FWP 1 v241521_fwp.htm FREE WRITING PROSPECTUS Unassociated Document
Subject to Completion
Preliminary Term Sheet dated November 22, 2011

      Units
$10 principal amount per unit
CUSIP No.
 
  
Pricing Date*
January     , 2012
 
Settlement Date*
January     , 2012
 
Maturity Date*
February     , 2013
 
*Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)

Accelerated Return Notes® Linked to the MSCI
Emerging Markets Index
 
§
Maturity of approximately 14 months
 
§
3-to-1 upside exposure (300% participation) to increases in the Index subject to a capped return of 20% to 24%
 
§
1-to-1 downside exposure to decreases in the Index, with 100% of your investment at risk
 
§
All payments at maturity subject to the credit risk of HSBC USA Inc.
 
§
No periodic interest payments
 
§
No listing on any securities exchange
 
 
The notes are being issued by HSBC USA Inc. (“HSBC”). Investing in the notes involves a number of risks. There are important differences between the notes and a conventional debt security, including different investment risks.  See “Risk Factors” on page TS-5 of this term sheet and beginning on page S-10 of product supplement ARN-1.
_________________________
 
Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this document, the accompanying product supplement, prospectus or prospectus supplement. Any representation to the contrary is a criminal offense.
_________________________
 
 
Per Unit
Total
Public offering price(1)(2)
$10.00
$
Underwriting discount(1)(2)
$0.20
$
Proceeds, before expenses, to HSBC
$9.80
$
 
 
(1)
For any purchase of 500,000 units or more in a single transaction by an individual investor, the public offering price and the underwriting discount will be $9.95 per unit and $0.15 per unit, respectively.
 
 
(2)
For any purchase by certain fee-based trusts and discretionary accounts managed by U.S. Trust operating through Bank of America, N.A., the public offering price and underwriting discount will be $9.80 per unit and $0.00 per unit, respectively. See as well “Supplement to the Plan of Distribution.”
 
The notes:
 
Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value
 
Merrill Lynch & Co.
January     , 2012
 
 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Summary
 
The Accelerated Return Notes® Linked to the MSCI Emerging Markets Index due February     , 2013 (the “notes”) are our senior unsecured debt securities and are not a direct or indirect obligation of any third party. The notes are not deposit liabilities or other obligations of a bank and are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other governmental agency of the United States or any other jurisdiction. They will rank equally with all of our other senior unsecured debt. Any payments due on the notes, including any repayment of principal, depends on the credit risk of HSBC and its ability to satisfy its obligations as they come due. The notes provide you a leveraged return, subject to a cap, if the ending value (as determined below) of the MSCI Emerging Markets Index (the “Index”) is greater than the starting value of the Index. If the ending value is less than the starting value, you will lose all or a portion of the principal amount of your notes.
 
The terms and risks of the notes are contained in this term sheet and the documents listed below (together, the “Note Prospectus”).  The documents have been filed as part of a registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated below or obtained from MLPF&S by calling 1-866-500-5408:
 
 
§
Product supplement ARN-1 dated November 22, 2011:
 
 
§
Prospectus supplement dated April 9, 2009:
 
 
§
Prospectus dated April 9, 2009:
 
Our Central Index Key, or CIK, on the SEC Website is 83246.
 
Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering.  Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus.  You should carefully consider, among other things, the matters set forth under “Risk Factors” in the section indicated on the cover of this term sheet.  The notes involve risks not associated with conventional debt securities. Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement ARN-1. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar references are to HSBC.
 
Terms of the Notes
  
Redemption Amount Determination
Issuer:
HSBC USA Inc. (“HSBC”)
  
On the maturity date, you will receive a cash payment per unit determined as follows:
 
Original Offering Price:
$10.00 per unit
  
Term:
Approximately 14 months
  
Market Measure:
The MSCI Emerging Markets Index (Bloomberg symbol: “MXEF”), a price return index
  
Starting Value:
The closing level of the Market Measure on the pricing date
  
Ending Value:
The average of the closing levels of the Market Measure on each scheduled calculation day occurring during the maturity valuation period.  The calculation days are subject to postponement in the event of Market Disruption Events, as described on page S-22 of product supplement ARN-1.
  
