This preliminary pricing supplement relates
to
an effective registration statement under the Securities Act of 1933, but is
not
complete and may be changed. We may not sell these securities until we deliver
a
final pricing supplement. This preliminary pricing supplement, the accompanying
prospectus supplement and prospectus are not an offer to sell these securities
and are not soliciting an offer to buy these securities in any state where
such
an offer or sale would not be permitted.
Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-136666
Subject
to Completion, dated August 3, 2007
PRICING
SUPPLEMENT
(To
Prospectus Dated August 16, 2006 and
Prospectus
Supplement Dated August 16, 2006)
The
Bear Stearns Companies Inc.
$[l]
Medium-Term Notes, Series B, Linked to a Portfolio of Indices and Index
Funds
Due
August [l],
2012
|
·
|
The
Notes are fully principal protected if held to maturity and are linked
to
the potential positive performance of a portfolio comprised of six
indices
and
two index funds. The following are the six indices and their respective
Weightings in the portfolio: (1)
45% the S&P 500®
Index; (2) 15% the S&P 400 MidCap Index™; (3) 9% the Dow Jones STOXX
50®
Index; (4) 8% the S&P 600 SmallCap Index™; (5) 6% the Nikkei 225™
Stock Index; and (6) 6% the Dow Jones AIG Commodity IndexSM
(each such index an “Index” and together the “Indices”). The following are
the two index funds and their respective Weightings in the portfolio:
(1)
6% the iShares Dow Jones U.S. Real Estate Index Fund and (2) 5% the
iShares MSCI Emerging Markets Index Fund (each such index fund an
“Index
Fund” and together the “Index Funds”). Each such Index or Index Fund will
be a “Component” and the eight Components together will constitute the
“Portfolio”. When we refer to “Note” or “Notes” in this pricing
supplement, we mean Notes with a principal amount of $1,000.
|
|
·
|
On
the Maturity Date, you will receive the Cash Settlement Value, which
is
based on the appreciation, if any, in the Portfolio over the term
of the
Notes as measured by the Portfolio Return. The “Portfolio Return” is
calculated as the weighted average of the eight Component Performances,
where the “Component Performance” with respect to a Component measures the
average level of such Component as of two Observation Dates relative
to
its respective Initial Component Level on the Pricing
Date.
|
|
·
|
If,
at maturity, the Portfolio Return is greater than zero, then the
Cash
Settlement Value for each Note will be equal to the sum of (A) the
principal amount of the Note plus (B) the product of (i) $1,000 multiplied
by (ii) the Portfolio Return multiplied by (iii) Participation
Rate.
|
|
·
|
If,
at maturity, the Portfolio Return is equal to or less than zero,
then the
Cash Settlement Value for each Note will be $1,000. Because the Notes
are
principal protected if held to maturity, in no event will the Cash
Settlement Value for each Note held to maturity be less than $1,000.
|
|
·
|
The
CUSIP number for the Notes is 073928X32.
|
|
·
|
The
Issuer will not pay interest on the
Notes.
|
|
·
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
·
|
The
Maturity Date for the Notes is expected to be August [l],
2012, however, if the Final Observation Date is postponed, the Maturity
Date will be three Business Days following the postponed Final Observation
Date.
|
|
·
|
The
Observation Dates for each Component are expected to be February
[l],
2010 and August [l],
2012 (the “Final Observation Date”). Each Observation Date, including the
Final Observation Date, is subject to adjustment as described
herein.
|
|
·
|
The
Participation Rate is
[115.00-120.00]%
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THERE MAY NOT BE AN ACTIVE SECONDARY MARKET
IN THE NOTES, AND IF THERE WERE TO BE AN ACTIVE SECONDARY MARKET, IT MAY NOT
BE
LIQUID, AND THEREFORE THE NOTES THEMSELVES ARE NOT, AND WOULD NOT BE, LIQUID.
YOU SHOULD REFER TO “RISK FACTORS” BEGINNING ON PAGE
PS-12.
Each
Index
is a service mark or trademark of the sponsor of that Index and has been, or
will be, licensed for use by The Bear Stearns Companies Inc. The Notes, which
are linked to the performance of the Components, are not sponsored, endorsed,
sold or promoted by the sponsor or issuer, as applicable, of any Component;
and
the sponsors or issuers, as applicable, of such Components make no
representations regarding the advisability of investing in the
Notes.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Notes or determined that this pricing supplement,
or the accompanying prospectus supplement and prospectus, is truthful or
complete. Any representation to the contrary is a criminal
offense.
|
Per
Note
|
Total
|
Initial
public offering price
|
[l]%‡
|
$[l]
|
Agent’s
discount
|
[l]%
|
$[l]
|
Proceeds,
before expenses, to us
|
[l]%
|
$[l]
|
‡[Any
additional reissuance will be offered at a price to be determined at the time
of
pricing of each offering of Notes, which price will be a function of the
prevailing market conditions and the levels of the Components at the time of
the
relevant sale.]
We
expect
that the Notes will be ready for delivery in book-entry form only through the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about [l],
against
payment in immediately available funds.
We
may
grant Fifth Third Securities, Inc. a 13-day option from the date of the final
pricing supplement to purchase from us up to an additional $[l]
of Notes
at the public offering price to cover any over-allotments.
_______________
Fifth
Third Securities, Inc.
August
[l],
2007
This
summary highlights selected information from the accompanying prospectus,
prospectus supplement and this pricing supplement to help you understand the
Notes linked to the Portfolio. You should carefully read this entire pricing
supplement and the accompanying prospectus supplement and prospectus to fully
understand the terms of the Notes, as well as certain tax and other
considerations that are important to you in making a decision about whether
to
invest in the Notes. You should carefully review the section “Risk Factors” in
this pricing supplement and “Risk Factors” in the accompanying prospectus
supplement, which highlight a number of significant risks, to determine whether
an investment in the Notes is appropriate for you. All of the information set
forth below is qualified in its entirety by the more detailed explanation set
forth elsewhere in this pricing supplement and the accompanying prospectus
supplement and prospectus. If information in this pricing supplement is
inconsistent with the prospectus or prospectus supplement, this pricing
supplement will supersede those documents. In this pricing supplement, the
terms
“Company,” “we,” “us” and “our” refer only to The Bear Stearns Companies Inc.
excluding its consolidated subsidiaries. When we refer to “Note” or “Notes” in
this pricing supplement, we mean Notes each with a principal amount of
$1,000.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B, Linked to a Portfolio of
Indices and Index Funds, Due August [l],
2012 (the
“Notes”) are Notes whose return is tied or “linked” to the potential positive
performance of a portfolio comprised of six indices and two index funds. The
following are the six indices and their respective Weightings in the portfolio:
(1) 45% the S&P 500® Index (the “SPX”); (2) 15% the S&P 400
MidCap Index™ (the “MID”); (3) 9% the Dow Jones STOXX 50® Index (the
“SX5P”); (4) 8% the S&P 600 SmallCap Index™ (the “SML”); (5) 6% the Nikkei
225™ Stock Index (the “NKY”); and (6) 6% the Dow Jones AIG Commodity
IndexSM (the “DJAIG”) (each such index an “Index” and together the
“Indices”). The following are the two index funds and their respective
Weightings in the portfolio: (1) 6% the iShares Dow Jones U.S. Real Estate
Index
Fund (the “IYR”) and (2) 5% the iShares MSCI Emerging Markets Index Fund (the
“EEM”) (each such index fund an “Index Fund” and together the “Index Funds”).
Each such Index or Index Fund will be a “Component” and the eight Components
together will constitute the “Portfolio”. When we refer to Note or Notes in this
pricing supplement, we mean $1,000 principal amount Notes, either singularly
or
collectively. The Notes are principal protected. On the Maturity Date, you
will
receive the Cash Settlement Value, an amount in cash that depends on whether
the
average of the Observation Levels of each Component over two Observation Dates
is greater than or less than that respective Component’s Initial Component
Level. The difference between the average of the levels for a Component on
each
Observation Date and the Initial Component Level, expressed as a percentage
of
that Initial Component Level, is referred to as the “Component Performance” for
that Component, and the weighted average of the Component Performances is
referred to as the “Portfolio Return.” If the Portfolio Return is greater than
zero, we will pay you, at maturity, the sum of (A) the principal amount of
the
Notes plus (B) the product of (i) $1,000 multiplied by (ii) the Portfolio Return
multiplied by (iii) the Participation Rate. If the Portfolio Return is equal
to
or less than zero, then the Cash Settlement Value for each Note, at maturity,
will be $1,000.
Selected
Investment Considerations
|
·
|
Principal
protection—Because the Notes are principal protected if held to maturity,
in no event will you receive a Cash Settlement Value less than $1,000
per
Note, at maturity. If, at maturity, the Portfolio Return is less
than or
equal to zero, you will receive the principal amount of the
Notes.
|
|
·
|
Diversification—The
Notes are linked to the following six Indices and two Index Funds
and
their respective Weightings in the Portfolio: (1) 45% the SPX; (2)
15% the
MID; (3) 9% the SX5P; (4) 8% the SML; (5) 6% the NKY; (6) 6% the
DJAIG;
(7) 6% the IYR; and (8) 5% the EEM.
|
|
·
|
Taxes—For
U.S. federal income tax purposes, we intend to treat the Notes as
contingent payment debt instruments. As a result, you will be required
to
include original issue discount (“OID”) in income during your ownership of
the Notes even though no cash payments will be made with respect
to the
Notes until maturity. Additionally, you will generally be required
to
recognize ordinary income on the gain, if any, realized on a sale,
upon
maturity, or other disposition of the Notes. You should review the
discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing
supplement.
|
Selected
Risk Considerations
|
·
|
No
current income—We will not pay any interest on the Notes.
|
|
·
|
Non-conventional
return—The yield on the Notes may be less than the overall return you
would earn if you purchased a conventional debt security at the same
time
and with the same maturity.
|
|
·
|
No
ownership of underlying instruments—You will not receive any interest,
dividend payments or other distributions on the constituents of the
Components; nor will such payments be included in the calculation
of the
Cash Settlement Value you will receive at
maturity.
|
|
·
|
Not
exchange-listed—The Notes will not be listed on any securities exchange or
quotation system, and we do not expect a trading market to develop,
which
may affect the price that you receive for your Notes upon any sale
prior
to maturity. If you sell the Notes prior to maturity, you may receive
less, and possibly significantly less, than your initial investment
in the
Notes.
|
|
·
|
Liquidity—Because
the Notes will not be listed on any securities exchange, or quotation
system, we do not expect a trading market to develop, and, if such
a
market were to develop, it may not be liquid. Fifth Third Securities,
Inc.
has advised us that they intend under ordinary market conditions
to
indicate prices for the Notes on request. However, we cannot guarantee
that bids for outstanding Notes will be made in the future; nor can
we
predict the price at which those bids will be made. In any event,
Notes
will cease trading as of the close of business on the Maturity Date.
|
|
·
|
The
Components may not move in tandem—At a time when the level or price of one
or more of the Components increases, the level or price of one or
more of
the other Components may decline. Therefore, in calculating the Portfolio
Return, increases in the level or price of one or more of the Components
may be moderated, or wholly offset, by lesser increases or declines
in the
level or price of one or more of the other
Components.
|
Issuer:
|
The
Bear Stearns Companies Inc.
|
|
|
Components:
|
The
Notes are linked to the potential positive performance of a portfolio
comprised of six indices and two index funds. The following are
the six
indices and their respective Weightings in the portfolio: (1) 45%
the
S&P 500® Index (the “SPX”); (2) 15% the S&P 400 MidCap Index™ (the
“MID”); (3) 9% the Dow Jones STOXX 50® Index (the “SX5P”); (4) 8% the
S&P 600 SmallCap Index™ (the “SML”); (5) 6% the Nikkei 225™ Stock
Index (the “NKY”); and (6) 6% the Dow Jones AIG Commodity IndexSM (the
“DJAIG”) (each such index an “Index” and together the “Indices”). The
following are the two index funds and their respective Weightings
in the
portfolio: (1) 6% the iShares Dow Jones U.S. Real Estate Index
Fund (the
“IYR”) and (2) 5% the iShares MSCI Emerging Markets Index Fund (the
“EEM”)
(each such index fund an “Index Fund” and together the “Index Funds”).
Each such Index or Index Fund will be a “Component” and the eight
Components together will constitute the “Portfolio”. The Weighting of each
Component is fixed at the respective Weighting mentioned above
and will
not change during the term of the Notes unless one or more Components
are
modified during the term of the Notes.
|
|
|
Index
Sponsors:
|
Standard
& Poor’s (“S&P”), a division of The McGraw-Hill Companies, Inc. as
sponsor of the SPX, MID, and SML; STOXX Limited, a partnership
of Deutsche
Börse AG, Dow Jones & Company and the SWX Group as the sponsor of the
SX5P; Nihon Keizai Shimbun, Inc. as the sponsor of the NKY; and
Dow Jones
& Company Inc. and AIG Financial Products Corp. (“AIG-FP”) as sponsor
of the DJAIG are hereinafter referred to as “Index Sponsors.” See
“Description of the Portfolio” herein.
|
|
|
Index
Fund Issuers:
|
iShares
Trust, as the issuer of the IYR; and iShares, Inc., as the issuer
of the
EEM are hereinafter referred to as the “Index Fund Issuers.” See
“Description of the Portfolio” herein.
|
|
|
Principal
Amount:
|
The
Notes will be denominated in U.S. dollars. Each Note will be issued
in
minimum denominations of $[10,000] and $1,000 multiples thereafter;
provided, however, that the minimum purchase for any purchaser
domiciled
in a Member state of the European Economic Area shall be $100,000.
The
aggregate principal amount of the Notes being offered is $[l].
When we refer
to “Note” or “Notes” in this pricing supplement, we mean Notes each with a
principal amount of $1,000.
|
Further
Issuances:
|
Under
certain limited circumstances, and at our sole discretion, we may
offer
further issuances of the Notes. These further issuances, if any,
will be
consolidated to form a single series with the Notes and will have
the same
CUSIP number and will trade interchangeably with the Notes immediately
upon settlement.
|
|
|
Interest:
|
The
Notes will not bear interest.
|
|
|
Cash
Settlement Value:
|
On
the Maturity Date, you will receive the Cash Settlement Value,
an amount
in cash that depends upon the Portfolio Return. If, at maturity,
the
Portfolio Return is greater than zero, then the Cash Settlement
Value for
each Note will be equal to the sum of (A) the principal amount
of the Note
plus (B) the product of (i) $1,000 multiplied by (ii) the Portfolio
Return
multiplied by (iii) Participation Rate.
|
|
|
|
If,
at maturity, the Portfolio Return is equal to or less than zero,
then the
Cash Settlement Value for each Note will be the principal amount
of
$1,000. Because the Notes are principal protected if held to maturity,
in
no event will the Cash Settlement Value for each Note held to maturity
be
less than $1,000.
|
|
|
Participation
Rate:
|
[115.00-120.00]%
|
|
|
Portfolio
Return:
|
An
amount determined by the Calculation Agent and equal to the sum
of the
Component Performance for each Component multiplied by its respective
Weighting in the Portfolio.
|
|
|
|
For
purposes of determining the Portfolio Return:
|
|
|
|
“Component
Performance” means, as of the Final Observation Date and with respect
to a Component, the quotient, expressed as a percentage, of (i)
the
arithmetic average of the Observation Levels for that Component
as of each
Observation Date minus the Initial Component Level of that Component
divided by (ii) the Initial Component Level of that Component.
|
|
|
|
“Final
Observation Date” means August [l],
2012.
|
|
|
|
“Observation
Level” means, as of any Observation Date and with respect to each
Index, the closing index level as reported by the relevant Index
Sponsor
and displayed on Bloomberg Page SPX <Index> <Go> with respect
to the SPX; Bloomberg Page MID <Index> <Go> with respect to
the MID; Bloomberg Page SX5P <Index> <Go> with respect to the
SX5P; Bloomberg Page SML <Index> <Go> with respect to the SML;
Bloomberg Page NKY <Index> <Go> with respect to the NKY; and
Bloomberg Page DJAIG <Index> <Go> with respect to the DJAIG;
and with respect to each Index Fund, as of any Observation Date,
the
closing price as reported by the Relevant Exchange and as displayed
on
Bloomberg Page IYR US <Equity> <Go> with respect to the IYR;
and Bloomberg Page EEM US <Equity> <Go> with respect to the
EEM.
|
|
|
|
“Observation
Date” means February [l],
2010 and August
[l],
2012;
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
Observation 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
Observation Date, the Observation 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 Observation 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 Observation
Date for
that Component. If no Market Disruption Event exists with respect
to a
Component on the Observation Date, the determination of that Component’s
Observation Level will be made on the Observation Date, irrespective
of
the existence of a Market Disruption Event with respect to one
or more of
the other Components.
|
|
|
|
“Initial
Component Level” means:
|
|
|
|
l [l]
with respect to
the SPX;
|
|
l [l]
with respect to
the MID;
|
|
l [l]
with respect to
the SX5P;
|
|
l [l]
with respect to
the SML;
|
|
l [l]
with respect to
the NKY;
|
|
l [l]
with respect to
the DJAIG;
|
|
l [l]
with respect to
the IYR; and
|
|
l [l]
with respect to
the EEM.
|
|
“Weighting”
means:
|
|
|
|
l 45%
with respect to
the SPX;
|
|
l 15%
with respect to
the MID;
|
|
l 9%
with respect to the
SX5P;
|
|
l 8%
with respect to the
SML;
|
|
l 6%
with respect to the
NKY;
|
|
l 6%
with respect to the
DJAIG;
|
|
l 6%
with respect to the
IYR; and
|
|
l 5%
with respect to the
EEM.
|
|
|
Pricing
Date:
|
August
[l],
2007.
|
|
|
Issue
Date:
|
August
[l],
2007.
|
|
|
Maturity
Date:
|
The
Notes are expected to mature on August [l],
2012 unless
such date is not a Business Day, in which case the Maturity Date
shall be
the next Business Day. If the Final Observation Date is postponed,
the
Maturity Date will be three Business Days following the postponed
Final
Observation Date, as postponed for the last Component for which
an
Observation Level is determined.
|
|
|
Exchange
listing:
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
|
Component
Business Day:
|
Means
with respect to a Component any day on which each Relevant Exchange
and
each Related Exchange for such Component are scheduled to be open
for
trading.
|
|
|
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.
|
|
|
Calculation
Agent:
|
Bear,
Stearns & Co. Inc.
|
|
|
Underlying
Index:
|
Means
with respect to the IYR, the Dow Jones U.S. Real Estate Index or
any
successors thereto and with respect to the EEM, the MSCI Emerging
Markets
Index or any successors thereto.
|
|
|
Relevant
Exchanges:
|
Means
(i) with respect to an Index, the primary exchanges or markets
of trading
for any constituent then included in such Index; and (ii) with
respect to
an Index Fund, the primary exchanges or markets of trading for
such Index
Fund and the primary exchanges or markets of trading of any constituent
then included in the Underlying Index for such Index Fund. The
“Summary of
the Components” below details the Relevant Exchanges for each
Component.
|
|
|
Related
Exchange:
|
Means,
with respect to a Component, 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, or the Underlying Index, if
any.
|
Summary
of the Components
Component
|
Relevant
Exchanges
|
SPX
|
New
York Stock Exchange, NASDAQ and their successors
|
MID
|
New
York Stock Exchange, NASDAQ, American Stock Exchange LLC and their
successors
|
SX5P
|
Major
stock exchanges, respectively located in one of 18 European countries,
including London Stock Exchange, Frankfurt Stock Exchange and others
and
their successors
|
SML
|
New
York Stock Exchange, NASDAQ, American Stock Exchange LLC and their
successors
|
NKY
|
The
Tokyo Stock Exchange (the “TSE”) and its successors
|
DJAIG
|
New
York Mercantile Exchange, COMEX division of the New York Mercantile
Exchange, London Metal Exchange, New York Board of Trade, Chicago
Board of
Trade, Chicago Mercantile Exchange and their successors
|
IYR
|
The
New York Stock Exchange, American Stock Exchange LLC and their
successors
|
EEM
|
The
New York Stock Exchange and major stock exchanges, respectively located
in
one of 22 countries and their
successors
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $[10,000], the minimum purchase for any purchaser
domiciled in a member state of the European Economic Area shall be $100,000.
