1 HSBC BANK CANADA ISSUE OF HANG SENG CHINA ENTERPRISES INDEX LINKED DEPOSIT NOTE DUE APRIL 13, 2009 SETTLEMENT DATE: APRIL 13, 2004 STRIKE SETTING: APRIL 6, 2004 TRADE DATE: APRIL 5, 2004 INVESTMENT HIGHLIGHTS 5 year 100% Principal Protected Note Linked to the performance of the Hang Seng China Enterprises Index. Guaranteed minimum return of 6.00% on the maturity of the Note which equates to 1.17% p.a. compounded annually. Senior unsecured obligation of HSBC Bank Canada, rated AA(low) (DBRS), A+ (S&P) Variable is linked to the performance of the Hang Seng China Enterprises Index capped on a quarterly basis at 7.00%. Maximum maturity value of the Note is $2400 per $1,000 invested Maximum annual compounded rate of return of 19.14%.
2 HANG SENG CHINA ENTERPRISES INDEX Linked Note TERMS AND CONDTIONS Hang Seng China Enterprises Index 5 Year Maturity 100% Principal Protected at Maturity This term sheet is provided for discussion purposes only and it does not constitute either an offer or the solicitation of an offer to enter into a securities transaction. It is not intended to set forth a final expression of the terms and conditions of any transaction and it may be amended, superseded or replaced in its entirety by subsequent term sheets or other summaries of terms and conditions. This term sheet does not purport to identify or suggest all of the risks (direct or indirect) which may be associated with the purposed investment. This term sheet is subject to and should be read in conjunction with the Global Certificate. If there is any inconsistency between the conditions set forth herein and the terms and conditions of the Global Certificate, the terms of the Global Certificate prevail. HSBC recommends that the investor consult with a personal tax advisor to determine the tax consequences of purchasing this issue. Generally, interest paid on this issue will not be subject to Canadian withholding tax if held by a Non-Resident of Canada. Certain investors resident in Canada will be required to accrue the Minimum Interest Rate in their income on an annual basis for income tax purposes and any Variable in excess of the Minimum Interest Rate will be included in their income when the Note is redeemed by the Issuer The Note is subject to fluctuations in Index as more fully described below. The amount of interest payable on the Maturity Date shall be determined in arrears in relation to the sum of the quarterly returns of the Index over the term of the Note. Issuer: Instrument: Documentation: HSBC Bank Canada ( HSBC ) 100% Principal Protected Deposit, evidenced by a global note held by The Canadian Depository for Securities Limited ( CDS ). The Note pays interest in U.S. Dollars (USD) and the principal is also redeemed in USD. The Note will be issued by way of a single Global Certificate registered in the name of a nominee of CDS, deposited with CDS and reflecting the terms and conditions generally set out herein. Registration of interests in the Note and transfers of such interests will be made only through the book-entry-only ( BEO ) system of CDS. Interests in the Note must be purchased either directly or indirectly through a participant in the CDS BEO system. No noteholder will be entitled to any Note or other instrument from HSBC or CDS evidencing the -ownership thereof, and no noteholder will be shown on the records maintained by CDS, except through a CDS participating agent.
3 Denomination: Deposit Insurance: Issue Price: Index: U.S. Dollars (USD) The Note does not constitute a deposit that is insured under the Canada Deposit Insurance Corporation Act or any other similar legislation. 100% of Par Hang Seng China Enterprises Index Trade Date: April 5, 2004 Strike Setting Date: April 6, 2004 Issue Date/Settlement Date: April 13, 2004 Valuation Date: April 6, 2009 Maturity Date: April 13, 2009 Interest: Redemption: Variable : Quarterly Percentage Change Interest on the Notes will be determined, earned, credited and paid on the Maturity Date based upon the change in value of the Hang Seng China Enterprises Index ( Index ) during the term of the Notes. Interest will equal the Variable. The Principal Amount plus the Variable are payable on the Maturity Date ( Redemption Amount ) Will equal the Principal Amount multiplied by the sum of the Quarterly Percentage Change (positive or negative) of the Index throughout the term of the Note, subject to a maximum positive percentage change in any Quarter equal to the Quarterly Cap Rate. If the sum of the Quarterly Percentage Change for all Quarters is less than the Minimum Interest Rate, the Variable will equal the Principal Amount multiplied by the Minimum Interest Rate. The Quarterly Percentage Change will be will be measured by the following formula: Final Level Initial Level Min, Quarterly Initial Level Cap Rate
4 Where: Final Level: Initial Level: For each Quarter, the Closing Level of the Index as published by the sponsor on the last day of such Quarter. For each Quarter, the Final Level for the immediately preceding Quarter. For the first Quarter, the Initial Level will equal to the Closing Level of the Index on April 6, 2004. Quarterly Cap Rate: 7.00% Minimum Interest Rate: Quarter: 6.00% (over a 5 year period this is equivalent to 1.17% annually compounded rate of return) Each period beginning on one Reference Date and ending on (and including) the immediately following Reference Date. Reference Dates: The 6 th of each April, July, October, and January, subject to the Following Business Day convention. The first Reference Date being April 6, 2004 and the last Reference date being April 6, 2009, for a total of 21 Reference Dates. Calculation Agent: Agent: Listing: Security: HSBC Bank USA HSBC Securities (Canada) Inc. Not Listed The Note will constitute a deposit liability of HSBC ranking equally with all other deposit liabilities of HSBC without any preference among themselves and at least equally with all other unsecured and unsubordinated indebtedness and obligations of HSBC outstanding from time to time (except as otherwise prescribed by law). Issuers Rating: DBRS: AA(low), S&P: A+ Minimum Amounts: Business Day Convention: Business Day: US$10,000 and increments of US$1,000 thereafter subject to minimum issuance amount of USD $5 million. If an interest payment date, Maturity Date or Settlement Date or any other relevant date falls on a day that is not a Business Day, then that date will be the first following day that is a Business Day. A day on which commercial banks are opened for business in New York, Toronto, London, UK.
