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 October 1, 2007
PRICING
SUPPLEMENT
(To
Prospectus Dated August 16, 2006 and
Prospectus
Supplement Dated August 16, 2006)
The
Bear Stearns Companies Inc.
$[l]
Accelerated Market Participation Securities (“AMPS”)
Linked
to
a Portfolio of Indices, due October [l],
2009
|
·
|
The
Notes are not principal protected.
|
|
·
|
The
Notes are linked to the performance of an equally-weighted portfolio
comprised of the following three equity indices: (1)
the S&P 500®
Index (the “SPX”); (2) the Dow Jones EURO STOXX 50®
Index (the “SX5E”); and (3) the Nikkei 225TM Stock Index (the
“NKY”) (each such index a “Component” and together the “Portfolio”). The
weighting of each Component within the Portfolio is fixed at 1/3
and will
not change during the term of the Notes unless one or more Components
are
modified during the term of the Notes as further described
herein.
|
|
·
|
When
we refer to Notes in this pricing supplement, we mean Notes with
a
principal amount of $1,000.
|
|
·
|
On
the Maturity Date, you will receive the Cash Settlement Value,
which is
based on the performance of the Portfolio over the term of the
Notes as
measured by the Portfolio Return. The “Portfolio Return” is calculated as
the difference of (i) the Final Portfolio Value divided by the
Initial
Portfolio Value minus (ii) one. The “Final Portfolio Value” equals the
Portfolio Value on the Valuation Date and the “Initial Portfolio Value”
equals the Portfolio Value on the Pricing Date, or 100, in each
case as
determined by the Calculation Agent.
|
|
·
|
The
Participation Rate is [135.00]%.
|
|
·
|
The
Portfolio Value, on the Valuation Date, is calculated as follows:
|
|
·
|
If,
on the Valuation Date, the Portfolio Return is greater than or
equal to
zero, then the Cash Settlement Value for each Note will be equal
to the
$1,000 principal amount of the Note, plus the product of (i) $1,000
multiplied by (ii) the Portfolio Return multiplied by (iii) the
Participation Rate.
|
|
·
|
If,
on the Valuation Date, the Portfolio Return is less than zero,
the Cash
Settlement Value for each Note will be equal to the product of
(i) $1,000
multiplied by (ii) the Final Portfolio Value divided by the Initial
Portfolio Value. In
this case, you will receive less, and possibly significantly less,
than
your initial investment in the Notes.
|
|
·
|
The
CUSIP number for the Notes is 073928Y31.
|
|
·
|
The
Notes will not pay interest during the term of 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 October [l],
2009. If the Valuation Date is postponed, the Maturity Date will
be three
Business Days following the postponed Valuation Date.
|
|
·
|
The
scheduled Valuation Date for the Notes is October [l],
2009. The Valuation Date is subject to adjustment as described
herein.
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THE NOTES ARE NOT PRINCIPAL PROTECTED.
THEREFORE, INVESTORS MAY RECEIVE LESS, AND POSSIBLY SIGNIFICANTLY LESS, THAN
THEIR INITIAL INVESTMENT IN THE NOTES. 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. YOU SHOULD REFER TO “RISK FACTORS” BEGINNING ON PAGE
PS-10.
Each
Component is a service mark or trademark of the sponsor of that Component 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 Portfolio, are not sponsored,
endorsed, sold or promoted by the sponsor of any Component; and the sponsors
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]
|
*[Investors
who purchase an aggregate principal amount of at least $1,000,000 of this Note
offering will be entitled to purchase Notes for [99.00]% of the principal
amount.]
‡[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. The distribution of the Notes will
conform to the requirements set forth in Rule 2720 of the National Association
of Securities Dealers, Inc. Conduct Rules.
We
may
grant our affiliate Bear, Stearns & Co. Inc. (“Bear Stearns”) a 30-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.
_______________
Bear,
Stearns & Co. Inc.
October
[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.
The
Bear
Stearns Companies Inc. Accelerated Market Participation Securities (“AMPS”),
linked to a Portfolio of Indices, due October [l],
2009
(the “Notes”) are Notes whose return is tied or “linked” to the performance of
an equally-weighted portfolio comprised of the following three equity indices:
(1) the S&P 500®
Index
(“SPX”); (2) the Dow Jones EURO STOXX 50®
Index
(“SX5E”); and (3) the Nikkei 225TM Stock Index (“NKY”) (each such
index a “Component” and together the “Portfolio”). If the Final Portfolio Value
(as defined herein) is less than the Initial Portfolio Value (as defined
herein), the Cash Settlement Value (as defined herein) you receive at maturity
will be less, and possibly significantly less, than your initial investment.
When we refer to Note or Notes in this pricing supplement, we mean $1,000
principal amount of Notes. On the Maturity Date you will receive the Cash
Settlement Value, an amount in cash which is based on the performance of the
Portfolio over the term of the Notes as measured by the Portfolio Return. The
“Portfolio Return” is calculated as the difference of (i) the Final Portfolio
Value divided by the Initial Portfolio Value minus (ii) one. The “Final
Portfolio Value” equals the Portfolio Value on the Valuation Date and the
“Initial Portfolio Value” equals the Portfolio Value on the Pricing Date, or
100, in each case as determined by the Calculation Agent. If, on the Valuation
Date, the Portfolio Return is greater than or equal to zero, then the Cash
Settlement Value for each Note will be equal to the $1,000 principal amount
of
the Note, plus the product of (i) $1,000 multiplied by (ii) the Portfolio Return
multiplied by (iii) the Participation Rate. If, on the Valuation Date, the
Portfolio Return is less than zero the Cash Settlement Value for each Note
will
be equal to the product of (i) $1,000 multiplied by (ii) the Final Portfolio
Value divided by the Initial Portfolio Value and, in
this case you will receive less, and possibly significantly less, than your
initial investment in the Notes.
Selected
Investment Considerations
|
·
|
Potential
leverage in the increase, if any, of the Portfolio—The Notes may be an
attractive investment for investors who have a bullish view of the
Portfolio during the term of the Note. If held to maturity, the Notes
allow you to participate in [135.00]% of the potential increase of
the
Portfolio Value.
|
|
·
|
Diversification—The
Notes are linked to the following three equity indices: (1) the SPX;
(2)
the SX5E; and (3) the NKY. Therefore, the Notes may allow you to
diversify
an existing portfolio or
investment.
|
|
·
|
Taxes—The
U.S. federal income tax consequences of an investment in the Notes
are
complex and uncertain. We intend to treat the Notes for all tax purposes
as pre-paid cash-settled executory contracts linked to the level
of the
Portfolio and, where required, to file information returns with the
Internal Revenue Service in accordance with such treatment. Prospective
investors are urged to consult their tax advisors regarding the U.S.
federal income tax consequences of an investment in the Notes. Assuming
the Notes are treated as pre-paid cash-settled executory contracts,
you
should be required to recognize capital gain or loss to the extent
that
the cash you receive on the Maturity Date or upon a sale or exchange
of
the Notes prior to the Maturity Date differs from your tax basis
on the
Notes (which will generally be the amount you paid for the Notes).
See
“Certain U.S. Federal Income Tax Considerations”
herein.
|
Selected
Risk Considerations
|
·
|
Possible
loss of principal—The Notes are not principal protected. If, on the
Valuation Date, the Portfolio Return is less than zero, the Cash
Settlement Value you will receive will be less than the initial offering
price. In that case, you will receive less, and possibly significantly
less, than your initial investment in the
Notes.
|
|
·
|
No
current income—We will not pay any interest on the Notes. The yield on the
Notes, therefore, 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 Date from an issuer with a comparable credit
rating.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the stocks underlying
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. Our subsidiary, Bear,
Stearns & Co. Inc. has advised us that they intend under ordinary
market conditions to indicate prices for the Notes upon 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 of one or more
of the Components increases, the level of one or more of the other
Components may decline. Therefore, in calculating the Portfolio Return,
increases in the level of one or more of the Components may be moderated,
or wholly offset, by lesser increases or declines in the level of
one or
more of the other Components.
|
KEY
TERMS
Issuer:
|
The
Bear Stearns Companies Inc.
|
Components:
|
The
following are the three equity indices within the Portfolio: (1)
the SPX;
(2) the SX5E; and (3) the NKY. (Each such index is a “Component”
and together the “Portfolio.”) The weighting of each Component within the
Portfolio is fixed at 1/3 and will not change during the term of
the Notes
unless one or more Components are modified during the term of the
Notes as
further described herein.
|
|
Standard
& Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) as
the sponsor of the S&P 500®
Index, STOXX Limited, a partnership of Deutsche Börse AG, Dow Jones &
Company and the SWX Group as the sponsor of the Dow Jones EURO STOXX
50®
Index, and Nihon Keizai Shimbun, Inc. as the sponsor of the Nikkei
225™
Stock Index are hereinafter referred to as “Component Sponsors.” 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 $1,000 and $1,000 multiples thereafter;
provided,
however, that the minimum purchase for any purchaser domiciled in
a member
state of the European Economic Area shall be $100,000. The aggregate
principal amount of the Notes being offered is $[l].
When we refer to “Note” or “Notes” in this pricing supplement, we mean
Notes 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,
on the Valuation Date, the Portfolio Return is greater than or equal
to
zero, the Cash Settlement Value is equal to the $1,000 principal
amount of
the Notes, plus the product of (i) $1,000 multiplied by (ii) the
Portfolio
Return multiplied by (iii) the Participation
Rate.
|
|
If,
on the Valuation Date, the Portfolio Return is less than zero, the
Cash
Settlement Value for each Note will be equal to the product of (i)
$1,000
multiplied by (ii) the Final Portfolio Value divided by the Initial
Portfolio Value.
|
Participation
Rate:
|
[135.00]%
|
Portfolio
Return:
|
An
amount determined by the Calculation Agent and calculated as the
difference of (i) the Final Portfolio Value divided by the Initial
Portfolio Value minus (ii) one.
|
|
For
purposes of determining the Portfolio
Return:
|
|
“Final
Portfolio Value”
equals the Portfolio Value on the Valuation Date, as determined by
the
Calculation Agent.
|
|
“Initial
Portfolio Value”
equals the Portfolio Value on the Pricing Date, or 100.
|
|
“Portfolio
Value”,
on the Valuation Date, is calculated as follows:
|
|
“Final
Level”
means, as of the Valuation Date and for each Component, the closing
index
level as reported by the relevant Component Sponsor and displayed
on
Bloomberg Page SPX <Index> <Go> with respect to the SPX,
Bloomberg Page SX5E <Index> <Go> with respect to the SX5E, and
Bloomberg Page NKY <Index> <Go> with respect to the
NKY.
|
|
“Initial
Level”
means (i)
[l]
with respect to the SPX; (ii) [l]
with respect to the SX5E; (iii) and [l]
with respect to the NKY,
in each case, representing the closing level of the respective Component
on
the Pricing Date.
|
Pricing
Date:
|
October
[l],
2007.
|
Issue
Date:
|
October
[l],
2007.
|
Valuation
Date:
|
October
[l],
2009; 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
Valuation 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
Valuation Date, the Valuation 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 Valuation 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 Valuation Date
for that
Component. For the avoidance of doubt, if no Market Disruption Event
exists with respect to a Component on the Valuation Date, the
determination of the Final Level for such Component will be made
on the
Valuation Date, irrespective of the existence of a Market Disruption
Event
with respect to one or more of the other Components.
|
Maturity
Date:
|
The
Notes are expected to mature on October [l],
2009 unless such date is not a Business Day, in which case the Maturity
Date shall be the next Business Day. If the Valuation Date is postponed,
the Maturity Date will be three Business Days following the Valuation
Date, as postponed for the last Component for which a Final 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 each Component, any day on which the Relevant Exchange
and
each Related Exchange 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.
|
Relevant
Exchanges:
|
Means
(i) the New York Stock Exchange, Nasdaq Stock Market and their successors
with respect to the SPX; (ii)
the major stock exchanges, respectively located in one of 12 European
countries, including London Stock Exchange, Frankfurt Stock Exchange
and
their successors with respect to the SX5E; and (iii) the Tokyo Stock
Exchange and its successor (the “TSE”) with respect to the NKY, which, for
each Component, represents the primary exchanges or markets of trading
of
any security then included in such
Component.
|
Related
Exchange:
|
Means,
with respect to any 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 a
Component.
