...with an added layer of protection

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2 ...with an added layer of protection Important notices, legal information and disclaimer This combined Product Disclosure Statement (PDS) and Financial Services Guide (FSG) relates to the offer of the HSBC 100+ Series BRIC Investment (HSBC BRIC Investment) by HSBC Bank Australia Limited (ABN ) (Australian Financial Services Licence Number ) (HSBC), who is the issuer of the PDS. It is not a prospectus for the purposes of chapter 6D of the Corporations Act. This document contains the PDS for the HSBC BRIC Investment (in Part A) and the Financial Services Guide of HSBC (in Part B). The date of this PDS is 12 May It is intended that the offer of the HSBC BRIC Investment through this PDS will remain open until 20 June 2008, 5pm Sydney time but HSBC reserves the right to close the offer at an earlier time or extend the offer for a longer period. An investment in the HSBC BRIC Investment is not a deposit with HSBC, or any of its related bodies corporate. The investment is a liability of HSBC but not any related body corporate of HSBC and is subject to investment risk, including possible delays in repayment and loss of income or principal invested. Neither HSBC nor any of its related bodies corporate guarantees the performance of the HSBC BRIC Investment, or any particular rate of return. None of HSBC s related bodies corporate will repay the principal invested. If the HSBC BRIC Investment is held until the maturity date you may receive from HSBC an amount approximately equal to at least the principal invested. Please make sure you read this PDS in full before deciding whether to invest. Updates to information: Information relating to the HSBC BRIC Investment that is not materially adverse to investors may change from time to time. This information may be updated and made available at or by contacting HSBC on A paper copy of any updated information is available free of charge on request. The information in this PDS is general information only and does not take into account an investor s individual objectives, financial situation or needs. Consequently, potential investors should consider whether the information in this PDS is appropriate in light of their objectives, financial situation and needs, and seek professional advice from a financial adviser, accountant, lawyer or other professional adviser before deciding whether to invest. HSBC BRIC Investments are securities within the meaning of section 761A of the Corporations Act. The offer to which this PDS relates is available only to persons receiving the PDS (electronically or otherwise) in Australia. The distribution of this PDS (including it being made accessible on any computer network) in jurisdictions outside Australia may be subject to legal restrictions. Any person who resides outside Australia and who receives or gains access to this PDS should comply with any such restrictions as failure to do so may constitute a violation of securities laws. The HSBC BRIC Investment is not available to US investors. Terms and expressions used in this PDS are defined in the Section 14 Glossary on page 59. Nothing in this PDS is, or may be relied upon as, a representation as to the future performance of the HSBC BRIC Investment or the delivery assets. 2

3 Contents Part A Product Disclosure Statement Page No. 1 Background on the BRIC economies 4 2 The investment at a glance 6 3 About the investment 9 4 The HSBC BRIC Markets Fund 12 5 About HSbc 16 6 What does the HSBC BRIC Investment return? 17 7 What do you receive at maturity? 26 8 Risks to consider 28 9 Fees How to invest in the HSBC BRIC Investment Tax Other information Conditions Glossary How to complete the application form 64 Part B Financial Services Guide 16 Financial Services Guide 68 X X HSBC BRIC Investment Application Form 71 Key Dates X X Offer opens 12 May 2008 X X Offer closes 20 June 2008, 5pm Sydney time Issue date 2 July 2008 Maturity date 20 June 2014 (as adjusted in accordance with the conditions) Settlement date X X 15 business days (or such other reasonably determined time) from the maturity date 3

4 1 Background on the BRIC economies The HSBC 100+ Series BRIC Investment (HSBC BRIC Investment) gives you the opportunity to participate in an investment whose returns are linked to the performance of some of the world s fastest growing economies, while providing the peace of mind of 100% capital protection at maturity and regular lock-ins of part of your investment return. To learn more about these economies read on. What is BRIC? BRIC is an acronym for the four largest emerging market countries in the world Brazil, Russia, India and China. Benefits of investing in the BRIC economies BRIC economies are some of the fastest growing in the world. Within 40 years BRIC economies together could grow to be larger than the G6 countries in US dollar terms. Though the risks are higher, BRIC economies and stock markets have the potential to produce considerable returns relative to mature markets. BRIC countries have a larger pool of young people about to enter the workforce and fewer aged people to support relative to the G6 countries. They also have improving levels of literacy, tertiary education and health. BRIC statistics on resources vs market value BRIC economies have 25% of the world s land mass 1 Brazil 6% India 2% Russia 11% China 6% Rest of the World 75% 42% of the world s population billion China 20% Rest of the World 58% India 17% Brazil 3% Russia 2%...but only 14% of the world s stock market capitalisation 3 China 7% Russia 2% India 3% Brazil 2% Rest of the World 86% Investors are often too exposed to the mature markets of developed economies with, at best, limited upside potential. Exposure to the BRIC economies could add greater portfolio diversification. In summary, the BRIC economies offer an exciting opportunity for potential growth. 1 Source: CIA World Factbook, as of 18 Oct Source: Bloomberg, as of Dec Source: Bloomberg, as of 31 Dec

5 How do recent BRIC stock market returns compare? Recently BRIC stock markets have produced impressive returns as the graph below shows. BRIC markets have in the past consistently shown superior returns over 3 years, 5 years and 10 years compared with the US, Europe, the emerging markets at large, and the world. The graph shows the returns of equity indices over the 10 years to 29 February There is no BRIC market index spanning the 10 year period. The BRIC index in the chart is an equally weighted composite of the MSCI Brazil, Russia, India and China indices* rebalanced monthly. 60% 50% 40% 30% 20% 10% 0% -10% -20% MSCI World* MSCI Europe* MSCI Emerging Markets* MSCI US* BRIC* Years 5 Years 3 Years Year *The MSCI World, MSCI Emerging Markets and MSCI US indices are denominated in USD, MSCI Europe in EUR and the BRIC proxy index in a combination of USD (MSCI Brazil and MSCI Russia), INR (MSCI India) and HKD (MSCI China). Past performance is not a reliable guide to future performance. Further, the HSBC BRIC Investment return is likely to be different to the return of the BRIC stock markets (see Section 6 What does the HSBC BRIC Investment return? on page 17) What are the risks of investing in the BRIC stock markets? Investing in financial markets is risky in all countries. The value of investments can be affected by many unpredictable factors such as international, political and economic developments and changes in government policies. You are exposed to more risks when investing in the financial markets of emerging BRIC economies rather than those of developed economies due to additional factors such as: Brokerage commissions which are generally higher as well as generally less efficiency in settling transactions. Possibility of trading ceasing in emergency situations. A greater exposure to the natural resources sector. A greater likelihood of retrospective tax changes. A greater chance of foreign exchange controls and trade barriers. Investments in BRIC stock markets should be considered speculative. The HSBC BRIC Investment also has additional risks (see Section 8 on page 28). 5

6 2 The investment at a glance This section highlights some of the key information you will find in this PDS regarding the HSBC BRIC Investment. It is not a complete summary. You should read the whole PDS and seek any advice you need before deciding to invest. What is the investment? See Section 3 on page 9 The HSBC 100+ Series BRIC Investment ( HSBC BRIC Investment ) is a deferred purchase agreement issued by HSBC Bank Australia Limited. At maturity, an investor is delivered units in the SPDR S&P/ASX200 Fund ( Streettracks, ASX code STW) in value approximately equal to that of the HSBC BRIC Investment. Streettracks is an ASX listed exchange traded fund which seeks to provide returns (before fees and other costs) that closely correspond to the performance of the S&P/ASX200 Index. Upon request, the units may be sold on the investor s behalf and the sale proceeds paid out in cash at maturity. When does the investment start and finish? HSBC needs to receive your application by 20 June 2008, 5pm Sydney time, with the investment starting on 2 July The HSBC BRIC Investment is a six year investment and matures on 20 June Who is issuing the investment? What is the issue price? How much can I invest? What are HSBC BRIC Investment s objectives? What is the HSBC BRIC Markets Fund? See Section 4 on page 12 The issuer is HSBC Bank Australia Limited (Rated AA by Standard and Poor s). $1.00 per HSBC BRIC Investment. The minimum investment is $10,000, in increments of $5,000 thereafter. To provide Australian investors with exposure to the considerable return potential of BRIC stock markets, while offering 100% capital protection at maturity. Returns are linked to the performance of the HSBC BRIC Markets Fund through a notional dynamic portfolio or an average option payoff. A rising capital protection mechanism regularly locks in a part of your investment return on regular profit intervals. The HSBC BRIC Markets Fund is actively managed by teams of experienced investment managers based across the globe. The fund s investments are diversified across the four BRIC countries equity markets. 6 The fund has experienced exceptional returns since starting two and a half years ago. However, past performance is not a reliable guide to future performance.

