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 and 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 25, 2007
PRICING
SUPPLEMENT
(To
Prospectus dated August 16, 2006 and
Prospectus
Supplement dated August 16, 2006)
The
Bear Stearns Companies Inc.
3
Year Medium-Term Notes, Linked to the Outperformance
of the Russell
1000®
Growth
Index Relative to the Russell
1000®
Value
Index
Due
January [l],
2010
|
·
|
The
Notes are 100% principal protected if held to maturity and are
linked to
the outperformance of the Russell 1000® Growth Index (the “Growth Index”)
relative to the return of the Russell 1000® Value Index (the “Value
Index”, and along with the Growth Index, each an “Index” and collectively
the “Indices”) during the term of the Notes. 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 that depends upon the performance of the Index Return
of the
Growth Index relative to the Index Return of the Value
Index.
|
|
·
|
The
Cash Settlement Value will be calculated as
follows:
|
(i) If,
at maturity, the Relative Return is greater than 0%, then, on the Maturity
Date,
you will receive an amount per $1,000 Note equal to the sum of: (i) $1,000,
plus
(ii) $1,000 multiplied by [121]% of the Relative Return.
(ii) If,
at maturity, the Relative Return is equal to or less than 0%, then, on
the
Maturity Date, you will receive the principal amount of your Notes. If
the Relative Return is equal to or less than 0% at maturity, you may receive
less than the overall return you would earn if you invested in a conventional
debt security at the same time with the same
maturity.
|
·
|
With
respect to each Index, the “Index Return” of such Index is the amount,
expressed as a percentage, resulting from the quotient of: (i)
the Final
Index Level of such Index divided by (ii) its Initial Index
Level.
|
|
·
|
The
“Relative Return” is an amount, expressed as a percentage, resulting from
the difference of: (i) the Index Return of the Growth Index minus
(ii) the
Index Return of the Value Index.
|
|
·
|
The
Notes will not pay interest during the term of the
Notes.
|
|
·
|
The
Upside Participation Rate is equal to
[121]%.
|
|
·
|
The
CUSIP number for the Notes is 073928T78.
|
|
·
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
·
|
The
Maturity Date for the Notes is January [l],
2010.
|
|
·
|
The
scheduled Calculation Date for the Notes is January [l],
2010. The Calculation Date is subject to adjustment as described
herein.
|
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-[11].
“Russell
1000® Growth Index” and “Russell 1000® Value Index” are either registered
trademarks or tradenames of the Frank Russell Company, doing business as
the
Russell Investment Group, (the “Sponsor”) and have been licensed by the Sponsor
for use for certain purposes by The Bear Stearns Companies Inc. The Notes
are
not sponsored, endorsed, sold or promoted by the Sponsor, and it 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
|
[l]%
|
|
$[l]
|
Agent’s
commission
|
[l]%
|
|
$[l]
|
Proceeds,
before expenses, to us
|
[l]%
|
|
$[l]
|
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
and
prospectus supplement and this pricing supplement to help you understand
the
Notes linked to the Indices. 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
“Company,” “we,” “us” and “our” refer only to The Bear Stearns Companies Inc.
excluding its consolidated subsidiaries. In addition, “Bear Stearns” refers to
our agent, Bear,
Stearns and Co. Inc.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B due January [l],
2010
(the “Notes”),
are
Notes with a return tied or “linked” to the outperformance of the Index Return
of the Growth Index relative to the Index Return of the Value Index over
the
term of the Notes. When we refer to Note or Notes in this pricing supplement,
we
mean $1,000 principal amount of Notes. The Notes are principal protected
if held
to maturity.
On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in
cash
that depends upon the Relative Return. The “Relative Return” is the amount,
expressed as a percentage, resulting from the difference of: (i) the Index
Return of the Growth Index minus (ii) the Index Return of the Value Index.
With
respect to each Index, the
“Index Return” of such Index is the amount, expressed as a percentage, resulting
from the quotient of: (i) the Final Index Level of such Index divided by
(ii)
its Initial Index Level.
If, at
maturity, the Relative Return is greater than 0%, then, on the Maturity
Date,
you will receive an amount per $1,000 Note equal to the sum of: (i) $1,000,
plus
(ii) $1,000 multiplied by [121]% of the Relative Return. If, at maturity,
the
Relative Return is equal to or less than 0%, then, on the Maturity Date,
you
will receive $1,000 per $1,000 Note. If
the Relative Return is equal to or less than 0% at maturity, you may receive
less than the overall return you would earn if you invested in a conventional
debt security at the same time with the same maturity.
We
will
not pay interest during the term of the Notes.
Selected
Risk Considerations
|
·
|
Possible
loss of value in the secondary market—Your investment in the Notes is
principal protected only if you hold your Notes to maturity.
If you sell
your Notes prior to maturity, you may receive less than the amount
you
originally invested.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the stocks underlying
the
Indices, 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 or
quotation system, 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—If
a trading market were to develop in the Notes, it may not be
liquid. Our
subsidiary, 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;
nor can we
predict the price at which any such bids will be made. In any
event, Notes
will cease trading as of the close of business on the Maturity
Date.
|
|
·
|
Yield—The
yield on the Notes may be less than the overall return you would
earn if
you purchased a conventional debt security at the same time and
with the
same maturity.
|
|
·
|
Return
related to the relative return of the Indices—If the Index Return of the
Growth Index is equal to or less than the Index Return of the
Value Index,
you will only receive the amount you originally invested, even
if the
Index Return of the Growth Index is positive. Consequently, you
may
receive less than the overall return you would earn if you invested
in a
conventional debt security at the same time with the same
maturity.
|
Selected
Investment Considerations
|
·
|
Principal
protection—Because the Notes are principal protected if held to maturity,
in no event will you receive less than $1,000 per Note at
maturity.
|
|
·
|
Relative
performance—The Notes will offer a positive return so long as the Index
Return of the Growth Index is greater than the Index Return of
the Value
Index on a relative basis. Even if both Indices have declined
in value at
maturity, if the Index Return of the Growth Index has declined
by less
than the Index Return of the Value Index (on a percentage basis),
the
Notes will pay a positive return at maturity equal to [121]%
of the
difference.
|
|
·
|
No
current income—We will not pay interest during the term of the
Notes.
|
|
·
|
Growth
potential—The Notes offer the possibility to participate in the potential
outperformance of the Index Return of the Growth Index relative
to the
Index Return of the Value Index. The Cash Settlement Value is
based upon
whether the Index Return of the Growth Index is greater than
the Index
Return of the Value Index. In addition, because of the Upside
Participation Rate, in the event that there is outperformance
of the
Growth Index relative to the Value Index, investors will receive
a [1.21]%
return for every 1.0% increase in the Relative
Return.
|
|
·
|
Medium-term
investment—The Notes may be an attractive investment for investors who
have a bullish view of the relative performance of the Growth
Index
compared to the Value Index during the term of the
Notes.
|
|
·
|
Diversification—Because
the Growth Index and the Value Index are each based on the equity
prices
of many of the Russell 1000® Index’s 1,000 constituent companies, the
Notes may allow you to diversify an existing
portfolio.
|
|
·
|
Tax
Considerations— We intend to treat the Notes as contingent payment debt
instruments that are subject to taxation as described under the
heading
“Certain U.S. Federal Income Tax Considerations—U.S. Federal Income Tax
Treatment of the Notes as Indebtedness for U.S. Federal Income
Tax
Purposes—Contingent Payment Debt Instruments” in the accompanying
prospectus supplement.
|
|
·
|
Low
minimum investment—Notes can be purchased in increments of
$1,000.
|
Key
Terms
Issuer:
|
The
Bear Stearns Companies Inc.
|
Indices:
|
The
Russell 1000® Growth Index (ticker “RLG”) and the Russell 1000® Value
Index (ticker “RLV”), as published by the Frank Russell Company, doing
business as the Russell Investment Group, (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 Economic
Area shall
be $100,000. The aggregate principal amount of the Notes being
offered is
$[l].