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $1,000, the minimum purchase for any purchaser
domiciled in a member state of the European 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 Return. The Notes will
not bear interest, and no other payments will be made prior to maturity. The
Notes are not principal protected if held to maturity. However, the Notes differ
from conventional debt securities in that the Notes offer the opportunity to
participate in [135.00]% of the positive performance of the Portfolio Return,
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 October [l],
2009.
The Notes do not provide for earlier redemption. When we refer to Notes in
this
pricing supplement, we mean Notes with a principal amount of $1,000. You should
refer to the section “Description of 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, including the risk that you may lose
up
to 100% of your initial investment in the Notes. 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 participate in [135.00]% of the
positive performance of the Portfolio Value over the term of the Notes relative
to the Initial Portfolio Value. On the Maturity Date, you will receive the
Cash
Settlement Value, which is based on the performance of the Portfolio over the
term of the Notes as measured by the Portfolio Return. The “Portfolio Return” is
calculated as the difference of (i) the Final Portfolio Value divided by the
Initial Portfolio Value minus (ii) one. The “Final Portfolio Value” equals the
Portfolio Value on the Valuation Date and the “Initial Portfolio Value” equals
the Portfolio Value on the Pricing Date, or 100, in each case as determined
by
the Calculation Agent.
If,
on
the Valuation Date, the Portfolio Return is greater than or equal to zero,
then
the Cash Settlement Value for each Note will be equal to the $1,000 principal
amount of the Note, plus the product of (i) $1,000 multiplied by (ii) the
Portfolio Return multiplied by (iii) the Participation Rate.
If,
on
the Valuation Date, the Portfolio Return is less than zero, the Cash Settlement
Value for each Note will be equal to the product of (i) $1,000 multiplied by
(ii) the Final Portfolio Value divided by the Initial Portfolio Value. In this
case you will receive less, and possibly significantly less, than your initial
investment in the Notes.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description of the
Notes.”
Are
the Notes principal
protected?
No.
The
Notes are not principal protected and your principal investment in the Notes
is
at risk of loss. If, on the Valuation Date, the Portfolio Return is less than
zero, the Cash Settlement Value you receive will be less than the initial
offering price in proportion to the percentage decline in the Portfolio. In
that
case, you will receive less, and possibly significantly less, than your initial
investment in the Notes.
Will
I receive
interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only payment you
will receive, if any, will be 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 (i) any 30-day option we
grant
to Bear, Stearns & Co. 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
equally-weighted Portfolio is comprised of the following three equity indices:
(1) the SPX; (2) the SX5E; and (3) the NKY. 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 Sponsors 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 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 September 26, 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. The SPX is
quoted in U.S. dollars. 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.
Dow
Jones EURO STOXX 50®
Index.
The
SX5E 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, Euronext Paris SA and SWX Swiss
Exchange. The SX5E is currently comprised of 50 stocks that respectively trade
on major stock exchanges located in one of 12 European countries, including
the
London Stock Exchange, Frankfurt Stock Exchange and others. The SX5E is quoted
in Euros. You can obtain the level of the SX5E from the Bloomberg Financial
Service under the symbol SX5E <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.
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. The NKY is quoted in Japanese
yen. 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.
How
have
the Components performed historically?
We
have
provided tables depicting the month-end closing levels for each of the
Components for each month beginning with January 1998. You can find these tables
in the section “Description of the Portfolio—Historical Data on the Components.”
We have provided this historical information to help you evaluate the behavior
of the Components in various economic environments; however, the time period
depicted is relatively limited and past performance is not indicative of the
manner in which the Components 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.”
Will
the Notes be listed on a securities exchange?
The
Notes
will not be listed on any securities exchange or quotation system and we do
not
expect a trading market to develop, which may affect the price that you receive
for your Notes upon any sale prior to maturity. Bear Stearns has advised us
that
they intend under ordinary market conditions to indicate prices for the Notes
on
request. However, we cannot guarantee that bids for outstanding Notes will
be
made in the future; nor can we predict the price at which those bids will be
made. In any event, the Notes will cease trading as of the close of business
on
the Maturity Date. You should refer generally to the section “Risk Factors.” If
you sell the Notes prior to maturity, you may receive less, and possibly
significantly less, than your initial investment in the Notes.
What
is the role of Bear,
Stearns & Co. Inc.?
Bear
Stearns will be our agent for the offering and sale of the Notes. After the
initial offering, Bear Stearns intends to buy and sell the Notes to create
a
secondary market for holders of the Notes, and may stabilize or maintain the
market price of the Notes during the initial distribution of the Notes. However,
Bear Stearns will not be obligated to engage in any of these market activities
or to continue them once they are begun.
Bear
Stearns 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 Portfolio, they may be appropriate
for investors with specific investment horizons who seek to participate in
the
potential price appreciation of the Components underlying the Portfolio. 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 Portfolio will increase over the term of the
Notes;
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understand
that the Components may not move in tandem and that at a time when
the
level of one or more of the Components increases, the level of one
or more
of the other Components may decline. Therefore, increases in the
level of
one or more of the Components may be moderated, or wholly offset,
by
lesser increases or declines in the level of one or more of the other
Components;
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are
willing to risk the possible loss of up to 100.00% of their investment
in
exchange for the opportunity to participate in [135.00]% of the
appreciation, if any, of the
Portfolio;
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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 of the
Portfolio.
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The
Notes
may not be a suitable investment for you if:
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you
seek principal protection;
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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 have a bullish view of the Portfolio over the term of the
Notes.
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What
are the U.S. federal income tax consequences of investing in the
Notes?
The
U.S.
federal income tax consequences of an investment in the Notes are complex and
uncertain. We intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts linked to the value of the Portfolio and,
where
required, to file information returns with the Internal Revenue Service in
accordance with such treatment. Prospective investors are urged to consult
their
tax advisors regarding the U.S. federal income tax consequences of an investment
in the Notes. Assuming the Notes are treated as pre-paid cash-settled executory
contracts, you should be required to recognize capital gain or loss to the
extent that the cash you receive on the Maturity Date or upon a sale or exchange
of the Notes prior to the Maturity Date differs from your tax basis on the
Notes
(which will generally be the amount you paid for the Notes). It is possible
that
certain of the securities underlying the Components could be treated as “pass
thru entities” for purposes of section 1260 of the Code, in which case the
“constructive ownership” rules of section 1260 could cause a portion of any long
term capital gain that is recognized on sale, exchange, maturity, or other
taxable disposition of the Notes to be treated as ordinary income and subject
to
an interest charge. Because of the uncertainty regarding the tax treatment
of
the Notes, we urge you to consult your tax advisor as to the tax consequences
of
your investment in a Note. You should review the discussion under the section
“Certain U.S. Federal Income Tax Considerations.”
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to 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. These risks include the
possibility that the Components will fluctuate. 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.
The
Notes are not principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes are not principal protected. If,
on the Valuation Date, the Portfolio Return is less than zero, the Cash
Settlement Value you will receive will be less than the initial offering price
in proportion to the percentage decline in the Portfolio. In that case, you
will
receive less, and possibly significantly less, than your initial investment
in
the Notes.
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.”
Owning
the Notes is not the same as having rights in the securities underlying the
Components.
Even
if
the Components increase above their respective Initial 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 any of the Components and the securities underlying any
of
the Components. These views may vary over differing time horizons and are
subject to change without notice. Moreover, other professionals who deal in
the
equity markets may at any time have views that differ significantly from ours.
In connection with your purchase of the Notes, you should investigate the
Components and the securities underlying any of the Components and not rely
on
our views with respect to future movements in these industries and stocks.
You
should make such investigation as you deem appropriate as to the merits of
an
investment linked to the 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
in
respect of the securities underlying the Components. Therefore, the yield you
will receive by holding the Notes to maturity will not be the same as if you
had
purchased the Components and held them for a similar period. You should refer
to
the section “Description of the Notes” for a detailed description of the notes
prior to making an investment in the Notes.
Because
the treatment of the Notes is uncertain, the material U.S. federal income tax
consequences of an investment in the Notes are uncertain.
Although
we intend to treat the Notes for all tax purposes as pre-paid cash-settled
executory contracts linked to the Portfolio, there is no direct legal authority
as to the proper tax treatment of the Notes, and therefore significant aspects
of the tax treatment of the Notes are uncertain. In particular, it is possible
that you will be required to recognize income for U.S. federal tax purposes
with
respect to the Notes prior to the sale, exchange or maturity of the Notes,
and
it is possible that any gain or income recognized with respect to the Notes
will
be treated as ordinary income rather than capital gain. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in the Notes. Please read carefully the section
“Certain U.S. Federal Income Tax Considerations.”
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the Portfolio Value will fluctuate in accordance with changes in the
financial condition of the companies issuing the securities comprising the
Components, the level of the underlying securities comprising the Components
generally and other factors. The financial condition of the companies issuing
the securities 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 Portfolio Value and thus in the value of the Notes. Common
stocks are susceptible to general equity market fluctuations and to volatile
increases and decreases in value, as market confidence in and perceptions
regarding the underlying securities comprising the Components change. Investor
perceptions regarding the companies issuing the securities 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 Portfolio Value 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 which is included in this pricing
supplement, should not be taken as an indication of the future performance
of
the Components. While the trading prices of the underlying securities comprising
the Components will determine the Portfolio Value, it is impossible to predict
whether the Portfolio Value will fall or rise. Trading prices of the underlying
securities comprising the Components will be influenced by the complex and
interrelated economic, financial, regulatory, geographic, judicial, political
and other factors that can affect the capital markets generally and the equity
trading markets on which the underlying securities are traded, in particular,
and by various circumstances that can influence the levels of the underlying
securities in a specific market segment or the value of a particular underlying
stock.
The
Cash Settlement Value will not be adjusted for changes in currency exchange
rates.
