FWP 1 v413335_fwp.htm FREE WRITING PROSPECTUS

 

 

Subject to Completion

Preliminary Term Sheet
dated June 16, 2015

Filed Pursuant to Rule 433

Registration Statement No. 333-202524

(To Prospectus dated March 5, 2015, Prospectus

Supplement dated March 5, 2015 and Product

Supplement STOCK STR-1 dated May 29, 2015)

 

    Units

$10 principal amount per unit

CUSIP No. 

 Pricing Date*
Settlement Date*
Maturity Date*		 June  , 2015
June  , 2015
July  , 2016
*Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)

 

Strategic Accelerated Redemption Securities® Linked to a Basket of Three Financial Sector Stocks

 

§Automatically callable if the Observation Level of the Basket on any Observation Date, occurring approximately six, nine and twelve months after the pricing date, is at or above the Starting Value

 

§In the event of an automatic call, the amount payable per unit will be:

 

§[$10.550 to $10.750] if called on the first Observation Date

 

§[$10.825 to $11.125] if called on the second Observation Date

 

§[$11.100 to $11.500] if called on the final Observation Date

 

§If not called on the first or second Observation Dates, a maturity of approximately one year and one week

 

§The Basket will be approximately equally weighted and comprised of Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley.

 

§If not called, 1-to-1 downside exposure to decreases in the Basket, with up to 100% of the principal amount at risk

 

§All payments are subject to the credit risk of HSBC USA Inc.

 

§No 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 and costs. See “Risk Factors” and “Additional Risk Factors” beginning on page TS-6 of this term sheet and “Risk Factors” beginning on page PS-6 of product supplement STOCK STR-1.

 

The estimated initial value of the notes on the pricing date is expected to be between $9.500 and $9.875 per unit, which will be less than the public offering price listed below. The market value of the notes at any time will reflect many factors and cannot be predicted with accuracy. See “Summary” on page TS-2 and “Risk Factors” beginning on page TS-6 of this term sheet for additional information.

_________________________________

 

Neither the Securities and Exchange Commission (the “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) $ 10.000 $    
     
Underwriting discount(1)(2) $   0.125 $    
     
Proceeds, before expenses, to HSBC $   9.875 $    

 

(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 $9.975 per unit and $0.100 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 $9.875 per unit and $0.000 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.

June     , 2015

 

 
 

 

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

Summary

 

The Strategic Accelerated Redemption Securities® Linked to a Basket of Three Financial Sector Stocks, due July , 2016 (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. The notes 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 will be automatically called at the applicable Call Amount if the Observation Level of the Market Measure, which is the basket of three financial sector stocks described below (the “Basket”), on any Observation Date is equal to or greater than the Starting Value. If your notes are not called, you will lose all or a portion of the principal amount of your notes. Payments on the notes, including the amount you receive at maturity or upon an automatic call, will be calculated based on the $10 principal amount per unit and will depend on the performance of the Basket, subject to our credit risk. See “Terms of the Notes” below.

 

The Basket is comprised of Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley. On the pricing date, Citigroup will be given an initial weight of 33.34% and JPMorgan Chase & Co. and Morgan Stanley will each be given an initial weight of 33.33%.

 

The estimated initial value of the notes will be less than the price you pay to purchase the notes. The estimated initial value is determined by reference to our or our affiliates’ internal pricing models and reflects our internal funding rate, which is the borrowing rate we pay to issue market-linked notes, and the market prices for hedging arrangements related to the notes (which may include call options, put options or other derivatives). This internal funding rate is typically lower than the rate we would use when we issue conventional fixed or floating rate debt securities. The difference in the borrowing rate, as well as the underwriting discount and the costs associated with hedging the notes, including the hedging related charge described below, will reduce the economic terms of the notes (including the Call Amounts and Call Premiums). The notes are subject to an automatic call, and the initial estimated value is based on an assumed tenor of the notes. The estimated initial value will be calculated on the pricing date and will be set forth in the pricing supplement to which this term sheet relates.

