RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in
the
Components underlying the Portfolio. 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 Components 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 fully principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes
are not fully principal protected and [80]% of your principal investment
in the
Notes is at risk of loss. If the Portfolio Return is less than [-20]%, you
will
receive less, and possibly up to [80]% less, than the original public offering
price of $1,000 per Note. In this case, you will lose 1% of the principal
amount
for each percentage point that the Portfolio Return is below [-20]%. In no
event
will we pay you less than [20]% of the principal amount of your Notes.
Accordingly, you may lose up to [80]% of your initial investment in the Notes.
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 Component Levels prior to the Calculation
Date.
Changes
in the Component 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
Component Levels as of the Calculation Date. As a result, you may receive
the
amount of your investment in the Notes, or lose up to [80]% of your investment
in the Notes, even if the Component Levels have increased at certain times
during the term of the Note before decreasing on the Calculation
Date.
Owning
the Notes is not the same as having rights in the securities underlying the
Components.
Even
if
the Components increase above their respective Initial Component Levels during
the term of the Notes, the trading value of the Notes may not increase by
the
same amount. It is also possible for the Portfolio Return to increase while
the
trading value of the Notes declines.
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
Components.
The
Portfolio does not reflect the payment of dividends or other distributions
in
respect of the securities underlying the Components. Therefore, the yield
you
will receive by holding the Notes to maturity will not be the same as if
you had
purchased the Components and held them for a similar period. You should refer
to
the section “Description of the Notes” for a detailed description of the Notes
prior to making an investment in the Notes.
You
must rely on your own evaluation of the merits of an investment linked to
the
Portfolio.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in any of the Components and in the stocks underlying
any of
the Components. 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
Components and the stocks that underlie the Components and not rely on our
views
with respect to future movements in the Components and the stocks that underlie
the Components. You should make such investigation as you deem appropriate
as to
the merits of an investment linked to an increase, if any, in the
Portfolio.
Equity
market risks may affect the trading value of the Notes and the amount you
will
receive at maturity.
We
expect
that the Component Levels will fluctuate in accordance with changes in the
financial condition of the companies issuing the stocks comprising the
Components, the value of the underlying stocks comprising the Components
generally and other factors. The financial condition of the companies issuing
the stocks comprising the Components may weaken or the general condition
of the
equity market may decline, either of which may cause a decrease in the Component
Levels 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 Components change. Investor perceptions regarding the companies
issuing the stocks comprising the Components 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 Component Levels may be expected to fluctuate until the Calculation
Date.
The
historical performance of the Components is not an indication of the future
performance of the Components.
The
historical performance of the Components, which is included in this pricing
supplement, should not be taken as an indication of the future performance
of
the Components. While the trading prices of the underlying stocks comprising
the
Components will determine the Component Levels, it is impossible to predict
whether the Component Levels will fall or rise. Trading prices of the underlying
stocks comprising the Components 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.
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
forward or other executory contracts linked to the Portfolio, 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
Cash Settlement Value will not be adjusted for changes in currency exchange
rates.
Although
the securities underlying certain of the Components are traded in currencies
other than the U.S. dollar and the Notes are denominated in U.S. dollars,
the
amount payable at maturity will not be adjusted for the currency exchange
rates
in effect on the Maturity Date. Any amount in addition to the principal amount
of each Note payable to you on the Maturity Date is based solely upon the
percentage increase in the Portfolio Return. Changes in exchange rates, however,
may reflect changes in various international economies, which in turn may
affect
the levels of the Components and the Notes.
The
securities underlying certain Components trade at different times; however,
if
an active secondary market develops, the Notes may trade only during regular
trading hours in the United States.
The
hours
of trading for the Notes may not conform to the hours during which the
securities underlying certain of the Components are traded. To the extent
that
U.S. markets are closed while other markets remain open, significant price
and
rate movements may take place in the markets for the securities comprising
certain of the Components that will not be reflected immediately in the price
of
the Notes.
As
a
result of the time difference among the cities where the securities underlying
certain of the Components trade, and New York City (where the Notes may trade),
there may be discrepancies between the Component Levels, and the trading
prices
of the Notes. In addition, there may be periods when the international
securities markets are closed for trading (for example during holidays in
an
applicable country), causing the level of a particular Component to remain
unchanged for multiple New York City trading days.
Your
return may be affected by factors affecting international securities markets.
The
securities underlying certain of the Components are issued by international
companies. Investors should be aware that investments linked to the value
of
international equity securities might involve particular risks. The
international securities markets may have less liquidity and could be more
volatile than U.S. or other longer-established international securities markets.
Direct or indirect government intervention to stabilize the international
securities markets, as well as cross-shareholdings in international companies,
may affect trading prices and volumes in those markets. Also, there is generally
less publicly available information about international companies than about
those U.S. companies that are subject to the reporting requirements of the
SEC;
and international companies are often subject to accounting, auditing and
financial reporting standards and requirements that differ from those applicable
to U.S. reporting companies. The other special risks associated with investments
linked to the value of international equity securities may include, but are
not
necessarily limited to: the imposition of taxes; higher transaction and custody
costs; settlement delays and risk of loss; difficulties in enforcing contracts;
less liquidity and smaller market capitalizations; less rigorous regulation
of
securities markets; governmental interference; higher inflation; and social,
economic and political uncertainties. These factors may adversely affect
the
performance of certain of the Components and, as a result, the Cash Settlement
Value may be adversely affected.
The
prices and performance of securities underlying the Components also may be
affected by political, economic, financial and social factors. In addition,
recent or future changes in the government, economic and fiscal policies,
the
possible imposition of, or changes in, currency exchange laws or other laws
or
restrictions, and possible fluctuations in the rate of exchange between
currencies, are factors that could negatively affect the international
securities markets. Moreover, the applicable international economies may
differ
favorably or unfavorably from that of the United States.
The
Components may not move in tandem, and gains in one Component may be offset
by
declines in another Component.
Movements
in the Components comprising the Portfolio may not move in tandem. At a time
when the level of one or more of the Components increases, the level of one
or
more of the other Components may decline. Therefore, in calculating the
Portfolio, increases in the level of one or more of the Components may be
moderated, or wholly offset, by lesser increases or declines in the level
of one
or more of the other Components.
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 Portfolio, whether the closing levels of the Components
are
greater than or equal to their initial levels, 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 Component Levels are less than, equal to or not sufficiently above
their respective Initial Component Levels. 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.
|
·
|
Value
of the Portfolio.
We expect that the trading value of the Notes will depend substantially
on
the amount, if any, by which the Portfolio at any given time is
greater
than zero. If you decide to sell your Notes when the Portfolio
Return is
greater than zero, you may nonetheless receive substantially less
than the
amount that would be payable at maturity based on that Portfolio
Return
because of expectations that the Portfolio Return will continue
to
fluctuate until the Cash Settlement Value is
determined.
|
|
·
|
Volatility
of the Portfolio.
Volatility is the term used to describe the size and frequency
of market
fluctuations. If the volatility of the Portfolio increases or decreases,
the trading value of the Notes may be adversely affected. This
volatility
may increase the risk that the Portfolio Return will decline, which
could
negatively affect the trading value of Notes. The effect of the
volatility
of the Portfolio on the trading value of the Notes may not necessarily
decrease over time during the term of the
Notes.
|
|
·
|
Correlation
among the Component Levels.
Correlation is the extent to which the Component Levels increase
or
decrease to the same degree at the same time. To the extent that
correlation among the Components changes, the volatility of the
Components
may change and the value of the Notes may be adversely
affected.
|
|
·
|
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 outstanding debt securities tends
to
decrease; conversely, if interest rates decrease, the value of
outstanding
debt securities tends to increase. Interest rates may also affect
the
economy and, in turn, the level of the Portfolio, which may affect
the
value of the Notes. Rising interest rates may lower the level of
the
Portfolio and, thus, the value of the Notes.
|
|
·
|
Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A1
by Moody’s
Investor Service, Inc. and A+ by Standard & Poor’s Rating Services, as
well as our financial condition or results of operations may significantly
affect the trading value of the Notes. However, because the return
on the
Notes is dependent upon factors in addition to our ability to pay
our
obligations under the Notes, such as the level of the Portfolio,
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.
|
|
·
|
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 levels of the Components during the
period
prior to the maturity of the Notes. As the time remaining to the
maturity
of the Notes decreases, this time premium will likely decrease,
potentially adversely affecting the trading value of the Notes.
As the
time remaining to maturity decreases, the trading value of the
Notes and
the supplemental return may be less sensitive to the volatility
of the
Components.
|
|
·
|
Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks underlying the Components. In general, because the Components
do
not incorporate the value of dividend payments, higher dividend
yields
will likely reduce the value of the Notes and, conversely, lower
dividend
yields are expected to increase the value of the
Notes.
|
|
·
|
Volatility
of currency exchange rates.
The exchange rates between the U.S. dollar and the foreign currencies
in
which the securities underlying certain of the Components are denominated
are foreign exchange spot rates that measure the relative values
of two
currencies: the particular currency in which the securities underlying
a
particular Component are denominated and the U.S. dollar. The spot
rate is
expressed as a rate that reflects the amount of the particular
currency
that can be purchased for one U.S. dollar. If the volatility of
the
exchange rate between the U.S. dollar and any of the foreign currencies
in
which the securities underlying certain of the Components are denominated
changes, the trading value of the Notes may be adversely
affected.
|
|
·
|
Correlation
between currency exchange rates and the Components.
Correlation is the term used to describe the relationship between
the
percentage changes in the exchange rate between the U.S. dollar
and each
of the foreign currencies in which the securities underlying certain
of
the Components are denominated and the percentage changes between
each
Component. If the correlation between the relevant exchange rates
and the
particular Component changes, the trading value of the Notes may
be
adversely affected.
|
|
·
|
Events
involving the companies issuing the securities comprising the
Components.
General economic conditions and earnings results of the companies
whose
securities comprise the Components, and real or anticipated changes
in
those conditions or results, may affect the trading value of the
Notes.
For example, some of the securities underlying the Components may
be
affected by mergers and acquisitions, which can contribute to volatility
of the Portfolio. As a result of a merger or acquisition, one or
more
securities in the Components 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
Portfolio.
|
|
·
|
Size
and liquidity of the trading market.
The Notes will not be traded on any securities exchange or quotation
system, therefore there may not be an active secondary market in
the
Notes, which may affect the price that you receive for your Notes
upon any
sale prior to maturity. If an active secondary market does develop,
there
can be no assurance that there will be liquidity in the secondary
market.
If the secondary market for the Notes is limited, there may be
a limited
number of buyers for your Notes if you do not wish to hold your
investment
until maturity. This may affect the price you receive upon any
sale of the
Notes prior to maturity. Bear Stearns has advised us that they
intend,
under ordinary market conditions, to indicate prices for the Notes
on
request. However, we cannot guarantee that bids for outstanding
Notes will
be made in the future; nor can we predict the price at which any
such bids
will be made.
|
|
·
|
Inclusion
of commission.
The inclusion of commissions and projected profit from hedging
in the
initial public offering price of the Notes is likely to adversely
affect
secondary market prices. Assuming no change in the market conditions
or
any other relevant factors, the price, if any, at which Bear Stearns
may
be willing to purchase the Notes in secondary market transactions
may be
lower than the original price of the Notes, because the original
price
included, and secondary market prices are likely to exclude, commissions
paid with respect to the Notes, as well as the projected profit
included
in the cost of hedging our obligations under the Notes. In addition,
any
such prices may differ from values determined by pricing models
used by
Bear Stearns as a result of dealer discounts, mark-ups or other
transaction costs.
|
We
want
you to understand that the effect of one of the factors specified above,
such as
an increase in interest rates, may offset some or all of any change in the
value
of the Notes attributable to another factor, such as an increase in the level
of
the Portfolio.
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
Components. 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 Cash Settlement Value,
if any, will be paid in cash, and you will have no right to receive delivery
of
any stocks underlying Components.
Reported
Component Levels may be based on non-current information.
If
trading is interrupted in the securities underlying certain of the Components,
publicly available information regarding the Portfolio Return may be based
on
the last reported prices or levels. As a result, publicly available information
regarding reported Component Levels may at times be based on non-current
information.