QUESTIONS
AND ANSWERS
What
are the Notes?
The
Notes
are a series of our senior, unsecured, unsubordinated debt securities, the
value
of which is linked to the performance of the Portfolio. The Notes will not
bear
interest, and no other payments will be made prior to maturity. The Notes are
principal protected if held to maturity. The Notes differ from conventional
debt
securities in that the Notes offer the opportunity to participate in
[115.00-120.00]% of the positive performance of the Portfolio, if any. See
the
section “Risk Factors” for selected risk considerations prior to making an
investment in the Notes.
The
Notes
are expected to mature on August [l],
2012.
The Notes do not provide for earlier redemption. When we refer to “Note” or
“Notes” in this pricing supplement, we mean Notes with a principal amount of
$1,000. 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.
Are
there any risks associated with my investment?
Yes,
the
Notes are subject to a number of risks. You should refer to the section “Risk
Factors” in this pricing supplement and the section “Risk Factors” in the
accompanying prospectus supplement.
What
will I receive at maturity of the Notes?
We
have
designed the Notes for investors who want to protect their investment by
receiving at least 100% of the principal amount of their Notes at maturity.
On
the Maturity Date, you will receive the Cash Settlement Value, which is based
on
the appreciation, if any, in the Portfolio over the term of the Notes as
measured by the Portfolio Return. The “Portfolio Return” is an amount determined
by the Calculation Agent and equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio. The
“Component Performance” with respect to a Component measures the average level
of such Component as of two Observation Dates relative to its respective Initial
Component Level on the Pricing Date.
If
the
Portfolio Return is less than or equal to zero on the Final Observation Date,
the Cash Settlement Value will equal the principal amount of the Notes because
the Notes are principal protected if held to maturity.
If
the
Portfolio Return is greater than zero on the Final Observation Date, the Cash
Settlement Value for each Note will be equal to the sum of (A) the principal
amount of the Notes plus (B) the product of (i) $1,000 multiplied by (ii) the
Portfolio Return multiplied by (iii) the Participation Rate.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description of the
Notes.”
What
does “principal protected” mean?
“Principal
protected”
means
that at maturity your principal investment in the Notes will not be at risk
as a
result of a decrease in the Portfolio Return. If the Portfolio Return is equal
to or less than zero on the Final Observation Date, the Cash Settlement Value
at
maturity will be $1,000. You may receive less than the principal amount of
the
Notes if you sell your Notes prior to maturity.
Will
I receive interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only return on
invested dollars you will receive, if any, will be reflected in the Cash
Settlement Value upon the maturity of the Notes.
Will
there be an additional offering of the Notes?
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuance will increase the aggregate principal amount of the outstanding Notes
of this series to include the aggregate principal amount of any Notes bearing
the same CUSIP number that are issued pursuant to any 13-day option we grant
to
Fifth Third Securities, Inc. The price of any additional offerings will be
determined at the time of pricing of each offering, which will be a function
of
the prevailing market conditions and levels of the Components at the time of
the
relevant sale.
What
is the Portfolio?
The
Portfolio is comprised of six Indices and two Index Funds. The following are
the
six Indices and their respective Weightings in the portfolio: (1) 45% the SPX;
(2) 15% the MID; (3) 9% the SX5P; (4) 8% the SML; (5) 6% the NKY; and (6) 6%
the
DJAIG. The following are the two Index Funds and their respective Weightings
in
the portfolio: (1) 6% the IYR and (2) 5% the EEM. Each such Index or Index
Fund
will be a “Component” and the eight Components together will constitute the
“Portfolio”. The Weighting of each Component is fixed at the respective
Weighting mentioned above, and will not change during the term of the Notes
unless one or more of the Components is modified during the term of the Notes.
For more specific information about the Portfolio, please see the section
“Description of the Portfolio.” Unless otherwise stated, all information
regarding the Components that is provided in this pricing supplement is derived
from the Index Sponsors, Index Fund Issuers or other publicly available
sources.
Who
publishes information regarding the Components and where can I obtain further
information?
S&P
500®
Index.
The
SPX
is a capitalization weighted stock index published by Standard and Poor’s
(“S&P”) and is intended to provide an indication of the pattern of common
stock price movement. The calculation of the level of the Index, discussed
below
in further detail, is based on the relative value of the aggregate market value
of the common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. As of July 16, 2007,
the
common stocks of 426 companies or 85.2% of the market capitalization of the
SPX,
were traded on the New York Stock Exchange (“NYSE”) and the common stocks of 74
companies, or 14.8% of the market capitalization of the Index, were traded
on
The NASDAQ Stock Market (“NASDAQ”). As of that date, none of the common stocks
included in the Index were traded on the American Stock Exchange. You can obtain
the level of the SPX from the Bloomberg Financial Service under the symbol
SPX
<Index> or from the S&P website at http://www.spglobal.com. Other
information on the S&P website is not incorporated into this
document.
S&P
MidCap 400 Index™
. The
MID is published by the S&P and is meant to provide a performance benchmark
for the medium capitalization segment of the U.S. equity markets. The MID tracks
the stock price movement of 400 companies with mid-sized market capitalizations,
primarily ranging from $1 billion to $4 billion. The market capitalization
requirements are reviewed periodically to ensure consistency with market
standards. The MID is maintained with similar methodologies and rules as the
S&P 500®
Index,
with variations only to account for differences in capitalization requirements.
S&P chooses stocks for inclusion in the MID with the aim of offering
investors access to the mid-cap segment of the U.S. equity markets. You can
obtain the level of the MID from the Bloomberg Financial Service under the
symbol MID <Index> or from the S&P website at http://www.spglobal.com.
Other information on the S&P website is not incorporated into this
document.
Dow
Jones STOXX 50®
Index.
The
SX5P is a free-float weighted index of 50 European blue-chip companies and
is
calculated, published and disseminated by STOXX Limited, a partnership of
Deutsche Börse AG, Dow Jones & Company and the SWX Group. The SX5P is
currently comprised of 50 stocks that respectively trade on major stock
exchanges located in one of 18 European countries, including the London Stock
Exchange, Frankfurt Stock Exchange and others. You can obtain the level of
the
SX5P from the Bloomberg Financial Service under the symbol SX5P <Index> or
from the Dow Jones website at http://www.djindexes.com. Other information on
the
Dow Jones website is not incorporated into this document.
S&P
600 SmallCap Index™.
The SML
is a stock index published by S&P that is designed by S&P to be an
accurate measure of small companies, reflecting risk and return characteristics
of the broader small cap U.S. equity markets on an on-going basis. The SML
currently represents approximately 3% of the domestic equities market. S&P
chooses companies for inclusion in the SML with an aim of achieving a
distribution by broad industry groupings that approximates the distribution
of
these groupings in the common stock population of the small capitalization
segment of the United States equity market. You can obtain the level of the
SML
from the Bloomberg Financial Service under the symbol SML <Index> or from
the S&P website at http://www.spglobal.com. Other information on the S&P
website is not incorporated into this document.
Nikkei
225TM
Stock Index.
The NKY
is a modified, price-weighted stock index calculated, published and disseminated
by Nihon Keizai Shimbun, Inc. that measures the composite price performance
of
selected Japanese stocks. The NKY is currently comprised of 225 stocks that
trade on the Tokyo Stock Exchange and represents a broad cross-section of
Japanese industry. All 225 of the stocks underlying the NKY are stocks listed
in
the First Section of the Tokyo Stock Exchange. You can obtain the level of
the
NKY from the Bloomberg Financial Service under the symbol NKY <Index> or
from the Tokyo Stock Exchange website at
http://www.tse.or.jp/english/index.shtml. Other information on the Tokyo Stock
Exchange website is not incorporated into this document.
Dow
Jones AIG Commodity IndexSM.
The
DJAIG is an index calculated, published and disseminated by Dow Jones and AIG
Financial Products Corp. The DJAIG was introduced in July 1998 to provide a
diversified and liquid benchmark for physical commodities as an asset class.
The
DJAIG currently is composed of the prices of nineteen exchange-traded futures
contracts on physical commodities. An exchange-traded futures contract is a
bilateral agreement providing for the purchase and sale of a specified type
and
quantity of a commodity or financial instrument during a stated delivery month
for a fixed price. The commodities (on which the futures contracts are based)
included in the DJAIG for 2007 are aluminum, coffee, copper, corn, cotton,
crude
oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, silver,
soybeans, soybean oil, sugar, unleaded gasoline, wheat and zinc. Futures
contracts underlying the DJAIG are currently listed for trading on the Chicago
Board of Trade (the “CBOT”). You can obtain the level of the DJAIG from the
Bloomberg Financial Service under the symbol DJAIG <Index> or from the Dow
Jones website at http://www.djindexes.com. Other information on the Dow Jones
website is not incorporated into this document.
iShares
Dow Jones U.S. Real Estate Index Fund.
The IYR
is an index fund which seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of
the
real estate sector of the U.S. equity market, as measured by the Dow Jones
U.S.
Real Estate Index. The Dow Jones U.S. Real Estate Index is a
capitalization-weighted index that aims to measure the performance of the Real
Estate industry of the U.S. equity market, including real estate holding and
developing and real estate investment trusts (REITS) subsectors. Issued by
iShares Trust, the IYR’s inception date is June 12, 2000. You can obtain the
level of the IYR from the Bloomberg Financial Service under the symbol IYR
US
<Index> or from the iShares website at http://www.ishares.com/fund_info/.
Other information on the iShares website is not incorporated into this
document.
iShares
MSCI Emerging Markets Index Fund.
The EEM
is an index fund issued by iShares, Inc. The EEM seeks to provide investment
results that correspond generally to the price and yield performance of publicly
traded securities in emerging markets, as measured by the MSCI Emerging Markets
Index. The MSCI Emerging Markets Index is a capitalization-weighted index that
aims to measure the performance of emerging markets by capturing 85% of the
(publicly available) total market capitalization of emerging market stocks.
The
inception date for the EEM is April 7, 2003. You can obtain the level of the
EEM
from the Bloomberg Financial Service under the symbol EEM US <Index> or
from the iShares website at http://www.ishares.com/fund_info/. Other information
on the iShares website is not incorporated into this document.
How
has the Portfolio performed historically?
We
have
provided tables depicting the month-end closing levels for each of the
Components, as well as graphs depicting the month-end closing levels for each
of
the Components. You can find these tables and graphs in the section “Description
of the Portfolio—Historical Performance of the Components.” We have provided
this historical information to help you evaluate the behavior of the Portfolio
in various economic environments; however, the time period depicted is
relatively limited and past performance is not indicative of the manner in
which
the Portfolio will perform in the future. You should refer to the section “Risk
Factors—The historical performance of the Components is not an indication of the
future performance of the Components.”
What
is Fifth Third Securities, Inc.'s role?
We
have
entered into a Distribution Agreement and Terms Agreement with Fifth Third
Securities, Inc. (“Fifth Third”). These agreements provide for the offer and
sale of Notes by Fifth Third on a best efforts basis. Fifth Third has agreed
to
use its best efforts to identify potential purchasers of the Notes and will
purchase such Notes from us for resale to such purchasers.
Although
it is under no obligation to do so, Fifth Third 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. In
any
event, Notes will cease trading as of the close of business on the Maturity
Date.
What
is the role of Bear, Stearns & Co. Inc.?
Bear,
Stearns & Co. Inc. (“Bear Stearns”) will be our Calculation Agent for
purposes of calculating the Cash Settlement Value. Under certain circumstances,
these duties could result in a conflict of interest between Bear Stearns’ status
as our subsidiary and its responsibilities as Calculation Agent. Bear Stearns
is
obligated to carry out its duties and functions as Calculation Agent in good
faith, and using its reasonable judgment. Manifest error by the Calculation
Agent, or any failure by it to act in good faith, in making a determination
adversely affecting the payment of the Cash Settlement Value or interest on
principal to the holders of the Notes would entitle the holders, or the Trustee
(as defined herein) acting on behalf of the holders, to exercise rights and
remedies available under the Indenture (as defined herein). If the Calculation
Agent uses its discretion to make a determination, the Calculation Agent will
notify us and the Trustee, who will provide notice to the holders. You should
refer to “Risk Factors—The Calculation Agent is one of our affiliates, which
could result in a conflict of interest.”
Can
you tell me more about The Bear Stearns Companies Inc.?
We
are a
holding company that, through our broker-dealer and international bank
subsidiaries, principally Bear Stearns, Bear, Stearns Securities Corp., Bear,
Stearns International Limited (“BSIL”) and Bear Stearns Bank plc, is a leading
investment banking, securities and derivatives trading, clearance and brokerage
firm serving corporations, governments, institutional and individual investors
worldwide. For more information about us, please refer to the section “The Bear
Stearns Companies Inc.” in the accompanying prospectus. You should also read the
other documents we have filed with the Securities and Exchange Commission,
which
you can find by referring to the section “Where You Can Find More Information”
in the accompanying prospectus.
Who
should consider purchasing the Notes?
Because
the Notes are tied to the performance of the Components, they may be appropriate
for investors with specific investment horizons who seek to participate in
the
potential price appreciation of the Components. In particular, the Notes may
be
an attractive investment for you if you:
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want
potential upside exposure to the Components underlying the
Portfolio;
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believe
that the value of the Portfolio will increase over the term of the
Notes;
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understand
that the Components may not move in tandem and that increases in
one or
more Components may be offset by decreases in one or more other
Components;
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do
not want to place your principal at risk and are willing to hold
the Notes
until maturity; and
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are
willing to forgo interest payments or dividend payments on the stocks
underlying the Components.
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The
Notes
may not be a suitable investment for you if:
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you
seek current income or dividend payments from your
investment;
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you
are unable or unwilling to hold the Notes until maturity;
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you
seek an investment with an active secondary market;
or
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you
do not believe that the value of the Portfolio will increase over
the term
of the Notes.
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What
are the U.S. federal income tax consequences of investing in the
Notes?
We
intend
to treat the Notes as contingent payment debt instruments for federal income
tax
purposes. Therefore, a U.S. Holder of a Note will be required to include OID
in
gross income over the term of the Note even though no cash payments will be
made
with respect to the Notes until maturity. The amount of OID includible in each
year is based on the “comparable yield.” In addition, we will compute a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). If a U.S. Holder disposes of the
Note prior to maturity, the U.S. Holder will be required to treat any gain
recognized upon the disposition of the Note as ordinary income (rather than
capital gain). You
should review the discussion under the section entitled “Certain U.S. Federal
Income Tax Considerations” in this pricing supplement.
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), a plan that is subject to Section
4975 of the Internal Revenue Code of 1986, as amended (the “Code”), including
individual retirement accounts, individual retirement annuities or Keogh plans,
a governmental or church plan subject to any similar law or any entity the
assets of which are deemed to be “plan assets” under ERISA, Section 4975 of the
Code, any applicable regulations or otherwise, will be permitted to purchase,
hold and dispose of the Notes, subject to certain conditions. Such investors
should carefully review the discussion under “Certain ERISA Considerations” in
this pricing supplement before investing in the Notes.
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 if they sell the Notes prior
to maturity. 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. We have no control over
a
number of matters that may affect the value of the Notes, including economic,
financial, regulatory, geographic, judicial and political events, that are
important in determining the existence, magnitude, and longevity of these risks
and their influence on the value of, or the payment made on, the
Notes.
Your
Notes are principal protected only if you hold the Notes until
maturity.
If
you
sell your Notes prior to maturity, you may receive less than the amount you
originally invested.
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 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.”
Increases
in the levels or prices of the Components may not correspond to increases in
the
trading value of the Notes.
Even
if
the Components increase above their 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
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 the Portfolio and the securities underlying 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 Portfolio
and the constituents of the Components and not rely on our views with respect
to
future movements in these industries and constituents. You should make such
investigation as you deem appropriate as to the merits of an investment linked
to the Portfolio.
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
on
the constituents of 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.
Tax
Consequences.
For
U.S.
federal income tax purposes, we intend to treat the Notes as contingent payment
debt instruments. As a result, U.S. Holders will be required to include OID
in
income during their ownership of the Notes even though no cash payments will
be
made with respect to the Notes until maturity. The amount of OID includible
in
each year is based on the “comparable yield.” In addition, we have computed a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). Additionally, U.S. Holders will
generally be required to recognize ordinary income on the gain, if any, realized
on a sale, upon maturity, or other disposition of the Notes. You should review
the discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing supplement.
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the level of the Portfolio will fluctuate in accordance with changes in
the
financial condition of the constituents comprising the Components, the level
of
the constituents comprising the Components generally and other factors. The
financial condition of the constituents underlying the Components may become
impaired or the general condition of the global equity market may deteriorate,
either of which may cause a decrease in the level of the Portfolio and thus
in
the value of the Notes. Common stocks are susceptible to general equity market
fluctuations and to volatile increases and decreases in value, as market
confidence in and perceptions regarding the constituents comprising the
Components change. Investor perceptions regarding the constituents 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 level of the Portfolio
is
expected to fluctuate until the Maturity Date.
The
historical performance of the Components is not an indication of the future
performance of the Components.
The
historical performance of the Components that 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 constituents comprising the
Components will determine the level of the Portfolio, it is impossible to
predict whether the level of the Portfolio will fall or rise. Trading prices
of
the constituents comprising the Components will be influenced by the complex,
unpredictable, and interrelated economic, financial, regulatory, geographic,
judicial, political and other factors that can affect the capital markets
generally and the equity and commodity trading markets on which the constituents
are traded, in particular, and by various circumstances that can influence
the
levels of the constituents in a specific market segment or the value of a
particular constituent.
The
constituents 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
constituents 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 constituents 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 constituents underlying
certain of the Components trade and New York City (where the Notes may trade),
there may be discrepancies between the levels of the Components and the trading
prices of the Notes. In addition, there may be periods when the international
capital and commodities 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
Securities and Exchange Commission (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.
Your
return may be affected by factors affecting international commodity markets.
The
constituents underlying the DJAIG are subject to the risks of any investment
in
an index of commodities, including the risk that the general level of
commodities prices may decline.
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The
commodities futures markets are subject to temporary distortions,
extreme
price variations or other disruptions due to conditions of illiquidity
in
the markets, the participation of speculators, government regulation
and
intervention.
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Prices
of commodities and commodity futures contracts may be adversely affected
by the promulgation of new laws or regulations or by the reinterpretation
of existing laws or regulations (including, without limitation, those
relating to taxes and duties on commodities or commodity components)
by
one or more governments, governmental agencies or instrumentalities,
courts or other official bodies. Any such event could adversely affect
the
level of the DJAIG and, correspondingly, could adversely affect the
value
of the Notes.
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Commodities
prices are subject to volatile price movements over short periods
of time
and are affected by numerous factors, including, among other things,
the
structure of and confidence in the global monetary system, expectations
of
the future rate of inflation, the relative strength of the U.S. dollar,
interest rates and borrowing and lending rates relating to such commodity,
global and regional economic, global industrial demand, financial,
political, regulatory, judicial and other events, war (or the cessation
thereof), development of substitute products, terrorism, weather,
supply,
price levels, global energy levels, production levels and production
costs, delivery costs. Such political, economic and other developments
that affect the DJAIG may also affect the value of the
Notes.
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The
level of the DJAIG can fluctuate significantly due to supply and
demand
disruptions in major producing or consuming regions. In particular,
recent
growth in industrial production and gross domestic product has made
China
an oversized user of commodities. Political, economic and other
developments that affect China will affect the value of the DJAIG
and,
thus, the value of the Notes. Because the commodities underlying
the DJAIG
are produced in a limited number of countries and are controlled
by a
small number of producers, political, economic and supply related
events
in such countries could have a disproportionate impact on the levels
of
the DJAIG.
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The
positive performance of a Component on an Observation Date may be offset by
the
negative performance of that same Component on the other Observation Date.
