Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-136666
Subject
to Completion, dated October 15, 2007
PRICING
SUPPLEMENT
(To
Prospectus Dated August 16, 2006 and
Prospectus
Supplement Dated August 16, 2006)
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.
The
Bear Stearns Companies Inc.
$[l]
Medium-Term Notes, Series B, Linked to a Portfolio of Indices
Due
November
[l],
2012
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·
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The
Notes are fully principal protected if held to maturity and are linked
to
the potential positive performance of a portfolio comprised of six
indices.
The following are the six indices and their respective Weightings
in the
portfolio: (1)
20.00% the S&P 500®
Index (the “SPX”); (2) 20.00% the Dow Jones EURO STOXX 50®
Index (the “SX5E”); (3) 20.00% the S&P BRIC 40™ Index (the “SBR”); (4)
20.00% the Nikkei 225™ Stock Index (the “NKY”); (5) 12.00% the S&P 400
MidCap Index™ (the “MID”); and (6) 8.00% the Russell 2000®
Index (the “RTY”) (each such index a “Component” and together the
“Portfolio”). When we refer to “Note” or “Notes” in this pricing
supplement, we mean Notes with a principal amount of $1,000.
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·
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On
the Maturity Date, you will receive the Cash Settlement Value, which
is
based on the appreciation, if any, in the Portfolio over the term
of the
Notes as measured by the Portfolio Return. The “Portfolio Return” is
calculated as the weighted average of the six Component Performances,
where the “Component Performance” with respect to a Component measures the
arithmetic average level of such Component as of two Observation
Dates
relative to its respective Initial Component Level on the Pricing
Date.
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·
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If,
at maturity, the Portfolio Return is greater than zero, then the
Cash
Settlement Value for each Note will be equal to the sum of (A) the
principal amount of the Note plus (B) the product of (i) $1,000 multiplied
by (ii) the Portfolio Return multiplied by (iii) Participation
Rate.
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·
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If,
at maturity, the Portfolio Return is equal to or less than zero,
then the
Cash Settlement Value for each Note will be $1,000. Because the Notes
are
principal protected if held to maturity, in no event will the Cash
Settlement Value for each Note held to maturity be less than $1,000.
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The
CUSIP number for the Notes is 073928Y56.
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The
Issuer will not pay interest on the
Notes.
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·
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The
Notes will not be listed on any securities exchange or quotation
system.
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The
Maturity Date for the Notes is expected to be November [l],
2012, however, if the Final Observation Date is postponed, the Maturity
Date will be three Business Days following the postponed Final Observation
Date.
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·
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The
Observation Dates for each Component are expected to be April
[l],
2010 and October [n],
2012 (the “Final Observation Date”). Each Observation Date, including the
Final Observation Date, is subject to adjustment as described
herein.
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·
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The
Participation Rate is
[120.00-128.00]%
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INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THERE MAY NOT BE AN ACTIVE SECONDARY MARKET
IN THE NOTES, AND IF THERE WERE TO BE AN ACTIVE SECONDARY MARKET, IT MAY NOT
BE
LIQUID, AND THEREFORE THE NOTES THEMSELVES ARE NOT, AND WOULD NOT BE, LIQUID.
YOU SHOULD REFER TO “RISK FACTORS” BEGINNING ON PAGE
PS-12.
Each
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 Components, are not sponsored,
endorsed, sold or promoted by the sponsor or issuer, as applicable, of any
Component; and the sponsors or issuers, as applicable, of such Components make
no representations regarding the advisability of investing in the
Notes.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Notes or determined that this pricing supplement,
or the accompanying prospectus supplement and prospectus, is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per
Note
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Total
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Initial
public offering price
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[l]%‡
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$[l]
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Agent’s
discount
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[l]%
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$[l]
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Proceeds,
before expenses, to us
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[l]%
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$[l]
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We
expect
that the Notes will be ready for delivery in book-entry form only through the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about [l],
against
payment in immediately available funds.
We
may
grant Fifth Third Securities, Inc. a 13-day option from the date of the final
pricing supplement to purchase from us up to an additional $[l]
of Notes
at the public offering price to cover any over-allotments.
_______________
Fifth
Third Securities, Inc.
November
[l],
2007
SUMMARY
This
summary highlights selected information from the accompanying prospectus,
prospectus supplement and this pricing supplement to help you understand the
Notes linked to the Portfolio. You should carefully read this entire pricing
supplement and the accompanying prospectus supplement and prospectus to fully
understand the terms of the Notes, as well as certain tax and other
considerations that are important to you in making a decision about whether
to
invest in the Notes. You should carefully review the section “Risk Factors” in
this pricing supplement and “Risk Factors” in the accompanying prospectus
supplement, which highlight a number of significant risks, to determine whether
an investment in the Notes is appropriate for you. All of the information set
forth below is qualified in its entirety by the more detailed explanation set
forth elsewhere in this pricing supplement and the accompanying prospectus
supplement and prospectus. If information in this pricing supplement is
inconsistent with the prospectus or prospectus supplement, this pricing
supplement will supersede those documents. In this pricing supplement, the
terms
“Company,” “we,” “us” and “our” refer only to The Bear Stearns Companies Inc.
excluding its consolidated subsidiaries. When we refer to “Note” or “Notes” in
this pricing supplement, we mean Notes each with a principal amount of
$1,000.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B, Linked to a Portfolio of
Indices, Due November [l],
2012
(the “Notes”) are Notes whose return is tied or “linked” to the potential
positive performance of a portfolio comprised of six indices. The following
are
the six indices and their respective Weightings in the portfolio: (1) 20.00%
the
S&P 500®
Index
(the “SPX”); (2) 20.00% the Dow Jones EURO STOXX 50®
Index
(the “SX5E”); (3) 20.00% the S&P BRIC 40™ Index (the “SBR”); (4) 20.00% the
Nikkei 225™ Stock Index (the “NKY”); (5) 12.00% the S&P 400 MidCap Index™
(the “MID”); and (6) 8.00% the Russell 2000®
Index
(the “RTY”) (each such index a “Component” and together the “Portfolio”). When
we refer to Note or Notes in this pricing supplement, we mean $1,000 principal
amount Notes, either singularly or collectively. The Notes are principal
protected. On the Maturity Date, you will receive the Cash Settlement Value,
an
amount in cash that depends on whether the arithmetic average of the Observation
Levels of each Component over two Observation Dates is greater than or less
than
that respective Component’s Initial Component Level. The difference between the
arithmetic average of the levels for a Component on each Observation Date and
the Initial Component Level, expressed as a percentage of that Initial Component
Level, is referred to as the “Component Performance” for that Component. The
weighted average (based on each component’s applicable Weighting) of the
Component Performances is referred to as the “Portfolio Return.” If the
Portfolio Return is greater than zero, we will pay you, at maturity, the sum
of
(A) the principal amount of the Notes plus (B) the product of (i) $1,000
multiplied by (ii) the Portfolio Return multiplied by (iii) the Participation
Rate. If the Portfolio Return is equal to or less than zero, then the Cash
Settlement Value for each Note, at maturity, will be $1,000.
Selected
Investment Considerations
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·
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Principal
protection—Because the Notes are principal protected if held to maturity,
in no event will you receive a Cash Settlement Value less than $1,000
per
Note, at maturity. If, at maturity, the Portfolio Return is less
than or
equal to zero, you will receive the principal amount of the
Notes.
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·
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Diversification—The
Notes are linked to the following six indices and their respective
Weightings in the Portfolio: (1) 20.00% the S&P 500®
Index; (2) 20.00% the Dow Jones EURO STOXX 50®
Index; (3) 20.00% the S&P BRIC 40™ Index; (4) 20.00% the Nikkei 225™
Stock Index; (5) 12.00% the S&P 400 MidCap Index™; and (6) 8.00% the
Russell 2000®
Index.
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Taxes—For
U.S. federal income tax purposes, we intend to treat the Notes as
contingent payment debt instruments. As a result, you will be required
to
include original issue discount (“OID”) in income during your ownership of
the Notes even though no cash payments will be made with respect
to the
Notes until maturity. Additionally, you will generally be required
to
recognize ordinary income on the gain, if any, realized on a sale,
upon
maturity, or other disposition of the Notes. You should review the
discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing
supplement.
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Selected
Risk Considerations
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·
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No
current income—We will not pay any interest during the term of the Notes.
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Non-conventional
return—The
yield on the Notes may be less than the overall return you would
earn if
you purchased a conventional debt security at the same time and with
the
same maturity from an issuer with a comparable credit
rating.
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·
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No
ownership of underlying instruments—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.
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·
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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.
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·
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Liquidity—Because
the Notes will not be listed on any securities exchange or quotation
system, we do not expect a trading market to develop, and, if such
a
market were to develop, it may not be liquid. Fifth Third Securities,
Inc.
has advised us that they intend under ordinary market conditions
to
indicate prices for the Notes 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.
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·
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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
and
the Cash Settlement Value, 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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KEY
TERMS
Issuer:
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The
Bear Stearns Companies Inc.
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Components:
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The
Notes are linked to the potential positive performance of a portfolio
comprised of six indices. The following are the six indices and
their
respective Weightings in the portfolio: (1) 20.00% the S&P
500®
Index (the “SPX”); (2) 20.00% the Dow Jones EURO STOXX 50®
Index (the “SX5E”); (3) 20.00% the S&P BRIC 40™ Index (the “SBR”); (4)
20.00% the Nikkei 225™ Stock Index (the “NKY”); (5) 12.00% the S&P 400
MidCap Index™ (the “MID”); and (6) 8.00% the Russell 2000®
Index (the “RTY”) (each such index a “Component” and together the
“Portfolio”). The Weighting of each Component is fixed at the respective
Weighting mentioned above and will not change during the term of
the Notes
unless one or more Components are modified during the term of the
Notes.
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Component
Sponsors:
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Standard
& Poor’s (“S&P”), a division of The McGraw-Hill Companies, Inc. as
sponsor of the SPX, SBR, and MID; STOXX Limited, a partnership
of Deutsche
Börse AG, Dow Jones & Company and the SWX Group as the sponsor of the
SX5E; Nihon Keizai Shimbun, Inc. as the sponsor of the NKY; and
Russell
Investment Group as the sponsor of the RTY are hereinafter referred
to as
“Component Sponsors.” See “Description of the Portfolio”
herein.