Risks
associated with the Components may adversely affect the market value of the
Notes.
Because
the Notes are linked to changes in the levels or prices of equity indices
representing a range of geographic sectors, the Portfolio will be less
diversified than funds or investment portfolios investing in a broader range
of
international securities and, therefore, could experience greater volatility.
The equity securities markets are subject to temporary distortions or other
disruptions due to various factors, including a lack of liquidity in the
markets, the participation of speculators and potential government regulation
and intervention. Suspension or other disruptions of market trading in the
securities underlying certain of the Components could adversely affect the
levels of those Components and, therefore, the Cash Settlement Value and/or
the
trading value of the Notes.
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 Cash
Settlement Value, or deciding whether a Market Disruption Event (as defined
herein) has occurred. You should refer to “Description of the
Notes—Discontinuance of one or more Components,” “—Adjustments to the
Components” 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 securities underlying the Portfolio for their
proprietary accounts, and for other accounts under their management. These
transactions may influence the value of such securities, and therefore the
level
of the Portfolio. BSIL, an affiliate of Bear Stearns, or one of its subsidiaries
will also be the counterparty to the hedge of our obligations under the Notes.
You should refer to “Use of Proceeds and Hedging.” Accordingly, under certain
circumstances, conflicts of interest may arise between Bear Stearns’
responsibilities as Calculation Agent with respect to the Notes and BSIL’s
obligations under our hedge.
Changes
that affect the calculation of a Component 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 Components.
The
policies of the Sponsors concerning the calculation of a Component will affect
the level of the Component and, therefore, the trading value of the Notes
and
the Cash Settlement Value.
If
a
Sponsor discontinues or suspends calculation or publication of a Component,
it
may become difficult to determine the trading value of the Notes or the Cash
Settlement Value. If a Sponsor discontinues or suspends calculation of a
Component at any time prior to the Maturity Date and a Successor Component
is
not available or is not acceptable to the Calculation Agent, then the
Calculation Agent will determine the amount payable on the Maturity Date
by
reference to a group of stocks and a computation methodology that the
Calculation Agent determines will as closely as reasonably possible replicate
the Component. In addition, if the method of calculating a Component (or
a
Successor Component) is changed in a material respect, or if a Component
(or a
Successor Component) is in any other way modified so that such Component
(or
Successor Component) does not, in the opinion of the Calculation Agent, fairly
represent the level of the Component (or Successor Component) 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 the Component (or Successor Component) 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
Portfolio.”
The
Sponsors may change the companies underlying the Components in a way that
affects the Component Levels and consequently the value of the
Notes.
The
Sponsors can add, delete or substitute the stocks underlying the Components
or
make other methodological changes that could decrease the Component Levels
and
hence adversely affect the value of the Notes. You should realize that changes
in the companies included in the Component may affect the Components, as
a newly
added company may perform significantly better or worse than the company
or
companies it replaces.
We
cannot control actions by
any of the companies whose securities are included in any
Component.
The
common stock of The Bear Stearns Companies Inc. is an underlying stock of
the
SPX. We are not affiliated with any of the other companies whose securities
underlie any of the Components. However, we may currently, or in the future,
engage in business with these companies. Actions by any company whose security
is part of a Component may have an adverse effect on the price of the company’s
securities, the trading price of and the closing level of the Component and
the
Portfolio, and the trading value of the Notes. None of those companies are
involved in this offering or has any obligations with respect to the Notes,
including any obligation to take our or your interests into consideration
for
any reason. These other companies will not receive any of the proceeds of
this
offering and are not responsible for, and have not participated in, the
determination of the timing of, prices for, or quantities of, the Notes to
be
issued. These other companies are not involved with the administration,
marketing or trading of the Notes and have no obligations with respect to
the
amount to be paid to you under the Notes on the Maturity Date.
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
securities underlying the Components (other than with respect to our common
stock) or the Components. You should make your own investigation into the
companies underlying each Component.
We
and our affiliates have no affiliation with any Sponsor and are not responsible
for any Sponsor’s public disclosure of information.
We
and
our affiliates are not affiliated in any way with any Sponsor (except for
the
licensing arrangements discussed in the section “Description of the Portfolio”)
and have no ability to control or predict any Sponsor’s actions, including any
errors in or discontinuation of disclosure regarding its methods or policies
relating to the calculation of the applicable Component. Neither we nor any
of
our affiliates assumes any responsibility for the adequacy or accuracy of
the
information about the Components or the Sponsors contained in this pricing
supplement. You, as an investor in the Notes, should make your own investigation
into the Components 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 actions that might affect the value
of
the Notes.
Trading
and other transactions by us or our affiliates could affect the prices of
the
stocks underlying the Components, the Component 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 securities
underlying any of the Components or derivative instruments related to those
securities or the Components for our own accounts in connection with our
normal
business practices or in connection with hedging our obligations under the
Notes
and other instruments. 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 securities
or the
Component Levels in a manner that would be adverse to your investment in
the
Notes. See the section “Use of Proceeds and Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the
risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Bear
Stearns will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Bear Stearns as a result of transaction costs. If you sell the Notes
prior to maturity, you may receive less, and possibly significantly less,
than
your initial investment in the Notes.
Hedging
activities we or our affiliates may engage in may affect the Component 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
securities that underlie the Components, or derivative or synthetic instruments
related to those securities or the Components, 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 securities that underlie
the
Components. 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 levels of the Components, 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 relating to the Components or the companies issuing the
securities included in the Components. 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 prices of the securities included in the Components
and,
therefore, the value of the Notes.
We
or any
of our affiliates may also issue, underwrite or assist unaffiliated entities
in
the issuance or underwriting of other securities or financial instruments
with
returns indexed to the Portfolio or a Component thereof. By introducing
competing products into the marketplace in this manner, we or our affiliates
could adversely affect the value of the Notes.
We
and
our affiliates, at present or in the future, may engage in business with
the
companies issuing the securities included in the Components, including making
loans to, equity investments in, or providing investment banking, asset
management or other advisory services to those companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced
upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Calculation Date, a Market Disruption
Event has occurred or is continuing, the determination of the Cash Settlement
Value 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 in interest to JPMorgan Chase Bank, N.A., 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 $[n].
The
Notes are expected to mature on June [n],
2011
and do not provide for earlier redemption. The Notes will be issued only
in
fully registered form, and in minimum denominations of $10,000; 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 or quotation system.
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.
The only payment you will receive, if any, will be the Cash Settlement Value
upon the maturity of the Notes.
Payment
at Maturity
On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in cash
that depends upon the performance of the Portfolio over the term of the Notes
as
measured by the Portfolio Return.
If,
at
maturity, the Portfolio Return is greater than zero, the Cash Settlement
Value
for each Note will be equal to the principal amount of the Note plus the
product
of: (i) the principal amount multiplied by (ii) the Portfolio Return multiplied
by (iii) the Upside Participation Rate.
If,
at
maturity, the Portfolio Return is between zero and [-20]%, inclusive, then
the
Cash Settlement Value for each Note will be equal to the principal amount
of the
Note.
If,
at
maturity, the Portfolio Return is less than [-20]%, then the Cash Settlement
Value for each Note will be equal to the principal amount minus 1% of the
principal amount for each percentage point that the Portfolio Return is less
than [-20]%. For example, if the Portfolio Return is -40%, you will suffer
a 20%
loss and, therefore, receive 80% of the principal amount.
The
“Portfolio Return” is the sum of: (i) the Index Return for each Component
multiplied by (ii) such Component’s respective Weighting within the
Portfolio.
The
“Index Return”, with respect to any Component, is the amount expressed as a
percentage, resulting from the quotient of: (i) such Component’s Final Component
Level minus its Initial Component Level divided by (ii) its Initial Component
Level.
The
“Upside Participation Rate” is [117.00-122.00]%.
The
“Component Level” equals the closing level of a Component, as determined by the
relevant Sponsor, on each Component Business Day.
The
“Initial
Component Level”
means:
|
·
|
[n]
with respect to the SPX;
|
|
·
|
[n]
with respect to the SX5E;
|
|
·
|
[n]
with respect to the RTY;
|
|
·
|
[n]
with respect to the NKY;
|
|
·
|
[n]
with respect to the UKX; and
|
|
·
|
[n]
with respect to the AS51, each representing the closing level of
the
respective Component on June [n],
2007.
|
The
“Final
Component Level”,
with
respect to each Component, will be determined by the Calculation Agent and
will
equal the Component Level of each Component, as determined by the relevant
Sponsor, on June [n],
2011,
the “Calculation Date”; provided that, with respect to a Component, (i) if such
date is not a Component Business Day (as defined herein) for that Component,
then the Calculation Date for that Component will be the next succeeding
day
that is a Component Business Day for that Component and (ii) if a Market
Disruption Event (as defined herein) exists for that Component on the
Calculation Date, the Calculation Date for that Component will be the next
Component Business Day for that Component on which a Market Disruption Event
does not exist for that Component. If the Calculation Date for any Component
is
postponed for [three] consecutive Component Business Days due to the existence
of a Market Disruption Event, then, notwithstanding the existence of a Market
Disruption Event on that [third] Component Business Day, that [third] Component
Business Day will be the Calculation Date for that Component. For the avoidance
of doubt, if no Market Disruption Event exists with respect to a Component
on
the Calculation Date, the determination of that Component’s Component Level will
be made on the Calculation Date, irrespective of the existence of a Market
Disruption Event with respect to one or more of the other
Components.
The
“Weighting” means:
|
·
|
75.00%
with respect to the SPX;
|
|
·
|
8.00%
with respect to the SX5E;
|
|
·
|
5.00%
with respect to the RTY;
|
|
·
|
5.00%
with respect to the NKY;
|
|
·
|
5.00%
with respect to the UKX; and
|
|
·
|
2.00%
with respect to the AS51
|
The
“Maturity Date” is expected to be June [n],
2011
unless such date is not a Business Day, in which case the Maturity Date shall
be
the next Business Day. If any Calculation Date is postponed, the Maturity
Date
will be [three] Business Days following the Calculation Date, as postponed
for
the last Component for which a Final Component Level is determined.
A
“Component Business Day” means,
with
respect to any Component,
any day
on which the Relevant 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.
The
“Calculation Agent” is Bear, Stearns & Co. Inc.
The
“Relevant Exchanges” means the primary exchanges or markets of trading of any
security then included in a Component. The “Summary of the Components” below
details the Relevant Exchanges for each Component.
A
“Related Exchange”, with
respect to any Component,
means
each exchange or quotation system where trading has a material effect (as
determined by the Calculation Agent) on the overall market for futures or
options contracts relating to a Component.
Summary
of the Components
Component
|
Bloomberg
Ticker Symbol
|
Relevant
Exchanges
|
SPX
|
SPX
<Index>
|
New
York Stock Exchange, NASDAQ and their successors
|
SX5E
|
SX5E
<Index>
|
Major
stock exchanges, respectively located in one of 17 European countries,
including London Stock Exchange (the “LSE”), Frankfurt Stock Exchange and
their successors
|
RTY
|
RTY
<Index>
|
New
York Stock Exchange, NASDAQ, American Stock Exchange and their
successors
|
NKY
|
NKY
<Index>
|
Tokyo
Stock Exchange and its successor (the “TSE”)
|
UKX
|
UKX
<Index>
|
LSE
and its successor
|
AS51
|
AS51
<Index>
|
Australian
Stock Exchange and its successor (the
“ASX”)
|
Illustrative
Examples
The
examples set forth below and the related table depict the hypothetical Cash
Settlement Value of a Note based on the assumptions below. The hypothetical
Component Levels in the examples and related table do not purport to be
representative of every possible scenario concerning increases or decreases
in
the Components. 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 Component Level for the SPX is equal to
1,500.00.
|
|
·
|
The
Initial Component Level for the SX5E is equal to
4,400.00.
|
|
·
|
The
Initial Component Level for the RTY is equal to
825.00.
|
|
·
|
The
Initial Component Level for the NKY is equal to
17,600.00.
|
|
·
|
The
Initial Component Level for the UKX is equal to
6,500.00.
|
|
·
|
The
Initial Component Level for the AS51 is equal to
6,300.00.
|
|
·
|
The
Upside Participation Rate is
121.00%.
|
|
·
|
All
returns are based on a 4-year term; pre-tax
basis.
|
|
·
|
No
Market Disruption Events or Events of Default occur during the
term of the
Notes.
|
Example
1: The Portfolio Return is greater than zero.