The
Component Performance of each Component is based on the arithmetic average
of
the Observation Levels for that Component on two Observation Dates. Even if
a
Component exhibits a positive performance on one Observation Date, the negative
performance of that Component the other Observation Date may offset the positive
performance of that Component, or cause the Component Performance of that
Component to be negative, and therefore adversely affect the Portfolio Return.
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
option 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 Observation Levels of the Components
are greater than or equal to their Initial Component 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 levels of the Components are less than, equal to or not
sufficiently above their Initial Component Levels. If you sell the Notes prior
to maturity, you may receive less, and possibly significantly less, than your
initial investment in the Notes. The following paragraphs describe the manner
in
which we expect the trading value of the Notes will be affected in the event
of
a change in a specific factor, assuming all other conditions remain
constant.
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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 Return 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.
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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.
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Correlation
among the level of the Components.
Correlation is the extent to which the levels of the Components 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.
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Interest
rates.
We expect that the trading value of the Notes will be affected by
changes
in U.S. interest rates. In general, if U.S.
interest
rates increase, the value of 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 levels or prices, as applicable, of the
Components, which may affect the value of the Notes. Rising interest
rates
may lower the levels or prices, as applicable, of the Components
and,
thus, the value of the Notes.
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Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A1 by
Moody’s
Investor Service, Inc. and A+ by Standard & Poor’s Rating Services, as
well as our financial condition or results of operations may significantly
affect the trading value of the Notes. However, because the return
on the
Notes is dependent upon factors in addition to our ability to pay
our
obligations under the Notes, such as the levels or prices, as applicable,
of the Components, an improvement in our credit ratings, financial
condition or results of operations is not expected to have a positive
effect on the trading value of the
Notes.
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Time
remaining to maturity. As
the time remaining to maturity of the Notes decreases, the “time premium”
associated with the Notes will decrease. A “time premium” results from
expectations concerning the 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.
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Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks underlying certain of 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 is expected to increase the value of the
Notes.
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Volatility
of currency exchange rates.
The exchange rates between the U.S. dollar and the foreign currencies
in
which the constituents 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
constituents 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 constituents underlying certain of
the
Components are denominated changes, the trading value of the Notes
may be
adversely affected.
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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 constituents 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.
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Events
involving the companies issuing the securities comprising
certain
of
the Components.
General economic conditions and earnings results of the companies
whose
securities comprise certain of 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 certain
of 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 certain of 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.
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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. Fifth Third 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.
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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 Fifth Third
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
Fifth Third as a result of dealer discounts, mark-ups or other transaction
costs.
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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 any
certain Index or Underlying Index. Neither you nor any other holder or owner
of
the Notes will have any voting rights, any right to receive dividends or other
distributions or any other rights with respect to the underlying stocks. The
Cash Settlement Value, if any, will be paid in cash, and you will have no right
to receive delivery of any stocks underlying any certain Index or Underlying
Index.
Reported
levels or prices, as applicable, of the Components may be based on non-current
information.
If
trading is interrupted in the constituents 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
closing levels or prices, as applicable, of the Components 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,
a
commodity index and index funds 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 and commodity 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 constituents 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
Components may not move in tandem; and gains in one Component may be offset
by
declines in another Component.
Movements
in the price or level of the Components comprising the Portfolio may not move
in
tandem with each other. At a time when the price or level of one or more of
the
Components increases, the price or level of one or more of the other Components
may decline. Therefore, increases in the price or level of one or more of the
Components comprising the Portfolio may be moderated, or wholly offset, by
lesser increases or declines in the price or level of one or more of the other
Components comprising the Portfolio.
The
Components comprising the Portfolio are weighted differently; therefore the
positive performance of a less heavily weighted Component may be offset by
the
negative performance of a more heavily weighted Component.
The
Portfolio Return is an amount determined by the Calculation Agent and equal
to
the sum of the Component Performance for each Component multiplied by its
respective Weighting in the Portfolio. Because the Components are weighted
differently in the Portfolio, the positive performance of a less heavily
weighted Component may be moderated, or wholly offset, by the negative
performance of a more heavily weighted Component in the Portfolio.
Adjustments
to the Indices could adversely affect the value of the
Notes.
The
policies of an Index Sponsor concerning additions, deletions and substitutions
of the securities underlying the applicable Index and the manner in which that
Index Sponsor takes account of certain changes affecting those underlying
securities may affect the level of the Index and thus the Portfolio. You should
realize that changes in the companies included in an Index may affect the Index,
as a newly-added company or commodity, as applicable, may perform significantly
better or worse than the company or companies it replaces. The Index Sponsor
also may discontinue or suspend calculation or dissemination of that Index
or
materially alter the methodology by which it calculates that Index. Any such
actions could affect the 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. Because Bear Stearns is our
affiliate, conflicts of interest may arise in connection with Bear Stearns
performing its role as Calculation Agent. Our affiliates, including Bear
Stearns, may, at various times, engage in transactions involving the
constituents underlying the Portfolio for their proprietary accounts, and for
other accounts under their management. These transactions may influence the
value of such constituents, and therefore the level or prices, as applicable,
of
the Components. Bear Stearns International Limited (“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 the levels or prices, as applicable, of the
Components will affect the trading value of the Notes and the amount you will
receive at maturity.
Each
Index Sponsor is responsible for calculating and maintaining its respective
Index. The policies of an Index Sponsor concerning the calculation of an Index
will affect the level of the Index and, therefore, the trading value of the
Notes and the Cash Settlement Value.
If
an
Index Sponsor discontinues or suspends calculation or publication of an Index,
it may become difficult to determine the trading value of the Notes or the
Cash
Settlement Value. If an Index Sponsor discontinues or suspends calculation
of an
Index at any time prior to the Maturity Date and a Successor Index (as defined
below) 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 or commodities, as applicable, and a computation
methodology that the Calculation Agent determines will as closely as reasonably
possible replicate the Index. In addition, if the method of calculating an
Index
(or a Successor Index) is changed in a material respect, or if an Index (or
a
Successor Index) is in any other way modified so that such Index (or Successor
Index) does not, in the opinion of the Calculation Agent, fairly represent
the
level of the Index (or Successor Index) had such changes or modifications not
been made, the Calculation Agent will make such calculations and adjustments
as
may be necessary to arrive at a level of an index comparable to the Index (or
Successor Index) as if such changes or modifications had not been made. In
each
such event, the Calculation Agent’s determination of the value of the Notes will
affect the amount you may receive at maturity. See “Description of the Notes”
and “Description of the Portfolio.”
If
a
Merger Event, Tender Offer, Nationalization, Delisting, Insolvency, or Potential
Adjustment Event (each as defined below in Description of the Notes -
Antidilution Adjustments with respect to the Index Funds) with respect to an
Index Fund occurs, it may become difficult to determine the trading value of
the
Notes or the Cash Settlement Value. If one of those corporate events occur
with
respect to an Index Fund, the Calculation Agent will determine whether such
corporate event will have a material effect on that Index Fund or the Notes,
or
in the case of a Potential Adjustment Event, whether that Potential Adjustment
Event has a diluting or concentrative effect on the theoretical value of one
share of that Index Fund. To the extent the Calculation Agent makes such a
determination, the Calculation Agent will make the adjustments and computations
described below in Description of the Notes - Antidilution Adjustments. The
Calculation Agent will make such adjustments and computations to the relevant
Initial Component Level, the relevant Observation Level, the Cash Settlement
Value or any other variable for the event. See “Description of the Notes -
Antidilution Adjustments with respect to the Index Funds.” In each such event,
the Calculation Agent’s determination of the value of the Notes will affect the
amount you may receive at maturity. See “Description of the Notes” and
“Description of the Portfolio.”
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 Index Sponsor or either Index
Fund Issuer and are not responsible for any Index Sponsor or either Index Fund
Issuer’s public disclosure of information.
We
and
our affiliates are not affiliated in any way with any Index Sponsor or either
Index Fund Issuer (except for the licensing arrangements discussed in the
section “Description of the Portfolio”) and have no ability to control or
predict any Index Sponsor or either Index Fund Issuer’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, the Index Sponsors, or the Index Fund Issuers
contained in this pricing supplement. You, as an investor in the Notes, should
make your own investigation into the Components, the Index Sponsors and the
Index Fund Issuers. The Index Sponsors and the Index Fund Issuers 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
constituents underlying the Components, the Observation 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 interests in the constituents
underlying the Components or derivative instruments the value of which depend,
directly or indirectly upon, those constituents 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 constituents or the Observation 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 Fifth
Third 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 Fifth Third 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 levels or prices,
as applicable, of the Components and the Observation 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 constituents that
underlie the Components, or derivative or synthetic instruments related to
those
constituents 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 constituents 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 or prices, as applicable, of the
Components, we cannot assure you that these activities will not affect such
levels or prices, as applicable, 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 Portfolio, the Indices or Index Funds included
in the Portfolio or the constituents underlying the Components in the Portfolio.
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
constituents underlying 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, a Component of the Portfolio or the
constituents underlying the Components included in the Portfolio. 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 underlying certain of the Components in the
Portfolio, 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 Final Observation Date, a Market
Disruption Event has occurred or is continuing, the determination of the Cash
Settlement Value by the Calculation Agent and the date which you will receive
that Cash Settlement Value 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.
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
structurally subordinated to the claims of creditors of our subsidiaries.
The
aggregate principal amount of the Notes will be [l].
The
Notes are expected to mature on August [l],
2012
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.
Future
Issuances
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuances will increase the aggregate principal amount of the outstanding Notes
of this series, plus the aggregate principal amount of any Notes bearing the
same CUSIP number that are issued pursuant to any 13-day option we grant to
Fifth Third. The prices of any additional offerings will be determined at the
time of pricing of each offering, which will be a function of the prevailing
market conditions and the levels or prices, as applicable, of the Components
at
the time of the relevant sale.
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
Your
investment is principal protected only if you hold the Notes until maturity.
On
the Maturity Date, you will receive the Cash Settlement Value, an amount in
cash
that depends on upon the performance of the Portfolio Return.
If,
at
maturity, the Portfolio Return is greater than zero, then the Cash Settlement
Value will be equal to the sum of (A) the principal amount of the Notes plus
(B)
the product of (i) $1,000 multiplied by (ii) the Portfolio Return multiplied
by
(iii) the Participation Rate.
If,
at
maturity, the Portfolio Return is equal to or less than zero, then the Cash
Settlement Value for each Note will be $1,000. Because the Notes are principal
protected if held to maturity, in no event will the Cash Settlement Value for
each Note held to maturity be less than $1,000.
The
Notes
are linked to the potential positive performance of a portfolio comprised of
six
indices and two index funds. The following are the six Indices and their
respective Weightings in the portfolio: (1) 45% the SPX; (2) 15% the MID; (3)
9%
the SX5P; (4) 8% the SML; (5) 6% the NKY; and (6) 6% the DJAIG. The following
are the two Index Funds and their respective Weightings in the portfolio: (1)
6%
the IYR and (2) 5% the EEM. Each such Index or Index Fund will be a “Component”
and the eight Components together will constitute the “Portfolio”. The Weighting
of each Component is fixed at the respective Weighting mentioned above and
will
not change during the term of the Notes unless one or more Components are
modified during the term of the Notes.
Portfolio
Return:
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An
amount determined by the Calculation Agent and equal to the sum
of the
Component Performance for each Component multiplied by its respective
Weighting in the Portfolio.
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For
purposes of determining the Portfolio Return:
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“Component
Performance” means, as of the Final Observation Date and with respect
to a Component, the quotient, expressed as a percentage, of (i)
the
arithmetic average of the Observation Levels for that Component
as of each
Observation Date minus the Initial Component Level of that Component
divided by (ii) the Initial Component Level of that Component.
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“Final
Observation Date” means August [l],
2012.
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“Observation
Level” means, as of any Observation Date and with respect to each
Index, the closing index level as reported by the relevant Index
Sponsor
and displayed on Bloomberg Page SPX <Index> <Go> with respect
to the SPX; Bloomberg Page MID <Index> <Go> with respect to
the MID; Bloomberg Page SX5P <Index> <Go> with respect to the
SX5P; Bloomberg Page SML <Index> <Go> with respect to the SML;
Bloomberg Page NKY <Index> <Go> with respect to the NKY; and
Bloomberg Page DJAIG <Index> <Go> with respect to the DJAIG;
and with respect to each Index Fund, as of any Observation Date,
the
closing price as reported by the Relevant Exchange and as displayed
on
Bloomberg Page IYR US <Equity> <Go> with respect to the IYR;
and Bloomberg Page EEM US <Equity> <Go> with respect to the
EEM.
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“Observation
Date” means February [l],
2010 and August
[l],
2012;
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
Observation 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
Observation Date, the Observation 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 Observation 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 Observation
Date for
that Component. If no Market Disruption Event exists with respect
to a
Component on the Observation Date, the determination of that Component’s
Observation Level will be made on the Observation Date, irrespective
of
the existence of a Market Disruption Event with respect to one
or more of
the other Components.
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“Initial
Component Level” means:
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·
[l]
with respect to
the SPX;
|
|
·
[l]
with respect to
the MID;
|
|
·
[l]
with respect to
the SX5P;
|
|
·
[l]
with respect to
the SML;
|
|
·
[l]
with respect to
the NKY;
|
|
·
[l]
with respect to
the DJAIG;
|
|
·
[l]
with respect to
the IYR; and
|
|
·
[l]
with respect to
the EEM.
|
|
“Weighting”
means:
|
|
|
|
·
45%
with respect to the
SPX;
|
|
·
15%
with respect to the
MID;
|
|
·
9%
with respect to the
SX5P;
|
|
·
8%
with respect to the
SML;
|
|
·
6%
with respect to the
NKY;
|
|
·
6%
with respect to the
DJAIG;
|
|
·
6%
with respect to the
IYR; and
|
|
·
5%
with respect to the
EEM.
|
The
“Participation Rate” is [115.00-120.00]%.
The
“Pricing Date” is August [l],
2007.
The
“Issue Date” is August [l],
2007.
A
“Component Business Day” means with respect to a Component any day on which each
Relevant Exchange and each Related Exchange for such Component are scheduled
to
be open for trading.
A
“Business Day” is 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
“Maturity Date” is August [l],
2012.
The Notes are expected to mature on August [l],
2012
unless such date is not a Business Day, in which case the Maturity Date shall
be
the next Business Day. If the Final Observation Date is postponed, the Maturity
Date will be three Business Days following the Final Observation Date, as
postponed for the last Component for which a Observation Level is
determined.
The
“Calculation Agent” is Bear,
Stearns & Co. Inc.
An
“Underlying Index” means with respect to the IYR, the Dow Jones U.S. Real Estate
Index or any successors thereto and with respect to the EEM, the MSCI Emerging
Markets Index or any successors thereto.
The
“Relevant Exchanges” means (i) with respect to an Index, the primary exchanges
or markets of trading for any constituent then included in such Index; and
(ii)
with respect to an Index Fund, the primary exchanges or markets of trading
for
such Index Fund and the primary exchanges or markets of trading of any
constituent then included in the Underlying Index for such Index Fund. The
“Summary of the Components” below details the Relevant Exchanges for each
Component.
The
“Related Exchange” means, with respect to a Component, 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, or the Underlying Index, if any.
Summary
of the Components
Component
|
Relevant
Exchanges
|
SPX
|
New
York Stock Exchange, NASDAQ and their successors
|
MID
|
New
York Stock Exchange, NASDAQ, American Stock Exchange LLC and their
successors
|
SX5P
|
Major
stock exchanges, respectively located in one of 18 European countries,
including London Stock Exchange, Frankfurt Stock Exchange and others
and
their successors
|
SML
|
New
York Stock Exchange, NASDAQ, American Stock Exchange LLC and their
successors
|
NKY
|
The
Tokyo Stock Exchange (the “TSE”) and its
successors
|
DJAIG
|
New
York Mercantile Exchange, COMEX division of the New York Mercantile
Exchange, London Metal Exchange, New York Board of Trade, Chicago
Board of
Trade, Chicago Mercantile Exchange and their successors
|
IYR
|
The
New York Stock Exchange, American Stock Exchange LLC and their
successors
|
EEM
|
The
New York Stock Exchange and major stock exchanges, respectively located
in
one of 22 countries and their
successors
|
Illustrative
Examples
The
following tables are for illustrative purposes and are not indicative of the
future performance of the Components or the future value of the
Notes.
The
following examples demonstrate how the hypothetical Cash Settlement Value of
a
Note is calculated based on the assumptions outlined below. The examples do
not
purport to be representative of every possible scenario concerning increases
or
decreases in the Portfolio or the Components underlying the Portfolio. You
should not construe the examples as an indication or assurance of the expected
performance of the Notes. Actual returns may be different. 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
Participation Rate is 116.00%.
|
|
·
|
The
Initial Component Level for the SPX is equal to 1,450.00.
|
|
·
|
The
Initial Component Level for the MID is equal to
850.00.
|
|
·
|
The
Initial Component Level for the SX5P is equal to
3,750.00.
|
|
·
|
The
Initial Component Level for the SML is equal to
410.00.
|
|
·
|
The
Initial Component Level for the NKY is equal to
16,900.00.
|
|
·
|
The
Initial Component Level for the DJAIG is equal to
170.00.
|
|
·
|
The
Initial Component Level for the IYR is equal to
70.00.
|
|
·
|
The
Initial Component Level for the EEM is equal to
130.00.
|
|
·
|
All
returns are based on a 60-month 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 levels of seven Components increase relative to their Initial
Component Levels as of the first Observation Date and the level of one Component
decreases relative to its Initial Component Level as of the first Observation
Date. The levels of each Component increase relative to their Initial Component
Levels as of the second Observation Date. This example illustrates how holders
of the Notes may benefit from the increase in the Observation Level of the
Components relative to their respective Initial Component Levels on each related
Observation Date.
Index
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,450.00
|
2,953.00
|
2,847.00
|
100.00%
|
45%
|
MID
|
850.00
|
1,055.00
|
1,200.00
|
32.65%
|
15%
|
SX5P
|
3,750.00
|
4,142.00
|
4,427.00
|
14.25%
|
9%
|
SML
|
410.00
|
569.00
|
495.00
|
29.76%
|
8%
|
NKY
|
16,900.00
|
27,444.00
|
30,420.00
|
71.20%
|
6%
|
DJAIG
|
170.00
|
212.00
|
218.00
|
26.47%
|
6%
|
IYR
|
70.00
|
48.00
|
119.00
|
19.29%
|
6%
|
EEM
|
130.00
|
233.00
|
208.00
|
69.62%
|
5%
|
On
the
Final Observation Date, the Component Performance for SPX would be 100.00%,
the
Component Performance for MID would be 32.65%, the Component Performance for
SX5P would be 14.25%, the Component Performance for SML would be 29.76%, the
Component Performance for NKY would be 71.20%, the Component Performance for
DJAIG would be 26.47%, the Component Performance for IYR would be 19.29% and
the
Component Performance for EEM would be 69.62%, 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 Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (100.00% x 45%) + (32.65% x 15%) + (14.25% x 9%) + (29.76% x 8%) +
(71.20% x 6%) + (26.47% x 6%) + (19.29% x 6%) + (69.62% x 5%)
Portfolio
Return = 64.06%
The
Cash
Settlement Value, using the formula below, would equal $1,743.10.
Cash
Settlement Value
Example
2: The Portfolio Return might be less than zero.
In
this
example, the
Observation Levels of six Components decrease relative to their Initial
Component Levels as of the first Observation Date and the Observation Levels
of
two Components increase relative to their Initial Component Levels as of the
first Observation Date.
The
Observation Levels of seven Components decrease relative to their Initial
Component Levels as of the second Observation Date and the Observation Level
of
one Component increases relative to its Initial Component Level as of the second
Observation Date. As a result, the Portfolio Return would be less than zero,
and
holders of the Notes would therefore have received only the principal amount
of
each Note at maturity.