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Principal
Amount:
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The
Notes will be denominated in U.S. dollars. Each Note will be issued
in
minimum denominations of $[10,000] and $1,000 multiples thereafter;
provided, however, that the minimum purchase for any purchaser
domiciled
in a Member state of the European Economic Area shall be $100,000.
The
aggregate principal amount of the Notes being offered is $[l].
When we refer to “Note” or “Notes” in this pricing supplement, we mean
Notes each with a principal amount of $1,000.
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Further
Issuances:
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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.
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Interest:
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The
Notes will not bear interest.
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Cash
Settlement Value:
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On
the Maturity Date, you will receive the Cash Settlement Value,
an amount
in cash that depends upon the Portfolio Return.
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If,
at maturity, the Portfolio Return is greater than zero, then the
Cash
Settlement Value for each Note will be equal to the sum of (A)
the
principal amount of the Note plus (B) the product of (i) $1,000
multiplied
by (ii) the Portfolio Return multiplied by (iii) Participation
Rate.
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If,
at maturity, the Portfolio Return is equal to or less than zero,
then the
Cash Settlement Value for each Note will be the principal amount
of
$1,000. Because the Notes are principal protected if held to maturity,
in
no event will the Cash Settlement Value for each Note held to maturity
be
less than $1,000.
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Participation
Rate:
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[120.00-128.00]%
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Portfolio
Return:
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An
amount determined by the Calculation Agent and equal to the sum
of the
Component Performance for each Component multiplied by its respective
Weighting in the Portfolio.
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For
purposes of determining the Portfolio Return:
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“Component
Performance”
means, as of the Final Observation Date and with respect to a Component,
the quotient, expressed as a percentage, of (i) the arithmetic
average of
the Observation Levels for that Component as of each Observation
Date
minus the Initial Component Level of that Component divided by
(ii) the
Initial Component Level of that Component.
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“Final
Observation Date” means
October [l],
2012.
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“Observation
Level”
means, as of any Observation Date and with respect to 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; Bloomberg Page SBR <Index> <Go> with respect to the SBR;
Bloomberg Page NKY <Index> <Go> with respect to the NKY;
Bloomberg Page MID <Index> <Go> with respect to the MID; and
Bloomberg Page RTY <Index> <Go> with respect to the
RTY.
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“Observation
Date”
means April [l],
2010 and October [l],
2012; provided that, with respect to a Component, (i) if such date
is not
a Component Business Day (as defined herein) for that Component,
then the
Observation Date for that Component will be the next succeeding
day that
is a Component Business Day for that Component and (ii) if a Market
Disruption Event (as defined herein) exists for that Component
on the
Observation Date, the Observation Date for that Component will
be the next
Component Business Day for that Component on which a Market Disruption
Event does not exist for that Component. If the Observation Date
for any
Component is postponed for three consecutive Component Business
Days due
to the existence of a Market Disruption Event, then, notwithstanding
the
existence of a Market Disruption Event on that third Component
Business
Day, that third Component Business Day will be the Observation
Date for
that Component. If no Market Disruption Event exists with respect
to a
Component on the Observation Date, the determination of that Component’s
Observation Level will be made on the Observation Date, irrespective
of
the existence of a Market Disruption Event with respect to one
or more of
the other Components.
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“Initial
Component Level”
means:
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·[l]
with respect to the SPX;
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·[l]
with respect to the SX5E;
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·[l]
with respect to the SBR;
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·[l]
with respect to the NKY;
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·[l]
with respect to the MID; and
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·[l]
with respect to the RTY.
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“Weighting”
means:
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·
20.00%
with respect to the SPX;
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·
20.00%
with respect to the SX5E;
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·
20.00%
with respect to the SBR;
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·
20.00%
with respect to the NKY;
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·
12.00%
with respect to the MID; and
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·
8.00%
with respect to the RTY.
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Pricing
Date:
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October
[l],
2007.
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Issue
Date:
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November
[l],
2007.
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Maturity
Date:
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The
Notes are expected to mature on November [l],
2012 unless such date is not a Business Day, in which case the
Maturity
Date shall be the next Business Day. If the Final Observation Date
is
postponed, the Maturity Date will be three Business Days following
the
postponed Final Observation Date, as postponed for the last Component
for
which an Observation Level is determined.
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Exchange
listing:
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The
Notes will not be listed on any securities exchange or quotation
system.
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Component
Business Day:
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Means
with
respect to a Component any day on which each Relevant Exchange
and each
Related Exchange for such Component are scheduled to be open for
trading.
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Business
Day:
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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.
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Calculation
Agent:
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Bear,
Stearns & Co. Inc.
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Relevant
Exchanges:
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Means,
with respect to a Component, the primary exchanges or markets of
trading
for any constituent then included in such Component. The “Summary of the
Components” below details the Relevant Exchanges for each
Component.
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Related
Exchange:
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Means,
with respect to a Component, each exchange or quotation system
where
trading has a material effect (as determined by the Calculation
Agent) on
the overall market for futures or options contracts relating to
such
Component.
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SUMMARY
OF THE COMPONENTS
Component
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Relevant
Exchanges
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SPX
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New
York Stock Exchange, NASDAQ and their successors
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SX5E
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Major
stock exchanges, respectively located in one of 12 European countries,
including London Stock Exchange, Frankfurt Stock Exchange and their
successors
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SBR
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The
Hong Kong Stock Exchange, London Stock Exchange, Nasdaq Stock Market,
New
York Stock Exchange and their successors
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NKY
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The
Tokyo Stock Exchange (the “TSE”) and its successors
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MID
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The
New York Stock Exchange, NASDAQ, American Stock Exchange LLC and
their
successors
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RTY
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The
New York Stock Exchange, NASDAQ, American Stock Exchange and their
successors
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Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $[10,000], the minimum purchase for any purchaser
domiciled in a member state of the European Economic Area shall be $100,000.
QUESTIONS
AND ANSWERS
What
are the Notes?
The
Notes
are a series of our senior, unsecured, unsubordinated debt securities, the
value
of which is linked to the performance of the Portfolio over the term of the
Notes, as measured by the Portfolio Return. The Notes will not bear interest,
and no other payments will be made prior to maturity. The Notes are principal
protected if held to maturity. The Notes differ from conventional debt
securities in that the Notes offer the opportunity to participate in
[120.00-128.00]% of the positive performance of the Portfolio, if any. See
the
section “Risk Factors” for selected risk considerations prior to making an
investment in the Notes.
The
Notes
are expected to mature on Novermber [l],
2012.
The Notes do not provide for earlier redemption. When we refer to “Note” or
“Notes” in this pricing supplement, we mean Notes with a principal amount of
$1,000. You should refer to the section “Description of the Notes,” for a
detailed description of the Notes prior to making an investment in the
Notes.
Are
there any risks associated with my investment?
Yes,
the
Notes are subject to a number of risks. You should refer to the section “Risk
Factors” in this pricing supplement and the section “Risk Factors” in the
accompanying prospectus supplement.
What
will I receive at maturity of the Notes?
We
have
designed the Notes for investors who want to protect their investment by
receiving at least 100% of the principal amount of their Notes at maturity.
On
the Maturity Date, you will receive the Cash Settlement Value, which is based
on
the appreciation, if any, in the Portfolio over the term of the Notes as
measured by the Portfolio Return. The “Portfolio Return” is an amount determined
by the Calculation Agent and equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio. The
“Component Performance” with respect to a Component measures the arithmetic
average level of such Component as of two Observation Dates relative to its
respective Initial Component Level on the Pricing Date.
If
the
Portfolio Return is less than or equal to zero on the Final Observation Date,
the Cash Settlement Value will equal the principal amount of the Notes because
the Notes are principal protected if held to maturity.
If
the
Portfolio Return is greater than zero on the Final Observation Date, the Cash
Settlement Value for each Note will be equal to the sum of (A) the principal
amount of the Notes plus (B) the product of (i) $1,000 multiplied by (ii) the
Portfolio Return multiplied by (iii) the Participation Rate.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description of the
Notes.”
What
does “principal
protected” mean?
“Principal
protected”
means
that at maturity your principal investment in the Notes will not be at risk
as a
result of a decrease in the Portfolio Return. If the Portfolio Return is equal
to or less than zero on the Final Observation Date, the Cash Settlement Value
at
maturity will be $1,000. You may receive less than the principal amount of
the
Notes if you sell your Notes prior to maturity.
Will
I receive interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only payment you
will receive, if any, will be reflected in the Cash Settlement Value upon the
maturity of the Notes.
Will
there be an additional offering of the Notes?
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuance will increase the aggregate principal amount of the outstanding Notes
of this series to include the aggregate principal amount of any Notes bearing
the same CUSIP number that are issued pursuant to any 13-day option we grant
to
Fifth Third Securities, Inc. The price of any additional offerings will be
determined at the time of pricing of each offering, which will be a function
of
the prevailing market conditions and levels of the Components at the time of
the
relevant sale.
What
is the Portfolio?
The
Portfolio is comprised of six indices. The following are the six indices and
their respective Weightings in the portfolio: (1) 20.00% the SPX; (2) 20.00%
the
SX5E; (3) 20.00% the SBR; (4) 20.00% the NKY; (5) 12.00% the MID; and (6) 8.00%
the RTY. Each such index will be a “Component” and the six Components together
will constitute the “Portfolio”. The Weighting of each Component is fixed at the
respective Weighting mentioned above, and will not change during the term of
the
Notes unless one or more of the Components is modified during the term of the
Notes. For more specific information about the Portfolio, please see the section
“Description of the Portfolio.” Unless otherwise stated, all information
regarding the Components that is provided in this pricing supplement is derived
from the Component 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 Component, 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 October 2, 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 Component, were traded on The
Nasdaq Stock Market (“Nasdaq”). As of that date, none of the common stocks
included in the Component 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.
S&P
BRIC 40™ Index.
The SBR
is published by S&P with the intention of providing exposure to the 40
largest and most liquid companies from the emerging markets of Brazil, Russia,
India and China. The index uses a modified market capitalization weighting
scheme, with modifications being to market cap weights, if required, to reflect
available float, reduce single stock concentration and enhance index basket
liquidity. All stocks in the SBR must trade in developed market exchanges (Hong
Kong Stock Exchange, London Stock Exchange, NASDAQ and NYSE). The SBR is
calculated in U.S. dollars and Euros. Local market prices are converted using
the Reuters / WM London closing. The pricing of individual index constituents
is
taken from their listing in the developed market exchange in which it trades.