 

Terms of the Notes Payment Determination
Issuer: HSBC USA Inc. (“HSBC”)

Automatic Call Provision:

 

 

Redemption Amount Determination:

 

If the notes are not called, you will receive the Redemption Amount per unit on the maturity date, determined as follows:

 

 

Because the Threshold Value for the notes is equal to the Starting Value, you will lose all or a portion of your investment if the Ending Value is less than the Starting Value.

 

Principal Amount: $10.00 per unit
Term: Approximately one year and one week, if not called on the first or second Observation Dates
Market Measure: An approximately equally weighted basket of three financial sector stocks comprised of Citigroup Inc. (NYSE Symbol: “C”), JPMorgan Chase & Co. (NYSE Symbol: “JPM”) and Morgan Stanley (NYSE Symbol: “MS”) (each, a “Basket Stock”).
Starting Value: The Starting Value will be set to 100.00 on the pricing date.
Ending Value: The Observation Level of the Market Measure on the final Observation Date.
Observation Level: The value of the Market Measure on the applicable Observation Date, calculated as described on page TS-8.
Observation Dates:

December , 2015, March , 2016, and June , 2016 (the final Observation Date), approximately six, nine and twelve months after the pricing date.

The Observation Dates are subject to postponement in the event of Market Disruption Events, as described on page PS-18 of product supplement STOCK STR-1.

Call Level: 100% of the Starting Value
Call Amounts (per Unit) and Call Premiums:

[$10.550 to $10.750], representing a Call Premium of [5.50% to 7.50%] of the principal amount, if called on the first Observation Date;

[$10.825 to $11.125], representing a Call Premium of [8.25% to 11.25%] of the principal amount, if called on the second Observation Date; and

[$11.100 to $11.500], representing a Call Premium of [11.00% to 15.00%] of the principal amount, if called on the final Observation Date.

The actual Call Amounts and Call Premiums will be determined on the pricing date.

Call Settlement Dates: Approximately the fifth business day following the applicable Observation Date, subject to postponement as described on page PS-18 of product supplement STOCK STR-1; provided however, that the Call Settlement Date related to the final Observation Date will be the maturity date.
Threshold Value: 100% of the Starting Value
Price Multiplier: With respect to each Basket Stock, 1, subject to adjustment for certain corporate events relating to the Basket Stocks described beginning on page PS-21 of product supplement STOCK STR-1.
Fees Charged: The public offering price of the notes includes the underwriting discount of $0.125 per unit as listed on the cover page and an additional charge of $0.05 per unit more fully described on page TS-14.
Calculation Agent: Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and HSBC, acting jointly.

 

Strategic Accelerated Redemption Securities®

TS-2

 

 

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

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 1-800-294-1322:

 

§Product supplement STOCK STR-1 dated May 29, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000114420415034376/v411981_424b2.htm

 

§Prospectus supplement dated March 5, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000114420415014311/v403645_424b2.htm

 

§Prospectus dated March 5, 2015:
http://www.sec.gov/Archives/edgar/data/83246/000119312515078931/d884345d424b3.htm

 

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 STOCK STR-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.

 

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 Observation Level of the Basket on any of the Observation Dates will be equal to or greater than the Starting Value and, in that case, you accept an early exit from your investment.

 

§     You accept that the return on the notes will be limited to the return represented by the applicable Call Premium even if the percentage change in the value of the Basket is significantly greater than the applicable Call Premium.

 

§     If the notes are not called, you accept that your investment will result in a loss, which could be significant, if the Ending Value is below the Threshold Value.

 

§     You are willing to forgo the interest payments that are paid on traditional interest bearing debt securities.

 

§     You are willing to forgo dividends or other benefits of owning shares of the Basket Stocks.