Capped Value:
[$12.00 to $12.40] per unit, which represents a return of [20% to 24%] over the Original Offering Price (the actual Capped Value will be determined on the pricing date).
  
Maturity Valuation Period:
Five scheduled calculation days shortly before the maturity date
  
Participation Rate:
300%
  
Calculation Agent:
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and HSBC USA Inc., acting jointly.
  
Fees Charged:
The public offering price of the notes includes the underwriting discount of $0.20 per unit as listed on the cover page and an additional charge of $0.075 per unit more fully described on page TS-10
  

Accelerated Return Notes®
TS-2

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Investor Considerations
You may wish to consider an investment in the notes if:
The notes may not be an appropriate investment for you if:
§ You anticipate that the level of the Index will increase moderately from the Starting Value to the Ending Value.
§ You accept that your investment will result in a loss, which could be significant, if the level of the Index decreases from the Starting Value to the Ending Value.
§ You accept that the return on the notes, if any, will be capped.
§ You are willing to forgo the interest payments that are paid on traditional interest bearing debt securities.
§ You are willing to forego dividends or other benefits of owning the stocks included in the Index.
§ You are willing to accept that a secondary market is not expected to develop for the notes, and understand that the market prices for the notes, if any, may be less than their Original Offering Price and will be affected by various factors, including our actual and perceived creditworthiness, and the fees charged, as described on TS-2.
§ You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
§ You believe that the Index level will decrease from the Starting Value or that it will not increase sufficiently over the term of the notes to provide you with your desired return.
§ You seek 100% return of principal at maturity.
§ You seek an uncapped return on your investment.
§ You seek interest payments or other current income on your investment.
§ You want to receive dividends or other distributions paid on the stocks included in the Index.
§ You seek an investment for which there will be a liquid secondary market.
§ You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
 
We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
 
Hypothetical Payout Profile
 
The below graph is based on hypothetical numbers and values.
 
This graph reflects the returns on the notes, based on the Participation Rate of 300% and a Capped Value of $12.20.  The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the Index, excluding dividends.
 
This graph has been prepared for purposes of illustration only.
 

Accelerated Return Notes®
TS-3

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Hypothetical Payments at Maturity
 
The below table and examples are for purposes of illustration only.  They are based on hypothetical values and show hypothetical returns on the notes.  The actual amount you receive and the resulting total rate of return will depend on the actual Starting Value, Ending Value, Capped Value and the term of your investment.
 
The following table is based on a Starting Value of 100, the Participation Rate of 300% and a Capped Value of $12.20 per unit.  It illustrates the effect of a range of Ending Values on the Redemption Amount per unit of the notes and the total rate of return to holders of notes.  The following examples do not take into account any tax consequences from investing in the notes.
 
Ending Value
  
Percentage Change from the Starting Value to the Ending Value
  
Redemption Amount per Unit
  
Total Rate of Return on the Notes
50.00
  
-50.00%
  
$5.00
  
-50.00%
60.00
  
-40.00%
  
$6.00
  
-40.00%
70.00
  
-30.00%
  
$7.00
  
-30.00%
80.00
  
-20.00%
  
$8.00
  
-20.00%
90.00
  
-10.00%
  
$9.00
  
-10.00%
92.00
  
-8.00%
  
$9.20
  
-8.00%
94.00
  
-6.00%
  
$9.40
  
-6.00%
96.00
  
-4.00%
  
$9.60
  
-4.00%
98.00
  
-2.00%
  
$9.80
  
-2.00%
100.00(1)
  
0.00%
  
$10.00
  
0.00%
102.00
  
2.00%
  
$10.60
  
6.00%
104.00
  
4.00%
  
$11.20
  
12.00%
106.00
  
6.00%
  
$11.80
  
18.00%
108.00
  
8.00%
  
$12.20(2)
  
22.00%
110.00
  
10.00%
  
$12.20
  
22.00%
120.00
  
20.00%
  
$12.20
  
22.00%
122.00
  
22.00%
  
$12.20
  
22.00%
130.00
  
30.00%
  
$12.20
  
22.00%
140.00
  
40.00%
  
$12.20
  
22.00%
150.00
  
50.00%
  
$12.20
  
22.00%
 
(1)
The hypothetical Starting Value of 100 used in these examples has been chosen for illustrative purposes only, and does not represent a likely actual Starting Value for the Market Measure.
 