When we refer to Note or Notes in this pricing supplement, we
mean Notes
with a principal amount of $1,000.
|
Cash
Settlement Value:
|
If,
at maturity, the Relative Return is greater than 0%, then, on
the Maturity
Date, you will receive an amount per $1,000 Note equal to the
sum of: (i)
$1,000, plus (ii) $1,000 multiplied by [121]% of the Relative
Return.
|
|
If,
at maturity, the Relative Return is equal to or less than 0%,
then, on the
Maturity Date, you will receive an amount per $1,000 Note equal
to $1,000.
If
the Relative Return is equal to or less than 0% at maturity,
you may
receive less than the overall return you would earn if you invested
in a
conventional debt security at the same time with the same
maturity.
|
Upside
Participation Rate:
|
[121]%
|
Relative
Return:
|
The
amount, expressed as a percentage, resulting from the difference
of: (i)
the Index Return of the Growth Index minus (ii) the Index Return
of the
Value Index.
|
Index
Return:
|
With
respect to each Index, the amount, expressed as a percentage,
resulting
from the quotient of: (i) the Final Index Level of such Index
divided by
(ii) its Initial Index Level.
|
Interest:
|
The
Notes will not bear interest.
|
Index
Level:
|
As
of any date of determination, and with respect to each Index,
the closing
value of such Index, as determined by the Sponsor, on each Index
Business
Day.
|
Initial
Index Level:
|
Equals
[l],
with respect to the Growth Index, and [l]
with respect to the Value Index, representing the closing value
of each
Index, as determined by the Sponsor, on January [l],
2007.
|
Final
Index Level:
|
Will
be determined by the Calculation Agent and will equal the closing
value of
each Index, as determined by the Sponsor, on the Calculation
Date.
|
Calculation
Date:
|
January
[l],
2010. The Calculation Date is subject to adjustment as described
under
“Description of the Notes - Market Disruption
Events”.
|
Maturity
Date:
|
The
date three Business Days following the Calculation
Date.
|
Exchange
listing:
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
Index
Business Day:
|
Means,
with respect to an Index, any day on which the Primary Exchange
and each
Related Exchange are scheduled to be open for trading.
|
Business
Day:
|
Any
day other than a Saturday or Sunday, on which banking institutions
in the
cities of New York, New York and London, England are not authorized
or
obligated by law or executive order to be
closed.
|
Related
Exchange
|
With
respect to an Index, 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 applicable
Index.
|
Primary
Exchange
|
With
respect to an Index, the primary exchange or market of trading
of any
security then included in an Index.
|
Sponsor
|
With
respect to each Index, the
Frank Russell Company, doing business as the Russell Investment
Group.
|
Calculation
Agent
|
Bear,
Stearns & Co. Inc. 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 beneficial
owners of
the Notes, absent manifest error.
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement and 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 Economic Area shall be
$100,000.
Questions
and Answers
What
are the Notes?
The
Notes
are a series of our senior debt securities, the value of which is linked
to the
outperformance of the return of the Growth Index relative to the return
of the
Value Index during the term of the Notes. 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 January [l],
2010.
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. The Notes are principal protected if
held to
maturity. However, the Notes differ from traditional debt securities in
that the
Notes offer the opportunity to participate in 121% of the outperformance
of the
Growth Index relative to the Value Index, if any, during the term of the
Notes.
If, at maturity, the Relative Return is equal to or less than 0%, you will
receive only the principal amount of your Notes. If
the Relative Return is equal to or less than 0% at maturity, you may receive
less than the overall return you would earn if you invested in a conventional
debt security at the same time with the same
maturity.
What
will I receive at maturity of the Notes?
If,
at
maturity, the Relative Return is greater than 0%, then, on the Maturity
Date,
you will receive an amount per $1,000 Note equal to the sum of: (i) $1,000,
plus
(ii) $1,000 multiplied by [121]% of the Relative Return.
If,
at
maturity, the Relative Return is equal to or less than 0%, on the Maturity
Date,
you will receive an amount equal to the original principal amount.
The
“Relative Return” is an amount, expressed as a percentage, resulting from the
difference of: (i) the Index Return of the Growth Index minus (ii) the
Index
Return of the Value Index.
With
respect to each Index, the “Index Return” of such Index is the amount, expressed
as a percentage, resulting from the quotient of: (i) the Final Index Level
of
such Index divided by (ii) its Initial Index Level.
The
Upside Participation Rate is equal to [121]%.
With
respect to each Index, the “Index Level” of an Index equals the closing value of
such Index, as determined by the Sponsor, on each Index Business
Day.
The
“Initial
Index Level”
equals
[l],
with
respect to the Growth Index, and [l]
with
respect to the Value Index, representing the closing value of each 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
each
Index, as determined by the Sponsor, on the Calculation Date.
The
“Calculation Date” is January [l],
2010.
The Calculation Date is subject to adjustment as described under “Description of
the Notes - Market Disruption Events”.
The
“Maturity Date” of the Notes is the date three Business Days following the
Calculation Date.
“Related
Exchange” means with respect to an Index 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 applicable
Index.
“Primary
Exchange” means with respect to an Index the primary exchange or market of
trading of any security then included in the Index.
An
“Index
Business Day” means with respect to an Index 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.”
What
does “principal protected” mean and what will I receive at maturity of the
Notes?
“Principal
protected” means that at maturity your principal investment in the Notes will
not be at risk as a result of a negative Relative Return. However, you
may
receive less than the principal amount of the Notes if you sell your Notes
prior
to maturity.
Will
I receive
interest on the Notes?
We
will
not make any periodic payments of interest or any other periodic payments
during
the term of the Notes.
What
are the Indices?
Unless
otherwise stated, all information with respect to the Indices that is provided
in this pricing supplement is derived from the Sponsor or other publicly
available sources. The Indices are published by the Sponsor and are intended
to
track the price movements of the stocks comprising the Indices.
The
Growth Index and the Value Index are calculated, published and disseminated
by
the Sponsor, and measure the composite price performance of certain stocks
included in the Russell 1000® Index, all of which are incorporated in the United
States and its territories. While the Growth Index includes those stocks
that
have been determined by the Sponsor to be growth-oriented, with higher
price-to-book ratios and higher forecasted growth values, the Value Index
includes those stocks that have been determined by the Sponsor to be
value-oriented, with lower price-to-book ratios and lower forecasted growth
values. All component stocks of the Growth Index and the Value Index are
traded
on either a major U.S. stock exchange or in the over-the-counter (“OTC”)
market.
For
more
information, see the section “Description of the Indices.”