Index
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,450.00
|
1,281.00
|
1,229.00
|
-13.45%
|
45%
|
MID
|
850.00
|
449.00
|
442.00
|
-47.59%
|
15%
|
SX5P
|
3,750.00
|
2,927.00
|
3,178.00
|
-18.60%
|
9%
|
SML
|
410.00
|
329.00
|
334.00
|
-19.15%
|
8%
|
NKY
|
16,900.00
|
18,915.00
|
18,501.00
|
10.70%
|
6%
|
DJAIG
|
170.00
|
122.00
|
123.00
|
-27.94%
|
6%
|
IYR
|
70.00
|
72.00
|
65.00
|
-2.14%
|
6%
|
EEM
|
130.00
|
105.00
|
102.00
|
-20.38%
|
5%
|
On
the
Final Observation Date, the Component Performance for SPX would be -13.45%,
the
Component Performance for MID would be -47.59%, the Component Performance for
SX5P would be -18.60%, the Component Performance for SML would be -19.15%,
the
Component Performance for NKY would be 10.70%, the Component Performance for
DJAIG would be -27.94%, the Component Performance for IYR would be -2.14% and
the Component Performance for EEM would be -20.38%, each as calculated pursuant
to the below formula:
In
this
example, using the formula below, the Portfolio Return would not be greater
than
zero.
The
Portfolio Return is an amount equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (-13.45% x 45%) + (-47.59% x 15%) + (-18.60% x 9%) + (-19.15% x 8%)
+
(10.70% x 6%) + (-27.94% x 6%) + (-2.14% x 6%) + (-20.38% x 5%)
Portfolio
Return = -18.58%
Since
the
Portfolio Return would be less than zero, the Cash Settlement Value for each
Note would be the principal amount of $1,000.
Example
3: Some Components move higher while others move lower.
In
this
example, the Observation Levels of four Components decrease relative to their
Initial Component Levels as of the first Observation Date and the Observation
Levels of four Components increase relative to their Initial Component Levels
as
of the first Observation Date. The Observation Levels of five Components
decrease relative to their Initial Component Levels as of the second Observation
Date and the Observation Levels of three Components increase relative to their
Initial Component Levels as of the second Observation Date. This example
illustrates how holders of the Notes may benefit from the increase in the
Observation Level of some of the Components relative to their respective Initial
Component Levels on each related Observation Date.
Index
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,450.00
|
1,258.00
|
1,322.00
|
-11.03%
|
45%
|
MID
|
850.00
|
1,282.00
|
1,304.00
|
52.12%
|
15%
|
SX5P
|
3,750.00
|
3,929.00
|
3,685.00
|
1.52%
|
9%
|
SML
|
410.00
|
507.00
|
514.00
|
24.51%
|
8%
|
NKY
|
16,900.00
|
23,110.00
|
22,727.00
|
35.61%
|
6%
|
DJAIG
|
170.00
|
114.00
|
126.00
|
-29.41%
|
6%
|
IYR
|
70.00
|
53.00
|
54.00
|
-23.57%
|
6%
|
EEM
|
130.00
|
107.00
|
102.00
|
-19.62%
|
5%
|
On
the
Final Observation Date, the Component Performance for SPX would be -11.03%,
the
Component Performance for MID would be 52.12%, the Component Performance for
SX5P would be 1.52%, the Component Performance for SML would be 24.51%, the
Component Performance for NKY would be 35.61%, the Component Performance for
DJAIG would be -29.41%, the Component Performance for IYR would be -23.57%
and
the Component Performance for EEM would be -19.62%, 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 Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (-11.03% x 45%) + (52.12% x 15%) + (1.52% x 9%) + (24.51% x 8%) +
(35.61% x 6%) + (-29.41% x 6%) + (-23.57% x 6%) + (-19.62% x 5%)
Portfolio
Return = 2.93%
The
Cash
Settlement Value, using the formula below, would equal $1,033.99.
Cash
Settlement Value
Discontinuance
of one or more Indices
If
an
Index Sponsor discontinues publication of or otherwise fails to publish any
Index and such Index Sponsor or another entity publishes a successor or
substitute index that the Calculation Agent determines to be comparable to
the
discontinued Index (the new index being referred to as a “Successor Index”),
then the Observation Levels for that Index will be determined by reference
to
the level of the Successor Index at the close of trading on the Relevant
Exchanges or markets for the Successor Index all on future Observation
Dates.
For
the
avoidance of doubt, only Observation Levels for that Index determined on or
after the discontinuance for such Index will be determined by reference to
the
level of the Successor Index, any Observation Levels for that Index determined
prior to the discontinuance will remain the same.
Upon
any
selection by the Calculation Agent of a Successor Index, the Calculation Agent
will cause notice thereof to be furnished to us and the Trustee. If a Successor
Index is selected by the Calculation Agent, the Successor Index will be used
as
a substitute for the original Index for all purposes, including for purposes
of
determining whether a Market Disruption Event exists with respect to the
Index.
If
an
Index is discontinued or if an Index Sponsor fails to publish an Index prior
to,
and such discontinuance is continuing on, any Observation Date and the
Calculation Agent determines that no Successor Index is available at such time,
then the Calculation Agent will determine the level to be used for the
Observation Level for that Observation Date with respect to such Index. The
Observation Level to be used for that Observation Date will be computed by
the
Calculation Agent in accordance with the formula for and method of calculating
that Index last in effect prior to the relevant discontinuance or failure but
using only those constituents that comprised that Index immediately prior to
such discontinuance or failure. In such an event, the Calculation Agent will
give notice to the Trustee, stating the determinations made.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the Index
may adversely affect the value of, and trading in, the Notes.
Adjustments
to the Indices
If
at any
time the method of calculating an Index or a Successor Index is changed in
a
material respect, or if an Index or a Successor Index is in any other way
modified so that such Index or Successor Index does not, in the opinion of
the
Calculation Agent, fairly represent the level of the Index or Successor Index
had such changes or modifications not been made, then, for purposes of
calculating the Observation Levels with respect to such Index or Successor
Index
or the Cash Settlement Value with respect to the Notes or making any other
determinations as of or after such time, the Calculation Agent will make such
calculations and adjustments the Calculation Agent determines may be necessary
in order to arrive at a level of an index comparable to the Index or Successor
Index, as the case may be, as if such changes or modifications had not been
made, and calculate the Cash Settlement Value (including the components thereof)
with reference to the Index or the Successor Index, as adjusted. Accordingly,
if
the method of calculating an Index or Successor Index is modified so that the
level of that Index is a fraction of what it would have been if it had not
been
modified (e.g., due to a split in the Index), then the Calculation Agent will
adjust that Index in order to arrive at a level of the Index or the Successor
Index as if it had not been modified (e.g., as if such split had not occurred).
In such event, the Calculation Agent will give notice to the Trustee, stating
the calculations and adjustments made.
Antidilution
Adjustments with respect to the Index Funds
If
one of
the corporate events described below occurs with respect to an Index Fund,
the
Calculation Agent will determine whether such corporate event will have a
material effect on such Index Fund or the Notes, or in the case of a Potential
Adjustment Event, whether such Potential Adjustment Event has a diluting or
concentrative effect on the theoretical value of one share of such Index Fund.
To the extent the Calculation Agent makes such a determination, the Calculation
Agent will make the adjustments and computations described below. The
Calculation Agent will also determine the effective date of that adjustment,
and
the replacement of the relevant Index Fund, if applicable. Upon making any
such
adjustment, the Calculation Agent will give notice as soon as practicable to
the
Trustee, stating the adjustment made. The Calculation Agent will provide
information about the adjustments it makes upon your written
request.
If
more
than one corporate event requiring adjustment occurs, the Calculation Agent
will
make such an adjustment for each event in the order in which the events occur,
and on a cumulative basis. Thus, having adjusted the relevant Initial Component
Level, the relevant Observation Level, the Cash Settlement Value or any other
variable for the first corporate event, the Calculation Agent will adjust the
appropriate variables for the second event, applying the required adjustment
cumulatively.
To
the
extent the Calculation Agent makes an adjustment, it will make the adjustment
with a view to offsetting, to the extent practical, any change in your economic
position relative to the Notes that results solely from that corporate event.
The Calculation Agent may modify the antidilution adjustments as necessary
to
ensure an equitable result.
The
following corporate events are those that may require an
adjustment:
Merger
Events and Tender Offers
Merger
Events.
A
“Merger Event” shall mean, in respect of an Index Fund, any (i) reclassification
or change of such Index Fund that results in a transfer of or an irrevocable
commitment to transfer all of the outstanding shares of such Index Fund to
another person or entity, (ii) consolidation, amalgamation, merger or binding
share exchange of an Index Fund Issuer with or into another entity or person
(other than a consolidation, amalgamation, merger or binding share exchange
in
which such Index Fund Issuer is the continuing entity and which does not result
in a reclassification or change of all of the shares of such Index Fund
outstanding), (iii) takeover offer, tender offer, exchange offer, solicitation,
proposal or other event by any entity or person to purchase or otherwise obtain
100% of the outstanding shares of such Index Fund (other than shares of such
Index Fund owned or controlled by such other entity or person), or (iv)
consolidation, amalgamation, merger or binding share exchange of an Index Fund
Issuer or its subsidiaries with or into another entity in which such Index
Fund
Issuer is the continuing entity and which does not result in a reclassification
or change of the all of the shares of such Index Fund outstanding but results
in
the outstanding shares of such Index Fund (other than shares of such Index
Fund
owned or controlled by such other entity) immediately following such event
collectively representing less than 50% of the outstanding shares of such Index
Fund immediately prior to such event, in each case if the Approval Date of
the
Merger Event is on or before the Final Observation Date.
Tender
Offers.
A
“Tender Offer” shall mean, in respect of the voting shares of an Index Fund
Issuer, any takeover offer, tender offer, exchange offer, solicitation, proposal
or other event by any entity or person that results in such entity or person
purchasing, or otherwise obtaining or having the right to obtain, by conversion
or other means, not less than 10% of the outstanding voting shares of such
Index
Fund Issuer as determined by the Calculation Agent, based upon the making of
filings with governmental or self-regulatory agencies or such other information
as the Calculation Agent deems relevant, in each case if the Approval Date
of
the Tender Offer is on or before the Final Observation Date.
If
a
Merger Event or a Tender Offer occurs and the consideration for the relevant
Index Fund consists solely of new shares that are publicly quoted, traded or
listed on the New York Stock Exchange, American Stock Exchange, or NASDAQ (the
“New Index Fund”), then such Index Fund will be adjusted to comprise the number
of shares of the New Index Fund to which a holder of one share of such Index
Fund immediately prior to the occurrence of the Merger Event or Tender Offer,
as
the case may be, would be entitled upon consummation of such Merger Event or
Tender Offer, and the Calculation Agent shall adjust any or all of the Initial
Component Level for such Index Fund, the Observation Levels for such Index
Fund,
the Cash Settlement Value or any other variable relevant to the terms of the
Notes to account for the economic effect of such Merger Event or Tender Offer.
The Calculation Agent will determine the effective date of any such adjustment
(as described in this paragraph), and the replacement of such Index Fund, if
applicable.
If
a
Merger Event or a Tender Offer occurs and the consideration for the relevant
Index Fund includes property other than shares of the New Index Fund (other
than
cash paid in lieu of fractional shares), in whole or in part, then the
Observation Levels for the relevant Index Fund following the Approval Date
shall
be equal to the Consideration Value (as defined herein).
“Consideration
Value” per share of an Index Fund means, with respect to an event (other than
one in which consideration consists solely of shares of the New Index Fund),
the
sum of (i) in the case of cash received in such an event, the amount of such
cash so received, and (ii) for any property other than cash received in such
an
event, the market value of such property so received as of the Final Observation
Date. Any market value determined pursuant to (ii) above shall be determined
on
the basis of market quotations from four leading dealers in the relevant market.
If that property cannot be determined on the basis of market quotations by
four
leading dealers in the relevant market, then the Calculation Agent will
determine the market value of such property.
The
“Approval Date” is the closing date of a Merger Event, or, in the case of a
Tender Offer, the date on which the person or entity making the Tender Offer
acquires or otherwise obtains the relevant percentage of the voting shares
of
the Index Fund Issuer.
In
the
event of a Merger Event or Tender Offer in which a holder of shares of the
relevant Index Fund may elect the form of consideration it receives in respect
of such Merger Event or Tender Offer, the consideration shall be deemed to
consist of the types and amounts of each type of consideration distributed
to a
holder that makes no such election, as determined by the Calculation Agent.
Nationalization,
Delisting and Insolvency
Nationalization.
“Nationalization” shall mean with respect to an Index Fund, all the assets or
substantially all the assets of an Index Fund Issuer are nationalized,
expropriated or are otherwise required to be transferred to any governmental
agency, authority or entity.
Insolvency.
“Insolvency” shall mean with respect to an Index Fund, that, by reason of the
voluntary or involuntary liquidation, bankruptcy or insolvency of, or any
analogous proceeding involving, an Index Fund Issuer, (i) all of the shares
of
such Index Fund are required to be transferred to a trustee, liquidator or
other
similar official or (ii) holders of the shares of such Index Fund become legally
prohibited from transferring them.
If
the
Announcement Date (as defined herein) for a Nationalization or Insolvency
occurs, on or prior to the Final Observation Date, then the Observation Levels
for the relevant Index Fund following the Announcement Date shall be equal
to
the Consideration Value (as defined above), which may be zero.
The
“Announcement Date” means (i) in the case of a Nationalization, the day of the
first public announcement by the relevant government authority that all or
substantially all of the assets of the Index Fund Issuer are to be nationalized,
expropriated or otherwise transferred to any governmental agency, authority
or
entity, (ii) in the case of a Delisting Event, the day of the first public
announcement by the Primary Exchange that the relevant Index Fund will cease
to
trade or be publicly quoted on such exchange, or (iii) in the case of an
Insolvency, the day of the first public announcement of the institution of
a
proceeding or presentation of a petition or passing of a resolution (or other
analogous procedure in any jurisdiction) that leads to an Insolvency with
respect to the Index Fund Issuer. In the case of an acceleration of the maturity
of the Notes, interest will be paid on the Notes through and excluding the
related date of accelerated payment.
Delisting
Event.
A
“Delisting Event” shall occur, with respect to an Index Fund, if the Relevant
Exchange for the Index Fund announces that pursuant to the rules of such
Relevant Exchange, the Index Fund ceases (or will cease) to be listed, traded
or
publicly quoted on such Relevant Exchange for any reason (other than a Merger
Event or Tender Offer) and is not immediately re-listed, re-traded or re-quoted
on an exchange or quotation system located in the same country as such Relevant
Exchange.
If
a
Delisting Event for an Index Fund occurs, then each of the Observation Levels
from, and including, the Announcement Date to, and including, the Final
Observation Date will be determined as follows: (i) if the Index Fund is not
re-listed on any exchange or quotation system located in the same country as
the
Relevant Exchange for the Index Fund, the Observation Levels will be the fair
market value of the Index Fund as determined by the Calculation Agent on the
applicable Observation Date; and (ii) if the Index Fund is re-listed on any
exchange or quotation system located in the same country as the Relevant
Exchange for such Index Fund, the Observation Levels will be the closing price
of such Index Fund on such exchange or quotation system as determined by the
Calculation Agent on the applicable Observation Date.
Potential
Adjustment Events
Potential
Adjustment Events.
A
“Potential Adjustment Event” shall mean, with respect to an Index Fund, any of
the following (i) a subdivision, consolidation or reclassification of such
Index
Fund (other than a Merger Event or Tender Offer), or a free distribution or
distribution of shares of such Index Fund to existing holders by way of bonus,
capitalization or similar issue; (ii) a distribution to existing holders of
shares of such Index Fund of (A) such shares, (B) other capital or securities
granting the right to payment of distributions and/or proceeds of liquidation
of
an Index Fund Issuer equal, proportionate or senior to such payments to holders
of such Index Fund or (C) any other type of securities, rights or warrants
or
other assets, in any case for payments (cash or other) at less than the
prevailing market price, as determined by the Calculation Agent; (iii) an
extraordinary distribution paid by an Index Fund Issuer; (iv) a call by an
Index
Fund Issuer in respect of shares of such Index Fund that are not fully paid;
(v)
a repurchase of shares of such Index Fund or securities convertible into or
exchangeable for such shares, by an Index Fund Issuer whether out of profits
or
capital and whether the consideration for such repurchase is cash, securities
or
otherwise; or (vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of such Index Fund other than
Insolvency, Merger Event or Tender Offer, in each case if the Potential
Adjustment Event occurs before the Final Observation Date.
If
a
Potential Adjustment Event occurs, then the Calculation Agent will determine
whether such Potential Adjustment Event has a diluting or concentrative effect
on the theoretical value of one share of the relevant Index Fund and, if so,
will (i) make the corresponding adjustment(s), if any, to the Initial Component
Level for such Index Fund, the Observation Levels with respect to such Index
Fund, the Cash Settlement Value of the Notes and any other variable (or any
combination thereof) as the Calculation Agent determines appropriate to account
for that diluting or concentrative effect, and (ii) determine the effective
date(s) of any such adjustment(s).
Market
Disruption Events
If
there
is a Market Disruption Event on a Observation Date, the Observation 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
Observation 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 Observation Date. In that case, the third Component
Business Day will be deemed to be the Observation Date, notwithstanding the
Market Disruption Event, and the Calculation Agent will determine the level
of a
Component 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 constituent
of the Component as described above (or, if trading in any such constituent
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. If no Market Disruption
Event exists with respect to a Component, the Observation Level of that
Component shall be determined on the scheduled Observation Date. In the event
of
a Market Disruption Event on the Final Observation Date, the Maturity Date
will
be three Business Days following the Final Observation Date, as postponed for
the last Component for which an Observation Level is determined.
A
“Market
Disruption Event” means, with respect to an Index, 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 such Relevant Exchange or Related Exchange or
otherwise, (A) relating to the constituents that, in the aggregate, comprise
20%
or more of the level of the respective Index or (B) in futures or options
contracts relating to the respective Index on any Related Exchange for such
Index;
(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, the
constituents that, in the aggregate, comprise 20% or more of the level of that
Index on any Relevant Exchange(s) for the respective Index or (B) to effect
transactions in, or obtain market values for, futures or options contracts
relating to the respective Index on any Related Exchange for such
Index;
(c) the
closure on any Component Business Day of any Relevant Exchange with respect
to
that Index relating to the constituents that comprise, in the aggregate, 20%
or
more of the level of the Index or any Related Exchange for that Index 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 or Related 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.
A
“Market
Disruption Event” means, with respect to an Index Fund, 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 for such Index Fund, or otherwise and whether by reason of
movements in price exceeding limits permitted by such Relevant Exchange(s)
or
Related Exchange(s) or otherwise (A) relating to such Index Fund or any
constituents that in the aggregate comprise 20% or more of the level of the
related Underlying Index or (B) in futures or options contracts relating to
such
Index Fund or its respective Underlying Index on any Related Exchange for such
Index Fund;
(b) any
event
(other than in section (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 such Index Fund or, any
constituents that in the aggregate comprise 20% or more of the level of the
related Underlying Index on any Relevant Exchange(s) for such Index Fund or
(B)
to effect transactions in, or obtain market prices for, futures or options
contracts relating to such Index Fund or its respective Underlying Index on
any
Related Exchange for such Index Fund;
(c) the
closure on any Component Business Day of any Relevant Exchange or Related
Exchange for such Index Fund prior to its Scheduled Closing Time unless such
earlier closing time is announced by such Relevant Exchange(s) or Related
Exchange(s) (as the case may be) at least one hour prior to the earlier of
(i)
the actual closing time for the regular trading session on such Relevant
Exchange(s) or Related Exchange(s) on such Component Business Day and (ii)
the
submission deadline for orders to be entered into such Relevant Exchange or
Related Exchange system for execution at the Scheduled Closing Time on such
Component Business Day; or
(d) any
Component Business Day on which any Relevant Exchange or Related Exchange for
such Index Fund fails to open for trading during its regular trading
session.
For
the
purposes of determining whether a Market Disruption Event in respect of the
Index exists at any time, if a Market Disruption Event occurs in respect of
a
constituent of the Index or the Underlying Index relating to such Index Fund
at
any time, then the relevant percentage contribution of that constituent to
the
level of that Index or Underlying Index shall be based on a comparison of (x)
the portion of the level of such Index or Underlying Index attributable to
that
constituent and (y) the overall level of such Index or Underlying Index, in
each
case immediately before the occurrence of such Market Disruption
Event.