Although
the securities underlying certain of the Components are traded in currencies
other than the U.S. dollar and the Notes are denominated in U.S. dollars, the
amount payable on the Maturity Date will not be adjusted for the currency
exchange rates in effect on the Maturity Date. Any amount in addition to the
principal amount of each Note payable to you on the Maturity Date is based
solely upon the percentage increase in the Portfolio Return. Changes in exchange
rates, however, may reflect changes in various international economies, which
in
turn may affect the levels of the Components and the Notes.
The
securities underlying certain Components trade at different times; however,
if
an active secondary market develops, the Notes may trade only during regular
trading hours in the United States.
The
hours
of trading for the Notes may not conform to the hours during which the
securities underlying certain of the Components are traded. To the extent that
U.S. markets are closed while other markets remain open, significant price
and
rate movements may take place in the markets for the securities comprising
certain of the Components that will not be reflected immediately in the price
of
the Notes.
As
a
result of the time difference among the cities where the securities underlying
certain of the Components trade, and New York City (where the Notes may trade),
there may be discrepancies between the levels of the Components, and the trading
prices of the Notes. In addition, there may be periods when the international
securities markets are closed for trading (for example during holidays in an
applicable country), causing the level of a particular Component to remain
unchanged for multiple New York City trading days.
Your
return may be affected by factors affecting international securities markets.
The
securities underlying two of the Components are issued by international
companies. Investors should be aware that investments linked to the value of
international equity securities might involve particular risks. The
international securities markets may have less liquidity and could be more
volatile than U.S. or other longer-established international securities markets.
Direct or indirect government intervention to stabilize the international
securities markets, as well as cross-shareholdings in international companies,
may affect trading prices and volumes in those markets. Also, there is generally
less publicly available information about international companies than about
those U.S. companies that are subject to the reporting requirements of the
SEC;
and international companies are often subject to accounting, auditing and
financial reporting standards and requirements that differ from those applicable
to U.S. reporting companies. The other special risks associated with investments
linked to the value of international equity securities may include, but are
not
necessarily limited to: the imposition of taxes; higher transaction and custody
costs; settlement delays and risk of loss; difficulties in enforcing contracts;
less liquidity and smaller market capitalizations; less rigorous regulation
of
securities markets; governmental interference; higher inflation; and social,
economic and political uncertainties. These factors may adversely affect the
performance of certain of the Components and, as a result, the Cash Settlement
Value may be adversely affected.
The
prices and performance of securities underlying the Components also may be
affected by political, economic, financial and social factors. In addition,
recent or future changes in the government, economic and fiscal policies, the
possible imposition of, or changes in, currency exchange laws or other laws
or
restrictions, and possible fluctuations in the rate of exchange between
currencies, are factors that could negatively affect the international
securities markets. Moreover, the applicable international economies may differ
favorably or unfavorably from that of the United States.
The
Components may not move in tandem, and gains in one Component may be offset
by
declines in another Component.
Movements
in the Components comprising the Portfolio may not move in tandem. At a time
when the level of one or more of the Components increases, the level of one
or
more of the other Components may decline. Therefore, in calculating the
Portfolio Return, increases in the level of one or more of the Components may
be
moderated, or wholly offset, by lesser increases or declines in the level of
one
or more of the other Components.
The
price at which you will be able to sell your Notes prior to maturity will depend
on a number of factors, and may be substantially less than the amount you had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
alternative would be to sell them. At that time, there may be an illiquid market
for Notes or no market at all. Even if you were able to sell your Notes, there
are many factors outside of our control that may affect their trading value.
We
believe that the value of your Notes will be affected by the level and
volatility of the Portfolio, whether the closing levels of the Components are
greater than or equal to their respective Initial Levels, changes in U.S.
interest rates, the supply of and demand for the Notes and a number of other
factors. Some of these factors are interrelated in complex ways; as a result,
the effect of any one factor may be offset or magnified by the effect of another
factor. The price, if any, at which you will be able to sell your Notes prior
to
maturity may be substantially less than the amount you originally invested
if,
at such time, the Portfolio Value is less than, equal to or not sufficiently
above the Initial Portfolio Value. 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 Value at any given time
has
increased relative to the Initial Portfolio Value. If you decide
to sell
your Notes when the Portfolio Value has increased relative to the
Initial
Portfolio Value, you may nonetheless receive substantially less than
the
amount that would be payable at maturity based on that Portfolio
Value
because of expectations that the Portfolio Value 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 Value increases
or
decreases, the trading value of the Notes may be adversely affected.
This
volatility may increase the risk that the Portfolio Value 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 levels of the Components underlying the
Portfolio.
Correlation is the extent to which the levels of the Components underlying
the Portfolio increase or decrease to the same degree at the same
time. To
the extent that correlation among the Components underlying the Portfolio
changes, the volatility of the Components underlying the Portfolio
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 interest rates. In general, if 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
Portfolio Value, which may affect the value of the Notes. Rising
interest
rates may lower the Portfolio Value 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 Portfolio Value, 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 any of the Components. In general, because the
Portfolio
does not incorporate the value of dividend payments, higher dividend
yields will likely reduce the value of the Notes and, conversely,
lower
dividend yields are expected to increase the value of the
Notes.
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Volatility
of currency exchange rates.
The exchange rates between the U.S. dollar and the foreign currencies
in
which the securities underlying certain of the Components are denominated
are foreign exchange spot rates that measure the relative values
of two
currencies: the particular currency in which the securities underlying
a
particular Component are denominated and the U.S. dollar. The spot
rate is
expressed as a rate that reflects the amount of the particular currency
that can be purchased for one U.S. dollar. If the volatility of the
exchange rate between the U.S. dollar and any of the foreign currencies
in
which the securities underlying certain of the Components are denominated
changes, the trading value of the Notes may be adversely
affected.
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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 securities underlying certain
of
the Components are denominated and the percentage changes between
each
Component. If the correlation between the relevant exchange rates
and the
particular Component changes, the trading value of the Notes may
be
adversely affected.
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Events
involving the companies issuing the securities comprising the
Components.
General economic conditions and earnings results of the companies
whose
securities comprise the Components, and real or anticipated changes
in
those conditions or results, may affect the trading value of the
Notes.
Some of the securities underlying the Components may be affected
by
mergers and acquisitions, which can contribute to volatility of the
Portfolio. As a result of a merger or acquisition, one or more securities
in the Components may be replaced with a surviving or acquiring entity’s
securities. The surviving or acquiring entity’s securities may not have
the same characteristics as the securities originally included in
the
Component.
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Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange or quotation
system and we do not expect a trading market to develop. There may
not be
a secondary market in the Notes, which may affect the price that
you
receive for your Notes upon any sale prior to maturity. If a trading
market does develop, there can be no assurance that there will be
liquidity in the trading market. If the trading market for the Notes
is
limited, there may be a limited number of buyers for your Notes if
you do
not wish to hold your investment until maturity. This may affect
the price
you receive upon any sale of the Notes prior to maturity. If you
sell the
Notes prior to maturity, you may receive less, and possibly significantly
less, than your initial investment in the
Notes.
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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 Bear Stearns
may
be willing to purchase the Notes in secondary market transactions
may be
lower than the original price of the Notes, because the original
price
included, and secondary market prices are likely to exclude, commissions
paid with respect to the Notes, as well as the projected profit included
in the cost of hedging our obligations under the Notes. In addition,
any
such prices may differ from values determined by pricing models used
by
Bear Stearns as a result of dealer discounts, mark-ups or other
transaction costs.
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Bear
Stearns has advised us that they intend under ordinary market conditions to
indicate prices for the Notes on request. However, we cannot guarantee that
bids
for outstanding Notes will be made in the future, nor can we predict the price
at which any such bids will be made.
We
want
you to understand that the effect of one of the factors specified above, 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
Portfolio Value.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any of the stocks underlying the
Components. Neither you nor any other holder or owner of the Notes will have
any
voting rights, any right to receive dividends or other distributions or any
other rights with respect to the underlying stocks. The Cash Settlement Value,
if any, will be paid in cash, and you will have no right to receive delivery
of
any stocks underlying the Components.
Reported
levels for the Components may be based on non-current
information.
If
trading is interrupted in the securities underlying certain of the Components,
publicly available information regarding the Portfolio Value may be based on
the
last reported prices or levels. As a result, publicly available information
regarding reported levels for the Components may at times be based on
non-current information.
Suspensions
or disruptions of market trading in the equity securities markets may adversely
affect the Cash Settlement Value at maturity and/or the market value of the
Notes.
The
equity securities markets are subject to temporary distortions or other
disruptions due to various factors, including a lack of liquidity in the
markets, the participation of speculators and potential government regulation
and intervention. Suspension or other disruptions of market trading in the
securities underlying certain of the Components could adversely affect the
levels of those Components and, therefore, the Cash Settlement Value and/or
the
trading value of the Notes.
Adjustments
to the Components could adversely affect the value of the
Notes.
The
policies of a Component Sponsor concerning additions, deletions and
substitutions of the securities underlying the applicable Component and the
manner in which that Component Sponsor takes account of certain changes
affecting those underlying securities may affect the level of the Component
and
thus the Portfolio. You should realize that changes in the companies included
in
a Component may affect the Component, as a newly-added company may perform
significantly better or worse than the company or companies it replaces. The
Component Sponsor also may discontinue or suspend calculation or dissemination
of that Component or materially alter the methodology by which it calculates
that Component. 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. The Calculation Agent will make
certain determinations and judgments in connection with calculating the Cash
Settlement Value, or deciding whether a Market Disruption Event (as defined
herein) has occurred. You should refer to “Description of the
Notes—Discontinuance of one or more Components,” “—Adjustments to the
Components” and “—Market Disruption Events.” Because Bear Stearns is our
affiliate, conflicts of interest may arise in connection with Bear Stearns
performing its role as Calculation Agent. Rules and regulations regarding
broker-dealers (such as Bear Stearns) require Bear Stearns to maintain policies
and procedures regarding the handling and use of confidential proprietary
information, and such policies and procedures will be in effect throughout
the
term of the Notes. Bear Stearns is obligated to carry out its duties and
functions as Calculation Agent in good faith, and using its reasonable judgment.
See “Description of the Notes - Calculation Agent.”
Our
affiliates, including Bear Stearns, may, at various times, engage in
transactions involving the securities underlying the Portfolio for their
proprietary accounts, and for other accounts under their management. These
transactions may influence the value of such securities, and therefore the
Portfolio Value. BSIL, an affiliate of Bear Stearns, or one of its subsidiaries
will also be the counterparty to the hedge of our obligations under the Notes.
You should refer to “Use of Proceeds and Hedging.” Accordingly, under certain
circumstances, conflicts of interest may arise between Bear Stearns’
responsibilities as Calculation Agent with respect to the Notes and BSIL’s
obligations under our hedge.
Changes
that affect the calculation of a Component will affect the trading value of
the
Notes and the amount you will receive at maturity.
The
Component Sponsors are responsible for calculating and maintaining the
Components. The policies of a Component Sponsor concerning the calculation
of a
Component will affect the level of such Component and, therefore, the trading
value of the Notes and the Cash Settlement Value.