If
a stock trades on more than one developed market exchange, the listing from
the
market with the most liquidity is taken. You can obtain the level of the SBR
from the Bloomberg service under the symbol SBR <Index> or from the
S&P website at http://www.standardandpoors.com. Other information on the
S&P website is not incorporated into this document.
Nikkei
225TM
Stock Index.
The NKY
is a modified, price-weighted stock index calculated, published and disseminated
by Nihon Keizai Shimbun, Inc. that measures the composite price performance
of
selected Japanese stocks. The NKY is currently comprised of 225 stocks that
trade on the Tokyo Stock Exchange and represents a broad cross-section of
Japanese industry. All 225 of the stocks underlying the NKY are stocks listed
in
the First Section of the Tokyo Stock Exchange. 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.
S&P
MidCap 400 Index™
. The
MID is published by the S&P and is meant to provide a performance benchmark
for the medium capitalization segment of the U.S. equity markets. The MID tracks
the stock price movement of 400 companies with mid-sized market capitalizations,
primarily ranging from $1 billion to $4 billion. The market capitalization
requirements are reviewed periodically to ensure consistency with market
standards. The MID is maintained with similar methodologies and rules as the
S&P 500®
Index,
with variations only to account for differences in capitalization requirements.
S&P chooses stocks for inclusion in the MID with the aim of offering
investors access to the mid-cap segment of the U.S. equity markets. You can
obtain the level of the MID from the Bloomberg Financial Service under the
symbol MID <Index> or from the S&P website at http://www.spglobal.com.
Other information on the S&P website is not incorporated into this
document.
Russell
2000®
Index
The
RTY
is
published and calculated by Russell Investment Group. The RTY
is
comprised of the smallest 2000 companies (determined on the basis of market
capitalization) in the Russell 3000 Index, representing approximately 8% of
the
Russell 3000 total market capitalization. The RTY was developed with a base
value of 135.00 as of December 31, 1986. You
can
obtain the level of the RTY from the Bloomberg Financial Service under the
symbol RTY <Index> or from the Russell Investment Group website at
http://www.russell.com/Indexes/characteristics_fact_sheets/us/Russell_2000_Index.asp.
Other
information on the Russell Investment Group website is not incorporated into
this document.
How
has the Portfolio
performed historically?
We
have
provided tables depicting the month-end closing levels for each of the
Components, as well as graphs depicting the month-end closing levels for each
of
the Components. You can find these tables and graphs in the section “Description
of the Portfolio—Historical Performance of the Components.” We have provided
this historical information to help you evaluate the behavior of the Portfolio
in various economic environments; however, the time period depicted is
relatively limited and past performance is not indicative of the manner in
which
the Portfolio will perform in the future. You should refer to the section “Risk
Factors—The historical performance of the Components is not an indication of the
future performance of the Components.”
What
is Fifth Third Securities, Inc.'s role?
We
have
entered into a Distribution Agreement and Terms Agreement with Fifth Third
Securities, Inc. (“Fifth Third”). These agreements provide for the offer and
sale of Notes by Fifth Third on a best efforts basis. Fifth Third has agreed
to
use its best efforts to identify potential purchasers of the Notes and will
purchase such Notes from us for resale to such purchasers.
Although
it is under no obligation to do so, Fifth Third has advised us that they intend,
under ordinary market conditions, to indicate prices for the Notes on request.
However, we cannot guarantee that bids for outstanding Notes will be made in
the
future; nor can we predict the price at which any such bids will be made. In
any
event, Notes will cease trading as of the close of business on the Maturity
Date.
What
is the role of Bear, Stearns & Co. Inc.?
Bear,
Stearns & Co. Inc. (“Bear Stearns”) will be our Calculation Agent for
purposes of calculating the Cash Settlement Value. Under certain circumstances,
these duties could result in a conflict of interest between Bear Stearns’ status
as our subsidiary and its responsibilities as Calculation Agent. Bear Stearns
is
obligated to carry out its duties and functions as Calculation Agent in good
faith, and using its reasonable judgment. Manifest error by the Calculation
Agent, or any failure by it to act in good faith, in making a determination
adversely affecting the payment of the Cash Settlement Value or interest on
principal to the holders of the Notes would entitle the holders, or the Trustee
(as defined herein) acting on behalf of the holders, to exercise rights and
remedies available under the Indenture (as defined herein). If the Calculation
Agent uses its discretion to make a determination, the Calculation Agent will
notify us and the Trustee, who will provide notice to the holders. You should
refer to “Risk Factors—The Calculation Agent is one of our affiliates, which
could result in a conflict of interest.”
Can
you tell me more about The Bear Stearns Companies Inc.?
We
are a
holding company that, through our broker-dealer and international bank
subsidiaries, principally Bear Stearns, Bear, Stearns Securities Corp., Bear,
Stearns International Limited (“BSIL”) and Bear Stearns Bank plc, is a leading
investment banking, securities and derivatives trading, clearance and brokerage
firm serving corporations, governments, institutional and individual investors
worldwide. For more information about us, please refer to the section “The Bear
Stearns Companies Inc.” in the accompanying prospectus. You should also read the
other documents we have filed with the Securities and Exchange Commission,
which
you can find by referring to the section “Where You Can Find More Information”
in the accompanying prospectus.
Who
should consider purchasing the Notes?
Because
the Notes are tied to the performance of the Components, they may be appropriate
for investors with specific investment horizons who seek to participate in
the
potential price appreciation of the Components. In particular, the Notes may
be
an attractive investment for you if you:
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want
potential upside exposure to the Components underlying the
Portfolio;
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believe
that the value of the Portfolio will increase over the term of the
Notes;
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understand
that the Components may not move in tandem and that at a time when
the
level of one or more of the Components increases, such an increase
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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do
not want to place your principal at risk and are willing to hold
the Notes
until maturity; and
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are
willing to forgo interest payments or dividend payments on the stocks
underlying the Components.
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The
Notes
may not be a suitable investment for you if:
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you
seek current income or dividend payments from your
investment;
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you
are unable or unwilling to hold the Notes until maturity;
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you
seek an investment with an active secondary market;
or
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you
do not believe that the value of the Portfolio will increase over
the term
of the Notes.
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What
are the U.S. federal income tax consequences of investing in the
Notes?
We
intend
to treat the Notes as contingent payment debt instruments for federal income
tax
purposes. Therefore, a U.S. Holder of a Note will be required to include OID
in
gross income over the term of the Note even though no cash payments will be
made
with respect to the Notes until maturity. The amount of OID includible in each
year is based on the “comparable yield.” In addition, we will compute a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). If a U.S. Holder disposes of the
Note prior to maturity, the U.S. Holder will be required to treat any gain
recognized upon the disposition of the Note as ordinary income (rather than
capital gain). You
should review the discussion under the section entitled “Certain U.S. Federal
Income Tax Considerations” in this pricing supplement.
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), a plan that is subject to Section
4975 of the Internal Revenue Code of 1986, as amended (the “Code”), including
individual retirement accounts, individual retirement annuities or Keogh plans,
a governmental or church plan subject to any similar law or any entity the
assets of which are deemed to be “plan assets” under ERISA, Section 4975 of the
Code, any applicable regulations or otherwise, will be permitted to purchase,
hold and dispose of the Notes, subject to certain conditions. Such investors
should carefully review the discussion under “Certain ERISA Considerations” in
this pricing supplement before investing in the Notes.
RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in the
Components underlying the Portfolio. Your investment in the Notes will be
subject to risks not associated with conventional fixed-rate or floating-rate
debt securities. Prospective purchasers should recognize the possibility of
a
loss with respect to their investment in the Notes if they sell the Notes prior
to maturity. Prospective purchasers of the Notes should understand the risks
of
investing in the Notes and should reach an investment decision only after
careful consideration, with their advisers, of the suitability of the Notes
in
light of their particular financial circumstances, the following risk factors
and the other information set forth in this pricing supplement and the
accompanying prospectus supplement and prospectus. We have no control over
a
number of matters that may affect the value of the Notes, including economic,
financial, regulatory, geographic, judicial and political events, that are
important in determining the existence, magnitude, and longevity of these risks
and their influence on the value of, or the payment made on, the
Notes.
Your
Notes are principal protected only if you hold the Notes until
maturity.
If
you
sell your Notes prior to maturity, you may receive less than the amount you
originally invested.
You
will not receive any interest payments on the Notes.
Your yield may be lower than the yield on a conventional debt security of
comparable maturity.
You
will
not receive any periodic payments of interest or any other periodic payments
on
the Notes. On the Maturity Date, you will receive a payment per Note equal
to
the Cash Settlement Value. Thus, the overall return you earn on your Notes
may
be less than that you would have earned by investing in a non-indexed debt
security of comparable maturity that bears interest at a prevailing market
rate
and is principal protected. For more specific information about the Cash
Settlement Value and for illustrative examples, you should refer to the section
“Description of the Notes.”
Increases
in the levels of the Components may not correspond to increases in the trading
value of the Notes.
Even
if
the Components increase above their Initial Component Levels during the term
of
the Notes, the trading value of the Notes may not increase by the same amount.
It is also possible for the Portfolio Return to increase while the trading
value
of the Notes declines.
You
must rely on your own evaluation of the merits of an investment linked to the
Portfolio.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Portfolio and the securities underlying the
Components. These views may vary over differing time horizons and are subject
to
change without notice. Moreover, other professionals who deal in the equity
markets may at any time have views that differ significantly from ours. In
connection with your purchase of the Notes, you should investigate the Portfolio
and the constituents of the Components and not rely on our views with respect
to
future movements in these industries and constituents. You should make such
investigation as you deem appropriate as to the merits of an investment linked
to the Portfolio.
Your
yield will not reflect dividends on the underlying stocks that comprise the
Components.
The
Portfolio does not reflect the payment of dividends or other distributions
on
the constituents of the Components. Therefore, the yield you will receive by
holding the Notes to maturity will not be the same as if you had purchased
the
Components and held them for a similar period. You should refer to the section
“Description of the Notes” for a detailed description of the notes prior to
making an investment in the Notes.
Tax
Consequences.
