We
may
grant Bear Stearns a 30-day option from the date of this pricing supplement
to
purchase from us up to an additional $375,000 of Notes at the public
offering
price to cover any over-allotments.
We expect that the Notes will be
ready for delivery in book-entry form only through the book-entry facilities
of
The Depository Trust Company in New York, New York, on or about January
31,
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
31, 2007
SUMMARY
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 29, 2010 (the
“Notes”),
are
Notes with a return tied or “linked” to the outperformance of the Index Return
of the SINdex relative to the Index Return of the S&P500 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. 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 SINdex minus (ii) the Index
Return of the S&P500. 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 equal to or 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 150% of the Relative Return. If,
at
maturity, the Relative Return is negative, then, on the Maturity Date, you
will
receive an amount per $1,000 Note equal to the difference of: (i) $1,000, minus
(ii) $1,000 times the absolute value of the Relative Return. In any event,
the
Cash Settlement Value is subject to a minimum of zero. If
the Relative Return is negative at maturity, investors may lose up to 100%
of
the principal amount of their Notes.
We will
not pay interest during the term of the Notes.
Selected
Risk Considerations
|
·
|
Possible
loss of principal—Your
investment in the Notes is not principal protected and you may lose
up to
100% of your initial investment.
If you sell your Notes prior to maturity you may receive less than
the
amount you originally invested. In addition, if the S&P 500
outperforms the SINdex, you will 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
SINdex is less than the Index Return of the S&P500, you will suffer a
loss (i.e. you will receive less than the amount you originally invested),
even if the Index Return of the SINdex is
positive.
|
Selected
Investment Considerations
|
·
|
Relative
performance—The Notes will offer a positive return so long as the Index
Return of the SINdex is greater than the Index Return of the S&P500 on
a relative basis. Even if both Indices have declined in value at
maturity,
if the Index Return of the SINdex has declined by less than the Index
Return of the S&P500 (on a percentage basis), the Notes will pay a
positive return at maturity equal to 150% 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 SINdex relative to the
Index
Return of the S&P500. The Cash Settlement Value is based upon whether
the Index Return of the SINdex is greater than the Index Return of
the
S&P500. In addition, because of the Upside Participation Rate, in the
event that there is outperformance of the SINdex relative to the
S&P500, investors will receive a 1.5% 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 SINdex compared
to
the S&P500 during the term of the
Notes.
|
|
·
|
Diversification—Because
the SINdex is currently based on the equity prices of 20 constituent
companies and the S&P500 is currently based on the equity prices of
500 constituent companies, the Notes may allow you to diversify an
existing portfolio.
|
|
·
|
Tax
Considerations—We intend to treat each Note as a pre-paid cash-settled
executory contract.
|
|
·
|
Low
minimum investment—Notes can be purchased in increments of
$1,000.
|
KEY
TERMS
Issuer:
|
The
Bear Stearns Companies Inc.
|
Indices:
|
Standard
& Poor’s S&P 500®
Index (ticker “SPX”), as published by Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. (“Standard & Poor’s”), and ISE
SINdex®
Index
(ticker “SIN”), as published by the International Securities Exchange
Inc., (“ISE”).
|
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
$2,500,00. 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 equal to or 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 150% of the Relative
Return.
|
If,
at
maturity, the Relative Return is negative, then, on the Maturity Date, you
will
receive an amount per $1,000 Note equal to the difference of: (i) $1,000, minus
(ii) $1,000 times the absolute value of the Relative Return. In any event,
the
Cash Settlement Value is subject to a minimum of zero. If
the Relative Return is negative at maturity, investors may lose up to 100%
of
the principal amount of their Notes.
Upside
Participation Rate:
|
150%
|
Relative
Return:
|
The
amount, expressed as a percentage, resulting from the difference
of: (i)
the Index Return of the SINdex minus (ii) the Index Return of the
S&P500.
|
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 related Sponsor, on each
Index
Business Day.
|
Initial
Index Level:
|
Equals
116.74, with respect to the SINdex, and 1,420.62 with respect to
the
S&P500, representing the closing value of each Index, as determined
by
the related Sponsor, on January 29,
2007.
|
Final
Index Level:
|
Will
be determined by the Calculation Agent and will equal the closing
value of
each Index, as determined by the related Sponsor, on the Calculation
Date.
|
Calculation
Date:
|
January
27, 2010. The Calculation Date is subject to adjustment as described
under
“Description of the Notes - Market Disruption
Events”.
|
Maturity
Date:
|
The
Notes are expected to mature on January 29, 2010 (for a term of
approximately three years), however, if the Calculation Date is adjusted
due to the occurrence of a Market Disruption Event, the Maturity
Date will
be three Index Business Days following the adjusted 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 the
Index.
|
Sponsors
|
With
respect to the S&P500, Standard & Poor’s, a division of The
McGraw-Hill Companies, Inc. With respect to the SINdex, the International
Securities Exchange Inc.
|
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 SINdex relative to the return of the
S&P500 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
are expected to mature on January 29, 2010, however, if the Calculation Date
is
adjusted due to the occurrence of a Market Disruption Event, the Maturity Date
will be three Index Business Days following the adjusted Calculation
Date.
The
Notes do not provide for earlier redemption. When we refer to Notes in this
pricing supplement, we mean Notes with a principal amount of $1,000. You should
refer to the section “Description of Notes.”
Are
the Notes equity or debt securities?
The
Notes
are our unsecured debt securities. However, the Notes differ from traditional
debt securities in that the Notes are not principal protected and offer the
opportunity to participate in the outperformance of the SINdex relative to
the
S&P500, if any, during the term of the Notes. If, at maturity, the Relative
Return is negative, you will suffer a loss and will receive less, and possibly
up to 100% less, than the original public offering price of $1,000 per
Note.
What
will I receive at maturity of the Notes?
If,
at
maturity, the Relative Return is equal to or 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 150% of the Relative
Return.
If,
at
maturity, the Relative Return is negative, on the Maturity Date, you will
receive an amount equal to the original principal amount minus 1% of the
original principal amount for each percentage point that the Relative Return
is
less than 0%. For example, if the Relative Return is -40%, you will suffer
a 40%
loss and, therefore, receive 60% of the original principal amount. In any event,
the Cash Settlement Value is subject to a minimum of zero.
The
“Relative Return” is an amount, expressed as a percentage, resulting from the
difference of: (i) the Index Return of the SINdex minus (ii) the Index Return
of
the S&P500.
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 150%.
With
respect to each Index, the “Index Level” of an Index equals the closing value of
such Index, as determined by the related Sponsor, on each Index Business
Day.
The
“Initial
Index Level”
equals
116.74, with respect to the SINdex, and 1,420.62 with respect to the S&P500,
representing the closing value of each Index, as determined by the related
Sponsor, on January 29, 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 related Sponsor, on the Calculation
Date.
The
“Calculation Date” is January 27, 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 expected to be January 29, 2010, however, if the
Calculation Date is adjusted due to the occurrence of a Market Disruption Event,
the Maturity Date will be three Index Business Days following the adjusted
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.”
Are
the Notes principal protected?
No.
The
Notes are not principal protected and 100% of your principal investment in
the
Notes is at risk of loss. The Notes are linked to the relative performance
of
the SINdex and the S&P500, and you will suffer a loss if the Index Return of
the S&P500 is greater than the Index Return of the SINdex. In this case, the
Cash Settlement Value you will receive will equal the original principal amount
of your Notes, minus 1% of the original principal amount for each percentage
point that the Index Return of the S&P500 is greater than the Index Return
of the SINdex.
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 related Sponsor or other publicly
available sources. The Indices are published by the Sponsors and are intended
to
track the price movements of the stocks comprising the Indices.
S&P
publishes the S&P500. The S&P500 is a capitalization weighted index and
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the S&P500, discussed below in
further detail, is based on the relative value of the aggregate market value
of
the common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943.
The
SINdex is calculated and maintained by S&P based on a methodology developed
by ISE in consultation with S&P. ISE’s indices are designed to track the
performance of the most highly capitalized publicly traded companies in specific
industry sectors. The SINdex is comprised of stocks issued by the owners and
operators of casinos and gaming facilities, producers of beer and malt liquors,
distillers, vintners and producers of other alcoholic beverages, and
manufacturers of cigarettes and other tobacco products.
