Filed Pursuant to Rule 433
Registration No. 333-158385
October 11, 2011
FREE WRITING PROSPECTUS
(To Prospectus dated April 2, 2009,
Prospectus Supplement dated April 9, 2009,
and Product Supplement dated April 9, 2009)
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Structured
Investments
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HSBC USA Inc.
$
Buffered Return Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index Fund due October 31, 2012 (the “Notes”)
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Terms used in this free writing prospectus are described or defined herein, in the accompanying product supplement, prospectus supplement and prospectus. The Notes offered will have the terms described herein and in the accompanying product supplement, prospectus supplement and prospectus. The Notes are not principal protected, and you may lose up to 100.00% of your initial investment.
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All references to “Enhanced Market Participation Notes” in the product supplement shall refer to these Buffered Return Enhanced Notes.
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This free writing prospectus relates to a single note offering. The purchaser of a Note will acquire a security linked to a single Reference Asset described below.
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Although the offering relates to a Reference Asset, you should not construe that fact as a recommendation as to the merits of acquiring an investment linked to the Reference Asset or any component security included in the Reference Asset or as to the suitability of an investment in the related Notes.
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Senior unsecured debt obligations of HSBC USA Inc. maturing October 31, 2012.
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Minimum denominations of $10,000 and integral multiples of $1,000 in excess thereof.
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If the terms of the Notes set forth below are inconsistent with those described in the accompanying product supplement, the terms set forth below will supersede.
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Issuer:
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HSBC USA Inc.
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Issuer Rating:
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AA- (S&P), A1 (Moody’s), AA (Fitch)*
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Reference Asset:
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The iShares® MSCI Emerging Markets Index Fund (“EEM”)
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Principal Amount:
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$1,000 per Note.
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Trade Date:
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October 14, 2011
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Pricing Date:
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October 14, 2011
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Original Issue Date:
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October 19, 2011
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Ending Averaging Dates:
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October 22, 2012, October 23, 2012, October 24, 2012, October 25, 2012 and October 26, 2012 (the Final Valuation Date), subject to adjustment as described herein and in the accompanying product supplement.
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Final Valuation Date:
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October 26, 2012 , subject to adjustment as described herein and in the accompanying product supplement.
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Maturity Date:
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3 business days after the Final Valuation Date and is expected to be October 31, 2012. The Maturity Date is subject to further adjustment as described under “Market Disruption Events” herein and under “Specific Terms of the Notes — Market Disruption Events” in the accompanying product supplement.
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Payment at Maturity:
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For each Note, the Cash Settlement Value.
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Cash Settlement Value:
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For each Note, you will receive a cash payment on the Maturity Date that is based on the Reference Return (as described below):
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If the Reference Return is greater than or equal to 0.00%, you will receive an amount equal to 100.00% of the Principal Amount plus the lesser of:
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(i) the product of (a) the Principal Amount multiplied by (b) the Reference Return multiplied by the Upside Participation Rate; and
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(ii) the product of (a) the Principal Amount multiplied by (b) the Maximum Return.
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If the Reference Return is less than 0.00% but greater than or equal to -10.00%, meaning that the price of the Reference Asset declines by no more than the 10.00% Buffer Amount, at maturity, you will receive 100.00% of the Principal Amount.
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If the Reference Return is less than -10.00%, meaning that the price of the Reference Asset declines by more than the 10.00% Buffer Amount, at maturity, you will lose 1.11111% of the Principal Amount for each percentage point that the Reference Return is below -10.00%. This means that if the Reference Return is -100.00%, you will lose your entire investment.
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Upside Participation Rate:
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200.00%
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Maximum Return:
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25.00%
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Buffer Amount:
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10.00%
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Downside Leverage Factor:
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1.11111
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Reference Return:
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The quotient, expressed as a percentage, calculated as follows:
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Final Price – Initial Price
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Initial Price
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Initial Price:
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The Official Closing Price of the Reference Asset on the Pricing Date.
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Final Price:
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The arithmetic average of the Official Closing Prices of the Reference Asset on the five Ending Averaging Dates, as determined by the calculation agent.