For
U.S.
federal income tax purposes, we intend to treat the Notes as contingent payment
debt instruments. As a result, U.S. Holders will be required to include OID
in
income during their ownership of the Notes even though no cash payments will
be
made with respect to the Notes until maturity. The amount of OID includible
in
each year is based on the “comparable yield.” In addition, we have computed a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). Additionally, U.S. Holders will
generally be required to recognize ordinary income on the gain, if any, realized
on a sale, upon maturity, or other disposition of the Notes. You should review
the discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing supplement.
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the level of the Portfolio will fluctuate in accordance with changes in
the
financial condition of the constituents comprising the Components, the level
of
the constituents comprising the Components generally and other factors. The
financial condition of the constituents underlying the Components may become
impaired or the general condition of the global equity market may deteriorate,
either of which may cause a decrease in the level of the Portfolio and thus
in
the value of the Notes. Common stocks are susceptible to general equity market
fluctuations and to volatile increases and decreases in value, as market
confidence in and perceptions regarding the constituents comprising the
Components change. Investor perceptions regarding the constituents comprising
the Components are based on various and unpredictable factors, including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global
or
regional political, economic, and banking crises. The level of the Portfolio
is
expected to fluctuate until the Maturity Date.
The
historical performance of the Components is not an indication of the future
performance of the Components.
The
historical performance of the Components that is included in this pricing
supplement should not be taken as an indication of the future performance of
the
Components. While the trading prices of the constituents comprising the
Components will determine the level of the Portfolio, it is impossible to
predict whether the level of the Portfolio will fall or rise. Trading prices
of
the constituents comprising the Components will be influenced by the complex,
unpredictable, and interrelated economic, financial, regulatory, geographic,
judicial, political and other factors that can affect the capital markets
generally and the equity trading markets on which the constituents are traded,
in particular, and by various circumstances that can influence the levels of
the
constituents in a specific market segment or the value of a particular
constituent.
The
Cash Settlement Value will not be adjusted for changes in currency exchange
rates.
Although
the securities underlying 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 value of the Notes.
The
constituents underlying certain Components trade at different times; however,
if
an active secondary market develops, the Notes may trade only during regular
trading hours in the United States.
The
hours
of trading for the Notes may not conform to the hours during which the
constituents underlying certain of the Components are traded. To the extent
that
U.S. markets are closed while other markets remain open, significant price
and
rate movements may take place in the markets for the constituents comprising
certain of the Components that will not be reflected immediately in the price
of
the Notes.
As
a
result of the time difference among the cities where the constituents underlying
certain of the Components trade and New York City (where the Notes may trade),
there may be discrepancies between the levels of the Components and the trading
prices of the Notes. In addition, there may be periods when the international
capital and commodities markets are closed for trading (for example during
holidays in an applicable country), causing the level of a particular Component
to remain unchanged for multiple New York City trading days.
Your
return may be affected by factors affecting international securities markets.
The
securities underlying certain of the Components are issued by international
companies. Investors should be aware that investments linked to the value of
international equity securities might involve particular risks. The
international securities markets may have less liquidity and could be more
volatile than U.S. or other longer-established international securities markets.
Direct or indirect government intervention to stabilize the international
securities markets, as well as cross-shareholdings in international companies,
may affect trading prices and volumes in those markets. Also, there is generally
less publicly available information about international companies than about
those U.S. companies that are subject to the reporting requirements of the
Securities and Exchange Commission (the “SEC”); and international companies are
often subject to accounting, auditing and financial reporting standards and
requirements that differ from those applicable to U.S. reporting companies.
The
other special risks associated with investments linked to the value of
international equity securities may include, but are not necessarily limited
to:
the imposition of taxes; higher transaction and custody costs; settlement delays
and risk of loss; difficulties in enforcing contracts; less liquidity and
smaller market capitalizations; less rigorous regulation of securities markets;
governmental interference; higher inflation; and social, economic and political
uncertainties. These factors may adversely affect the performance of certain
of
the Components and, as a result, the Cash Settlement Value may be adversely
affected.
The
prices and performance of securities underlying the Components also may be
affected by political, economic, financial and social factors. In addition,
recent or future changes in the government, economic and fiscal policies, the
possible imposition of, or changes in, currency exchange laws or other laws
or
restrictions, and possible fluctuations in the rate of exchange between
currencies, are factors that could negatively affect the international
securities markets. Moreover, the applicable international economies may differ
favorably or unfavorably from that of the United States.
The
positive performance of a Component on an Observation Date may be offset by
the
negative performance of that same Component on the other Observation Date.
The
Component Performance of each Component is based on the arithmetic average
of
the Observation Levels for that Component on two Observation Dates. Even if
a
Component exhibits a positive performance on one Observation Date, the negative
performance of that Component the other Observation Date may offset the positive
performance of that Component, or cause the Component Performance of that
Component to be negative, and therefore adversely affect the Portfolio Return.
The
price at which you will be able to sell your Notes prior to maturity will depend
on a number of factors, and may be substantially less than the amount you had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
option would be to sell them. At that time, there may be an illiquid market
for
Notes or no market at all. Even if you were able to sell your Notes, there
are
many factors outside of our control that may affect their trading value. We
believe that the value of your Notes will be affected by the level and
volatility of the Portfolio, whether the Observation Levels of the Components
are greater than or equal to their Initial Component Levels, changes in U.S.
interest rates, the supply of and demand for the Notes and a number of other
factors. Some of these factors are interrelated in complex ways; as a result,
the effect of any one factor may be offset or magnified by the effect of another
factor. The price, if any, at which you will be able to sell your Notes prior
to
maturity may be substantially less than the amount you originally invested
if,
at such time, the levels of the Components are less than, equal to or not
sufficiently above their Initial Component Levels. If you sell the Notes prior
to maturity, you may receive less, and possibly significantly less, than your
initial investment in the Notes. The following paragraphs describe the manner
in
which we expect the trading value of the Notes will be affected in the event
of
a change in a specific factor, assuming all other conditions remain
constant.
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Value
of the Portfolio.
We expect that the trading value of the Notes will depend substantially
on
the amount, if any, by which the Portfolio Return at any given time
is
greater than zero. If you decide to sell your Notes when the Portfolio
Return is greater than zero, you may nonetheless receive substantially
less than the amount that would be payable at maturity based on that
Portfolio Return because of expectations that the Portfolio Return
will
continue to fluctuate until the Cash Settlement Value is
determined.
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Volatility
of the Portfolio.
Volatility is the term used to describe the size and frequency of
market
fluctuations. If the volatility of the Portfolio increases or decreases,
the trading value of the Notes may be adversely affected. This volatility
may increase the risk that the Portfolio Return will decline, which
could
negatively affect the trading value of Notes. The effect of the volatility
of the Portfolio on the trading value of the Notes may not necessarily
decrease over time during the term of the
Notes.
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Correlation
among the level of the Components.
Correlation is the extent to which the levels of the Components 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 U.S. interest rates. In general, if U.S.
interest
rates increase, the value of outstanding debt securities tends to
decrease; conversely, if interest rates decrease, the value of outstanding
debt securities tends to increase. Interest rates may also affect
the
economy and, in turn, the levels of the Components, which may affect
the
value of the Notes. Rising interest rates may lower the levels of
the
Components and, thus, the value of the Notes.
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Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A1 by
Moody’s
Investor Service, Inc. and A+ by Standard & Poor’s Rating Services, as
well as our financial condition or results of operations may significantly
affect the trading value of the Notes. However, because the return
on the
Notes is dependent upon factors in addition to our ability to pay
our
obligations under the Notes, such as the levels of the Components,
an
improvement in our credit ratings, financial condition or results
of
operations is not expected to have a positive effect on the trading
value
of the Notes.
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Time
remaining to maturity. A
“time premium” results from expectations concerning the levels of the
Components during the period prior to the maturity of the Notes.
As the
time remaining to the maturity of the Notes decreases, this time
premium
will likely decrease, potentially adversely affecting the trading
value of
the Notes. As the time remaining to maturity decreases, the trading
value
of the Notes and the supplemental return may be less sensitive to
the
volatility of the Components.
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Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks underlying certain of the Components. In general, because
the
Components do not incorporate the value of dividend payments, higher
dividend yields will likely reduce the value of the Notes and, conversely,
lower dividend yields 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 constituents underlying certain of the Components are
denominated are foreign exchange spot rates that measure the relative
values of two currencies: the particular currency in which the
constituents underlying a particular Component are denominated and
the
U.S. dollar. The spot rate is expressed as a rate that reflects the
amount
of the particular currency that can be purchased for one U.S. dollar.
If
the volatility of the exchange rate between the U.S. dollar and any
of the
foreign currencies in which the constituents underlying certain of
the
Components are denominated changes, the trading value of the Notes
may be
adversely affected.
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Correlation
between currency exchange rates and the Components.
Correlation is the term used to describe the relationship between
the
percentage changes in the exchange rate between the U.S. dollar and
each
of the foreign currencies in which the constituents underlying certain
of
the Components are denominated and the percentage changes between
each
Component. If the correlation between the relevant exchange rates
and the
particular Component changes, the trading value of the Notes may
be
adversely affected.
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Events
involving the companies issuing the securities comprising
certain
of
the Components.
General economic conditions and earnings results of the companies
whose
securities comprise the Components, and real or anticipated changes
in
those conditions or results, may affect the trading value of the
Notes.
For example, some of the securities underlying the Components may
be
affected by mergers and acquisitions, which can contribute to volatility
of the Portfolio. As a result of a merger or acquisition, one or
more
securities in the Components may be replaced with a surviving or
acquiring
entity’s securities. The surviving or acquiring entity’s securities may
not have the same characteristics as the stock originally included
in the
Portfolio.
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Size
and liquidity of the trading market.
The Notes will not be traded on any securities exchange or quotation
system, therefore there may not be an active secondary market in
the
Notes, which may affect the price that you receive for your Notes
upon any
sale prior to maturity. If an active secondary market does develop,
there
can be no assurance that there will be liquidity in the secondary
market.
If the secondary market for the Notes is limited, there may be a
limited
number of buyers for your Notes if you do not wish to hold your investment
until maturity. This may affect the price you receive upon any sale
of the
Notes prior to maturity. Fifth Third has advised us that they intend,
under ordinary market conditions, to indicate prices for the Notes
on
request. However, we cannot guarantee that bids for outstanding Notes
will
be made in the future; nor can we predict the price at which any
such bids
will be made.