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 SINdex
relative to the S&P500. In particular, the Notes may be an attractive
investment for investors who:
|
·
|
believe
that the SINdex will outperform the S&P500 over the term of the
Notes;
|
|
·
|
want
potential upside exposure to stocks underlying the SINdex relative
to
stocks underlying the
S&P500;
|
|
·
|
are
willing to risk the possible loss of up to 100% of their investment
in
exchange for the opportunity to positively participate in the
outperformance, if any, of the SINdex relative to the
S&P500;
|
|
·
|
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 SINdex relative to the Index Return of the S&P500 during
the term of the Notes.
|
The
Notes
may not be a suitable investment for you if you:
|
·
|
seek
principal protection;
|
|
·
|
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 SINdex will outperform the S&P500 over the term of the
Notes.
|
What
are the U.S. federal income tax consequences of investing in the
Notes?
The
U.S.
federal income tax consequences of an investment in the Notes are complex and
uncertain. We intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts linked to the value of the Indices and, where
required, to file information returns with the Internal Revenue Service (the
“IRS”) in accordance with such treatment. Prospective investors are urged to
consult their tax advisors regarding the U.S. federal income tax consequences
of
an investment in the Notes. Assuming the Notes are treated as pre-paid
cash-settled executory contracts, you should be required to recognize capital
gain or loss to the extent that the cash you receive on the Maturity Date or
upon a sale or exchange of the Notes prior to the Maturity Date differs from
your tax basis on the Notes (which will generally be the amount you paid for
the
Notes). You should review the discussion under the section “Certain U.S. Federal
Income Tax Considerations.”
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to the fiduciary responsibility provisions of
the
Employee Retirement Income Security Act of 1974 (“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.
The
Notes are not principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes
are not principal protected and 100% of your principal investment in the Notes
is at risk of loss. If the Relative Return is less than 0%, you will lose some
and possibly all of your original investment of $1,000 per Note. In this case,
you will lose 1% of the original principal amount for each percentage point
that
the Relative Return is below 0%. Accordingly, you may lose up to 100% of your
original investment in the Notes. In addition, if you sell your Notes prior
to
maturity, you may receive less than the amount you originally
invested.
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 lose up to 100% of your original investment
in
the Notes, even if the Index Level of the SINdex has outperformed the Index
Level of the S&P500 at various times during the term of the Note, if, on the
Calculation Date, the Index Return of the SINdex is less than the Index Return
of the S&P500.
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 SINdex relative to the
S&P500.
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 SINdex relative to
the
S&P500 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 SINdex relative the S&P500 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.
The
relative performance data is not an indication of the future performance of
the
Indices or the Notes.
The
relative historical performance data set forth in the “Historical Relative
Performance Data” section should not be taken as an indication of either the
future performance of the Indices over the term of the Notes or of the Notes
themselves. The Notes do not have a trading history. As a consequence, investors
should understand that the historical relative performance data is based on
the
actual historical performance of the SINdex relative to the S&P500 and it is
impossible to predict whether the Index Levels will fall or rise over the term
of the Notes.
The
SINdex is highly concentrated in a specific market
segment.
The
SINdex is subject to the downside risk of an investment in a specific market
segment (owners and operators of casinos and gaming facilities, producers of
beer and malt liquors, distillers, vintners and producers of other alcoholic
beverages, and manufacturers of cigarettes and other tobacco products). This
includes the risk that the value of assets underlying these industries may
decline, and thereby adversely affect the market value of the Notes.
The
negative performance of a single security (or group of securities) may have
a
more significant adverse affect on the SINdex than a more diversified index,
and
the SINdex may be subject to greater price volatility than a more diversified
index. Furthermore, the SINdex may be more susceptible to any single economic,
political, or regulatory occurrence than an index with underlying securities
that are broadly diversified across several industry groups.
You
may lose some or all of your initial investment, even if the Index Return of
the
SINdex is positive.
You
may
lose some or all of your initial investment in the Notes, even if the Index
Return of the SINdex is positive on the Calculation Date. The Cash Settlement
Value is based on the outperformance of the SINdex relative to the S&P500.
If the S&P500 exhibits greater positive performance than the SINdex, then
you may receive a negative return on the Notes. For example, if the SINdex
appreciates by 10% over the term of the Notes, and the S&P500 appreciates by
20% over the same period of time, then you will lose 10% of your initial
investment in the Notes, even though the SINdex appreciated in value.
Accordingly, if the Index Return of the SINdex is one hundred percent (100%)
less than the Index Return of the S&P500, you will lose all of your original
investment.
Because
the treatment of the Notes is uncertain, the material U.S. federal income tax
consequences of an investment in the Notes are uncertain.
Although
we intend to treat the Notes for all tax purposes as pre-paid cash-settled
executory contracts linked to the Indices, there is no direct legal authority
as
to the proper tax treatment of the Notes, and therefore significant aspects
of
the tax treatment of the Notes are uncertain. In particular, it is possible
that
you will be required to recognize income for U.S. federal tax purposes with
respect to the Notes prior to the sale, exchange or maturity of the Notes,
and
it is possible that any gain or income recognized with respect to the Notes
will
be treated as ordinary income rather than capital gain. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in the Notes. Please read carefully the section
“Certain U.S. Federal Income Tax Considerations.”
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 SINdex relative to the Index
Return of the S&P500, 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 SINdex is less than the Index Return of the S&P500. 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 SINdex
relative to the Index Return of the S&P500. If you decide to sell your
Notes when the Index Return of the SINdex is greater than the Index
Return
of the S&P500, 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 Index.
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
Sponsors are responsible for calculating and maintaining the Indices. The
policies of the Sponsors concerning the calculation of the Indices will affect
the Index Return and, therefore, will affect the trading value of the Notes
and
the Cash Settlement Value.
If
a 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.”
A
Sponsor may change the companies underlying the Indices in a way that affects
the Index Levels and consequently the value of the Notes.
A
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 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 trading price of and the closing level 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 Sponsors and are not responsible
for its public disclosure of information.
We
and
our affiliates are not affiliated in any way with the Sponsors (except for
the
licensing arrangements discussed in the section “Description of the
Indices—License Agreement with ISE” and “Description of the Indices—License
Agreement with S&P”) and have no ability to control or predict the Sponsors’
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 Sponsors contained in
this
pricing supplement. You, as an investor in the Notes, should make your own
investigation into the Indices and the Sponsors. The Sponsors are 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 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 or in connection
with
hedging our obligations under the Notes. These trading activities may present
a
conflict of interest between your interest in the Notes and the interests we
and
our affiliates may have in our proprietary accounts, in facilitating
transactions, including block trades, for our other customers and in accounts
under our management. The transactions could affect the prices of those stocks
or the 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 we or our affiliates may engage in may affect 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 or about the time of the maturity of the Notes
or at
or about the time of a change in the stocks that underlie the 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. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the
future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports on the 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 The Bank of New York as successor to 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 $2,500,000. The Notes are
expected to mature on January 29, 2010, however, if the Calculation Date is
adjusted due to the occurrence of a Market Disruption Event, the Maturity Date
will be three Index Business Days following the adjusted Calculation Date.
The
Notes 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 SINdex relative
to the Index Return of the S&P500.
If,
at
maturity, the Relative Return is equal to or 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 150% of the Relative
Return.
If,
at
maturity, the Relative Return is negative, then, on the Maturity Date, you
will
receive an amount per $1,000 Note equal to the difference of: (i) $1,000, minus
(ii) $1,000 times the absolute value of the Relative Return. In any event,
the
Cash Settlement Value is subject to a minimum of zero. If
the Relative Return is negative at maturity, you may lose up to 100% of the
principal amount of their Notes.
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 SINdex minus (ii) the Index Return
of
the S&P500.
The
Upside Participation Rate is equal to 150%.
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
116.74, with respect to the SINdex, and 1,420.62 with respect to the S&P500,
representing the closing value of each Index, as determined by the related
Sponsor, on January 29, 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 27, 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 expected to be January 29, 2010, however, if the
Calculation Date is adjusted due to the occurrence of a Market Disruption Event,
the Maturity Date will be three Index Business Days following the adjusted
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 SINdex or the S&P500. 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 SINdex is equal to 100.00 and with
respect to the S&P500 is equal to 1500.00.
The
Upside Participation Rate is 150%.
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 SINdex greatly outperforms the S&P500 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 $1,975.00. 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
97.5% 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 SINdex slightly outperforms the S&P500 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
or
equal to 0%), the Cash Settlement Value will equal $1,030.00. 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.
![](graphic3.jpg)
In
this
example, although the Relative Return is 2%, your return on investment would
be
3% 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 fully principal protected.
Example
3:
The Relative Return is negative.