 

§     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 the principal amount and will be affected by various factors, including our actual and perceived creditworthiness, our internal funding rate and the fees charged, as described on page TS-2.

 

§     You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Call Amounts and the Redemption Amount.

§     You wish to make an investment that cannot be automatically called prior to maturity.

 

§     You believe that the value of the Basket will decrease from the Starting Value to the Ending Value.

 

§     You anticipate that the Observation Level will be less than the Call Level on each Observation Date.

 

§     You seek an uncapped return on your investment.

 

§     You seek principal repayment or preservation of capital.

 

§     You seek interest payments or other current income on your investment.

 

§     You want to receive dividends or other distributions paid on the Basket Stocks.

 

§     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.

 

Strategic Accelerated Redemption Securities®

TS-3

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

Examples of Hypothetical Payments

 

The following examples are for purposes of illustration only. They are based on hypothetical values and show hypothetical returns on the notes. They illustrate the calculation of the Call Amount or Redemption Amount, as applicable, based on the hypothetical terms set forth below. The actual amount you receive and the resulting return will depend on the actual Observation Levels, Call Premiums, and the term of your investment. The following examples do not take into account any tax consequences from investing in the notes. These examples are based on:

 

1)the Starting Value of 100.00;

 

2)the Threshold Value of 100.00;

 

3)the Call Level of 100.00;

 

4)an expected term of the notes of approximately one year and one week if the notes are not called on the first or second Observation Dates;

 

5)a Call Premium of 6.50% of the principal amount if the notes are called on the first Observation Date, 9.75% if called on the second Observation Date and 13.00% if called on the final Observation Date (the midpoints of the applicable Call Premium ranges); and

 

6)Observation Dates occurring approximately six, nine and twelve months after the pricing date.

 

For recent hypothetical levels of the Basket, see “The Basket” section below. The Ending Value will not include any income generated by dividends paid on the Basket Stocks, 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 issuer credit risk.

 

Notes Are Called on an Observation Date

 

The notes will be called at $10.000 plus the applicable Call Premium on one of the Observation Dates if the Observation Level is equal to or greater than the Call Level.

 

Example 1 – The Observation Level on the first Observation Date is 110.00. Therefore, the notes will be called at $10.000 plus the Call Premium of $0.650 = $10.650 per unit. After the notes are called, they will no longer remain outstanding and there will not be any further payments on the notes.

 

Example 2 – The Observation Level on the first Observation Date is below the Call Level, but the Observation Level on the second Observation Date is 105.00. Therefore, the notes will be called at $10.000 plus the Call Premium of $0.975 = $10.975 per unit. After the notes are called, they will no longer remain outstanding and there will not be any further payments on the notes.

 

Example 3 – The Observation Levels on the first and second Observation Dates are below the Call Level, but the Observation Level on the third and final Observation Date is 105.00. Therefore, the notes will be called at $10.000 plus the Call Premium of $1.300 = $11.300 per unit.

 

Notes Are Not Called on Any Observation Date

 

Example 4 – The notes are not called on any Observation Date and the Ending Value is less than the Threshold Value. The Redemption Amount will be less, and possibly significantly less, than the principal amount. For example, if the Ending Value is 80.00, the Redemption Amount per unit will be:

 

 

Strategic Accelerated Redemption Securities®

TS-4

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

Summary of the Hypothetical Examples
  Notes Are Called on an Observation Date Notes Are Not Called on Any
Observation Date		  
  Example 1 Example 2 Example 3 Example 4  
           
Starting Value 100.00 100.00 100.00 100.00  
           
Call Level 100.00 100.00 100.00 100.00  
           
Threshold Value 100.00 100.00 100.00 100.00  
           
Observation Level on the First Observation Date 110.00 90.00 90.00 88.00  
Observation Level on the Second Observation Date N/A 105.00 83.00 78.00  
Observation Level on the Final Observation Date N/A N/A 105.00 80.00  
Return of the Basket(1) 10.00% 5.00% 5.00% -20.00%  
           
Return of the Notes 6.50% 9.75% 13.00% -20.00%  
           

Call Amount /

Redemption Amount per Unit

 $10.650 $10.975 $11.300 $8.000  

  

(1)The return of the Basket assumes:

 

(a)the percentage change in the price of the Basket from the Starting Value to the Observation Level or Ending Value, as applicable; and

 

(b)no transaction fees or expenses.