If
a
Component Sponsor discontinues or suspends calculation or publication of a
Component, it may become difficult to determine the trading value of the Notes
or the Cash Settlement Value. If a Component Sponsor discontinues or suspends
calculation of a Component at any time prior to the Maturity Date and a
Successor Component is not available or is not acceptable to the Calculation
Agent, then the Calculation Agent will determine the amount payable on the
Maturity Date by reference to a group of stocks and a computation methodology
that the Calculation Agent determines will as closely as reasonably possible
replicate the Component. In addition, if the method of calculating a Component
(or a Successor Component) is changed in a material respect, or if a Component
(or a Successor Component) is in any other way modified so that such Component
(or Successor Component) does not, in the opinion of the Calculation Agent,
fairly represent the level of the Component (or Successor Component) had such
changes or modifications not been made, the Calculation Agent will make such
calculations and adjustments as may be necessary to arrive at a level of a
security index comparable to the Component (or Successor Component) as if such
changes or modifications had not been made. In each such event, the Calculation
Agent’s determination of the value of the Notes will affect the amount you will
receive at maturity. See “Description of the Notes” and “Description of the
Portfolio.”
We
cannot control actions by
any of the companies whose securities are included in any
Component.
Our
common stock 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
level of the Component and the Portfolio Value, and the trading value of the
Notes. None of those companies are involved in this offering or have 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 Component Sponsor and are not
responsible for any Component Sponsor’s public disclosure of information.
We
and
our affiliates are not affiliated in any way with any Component Sponsor (except
for the licensing arrangements discussed in the section “Description of the
Portfolio—License Agreements”) and have no ability to control or predict any
Component Sponsor’s actions, including any errors in or discontinuation of
disclosure regarding its methods or policies relating to the calculation of
the
applicable Component. Neither we nor any of our affiliates assumes any
responsibility for the adequacy or accuracy of the information about the
Components or the Component Sponsors contained in this pricing supplement.
You,
as an investor in the Notes, should make your own investigation into the
Components and the Component Sponsors. The Component Sponsors are not involved
in any way in the offering of the Notes and have no obligation to consider
your
interests as an owner of Notes when they take any actions that might affect
the
value of the Notes.
Trading
and other transactions by us or our affiliates could affect the prices of the
stocks underlying the Components, the Final Levels, the Portfolio Value, the
trading value of the Notes or the amount you may receive at
maturity.
We
and
our affiliates may from time to time buy or sell shares of the securities
underlying the Components or derivative instruments related to those securities
for our own accounts in connection with our normal business practices or in
connection with hedging our obligations under the Notes and other instruments.
These trading activities may present a conflict of interest between your
interest in the Notes and the interests we and our affiliates may have in our
proprietary accounts, in facilitating transactions, including block trades,
for
our other customers and in accounts under our management. The transactions
could
affect the prices of those securities, the Final Levels or the Portfolio Value
in a manner that would be adverse to your investment in the Notes. See the
section “Use of Proceeds and Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Bear
Stearns will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Bear Stearns as a result of transaction costs. If you sell the Notes
prior to maturity, you may receive less, and possibly significantly less, than
your initial investment in the Notes.
Hedging
activities we or our affiliates may engage in may affect the Portfolio Value
and, accordingly, increase or decrease the trading value of the Notes prior
to
maturity and the Cash Settlement Value you would receive at maturity. To the
extent that we or any of our affiliates has a hedge position in any of the
securities that underlie the Components, or derivative or synthetic instruments
related to those securities or the Components, we or any of our affiliates
may
liquidate a portion of such holdings at or about the time of the maturity of
the
Notes or at or about the time of a change in the securities that underlie the
Components. Depending on, among other things, future market conditions, the
aggregate amount and the composition of such hedge positions are likely to
vary
over time. Profits or losses from any of those positions cannot be ascertained
until the position is closed out and any offsetting position or positions are
taken into account. Although we have no reason to believe that any of those
activities will have a material effect on the Portfolio Value, we cannot assure
you that these activities will not affect the Portfolio Value and the trading
value of the Notes prior to maturity or the Cash Settlement Value payable at
maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports relating to the Components or the companies issuing the
securities underlying the Components. This research may be modified from time
to
time without notice and may express opinions or provide recommendations that
are
inconsistent with purchasing or holding the Notes. Any of these activities
may
affect the market prices of the securities 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 or a Component thereof. By introducing
competing products into the marketplace in this manner, we or our affiliates
could adversely affect the value of the Notes.
We
and
our affiliates, at present or in the future, may engage in business with the
companies issuing the securities underlying the Components, including making
loans to, equity investments in, or providing investment banking, asset
management or other advisory services to those companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Valuation Date, a Market Disruption
Event has occurred or is continuing, the determination of the Cash Settlement
Value by the Calculation Agent may be deferred. You should refer to the section
“Description of the Notes—Market Disruption Events.”
If
the
Calculation Agent determines that an Event of Default (as defined below) has
occurred, a holder of the Notes will only receive an amount equal to the trading
value of the Notes on the date of such Event of Default, adjusted by an amount
equal to any losses, expenses and costs to us of unwinding any underlying
hedging or funding arrangements, all as determined by the Calculation Agent.
You
should refer to the section “Description of the Notes—Event of Default and
Acceleration.”
You
should decide to purchase the Notes only after carefully considering the
suitability of the Notes in light of your particular financial circumstances.
You should also carefully consider the tax consequences of investing in the
Notes. You should refer to the section “Certain U.S. Federal Income Tax
Considerations” and discuss the tax implications with your own tax
advisor.
DESCRIPTION
OF THE NOTES
The
following description of the Notes (referred to in the accompanying prospectus
supplement as the “Other Indexed Notes”) supplements the description of the
Notes in the accompanying prospectus supplement and prospectus. This is a
summary and is not complete. You should read the indenture, dated as of May
31,
1991, as amended (the “Indenture”), between us and The Bank of New York as
successor in interest to JPMorgan Chase Bank, N.A., as trustee (the “Trustee”).
A copy of the Indenture is available as set forth under the section of the
prospectus “Where You Can Find More Information.”
General
The
Notes
are part of a single series of debt securities under the Indenture described
in
the accompanying prospectus supplement and prospectus designated as Medium-Term
Notes, Series B. The Notes are unsecured and will rank equally with all of
our
unsecured and unsubordinated debt, including the other debt securities issued
under the Indenture. Because we are a holding company, the Notes will be
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 October [l],
2009
and do not provide for earlier redemption. The Notes will be issued only in
fully registered form, and in minimum denominations of $1,000; provided,
however, that the minimum purchase for any purchaser domiciled in a member
state
of the European Economic Area shall be $100,000. Initially, the Notes will
be
issued in the form of one or more global securities registered in the name
of
DTC or its nominee, as described in the accompanying prospectus supplement
and
prospectus. When we refer to Note or Notes in this pricing supplement, we mean
$1,000 principal amount of Notes. The Notes will not be listed on any securities
exchange 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 30-day option we grant to
Bear
Stearns. 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 Portfolio Value 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 may result in a loss because the Notes are not principal protected.
On the Maturity Date, you will receive the Cash Settlement Value, an amount
in
cash that depends on upon the performance of the Portfolio Return.
If,
on
the Valuation Date, the Portfolio Return is greater than or equal to zero,
then
the Cash Settlement Value for each Note will be equal to the $1,000 principal
amount of the Note, plus the product of (i) $1,000 multiplied by (ii) the
Portfolio Return multiplied by (iii) the Participation Rate.
If,
on
the Valuation Date, the Portfolio Return is less than zero, the Cash Settlement
Value for each Note will be equal to the product of (i) $1,000 multiplied by
(ii) the Final Portfolio Value divided by the Initial Portfolio Value. In this
case you will receive less, and possibly significantly less, than your initial
investment in the Notes.
The
Notes
are linked to an equally-weighted portfolio of the following three equity
indices: (1) the SPX; (2) the SX5E; and (3) the NKY. (Each such index is a
“Component” and together the “Portfolio.”) The weighting of each Component
within the Portfolio is fixed at 1/3 and will not change during the term of
the
Notes unless one or more Components are modified during the term of the Notes
as
further described herein.
Portfolio
Return:
|
An
amount determined by the Calculation Agent and calculated as the
difference of (i) the Final Portfolio Value divided by the Initial
Portfolio Value minus (ii) one.
|
|
For
purposes of determining the Portfolio
Return:
|
|
“Final
Portfolio Value”
equals the Portfolio Value on the Valuation Date, as determined by
the
Calculation Agent.
|
|
“Initial
Portfolio Value”
equals the Portfolio Value on the Pricing Date, or 100.
|
|
“Portfolio
Value”,
on the Valuation Date,
is
calculated as follows:
|
|
“Final
Level”
means, as of the Valuation Date and for each Component, the closing
index
level as reported by the relevant Component Sponsor and displayed
on
Bloomberg Page SPX <Index> <Go> with respect to the SPX,
Bloomberg Page SX5E <Index> <Go> with respect to the SX5E; and
Bloomberg Page NKY <Index> <Go> with respect to the NKY.
|
|
“Initial
Level”
means (i) [l]
with respect to the SPX; (ii) [l]
with respect to the SX5E; and (iii) [l]
with respect to the NKY, in each case, representing the closing level
of
the respective Component on the Pricing Date.
|
The
“Participation Rate” is [135.00]%.
The
“Pricing Date” is October [l],
2007.
The
“Issue Date” is October [l],
2007.
The
“Valuation Date” is October [l],
2009;
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 Valuation 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 Valuation Date, the Valuation 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 Valuation
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 Valuation Date for that Component.
For the avoidance of doubt, if no Market Disruption Event exists with respect
to
a Component on the Valuation Date, the determination of the Final Level for
such
Component will be made on the Valuation Date, irrespective of the existence
of a
Market Disruption Event with respect to one or more of the other Components.
A
“Component Business Day” means, with respect to each Component, any day on which
the Relevant Exchange and each Related Exchange 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 [l].
The
Notes are expected to mature on October [l],
2009
unless such date is not a Business Day, in which case the Maturity Date shall
be
the next Business Day. If the Valuation Date is postponed, the Maturity Date
will be three Business Days following the Valuation Date, as postponed for
the
last Component for which a Final Level is determined.
The
“Calculation Agent” is Bear,
Stearns & Co. Inc.
The
“Relevant Exchanges” means (i) the New York Stock Exchange, Nasdaq Stock Market
and their successors with respect to the SPX; (ii) the major stock exchanges,
respectively located in one of 12 European countries, including London Stock
Exchange, Frankfurt Stock Exchange and their successors with respect to the
SX5E; and (iii) the Tokyo Stock Exchange and its successor (the “TSE”) with
respect to the NKY, which, for each Component, represents the primary exchanges
or markets of trading of any security then included in such
Component.
A
“Related Exchange” means, with respect to any 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 Index.