In
this
example, the SINdex underperforms the S&P500 Index over the term of the
Notes. On the Calculation Date, the Relative Return is -42%. In this example,
using the formula below (applicable when the Relative Return is negative),
the
Cash Settlement Value will equal $580.00, meaning that an investor would lose
$420.00 of their original investment of $1,000 in the notes. This example shows
how the Notes are not principal protected, and if the Relative Return is
negative at maturity, you may lose up to 100% of the principal amount of your
Notes.
Summary
of Examples 1 Through 3
Reflecting
the Cash Settlement Value
|
Example
1
|
|
Example
2
|
|
Example
3
|
Hypothetical
Initial Index Level of SINdex
|
100.00
|
|
100.00
|
|
100.00
|
Hypothetical
Final Index Level of SINdex
|
165.00
|
|
104.00
|
|
98.00
|
Hypothetical
Initial Index Level of S&P500
|
1500.00
|
|
1500.00
|
|
1500.00
|
Hypothetical
Final Index Level of S&P500
|
1500.00
|
|
1530.00
|
|
2100.00
|
Value
of Relative Return
|
Positive
|
|
Slightly
Positive
|
|
Negative
|
Cash
Settlement Value per Note
|
$1,975.00
|
|
$1,030.00
|
|
$580.00
|
Table
of Hypothetical Cash Settlement Values
Relative
Return
|
Cash
Settlement
Value
Per Note
|
Return
if
Held
to Maturity
|
|
Relative
Return
|
Cash
Settlement
Value
Per Note
|
Return
if
Held
to Maturity
|
100%
|
$2,500
|
150.00%
|
|
-5%
|
$950
|
-5.00%
|
95%
|
$2,425
|
142.50%
|
|
-10%
|
$900
|
-10.00%
|
90%
|
$2,350
|
135.00%
|
|
-15%
|
$850
|
-15.00%
|
85%
|
$2,275
|
127.50%
|
|
-20%
|
$800
|
-20.00%
|
80%
|
$2,200
|
120.00%
|
|
-25%
|
$750
|
-25.00%
|
75%
|
$2,125
|
112.50%
|
|
-30%
|
$700
|
-30.00%
|
70%
|
$2,050
|
105.00%
|
|
-35%
|
$650
|
-35.00%
|
65%
|
$1,975
|
97.50%
|
|
-40%
|
$600
|
-40.00%
|
60%
|
$1,900
|
90.00%
|
|
-45%
|
$550
|
-45.00%
|
55%
|
$1,825
|
82.50%
|
|
-50%
|
$500
|
-50.00%
|
50%
|
$1,750
|
75.00%
|
|
-55%
|
$450
|
-55.00%
|
45%
|
$1,675
|
67.50%
|
|
-60%
|
$400
|
-60.00%
|
40%
|
$1,600
|
60.00%
|
|
-65%
|
$350
|
-65.00%
|
35%
|
$1,525
|
52.50%
|
|
-70%
|
$300
|
-70.00%
|
30%
|
$1,450
|
45.00%
|
|
-75%
|
$250
|
-75.00%
|
25%
|
$1,375
|
37.50%
|
|
-80%
|
$200
|
-80.00%
|
20%
|
$1,300
|
30.00%
|
|
-85%
|
$150
|
-85.00%
|
15%
|
$1,225
|
22.50%
|
|
-90%
|
$100
|
-90.00%
|
10%
|
$1,150
|
15.00%
|
|
-95%
|
$50
|
-95.00%
|
5%
|
$1,075
|
7.50%
|
|
-100%
|
$0
|
-100.00%
|
0%
|
$1,000
|
0.00%
|
|
|
|
|
Discontinuance
or Modification of one or more Indices
If
a
Sponsor discontinues publication of or otherwise fails to publish any Index
and
such Sponsor or another entity publishes a successor or substitute index that
the Calculation Agent determines to be comparable to the discontinued Index
(such index being referred to herein as a “Successor Index”), then the Final
Index Level for such Index will be determined by reference to the value of
such
Successor Index at the close of trading on the relevant exchanges or markets
for
the Successor Index on the date as of which such Final Index Level for such
Index is to be determined.
Upon
any
selection by the Calculation Agent of a Successor Index, the Calculation Agent
will cause notice thereof to be furnished to us and the Trustee. If a Successor
Index is selected by the Calculation Agent, the Successor Index will be used
as
a substitute for the 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 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 Index Business 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 Index Business Days following the original date
that, but for the Market Disruption Event, would have been the Calculation
Date.
In that case, the second Index Business Day will be deemed to be the Calculation
Date, notwithstanding the Market Disruption Event, and the Calculation Agent
will determine the Final Index Level with respect to such Index on that second
Index Business 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 SINdex or the S&P500, 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 Index Business
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 Index Business 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 SINdex or the S&P500, as applicable or (B) in futures or
options contracts relating to the SINdex or the S&P500 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 SINdex or the S&P500, as
applicable; (B) to effect transactions in, or obtain market values for, futures
or options contracts relating to the SINdex or the S&P500 on any Related
Exchange;
(c) with
respect to the SINdex, the closure on any Index Business Day of any Primary
Exchange relating to securities that comprise 20% or more of the level of the
SINdex 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
Index Business Day for such Primary Exchange or Related Exchange and (ii) the
submission deadline for orders to be entered into the relevant exchange system
for execution at the close of trading on such Index Business Day for such
Primary Exchange or Related Exchange;
(d) with
respect to the S&P500, the closure on any Index Business Day of any Primary
Exchange relating to securities that comprise 20% or more of the level of the
S&P500 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 Index Business Day for such Primary Exchange or Related Exchange and (ii)
the submission deadline for orders to be entered into the relevant exchange
system for execution at the close of trading on such Index Business Day for
such
Primary Exchange or Related Exchange;
(e) any
Index
Business 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 SINdex or S&P500, as applicable at any time, then the
relevant percentage contribution of that security to the level of the SINdex
or
S&P500 shall be based on a comparison of (x) the portion of the level of the
SINdex or S&P500 attributable to that security and (y) the overall level of
the SINdex or S&P500, 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 Index Business Day, the scheduled weekday closing time of such Primary
Exchange or Related Exchange on such Index Business Day, without regard to
after
hours or any other trading outside of the regular trading session
hours.
“Index
Business 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
ISE
SINdex® INDEX
We
have
derived all information relating to the ISE SINdex®
Index
(the “SINdex”), including, without limitation, its make-up, method of
calculation and changes in its components, from publicly available information.
This information reflects the policies of, and is subject to change by the
International Securities Exchange Inc., (“ISE”). The ISE is under no obligation
to continue to publish, and may discontinue or suspend the publication of the
SINdex at any time.
The
SINdex tracks the combined performance of publicly traded companies in the
following industries: owners and operators of casinos and gaming facilities,
producers of beer and malt liquors, distillers, vintners and producers of other
alcoholic beverages, and manufacturers of cigarettes and other tobacco
products.
The
SINdex attempts to capture at least two-thirds of the entire industry’s market
capitalization. Due to the non-uniform weight distribution across entire
industries, an equal-weighted methodology is used to adjust the weighting of
component stocks.
The
equal-weighted methodology ensures each component stock is equally represented
in the SINdex. This methodology is used when there is an especially wide
divergence in the market values of those components. Quarterly rebalancing
events are used to “re-set” the weighting of each component such that each
component has an equal influence on the index performance.
The
SINdex is calculated on a price and total return basis. The price SINdex is
calculated in real-time and disseminated via the Options Price Reporting
Authority (OPRA) and market data vendors every day the U.S. equity markets
are
open. The total return SINdex is calculated on an end-of-day basis.
The
SINdex contains a maximum of 20 different component stocks. New companies are
added to the SINdex when an existing component is removed. Companies may not
apply, and may not be nominated, for inclusion in the SINdex. Companies are
added or removed by the ISE based on the methodology described
herein.
Component
eligibility and other requirements
All
of
the following requirements must be met in order for a company to be eligible
for
inclusion:
1.
Common
stock listed on the New York Stock Exchange (NYSE), American Stock Exchange
(AMEX), or Nasdaq National Market System (NASDAQ). Initial Public Offerings
must
be listed for at least 6 months.
2.
Public
float of at least 25% of the stock.
3.
Operating company and not a closed-end fund, exchange-traded fund (ETF), holding
company, investment vehicle, or royalty
trust.
The
following market capitalization, liquidity, and weighting concentration
requirements must also be satisfied for the SINdex:
1.
