD/USD exchange rates. (If the NDT appreciates by 1% against the USD on the valuation date, the protected value of the USD at maturity will be adjusted to 101% of the investment principal). The mechanism only takes effect when the NTD appreciates but not when it depreciates. No further reduction will be made once the NTD is upward adjusted.

Notes:

• Under no circumstances shall the figures provided above constitute any invitation or solicitation to any client to enter into any transaction. The abovementioned figures and returns are for reference only. The past performance of the linked underlying assets of structured notes does not represent their future performance. Their prices may rise or fall.
• Funds provided by investors to HSBC for their investments of structured notes are not deposits and not covered by the deposit insurance scheme of the Central Deposit Insurance Corporation. Any protection of principal and/or interests of structured note is provided by the issuer. HSBC does not provide any guarantee for any payments of structured notes, nor does it guarantee gains or losses on investments.
• There are risks associated with investments. Investors are advised to thoroughly read through Product Information, appendices and any relevant documents in order to understand their rights and obligations. They should also carefully evaluate the potential implications in law, taxation and accounting associated with the investment and the investment risks based upon their risk appetite, investment experience, investment objectives, financial standing and other factors. They should make their own independent judgments (rather than depending on HSBC or its affiliates) regarding all kinds of risks, and bear such risks themselves.

The relevant transaction fees and custodian fees are dependent on product and subscription amount.

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