How
has the Index performed historically?
We
have
provided a table showing the quarterly high and low intraday Index Levels,
as
well as end-of-quarter Final Index Levels of each Index from January 2002
through December 2006. You can find these tables in the section “Description of
the Indices - Historical Performance of the Indices”. We have provided this
historical information to help you evaluate the behavior of the Indices
in
various economic environments; however, past performance is not indicative
of
how the Indices will perform in the future. You should refer to the section
“Risk Factors - The historical performance of the Indices is not an indication
of the future performance of the Indices.”
Will
the Notes be listed on a securities exchange
or quotation system?
The
Notes
will not be listed on any securities exchange or quotation system, 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; nor can we predict the price at which any such 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, under ordinary market conditions,
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 if 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 acting on behalf of the
Holders, to exercise rights and remedies available under the Indenture. If
the
Calculation Agent uses its discretion to make a determination, the Calculation
Agent will notify the Company 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 relative performance of the two underlying equity
indices, they may be appropriate for investors with specific investment horizons
who seek to participate in the potential price appreciation of the Growth
Index
relative to the Value Index. In particular, the Notes may be an attractive
investment for investors who:
|
·
|
believe
that the Growth Index will outperform the Value Index over the
term of the
Notes;
|
|
·
|
want
potential upside exposure to stocks underlying the Growth Index relative
to stocks underlying the Value
Index;
|
|
·
|
are
willing to forgo interest payments or dividend payments on the
stocks
underlying the Indices; and
|
|
·
|
wish
to gain leveraged exposure to the outperformance, if any, of the
Index
Return of the Growth Index relative to the Index Return of the
Value Index
during the term of the Notes.
|
The
Notes
may not be a suitable investment for you if you:
|
·
|
seek
current income or dividend payments from your
investment;
|
|
·
|
seek
an investment with an active secondary
market;
|
|
·
|
are
unable or unwilling to hold the Notes until maturity;
or
|
|
·
|
do
not believe the Growth Index will outperform the Value Index over
the term
of the Notes.
|
What
are the U.S. federal income tax consequences of investing in the
Notes?
We
intend
to treat the Notes as contingent payment debt instruments that are subject
to
taxation as described under the heading “Certain U.S. Federal Income Tax
Considerations—U.S. Federal Income Tax Treatment of the Notes as Indebtedness
for U.S. Federal Income Tax Purposes—Contingent Payment Debt Instruments” in the
accompanying prospectus supplement.
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 (“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 materially
similar law or any entity the assets of which are deemed to be “plan assets”
under ERISA, Section 4975 of the Code and any applicable regulations, 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.
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 will be subject to risks not associated with
conventional fixed-rate or floating-rate debt securities. Prospective purchasers
should recognize the possibility of a 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 Indices will fluctuate. 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.
Your
Notes are principal protected only if you hold the Notes until
maturity.
The
Notes
are designed so that if they are held to maturity, you will receive the amount
you originally invested. The price at which you may sell your Notes prior
to
maturity may be less than the amount you originally invested. Movement in
the
Index Levels cannot be predicted.
The
formula for determining the Cash Settlement Value does not take into account
changes in the Index Levels prior to the Calculation Date.
Changes
in the Index Levels during the term of the Notes before the Calculation Date
will not be reflected in the calculation of the Cash Settlement Value. The
Calculation Agent will calculate the Cash Settlement Value based upon the
Index
Levels as of the Calculation Date. As a result, you may receive the amount
of
your investment in the Notes, or only 100% of your original investment in
the
Notes, even if the Index Level of the Growth Index has outperformed the Index
Level of the Value Index at various times during the term of the Note, if,
on
the Calculation Date, the Index Return of the Growth Index is less than the
Index Return of the Value Index.
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. 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 fully 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
Indices.
The
Indices do not reflect the payment of dividends on the stocks underlying
them.
You should refer to the section “Description of the Notes.”
You
must rely on your own evaluation
of the merits of an investment linked to an increase, if any, in the Indices.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Indices and in the stocks underlying the Indices.
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 from ours. In connection
with
your purchase of the Notes, you should investigate the Indices and the stocks
that underlie the Indices and not rely on our views with respect to future
movements in the Indices and the underlying stocks. You should make such
investigation as you deem appropriate as to the merits of an investment linked
to the outperformance, if any, of the Growth Index relative to the Value
Index.
Equity
market risks may affect the trading value of the Notes and the amount you
will
receive at maturity.
We
expect
that the Index Levels will fluctuate in accordance with changes in the financial
condition of the companies issuing the stocks comprising the Indices, the
value
of the underlying stocks comprising the Indices generally and other factors.
The
financial condition of the companies issuing the stocks comprising the Indices
may weaken or the general condition of the equity market may decline, either
of
which may cause a decrease in the outperformance of the Growth Index relative
to
the Value Index and thus a decrease in the value of the Notes. 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 stocks comprising the Indices change. Investor perceptions regarding
the companies issuing the stocks comprising the Indices 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 Index Levels may be expected to fluctuate until the Calculation Date
and
thus the performance of the Growth Index relative the Value Index may fluctuate
until the Calculation Date.
The
historical performance of the Indices is not an indication of the future
performance of the Indices.
The
historical performance of the Indices, which is included in this pricing
supplement, should not be taken as an indication of the future performance
of
the Indices. While the trading prices of the underlying stocks comprising
the
Indices will determine the Index Levels, it is impossible to predict whether
the
Index Levels will fall or rise. Trading prices of the underlying stocks
comprising the Indices 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 stocks are traded, and by various circumstances
that can influence the values of the underlying stocks in a specific market
segment or the value of a particular underlying stock.
You
may not receive more than your initial investment, even if the Index Return
of
the Growth Index is positive.
You
may
not receive more than your initial investment in the Notes, even if the Index
Return of the Growth Index is positive on the Calculation Date. The Cash
Settlement Value is based on the outperformance of the Growth Index relative
to
the Value Index. If the Value Index exhibits greater positive performance
than
the Growth Index, then you may receive only your initial investment in the
Notes. For example, if the Growth Index appreciates by 10% over the term
of the
Notes, and the Value Index appreciates by 20% over the same period of time,
then
you will only receive your initial investment in the Notes, even though the
Growth Index appreciated in value.
You
may be required to include original issue discount in income during your
ownership of the Notes even though you will receive no cash payments during
the
term of the Notes.
For
U.S.
federal income tax purposes, we intend to treat the Notes as contingent payment
debt instruments. As a result, U.S.
Holders (as defined under the heading “Certain U.S. Federal Income Tax
Considerations” in the accompanying prospectus supplement) will be required to
include original issue discount in income during their ownership of the Notes
although they will receive no cash payments during the term of the
Notes.
Additionally, U.S. Holders will generally be required to recognize ordinary
income on the gain, if any, realized upon maturity or on a sale or other
disposition of a Note. See “Certain U.S. Federal Income Tax Considerations—U.S.
Federal Income Tax Treatment of the Notes as Indebtedness for U.S. Federal
Income Tax Purposes—Contingent Payment Debt Instruments” in the accompanying
prospectus supplement.
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 level and
volatility of the Indices, the Index Return of the Growth Index relative
to the
Index Return of the Value Index, 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 Index
Return
of the Growth Index is less than the Index Return of the Value Index. 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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Relative
Index performance.