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Inclusion
of commission.
The inclusion of commissions and projected profit from hedging in
the
initial public offering price of the Notes is likely to adversely
affect
secondary market prices. Assuming no change in the market conditions
or
any other relevant factors, the price, if any, at which Fifth Third
may be
willing to purchase the Notes in secondary market transactions may
be
lower than the original price of the Notes, because the original
price
included, and secondary market prices are likely to exclude, commissions
paid with respect to the Notes, as well as the projected profit included
in the cost of hedging our obligations under the Notes. In addition,
any
such prices may differ from values determined by pricing models used
by
Fifth Third as a result of dealer discounts, mark-ups or other transaction
costs.
|
We
want
you to understand that the effect of one of the factors specified above, such
as
an increase in interest rates, may offset some or all of any change in the
value
of the Notes attributable to another factor, such as an increase in the level
of
the Portfolio.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any of the stocks underlying the
Components. Neither you nor any other holder or owner of the Notes will have
any
voting rights, any right to receive dividends or other distributions or any
other rights with respect to the underlying stocks. The Cash Settlement Value,
if any, will be paid in cash, and you will have no right to receive delivery
of
any stocks underlying the Components.
Reported
levels of the Components may be based on non-current
information.
If
trading is interrupted in the constituents of the Components, publicly available
information regarding the Portfolio Return may be based on the last reported
levels. As a result, publicly available information regarding reported closing
levels of the Components may at times be based on non-current
information.
Risks
associated with the Components may adversely affect the market value of the
Notes.
Because
the Notes are linked to changes in the levels of equity indices, the Portfolio
will be less diversified than funds or investment portfolios investing in a
broader range of international securities and, therefore, could experience
greater volatility. The equity markets are subject to temporary distortions
or
other disruptions due to various factors, including a lack of liquidity in
the
markets, the participation of speculators and potential government regulation
and intervention. Suspension or other disruptions of market trading in the
constituents underlying the Components could adversely affect the levels of
those Components and, therefore, the Cash Settlement Value and/or the trading
value of the Notes.
The
Components may not move in tandem; and gains in one Component may be offset
by
declines in another Component.
Movements
in the level of the Components comprising the Portfolio may not move in tandem
with each other. 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 comprising
the Portfolio may be moderated, or wholly offset, by lesser increases or
declines in the level of one or more of the other Components comprising the
Portfolio.
The
Components comprising the Portfolio are weighted differently; therefore the
positive performance of a less heavily weighted Component may be offset by
the
negative performance of a more heavily weighted Component.
The
Portfolio Return is an amount determined by the Calculation Agent and equal
to
the sum of the Component Performance for each Component multiplied by its
respective Weighting in the Portfolio. Because the Components are weighted
differently in the Portfolio, the positive performance of a less heavily
weighted Component may be moderated, or wholly offset, by the negative
performance of a more heavily weighted Component in the Portfolio.
Adjustments
to the 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.
Our
affiliates, including Bear Stearns, may, at various times, engage in
transactions involving the securities underlying the Portfolio for their
proprietary accounts, and for other accounts under their management. These
transactions may influence the value of such securities, and therefore the
level
of the Components. Bear Stearns International Limited (“BSIL”), an affiliate of
Bear Stearns, or one of its subsidiaries will also be the counterparty to the
hedge of our obligations under the Notes. You should refer to “Use of Proceeds
and Hedging.” Accordingly, under certain circumstances, conflicts of interest
may arise between Bear Stearns’ responsibilities as Calculation Agent with
respect to the Notes and BSIL’s obligations under our hedge.
Changes
that affect the calculation of the levels of the Components will affect the
trading value of the Notes and the amount you will receive at
maturity.
Each
Component Sponsor is responsible for calculating and maintaining its respective
Component. 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 (as defined below) is not available or is not acceptable
to
the Calculation Agent, then the Calculation Agent will determine the amount
payable on the Maturity Date by reference to a group of stocks 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 an
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 may receive
at maturity. See “Description of the Notes” and “Description of the
Portfolio.”
A
Component Sponsor may change the securities underlying a
Component
in a way that adversely affects the level of the Component and consequently
the
value of the Notes.
A
Component Sponsor may add, delete or substitute the securities underlying a
Component or make other methodological changes that could adversely change
the
level of the Component and the value of the Notes. 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.
We
cannot control actions by
any of the companies whose securities are included in any
Component.
The
common stock of The Bear Stearns Companies Inc. is an underlying stock of the
SPX. We are not affiliated with any of the other companies whose securities
underlie any of the Components. However, we may currently, or in the future,
engage in business with these companies. Actions by any company whose security
is part of a Component may have an adverse effect on the price of the company’s
securities, the trading price of and the closing level of the Component and
the
Portfolio, and the trading value of the Notes. None of those companies are
involved in this offering or has any obligations with respect to the Notes,
including any obligation to take our or your interests into consideration for
any reason. These other companies will not receive any of the proceeds of this
offering and are not responsible for, and have not participated in, the
determination of the timing of, prices for, or quantities of, the Notes to
be
issued. These other companies are not involved with the administration,
marketing or trading of the Notes and have no obligations with respect to the
amount to be paid to you under the Notes on the Maturity Date.
Neither
we nor any of our affiliates, including Bear Stearns, assumes any responsibility
for the adequacy or accuracy of any publicly available information about the
securities underlying the Components (other than with respect to our common
stock) or the Components. You should make your own investigation into the
companies underlying each Component.
We
and our affiliates have no affiliation with any 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”) 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 contained in this pricing
supplement. You, as an investor in the Notes, should make your own investigation
into the Components. 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
constituents underlying the Components, the Observation Levels, the trading
value of the Notes or the amount you may receive at
maturity.
We
and
our affiliates may from time to time buy or sell interests in the constituents
underlying the Components or derivative instruments the value of which depend,
directly or indirectly upon, those constituents for our own accounts in
connection with our normal business practices or in connection with hedging
our
obligations under the Notes and other instruments. These trading activities
may
present a conflict of interest between your interest in the Notes and the
interests we and our affiliates may have in our proprietary accounts, in
facilitating transactions, including block trades, for our other customers
and
in accounts under our management. The transactions could affect the prices
of
those constituents or the Observation Levels in a manner that would be adverse
to your investment in the Notes. See the section “Use of Proceeds and
Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Fifth
Third will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Fifth Third as a result of transaction costs. If you sell the Notes
prior to maturity, you may receive less, and possibly significantly less, than
your initial investment in the Notes.
Hedging
activities we or our affiliates may engage in may affect the levels of the
Components and the Observation Levels and, accordingly, increase or decrease
the
trading value of the Notes prior to maturity and the Cash Settlement Value
you
would receive at maturity. To the extent that we or any of our affiliates has
a
hedge position in any of the constituents that underlie the Components, or
derivative or synthetic instruments related to those constituents or the
Components, we or any of our affiliates may liquidate a portion of such holdings
at or about the time of the maturity of the Notes or at or about the time of
a
change in the constituents that underlie the Components. Depending on, among
other things, future market conditions, the aggregate amount and the composition
of such hedge positions are likely to vary over time. Profits or losses from
any
of those positions cannot be ascertained until the position is closed out and
any offsetting position or positions are taken into account. Although we have
no
reason to believe that any of those activities will have a material effect
on
the levels of the Components, we cannot assure you that these activities will
not affect such levels and the trading value of the Notes prior to maturity
or
the Cash Settlement Value payable at maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports relating to the Portfolio, the Components included in the
Portfolio or the constituents underlying the Components in the Portfolio. This
research may be modified from time to time without notice and may express
opinions or provide recommendations that are inconsistent with purchasing or
holding the Notes. Any of these activities may affect the market prices of
the
constituents underlying the Components and, therefore, the value of the Notes.
We
or any
of our affiliates may also issue, underwrite or assist unaffiliated entities
in
the issuance or underwriting of other securities or financial instruments with
returns indexed to the Portfolio, a Component of the Portfolio or the
constituents underlying the Components included in the Portfolio. By introducing
competing products into the marketplace in this manner, we or our affiliates
could adversely affect the value of the Notes.
We
and
our affiliates, at present or in the future, may engage in business with the
companies issuing the securities underlying certain of the Components in the
Portfolio, including making loans to, equity investments in, or providing
investment banking, asset management or other advisory services to those
companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Final Observation Date, a Market
Disruption Event has occurred or is continuing, the determination of the Cash
Settlement Value by the Calculation Agent and the date which you will receive
that Cash Settlement Value may be deferred. You should refer to the section
“Description of the Notes—Market Disruption Events.”
If
the
Calculation Agent determines that an Event of Default (as defined below) has
occurred, a holder of the Notes will only receive an amount equal to the trading
value of the Notes on the date of such Event of Default, adjusted by an amount
equal to any losses, expenses and costs to us of unwinding any underlying
hedging or funding arrangements, all as determined by the Calculation Agent.
You
should refer to the section “Description of the Notes—Event of Default and
Acceleration.”
You
should decide to purchase the Notes only after carefully considering the
suitability of the Notes in light of your particular financial circumstances.
You should also carefully consider the tax consequences of investing in the
Notes. You should refer to the section “Certain U.S. Federal Income Tax
Considerations” and discuss the tax implications with your own tax
advisor.
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 November [l],
2012
and do not provide for earlier redemption. The Notes will be issued only in
fully registered form, and in minimum denominations of $[10,000]; provided,
however, that the minimum purchase for any purchaser domiciled in a member
state
of the European Economic Area shall be $100,000. Initially, the Notes will
be
issued in the form of one or more global securities registered in the name
of
DTC or its nominee, as described in the accompanying prospectus supplement
and
prospectus. When we refer to Note or Notes in this pricing supplement, we mean
$1,000 principal amount of Notes. The Notes will not be listed on any securities
exchange or quotation system.
You
should refer to the section “Certain U.S. Federal Income Tax Considerations,”
for a discussion of certain federal income tax considerations to you as a holder
of the Notes.
Future
Issuances
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuances will increase the aggregate principal amount of the outstanding Notes
of this series, plus the aggregate principal amount of any Notes bearing the
same CUSIP number that are issued pursuant to any 13-day option we grant to
Fifth Third. The prices of any additional offerings will be determined at the
time of pricing of each offering, which will be a function of the prevailing
market conditions and the levels of the Components at the time of the relevant
sale.