In
this
example, the Component Levels of five Components increase relative to their
Initial Component Levels, and the Component Level of one Component decreases
relative to its Initial Component Level. This example shows how the Upside
Participation Rate allows you to benefit from an increase in the Component
Levels.
Index
|
Initial
Component Level
|
Final
Component Level
|
Index
Return
|
Weighting
within the Portfolio
|
SPX
|
1,500.00
|
2,152.00
|
43.47%
|
75.00%
|
SX5E
|
4,400.00
|
7,088.00
|
61.09%
|
8.00%
|
RTY
|
825.00
|
1,153.00
|
39.76%
|
5.00%
|
NKY
|
17,600.00
|
61,960.00
|
252.05%
|
5.00%
|
UKX
|
6,500.00
|
8,608.00
|
32.43%
|
5.00%
|
AS51
|
6,300.00
|
3,988.00
|
-36.70%
|
2.00%
|
On
the
hypothetical Calculation Date, the Index Return for SPX would be 43.47%,
the
Index Return for SX5E would be 61.09%, the Index Return for RTY would be
39.76%,
the Index Return for NKY would be 252.05%, the Index Return for UKX would
be
32.43%, and the Index Return for AS51 would be -36.70%, each as calculated
pursuant to the below formula:
In
this
example, using the formula below, the Portfolio Return would be greater than
zero.
The
Portfolio Return is an amount equal to the sum of the Index Return for each
Component multiplied by its respective Weighting within the Portfolio.
Portfolio
Return = (43.47% x 75.00%) + (61.09% x 8.00%) + (39.76% x 5.00%) + (252.05%
x
5.00%) + (32.43% x 5.00%) + (-36.70 x 2.00%)
Portfolio
Return = 52.97%
The
Cash
Settlement Value, using the formula below, would equal $1,640.94.
Cash
Settlement Value
Example
2: The Portfolio Return is less than zero but greater than -20.00%.
In
this
example, the Component Levels of four Components decline relative to their
Initial Component Levels and the Component Levels of two Components increase
relative to their Initial Component Levels. On the Calculation Date, the
Portfolio Return is -16.19%. Because the Portfolio Return is less than zero
but
greater than -20.00%, at maturity you would receive the principal amount
of the
Note. This example shows that an Portfolio Return between zero and -20.00%
results in an investor receiving 100% of the principal amount of the
Note.
Index
|
Initial
Component Level
|
Final
Component Level
|
Index
Return
|
Weighting
within the Portfolio
|
SPX
|
1,500.00
|
1,161.00
|
-22.60%
|
75.00%
|
SX5E
|
4,400.00
|
3,018.00
|
-31.41%
|
8.00%
|
RTY
|
825.00
|
897.00
|
8.73%
|
5.00%
|
NKY
|
17,600.00
|
28,631.00
|
62.68%
|
5.00%
|
UKX
|
6,500.00
|
3,492.00
|
-46.28%
|
5.00%
|
AS51
|
6,300.00
|
5,461.00
|
-13.32%
|
2.00%
|
On
the
hypothetical Calculation Date, the Index Return for SPX would be -22.60%,
the
Index Return for SX5E would be -31.41%, the Index Return for RTY would be
8.73%,
the Index Return for NKY would be 62.68%, the Index Return for UKX would
be
-46.28%, and the Index Return for AS51 would be -13.32%, each as calculated
pursuant to the below formula:
In
this
example, using the formula below, the Portfolio Return would be greater than
zero.
The
Portfolio Return is an amount equal to the sum of the Index Return for each
Component multiplied by its respective Weighting within the Portfolio.
Portfolio
Return = (-22.60% x 75.00%) + (-31.41% x 8.00%) + (8.73% x 5.00%) + (62.68%
x
5.00%) + (-46.28% x 5.00%) + (-13.32% x 2.00%)
Portfolio
Return = -18.47%
Since
the
Portfolio Return would be less than zero, but greater than -20.00%, the Cash
Settlement Value for each Note would be the principal amount of
$1,000.
Example
3:
The Portfolio Return is less than -20.00%.
In
this
example, the Component Levels of five Components decline substantially relative
to their Initial Component Levels, and the Component Level of one Component
increases relative to its Initial Component Level. This examples shows how,
if
the Portfolio Return is less than -20.00%, you will lose 1% of your principal
amount for each percentage point that the Portfolio Return is less than
-20.00%.
Index
|
Initial
Component Level
|
Final
Component Level
|
Index
Return
|
Weighting
within the Portfolio
|
SPX
|
1,500.00
|
550.00
|
-63.33%
|
75.00%
|
SX5E
|
4,400.00
|
5,720.00
|
30.00%
|
8.00%
|
RTY
|
825.00
|
415.00
|
-49.70%
|
5.00%
|
NKY
|
17,600.00
|
5,615.00
|
-68.10%
|
5.00%
|
UKX
|
6,500.00
|
6,304.00
|
-3.02%
|
5.00%
|
AS51
|
6,300.00
|
3,957.00
|
-37.19%
|
2.00%
|
On
the
hypothetical Calculation Date, the Index Return for SPX would be -63.33%,
the
Index Return for SX5E would be 30.00%, the Index Return for RTY would be
-49.70%, the Index Return for NKY would be -68.10%, the Index Return for
UKX
would be -3.02%, and the Index Return for AS51 would be -37.19%, each as
calculated pursuant to the below formula:
In
this
example, using the formula below, the Portfolio Return would be greater than
zero.
The
Portfolio Return is an amount equal to the sum of the Index Return for each
Component multiplied by its respective Weighting within the Portfolio.
Portfolio
Return = (-63.33% x 75.00%) + (30.00% x 8.00%) + (-49.70% x 5.00%) + (-68.10%
x
5.00%) + (-3.02% x 5.00%) + (-37.19 x 2.00%)
Portfolio
Return = -51.88%
The
Cash
Settlement Value, using the formula below, would equal $681.20.
Cash
Settlement Value
Discontinuance
of one or more Components
If
a
Sponsor discontinues publication of or otherwise fails to publish any Component
and such Sponsor or another entity publishes a successor or substitute Component
that the Calculation Agent determines to be comparable to the discontinued
Component (the new Component being referred to as a “Successor Component”), then
the Final Component Level for that Component will be determined by reference
to
the level of the Successor Component at the close of trading on the Relevant
Exchanges or markets for the Successor Component on the date for which the
Final
Component Level for that Component is to be determined.
Upon
any
selection by the Calculation Agent of a Successor Component, the Calculation
Agent will cause notice thereof to be furnished to us and the Trustee. If
a
Successor Component is selected by the Calculation Agent, the Successor
Component will be used as a substitute for the Component for all purposes,
including for purposes of determining whether a Market Disruption Event exists
with respect to the Component.
If
a
Component is discontinued or if a Sponsor fails to publish the Component
prior
to, and such discontinuance is continuing on, the Calculation Date and the
Calculation Agent determines that no Successor Component is available at
such
time, then the Calculation Agent will determine the level to be used for
the
Final Component Level for the Calculation Date for such Component. The Final
Component Level to be used for the Calculation Date will be computed by the
Calculation Agent in accordance with the formula for and method of calculating
that Component last in effect prior to the discontinuance, failure or
modification but using only those securities that comprised that Component
immediately prior to such discontinuance, failure or modification. In such
event, the Calculation Agent will cause notice thereof to be furnished to
us and
the Trustee. For the avoidable of doubt such a determination by the Calculation
Agent will not effect the manner of calculating the Final Component Level
with
respect to any other Component.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the
Component may adversely affect the value of, and trading in, the
Notes.
Adjustments
to the Components
If
at any
time the method of calculating a Component or a Successor Component is changed
in a material respect, or if a Component or a Successor Component is in any
other way modified so that such Component or Successor Component does not,
in
the opinion of the Calculation Agent, fairly represent the level of the
Component or Successor Component had such changes or modifications not been
made, then, for purposes of calculating the Final Component Level or the
Cash
Settlement Value or making any other determinations as of or after such time,
the Calculation Agent will make such calculations and adjustments as, the
Calculation Agent determines may be necessary in order to arrive at a level
of a
Component comparable to the Component or Successor Component, 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
the
Component or the Successor Component, as adjusted. Accordingly, if the method
of
calculating a Component or Successor Component is modified so that the Component
Level is a fraction of what it would have been if it had not been modified
(e.g., due to a split in the Component), then the Calculation Agent will
adjust
that Component in order to arrive at a Component Level or level for the
Successor Component as if it had not been modified (e.g., as if such split
had
not occurred). In such event, the Calculation Agent will cause notice thereof
to
be furnished to us and the Trustee.
In
the
event that, on the Calculation Date, the Component is not calculated by the
Sponsor but is calculated by a third party acceptable to the Calculation
Agent,
the Calculation Agent will use such third party’s calculation as its reference
for determining the value of the Component.
Market
Disruption Events
If
there
is a Market Disruption Event on the Calculation Date, the Final Component
Level
of that Component will be determined on the first succeeding Component Business
Day on which there is no Market Disruption Event. In no event, however, will
the
Calculation Date be a date that is postponed by more than [three] Component
Business Days following the original date that, but for the Market Disruption
Event, would have been the Calculation Date. In that case, the [third] Component
Business Day will be deemed to be the Calculation Date, notwithstanding the
Market Disruption Event, and the Calculation Agent will determine the Final
Component Level on that [third] Component Business Day in accordance with
the
formula for and method of calculating the applicable underlying Component
in
effect prior to the Market Disruption Event using the closing level of each
security in the Component as described above (or, if trading in any such
security has been materially suspended or materially limited, the Calculation
Agent’s estimate of the closing level that would have prevailed but for such
suspension or limitation) as of that [third] Component Business Day. For
the
avoidance of doubt, if no Market Disruption Event exists with respect to
a
Component, the Final Component Level of that Component shall be determined
on
the scheduled Calculation Date. In the event of a Market Disruption Event
on the
Calculation Date, the Maturity Date will be [three] Business Days following
the
Calculation Date, as postponed for the last Component for which a Final
Component Level is determined.
A
“Market
Disruption Event” means the occurrence or existence at any time of a condition
specified below that the Calculation Agent determines to be
material:
(a) any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Relevant Exchanges or Related Exchanges
or
otherwise, (A) relating to securities that, in the aggregate, comprise 20%
or
more of the level of the Component or (B) in futures or options contracts
relating to the Component on any Related Exchange;
(b) any
event
(other than an event described in (c) below) that disrupts or impairs (as
determined by the Calculation Agent) the ability of market participants in
general (A) to effect transactions in, or obtain market values for, securities
that, in the aggregate, comprise 20% or more of the level of the Component
or
(B) to effect transactions in, or obtain market values for, futures or options
contracts relating to the Component on any Related Exchange;
(c) the
closure on any Component Business Day of any Relevant Exchange relating to
securities that comprise, in the aggregate, 20% or more of the level of the
Component or any Related Exchange prior to its weekday closing time, without
regard to after hours or any other trading outside of the regular trading
session hours, unless such earlier closing time is announced by such Relevant
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 Relevant Exchange
or
Related Exchange on such Component Business Day for such Relevant 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
Component Business Day for such Relevant Exchange or Related Exchange;
or
(d) any
Component Business Day on which any Relevant Exchange or Related Exchange
fails
to open for trading during its regular trading session.
For
the
purposes of determining whether a Market Disruption Event in respect of the
Component exists at any time, if a Market Disruption Event occurs in respect
of
a security included in the Component at any time, then the relevant percentage
contribution of that security to the level of the Component shall be based
on a
comparison of (x) the portion of the level of the Component attributable
to that
security and (y) the overall level of the Component, in each case immediately
before the occurrence of such Market Disruption Event.
“Related
Exchange”, with
respect to any Component,
means
each exchange or quotation system where trading has a material effect (as
determined by the Calculation Agent) on the overall market for futures or
options contracts relating to the Component.
“Relevant
Exchange” means the primary exchange or market of trading of any security then
included in the Component.
“Component
Business Day” means,
with
respect to any Component,
any day
on which the Relevant Exchange and each Related Exchange are scheduled to
be
open for trading.
