This
preliminary pricing supplement relates to an effective registration statement
under the Securities Act of 1933, but is not complete and may be changed.
We may
not sell these securities until we deliver a final pricing supplement.
This
preliminary pricing supplement, the accompanying prospectus supplement
and
prospectus are not an offer to sell these securities and are not soliciting
an
offer to buy these securities in any state where such an offer or sale
would not
be permitted.
Filed
pursuant to Rule 424(b)(5)
Registration
No. 333-136666
Subject
to Completion, dated January 12, 2007
PRICING
SUPPLEMENT
(To
Prospectus dated August 16, 2006 and
Prospectus
Supplement dated August 16, 2006)
The
Bear Stearns Companies Inc.
$[3,000,000]
Accelerated Market Participation Securities
Linked
to
the S&P 500®, Due February [l],
2008
|
·
|
The
Notes are linked to the performance of the S&P 500®
(the “Index”) and are not principal protected. When we refer to Notes in
this pricing supplement, we mean Notes with a principal amount of
$1,000.
On the Maturity Date, you will receive the “Cash Settlement Value,” an
amount in cash depending on the relation of the Final Index Level
to the
Initial Index Level.
|
|
·
|
If,
at maturity, the Final Index Level is greater than or equal to the
Initial
Index Level, we will pay you the principal amount of the Notes, plus
the
lesser of:
|
|
·
|
[200.00]%
of the percentage increase in the Index multiplied by the principal
amount
of the Notes, and
|
|
·
|
[17.70-17.80]%
(the maximum return on the Notes) multiplied by the principal amount
of
the Notes.
|
Thus,
if
the Final Index Level is greater than [108.85-108.90]% of the Initial Index
Level, regardless of the extent to which the Final Index Level is greater than
the Initial Index Level, we will pay you $[1,177.00-1,178.00] per Note, which
represents a maximum return of [17.70-17.80]%.
|
·
|
If,
at maturity, the Final Index Level is less than the Initial Index
Level,
you will receive less, and possibly significantly less, than the
principal
you invested. In this case, we will pay you, per Note:
|
|
·
|
$1,000
multiplied by an amount, in percentage terms, equal to the Final
Index
Level divided by the Initial Index
Level.
|
|
·
|
The
CUSIP number for the Notes is
073928T52.
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THERE MAY NOT BE A SECONDARY MARKET IN
THE
NOTES, AND IF THERE WERE TO BE A SECONDARY MARKET, IT MAY NOT BE LIQUID. YOU
SHOULD REFER TO “RISK FACTORS” BEGINNING ON PAGE PS-9.
“Standard
& Poor’s®,”
“S&P®,”
“S&P 500®,”
“Standard & Poor’s 500,” and “500” are trademarks of Standard & Poor’s,
a division of The McGraw-Hill Companies, Inc. (“S&P”) and have been licensed
for use for certain purposes by The Bear Stearns Companies Inc. The Notes are
not sponsored, endorsed, sold or promoted by S&P, and S&P makes no
representation regarding the advisability of investing in the
Notes.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Notes or determined that this pricing supplement,
or the accompanying prospectus supplement and prospectus, is truthful or
complete. Any representation to the contrary is a criminal
offense.
|
|
|
|
|
|
|
Per
Note
|
|
Total
|
Initial
public offering price
|
|
[100.00]%
|
|
$[l]
|
Agent’s
discount
|
|
[0.00]%
|
|
$[l]
|
Proceeds,
before expenses, to us
|
|
[100.00]%
|
|
$[l]
|
Any
additional reissuances will be offered at a price to be determined at the time
of pricing of each offering of Notes, which will be a function of the prevailing
market conditions and the level of the Index at the time of the relevant
sale.
We
may
grant Bear, Stearns & Co. Inc. a 30-day option from the date of this pricing
supplement to purchase from us up to an additional $[l]
of Notes
at the public offering price to cover any over-allotments.
We
expect
that the Notes will be ready for delivery in book-entry form only through the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about January [l],
2007,
against payment in immediately available funds. The distribution of the Notes
will conform to the requirements set forth in Rule 2720 of the National
Association of Securities Dealers, Inc. Conduct Rules.
_______________
Bear,
Stearns & Co. Inc.
January
[l],
2007
This
summary highlights selected information from the accompanying prospectus,
prospectus supplement and this pricing supplement to help you understand the
Notes linked to the Index. You should carefully read this entire pricing
supplement and the accompanying prospectus supplement and prospectus to fully
understand the terms of the Notes, as well as certain tax and other
considerations that are important to you in making a decision about whether
to
invest in the Notes. You should carefully review the section “Risk Factors” in
this pricing supplement and “Risk Factors” in the accompanying prospectus
supplement which highlight a number of significant risks, to determine whether
an investment in the Notes is appropriate for you. All of the information set
forth below is qualified in its entirety by the more detailed explanation set
forth elsewhere in this pricing supplement and the accompanying prospectus
supplement and prospectus. If information in this pricing supplement is
inconsistent with the prospectus or prospectus supplement, this pricing
supplement will supersede those documents. In this pricing supplement, the
terms
“we,” “us” and “our” refer only to The Bear Stearns Companies Inc. excluding its
consolidated subsidiaries.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B, Accelerated Market
Participation Securities (“AMPS”), Linked to the S&P 500®,
Due
February [l],
2008
(the “Notes”) are Notes whose return is tied or “linked” to the performance of
the Index. When we refer to Note or Notes in this pricing supplement, we mean
$1,000 principal amount of Notes. The Notes are not principal protected. On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in cash
depending on the relation of the Final Index Level to the Initial Index Level.
If, at maturity, the Final Index Level is greater than or equal to the Initial
Index Level, we will pay you the principal amount of the Notes, plus the lesser
of (i) [200.00]% of the percentage increase in the Index multiplied by the
principal amount of the Notes, and (ii) [17.70-17.80]% (the maximum return
on
the Notes) multiplied by the principal amount of the Notes. Thus, if the Final
Index Level is greater than [108.85-108.90]% of the Initial Index Level,
regardless of the extent to which the Final Index Level is greater than the
Initial Index Level, we will pay you $[1,177.00-1,178.00] per Note, which
represents a maximum return of [17.70-17.80]%. If, at maturity, the Final Index
Level is less than the Initial Index Level, you will receive less, and possibly
significantly less, than the original public offering price of $1,000 per each
$1,000 principal amount of Notes. In this case, we will pay you $1,000
multiplied by an amount, in percentage terms, equal to the Final Index Level
divided by the Initial Index Level.
Selected
Investment Considerations
|
·
|
Growth
potential—The return, if any, on the Notes is based upon whether the Final
Index Level is greater than or equal to the Initial Index
Level.
|
|
·
|
Potential
leverage in the increase, if any, in the Index—The Notes may be an
attractive investment for investors who have a bullish view of the
Index
in the short-term. If held to maturity, the Notes allow you to participate
in [200.00]% of the potential increase in the Index, not to exceed
the
maximum return of [17.70-17.80]%, representing a [8.85-8.90]% increase
in
the Initial Index Level.
|
|
·
|
Diversification—Because
the Index represents a broad spectrum of the United States equity
market,
the Notes may allow you to diversify an existing
portfolio.
|
|
·
|
Taxes—The
U.S. federal income tax consequences of an investment in the Notes
are
complex and uncertain. We intend to treat the Notes for all tax purposes
as pre-paid cash-settled executory contracts linked to the value
of the
Index and, where required, to file information returns with the Internal
Revenue Service in accordance with such treatment. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal
income
tax consequences of an investment in the Notes. Assuming the Notes
are
treated as pre-paid cash-settled executory contracts, you should
be
required to recognize capital gain or loss to the extent that the
cash you
receive on the Maturity Date or upon a sale or exchange of the Notes
prior
to the Maturity Date differs from your tax basis on the Notes (which
will
generally be the amount you paid for the
Notes).
|
Selected
Risk Considerations
|
·
|
Possible
loss of principal—The Notes are not principal protected. If the Final
Index Level is less than the Initial Index Level, there will be
no
principal protection on the Notes and the Cash Settlement Value
you will
receive will be less than the initial offering price in proportion
to the
percentage decline in the Index. In that case, you will receive
less, and
possibly significantly less, than the original public offering
price of
$1,000.
|
|
·
|
Maximum
return of [17.70-17.80]%—You will not receive more than the maximum return
of [17.70-17.80]% at maturity. Because the maximum return on the
Notes is
[17.70-17.80]%, the maximum Cash Settlement Value is $[1,177.00-1,178.00].
Therefore, the Cash Settlement Value will not reflect the increase
in the
value of the Notes if the Initial Index Level increases by more
than
[8.85-8.90]%.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the stocks underlying
the
Index, nor will such payments be included in the calculation of
the Cash
Settlement Value you will receive at
maturity.
|
|
·
|
Not
exchange listed—The Notes will not be listed on any securities exchange
and we do not expect a trading market to develop, which may affect
the
price that you receive for your Notes upon any sale prior to
maturity.
|
|
·
|
Liquidity—Because
the Notes will not be listed on any securities exchange, we do
not expect
a trading market to develop, and, if such a market were to develop,
it may
not be liquid. Our subsidiary, Bear, Stearns & Co. Inc. (“Bear
Stearns”) has advised us that they intend under ordinary market conditions
to indicate prices for the Notes on request. However, we cannot
guarantee
that bids for outstanding Notes will be made in the future; nor
can we
predict the price at which those bids will be made. In any event,
Notes
will cease trading as of the close of business on the Maturity
Date.
|
Key
Terms
|
|
|
Issuer:
|
|
The
Bear Stearns Companies Inc.
|
|
|
|
Index:
|
|
Standard
& Poor’s 500 Index® (ticker “SPX”), as published by S&P
(the “Sponsor”).
|
|
|
|
Face
amount:
|
|
Each
Note will be issued in minimum denominations of $1,000 and $1,000
multiples thereafter; provided, however, that the minimum purchase
for any
purchaser domiciled in a Member state of the European Union shall
be
$100,000. The aggregate principal amount of the Notes being offered
is
$[3,000,000]. When we refer to Note or Notes in this pricing supplement,
we mean Notes with a principal amount of $1,000.
|
|
|
|
Further
issuances:
|
|
Under
certain limited circumstances, and at our sole discretion, we may
offer
further issuances of the Notes. These further issuances, if any,
will be
consolidated to form a single series with the Notes and will have
the same
CUSIP number and will trade interchangeably with the Notes immediately
upon settlement.
|
|
|
|
Cash
Settlement Value:
|
|
On
the Maturity Date, you will receive the Cash Settlement Value, an
amount
in cash that depends upon the relation of the Final Index Level to
the
Initial Index Level. If, at maturity, the Final Index Level is greater
than or equal to the Initial Index Level, we will pay you the principal
amount of the Notes, plus the lesser of:
|
|
|
|
|
|
Thus,
if the Final Index Level is greater than [108.85-108.90]% of the
Initial
Index Level, regardless of the extent to which the Final Index Level
is
greater than the Initial Index Level, we will pay you $[1,177.00-1,178.00]
per Note, which represents a maximum return of
[17.70-17.80]%.
|
|
|
|
|
|
If,
at maturity, the Final Index Level is less than the Initial Index
Level,
you will receive less, and possibly significantly less, than the
principal
you invested. In this case, we will pay you, per Note:
|
|
|
|
|
|
|
Interest:
|
|
The
Notes will not bear interest.
|
|
|
|
Initial
Index Level:
|
|
Equals
[l],
the closing value of the Index on January [l],
2007.
|
|
|
|
Final
Index Level:
|
|
Will
be determined by the Calculation Agent and will equal the closing
value of
the Index on February [l],
2008, the “Calculation Date.” If that day is not an Index Business Day,
the next Index Business Day will be the Calculation
Date.
|
|
|
|
Maturity
Date:
|
|
The
Notes will mature on February [l],
2008.
|
|
|
|
Exchange
listing:
|
|
The
Notes will not be listed on any securities exchange.
|
|
|
|
Index
Business Day:
|
|
Means
any day on which the Primary Exchange and each Related Exchange are
scheduled to be open for
trading.