For
purposes of the above definitions of “Market Disruption Event”:
(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 a Relevant Exchange or Related 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.”
“Underlying
Index” means with respect to the IYR, the Dow Jones U.S. Real Estate Index or
any successors thereto and with respect to the EEM, the MSCI Emerging Markets
Index or any successors thereto.
“Relevant
Exchange” means (i) with respect to an Index, the primary exchanges or markets
of trading for any constituent then included in such Index; and (ii) with
respect to an Index Fund, the primary exchanges or markets of trading for such
Index Fund and the primary exchanges or markets of trading of any constituent
then included in the Underlying Index for such Index Fund.
“Related
Exchange” means, with respect to a Component, 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,
or the Underlying Index, if any.
“Component
Business Day” means with respect to a Component any day on which each Relevant
Exchange and each Related Exchange for such Component are scheduled to be open
for trading.
“Scheduled
Closing Time” means, in respect of a Relevant Exchange or Related Exchange and a
Component Business Day, the scheduled weekday closing time of such Relevant
Exchange or Related Exchange on such Component Business Day, without regard
to
after hours or any other trading outside of the regular trading session
hours.
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 Fifth Third 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 PORTFOLIO
All
disclosures contained in this pricing supplement regarding the Components are
derived from publicly available information. Neither we nor any of our
affiliates takes any responsibility for the accuracy or completeness of such
information.
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 composition,
from
publicly available sources. That 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 July 18, 2007, shares of
424
companies included in the SPX are traded on the New York Stock Exchange and
shares of 76 companies included in the SPX are traded on The NASDAQ Global
Select Market or the NASDAQ Global Market (collectively, the “NASDAQ”). 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 July 18, 2007, indicated in parenthesis: Industrials (53),
Utilities (32), Telecommunication Services (9), Materials (28), Information
Technology (74), Energy (32), Consumer Staples (39), Consumer Discretionary
(88), Healthcare (53) and Financials (92). 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 Reference Index stock as determined as of that time (referred to as
the
“market value” of that stock);
(ii) the
market values of all Reference Index 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 Reference Index 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 Reference Index 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 Reference Index stocks
in the SPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all Reference Index stocks, after taking account of the new market price per
share of the particular Reference Index 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 Reference Index 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 Reference Index’s market value.
License
Agreement with Standard and Poor’s
The
Company has entered or expects to enter 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 index levels of the
SPX
for each
month in the period from January 1998 through June 2007. The SPX’s
closing
index levels listed below were obtained from the Bloomberg Financial Service,
without independent verification by the Company. 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 index level of the SPX
on July
16, 2007 was 1,549.52.
Month
End Closing Index Levels: January 1998-June 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
|
|
1,530.62
|
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
|
|
1,503.35
|
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 June 2007.
The
S&P 400 MidCap Index™ (“MID”)
General
We
have
derived all information relating to the S&P 400 MidCap Index™, including,
without limitation, its make-up, method of calculation and changes in its
components, from publicly available information. This information reflects
the
policies of, and is subject to change by Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. (“S&P”). The MID was developed by S&P
and is calculated, maintained and published by S&P. S&P is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the MID at any time.
The
MID
is published by S&P and is meant to provide a performance benchmark for the
medium capitalization segment of the U.S. equity markets. The MID tracks the
stock price movement of 400 companies with mid-sized market capitalizations,
primarily ranging from $1 billion to $4 billion. The market capitalization
requirements are reviewed periodically to ensure consistency with market
standards. The MID is maintained with similar methodologies and rules as the
S&P 500®
Index,
with variations only to account for differences in capitalization
requirements.
Computation
of the MID
The
MID
is calculated using a base-weighted aggregate methodology: the level of the
MID
reflects the total Market Value (as defined below) of all 400 companies (the
“Component Stocks”) as of a particular time as compared to the aggregate average
Market Value of the stocks of 400 similar companies on the base date of June
28,
1991 (the “Base Date”). An indexed number is used to represent the results of
this calculation in order to make the value easier to work with and track over
time. Historically, the “Market Value” of any Component Stock was calculated as
the product of the market price per share and the number of the then outstanding
shares of such Component Stock. As discussed below, on March 21, 2005, S&P
began to use a new methodology to calculate the Market Value of the Component
Stocks, and on September 16, 2005, S&P completed its transition to the new
calculation methodology. S&P chooses companies for inclusion in the MID with
the objective of achieving a common stock population of the medium
capitalization segment of the U.S. equity market.
S&P
may, in its sole discretion, add or delete companies from the MID to achieve
its
objectives. S&P uses criteria such as 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 company’s stock is widely-held and the
Market Value and trading activity of the stock of that company.
On
March
21, 2005, S&P began to calculate the MID based on a half float-adjusted
formula, and on September 16, 2005, the MID became fully float-adjusted. The
adjustment does not impact how S&P chooses stocks for the MID, but does
affect how companies are weighted in the MID (i.e., Market Value). Under
float-adjustment, the share counts used in calculating the MID reflect only
those shares that are available to investors, not all outstanding shares of
a
company. S&P defines three groups of shareholders whose holdings are subject
to float-adjustment:
|
·
|
holdings
by other publicly traded corporations, venture capital firms, private
equity firms, strategic partners or leveraged buyout
groups;
|
|
·
|
holdings
by government entities, including all levels of government in the
U.S. or
foreign countries; and
|
|
·
|
holdings
by current or former officers and directors of the company, founders
of
the company, or family trusts of officers, directors, or founders,
as well
as holdings of trusts, foundations, pension funds, employee stock
ownership plans, or other investment vehicles associated with and
controlled by the company.
|
Treasury
stock, stock options, restricted shares, equity participation units, warrants,
preferred stock and convertible stock are not part of the float. In situations
where holdings in a group exceed 10% of the outstanding shares of a company,
the
holdings of that group will be excluded from the float-adjusted count of shares
to be used in the MID calculation. Mutual funds, investment advisory firms,
pension funds, or foundations not associated with the company and investment
funds in insurance companies, shares of a U.S. company traded in Canada as
“exchangeable shares,” shares that trust beneficiaries may buy or sell without
difficulty or significant additional expense beyond typical brokerage fees,
and,
if a company has multiple classes of stock outstanding, shares in an unlisted
or
non-traded class if such shares are convertible by shareholders without undue
delay and cost, are also part of the float.
For
each
stock, an investable weight factor (“IWF”) is calculated by dividing the
available float shares, defined as the total shares outstanding less shares
held
in one or more of the three groups listed above where the group holdings exceed
10% of the outstanding shares, by the total shares outstanding. The
float-adjusted MID is calculated by dividing the sum of the IWF multiplied
by
both the price and the total shares outstanding for each stock by the Divisor.
For companies with multiple classes of stock, S&P calculates the weighted
average IWF for each stock using the proportion of the total company market
capitalization of each share class as weights.
The
actual total Market Value of the Component Stocks on the Base Date has been
set
equal to an indexed value of 100. This is often indicated by the notation
6/28/91 = 100. In practice, the daily calculation of the MID is computed by
dividing the total Market Value of the Component Stocks by a number called
the
“Divisor”. By itself, the Divisor is an arbitrary number. However, in the
context of the calculation of the MID, it is the only link to the original
Base
Period level of the MID. The Divisor keeps the MID comparable over time and
is
the manipulation point for all adjustments to the MID (“MID Maintenance”).
MID
Maintenance includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends, and
stock
price adjustments due to company restructuring or spin-offs.
To
prevent the level of the MID from changing due to corporate actions, all
corporate actions which affect the total Market Value of the MID require an
adjustment to the Divisor. By adjusting the Divisor for the change in total
Market Value, the level of the MID remains constant. This helps maintain the
level of the MID as an accurate barometer of stock market performance and
ensures that the movement of the MID does not reflect the corporate actions
of
individual companies in the MID. All adjustments to the Divisor are made after
the close of trading and after the calculation of the closing level of the
MID.
Some corporate actions, such as stock splits and stock dividends, require simple
changes in the shares outstanding and the stock prices of the companies in
the
MID and do not require adjustments to the Divisor.
The
table
below summarizes the types of MID Maintenance adjustments and indicates whether
or not an MID Divisor adjustment is required:
Corporate
Action
|
Adjustment
Factor
|
Divisor
Adjustment
|
Share
Issuance (i.e., Change > 5%)
|
Shares
outstanding plus newly issued shares
|
Yes
|
Share
Repurchase (i.e., Change > 5%)
|
Shares
outstanding minus repurchased shares
|
Yes
|
Special
Cash Dividends
|
Share
price minus special dividend
|
Yes
|
Company
Change
|
Add
new company market value minus old company market value
|
Yes
|
Stock
Split (i.e., 2 for 1)
|
Shares
outstanding multiplied by 2; stock price divided by 2
|
No
|
Rights
Offering
|
Price
of parent company minus {price of rights divided by rights
ratio}
|
Yes
|
Spin-offs
|
Price
of parent company minus {price of spin-off company divided by share
exchange ratio}
|
Yes
|
Stock
splits and stock dividends do not affect the Divisor, because following a split
or dividend, both the stock price and number of shares outstanding are adjusted
by S&P so that there is no change in the Market Value of the Component
Stock. All stock split and dividend adjustments are made after the close of
trading on the day before the ex-date.
Each
of
the corporate events exemplified in the table requiring an adjustment to the
Divisor has the effect of altering the Market Value of the Component Stock
and
consequently of altering the aggregate Market Value of the Component Stocks
(the
“Post-Event Aggregate Market Value”). In order that the level of the MID (the
“Pre-Event MID Value”) not be affected by the altered Market Value (whether up
or down) of the affected Component Stock, a new Divisor (“New Divisor”) is
derived as follows:
Tracking
the changes in the number of outstanding shares of each of the companies
included in the MID is a large part of the MID Maintenance process. Four
times
per year, on a Friday close to the end of each calendar quarter, the share
totals of the companies in the MID are updated as required by any changes
in the
number of shares outstanding. After this is done, the Divisor is adjusted
to
compensate for the net change in the total market value of the MID. In addition,
any changes over five percent in the current shares outstanding for the MID
companies are reviewed on a weekly basis, and when appropriate, an immediate
adjustment is made to the Divisor.
License
Agreement with S&P
We
have
entered, or are exploring entering, into a non-exclusive license agreement
with
S&P providing for the license to us, in exchange for a fee, of the right to
use the MID, which is owned and published by S&P, in connection with certain
securities, including the Notes.
The
license agreement between S&P 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 S&P. S&P 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. S&P’s only relationship to us is the
licensing of certain trademarks, trade names and service marks of S&P and of
the MID, which is determined, composed and calculated by S&P without regard
to us or the Notes. S&P has no obligation to take our needs or the needs of
holders of the Notes into consideration in determining, composing, or
calculating the MID. S&P 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. S&P has no obligation or liability in
connection with the administration, marketing, or trading of the
Notes.
S&P
does not guarantee the accuracy and/or the completeness of the MID or any
data
included therein and S&P shall have no liability for any errors, omissions,
or interruptions therein. S&P 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 MID or any data included therein. S&P 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 MID or any
data
included therein. Without limiting any of the foregoing, in no event shall
S&P 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
S&P and us.”
All
disclosures contained in this pricing supplement regarding the MID, including
its make-up, method of calculation and changes in its components, are derived
from publicly available information prepared by S&P. None of us, Bear
Stearns or the Trustee assumes any responsibility for the accuracy or
completeness of such information.
Historical
Data on the MID
The
following table sets forth the month-end closing index levels of the
MID
for each
month in the period from January 1998 through June 2007. The MID’s
closing
index levels listed below were obtained from the Bloomberg Financial Service,
without independent verification by the Company. The
historical values of the MID
should not be taken as an indication of future performance, and no assurance
can
be given that the level of the MID
will increase relative to its Initial Component Level during the term of
the
Notes.
The
closing index level of the MID
on July
16, 2007 was 920.21.
Month
End Closing Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
326.70
|
|
376.70
|
|
431.79
|
|
527.90
|
|
505.29
|
|
416.91
|
|
588.06
|
|
645.97
|
|
781.02
|
|
833.02
|
February
|
|
353.39
|
|
356.50
|
|
461.48
|
|
497.26
|
|
505.38
|
|
406.43
|
|
601.51
|
|
666.85
|
|
773.60
|
|
838.10
|
March
|
|
369.00
|
|
366.10
|
|
499.69
|
|
459.92
|
|
541.10
|
|
409.47
|
|
603.56
|
|
658.87
|
|
792.11
|
|
848.47
|
April
|
|
375.39
|
|
394.59
|
|
481.85
|
|
510.31
|
|
538.22
|
|
438.79
|
|
583.29
|
|
632.76
|
|
802.69
|
|
873.66
|
May
|
|
358.15
|
|
395.87
|
|
475.17
|
|
521.59
|
|
528.58
|
|
474.54
|
|
594.70
|
|
670.05
|
|
765.56
|
|
916.30
|
June
|
|
360.08
|
|
416.70
|
|
481.77
|
|
519.12
|
|
489.52
|
|
480.21
|
|
607.69
|
|
684.94
|
|
764.87
|
|
895.51
|
July
|
|
345.76
|
|
407.46
|
|
488.97
|
|
511.05
|
|
441.71
|
|
496.84
|
|
578.90
|
|
720.38
|
|
742.51
|
|
-
|
August
|
|
281.10
|
|
393.08
|
|
542.90
|
|
493.79
|
|
443.42
|
|
518.77
|
|
576.62
|
|
711.49
|
|
749.96
|
|
-
|
September
|
|
307.02
|
|
380.59
|
|
538.81
|
|
432.03
|
|
407.38
|
|
510.42
|
|
593.20
|
|
716.33
|
|
754.25
|
|
-
|
October
|
|
334.05
|
|
399.62
|
|
520.17
|
|
450.77
|
|
424.63
|
|
548.52
|
|
602.20
|
|
700.38
|
|
785.01
|
|
-
|
November
|
|
350.35
|
|
420.11
|
|
480.38
|
|
483.75
|
|
448.63
|
|
567.00
|
|
637.27
|
|
733.66
|
|
809.20
|
|
-
|
December
|
|
392.31
|
|
444.67
|
|
516.76
|
|
508.28
|
|
429.79
|
|
576.01
|
|
663.31
|
|
738.05
|
|
804.37
|
|
-
|
The
following graph illustrates the historical
performance of the MID based on the closing level on the last Component Business
Day of each month from January 1998 to July 2007.
The
Dow Jones STOXX 50®
Index
(“SX5P”)
The
SX5P
was created by STOXX Limited, a joint venture between Deutsche Börse AG, Dow
Jones & Company and the SWX Group. Publication of the SX5P began on February
28, 1998, based on an initial STOXX 50®
Index
value of 1,000 at December 31, 1991. The SX5P is reported daily in the financial
pages of many major newspapers, on Bloomberg Page SX5P <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 SX5P
The
SX5P
is composed of 50 component stocks of market sector leaders in Europe, which
includes stocks selected from Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, and the UK. 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 SX5P 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 SX5P are made to ensure that the SX5P includes
the 50
market sector leaders from within the SX5P.
The
SX5P
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 SX5P value can be expressed as follows:
![](formula9.jpg)
Each
component’s weight is capped at 10% of the SX5P Index’s total free-float market
capitalization. Weights are reviewed quarterly. Within each of the SX5P 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 SX5P 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 SX5P 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 SX5P 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 SX5P 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 SX5P
The
Company has entered, or is exploring entering, into a non-exclusive license
agreement with STOXX Limited, whereby the Company and its affiliates, in
exchange for a fee, will be permitted to use the SX5P in connection with
the
offer and sale of the Notes.
STOXX
Limited and Dow Jones & Company, Inc. (“Dow
Jones”)
have
no relationship to the Company, other than the licensing of the SX5P and
the
related trademarks for use in connection with the Notes.
STOXX
Limited and
Dow Jones do 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 SX5P or have any obligation to do
so.
|
STOXX
Limited and Dow Jones will not have any liability in connection with the
Notes.
Specifically,
·
|
STOXX
Limited and Dow Jones do 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 SX5P and the data included
in the
SX5P;
|
|
·
|
The
accuracy or completeness of the SX5P and its
data;
|
|
·
|
The
merchantability and the fitness for a particular purpose or use
of the
SX5P and its data;
|
·
|
STOXX
Limited and Dow Jones will have no liability for any errors, omissions
or
interruptions in the SX5P or its
data;
|
·
|
Under
no circumstances will STOXX Limited or
Dow Jones be liable for any lost profits or indirect, punitive,
special or
consequential damages or losses, even if STOXX Limited or Dow Jones
knows
that they might occur.
|
The
licensing agreement between the Company and STOXX Limited is solely for their
benefit and not for the benefit of the owners of the Notes or any other third
parties.
Historical
Data on the SX5P
The
following table sets forth the month-end closing index levels of the SX5P
for
each month in the period from January 1998 through June 2007. The SX5P closing
index levels listed below were obtained from the Bloomberg Financial Service,
without independent verification by the Company. The
historical values of the SX5P should not be taken as an indication of future
performance, and no assurance can be given that the level of the SX5P will
increase relative to its Initial Component Level during the term of the
Notes.
The
closing index level of the SX5P on July 16, 2007 was 3,998.93.
Month
End Closing Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
2005
|
|
2006
|
|
2007
|
January
|
|
2,799.84
|
|
3,446.25
|
|
4,522.42
|
|
4,560.03
|
|
3,584.17
|
|
2,237.74
|
|
2,696.28
|
2,819.19
|
|
3,446.17
|
|
3,760.90
|
February
|
|
3,001.93
|
|
3,456.85
|
|
4,879.79
|
|
4,105.66
|
|
3,552.11
|
|
2,165.44
|
|
2,748.50
|
2,892.56
|
|
3,469.48
|
|
3,665.08
|
March
|
|
3,229.29
|
|
3,566.53
|
|
5,059.11
|
|
4,004.89
|
|
3,695.24
|
|
2,098.89
|
|
2,663.32
|
2,866.08
|
|
3,507.13
|
|
3,708.80
|
April
|
|
3,173.02
|
|
3,763.67
|
|
5,093.19
|
|
4,277.26
|
|
3,510.00
|
|
2,318.54
|
|
2,707.69
|
2,817.41
|
|
3,536.20
|
|
3,858.21
|
May
|
|
3,322.08
|
|
3,607.75
|
|
4,941.81
|
|
4,245.98
|
|
3,357.70
|
|
2,315.49
|
|
2,669.36
|
2,934.75
|
|
3,359.05
|
|
3,933.16
|
June
|
|
3,417.88
|
|
3,747.38
|
|
4,832.67
|
|
4,057.64
|
|
3,060.91
|
|
2,395.47
|
|
2,687.68
|
3,036.54
|
|
3,378.85
|
|
3,946.98
|
July
|
|
3,486.95
|
|
3,623.91
|
|
4,876.18
|
|
3,931.42
|
|
2,736.98
|
|
2,474.07
|
|
2,650.24
|
3,139.50
|
|
3,449.15
|
|
-
|
August
|
|
3,016.22
|
|
3,699.76
|
|
5,018.07
|
|
3,637.15
|
|
2,709.45
|
|
2,479.57
|
|
2,620.03
|
3,114.31
|
|
3,522.89
|
|
-
|
September
|
|
2,709.61
|
|
3,629.61
|
|
4,780.34
|
|
3,339.91
|
|
2,314.96
|
|
2,386.92
|
|
2,668.47
|
3,261.30
|
|
3,551.04
|
|
-
|
October
|
|
2,914.87
|
|
3,911.52
|
|
4,953.48
|
|
3,465.74
|
|
2,561.29
|
|
2,537.84
|
|
2,692.06
|
3,201.79
|
|
3,669.15
|
|
-
|
November
|
|
3,203.08
|
|
4,281.47
|
|
4,622.32
|
|
3,571.25
|
|
2,661.51
|
|
2,567.13
|
|
2,737.67
|
3,264.53
|
|
3,602.00
|
|
-
|
December
|
|
3,320.25
|
|
4,742.42
|
|
4,557.13
|
|
3,706.93
|
|
2,407.51
|
|
2,660.37
|
|
2,774.77
|
3,349.10
|
|
3,697.22
|
|
-
|
The
following graph illustrates the historical performance of the SX5P based
on the
closing level on the last Component Business Day of each month from January
1998
to July 2007.