We expect that the value of the Notes prior to maturity will depend
substantially upon the performance of the Index Return of the Growth
Index
relative to the Index Return of the Value Index. If you decide
to sell
your Notes when the Index Return of the Growth Index is greater
than the
Index Return of the Value Index, you may nonetheless receive substantially
less than the amount that would be payable at maturity based on
the
relative Index Returns of the Indices because of expectations that
the
Index Returns will continue to fluctuate until the Cash Settlement
Value
is determined. Economic, financial, regulatory, geographic, judicial,
political and other developments that affect the stocks underlying
the
Indices may also affect the Index Returns and, thus, the value
of the
Notes.
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Volatility
of the Indices.
Volatility is the term used to describe the size and frequency
of market
fluctuations. If the volatility of the Indices increases or decreases,
the
trading value of the Notes may be adversely affected. This volatility
may
increase the risk that the Relative Return will decline, which
could
negatively affect the trading value of Notes. The effect of the
volatility
of the Indices on the trading value of the Notes may not necessarily
decrease 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. However, interest rates may also
affect
the economy and, in turn, the Index Levels, which (for the reasons
discussed above) would affect the value of the Notes. Falling interest
rates may increase the Index Levels and, thus, reduce the value
of the
Notes. Rising interest rates may decrease the Index Levels and,
thus,
increase 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 Index Levels, 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 Indices 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 may
be less sensitive to the volatility of the
Indices.
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Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks in the Indices. In general, because the Indices do not incorporate
the value of dividend payments, higher dividend yields will likely
increase the value of the Notes and, conversely, lower dividend
yields
will likely reduce the value of the
Notes.
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Events
involving the companies issuing the stocks comprising the
Indices.
General economic conditions and earnings results of the companies
whose
stocks comprise the Indices, 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 Indices may be affected by mergers and
acquisitions, which can contribute to volatility of the Indices.
As a
result of a merger or acquisition, one or more stocks in the Indices
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
Indices.
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Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange and quotation
system 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.
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Hedging
obligations under the Notes.
The original issue price of the Notes includes the cost of hedging
our
obligations under the Notes. Such cost includes BSIL’s (or any other of
our subsidiaries’) expected cost of providing such hedge and the profit
BSIL (or any other of our subsidiaries) 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.
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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,
may
offset some or all of any change in the value of the Notes attributable to
another factor.
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
Indices. 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 Indices.
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 Levels, or deciding whether a Market Disruption Event has occurred.
You
should refer to “Description of the Notes - Discontinuance of the Indices,” “-
Adjustments to the Indices” 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 Indices for their proprietary
accounts, and for other accounts under their management. These transactions
may
influence the value of such stocks, and therefore the Index Levels 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 Indices 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 Indices. The policies
of the Sponsor concerning the calculation of the Indices will affect the
Relative Return 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 an Index,
it
may become difficult to determine the trading value of the Notes or the Cash
Settlement Value. If the Sponsor discontinues or suspends calculation of
an
Index at any time prior to the Maturity Date and a Successor Index 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 such Index. In
addition, if the method of calculating an Index (or a Successor Index) is
changed in a material respect, or if an Index (or a Successor Index) is in
any
other way modified so that such Index (or Successor Index) does not, in the
opinion of the Calculation Agent, fairly represent the level of such Index
(or
Successor Index) had such changes or modifications not been made, the
Calculation Agent will make such calculations and adjustments as may be
necessary to arrive at a level of a security index comparable to such Index
(or
Successor Index) as if such changes or modifications had not been made. In
each
such event, the Calculation Agent’s determination of the value of the Notes will
affect the amount you will receive at maturity. See “Description of the Notes”
and “Description of the Indices.”
The
Sponsor may change the companies underlying the Indices in a way that affects
the Index Levels and consequently the value of the Notes.
The
Sponsor can add, delete or substitute the stocks underlying an Index or make
other methodological changes that could alter the Index Levels and adversely
affect the value of the Notes. You should realize that changes in the companies
included in the Indices may affect the Indices, as a newly added company
may
perform significantly better or worse than the company or companies it
replaces.
We
cannot control actions by the other companies whose stocks are included in
each
Index.
The
common stock of The Bear Stearns Companies Inc. is an underlying stock of
the
Value Index. We may currently, or in the future, engage in business with
the
other companies underlying the Value Index. Actions by any company whose
stock
is part of an Index may have an adverse effect on the price of the company’s
stocks, the Index Level of an Index, and the trading value of the Notes.
No such
other company is involved in this offering or has any obligations with respect
to the Notes, including any obligation to take our or your interests into
consideration for any reason. These other 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 other 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
cannot control actions by the companies whose stocks
are included in the Indices.
We
are
not affiliated with any of the other companies whose stock underlies the
Indices. Actions by any company whose stock is part of the Indices may affect
the price of its stock, the Index Levels of the Indices, 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 responsible for any disclosure by any other company in the Indices. 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 Indices or any other company included in the Indices.
You
should make your own investigation into the Indices and the companies underlying
the Indices.
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
Indices—License Agreement with the Sponsor”) and have no ability to control or
predict the Sponsor’s actions, including any errors in or discontinuation of
disclosure regarding their methods or policies relating to the calculation
of
the Indices. Neither we nor any or our affiliates assumes any responsibility
for
the adequacy or accuracy of the information about the Indices or the Sponsor
contained in this pricing supplement. You, as an investor in the Notes, should
make your own investigation into the Indices and the Sponsor. The Sponsor
is not
involved in any way in the offering of the Notes and have no obligation to
consider your interests as an owner of Notes when they take any action 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 Indices, the Index Levels, the trading value of the
Notes
or the amount you may receive at maturity.
We
and
our affiliates may hedge some or all of our anticipated exposure in connection
with the Notes by the purchase and sale of exchange-traded and over-the-counter
options on the Indices or individual stocks included in the Indices, or futures
contracts on the Indices and options on such futures contracts or by taking
positions in any other instruments that it may wish to use in connection
with
such hedging. We and our affiliates are likely to modify our hedge position
throughout the life of the Notes, including on each Calculation Date, by
purchasing and selling the stocks and instruments listed above and other
available stocks and instruments. We and our affiliates may also from time
to
time buy or sell shares of the stocks underlying the Indices or derivative
instruments related to those stocks for our own accounts in connection with
our
normal business practices. 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
Index Levels in a manner that would be adverse to your investment in the
Notes.
See the section “Use of Proceeds and Hedging.”
Hedging
activities that we or our affiliates may engage in may affect the prices
of
those stocks or the Index Levels 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 Indices, or derivative
or
synthetic instruments related to those stocks or the Indices, we or any of
our
affiliates may liquidate a portion of such holdings at any time before, during
or after the term of the Notes or at or about the time of a change in the
stocks
that underlie the Indices. 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 Index Levels, 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.
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 Indices or the companies issuing the common stock
included in the Indices. 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 stocks included in the Indices and, therefore, 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 Indices, 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.
Similarly,
we may in the past or may in the future issue Notes that permit a purchaser
to
take a different view with respect to the movement of the Indices than do
the
Notes (e.g., to take a bearish rather than a bullish view). 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 Indices. By introducing competing products into the
marketplace in this manner, we or our affiliates could adversely affect the
value of the Notes.