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $1,000, the minimum purchase for any purchaser
domiciled in a member state of the European Union shall be $100,000.
What
are the Notes?
The
Notes
are a series of our senior debt securities, the value of which is linked to
the
performance of the Index. The Notes will not bear interest, and no other
payments will be made prior to maturity. See the section “Risk
Factors.”
The
Notes
will mature on February [l],
2008.
The Notes do not provide for earlier redemption. When we refer to Notes in
this
pricing supplement, we mean Notes with a principal amount of $1,000. You should
refer to the section “Description of Notes.”
Are
the Notes equity or debt securities?
The
Notes
are our unsecured debt securities. However, the Notes differ from traditional
debt securities in that the Notes are not principal protected and offer the
opportunity to participate in [200.00]% of the positive performance of the
Index, if any, with a maximum return of [17.70-17.80]%. If, at maturity, the
Final Index Level is less than the Initial Index Level, you will receive less,
and possibly significantly less, than the original public offering price of
$1,000 per each $1,000 principal amount of Notes.
What
will I receive at maturity of the Notes?
Your
investment may result in a loss because the Notes are not principal protected.
On the Maturity Date, you will receive the Cash Settlement Value, an amount
in
cash that depends upon the relation of the Final Index Level to the Initial
Index Level. At maturity, if the Final Index Level is less than the Initial
Index Level, the Cash Settlement Value will be less than the initial offering
price in proportion to the percentage decline in the Index. In such a case,
the
principal amount of your investment is not protected and you will receive less,
and possibly significantly less, than the initial public offering price of
$1,000 per Note.
If,
at
maturity, the Final Index Level is greater than or equal to the Initial Index
Level, we will pay you the principal amount of the Notes, plus the lesser of:
Thus,
if
the Final Index Level is greater than [108.85-108.90]% of the Initial Index
Level, regardless of the extent to which the Final Index Level is greater than
the Initial Index Level, we will pay you $[1,177.00-1,178.00] per Note, which
represents a maximum return of [17.70-17.80]%.
If,
at
maturity, the Final Index Level is less than the Initial Index Level, you will
receive less, and possibly significantly less, than the principal you invested.
In this case, we will pay you, per Note:
The
“Initial
Index Level”
equals
[l],
the
closing value of the Index, as determined by the Sponsor, on January
[l],
2007.
The
“Final
Index Level”
will
be
determined by the Calculation Agent and will equal the closing value of the
Index, as determined by the Sponsor, on February [l],
2008,
the Calculation Date. If that day is not an Index Business Day, the next Index
Business Day will be the Calculation Date.
The
“Maturity Date” of the Notes is February [l],
2008.
“Related
Exchange” means each exchange or quotation system where trading has a material
effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the Index.
“Primary
Exchange” means the primary exchange or market of trading of any security then
included in the Index.
“Index
Business Day” means any day on which the Primary Exchange and each Related
Exchange are scheduled to be open for trading.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to “Description of the Notes.”
Will
there be an additional offering of the Notes?
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuance will increase the aggregate principal amount of the outstanding Notes
of this series to include the aggregate principal amount of any Notes bearing
the same CUSIP number that are issued pursuant to (i) any 30-day option we
grant
to Bear, Stearns & Co. Inc., and (ii) any future issuances of Notes bearing
the same CUSIP number. The price of any additional offerings will be determined
at the time of pricing of each offering, which will be a function of the
prevailing market conditions and level of the Index at the time of the relevant
sale.
Are
the Notes principal
protected?
No.
The
Notes are not principal protected and your principal investment in the Notes
is
at risk of loss. If the Final Index Level is less than the Initial Index Level,
the Cash Settlement Value you will receive will be proportionally less than
the
initial offering price, in proportion to the percentage decline in the Index.
In
this case your investment will result in a loss.
Will
I receive
interest on the Notes?
You
will
not receive any interest payments on the Notes, but will instead receive the
Cash Settlement Value upon maturity of the Notes.
What
is the Index?
Unless
otherwise stated, all information on the Index that is provided in this pricing
supplement is derived from the Sponsor or other publicly available sources.
The
Index is a capitalization-weighted index and is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the
level of the Index, discussed below in further detail, is based on the relative
value of the aggregate market value of the common stocks of 500 companies as
of
a particular time compared to the aggregate average market value of the common
stocks of 500 similar companies during the base period of the years 1941 through
1943.
As
of
January 11, 2007, the common stocks of 423 companies, or 84.6% of the market
capitalization of the Index, were traded on the New York Stock Exchange (“NYSE”
); the common stocks of 77 companies, or 15.4% of the market capitalization
of
the Index, were traded on The Nasdaq Stock Market (“Nasdaq”). As of that date,
none of the common stocks included in the Index were companies traded on the
American Stock Exchange (“AMEX”).
For
more
information, see the section “Description of the Index.”
How
has the Index performed historically?
We
have
provided tables and graphs depicting the monthly performance of the Index from
February 1998 through December 2006 and the year-end performance of the Index
from 1945 through 2006. You can find these tables and graphs in the section
“Description of the Index - Historical Data on the Index.” We have provided this
historical information to help you evaluate the behavior of the Index in various
economic environments; however, past performance is not indicative of the manner
in which the Index will perform in the future. You should refer to the section
“Risk Factors - The historical performance of the Index is not an indication
of
the future performance of the Index.”
Will
the Notes be listed on a securities exchange?
The
Notes
will not be listed on any securities exchange and we do not expect a trading
market to develop, which may affect the price that you receive for your Notes
upon any sale prior to maturity. Bear Stearns has advised us that they intend
under ordinary market conditions to indicate prices for the Notes on request.
However, we cannot guarantee that bids for outstanding Notes will be made in
the
future; nor can we predict the price at which those bids will be made. In any
event, the Notes will cease trading as of the close of business on the Maturity
Date. You should refer to the section “Risk Factors.”
What
is the role of Bear Stearns?
Bear
Stearns will be our agent for the offering and sale of the Notes. After the
initial offering, Bear Stearns intends to buy and sell the Notes to create
a
secondary market for holders of the Notes, and may stabilize or maintain the
market price of the Notes during the initial distribution of the Notes. However,
Bear Stearns will not be obligated to engage in any of these market activities
or to continue them once they are begun.
Bear
Stearns also will be our Calculation Agent for purposes of calculating the
Cash
Settlement Value. Under certain circumstances, these duties could result in
a
conflict of interest between Bear Stearns’ status as our subsidiary and its
responsibilities as Calculation Agent. Bear Stearns is obligated to carry out
its duties and functions as Calculation Agent in good faith, and using its
reasonable judgment. Manifest error by the Calculation Agent, or any failure
by
it to act in good faith, in making a determination adversely affecting the
payment of the Cash Settlement Value or interest on principal to the holders
of
the Notes would entitle the holders, or the Trustee (as defined herein) acting
on behalf of the holders, to exercise rights and remedies available under the
Indenture (as defined herein). If the Calculation Agent uses its discretion
to
make a determination, the Calculation Agent will notify us and the Trustee,
who
will provide notice to the holders. You should refer to “Risk Factors - The
Calculation Agent is one of our affiliates, which could result in a conflict
of
interest.”
Can
you tell me more about The Bear Stearns Companies Inc.?
We
are a
holding company that, through our broker-dealer and international bank
subsidiaries, principally Bear Stearns, Bear, Stearns Securities Corp., Bear,
Stearns International Limited (“BSIL”) and Bear Stearns Bank plc, is a leading
investment banking, securities and derivatives trading, clearance and brokerage
firm serving corporations, governments, institutional and individual investors
worldwide. For more information about us, please refer to the section “The Bear
Stearns Companies Inc.” in the accompanying prospectus. You should also read the
other documents we have filed with the Securities and Exchange Commission,
which
you can find by referring to the section “Where You Can Find More Information”
in the accompanying prospectus.
Who
should consider purchasing the Notes?
Because
the Notes are tied to the price performance of an underlying equity index,
they
may be appropriate for investors with specific investment horizons who seek
to
participate in the potential price appreciation of the underlying stocks
comprising the Index. In particular, the Notes may be an attractive investment
for investors who:
|
·
|
want
potential upside exposure to stocks underlying the
Index;
|
|
·
|
believe
that the Index will increase over the term of the Notes and that
such
increase will not exceed [17.70-17.80]%;
|
|
·
|
are
willing to risk the possible loss of 100% of their investment in
exchange
for the opportunity to participate in [200.00]% of the appreciation,
if
any, in the Index (up to the maximum return of [17.70-17.80]%),
and
|
|
·
|
are
willing to forgo interest payments or dividend payments on the stocks
underlying the Index.
|
The
Notes
may not be a suitable investment for you if:
|
·
|
you
seek full principal protection under all market
conditions;
|
|
·
|
you
seek current income or dividend payments from your
investment;
|
|
·
|
you
seek an investment that offers the possibility to fully participate
in the
potential appreciation of the
Index;
|
|
·
|
you
seek an investment with an active secondary
market;
|
|
·
|
you
are unable or unwilling to hold the Notes until maturity;
or
|
|
·
|
you
do not have a bullish view of the Index over the term of the
Notes.
|
What
Are the U.S. federal income tax consequences of investing in the
Notes?
The
U.S.
federal income tax consequences of an investment in the Notes are complex and
uncertain. We intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts linked to the value of the Index and, where
required, to file information returns with the Internal Revenue Service in
accordance with such treatment. Prospective investors are urged to consult
their
tax advisors regarding the U.S. federal income tax consequences of an investment
in the Notes. Assuming the Notes are treated as pre-paid cash-settled executory
contracts, you should be required to recognize capital gain or loss to the
extent that the cash you receive on the Maturity Date or upon a sale or exchange
of the Notes prior to the Maturity Date differs from your tax basis on the
Notes
(which will generally be the amount you paid for the Notes). You should review
the discussion under the section “Certain U.S. Federal Income Tax
Considerations.”
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to the fiduciary responsibility provisions of
the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), a plan
that is subject to Section 4975 of the Internal Revenue Code of 1986, as amended
(the “Code”), including individual retirement accounts, individual retirement
annuities or Keogh plans, a governmental or other plan subject to any similar
law or any entity the assets of which are deemed to be “plan assets” under
ERISA, Section 4975 of the Code, any applicable regulations or otherwise, will
be permitted to purchase, hold and dispose of the Notes, subject to certain
conditions. Such investors should carefully review the discussion under “Certain
ERISA Considerations” herein before investing in the Notes.
Are
there any risks associated with my investment?
Yes.
The
Notes are subject to a number of risks. You should refer to “Risk Factors” in
this pricing supplement and “Risk Factors” in the accompanying prospectus
supplement.
RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in the
Index. However, your ability to participate in the appreciation of the Index
is
limited to the maximum return on the Notes of [17.70-17.80]%. Therefore, the
maximum Cash Settlement Value is $[1,177.00-1,178.00] and the Cash Settlement
Value will not reflect the increase in the Index if the Initial Index Level
increases by more than [8.85-8.90]%. You will be subject to significant risks
not associated with conventional fixed-rate or floating-rate debt securities.
Prospective purchasers should recognize the possibility of a substantial loss
with respect to their investment in the Notes. Prospective purchasers of the
Notes should understand the risks of investing in the Notes and should reach
an
investment decision only after careful consideration, with their advisers,
of
the suitability of the Notes in light of their particular financial
circumstances, the following risk factors and the other information set forth
in
this pricing supplement and the accompanying prospectus supplement and
prospectus. These risks include the possibility that the Index will fluctuate,
and the possibility that you will receive a substantially lower amount of
principal than the amount you invested. We have no control over a number of
matters, including economic, financial, regulatory, geographic, judicial and
political events, that are important in determining the existence, magnitude,
and longevity of these risks and their influence on the value of, or the payment
made on, the Notes.