For
purposes of the above definition:
(a) a
limitation on the hours in a trading day and/or number of days of trading
will
not constitute a Market Disruption Event if it results from an announced
change
in the regular business hours of the Relevant Exchange, and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, NASD Rule 4120 or any analogous
rule
or regulation enacted or promulgated by the NYSE, NASD or any other self
regulatory organization or the SEC of similar scope as determined by the
Calculation Agent, will be considered “material.”
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt
Securities—Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect
to any
Notes has occurred and is continuing, then the amount payable to you, as
a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Bear Stearns in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations
made by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders
of the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error
by the
Calculation Agent, or any failure by it to act in good faith, in making a
determination adversely affecting the payment of principal, interest or premium
on principal to holders would entitle the holders, or the Trustee acting
on
behalf of the holders, to exercise rights and remedies available under the
Indenture. If the Calculation Agent uses its discretion to make any
determination, the Calculation Agent will notify us and the Trustee, who
will
provide notice to the registered holders of the Notes.
DESCRIPTION
OF THE COMPONENTS
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. Such information reflects the policies of and
is
subject to change by Standard & Poor’s. Standard & 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 May 14, 2007, shares of
422 companies
included in the SPX are traded on the New York Stock Exchange and shares
of 78
companies included in 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 May 14, 2007, indicated in parenthesis: Industrials
(52),
Utilities (32), Telecommunication Services (9), Materials (28), Information
Technology (74), Energy (33), Consumer Staples (37), Consumer Discretionary
(91), Healthcare (54) and Financials (90). 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 the 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 SSPX, 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:
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 Index component’s market value.
License
Agreement with Standard and Poor’s
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with Standard
& Poor’s providing for the license to us, in exchange for a fee, of the
right to use the SPX, which is owned and published by Standard & Poor’s, in
connection with certain securities, including the Notes.
The
license agreement between Standard & Poor’s and us provides that the
following language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s.
Standard & Poor’s 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.
Standard & Poor’s only relationship to us is the licensing of certain
trademarks, trade names and service marks of Standard & Poor’s and of the
SPX, which is determined, composed and calculated by Standard & Poor’s
without regard to us or the Notes. Standard & Poor’s has no obligation to
take our needs or the needs of holders of the Notes into consideration in
determining, composing, or calculating the SPX. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of,
prices at which Notes are sold, or quantities of the Notes to be issued or
in
the determination or calculation of the amount payable at maturity. Standard
& Poor’s has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
Standard
& Poor’s does not guarantee the accuracy and/or the completeness of the SPX
or any data included therein and Standard & Poor’s shall have no liability
for any errors, omissions, or interruptions therein. Standard & Poor’s makes
no warranty, express or implied, as to results to be obtained by us, owners
of
the Notes, or any other person or entity from the use of the SPX or any data
included therein. Standard & 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 SPX or any data included therein.
Without limiting any of the foregoing, in no event shall Standard & Poor’s
have any liability for any lost profits or indirect, punitive, special, or
consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements
between
Standard & Poor’s and the Company.”
Historical
Data on the SPX
The
following table sets forth the month-end closing Component Levels of the
SPX for
each month in the period from January 1998 through April 2007. The SPX’s closing
Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values 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 the Initial Component Level during the term of the
Notes.
The
closing Component Level of the SPX
on May
21, 2007 was 1525.10.
Month
End Closing Component Levels: January 1998 -April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
980.28
|
1,279.64
|
1,394.46
|
1,366.01
|
1,130.20
|
855.70
|
1,131.13
|
1,181.27
|
1,280.08
|
1,438.24
|
February
|
1,049.34
|
1,238.33
|
1,366.42
|
1,239.94
|
1,106.73
|
841.15
|
1,144.94
|
1,203.60
|
1,280.66
|
1,406.82
|
March
|
1,101.75
|
1,286.37
|
1,498.58
|
1,160.33
|
1,147.39
|
848.18
|
1,126.21
|
1,180.59
|
1,294.83
|
1,420.86
|
April
|
1,111.75
|
1,335.18
|
1,452.43
|
1,249.46
|
1,076.92
|
916.92
|
1,107.30
|
1,156.85
|
1,310.61
|
1,482.37
|
May
|
1,090.82
|
1,301.84
|
1,420.60
|
1,255.82
|
1,067.14
|
963.59
|
1,120.68
|
1,191.50
|
1,270.09
|
|
June
|
1,133.84
|
1,372.71
|
1,454.60
|
1,224.42
|
989.82
|
974.50
|
1,140.84
|
1,191.33
|
1,270.20
|
|
July
|
1,120.67
|
1,328.72
|
1,430.83
|
1,211.23
|
911.62
|
990.31
|
1,101.72
|
1,234.18
|
1,276.66
|
|
August
|
957.28
|
1,320.41
|
1,517.68
|
1,133.58
|
916.07
|
1,008.01
|
1,104.24
|
1,220.33
|
1,303.82
|
|
September
|
1,017.01
|
1,282.71
|
1,436.51
|
1,040.94
|
815.28
|
995.97
|
1,114.58
|
1,228.81
|
1,335.85
|
|
October
|
1,098.67
|
1,362.93
|
1,429.40
|
1,059.78
|
885.76
|
1,050.71
|
1,130.20
|
1,207.01
|
1,377.94
|
|
November
|
1,163.63
|
1,388.91
|
1,314.95
|
1,139.45
|
936.31
|
1,058.20
|
1,173.82
|
1,249.48
|
1,400.63
|
|
December
|
1,229.23
|
1,469.25
|
1,320.28
|
1,148.08
|
879.82
|
1,111.92
|
1,211.92
|
1,248.29
|
1,418.30
|
|
The
following graph illustrates the historical performance of the SPX based on
the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
The
Dow Jones EuroSTOXX 50®
Index
(“SX5E”)
We
have
derived all information relating to the SX5E, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and
is
subject to change by STOXX Limited. STOXX Limited is under no obligation
to
continue to publish, and may discontinue or suspend the publication of the
SPX
at any time.
The
SX5E
was created by STOXX Limited, a joint venture between Deutsche Börse AG, Dow
Jones & Company and the SWX Group. Publication of the SX5E began on February
28, 1998, based on an initial EuroSTOXX 50®
Index
value of 1,000 at December 31, 1991. The SX5E is reported daily in the financial
pages of many major newspapers, on Bloomberg Page SX5E <Index> <Go>
and on the STOXX Limited website: http://www.stoxx.com.
Information contained in the STOXX Limited website is not incorporated by
reference in, and should not be considered a part of, this Pricing
Supplement.
Computation
of the SX5E
The
SX5E
is composed of 50 component stocks of market sector leaders from within the
SX5E, which includes stocks selected from the Eurozone. The component stocks
have a high degree of liquidity and represent the largest companies across
all
market sectors defined by the Dow Jones Global Classification Standard. The
composition of the SX5E is reviewed annually in September, based on the closing
stock data on the last trading day in August. The component stocks are announced
the first trading day in September. Changes to the component stocks are
implemented on the third Friday in September and are effective the following
trading day. Changes in the composition of the SX5E are made to ensure that
the
SX5E includes the 50 market sector leaders from within the SX5E.
The
SX5E
is calculated with the “Laspeyres formula”, which measures the aggregate price
changes in the component stocks against a fixed base quantity weight. The
formula for calculating the SX5E value can be expressed as follows:
![](graphic8.jpg)
Each
component’s weight is capped at 10% of the SX5E Index’s total free-float market
capitalization. Weights are reviewed quarterly. Within each of the SX5E market
sector indices, the component stocks are ranked by free-float market
capitalization. The largest stocks are added to the selection list until
the
coverage is close to, but still less than, 60% of the free-float market
capitalization of the corresponding SX5E market sector index. If the next-ranked
stock brings the coverage closer to 60% in absolute terms, then it is also
added
to the selection list. Any remaining stocks that are current SX5E components
are
added to the selection list. The stocks on the selection list are ranked
by
free-float market capitalization. In exceptional cases, the STOXX Limited
Supervisory Board may make additions and deletions to the selection
list.
The
40
largest stocks on the selection list are chosen as components. Any remaining
current components of the SX5E ranked between 41 and 60 are added as index
components. If the component number is still below 50, then the largest stocks
on the selection list are added until the index contains 50 stocks.
The
divisor of the aforementioned formula is adjusted to maintain the continuity
of
the SX5E value across changes due to corporate actions such as the issuance
of
dividends, the occurrence of stock splits, stock repurchase by the issuer
and
other reasons.
License
Agreement with SX5E
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with STOXX
Limited, whereby The Bear Stearns Companies Inc. and our affiliates, in exchange
for a fee, will be permitted to use the SX5E in connection with the offer
and
sale of the Notes.
STOXX
Limited has no relationship with us, other than the licensing of the SX5E
and
the related trademarks for use in connection with the Notes.
STOXX
Limited does
not:
·
|
Sponsor,
endorse, sell or promote the Notes.
|
·
|
Recommend
that any person invest in the Notes or any other
securities.
|
·
|
Have
any responsibility or liability for or make any decisions about
the
timing, amount or pricing of Notes.
|
·
|
Have
any responsibility or liability for the administration, management
or
marketing of the Notes.
|
·
|
Consider
the needs of the Notes or the owners of the Notes in determining,
composing or calculating the SX5E or have any obligation to do
so.
|
STOXX
Limited will not have any liability in connection with the Notes.
Specifically,
·
|
STOXX
Limited does not make any warranty, express or implied and disclaim
any
and all warranty about:
|
|
·
|
The
results to be obtained by the Notes, the owner of the Notes or
any other
person in connection with the use of the SX5E and the data included
in the
SX5E;
|
|
·
|
The
accuracy or completeness of the SX5E and its
data;
|
|
·
|
The
merchantability and the fitness for a particular purpose or use
of the
SX5E and its data;
|
·
|
STOXX
Limited will have no liability for any errors, omissions or interruptions
in the SX5E or its data;
|
·
|
Under
no circumstances will STOXX Limited be liable for any lost profits
or
indirect, punitive, special or consequential damages or losses,
even if
STOXX Limited knows that they might
occur.
|
Historical
Data on the SX5E
The
following table sets forth the month-end closing Component Levels of the
SX5E
for each month in the period from January 1998 through April 2007. The SX5E
closing Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the EuroSTOXX 50®
Index should not be taken as an indication of future performance, and no
assurance can be given that the level of the SX5E will increase relative
to its
the Initial Component Level during the term of the Notes.
The
closing Component Level of the SX5E on May 21, 2007 was 4,465.54.
Month
End Closing Component Levels: January 1998 -April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
2,676.03
|
3,547.15
|
4,684.48
|
4,779.90
|
3,670.26
|
2,248.17
|
2,839.13
|
2,984.59
|
3,691.41
|
4,178.54
|
February
|
2,878.04
|
3,484.24
|
5,182.62
|
4,318.88
|
3,624.74
|
2,140.73
|
2,893.18
|
3,058.32
|
3,774.51
|
4,087.12
|
March
|
3,153.32
|
3,559.86
|
5,249.55
|
4,185.00
|
3,784.05
|
2,036.86
|
2,787.49
|
3,055.73
|
3,853.74
|
4,181.03
|
April
|
3,120.94
|
3,757.87
|
5,303.95
|
4,525.01
|
3,574.23
|
2,324.23
|
2,787.48
|
2,930.10
|
3,839.90
|
4,392.34
|
May
|
3,357.77
|
3,629.46
|
5,200.89
|
4,426.24
|
3,425.79
|
2,330.06
|
2,749.62
|
3,076.70
|
3,637.17
|
|
June
|
3,406.82
|
3,788.66
|
5,145.35
|
4,243.91
|
3,133.39
|
2,419.51
|
2,811.08
|
3,181.54
|
3,648.92
|
|
July
|
3,480.63
|
3,638.62
|
5,122.80
|
4,091.38
|
2,685.79
|
2,519.79
|
2,720.05
|
3,326.51
|
3,691.87
|
|
August
|
2,978.12
|
3,769.14
|
5,175.12
|
3,743.97
|
2,709.29
|
2,556.71
|
2,670.79
|
3,263.78
|
3,808.70
|
|
September
|
2,670.97
|
3,669.71
|
4,915.18
|
3,296.66
|
2,204.39
|
2,395.87
|
2,726.30
|
3,428.51
|
3,899.41
|
|
October
|
2,887.11
|
3,922.91
|
5,057.46
|
3,478.63
|
2,518.99
|
2,575.04
|
2,811.72
|
3,320.15
|
4,004.80
|
|
November
|
3,179.09
|
4,314.38
|
4,790.08
|
3,658.27
|
2,656.85
|
2,630.47
|
2,876.39
|
3,447.07
|
3,987.23
|
|
December
|
3,342.32
|
4,904.46
|
4,772.39
|
3,806.13
|
2,386.41
|
2,760.66
|
2,951.01
|
3,578.93
|
4,119.94
|
|
The
following graph illustrates the historical performance of the SX5E based
on the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
The
Russell 2000®
Index (“RTY”)
We
have
derived all information relating to the RTY, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and
is
subject to change by Russell Investment Group. Russell Investment Group is
under
no obligation to continue to publish, and may discontinue or suspend the
publication of the RTY at any time.