7 Will I receive any payments over the investment period? What are the key features of the HSBC BRIC Investment? See Section 3 on page 9 No interim coupon or distribution will be paid out prior to the maturity date. The returns generated by the HSBC BRIC Investment will be in the form of gains realised at maturity. The HSBC BRIC Investment s key features are: Enabling the value of investment to have the potential to gain from positive movements in the value of the HSBC BRIC Markets Fund. The return is linked to a dynamic portfolio or in certain circumstances is linked to an average option payoff. 100% initial target exposure to the HSBC BRIC Markets Fund through the notional dynamic portfolio (minimum 90% initial exposure). The maximum dynamic portfolio exposure to the HSBC BRIC Markets Fund is 150% with the use of in-built leverage. How does the rising capital protection mechanism work? What happens if I want to withdraw before maturity? See Section 6 on page 24 What is the HSBC advantage? Based on an HSBC BRIC Investment issued at $1.00, every $0.10 stepped rise in the dynamic portfolio value above $1.00 at the end of each month per $1.00 invested will trigger a $0.03 lock-in through increasing the capital protection level at maturity. If HSBC, at its sole discretion, allows you to withdraw your investment before maturity, capital protection will not apply and you may receive less than the application amount. If you withdraw within the first three years of the issue date, there will also be an early withdrawal fee. The investment return is linked to the HSBC BRIC Markets Fund, managed by HSBC Investments (UK) Ltd which is one of the world s largest emerging markets managers. It has: The world s largest offshore actively managed Brazil equity fund. Strong expertise in managing Russian equities 4. The world s largest India equity mutual fund. The world s 2nd largest China equity fund. 4 HSBC manages the Russia Mother Fund in Japan and Russian equities as a part of the Global Emerging Markets portfolio. 7

8 What are the key risks of the HSBC BRIC Investment? See Section 8 on page 28 It is important you read Section 8 Risks to consider on page 28 before investing in the HSBC BRIC Investment. This investment is linked to the performance of emerging market financial instruments. Emerging market investments generally carry a higher risk. Even with capital protection you should be aware that emerging market investments carry higher risks of underperformance through the impact of factors including trade barriers, exchange controls, political stability, etc. Additionally this particular investment is subject to specific risks such as HSBC BRIC Markets Fund movements (particularly given the possible leverage of up to 150%), foreign exchange risk, interest rate risk, tax risk and investment portfolio mechanics risk. When you invest in the HSBC BRIC Investment you are relying on HSBC Bank Australia Limited s general creditworthiness and ability to meet its contractual obligations. There are also other risks, including inflation risk and the risk that HSBC terminates your investment early in which case you may receive less than your application amount. What are the fees in the HSBC BRIC Investment? See Section 9 on page 33 HSBC Bank Australia Limited deducts an upfront fee of 2% (inc GST) and a trail fee of 0.50% p.a. (inc. GST) of the application amount. The dynamic portfolio management fee is 1.50% p.a. The HSBC BRIC Markets Fund shares that the HSBC BRIC Investments are linked to have a management fee of 1.50% p.a. and an administration fee of 0.35% p.a. taken from the fund value. They have no performance fees. If you withdraw early, HSBC will deduct an early withdrawal fee of 3% of the application amount in the first year, 2%in the second year and 1% in the third year. Once you have held the investment for three years there is no early withdrawal fee. Is there a cooling-off period? Can the HSBC BRIC Investment not proceed? See Section 3 on page 10 No, there is no cooling-off period for investing in the HSBC BRIC Investment. The investment will not proceed if market conditions prevent the HSBC BRIC Investment from providing at least 90%initial notional exposure to the HSBC BRIC Markets Fund. 8

9 3 About the investment An exciting opportunity to gain exposure to some of the world s fastest growing economies with one of the world s largest emerging markets fund managers. The HSBC BRIC Investment is a six year investment, offering a return linked to four of the world s fastest growing economies: Brazil, Russia, India and China (BRIC). The opportunities that these markets present for potential returns are considerable. If you invest you gain notional exposure to the BRIC economies while regularly locking in part of your investment return as its value increases. The HSBC BRIC Investment provides exposure to the BRIC economies by linking the investment s return to the HSBC BRIC Markets Fund return. Highlights of the investment: 100% capital protection provided by HSBC if the investment is held until maturity. 100% target initial notional exposure to the HSBC BRIC Markets Fund (minimum 90% initial notional exposure). Rising capital protection with $0.03 locked in for each new high $0.10 lock-in step above $1.00 reached per $1.00 invested at the end of each month. In-built potential for leveraging up to 50% of your investment s current value. Potential to benefit from gains in the HSBC BRIC Markets Fund (or a replacement fund). HSBC BRIC Markets Fund The asset management divisions of the HSBC Group manage over US$386 billion globally as at 31 December 2007 with particular strength in the emerging markets. The divisions manage US$93 billion in investments across the emerging market countries as at 31 December The HSBC BRIC Markets Fund was established in June It is an actively managed equity fund with some flexibility to alter the allocation of the investment across the four BRIC economies depending upon their economic outlook. The HSBC BRIC Investment is linked to the returns of the Australian dollar Y shares in the HSBC BRIC Markets Fund. The HSBC BRIC Markets Fund should be considered a speculative investment. Equity investments are risky and investment in emerging markets have an additional level of risk making the HSBC BRIC Markets Fund a higher risk investment than Australian equities or developed countries equities. It is important to read Section 8 Risks to consider on page 28. The fund has performed favourably against peer BRIC funds. As the fund will start Australian dollar Y shares with the commencement of the HSBC BRIC Investment historical performance data is not yet available for the Australian dollar shares. The HSBC BRIC Markets Fund US dollar shares have experienced exceptional returns of over 40% p.a. (as of 31 March 2008) since June 2005 but this is no guide to future performance of the fund. The Australian dollar Y shares of the HSBC BRIC Markets Fund have management and administration fees of 1.85% p.a. but no performance fees (see Section 9 Fees on page 33). Additional fees apply to the HSBC BRIC Investment. The HSBC BRIC Investment will not have a one-to-one return with the HSBC BRIC Markets Fund. For more information see Section 6 What does the HSBC BRIC Investment return? on page 17. 9

10 10 Initial exposure to the HSBC BRIC Markets Fund The HSBC BRIC Investment s return is initially linked to a dynamic portfolio. The dynamic portfolio comprises of an allocation between a notional investment in the HSBC BRIC Markets Fund, a notional cash asset and notional borrowings. The allocation amongst these may be adjusted from time to time. The initial notional exposure to the HSBC BRIC Markets Fund will be determined on the issue date of 2 July The target is 100% initial notional exposure. Interest rates on the issue date will influence the initial exposure, but if a minimum initial exposure of 90% cannot be achieved on the issue date, the issue of the HSBC BRIC Investment will not proceed and HSBC will return all application amounts without interest to the investors as soon as possible. At the date of this document, market conditions would allow the dynamic portfolio to hold 100% initial notional exposure to the HSBC BRIC Markets Fund. Protecting your investment with a dynamic portfolio The value of the HSBC BRIC Investment is linked to the value of a notional dynamic portfolio unless a switch event occurs (see Section C What is the switch event? on page 22). How the dynamic portfolio works at a high level A traditional approach to designing a capital protected investment involves investing a significant portion of a portfolio in a cash asset. With interest, this cash asset would grow to the capital protection level over the investment period. The remaining portion of the portfolio would be invested in the HSBC BRIC Markets Fund. This portfolio composition would remain static until maturity. The HSBC BRIC Investment steers away from this methodology and instead utilises a dynamic portfolio that allows a much higher notional initial investment (targeted at 100%) in the HSBC BRIC Markets Fund. The dynamic portfolio rules are based on the Constant Proportion Portfolio Insurance (CPPI) technique which allows varying exposure to the HSBC BRIC Markets Fund and the cash asset while giving capital protection at maturity. Despite its name, CPPI does not involve any insurance policy. When the HSBC BRIC Markets Fund performs favourably, more of the dynamic portfolio notional investment is allocated to the HSBC BRIC Markets Fund, increasing your exposure to the rising market. During periods when the HSBC BRIC Markets Fund falls in value, the dynamic portfolio exposure to the HSBC BRIC Markets Fund is reduced and re-allocated to the cash asset to provide for capital protection at maturity. When the dynamic portfolio performs extremely favourably, the dynamic portfolio rules provide for a notional borrowing of up to 50% of the dynamic portfolio s value to enable the dynamic portfolio to increase its allocation to the HSBC BRIC Markets Fund up to 150% of the dynamic portfolio value. If the HSBC BRIC Markets Fund performs favourably, the borrowings could increase the HSBC BRIC Investment returns beyond what they would have been otherwise. However, if the value of the HSBC BRIC Markets Fund falls, then the borrowings could similarly decrease the return on the HSBC BRIC Investment to below what they would have been otherwise. The CPPI technique is explained in Section A The dynamic portfolio on page 17. Capital lock-in that grows with your investment In addition to the comfort of capital protection of your application amount at maturity, the HSBC BRIC Investment locks in part of the increases in the value of your investment and adds it to the capital protected amount you receive at maturity. At the end of every month if the dynamic portfolio value reaches a new high lock-in step, part of your investment return is locked into the capital protection level received at maturity. Every $0.10 stepped rise above $1.00 in the dynamic portfolio value per $1.00 invested will trigger a $0.03 lock-in through increasing the capital protection level at maturity (see Section Capital protection level at maturity on page 18). For example, if over a month the dynamic portfolio value increases (per $1.00 invested) to $1.32 then the total increase in the capital protection level would be $0.09, lifting the initial capital protection level at maturity per $1.00 invested from $1.00 to $1.09.