 

Strategic Accelerated Redemption Securities®

TS-5

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

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 Basket Stocks. 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 and other circumstances and the information set forth in this term sheet 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 section “— Risks Relating to All Note Issuances.”

 

§If the notes are not called, your investment will result in a loss; there is no guaranteed return of principal.

 

§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.

 

§Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or are unable to pay our obligations, you may lose your entire investment.

 

§Your investment return is limited to the return represented by the applicable Call Premium and may be less than a comparable investment directly in the Basket Stocks.

 

§The estimated initial value of the notes will be less than the public offering price and may differ from the market value of the notes in the secondary market, if any. We will determine the estimated initial value by reference to our or our affiliates’ internal pricing models. These pricing models consider certain assumptions and variables, which can include volatility and interest rates. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect. Different pricing models and assumptions could provide valuations for the notes that are different from our estimated initial value. The estimated initial value will reflect our internal funding rate we use to issue market-linked notes, as well as the mid-market value of the hedging arrangements related to the notes (which may include call options, put options or other derivatives).

 

§Our internal funding rate for the issuance of these notes is lower than the rate we would use when we issue conventional fixed or floating rate debt securities. This is one of the factors that may result in the market value of the notes being less than their estimated initial value. As a result of the difference between our internal funding rate and the rate we would use when we issue conventional fixed or floating rate debt securities, the estimated initial value of the notes may be lower if it were based on the levels at which our fixed or floating rate debt securities trade in the secondary market. In addition, if we were to use the rate we use for our conventional fixed or floating rate debt issuances, we would expect the economic terms of the notes to be more favorable to you.

 

§The price of your notes in the secondary market, if any, immediately after the pricing date will be less than the public offering price. The public offering price takes into account certain costs, principally the underwriting discount, the hedging costs described on page TS-14 and the costs associated with issuing the notes. The costs associated with issuing the notes will be used or retained by us or one of our affiliates. If you were to sell your notes in the secondary market, if any, the price you would receive for your notes may be less than the price you paid for them.

 

§The estimated initial value does not represent a minimum price at which we, MLPF&S or any of our respective affiliates would be willing to purchase your notes in the secondary market (if any exists) at any time. The price of your notes in the secondary market, if any, at any time after issuance will vary based on many factors, including the value of the Market Measure and changes in market conditions, and cannot be predicted with accuracy. The notes are not designed to be short-term trading instruments, and you should, therefore, be able and willing to hold the notes to maturity. Any sale of the notes prior to maturity could result in a loss to you.

 

§A trading market is not expected to develop for the notes. Neither we nor MLPF&S 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.

 

§Our business, hedging and trading activities, and those of MLPF&S and our respective affiliates (including trades in shares of the Basket Stocks), and any hedging and trading activities we, MLPF&S or our respective affiliates engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.

 

§Changes in the price of one Basket Stock may be offset by changes in the prices of the other Basket Stocks.

 

§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 the Underlying Companies.

 

§While we, MLPF&S or our respective affiliates may from time to time own securities of the Underlying Companies, we, MLPF&S and our respective affiliates do not control any Underlying Company, and are not responsible for any disclosure made by any Underlying Company.

 

§The payments on the notes will not be adjusted for all corporate events that could affect a Basket Stock. See “Description of the Notes—Anti-Dilution Adjustments” beginning on page PS-21 of product supplement STOCK STR-1.