The
Notes are not principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes
are not principal protected. If the Final Index Level is less than the Initial
Index Level, there will be no principal protection on the Notes and the Cash
Settlement Value you will receive will be less than the initial offering price,
in proportion to the percentage decline in the Index. You may receive less,
and
possibly significantly less, than the original public offering price of $1,000
per Note.
You
will not receive any interest payments on the Notes.
Your yield may be lower than the yield on a conventional debt security of
comparable maturity.
You
will
not receive any periodic payments of interest or any other periodic payments
on
the Notes until maturity. On the Maturity Date, you will receive a payment
per
Note equal to the Cash Settlement Value. Thus, the overall return you earn
on
your Notes may be less than that you would have earned by investing in a
non-indexed debt security of comparable maturity that bears interest at a
prevailing market rate and is principal protected. For more specific information
about the Cash Settlement Value and for illustrative examples, you should refer
to the section “Description of the Notes.”
Your
yield will not reflect dividends on the underlying stocks that comprise the
Index.
The
Index
does not reflect the payment of dividends on the stocks underlying it.
Therefore, the yield based on the Index to the maturity of the Notes will not
produce the same yield as if you had purchased such underlying stocks and held
them for a similar period. You
should refer to “Description of the Notes.”
You
must rely on your own evaluation of the merits of an investment linked to the
Index.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Index and in the stocks underlying the Index. These
views may vary over differing time horizons and are subject to change without
notice. Moreover, other professionals who deal in the equity markets may at
any
time have views that differ significantly than ours. In connection with your
purchase of the Notes, you should investigate the Index and the stocks that
underlie the Index and not rely on our views with respect to future movements
in
these industries and stocks. You should make such investigation as you deem
appropriate as to the merits of an investment linked to the Index.
Your
return cannot exceed [17.70-17.80]% over the term of the Notes, regardless
of
the positive percentage increase of the Final Index Level.
If
the
Final Index Level appreciates by more than [8.85-8.90]%, the Cash Settlement
Value you will receive will equal the sum of the
principal amount of the Notes, plus the product
of the principal amount of Notes and [17.70-17.80]%. Under these circumstances,
the Cash Settlement Value you receive at maturity may not fully reflect the
performance of the Index.
Because
the treatment of the Notes is uncertain, the material U.S.
federal income tax consequences of an investment in the Notes are
uncertain.
Although
we intend to treat the Notes for all tax purposes as pre-paid cash-settled
executory contracts linked to the Index, there is no direct legal authority
as
to the proper tax treatment of the Notes, and therefore significant aspects
of
the tax treatment of the Notes are uncertain. In particular, it is possible
that
you will be required to recognize income for U.S. federal tax purposes with
respect to the Notes prior to the sale, exchange or maturity of the Notes,
and
it is possible that any gain or income recognized with respect to the Notes
will
be treated as ordinary income rather than capital gain. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in the Notes. Please read carefully the section
“Certain U.S. Federal Income Tax Considerations.”
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the value of the Index will fluctuate in accordance with changes in the
financial condition of the companies issuing the common stocks comprising the
Index, the value of the underlying common stocks comprising the Index generally
and other factors. The financial condition of the companies issuing the common
stocks comprising the Index may become impaired or the general condition of
the
equity market may deteriorate, either of which may cause a decrease in the
value
of the Index and thus in the value of the Notes. Common stocks are susceptible
to general equity market fluctuations and to volatile increases and decreases
in
value, as market confidence in and perceptions regarding the underlying common
stocks comprising the Index change. Investor perceptions regarding the companies
issuing the common stocks comprising the Index are based on various and
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic, and banking crises.
The value of the Index may be expected to fluctuate until the Maturity
Date.
The
historical performance of the Index is not an indication of the future
performance of the Index.
The
historical performance of the Index, which is included in this pricing
supplement, should not be taken as an indication of the future performance
of
the Index. While the trading prices of the underlying common stocks comprising
the Index will determine the value of the Index, it is impossible to predict
whether the value of the Index will fall or rise. Trading prices of the
underlying common stocks comprising the Index will be influenced by the complex
and interrelated economic, financial, regulatory, geographic, judicial,
political and other factors that can affect the capital markets generally and
the equity trading markets on which the underlying common stocks are traded,
and
by various circumstances that can influence the values of the underlying common
stocks in a specific market segment or the value of a particular underlying
stock.
The
price at which you will be able to sell your Notes prior to maturity will depend
on a number of factors, and may be substantially less than the amount you had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
alternative would be to sell them. At that time, there may be an illiquid market
for Notes or no market at all. Even if you were able to sell your Notes, there
are many factors outside of our control that may affect their trading value.
We
believe that the value of your Notes will be affected by the value and
volatility of the Index, whether the level of the Index is greater than or
equal
to the Initial Index Level, changes in U.S. interest rates, the supply of and
demand for the Notes and a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may
be
offset or magnified by the effect of another factor. The price, if any, at
which
you will be able to sell your Notes prior to maturity may be substantially
less
than the amount you originally invested if, at such time, the level of the
Index
is less than, equal to or not sufficiently above the Initial Index Level. The
following paragraphs describe the manner in which we expect the trading value
of
the Notes will be affected in the event of a change in a specific factor,
assuming all other conditions remain constant.
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Index
performance.
We expect that the value of the Notes prior to maturity will depend
substantially on whether the level of the Index is greater than the
Initial Index Level or the amount by which the Final Index Level
at any
given point in time is less than the Initial Index Level. If you
decide to
sell your Notes when the level of the Index exceeds the Initial Index
Level, you may nonetheless receive substantially less than the amount
that
would be payable at maturity based on that Index Level because of
expectations that the Index Level will continue to fluctuate until
the
Final Index Level is determined. Economic, financial, regulatory,
geographic, judicial, political and other developments that affect
the
common stocks in the Index may also affect the level of the Index
and,
thus, the value of the Notes.
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Volatility
of the Index.
Volatility is the term used to describe the size and frequency of
market
fluctuations. If the volatility of the Index increases or decreases,
the
trading value of the Notes may be adversely affected. This volatility
may
increase the risk that the level of the Index will decline, which
could
negatively affect the trading value of Notes. The effect of the volatility
of the Index on the trading value of the Notes may not necessarily
decrease over time during the term of the
Notes.
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Interest
rates.
We expect that the trading value of the Notes will be affected by
changes
in U.S. interest rates. In general, if U.S. interest rates increase,
the
value of the Notes may decrease, and if U.S. interest rates decrease,
the
value of the Notes may increase. Interest rates may also affect the
economy and, in turn, the value of the Index, which (for the reasons
discussed above) would affect the value of the Notes. Rising interest
rates may lower the value of the Index and, thus, the value of the
Notes.
Falling interest rates may increase the value of the Index and, thus,
the
value of the Notes.
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Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A1 by
Moody’s
Investor Service, Inc. and A+ by Standard & Poor’s Rating Services, as
well as our financial condition or results of operations may significantly
affect the trading value of the Notes. However, because the return
on the
Notes is dependent upon factors in addition to our ability to pay
our
obligations under the Notes, such as the level of the Index, an
improvement in our credit ratings, financial condition or results
of
operations is not expected to have a positive effect on the trading
value
of the Notes.
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Time
remaining to maturity.
As the time remaining to maturity of the Notes decreases, the “time
premium” associated with the Notes will decrease. A “time premium” results
from expectations concerning the value of the Index during the period
prior to the maturity of the Notes. As the time remaining to the
maturity
of the Notes decreases, this time premium will likely decrease,
potentially adversely affecting the trading value of the Notes. As
the
time remaining to maturity decreases, the trading value of the Notes
and
the supplemental return may be less sensitive to the volatility of
the
Index.
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Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks in the Index. In general, because the Index does not incorporate
the value of dividend payments, higher dividend yields will likely
reduce
the value of the Notes and, conversely, lower dividend yields will
likely
increase the value of the Notes.
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Events
involving the companies issuing the common stocks comprising the
Index.
General economic conditions and earnings results of the companies
whose
stocks comprise the Index, and real or anticipated changes in those
conditions or results, may affect the trading value of the Notes.
Some of
the stocks included in the Index may be affected by mergers and
acquisitions, which can contribute to volatility of the Index. As
a result
of a merger or acquisition, one or more stocks in the Index may be
replaced with a surviving or acquiring entity’s securities. The surviving
or acquiring entity’s securities may not have the same characteristics as
the stock originally included in the
Index.
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Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange and we do
not
expect a trading market to develop. There may not be a secondary
market in
the Notes, which may affect the price that you receive for your Notes
upon
any sale prior to maturity. If a trading market does develop, there
can be
no assurance that there will be liquidity in the trading market.
If the
trading market for the Notes is limited, there may be a limited number
of
buyers for your Notes if you do not wish to hold your investment
until
maturity. This may affect the price you receive upon any sale of
the Notes
prior to maturity.
|
Bear
Stearns has advised us that they intend under ordinary market conditions to
indicate prices for the Notes on request. However, we cannot guarantee that
bids
for outstanding Notes will be made in the future, nor can we predict the price
at which any such bids will be made.
We
want
you to understand that the effect of one of the factors specified above, such
as
an increase in interest rates, may offset some or all of any change in the
value
of the Notes attributable to another factor, such as an increase in the value
of
the Index.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any of the stocks underlying the
Index. Neither you nor any other holder or owner of the Notes will have any
voting rights, any right to receive dividends or other distributions or any
other rights with respect to the underlying stocks. The Notes will be paid
in
cash, and you will have no right to receive delivery of any stocks underlying
the Index.
State
law may limit interest paid.
New
York
State law governs the Indenture under which the Notes will be issued. New York
has certain usury laws that limit the amount of interest that can be charged
and
paid on loans, including debt securities such as the Notes. Under present New
York law, the maximum rate of interest is 25% per annum, on a simple interest
basis. This limit may not apply to debt securities in which $2,500,000 or more
has been invested.
While
we
believe that New York law would be given effect by a state or federal court
sitting outside of New York, many other states also have laws that regulate
the
amount of interest that may be charged to and paid by a borrower. We will
promise, for your benefit as a holder of the Notes, to the extent permitted
by
law, not to voluntarily claim the benefits of any laws concerning usurious
rates
of interest.
The
Calculation Agent is one of our affiliates, which could result in a conflict
of
interest.
Bear
Stearns will act as the Calculation Agent. The Calculation Agent will make
certain determinations and judgments in connection with calculating the Final
Index Level, or deciding whether a Market Disruption Event (as defined herein)
has occurred. You should refer to “Description of the Notes - Discontinuance of
the Index,” “- Adjustments to the Index” and “- Market Disruption Events.”
Because Bear Stearns is our affiliate, conflicts of interest may arise in
connection with Bear Stearns performing its role as Calculation Agent. Rules
and
regulations regarding broker-dealers (such as Bear Stearns) require Bear Stearns
to maintain policies and procedures regarding the handling and use of
confidential proprietary information, and such policies and procedures will
be
in effect throughout the term of the Notes. Bear Stearns is obligated to carry
out its duties and functions as Calculation Agent in good faith, and using
its
reasonable judgment. See “Description of the Notes - Calculation
Agent.”
Our
affiliates, including Bear Stearns, may, at various times, engage in
transactions involving the stocks underlying the Index for their proprietary
accounts, and for other accounts under their management. These transactions
may
influence the value of such stocks, and therefore the level of the Index. BSIL,
an affiliate of Bear Stearns, or one of its subsidiaries will also be the
counterparty to the hedge of our obligations under the Notes. You should refer
to “Use of Proceeds and Hedging.” Accordingly, under certain circumstances,
conflicts of interest may arise between Bear Stearns’ responsibilities as
Calculation Agent with respect to the Notes and its obligations under our
hedge.
Changes
that affect the calculation of the Index will affect the trading
value of the Notes and the amount you will receive at
maturity.