Illustrative
Examples
The
following hypothetical examples are for illustrative purposes and are not
indicative of the future performance of the Components, the Portfolio or the
future value of the Notes. The following hypothetical examples demonstrate
the
hypothetical Cash Settlement Value of a Note based on the assumptions outlined
below. The hypothetical examples do not purport to be representative of every
possible scenario concerning increases or decreases in the Components or the
Portfolio Value. You should not construe these examples as an indication or
assurance of the expected performance of the Notes. Actual returns may be
different. Numbers may be rounded for ease of use. The examples demonstrating
the hypothetical Cash Settlement Value of a Note are based on the following
assumptions:
|
·
|
Investor
purchases $1,000 aggregate principal amount of Notes at the initial
public
offering price of $1,000.
|
|
·
|
Investor
holds the Notes to maturity.
|
|
·
|
The
Initial Level for the SPX is equal to 1,525.00.
|
|
·
|
The
Initial Level for the SX5E is equal to 4,400.00.
|
|
·
|
The
Initial Level for the NKY is equal to
16,500.00.
|
|
·
|
All
returns are based on a 24-month term, pre-tax
basis.
|
|
·
|
No
Market Disruption Events or Events of Default occur during the term
of the
Notes.
|
Example
1: At maturity, the Final Portfolio Value is greater than the Initial Portfolio
Value.
In
this
example, the Portfolio Value generally increases relative to the Initial
Portfolio Value over the term of the Notes. On the Valuation Date, the Final
Levels for the SPX, SX5E, and NKY are 1,760.00, 4,713.00, and 29,507.00,
respectively. On the Valuation Date, the Final Portfolio Value is equal to
133.78, as calculated below:
The
Final
Portfolio Value equals the following:
=
133.78
The
Portfolio Return equals the difference of (i) the Final Portfolio Value divided
by the Initial Portfolio Value minus (ii) one, or as follows:
In
this
example, using the formula below, the Cash Settlement Value will equal
$1,456.03.
Cash
Settlement Value
Example
2: At maturity, the Final Portfolio Value is less than the Initial Portfolio
Value.
In
this
example, the Portfolio Return on the Valuation Date is less than zero. On the
Valuation Date, the Final Levels for the SPX, SX5E, and NKY are 1,291.00,
3,635.00, and 11,586.00, respectively. On the Valuation Date, the Final
Portfolio Value is equal to 79.16, as calculated below:
The
Final
Portfolio Value equals the following:
=
79.16
The
Portfolio Return equals the difference of (i) the Final Portfolio Value divided
by the Initial Portfolio Value minus (ii) one, or as follows:
In
this
example, since the Portfolio Return would be less than zero, the Cash Settlement
Value for each Note, using the formula below, would be $791.60.
Cash
Settlement Value
Example
3: During the term of the Notes, the levels of the Components fluctuate and
at
maturity the Final Portfolio Value is slightly greater than the Initial
Portfolio Value.
In
this
example, during the term of the Notes the levels of the Components fluctuate
and
the Portfolio Return on the Valuation Date is slightly greater than zero. On
the
Valuation Date, the Final Levels for the SPX, SX5E, and NKY are 2,093.00,
4,642.00, and 9,950.00, respectively. On the Valuation Date, the Final Portfolio
Value is equal to 101.02, as calculated below:
The
Final
Portfolio Value equals the following:
=
101.02
The
Portfolio Return equals the difference of (i) the Final Portfolio Value divided
by the Initial Portfolio Value minus (ii) one, or as follows:
In
this
example, using the formula below, the Cash Settlement Value will equal
$1,013.77.
Cash
Settlement Value
Summary
of Illustrative Examples 1-3 Reflecting the Relevant Cash Settlement
Value
|
Example
1
|
Example
2
|
Example
3
|
Initial
Portfolio Value
|
100.00
|
100.00
|
100.00
|
Hypothetical
Final Portfolio Value
|
133.78
|
79.16
|
101.02
|
Portfolio
Return (expressed as a percentage)
|
33.78%
|
-20.84%
|
1.02%
|
Upside
Participation Rate
|
135%
|
135%
|
135%
|
Hypothetical
Return on Investment
|
45.60%
|
-20.84%
|
1.38%
|
Cash
Settlement Value per Note
|
$1,456.03
|
$791.60
|
$1,013.77
|
Discontinuance
of one or more Components
If
a
Sponsor discontinues publication of or otherwise fails to publish any Component
and such Sponsor or another entity publishes a successor or substitute Component
that the Calculation Agent determines to be comparable to the discontinued
Component (the new Component being referred to as a “Successor Component”), then
the Final Level for that Component will be determined by reference to the level
of the Successor Component at the close of trading on the Relevant Exchanges
or
markets for the Successor Component on the Valuation Date.
Upon
any
selection by the Calculation Agent of a Successor Component, the Calculation
Agent will cause notice thereof to be furnished to us and the Trustee. If a
Successor Component is selected by the Calculation Agent, the Successor
Component will be used as a substitute for the Component for all purposes,
including for purposes of determining whether a Market Disruption Event exists
with respect to the Component.
If
a
Component is discontinued or if a Sponsor fails to publish the Component prior
to, and such discontinuance is continuing on the Valuation Date and the
Calculation Agent determines that no Successor Component is available at such
time, then the Calculation Agent will determine the level to be used for the
Final Level for that Component on the Valuation Date, for such Component. The
Final Level to be used for the Valuation Date, will be computed by the
Calculation Agent in accordance with the formula for and method of calculating
that Component last in effect prior to the discontinuance, failure or
modification but using only those securities that comprised that Component
immediately prior to such discontinuance, failure or modification. In such
event, the Calculation Agent will cause notice thereof to be furnished to us
and
the Trustee.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the
Component may adversely affect the value of, and trading in, the
Notes.
Adjustments
to the Components
If
at any
time the method of calculating a Component or a Successor Component is changed
in a material respect, or if a Component or a Successor Component is in any
other way modified so that such Component or Successor Component does not,
in
the opinion of the Calculation Agent, fairly represent the level of the
Component or Successor Component had such changes or modifications not been
made, then, for purposes of calculating the Final Levels or the Cash Settlement
Value or making any other determinations as of or after such time, the
Calculation Agent will make such calculations and adjustments as, the
Calculation Agent determines may be necessary in order to arrive at a level
of a
Component comparable to the Component or Successor Component, as the case may
be, as if such changes or modifications had not been made, and calculate the
Cash Settlement Value (including the components thereof) with reference to
the
Component or the Successor Component, as adjusted. Accordingly, if the method
of
calculating a Component or Successor Component is modified so that the level
of
that Component is a fraction of what it would have been if it had not been
modified (e.g., due to a split in the Component), then the Calculation Agent
will adjust that Component in order to arrive at a level of the Component or
the
Successor Component as if it had not been modified (e.g., as if such split
had
not occurred). In such event, the Calculation Agent will cause notice thereof
to
be furnished to us and the Trustee.
In
the
event that, on the Valuation Date, a Component is not calculated by the relevant
Sponsor but is calculated by a third party acceptable to the Calculation Agent,
the Calculation Agent will use such third party’s calculation as its reference
for determining the Final Portfolio Value.
Market
Disruption Events
If
there
is a Market Disruption Event with respect to a Component on the Valuation Date,
the Final Level of that Component will be determined on the first succeeding
Component Business Day on which there is no Market Disruption Event with respect
to that Component. In no event, however, will the Valuation 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 Valuation
Date. In that case, the third Component Business Day will be deemed to be the
Valuation Date, notwithstanding the Market Disruption Event, and the Calculation
Agent will determine the level of that 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 security underlying the Component as described
above (or, if trading in any such security has been materially suspended or
materially limited, the Calculation Agent’s estimate of the closing level that
would have prevailed but for such suspension or limitation) as of that third
Component Business Day. For the avoidance of doubt, if no Market Disruption
Event exists with respect to a Component, the Final Level of that Component
shall be determined on the scheduled Valuation Date. In the event of a Market
Disruption Event on the Valuation Date, the Maturity Date will be three Business
Days following the Valuation Date, as postponed for the last Component for
which
a Final Level is determined.
A
“Market
Disruption Event” with respect to a Component means the occurrence or existence
at any time of a condition specified below that the Calculation Agent determines
to be material:
(a) any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Relevant Exchanges or Related Exchanges or
otherwise, (A) relating to any security underlying a Component or (B) in futures
or options contracts relating to the Component on any Related
Exchange;
(b) any
event
(other than an event described in (c) below) that disrupts or impairs (as
determined by the Calculation Agent) the ability of market participants in
general (A) to effect transactions in, or obtain market values for or relating
to any security underlying a Component or (B) to effect transactions in, or
obtain market values for, futures or options contracts relating to the Component
on any Related Exchange;
(c) the
closure on any Component Business Day of any Relevant Exchange relating to
any
security underlying a Component or any Related Exchange prior to its weekday
closing time, without regard to after hours or any other trading outside of
the
regular trading session hours, unless such earlier closing time is announced
by
such Relevant Exchange or Related Exchange at least one hour prior to the
earlier of (i) the actual closing time for the regular trading session on such
Relevant Exchange or Related Exchange on such Component Business Day for such
Relevant Exchange or Related Exchange and (ii) the submission deadline for
orders to be entered into the Relevant Exchange system for execution at the
close of trading on such Component Business Day for such Relevant Exchange
or
Related Exchange; or
(d) any
Component Business Day on which any Relevant Exchange or Related Exchange fails
to open for trading during its regular trading session.
For
the
purposes of determining whether a Market Disruption Event in respect of the
Component exists at any time, if a Market Disruption Event occurs in respect
of
a security included in the Component at any time, then the relevant percentage
contribution of that security to the level of the Component shall be based
on a
comparison of (x) the portion of the level of the Component attributable to
that
security and (y) the overall level of the Component, in each case immediately
before the occurrence of such Market Disruption Event.
“Related
Exchange” means, with respect to any 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.
“Relevant
Exchange” means the primary exchange or market of trading of any security then
included in the Component.
“Component
Business Day” means, with respect to each Component, any day on which the
Relevant Exchange and each Related Exchange are scheduled to be open for
trading.
For
purposes of the above definition:
(a) a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the Relevant Exchange, and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, NASD Rule 4120 or any analogous rule
or regulation enacted or promulgated by the NYSE, NASD or any other self
regulatory organization or the SEC of similar scope as determined by the
Calculation Agent, will be considered “material.”
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt
Securities—Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect to
any
Notes has occurred and is continuing, then the amount payable to you, as a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Bear Stearns in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations made
by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders of
the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error by
the
Calculation Agent, or any failure by it to act in good faith, in making a
determination adversely affecting the payment of principal, interest or premium
on principal to holders would entitle the holders, or the Trustee acting on
behalf of the holders, to exercise rights and remedies available under the
Indenture. If the Calculation Agent uses its discretion to make any
determination, the Calculation Agent will notify us and the Trustee, who will
provide notice to the registered holders of the Notes.