 

Strategic Accelerated Redemption Securities®

TS-6

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

§There may be potential conflicts of interest involving the calculation agent. We have the right to appoint and remove the calculation agent.

 

§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-35 of product supplement STOCK STR-1.

 

Additional Risk Factors

 

The Basket Stocks are concentrated in one sector. All of the Basket Stocks are issued by companies in the financial services sector. Although an investment in the notes will not give holders any ownership or other direct interests in the Basket Stocks, the return on an investment in the notes will be subject to certain risks associated with a direct equity investment in companies in the financial services sector, including those discussed below. Accordingly, by investing in the notes, you will not benefit from the diversification which could result from an investment linked to companies that operate in multiple sectors. In addition, because the Basket Stocks are concentrated in one sector, their prices may increase or decrease at similar times and by similar magnitudes, and they may perform similarly over the term of the notes. You will be subject to risks relating to the relationship among the Basket Stocks.

 

Adverse conditions in the financial services sector may reduce your return on the notes. All of the Basket Stocks are issued by companies whose primary lines of business are directly associated with the financial services sector. The profitability of these companies is largely dependent on the availability and cost of capital funds, and can fluctuate significantly, particularly when market interest rates change. Credit losses resulting from financial difficulties of these companies’ customers can negatively impact the sector. In addition, adverse international economic, business, or political developments, including with respect to the insurance sector, or to real estate and loans secured by real estate, could have a major effect on the prices of the Basket Stocks. As a result of these factors, the value of the notes may be subject to greater volatility and be more adversely affected by economic, political, or regulatory events relating to the financial services sector.

 

Economic conditions have adversely impacted the stock prices of many companies in the financial services sector, and may do so during the term of the notes. In recent years, international economic conditions have resulted, and may continue to result, in significant losses among many companies that operate in the financial services sector. These conditions have also resulted, and may continue to result, in a high degree of volatility in the stock prices of financial institutions, and substantial fluctuations in the profitability of these companies. Numerous financial services companies have experienced substantial decreases in the value of their assets, taken action to raise capital (including the issuance of debt or equity securities), or even ceased operations. Further, companies in the financial services sector have been subject to unprecedented government actions and regulation, which may limit the scope of their operations and, in turn, result in a decrease in value of these companies. Any of these factors may have an adverse impact on the performance of the Basket Stocks. As a result, the prices of the Basket Stocks may be adversely affected by economic, political, or regulatory events affecting the financial services sector or one of the sub-sectors of the financial services sector. This in turn could adversely impact the market value of the notes and the payment on the notes.

 

Strategic Accelerated Redemption Securities®

TS-7

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

  

The Basket

 

The Basket is designed to allow investors to participate in the percentage changes of the Basket from the Starting Value to the Ending Value. The Basket Stocks are described in the section “The Basket Stocks” below. Each Basket Stock will be assigned an initial weight on the pricing date, as set forth in the table below.

 

For more information on the calculation of the value of the Basket, please see the section entitled “Description of the Notes—Basket Market Measures” beginning on page PS-26 of product supplement STOCK STR-1.

 

If June 10, 2015 were the pricing date, for each Basket Stock, the Initial Component Weight, the Closing Market Price, the hypothetical Component Ratio and the initial contribution to the Basket value would be as follows:

 

Basket Stock   Bloomberg
Symbol		   Initial
Component
Weight		   Closing
Market
Price(1)(2)		   Hypothetical
Component
Ratio(1)(3)		   Initial Basket
Value
Contribution
Citigroup Inc.   C   33.34%   57.02   0.58470712   33.34
JPMorgan Chase & Co.   JPM   33.33%   68.26   0.48828011   33.33
Morgan Stanley   MS   33.33%   39.89   0.83554776   33.33
                Starting Value   100.00

 

(1)The actual Closing Market Price of each Basket Stock and the resulting actual Component Ratios will be determined on the pricing date, subject to adjustment as more fully described in the section entitled “Description of the Notes—Basket Market Measures—Determination of the Component Ratio for Each Basket Stock” on page PS-27 of product supplement STOCK STR-1. The actual Closing Market Price and Component Ratio of each Basket Stock will be set forth in the final term sheet that will be made available in connection with sales of the notes.
(2)These were the Closing Market Prices of the Basket Stocks on June 10, 2015.
(3)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 June 10, 2015 and rounded to eight decimal places.