Each
component stock has a market capitalization of at least $75 million, except
that
for each of the lowest weighted component securities in the SINdex that in
the
aggregate account for no more than 10% of the weight of the SINdex, the market
capitalization is at least $50 million.
2.
Trading volume of each component stock has been at least one million shares
for
each of the last six months, except that for each of the lowest weighted
component securities in the SINdex that in the aggregate account for no more
than 10% of the weight of the SINdex, trading volume has been at least 500,000
shares for each of the last six months.
3.
No
single component stock represents more than 30% of the weight of the SINdex,
and
the five highest weighted component securities in the SINdex do not in the
aggregate account for more than 65% of the weight of the SINdex. This particular
requirement will be satisfied at least on the first day of January and July
of
each year. The ISE applies weight-adjustment factors, shown in the equations
below, to address component over-weighting.
Weighting
and float-adjustment
The
SINdex is weighted by float-adjusted market capitalization, rather than full
market capitalization, to reflect the actual number of shares available to
investors. Float adjustments are made using Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. (“S&P”) methodology.
The
float-adjusted number of shares for each stock is determined by assigning each
stock an availability factor. That factor represents the percentage of shares
deemed available (i.e., tradable) on the open market, and is developed by
excluding certain types of holdings. Shares may be excluded for three reasons:
corporate cross-holdings, private control block holdings, or government
holdings. Private control blocks are considered to be any entity acting alone
or
in concert that possess a holding greater than or equal to 10% of the issue’s
total capitalization.
Dividend
treatment
The
price
SINdex does not take normal dividend payments into account. Dividends are
accounted for in the total return SINdex by reinvesting them on a daily basis.
The ISE uses the ex-dividend date to determine the total daily dividends for
each day. Special dividends require an index divisor adjustment to prevent
such
distributions from distorting the price SINdex.
Index
equations
The
price
SINdex is calculated using the following basic equation:
The
methodology is represented by the following equation:
where:
I(t)
=
Index value at time (t)
D(t)
=
Divisor at time (t)
n
=
Number of stocks in the index
t
= The
time the index is calculated
Pi(t)
=
Price of stock (i) at time (t)
Si(t)
=
Float-adjusted number of shares of stock (i) at time (t)
WAFi(t)
=
Weight adjustment factor of stock (i) at time (t)
The
initial index divisor is determined using the following
equation:
where:
I(o)
=
Base index value at base date
D(o)
=
Initial divisor at base date
n
=
Number of stocks in the index
Pi(o)
=
Closing price of stock (i) at base date
Si(o)
=
Float-adjusted number of shares of stock (i) at base date
WAFi(o)
=
Weight adjustment factor of stock (i) at base date
Initial
component selection
The
following steps are taken to select the initial components for the
SINdex:
1. Rank
all
common stocks for the SINdex. Stocks shall be ranked in descending order by
unadjusted market capitalization
2. Remove
companies that do not meet the component eligibility requirements
3. If
a
component has multiple share classes, include the most liquid issue for that
company and remove the remaining classes
4. Select
the top 20 companies (maximum) of the industry by market
capitalization
5. Adjust
each component’s weighting to 1/n, where ‘n’ equals the number of component
stocks in the index.
Procedures
for rebalancing the SINdex
The
SINdex is rebalanced quarterly in March, June, September, and December each
year. Changes are made after the close on the third Friday of those months,
and
become effective at the opening on the next trading day. Changes are announced
on the ISE’s publicly available website at least five trading days prior to the
effective date.
1. Rank
all
eligible stocks by market capitalization.
2. Rank
all
current component stocks in the SINdex by market capitalization.
3. Remove
any component stock that fails to meet the eligibility
requirements.
4. Add
any
non-component stock that meets the eligibility requirements, such that the
total
number of components is at most 20.
5. Adjust
the market capitalization of components such that all components have equal
weighting.
Unscheduled
component changes
Component
changes may occur between scheduled review and rebalancing events if a specific
corporate event makes an existing component ineligible. The following events
may
require a component’s replacement:
Event
|
Action
|
|
|
Merger
or
acquisition
|
If
a merger or acquisition results in one component absorbing another,
the
resulting company will remain a component and the absorbed company
will be
replaced. If a component company is absorbed by a non-component company,
the original component will be removed and replaced.
|
|
|
Spin-off
|
If
a component splits or spins off a portion of its business to form
one or
more new companies, the resulting company with the highest market
value
will remain a component as long as it meets the eligibility requirements.
The remaining companies will be evaluated for eligibility and possible
addition to the SINdex.
|
|
|
Bankruptcy
|
A
component will be removed and replaced immediately after bankruptcy
filing.
|
|
|
Delisting
|
A
component will be removed and replaced immediately after being delisted
from its primary market.
|
The
ISE
maintains a Component Replacement Pool (CRP) for the SINdex at all times for
contingency purposes. The CRP contains at least three companies that meet the
eligibility requirements, where possible, and are ranked by market value.
Components removed from the SINdex are replaced with those from the CRP in
descending order by market value. Whenever possible, interim component changes
are announced on the ISE’s publicly available website five trading days prior to
component changes becoming effective.
Price
and total return calculation
Price
and
total return indexes are calculated by S&P. The price SINdex is calculated
on a real-time basis, and the total-return SINdex is calculated and disseminated
on an end-of-day basis. The SINdex is calculated using the last traded price
for
each company in the SINdex from the relevant exchanges and markets.
Index
values are rounded to two decimal places and divisors are rounded to 14 decimal
places.
Current
components of the SINdex
The
following table sets forth the twenty components currently included in the
SINdex as of the close of business January 5, 2007 and the closing price and
weighting of each component of the SINdex as of that date. We obtained the
data
in the following table from the ISE, without independent verification by us.
Current prices and weightings of the SINdex components should not be taken
as an
indication of future performance and no assurance can be given that the prices
of any components of the SINdex will increase relative to their current
component prices and the weighting of each component is subject to change during
the term of the notes.
|
|
|
|
TICKER
|
NAME
|
PRICE*
|
WEIGHT**
|
ABV
|
AmBev
-PN (ADR)
|
47.83
|
4.92
%
|
ASCA
|
Ameristar
Casinos
|
29.31
|
4.88
%
|
BF-B
|
Brown-Forman
Corp.
|
64.58
|
4.84
%
|
BUD
|
Anheuser-Busch
|
48.8
|
5.04
%
|
BYD
|
Boyd
Gaming Corp.
|
46.42
|
5.05
%
|
CG
|
Loews
Corp. - Carolina Group
|
64.57
|
5.16
%
|
DEO
|
Diageo
(ADR)
|
77.28
|
4.95
%
|
HET
|
Harrah's
Entertainment
|
82.47
|
5.19
%
|
IGT
|
International
Game Technology
|
45.71
|
5.08
%
|
LVS
|
Las
Vegas Sands
|
90.94
|
5.04
%
|
MGM
|
MGM
Mirage
|
56.9
|
5.14
%
|
MO
|
Altria
Group, Inc.
|
87.15
|
5.11
%
|
PENN
|
Penn
National Gaming Inc
|
40.22
|
5.27
%
|
RAI
|
Reynolds
American Inc.
|
64.11
|
4.97
%
|
SGMS
|
Scientific
Games
|
29.66
|
4.72
%
|
STN
|
Station
Casinos Inc.
|
81.1
|
5.01
%
|
STZ
|
Constellation
Brands
|
24.41
|
4.31
%
|
TAP
|
Molson
Coors Brewing Company
|
75.44
|
5.10
%
|
UST
|
UST
Inc.
|
57.12
|
5.06
%
|
WYNN
|
Wynn
Resorts Ltd
|
96.88
|
5.16
%
|
(*)
All
figures are denominated in U.S. Dollars and are rounded to the nearest cent.
(**)
Reflects the approximate weightings of the twenty components of the SINdex
, as
of the close of business January 5, 2007.
License
Agreement with ISE
We
have
entered into a non-exclusive license agreement with ISE providing for the
license to us, in exchange for a fee, of the right to use the SINdex in
connection with certain securities, including the Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by ISE. ISE 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.
All
disclosures contained in this pricing supplement regarding the SINdex, including
its make-up, method of calculation and changes in its Components, are derived
from publicly available information prepared by ISE. None of us, Bear Stearns
or
the Trustee assumes any responsibility for the accuracy or completeness of
such
information.