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 Index Level
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 $[l].
The
Notes will mature on January [l],
2010
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 Economic Area 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 periodic
payments on the Notes. At
maturity, you will receive the Cash Settlement Value, calculated as described
below.
Payment
at Maturity
On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in cash
that depends upon the outperformance of the Index Return of the Growth Index
relative to the Index Return of the Value Index.
If,
at
maturity, the Relative Return is greater than 0%, then, on the Maturity Date,
you will receive an amount per $1,000 Note equal to the sum of: (i) $1,000,
plus
(ii) $1,000 multiplied by [121]% of the Relative Return.
If,
at
maturity, the Relative Return is equal to or less than 0%, then, on the Maturity
Date, you will receive an amount per $1,000 Note equal to $1,000. If
the Relative Return is equal to or less than 0% at maturity, you may receive
less than the overall return you would earn if you invested in a conventional
debt security at the same time with the same
maturity.
With
respect to each Index, the “Index Return” of such Index is the amount, expressed
as a percentage, resulting from the quotient of: (i) the Final Index Level
of
such Index divided by (ii) its Initial Index Level.
The
“Relative Return” is an amount, expressed as a percentage, resulting from the
difference of: (i) the Index Return of the Growth Index minus (ii) the Index
Return of the Value Index.
The
Upside Participation Rate is equal to [121]%.
The
“Index Level” equals the closing value of such Index, as determined by the
related Sponsor, on each Index Business Day.
The
“Initial
Index Level”
equals
[l],
with
respect to the Growth Index, and [l]
with
respect to the Value Index, representing the closing value of each Index,
as
determined by the related Sponsor, on January [l],
2007.
The
“Final
Index Level”
will
be
determined by the Calculation Agent and will equal the closing values of
each
Index, as determined by the related Sponsor, on the Calculation
Date.
The
“Calculation Date” is January [l],
2010.
The Calculation Date is subject to adjustment as described under “Description of
the Notes - Market Disruption Events”.
The
“Maturity Date” of the Notes the date three Business Days following the
Calculation Date.
The
Notes
will not be listed on any securities exchange.
An
“Index
Business Day” means,
with
respect to an Index, any day on which the Primary Exchange and each Related
Exchange are scheduled to be open for trading.
A
“Business Day” means any day other than a Saturday or Sunday, on which banking
institutions in the cities of New York, New York and London, England are
not
authorized or obligated by law or executive order to be closed.
Illustrative
Examples
The
examples set forth below and the related tables depict the hypothetical Cash
Settlement Value of a Note based on the assumptions below. The hypothetical
Index Levels in the examples and related table do not purport to be
representative of every possible scenario concerning increases or decreases
in
the Index Levels of the Growth Index or the Value Index. You should not construe
these examples or the data included in the table as an indication or assurance
of the expected performance of the Notes.
The
examples demonstrating the hypothetical Cash Settlement Value of a Note are
based on the following assumptions:
Investor
purchases $1,000 aggregate principal amount of Notes at the initial public
offering price of $1,000.
Investor
holds the Notes to maturity.
The
Initial Index Level with respect to the Growth Index is equal to 575.00 and
with
respect to the Value Index is equal to 825.00.
The
Upside Participation Rate is [121]%.
All
returns are based on a 3-year term and are stated on a pre-tax
basis.
No
Market
Disruption Events or Events of Default occur during the term of the
Notes.
Example
1:
The Relative Return is positive.
In
this
example, the Growth Index greatly outperforms the Value Index over the term
of
the Notes. On the Calculation Date, the Relative Return is 65%. In this example,
using the formula below (applicable when the Relative Return is greater than
or
equal to 0%), the Cash Settlement Value will equal $1,786.50. This example
shows
how the Upside Participation Rate allows you to benefit from leverage in
the
event of a positive Relative Return.
In
this
example, although the Relative Return is 65%, your return on investment would
be
78.65% because the Upside Participation rate allows you to benefit from leverage
as a result of the positive Relative Return.
Example
2: The Relative Return is slightly above 0%.
In
this
example, the Growth Index slightly outperforms the Value Index over the term
of
the Notes. On the Calculation Date, the Relative Return is 2%. In this example,
using the formula below (applicable when the Relative Return is greater than
0%), the Cash Settlement Value will equal $1,024.20. This example shows how
although you may benefit in from a positive Relative Return, 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 fully principal protected.
![](formula3.jpg)
In
this
example, although the Relative Return is 2%, your return on investment would
be
2.42% because the Upside Participation Factor allows you to benefit from
leverage as a result of a positive Relative Return. However, your
return on investment 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 also principal protected.
Example
3:
The Relative Return is negative.
In
this
example, the Growth Index underperforms the Value Index over the term of
the
Notes. On the Calculation Date, the Relative Return is -37%. In this example,
the Cash Settlement Value will equal the investor’s original initial investment
in the Notes (applicable when the Relative Return is equal to or less than
0%).
This example shows how the Notes are principal protected, and if the Relative
Return is equal to or less than 0% at maturity, you will receive only the
principal amount of your Notes. In this case, your return on investment 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
also principal protected.
Summary
of Examples 1 Through 3
Reflecting
the Cash Settlement Value
|
Example
1
|
|
Example
2
|
|
Example
3
|
Hypothetical
Initial Index Level of Growth Index
|
575.00
|
|
575.00
|
|
575.00
|
Hypothetical
Final Index Level of Growth Index
|
948.75
|
|
598.00
|
|
402.50
|
Hypothetical
Initial Index Level of Value Index
|
825.00
|
|
825.00
|
|
825.00
|
Hypothetical
Final Index Level of Value Index
|
825.00
|
|
841.50
|
|
882.75
|
Value
of Relative Return
|
Positive
|
|
Slightly
Positive
|
|
Negative
|
Cash
Settlement Value per Note
|
$1,786.50
|
|
$1,024.20
|
|
$1,000.00
|
Table
of Hypothetical Cash Settlement Values
The
chart
below illustrates the calculation of the hypothetical Cash Settlement Value
available to an investor based on a $1,000 investment in a hypothetical Note,
assuming that the Initial Index Level of the Growth Index was 575 and the
Initial Index Level of the Value Index was 825. The chart provides hypothetical
Final Index Levels and the percent change from each Index’s hypothetical Initial
Index Level for both the Growth Index and the Value Index.
The
hypothetical Cash Settlement Values are derived by calculating as
follows:
|
·
|
Where
the Relative Return is greater than 0%, then, the sum of (i) a
$1,000
initial investment, plus (ii) $1,000 multiplied by [121]% of the
hypothetical performance of the Growth Index relative to the Value
Index
for the applicable period.
|
|
·
|
Where
the Relative Return is equal to or less than 0%, then, $1,000.