 

The calculation agent will calculate the value of the Basket on each Observation Date by summing the products of (a) the Closing Market Price, multiplied by its respective Price Multiplier, for each Basket Stock on that day and (b) the Component Ratio applicable to that Basket Stock. If a Market Disruption Event occurs as to any Basket Stock on any scheduled Observation Date, the Closing Market Price of that Basket Stock will be determined as more fully described in the section entitled “Description of the Notes—Basket Market Measures—Observation Level of the Basket” on page PS-28 of product supplement STOCK STR-1.

 

Strategic Accelerated Redemption Securities®

TS-8

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

While actual historical information on the Basket will not exist before the pricing date, the following graph sets forth the hypothetical historical monthly performance of the Basket from January 2008 through May 2015. The graph is based upon actual month-end historical prices of the Basket Stocks, hypothetical Component Ratios based on the closing prices of the Basket Stocks as of December 31, 2007, and a Basket value of 100.00 as of that date. This hypothetical historical data on the Basket is not necessarily indicative of the future performance of the Basket or what the value of the notes may be. Any hypothetical historical upward or downward trend in the value of the Basket during any period set forth below is not an indication that the value of the Basket is more or less likely to increase or decrease at any time over the term of the notes.

 

Hypothetical Historical Performance of the Basket

 

 

Strategic Accelerated Redemption Securities®

TS-9

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

The Basket Stocks

 

We have derived the following information about the Underlying Companies from publicly available documents. We have not independently verified the following information.

 

Because each Basket Stock is registered under the Securities Exchange Act of 1934, the Underlying Companies are required to file periodically certain financial and other information specified by the SEC. Information provided to or filed with the SEC by the Underlying Companies can be located at the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or through the SEC’s web site at http://www.sec.gov by reference to the applicable CIK number set forth below.

 

This term sheet relates only to the notes and does not relate to any securities of the Underlying Companies. Neither we nor any of our affiliates have participated or will participate in the preparation of the Underlying Companies’ publicly available documents. Neither we nor any of our affiliates have made any due diligence inquiry with respect to the Underlying Companies in connection with the offering of the notes. Neither we nor any of our affiliates make any representation that the publicly available documents or any other publicly available information regarding the Underlying Companies are accurate or complete. Furthermore, there can be no assurance that all events occurring prior to the date of this term sheet, including events that would affect the accuracy or completeness of these publicly available documents that would affect the trading price of the Basket Stocks, have been or will be publicly disclosed. Subsequent disclosure of any events or the disclosure of or failure to disclose material future events concerning the Underlying Companies could affect the value of the Basket Stocks and therefore could affect your return on the notes. The selection of the Basket Stocks is not a recommendation to buy or sell shares of the Basket Stocks.

 

The tables set forth below show the quarterly high and low Closing Market Prices of the shares of the Basket Stocks on their primary exchange from the first quarter of 2008 through June 10, 2015. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. These historical trading prices may have been adjusted to reflect certain corporate actions such as stock splits and reverse stock splits.

 

Strategic Accelerated Redemption Securities®

TS-10

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

Citigroup Inc.

 

Citigroup Inc. is a financial services holding company that provides a range of financial services to consumer and corporate customers around the world. The company's services include investment banking, retail brokerage, corporate banking, and cash management products and services. This Basket Stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “C.” The company’s CIK number is 831001.