5 Risk Factors Include the Following: Other than the ability to obtain live unwind prices from the Issuer there may not be an active trading market in the Note. Sales in the secondary market and/or live unwind prices quoted for the Notes by the Issuer prior to maturity may result in losses. It is the current practice of HSBC to quote on request a live price (determined by HSBC in its sole discretion) which it would pay/charge for early termination of any NOTE of this type that it issues. HSBC may under certain conditions such as a market disruption event affecting the markets generally or HSBC specifically cease to provide live unwind prices. A live unwind price for a note of this type on any day of its term may be affected by thencurrent market conditions including liquidity. A live unwind price for a note of this type can change significantly from day to day over the life of the note. HSBC is under no obligation to hold a price quoted for any length of time unless this is agreed at the time of giving the quote. Movements in the level of the Index may affect whether or not certificate-holders receive more than the minimum coupon amount. If on the Valuation Date the sum of the quarterly returns on the Index is less than 6.00% then the Variable Coupon will be 6.00%. Hedging activities may create conflicts of interest between the investor and HSBC. We or one or more affiliates may hedge our obligations under the Notes by purchasing futures or options on the Index or shares of the companies comprising the Index or other derivative instruments with returns linked or related to changes in the performance of the Index, and we may adjust these hedges by, among other things, purchasing or selling shares, futures or options or other derivative instruments linked to the Index at any time. Although they are not expected to, any of these hedging activities may adversely affect the level of the Index and, therefore, the market value of the Notes. It is possible that we or one or more of our affiliates could receive substantial returns from these hedging activities while the market value of the Notes decline. Business activities may create conflicts of interest between the investor and HSBC. We or one or more of our affiliates may, at present or in the future, publish research reports with respect the Index or the Index Sponsor. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any of these activities may affect the level of the Index and, therefore, the market value of the Notes
6 Description of the Hang Seng China Enterprises Index
7 10 Year Historical Price of the Hang Seng China Enterprises Index (12/31/93 12/31/03) Source: Bloomberg
8 Scenario Examples This information is provided solely for illustration purposes. Hypothetical Example 1: Scenario where certain Quarters exceed the 7% Cap Level; Quarter End Date Final Level Percentage Change 10% Capped Quarterly Cumulative Capped Quarterly Issue Date Apr-04 1000 1st Quarter Jul-04 1070.5 7.05% 7.00% 7.00% 2nd Quarter Oct-04 1099.8 2.74% 2.74% 9.74% 3rd Quarter Jan-05 1199.9 9.10% 7.00% 16.74% 4th Quarter Apr-05 1151.9-4.00% -4.00% 12.74% 5th Quarter Jul-05 1245.9 8.16% 7.00% 19.74% 6th Quarter Oct-05 1289.0 3.46% 3.46% 23.20% 7th Quarter Jan-06 1297.0 0.62% 0.62% 23.82% 8th Quarter Apr-06 1337.8 3.15% 3.15% 26.96% 9th Quarter Jul-06 1289.9-3.58% -3.58% 23.38% 10th Quarter Oct-06 1389.8 7.74% 7.00% 30.38% 11th Quarter Jan-07 1373.1-1.20% -1.20% 29.18% 12th Quarter Apr-07 1400.3 1.98% 1.98% 31.16% 13th Quarter Jul-07 1552.8 10.89% 7.00% 38.16% 14th Quarter Oct-07 1500.0-3.40% -3.40% 34.76% 15th Quarter Jan-08 1548.1 3.21% 3.21% 37.97% 16th Quarter Apr-08 1585.9 2.44% 2.44% 40.41% 17th Quarter Jul-08 1671.5 5.40% 5.40% 45.81% 18th Quarter Oct-08 1695.0 1.40% 1.40% 47.22% 19th Quarter Jan-09 1690.8-0.25% -0.25% 46.97% 20th Quarter Apr-09 1715.8 1.48% 1.48% 48.45% Index Performance 71.58% Cumulative 48.45% In this scenario the Note would return the Principal invested plus a Variable of 48.45% (8.22% annually compounded rate of return).