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Official Closing Price:
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The Official Closing Price of the Reference Asset on any scheduled trading day as determined by the calculation agent based upon the value displayed on Bloomberg Professional® service page “EEM UP <EQUITY>” or any successor page on Bloomberg Professional® service or any successor service, as applicable, adjusted by the calculation agent as described under “Adjustments to an ETF” in the accompanying product supplement.
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Calculation Agent:
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HSBC USA Inc. or one of its affiliates
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CUSIP/ISIN:
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4042K1QK2 /
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Form of Notes:
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Book-Entry
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Listing:
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The Notes will not be listed on any U.S. securities exchange or quotation system.
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Price to Public(1)
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Fees and Commissions
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Proceeds to Issuer
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Per Note
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$1,000
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$10
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$990
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Total
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•
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the product supplement at www.sec.gov/Archives/edgar/data/83246/000114420409019791/v145840_424b2.htm
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•
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the prospectus supplement at www.sec.gov/Archives/edgar/data/83246/000114420409019785/v145824_424b2.htm
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Hypothetical
Final Price |
Hypothetical
Reference Return |
Hypothetical Total
Return on the Notes |
$76.14
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100.00%
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25.000%
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$68.53
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80.00%
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25.000%
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$64.72
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70.00%
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25.000%
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$60.91
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60.00%
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25.000%
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$57.11
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50.00%
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25.000%
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$53.30
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40.00%
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25.000%
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$49.49
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30.00%
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25.000%
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$45.68
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20.00%
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25.000%
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$42.83
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12.50%
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25.000%
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$41.88
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10.00%
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20.000%
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$39.97
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5.00%
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10.000%
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$39.02
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2.50%
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5.000%
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$38.45
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1.00%
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2.000%
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$38.07
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0.00%
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0.000%
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$37.69
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-1.00%
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0.000%
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$36.17
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-5.00%
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0.000%
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$34.26
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-10.00%
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0.000%
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$30.46
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-20.00%
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-11.111%
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$26.65
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-30.00%
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-22.222%
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$22.84
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-40.00%
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-33.333%
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$19.04
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-50.00%
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-44.444%
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$15.23
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-60.00%
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-55.555%
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$11.42
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-70.00%
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-66.666%
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$7.61
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-80.00%
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-77.777%
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$3.81
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-90.00%
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-88.888%
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$0.00
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-100.00%
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-100.000%
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APPRECIATION POTENTIAL — The Notes provide the opportunity for enhanced returns at maturity by multiplying a positive Reference Return by 200.00%, up to the Maximum Return on the Notes of 25.00%, or a maximum Payment at Maturity of $1,250.00 for every $1,000 Principal Amount of Notes. Because the Notes are our senior unsecured obligations, payment of any amount at maturity is subject to our ability to pay our obligations as they become due.
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LIMITED BUFFER AGAINST LOSS — We will pay you your principal back at maturity if the Final Price is not less than the Initial Price by more than the Buffer Amount of 10.00%. If the price of the Reference Asset declines by more than 10.00%, you will lose 1.11111% of the Principal Amount for every 1.00% decline of the price of the Reference Asset over the term of the Notes beyond 10.00%. If the Reference Return is -100.00%, you will lose your entire investment.
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EXPOSURE TO PERFORMANCE OF THE iSHARES® MSCI EMERGING MARKET INDEX FUND — The Reference Asset is an exchange-traded fund of iShares, Inc., which is a registered investment company that consists of numerous separate investment portfolios. The Reference Asset seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index (the “underlying index”). The underlying index is a free-float adjusted average of the U.S. dollar values of all of the equity securities constituting the underlying index. For additional information about the Reference Asset, see the information set forth under “Description of the Reference Asset” herein.