Historical
Performance of the SINdex
The
following table sets forth the quarterly high and low intraday levels, as well
as end-of-quarter final levels, of the SINdex for each quarter in the period
from January 1, 2002 through December 29, 2006. The final level of the SINdex
on
December 29, 2006 was 113.14. We
obtained the data in the following table from Bloomberg Financial Service,
without independent verification by us. The SINdex began publishing on June
1,
2005. Therefore, all levels provided prior to June 1, 2005 represent the
Sponsor’s application of the index methodology, as described above, beginning
with the initial selection of the Index components on December 31, 1998, in
order to reconstruct historical data consistent with the Sponsor’s methodology
for the period prior to June 1, 2005. Historical levels of the SINdex should not
be taken as an indication of future performance and no assurance can be given
that the level of the SINdex will increase relative to its Initial Index Level
during the term of the notes.
Quarter
Ending
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
March 29,
2002
|
50.16
|
43.54
|
50.16
|
June 28,
2002
|
54.00
|
45.06
|
45.82
|
September 30,
2002
|
46.22
|
39.35
|
43.53
|
December 31,
2002
|
44.69
|
40.76
|
44.40
|
March 31,
2003
|
45.22
|
40.36
|
42.46
|
June 30,
2003
|
51.47
|
42.12
|
50.79
|
September 30,
2003
|
54.07
|
49.26
|
52.75
|
December 31,
2003
|
61.10
|
53.40
|
61.08
|
March 31,
2004
|
68.25
|
61.05
|
67.99
|
June 30,
2004
|
70.17
|
63.54
|
68.47
|
September 30,
2004
|
69.99
|
64.05
|
69.99
|
December 31,
2004
|
83.26
|
69.72
|
83.07
|
March 31,
2005
|
87.94
|
81.03
|
85.74
|
June
30, 2005
|
87.37
|
80.56
|
82.85
|
September 30,
2005
|
86.55
|
81.82
|
84.08
|
December 30,
2005
|
88.35
|
78.65
|
87.83
|
March 31,
2006
|
98.41
|
87.51
|
97.36
|
June 30,
2006
|
102.52
|
92.13
|
97.16
|
September
29, 2006
|
99.90
|
93.74
|
99.31
|
December
29, 2006
|
113.60
|
99.31
|
113.14
|
THE
S&P 500® INDEX (“SPX”)
We
have
derived all information relating to the SPX, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. That information reflects the policies of and is
subject to change by, Standard & Poor’s, a division of The McGraw-Hill
Companies, Inc. (“Standard & Poor’s”). Standard and Poor’s is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the SPX at any time.
Standard
& Poor’s publishes the SPX. The SPX is a capitalization weighted index and
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the SPX, discussed below in further
detail, is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate
average market value of the common stocks of 500 similar companies during the
base period of the years 1941 through 1943. As of December 20, 2006, shares
of
423 companies of the SPX are traded on the New York Stock Exchange and shares
of
77 companies of the SPX are traded on The Nasdaq Stock Market. Standard &
Poor’s chooses companies for inclusion in the SPX with the aim of achieving a
distribution by broad industry groupings that approximates the distribution
of
these groupings in the common stock population of the New York Stock Exchange
(the “NYSE”), which Standard & Poor’s uses as an assumed model for the
composition of the total market. Relevant criteria employed by Standard &
Poor’s include the viability of the particular company, the extent to which that
company represents the industry group to which it is assigned, the extent to
which the market price of that company’s common stock is generally responsive to
changes in the affairs of the respective industry and the market value and
trading activity of the common stock of that company. Ten main groups of
companies comprise the SPX with the number of companies included in each group,
as of December 19, 2006, indicated in parenthesis: Industrials (52), Utilities
(32), Telecommunication Services (10), Materials (29), Information Technology
(78), Energy (31), Consumer Staples (38), Consumer Discretionary (88),
Healthcare (55) and Financials (87). Changes in the SPX are reported daily
in
the financial pages of many major newspapers, on the Bloomberg Financial Service
under the symbol “SPX” and on Standard & Poor’s website
(http://www.spglobal.com). Information contained in the Standard & Poor’s
website is not incorporated by reference in, and should not be considered a
part
of, this pricing supplement. The SPX does not reflect the payment of dividends
on the stocks included in the SPX.
Computation
of the SPX
Standard
& Poor’s currently computes the SPX as of a particular time as
follows:
(i) the
product of the market price per share and the number of then outstanding shares
of each component stock as determined as of that time (referred to as the
“market value” of that stock);
(ii) the
market values of all component stocks as of that time are
aggregated;
(iii) the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv) the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “base
value”);
(v) the
current aggregate market value of all component stocks is divided by the base
value; and
(vi) the
resulting quotient, expressed in decimals, is multiplied by ten.
While
Standard & Poor’s currently employs the above methodology to calculate the
SPX, no assurance can be given that Standard & Poor’s will not modify or
change this methodology in a manner that may affect the performance of the
SPX.
Standard
& Poor’s adjusts the foregoing formula to offset the effects of changes in
the market value of a component stock that are determined by Standard &
Poor’s to be arbitrary or not due to true market fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities of
the
company,
|
|
·
|
the
substitution by Standard & Poor’s of particular component stocks in
the SPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all component stocks, after taking account of the new market price per share
of
the particular component stock or the new number of outstanding shares of that
stock or both, as the case may be, and then determines the new base value in
accordance with the following formula:
|
![](graphic9.jpg) |
x
Old Base Value |
The
result is that the base value is adjusted in proportion to any change in the
aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the SPX.
In
addition, Standard & Poor’s standard practice is to remove all closely held
shares and shares held between corporations who are both in the calculations
of
the SPX and an SPX component’s market value.
License
Agreement with S&P
We
have
entered into a nonexclusive license agreement providing for the license to
us,
in exchange for a fee, of the right to use indices owned and published by
Standard & Poor’s in connection with some securities, including the
notes.
The
notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s, a
division of The McGraw Hill Companies, Inc. Standard & Poor’s makes no
representation or warranty, express or implied, to the holders of the notes
or
any member of the public regarding the advisability of investing in securities
generally or in the notes particularly or the ability of the S&P 500® to
track general stock market performance. Standard & Poor’s only relationship
to Bear
Stearns Companies Inc.
(other than transactions entered into in the ordinary course of business) is
the
licensing of certain service marks and trade names of Standard & Poor’s and
of the S&P 500® which is determined, composed and calculated by Standard
& Poor’s without regard to Bear Stearns Companies Inc .or the notes.
Standard & Poor’s has no obligation to take the needs of Bear Stearns
Companies Inc. or the holders of the notes into consideration in determining,
composing or calculating the S&P 500®. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of
the sale of the notes, prices at which the notes are to initially be sold,
or
quantities of the notes to be issued or in the determination or calculation
of
the equation by which the notes are to be converted into cash. Standard &
Poor’s has no obligation or liability in connection with the administration,
marketing or trading of the notes.
STANDARD
AND POOR’S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500®,
OR ANY
DATA INCLUDED THEREIN AND STANDARD AND POOR’S SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD AND POOR’S MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY HSBC USA INC.,
OWNERS OF THE NOTES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500®
OR ANY
DATA INCLUDED THEREIN. STANDARD AND POOR’S 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 S&P 500®
OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
STANDARD AND POOR’S HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
“STANDARD
& POOR’S®”,
“S&P®”,
“S&P 500®”,
“STANDARD & POOR'S 500”, AND “500” ARE TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. THE FOREGOING MARKS HAVE BEEN LICENSED FOR USE BY BEAR STEARNS
COMPANIES INC. THE NOTES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
STANDARD & POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION,
WARRANTY, OR CONDITION REGARDING THE ADVISABILITY OF INVESTING IN THE
NOTES.