If
the Relative Return is equal to or less than 0% at maturity, you
may
receive less than the overall return you would earn if you invested
in a
conventional debt security at the same time with the same
maturity.
|
|
|
|
|
|
|
|
Value
Index: Final Index Level and % Change
|
|
|
|
429
|
528
|
627
|
726
|
825
|
924
|
1023
|
1122
|
1221
|
|
|
|
-48%
|
-36%
|
-24%
|
-12%
|
+0%
|
+12%
|
+24%
|
+36%
|
+48%
|
Growth
Index: Final Index Level and % Change
|
851
|
+48%
|
$2,161.60
|
$2,016.40
|
$1,871.20
|
$1,726.00
|
$1,580.80
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
782
|
+36%
|
$2,016.40
|
$1,871.20
|
$1,726.00
|
$1,580.80
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
713
|
+24%
|
$1,871.20
|
$1,726.00
|
$1,580.80
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
644
|
+12%
|
$1,726.00
|
$1,580.80
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
575
|
+0%
|
$1,580.80
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
506
|
-12%
|
$1,435.60
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
437
|
-24%
|
$1,290.40
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
368
|
-36%
|
$1,145.20
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
299
|
-48%
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
Discontinuance
or Modification of one or more Indices
If
the
Sponsor discontinues publication of or otherwise fails to publish any Index
and
the 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 discontinued Index for all purposes, including for purposes
of determining whether a Market Disruption Event exists with respect to the
discontinued Index.
If
an
Index is discontinued or if the Sponsor fails to publish an 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
discontinued 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 an Index
may adversely affect the value of, and trading in, the Notes.
Adjustments
to the Indices
If
at any
time the method of calculating an Index or a Successor Index, or the value
thereof, is changed in a material respect, or if an 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 Index Return
of such Index, or the Relative Return 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 or 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 an
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, an 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 such Index.
Market
Disruption Events
To
the
extent a Market Disruption Event exists with respect to an Index on the
Calculation Date, the Final Index Level for such Index will be determined on the
first succeeding Scheduled Trading Day for such Index 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 Scheduled Trading Days following
the
original date that, but for the Market Disruption Event, would have been
the
Calculation Date. In that case, the second Scheduled Trading Day will be
deemed
to be the Calculation Date, notwithstanding the Market Disruption Event,
and the
Calculation Agent will determine the Final Index Level with respect to such
Index on that second Scheduled Trading Day in accordance with the formula
for
and method of calculating such disrupted Index or Indices in effect prior
to the
Market Disruption Event using the price of each security underlying the Growth
Index or the Value Index, as applicable, on the primary organized 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 estimate of the price that would have prevailed
on the primary organized 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 Scheduled Trading Day. For the avoidance of doubt, any postponement
of the determination of the Final Index Level of one Index pursuant to this
paragraph will not postpone the determination of the Final Index Level with
respect to the other Index.
A
“Market
Disruption Event” means, with respect to an Index, any Scheduled Training Day
for such Index on which (A) any Primary Exchange or Related Exchange for
such
Index fails to open for trading during its regular trading session or (B)
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 for such Index or otherwise, and whether by reason of movements
in price exceeding limits permitted by the Primary Exchange(s) or Related
Exchange(s) or otherwise, (A) relating to securities that comprise 20% or
more
of the level of the Growth Index or the Value Index, as applicable or (B)
in
futures or options contracts relating to the Growth Index or the Value Index
on
any Related Exchange;
(b) any
event
(other than an event described in (c) or (d) 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 Growth Index or the Value Index,
as applicable; (B) to effect transactions in, or obtain market values for,
futures or options contracts relating to the Growth Index or the Value Index
on
any Related Exchange;
(c) with
respect to the Growth Index, the closure on any Scheduled Trading Day of
any
Primary Exchange relating to securities that comprise 20% or more of the
level
of the Growth Index or any Related Exchange prior to its Scheduled Closing
Time,
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 Scheduled Trading 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 Scheduled
Trading Day for such Primary Exchange or Related Exchange;
(d) with
respect to the Value Index, the closure on any Scheduled Trading Day of any
Primary Exchange relating to securities that comprise 20% or more of the
level
of the Value Index or any Related Exchange prior to its Scheduled Closing
Time,
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 Scheduled Trading 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 Scheduled
Trading Day for such Primary Exchange or Related Exchange;
(e) any
Scheduled Trading Day on which any Primary Exchange or Related Exchange fails
to
open for trading during its regular trading session; or
(f) any
other
event, if the Calculation Agent determines that the event materially interferes
with our ability or the ability of any of our affiliates to manage, enter
into
or unwind all or a material portion of a hedge with respect to the Notes
that we
or our affiliates have effected or may effect as described in “Use of Proceeds
and Hedging.”
For
the
purposes of determining whether a Market Disruption Event in respect of a
Index
exists at any time, if a Market Disruption Event occurs in respect of a security
included in the Growth Index or Value Index, as applicable at any time, then
the
relevant percentage contribution of that security to the level of the Growth
Index or Value Index shall be based on a comparison of (x) the portion of
the
level of the Growth Index or Value Index attributable to that security and
(y)
the overall level of the Growth Index or Value Index, in each case immediately
before the occurrence of such Market Disruption Event.
“Related
Exchange” means with respect to an Index 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 with respect to an Index the primary exchange or market of
trading of any security then included in the Index.
“Scheduled
Closing Time” means, with respect to a Primary Exchange or Related Exchange, on
any Scheduled Trading Day, the scheduled weekday closing time of such Primary
Exchange or Related Exchange on such Scheduled Trading Day, without regard
to
after hours or any other trading outside of the regular trading session
hours.
“Scheduled
Trading Day” means, with respect to any Index, any day on which each Primary
Exchange and each Related Exchange are scheduled to be open for
trading.
For
purposes of the above definition, 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.
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
beneficial owner of a Note, upon any acceleration permitted by the Indenture
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 the Company and the
beneficial owners 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 the
Company and the Trustee, who will provide notice to the registered holders
of
the Notes.
DESCRIPTION
OF THE INDICES
Selection
of Component Stocks Included in the Indices
To
be
eligible for inclusion in an Index, a company’s stocks must be listed on
May 31 of a given year and the Sponsor must have access to documentation
verifying the company’s eligibility for inclusion. Common stocks belonging to
corporations incorporated in the United States and its territories are eligible
for inclusion in the Indices. Companies incorporated in the following
countries/regions are also reviewed for eligibility: Bahamas, Belize, Bermuda,
British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands,
Gibraltar, Isle of Man, Liberia, Marshall Islands, & Netherlands Antilles.
Not all companies incorporated in these regions are eligible for inclusion
in
the Indices. Companies incorporated in these regions are specifically considered
eligible for the Indices if the company meets one of the following criteria:
(i)
the headquarters is in the U.S or (ii) the headquarters is also in the
designated region/country, and the primary exchange for local shares is in
the
U.S. The following securities are specifically excluded from the Indices:
(i) preferred and convertible preferred stock, redeemable shares,
participating preferred stock, warrants and rights; and (ii) trust
receipts, royalty trusts, limited liability companies, OTC Bulletin Board
companies, pink sheets, closed-end mutual funds and limited partnerships
that
are traded on U.S. exchanges.
The
primary criteria used to determine the initial list of securities eligible
for
the Indices is total market capitalization, which is defined as the price
of the
shares times the total number of available shares. All common stock share
classes are combined in determining market capitalization. If multiple share
classes have been combined, the price of the primary vehicle (usually the
most
liquid) is used in the calculations. In cases where the common stock share
classes act independently of each other (e.g., tracking stocks), each class
is
considered for inclusion separately. Stocks must trade at or above $1.00
on
May 31 of each year to be eligible for inclusion in the Indices. However,
if a stock falls below $1.00 intra-year, it will not be removed until the
next
reconstitution if it is still trading below $1.00.