11 Switch event maintains upside potential In adverse market conditions, the dynamic portfolio will decrease its notional allocation to the HSBC BRIC Markets Fund in favour of the cash asset. Theoretically it is possible for a dynamic portfolio to be fully allocated to the cash asset, and so become cash-locked. There will be no more exposure to the HSBC BRIC Markets Fund and the investor will no longer benefit from any future upside. The HSBC BRIC Investment has an additional feature to mitigate the risk of this cash-locked scenario occurring. Value % Very favourable HSBC BRIC Markets Fund returns HSBC BRIC Markets Fund Protected Level Dynamic portfolio exposure to fund Dynamic portfolio 100 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Month Date Long term unfavourable HSBC BRIC Markets Fund returns In simple terms, if the dynamic portfolio s distance (Section The distance on page 19) falls to 5% or less of the portfolio value and a substitution of fund event has not occurred, the HSBC BRIC Investment return ceases to be linked to the dynamic portfolio and instead becomes linked to an average option payoff (Section How is the return calculated at maturity if the switch event occurs? on page 23.) 100 Value % after switch event HSBC BRIC Markets Fund Protected Level Dynamic portfolio exposure to fund Dynamic portfolio Average option value This avoids the cash-locked situation should markets fall further, and provides a renewed potential for the HSBC BRIC Investment to benefit from future upside if the HSBC BRIC Markets Fund rebounds. The capital protection level and any capital lock-in achieved before the switch date remain intact, and still represent the minimum return you will receive for your HSBC BRIC Investment at maturity. Delivery assets at maturity At maturity, the value of your investment will be delivered to you in the delivery assets (ordinary units in Streettracks). You may choose to have HSBC sell the delivery assets on your behalf and receive the proceeds from the asset sale instead (Section 7 What do you receive at maturity? on page 26). HSBC BRIC Investments: hypothetical scenarios The following graphs show hypothetical scenarios of how the performance of the Australian dollar Y shares in the HSBC BRIC Markets Fund might: affect the values of the dynamic portfolio and the average option payoff; impact the capital protection level of the HSBC BRIC Investment; result in a switch event. Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Value % 100 Jan 08 Rebounding HSBC BRIC Markets Fund returns HSBC BRIC Markets Fund Protected Level Dynamic portfolio exposure to fund Dynamic portfolio Average option value after switch event Jan 09 Jan 10 Jan 11 Jan 12 It is important to understand that: Jan 13 Month Date Jan 14 Month Date The above graphs are used to explain the effect of the fund performance on the return of the HSBC BRIC Investment. They are not intended to be indicative of the future performance of the HSBC BRIC Investment or the HSBC BRIC Markets Fund. The HSBC BRIC Investment will not have a one-to-one return with the HSBC BRIC Markets Fund. To provide for capital protection at maturity, the dynamic portfolio s varying allocation between the HSBC BRIC Markets Fund and the cash asset will usually give the HSBC BRIC Investment a lower return than the fund. 11

12 4 The HSBC BRIC Markets Fund The HSBC BRIC Investment offers exposure to the BRIC markets by having its value linked to the value of the HSBC BRIC Markets Fund (Section 6 What does the HSBC BRIC Investment return? on page 17). The HSBC BRIC Markets Fund was established in 2005 to invest predominantly in equities in the BRIC countries. Its aim is to track the total return performance of indices representing the equity and equity equivalent securities of companies in Brazil, Russia, India and China (including Hong Kong SAR). The HSBC BRIC Markets Fund: Focuses on liquid investments to minimise trading costs; Is highly diversified across BRIC countries and sectors; and Should be considered speculative and higher risk than Australian or developed country equity investments. The HSBC Group had over US$5.3 billion in BRIC funds under management as at December How does the fund invest across the BRIC countries? Apart from offering diversification from traditional markets, the HSBC BRIC Markets Fund also offers strong internal diversification by investing in all four BRIC countries. While the outlook for each country remains strong, conditions in each country can vary widely. To take advantage of this, the HSBC BRIC Markets Fund will allocate more of the fund s value to countries where, in the management team s opinion, there is more potential for gains. The country allocation decision is based on the fund s investment adviser s economic research. To ensure that research opinion does not compromise the need for diversification the maximum percentage of the fund s value that can be invested in assets of any country is capped by country exposure restrictions. As at December 2007, the recommended country allocation of the HSBC BRIC Markets Fund was as follows: Brazil 25.5% Russia 27.5% India 23.0% China 24.0% To further diversify the HSBC BRIC Markets Fund s investment within each BRIC country, limits are also placed on the percentage of the fund s value that can be invested at any time in individual companies a maximum of 20% can be invested in one company and a maximum of 35% can be invested in any two companies. How does the fund invest within the BRIC countries? The HSBC BRIC Markets Fund can invest in companies that: are registered in the BRIC countries; are listed on major stock exchanges or other regulated markets in Brazil, Russia, India or China (including Hong Kong SAR); or have significant operations in or carry out a large part of their business activities in the BRIC countries. Within each BRIC country the fund will seek to track the total return performance of the MSCI US dollar Brazil, MSCI US dollar Russia, MSCI US dollar India and the MSCI US dollar China indices. The indices will typically be dominated by large companies in terms of their aggregate weight in the relevant index. Within each country the fund will invest in either all of the securities in the index or a representative sample. 12

13 What types of securities can the fund invest in? At least two-thirds of the HSBC BRIC Markets Fund s non-cash assets will be in equity or equity equivalent securities. Up to one-third of the HSBC BRIC Markets Fund s non-cash assets may be in bonds, convertible bonds and options. There is a further limit that no more than 25% of the HSBC BRIC Markets Fund s net assets may be invested in bonds, convertible bonds and options in normal market conditions and no more than 15% of net assets may be invested in debt claims. Who manages the HSBC BRIC Markets Fund? Sinopia Asset Management is the specialist quantitative investment business of HSBC Investments (UK) Ltd. Sinopia is the HSBC BRIC Markets Fund investment manager and determines the allocation of the fund s investment across the BRIC countries. Country managers invest the funds within each country. The investment manager receives investment advice from Halbis Capital Management (UK) Limited which is a separate investment specialist division with expertise in emerging markets equities. HSBC Investments international experts HSBC Investments (UK) Ltd s country allocation committee comprises some of the leading BRIC and emerging markets specialists in the world. The country allocation committee meets regularly to: consider the valuation measures and results of the allocation model; discuss global, regional sector outlooks, macro economic development and political risks, country valuations and market liquidity; discuss how country managers see the future prospects of their stocks; and decide how to allocate the HSBC BRIC Markets Fund s assets between countries. Chris Cheetham Luiz Ribeiro Douglas Helfer Sanjiv Duggal Richard C. Wong Nick Timberlake Guillaume Rabault Christian Deseglise Global CEO Halbis Portfolio Manager, Brazil Equity, Halbis Senior Fund Manager, EMEA, Halbis Portfolio Manager, Halbis Portfolio Manager, Chinese Equity Halbis BRIC Fund Manager, Head of GEM Equities Halbis Global Head of Research for GEM Halbis Global Head of Emerging Markets Business, HSBC Investments Based in London Based in Sao Paulo Based in London Based in Singapore Based in Hong Kong Based in London Based in Paris Based in New York 13

14 What has been the HSBC BRIC Markets Fund s performance and volatility? As an emerging market equity fund the HSBC BRIC Markets Fund has a higher risk/return trade-off than developed market equity funds. The fund will start its Australian dollar Y shares with the commencement of the HSBC BRIC Investment, so there is no historical Australian denominated performance data as at the date of this product disclosure statement. The fund has had US dollar Z shares since inception. These shares are wholesale shares and have a lower asset management fee than the Australian dollar Y shares. The graph below shows the price of the US dollar Z class shares after fees since inception in June It is important to understand that: The performance of the HSBC BRIC Investment is linked to the return on the HSBC BRIC Markets Fund Australian dollar Y share. This share class will perform differently to the US dollar Z share due to fees and exchange rate differences. The HSBC BRIC Investment will not have a one-to-one return with Australian dollar Y shares of the HSBC BRIC Markets Fund. To provide for capital protection at maturity, the dynamic portfolio s varying allocation between the HSBC BRIC Markets Fund and the cash asset will usually give the HSBC BRIC Investment a lower return than the fund. Past performance is not a reliable guide to future performance. The fund has experienced periods of high volatility due to large market corrections. This reflects the higher risk of the HSBC BRIC Markets Fund. Share Value HSBC BRIC Markets Fund Unit Price History in USD Z class shares Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Feb 08 Month Date The table below shows the performance of the USD Z shares of the HSBC BRIC Markets Fund as at 31 March month 6 month 1 year Since inception on 2 June 2005 (annualised) Returns after fees and before taxes % -7.62% 32.39% 45.04% p.a. 14

15 The HSBC advantage in emerging markets Returns on the HSBC BRIC Investment will be linked to the performance of the HSBC BRIC Markets Fund. The HSBC BRIC Markets Fund is managed by one of the world s largest emerging markets fund managers with more than US$63 billion in assets under management across the BRIC countries as of 31 December HSBC Investments (UK) Limited (HSBCI) is a main player in virtually every market in the world and is one of the largest managers of BRIC equity funds across the globe. The HSBC BRIC Markets Fund has been one of the strongest performing BRIC funds available, based on returns over the past year. Specific HSBCI expertise in each of the BRIC markets As at 31 December 2007, HSBCI has the following expertise in each of the BRIC markets: HSBCI and Brazil HSBCI and Russia Largest offshore actively managed Brazil equity fund (Luxembourg/Ireland domiciled) 5 US$2.3 billion assets under management 7 local staff involved with BRIC investments Strong record in managing Russian equities 6 US$3.0 billion assets under management 4 staff (based in London) involved in BRIC investments in Russia HSBCI and India HSBCI and China 7 World s largest India equity mutual fund 8 World s 2nd largest China equity fund US$9.4 billion assets under management US$5.8 billion assets under management 4 local staff involved with BRIC investments 6 local staff involved with BRIC investments 5 Source FERI, December HSBC manages the Russia Mother Fund in Japan and Russian equities as a part of the Global Emerging Markets portfolio. 7 Source FERI, December Source FERI, December