DESCRIPTION
OF THE PORTFOLIO
All
disclosures contained in this Supplement regarding the Components are derived
from publicly available information. Neither the Bank nor any Agent 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 components,
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 September 26, 2007, shares
of
426 companies included in the SPX are traded on the New York Stock Exchange
and
shares of 74 companies included in the SPX are traded on The Nasdaq Stock
Market. Standard & Poor’s chooses companies for inclusion in the SPX with
the aim of achieving a distribution by broad industry groupings that
approximates the distribution of these groupings in the common stock population
of the New York Stock Exchange (the “NYSE”), which Standard & Poor’s uses as
an assumed model for the composition of the total market. Relevant criteria
employed by Standard & Poor’s include the viability of the particular
company, the extent to which that company represents the industry group to
which
it is assigned, the extent to which the market price of that company’s common
stock is generally responsive to changes in the affairs of the respective
industry and the market value and trading activity of the common stock of that
company. Ten main groups of companies comprise the SPX with the number of
companies included in each group, as of September 26, 2007, indicated in
parenthesis: Industrials (53), Utilities (31), Telecommunication Services (9),
Materials (28), Information Technology (74), Energy (32), Consumer Staples
(39),
Consumer Discretionary (88), Healthcare (53) and Financials (93). Changes in
the
SPX are reported daily in the financial pages of many major newspapers, on
the
Bloomberg Financial Service under the symbol “SPX” and on the Standard &
Poor’s website (http://www.spglobal.com). Information contained in the Standard
& Poor’s website is not incorporated by reference in, and should not be
considered a part of, this pricing supplement. The SPX does not reflect the
payment of dividends on the stocks included in the SPX.
Computation
of the SPX
Standard
& Poor’s currently computes the SPX as of a particular time as
follows:
(i) the
product of the market price per share and the number of then outstanding shares
of each component stock as determined as of that time (referred to as the
“market value” of that stock);
(ii) the
market values of all component stocks as of that time are
aggregated;
(iii) the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv) the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “Base
Value”);
(v) the
current aggregate market value of all component stocks is divided by the Base
Value; and
(vi) the
resulting quotient, expressed in decimals, is multiplied by ten.
While
Standard & Poor’s currently employs the above methodology to calculate the
SPX, no assurance can be given that Standard & Poor’s will not modify or
change this methodology in a manner that may affect the performance of the
SPX.
Standard
& Poor’s adjusts the foregoing formula to offset the effects of changes in
the market value of a component stock that are determined by Standard &
Poor’s to be arbitrary or not due to true market fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities of
the
company,
|
|
·
|
the
substitution by Standard & Poor’s of particular component stocks in
the SPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all component stocks, after taking account of the new market price per share
of
the particular component stock or the new number of outstanding shares of that
stock or both, as the case may be, and then determines the new base value in
accordance with the following formula:
The
result is that the base value is adjusted in proportion to any change in the
aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the SPX.
In
addition, Standard & Poor’s’ standard practice is to remove all closely held
shares and shares held between corporations who are both in the calculations
of
the SPX and an Index component’s market value.
License
Agreement with Standard and Poor’s
The
Company has entered, or is exploring entering, into a non-exclusive license
agreement with Standard & Poor’s providing for the license to us, in
exchange for a fee, of the right to use the SPX, which is owned and published
by
Standard & Poor’s, in connection with certain securities, including the
Notes.
The
license agreement between Standard & Poor’s and us provides that the
following language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s.
Standard & Poor’s makes no representation or warranty, express or implied,
to the owners of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes particularly.
Standard & Poor’s only relationship to us is the licensing of certain
trademarks, trade names and service marks of Standard & Poor’s and of the
SPX, which is determined, composed and calculated by Standard & Poor’s
without regard to us or the Notes. Standard & Poor’s has no obligation to
take our needs or the needs of holders of the Notes into consideration in
determining, composing, or calculating the SPX. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of,
prices at which Notes are sold, or quantities of the Notes to be issued or
in
the determination or calculation of the amount payable at maturity. Standard
& Poor’s has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
Standard
& Poor’s does not guarantee the accuracy and/or the completeness of the SPX
or any data included therein and Standard & Poor’s shall have no liability
for any errors, omissions, or interruptions therein. Standard & Poor’s makes
no warranty, express or implied, as to results to be obtained by us, owners
of
the Notes, or any other person or entity from the use of the SPX or any data
included therein. Standard & Poor’s makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the SPX or any data included therein.
Without limiting any of the foregoing, in no event shall Standard & Poor’s
have any liability for any lost profits or indirect, punitive, special, or
consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements between
Standard & Poor’s and the Company.”
Historical
Data on the SPX
The
following table sets forth the month-end closing index levels of the
SPX
for each
month in the period from January 1998 through September 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 Initial Level during the term of the
Notes.
The
closing index level of the SPX
on
September 28, 2007 was 1,526.75.
Month
End Closing Index Levels: January 1998 - September 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
|
|
1,455.27
|
|
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
|
|
1,473.99
|
|
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
|
|
1,526.75
|
|
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 September 2007.
The
Dow Jones EURO STOXX 50®
Index
(“SX5E”)
We
have
derived all information relating to the SX5E, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and is
subject to change by STOXX Limited. STOXX Limited is under no obligation to
continue to publish, and may discontinue or suspend the publication of the
SPX
at any time.
The
SX5E
was created by STOXX Limited, a joint venture between Deutsche Börse AG, Dow
Jones & Company and the SWX Group. Publication of the SX5E began on February
28, 1998, based on an initial EURO STOXX 50®
Index
value of 1,000 at December 31, 1991. The SX5E is reported daily in the financial
pages of many major newspapers, on Bloomberg Page SX5E <Index> <Go>
and on the STOXX Limited website: http://www.stoxx.com.
Information contained in the STOXX Limited website is not incorporated by
reference in, and should not be considered a part of, this Pricing
Supplement.
Computation
of the SX5E
The
SX5E
is composed of 50 component stocks of market sector leaders from within the
SX5E, which includes stocks selected from the Eurozone. The component stocks
have a high degree of liquidity and represent the largest companies across
all
market sectors defined by the Dow Jones Global Classification Standard. The
composition of the SX5E is reviewed annually in September, based on the closing
stock data on the last trading day in August. The component stocks are announced
the first trading day in September. Changes to the component stocks are
implemented on the third Friday in September and are effective the following
trading day. Changes in the composition of the SX5E are made to ensure that
the
SX5E includes the 50 market sector leaders from within the SX5E.
The
SX5E
is calculated with the “Laspeyres formula”, which measures the aggregate price
changes in the component stocks against a fixed base quantity weight. The
formula for calculating the SX5E value can be expressed as follows:
Each
component’s weight is capped at 10% of the SX5E Index’s total free-float market
capitalization. Weights are reviewed quarterly. Within each of the SX5E market
sector indices, the component stocks are ranked by free-float market
capitalization. The largest stocks are added to the selection list until the
coverage is close to, but still less than, 60% of the free-float market
capitalization of the corresponding SX5E market sector index. If the next-ranked
stock brings the coverage closer to 60% in absolute terms, then it is also
added
to the selection list. Any remaining stocks that are current SX5E components
are
added to the selection list. The stocks on the selection list are ranked by
free-float market capitalization. In exceptional cases, the STOXX Limited
Supervisory Board may make additions and deletions to the selection
list.
The
40
largest stocks on the selection list are chosen as components. Any remaining
current components of the SX5E ranked between 41 and 60 are added as index
components. If the component number is still below 50, then the largest stocks
on the selection list are added until the index contains 50 stocks.
The
divisor of the aforementioned formula is adjusted to maintain the continuity
of
the SX5E value across changes due to corporate actions such as the issuance
of
dividends, the occurrence of stock splits, stock repurchase by the issuer and
other reasons.
License
Agreement with SX5E
The
Company has entered, or is exploring entering, into a non-exclusive license
agreement with STOXX Limited, whereby the Company and our affiliates, in
exchange for a fee, will be permitted to use the SX5E in connection with the
offer and sale of the Notes.
STOXX
Limited has no relationship with us, other than the licensing of the SX5E and
the related trademarks for use in connection with the Notes.
STOXX
Limited does
not:
·
|
Sponsor,
endorse, sell or promote the Notes.
|
·
|
Recommend
that any person invest in the Notes or any other
securities.
|
·
|
Have
any responsibility or liability for or make any decisions about the
timing, amount or pricing of Notes.
|
·
|
Have
any responsibility or liability for the administration, management
or
marketing of the Notes.
|
·
|
Consider
the needs of the Notes or the owners of the Notes in determining,
composing or calculating the SX5E or have any obligation to do
so.
|
STOXX
Limited will not have any liability in connection with the Notes.
Specifically,
·
|
STOXX
Limited does not make any warranty, express or implied and disclaim
any
and all warranty about:
|
|
·
|
The
results to be obtained by the Notes, the owner of the Notes or any
other
person in connection with the use of the SX5E and the data included
in the
SX5E;
|
|
·
|
The
accuracy or completeness of the SX5E and its
data;
|
|
·
|
The
merchantability and the fitness for a particular purpose or use of
the
SX5E and its data;
|
·
|
STOXX
Limited will have no liability for any errors, omissions or interruptions
in the SX5E or its data;
|
·
|
Under
no circumstances will STOXX Limited be liable for any lost profits
or
indirect, punitive, special or consequential damages or losses, even
if
STOXX Limited knows that they might
occur.
|
Historical
Data on the SX5E
The
following table sets forth the month-end closing index levels of the SX5E for
each month in the period from January 1998 through September 2007. The SX5E
closing index levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by us. The
historical values of the EURO STOXX 50®
Index should not be taken as an indication of future performance, and no
assurance can be given that the level of the SX5E will increase relative to
its
Initial Level during the term of the Notes.
The
closing index level of the SX5E on September 28, 2007 was 4,381.71.
Month
End Closing Index Levels: January 1998 - September 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
January
|
|
2,676.03
|
|
3,547.15
|
|
4,684.48
|
|
4,779.90
|
|
3,670.26
|
|
2,248.17
|
|
2,839.13
|
|
2,984.59
|
|
3,691.41
|
|
4,178.54
|
|
February
|
|
2,878.04
|
|
3,484.24
|
|
5,182.62
|
|
4,318.88
|
|
3,624.74
|
|
2,140.73
|
|
2,893.18
|
|
3,058.32
|
|
3,774.51
|
|
4,087.12
|
|
March
|
|
3,153.32
|
|
3,559.86
|
|
5,249.55
|
|
4,185.00
|
|
3,784.05
|
|
2,036.86
|
|
2,787.49
|
|
3,055.73
|
|
3,853.74
|
|
4,181.03
|
|
April
|
|
3,120.94
|
|
3,757.87
|
|
5,303.95
|
|
4,525.01
|
|
3,574.23
|
|
2,324.23
|
|
2,787.48
|
|
2,930.10
|
|
3,839.90
|
|
4,392.34
|
|
May
|
|
3,357.77
|
|
3,629.46
|
|
5,200.89
|
|
4,426.24
|
|
3,425.79
|
|
2,330.06
|
|
2,749.62
|
|
3,076.70
|
|
3,637.17
|
|
4,512.65
|
|
June
|
|
3,406.82
|
|
3,788.66
|
|
5,145.35
|
|
4,243.91
|
|
3,133.39
|
|
2,419.51
|
|
2,811.08
|
|
3,181.54
|
|
3,648.92
|
|
4,489.77
|
|
July
|
|
3,480.63
|
|
3,638.62
|
|
5,122.80
|
|
4,091.38
|
|
2,685.79
|
|
2,519.79
|
|
2,720.05
|
|
3,326.51
|
|
3,691.87
|
|
4,315.69
|
|
August
|
|
2,978.12
|
|
3,769.14
|
|
5,175.12
|
|
3,743.97
|
|
2,709.29
|
|
2,556.71
|
|
2,670.79
|
|
3,263.78
|
|
3,808.70
|
|
4,294.56
|
|
September
|
|
2,670.97
|
|
3,669.71
|
|
4,915.18
|
|
3,296.66
|
|
2,204.39
|
|
2,395.87
|
|
2,726.30
|
|
3,428.51
|
|
3,899.41
|
|
4,381.71
|
|
October
|
|
2,887.11
|
|
3,922.91
|
|
5,057.46
|
|
3,478.63
|
|
2,518.99
|
|
2,575.04
|
|
2,811.72
|
|
3,320.15
|
|
4,004.80
|
|
-
|
|
November
|
|
3,179.09
|
|
4,314.38
|
|
4,790.08
|
|
3,658.27
|
|
2,656.85
|
|
2,630.47
|
|
2,876.39
|
|
3,447.07
|
|
3,987.23
|
|
-
|
|
December
|
|
3,342.32
|
|
4,904.46
|
|
4,772.39
|
|
3,806.13
|
|
2,386.41
|
|
2,760.66
|
|
2,951.01
|
|
3,578.93
|
|
4,119.94
|
|
-
|
|
The
following graph illustrates the historical performance of the SX5E based on
the
closing level on the last Component Business Day of each month from January
1998
to September 2007.