Historical
Performance of the SPX
The
following table sets forth the quarterly high and low intraday levels, as well
as end-of-quarter final levels, of the SPX for each quarter in the period from
January 1, 2002 through December 29, 2006. The final level of the SPX on
December 29, 2006 was 1,418.30. We obtained the data in the following table
from
Bloomberg Financial Service, without independent verification by us. Historical
levels of the SPX should not be taken as an indication of future performance
and
no assurance can be given that the level of the SPX will increase relative
to
its Initial Index Level during the term of the notes.
|
|
|
|
Quarter
Ending
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
March 29,
2002
|
1,176.97
|
1,074.36
|
1,147.39
|
June 28,
2002
|
1,147.84
|
952.92
|
989.82
|
September 30,
2002
|
994.46
|
775.68
|
815.28
|
December 31,
2002
|
954.28
|
768.63
|
879.82
|
March 31,
2003
|
935.05
|
788.90
|
848.18
|
June 30,
2003
|
1,015.33
|
847.85
|
974.50
|
September 30,
2003
|
1,040.29
|
960.84
|
995.97
|
December 31,
2003
|
1,112.56
|
995.97
|
1,111.92
|
March 31,
2004
|
1,163.23
|
1,087.06
|
1,126.21
|
June 30,
2004
|
1,150.57
|
1,076.32
|
1,140.84
|
September 30,
2004
|
1,140.84
|
1,060.72
|
1,114.58
|
December 31,
2004
|
1,217.33
|
1,090.19
|
1,211.92
|
March 31,
2005
|
1,229.11
|
1,163.69
|
1,180.59
|
June
30, 2005
|
1,219.59
|
1,136.15
|
1,191.33
|
September 30,
2005
|
1,245.86
|
1,183.55
|
1,228.81
|
December 30,
2005
|
1,275.80
|
1,168.20
|
1,248.29
|
March 31,
2006
|
1,310.88
|
1,245.74
|
1,294.83
|
June 30,
2006
|
1,326.70
|
1,219.29
|
1,270.20
|
September
29, 2006
|
1,340.28
|
1,224.54
|
1,335.85
|
December
29, 2006
|
1,431.81
|
1,327.10
|
1,418.30
|
HISTORICAL
RELATIVE PERFORMANCE DATA AND HYPOTHETICAL NOTE
PERFORMANCE
The
following historical information and hypothetical note performance should not
be
taken as an indication of the future performance of the SINdex, the S&P500,
the SINdex relative to the S&P500, or of the Notes.
The
Notes
do not have a trading history. As a consequence, the following historical
relative performance data and hypothetical note performance is based on the
actual historical performance of the SINdex relative to the S&P500.
No
future performance of the Notes or the Indices may be inferred from any of
the
historical data set forth below.
The
hypothetical note performance data presented in Figure 2 below represents
reconstructions of a series of hypothetical investments on every quarter ending
date during the relevant periods described below. The performance of
hypothetical investments is linked to a historical reconstruction of the
performance of the SINdex relative to the S&P500 based on the actual
historical performance of the SINdex relative to the S&P500. The
hypothetical cash settlement values expressed in Figure 2 below use a
methodology identical to the methodology that will be used for the Notes.
The
Sponsors are responsible for calculating and maintaining the Indices. The
policies of the Sponsors concerning the calculation of the Indices will affect
the Index Return and, therefore, will affect the value of the Notes. In
addition, if a Sponsor discontinues or suspends calculation or publication
of an
Index, it may adversely affect the value of the Notes. See “Description of the
Notes - Discontinuance or Modification of one or more Indices.” The policies of
the Sponsors regarding the Indices is impossible to predict. See generally,
“Risk Factors - Changes that affect the calculation of the Indices will affect
the trading value of the Notes and the amount you will receive at maturity.”
A
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. 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. See generally, “Risk Factors -
A Sponsor may change the companies underlying the Indices in a way that affects
the Index Levels and consequently the value of the Notes.”
All
of
the historical relative performance data and the hypothetical note performance
set forth below was derived from data provided on the Bloomberg Financial
Service with respect to each Index, in each case, without independent
verification from the Issuer.
The
historical relative performance data and the hypothetical note performance
presented in Figures 2 and 3 below represent the historical relative performance
and hypothetical note performance over a series of 3 year periods beginning
on
every quarter ending date from and including December 31, 1998 to and including
December 31, 2003.
Figure
1
- Quarter Ending Closing Prices
The
following table sets forth the quarter closing levels of the SINdex and the
S&P500 for each quarter in the period from December 31, 1998 through
December 29, 2006.
The
SINdex began publishing on June 1, 2005. Therefore, all levels provided for
the
SINdex prior to June 1, 2005 represent the Sponsor’s application of the index
methodology, as described in “Description of the Indices”, beginning with the
initial selection of the Index components on December 31, 1998, in order to
reconstruct historical data consistent with the Sponsor’s methodology for the
period prior to June 1, 2005.
|
|
|
Quarter
Ending
|
SINdex
Closing Level
|
S&P500
Closing Level
|
December
31, 1998
|
25.00
|
1,229.23
|
March
31, 1999
|
25.72
|
1,286.37
|
June
30, 1999
|
28.78
|
1,372.71
|
September
30, 1999
|
30.01
|
1,282.71
|
December
31, 1999
|
27.39
|
1,469.25
|
March
31, 2000
|
24.85
|
1,498.58
|
June
30, 2000
|
29.48
|
1,454.60
|
September
29, 2000
|
34.12
|
1,436.51
|
December
29, 2000
|
39.05
|
1,320.28
|
March
30, 2001
|
40.45
|
1,160.33
|
June
29, 2001
|
43.34
|
1,224.42
|
September
28, 2001
|
37.11
|
1,040.94
|
December
31, 2001
|
43.51
|
1,148.08
|
March
29, 2002
|
50.16
|
1,147.39
|
June
28, 2002
|
45.82
|
989.82
|
September
30, 2002
|
43.53
|
815.28
|
December
31, 2002
|
44.40
|
879.82
|
March
31, 2003
|
42.46
|
848.18
|
June
30, 2003
|
50.79
|
974.50
|
September
30, 2003
|
52.75
|
995.97
|
December
31, 2003
|
61.08
|
1,111.92
|
March
31, 2004
|
67.99
|
1,126.21
|
June
30, 2004
|
68.47
|
1,140.84
|
September
30, 2004
|
69.99
|
1,114.58
|
December
31, 2004
|
83.07
|
1,211.92
|
March
31, 2005
|
85.74
|
1,180.59
|
June
30, 2005
|
82.85
|
1,191.33
|
September
30, 2005
|
84.08
|
1,228.81
|
December
30, 2005
|
87.83
|
1,248.29
|
March
31, 2006
|
97.36
|
1,294.83
|
June
30, 2006
|
97.16
|
1,270.20
|
September
29, 2006
|
99.31
|
1,335.85
|
December
29, 2006
|
113.14
|
1,418.30
|
Figure
2
-Rolling 3 year Index Returns of the SINdex and the S&P 500, performance of
the SINdex relative to the S&P 500, and hypothetical cash settlement values
based on performance of the SINdex relative to the
S&P500
The
chart
below illustrates the calculation of (i) the Index Return for the SINdex and
the
S&P500, (ii) 3 year performance of the SINdex relative to the S&P500,
and (iii) the hypothetical cash settlement value available to an investor based
on a $1,000 investment in a hypothetical note for each 3-year rolling return
period ending on the last day of each quarter between December 31, 2001 and
December 29, 2006 inclusive, based on the quarterly closing levels of the SINdex
and S&P500 for each such period. The hypothetical cash settlement values are
derived from calculating the sum of: (i) a $1,000 initial investment, plus
(ii)
$1,000 multiplied by 150% of the rolling 3 year performance of the SINdex
relative to the S&P500 for the applicable period.
The
SINdex began publishing on June 1, 2005. Therefore, all levels provided for
the
SINdex prior to June 1, 2005 represent the Sponsor’s application of the index
methodology, as described in “Description of the Indices”, beginning with the
initial selection of the Index components on December 31, 1998, in order to
reconstruct historical data consistent with the Sponsor’s methodology for the
period prior to June 1, 2005.