The
RTY
is an index calculated, published, and disseminated by the Russell Investment
Group, and measures the composite price performance of stocks of 2,000 companies
incorporated and domiciled in the United States and its territories. All
2,000
stocks are traded on the New York Stock Exchange, the American Stock Exchange
LLC, or NASDAQ, and form a part of the Russell 3000®
Index.
The Russell 3000®
Index is
composed of the 3,000 largest United States companies as determined by market
capitalization and represents approximately 98.00% of the United States equity
market.
The
RTY
consists of the smallest 2,000 companies included in the Russell
3000®
Index.
The RTY is designed to track the performance of the small capitalization
segment
of the United States equity market.
Only
stocks belonging to companies domiciled in the U.S. are allowed into the
RTY.
Preferred and convertible preferred stock, paired shares, redeemable shares,
warrants, participating preferred stock, trust receipts, rights, royalty
trusts,
limited liability companies, pink sheets, limited partnership, OTC Bulletin
Board companies and closed-end mutual funds are excluded from the RTY. Real
Estate Investment Trusts and Beneficial Trusts however, are eligible for
inclusion.
In
general, only one class of securities of a company is allowed in the RTY,
although exceptions to this general rule have been made where the Russell
Investment Group has determined that each class of securities acts independently
of the other. Stocks must trade at or above $1.00 on May 31 of each year
to be
eligible for inclusion in the RTY. However, if a stock falls below $1.00
intra-year, it will not be removed until the next reconstitution if it is
still
trading below $1.00.
The
primary criterion used to determine the initial list of securities eligible
for
the Russell 3000®
Index is
total market capitalization, which is defined as the price of a company's
shares
times the total number of available shares, as described below. Based on
closing
values on May 31 of each year, the Russell Investment Group reconstitutes
the
composition of the Russell 3000®
Index
using the then existing market capitalizations of eligible companies. As
of the
last Friday in June of each year, the Russell Index is adjusted to reflect
the
reconstitution of the Russell 3000®
Index
for that year. Real-time dissemination of the RTY began on January 1,
1987.
Computation
of the RTY
The
RTY
is a capitalization-weighted index. The RTY reflects changes in the market
value
(i.e. capitalization) of the component stocks relevant to their market value
on
a base date. The RTY is determined by adding the market values of the component
stocks, which are gotten by multiplying the price of each stock by the number
of
available shares, to get the total market capitalization of the 2,000 stocks.
The total market capitalization is then divided by a divisor, which gives
the
adjusted capitalization of the RTY on the base date of December 31, 1986.
The
most recently traded price for a security will be used in determining the
RTY.
If a component security is not open for trading, the most recently traded
price
for that stock will be used. The divisor is adjusted to reflect certain events
in order to provide consistency for the RTY. The events include changes in
the
number of common shares outstanding for component stocks, company additions
or
deletions, corporate restructurings, and other changes. Available shares
are
considered to be available for trading. Exclusion of market value held by
other
listed companies and large holdings by private investors (10% or more) is
based
on information recorded in Securities and Exchange Commission
filings.
Annual
reconstitution is the process by which the RTY is completely rebuilt.
Reconstitution is a vital part of the creation of a benchmark which accurately
represents a particular market segment. Companies may get bigger or smaller
over
time, or change in style characteristics. Reconstitution ensures that the
correct companies are represented in the RTY.
Available
shares are assumed to be shares available for trading. Exclusion of
capitalization held by other listed companies and large holdings of private
investors (10.00% or more) is based on information recorded in Securities
and
Exchange Commission filings. Other sources are used in cases of missing or
questionable data.
The
following types of shares considered unavailable for the purposes of
capitalization determinations:
|
·
|
ESOP
or LESOP shares - shares of corporations that have Employee Stock
Ownership Plans that comprise 10.00% or more of the shares outstanding
are
adjusted;
|
|
·
|
Corporate
cross-owned shares - when shares of a company in the RTY are held
by
another company also in the RTY, this is considered corporate
cross-ownership. Any percentage held in this class will be
adjusted;
|
|
·
|
Large
private and corporate shares - when an individual, a group of individuals
acting together, or a corporation not in the index owns 10.00%
or more of
the shares outstanding. However, institutional holdings (investment
companies, partnerships, insurance companies, mutual funds, banks,
or
venture capital companies) are not included in this class;
and
|
|
·
|
Unlisted
share classes - classes of common stock that are not traded on
a United
States securities exchange or
NASDAQ.
|
The
following summarizes the types of RTY maintenance adjustments and indicates
whether or not an index adjustment is required.
|
·
|
“No
Replacement” Rule - Securities that leave the RTY for any reason (e.g.
mergers, acquisitions, or other similar corporate activity) are
not
replaced. Therefore, the number of securities in the RTY will fluctuate
according to corporate activity.
|
|
·
|
Rule
for Corporate Action-Driven Changes - When a stock is acquired,
delisted,
or moves to the pink sheets or bulletin boards on the floor of
a United
States securities exchange, the stock is deleted from the RTY at
the open
of trading on the ex-date using the previous day's closing
prices.
|
|
·
|
When
acquisitions or mergers take place within the RTY, the stock's
capitalization moves to the acquiring stock; as a result, mergers
have no
effect on the total capitalization of the RTY. Shares are updated
for the
acquiring stock at the time the transaction is final. Prior to
April 1,
2000, if the acquiring stock was a member of a different index
(i.e. the
Russell 3000®
Index or the Russell 1000®
Index), the shares for the acquiring stock were not adjusted until
month
end.
|
|
·
|
Deleted
Stocks - When deleting stocks from the RTY as a result of exchange
delisting or reconstitution, the price used is the market price
on the day
of deletion, including potentially the OTC Bulletin Board price.
Previously, prices used to reflect delisted stocks were the last
traded
price on the Primary Exchange. There may be corporate events, like
mergers
or acquisitions that result in the lack of a current market price
for the
deleted security and in such an instance the latest Primary Exchange
closing price available will be
used.
|
|
·
|
Additions
for Spin-Offs - Spin-off companies are added to the parent company's
index
and capitalization tier of membership, if the spin-off is large
enough. To
be eligible, the spun-off company's total market capitalization
must be
greater than the market-adjusted total market capitalization of
the
smallest security in the RTY at the latest
reconstitution.
|
|
·
|
Quarterly
IPO Additions - Eligible companies that have recently completed
an initial
public offering are added to the RTY at the end of each calendar
quarter
based on total market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent reconstitution.
Market adjustments will be made using the returns of the Russell
3000®
Index. Eligible companies will be added to the RTY using their
industry's
average style probability established at the latest constitution.
|
In
order
for a company to be added to the RTY in a quarter (outside of reconstitution),
the IPO company must meet all Russell U.S. Index eligibility requirements.
Also,
the IPO company must meet the following criteria on the final trading day
of the
month prior to quarter-end : (i) price/trade; (ii) rank larger in total market
capitalization than the market-adjusted smallest company in the RTY as of
the
latest June reconstitution; and (iii) meet criteria (i) and (ii) during an
initial offering period.
Each
month, the RTY is updated for changes to shares outstanding as companies
report
changes in share capital to the Securities and Exchange Commission. Only
cumulative changes to shares outstanding greater than 5.00% are reflected
in the
RTY. This does not affect treatment of major corporate events, which are
effective on the ex-date.
License
Agreement with Russell Investment Group
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with Russell
Investment Group, whereby The Bear Stearns Companies Inc. and our affiliates
and
subsidiary companies, in exchange for a fee, will be permitted to use the
RTY,
which is owned and published by Russell Investment Group, in connection with
certain products, including the Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by the Russell Investment Group
(including its affiliates). Russell Investment Group has not passed on the
legality or appropriateness of, or the accuracy or adequacy of descriptions
and
disclosures relating to the Notes. Russell Investment Group 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, or the ability of the RTY to track
general stock market performance. Russell Investment Group has no relationship
to The Bear Stearns Companies, Inc. other than the licensing of the RTY and
the
related trademarks for use in connection with the Notes, which index is
determined, composed and calculated by Russell Investment Group without regard
to The Bear Stearns Companies, Inc. or the Notes. Russell Investment Group
has
no obligation to take the needs of The Bear Stearns Companies, Inc. or the
owners of the Notes into consideration in determining, composing or calculating
the RTY. Russell Investment Group is not responsible for and has not
participated in the determination of the timing of, prices at, 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. Russell Investment Group has
no
liability in connection with the administration, marketing or trading of
the
Notes.
Russell
Investment Group is under no obligation to continue the calculation and
dissemination of the RTY and the method by which the RTY is calculated and
the
name “Russell 2000®”
or
“RTY” may be changed at the discretion of Russell Investment Group. No inference
should be drawn from the information contained in this pricing supplement
that
Russell Investment Group makes any representation or warranty, implied or
express, to you or any member of the public regarding the advisability of
investing in securities generally or in the Notes in particular or the ability
of the RTY to track general stock market performance. Russell Investment
Group
has no obligation to take into account your interest, or that of anyone else
having an interest in determining, composing or calculating the RTY. Russell
Investment Group is not responsible for, and has not participated in the
determination of the timing of, prices for or quantities of, the Notes or
in the
determination or calculation of the equation by which the Notes are to be
settled in cash. Russell Investment Group has no obligation or liability
in
connection with the administration, marketing or trading of the Notes. The
use
of and reference to the RTY in connection with the Notes have been consented
to
by Russell Investment Group.
Russell
Investment Group disclaims all responsibility for any inaccuracies in the
data
on which the RTY is based, or any mistakes or errors or omissions in the
calculation or dissemination of the RTY.
Historical
Data on the RTY
The
following table sets forth the month-end closing Component Levels of the
RTY for
each month in the period from January 1998 through April 2007. The RTY’s closing
Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the RTY should not be taken as an indication of future
performance, and no assurance can be given that the level of the RTY will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing Component Level of the RTY on May 21, 2007 was 833.65.
Month
End Closing Component Levels: January 1998 -April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
430.05
|
427.22
|
496.23
|
508.34
|
483.10
|
372.17
|
580.76
|
624.02
|
733.20
|
800.34
|
February
|
461.83
|
392.26
|
577.71
|
474.37
|
469.36
|
360.52
|
585.56
|
634.06
|
730.64
|
793.30
|
March
|
480.68
|
397.63
|
539.09
|
450.53
|
506.46
|
364.54
|
590.31
|
615.07
|
765.14
|
800.71
|
April
|
482.89
|
432.81
|
506.25
|
485.32
|
510.67
|
398.68
|
559.80
|
579.38
|
764.54
|
814.57
|
May
|
456.62
|
438.68
|
476.18
|
496.50
|
487.47
|
441.00
|
568.28
|
616.71
|
721.01
|
|
June
|
457.39
|
457.68
|
517.23
|
512.80
|
462.65
|
448.37
|
591.52
|
639.66
|
724.67
|
|
July
|
419.75
|
444.77
|
500.64
|
484.78
|
392.42
|
476.02
|
551.29
|
679.75
|
700.56
|
|
August
|
337.95
|
427.83
|
537.89
|
468.56
|
390.96
|
497.42
|
547.93
|
666.51
|
720.53
|
|
September
|
363.59
|
427.30
|
521.37
|
404.87
|
362.27
|
487.68
|
572.94
|
667.80
|
725.59
|
|
October
|
378.16
|
428.64
|
497.68
|
428.17
|
373.50
|
528.22
|
583.79
|
646.61
|
766.84
|
|
November
|
397.75
|
454.08
|
445.94
|
460.78
|
406.36
|
546.51
|
633.77
|
677.29
|
786.12
|
|
December
|
421.96
|
504.75
|
483.53
|
488.50
|
383.09
|
556.91
|
651.57
|
673.22
|
787.66
|
|
The
following graph illustrates the historical performance of the RTY based on the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
The
Nikkei 225 SM
Index
(“NKY”)
We
have
derived all information relating to the NKY, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and
is
subject to change by Nihon Keizai Shimbun, Inc. (“Nihon
Keizai”).