The
S&P 600 SmallCap Index™
(“SML”)
General
Unless
otherwise stated, we have derived all information regarding the SML provided
in
this pricing supplement, including its composition, method of calculation
and
changes in components, from Standard and Poor’s (“S&P”), publicly available
sources and other sources we believe to be reliable. Such information reflects
the policies of, and is subject to change by, S&P. S&P is under no
obligation to continue to publish, and may discontinue or suspend the
publication of, the SML at any time. We do not assume any responsibility
for the
accuracy or completeness of any information relating to the SML.
The
SML
is maintained by the S&P Index Committee, a team of Standard & Poor’s
economists and index analysts. The goal of the Standard & Poor’s Index
Committee is to ensure that the index remains an accurate measure of small
companies, reflecting the risk and return characteristics of the broader
smallcap universe on an on-going basis. The Standard & Poor’s Index
Committee also monitors constituent liquidity to enable efficient portfolio
trading, while keeping index turnover to a minimum.
The
SML
does not reflect dividends paid on the stocks underlying it.
Computation
of the SML
To
be
eligible for inclusion in the SML, a stock must meet the following
criteria:
(1)
U.S.
Company: to determine what is a U.S. company, the S&P Index Committee looks
at a number of factors including location of the company’s operations, corporate
structure, accounting standards and exchange listings;
(2)
Market Cap: the market cap range is between $300 million and $1.5 billion,
which
is reviewed from time to time to ensure consistency with market
standards;
(3)
Sector representation: the S&P Index Committee strives to maintain a balance
for the SML in line with the sector balance of the universe of eligible
companies between the market cap ranges of $300 million and $1.5
billion;
(4)
Liquidity and price: the annual dollar value traded to market capitalization
ratio should be 0.3 or greater;
(5)
Financial viability: usually determined by four consecutive quarters of positive
as reported earnings;
(6)
Public float: at least 50%; and
(7)
Operating Company: closed-end funds, holding companies, partnerships, investment
vehicles or royalty trusts are not eligible. Real Estate Investment Trusts
(REITs) are eligible.
S&P
may remove a company from the SML if the company does not meet the inclusion
qualifications or if the index becomes unbalanced in its sector
representation.
Currently,
S&P calculates the SML based on the fully float-adjusted market
capitalization of each constituent stock. Under float adjustment, the share
counts used in calculating the SML reflect only those shares that are available
to investors and not all of a company’s outstanding shares. S&P defines
three groups of shareholders whose holdings are subject to float
adjustment:
•
holdings by other publicly traded corporations, venture capital firms, private
equity firms, strategic partners, or leveraged buyout groups;
•
holdings by government entities, including all levels of government in the
United States or foreign countries; and
•
holdings by current or former officers and directors of the company, founders
of
the company, or family trusts of officers, directors, or founders, as well
as
holdings of trusts, foundations, pension funds, employee stock ownership
plans,
or other investment vehicles associated with and controlled by the
company.
However,
treasury stock, stock options, restricted shares, equity participation units,
warrants, preferred stock, convertible stock, and rights are not part of
the
float. In cases where holdings in a group exceed 10% of the outstanding shares
of a company, the holdings of that group will be excluded from the
float-adjusted count of shares to be used in the SML calculation. Mutual
funds,
investment advisory firms, pension funds, or foundations not associated with
the
company and investment funds in insurance companies, shares of a United States
company traded in Canada as “exchangeable shares,” shares that trust
beneficiaries may buy or sell without difficulty or significant additional
expense beyond typical brokerage fees, and, if a company has multiple classes
of
stock outstanding, shares in an unlisted or non-traded class if such shares
are
convertible by shareholders without undue delay and cost, are also part of
the
float.
For
each
stock, an investable weight factor (“IWF”) is calculated by dividing the
available float shares, defined as the total shares outstanding less shares
held
in one or more of the three groups listed above where the group holdings
exceed
10% of the outstanding shares, by the total shares outstanding. The
float-adjusted index will then be calculated by dividing the sum of the IWF
multiplied by both the price and the total shares outstanding for each stock
by
the index divisor. For companies with multiple classes of stock, S&P will
calculate the weighted average IWF for each stock using the proportion of
the
total company market capitalization of each share class as weights.
The
daily
calculation of the SML is computed by dividing the total market value of
the
S&P SmallCap 600 Component Stocks by a number called the index divisor. By
itself, the index divisor is an arbitrary number. However, in the context
of the
calculation of the SML, it is the only link to the original base level of
the
SML. The index divisor keeps the SML comparable over time and is the
manipulation point for all adjustments to the SML (“index
maintenance”).
Index
maintenance includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends, and
stock
price adjustments due to company restructurings or spinoffs.
To
prevent the level of the SML from changing due to corporate actions, all
corporate actions which affect the total market value of the SML require
an
index divisor adjustment. By adjusting the index divisor for the change in
total
market value, the level of the SML remains constant. This ensures that the
movement of the SML does not reflect the corporate actions of individual
companies in the SML. All index divisor adjustments are made after the close
of
trading. Some corporate actions, such as stock splits and stock dividends,
require simple changes in the common shares outstanding and the stock prices
of
the companies in the SML and do not require index divisor
adjustments.
License
Agreement with S&P
We
have
entered, or are exploring entering, into a non-exclusive license agreement
with
S&P providing for the license to us, in exchange for a fee, of the right to
use the SML, which is owned and published by S&P, in connection with certain
securities, including the Notes.
The
license agreement between S&P 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 S&P. S&P 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. S&P’s only relationship to us is the
licensing of certain trademarks, trade names and service marks of S&P and of
the SML, which is determined, composed and calculated by S&P without regard
to us or the Notes. S&P has no obligation to take our needs or the needs of
holders of the Notes into consideration in determining, composing, or
calculating the SML. S&P 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. S&P has no obligation or liability in
connection with the administration, marketing, or trading of the
Notes.
S&P
does not guarantee the accuracy and/or the completeness of the SML or any
data
included therein and S&P shall have no liability for any errors, omissions,
or interruptions therein. S&P 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 SML or any data included therein. S&P 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 SML or any
data
included therein. Without limiting any of the foregoing, in no event shall
S&P 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
S&P and us.”
All
disclosures contained in this pricing supplement regarding the SML, including
its make-up, method of calculation and changes in its components, are derived
from publicly available information prepared by S&P. None of us, Bear
Stearns or the Trustee assumes any responsibility for the accuracy or
completeness of such information.
Historical
Data on the SML
The
following table sets forth the month-end closing index levels of the SML
for
each month in the period from January 1998 through June 2007. The SML closing
index levels listed below were obtained from the Bloomberg Financial Service,
without independent verification by the Company. The
historical values of the SML should not be taken as an indication of future
performance, and no assurance can be given that the level of the SML will
increase relative to its Initial Component Level during the term of the
Notes.
The
closing index level of the SML on July 16, 2007 was 442.12.
Month
End Closing Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
177.54
|
|
175.06
|
|
191.58
|
|
228.89
|
|
234.10
|
|
189.75
|
|
278.05
|
|
321.11
|
|
379.84
|
|
408.01
|
February
|
|
193.58
|
|
159.14
|
|
217.09
|
|
214.77
|
|
229.91
|
|
183.50
|
|
283.18
|
|
330.07
|
|
376.76
|
|
405.53
|
March
|
|
200.84
|
|
161.07
|
|
208.95
|
|
204.78
|
|
247.92
|
|
184.78
|
|
286.66
|
|
321.26
|
|
394.83
|
|
411.92
|
April
|
|
201.93
|
|
171.62
|
|
205.28
|
|
220.27
|
|
254.83
|
|
199.65
|
|
276.98
|
|
303.08
|
|
394.58
|
|
420.83
|
May
|
|
191.11
|
|
175.65
|
|
199.05
|
|
224.32
|
|
244.10
|
|
215.54
|
|
281.00
|
|
322.90
|
|
376.31
|
|
439.92
|
June
|
|
191.54
|
|
185.52
|
|
210.70
|
|
232.41
|
|
231.33
|
|
220.98
|
|
296.35
|
|
333.10
|
|
375.97
|
|
432.31
|
July
|
|
176.79
|
|
183.80
|
|
205.43
|
|
228.42
|
|
198.55
|
|
232.32
|
|
279.91
|
|
352.90
|
|
362.82
|
|
-
|
August
|
|
142.59
|
|
175.57
|
|
223.49
|
|
223.04
|
|
200.26
|
|
243.43
|
|
277.22
|
|
347.42
|
|
368.82
|
|
-
|
September
|
|
151.17
|
|
176.20
|
|
217.29
|
|
192.77
|
|
187.86
|
|
236.10
|
|
291.60
|
|
350.20
|
|
371.78
|
|
-
|
October
|
|
158.08
|
|
175.67
|
|
218.54
|
|
202.94
|
|
193.74
|
|
256.41
|
|
296.85
|
|
338.98
|
|
389.94
|
|
-
|
November
|
|
166.84
|
|
182.97
|
|
195.64
|
|
217.61
|
|
203.65
|
|
265.92
|
|
321.99
|
|
354.29
|
|
400.50
|
|
-
|
December
|
|
177.36
|
|
197.79
|
|
219.59
|
|
232.18
|
|
196.62
|
|
270.42
|
|
328.80
|
|
350.67
|
|
400.02
|
|
-
|
The
following graph illustrates the historical performance of the SML based on the
closing level on the last Component Business Day of each month from January
1998
to July 2007.
The
Nikkei 225™ Stock Index
(“NKY”)
The
NKY
is a stock index calculated, published and disseminated by Nihon Keizai Shimbun,
Inc. (“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.
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. 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
We
have
entered, or are exploring entering, into a non-exclusive license agreement
with
Nihon Keizai, whereby we 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
us and
Nihon Keizei assumes no obligation or responsibility therefor.
The
Notes
are not sponsored, endorsed, sold or promoted by Nihon Keizai (including
its
affiliates). Nihon Keizai has not passed on the legality or appropriateness
of,
or the accuracy or adequacy of descriptions and disclosures relating to the
Notes. Nihon Keizai 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 NKY to track general stock market performance.
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
Performance of the NKY
The
following table sets forth the month-end closing index levels of the NKY
for
each month in the period from January 1998 through June 2007. The NKY closing
index levels listed below were obtained from the Bloomberg Financial Service,
without independent verification by the Company. 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 Initial Component Level during the term of the
Notes.
The
closing index level of the NKY on July 16, 2007 was 18,238.95.
Month
End Closing Index Levels: January 1998-June 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
|
|
17,383.42
|
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
|
|
17,604.12
|
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
|
|
17,287.65
|
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
|
|
17,400.41
|
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
|
|
17,875.75
|
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
|
|
18,138.36
|
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 July 2007.
The
Dow Jones AIG Commodity IndexSM
(“DJAIG”)
General
Unless
otherwise stated, we have derived all information regarding the DJAIG provided
in this pricing supplement, including its composition, method of calculation
and
changes in components, from Dow Jones and AIG Financial Products, Inc.
(“AIG-FP”), publicly available sources and other sources we believe to be
reliable. Such information reflects the policies of, and is subject to
change
by, Dow Jones and AIG-FP. Dow Jones and AIG-FP are under no obligation
to
continue to publish, and may discontinue or suspend the publication of,
the
DJAIG at any time. Additionally, Dow Jones and AIG-FP can add, delete or
substitute the components underlying the DJAIG or make other methodological
changes that could change the level of the DJAIG. Dow Jones and AIG-FP
have no
obligation to consider the interests of the holders of the Notes in calculating
or revising the DJAIG. We do not assume any responsibility for the accuracy
or
completeness of any information relating to the DJAIG.
The
DJAIG
was introduced in July 1998 to provide a diversified and liquid benchmark
for
physical commodities as an asset class. The DJAIG currently is composed
of the
prices of nineteen exchange-traded futures contracts on physical commodities.
An
exchange-traded futures contract is a bilateral agreement providing for
the
purchase and sale of a specified type and quantity of a commodity or financial
instrument during a stated delivery month for a fixed price. The commodities
(on
which the futures contracts are based) included in the DJAIG for 2007 are
aluminum, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean
hogs,
live cattle, natural gas, nickel, silver, soybeans, soybean oil, sugar,
unleaded
gasoline, wheat and zinc. Futures contracts on the Index are currently
listed
for trading on the Chicago Board of Trade (“CBOT”).
The
Dow Jones-AIG Commodity Index Advisory Committee and Supervisory
Committee
Prior
to
February 2007, the Dow Jones-AIG Commodity Index Oversight Committee (the
“Oversight Committee”) assisted Dow Jones and AIG-FP in connection with the
operation of the DJAIG. The Oversight Committee included prominent members
of
the financial, academic and legal communities and met annually to consider
changes to be made to the DJAIG for the coming year.
In
February 2007, Dow Jones and AIG-FP announced modifications to the rules
regarding the Oversight Committee. A new two tier structure composed of
an
Advisory Committee and a Supervisory Committee was adopted to replace the
previous single Oversight Committee. The purpose of this two tiered structure
is
to expand the breadth of input into the decision-making process, while
also
providing a mechanism for a more rapid reaction in the event of any market
disruptions or extraordinary changes in market conditions.
The
Supervisory Committee is currently composed of three individuals, one each
from
Dow Jones Indexes (a division of Dow Jones), AIG-FP and Banque AIG (a subsidiary
of AIG-FP). The Advisory Committee currently consists of nine leading figures
from the financial and academic communities. The Supervisory Committee
will make
all final decisions relating to the Index, given any advice and recommendations
of the Advisory Committee.
As
described in more detail below, the DJAIG is re-weighted and rebalanced
each
year in January on a price-percentage basis. The annual weightings for
the DJAIG
are determined each year in June or July by AIG-FP, announced in July and
implemented the following January. The most recent composition of the DJAIG
was
approved by the Oversight Committee at a meeting held in July 2006. The
next
DJAIG re-weightings and rebalancing will be implemented in January 2008,
upon
approval of the Supervisory Committee.
Four
Main Principles Guiding the Creation of the Dow Jones-AIG
DJAIG
The
DJAIG
was created using the following four main principles:
•
Economic significance. The DJAIG is intended to represent the importance
of a
diversified group of commodities to the world economy. To achieve a fair
representation, the DJAIG uses both liquidity data and U.S. dollar-weighted
production data in determining the relative quantities of included commodities.
The DJAIG primarily relies on liquidity data, or the relative amount of
trading
activity of a particular commodity, as an important indicator of the value
placed on that commodity by financial and physical market participants.
The
DJAIG also relies on production data as a useful measure of the importance
of a
commodity to the world economy. Production data alone, however, may
underestimate the economic significance of storable commodities (such as
gold)
relative to non-storable commodities (such as live cattle). Production
data
alone also may underestimate the investment value that financial market
participants place on certain commodities, and/or the amount of commercial
activity that is centered around various commodities. Put another way,
production statistics alone do not necessarily provide as accurate a blueprint
of economic importance as the pronouncements of the markets themselves.
The
DJAIG thus relies on data that is both an inherent aspect of the futures
market
(liquidity) and external to the futures market (production) in determining
relative weightings.
•
Diversification. A second major goal of the DJAIG is to provide diversified
exposure to commodities as an asset class. As described further below,
diversification rules have been established and are applied
annually.
•
Continuity. The third goal of the DJAIG is to be responsive to the changing
nature of commodity markets in a manner that does not completely reshape
the
character of the index from year to year. The DJAIG is intended to provide
a
stable benchmark.
•
Liquidity. Another goal of the DJAIG is to provide a highly liquid index.
The
explicit inclusion of liquidity as a weighting factor helps to ensure that
the
DJAIG can accommodate substantial investment flows. The liquidity of an
index
affects transaction costs associated with current investments. It also
may
affect the reliability of historical price performance.
Daily
Calculations
The
DJAIG
is calculated daily by Dow Jones, in conjunction with AIG-FP, by applying
the
impact of the changes to the futures prices of commodities included in
the DJAIG
(based on their relative weightings) to the previous day’s DJAIG value. Since
the futures contracts included in the DJAIG are for physical commodities,
they
must be rolled periodically according to a fixed schedule in order to maintain
exposure to the underlying commodities without taking delivery. The rollover
for
each contract occurs over a period of five business days during such applicable
period.
Annual
Reweightings and Rebalancings of the Index
The
DJAIG
is reweighted and rebalanced each year in January on a price-percentage
basis.
The annual weightings for the DJAIG are determined each year in June by
AIG-FP,
under the supervision of the Advisory and Supervisory Committees, announced
in
July and implemented the following January. The composition of the Index
for
2007 was approved by the Oversight Committee at a meeting held in July
2006.
Determination
of Relative Weightings
The
relative weightings of the component commodities included in the DJAIG
are
determined annually according to both liquidity and dollar-adjusted production
data in 2/3 and 1/3 shares, respectively. Each June, for each commodity
designated for potential inclusion in the DJAIG, liquidity is measured
by the
Commodity Liquidity Percentage (“CLP”) and production by the Commodity
Production Percentage (“CPP”). The CLP for each commodity is determined by
taking a five-year average of the product of trading volume and the historic
U.S. dollar value of the futures contract selected as the reference contract
for
that commodity (the “Designated Contract”), and dividing the result by the sum
of such products for all commodities which were designated for potential
inclusion in the DJAIG. The CPP is determined for each commodity by taking
a
five-year average of annual world production figures, adjusted by the historic
U.S. dollar value of the Designated Contract, and dividing the result by
the sum
of such production figures for all the commodities that were designated
for
potential inclusion in the DJAIG. The CLP and the CPP are then combined
(using a
ratio of 2:1) to establish the DJAIG Percentage (“CIP”) for each commodity. This
CIP is then adjusted in accordance with certain diversification rules in
order
to determine the commodities that will be included in the DJAIG (the “Index
Commodities”) and their respective percentage weights, as described
below.
DJAIG
Multipliers
Subject
to the Diversification Rules discussed below, CIPs are incorporated into
the
DJAIG by calculating the new unit weights for each Index Commodity. On
the
fourth business day of each new calendar year (the “CIM Determination Date”),
the CIPs, along with the settlement prices on that date for Designated
Contracts
included in the DJAIG, are used to determine a “DJAIG Multiplier” or “CIM” for
each Index Commodity. This CIM is used to achieve the percentage weightings
of
the Index Commodities, in dollar terms, indicated by their respective CIPs.
After the CIMs are calculated, they remain fixed throughout the year. As
a
result, the observed price percentage of each Index Commodity will float
throughout the year, until the CIMs are reset the following year based
on new
CIPs.
Diversification
Rules
The
DJAIG
is designed to provide diversified exposure to commodities as an asset
class. To
ensure that no single commodity or commodity sector dominates the index,
the
index relies on several diversification rules, which are applied annually
when
the DJAIG is re-weighted and rebalanced on a price-percentage basis. The
following diversification rules are applied to the annual re-weighting
and
rebalancing of the DJAIG as of January of the applicable year:
•
No
related group of commodities (e.g., energy, precious metals, livestock,
or
grains) may constitute more than 33% of the index.
•
No
single commodity may constitute more than 15% of the index.
•
No
single commodity, together with its derivatives (e.g., crude oil, together
with
heating oil and unleaded gasoline), may constitute more than 25% of the
index.
•
No
single commodity that is in the index may constitute less than 2% of the
index.
Following
the annual re-weighting and rebalancing of the DJAIG in January, the percentage
of any single commodity or group of commodities will fluctuate and may
exceed or
be less than the percentages set forth above.
Commodities
Available for Inclusion in the DJAIG
Commodities
have been selected which are believed to be sufficiently significant to
the
world economy to merit consideration and which are the subject of a qualifying
related futures contract. The 23 potential commodities currently are aluminum,
cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lead,
live
cattle, lean hogs, natural gas, nickel, platinum, silver, soybeans, soybean
oil,
sugar, tin, unleaded gasoline, wheat and zinc.