The
Sponsor is responsible for calculating and maintaining the Index. The policies
of the Sponsor concerning the calculation of the Index will affect the value
of
the Index and, therefore, will affect the trading value of the Notes and the
Cash Settlement Value.
If
the
Sponsor discontinues or suspends calculation or publication of the Index, it
may
become difficult to determine the trading value of the Notes or the Cash
Settlement Value. If this occurs, the Calculation Agent will determine the
value
of the Notes. As a result, the Calculation Agent’s determination of the value of
the Notes will affect the amount you will receive at maturity. In addition,
if
the Sponsor discontinues or suspends calculation of the Index at any time prior
to the Maturity Date and a Successor Index (as defined herein) is not available
or is not acceptable to the Calculation Agent, then the Calculation Agent will
determine the amount payable on the Maturity Date by reference to a group of
stocks and a computation methodology that the Calculation Agent determines
will
as closely as reasonably possible replicate the Index. The value of the Index
is
only one of the factors that will affect this determination and the value of
the
Notes prior to maturity. See “Description of the Notes - Discontinuance of the
Index” and “Description of the Index.”
The
Sponsor may change the companies underlying the Index in a way that adversely
affects the level of the Index and consequently the value of the
Notes.
The
Sponsor can add, delete or substitute the stocks underlying the Index or make
other methodological changes that could adversely change the level of the Index
and the value of the Notes. You should realize that changes in the companies
included in the Index may affect the Index, as a newly added company may perform
significantly better or worse than the company or companies it
replaces.
We
cannot control actions by the companies whose stocks are included in the
Index.
We
are
not affiliated with any of the other companies whose stock underlies the Index.
Actions by any company whose stock is part of the Index may have an adverse
effect on the price of its stock, the trading price of and the closing level
of
the Index, and the trading value of the Notes. These companies are not involved
in this offering and have no obligations with respect to the Notes, including
any obligation to take our or your interests into consideration for any reason.
These companies will not receive any of the proceeds of this offering and are
not responsible for, and have not participated in, the determination of the
timing of, prices for, or quantities of, the Notes to be issued. These companies
are not involved with the administration, marketing or trading of the Notes
and
have no obligations with respect to the amount to be paid to you on the Maturity
Date.
We
are
not affiliated with any company included in the Index and are not responsible
for any disclosure by any such company. However, we may currently, or in the
future, engage in business with such companies. Neither we nor any of our
affiliates, including Bear Stearns, assumes any responsibility for the adequacy
or accuracy of any publicly available information about the Index or any company
included in the Index. You should make your own investigation into the Index
and
the companies underlying the Index.
We
and our affiliates have no affiliation with the Sponsor and are not responsible
for its public disclosure of information.
We
and
our affiliates are not affiliated in any way with the Sponsor (except for the
licensing arrangements discussed in the section “Description of the
Index—License Agreement”) and have no ability to control or predict the
Sponsor’s actions, including any errors in or discontinuation of disclosure
regarding its methods or policies relating to the calculation of the Index.
Neither we nor any or our affiliates assumes any responsibility for the adequacy
or accuracy of the information about the Index or the Sponsor contained in
this
pricing supplement. You, as an investor in the Notes, should make your own
investigation into the Index and the Sponsor. The Sponsor is not involved in
any
way in the offering of the Notes and has no obligation to consider your
interests as an owner of Notes when it takes any actions that might affect
the
value of the Notes.
Trading
and other transactions by us or our affiliates could affect the prices of the
stocks underlying the Index, the level of the Index, the trading value of the
Notes or the amount you may receive at maturity.
We
and
our affiliates may from time to time buy or sell shares of the stocks underlying
the Index or derivative instruments related to those stocks for our own accounts
in connection with our normal business practices or in connection with hedging
our obligations under the Notes. These trading activities may present a conflict
of interest between your interest in the Notes and the interests we and our
affiliates may have in our proprietary accounts, in facilitating transactions,
including block trades, for our other customers and in accounts under our
management. The transactions could affect the prices of those stocks or the
level of the Index in a manner that would be adverse to your investment in
the
Notes. See the section “Use of Proceeds and Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Bear
Stearns will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Bear Stearns as a result of transaction costs.
Hedging
activities we or our affiliates may engage in may affect the level of the Index
and, accordingly, increase or decrease the trading value of the Notes prior
to
maturity and the Cash Settlement Value you would receive at maturity. To the
extent that we or any of our affiliates has a hedge position in any of the
stocks that comprise the Index, or derivative or synthetic instruments related
to those stocks or the Index, we or any of our affiliates may liquidate a
portion of such holdings at or about the time of the maturity of the Notes
or at
or about the time of a change in the stocks that underlie the Index. Depending
on, among other things, future market conditions, the aggregate amount and
the
composition of such hedge positions are likely to vary over time. Profits or
losses from any of those positions cannot be ascertained until the position
is
closed out and any offsetting position or positions are taken into account.
Although we have no reason to believe that any of those activities will have
a
material effect on the level of the Index, we cannot assure you that these
activities will not affect such level and the trading value of the Notes prior
to maturity or the Cash Settlement Value payable at maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the
future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports on the Index or the companies issuing the common stock included
in the Index. This research may be 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 market
price of common stocks included in the Index and, therefore, the value of the
Notes.
We
or any
of our affiliates may also issue, underwrite or assist unaffiliated entities
in
the issuance or underwriting of other securities or financial instruments with
returns indexed to the Index. By introducing competing products into the
marketplace in this manner, we or our affiliates could adversely affect the
value of the Notes.
We
and
our affiliates, at present or in the future, may engage in business with the
companies issuing the common stock included in the Index, including making
loans
to, equity investments in, or providing investment banking, asset management
or
other advisory services to those companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Calculation Date, a Market Disruption
Event has occurred or is continuing, the determination of the value of the
Index
by the Calculation Agent may be deferred. You should refer to the section
“Description of the Notes - Market Disruption Events.”
If
the
Calculation Agent determines that an Event of Default (as defined below) has
occurred, a holder of the Notes will only receive an amount equal to the trading
value of the Notes on the date of such Event of Default, adjusted by an amount
equal to any losses, expenses and costs to us of unwinding any underlying
hedging or funding arrangements, all as determined by the Calculation Agent.
You
should refer to the section “Description of the Notes—Event of Default and
Acceleration.”
You
should decide to purchase the Notes only after carefully considering the
suitability of the Notes in light of your particular financial circumstances.
You should also carefully consider the tax consequences of investing in the
Notes. You should refer to the section “Certain U.S. Federal Income Tax
Considerations” and discuss the tax implications with your own tax
advisor.
Description
of the Notes
The
following description of the Notes (referred to in the accompanying prospectus
supplement as the “Other Indexed Notes”) supplements the description of the
Notes in the accompanying prospectus supplement and prospectus. This is a
summary and is not complete. You should read the indenture, dated as of May
31,
1991, as amended (the “Indenture”), between us and JPMorgan Chase Bank, N.A.
(formerly, The Chase Manhattan Bank), as trustee (the “Trustee”). A copy of the
Indenture is available as set forth under the section of the prospectus “Where
You Can Find More Information.”
General
The
Notes
are part of a single series of debt securities under the Indenture described
in
the accompanying prospectus supplement and prospectus designated as Medium-Term
Notes, Series B. The Notes are unsecured and will rank equally with all of
our
unsecured and unsubordinated debt, including the other debt securities issued
under the Indenture. Because we are a holding company, the Notes will be
effectively subordinated to the claims of creditors of our subsidiaries.
The
aggregate principal amount of the Notes will be $[3,000,000]. The Notes will
mature on February [l],
2008
and do not provide for earlier redemption. The Notes will be issued only in
fully registered form, and in minimum denominations of $1,000; provided,
however, that the minimum purchase for any purchaser domiciled in a member
state
of the European Union shall be $100,000. Initially, the Notes will be issued
in
the form of one or more global securities registered in the name of DTC or
its
nominee, as described in the accompanying prospectus supplement and prospectus.
When we refer to Note or Notes in this pricing supplement, we mean $1,000
principal amount of Notes. The Notes will not be listed on any securities
exchange.
You
should refer to the section “Certain U.S. Federal Income Tax Considerations,”
for a discussion of certain federal income tax considerations to you as a holder
of the Notes.
Interest
We
will
not make any periodic payments of interest on the Notes or any other payments
on
the Notes, until maturity.
Payment
at Maturity
Your
investment may result in a loss because the Notes are not principal protected.
On the Maturity Date you will receive the Cash Settlement Value, an amount
in
cash that depends upon the relation of the Final Index Level to the Initial
Index Level. At maturity, if the Final Index Level is less than the Initial
Index Level, the Cash Settlement Value will be less than the initial offering
price, in proportion to the percentage decline in the Index. In such a case,
the
principal amount of your investment is not protected and you will receive less,
and possibly significantly less, than the initial public offering price of
$1,000 per Note.
If,
at
maturity, the Final Index Level is greater than or equal to the Initial Index
Level, we will pay you the principal amount of the Notes, plus the lesser of:
Thus,
if
the Final Index Level is greater than [108.85-108.90]% of the Initial Index
Level, regardless of the extent to which the Final Index Level is greater than
the Initial Index Level, we will pay you $[1,177.00-1,178.00] per Note, which
represents a maximum return of [17.70-17.80]%.
If,
at
maturity, the Final Index Level is less than the Initial Index Level, you will
receive less, and possibly significantly less, than the principal you invested.
In this case, we will pay you, per Note:
The
“Initial
Index Level”
equals
[l],
the
closing value of the Index, as determined by the Sponsor, on January
[l],
2007.
The
“Final
Index Level”
will
be
determined by the Calculation Agent and will equal the closing value of the
Index, as determined by the Sponsor, on February [l],
2008,
the Calculation Date. If that day is not an Index Business Day, the next Index
Business Day will be the Calculation Date.
The
“Maturity Date” of the Notes is February [l],
2008.
“Related
Exchange” means each exchange or quotation system where trading has a material
effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the Index.
“Primary
Exchange” means the primary exchange or market of trading of any security then
included in the Index.
“Index
Business Day” means any day on which the Primary Exchange and each Related
Exchange are scheduled to be open for trading.
Illustrative
Examples
The
following tables and graphs are for illustrative purposes and are not indicative
of the future performance of the Index or the future value of the
Notes.
Because
the level of the Index may be subject to significant fluctuation over the term
of the Notes, it is not possible to present a chart or table illustrating the
complete range of all possible Cash Settlement Values. Therefore, the examples
do not purport to be representative of every possible scenario concerning
increases or decreases in the Index. You should not construe these examples
or
the data included in table and graph as an indication or assurance of the
expected performance of the Notes.
You
can
review the historical levels of the Index in the section of this pricing
supplement called “Description of the Index.” The historical performance of the
Index included in this pricing supplement should not be taken as an indication
of the future performance of the Index during the term of the Notes. It is
impossible to predict whether the level of the Index will rise or fall during
the term of the Notes.
The
examples demonstrating the hypothetical Cash Settlement Value of a Note are
based on the following assumptions:
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Investor
purchases $1,000 aggregate principal amount of Notes at the initial
public
offering price of $1,000.
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Investor
holds the Notes to maturity.
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The
Initial Index Level is equal to
1,425.00.
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The
maximum return on the Notes is
[17.70]%
|
|
·
|
All
returns are based on a 13-month term; pre-tax
basis.
|
|
·
|
No
Market Disruption Events occur during the term of the
Notes.
|
Example
1: The
Final Index Level is greater than the Initial Index Level.
In
this
example, the Index rises over the term of the Notes. On the Calculation Date,
the Final Index Level is 1,467.75, representing a 3.00% gain from the Initial
Index Level. In this example, using the formula below, the Cash Settlement
Value
will equal $1,060.00.
Example
2: The
Final Index Level is greater than [108.85]% of the Initial Index Level,
exceeding the maximum return.