16 5 About HSBC HSBC Worldwide Headquartered in London, the HSBC Group is one of the largest banking and financial services organisations in the world. HSBC s international network comprises of around 10,000 offices in 83 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. The HSBC Group serves almost 125 million customers and has assets of over US$2,354 billion at 31 December With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by around 200,000 shareholders in over 100 countries and territories. The shares are traded on the New York Stock Exchange in the form of American Depositary Receipts. Issuer HSBC Bank Australia Limited is the issuer of the HSBC 100+ Series BRIC Investment and this PDS. It is one of the principal members of the HSBC Group operating in Australia. HSBC Bank Australia Limited is an authorised deposit-taking institution in Australia and holds an Australian financial services licence. As at the date of this PDS, HSBC Bank Australia Limited had a credit rating of AA from Standard & Poor s. For more information on HSBC Bank Australia Limited see Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, the HSBC Group provides a comprehensive range of financial services; personal financial services; commercial banking; global banking and markets; private banking; and other activities. HSBC Bank Australia Limited started operations in Australia in 1965 and was granted a commercial banking licence in In Australia, the HSBC Group offers an extensive range of financial services through a network of 35 branches and offices. This includes personal banking, financial planning and consumer finance, as well as commercial banking, global banking and markets, payments and cash management, trade and export finance, project finance, corporate finance and securities custody. 16

17 6 What does the HSBC BRIC Investment return? The HSBC BRIC Investment return is linked to the HSBC BRIC Markets Fund while giving you 100% capital protection if you hold the investment until maturity. It will not have a one-to-one return with the HSBC BRIC Markets Fund. References in this Section 6 to the HSBC BRIC Markets Fund include references to any replacement fund determined under the heading Adjustments to the dynamic portfolio rules in this Section 6. What do you invest in? The HSBC BRIC Investment is a deferred purchase agreement. The deferred purchase agreement is explained in Section 7 What do you receive at maturity? on page 26. What is the return on your investment? The HSBC BRIC Investment return is linked to the dynamic portfolio value, unless the switch event occurs (see Section C What is the switch event? on page 22). The dynamic portfolio comprises a notional exposure to shares in the HSBC BRIC Markets Fund, the notional cash asset and notional borrowings, while giving 100% capital protection at maturity. The dynamic portfolio is actively managed in accordance with the provisions set out in this Section 6 (we call these provisions the dynamic portfolio rules ). To ensure that you have the potential to benefit from positive movements in the HSBC BRIC Markets Fund, in certain circumstances called a switch event, the HSBC BRIC Investment return will convert from being linked to the dynamic portfolio to being linked to what we describe as the average option payoff. This is explained in section D How is the return calculated at maturity if a switch event occurs? on page 23. In this section we explain: A. The dynamic portfolio. B. How the return is calculated at maturity if no switch event occurs. C. The switch event. D. How the return is calculated at maturity if the switch event occurs. E. Early withdrawal value. F. Early termination value. The dynamic portfolio rules and average option payoff calculations are complex. All of the calculations are made by HSBC. The examples used are not intended to be indicative of future performance. A. The dynamic portfolio What is the dynamic portfolio? The dynamic portfolio comprises a notional exposure to shares in the HSBC BRIC Markets Fund, the notional cash asset and notional borrowings. The allocation is actively managed using a technique called Constant Proportion Portfolio Insurance (CPPI). This aims to maximise the dynamic portfolio value at maturity whilst ensuring that the value is not less than the capital protection level. Despite the name, it does not involve any insurance policy. The allocation between the HSBC BRIC Markets Fund and the cash asset changes As the dynamic portfolio value and the current value of the capital protection level changes, the dynamic portfolio s allocation between the cash asset and the HSBC BRIC Markets Fund changes. As the gap between these two values narrows, the dynamic portfolio s allocation to the cash asset increases and its allocation to the HSBC BRIC Markets Fund decreases. 17

18 Conversely, when the difference between the dynamic portfolio value and the current value of the capital protection level increases, the dynamic portfolio s exposure to the cash asset decreases and its allocation to the HSBC BRIC Markets Fund increases. In certain circumstances, notional borrowing is included in the dynamic portfolio to enable the dynamic portfolio to increase its allocation to the HSBC BRIC Markets Fund beyond 100% of the dynamic portfolio value. How is it managed? The following dynamic portfolio rules are applied each valuation date to check the dynamic portfolio s allocation between the HSBC BRIC Markets Fund, the cash asset and notional borrowings. All of the calculations under these dynamic portfolio rules are made by HSBC. You should be aware that the examples used to explain the dynamic portfolio management are not intended to be indicative of future performance. 1. The current dynamic portfolio value Each day the dynamic portfolio value is calculated. This equals: Dynamic portfolio value The current Dynamic Portfolio Value Borrowed money invested in the HSBC BRIC Markets Fund Dynamic portfolio investment in the HSBC BRIC Markets Fund Cash asset Notional Investment in the HSBC BRIC Markets Fund. Notional Investment in cash asset plus minus the value of the notional investment in the HSBC BRIC Markets Fund (assuming all income is reinvested) the value of any notional investment in the cash asset the amount of any notional borrowings included in the dynamic portfolio (see below in this section A under How is leverage used? ); and daily dynamic portfolio management fees and interest on notional borrowings. 2. Capital protection level at maturity On the issue date, the dynamic portfolio capital protection level at maturity is $1.00 per $1.00 invested. At the end of each month, the dynamic portfolio value is checked. If the dynamic portfolio value has reached a new high lock-in step, then the capital protection level at maturity rises. The initial lock-in step will occur when the dynamic portfolio value increases from approximately $0.956 to $1.10, and the capital protection level at maturity rises to $1.03. Lock-in steps occur at each $0.10 increase on the initial $1.00 invested. For each $1.00 invested, the lock-in steps would be $1.10, $1.20, $1.30, $1.40 etc. The amount of additional capital protection at each lock-in step is $0.03 (30% of each $0.10 lock-in step). For example, if at the end of a month the dynamic portfolio value per $1.00 invested is $1.32, then the total increase in the capital protection level would be $0.09 (30% of the $0.30 gain on the initial $1.00 invested to the new $1.30 lock-in step), lifting the initial capital protection level at maturity per $1.00 invested from $1.00 to $1.09. The rise in the capital protection level may be adjusted within the 15 business days following the end of each month to reflect any subsequent corrections to the value of the dynamic portfolio at the end of that month. 18

19 Maturity $1.30 $1.27 $1.24 $1.21 $1.18 $1.15 $1.12 $1.09 $1.06 $1.03 $1.00 $0.97 $0.94 $0.91 Rising Capital Protection Scale $0.90 $1.00 $1.10 $1.20 $1.30 $1.40 $1.50 $1.60 $1.70 $1.80 $1.90 End of month Dynamic Portfolio Value 3. The current value of the capital protection level Using prevailing interest rates, the current value of the capital protection level at maturity is calculated each day. 4. The distance The proportions of the dynamic portfolio notionally invested in the HSBC BRIC Markets Fund and the cash asset are based on the distance. The distance on any day is the difference between the then current dynamic portfolio value and the then current value of the capital protection level at maturity (including any rises in the capital protection level). For example, if the dynamic portfolio value is $1.32 per $1.00 invested (resulting in the capital protection at maturity being $1.09) and the then current value of the capital protection level per $1.00 invested is $0.98, then the current distance per $1.00 invested would be $0.34 (which is equal to $1.32 minus $0.98). This value depends on the then current Australian dollar interest rates and the time until the maturity date. The higher the interest rates and the further from the maturity date, the lower the then current value of the capital protection level will be. The lower the interest rates and the nearer to the maturity date, the higher the then current value of the capital protection level will be. Dynamic portfolio value Dynamic portfolio investment in the HSBC BRIC Markets Fund Cash asset }Distance Current value of capital protection Capital protection level For example, if, per $1.00 invested, the capital protection level at maturity has risen to $1.09, with 1.5 years until maturity and the then current interest rate level is 7.35% per annum, then the then current value of the capital protection level would be $0.98 (this represents $1.09 discounted over a one and a half year period at an interest rate of 7.35% per annum). Current Maturity date The diagram to the top left shows the capital protection levels at maturity for various dynamic portfolio values at the end of a month. It is not intended to be indicative of the future performance of the HSBC BRIC Investment. } Potential interest to be earned Current value of capital protection Capital protection level Current Maturity date 19