Interest
We
will
not make any periodic payments of interest on the Notes. The only payment you
will receive, if any, will be the Cash Settlement Value upon the maturity of
the
Notes.
Payment
at Maturity
Your
investment is principal protected only if you hold the Notes until maturity.
On
the Maturity Date, you will receive the Cash Settlement Value, an amount in
cash
that depends upon the performance of the Portfolio Return.
If,
at
maturity, the Portfolio Return is greater than zero, then the Cash Settlement
Value will be equal to the sum of (A) the principal amount of the Notes plus
(B)
the product of (i) $1,000 multiplied by (ii) the Portfolio Return multiplied
by
(iii) the Participation Rate.
If,
at
maturity, the Portfolio Return is equal to or less than zero, then the Cash
Settlement Value for each Note will be $1,000. Because the Notes are principal
protected if held to maturity, in no event will the Cash Settlement Value for
each Note held to maturity be less than $1,000.
The
Notes
are linked to the potential positive performance of a portfolio comprised of
six
indices. The following are the six indices and their respective Weightings
in
the portfolio: (1) 20.00% the SPX; (2) 20.00% the SX5E; (3) 20.00% the SBR;
(4)
20.00% the NKY; (5) 12.00% the MID; and (6) 8.00% the RTY. Each such index
will
be a “Component” and the six Components together will constitute the
“Portfolio”. The Weighting of each Component is fixed at the respective
Weighting mentioned above and will not change during the term of the Notes
unless one or more Components are modified during the term of the
Notes.
Portfolio
Return:
|
An
amount determined by the Calculation Agent and equal to the sum of
the
Component Performance for each Component multiplied by its respective
Weighting in the Portfolio.
|
|
|
|
For
purposes of determining the Portfolio Return:
|
|
|
|
“Component
Performance”
means, as of the Final Observation Date and with respect to a Component,
the quotient, expressed as a percentage, of (i) the arithmetic average
of
the Observation Levels for that Component as of each Observation
Date
minus the Initial Component Level of that Component divided by (ii)
the
Initial Component Level of that Component.
|
|
|
|
“Final
Observation Date” means
October [l],
2012.
|
|
|
|
“Observation
Level”
means, as of any Observation Date and with respect to 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; Bloomberg Page SBR <Index> <Go> with respect to the SBR;
Bloomberg Page NKY <Index> <Go> with respect to the NKY;
Bloomberg Page MID <Index> <Go> with respect to the MID; and
Bloomberg Page RTY <Index> <Go> with respect to the
RTY..
|
|
|
|
“Observation
Date”
means April [l],
2010 and October [l],
2012; provided that, with respect to a Component, (i) if such date
is not
a Component Business Day (as defined herein) for that Component,
then the
Observation Date for that Component will be the next succeeding day
that
is a Component Business Day for that Component and (ii) if a Market
Disruption Event (as defined herein) exists for that Component on
the
Observation Date, the Observation Date for that Component will be
the next
Component Business Day for that Component on which a Market Disruption
Event does not exist for that Component. If the Observation Date
for any
Component is postponed for three consecutive Component Business Days
due
to the existence of a Market Disruption Event, then, notwithstanding
the
existence of a Market Disruption Event on that third Component Business
Day, that third Component Business Day will be the Observation Date
for
that Component. If no Market Disruption Event exists with respect
to a
Component on the Observation Date, the determination of that Component’s
Observation Level will be made on the Observation Date, irrespective
of
the existence of a Market Disruption Event with respect to one or
more of
the other Components.
|
|
|
|
“Initial
Component Level”
means:
|
|
|
|
·[l]
with respect to the SPX;
|
|
·[l]
with respect to the SX5E;
|
|
·[l]
with respect to the SBR;
|
|
·[l]
with respect to the NKY;
|
|
·[l]
with respect to the MID; and
|
|
·[l]
with respect to the RTY.
|
|
|
|
“Weighting”
means:
|
|
|
|
·
20.00%
with respect to the SPX;
|
|
·
20.00%
with respect to the SX5E;
|
|
·
20.00%
with respect to the SBR;
|
|
·
20.00%
with respect to the NKY;
|
|
·
12.00%
with respect to the MID; and
|
|
·
8.00%
with respect to the RTY.
|
The
“Participation Rate” is [120.00-128.00]%.
The
“Pricing Date” is October [l],
2007.
The
“Issue Date” is November [l],
2007.
A
“Component Business Day” means with respect to a Component any day on which each
Relevant Exchange and each Related Exchange for such Component are scheduled
to
be open for trading.
A
“Business Day” is any day other than a Saturday or Sunday, on which banking
institutions in the cities of New York, New York and London, England are not
authorized or obligated by law or executive order to be closed.
The
“Maturity Date” is November [l],
2012.
The Notes are expected to mature on November [l],
2012
unless such date is not a Business Day, in which case the Maturity Date shall
be
the next Business Day. If the Final Observation Date is postponed, the Maturity
Date will be three Business Days following the Final Observation Date, as
postponed for the last Component for which a Observation Level is
determined.
The
“Calculation Agent” is Bear,
Stearns & Co. Inc.
The
“Relevant Exchanges” means,
with respect to a Component, the primary exchanges or markets of trading for
any
constituent then included in such Component. The “Summary of the Components”
below details the Relevant Exchanges for each Component.
The
“Related Exchange” means, with respect to a Component, each exchange or
quotation system where trading has a material effect (as determined by the
Calculation Agent) on the overall market for futures or options contracts
relating to the Component, if any.
SUMMARY
OF THE COMPONENTS
Component
|
Relevant
Exchanges
|
SPX
|
New
York Stock Exchange, NASDAQ and their successors
|
SX5E
|
Major
stock exchanges, respectively located in one of 12 European countries,
including London Stock Exchange, Frankfurt Stock Exchange and their
successors
|
SBR
|
The
Hong Kong Stock Exchange, London Stock Exchange, Nasdaq Stock Market,
New
York Stock Exchange and their successors
|
NKY
|
The
Tokyo Stock Exchange (the “TSE”) and its successors
|
MID
|
The
New York Stock Exchange, NASDAQ, American Stock Exchange LLC and
their
successors
|
RTY
|
The
New York Stock Exchange, NASDAQ, American Stock Exchange and their
successors
|
Illustrative
Examples
The
following tables are for illustrative purposes and are not indicative of the
future performance of the Components or the future value of the
Notes.
The
following examples demonstrate how the hypothetical Cash Settlement Value of
a
Note is calculated based on the assumptions outlined below. The examples do
not
purport to be representative of every possible scenario concerning increases
or
decreases in the Portfolio or the Components underlying the Portfolio. You
should not construe the examples as an indication or assurance of the expected
performance of the Notes. Actual returns may be different. 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
Participation Rate is 125.00%.
|
|
·
|
The
Initial Component Level for the SPX is equal to 1,500.00.
|
|
·
|
The
Initial Component Level for the SX5E is equal to
4,400.00.
|
|
·
|
The
Initial Component Level for the SBR is equal to
3,050.00.
|
|
·
|
The
Initial Component Level for the NKY is equal to
17,100.00.
|
|
·
|
The
Initial Component Level for the MID is equal to
900.00.
|
|
·
|
The
Initial Component Level for the RTY is equal to
825.00.
|
|
·
|
The
Weightings of the Components comprising the Portfolio are 20.00%
with
respect to the SPX, 20.00% with respect to the SX5E, 20.00% with
respect
to the SBR, 20.00% with respect to the NKY, 12.00% with respect to
the
MID, and 8.00% with respect to the
RTY.
|
|
·
|
All
returns are based on a 60-month term, pre-tax
basis.
|
|
·
|
No
Market Disruption Events or Events of Default occur during the term
of the
Notes.
|
Example
1: The Portfolio Return is greater than zero.
In
this
example, the levels of all six Components increase relative to their Initial
Component Levels as of the first Observation Date. As of the second Observation
Date, the Observation Levels of four Components decrease relative to their
Component Levels on the first Observation Date while the Observation Levels
of
two Components increase relative to their Component Levels on the first
Observation Date. The Observation Levels of all six Components increase relative
to their Initial Component Levels as of the second Observation Date. This
example illustrates how holders of the Notes may benefit from the increase
in
the Observation Level of the Components relative to their respective Initial
Component Levels on each related Observation Date.
Component
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,500.00
|
1,745.00
|
1,624.00
|
12.30%
|
20.00%
|
SX5E
|
4,400.00
|
5,100.00
|
6,905.00
|
36.42%
|
20.00%
|
SBR
|
3,050.00
|
6,233.00
|
6,843.00
|
114.36%
|
20.00%
|
NKY
|
17,100.00
|
20,564.00
|
16,108.00
|
7.23%
|
20.00%
|
MID
|
900.00
|
1,961.00
|
1,761.00
|
106.78%
|
12.00%
|
RTY
|
825.00
|
1,570.00
|
1,327.00
|
75.58%
|
8.00%
|
On
the
Final Observation Date, the Component Performance for SPX would be 12.30%,
the
Component Performance for SX5E would be 36.42%, the Component Performance for
SBR would be 114.36%, the Component Performance for NKY would be 7.23%, the
Component Performance for MID would be 106.78%, and the Component Performance
for RTY would be 75.58%, each as calculated pursuant to the below formula:
In
this
example, using the formula below, the Portfolio Return would be greater than
zero.
The
Portfolio Return is an amount equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (12.30% x 20.00%) + (36.42% x 20.00%) + (114.36% x 20.00%) + (7.23%
x
20.00%) + (106.78% x 12.00%) + (75.58% x 8.00%)
Portfolio
Return = 52.92%
The
Cash
Settlement Value, using the formula below, would equal $1,661.52.
Cash
Settlement Value
Because
the level of the Components of the Portfolio generally increased over the term
of the Notes, you will receive a positive return on your investment in the
Notes. Additionally, because of the Participation Rate, the return on the Notes
may in this case be greater than the return on a direct investment in the
underlying indices.
Example
2:
The Portfolio Return might be less than zero.
In
this
example, the Observation Levels all six Components decrease relative to their
Initial Component Levels as of the first Observation Date. On
the
second Observation Date, the Observation Levels of four of the Components
decrease relative to their Component Levels on first Observation Date while
the
Observation Levels of two Components increase relative to their Component Levels
on the first Observation Date.