Nihon
Keizai
is under
no obligation to continue to publish, and may discontinue or suspend the
publication of the NKY at any time.
The
NKY
is a stock index calculated, published and disseminated by Nihon
Keizai
that
measures the composite price performance of selected Japanese stocks. Nihon
Keizai first calculated and published the NKY in 1970. The Nikkei 225 Stock
Index currently is based on 225 underlying stocks (the “Nikkei
Underlying Stocks”)
trading on the Tokyo Stock Exchange (the “TSE”)
representing a broad cross-section of Japanese industries. All 225 Nikkei
Underlying Stocks are stocks listed in the First Section of the TSE. Stocks
listed in the First Section of the TSE are among the most actively traded
stocks
on the TSE. Nihon Keizai rules require that the 75 most liquid issues (one-third
of the component count of the NKY) be included in the NKY.
The
225
companies included in the NKY are divided into six sector categories:
Technology, Financials, Consumer Goods, Materials, Capital Goods/Others and
Transportation and Utilities. These six sector categories are further divided
into 36 industrial classifications as follows:
|
· |
Technology
— Pharmaceuticals, Electrical Machinery, Automobiles, Precision
Machinery,
Telecommunications;
|
|
· |
Financials
— Banks, Miscellaneous Finance, Securities,
Insurance;
|
|
· |
Consumer
Goods — Marine Products, Food, Retail,
Services;
|
|
· |
Materials
— Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics,
Steel, Nonferrous Metals, Trading
House;
|
|
· |
Capital
Goods/Others — Construction, Machinery, Shipbuilding, Transportation
Equipment, Miscellaneous Manufacturing, Real Estate;
and
|
|
· |
Transportation
and Utilities — Railroads and Buses, Trucking, Shipping, Airlines,
Warehousing, Electric Power, Gas.
|
Computation
of the NKY
The
NKY
is a modified, price-weighted index (i.e., a Nikkei Underlying Stock’s weight in
the index is based on its price per share rather than the total market
capitalization of the issuer) that is calculated by (i) multiplying the
per-share price of each Nikkei Underlying Stock by the corresponding weighting
factor for such Nikkei Underlying Stock (a “Weight
Factor”),
(ii)
calculating the sum of all these products and (iii) dividing such sum by
a
divisor (the “Divisor”).
The
Divisor was initially set at 225 for the date of May 16, 1949 using historical
numbers from May 16, 1949, the date on which the TSE was reopened. The Divisor
was 24.29 as of May 14, 2007 and is subject to periodic adjustments as set
forth
below. Each Weight Factor is computed by dividing ¥50 by the par value of the
relevant Nikkei Underlying Stock, so that the share price of each Nikkei
Underlying Stock, when multiplied by its Weight Factor, corresponds to a
share
price based on a uniform par value of ¥50. The stock prices used in the
calculation of the NKY are those reported by a primary market for the Nikkei
Underlying Stocks (currently the TSE). The level of the NKY is calculated
once
per minute during TSE trading hours.
In
order
to maintain continuity in the NKY in the event of certain changes due to
non-market factors affecting the Nikkei Underlying Stocks, such as the addition
or deletion of stocks, substitution of stocks, stock splits or distributions
of
assets to stockholders, the Divisor used in calculating the NKY is adjusted
in a
manner designed to prevent any instantaneous change or discontinuity in the
level of the NKY. Thereafter, the Divisor remains at the new value until
a
further adjustment is necessary as the result of another change. As a result
of
such change affecting any Nikkei Underlying Stock, the Divisor is adjusted
in
such a way that the sum of all share prices immediately after such change
multiplied by the applicable Weight Factor and divided by the new Divisor
(i.e.,
the level of the NKY immediately after such change) will equal the level
of the
NKY immediately prior to the change.
A
Nikkei
Underlying Stock may be deleted or added by Nihon Keizai. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Nikkei Underlying Stocks: (i)
bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition
of the
issuer by, another company, (iii) delisting of such stock, (iv) transfer
of such
stock to the “Seiri-Post” because of excess debt of the issuer or because of any
other reason or (v) transfer of such stock to the Second Section. In addition,
a
component stock transferred to the “Kanri-Post” (Posts for stocks under
supervision) is in principle a candidate for deletion. Nikkei Underlying
Stocks
with relatively low liquidity, based on trading value and rate of price
fluctuation over the past five years, may be deleted by Nihon Keizai. Upon
deletion of a stock from the Nikkei Underlying Stocks, Nihon Keizai will
select
a replacement for such deleted Nikkei Underlying Stock in accordance with
certain criteria. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by Nihon Keizai to be representative
of a
market may be added to the Nikkei Underlying Stocks. In such a case, an existing
Underlying Stock with low trading volume and deemed not to be representative
of
a market will be deleted by Nihon Keizai.
A
list of
the issuers of the Nikkei Underlying Stocks constituting the NKY is available
from the Nikkei Economic Electronic Databank System and from the Stock Market
Indices Data Book published by Nihon Keizai.
License
Agreement with Nihon Keizai
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into non-exclusive license agreement with Nihon
Keizai, whereby The Bear Stearns Companies Inc. and our affiliates, in exchange
for a fee, will be permitted to use the NKY in connection with the offer
and
sale of the Notes.
The
copyright relating to the NKY and intellectual property rights as to “Nikkei”
(including in combination with other words) and the NKY and any other rights
will belong to Nihon Keizai.
Nihon
Keizai will be entitled to change the details of the NKY and to suspend the
announcement thereof.
All
the
businesses and implementation relating to the use of the NKY and related
intellectual property rights will be conducted exclusively at the risk of
the
Company and Nihon Keizei assumes no obligation or responsibility
therefor.
The
Tokyo Stock Exchange
The
TSE
is one of the world’s largest securities exchanges in terms of market
capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m.
and
from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.
Due
to
the time zone difference, on any normal trading day the TSE will close prior
to
the opening of business in New York City on the same calendar day. Therefore,
the closing level of the NKY on a trading day will generally be available
in the
United States by the opening of business on the same calendar day.
The
TSE
has adopted certain measures, including daily price floors and ceilings on
individual stocks, intended to prevent any extreme short-term price fluctuations
resulting from order imbalances. In general, any stock listed on the TSE
cannot
be traded at a price lower than the applicable price floor or higher than
the
applicable price ceiling. These price floors and ceilings are expressed in
absolute Japanese yen, rather than percentage limits based on the closing
price
of the stock on the previous trading day. In addition, when there is a major
order imbalance in a listed stock, the TSE posts a “special bid quote” or a
“special asked quote” for that stock at a specified higher or lower price level
than the stock’s last sale price in order to solicit counter orders and balance
supply and demand for the stock. The TSE may suspend the trading of individual
stocks in certain limited and extraordinary circumstances, including, for
example, unusual trading activity in that stock. As a result, changes in
the NKY
may be limited by price limitations or special quotes, or by suspension of
trading, on individual stocks that make up the NKY, and these limitations,
in
turn, may adversely affect the value of the Notes.
Historical
Data on the NKY
The
following table sets forth the month-end closing Component Levels of the
NKY for
each month in the period from January 1998 through April 2007. The NKY closing
Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the NKY should not be taken as an indication of future
performance, and no assurance can be given that the level of the NKY will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing Component Level of the NKY on May 21, 2007 was 17,556.87.
Month
End Closing Component Levels: January 1998 - April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
16,628.47
|
14,499.25
|
19,539.70
|
13,843.55
|
9,997.80
|
8,339.94
|
10,783.61
|
11,387.59
|
16,649.82
|
17383.42
|
February
|
16,831.67
|
14,367.54
|
19,959.52
|
12,883.54
|
10,587.83
|
8,363.04
|
11,041.92
|
11,740.60
|
16,205.43
|
17604.12
|
March
|
16,527.17
|
15,836.59
|
20,337.32
|
12,999.70
|
11,024.94
|
7,972.71
|
11,715.39
|
11,668.95
|
17,059.66
|
17287.65
|
April
|
15,641.26
|
16,701.53
|
17,973.70
|
13,934.32
|
11,492.54
|
7,831.42
|
11,761.79
|
11,008.90
|
16,906.23
|
17400.41
|
May
|
15,670.78
|
16,111.65
|
16,332.45
|
13,262.14
|
11,763.70
|
8,424.51
|
11,236.37
|
11,276.59
|
15,467.33
|
|
June
|
15,830.27
|
17,529.74
|
17,411.05
|
12,969.05
|
10,621.84
|
9,083.11
|
11,858.87
|
11,584.01
|
15,505.18
|
|
July
|
16,378.97
|
17,861.86
|
15,727.49
|
11,860.77
|
9,877.94
|
9,563.21
|
11,325.78
|
11,899.60
|
15,456.81
|
|
August
|
14,107.89
|
17,436.56
|
16,861.26
|
10,713.51
|
9,619.30
|
10,343.55
|
11,081.79
|
12,413.60
|
16,140.76
|
|
September
|
13,406.39
|
17,605.46
|
15,747.26
|
9,774.68
|
9,383.29
|
10,219.05
|
10,823.57
|
13,574.30
|
16,127.58
|
|
October
|
13,564.51
|
17,942.08
|
14,539.60
|
10,366.34
|
8,640.48
|
10,559.59
|
10,771.42
|
13,606.50
|
16,399.39
|
|
November
|
14,883.70
|
18,558.23
|
14,648.51
|
10,697.44
|
9,215.56
|
10,100.57
|
10,899.25
|
14,872.15
|
16,274.33
|
|
December
|
13,842.17
|
18,934.34
|
13,785.69
|
10,542.62
|
8,578.95
|
10,676.64
|
11,488.76
|
16,111.43
|
17,225.83
|
|
The
following graph illustrates the historical performance of the NKY based on
the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
The
FTSE 100 Index (“UKX”)
We
have
derived all information contained in this pricing supplement regarding the
UKX,
including, without limitation, its make-up, method of calculation and changes
in
its components, from publicly available information. Such information reflects
the policies of, and is subject to change by, FTSE International Limited
(“FTSE”). The UKX was developed by FTSE and is calculated, maintained and
published by FTSE. We make no representation or warranty as to the accuracy
or
completeness of such information. The UKX is an index calculated, published
and
disseminated by FTSE, a company owned equally by the London Stock Exchange
(the
“LSE”) and The Financial Times Limited (“FT”), in association with the Institute
and the Faculty of Actuaries. The UKX measures the composite price performance
of stocks of the largest 100 companies (determined on the basis of market
capitalization) traded on the LSE. Publication of theUKX began in February
1984.
The
UKX
is calculated by (i) multiplying the per share price of each stock included
in
the UKX by the number of outstanding shares, (ii) calculating the sum of
all
these products (such sum referred to hereinafter as the “FTSE Aggregate Market
Value”) as of the starting date of the UKX, (iii) dividing the FTSE Aggregate
Market Value by a divisor which represents the FTSE Aggregate Market Value
on
the base date of the UKX and which can be adjusted to allow changes in the
issued share capital of individual underlying stocks including the deletion
and
addition of stocks, the substitution of stocks, stock dividends and stock
splits
to be made without distorting the FTSE™ 100 Index and (iv) multiplying the
result by 1,000. Because of such capitalization weighting, movements in share
prices of companies with relatively larger market capitalization will have
a
greater effect on the level of the entire FTSE™ 100 than will movements in share
prices of companies with relatively smaller market capitalization.