The
Indices are reconstituted annually to reflect changes in the marketplace.
The
list of companies is ranked based on May 31 total market capitalization,
with the actual reconstitution effective on the first trading day following
the
final Friday of June each year. Changes in the constituent stocks are
preannounced and subject to change if any corporate activity occurs or if
any
new information is received prior to release.
The
levels of the Indices at any time do not reflect the payment of dividends
on the
component stocks included in either Index. Because of this factor, the return
on
the Notes will not be the same as the return you would receive if you were
to
purchase these stocks and hold them for a period equal to the term of the
offered Notes.
Computation
of the Indices
The
market value of each security in each Index is determined as a percentage
of the
market value within the Russell
1000
®
Index.
A
security designated as 100% growth will hold the same market value in the
Growth Index
as
in the Russell
1000
®
Index.
A
security designated as 70% growth will be included at 70% of the market value
in
the Growth Index as in the Russell
1000
®
Index.
Similarly, a security designated as 100% value will hold the same market
value
in the Value Index
as
in the Russell 1000 ®
Index,
and a security designated as 70% value will be included at 70% of the market
value in the Value Index
as
in the Russell 1000 ®
Index.
As
a capitalization-weighted indices, the Indices reflects changes in the
capitalization, or market value, of the component stocks relative to their
capitalization on a base date. The current value of each Index is calculated
by
adding the market values of each Index’s component stocks, which are derived by
multiplying the price of each stock by the number of available shares, to
arrive
at the total market capitalization of the 1,000 stocks. The total market
capitalization is then divided by a divisor. To calculate each Index,
last sale prices will be used for exchange-traded and Nasdaq Global Market
stocks. If a component stock of an Index is not open for trading, the most
recently traded price for that security will be used in calculating the
related Index.
In
order to provide continuity for the value of each Index, the divisor is adjusted
periodically to reflect events including changes in the number of common
shares
outstanding for component stocks, company additions or deletions, corporate
restructurings and other capitalization changes.
The
Sponsor uses a “non-linear probability” method to assign growth and value
weights to stocks, where the term “probability” is used to indicate the degree
of certainty that a stock is value or growth based on its relative book-to-price
ratio and I/B/E/S forecast long-term growth mean. This method allows stocks
to
be represented as having both growth and value characteristics, while preserving
the additive nature of the index.
A
process
for assigning growth and value weights is applied to the stocks after the
index
is comprised. Stocks are ranked by their adjusted book-to-price ratio and
their
I/B/E/S forecast long-term growth mean. These rankings are converted to
standardized units and combined to produce a composite value score (“CVS”).
Stocks are then ranked by their CVS, and a probability algorithm is applied
to
the CVS distribution to assign growth and value.
Available
shares are assumed to be shares available for trading. Exclusion of
capitalization held by other listed companies and large holdings of private
investors (10% or more) is based on information recorded in SEC corporate
filings. Other sources are used in cases of missing or questionable data.
The
following types of shares are considered unavailable for the purposes of
capitalization determinations:
|
•
|
ESOP
or LESOP shares — corporations that have Employee Stock Ownership Plans
that comprise 10% or more of the shares outstanding are
adjusted;
|
|
•
|
Corporate
cross-owned shares — occurs when the shares of a corporation included in
an Index
are held by another corporation also included in that Index. Any
percentage held in this class will be
adjusted;
|
|
•
|
Large
private and corporate shares — large private and corporate holdings are
defined as those shares held by an individual, a group of individuals
acting together or a corporation not included in the related Index
that own 10% or more of the shares outstanding. However, not to
be
included in this class are institutional holdings, which are: investment
companies, partnerships, insurance companies, mutual funds, banks
or
venture capitals;
|
|
•
|
Unlisted
share classes — classes of common stock that are not traded on a U.S.
securities exchange; and
|
|
•
|
Initial
public offering lock-ups — shares locked-up during an initial public
offering are not available to the public and will be excluded from
the
market value at the time the initial public offering enters the
related Index.
|
Corporate
Actions Affecting the Indices.
The
following summarizes the types of Index maintenance adjustments and indicates
whether or not an adjustment to an Index
is
required.
|
•
|
“No
Replacement” Rule — Securities that leave an Index,
between reconstitution dates, for any reason (e.g., mergers, acquisitions
or other similar corporate activity) are not replaced. Thus, the
number of
securities in the Indices over the year will fluctuate according
to
corporate activity.
|
|
•
|
Deleted
Stocks — Effective on January 1, 2002, when deleting stocks from
an Index
as a result of exchange de-listing or reconstitution, the price
used will
be the market price on the day of deletion, including potentially
the OTC
Bulletin Board price. Previously, prices used to reflect de-listed
stocks
were the last traded price on the primary
exchange.
|
|
•
|
Exceptions
— There may be corporate events, like mergers or acquisitions, that
result
in the lack of current market price for the deleted security and
in such
an instance the latest primary exchange closing price available
will be
used.
|
|
•
|
Rule
for Additions — The only additions between reconstitution dates are as a
result of spin-offs and initial public offerings. Spin-off companies
are
added to the parent company’s Index and capitalization tier of membership,
if the spin-off is large enough. To be eligible, the spun-off company’s
total market capitalization must be greater than the market-adjusted
total
market capitalization of the smallest security in the parent company’s
Index at the latest reconstitution.
|
|
•
|
Rule
for Corporate Action-Driven Changes — Beginning April 1, 2003 changes
resulting from corporate actions will generally be applied at the
open of
the ex-date using the previous day’s closing prices. For reclassification
of shares, mergers and acquisitions, spin-offs or reorganizations,
adjustments will be made at the open of the ex-date using previous
day
closing prices. For re-incorporations and exchange de-listing,
deleted
entities will be removed at the open on the day following re-incorporation
or delisting using previous day closing prices (including OTC prices
for
de-listed stocks).
|
|
•
|
Quarterly
IPO Additions —
Eligible companies that have recently completed an initial public
offering
(“IPO”) are added to the Indices at the end of each calendar quarter
based
on total market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent reconstitution.
Market adjustments will be made using the returns of the Indices.
Eligible
companies will be added to the Indices using their industry’s average
style probability established at the latest
constitution.
|
Each
month, the Indices are updated for changes to shares outstanding as companies
report changes in share capital to the Securities and Exchange Commission.
Effective April 30, 2002 only cumulative changes to shares outstanding
greater than 5% will be reflected in the Indices. This does not affect treatment
of major corporate events, which are effective on the ex-date.
Historical
Performance of the Indices
The
following tables sets forth the quarterly high and low intraday levels, as
well
as end-of-quarter closing levels, of the Growth Index and the Value Index
for
each quarter in the period from January 1, 2002 through December 29, 2006.
On
January 24, 2007, the closing level of the Growth Index was 568 and the closing
level of the Value Index was 826.79. We
obtained the data in the following table from Bloomberg Financial Service,
without independent verification by us.