The
Observation Levels of all six Components decrease relative to their Initial
Component Levels as of the second Observation Date. As a result, the Portfolio
Return would be less than zero, and holders of the Notes would therefore have
received only the principal amount of each Note at maturity.
Component
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,500.00
|
978.00
|
938.00
|
-36.13%
|
20.00%
|
SX5E
|
4,400.00
|
1,930.00
|
2,285.00
|
-52.10%
|
20.00%
|
SBR
|
3,050.00
|
2,310.00
|
2,073.00
|
-28.15%
|
20.00%
|
NKY
|
17,100.00
|
12,765.00
|
12,214.00
|
-26.96%
|
20.00%
|
MID
|
900.00
|
347.00
|
327.00
|
-62.56%
|
12.00%
|
RTY
|
825.00
|
619.00
|
627.00
|
-24.48%
|
8.00%
|
On
the
Final Observation Date, the Component Performance for SPX would be -36.13%,
the
Component Performance for SX5E would be -52.10%, the Component Performance
for
SBR would be -28.15%, the Component Performance for NKY would be -26.96%, the
Component Performance for MID would be -62.56%, and the Component Performance
for RTY would be -24.48%, each as calculated pursuant to the below
formula:
In
this
example, using the formula below, the Portfolio Return would not be greater
than
zero.
The
Portfolio Return is an amount equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (-36.13% x 20.00%) + (-52.10% x 20.00%) + (-28.15% x 20.00%) + (-26.96%
x 20.00%) +
(-62.56%
x 12.00%) + (-24.48% x 8.00%)
Portfolio
Return = -38.13%
Since
the
Portfolio Return would be less than zero, the Cash Settlement Value for each
Note would be the principal amount of $1,000. In this case, an investor in
the
Notes benefits from principal protection.
Example
3: Some Components move higher while others move lower.
In
this
example, the Observation Levels of three Components decrease relative to their
Initial Component Levels as of the first Observation Date and the Observation
Levels of three Components increase relative to their Initial Component Levels
as of the first Observation Date. The Observation Levels of three Components
decrease relative to their Initial Component Levels as of the second Observation
Date and the Observation Levels of three Components increase relative to their
Initial Component Levels as of the second Observation Date. This example
illustrates how holders of the Notes may benefit from the increase in the
Observation Level of some of the Components relative to their respective Initial
Component Levels on each related Observation Date.
Component
|
Initial
Component Level
|
Observation
Date 1
|
Observation
Date 2
|
Component
Performance
|
Weighting
in the Portfolio
|
SPX
|
1,500.00
|
1,138.00
|
1,334.00
|
-17.60%
|
20.00%
|
SX5E
|
4,400.00
|
5,838.00
|
7,033.00
|
46.26%
|
20.00%
|
SBR
|
3,050.00
|
1,575.00
|
1,240.00
|
-53.85%
|
20.00%
|
NKY
|
17,100.00
|
27,684.00
|
22,964.00
|
48.09%
|
20.00%
|
MID
|
900.00
|
654.00
|
570.00
|
-32.00%
|
12.00%
|
RTY
|
825.00
|
891.00
|
1,177.00
|
25.33%
|
8.00%
|
On
the
Final Observation Date, the Component Performance for SPX would be -17.60%,
the
Component Performance for SX5E would be 46.26%, the Component Performance for
SBR would be -53.85%, the Component Performance for NKY would be 48.09%, the
Component Performance for MID would be -32.00%, and the Component Performance
for RTY would be 25.33%, each as calculated pursuant to the below formula:
In
this
example, using the formula below, the Portfolio Return would be greater than
zero.
The
Portfolio Return is an amount equal to the sum of the Component Performance
for
each Component multiplied by its respective Weighting in the Portfolio.
Portfolio
Return = (-17.60% x 20.00%) + (46.26% x 20.00%) + (-53.85% x 20.00%) + (48.09%
x
20.00%) +
(-32.00%
x 12.00%) + (25.33% x 8.00%)
Portfolio
Return = 2.77%
The
Cash
Settlement Value, using the formula below, would equal $1,034.59.
Cash
Settlement Value
In
this
example, because the level of the Portfolio increased over the term of the
Notes, you will receive a positive return on your investment in the Notes,
which
is further increased by the Participation Rate.
Discontinuance
of one or more Components
If
a
Component Sponsor discontinues publication of or otherwise fails to publish
any
Component and such Component Sponsor or another entity publishes a successor
or
substitute index that the Calculation Agent determines to be comparable to
the
discontinued Component (the new index being referred to as a “Successor
Component”), then the Observation Levels 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 all on future
Observation Dates.
For
the
avoidance of doubt, only Observation Levels for that Component determined on
or
after the discontinuance for such Component will be determined by reference
to
the level of the Successor Component, any Observation Levels for that Component
determined prior to the discontinuance will remain the same.
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 original 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 Component Sponsor fails to publish a Component
prior to, and such discontinuance is continuing on, any Observation 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
Observation Level for that Observation Date with respect to such Component.
The
Observation Level to be used for that Observation Date will be computed by
the
Calculation Agent in accordance with the formula for and method of calculating
that Component last in effect prior to the relevant discontinuance or failure
but using only those constituents that comprised that Component immediately
prior to such discontinuance or failure. In such an event, the Calculation
Agent
will give notice to the Trustee, stating the determinations made.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the
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 does not, in the opinion of the
Calculation Agent, fairly represent the level of the Component had such changes
or modifications not been made, then, for purposes of calculating the
Observation Levels with respect to such Component or the Cash Settlement Value
with respect to the Notes or making any other determinations as of or after
such
time, the Calculation Agent will make such calculations and adjustments the
Calculation Agent determines may be necessary in order to arrive at a level
of
an index comparable to the Component, 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 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 as
if
it had not been modified (e.g., as if such split had not occurred). In such
event, the Calculation Agent will give notice to the Trustee, stating the
calculations and adjustments made.
In
the
event that, on an Observation Date, a Component is not calculated by the
relevant Component 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 calculating the Component Performance with respect to
that
Component.
Market
Disruption Events
If
there
is a Market Disruption Event on an Observation Date, the Observation Level
of
that Component will be determined on the first succeeding Component Business
Day
on which there is no Market Disruption Event. In no event, however, will the
Observation Date be a date that is postponed by more than three Component
Business Days following the original date that, but for the Market Disruption
Event, would have been the Observation Date. In that case, the third Component
Business Day will be deemed to be the Observation Date, notwithstanding the
Market Disruption Event, and the Calculation Agent will determine the level
of a
Component on that third Component Business Day in accordance with the formula
for and method of calculating the applicable underlying Component in effect
prior to the Market Disruption Event using the closing level of each constituent
of the Component as described above (or, if trading in any such constituent
has
been materially suspended or materially limited, the Calculation Agent’s
estimate of the closing level that would have prevailed but for such suspension
or limitation) as of that third Component Business Day. If no Market Disruption
Event exists with respect to a Component, the Observation Level of that
Component shall be determined on the scheduled Observation Date. In the event
of
a Market Disruption Event on the Final Observation Date, the Maturity Date
will
be three Business Days following the Final Observation Date, as postponed for
the last Component for which an Observation Level is
determined.
A
“Market
Disruption Event” means, with respect to a Component, the occurrence or
existence at any time of a condition specified below that the Calculation Agent
determines to be material:
(a) any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by such Relevant Exchange or Related Exchange or
otherwise, (A) relating to any security underlying a Component or (B) in futures
or options contracts relating to the respective Component on any Related
Exchange for such Component;
(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 constituent of the Component at any time, then the relevant percentage
contribution of that constituent to the level of that Component shall be based
on a comparison of (x) the portion of the level of such Component attributable
to that constituent and (y) the overall level of such Component, in each case
immediately before the occurrence of such Market Disruption Event.
For
purposes of the above definitions of “Market Disruption Event”:
(a) a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of a Relevant Exchange or Related Exchange,
and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, NASD Rule 4120 or any analogous rule
or regulation enacted or promulgated by the NYSE, NASD or any other self
regulatory organization or the SEC of similar scope as determined by the
Calculation Agent, will be considered “material.”
“Relevant
Exchange” means with respect to a Component, the primary exchanges or markets of
trading for any security then included in such Component.
“Related
Exchange” means, with respect to a Component, each exchange or quotation system
where trading has a material effect (as determined by the Calculation Agent)
on
the overall market for futures or options contracts relating to the
Component.
“Component
Business Day” means with respect to a Component any day on which each Relevant
Exchange and each Related Exchange for such Component are scheduled to be open
for trading.
“Scheduled
Closing Time” means, in respect of a Relevant Exchange or Related Exchange and a
Component Business Day, the scheduled weekday closing time of such Relevant
Exchange or Related Exchange on such Component Business Day, without regard
to
after hours or any other trading outside of the regular trading session
hours.
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt
Securities—Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect to
any
Notes has occurred and is continuing, then the amount payable to you, as a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Fifth Third in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations made
by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders of
the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error by
the
Calculation Agent, or any failure by it to act in good faith, in making a
determination adversely affecting the payment of principal, interest or premium
on principal to holders would entitle the holders, or the Trustee acting on
behalf of the holders, to exercise rights and remedies available under the
Indenture. If the Calculation Agent uses its discretion to make any
determination, the Calculation Agent will notify us and the Trustee, who will
provide notice to the registered holders of the Notes.
DESCRIPTION
OF THE PORTFOLIO
All
disclosures contained in this pricing supplement regarding the Components are
derived from publicly available information. Neither we nor any of our
affiliates takes any responsibility for the accuracy or completeness of such
information.
The
S&P 500®
Index
(“SPX”)
We
have
derived all information relating to the SPX, including, without limitation,
its
make-up, performance, method of calculation and changes in its composition,
from
publicly available sources. That information reflects the policies of and is
subject to change by Standard & Poor’s. Standard & Poor’s is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the SPX at any time.