20 5. The target multiplier and exposure The dynamic portfolio s target exposure to the HSBC BRIC Markets Fund must be a multiple of the distance. This is referred to as the target multiplier and is initially set at 3.5. To avoid too much unnecessary rebalancing, which would be costly to the dynamic portfolio, the exposure to the HSBC BRIC Markets Fund is allowed to vary within a range of 3.3 to 3.8 times the distance. Using the example above where per $1.00 invested the capital protection level at maturity is $1.09, the then current value of the capital protection level at maturity is $0.98 and the then current distance is $0.34, then the target exposure of the dynamic portfolio to the HSBC BRIC Markets Fund is 3.5 times $0.34 which would be $1.19. However a range of 3.3 to 3.8 times the distance is allowed before an adjustment must be made to the allocations in the dynamic portfolio. So, if per $1.00 invested the value of the dynamic portfolio s allocation to the HSBC BRIC Markets Fund was between $1.122 and $1.292, the dynamic portfolio allocation would not be adjusted. Continuing the example just used, if the allocation to the HSBC BRIC Markets Fund was less than $1.122 per $1.00 notionally invested in the dynamic portfolio, then the dynamic portfolio would be re-allocated between the cash asset and the HSBC BRIC Markets Fund to achieve the target exposure of $1.19. This would be done by using part of the dynamic portfolio cash asset to notionally buy more shares in the HSBC BRIC Markets Fund for the portfolio. On the other hand, if per $1.00 invested the dynamic portfolio had more than $1.292 allocated in the HSBC BRIC Markets Fund, part of this allocation would be notionally sold, increasing the cash allocation. After the adjustment, per $1.00 invested, the dynamic portfolio would have the target exposure of $1.19 to the HSBC BRIC Markets Fund. 6. Lowering the target multiplier If the value of the HSBC BRIC Markets Fund fluctuates too much (so that the volatility is more than 35% in a 60 day period), HSBC has the discretion to reduce the dynamic portfolio s target multiplier to a lower value with the goal of protecting the dynamic portfolio value. In addition, so that the dynamic portfolio notionally invests at maturity only in the cash asset, from 14 business days prior to maturity the target multiplier is reduced by 0.25 each business day to gradually reduce the dynamic portfolio s allocation to the HSBC BRIC Markets Fund at maturity to zero. What else should I understand about the dynamic portfolio? Your money is not invested in the dynamic portfolio but your return from the HSBC BRIC Investment is linked to the dynamic portfolio s performance, unless the switch event occurs in which case it is linked to the average option payoff (see Sections C and D). Investors do not own the dynamic portfolio, the HSBC BRIC Markets Fund or the cash asset. You do not have any personal liability to repay the dynamic portfolio s notional borrowings. How is leverage used? If the HSBC BRIC Markets Fund performs favourably so that the dynamic portfolio should allocate more to the HSBC BRIC Markets Fund than the dynamic portfolio value, then a notional borrowing is included in the dynamic portfolio. This notional borrowing allows for the notional investment in the HSBC BRIC Markets Fund to be increased, and it leverages the dynamic portfolio. If the HSBC BRIC Markets Fund performs favourably, the borrowings could increase the HSBC BRIC Investment return beyond what it would have been otherwise. However, if the value of the HSBC BRIC Markets Fund falls, then the borrowings could similarly decrease the return on the HSBC BRIC Investment below what it would have been otherwise. 20

21 The maximum allowable notional borrowing within the dynamic portfolio on any day is the lower of: 75% of the initial dynamic portfolio value, and 50% of the dynamic portfolio value on that day. Following on from the previous example, per $1.00 invested, if the dynamic portfolio value increases from $1.32 to $1.39 and the then current value of the capital protection level at maturity remained at $0.98, then the distance would be $0.41. The target notional investment by the dynamic portfolio in the HSBC BRIC Markets Fund would be 3.5 x $0.41 = $1.435, which is greater than the dynamic portfolio value. Following the dynamic portfolio leverage rules above, in this example the dynamic portfolio notional borrowing would be subject to a cap of the lower of $0.717 (75% of the initial dynamic portfolio value, assuming an initial dynamic portfolio value of approximately $0.956 as detailed in the next section). And $0.695 (50% of the current dynamic portfolio value). In this situation, the dynamic portfolio would include a notional borrowing of $0.045 per unit to achieve the target investment in the HSBC BRIC Markets Fund. This example is used to explain the leverage and is not intended to be indicative of future performance. Interest is charged to the dynamic portfolio for the money notionally borrowed and deducted from the dynamic portfolio value. What is the initial target exposure? The HSBC BRIC Investment has an upfront fee of 2% and trail fees of 0.5% per annum of each $1.00 invested. The combined value today of these two fees over the six year term of the investment is approximately 4.4% of the application amount at initial investment. On the issue date the initial dynamic portfolio value per $1.00 invested is calculated after deducting the upfront fee of $0.02 and then the approximate current value of the total trail fee of $ See Section 9 Fees on page 33 for further information with respect to the upfront fee and the trail fees. Using this example, per $1.00 invested the initial dynamic portfolio value will be approximately $0.956 and the capital protection level at maturity will be $1.00. Because the capital protection level per $1.00 invested is $1.00 at maturity in 6 years time, it has a lower current value at the start of the investment. Based on interest rates at the date of this product disclosure statement, the current or present value of the capital protection level on the issue date will be approximately $ In other words, if the interest rates on the date of this product disclosure statement remain constant until maturity, a cash asset with a value equal to $0.652 would earn an interest of $0.348 over six years and have a value of $1.00 at maturity of the HSBC BRIC Investment. In this example, on the issue date per $1.00 invested: the distance will be: $0.956 (dynamic portfolio value) - $0.652 (the current value of capital protection level) = $0.304 the dynamic portfolio s initial target notional investment in the HSBC BRIC Markets Fund will be: 3.5 x $0.304 which is approximately $ to achieve this, the dynamic portfolio will include a notional borrowing of $0.108 to be used to notionally increase the dynamic portfolio s allocation to the HSBC BRIC Markets Fund. As interest rates and the dynamic portfolio value change, the distance and the target exposure will vary. 21

22 Examples of dynamic portfolio exposures The table below shows the dynamic portfolio s notional investment in the HSBC BRIC Markets Fund, its notional investment in the cash asset and its notional borrowings for a range of distance values, in each case, as a percentage of the current dynamic portfolio value. The distance is explained in step 4 above. Distance Dynamic portfolio target notional investment in the HSBC BRIC Markets Fund Dynamic portfolio notional investment in the cash asset Dynamic portfolio notional borrowings 50% 150%* # 0% 50%* # 40% 140% # 0% 40% # 30% 105% # 0% 5% 20% 70% 30% 0% 10% 35% 65% 0% 5% 17.5% 82.5% 0% * Limited by the dynamic portfolio rules with respect to borrowing. # Could be less if the limit of maximum borrowing of 75% of the initial dynamic portfolio value applies 22 Adjustments to the dynamic portfolio rules HSBC may vary the manner of valuing the dynamic portfolio, the constitution of the dynamic portfolio or the dynamic portfolio rules themselves if HSBC considers such a variation to be appropriate in connection with any market disruption, settlement disruption, corporate action or any other event which HSBC considers adversely impacts on its ability to apply these dynamic portfolio rules or which HSBC considers may adversely affect the theoretical value of any part of the dynamic portfolio. In these circumstances, HSBC may also replace the dynamic portfolio s notional investment in the HSBC BRIC Markets Fund with a notional investment in one or more other funds which comprise investments exposed to the BRIC economies. For example, this could happen if the HSBC BRIC Markets Fund does, or is expected to, materially change or breach its investment policies or objectives or impose restrictions on the purchase or sale of shares in the fund. Any replacement fund or funds must in aggregate have similar investment policies or objectives, and liquidity as the HSBC BRIC Markets Fund does at the date of this PDS. B. How is the return calculated at maturity if no switch event occurs? Unless a switch event (as described in section C What is a switch event? below) occurs, the HSBC BRIC Investment return is linked to the higher of the rise in the capital protection level and the dynamic portfolio value return at maturity. The value of the HSBC BRIC Investment at maturity (per $1 invested) is the higher of: the capital protection level at maturity; and the dynamic portfolio value at maturity. For example, if, for a $1.00 investment, at maturity the capital protection level is $1.09 and the dynamic portfolio value is $1.031, then the value of the HSBC BRIC Investment at maturity (per $1 invested) is $1.09 (because this is greater than $1.031). C. What is the switch event? The dynamic portfolio rules allow the capital protection level at maturity to be managed by changing the exposure to the HSBC BRIC Markets Fund through notionally buying shares in the HSBC BRIC Markets Fund when its value is high and notionally selling shares when its value is low. If HSBC BRIC Markets Fund performs in an adverse manner or is volatile or continuously falls, this could cause the dynamic portfolio value to be eroded.

23 The HSBC BRIC Investment has a feature, referred to as the switch event, which prevents the possibility that the dynamic portfolio could be allocated only to the cash asset. If the dynamic portfolio was allocated only to the cash asset it would protect the capital at maturity but would offer no potential gain from future positive movements in the HSBC BRIC Markets Fund. This switch feature ensures that you have potential to benefit from positive movements in the HSBC BRIC Markets Fund value provided that a substitution of fund event has not occurred. The switch event occurs if the distance falls to 5% or below of the dynamic portfolio value and a substitution of fund event has not occurred. For example, if, for a $1.00 investment the capital protection level rises to $1.09 but due to adverse HSBC BRIC Markets Fund returns the dynamic portfolio value falls to $1.031 and the then current value of the capital protection level at maturity is $0.98, then the distance would be $ This distance would then be 4.95% ($0.051 divided by $1.031), which is less than 5% of the dynamic portfolio value, so the switch event would occur assuming that a substitution of fund event has not occurred. Once the switch event occurs, the HSBC BRIC Investment return ceases to be linked to the dynamic portfolio value. If a substitution of fund event has occurred and HSBC changes the dynamic portfolio from notionally investing in the HSBC BRIC Markets Fund to notionally investing in an alternative BRIC fund then the switch event feature cannot occur. The circumstances in which the change in the notional investment in the underlying fund can occur are set out in the paragraph entitled Adjustments to the dynamic portfolio rules on page 22 of the PDS. D. How is the return calculated at maturity if the switch event occurs? If the switch event occurs, then the HSBC BRIC Investment return at maturity (per $1.00 invested) is the higher of: the capital protection level at maturity; and the initial capital protection level (i.e. $1.00) plus the average option payoff at maturity. The average option payoff at maturity cannot be less than zero and is equal to: ( 50%x ) The average of the fund NAV over the term of the investment The average of the fund NAV until the switch event The average of the fund NAV until the switch event The average option payoff will increase if between the switch event and maturity there is a long period of high average share prices of the HSBC BRIC Markets Fund. For example, if the switch event occurs after the capital protection level had risen by $0.09, you will receive at minimum $1.09 at maturity, being your initial capital protection level of $1.00 plus the rise in the capital protection level of $0.09. If the average price of an Australian dollar share in the HSBC BRIC Markets Fund over the full term of the HSBC BRIC Investment is $55 and until the switch date was $25, the value of the average option payoff would be $0.10 calculated by max [ (50% x $55) $25 $25,0 In this example, average option payoff is higher than the rise in the capital protection level, meaning the HSBC BRIC Investment return would be the initial capital protection level of $1.00 plus $0.10, a total of $1.10 per HSBC BRIC Investment. [ 23