The
DJAIG Is a Rolling Index
The
DJAIG
is composed of futures contracts on physical commodities. Unlike equities,
which
typically entitle the holder to a continuing stake in a corporation, commodity
futures contracts normally specify a certain date for the delivery of the
underlying physical commodity. In order to avoid delivering the underlying
physical commodities and to maintain exposure to the underlying physical
commodities, periodically futures contracts on physical commodities specifying
delivery on a nearby date must be sold and futures contracts on physical
commodities that have not yet reached the delivery period must be purchased.
The
rollover for each contract occurs over a period of five business days each
month
according to a pre-determined schedule. This process is known as “rolling” a
futures position.
License
Agreement with Dow Jones & Company Inc. and AIG Financial Products
Corp.
The
Bear
Stearns Companies Inc. has entered, or is exploring entering, into a
non-exclusive license agreement with Dow Jones & Company Inc. and AIG
Financial Products Corp., whereby The Bear Stearns Companies Inc. and its
affiliates and subsidiary companies, in exchange for a fee, will be permitted
to
use the DJAIG, which is owned and published by Dow Jones & Company Inc. and
AIG Financial Products Corp., in connection with certain products, including
the
Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by the Dow Jones & Company
Inc. and AIG Financial Products Corp. (including their affiliates). Dow
Jones
& Company Inc. and AIG Financial Products Corp. have not passed on the
legality or appropriateness of, or the accuracy or adequacy of descriptions
and
disclosures relating to the Notes. Dow Jones & Company Inc. and AIG
Financial Products Corp. make 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 DJAIG to track general stock market performance.
Dow Jones
& Company Inc. and AIG Financial Products Corp. have no relationship to The
Bear Stearns Companies, Inc. other than the licensing of the DJAIG and
the
related trademarks for use in connection with the Notes, which index is
determined, composed and calculated by Dow Jones & Company Inc. and AIG
Financial Products Corp. without regard to The Bear Stearns Companies,
Inc. or
the Notes. Dow Jones & Company Inc. and AIG Financial Products Corp. have 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
DJAIG. Dow Jones & Company Inc. and AIG Financial Products Corp. are not
responsible for and have 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.
Dow Jones & Company Inc. and AIG Financial Products Corp. have no liability
in connection with the administration, marketing or trading of the
Notes.
Dow
Jones
& Company Inc. and AIG Financial Products Corp. are under no obligation to
continue the calculation and dissemination of the DJAIG and the method
by which
the DJAIG is calculated and the name “Dow Jones AIG Commodity Index” may be
changed at the discretion of Dow Jones & Company Inc. and AIG Financial
Products Corp. No inference should be drawn from the information contained
in
this pricing supplement that Dow Jones & Company Inc. and AIG Financial
Products Corp. make 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
DJAIG
to track general stock market performance. Dow Jones & Company Inc. and AIG
Financial Products Corp. have no obligation to take into account your interest,
or that of anyone else having an interest in determining, composing or
calculating the DJAIG. Dow Jones & Company Inc. and AIG Financial Products
Corp. are 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.
Dow
Jones & Company Inc. and AIG Financial Products Corp. have no obligation or
liability in connection with the administration, marketing or trading of
the
Notes. The use of and reference to the DJAIG in connection with the Notes
have
been consented to by Dow Jones & Company Inc. and AIG Financial Products
Corp.
Dow
Jones
& Company Inc. and AIG Financial Products Corp. disclaim all responsibility
for any inaccuracies in the data on which the DJAIG is based, or any mistakes
or
errors or omissions in the calculation or dissemination of the
DJAIG.
Historical
Performance of the DJAIG
The
following table sets forth the month-end closing index levels of the DJAIG
for
each month in the period from January 1998 through June 2007. The DJAIG
closing
index levels listed below were obtained from Bloomberg Financial Service,
without independent verification by us. The
historical values of the DJAIG should not be taken as an indication of
future
performance, and no assurance can be given that the level of the DJAIG
will
increase relative to its the Initial Component Level during the term of
the
Notes.
The
closing index level of the DJAIG on July 16, 2007 was 171.10.
Month
End Closing Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
111.93
|
|
77.19
|
|
96.82
|
|
111.37
|
|
88.31
|
|
118.64
|
|
137.62
|
|
146.82
|
|
173.67
|
|
166.09
|
February
|
|
106.69
|
|
74.24
|
|
98.06
|
|
110.48
|
|
90.48
|
|
122.53
|
|
146.45
|
|
156.89
|
|
162.23
|
|
171.01
|
March
|
|
106.52
|
|
81.02
|
|
98.52
|
|
105.37
|
|
99.59
|
|
113.17
|
|
150.84
|
|
162.09
|
|
165.19
|
|
171.96
|
April
|
|
104.68
|
|
84.00
|
|
96.88
|
|
108.71
|
|
99.43
|
|
112.36
|
|
148.05
|
|
152.29
|
|
175.77
|
|
173.22
|
May
|
|
99.12
|
|
78.56
|
|
103.12
|
|
106.09
|
|
97.76
|
|
118.82
|
|
150.44
|
|
150.73
|
|
176.68
|
|
172.72
|
June
|
|
96.56
|
|
82.60
|
|
104.76
|
|
101.57
|
|
99.52
|
|
115.79
|
|
144.03
|
|
152.89
|
|
173.24
|
|
169.67
|
July
|
|
90.35
|
|
83.73
|
|
99.00
|
|
102.57
|
|
98.83
|
|
116.40
|
|
146.41
|
|
159.33
|
|
178.03
|
|
-
|
August
|
|
84.27
|
|
88.21
|
|
108.17
|
|
102.23
|
|
102.58
|
|
120.90
|
|
143.56
|
|
170.82
|
|
170.88
|
|
-
|
September
|
|
90.45
|
|
92.44
|
|
106.98
|
|
95.11
|
|
106.29
|
|
120.90
|
|
153.18
|
|
178.25
|
|
159.96
|
|
-
|
October
|
|
87.46
|
|
88.42
|
|
103.82
|
|
90.41
|
|
105.05
|
|
126.57
|
|
155.55
|
|
166.52
|
|
166.82
|
|
-
|
November
|
|
80.85
|
|
90.09
|
|
111.59
|
|
90.96
|
|
105.25
|
|
126.09
|
|
153.41
|
|
166.40
|
|
175.21
|
|
-
|
December
|
|
77.80
|
|
92.27
|
|
114.61
|
|
89.03
|
|
110.28
|
|
135.27
|
|
145.60
|
|
171.15
|
|
166.51
|
|
-
|
The
following graph illustrates the historical performance of the DJAIG based
on the
closing level on the last Component Business Day of each month from January
1998
to July 2007.
iShares
Dow Jones U.S. Real Estate Index Fund (“IYR”)
According
to publicly available information, the iShares Dow Jones U.S. Real Estate
Index
Fund is one of numerous separate investment portfolios called “Funds” which make
up iShares Trust, a registered investment company. The stated objective
of
iShares Dow Jones U.S. Real Estate Index Fund is to provide investment
results
that correspond generally to the price and yield performance, before
fees and
expenses, of the Dow Jones U.S. Real Estate Index.
The
Barclays Global Fund Advisors, the Index Fund’s investment adviser uses a
representative sampling strategy to try to track the performance of the
Dow
Jones U.S. Real Estate Index whereby iShares Dow Jones U.S. Real Estate
Index
Fund invests in a representative sample of securities in the Dow Jones
U.S. Real
Estate Index, which have a similar investment profile as the Dow Jones
U.S. Real
Estate Index. Securities selected by Barclays Global Fund Advisors have
aggregate investment characteristics (based on market capitalization
and
industry weightings), fundamental characteristics (such as return variability,
earnings valuation and yield) and liquidity measures similar to those
of the Dow
Jones U.S. Real Estate Index. As Barclays Global Fund Advisors uses the
representative sampling strategy, iShares Dow Jones U.S. Real Estate
Index Fund
generally will not hold all of the securities that are including in the
Dow
Jones U.S. Real Estate Index. iShares Dow Jones U.S. Real Estate Index
Fund will
invest at least 80% of its assets in the securities of the Dow Jones
U.S. Real
Estate Index and American Depositary Receipts based on securities of
the Dow
Jones U.S. Real Estate Index. The iShares Dow Jones U.S. Real Estate
Index Fund
may invest its other assets in futures contracts, options on futures
contracts,
other types of options, and swaps related to the Dow Jones U.S. Real
Estate
Index, as well as cash and cash equivalents, including shares of money
market
funds affiliated with Barclays Global Fund Advisors.
As
iShares Dow Jones U.S. Real Estate Index Fund is an actual investment
portfolio,
and the Dow Jones U.S. Real Estate Index is a theoretical financial calculation,
Barclays Global Fund Advisors expects that, over time, the correlation
between
iShares Dow Jones U.S. Real Estate Index Fund’s performance and that of the Dow
Jones U.S. Real Estate Index, before fees and expenses, will be less
than 100%
but will be 95% or better. The performance of iShares Dow Jones U.S.
Real Estate
Index Fund and the Dow Jones U.S. Real Estate Index may vary due to transaction
costs, foreign currency valuations, asset valuations, market impact,
corporate
actions (such as mergers and spin-offs) and timing variances.
The
iShares Dow Jones U.S. Real Estate Index Fund will not concentrate its
investments (i.e. hold 25% or more of its total assets) in the stocks
of a
particular industry or group of industries, except that iShares Dow Jones
U.S.
Real Estate Index Fund will concentrate its investments to approximately
the
same extent that the Dow Jones U.S. Real Estate Index is so concentrated.
The
shares of iShares Dow Jones U.S. Real Estate Index Fund are traded on
the New
York Stock Exchange under the symbol “IYR”. The shares of iShares Dow Jones U.S.
Real Estate Index Fund are registered under the Securities Exchange Act
of 1934,
as amended (the “Exchange Act”) and the Investment Company Act of 1940, as
amended (the “Investment Company Act”). Companies with securities registered
under the Exchange Act and Investment Company Act are required to file
financial
and other information specified by the SEC periodically. Information
provided to
or filed with the U.S. Securities and Exchange Commission (“SEC”) by iShares
Trust can be inspected or copied at the SEC’s public reference room located at
100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. You
may obtain
information on the operation of the public reference room by calling
the SEC at
1-800-SEC-0330. Information provided to or filed with the SEC by
iShares Trust pursuant to the Exchange Act and
Investment Company Act can be located through the SEC’s website at
http://www.sec.gov.
In
addition, information regarding the iShares Dow Jones U.S. Real Estate
Index
Fund may be obtained from other sources including, but not limited to,
press
releases, newspaper articles, other publicly disseminated documents,
and the
iShares®
website
at http://www.ishares.com. Information on the iShares®
website
is not incorporated by reference into this pricing supplement. We make
no
representation or warrant as to the accuracy or completeness of this
information.
“iShares®”
is
a
registered mark of Barclays Global Investors, N.A. (“BGI”). The copyright and
all rights to the iShares Dow Jones U.S. Real Estate Index Fund belong
to BGI
and iShares Trust. The Notes are not sponsored, endorsed, sold or promoted
by
BGI, iShares Trust or Barclays Global Fund Advisors. Neither BGI, nor
iShares
Trust nor Barclays Global Fund Advisors makes any representations or
warranties
to the holders of the Notes or any member of the public regarding the
advisability of investing the Notes. iShares Trust has no obligation
to continue
to list iShares Dow Jones U.S. Real Estate Index Fund and may de-list
iShares
Dow Jones U.S. Real Estate Index Fund.
Neither
we nor any of our affiliates makes any representation to you as to the
performance of the iShares Dow Jones U.S. Real Estate Index Fund.
Historical
Performance of the IYR
The
following table sets forth the monthly prices of the IYR for each month
in the
period from June 2000 through June 2007. We obtained the data in the
following
table from Bloomberg Financial Service, without independent verification
by us.
Historical
prices of the IYR should not be taken as an indication of future performance
and
no assurance can be given that the price of the IYR will increase relative
to
its Initial Component Level during the term of the Notes.
The
closing price of the IYR on July 16, 2007 was 79.24.
Month-End
Closing Price of the Component - June 2000-June 2007
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
-
|
|
38.15
|
|
39.95
|
|
37.23
|
|
51.66
|
|
56.35
|
|
68.83
|
|
91.40
|
February
|
|
-
|
|
37.63
|
|
40.74
|
|
37.95
|
|
52.59
|
|
58.23
|
|
70.05
|
|
88.13
|
March
|
|
-
|
|
37.47
|
|
42.60
|
|
38.33
|
|
54.73
|
|
56.10
|
|
73.50
|
|
85.24
|
April
|
|
-
|
|
38.68
|
|
42.73
|
|
39.71
|
|
46.55
|
|
59.26
|
|
71.10
|
|
85.49
|
May
|
|
-
|
|
39.57
|
|
43.55
|
|
42.18
|
|
49.72
|
|
61.48
|
|
68.75
|
|
85.62
|
June
|
|
35.38
|
|
41.17
|
|
43.60
|
|
42.30
|
|
50.52
|
|
63.60
|
|
71.25
|
|
77.42
|
July
|
|
37.30
|
|
40.46
|
|
41.55
|
|
44.63
|
|
50.65
|
|
67.80
|
|
73.85
|
|
-
|
August
|
|
36.73
|
|
41.55
|
|
41.70
|
|
45.00
|
|
54.83
|
|
64.89
|
|
76.05
|
|
-
|
September
|
|
37.88
|
|
39.63
|
|
39.08
|
|
45.71
|
|
53.98
|
|
64.27
|
|
77.15
|
|
-
|
October
|
|
35.28
|
|
37.21
|
|
37.50
|
|
46.50
|
|
56.76
|
|
62.30
|
|
82.15
|
|
-
|
November
|
|
36.00
|
|
39.65
|
|
39.31
|
|
48.52
|
|
59.17
|
|
65.25
|
|
85.95
|
|
-
|
December
|
|
37.98
|
|
39.90
|
|
38.65
|
|
49.64
|
|
61.60
|
|
64.15
|
|
83.35
|
|
-
|
The
following graph illustrates the historical performance of the IYR based
on the
closing price on the last Component Business Day of each month from June
2000 to
July 2007.
iShares
MSCI Emerging Markets Index Fund (“EEM”)
According
to publicly available information, the iShares MSCI Emerging Markets
Index Fund
is one of numerous separate investment portfolios called “Funds” which make up
iShares, Inc., a registered investment company. The stated objective
of iShares
MSCI Emerging Markets Index Fund is to provide investment results that
correspond generally to the price and yield performance, before fees
and
expenses, of the MSCI Emerging Markets Index.
The
Barclays Global Fund Advisors, the Index Fund’s investment advisor uses a
representative sampling strategy to try to track the performance of the
MSCI
Emerging Markets Index whereby iShares MSCI Emerging Markets Index Fund
invests
in a representative sample of securities in the MSCI Emerging Markets
Index,
which have a similar investment profile as the MSCI Emerging Markets
Index.
Securities selected by Barclays Global Fund Advisors have aggregate investment
characteristics (based on market capitalization and industry weightings),
fundamental characteristics (such as return variability, earnings valuation
and
yield) and liquidity measures similar to those of the MSCI Emerging Markets
Index. As Barclays Global Fund Advisors uses the representative sampling
strategy, iShares MSCI Emerging Markets Index Fund generally will not
hold all
of the securities that are including in the MSCI Emerging Markets Index.
iShares
MSCI Emerging Markets Index Fund will invest at least 80% of its assets
in the
securities of the MSCI Emerging Markets Index and American Depositary
Receipts
based on securities of the MSCI Emerging Markets Index. The iShares MSCI
Emerging Markets Index Fund may invest its other assets in futures contracts,
options on futures contracts, other types of options, and swaps related
to the
MSCI Emerging Markets Index, as well as cash and cash equivalents, including
shares of money market funds affiliated with Barclays Global Fund
Advisors.
As
iShares MSCI Emerging Markets Index Fund is an actual investment portfolio,
and
the MSCI Emerging Markets Index is a theoretical financial calculation,
Barclays
Global Fund Advisors expects that, over time, the correlation between
iShares
MSCI Emerging Markets Index Fund’s performance and that of the MSCI Emerging
Markets Index, before fees and expenses, will be less than 100% but will
be 95%
or better. The performance of iShares MSCI Emerging Markets Index Fund
and the
MSCI Emerging Markets Index may vary due to transaction costs, foreign
currency
valuations, asset valuations, market impact, corporate actions (such
as mergers
and spin-offs) and timing variances.
The
iShares MSCI Emerging Markets Index Fund will not concentrate its investments
(i.e. hold 25% or more of its total assets) in the stocks of a particular
industry or group of industries, except that iShares MSCI Emerging Markets
Index
Fund will concentrate its investments to approximately the same extent
that the
MSCI Emerging Markets Index is so concentrated.
The
shares of iShares MSCI Emerging Markets Index Fund are traded on the
New York
Stock Exchange under the symbol “EWT”. The shares of iShares MSCI Emerging
Markets Index Fund are registered under the Securities Exchange Act of
1934, as
amended (the “Exchange Act”) and the Investment Company Act of 1940, as amended
(the “Investment Company Act”). Companies with securities registered under the
Exchange Act and Investment Company Act are required to file financial
and other
information specified by the SEC periodically. Information provided to
or filed
with the U.S. Securities and Exchange Commission (“SEC”) by iShares, Inc. can be
inspected or copied at the SEC’s public reference room located at 100 F Street,
N.E., Washington, D.C. 20549, at prescribed rates. You may obtain information
on
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
Information provided to or filed with the SEC by iShares, Inc. pursuant
to the
Exchange Act and Investment Company Act can be located by reference to
SEC file
number RRS and RRI, respectively, through the SEC’s website at
http://www.sec.gov.
In
addition, information regarding the iShares MSCI Emerging Markets Index
Fund may
be obtained from other sources including, but not limited to, press releases,
newspaper articles, other publicly disseminated documents, and the
iShares®
website
at http://www.ishares.com. Information on the iShares®
website
is not incorporated by reference into this pricing supplement. We make
no
representation or warrant as to the accuracy or completeness of this
information.
“iShares®”
is
a
registered mark of Barclays Global Investors, N.A. (“BGI”). The copyright and
all rights to the iShares®
Emerging
Markets Index Fund belong to BGI and iShares, Inc. The Notes are not
sponsored,
endorsed, sold or promoted by BGI, iShares, Inc. or Barclays Global Fund
Advisors. Neither BGI, nor iShares, Inc. nor Barclays Global Fund Advisors
makes
any representations or warranties to the holders of the Notes or any
member of
the public regarding the advisability of investing the Notes. iShares,
Inc. has
no obligation to continue to list iShares MSCI Emerging Markets Index
Fund and
may de-list iShares MSCI Emerging Markets Index Fund.
Neither
we nor any of our affiliates makes any representation to you as to the
performance of the iShares MSCI Emerging Markets Index Fund.
Historical
Performance of the EEM
The
following table sets forth the monthly prices of the EEM for each month
in the
period from April 2003 through June 2007. We obtained the data in the
following
table from Bloomberg Financial Service, without independent verification
by us.
Historical
levels of the EEM should not be taken as an indication of future performance
and
no assurance can be given that the level of the EEM will increase relative
to
its Initial Component Level during the term of the Notes.
The
closing price of the EEM on July 16, 2007 was 141.32.