The
100
stocks included in the UKX (the “UKX Underlying Stocks”) were selected from a
reference group of stocks trading on the LSE which were selected by excluding
certain stocks that have low liquidity based on public float, accuracy and
reliability of prices, size and number of trading days. The UKX Underlying
Stocks were selected from this reference group by selecting 100 stocks with
the
largest market value. A list of the issuers of the UKX Underlying Stocks
is
available from FTSE. The UKX is reviewed quarterly by an Index Steering
Committee of the LSE in order to maintain continuity in the level. The UKX
Underlying Stocks may be replaced, if necessary, in accordance with
deletion/addition rules which provide generally for the removal and replacement
of a stock from the UKX if such stock is delisted or its issuer is subject
to a
takeover offer that has been declared unconditional or it has ceased, in
the
opinion of the Index Steering Committee, to be a viable component of the
UKX. To
maintain continuity, a stock will be added at the quarterly review if it
has
risen to 90th place or above and a stock will be deleted if at the quarterly
review it has fallen to 111th place or below, in each case ranked on the
basis
of market capitalization.
Discontinuation
of the UKX; Alteration of Method of Calculation.
If
FTSE
discontinues publication of the UKX and FTSE or another entity publishes
a
successor or substitute index that the calculation agent determines to be
comparable to the discontinued UKX (such index being referred to herein as
a
“FTSE successor index”), then the UKX closing level will be determined by
reference to the level of such FTSE successor index at the close of trading
on
the relevant exchange or market for the FTSE successor index on the final
Observation Date, applicable to the UKX. Upon any selection by the calculation
agent of a FTSE successor index, the calculation agent will cause written
notice
thereof to be promptly furnished to the trustee, to us and to the holders
of the
Notes.
If
FTSE
discontinues publication of the UKX prior to, and such discontinuation is
continuing on, the final Observation Date, applicable to the UKX, and the
calculation agent determines that no FTSE successor index is available at
such
time, or the calculation agent has previously selected a FTSE successor index
and publication of such FTSE successor index is discontinued prior to, and
such
discontinuation is continuing on, the final Observation Date, applicable
to the
UKX, then the calculation agent will determine the UKX closing level for
such
date. The UKX closing level will be computed by the calculation agent in
accordance with the formula for and method of calculating the UKX or FTSE
successor index, as applicable, last in effect prior to such discontinuation,
using the closing price (or, if trading in the relevant securities has been
materially suspended or materially limited, its good faith estimate of the
closing price that would have prevailed but for such suspension or limitation)
at the close of the principal trading session on such date of each security
most
recently composing the UKX or FTSE successor index, as applicable.
Notwithstanding these alternative arrangements, discontinuation of the
publication of the UKX or FTSE successor index, as applicable, on the relevant
exchange may adversely affect the value of the Notes.
If
at any
time the method of calculating the UKX or a FTSE successor index, or the
level
thereof, is changed in a material respect, or if the UKX or a FTSE successor
index is in any other way modified so that the UKX or such FTSE successor
index
does not, in the opinion of the calculation agent, fairly represent the level
of
the UKX or such FTSE successor index had such changes or modifications not
been
made, then the calculation agent will, at the close of business in New York
City
on each date on which the UKX closing level is to be determined, make such
calculations and adjustments as may be necessary in order to arrive at a
level
of a stock index comparable to the UKX or such FTSE successor index, as the
case
may be, as if such changes or modifications had not been made, and the
calculation agent will calculate the UKX closing level with reference to
the UKX
or such FTSE successor index, as adjusted. Accordingly, if the method of
calculating the UKX or a FTSE successor index is modified so that the level
of
the UKX or such FTSE successor index is a fraction of what it would have
been if
there had been no such modification (e.g., due to a split in the UKX or such
FTSE successor index), then the calculation agent will adjust the UKX or
such
FTSE successor index in order to arrive at a level of the UKX or such FTSE
successor index as if there had been no such modification (e.g., as if such
split had not occurred).
License
Agreement with UKX
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with FTSE,
whereby The Bear Stearns Companies Inc. and our affiliates and subsidiary
companies and certain of its affiliates, in exchange for a fee, will be
permitted to use the UKX, which is owned and published by FTSE, in connection
with certain products, including the Notes.
Neither
FTSE, the LSE nor FT makes any representation or warranty, express or implied,
to the owners of the Notes or any member of the public regarding the
advisability of investing in structured products generally or in the Notes
particularly, or the ability of the UKX to track general stock market
performance. FTSE, the LSE, and FT’s only relationship with us is the licensing
of certain trademarks and trade names of FTSE, respectively, without regard
to
us or the Notes. FTSE, the LSE and FT have no obligation to take the needs
of
The Bear Stearns Companies Inc. or the holders of the Notes into consideration
in determining, composing or calculating the UKX Neither FTSE nor the LSE
nor FT
is responsible for and has not participated in the determination of the timing,
price or quantity of the Notes to be issued or in the determination or
calculation of the amount due at maturity of the Notes. Neither FTSE nor
the LSE
nor FT has any obligation or liability in connection with the administration,
marketing or trading of the Notes.
The
Notes
are not in any way sponsored, endorsed, sold or promoted by FTSE, the LSE
or FT,
and neither FTSE, the LSE nor FT makes any warranty or representation
whatsoever, expressly or impliedly, either as to the results to be obtained
from
the use of the UKX and/or the figure at which the said Component stands at
any
particular time on any particular day or otherwise. The UKX is compiled and
calculated by FTSE. However, neither FTSE, the LSE nor FT shall be liable
(whether in negligence or otherwise) to any person for any error in the UKX
and
neither FTSE nor the LSE nor FT shall be under any obligation to advise any
person of any error therein.
“FTSE®”,
“FT-SE®” and “Footsie®” are trade marks of the London Stock Exchange Plc and The
Financial Times Limited and are used by FTSE International Limited under
license. “All-World”, “All-Share” and “All-Small” are trade marks of FTSE
International Limited.”
Historical
Data on the UKX
The
following table sets forth the month-end closing Component Levels of the
UKX for
each month in the period from January 1998 through April 2007. The
UKX’s
closing
Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the UKX should not be taken as an indication of future
performance, and no assurance can be given that the level of the UKX will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing Component Level of the UKX on May 21, 2007 was 6,636.80.
Month
End Closing Component Levels: January 1998 -April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
5,458.50
|
5,896.00
|
6,268.50
|
6,297.50
|
5,164.80
|
3,567.40
|
4,390.70
|
4,852.30
|
5,760.30
|
6,203.10
|
February
|
5,767.30
|
6,175.10
|
6,232.60
|
5,917.90
|
5,101.00
|
3,655.60
|
4,492.20
|
4,968.50
|
5,791.50
|
6,171.50
|
March
|
5,932.20
|
6,295.30
|
6,540.20
|
5,633.70
|
5,271.80
|
3,613.30
|
4,385.70
|
4,894.40
|
5,964.60
|
6,308.00
|
April
|
5,928.30
|
6,552.20
|
6,327.40
|
5,966.90
|
5,165.60
|
3,926.00
|
4,489.70
|
4,801.70
|
6,023.10
|
6,449.20
|
May
|
5,870.70
|
6,226.20
|
6,359.30
|
5,796.10
|
5,085.10
|
4,048.10
|
4,430.70
|
4,964.00
|
5,723.80
|
|
June
|
5,832.50
|
6,318.50
|
6,312.70
|
5,642.50
|
4,656.40
|
4,031.20
|
4,464.10
|
5,113.20
|
5,833.40
|
|
July
|
5,837.00
|
6,231.90
|
6,365.30
|
5,529.10
|
4,246.20
|
4,157.00
|
4,413.10
|
5,282.30
|
5,928.30
|
|
August
|
5,249.40
|
6,246.40
|
6,672.70
|
5,345.00
|
4,227.30
|
4,161.10
|
4,459.30
|
5,296.90
|
5,906.10
|
|
September
|
5,064.40
|
6,029.80
|
6,294.20
|
4,903.40
|
3,721.80
|
4,091.30
|
4,570.80
|
5,477.70
|
5,960.80
|
|
October
|
5,438.40
|
6,255.70
|
6,438.40
|
5,039.70
|
4,039.70
|
4,287.60
|
4,624.20
|
5,317.30
|
6,129.20
|
|
November
|
5,743.90
|
6,597.20
|
6,142.20
|
5,203.60
|
4,169.40
|
4,342.60
|
4,703.20
|
5,423.20
|
6,048.80
|
|
December
|
5,882.60
|
6,930.20
|
6,222.50
|
5,217.40
|
3,940.40
|
4,476.90
|
4,814.30
|
5,618.80
|
6,220.80
|
|
The
following graph illustrates the historical performance of the UKX based on
the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
The
S&P/ASX 200 Index (“AS51”)
We
have
derived all information relating to the AS51, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and
is
subject to change by Standard & Poor’s and the Australian Stock Exchange
(“S&P/ASX”). S&P/ASX are under no obligation to continue to publish, and
may discontinue or suspend the publication of the AS51 at any time.
The
AS51
is intended to provide an investable benchmark for the Australian equity
market
and represents approximately 78% of Australian market capitalization. The
AS51
is a float-adjusted capitalization-weighted index, meaning that each underlying
stock's weight in the index is based on its free float-adjusted market
capitalization. The AS51 is comprised of the 100 largest stocks listed on
the
Australian Stock Exchange (the “ASX”), plus an additional 100 stocks, all of
which must meet certain liquidity requirements. S&P/ASX chooses companies
for inclusion in the AS51 with an aim of providing a broad market
representation, while maintaining underlying investability and liquidity.
S&P/ASX may from time to time, in its sole discretion, add companies to, or
delete companies from, the AS51 to achieve the objectives stated above. Relevant
criteria employed by S&P/ASX (discussed in more detail below) include a
stock's liquidity, free float and market capitalization.
Calculation
of the AS51
The
calculation of the value of the AS51 is based on the relative float-adjusted
aggregate market capitalization of the stocks of 200 companies in the Australian
market (the “Component Stocks”) as of a particular time as compared to the base
value of the AS51. The index market capitalization for each Component Stock
is
calculated by multiplying the company's stock price times the number of ordinary
shares times the investable weight factor (as discussed below). Calculations
for
the AS51 are based on stock prices taken from the ASX. The official daily
AS51
closing values are calculated after the market closes and are based on the
last
traded price for each Component Stock.
Component
Stocks of the AS51 are determined after an analysis of the stocks' liquidity,
free float and market capitalization. A constituent of the AS51 must be
sufficiently liquid to enable institutional investors to buy in and sell
out of
the company without severely distorting the share price of that stock. The
S&P Australian Index Committee (the “Committee”) assesses whether a company
has sufficient liquidity to be eligible for the AS51 by analyzing each company's
free float and daily share turnover. Free float is defined as the portion
of
shares not being held by the following: (i) government and government agencies,
(ii) controlling and strategic shareholders/partners, (iii) any other entities
or individuals which hold more than 5%, excluding some financial institutions
and funds and (iv) other restricted portions such as treasury stocks. Stocks
are
deemed ineligible for inclusion in the AS51 if their free float is less than
30%. In addition, the Committee considers market capitalization, adjusting
each
company's market capitalization for free float. An investable weight factor
is
used in the adjustment process. In most cases, a stock's factor will be a
direct
reflection of its level of free float; however, some stocks are allocated
a
factor at half of its free float level as a result of low liquidity. The
Committee considers average float-adjusted market capitalization over a
six-month period when assessing whether a company's market capitalization
is
sufficient for the company to be represented in the AS51.
The
Committee is responsible for setting policy, determining index composition
and
administering the AS51 in accordance with the S&P/ASX methodology. The
Committee is comprised of five members representing S&P and ASX. The
Committee may add, remove or bypass any company or security during the selection
process. In maintaining the AS51, the Committee considers the guiding principle
of minimizing changes to the index portfolio. The Committee deletes Component
Stocks from the AS51 for reasons including acquisition, insufficient market
capitalization, insufficient liquidity, liquidation or insolvency and company
restructurings. Additions to the AS51 are triggered only by deletions, and
are
evaluated using the criteria described above for selection of Component Stocks.
Initial public offerings may be eligible for inclusion prior to six months
of
data being available, but only if a deletion occurs and the Committee decides
that the inclusion is justified.