In
this
example, the Index rises over the term of the Notes. On the Calculation Date,
the Final Index Level is 1,781.25 representing a 25.00% gain from the Initial
Index Level. In this example, using the formula below, the Cash Settlement
Value
will equal $1,177.00.
Example
3: The Final Index Level is equal to the Initial Index
Level.
In
this
example, the Index remains unchanged over the term of the Notes. On the
Calculation Date, the Final Index Level is 1,425.00, equal to the Initial Index
Level. In this example, using the formula below, the Cash Settlement Value
will
equal $1,000.00.
Example
4: The Final
Index Level is less than the Initial Index Level.
In
this
example, the Index declines over the term of the Notes. On the Calculation
Date,
the Final Index Level is 1,068.75, representing a 25% loss in the value of
the
Index from the Initial Index Level. The Cash Settlement Value, using the formula
below, will equal $750.00.
Summary
of Examples 1 Through 4
Reflecting
the Cash Settlement Value
|
|
Example
1
|
|
Example
2
|
|
Example
3
|
|
Example
4
|
|
Initial
Index Level
|
|
|
1,425.00
|
|
|
1,425.00
|
|
|
1,425.00
|
|
|
1,425.00
|
|
Hypothetical
Final Index Level
|
|
|
1,467.75
|
|
|
1,781.25
|
|
|
1,425.00
|
|
|
1,068.75
|
|
Value
of Final Index Level relative to the Initial Index Level
|
|
|
Higher
|
|
|
Higher
|
|
|
Equal
|
|
|
Lower
|
|
Principal
fully repaid?
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
No
|
|
Cash
Settlement Value per Note
|
|
$
|
1,060.00
|
|
$
|
1,177.00
|
|
$
|
1,000.00
|
|
$
|
750.00
|
|
Table
of Hypothetical Cash Settlement Values
Initial
Index Level
|
|
Final
Index Level
|
|
Percentage
Change in Index
|
|
Cash
Settlement Value Per Note
|
|
Return
if Held to Maturity
|
|
Initial
Index Level
|
|
Final
Index Level
|
|
Percentage
Change in Index
|
|
Cash
Settlement Value Per Note
|
|
Return
if Held to Maturity
|
|
1,425.00
|
|
|
1,775.00
|
|
|
+24.56%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,412.50
|
|
|
-0.88%
|
|
$
|
991.23
|
|
|
-0.88%
|
|
1,425.00
|
|
|
1,762.50
|
|
|
+23.68%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,400.00
|
|
|
-1.75%
|
|
$
|
982.46
|
|
|
-1.75%
|
|
1,425.00
|
|
|
1,750.00
|
|
|
+22.81%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,387.50
|
|
|
-2.63%
|
|
$
|
973.68
|
|
|
-2.63%
|
|
1,425.00
|
|
|
1,737.50
|
|
|
+21.93%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,375.00
|
|
|
-3.51%
|
|
$
|
964.91
|
|
|
-3.51%
|
|
1,425.00
|
|
|
1,725.00
|
|
|
+21.05%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,362.50
|
|
|
-4.39%
|
|
$
|
956.14
|
|
|
-4.39%
|
|
1,425.00
|
|
|
1,712.50
|
|
|
+20.18%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,350.00
|
|
|
-5.26%
|
|
$
|
947.37
|
|
|
-5.26%
|
|
1,425.00
|
|
|
1,700.00
|
|
|
+19.30%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,337.50
|
|
|
-6.14%
|
|
$
|
938.60
|
|
|
-6.14%
|
|
1,425.00
|
|
|
1,687.50
|
|
|
+18.42%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,325.00
|
|
|
-7.02%
|
|
$
|
929.82
|
|
|
-7.02%
|
|
1,425.00
|
|
|
1,675.00
|
|
|
+17.54%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,312.50
|
|
|
-7.89%
|
|
$
|
921.05
|
|
|
-7.89%
|
|
1,425.00
|
|
|
1,662.50
|
|
|
+16.67%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,300.00
|
|
|
-8.77%
|
|
$
|
912.28
|
|
|
-8.77%
|
|
1,425.00
|
|
|
1,650.00
|
|
|
+15.79%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,287.50
|
|
|
-9.65%
|
|
$
|
903.51
|
|
|
-9.65%
|
|
1,425.00
|
|
|
1,637.50
|
|
|
+14.91%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,275.00
|
|
|
-10.53%
|
|
$
|
894.74
|
|
|
-10.53%
|
|
1,425.00
|
|
|
1,625.00
|
|
|
+14.04%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,262.50
|
|
|
-11.40%
|
|
$
|
885.96
|
|
|
-11.40%
|
|
1,425.00
|
|
|
1,612.50
|
|
|
+13.16%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,250.00
|
|
|
-12.28%
|
|
$
|
877.19
|
|
|
-12.28%
|
|
1,425.00
|
|
|
1,600.00
|
|
|
+12.28%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,237.50
|
|
|
-13.16%
|
|
$
|
868.42
|
|
|
-13.16%
|
|
1,425.00
|
|
|
1,587.50
|
|
|
+11.40%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,225.00
|
|
|
-14.04%
|
|
$
|
859.65
|
|
|
-14.04%
|
|
1,425.00
|
|
|
1,575.00
|
|
|
+10.53%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,212.50
|
|
|
-14.91%
|
|
$
|
850.88
|
|
|
-14.91%
|
|
1,425.00
|
|
|
1,562.50
|
|
|
+9.65%
|
|
$
|
1,177.00
|
|
|
17.70%
|
|
|
1,425.00
|
|
|
1,200.00
|
|
|
-15.79%
|
|
$
|
842.11
|
|
|
-15.79%
|
|
1,425.00
|
|
|
1,550.00
|
|
|
+8.77%
|
|
$
|
1,175.44
|
|
|
17.54%
|
|
|
1,425.00
|
|
|
1,187.50
|
|
|
-16.67%
|
|
$
|
833.33
|
|
|
-16.67%
|
|
1,425.00
|
|
|
1,537.50
|
|
|
+7.89%
|
|
$
|
1,157.89
|
|
|
15.79%
|
|
|
1,425.00
|
|
|
1,175.00
|
|
|
-17.54%
|
|
$
|
824.56
|
|
|
-17.54%
|
|
1,425.00
|
|
|
1,525.00
|
|
|
+7.02%
|
|
$
|
1,140.35
|
|
|
14.04%
|
|
|
1,425.00
|
|
|
1,162.50
|
|
|
-18.42%
|
|
$
|
815.79
|
|
|
-18.42%
|
|
1,425.00
|
|
|
1,512.50
|
|
|
+6.14%
|
|
$
|
1,122.81
|
|
|
12.28%
|
|
|
1,425.00
|
|
|
1,150.00
|
|
|
-19.30%
|
|
$
|
807.02
|
|
|
-19.30%
|
|
1,425.00
|
|
|
1,500.00
|
|
|
+5.26%
|
|
$
|
1,105.26
|
|
|
10.53%
|
|
|
1,425.00
|
|
|
1,137.50
|
|
|
-20.18%
|
|
$
|
798.25
|
|
|
-20.18%
|
|
1,425.00
|
|
|
1,487.50
|
|
|
+4.39%
|
|
$
|
1,087.72
|
|
|
8.77%
|
|
|
1,425.00
|
|
|
1,125.00
|
|
|
-21.05%
|
|
$
|
789.47
|
|
|
-21.05%
|
|
1,425.00
|
|
|
1,475.00
|
|
|
+3.51%
|
|
$
|
1,070.18
|
|
|
7.02%
|
|
|
1,425.00
|
|
|
1,112.50
|
|
|
-21.93%
|
|
$
|
780.70
|
|
|
-21.93%
|
|
1,425.00
|
|
|
1,462.50
|
|
|
+2.63%
|
|
$
|
1,052.63
|
|
|
5.26%
|
|
|
1,425.00
|
|
|
1,100.00
|
|
|
-22.81%
|
|
$
|
771.93
|
|
|
-22.81%
|
|
1,425.00
|
|
|
1,450.00
|
|
|
+1.75%
|
|
$
|
1,035.09
|
|
|
3.51%
|
|
|
1,425.00
|
|
|
1,087.50
|
|
|
-23.68%
|
|
$
|
763.16
|
|
|
-23.68%
|
|
1,425.00
|
|
|
1,437.50
|
|
|
+0.88%
|
|
$
|
1,017.54
|
|
|
1.75%
|
|
|
1,425.00
|
|
|
1,075.00
|
|
|
-24.56%
|
|
$
|
754.39
|
|
|
-24.56%
|
|
1,425.00
|
|
|
1,425.00
|
|
|
0.00%
|
|
$
|
1,000.00
|
|
|
0.00%
|
|
|
1,425.00
|
|
|
1,062.50
|
|
|
-25.44%
|
|
$
|
745.61
|
|
|
-25.44%
|
|
![](bearsx21x1.jpg)
Discontinuance
of the Index
If
the
Sponsor discontinues publication of or otherwise fails to publish the Index
and
such Sponsor or another entity publishes a successor or substitute index that
the Calculation Agent determines to be comparable to the discontinued Index
(such index being referred to herein as a “Successor Index”), then the Final
Index Level for such Index will be determined by reference to the value of
such
Successor Index at the close of trading on the relevant exchanges or markets
for
the Successor Index on the date as of which such Final Index Level for such
Index is to be determined.
Upon
any
selection by the Calculation Agent of a Successor Index, the Calculation Agent
will cause notice thereof to be furnished to us and the Trustee. If a Successor
Index is selected by the Calculation Agent, the Successor Index will be used
as
a substitute for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists with respect to the
Index.
If
the
Index is discontinued or if the Sponsor fails to publish the Index prior to,
and
such discontinuance is continuing on, the Calculation Date and the Calculation
Agent determines that no Successor Index is available at such time, then in
connection with its calculation of the Cash Settlement Value, the Calculation
Agent will determine the value to be used for the Final Index Level for the
Index. The value to be used for the Final Index Level will be computed by the
Calculation Agent in the same general manner previously used by the Sponsor.
In
such event, the Calculation Agent will cause notice thereof to be furnished
to
us and the Trustee.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the Index
may adversely affect the value of, and trading in, the Notes.
Adjustments
to the Index
If
at any
time the method of calculating the Index or a Successor Index, or the value
thereof, is changed in a material respect, or if the Index or a Successor Index
is in any other way modified so that such index does not, in the opinion of
the
Calculation Agent, fairly represent the value of the Index or such Successor
Index had such changes or modifications not been made, then, for purposes of
calculating the Initial Index Level, the Final Index Level or the Cash
Settlement Value or making any other determinations as of or after such time,
the Calculation Agent will make such calculations and adjustments as the
Calculation Agent determines may be necessary in order to arrive at a value
of a
stock index comparable to the Index or such Successor Index, as the case may
be,
as if such changes or modifications had not been made, and calculate the Cash
Settlement Value (including the components thereof) with reference to such
Index
or such Successor Index, as adjusted. Accordingly, if the method of calculating
the Index or a Successor Index is modified so that the value of such index
is a
fraction of what it would have been if it had not been modified (e.g., due
to a
split in the index), then the Calculation Agent will adjust such index in order
to arrive at a value of the Index or such Successor Index as if it had not
been
modified (e.g., as if such split had not occurred). In such event, the
Calculation Agent will cause notice thereof to be furnished to us and the
Trustee.
In
the
event that, on the Calculation Date, the Index is not calculated by the Sponsor
but is calculated by a third party acceptable to the Calculation Agent, the
Calculation Agent will use such third party’s calculation as its reference for
determining the value of the Index.