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TAX TREATMENT — There is no direct legal authority as to the proper tax treatment of the Notes, and therefore significant aspects of the tax treatment of the Notes are uncertain as to both the timing and character of any inclusion in income in respect of the Notes. Under one approach, a Note should be treated as a pre-paid forward or other executory contract with respect to the Reference Asset. We intend to treat the Notes consistent with this approach. Pursuant to the terms of the Notes, you agree to treat the Notes under this approach for all U.S. federal income tax purposes. Notwithstanding any disclosure in the accompanying product supplement to the contrary, our special U.S. tax counsel in this transaction is Sidley Austin llp. Subject to the limitations described therein, and based on certain factual representations received from us, in the opinion of our special U.S. tax counsel, Sidley Austin llp, it is reasonable to treat a Note as a pre-paid forward or other executory contract with respect to the Reference Asset. Pursuant to this approach, and subject to the discussion below regarding “constructive ownership transactions”, we do not intend to report any income or gain with respect to the Notes prior to their maturity or an earlier sale or exchange and we intend to treat any gain or loss upon maturity or an earlier sale or exchange as long-term capital gain or loss, provided that you have held the Note for more than one year at such time for U.S. federal income tax purposes.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The Notes do not guarantee any return of principal if the Reference Return is less than -10.00%. The return on the Notes at maturity is linked to the performance of the Reference Asset and will depend on whether, and the extent to which, the Reference Return is positive or negative. Your investment will be exposed on a leveraged basis to any decline in the Final Price of the Reference Asset beyond the Buffer Amount as compared to the Initial Price. You may lose up to 100.00% of your investment.
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CREDIT RISK OF HSBC USA INC. — The Notes are senior unsecured debt obligations of the issuer, HSBC, and are not, either directly or indirectly, an obligation of any third party. As further described in the accompanying prospectus supplement and prospectus, the Notes will rank on par with all of the other unsecured and unsubordinated debt obligations of HSBC, except such obligations as may be preferred by operation of law. Any payment to be made on the Notes, including any return of principal at maturity, depends on the ability of HSBC to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of HSBC may affect the market value of the Notes and, in the event HSBC were to default on its obligations, you may not receive the amounts owed to you under the terms of the Notes.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Final Price is greater than the Initial Price, for each $1,000 Principal Amount of Notes you hold, you will receive at maturity $1,000 plus an additional amount that will not exceed the Maximum Return of 25.00% of the Principal Amount, regardless of the appreciation in the Reference Asset, which may be significantly greater than the Maximum Return. You will not receive a return on the Notes greater than the Maximum Return.
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SUITABILITY OF NOTES FOR INVESTMENT – A person should reach a decision to invest in the Notes after carefully considering, with his or her advisors, the suitability of the Notes in light of his or her investment objectives and the information set out in this free writing prospectus. Neither the Issuer nor any dealer participating in the offering makes any recommendation as to the suitability of the Notes for investment.
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AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH FOREIGN SECURITIES MARKETS — The stocks held by the underlying index, which is the underlying index for the Reference Asset, and that are generally tracked by the Reference Asset have been issued by companies in various foreign markets which MSCI, Inc. classifies as “emerging markets”. Although the trading prices of shares of the Reference Asset are not directly tied to the value of the underlying index or the trading prices of the stocks comprising the underlying index, the trading prices of shares of the Reference Asset are expected to correspond generally to the value of publicly traded equity securities in the aggregate in the emerging markets, as measured by the underlying index. This means that the trading prices of shares of the Reference Asset are expected to be affected by factors affecting such foreign securities markets.
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THE NOTES ARE SUBJECT TO EMERGING MARKETS RISK — Investments in notes linked directly or indirectly to emerging market equity securities involve many risks, including, but not limited to: economic, social, political, financial and military conditions in the emerging market; regulation by national, provincial, and local governments; less liquidity and smaller market capitalizations than exist in the case of many large U.S. companies; different accounting and disclosure standards; and political uncertainties. Stock prices of emerging market companies may be more volatile and may be affected by market developments differently than U.S. companies. Government interventions to stabilize securities markets and cross-shareholdings may affect prices and volume of trading of the securities of emerging market companies. Economic, social, political, financial and military factors could, in turn, negatively affect such companies’ value. These factors could include changes in the emerging market government’s economic and fiscal policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of exchange between currencies. Moreover, emerging market economies may differ favorably or unfavorably from the U.S. economy in a variety of ways, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. You should carefully consider the risks related to emerging markets, to which the notes are highly susceptible, before making a decision to invest in the notes.