Month-End
Closing Price of the Component - April 2003-June 2007
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
-
|
|
55.97
|
|
66.93
|
|
100.78
|
|
114.30
|
February
|
|
-
|
|
58.18
|
|
73.41
|
|
96.90
|
|
109.75
|
March
|
|
-
|
|
58.50
|
|
67.60
|
|
99.00
|
|
116.50
|
April
|
|
35.15
|
|
52.77
|
|
66.76
|
|
105.45
|
|
120.84
|
May
|
|
38.36
|
|
53.38
|
|
68.87
|
|
93.70
|
|
126.80
|
June
|
|
39.97
|
|
53.88
|
|
71.60
|
|
93.90
|
|
131.65
|
July
|
|
42.23
|
|
51.92
|
|
77.10
|
|
96.10
|
|
-
|
August
|
|
45.61
|
|
53.75
|
|
78.12
|
|
97.62
|
|
-
|
September
|
|
45.31
|
|
57.50
|
|
84.88
|
|
96.77
|
|
-
|
October
|
|
49.47
|
|
59.14
|
|
79.50
|
|
103.60
|
|
-
|
November
|
|
50.40
|
|
65.02
|
|
84.10
|
|
109.80
|
|
-
|
December
|
|
54.64
|
|
67.28
|
|
88.25
|
|
114.17
|
|
-
|
The
following graph illustrates the historical performance of the EEM based
on the
closing price on the last Component Business Day of each month from April
2003
to July 2007.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain U.S. federal income tax consequences
of
the purchase, beneficial ownership and disposition of Notes. As used
in this
discussion, the term “U.S. Holder” means a beneficial owner of a Note that
is:
•
an
individual who is a citizen or resident of the United States for U.S.
federal
income tax purposes;
•
a
corporation (or other entity that is treated as a corporation for U.S.
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 U.S. federal income taxation regardless
of its
source; or
•
a
trust
if a court within the United States is able to exercise primary supervision
over
its administration, and one or more United States persons have the authority
to
control all of its substantial decisions.
As
used
in this discussion, the term “Non-U.S. Holder” means a beneficial owner of a
Note that is, for U.S. federal income tax purposes:
•
a
nonresident alien individual,
•
a
foreign corporation,
•
an
estate whose income is not subject to U.S. federal income tax on a net
income
basis, or
•
a
trust
if no court within the United States is able to exercise primary jurisdiction
over its administration or if no United States persons have the authority
to
control all of its substantial decisions.
An
individual may, subject to certain exceptions, be deemed to be a resident
of the
United States by reason of being present in the United States for at
least 31
days in the calendar year and for an aggregate of at least 183 days during
a
three-year period ending in the current calendar year (counting for such
purposes all of the days present in the current year, one-third of the
days
present in the immediately preceding year, and one-sixth of the days
present in
the second preceding calendar year).
This
summary is based on interpretations of the Internal Revenue Code of 1986,
as
amended (the “Code”), regulations issued there under, and rulings and decisions
currently in effect (or in some cases proposed), all of which are subject
to
change. Any such change may be applied retroactively and may adversely
affect
the federal income tax consequences described herein. This summary addresses
only U.S. Holders that purchase Notes at initial issuance and beneficially
own
such Notes as capital assets and not as part of a “straddle,” “hedge,”
“synthetic security” or a “conversion transaction” for federal income tax
purposes, or as part of some other integrated investment. This summary
does not
discuss all of the tax consequences that may be relevant to particular
investors
or to investors subject to special treatment under the federal income
tax laws
(such as banks, thrifts, or other financial institutions; insurance companies;
securities dealers or brokers, or traders in securities electing mark
to market
treatment; mutual funds or real estate investment trusts; small business
investment companies; S corporations; investors that hold their Notes
through a
partnership or other entity treated as a partnership for federal tax
purposes;
investors whose functional currency is not the U.S. dollar; certain former
citizens or residents of the United States; persons subject to the alternative
minimum tax; retirement plans or other tax-exempt entities, or persons
holding
the Notes in tax-deferred or tax-advantaged accounts; or “controlled foreign
corporations” or “passive foreign investment companies” for federal income tax
purposes). This summary also does not address the tax consequences to
shareholders, or other equity holders in, or beneficiaries of, a holder,
or any
state, local or foreign tax consequences of the purchase, ownership or
disposition of the Notes.
Accordingly,
prospective investors are urged to consult their tax advisors with respect
to
the federal, state and local tax consequences of investing in the Notes,
as well
as any consequences arising under the laws of any other taxing jurisdiction
to
which they may be subject.
Prospective
purchasers of Notes should consult their tax advisors as to the federal,
state,
local, and other tax consequences to them of the purchase, ownership
and
disposition of Notes.
Federal
Income Tax Treatment of U.S. Holders
Accruals
of Original Issue Discount on the Notes
For
U.S.
federal income tax purposes, we intend to treat the Notes as “contingent payment
debt instruments” (“CPDIs”) subject to taxation under the “noncontingent bond
method.” Under the noncontingent bond method, U.S. Holders of the Notes will
accrue OID over the term of the Notes based on the Notes’ “comparable yield.” As
a result, U.S. Holders will be required to include OID over the term
of the
Notes even though no cash payments will be made with respect to the Notes
until
maturity.
In
general, the comparable yield of a CPDI is equal to the yield at which
its
issuer would issue a fixed-rate debt instrument with terms and conditions
similar to those of the CPDI, including the level of subordination, term,
timing
of payments, and general market conditions. If a hedge of the CPDI is
available
that, if integrated with the CPDI, would produce a synthetic debt instrument
with a determinable yield to maturity, the comparable yield will be equal
to the
yield on the synthetic debt instrument. Alternatively, if such a hedge
is not
available, but fixed-rate debt instruments of the issuer trade at a price
that
reflects a spread above a benchmark rate, the comparable yield is the
sum of the
value of the benchmark rate on the issue date and the spread. Under the
noncontingent bond method, the issuer’s reasonable determination of a comparable
yield is respected and binding on holders of the CPDI.
Based
on
these factors, we estimate that the comparable yield of the Notes will
be an
annual rate of approximately 5.54%, compounded annually. U.S. Holders
may obtain
the actual comparable yield by contacting The Bear Stearns Companies
Inc., Bill
Bamber at (212) 272-6635. U.S. Holders will accrue OID in respect of
the Notes
at a rate equal to the comparable yield. The amount of OID allocable
to each
annual accrual period will be the product of the “adjusted issue price” of the
Notes at the beginning of each such annual accrual period and the comparable
yield. The “adjusted issue price” of the Notes at the beginning of an accrual
period will equal the issue price of the Notes, increased by the OID
accrued in
all prior periods. The issue price of the Notes will be the first price
at which
a substantial amount of the Notes are sold to the public for money (excluding
sales to bond houses, brokers or similar persons or organizations acting
in the
capacity of underwriters, placement agents or wholesalers). U.S. Holders
may
obtain the issue price of the Notes by contacting The Bear Stearns Companies
Inc., Bill Bamber at (212) 272-6635. (The accrual of OID by U.S. Holders
that
purchase their Notes at a price other than the issue price of the Notes
will be
subject to an adjustment described below.) The amount of OID includible
in
income of each U.S. Holder for each taxable year will equal the sum of
the
“daily portions” of the total OID on the Notes allocable to each day during the
taxable year in which a U.S. Holder held the Notes, regardless of the
U.S.
Holder’s method of accounting. The daily portion of the OID is determined by
allocating to each day in any accrual period a ratable portion of the
OID
allocable to such accrual period. Under the noncontingent bond method,
the
comparable yield of a CPDI is used to construct a projected payment schedule
that reflects an estimate of the Cash Settlement Value upon the maturity
of the
Notes and which is adjusted to produce the comparable yield. U.S. Holders
may
obtain the projected payment schedule by contacting The Bear Stearns
Companies
Inc., Bill Bamber at (212) 272-6635.
Under
the
noncontingent bond method, the projected payment schedule is not revised
to
account for changes in circumstances that occur while the Notes are
outstanding.
The
comparable yield and the projected payment amount for the Notes are used
to
determine accruals of OID for tax purposes only, and are not assurances
by us or
any of our affiliates with respect to the actual yield or payments on
the Notes
and do not represent expectations by any such person regarding a Note’s yield or
the index price return amount.
A
U.S.
Holder will generally be bound by our determination of the comparable
yield and
projected payment schedule for the Notes, unless the U.S. Holder determines
its
own projected payment schedule and comparable yield, explicitly discloses
such
schedule to the Internal Revenue Service (the “IRS”), and explains to the IRS
the reason for preparing its own schedule. We believe that the projected
payment
schedule and comparable yield that we provide for the Notes will be reasonable
and therefore will be respected by the IRS. Our determination, however,
is not
binding on the IRS, and the IRS could conclude that some other comparable
yield
or projected payment schedule should be used for the Notes.
A
U.S.
Holder that purchases a Note for an amount other than the issue price
of the
Note will be required to adjust its OID inclusions to account for the
difference. These adjustments will affect the U.S. Holder’s basis in the Note.
Reports to US Holders may not include these adjustments. U.S. Holders
that
purchase Notes at other than the issue price should consult their tax
advisors
regarding these adjustments.
Sale,
Exchange, Retirement, or Other Disposition of the Notes
If
the
payment of the Cash Settlement Value on the Maturity Date exceeds the
projected
maturity amount in the projected payment schedule, a U.S. Holder will
be
required to include such excess in income as ordinary interest on the
Maturity
Date. Alternatively, if the Cash Settlement Value payment is less than
the
projected maturity amount, the shortfall will be treated as an offset
to any OID
otherwise includible in income by the U.S. Holder with respect to the
Note for
the taxable year in which the Maturity Date occurs, and any remaining
portion of
such shortfall may be recognized and deducted by the U.S. Holder as an
ordinary
loss that will not be subject to the two percent floor limitation imposed
on
miscellaneous deductions under section 67 of the Code.
A
U.S.
Holder will generally recognize gain or loss on the sale, exchange, or
other
disposition of a Note to the extent that the amount realized is more
or less
than its purchase price, increased by the OID previously accrued by the
U.S.
Holder on the Note. In general, any gain realized by a U.S. Holder on
the sale,
exchange or other disposition of a Note will be treated as ordinary interest
income, and any loss realized will be treated as an ordinary loss to
the extent
of the OID previously accrued by the U.S. Holder on the Note, and the
loss will
not be subject to the two percent floor limitation imposed on miscellaneous
deductions under section 67 of the Code. Any loss in excess of the accrued
OID
will be treated as a capital loss. The deductibility of capital losses
by U.S.
Holders is subject to limitations.
Federal
Income Tax Treatment of Non-U.S. Holders
Payments
on the Notes to Non-U.S. Holders will not be subject to U.S. federal
income or
withholding tax if the following conditions are satisfied:
•
the
Non-U.S. Holder does not actually or constructively own 10% or more of
the total
combined voting power of all classes of our stock entitled to vote,
•
the
Non-U.S. Holder is not a controlled foreign corporation for U.S. federal
income
tax purposes that is related to us through actual or constructive
ownership,
•
the
Non-U.S. Holder is not a bank receiving interest on a loan made in the
ordinary
course of its trade or business,
•
the
stocks included in the Components are actively traded within the meaning
of
section 871(h)(4)(C)(v) of the Code, and
•
the
payments are not effectively connected with a trade or business conducted
by the
Non-U.S. Holder in the United States and either (a) the Non-U.S. Holder
provides
a correct, complete and executed IRS Form W-8BEN, Form W-8EXP or Form
W-8IMY (or
successor form) with all of the attachments required by the IRS, or (b)
the
Non-U.S. Holder holds its Note through a qualified intermediary (generally
a
foreign financial institution or clearing organization or a non-U.S.
branch or
office of a U.S. financial institution or clearing organization that
is a party
to a withholding agreement with the IRS) which has provided to us an
IRS Form
W-8IMY stating that it is a qualified intermediary and has received
documentation upon which it can rely to treat the payment as made to
a foreign
person.
We
expect
that the stocks included in the Components will be treated as actively
traded
within the meaning of section 871(h)(4)(C)(v). If any of the above conditions
are not satisfied, payments on the Notes will be subject to a withholding
tax
equal to 30% of any income with respect to a Note for which amounts were
not
previously withheld, unless an income tax treaty reduces or eliminates
the tax
or the income with respect to the Note is effectively connected with
the conduct
of a U.S. trade or business and the Non-U.S. Holder provides a correct,
complete
and executed IRS Form W-8ECI. In the latter case, the Non-U.S. Holder
will be
subject to U.S. federal income tax with respect to all income with respect
to
the Note at regular rates applicable to U.S. taxpayers, unless an income
tax
treaty reduces or eliminates the tax, and Non-U.S. Holders that are treated
as
corporations for federal income tax purposes may also be subject to a
30% branch
profits tax, unless an income tax treaty reduces or eliminates the branch
profits tax.
Federal
Estate Tax Treatment of Non-U.S. Holders
A
Note
held by an individual who at death is a Non-U.S. Holder will not be includible
in the Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes if
payments on the Notes to the Non-U.S. Holder would not have been subject
to U.S.
federal income or withholding tax at the time of death under the tests
described
above.
Information
Reporting and Backup Withholding
Information
reporting will apply to certain payments on a Note (including interest
and OID)
and proceeds of the sale of a Note held by a U.S. Holder that is not
an exempt
recipient (such as a corporation). Backup withholding may apply to payments
made
to a U.S. Holder if (a) the U.S. Holder has failed to provide its correct
taxpayer identification number on IRS Form W-9, (b) we have been notified
by the
IRS of an underreporting by the U.S. Holder (underreporting generally
refers to
a determination by the IRS that a payee has failed to include in income
on its
tax return any reportable dividend and interest payments required to
be shown on
a tax return for a taxable year), or (c) we have been notified by the
IRS that
the tax identification number provided to the IRS on an information return
does
not match IRS records or that the number was not on the information
return.
Backup
withholding and nonresident alien withholding will not be required with
respect
to interest paid to Non- U.S. Holders, so long as we have received from
the
Non-U.S. Holder a correct and complete IRS Form W-8BEN, W-8ECI, W-8EXP
or Form
W-8IMY with all of the attachments required by the IRS. Interest paid
to a
Non-U.S. Holder will be reported on IRS Form 1042-S which is filed with
the IRS
and sent to Non-U.S. Holders.
Information
reporting and backup withholding may apply to the proceeds of a sale
of a Note
by a Non-U.S. Holder made within the United States or conducted through
certain
U.S. related financial intermediaries, unless we receive one of the tax
forms
described above.
Backup
withholding is not an additional tax and may be refunded (or credited
against
your U.S. federal income tax liability, if any). The information reporting
requirements may apply regardless of whether withholding is required.
For
Non-U.S. Holders, copies of the information returns reporting such interest
and
withholding also may be made available to the tax authorities in the
country in
which a Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
THE
PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX IMPLICATIONS
OF AN
INVESTMENT IN NOTES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH
THEIR OWN
TAX ADVISORS PRIOR TO INVESTING TO DETERMINE THE TAX IMPLICATIONS OF
SUCH
INVESTMENT IN LIGHT OF EACH SUCH INVESTOR’S PARTICULAR
CIRCUMSTANCES.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property
and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section
406 of
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,
certain of
our affiliates, and/or Fifth Third 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, Bear, Stearns Securities Corp., and Fifth Third is considered
a
"disqualified person" under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we, Bear Stearns, nor Fifth Third
can be
a “party in interest” to any IRA other than certain employer-sponsored IRAs, as
only employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction
class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating
to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the recently enacted Pension Protection Act of 2006
contains
a new statutory exemption from the prohibited transaction provisions
of Section
406 of ERISA and Section 4975 of the Code for transactions involving
certain
parties in interest or disqualified persons who are such merely because
they are
a service provider to a Plan, or because they are related to a service
provider.
Generally, the new exemption would be applicable if the party to the
transaction
with the Plan is a party in interest or a disqualified person to the
Plan but is
not (i) an employer, (ii) a fiduciary who has or exercises any discretionary
authority or control with respect to the investment of the Plan assets
involved
in the transaction, (iii) a fiduciary who renders investment advice (within
the
meaning of ERISA and Section 4975 of the Code) with respect to those
assets, or
(iv) an affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on
this new
statutory exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20)
of the
Code) and purchasing Notes on behalf of a Plan will be deemed to represent
that
(x) the fiduciary has made a good faith determination that the Plan is
paying no
more than, and is receiving no less than, adequate consideration in connection
with the transaction and (y) neither we, any of our affiliates, nor Fifth
Third
directly or indirectly exercises any discretionary authority or control
or
renders investment advice (as defined above) with respect to the assets
of the
Plan which such fiduciary is using to purchase the Notes, both of which
are
necessary preconditions to utilizing this new exemption. Any purchaser
that is a
Plan is encouraged to consult with counsel regarding the application
of the new
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may
be
liable for any losses to the Plan resulting from such transaction. Code
Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of
Plans
subject to such Section. If an IRA engages in a prohibited transaction,
the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf
of such
plan should consider the foregoing information and the information set
forth in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing
plan
document and is prudent and appropriate for the ERISA Plan in view of
its
overall investment policy and the composition and diversification of
its
portfolio. Fiduciaries of Plans established with, or for which services
are
provided by, us, certain of our affiliates, and/or Fifth Third 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
April 20, 2007, as amended, we have agreed to sell to Fifth Third, as
principal,
and Fifth Third has agreed to purchase from us, the aggregate principal
amount
of Notes set forth opposite its name below.
Agent
|
Principal
Amount of Notes
|
Fifth
Third Securities, Inc.
|
$[l]
|
Total
|
$[l]
|
The
Agent
intends to initially offer $[l]
of the
Notes to the public at the offering price set forth on the cover page
of this
pricing supplement, and to subsequently resell the remaining principal
amount of
the Notes at prices related to the prevailing market prices at the time
of
resale. In the future, the Agent may repurchase and resell the Notes
in
market-making transactions, with resales being made at prices related
to
prevailing market prices at the time of resale or at negotiated prices.
We will
offer the Notes to Fifth Third at a discount of [l]%
of the
price at which the Notes are offered to the public. Fifth Third may reallow
a
discount to other agents not in excess of [l]%
of the
public offering price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 13-day
option
from the date of the final pricing supplement, to purchase from us up
to an
additional $[l]
at the
public offering price, less the Agent’s discount, to cover any over-allotments.
The Agent may over-allot or effect transactions which stabilize or maintain
the
market price of the Notes at a level higher than that which might otherwise
prevail in the open market. Specifically, the Agent may over-allot or
otherwise
create a short position in the Notes for its own account by selling more
Notes
than have been sold to it by us. If this option is exercised, in whole
or in
part, subject to certain conditions, the Agent will become obligated
to purchase
from us and we will be obligated to sell to the Agent an amount of Notes
equal
to the amount of the over-allotment exercised. The Agent may elect to
cover any
such short position by purchasing Notes in the open market. No representation
is
made as to the magnitude or effect of any such stabilization or other
transactions. Such stabilizing, if commenced, may be discontinued at
any time
and in any event shall be discontinued within a limited period. No other
party
may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The
Notes will
not be listed on any securities exchange and we do not expect a trading
market
will develop. Fifth Third 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.
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 or
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, and
these documents
are not soliciting an offer to buy these securities, in any
jurisdiction
where the offer or sale is not permitted. You should not
under any
circumstances assume that the information in this pricing
supplement and
the accompanying prospectus supplement and prospectus is
correct on any
date after their respective dates.
|
|
The
Bear Stearns
Companies
Inc.
$[l]
Medium-Term
Notes, Series B
5-Year
Note
Linked
to a Portfolio of
Indices
and Index Funds
Due
August [l],
2012
PRICING
SUPPLEMENT
Fifth
Third Securities, Inc.
August
[l],
2007
|
_____________________________
|
|
TABLE
OF CONTENTS
|
|
Pricing
Supplement
|
|
|
Page
|
Summary
|
PS-2
|
Key
Terms
|
PS-4
|
Questions
and Answers
|
PS-7
|
Risk
Factors
|
PS-12
|
Description
of the Notes
|
PS-21
|
Description
of the Portfolio
|
PS-34
|
Certain
U.S. Federal Income Tax Considerations
|
PS-63
|
Certain
ERISA Considerations
|
PS-66
|
Use
of Proceeds and Hedging
|
PS-68
|
Supplemental
Plan of Distribution
|
PS-68
|
Legal
Matters
|
PS-69
|
Prospectus
Supplement
|
|
Risk
Factors
|
S-3
|
Pricing
Supplement
|
S-8
|
Description
of the Notes
|
S-8
|
Certain
U.S. 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 Depositary 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
|