The
Committee rebalances the AS51 quarterly at the end of February, May, August,
and
November; the free float and investable weight factors of Component Stocks
are
reviewed as part of the February rebalance. Quarterly rebalances analyze
market
capitalization and liquidity over the previous six months. The Committee
announces index deletions and replacements to the AS51 to the market on the
first Friday of March, June, September and December. Quarterly changes become
effective at the close of trade on the third Friday of March, June, September
and December. The AS51 is also rebalanced, and investable weight factors
are
adjusted, on an as needed basis when significant corporate events
occur.
S&P
makes changes to the AS51 shares on issue under the following circumstances:
(i)
market-wide placements and buybacks that are 5% of the index issued capital
and
greater than 5 million Australian dollars (“A$”), (ii) shares issued as a result
of dividend reinvestment plans and (iii) rights issues, bonus issues and
other
major corporate actions. The ASX may quote a different number of shares than
the
AS51; however, if the aggregated difference between the ASX quoted shares
and
the S&P/ASX index quoted shares at quarter-end is greater than A$100 million
or 5% of the index issued capital, shares will be adjusted to reflect those
quoted by the ASX.
While
S&P currently employs the above methodology to calculate the AS51, we cannot
assure you that S&P will not modify or change this methodology in a manner
that may affect the redemption amount at maturity to beneficial owners of
the
securities. Neither we nor any of our affiliates accepts any responsibility
for
the calculation, maintenance or publication of, or for any error, omission
or
disruption in, the AS51 or any successor index. S&P does not guarantee the
accuracy or completeness of the AS51 or any data included in the AS51. S&P
assumes no liability for any errors, omissions or disruption in the calculation
and dissemination of the AS51. S&P disclaims all responsibility for any
errors or omissions in the calculation and dissemination of the AS51 or the
manner in which the AS51 is applied in determining the amount payable on
the
securities.
License
Agreement with Standard and Poor’s and the Australian Stock Exchange
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with
S&P/ASX, whereby The
Bear
Stearns Companies Inc.
and our
affiliates and subsidiary companies, in exchange for a fee, will be permitted
to
use the AS51, which is owned and published by S&P/ASX, in connection with
certain products, including the Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by the S&P/ASX (including its
affiliates). S&P/ASX has not passed on the legality or appropriateness of,
or the accuracy or adequacy of descriptions and disclosures relating to the
Notes. S&P/ASX 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, or the
ability of the AS51 to track general stock market performance. S&P/ASX has
no relationship with us other than the licensing of the AS51 and the related
trademarks for use in connection with the Notes, which index is determined,
composed and calculated by S&P/ASX without regard to us or the Notes.
S&P/ASX has no obligation to take the needs of us or the holders of the
Notes into consideration in determining, composing or calculating the AS51.
S&P/ASX is not responsible for and has not participated in the determination
of the timing of, prices at, 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. S&P/ASX has no liability in connection with the
administration, marketing or trading of the Notes.
S&P/ASX
is under no obligation to continue the calculation and dissemination of the
AS51
and the method by which the AS51 is calculated and the name “S&P/ASX 200
Index” or “AS51” may be changed at the discretion of S&P/ASX. No inference
should be drawn from the information contained in this pricing supplement
that
S&P/ASX makes any representation or warranty, implied or express, to you or
any member of the public regarding the advisability of investing in securities
generally or in the Notes in particular or the ability of the AS51 to track
general stock market performance. S&P/ASX has no obligation to take into
account your interest, or that of anyone else having an interest in determining,
composing or calculating the AS51. S&P/ASX is not responsible for, and has
not participated in the determination of the timing of, prices for or quantities
of, the Notes or in the determination or calculation of the equation by which
the Notes are to be settled in cash. S&P/ASX has no obligation or liability
in connection with the administration, marketing or trading of the Notes.
The
use of and reference to the AS51 in connection with the Notes have been
consented to by S&P/ASX.
S&P/ASX
disclaims all responsibility for any inaccuracies in the data on which the
AS51
is based, or any mistakes or errors or omissions in the calculation or
dissemination of the AS51.
Historical
Data on the AS51
The
following table sets forth the month-end closing Component Levels of the
AS51
for each month in the period from January 1998 through April 2007. The
AS51’s
closing
Component Levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the AS51 should not be taken as an indication of future
performance, and no assurance can be given that the level of the AS51 will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing Component Level of the AS51 on May 21, 2007 was 6,369.00.
Month
End Closing Component Levels: January 1998 -April 2007
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
2,600.80
|
2,781.70
|
3,080.20
|
3,341.70
|
3,464.20
|
2,956.90
|
3,272.00
|
4,107.30
|
4,929.60
|
5,773.40
|
February
|
2,626.90
|
2,768.40
|
3,124.60
|
3,326.50
|
3,414.30
|
2,800.90
|
3,360.60
|
4,172.80
|
4,921.30
|
5,832.50
|
March
|
2,686.00
|
2,867.00
|
3,133.30
|
3,147.20
|
3,414.80
|
2,885.20
|
3,415.30
|
4,109.90
|
5,129.70
|
5,995.00
|
April
|
2,709.00
|
3,027.80
|
3,115.80
|
3,329.40
|
3,350.00
|
3,007.50
|
3,400.80
|
3,983.20
|
5,258.80
|
6,166.00
|
May
|
2,655.30
|
2,831.90
|
3,081.00
|
3,379.10
|
3,373.60
|
3,011.00
|
3,460.20
|
4,106.40
|
5,001.70
|
-
|
June
|
2,620.10
|
2,903.70
|
3,311.20
|
3,490.30
|
3,216.00
|
3,025.80
|
3,532.90
|
4,277.50
|
5,073.90
|
-
|
July
|
2,661.30
|
2,951.00
|
3,251.10
|
3,324.50
|
3,086.20
|
3,122.30
|
3,536.10
|
4,388.80
|
4,986.00
|
-
|
August
|
2,430.10
|
2,875.70
|
3,297.80
|
3,275.60
|
3,120.10
|
3,199.70
|
3,553.70
|
4,446.80
|
5,115.40
|
-
|
September
|
2,511.30
|
2,817.00
|
3,298.80
|
3,049.50
|
2,970.90
|
3,169.50
|
3,665.00
|
4,641.20
|
5,154.10
|
-
|
October
|
2,563.00
|
2,821.40
|
3,254.60
|
3,249.60
|
3,042.90
|
3,272.00
|
3,778.60
|
4,459.70
|
5,384.40
|
-
|
November
|
2,685.60
|
2,970.30
|
3,274.60
|
3,337.50
|
3,061.40
|
3,186.40
|
3,931.30
|
4,634.80
|
5,482.10
|
-
|
December
|
2,717.60
|
3,117.70
|
3,206.20
|
3,422.30
|
3,007.10
|
3,299.80
|
4,050.60
|
4,763.40
|
5,669.90
|
-
|
The
following graph illustrates the historical performance of the AS51 based
on the
closing level on the last Component Business Day of each month from January
1998
to April 2007.
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.
This
summary was not intended or written to be used, and cannot be used, for the
purpose of avoiding U.S. federal, state, or local tax penalties. This summary
was written in connection with the promotion or marketing by the Issuer of
the
Notes addressed in this summary. Prospective investors are urged to consult
their tax advisors with respect to the federal, state and local tax consequences
of investing in the Notes based on the taxpayer’s particular circumstances, 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 U.S. 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 Index. We intend to
treat
the Notes consistent with this approach, and pursuant to the terms of the
Notes,
you agree (in the absence of an administrative or judicial ruling to the
contrary) 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
the Issuer and the holders have agreed (in the absence of an administrative
or
judicial ruling to the contrary) 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 U.S. federal income tax purposes. For example,
each Note could be treated as a “contingent payment debt instrument” for U.S.
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
the Notes, 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 forward or 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 amount, 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 Index is treated as actively traded within the meaning of section
871(h)(4)(C)(v) of the Code. We expect that the Index 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
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, an investment manager, trustee or custodian) of a
Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the
Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a "party in interest" or "disqualified person")
would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such the Notes are acquired or held pursuant
to
and in accordance with an applicable statutory or administrative exemption.
Each
of us, Bear Stearns and Bear Stearns Securities Corp. is considered a
"disqualified person" under the Code or a "party in interest" under ERISA
with
respect to many Plans, although neither we nor Bear Stearns can be a "party
in
interest" to any IRA other than certain employer-sponsored IRAs, as only
employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption ("PTCE")
84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the Pension Protection Act of 2006 contains a 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
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 statutory
exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code)
and
purchasing Notes on behalf of a Plan will be deemed to represent that (x)
the
fiduciary has made a good faith determination that the Plan is paying no
more
than, and is receiving no less than, adequate consideration in connection
with
the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this exemption. Any purchaser that is
a
Plan is encouraged to consult with counsel regarding the application of the
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes,
the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section
3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law ("Similar Law")
similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
("Similar Law Plans") should consider applicable Similar Law when investing
in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s acquisition and holding of the Notes will not result in a
non-exempt violation of applicable Similar Law.
The
sale
of any Note to a Plan or a Similar Law Plan is in no respect a representation
by
us or any of our affiliates that such an investment meets all relevant legal
requirements with respect to investments by Plans or Similar Law Plans generally
or any particular Plan or Similar Law Plan, or that such an investment is
appropriate for a Plan or a Similar Law Plan generally or any particular
Plan or
Similar Law Plan.
USE
OF PROCEEDS AND HEDGING
We
will
use the net proceeds from the sale of the Notes for general corporate purposes.
We or one or more of our subsidiaries (including BSIL) may hedge our obligations
under the Notes by the purchase and sale of the stocks included in the
Component, exchange-traded and over-the-counter options on, or other derivative
or synthetic instruments related to, the Component, individual futures contracts
on the Component and on stocks included in the Component, futures contracts
on
the Component and/or options on these futures contracts. At various times
after
the initial offering and before the maturity of the Notes, depending on market
conditions (including the levels of the Components), 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 any of
these
instruments. 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 any of these instruments then we or one or more of our subsidiaries may
liquidate a portion of these instruments 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 any of these instruments
or
on the level of the Component, 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.
|
|
$[n]
|
|
Total
|
|
$[n]
|
|
The
Agent
intends to initially offer $[n]
of the
Notes to the public at the offering price set forth on the cover page of
this
pricing supplement, and to subsequently resell the remaining face amount
of the
Notes at prices related to the prevailing market prices at the time of
resale.
In
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 $[n]
at the
public offering price 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.
$[n]
Medium-Term
Notes, Series B
Linked
to an Equity Index Portfolio
Due
June [n],
2011
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
June
[n],
2007
|
————————
|
|
TABLE
OF CONTENTS
|
|
Pricing
Supplement
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-7
|
|
Risk
Factors
|
PS-13
|
|
Description
of the Notes
|
PS-21
|
|
Description
of the Components
|
PS-28
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-48
|
|
Certain
ERISA Considerations
|
PS-50
|
|
Use
of Proceeds and Hedging
|
PS-52
|
|
Supplemental
Plan of Distribution
|
PS-52
|
|
Legal
Matters
|
PS-53
|
|
Prospectus
Supplement
|
|
Risk
Factors
|
S-3
|
|
Pricing
Supplement
|
S-8
|
|
Description
of Notes
|
S-8
|
|
Certain
US Federal Income Tax Considerations
|
S-32
|
|
Supplemental
Plan of Distribution
|
S-46
|
|
Listing
|
S-47
|
|
Validity
of the Notes
|
S-47
|
|
Glossary
|
S-47
|
|
Prospectus
|
|
Where
You Can Find More Information
|
1
|
|
The
Bear Stearns Companies Inc.
|
2
|
|
Use
of Proceeds
|
4
|
|
Description
of Debt Securities
|
4
|
|
Description
of Warrants
|
16
|
|
Description
of Preferred Stock
|
21
|
|
Description
of Depositary Shares
|
25
|
|
Description
of Depository Contracts
|
28
|
|
Description
of Units
|
31
|
|
Book-Entry
Procedures and Settlement
|
33
|
|
Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
|
43
|
|
Plan
of Distribution
|
44
|
|
ERISA
Considerations
|
48
|
|
Legal
Matters
|
49
|
|
Experts
|
49
|
|