|
|
|
|
|
Maturity
Date
|
Rolling
3 year Index Return for the SINdex
|
Rolling
3 year Index Return for the S&P500
|
Rolling
3 year performance of the SINdex relative to the
S&P500
|
Hypothetical
cash settlement value per $1,000 note based on 3 year performance
of the
SINdex relative to the S&P500
|
December
31, 2001
|
+74.04%
|
-6.60%
|
+80.64%
|
$2,209.63
|
March
29, 2002
|
+95.02%
|
-10.80%
|
+105.83%
|
$2,587.41
|
June
28, 2002
|
+59.21%
|
-27.89%
|
+87.10%
|
$2.306.51
|
September
30, 2002
|
+45.05%
|
-36.44%
|
+81.49%
|
$2,222.39
|
December
31, 2002
|
+62.10%
|
-40.12%
|
+102.22%
|
$2,533,31
|
March
31, 2003
|
+70.87%
|
-43.40%
|
+114.27%
|
$2,713.99
|
June
30, 2003
|
+72.29%
|
-33.01%
|
+105.29%
|
$2,579.38
|
September
30, 2003
|
+54.60%
|
-30.67%
|
+85.27%
|
$2,279.03
|
December
31, 2003
|
+56.41%
|
-15.78%
|
+72.20%
|
$2,082.95
|
March
31, 2004
|
+68.08%
|
-2.94%
|
+71.02%
|
$2,065.37
|
June
30, 2004
|
+57.98%
|
-6.83%
|
+64.81%
|
$1,972.14
|
September
30, 2004
|
+88.60%
|
+7.07%
|
+81.53%
|
$2,222.91
|
December
31, 2004
|
+90.92%
|
+5.56%
|
+85.36%
|
$2,280.42
|
March
31, 2005
|
+70.93%
|
+2.89%
|
+68.04%
|
$2,020.59
|
June
30, 2005
|
+80.82%
|
+20.36%
|
+60.46%
|
$1,906.87
|
September
30, 2005
|
+93.15%
|
+50.72%
|
+42.43%
|
$1,636.48
|
December
30, 2005
|
+97.82%
|
+41.88%
|
+55.94%
|
$1,839.03
|
March
31, 2006
|
+129.30%
|
+52.66%
|
+76.64%
|
$2,149.58
|
June
30, 2006
|
+91.30%
|
+30.34%
|
+60.95%
|
$1,914.31
|
September
29, 2006
|
+88.27%
|
+34.13%
|
+54.14%
|
$1,812.10
|
December
29, 2006
|
+85.23%
|
+27.55%
|
+57.68%
|
$1,865.18
|
The
hypothetical note performance data presented in Figure 2 above represents
reconstructions of a series of hypothetical investments on every quarter ending
date during the relevant periods described above. The performance of
hypothetical investments is linked to a historical reconstruction of the
performance of the SINdex relative to the S&P500 based on the actual
historical performance of the SINdex relative to the S&P500. The
hypothetical cash settlement value expressed in Figure 2 above uses a
methodology identical to the methodology that will be used for the Notes.
Figure
3
- Graphical illustration of the results in Figure 2
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain of the material U.S. federal income
tax
consequences of the purchase, beneficial ownership, and disposition of the
Notes. For purposes of this summary, a “U.S. holder” is a beneficial owner of a
Note that is:
|
·
|
an
individual who is a citizen or a resident of the United States, for
federal income tax purposes;
|
|
·
|
a
corporation (or other entity that is treated as a corporation for
federal
tax purposes) that is created or organized in or under the laws of
the
United States or any State thereof (including the District of
Columbia);
|
|
·
|
an
estate whose income is subject to federal income taxation regardless
of
its source; or
|
|
·
|
a
trust if a court within the United States is able to exercise primary
supervision over its administration, and one or more United States
persons
(as defined for federal income tax purposes) have the authority to
control
all of its substantial decisions.
|
For
purposes of this summary, a “non-U.S. holder” is a beneficial owner of a Note
that is:
|
·
|
a
nonresident alien individual for federal income tax
purposes;
|
|
·
|
a
foreign corporation for federal income tax
purposes;
|
|
·
|
an
estate whose income is not subject to federal income tax on a net
income
basis; or
|
|
·
|
a
trust if no court within the United States is able to exercise primary
jurisdiction over its administration or if United States persons
(as
defined for federal income tax purposes) do not have the authority
to
control all of its substantial
decisions.
|
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States for federal income tax purposes by reason of being present in
the
United States for at least 31 days in the calendar year and for an aggregate
of
at least 183 days during a three year period ending in the current calendar
year
(counting for those purposes all of the days present in the current year, one
third of the days present in the immediately preceding year, and one sixth
of
the days present in the second preceding year).
This
summary is based on interpretations of the Code, regulations issued thereunder,
and rulings and decisions currently in effect (or in some cases proposed),
all
of which are subject to change. Any of those changes may be applied
retroactively and may adversely affect the federal income tax consequences
described herein. This summary addresses only holders that purchase Notes at
initial issuance, and own Notes as capital assets and not as part of a
“straddle,” “hedge,” “synthetic security,” or “conversion transaction” for
federal income tax purposes or as part of some other integrated investment.
This
summary does not discuss all of the tax consequences that may be relevant to
particular investors or to investors subject to special treatment under the
federal income tax laws (such as banks, thrifts or other financial institutions;
insurance companies; securities dealers or brokers, or traders in securities
electing mark-to-market treatment; regulated investment companies or real estate
investment trusts; small business investment companies; S corporations;
investors that hold their Notes through a partnership or other entity treated
as
a partnership for federal tax purposes; investors whose functional currency
is
not the U.S. dollar; certain former citizens or residents of the United States;
persons subject to the alternative minimum tax; retirement plans or other
tax-exempt entities, or persons holding the Notes in tax-deferred or
tax-advantaged accounts; or “controlled foreign corporations” or “passive
foreign investment companies” for federal income tax purposes). This summary
also does not address the tax consequences to shareholders, or other equity
holders in, or beneficiaries of, a holder, or any state, local or foreign tax
consequences of the purchase, ownership or disposition of the Notes.
Accordingly,
prospective investors are urged to consult their tax advisors with respect
to
the federal, state and local tax consequences of investing in the Notes, as
well
as any consequences arising under the laws of any other taxing jurisdiction
to
which they may be subject.
PROSPECTIVE
PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES.
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing the characterization for federal income tax purposes of securities
with terms that are substantially the same as those of the Notes. Accordingly,
the proper U.S. federal income tax treatment of the Notes is uncertain. Under
one approach, the Notes would be treated as pre-paid cash-settled executory
contracts with respect to the Indices. We intend to treat the Notes consistent
with this approach, and pursuant to the terms of the Notes, you agree to treat
the Notes consistent with this approach. Except as otherwise provided in
“—Alternative Characterizations and Treatments,” the balance of this summary
assumes that the Notes are so treated.
Federal
Income Tax Treatment of U.S. Holders
Upon
the
receipt of cash at maturity of a Note or upon the sale, exchange or other
disposition of a Note in a taxable transaction, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized
at
maturity or upon the sale, exchange or other disposition and the U.S. holder’s
tax basis in the Note. A U.S. holder’s tax basis in a Note will generally be
equal to the U.S. holder’s cost for the Note. Any such gain or loss generally
will constitute capital gain or loss, and if held for more than a year at the
time of maturity, sale, exchange or other disposition, generally should be
long-term capital gain or loss. Long-term capital gains of non-corporate
taxpayers are generally eligible for reduced rates of taxation. The ability
of
U.S. holders to use capital losses to offset ordinary income is
limited.
Alternative
Characterizations and Treatments
Although
we intend to treat each Note as a pre-paid cash-settled executory contract
as
described above, there are no statutory provisions, regulations, published
rulings or judicial decisions addressing the characterization of securities
with
terms that are substantially the same as those of the Notes, and therefore
the
Notes could be subject to some other characterization or treatment for federal
income tax purposes. For example, each Note could be treated as a “contingent
payment debt instrument” for federal income tax purposes. In this event, a U.S.
holder would be required to accrue original issue discount income, subject
to
adjustments, at the “comparable yield” of the Notes and any gain recognized with
respect to the Note generally would be treated as ordinary income. Prospective
investors should consult their tax advisors as to the federal income tax
consequences to them if the Notes are treated as debt instruments for federal
income tax purposes.
In
addition, certain proposed Treasury regulations require the accrual of income
on
a current basis for contingent payments made under certain “notional principal
contracts.” The preamble to the proposed regulations states that the “wait and
see” method of accounting does not properly reflect the economic accrual of
income on those contracts and requires current accrual of income for some
contracts already in existence. While the proposed regulations do not apply
to
pre-paid executory contracts, the preamble to the proposed regulations indicates
that similar timing issues exist in the case of pre-paid forward contracts
and
therefore similar timing issues may exist in the case of executory contracts.
If
the IRS or the U.S. Treasury Department publishes future guidance requiring
current economic accrual for contingent payments on pre-paid executory
contracts, it is possible that a U.S. holder could be required to accrue income
over the term of the Notes.
Other
alternative federal income tax characterizations or treatments of the Notes
are
possible, and if applied could also affect the timing and the character of
the
income, gain, or loss with respect to the Notes.
Prospective
investors in the Notes should consult their tax advisors as to the tax
consequences to them of purchasing Notes, including any alternative
characterizations and treatments.