The
following historical levels of the Indices should not be taken as an indication
of future performance and no assurance can be given that the levels of the
Indices will increase relative to their Initial Index Levels during the term
of
the notes.
|
(a)
|
Historical
Performance of the Growth
Index
|
Quarter
Ending
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
March 29,
2002
|
526.76
|
469.6
|
497.41
|
June 28,
2002
|
499.19
|
387.17
|
403.7
|
September 30,
2002
|
406.41
|
326.57
|
342.06
|
December 31,
2002
|
401.45
|
327.75
|
365.44
|
March 31,
2003
|
389.06
|
334.41
|
360.45
|
June 30,
2003
|
429.37
|
359.82
|
410.92
|
September 30,
2003
|
447.21
|
405.28
|
425.95
|
December 31,
2003
|
469.31
|
425.95
|
468.9
|
March 31,
2004
|
489.7
|
453.84
|
471.45
|
June 30,
2004
|
484.7
|
455.41
|
479.35
|
September 30,
2004
|
479.35
|
431.2
|
453.15
|
December 31,
2004
|
495.61
|
442.68
|
493.41
|
March 31,
2005
|
496.41
|
466.65
|
471.97
|
June
30, 2005
|
492.89
|
455.75
|
482.29
|
September 30,
2005
|
510.74
|
480.33
|
500.35
|
December 30,
2005
|
526.2
|
478.46
|
513.71
|
March 31,
2006
|
533.49
|
510.91
|
528.04
|
June 30,
2006
|
534.54
|
488.52
|
505.9
|
September
29, 2006
|
526.6
|
478.83
|
524.28
|
December
29, 2006
|
562.16
|
519.46
|
553.66
|
(b) Historical
Performance of the Value Index
Quarter
Ending
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
March 29,
2002
|
581.03
|
522.15
|
572.24
|
June 28,
2002
|
572.72
|
501.54
|
520.89
|
September 30,
2002
|
521.88
|
399.16
|
420.44
|
December 31,
2002
|
485.2
|
385.85
|
455.82
|
March 31,
2003
|
484.41
|
402.07
|
430.85
|
June 30,
2003
|
521.36
|
430.85
|
502.13
|
September 30,
2003
|
527.54
|
494.52
|
509.24
|
December 31,
2003
|
578.54
|
509.24
|
577.67
|
March 31,
2004
|
608.82
|
572.09
|
591.78
|
June 30,
2004
|
600.47
|
555.08
|
593.47
|
September 30,
2004
|
606.5
|
566.04
|
598.96
|
December 31,
2004
|
659.76
|
588.29
|
656.83
|
March 31,
2005
|
677.6
|
634.39
|
653.52
|
June
30, 2005
|
675.15
|
627.83
|
660.46
|
September 30,
2005
|
687.45
|
656.11
|
681.97
|
December 30,
2005
|
698.11
|
639.77
|
685.95
|
March 31,
2006
|
730.44
|
685.88
|
722.25
|
June 30,
2006
|
749.35
|
687.25
|
722.04
|
September
29, 2006
|
764.51
|
704.64
|
762.18
|
December
29, 2006
|
823.57
|
758.7
|
817.76
|
License
Agreement with the Sponsor
We
intend
to enter 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 Indices,
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 Indices, 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 Indices. 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 Indices
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 Indices 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 Indices 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 Indices,
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 (in conjunction with the discussion in the prospectus
supplement) summarizes certain of the material U.S. federal income tax
consequences of the purchase, beneficial ownership, and disposition of the
Notes. We intend to treat the Notes as contingent payment debt instruments
that
are subject to taxation as described under the heading “Certain U.S. Federal
Income Tax Considerations—U.S. Federal Income Tax Treatment of the Notes as
Indebtedness for U.S. Federal Income Tax Purposes—Contingent Payment Debt
Instruments” in the accompanying prospectus supplement. Pursuant to the terms of
the notes, each Holder agree to treat the Notes consistent with our treatment
for all U.S. federal income tax purposes. Prospective purchasers can obtain
the
comparable yield and projected payment schedule of the Notes by contacting
The
Bear Stearns Companies Inc. Bill Bamber: (212) 272-6635. We expect that the
Indices will be treated as actively traded within the meaning of section
871(h)(4)(C)(v) of the Code.
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 securities 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 securities are acquired or held pursuant
to and in accordance with an applicable statutory or administrative exemption.
Each of us and Bear Stearns is considered a “disqualified person” under the Code
or “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 securities 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 securities 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 securities,
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 securities, will be deemed to represent that the purchase, holding and
disposition of the securities 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 securities. Each fiduciary of a Similar Law Plan will be deemed to represent
that the Similar Law Plan’s acquisition and holding of the securities 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.
We or one of our subsidiaries (including BSIL) may hedge our obligations
under
the Notes by the purchase and sale of exchange-traded and over-the-counter
options on, futures on or other derivative or synthetic instruments related
to,
the Indices, individual stocks included in the Indices, futures contracts
on the
Indices and/or options on these instruments. At various times after the initial
offering and before the maturity of the Notes, depending on market conditions
(including the Index Levels), 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 and may take long or short positions
in
these instruments. 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 these instruments,
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 these instruments or on the Index Levels, 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
August 16, 2006, as amended, we have agreed to sell to Bear Stearns & Co.
Inc. as principal, and Bear, Stearns & Co. Inc. has agreed to purchase from
us, the aggregate principal amount of Notes set forth opposite its name
below.
Agent
|
|
Principal
Amount
of
Notes
|
Bear,
Stearns & Co. Inc.
|
|
$[l]
|
Total
|
|
$[l]
|
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.
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.
|
|
|
|
You
should only rely on the information contained in this pricing supplement
and 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
and
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not
rely on it.
This pricing supplement and the accompanying prospectus supplement
and
prospectus are not an offer to sell these securities, or a solicitation
of
an offer to buy these securities, 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 and the accompanying
prospectus
supplement and prospectus is correct on any date after their respective
dates.
|
|
The
Bear Stearns
Companies
Inc.
$[l]
Medium-Term
Notes, Series B
Linked
to the Outperformance of the
Russell
1000® Growth Index Relative
to the
Russell
1000® Value
Index
Due
January [l],
2010
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
January
[l],
2007
|
__________________
|
|
TABLE
OF CONTENTS
|
|
|
|
|
Pricing
Supplement
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-5
|
|
Questions
and Answers
|
PS-7
|
|
Risk
Factors
|
PS-11
|
|
Description
of the Notes
|
PS-18
|
|
Description
of the Indices
|
PS-24
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-30
|
|
Certain
ERISA Considerations
|
PS-30
|
|
Use
of Proceeds and Hedging
|
PS-31
|
|
Supplemental
Plan of Distribution
|
PS-32
|
|
Legal
Matters
|
PS-32
|
|
|
|
|
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
|
|
Validity
of the Notes
|
S-47
|
|
Glossary
|
S-47
|
|
|
|
|
Prospectus
|
|
Where
You Can Find More Information
|
1
|
|
The
Bear Stearns Companies Inc.
|
2
|
|
Use
of Proceeds
|
4
|
|
Description
of Debt Securities
|
4
|
|
Description
of Warrants
|
16
|
|
Description
of Preferred Stock
|
21
|
|
Description
of Depositary Shares
|
25
|
|
Description
of Depository Contracts
|
28
|
|
Description
of Units
|
31
|
|
Book-Entry
Procedures and Settlement
|
33
|
|
Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
|
43
|
|
Plan
of Distribution
|
44
|
|
ERISA
Considerations
|
48
|
|
Legal
Matters
|
49
|
|
Experts
|
49
|
|
|
|
|
|
|