Market
Disruption Events
If
there
is a Market Disruption Event on the Calculation Date, the Final Index Level
will
be determined on the first succeeding Index Business Day on which there is
no
Market Disruption Event. In no event, however, will the Calculation Date be
a
date that is postponed by more than two Index Business Days following the
original date that, but for the Market Disruption Event, would have been the
Calculation Date. In that case, the second Index Business Day will be deemed
to
be the Calculation Date, notwithstanding the Market Disruption Event, and the
Calculation Agent will determine the Final Index Level on that second Index
Business Day in accordance with the formula for and method of calculating the
Index in effect prior to the Market Disruption Event using the price of each
security in the Index on the primary exchange or trading system on which such
security is then listed or admitted to trading (or, if trading in any such
security has been materially suspended or materially limited, the Calculation
Agent’s good faith estimate of the price that would have prevailed on the
primary exchange or trading system on which such security is then listed or
admitted to trading but for such suspension or limitation) as of that second
Index Business Day.
A
“Market
Disruption Event” means the occurrence or existence at any time of a condition
specified below that the Calculation Agent determines to be
material:
(a) any
suspension of or limitation imposed on trading by any Primary Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Primary Exchanges or Related Exchanges or
otherwise, (A) relating to securities that comprise 20% or more of the level
of
the Index or (B) in futures or options contracts relating to the Index on any
Related Exchange;
(b) any
event
(other than an event described in (c) below) that disrupts or impairs (as
determined by the Calculation Agent) the ability of market participants in
general (A) to effect transactions in, or obtain market values for, securities
that comprise 20% or more of the level of the Index or (B) to effect
transactions in, or obtain market values for, futures or options contracts
relating to the Index on any Related Exchange;
(c) the
closure on any Index Business Day of any Primary Exchange relating to securities
that comprise 20% or more of the level of the Index or any Related Exchange
prior to its weekday closing time, without regard to after hours or any other
trading outside of the regular trading session hours, unless such earlier
closing time is announced by such Primary Exchange or Related Exchange at least
one hour prior to the earlier of (i) the actual closing time for the regular
trading session on such Primary Exchange or Related Exchange on such Index
Business Day for such Primary Exchange or Related Exchange and (ii) the
submission deadline for orders to be entered into the relevant exchange system
for execution at the close of trading on such Index Business Day for such
Primary Exchange or Related Exchange; or
(d) any
Index
Business Day on which any Primary Exchange or Related Exchange fails to open
for
trading during its regular trading session.
For
the
purposes of determining whether a Market Disruption Event in respect of the
Index exists at any time, if a Market Disruption Event occurs in respect of
a
security included in the Index at any time, then the relevant percentage
contribution of that security to the level of the Index shall be based on a
comparison of (x) the portion of the level of the Index attributable to that
security and (y) the overall level of the Index, in each case immediately before
the occurrence of such Market Disruption Event.
“Related
Exchange” means each exchange or quotation system where trading has a material
effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the Index.
“Primary
Exchange” means the primary exchange or market of trading of any security then
included in the Index.
“Index
Business Day” means any day on which the Primary Exchange and each Related
Exchange are scheduled to be open for trading.
For
purposes of the above definition:
(a) a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the relevant exchange, and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, NASD Rule 4120 or any analogous rule
or regulation enacted or promulgated by the NYSE, NASD or any other self
regulatory organization or the SEC of similar scope as determined by the
Calculation Agent, will be considered “material.”
Based
on
the information currently available to us, on each of September 11, 12, 13
and
14, 2001, the NYSE and The Nasdaq Stock Market suspended all trading for the
entire day, and on October 27, 1997, the NYSE and The Nasdaq Stock Market
suspended all trading during the one-half hour period preceding the close of
trading. If any such suspension of trading occurred during the term of the
Notes, it would constitute a Market Disruption Event. The existence or
non-existence of these circumstances, however, is not necessarily indicative
of
the likelihood of these circumstances arising or not arising in the
future.
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt Securities -
Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect to
any
Notes has occurred and is continuing, then the amount payable to you, as a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Bear Stearns in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations made
by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders of
the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error by
the
Calculation Agent, or any failure by it to act in good faith, in making a
determination adversely affecting the payment of principal, interest or premium
on principal to holders would entitle the holders, or the Trustee acting on
behalf of the holders, to exercise rights and remedies available under the
Indenture. If the Calculation Agent uses its discretion to make any
determination, the Calculation Agent will notify us and the Trustee, who will
provide notice to the registered holders of the Notes.
The
S&P 500®
Index (“SPX”)
We
have
derived all information relating to the Index, including, without limitation,
its make-up, performance, method of calculation and changes in its components,
from publicly available sources. That information reflects the policies of
and
is subject to change by, S&P. S&P is under no obligation to continue to
publish, and may discontinue or suspend the publication of the Index at any
time.
S&P
publishes the Index. The Index is a capitalization-weighted index and is
intended to provide an indication of the pattern of common stock price movement.
The calculation of the level of the Index, discussed below in further detail,
is
based on the relative value of the aggregate market value of the common stocks
of 500 companies as of a particular time compared to the aggregate average
market value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943. As of January 11, 2007, shares of 423
companies included in the Index are traded on the New York Stock Exchange and
shares of 77 companies included in the Index are traded on The Nasdaq Stock
Market. S&P chooses companies for inclusion in the Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the New York
Stock Exchange (the “NYSE”), which S&P uses as an assumed model for the
composition of the total market. Relevant criteria employed by S&P include
the viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which
the
market price of that company’s common stock is generally responsive to changes
in the affairs of the respective industry and the market value and trading
activity of the common stock of that company. Ten main groups of companies
comprise the Index with the number of companies included in each group, as
of
January 11, 2007, indicated in parenthesis: Industrials (52), Utilities (32),
Telecommunication Services (9), Materials (29), Information Technology (76),
Energy (33), Consumer Staples (38), Consumer Discretionary (88), Healthcare
(55)
and Financials (88). Changes in the Index are reported daily in the financial
pages of many major newspapers, on the Bloomberg Financial Service under the
symbol “SPX” and on the Standard & Poor’s website (http://www.spglobal.com).
Information contained in the S&P website is not incorporated by reference
in, and should not be considered a part of, this pricing supplement. The Index
does not reflect the payment of dividends on the stocks included in the
Index.
Computation
of the Index
S&P
currently computes the Index as of a particular time as follows:
(i) the
product of the market price per share and the number of then outstanding shares
of each component stock as determined as of that time (referred to as the
“market value” of that stock);
(ii) the
market values of all component stocks as of that time are
aggregated;
(iii) the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv) the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “Base
Value”);
(v) the
current aggregate market value of all component stocks is divided by the Base
Value; and
(vi) the
resulting quotient, expressed in decimals, is multiplied by ten.
While
S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change this methodology
in a manner that may affect the performance of the Index.
S&P
adjusts the foregoing formula to offset the effects of changes in the market
value of a component stock that are determined by S&P to be arbitrary or not
due to true market fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities
of the
company,
|
|
·
|
the
substitution by S&P of particular component stocks in the Index,
and
|
In
these
cases, S&P first recalculates the aggregate market value of all component
stocks, after taking account of the new market price per share of the particular
component stock or the new number of outstanding shares of that stock or both,
as the case may be, and then determines the new base value in accordance with
the following formula:
The
result is that the base value is adjusted in proportion to any change in the
aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the Index.
In
addition, S&P’s standard practice is to remove all closely held shares and
shares held between corporations who are both in the calculations of the Index
and an Index component’s market value.
Month-End
Closing Level of the Index
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
January
|
|
|
980.28
|
|
|
1,279.64
|
|
|
1,394.46
|
|
|
1,366.01
|
|
|
1,130.20
|
|
|
855.7
|
|
|
1,131.13
|
|
|
1,181.27
|
|
|
1,280.08
|
|
February
|
|
|
1,049.34
|
|
|
1,238.33
|
|
|
1,366.42
|
|
|
1,239.94
|
|
|
1,106.73
|
|
|
841.15
|
|
|
1,144.94
|
|
|
1,203.60
|
|
|
1,280.66
|
|
March
|
|
|
1,101.75
|
|
|
1,286.37
|
|
|
1,498.58
|
|
|
1,160.33
|
|
|
1,147.39
|
|
|
848.18
|
|
|
1,126.21
|
|
|
1,180.59
|
|
|
1,294.83
|
|
April
|
|
|
1,111.75
|
|
|
1,335.18
|
|
|
1,452.43
|
|
|
1,249.46
|
|
|
1,076.92
|
|
|
916.92
|
|
|
1,107.30
|
|
|
1,156.85
|
|
|
1,310.61
|
|
May
|
|
|
1,090.82
|
|
|
1,301.84
|
|
|
1,420.60
|
|
|
1,255.82
|
|
|
1,067.14
|
|
|
963.59
|
|
|
1,120.68
|
|
|
1,191.50
|
|
|
1,270.09
|
|
June
|
|
|
1,133.84
|
|
|
1,372.71
|
|
|
1,454.60
|
|
|
1,224.38
|
|
|
989.82
|
|
|
974.50
|
|
|
1,140.84
|
|
|
1,191.33
|
|
|
1,270.20
|
|
July
|
|
|
1,120.67
|
|
|
1,328.72
|
|
|
1,430.83
|
|
|
1,211.23
|
|
|
911.62
|
|
|
990.31
|
|
|
1,101.72
|
|
|
1,234.18
|
|
|
1,276.66
|
|
August
|
|
|
957.28
|
|
|
1,320.41
|
|
|
1,517.68
|
|
|
1,133.58
|
|
|
916.07
|
|
|
1,008.01
|
|
|
1,104.24
|
|
|
1,220.33
|
|
|
1,303.82
|
|
September
|
|
|
1,017.01
|
|
|
1,282.71
|
|
|
1,436.51
|
|
|
1,040.94
|
|
|
815.29
|
|
|
995.97
|
|
|
1,114.58
|
|
|
1,228.81
|
|
|
1,335.85
|
|
October
|
|
|
1,098.67
|
|
|
1,362.93
|
|
|
1,429.40
|
|
|
1,059.78
|
|
|
885.76
|
|
|
1,050.71
|
|
|
1,130.20
|
|
|
1,207.01
|
|
|
1,377.94
|
|
November
|
|
|
1,163.63
|
|
|
1,388.91
|
|
|
1,314.95
|
|
|
1,139.45
|
|
|
936.31
|
|
|
1,058.20
|
|
|
1,173.82
|
|
|
1,249.48
|
|
|
1,400.63
|
|
December
|
|
|
1,229.23
|
|
|
1,469.25
|
|
|
1,320.28
|
|
|
1,148.04
|
|
|
879.82
|
|
|
1,111.92
|
|
|
1,211.92
|
|
|
1,248.29
|
|
|
1,418.30
|
|
The
following graph illustrates the historical performance of the Index based on
the
closing level on the last Index Business Day of each month from January 1998
to
January 2007.
License
Agreement
We
have
entered into a non-exclusive license agreement with the Sponsor providing for
the license to us, in exchange for a fee, of the right to use the Index, which
is owned and published by the Sponsor, in connection with certain securities,
including the Notes.
The
license agreement between the Sponsor and us provides that the following
language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by the Sponsor. The Sponsor
makes no representation or warranty, express or implied, to the owners of the
Notes or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly. The Sponsor’s only
relationship to us is the licensing of certain trademarks, trade names and
service marks of the Sponsor and of the Index, which is determined, composed
and
calculated by the Sponsor without regard to us or the Notes. The Sponsor has
no
obligation to take our needs or the needs of holders of the Notes 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 which Notes are sold, or quantities of the Notes to be
issued or in the determination or calculation of the amount payable at maturity.
The Sponsor has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
The
Sponsor does not guarantee the accuracy and/or the completeness of the Index
or
any data included therein and the Sponsor shall have no liability for any
errors, omissions, or interruptions therein. The Sponsor makes no warranty,
express or implied, as to results to be obtained by us, owners of the Notes,
or
any other person or entity from the use of the Index or any data included
therein. The Sponsor makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Index or any data included therein. Without limiting
any of the foregoing, in no event shall the Sponsor have any liability for
any
lost profits or indirect, punitive, special, or consequential damages or losses,
even if notified of the possibility thereof. There are no third party
beneficiaries or any agreements or arrangements between the Sponsor and
us.”