 

    High ($) Low ($)
2008 First Quarter 296.90 186.20
  Second Quarter 268.10 167.60
  Third Quarter 211.20 140.30
  Fourth Quarter 230.00 37.70
       
2009 First Quarter 74.60 10.20
  Second Quarter 40.20 26.80
  Third Quarter 52.30 25.90
  Fourth Quarter 50.00 32.00
       
2010 First Quarter 43.10 31.50
  Second Quarter 49.70 36.30
  Third Quarter 43.00 36.60
  Fourth Quarter 48.10 39.50
       
2011 First Quarter 51.30 43.90
  Second Quarter 46.00 36.81
  Third Quarter 42.88 23.96
  Fourth Quarter 34.17 23.11
       
2012 First Quarter 38.08 28.17
  Second Quarter 36.87 24.82
  Third Quarter 34.79 25.24
  Fourth Quarter 40.17 32.75
       
2013 First Quarter 47.60 41.15
  Second Quarter 53.27 42.50
  Third Quarter 53.00 47.67
  Fourth Quarter 53.29 47.67
       
2014 First Quarter 55.20 46.34
  Second Quarter 49.58 45.68
  Third Quarter 53.66 46.90
  Fourth Quarter 56.37 49.68
       
2015 First Quarter 54.26 46.95
  Second Quarter (through June 10, 2015) 57.02 51.52

 

Strategic Accelerated Redemption Securities®

TS-11

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

JPMorgan Chase & Co.

 

JPMorgan Chase & Co. provides financial services and retail banking. The company provides services such as investment banking, treasury and securities services, asset management, private banking, card member services, commercial banking, and home finance. The company serves business enterprises, institutions, and individuals. This Basket Stock trades on the NYSE under the symbol “JPM.” The company’s CIK number is 19617.

 

    High ($) Low ($)
2008 First Quarter 48.25 36.48
  Second Quarter 49.25 34.31
  Third Quarter 48.24 31.02
  Fourth Quarter 49.85 22.72
       
2009 First Quarter 31.35 15.90
  Second Quarter 38.94 27.25
  Third Quarter 46.47 32.27
  Fourth Quarter 47.16 40.27
       
2010 First Quarter 45.02 37.70
  Second Quarter 47.81 36.61
  Third Quarter 41.64 35.63
  Fourth Quarter 42.67 36.96
       
2011 First Quarter 48.00 43.40
  Second Quarter 47.64 39.49
  Third Quarter 42.29 29.27
  Fourth Quarter 37.02 28.38
       
2012 First Quarter 46.27 34.91
  Second Quarter 46.13 31.00
  Third Quarter 41.57 33.90
  Fourth Quarter 44.53 39.29
       
2013 First Quarter 51.00 44.57
  Second Quarter 55.62 46.64
  Third Quarter 56.67 50.32
  Fourth Quarter 58.48 50.75
       
2014 First Quarter 61.07 54.31
  Second Quarter 60.67 53.31
  Third Quarter 61.63 55.56
  Fourth Quarter 63.15 55.08
       
2015 First Quarter 62.49 54.38
  Second Quarter (through June 10, 2015) 68.26 59.95

 

Strategic Accelerated Redemption Securities®

TS-12

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

Morgan Stanley

 

Morgan Stanley, a bank holding company, provides financial services on a worldwide basis. The company operates a securities business which serves individual and institutional investors and investment banking clients. Morgan Stanley also operates an asset management business. This Basket Stock trades on the NYSE under the symbol “MS.” The company’s CIK number is 895421.