Federal
Income Tax Treatment of Non-U.S. Holders
A
non-U.S. holder that is not subject to U.S. federal income tax as a result
of
any direct or indirect connection to the United States other than its ownership
of a Note should not be subject to U.S. federal income or withholding tax in
respect of the Notes so long as (1) the non-U.S. holder provides an appropriate
statement, signed under penalties of perjury, identifying the non-U.S. holder
and stating, among other things, that the non-U.S. holder is not a United States
person (as defined for federal income tax purposes), (2) the non-U.S. holder
is
not a bank that has purchased the Notes in the ordinary course of its trade
or
business of making loans, as described in section 881(c)(3)(A) of the Code,
(3)
the non-U.S. holder is not a “10-percent shareholder” within the meaning of
section 871(h)(3)(B) of the Code or a “related controlled foreign corporation”
within the meaning of section 881(c)(3)(C) of the Code with respect to us,
and
(4) the Indices are actively traded within the meaning of section
871(h)(4)(C)(v) of the Code. We expect that the Indices will be treated as
actively traded within the meaning of section 871(h)(4)(C)(v) of the
Code.
If
any of
these conditions are not met, a 30% withholding tax may apply to payments on
the
Notes, unless an income tax treaty reduces or eliminates such tax or the income
is effectively connected with the conduct of a trade or business within the
United States by such non-U.S. holder. In the latter case, such non-U.S. holder
should be subject to U.S. federal income tax with respect to all income from
the
Notes at regular rates applicable to U.S. taxpayers, and, for a foreign
corporation, possibly branch profits tax, unless an applicable treaty reduces
or
eliminates such tax.
In
general, the gain realized on the maturity, sale, exchange or other disposition
of the Notes by a non-U.S. holder should not be subject to U.S. federal income
tax unless the gain is effectively connected with a trade or business conducted
by the non-U.S. holder in the United States, in which case the non-U.S. holder
will generally be subject to U.S. federal income tax on any income or gain
in
respect of the Note at the regular rates applicable to U.S. taxpayers, and,
for
a foreign corporation, possibly branch profits tax, unless an applicable treaty
reduces or eliminates such tax, or the non-U.S. holder is an individual that
is
present in the United States for 183 days or more in the taxable year of the
maturity, sale, exchange or other disposition and certain other conditions
are
satisfied, in which case the non-U.S. holder will generally be subject to tax
at
a rate of 30% on the amount by which the non-U.S. holder's capital gains derived
from the maturity, sale, exchange, retirement or other disposition of the Notes
and other assets that are from U.S. sources exceed capital losses allocable
to
U.S. sources.
Information
Reporting and Backup Withholding
Distributions
made on the Notes and proceeds from the sale of Notes to or through certain
brokers may be subject to a “backup” withholding tax on “reportable payments”
unless, in general, the holder of Notes complies with certain procedures or
is
an exempt recipient. Any amounts so withheld from distributions on the Notes
generally would be refunded by the IRS or allowed as a credit against the holder
of Notes federal income tax, provided the holder of Notes makes a timely filing
of an appropriate tax return or refund claim.
Reports
will be made to the IRS and to holder of Notes that are not exempt from the
reporting requirements.
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
and in part for hedging by us or one or more of our subsidiaries (including
BSIL) of our obligations under the Notes by the purchase and sale of
exchange-traded and over-the-counter options on, or other derivative or
synthetic instruments related to, the Indices, individual futures contracts
included in the Indices, futures contracts on the Indices and/or options on
such
futures contracts. At various times after the initial offering and before the
maturity of the Notes, depending on market conditions (including the 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 using dynamic hedging techniques and may take long or short
positions in the Indices, individual futures contracts included in the Indices,
listed or over-the-counter options contracts in, or other derivative or
synthetic instruments related to, the Indices and such individual futures
contracts. In addition, we and/or one or more of our subsidiaries may
periodically purchase or otherwise acquire a long or short position in the
Notes
and may, in our or its discretion, hold or resell such Notes. We or one or
more
of our subsidiaries may also take positions in other types of appropriate
financial instruments that may become available in the future. If we or one
or
more of our subsidiaries has a long hedge position in the Indices, individual
futures contracts included in the Indices or options contracts in, or other
derivative or synthetic instruments related to, the Indices and such underlying
futures contracts, then we or one or more of our subsidiaries may liquidate
a
portion of its holdings at or about the time of the maturity of the Notes.
Depending on, among other things, future market conditions, the total amount
and
the composition of such positions are likely to vary over time. We will not
be
able to ascertain our profits or losses from any hedging position until such
position is closed out and any offsetting position or positions are taken into
account. Although we have no reason to believe that such hedging activity will
have a material effect on the price of such options, futures contracts or
options on futures contracts or on the 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.
|
|
$
|
2,500,000
|
|
Total
|
|
$
|
2,500,000
|
|
The
Agent
intends to initially offer $2,500,000 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. Potential investors should
understand that, as described on the cover, investors who purchase an aggregate
amount of at least $1,000,000 of Notes in this initial distribution will be
entitled to purchase such Notes for 99.00% of the principal amount. In the
future, the Agent may repurchase and resell the Notes in market-making
transactions, with resales being made at prices related to prevailing market
prices at the time of resale or at negotiated prices. We will offer the Notes
to
Bear, Stearns & Co. Inc. at a discount of 97.50% of the price at which the
Notes are offered to the public. Bear, Stearns & Co. Inc. may reallow a
discount to other agents not in excess of 97.50% of the public offering
price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 30-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $375,000 at the public offering price, less the agent’s discount, to
cover any over-allotments. The Agent may over-allot or effect transactions
which
stabilize or maintain the market price of the Notes at a level higher than
that
which might otherwise prevail in the open market. Specifically, the Agent may
over-allot or otherwise create a short position in the Notes for its own account
by selling more Notes than have been sold to it by us. If this option is
exercised, in whole or in part, subject to certain conditions, the Agent will
become obligated to purchase from us and we will be obligated to sell to the
Agent an amount of Notes equal to the amount of the over-allotment exercised.
The Agent may elect to cover any such short position by purchasing Notes in
the
open market. No representation is made as to the magnitude or effect of any
such
stabilization or other transactions. Such stabilizing, if commenced, may be
discontinued at any time and in any event shall be discontinued within a limited
period. No other party may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933 as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange and we do not expect a trading market
will develop. Bear, Stearns & Co. Inc. has advised us that, following
completion of the offering of the Notes, it intends under ordinary market
conditions to indicate prices for the Notes on request, although it is under
no
obligation to do so and may discontinue any market-making activities at any
time
without notice. Accordingly, no guarantees can be given as to whether an active
trading market for the Notes will develop or, if such a trading market develops,
as to the liquidity of such trading market. We cannot guarantee that bids for
outstanding Notes will be made in the future; nor can we predict the price
at
which any such bids will be made. The Notes will cease trading as of the close
of business on the Maturity Date.
Because
Bear, Stearns & Co. Inc. is our wholly-owned subsidiary, each distribution
of the Notes will conform to the requirements set forth in Rule 2720 of the
NASD
Conduct Rules.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
|
|
|
|
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.
$2,500,000
Medium-Term
Notes, Series B
Linked
to the Outperformance of the ISE
SINdex
Relative to the S&P 500
Due
January 29, 2010
____________________________
PRICING
SUPPLEMENT
____________________________
Bear,
Stearns & Co. Inc.
January
31, 2007
|
|
|
|
|
|
|
TABLE
OF CONTENTS
|
|
|
|
|
Pricing
Supplement
|
|
|
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-6
|
|
Risk
Factors
|
PS-10
|
|
Description
of the Notes
|
PS-17
|
|
Description
of the Indices
|
PS-25
|
|
Historical
Relative Performance Data and Hypothetical Note
Performance
|
PS-33
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-37
|
|
Certain
ERISA Considerations
|
PS-39
|
|
Use
of Proceeds and Hedging
|
PS-41
|
|
Supplemental
Plan of Distribution
|
PS-41
|
|
Legal
Matters
|
PS-42
|
|
|
|
|
Prospectus
Supplement
|
|
Risk
Factors
|
S-3
|
|
Pricing
Supplement
|
S-8
|
|
Description
of Notes
|
S-8
|
|
Certain
US Federal Income Tax Considerations
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S-32
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Supplemental
Plan of Distribution
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S-46
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Listing
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S-47
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Validity
of the Notes
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S-47
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Glossary
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S-47
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Prospectus
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Where
You Can Find More Information
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1
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The
Bear Stearns Companies Inc.
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2
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Use
of Proceeds
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4
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Description
of Debt Securities
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4
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Description
of Warrants
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16
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Description
of Preferred Stock
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21
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Description
of Depositary Shares
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25
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Description
of Depository Contracts
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28
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Description
of Units
|
31
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Book-Entry
Procedures and Settlement
|
33
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Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
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43
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Plan
of Distribution
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44
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ERISA
Considerations
|
48
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Legal
Matters
|
49
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Experts
|
49
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