All
disclosures contained in this pricing supplement regarding the Index, including
its make-up, method of calculation and changes in its components, are derived
from publicly available information prepared by the Sponsor. None of us, Bear
Stearns or the Trustee assumes any responsibility for the accuracy or
completeness of such information.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain of the U.S. federal income tax
consequences of the purchase, ownership and disposition of Notes. Except as
provided below under “Federal Income Tax Consequences to Non-U.S. Holders,” this
summary deals only with an owner of a Note that is:
|
·
|
a
citizen or resident of the United
States,
|
|
·
|
a
corporation (or other entity that is treated as a corporation for
U.S.
federal tax purposes) created or organized in or under the laws of
the
United States or any State thereof (including the District of
Columbia),
|
|
·
|
an
estate, the income of which is subject to U.S. federal income taxation
regardless of its source, or
|
|
·
|
a
trust, if a court within the United States is able to exercise primary
supervision over its administration, and one or more United States
persons
have the authority to control all of its substantial decisions (each,
a
“U.S. Holder”).
|
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States by reason of being present in the United States for at least
31
days in the calendar year and for an aggregate of at least 183 days during
a
three-year period ending in the current calendar year (counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present
in
the second preceding year).
This
summary is based on interpretations of the Internal Revenue Code of 1986, as
amended (the “Code”), regulations issued thereunder, and rulings and decisions
currently in effect (or in some cases proposed), all of which are subject to
change. Any such change may be applied retroactively and may adversely affect
the federal income tax consequences described herein. This summary addresses
only U.S. holders that purchase Notes at initial issuance, and own Notes as
capital assets and not as part of a “straddle” or a “conversion transaction” for
federal income tax purposes or as part of some other integrated investment.
This
summary does not discuss all of the tax consequences that may be relevant to
particular investors or to investors subject to special treatment under the
federal income tax laws (such as banks, thrifts, or other financial
institutions; insurance companies; securities dealers or brokers, or traders
in
securities electing mark-to-market treatment; mutual funds or real estate
investment trusts; small business investment companies; S corporations;
investors that hold their Notes through a partnership or other entity treated
as
a partnership for U.S. federal tax purposes; investors whose functional currency
is not the U.S. dollar; certain former citizens or residents of the United
States; persons subject to the alternative minimum tax; retirement plans or
other tax-exempt entities, or persons holding the Notes in tax-deferred or
tax-advantaged accounts; or “controlled foreign corporations” or a “passive
foreign investment companies” for U.S. federal income tax purposes). This
summary also does not address the tax consequences to shareholders, or other
equity holders in, or beneficiaries of, a holder, or any state, local or foreign
tax consequences of the purchase, ownership or disposition of the Notes. Persons
considering the purchase of Notes should consult their own tax advisors
concerning the application of U.S. federal income tax laws to their particular
situations as well as any consequences of the purchase, beneficial ownership
and
disposition of Notes arising under the laws of any other taxing
jurisdiction.
Federal
Income Tax Treatment to U.S. Holders
General.
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing or involving the treatment, for U.S. federal income tax purposes,
of
the Notes or securities with terms substantially the same as the Notes.
Accordingly, the proper U.S. federal income tax treatment of the Notes is
uncertain.
Characterization
of the Notes.
Pursuant
to the terms of the Notes, we intend (in the absence of an administrative
determination or judicial ruling to the contrary) to treat the Notes for all
tax
purposes as pre-paid cash-settled executory contracts linked to the value of
the
Index and, where required, to file information returns with the Internal Revenue
Service ( the “IRS”) in accordance with such treatment.
Payment
on the Maturity Date.
Assuming
the Notes are treated as pre-paid cash-settled executory contracts, upon the
receipt of cash on the Maturity Date of the Notes, a U.S. Holder will recognize
capital gain or loss. The amount of such gain or loss will be the extent to
which the amount of cash received differs from the U.S. Holder’s tax basis in
the Notes (which, in general, will be the amount the U.S. Holder paid for its
Notes). We intend to treat any such gain or loss as long-term capital gain
or
loss, as the case may be, if the U.S. Holder held the Notes for more than one
year on the Maturity Date. The deductibility of capital losses is subject to
certain limitations.
Sale
or Exchange of the Notes.
Assuming
the Notes are treated as pre-paid cash-settled executory contracts, upon a
sale
or exchange of a Note prior to the Maturity Date, a U.S. Holder should generally
recognize capital gain or loss equal to the difference between the amount
realized on such sale or exchange and such U.S. Holder’s tax basis in the Notes
sold or exchanged. We intend to treat any such capital gain or loss as long-term
capital gain or loss, as the case may be, if the U.S. Holder held the Notes
for
more than one year at the time of the sale or exchange. As discussed above,
the
deductibility of capital losses is subject to certain limitations.
The
treatment of the Notes described above is not binding on the IRS or the courts.
No statutory, judicial or administrative authority directly addresses the
treatment of the Notes or instruments similar to the Notes for U.S. federal
income tax purposes, and no ruling is being requested from the IRS with respect
to the Notes.
Possible
Alternative Tax Treatments of an Investment in the Notes
Because
there are no regulations, published rulings, or judicial decisions addressing
the treatment for federal income tax purposes of securities with terms that
are
substantially the same as those of the Notes, other treatments are possible.
For
example, it is possible that each Note could be treated as consisting of a
cash-settled forward or other executory contract with respect to the Index
and a
deposit with us of cash in an amount equal to the principal amount of a Note
to
secure the U.S. Holder’s obligation to settle the forward contract, in which
case a U.S. Holder would be required to accrue interest income or original
issue
discount on a current basis in respect of the deposit.
Alternatively,
it is possible that the Notes could be treated as “contingent payment debt
instruments” for federal income tax purposes. If the IRS were successful in
asserting that the Notes are contingent payment debt instruments, the timing
and
character of income thereon would be significantly affected. For example, a
U.S.
Holder would be required to include in income in each year an amount equal
to
the “comparable yield” of the Notes, which is generally equal to the yield at
which we would issue a noncontingent debt instrument with terms and conditions
similar to the Notes. In addition, a “projected payment schedule” would be
computed as of the closing date that would produce the comparable yield.
Furthermore, any gain realized on the Maturity Date or upon an earlier sale
or
exchange of the Notes would generally be treated as ordinary income, and any
loss realized on the Maturity Date or upon a sale or other disposition of the
Notes would be treated as ordinary loss to the extent of interest included
as
income in the current or previous taxable years by the U.S. Holder in respect
of
the Notes, and capital loss thereafter.
It
is
also possible that the IRS could assert that your Notes should be subject to
the
“constructive ownership” rules set forth in Section 1260 of the Code.
Specifically, Section 1260 of the Code treats a taxpayer owning certain types
of
derivative positions in property as having “constructive ownership” in that
property, with the result that all or a portion of the long-term capital gain
recognized by such taxpayer with respect to the derivative position may be
recharacterized as ordinary income. In addition, Section 1260 would impose
an
interest charge on the long-term capital gain that was recharacterized. Section
1260 in its current form would not apply to the Notes. However, Section 1260
authorizes the Treasury Department to promulgate regulations (possible with
retroactive effect) to expand the application of the “constructive ownership”
regime. There is no assurance that the Treasury Department will not promulgate
regulations to apply the regime to the Notes. If Section 1260 were to apply
to
the Notes, you would be required to treat all or a portion of the long-term
capital gain (if any) that you recognize on sale, exchange, maturity, or other
taxable disposition of the Notes as ordinary income, but only to the extent
such
long-term capital gain exceeds the long-term capital gain that you would have
recognized if you had made a direct investment in shares of companies that
are
included in the Index during the period in which you hold the Notes and had
actually sold covered calls in the manner that is hypothetically done in
computing the Index. It is possible that these rules could apply, for example,
to recharacterize long-term capital gain on the Notes in whole or in part to
the
extent that a holder of shares of the relevant companies would have earned
dividend income therefrom or would have recognized short-term capital gain
from
the disposition of the shares upon rebalancing of the Index between the issue
date for the Notes and the date of the disposition of the
Notes.
It
is
also possible that the Notes could be treated as representing an ownership
interest in the underlying components referenced in the Index solely for U.S.
federal income tax purposes. In this event, the timing and character of U.S.
Holders’ income, gain, loss, and deduction in respect of the Notes could differ
from the treatment described above.
Finally,
certain proposed Treasury regulations require the accrual of income on a current
basis for contingent payments made under certain “notional principal contracts.”
The preamble to the proposed regulations states that the “wait and see” method
of accounting does not properly reflect the economic accrual of income on those
contracts, and requires current accrual of income for some contracts already
in
existence. Although the proposed regulations do not apply to pre-paid executory
contracts, the preamble to the proposed regulations expresses the view that
similar timing issues exist in the case of pre-paid forward or other executory
contracts. If the IRS or the U.S. Treasury Department publishes future guidance
requiring current economic accrual for contingent payments on pre-paid forward
or other executory contracts, it is possible that a U.S. Holder could be
required to accrue income over the term of the Notes. Even if the Notes are
not
treated as contingent payment debt instruments, or cash-settled forward or
other
executory contracts and deposits or constructive or actual ownership in the
underlying components of the Index, other alternative U.S. federal income tax
characterizations or treatments of the Notes are possible, and if applied could
also affect the timing and the character of the income or loss with respect
to
the Notes. Prospective purchasers are urged to consult their tax advisors
regarding the U.S. federal income tax consequences of an investment in the
Notes.
Federal
Income Tax Consequences to Non-U.S. Holders
As
used
in this discussion, the term “Non-U.S. Holder” means a beneficial owner of a
Note that is, for U.S. federal income tax purposes:
|
·
|
a
nonresident alien individual,
|
|
·
|
an
estate whose income is not subject to U.S. federal income tax on
a net
income basis, or
|
|
·
|
a
trust if no court within the United States is able to exercise primary
jurisdiction over its administration or if no United States persons
have
the authority to control all of its substantial
decisions.
|
We
do not
expect payments on the Notes to Non-U.S. Holders to be subject to U.S. federal
income or withholding tax if the following conditions are
satisfied:
|
·
|
the
Non-U.S. Holder does not actually or constructively own 10% or more
of the
total combined voting power of all classes of our stock entitled
to
vote,
|
|
·
|
the
Non-U.S. Holder is not a controlled foreign corporation for U.S.
federal
income tax purposes that is related to us through actual or constructive
ownership,
|
|
·
|
the
Non-U.S. Holder is not a bank receiving interest on a loan made in
the
ordinary course of its trade or
business,
|
|
·
|
the
Index is actively traded within the meaning of section 871(h)(4)(C)(v)
of
the Code, and
|
|
·
|
the
payments are not effectively connected with a trade or business conducted
by the Non-U.S. Holder in the United States and either (a) the Non-U.S.
Holder provides a correct, complete and executed IRS Form W-8BEN,
Form
W-8EXP or Form W-8IMY (or successor form) with all of the attachments
required by the IRS, or (b) the Non-U.S. Holder holds its Note through
a
qualified intermediary (generally a foreign financial institution
or
clearing organization or a non-U.S. branch or office of a U.S. financial
institution or clearing organization that is a party to a withholding
agreement with the IRS) which has provided to us an IRS Form W-8IMY
stating that it is a qualified intermediary and has received documentation
upon which it can rely to treat the payment as made to a foreign
person.
|
We
expect
that the Index will be treated as actively traded within the meaning of section
871(h)(4)(C)(v). If any of the above conditions are not satisfied, payments
on
the Notes may be subject to a 30% withholding tax when paid, unless an income
tax treaty reduces or eliminates the tax or the interest is effectively
connected with the conduct of a U.S. trade or business and the Non-U.S. Holder
provides a correct, complete and executed IRS Form W-8ECI.