The
Nikkei 225TM
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. The Divisor
was 24.29 as of September 26, 2007 and is subject to periodic adjustments as
set
forth below. Each Weight Factor is computed by dividing ¥50 by the par value of
the relevant Nikkei Underlying Stock, so that the share price of each Nikkei
Underlying Stock, when multiplied by its Weight Factor, corresponds to a share
price based on a uniform par value of ¥50. The stock prices used in the
calculation of the NKY are those reported by a primary market for the Nikkei
Underlying Stocks (currently the TSE). The level of the NKY is calculated once
per minute during TSE trading hours.
In
order
to maintain continuity in the NKY in the event of certain changes due to
non-market factors affecting the Nikkei Underlying Stocks, such as the addition
or deletion of stocks, substitution of stocks, stock splits or distributions
of
assets to stockholders, the Divisor used in calculating the NKY is adjusted
in a
manner designed to prevent any instantaneous change or discontinuity in the
level of the NKY. Thereafter, the Divisor remains at the new value until a
further adjustment is necessary as the result of another change. As a result
of
such change affecting any Nikkei Underlying Stock, the Divisor is adjusted
in
such a way that the sum of all share prices immediately after such change
multiplied by the applicable Weight Factor and divided by the new Divisor (i.e.,
the level of the NKY immediately after such change) will equal the level of
the
NKY immediately prior to the change.
A
Nikkei
Underlying Stock may be deleted or added by Nihon Keizai. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Nikkei Underlying Stocks: (i)
bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition of
the
issuer by, another company, (iii) delisting of such stock, (iv) transfer of
such
stock to the “Seiri-Post” because of excess debt of the issuer or because of any
other reason or (v) transfer of such stock to the Second Section. In addition,
a
component stock transferred to the “Kanri-Post” (Posts for stocks under
supervision) is in principle a candidate for deletion. Nikkei Underlying Stocks
with relatively low liquidity, based on trading value and rate of price
fluctuation over the past five years, may be deleted by Nihon Keizai. Upon
deletion of a stock from the Nikkei Underlying Stocks, Nihon Keizai will select
a replacement for such deleted Nikkei Underlying Stock in accordance with
certain criteria. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by Nihon Keizai to be representative
of a
market may be added to the Nikkei Underlying Stocks. In such a case, an existing
Underlying Stock with low trading volume and deemed not to be representative
of
a market will be deleted by Nihon Keizai.
A
list of
the issuers of the Nikkei Underlying Stocks constituting the NKY is available
from the Nikkei Economic Electronic Databank System and from the Stock Market
Indices Data Book published by Nihon Keizai.
License
Agreement with Nihon Keizai
The
Company has entered, or is exploring entering, into non-exclusive license
agreement with Nihon Keizai, whereby the Company and its affiliates, in exchange
for a fee, will be permitted to use the NKY in connection with the offer and
sale of the Notes.
The
copyright relating to the NKY and intellectual property rights as to “Nikkei”
(including in combination with other words) and the NKY and any other rights
will belong to Nihon Keizai.
Nihon
Keizai will be entitled to change the details of the NKY and to suspend the
announcement thereof.
All
the
businesses and implementation relating to the use of the NKY and related
intellectual property rights will be conducted exclusively at the risk of the
Company and Nihon Keizei assumes no obligation or responsibility
therefor.
The
Tokyo Stock Exchange
The
TSE
is one of the world’s largest securities exchanges in terms of market
capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m. and
from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.
Due
to
the time zone difference, on any normal trading day the TSE will close prior
to
the opening of business in New York City on the same calendar day. Therefore,
the closing level of the NKY on a trading day will generally be available in
the
United States by the opening of business on the same calendar day.
The
TSE
has adopted certain measures, including daily price floors and ceilings on
individual stocks, intended to prevent any extreme short-term price fluctuations
resulting from order imbalances. In general, any stock listed on the TSE cannot
be traded at a price lower than the applicable price floor or higher than the
applicable price ceiling. These price floors and ceilings are expressed in
absolute Japanese yen, rather than percentage limits based on the closing price
of the stock on the previous trading day. In addition, when there is a major
order imbalance in a listed stock, the TSE posts a “special bid quote” or a
“special asked quote” for that stock at a specified higher or lower price level
than the stock’s last sale price in order to solicit counter orders and balance
supply and demand for the stock. The TSE may suspend the trading of individual
stocks in certain limited and extraordinary circumstances, including, for
example, unusual trading activity in that stock. As a result, changes in the
NKY
may be limited by price limitations or special quotes, or by suspension of
trading, on individual stocks that make up the NKY, and these limitations,
in
turn, may adversely affect the value of the Notes.
Historical
Data on the NKY
The
following table sets forth the month-end closing index levels of the NKY for
each month in the period from January 1998 through September 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 Level during the term of the
Notes.
The
closing index level of the NKY on September 28, 2007 was 16,785.69.
Month
End Closing Index Levels: January 1998 - September 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
|
|
17,248.89
|
|
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
|
|
16,569.09
|
|
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
|
|
16,785.69
|
|
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 September 2007.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain of the material U.S. federal income
tax
consequences of the purchase, beneficial ownership, and disposition of the
Notes. For purposes of this summary, a “U.S. holder” is a beneficial owner of a
Note that is:
• an
individual who is a citizen or a resident of the United States, for federal
income tax purposes;
• a
corporation (or other entity that is treated as a corporation for federal tax
purposes) that is created or organized in or under the laws of the United States
or any State thereof (including the District of Columbia);
• an
estate
whose income is subject to federal income taxation regardless of its source;
or
• a
trust
if a court within the United States is able to exercise primary supervision
over
its administration, and one or more United States persons (as defined for
federal income tax purposes) have the authority to control all of its
substantial decisions.
For
purposes of this summary, a “non-U.S. holder” is a beneficial owner of a Note
that is:
• a
nonresident alien individual for federal income tax purposes;
• a
foreign
corporation for federal income tax purposes;
• an
estate
whose income is not subject to federal income tax on a net income basis;
or
• a
trust
if no court within the United States is able to exercise primary jurisdiction
over its administration or if United States persons (as defined for federal
income tax purposes) do not have the authority to control all of its substantial
decisions.
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States for federal income tax purposes by reason of being present in
the
United States for at least 31 days in the calendar year and for an aggregate
of
at least 183 days during a three year period ending in the current calendar
year
(counting for those purposes all of the days present in the current year, one
third of the days present in the immediately preceding year, and one sixth
of
the days present in the second preceding year).
This
summary is based on interpretations of the Code, regulations issued thereunder,
and rulings and decisions currently in effect (or in some cases proposed),
all
of which are subject to change. Any of those changes may be applied
retroactively and may adversely affect the federal income tax consequences
described herein. This summary addresses only holders that purchase Notes at
initial issuance, and own Notes as capital assets and not as part of a
“straddle,” “hedge,” “synthetic security,” or “conversion transaction” for
federal income tax purposes or as part of some other integrated investment.
This
summary does not discuss all of the tax consequences that may be relevant to
particular investors or to investors subject to special treatment under the
federal income tax laws (such as banks, thrifts or other financial institutions;
insurance companies; securities dealers or brokers, or traders in securities
electing mark-to-market treatment; regulated investment companies or real estate
investment trusts; small business investment companies; S corporations;
investors that hold their Notes through a partnership or other entity treated
as
a partnership for federal tax purposes; investors whose functional currency
is
not the U.S. dollar; certain former citizens or residents of the United States;
persons subject to the alternative minimum tax; retirement plans or other
tax-exempt entities, or persons holding the Notes in tax-deferred or
tax-advantaged accounts; or “controlled foreign corporations” or “passive
foreign investment companies” for federal income tax purposes). This summary
also does not address the tax consequences to shareholders, or other equity
holders in, or beneficiaries of, a holder, or any state, local or foreign tax
consequences of the purchase, ownership or disposition of the Notes.
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.
In
General
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing the characterization for federal income tax purposes of securities
with terms that are substantially the same as those of the Notes. Accordingly,
the proper U.S. federal income tax treatment of the Notes is uncertain. Under
one approach, the Notes would be treated as pre-paid cash-settled executory
contracts with respect to the Portfolio. We intend to treat the Notes consistent
with this approach, and pursuant to the terms of the Notes, you agree to treat
the Notes consistent with this approach. Except as otherwise provided in
“—Alternative Characterizations and Treatments,” the balance of this summary
assumes that the Notes are so treated.
Federal
Income Tax Treatment of U.S. Holders
Upon
the
receipt of cash at maturity of a Note or upon the sale, exchange or other
disposition of a Note in a taxable transaction, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized
at
maturity or upon the sale, exchange or other disposition and the U.S. holder’s
tax basis in the Note. A U.S. holder’s tax basis in a Note will generally be
equal to the U.S. holder’s cost for the Note. Any such gain or loss generally
will constitute capital gain or loss, and if held for more than a year at the
time of maturity, sale, exchange or other disposition, generally should be
long-term capital gain or loss. Long-term capital gains of non-corporate
taxpayers are generally eligible for reduced rates of taxation. The ability
of
U.S. holders to use capital losses to offset ordinary income is
limited.
It
is
possible that one or more of the securities underlying the Components may be
treated as a “pass-thru entity” for purposes of section 1260 of the Code. In
this case, it is possible that the Notes may be subject to the “constructive
ownership” rules of section 1260 of the Code. If section 1260 applies to the
Notes, the portion of any long-term capital gain that is recognized on the
sale,
exchange, maturity, or other taxable disposition of the Notes and is
attributable to a security underlying a Component that is a pass-thru entity
for
purposes of section 1260 of the Code may be treated as ordinary income and
subject to an interest charge. Prospective investors in the securities should
consult their tax advisors as to the possibility that one or more of the
securities underlying the Components is treated as a pass-thru entity for
purposes of section 1260, and section 1260 applies to their Notes.