(2)
The Redemption Amount per unit cannot exceed the hypothetical Capped Value.
 
For recent actual levels of the Market Measure, see “The Index” section below.  The Index is a price return index and as such, the Ending Value will not include any income generated by dividends paid on the stocks included in the Index, which you would otherwise be entitled to receive if you invested in those stocks directly.  In addition, all payments on the notes are subject to our credit risk.
 
Redemption Amount Calculation Examples
 
Example 1
 
The Ending Value is 80, or 80% of the Starting Value:

Starting Value:
100
Ending Value:
 80
 
Example 2
 
The Ending Value is 104, or 104% of the Starting Value:
Starting Value:
100
Ending Value:
104

Example 3
 
The Ending Value is 130, or 130% of the Starting Value:
Starting Value:
100
Ending Value:
130

Accelerated Return Notes®
TS-4

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
 
Risk Factors
 
We urge you to read the section “Risk Factors” in the product supplement and in the accompanying prospectus supplement.  Investing in the notes is not equivalent to investing directly in the Index.  You should understand the risks of investing in the notes and should reach an investment decision only after careful consideration, with your advisers, with respect to the notes in light of your particular financial circumstances and the information set forth in this free writing prospectus and the accompanying product supplement, prospectus supplement and prospectus.
 
In addition to the risks in the product supplement identified below, you should review “Risk Factors” in the accompanying prospectus supplement, including the explanation of risks relating to the notes described in the following sections:
 
“— Risks Relating to All Note Issuances” in the prospectus supplement;
 
“— Additional Risks Relating to Notes with an Equity Security or Equity Index as the Reference Asset” in the prospectus supplement; and
 
“—Additional Risks Relating to Notes With a Maximum Limitation, Maximum Rate, Ceiling or Cap” in the prospectus supplement.
 
 
§
Your investment may result in a loss; there is no guaranteed return of principal.
 
 
§
Your yield may be less than the yield on a conventional debt security of comparable maturity.
 
 
§
Payments on the notes are subject to our credit risk.
 
 
§
Your return, if any, is limited to the return represented by the Capped Value.
 
 
§
Your investment return may be less than a comparable investment directly in the Market Measure, or the components included in the Market Measure.
 
 
§
You must rely on your own evaluation of the merits of an investment linked to the Market Measure.
 
 
§
Commissions, fees and hedging costs as described on page TS-10 may affect the price at which you will be able to sell the notes in secondary market transactions.
 
 
§
We cannot assure you that a trading market for your notes will ever develop or be maintained.  MLPF&S is not obligated to make a market for, or to repurchase, the notes.
 
 
§
The Redemption Amount will not be affected by all developments relating to the Market Measure.
 
 
§
The publisher of the Market Measure may adjust the Market Measure in a way that affects its value, and the Market Measure publisher has no obligation to consider your interests.
 
 
§
If you attempt to sell the notes prior to maturity, their market value, if any, will be affected by various factors that interrelate in complex ways and their market value may be less than their Original Offering Price.
 
 
§
Purchases and sales by us, MLPF&S and our respective affiliates of the securities represented by the Index may affect your return.
 
 
§
Our trading and hedging activities, and those of MLPF&S, may create conflicts of interest with you.
 
 
§
Our hedging activities, and those of MLPF&S, may affect your return on the notes and their market value.
 
 
§
There may be potential conflicts of interest involving the calculation agent.  We may appoint and remove the calculation agent.
 
 
§
The notes are not insured by any governmental agency of the United States or any other jurisdiction.
 
 
§
You will have no rights as a security holder, you will have no rights to receive any of the securities represented by the Market Measure, and you will not be entitled to dividends or other distributions by the issuers of these securities.
 
 
§
Your return may be affected by factors affecting international securities markets.
 
 
§
Exchange rate movements may impact the values of the notes.
 
 
§
We and MLPF&S do not control any company included in the Market Measure and are not responsible for any disclosure made by any other company.
 
 
§
Our business activities and those of MLPF&S relating to the companies represented by the Market Measure may create conflicts of interest with you.
 
 
§
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 S-30 of product supplement ARN-1.