24 The above examples are used to explain the average option payoff and are not intended to be indicative of future performance. E. Early withdrawal value The HSBC BRIC Investment has a six year term. While the HSBC BRIC Investment is designed to be a buy-and-hold investment, on any day between the issue date and the day which is 14 business days prior to the maturity date, you may request that HSBC redeem your HSBC BRIC Investments by giving HSBC written notice to this effect in accordance with the notice provisions set out in the conditions (see Section 13 Conditions on page 52). The request for withdrawal must be for all (and not some only) of an investor s HSBC BRIC Investment and is irrevocable. HSBC reserves the right to accept or reject the withdrawal request at its sole discretion. If you withdraw your investment prior to the maturity date, you will not have the right to receive the capital protection level and you may receive less than the application amount. In addition, you will receive cash. You will not receive the delivery asset. The cash you receive will be: the fair economic value (not subject to any minimum amount) of your HSBC BRIC Investment at the close of business (London time) on a day selected by HSBC (taking into account costs (notional or otherwise) of terminating your investment including break costs, administrative costs, the costs of unwinding any investments entered into by HSBC and funding costs); X X less any early withdrawal fees (see Section 9 Fees on page 33). For each $1.00 invested the early withdrawal fee will be $0.03 within the first year of investment, $0.02 in the second year and $0.01 in the third year. After three years of investment no early withdrawal fee fee will be levied; X X plus the then current value of trail fees that have not fallen due. For example per $1.00 invested, if the fair economic value is $1.10, you withdraw in year 2 and the current value of the unpaid trail is $0.018, then you will receive $1.098 (i.e. $ $ $0.018). You should carefully consider any tax consequences of an early withdrawal. The above example is used to explain how the early withdrawal amount is calculated. It is not intended to be indicative of the future performance of the HSBC BRIC Investment. F. Early termination value HSBC may declare an early termination in respect of your interest in HSBC BRIC Investment if any of the following early termination events occur: (a) (b) (c) (d) (e) a tax event; or a legislative event; or the investor becomes insolvent; or HSBC determines in its discretion that the then current fund does, or is expected to, materially change or breach its investment policies or objectives or impose restrictions on the purchase or sale of units in the fund, or any other scenario adversely impacts on HSBC s ability to apply the dynamic portfolio rules and one or more suitable substitute funds with similar objectives and policies as the fund cannot be found; or for any other reason HSBC deems it is not legal, consistent with HSBC s internal policies, practical, economically viable (for HSBC or the investor) or in the investor s interest for the HSBC BRIC Investment to continue its existence. 24

25 If this occurs, the HSBC BRIC Investment will terminate before the maturity date and you will receive the early termination amount for your HSBC BRIC Investment. You will not have the right to receive the capital protection level and you may receive less than the application amount. You will not receive the delivery asset. The cash you will receive will be: the fair economic value of your HSBC BRIC Investment at the withdrawal time (taking into account costs (notional or otherwise) of terminating your investment, which include break costs, administrative costs, the costs of unwinding any investments entered into by HSBC and funding costs); plus the then current value of trail fees that have not fallen due. An early withdrawal fee is not payable in these circumstances. For example per $1.00 invested, if the fair economic value is $1.10 and the current value of the unpaid trail is $0.018, then you will receive $1.118 (i.e. $ $0.018). The above example is used to explain how the early termination amount is calculated. It is not intended to be indicative of the future performance of the HSBC BRIC Investment. 25

26 7 What do you receive at maturity? To understand how the HSBC BRIC Investment return is delivered or paid to you at maturity, it is necessary to understand the nature of a deferred purchase agreement. This section explains: A. The nature of a deferred purchase agreement; and B. What you receive at maturity. A. What is a deferred purchase agreement? A deferred purchase agreement is an agreement where, at the maturity of the investment, assets having an approximately equivalent value to the investment are delivered to the investor. Those assets are referred to as delivery assets. The terms of the deferred purchase agreement that is the HSBC BRIC Investment are set out in Section 13 Conditions on page 52. The delivery assets for the HSBC BRIC Investment are securities listed on the ASX. B. What do you receive at maturity? You may elect to receive the delivery assets or for HSBC to sell the delivery assets on your behalf and receive the sale proceeds. After maturity of your HSBC BRIC Investment, you will receive either: the delivery assets, or the sale proceeds in cash if you elect that the delivery assets be sold on your behalf. What are the delivery assets? The delivery assets are ordinary units in SPDR S&P/ASX 200 Fund ( Streettracks ). Streettracks is an exchange traded fund listed on the ASX. Historically, the value of ordinary units in Streettracks (before fees and expenses) has closely tracked the value of the S&P/ASX200 Index. The ASX code is STW. For more information about Streettracks visit If in HSBC s opinion it is not, or may not be, possible for it to obtain or transfer the delivery assets to you, then other delivery assets may be substituted. Any substitute delivery asset will be a security quoted and trading on the ASX which is in the top 100 by market capitalisation. How many units of the delivery assets will you receive? If you elect to receive the delivery assets, you will receive a number of units of the delivery assets equal to: the value of one HSBC BRIC Investment multiplied by the number of HSBC BRIC Investments you hold ( aggregate return ); divided by the weighted average price of the delivery assets purchased by HSBC in the market after maturity. A fraction of a delivery asset cannot be delivered. The aggregate number of delivery assets will be rounded down to the nearest whole delivery asset. If the difference between the aggregate return and the value of the delivery assets to be delivered is more than $50, then the difference may be satisfied either in cash or in other securities selected by HSBC. If the difference is less than $50, then HSBC may elect not to make a payment or delivery to the investor in respect of the difference. Example If at maturity your investment is worth $20,000 and the Streettracks unit price is $176, then, and $20,000 = $176 the number of units you would receive is 113 which is worth 113 x $176 = $19,

27 The difference in value between the aggregate return and the delivery assets that you will receive is $112. This difference is greater than $50 so you would receive a payment of $112 in cash or a delivery of securities selected by HSBC. If the difference in the aggregate return and delivery assets value is less than $50, you may not receive any payment or delivery in respect of the difference. The example on the previous page is used to explain how the number of delivery assets you receive is calculated. It is not intended to be indicative of the future performance of Streettracks. When are you able to elect whether to receive the delivery assets or have HSBC sell them on your behalf? Before the maturity date, you will receive a settlement election form on which you can elect to receive the delivery assets or for the delivery assets to be sold on your behalf and the sale proceeds paid to you. If you do not make an election then you will be deemed to have chosen to receive the delivery assets and HSBC will transfer the delivery assets to you. If you have not provided information to enable physical settlement for any HSBC BRIC Investment, you will be deemed to have elected that the delivery assets be sold on your behalf and the sale proceeds paid to you. When will HSBC deliver the delivery assets or pay the sale proceeds to you? The maturity date is 20 June Within 15 business days (or such other time as reasonably determined by HSBC) of the maturity amount being determined, HSBC will arrange for the delivery assets to be transferred to you or the sale proceeds to be paid to you. 27

28 8 Risks to consider There are a number of factors, both specific to investment in the HSBC BRIC Investment and general investment risks, which may affect the future performance of the HSBC BRIC Investment. This section describes the significant risks associated with the HSBC BRIC Investment, namely: A. risks relating to the HSBC BRIC Markets Fund; B. risks of the HSBC BRIC Investment product; and C. General risks. You should carefully consider the range of risk factors outlined in this section, as well as the other information contained in this PDS, before deciding if the HSBC BRIC Investment is a suitable investment for you. You should consider your financial targets, investment time frame and what degree of risk you will accept in order to achieve your investment objectives. We recommend that you seek independent financial advice and other expert advice before investing. A. Risks relating to the HSBC BRIC Markets Fund The return on the HSBC BRIC Investment is linked to the performance of the HSBC BRIC Markets Fund (and possibly a replacement fund) (see Section Adjustments to the dynamic portfolio rules on page 22). The risks specific to the fund include the following: Market risk The HSBC BRIC Markets Fund invests in financial instruments of BRIC countries (Brazil, Russia, India and China). Investments in financial instruments may fall or rise and the original amount invested in them may increase or decrease in value. The value of investments in companies, in particular, can be affected by the companies performance, which may be affected by many factors including management, economic conditions and international or political developments. Your investment in HSBC BRIC Investment is 100% capital protected if held until maturity. At any time prior to the maturity date, an HSBC BRIC Investment could be valued at less than 100% of the amount invested if market conditions are unfavourable. Emerging market risk The HSBC BRIC Markets Fund invests in markets outside Australia in countries with different legal systems. Changes in the regulatory, legislative, economic and political climate in those countries may adversely affect the performance of the HSBC BRIC Markets Fund and hence the return on the HSBC BRIC Investment. The HSBC BRIC Markets Fund makes investments in four emerging market countries which have additional risks in comparison to investments in developed countries. These risks include large impacts from trade barriers, exchange controls, trading ceasing in emergency situations, potential retrospective tax changes for foreign investors, greater exposure to natural resources sector, higher brokerage commission and less efficient settlement and clearance procedure which can cause opportunity losses. Exposure to the HSBC BRIC Markets Fund should be considered speculative because of the risks involved in investing in emerging markets. Foreign exchange risk The capital protection level of the HSBC BRIC Investment at maturity is in Australian dollars and has no direct foreign exchange risk. However, exchange rate movements can adversely affect the early withdrawal amount and early termination amount and the HSBC BRIC Investment return generally. 28