Alternative
Characterizations and Treatments
Although
we intend to treat each Note as a pre-paid cash-settled executory contract
as
described above, there are no statutory provisions, regulations, published
rulings or judicial decisions addressing the characterization of securities
with
terms that are substantially the same as those of the Notes, and therefore
the
Notes could be subject to some other characterization or treatment for federal
income tax purposes. For example, each Note could be treated as a “contingent
payment debt instrument” for federal income tax purposes. In this event, a U.S.
holder would be required to accrue original issue discount income, subject
to
adjustments, at the “comparable yield” of the Notes and any gain recognized with
respect to the Note generally would be treated as ordinary income.
Alternatively, it is possible that each Note could be treated as consisting
of a
cash-settled forward contract with respect to the Portfolio and a deposit with
us of cash in an amount equal to the principal amount of a Note to secure the
holder’s obligation to settle the forward contract, in which case a U.S. Holder
would be required to accrue interest income or original issue discount on a
current basis in respect of the deposit. Prospective investors should consult
their tax advisors as to the federal income tax consequences to them if the
Notes are treated as debt instruments for federal income tax
purposes.
In
addition, certain proposed Treasury regulations require the accrual of income
on
a current basis for contingent payments made under certain “notional principal
contracts.” The preamble to the proposed regulations states that the “wait and
see” method of accounting does not properly reflect the economic accrual of
income on those contracts and requires current accrual of income for some
contracts already in existence. While the proposed regulations do not apply
to
pre-paid forward contracts, the preamble to the proposed regulations indicates
that similar timing issues exist in the case of pre-paid forward contracts.
If
the IRS or the U.S. Treasury Department publishes future guidance requiring
current economic accrual for contingent payments on pre-paid forward contracts,
it is possible that a U.S. holder could be required to accrue income over the
term of the Notes.
Other
alternative federal income tax characterizations or treatments of the Notes
are
possible, and if applied could also affect the timing and the character of
the
income, gain, or loss with respect to the Notes.
Prospective
investors in the Notes should consult their tax advisors as to the tax
consequences to them of purchasing Notes, including any alternative
characterizations and treatments.
Federal
Income Tax Treatment of Non-U.S. Holders
A
non-U.S. holder that is not subject to U.S. federal income tax as a result
of
any direct or indirect connection to the United States other than its ownership
of a Note should not be subject to U.S. federal income or withholding tax in
respect of the Notes so long as (1) the non-U.S. holder provides an appropriate
statement, signed under penalties of perjury, identifying the non-U.S. holder
and stating, among other things, that the non-U.S. holder is not a United States
person (as defined for federal income tax purposes), (2) the non-U.S. holder
is
not a bank that has purchased the Notes in the ordinary course of its trade
or
business of making loans, as described in section 881(c)(3)(A) of the Code,
(3)
the non-U.S. holder is not a “10-percent shareholder” within the meaning of
section 871(h)(3)(B) of the Code or a “related controlled foreign corporation”
within the meaning of section 881(c)(3)(C) of the Code with respect to us,
and
(4) the Components are actively traded within the meaning of section
871(h)(4)(C)(v) of the Code. We expect that the Components will be treated
as
actively traded within the meaning of section 871(h)(4)(C)(v) of the
Code.
If
any of
these conditions are not met, a 30% withholding tax may apply to payments on
the
Notes, unless an income tax treaty reduces or eliminates such tax or the income
is effectively connected with the conduct of a trade or business within the
United States by such non-U.S. holder. In the latter case, such non-U.S. holder
should be subject to U.S. federal income tax with respect to all income from
the
Notes at regular rates applicable to U.S. taxpayers, and, for a foreign
corporation, possibly branch profits tax, unless an applicable treaty reduces
or
eliminates such tax.
In
general, the gain realized on the maturity, sale, exchange or other disposition
of the Notes by a non-U.S. holder should not be subject to U.S. federal income
tax unless the gain is effectively connected with a trade or business conducted
by the non-U.S. holder in the United States or the non-U.S. holder is an
individual that is present in the United States for 183 days or more in the
taxable year of the maturity, sale, exchange or other disposition and certain
other conditions are satisfied. In the former case, the non-U.S. holder will
generally be subject to U.S. federal income tax on any income or gain in respect
of the Note at the regular rates applicable to U.S. taxpayers, and, for a
foreign corporation, possibly branch profits tax, unless an applicable treaty
reduces or eliminates such tax. In the latter case, the non-U.S. holder will
generally be subject to tax at a rate of 30% on the amount by which the non-U.S.
holder's capital gains derived from the maturity, sale, exchange, retirement
or
other disposition of the Notes and other assets that are from U.S. sources
exceed capital losses allocable to U.S. sources.
Information
Reporting and Backup Withholding
Distributions
made on the Notes and proceeds from the sale of Notes to or through certain
brokers may be subject to a “backup” withholding tax on “reportable payments”
unless, in general, the holder of Notes complies with certain procedures or
is
an exempt recipient. Any amounts so withheld from distributions on the Notes
generally would be refunded by the IRS or allowed as a credit against the holder
of Notes federal income tax, provided the holder of Notes makes a timely filing
of an appropriate tax return or refund claim.
Reports
will be made to the IRS and to holder of Notes that are not exempt from the
reporting requirements.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section 406 of
ERISA prohibits similar transactions involving employee benefit plans that
are
subject to ERISA (“ERISA Plans”). Qualified Plans, IRAs and ERISA Plans are
referred to as “Plans.”
Persons
who have such specified relationships are referred to as “parties in interest”
under ERISA and as “disqualified persons” under the Code. “Parties in interest”
and “disqualified persons” encompass a wide range of persons, including any
fiduciary (for example, an investment manager, trustee or custodian) of a Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a “party in interest” or “disqualified person”) would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such the Notes are acquired or held pursuant
to
and in accordance with an applicable statutory or administrative exemption.
Each
of us, Bear Stearns and Bear, Stearns Securities Corp. is considered a
"disqualified person" under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we nor Bear Stearns can be a “party in
interest” to any IRA other than certain employer-sponsored IRAs, as only
employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the recently enacted Pension Protection Act of 2006 contains
a new statutory exemption from the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code for transactions involving certain
parties in interest or disqualified persons who are such merely because they
are
a service provider to a Plan, or because they are related to a service provider.
Generally, the new exemption would be applicable if the party to the transaction
with the Plan is a party in interest or a disqualified person to the Plan but
is
not (i) an employer, (ii) a fiduciary who has or exercises any discretionary
authority or control with respect to the investment of the Plan assets involved
in the transaction, (iii) a fiduciary who renders investment advice (within
the
meaning of ERISA and Section 4975 of the Code) with respect to those assets,
or
(iv) an affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this
new
statutory exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of
the
Code) and purchasing Notes on behalf of a Plan will be deemed to represent
that
(x) the fiduciary has made a good faith determination that the Plan is paying
no
more than, and is receiving no less than, adequate consideration in connection
with the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this new exemption. Any purchaser that
is a
Plan is encouraged to consult with counsel regarding the application of the
new
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes, the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law (“Similar Law”) similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
(“Similar Law Plans”) should consider applicable Similar Law when investing in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s acquisition and holding of the Notes will not result in a
non-exempt violation of applicable Similar Law.
The
sale
of any 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 underlying the
Components, exchange-traded and over-the-counter options on, or other derivative
or synthetic instruments related to, the Components, individual futures
contracts on the Components and on stocks underlying the Components, futures
contracts on the Components 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 levels of the Components, we cannot guarantee that we
and
one or more of our subsidiaries will not affect such levels as a result of
its
hedging activities. You should also refer to “Use of Proceeds” in the
accompanying prospectus.
SUPPLEMENTAL
PLAN OF
DISTRIBUTION
Subject
to the terms and conditions set forth in the Distribution Agreement dated as
of
June 19, 2003, as amended, we have agreed to sell to Bear Stearns, as principal,
and Bear Stearns has agreed to purchase from us, the aggregate principal amount
of Notes set forth opposite its name below.
Agent
|
Principal
Amount
of
Notes
|
Bear,
Stearns & Co. Inc.
|
$[l]
|
Total
|
$[l]
|
The
Agent
intends to initially offer $[l]
of the
Notes to the public at the offering price set forth on the cover page of this
pricing supplement, and to subsequently resell the remaining 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 Bear Stearns at a discount of [l]%
of the
price at which the Notes are offered to the public. Bear Stearns may reallow
a
discount to other agents not in excess of [l]%
of the
public offering price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 30-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $[l]
at the
public offering price, less the agent’s discount, to cover any over-allotments.
The Agent may over-allot or effect transactions which stabilize or maintain
the
market price of the Notes at a level higher than that which might otherwise
prevail in the open market. Specifically, the Agent may over-allot or otherwise
create a short position in the Notes for its own account by selling more Notes
than have been sold to it by us. If this option is exercised, in whole or in
part, subject to certain conditions, the Agent will become obligated to purchase
from us and we will be obligated to sell to the Agent an amount of Notes equal
to the amount of the over-allotment exercised. The Agent may elect to cover
any
such short position by purchasing Notes in the open market. No representation
is
made as to the magnitude or effect of any such stabilization or other
transactions. Such stabilizing, if commenced, may be discontinued at any time
and in any event shall be discontinued within a limited period. No other party
may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange or quotation system and we do not
expect a trading market will develop. Bear Stearns has advised us that,
following completion of the offering of the Notes, it intends under ordinary
market conditions to indicate prices for the Notes on request, although it
is
under no obligation to do so and may discontinue any market-making activities
at
any time without notice. Accordingly, no guarantees can be given as to whether
an active trading market for the Notes will develop or, if such a trading market
develops, as to the liquidity of such trading market. We cannot guarantee that
bids for outstanding Notes will be made in the future; nor can we predict the
price at which any such bids will be made. The Notes will cease trading as
of
the close of business on the Maturity Date.
Because
Bear Stearns is our wholly-owned subsidiary, each distribution of the Notes
will
conform to the requirements set forth in Rule 2720 of the NASD Conduct
Rules.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
|
|
|
|
|
|
|
|
You
should only rely on the information contained in this pricing supplement
and the accompanying prospectus supplement and prospectus. We have
not
authorized anyone to provide you with information or to make any
representation to you that is not contained in this pricing supplement
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]
Accelerated
Market Participation Securities (“AMPS”)
2-Year
Note
Linked
to a Portfolio of Indices
Due
October [l],
2009
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
[l]
|
_____________________
|
|
TABLE
OF CONTENTS
|
|
Pricing
Supplement
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-6
|
|
Risk
Factors
|
PS-10
|
|
Description
of the Notes
|
PS-18
|
|
Description
of the Portfolio
|
PS-26
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-35
|
|
Certain
ERISA Considerations
|
PS-38
|
|
Use
of Proceeds and Hedging
|
PS-39
|
|
Supplemental
Plan of Distribution
|
PS-39
|
|
Legal
Matters
|
PS-40
|
|
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
|
|
|
|
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