Accelerated Return Notes®
TS-5

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Additional Risk Factor
 
There are risks associated with emerging markets.
 
An investment in the notes will involve risks not generally associated with investments which have no emerging market component.  In particular, many emerging nations are undergoing rapid change, involving the restructuring of economic, political, financial and legal systems.  Regulatory and tax environments may be subject to change without review or appeal.  Many emerging markets suffer from underdevelopment of capital markets and tax regulation.  The risk of expropriation and nationalization remains a threat.  Guarding against such risks is made more difficult by low levels of corporate disclosure and unreliability of economic and financial data.
 
Other Terms of the Notes
 
The following definition replaces the definition of “Market Measure Day” set forth on page S-6 and S-22 of product supplement ARN-1:
 
A “Market Measure Business Day” means a day on which:
 
(A) the London Stock Exchange, the Hong Kong Stock Exchange, the São Paulo Stock Exchange, and the Korea StockExchange (or any successor to the foregoing exchanges) are open for trading; and
 
(B) the Index or any successor thereto is calculated and published.


Accelerated Return Notes®
TS-6

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
 
The Index
 
The MSCI indices were founded in 1969 by Capital International as the first international performance benchmarks constructed to facilitate accurate comparison of non-U.S. markets.  Morgan Stanley acquired the rights to license the MSCI indices in 1986.  In November 1998, Morgan Stanley transferred all rights to the MSCI indices to MSCI, a Delaware corporation.  In 2004, MSCI acquired Barra, Inc., a provider of risk analytics, performance measurement and attribution systems and services to managers of portfolio and firm-wide investment risk and merged this with MSCI.  The MSCI single country standard equity indices have covered the world’s developed markets since 1969, and in 1988, MSCI commenced coverage of the emerging markets.
 
All information regarding the Index reflects the policies of, and is subject to change by, MSCI. 
 
The Index offers a representation of emerging markets (Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey) by targeting all companies with a market capitalization within the top 85% of their investable equity universe, subject to a global minimum size requirement (each, an “MSCI EM Constituent Country Index”).  The Index uses the methodology of the “Global Investable Market Indices” of MSCI.
 
The Country Indices
 
The components of each MSCI EM Constituent Country Index used to be selected by MSCI from among the universe of securities eligible for inclusion in the MSCI EM Constituent Country Index so as to target an 85% free float-adjusted market representation level within each of a number of industry groups, subject to adjustments to (i) provide for sufficient liquidity, (ii) reflect foreign investment restrictions (only those securities that can be held by non-residents of the country corresponding to the relevant MSCI EM Constituent Country Index are included) and (iii) meet certain other investability criteria. Following a change in MSCI’s methodology implemented in May 2008, the 85% target is now measured at the level of the country universe of eligible securities rather than the industry group level—so each MSCI EM Constituent Country Index will seek to include the securities that represent 85% of the free float-adjusted market capitalization of all securities eligible for inclusion—but will still be subject to liquidity, foreign investment restrictions and other investability adjustments.  MSCI defines “free float” as total shares excluding shares held by strategic investors such as governments, corporations, controlling shareholders and management, and shares subject to foreign ownership restrictions.
 
Calculation of the Index
 
The performance of the Index on any given day represents the weighted performance of all of the components included in all of the MSCI EM Constituent Country Indices.  Each component in the Index is included at a weight that reflects the ratio of its free float-adjusted market capitalization (i.e., free public float multiplied by price) to the free float-adjusted market capitalization of all the components included in all of the MSCI EM Constituent Country Indices.
 
Maintenance of and changes to the Index
 
MSCI maintains the Index with the objective of reflecting, on a timely basis, the evolution of the underlying equity markets and segments.  In maintaining the Index, emphasis is also placed on continuity, continuous investability of constituents, replicability, index stability and minimizing turnover in the Index.
 
As part of the changes to MSCI’s methodology which became effective in May 2008, maintenance of the indices falls into three broad categories:
 
·
semi-annual reviews, which will occur each May and November and will involve a comprehensive reevaluation of the market, the universe of eligible securities and other factors involved in composing the Index;
 
·
quarterly reviews, which will occur each February and August and will focus on significant changes in the market since the last semi-annual review; and
 
·
ongoing event-related changes, which will generally be reflected in the indices at the time of the event and will include changes resulting from mergers, acquisitions, spin-offs, bankruptcies, reorganizations, issuances and other extraordinary transactions, corporate actions and events.
 