29 Unless the switch event or a substitution of fund event occurs, the HSBC BRIC Investment return is linked to the dynamic portfolio which notionally invests in the HSBC BRIC Markets Fund. The fund s investments in the BRIC countries will be denominated in the local currency. The HSBC BRIC Markets Fund s value may be favourably or unfavourably impacted by changes in the exchange rate between Australian dollars and the local currencies of the BRIC countries. If exchange rate movements result in the Australian dollar being able to purchase more of the local BRIC currencies, investments denominated in the BRIC currencies will convert to a lower value in Australian dollars. Interest rate and credit risk The HSBC BRIC Markets Fund may invest in bonds and other fixed interest securities, and is subject to the credit risk of the securities issuers and general interest rate risk. If an issuer suffers an adverse change to its financial position this could lower the credit quality, making the securities more difficult to sell and thereby reducing their price. Such securities are also subject to the risk of issuers defaulting on their payment obligations. The value of bonds and other fixed interest securities rise when interest rates decrease and fall when interest rates increase. Usually, the longer the maturity of the security, the larger will be the impact of interest rate movements. Portfolio disruption risk The dynamic portfolio rules allow HSBC to replace the dynamic portfolio s notional investment in the HSBC BRIC Markets Fund with a notional investment in one or more other funds which comprise investments exposed to the BRIC economies. For example, this could happen if the fund does, or is expected to, materially change or breach its investment policies or objectives or impose restrictions on the purchase or sale of shares in the fund. Any replacement fund or funds must in aggregate have similar investment policies or objectives and liquidity as the HSBC BRIC Markets Fund does at the date of this PDS. If, in such circumstances, a suitable replacement fund which complies with these criteria cannot be found, then an early termination event (as defined in Section 14 Glossary on page 59) occurs. On early termination, you will receive the early termination amount of your HSBC BRIC Investment. Because capital protection applies only on the maturity date, and not on early termination, the early termination amount may be less than the capital you invested in the HSBC BRIC Investment. Early withdrawal fees will NOT apply. B. Risks of the HSBC BRIC Investment product The HSBC BRIC Investment has the following additional risks due to the product structure. Leverage or borrowing risk in the dynamic portfolio Unless the switch event occurs, your investment will be linked to a dynamic portfolio which can in some circumstances include a notional borrowing to increase its notional allocation to the HSBC BRIC Markets Fund. These notional borrowings leverage the dynamic portfolio. If the HSBC BRIC Markets Fund performs favourably the borrowings could increase the HSBC BRIC Investment return beyond what it would have been otherwise. However, if the value of the HSBC BRIC Markets Fund falls, then the borrowings could similarly decrease the return on the HSBC BRIC Investment below what it would have been otherwise. The maximum allowable notional borrowing within the dynamic portfolio on any day is the lower of: 75% of the initial dynamic portfolio value, or 50% of the dynamic portfolio value on that day. The dynamic portfolio gradually decreases the borrowings as the HSBC BRIC Markets Fund value falls. Leverage risk ceases to exist when there are no borrowings in the dynamic portfolio. 29

30 CPPI mechanics risk The Constant Proportion Portfolio Insurance (CPPI) mechanics facilitate the initial and rising capital protection level feature of the HSBC BRIC Investment. The dynamic portfolio rules require the dynamic portfolio to notionally buy the HSBC BRIC Markets Fund when the fund price is high and sell the fund when price falls. The dynamic portfolio value can diminish if the market movements require this to occur frequently. To help reduce the frequency of this occurring, the dynamic portfolio will only rebalance (either notionally buying or selling the HSBC BRIC Markets Fund) if the investment in the fund is outside a band around the target exposure. However, if the HSBC BRIC Markets Fund fluctuates in value with large swings, the dynamic portfolio value could be eroded and the switch event (see C. What is the switch event? on page 22) is likely to occur (provided that a substitution of fund event has not occurred). If the switch event occurs, the linkage to the dynamic portfolio ceases and the HSBC BRIC Investment links to an average option payoff (see D. How is the return calculated at maturity if the switch event occurs? page 23). This average option payoff allows you to potentially benefit from positive HSBC BRIC Markets Fund movements after the switch date, but the potential returns may be less than those achievable by the dynamic portfolio. Australian interest rate risk The amount of exposure to the HSBC BRIC Markets Fund your HSBC BRIC Investment s return is linked to at any time is determined in part by the current value of the capital protection level at maturity. This current value is determined by the current Australian interest rates. If interest rates increase, the current value of the capital protection level reduces, enabling larger exposure to the HSBC BRIC Markets Fund. The risk is that when interest rates fall, the current value of the capital protection level increases and that reduces the dynamic portfolio s exposure to the HSBC BRIC Markets Fund. In other words, the potential for the dynamic portfolio to benefit from the HSBC BRIC Markets Fund s growth decreases when the interest rates fall. Volatility risk If at any time the value of the HSBC BRIC Markets Fund fluctuates too much (so that the volatility is more than 35% in a 60 day period), HSBC has the discretion to reduce the dynamic portfolio s target multiplier to a lower value. The aim of this is to protect the dynamic portfolio value. As a result, there will be less exposure to the HSBC BRIC Markets Fund which will give less potential to gain from subsequent favourable market movements. Delivery assets market risk You will be entitled to the delivery assets approximately equal to the value of your investment at maturity. Nearer to the maturity date, you will be sent a settlement election form, in which you can elect to receive the delivery assets or have HSBC sell the delivery assets on your behalf and pay you the sale proceeds. If you choose to receive the delivery assets, then from the maturity date you will be subject to the market risk of those delivery assets. If the value of the delivery assets falls after the maturity date, you will receive something worth less than the value of the HSBC BRIC Investment. HSBC can substitute the proposed delivery asset. If HSBC determines, in its reasonable opinion, that it is not, or may not be, possible for it to obtain or transfer any delivery assets to you on the settlement date, (including due to a disruption, suspension, limitation or closure of trading on any financial market), it may replace any or all of the shares or units that would otherwise constitute the delivery assets with any other security or securities quoted and trading on ASX which is in the top 100 by market capitalisation. Conflict of interest HSBC Bank Australia Limited and other members of the HSBC Group may conduct transactions and be paid commissions as principal or agent in various instruments or securities including the delivery assets, the instruments and securities which constitute the dynamic portfolio or average option payoff or other financial products which are related to such instruments or securities. 30

31 Such dealings may (positively or negatively) affect the value of the financial products that constitute the dynamic portfolio or average option payoff and may therefore affect the return you receive on the HSBC BRIC Investment. Early termination event An occurrence of an early termination event (as defined in Section 14 Glossary on page 60) gives HSBC the right to declare an early termination of the HSBC BRIC Investment. If this occurs, the HSBC BRIC Investment will terminate before the maturity date and you will receive the early termination amount for your HSBC BRIC Investment. Because capital protection applies only on the maturity date, and not on early termination, there is a risk that the early termination amount may be less than what you initially invested in the HSBC BRIC Investment. You should also consider the tax consequences of an early termination. Early withdrawal risks HSBC reserves the right to accept or reject the withdrawal request at its sole discretion. If you withdraw your investment before the maturity date there is a risk that you will receive less than you initially invested. First, an early withdrawal fee applies if you withdraw within the first three years of the investment. The fee starts at 3% of the application amount in the first year, reducing to 2% of the application amount in the second year, 1% of the application amount in the third year, and zero from the start of the fourth year. Second, because capital protection applies only on the maturity date, and not on early withdrawal, there is a risk that the early withdrawal amount may be less than you initially invested in the HSBC BRIC Investment. You should also consider the tax consequences of an early withdrawal. Adjustment events If, as a result of an adjustment event (as described in Section 14 Glossary on page 59), HSBC makes an adjustment to a component of the dynamic portfolio or a variable which is used to calculate the number of delivery assets or the cash settlement amount, the early termination amount or the early withdrawal amount, that adjustment may result in investors receiving a different number of delivery assets or a different cash settlement amount, early termination amount or early withdrawal amount than investors would have received had the adjustment event not occurred. The occurrence of an adjustment event does not affect the 100% capital protection on the maturity date. Amendments to the Conditions HSBC may from time to time amend the conditions of the HSBC BRIC Investment provided that the amendment is: (a) (b) necessary or desirable in the reasonable opinion of HSBC to comply with any statutory or other legal requirement; or to be made for the purpose of curing an ambiguity, correcting a manifest error, or curing, correcting or supplementing any defective provision of the conditions or effecting a modification of a formal, minor or technical nature, and does not materially prejudice the interests of investors. Exercise of discretion by HSBC HSBC has a number of discretions which could affect the value of the HSBC BRIC Investment. These include powers to: (a) (b) (c) (d) perform calculations in respect of the dynamic portfolio and the conditions; change the dynamic portfolio rules; reduce the target multiplier; substitute another BRIC fund for the HSBC BRIC Markets Fund; and (e) substitute the delivery assets. Investors do not have the power to direct HSBC concerning the exercise of any discretion. 31