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AN INVESTMENT IN THE NOTES IS SUBJECT TO CURRENCY EXCHANGE RISK — Because the underlying index is denominated in U.S. Dollars, the prices of the component stocks comprising the underlying index will be converted into U.S. Dollars for the purposes of calculating the value of the underlying index and, thus, noteholders will be exposed to currency exchange rate risk with respect to each of the currencies in which the equity securities held by the underlying index trade. A noteholder’s net exposure will depend on the extent to which the currencies in which the equity securities held by the underlying index trade strengthens or weakens against the U.S. Dollar. If the U.S. Dollar strengthens against the currencies in which the equity securities held by the underlying index trade, the value of the Reference Asset may be adversely affected, and the principal payment at maturity of the notes may be reduced.
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THE VALUE OF SHARES OF THE REFERENCE ASSET MAY NOT COMPLETELY TRACK THE VALUE OF THE UNDERLYING INDEX — Although the trading characteristics and valuations of shares of the Reference Asset will usually mirror the characteristics and valuations of the underlying index, the value of the shares of the Reference Asset may not completely track the value of the underlying index. The Reference Asset may reflect transaction costs and fees that are not included in the calculation of the underlying index. Additionally, because the Reference Asset may not actually hold all of the stocks comprising the underlying index but invests in a representative sample of securities which have a similar investment profile as the stocks comprising the underlying index, the Reference Asset may not fully replicate the performance of the underlying index.
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MANAGEMENT RISK — The Reference Asset is not managed according to traditional methods of ‘‘active’’ investment management, which involve the buying and selling of securities based on economic, financial and market analysis and investment judgment. Instead, the Reference Asset, utilizing a ‘‘passive’’ or indexing investment approach, attempts to approximate the investment performance of the underlying index by investing in a portfolio of securities that generally replicate the underlying index. Therefore, unless a specific security is removed from the underlying index, the Reference Asset generally would not sell a security because the security’s issuer was in financial trouble. In addition, the Reference Asset is subject to the risk that the investment strategy of the investment adviser may not produce the intended results. Your investment is linked to the Reference Asset, which is an index fund. Any information relating to the underlying index is only relevant to understanding the index that the Reference Asset seeks to replicate.
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POTENTIALLY INCONSISTENT RESEARCH, OPINIONS OR RECOMMENDATIONS BY HSBC AND JPMORGAN — HSBC, JPMorgan, or their affiliates may publish research, express opinions or provide recommendations that are inconsistent with investing in or holding the Notes and which may be revised at any time. Any such research, opinions or recommendations could affect the price of the Reference Asset, the level of the underlying index or the price of the stocks included in the underlying index, and therefore, the market value of the Notes.
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CERTAIN BUILT-IN COSTS ARE LIKELY TO ADVERSELY AFFECT THE VALUE OF THE NOTES PRIOR TO MATURITY — While the Payment at Maturity described in this free writing prospectus is based on the full Principal Amount of your Notes, the original issue price of the Notes includes the placement agent’s commission and the estimated cost of hedging our obligations under the Notes through one or more of our affiliates. As a result, the price, if any, at which HSBC Securities (USA) Inc. will be willing to purchase Notes from you in secondary market transactions, if at all, will likely be lower than the original issue price, and any sale of Notes by you prior to the Maturity Date could result in a substantial loss to you. The Notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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THERE IS LIMITED ANTI-DILUTION PROTECTION — The calculation agent will adjust the Final Price, for certain events affecting the shares of the Reference Asset, such as stock splits and corporate actions which may affect the Payment at Maturity. The calculation agent is not required to make an adjustment for every corporate action which affects the shares of the Reference Asset. If an event occurs that does not require the calculation agent to adjust the amount of the shares of the Reference Asset, the market price of the relevant Notes and the Payment at Maturity may be materially and adversely affected. See the “Adjustments” section on page PS-23 of the accompanying product supplement.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the Notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares of the Reference Asset or shares of the securities held by the Reference Asset or included in the underlying index would have.