9 Hypothetical Example 2: Where the Note pays out the minimum return Quarter End Date Final Level Percentage Change Capped Quarterly Cumulative Capped Quarterly Issue Date Apr-04 1000 1st Quarter Jul-04 1042.10 4.21% 4.21% 4.21% 2nd Quarter Oct-04 1066.07 2.30% 2.30% 6.51% 3rd Quarter Jan-05 1017.78-4.53% -4.53% 1.98% 4th Quarter Apr-05 977.06-4.00% -4.00% -2.02% 5th Quarter Jul-05 1032.46 5.67% 5.67% 3.65% 6th Quarter Oct-05 1007.38-2.43% -2.43% 1.22% 7th Quarter Jan-06 1018.56 1.11% 1.11% 2.33% 8th Quarter Apr-06 1039.95 2.10% 2.10% 4.43% 9th Quarter Jul-06 956.00-8.07% -8.07% -3.64% 10th Quarter Oct-06 965.00 0.94% 0.94% -2.70% 11th Quarter Jan-07 901.00-6.63% -6.63% -9.33% 12th Quarter Apr-07 1012.56 12.38% 7.00% -2.33% 13th Quarter Jul-07 1058.12 4.50% 4.50% 2.17% 14th Quarter Oct-07 1022.15-3.40% -3.40% -1.23% 15th Quarter Jan-08 1033.49 1.11% 1.11% -0.12% 16th Quarter Apr-08 997.32-3.50% -3.50% -3.62% 17th Quarter Jul-08 1019.26 2.20% 2.20% -1.42% 18th Quarter Oct-08 1107.90 8.70% 7.00% 5.58% 19th Quarter Jan-09 1023.24-7.64% -7.64% -2.06% 20th Quarter Apr-09 1050.86 2.70% 2.70% 0.63% Index Performance 5.09% Cumulative 0.63% In this scenario the Quarterly Capped is less than the guaranteed minimum return of 6.00%, Hence the Note would return the Principal invested plus a Variable of 6.00% (1.17% annually compounded rate of return).
10 Index Disclaimer: The Hang Seng China Enterprises Index ( Index ) is compiled and published by HSI Services Limited ( Sponsor ). The Transaction is not sponsored, endorsed, sold or promoted by the Sponsor, and the Sponsor makes no representation regarding the advisability of entering into the Transaction. The reference to the Index in the Transaction does not constitute a representation, express or implied, by the Sponsor or HSBC to any party to the Transaction regarding entering into the Transaction or the ability of the Index to track general stock market performance. The Index is determined, composed and calculated by the Sponsor without regard to HSBC or the Transaction, and the Sponsor has no obligation to take the needs of HSBC or any party to the Transaction into consideration in determining, composing or calculating the Index. The Sponsor is not responsible for and has not participated in the determination of the timing of, prices at, or other features of the Transaction, and the Sponsor has no obligation or liability in connection with the administration, marketing or trading of the Transaction. The Sponsor is under no obligation to continue the calculation and dissemination of Index, and neither the Sponsor nor HSBC shall have any responsibility to the other party to the Transaction for the calculation and dissemination of the Index or any errors or omissions therein. THE REFERENCE TO THE INDEX IN THE TRANSACTION DOES NOT CONSTITUTE A GUARANTEE BY HSBC OR THE SPONSOR OF THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN, AND NEITHER HSBC NOR THE SPONSOR SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERUPTIONS THEREIN. THE REFERENCE TO THE INDEX IN THE TRANSACTION DOES NOT CONSTITUTE A WARRANTY, EXPRESS OR IMPLIED, BY HSBC OR THE SPONSOR AS TO ANY MATTER, INCLUDING THE RESULTS TO BE OBTAINED BY THE OTHER PARTY TO THE TRANSACTION, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THERIN. ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN ARE EXPRESSLY DISCLAIMED. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL HSBC OR THE SPONSOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.