Based on these reviews, additional components may be added, and current components may be removed, at any time.  MSCI generally announces all changes resulting from semi-annual reviews, quarterly reviews and ongoing events in advance of their implementation, although in exceptional cases they may be announced during market hours for same or next day implementation.
 
Prices and exchange rates
 
Prices
 
The prices used to calculate the Index are the official exchange closing prices or those figures accepted as such.  MSCI reserves the right to use an alternative pricing source on any given day.

Accelerated Return Notes®
TS-7

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Exchange rates
 
MSCI uses the foreign exchange rates published by WM / Reuters at 4:00 p.m., London time.  MSCI uses WM / Reuters rates for all developed and emerging markets.
 
In case WM/Reuters does not provide rates for specific markets on given days (for example Christmas Day and New Year Day), the previous business day’s rates are normally used.
 
MSCI continues to monitor exchange rates independently and may, under exceptional circumstances, elect to use an alternative exchange rate if the WM / Reuters rates are not available, or if MSCI determines that the WM / Reuters rates are not reflective of market circumstances for a given currency on a particular day.  In such circumstances, an announcement would be sent to clients with the related information.  If appropriate, MSCI may conduct a consultation with the investment community to gather feedback on the most relevant exchange rate.
 
The following graph shows the monthly historical performance of the Index in the period from January 2006 through October 2011.  We obtained this historical data from Bloomberg L.P.  We make no representation or warranty as to the accuracy or completeness of the information from Bloomberg L.P.  On November 18, 2011, the closing level of the Index was 934.08.
 
 
This historical data on the Index is not necessarily indicative of the future performance of the Index or what the value of the notes may be. Any historical upward or downward trend in the level of the Index during any period set forth above is not an indication that the level of the Index  is more or less likely to increase or decrease at any time over the term of the notes.
 
Before investing in the notes, you should consult publicly available sources for the levels of the Index.
 
License Agreement
 
The MSCI indexes are the exclusive property of MSCI Inc. (“MSCI”).  MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by HSBC USA Inc.  The financial securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such financial securities.  This term sheet contains a more detailed description of the limited relationship MSCI has with HSBC USA Inc. and any related financial securities.  No purchaser, seller or holder of this product, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting MSCI to determine whether MSCI’s permission is required.  Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI.
 
THIS FINANCIAL PRODUCT IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE

Accelerated Return Notes®
TS-8

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
PROPERTY OF MSCI.  MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY HSBC USA INC.  THIS FINANCIAL PRODUCT HAS NOT BEEN PASSED ON BY ANY OF THE MSCI PARTIES AS TO ITS LEGALITY OR SUITABILITY WITH RESPECT TO ANY PERSON OR ENTITY AND NONE OF THE MSCI PARTIES MAKES ANY WARRANTIES OR BEARS ANY LIABILITY WITH RESPECT TO THIS FINANCIAL PRODUCT.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF THIS FINANCIAL PRODUCT OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN FINANCIAL PRODUCTS GENERALLY OR IN THIS FINANCIAL PRODUCT PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE.  MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS FINANCIAL PRODUCT OR THE ISSUER OR OWNER OF THIS FINANCIAL PRODUCT OR ANY OTHER PERSON OR ENTITY.  NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS OF THIS FINANCIAL PRODUCT OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES.  NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS FINANCIAL PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THIS FINANCIAL PRODUCT IS REDEEMABLE.  NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THIS FINANCIAL PRODUCT OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FINANCIAL PRODUCT.
 
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN OR THE RESULTS TO BE OBTAINED BY THE ISSUER OF THIS FINANCIAL PRODUCT, OWNERS OF THIS FINANCIAL PRODUCT, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN AND NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN.  FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES (INCLUDING, WITHOUT LIMITATION AND FOR PURPOSES OF EXAMPLE ONLY, ALL WARRANTIES OF TITLE, SEQUENCE, AVAILABILITY, ORIGINALITY, ACCURACY, COMPLETENESS, TIMELINESS, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING AND COURSE OF PERFORMANCE) WITH RESPECT TO EACH MSCI INDEX AND ALL DATA INCLUDED THEREIN.  WITHOUT LIMITING THE GENERALITY OF ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFITS OR REVENUES OR OTHER ECONOMIC LOSS), AND WHETHER IN TORT (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY AND NEGLIGENCE) CONTRACT OR OTHERWISE, EVEN IF IT MIGHT HAVE ANTICIPATED, OR WAS ADVISED OF, THE POSSIBILITY OF SUCH DAMAGES.