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LACK OF LIQUIDITY — The Notes will not be listed on any securities exchange. HSBC Securities (USA) Inc. may offer to purchase the Notes in the secondary market but is not required to do so and may cease making such offers at any time. Because other dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely to depend on the price, if any, at which HSBC Securities (USA) Inc. is willing to buy the Notes. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily.
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POTENTIAL CONFLICTS — We and our affiliates play a variety of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under the Notes. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the Notes. We will not have any obligation to consider your interests as a holder of the Notes in taking any corporate action that might affect the price of the Reference Asset and the value of the Notes. The calculation agent is under no obligation to consider your interests as a holder of the Notes in taking any actions that might affect the value of your Notes.
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THE NOTES ARE NOT INSURED BY ANY GOVERNMENTAL AGENCY OF THE UNITED STATES OR ANY OTHER JURISDICTION — The Notes are not deposit liabilities or other obligations of a bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or program of the United States or any other jurisdiction. An investment in the Notes is subject to the credit risk of the Issuer, and in the event that we are unable to pay our obligations as they become due, you may not receive the full Payment at Maturity of the Notes.
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the Official Closing Price of the Reference Asset on any day, the value of the Notes will be affected by a number of economic and market factors that may either offset or magnify each other, including:
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the expected volatility of the Reference Asset;
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the time to maturity of the Notes;
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the dividend rate on the equity securities held by the Reference Asset or comprising the underlying index;
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interest and yield rates in the market generally;
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the exchange rate and the volatility of the exchange rate between the U.S. dollar and each of the currencies in which the equity securities held by the Reference Asset trade and the correlation between those rates and the prices of shares of the Reference Asset;
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a variety of economic, financial, political, regulatory or judicial events that affect the equity securities held by the Reference Asset or the stock markets generally; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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Updating the indices on the basis of a fully refreshed Equity Universe.
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Taking buffer rules into consideration for migration of securities across size and style segments.
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Updating FIFs and Number of Shares (“NOS”).
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Including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index.
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Allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR.
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Reflecting the impact of significant market events on FIFs and updating NOS.
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Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
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1/3/2006
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3/31/2006
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$33.79
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$30.00
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$33.02
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4/3/2006
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6/30/2006
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$37.08
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$27.12
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$31.23
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7/3/2006
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9/29/2006
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$33.33
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$29.03
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$32.29
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10/2/2006
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12/29/2006
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$38.26
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$31.63
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$38.10
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1/3/2007
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3/30/2007
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$39.85
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$34.52
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$38.75
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4/2/2007
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6/29/2007
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$44.62
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$38.74
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$43.82
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7/2/2007
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9/28/2007
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$50.49
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$37.15
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$49.78
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10/1/2007
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12/31/2007
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$55.83
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$47.22
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$50.10
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1/2/2008
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3/31/2008
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$50.75
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$40.68
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$44.79
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4/1/2008
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6/30/2008
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$52.48
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$44.43
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$45.19
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7/1/2008
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9/30/2008
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$44.76
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$30.88
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$34.53
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10/1/2008
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12/31/2008
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$34.29
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$18.22
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$24.97
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1/2/2009
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3/31/2009
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$27.28
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$19.87
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$24.81
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4/1/2009
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6/30/2009
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$34.88
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$24.72
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$32.23
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7/1/2009
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9/30/2009
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$39.51
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$30.25
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$38.91
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10/1/2009
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12/31/2009
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$42.52
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$37.30
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$41.50
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1/4/2010
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3/30/2010
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$43.47
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$35.01
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$42.12
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4/1/2010*
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6/30/2010
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$44.02
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$35.21
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$37.32
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7/1/2010
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9/30/2010
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$44.99
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$36.76
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$44.77
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10/1/2010
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12/31/2010
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$48.62
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$44.51
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$47.62
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1/3/2011
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3/31/2011
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$48.75
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$44.25
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$48.69
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4/1/2011
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6/30/2011
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$50.43
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$44.77
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$47.60
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7/1/2011
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9/30/2011
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$48.63
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$34.71
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$35.07
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10/3/2011
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10/10/2011*
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$38.12
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$33.43
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$38.07
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