32 Inflation risk There is a risk that an HSBC BRIC Investment at maturity will not have the same real value as the issue price due to the likely effect of inflation and the time value of money over the 6 year term of the HSBC BRIC Investment. Non-issue risk If market conditions change so that an initial exposure to the HSBC BRIC Markets Fund of 90% cannot be achieved on the issue date, the issue of the HSBC BRIC Investment will not proceed and HSBC will return all application amounts to you without interest. C. General risks Exposure to HSBC Bank Australia Limited When you invest in the HSBC BRIC Investment you are relying on HSBC s general creditworthiness and its ability to meet its contractual obligations. HSBC Bank Australia Limited at the date of this PDS had a credit rating of AA from Standard and Poor s. There is a risk that HSBC will not perform its obligations. Credit ratings by rating agencies are only an assessment of the current financial position of a company and are no indication of the future position of the company. In the unlikely event that HSBC becomes insolvent, your investment in HSBC BRIC Investment would rank equally with other unsecured non-deposit obligations of HSBC. In this situation you might receive less than the amount to which you would be entitled otherwise. Obligations created by the HSBC BRIC Investment do not constitute deposit obligations of HSBC or an investment in the HSBC BRIC Markets Fund. Legal, Tax and Regulatory Risks Changes could occur in relation to Australia s and the BRIC countries legal, tax and regulatory systems during the investment period of the HSBC BRIC Investment, which may adversely affect your investment in HSBC BRIC Investment. You should be aware that the ATO has issued two Draft Taxation Determinations on taxation consequences for investors who enter into deferred purchase agreements. The ATO s views in the Draft Determinations are outlined in the general taxation summary in Section 11 Tax on page 38. It is possible that when the final Taxation Determinations on deferred purchase agreements are issued the tax treatment could differ from the Draft Determinations. Please refer to the general taxation summary for further discussion of these issues. You should seek independent tax advice before making an investment in HSBC BRIC Investment. Operational Risk Operational risk is the risk of losses from inadequate or failed internal processes, people or systems. Your investment in the HSBC BRIC Investment relies on HSBC undertaking the processes described in this document in a timely and accurate manner. HSBC is responsible for the operational risk of managing the HSBC BRIC Investment. If HSBC s systems and processes were inadequate and you make a request to HSBC for an early withdrawal of your investment, the potential delay may adversely affect your investment. 32

33 9 Fees You should read all of the information about fees and charges as it is important to understand their impact on the value and return of the HSBC BRIC Investment. Fees that affect the value and return of the HSBC BRIC Investment The following fees are paid out of the investment or affect its value: an upfront fee; a trail fee; fees for managing the dynamic portfolio; asset management fees for investment within the HSBC BRIC Markets Fund; and an early withdrawal fee if you withdraw your investment within the first three years. The fees relating to the HSBC BRIC Investment (inclusive of any GST) are set out in the table below. Type of fee Amount How and when paid Fees when your money moves into the HSBC BRIC Investment Application fee 0 Upfront fee Ongoing fee Trail fee 2.00% of the application amount 0.50% p.a. of the application amount HSBC will charge all investors (whether or not they have a financial planner) an upfront fee on the issue date by deducting it from the application amount. If you have a financial planner, HSBC will pay this fee to them. HSBC will charge all investors (whether or not they have a financial planner) a trail fee while they hold the investment. The trail fee is calculated on the application amount and deducted monthly from the value of the HSBC BRIC Investment. If you have a financial planner, HSBC will pay this trail fee to them. An amount to cover the trail fee over the term of the investment is set aside from the application amount on the issue date. The current value of any trail fee that has not yet fallen due when you end your investment will be returned to you. 33

34 Type of fee Amount How and when paid Management fees and expenses Dynamic portfolio management fee 1.50% p.a. of the current dynamic portfolio value This is calculated and deducted daily by HSBC from the dynamic portfolio value. Once a switch event occurs, the dynamic portfolio management fee will no longer be charged. Average option payoff fee Interest on dynamic portfolio borrowings 0 There is no average option payoff fee. AUD 1 month LIBOR % p.a. The rate is based on AUD 1 month LIBOR (published in Reuters) % p.a. This rate is determined by HSBC in good faith if it is not available on Reuters. The interest amount is calculated and deducted daily by HSBC from the dynamic portfolio value. HSBC BRIC Markets Fund fees Administration fee # Asset management fee # 0.35% p.a. of the current HSBC BRIC Markets Fund net asset value 1.50% p.a. of the current HSBC BRIC Markets Fund net asset value The HSBC BRIC Markets Fund will be charged this fee by another HSBC group member. It accrues daily and is paid monthly. The HSBC BRIC Markets Fund will be charged this fee by another HSBC group member. It accrues daily and is paid monthly. # Even though HSBC does not invest directly in the HSBC BRIC Markets Fund, the Administration Fee and Asset Management Fees are reflected in the HSBC BRIC Investment Return. Performance fee 0 There is no performance fee. Early withdrawal fee As a % of the HSBC BRIC Investment application amount: If you withdraw from the investment within the first three years of the issue date, an early withdrawal fee is deducted from the HSBC BRIC Investment value as at the date the withdrawal is processed. First year 3% Second year 2% Third year 1% After the third year 0% Information about the taxation consequences of investing in the HSBC BRIC Investment is set out in Section 11 Tax on page

35 Worked example of fees Where the application amount is $20,000, the fees would be as follows: Upfront fee: $400 HSBC will charge all investors an upfront fee of 2% of the application amount on the issue date and so for an application amount of $20,000, HSBC will deduct a $400 upfront fee from the application amount. If you have a financial planner, HSBC will pay your planner this amount. Trail fee: $8.33 monthly Each month, while it is held, HSBC will deduct from the HSBC BRIC Investment value a trail fee of 0.50% per annum of the application amount. For a $20,000 investment the trail fee is $8.33 per month. At the date of this PDS the value today of six years of trail fee is approximately 2.4% using current interest rates. For a $20,000 investment the total trail fee will be $600 or approximately $480 in today s dollars. If you have a financial planner, HSBC will pay your planner the trail fee. If you withdraw early or your investment is terminated before the end of the six year term, the then current value of any trail fee that has not yet fallen due will be returned to you. The combined cost of the upfront and trail fee is in today s terms approximately 4.4% of your $20,000 investment. The upfront and trail fees do not affect your initial capital protection level at maturity which remains $20,000. Dynamic portfolio management fee: $ p.a. (changes with the dynamic portfolio value) A daily fee is charged for managing the dynamic portfolio to which the HSBC BRIC Investment s return is linked (unless the switch event occurs). This is at the rate of 1.50% p.a. of the current dynamic portfolio value. The initial dynamic portfolio value will be approximately 95.6% of the application amount (see section titled What is the initial target exposure? on page 21). So for a $20,000 application amount this will be $19,120. At the rate of 1.50% p.a., the dynamic portfolio management fee approximates to $ p.a. The dynamic portfolio management fee increases and decreases with the value of the dynamic portfolio. For example, if the value of the dynamic portfolio increased to $22,000, then the fee deducted from the dynamic portfolio at that time would be at a rate of $330 p.a. Once the switch event occurs, the dynamic portfolio management fee will no longer be charged. Average option payoff fees: $0 If there is a switch event, then the HSBC BRIC Investment return ceases to be linked to the dynamic portfolio and is instead linked to the average option payoff. The dynamic portfolio management fee will cease to be charged from this point. There is no ongoing fee for managing the average option payoff. However, the trail fee and the HSBC BRIC Markets Fund administration and asset management fees will continue to be deducted. HSBC BRIC Markets Fund fees: $ p.a. (changing with the investment allocation) The Australian dollar Y shares of the HSBC BRIC Markets Fund charge an asset management fee of 1.50% p.a. and administration fee of 0.35% p.a. of the current HSBC BRIC Markets Fund price. These are deducted directly from the HSBC BRIC Markets Fund. With an application amount of $20,000, the notional exposure to the HSBC BRIC Markets Fund will be approximately $20,000 x 106.4% = $21,280 (see section titled What is the initial target exposure? on page 21). The resultant fees will be approximately $21,280 x 1.85% = $ p.a. As the HSBC BRIC Investment s notional exposure to the HSBC BRIC Markets Fund changes, the value of the asset management and administration fees that relate to your investment in the HSBC BRIC Investment will change proportionally. For example, if the dynamic portfolio increases the portfolio s 35

36 holding to $25,000 in the HSBC BRIC Markets Fund, your HSBC BRIC Investment return will be reduced daily at a rate of $ p.a. due to the HSBC BRIC Markets Fund fees. HSBC BRIC Markets Fund performance fee: $0 The shares in the HSBC BRIC Markets Fund to which the HSBC BRIC Investment s return will be linked have no performance fee. The above examples are used to explain the fees and are not intended to be indicative of the future performance of the HSBC BRIC Investment. Early withdrawal fee If you withdraw your HSBC BRIC Investment within the first three years of the issue date, an early withdrawal fee will apply. The early withdrawal fee reduces the longer you hold the HSBC BRIC Investment. There is a fee of 3% of your application amount if you withdraw within the first year, 2% within the second year and 1% within the third year. Once you have held the investment for three years there is no early withdrawal fee. However, if you withdraw prior to maturity, the investment is not 100% capital protected. For an application amount of $20,000, the early withdrawal fee for withdrawing: In the first year would be $600 In the second year would be $400 In the third year would be $200 After three years would be $0 GST is not applicable to early withdrawal fees. 36

37 10 How to invest in the HSBC BRIC Investment Who you should contact For general enquiries about this investment or HSBC, you may contact HSBC on , Monday to Friday from 9.00 am to 5.00 pm (Sydney time), or Financial advisers please call How to invest Your application to invest in the HSBC BRIC Investment should be made by completing the application form attached to this PDS. Your completed applications must be received by HSBC by post no later than 20 June 2008, 5pm Sydney time. Acceptance of applications HSBC has the discretion to reject any application without providing a reason and return the application amount, without interest, to you. If HSBC decides to accept your application, the acceptance will occur on or before issue date. A confirmation of the acceptance of your application to invest in the HSBC BRIC Investment will be sent to you within 5 business days of the issue date. Completed application forms must be accompanied by the application amount in a cheque drawn on an Australian bank and made payable to HSBC Bank Australia Limited, and mailed to: HSBC Bank Australia Limited C/O Registries Limited GPO Box 3993 Sydney NSW

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