Accelerated Return Notes®
TS-9

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Supplement to the Plan of Distribution
 
We may deliver the notes against payment therefor in New York, New York on a date that is greater than three business days following the pricing date.  Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise.  Accordingly, if the initial settlement of the notes occurs more than three business days from the pricing date, purchasers who wish to trade the notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
 
The notes will not be listed on any securities exchange.  In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units.
 
MLPF&S will not receive an underwriting discount for notes sold to certain fee-based trusts and fee-based discretionary accounts managed by U.S. Trust operating through Bank of America, N.A.
 
If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
 
MLPF&S may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices.  MLPF&S may act as principal or agent in these market-making transactions; however it is not obligated to engage in any such transactions.  The distribution of the Note Prospectus in connection with these offers or sales will be solely for the purpose of providing investors with the description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding HSBC or for any purpose other than that described in the immediately preceding sentence.
 
Role of MLPF&S
 
MLPF&S will participate as selling agent in the distribution of the notes. Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount. In connection with hedging our obligations under the notes, we will enter into a hedge transaction with an affiliate of MLPF&S, which will include a charge of up to $0.075 per unit representing an estimated profit credited to MLPF&S through the hedge transaction. The public offering price you pay for the notes includes this charge and the underwriting discount.  This charge and fee reduce the economic terms of the notes.  In arranging the hedge transaction for the notes, MLPF&S seeks competitive terms from third parties, which could include one of our affiliates.  Additional profits and losses may be realized by the hedge providers from these hedging transactions.  For further information regarding how these fees and hedging costs may affect the price at which you will be able to sell the notes in secondary market transaction and conflicts of interest, see “Risk Factors―General Risks Relating to the ARNs” beginning on page S-10 of product supplement ARN-1 and “Use of Proceeds” on page S-19 in product supplement ARN-1.
 
Accelerated Return Notes®
TS-10

 
 
 
 
Accelerated Return Notes®
Linked to the MSCI Emerging Markets Index due February     , 2013
 
Summary Tax Consequences
 
You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:
 
 
§
There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
 
 
§
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 pre-paid forward contract or executory contract with respect to the Index.
 
 
§
Under this characterization and tax treatment of the notes, a U.S. Holder (as defined in product supplement ARN-1) generally will recognize capital gain or loss upon maturity or upon a sale or exchange of the notes prior to maturity.  This capital gain or loss generally will be long-term capital gain or loss if you held the notes for more than one year.
 
 
§
No assurance can be given that the IRS or any court will agree with this characterization and tax treatment.
 
You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the notes, as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.  See the discussion under the section entitled “U.S. Federal Income Tax Summary” beginning on page S-30 of product supplement ARN-1.
 
Where You Can Find More Information
 
We have filed a registration statement (including a product supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this term sheet relates.  Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering.  You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov.  Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by calling MLPF&S toll-free at 1-866-500-5408.
 
Market-Linked Investments Classification
 
 
MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories, each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to represent any particular Enhanced Return Market-Linked Investment or guarantee any performance.
 
Enhanced Return Market-Linked Investments are short- to medium-term investments that offer you a way to enhance exposure to a particular market view without taking on a similarly enhanced level of market downside risk. They can be especially effective in a flat to moderately positive market (or, in the case of bearish investments, a flat to moderately negative market). In exchange for the potential to receive better-than market returns on the linked asset, you must generally accept market downside risk and capped upside potential.  As these investments are not market downside protected, and do not assure full repayment of principal at maturity, you need to be prepared for the possibility that you may lose all or part of your investment.
 
“Accelerated Return Notes®” and “ARNs®” are registered service marks of Bank of America Corporation, the parent corporation of MLPF&S.

Accelerated Return Notes®
TS-11