We
do not
expect gain realized on the sale, exchange or retirement of the Notes by a
Non-U.S. Holder to be subject to U.S. federal income tax, unless:
|
·
|
the
gain with respect to the Notes is effectively connected with a trade
or
business conducted by the Non-U.S. Holder in the United States,
or
|
|
·
|
the
Non-U.S. Holder is a nonresident alien individual who holds the Notes
as a
capital asset and is present in the United States for more than 182
days
in the taxable year of the sale and certain other conditions are
satisfied.
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A
Note
held by an individual who at death is a Non-U.S. Holder will not be includible
in the Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes if
payments on the Notes to the Non-U.S. Holder would not have been subject to
U.S.
federal income or withholding tax at the time of death under the tests described
above.
As
discussed above, alternative characterizations of the Notes for U.S. federal
income tax purposes are possible. Accordingly, it is possible that the IRS
could
characterize the Notes in an alternative manner, such as representing an
ownership interest in the underlying components referenced in the Index.
Moreover, an alternative characterization of the Notes could apply by reason
of
a change or clarification of the law, by regulation. In either case, payments
with respect to the Notes could be subject to withholding tax. In this event,
we
will withhold tax at the applicable statutory rate and will not pay “additional
amounts” or otherwise “gross-up” the Non-U.S. Holders. Prospective Non-U.S.
Holders of the Notes should consult their own tax advisors in this
regard.
Backup
Withholding and Information Reporting
A
beneficial owner of a Note may be subject to information reporting and to backup
withholding at the applicable statutory rate of U.S. federal income tax on
certain amounts paid to the beneficial owner unless such beneficial owner
provides proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the backup
withholding rules. Any amounts withheld under the backup withholding rules
from
a payment to a beneficial owner would be allowed as a refund or a credit against
such beneficial owner’s U.S. federal income tax provided the required
information is furnished to the IRS.
The
preceding discussion is only a summary of certain of the tax implications of
an
investment in notes. Prospective purchasers are urged to consult with their
own
tax advisors prior to investing to determine the tax implications of such
investment in light of each such investor’s particular
circumstances.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code ("Qualified Plans") or individual retirement accounts ("IRAs")
and persons who have certain specified relationships to them. Section 406 of
the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), prohibits
similar transactions involving employee benefit plans that are subject to ERISA
("ERISA Plans"). Qualified Plans, IRAs and ERISA Plans are referred to as
"Plans."
Persons
who have such specified relationships are referred to as "parties in interest"
under ERISA and as "disqualified persons" under the Code. "Parties in interest"
and "disqualified persons" encompass a wide range of persons, including any
fiduciary (for example, investment manager, trustee or custodian) of a Plan,
any
person providing services (for example, a broker) to a Plan, the Plan sponsor,
an employee organization any of whose members are covered by the Plan, and
certain persons related to or affiliated with any of the foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a "party in interest" or "disqualified person") would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such Notes are acquired or held pursuant to
and
in accordance with an applicable statutory or administrative exemption. Each
of
us and Bear Stearns are considered a "disqualified person" under the Code or
a
"party in interest" under ERISA with respect to many Plans, although neither
we
nor Bear Stearns can be a "party in interest" to any IRA other than certain
employer-sponsored IRAs, as only employer-sponsored IRAs are covered by
ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption ("PTCE") 84−14
relating to qualified professional asset managers, PTCE 96−23 relating to
certain in-house asset managers, PTCE 91−38 relating to bank collective
investment funds, PTCE 90−1 relating to insurance company separate accounts and
PTCE 95−60 relating to insurance company general accounts).
It
should
also be noted that the recently enacted Pension Protection Act of 2006 contains
a new statutory exemption from the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code for transactions involving certain
parties in interest or disqualified persons who are such merely because they
are
a service provider to a Plan, or because they are related to a service provider.
Generally, the new exemption would be applicable if the party to the transaction
with the Plan is a party in interest or a disqualified person to the Plan but
is
not (i) an employer, (ii) a fiduciary who has or exercises any discretionary
authority or control with respect to the investment of the Plan assets involved
in the transaction, (iii) a fiduciary who renders investment advice (within
the
meaning of ERISA and Section 4975 of the Code) with respect to those assets,
or
(iv) an affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this
new
statutory exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of
the
Code) and purchasing Notes on behalf of a Plan will be deemed to represent
that
(x) the fiduciary has made a good faith determination that the Plan is paying
no
more than, and is receiving no less than, adequate consideration in connection
with the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this new exemption. Any purchaser that
is a
Plan is encouraged to consult with counsel regarding the application of the
new
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes, the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law ("Similar Law") similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
("Similar Law Plans") should consider applicable Similar Law when investing
in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s acquisition and holding of the Notes will not result in a
non-exempt violation of applicable Similar Law.
The
sale
of any security to a Plan or a Similar Law Plan is in no respect a
representation by us or any of our affiliates that such an investment meets
all
relevant legal requirements with respect to investments by Plans or Similar
Law
Plans generally or any particular Plan or Similar Law Plan, or that such an
investment is appropriate for a Plan or a Similar Law Plan generally or any
particular Plan or Similar Law Plan.
USE
OF PROCEEDS AND HEDGING
We
will
use the net proceeds from the sale of the Notes for general corporate purposes
and in part for hedging by us or one or more of our subsidiaries (including
BSIL) of our obligations under the Notes by the purchase and sale of
exchange-traded and over-the-counter options on, or other derivative or
synthetic instruments related to, the Index, individual futures contracts
included in the Index, futures contracts on the Index and/or options on such
futures contracts. At various times after the initial offering and before
the
maturity of the Notes, depending on market conditions (including the level
of
the Index), in connection with hedging with respect to the Notes, we expect
that
we and/or one or more of our subsidiaries will increase or decrease those
initial hedging positions using dynamic hedging techniques and may take long
or
short positions in the Index, individual futures contracts included in the
Index, listed or over-the-counter options contracts in, or other derivative
or
synthetic instruments related to, the Index and such individual futures
contracts. In addition, we and/or one or more of our subsidiaries may
periodically purchase or otherwise acquire a long or short position in the
Notes
and may, in our or its discretion, hold or resell such Notes. We or one or more
of our subsidiaries may also take positions in other types of appropriate
financial instruments that may become available in the future. If we or one
or
more of our subsidiaries has a long hedge position in the Index, individual
futures contracts included in the Index or options contracts in, or other
derivative or synthetic instruments related to, the Index and such underlying
futures contracts, then we or one or more of our subsidiaries may liquidate
a
portion of its holdings at or about the time of the maturity of the Notes.
Depending on, among other things, future market conditions, the total amount
and
the composition of such positions are likely to vary over time. We will not
be
able to ascertain our profits or losses from any hedging position until such
position is closed out and any offsetting position or positions are taken
into
account. Although we have no reason to believe that such hedging activity
will
have a material effect on the price of such options, futures contracts or
options on futures contracts or on the level of the Index, we cannot guarantee
that we and one or more of our subsidiaries will not affect such levels as
a
result of its hedging activities. You should also refer to “Use of Proceeds” in
the accompanying prospectus.
SUPPLEMENTAL
PLAN OF
DISTRIBUTION
Subject
to the terms and conditions set forth in the Distribution Agreement dated as
of
June 19, 2003, as amended, we have agreed to sell to Bear Stearns, as principal,
and Bear Stearns has agreed to purchase from us, the aggregate principal amount
of Notes set forth opposite its name below.
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Agent
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|
Principal
Amount of Notes
|
Bear,
Stearns & Co. Inc.
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$[3,000,000]
|
Total
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$[3,000,000]
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The
Agent
intends to initially offer $[l]
of the
Notes to the public at the offering price set forth on the cover page of this
pricing supplement, and to subsequently resell the remaining face amount of
the
Notes at prices related to the prevailing market prices at the time of resale.
In the future, the Agent may repurchase and resell the Notes in market-making
transactions, with resales being made at prices related to prevailing market
prices at the time of resale or at negotiated prices. We will offer the Notes
to
Bear, Stearns & Co. Inc. at a discount of [l]%
of the
price at which the Notes are offered to the public. Bear, Stearns & Co. Inc.
may reallow a discount to other agents not in excess of [l]%
of the
public offering price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 30-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $[l]
at the
public offering price, less the agent’s discount, to cover any over-allotments.
The Agent may over-allot or effect transactions which stabilize or maintain
the
market price of the Notes at a level higher than that which might otherwise
prevail in the open market. Specifically, the Agent may over-allot or otherwise
create a short position in the Notes for its own account by selling more Notes
than have been sold to it by us. If this option is exercised, in whole or in
part, subject to certain conditions, the Agent will become obligated to purchase
from us and we will be obligated to sell to the Agent an amount of Notes equal
to the amount of the over-allotment exercised. The Agent may elect to cover
any
such short position by purchasing Notes in the open market. No representation
is
made as to the magnitude or effect of any such stabilization or other
transactions. Such stabilizing, if commenced, may be discontinued at any time
and in any event shall be discontinued within a limited period. No other party
may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933 as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange and we do not expect a trading market
will develop. Bear, Stearns & Co. Inc. has advised us that, following
completion of the offering of the Notes, it intends under ordinary market
conditions to indicate prices for the Notes on request, although it is under
no
obligation to do so and may discontinue any market-making activities at any
time
without notice. Accordingly, no guarantees can be given as to whether an active
trading market for the Notes will develop or, if such a trading market develops,
as to the liquidity of such trading market. We cannot guarantee that bids for
outstanding Notes will be made in the future; nor can we predict the price
at
which any such bids will be made. The Notes will cease trading as of the close
of business on the Maturity Date.
Because
Bear, Stearns & Co. Inc. is our wholly-owned subsidiary, each distribution
of the Notes will conform to the requirements set forth in Rule 2720 of the
NASD
Conduct Rules.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
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You
should only rely on the information contained in this pricing supplement,
the accompanying prospectus supplement and prospectus. We have
not
authorized anyone to provide you with information or to make any
representation to you that is not contained in this pricing supplement,
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not
rely on it.
This pricing supplement, the accompanying prospectus supplement
and
prospectus are not an offer to sell these Notes, and these documents
are
not soliciting an offer to buy these Notes, in any jurisdiction
where the
offer or sale is not permitted. You should not under any circumstances
assume that the information in this pricing supplement, the accompanying
prospectus supplement and prospectus is correct on any date after
their
respective dates.
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The
Bear Stearns
Companies
Inc.
$[3,000,000]
Medium-Term
Notes, Series B
Accelerated
Market
Participation
Securities
Linked
to the S&P 500®
Due
February [l],
2008
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
January
[l],
2007
|
TABLE
OF CONTENTS
|
|
Pricing
Supplement
|
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-5
|
|
Risk
Factors
|
PS-9
|
|
Description
of the Notes
|
PS-16
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|
Description
of the Index
|
PS-24
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-28
|
|
Certain
ERISA Considerations
|
PS-32
|
|
Use
of Proceeds and Hedging
|
PS-33
|
|
Supplemental
Plan of Distribution
|
PS-33
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|
Legal
Matters
|
PS-34
|
|
Prospectus
Supplement
|
|
|
Risk
Factors
|
S-3
|
|
Pricing
Supplement
|
S-8
|
|
Description
of Notes
|
S-8
|
|
Certain
US Federal Income Tax Considerations
|
S-32
|
|
Supplemental
Plan of Distribution
|
S-46
|
|
Listing
|
S-47
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|
Validity
of the Notes
|
S-47
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|
Glossary
|
S-47
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|
Prospectus
|
|
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Where
You Can Find More Information
|
1
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|
The
Bear Stearns Companies Inc.
|
2
|
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Use
of Proceeds
|
4
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|
Description
of Debt Securities
|
4
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Description
of Warrants
|
16
|
|
Description
of Preferred Stock
|
21
|
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Description
of Depositary Shares
|
25
|
|
Description
of Depository Contracts
|
28
|
|
Description
of Units
|
31
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Book-Entry
Procedures and Settlement
|
33
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|
Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
|
43
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Plan
of Distribution
|
44
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ERISA
Considerations
|
48
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|
Legal
Matters
|
49
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|
Experts
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49
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