 

    High ($) Low ($)
2008 First Quarter 51.81 36.38
  Second Quarter 50.65 36.07
  Third Quarter 45.39 20.99
  Fourth Quarter 24.42 9.20
       
2009 First Quarter 25.91 13.10
  Second Quarter 31.39 21.08
  Third Quarter 32.98 25.50
  Fourth Quarter 35.74 29.12
       
2010 First Quarter 32.92 26.60
  Second Quarter 31.94 23.21
  Third Quarter 27.87 22.83
  Fourth Quarter 27.66 24.19
       
2011 First Quarter 30.99 27.11
  Second Quarter 27.76 21.93
  Third Quarter 24.20 13.06
  Fourth Quarter 19.41 12.47
       
2012 First Quarter 21.17 15.90
  Second Quarter 19.81 12.36
  Third Quarter 18.24 12.62
  Fourth Quarter 19.27 16.09
       
2013 First Quarter 24.32 19.58
  Second Quarter 27.15 20.31
  Third Quarter 29.02 24.04
  Fourth Quarter 31.62 26.55
       
2014 First Quarter 33.40 28.95
  Second Quarter 32.66 28.47
  Third Quarter 36.13 31.36
  Fourth Quarter 39.00 32.53
       
2015 First Quarter 38.71 33.77
  Second Quarter (through June 10, 2015) 39.89 35.91

 

Strategic Accelerated Redemption Securities®

TS-13

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

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. 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 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.

 

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, and these will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. At MLPF&S’s discretion, for a short, undetermined initial period after the issuance of the notes, MLPF&S may offer to buy the notes in the secondary market at a price that may exceed the estimated initial value of the notes. Any price offered by MLPF&S for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Basket, the remaining term of the notes, and the issuer’s creditworthiness. However, neither we nor any of our affiliates is obligated to purchase your notes at any price, or at any time, and we cannot assure you that we, MLPF&S or any of our respective affiliates will purchase your notes at a price that equals or exceeds the estimated initial value of the notes.

 

The value of the notes shown on your account statement provided by MLPF&S will be based on their estimate of the value of the notes if MLPF&S or one of its affiliates were to make a market in the notes, which it is not obligated to do. This estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions, and other considerations, as mentioned above, and will include transaction costs. At certain times, this price may be higher than or lower than the estimated initial value of the notes.

 

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.

 

Payments on the notes, including the amount you receive at maturity or upon an automatic call, will be calculated based on the $10 per unit principal amount and will depend on the performance of the Basket. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by MLPF&S seeking bids from market participants, which could include one of our affiliates and MLPF&S and its affiliates. These hedging arrangements take into account a number of factors, including the issuer’s creditworthiness, interest rate movements, the volatility of the Basket Stocks, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes depend in part on the terms of the hedging arrangements.

 

MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.05 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.

 

For further information, see “Risk Factors—General Risks Relating to the Notes” beginning on page PS-6 and “Use of Proceeds” on page PS-16 of product supplement STOCK STR-1.

 

Strategic Accelerated Redemption Securities®

TS-14

 

  

Strategic Accelerated Redemption Securities®

Linked to a Basket of Three Financial Sector Stocks, due July  , 2016
   

 

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 pre-paid executory contracts with respect to the Basket that requires you to pay us at inception an amount equal to the purchase price of the notes and that entitles you to receive at maturity or upon earlier redemption an amount in cash linked to the level of the Basket.

 

§Under this characterization and tax treatment of the notes, a U.S. holder (as defined in the prospectus supplement) generally will recognize capital gain or loss upon receipt of a cash payment at maturity or upon a sale, exchange, redemption, retirement or other disposition of the notes. This capital gain or loss generally will be long-term capital gain or loss if you held the notes for more than one year, and otherwise will be short-term capital gain or loss. Accordingly, if the notes are called on the first or second Observation Date, your capital gain or loss generally will be short-term capital gain or loss. The deductibility of capital losses is subject to limitations.

 

§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. You should review carefully the discussion under the section entitled “U.S. Federal Income Tax Summary” beginning on page PS-35 of product supplement STOCK STR-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 1-800-294-1322.

 

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.

 

“Strategic Accelerated Redemption Securities®” is a registered service mark of Bank of America Corporation, the parent company of MLPF&S.

 

Strategic Accelerated Redemption Securities®

TS-15