Standard
& Poor’s publishes the SPX. The SPX is a capitalization-weighted index and
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the SPX, discussed below in further
detail, is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate
average market value of the common stocks of 500 similar companies during the
base period of the years 1941 through 1943. As of October 2, 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 October 2, 2007, indicated in
parenthesis: Industrials (53), Utilities (31), Telecommunication Services (9),
Materials (28), Information Technology (72), Energy (33), Consumer Staples
(39),
Consumer Discretionary (89), 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 Reference Index stock as determined as of that time (referred to as
the
“market value” of that stock);
(ii) the
market values of all Reference Index stocks as of that time are
aggregated;
(iii) the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv) the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “Base
Value”);
(v) the
current aggregate market value of all Reference Index stocks is divided by
the
Base Value; and
(vi) the
resulting quotient, expressed in decimals, is multiplied by
ten.
While
Standard & Poor’s currently employs the above methodology to calculate the
SPX, no assurance can be given that Standard & Poor’s will not modify or
change this methodology in a manner that may affect the performance of the
SPX.
Standard
& Poor’s adjusts the foregoing formula to offset the effects of changes in
the market value of a Reference Index stock that are determined by Standard
& Poor’s to be arbitrary or not due to true market
fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities of
the
company,
|
|
·
|
the
substitution by Standard & Poor’s of particular Reference Index stocks
in the SPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all Reference Index stocks, after taking account of the new market price per
share of the particular Reference Index stock or the new number of outstanding
shares of that stock or both, as the case may be, and then determines the new
base value in accordance with the following formula:
The
result is that the base value is adjusted in proportion to any change in the
aggregate market value of all Reference Index stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the SPX.
In
addition, Standard & Poor’s’ standard practice is to remove all closely held
shares and shares held between corporations who are both in the calculations
of
the SPX and an Index Reference Index’s market value.
License
Agreement with Standard and Poor’s
The
Company has entered or expects to enter into a non-exclusive license agreement
with Standard & Poor’s providing for the license to us, in exchange for a
fee, of the right to use the SPX, which is owned and published by Standard
&
Poor’s, in connection with certain securities, including the Notes.
The
license agreement between Standard & Poor’s and us provides that the
following language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s.
Standard & Poor’s makes no representation or warranty, express or implied,
to the owners of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes particularly.
Standard & Poor’s only relationship to us is the licensing of certain
trademarks, trade names and service marks of Standard & Poor’s and of the
SPX, which is determined, composed and calculated by Standard & Poor’s
without regard to us or the Notes. Standard & Poor’s has no obligation to
take our needs or the needs of holders of the Notes into consideration in
determining, composing, or calculating the SPX. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of,
prices at which Notes are sold, or quantities of the Notes to be issued or
in
the determination or calculation of the amount payable at maturity. Standard
& Poor’s has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
Standard
& Poor’s does not guarantee the accuracy and/or the completeness of the SPX
or any data included therein and Standard & Poor’s shall have no liability
for any errors, omissions, or interruptions therein. Standard & Poor’s makes
no warranty, express or implied, as to results to be obtained by us, owners
of
the Notes, or any other person or entity from the use of the SPX or any data
included therein. Standard & Poor’s makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the SPX or any data included therein.
Without limiting any of the foregoing, in no event shall Standard & Poor’s
have any liability for any lost profits or indirect, punitive, special, or
consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements between
Standard & Poor’s and the Company.”
Historical
Data
on the SPX
The
following table sets forth the month-end closing index levels of the
SPX
for each
month in the period from January 1998 through 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 the Initial Component Level during the term of
the
Notes.
The
closing index level of the SPX on October 2, 2007 was 1,546.63.
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 October 2, 2007 was 4,427.01.
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
S&P BRIC 40™ Index (“SBR”)
We
have
derived all information relating to the SBR, 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 SBR at any time.
The
S&P BRIC 40™ Index is intended to provide exposure to 40 leading companies
from the emerging markets of Brazil, Russia, India and China. There is no
minimum number of stocks from the respective four countries that have to be
included. All stocks in the SBR trade in developed market exchanges - the Hong
Kong Stock Exchange, London Stock Exchange, Nasdaq Stock Market and New York
Stock Exchange. The SBR uses a particular selection procedure for its
composition stocks, and a modified market capitalization weighting
scheme.
All
constituent companies are also members of the S&P/IFCI index series for one
of the four countries. The S&P/IFCI indices are designed to measure the type
of returns foreign portfolio investors might receive from investing in emerging
market stocks that are legally and practically available to them. Constituents
for the S&P/IFCI series are chosen based on size, liquidity, and their legal
and practical availability to foreign institutional investors. The S&P/IFCI
indices are calculated on a daily basis for each country.
The
process of selecting the 40 companies is as follows. All constituents of the
S&P/IFCI country indices for Brazil, Russia, India and China comprise the
initial selection universe. All companies that do not have a developed market
listing are removed from the list. Companies with a float-adjusted market
capitalization of less than $1 billion and/or an average six-month daily trading
volume of less than $5 million are removed. In addition, if a company has
multiple share classes, the share class with the lower liquidity is removed.
The
remaining stocks are sorted in decreasing order of their float-adjusted market
capitalization, and the top forty become index members. In the rare event that
fewer than 40 stocks qualify for inclusion, S&P may modify the criteria to
include multiple share classes or reduce the market capitalization
limit.
The
SBR
is rebalanced once a year on the first trading day of February. The reference
date for additions and deletions is after the closing of the last trading date
of the previous December. No companies are added between rebalancings, but
a
company can be deleted during that time due to corporate events such as mergers,
acquisitions, takeovers or de-listings. In case of any changes, an announcement
will be made followed by the immediate revision of the methodology.
The
SBR
Committee maintains the SBR, meeting as often as needed. The committee members
are full-time professionals of the Standard & Poor’s staff. At each meeting,
the SBR Committee reviews pending corporate actions that may affect index
constituents, statistics comparing the composition of the indices to the market,
and any significant market events. In addition, the S&P BRIC 40 Committee
can revise index policy covering rules for selecting companies, share counts,
the liquidity and market cap thresholds or other matters.
The
SBR
is calculated in U.S. dollars and Euros. Local market prices are converted
using
the Reuters / WM London closing. The pricing of individual index constituents
is
taken from their listing in the developed market exchange in which it trades.
If
a stock trades on more than one developed market exchange, the listing from
the
market with the most liquidity is taken. As of October 2, 2007, 35.00% of the
SBR weight was made up of Chinese stocks, 27.50% by Brazilian stocks, 25.00%
by
Russian stocks and 12.50% by Indian stocks. As of the same date, the largest
sectors of the SBR were energy (composing 37.06% of Index weight), financials
(composing 28.13% of Index weight), telecom (composing 14.61% of Index weight),
and materials (composing 9.63% of Index weight).
Computation
of the SBR
Once
the
constituent companies are identified, S&P utilizes a modified market
capitalization weighing procedure to determine the composition of the SBR.
In
short, at rebalancing, the starting weight of each stock is proportional to
its
available market capitalization, which accounts for available float and
investment restrictions for foreign investors. Modifications are made, if
required, to ensure that no stock has a weight of more than 10% in the index.
In
addition, changes are made to ensure that the minimum initial portfolio size
for
1-day trade (based on recent trading volume) will be at least $600
million.
The
details of the weighing procedure at every rebalancing are as
follows:
(1)
|
Every
stock is given an initial Adjustment Factor (AF) of I. Basket Liquidity
(BL) and Maximum Weight (MW) are set to USS 600 million and 10%,
respectively.
|
(2)
|
The
weight for each stock in the SBR is calculated as follows:
|
(3)
|
Trade
size, S, is calculated for each stock as
follows:
|
where
L
i
is the
liquidity of the ith
stock,
as defined by the six-month average daily value traded.
(4)
|
The
adjustment factor for each stock is modified as
follows:
|
(5)
|
If,
for every stock, S i≥ BL
and W i< MW,
then the process is complete and the weights derived in step 2 are
used.
If not, steps 2, 3 and 4 are repeated until all stocks meet the market
cap
and liquidity requirements. No further adjustments are made for stocks
which have AF = 0.2.
|
The
basket liquidity (BL) parameter essentially sets a limit of the minimum
portfolio size that must be turned over in a single day, based on the historical
average value-traded pattern. The MW parameter is the maximum weight of each
stock at the rebalancing. These parameters can be changed depending on market
circumstances. Steps 1 through 5 modify the market cap weighting scheme in
a
looped manner until the BL and MW constraints are satisfied for all index
constituents.
The
index
is calculated by means of the divisor methodology used in all Standard &
Poor’s equity indices. The index value is simply the index market value divided
by the index divisor:
Index
Shares are set at the time of rebalancing in the following manner such that
for
the ith
constituent:
where
W
i
is the
weight for the ith
constituent at the rebalancing as derived from the previous section, and Price
rebalancing
day close, i
is its
price at the close of the rebalancing date.
In
order
to maintain basket series continuity, it is also necessary to adjust the divisor
at the rebalancing.
Therefore,
The
following summarizes the types of Index maintenance adjustments Standard &
Poor’s may perform:
|
·
|
Spin-off.
There is no weight change. The price is adjusted to Price of Parent
Company minus (Price of Spin-off company/Share Exchange Ratio). Index
Shares change so that the company’s weight remains the same as its weight
before the spin-off.
|
|
·
|
Rights
offering. The price is adjusted as follows: ([Ratio Received * Rights
Price] + [Ratio Held * Close Price]) / [Ratio Received + Ratio Held]
*
Close Price). Index Shares are changed correspondingly so that there
is no
change in weight.
|
|
·
|
Stock
Split. The Index Shares are multiplied by and price is divided by
the
split factor.
|
|
·
|
Special
dividends. The price of the stock making the special dividend payment
is
reduced by the per-share special dividend amount after the close
of
trading on the day before ex-date.
|
|
·
|
Delisting.
The stock is removed. No replacements are
made.
|
|
·
|
Merger
or acquisition. If the surviving company is already an index member,
it is
retained in the index. If the surviving company does not belong to
BRIC
countries or does not maintain the exchange listing included in the
index,
it is removed. An announcement will be made in other
cases.
|
In
situations where an exchange is forced to close early due to unforeseen events,
such as computer or electric power failures, weather conditions, or other
events, S&P will calculate the closing price of the indices based on
(1) the closing prices published by the exchange, or (2) if no closing
price is available, the last regular trade reported for each stock before the
exchange closed. In all cases, the prices will be from the exchange listing
included in the index. If an exchange fails to open due to unforeseen
circumstances, the index will use the prior day’s closing prices. If all
exchanges fail to open, S&P may determine not to publish the index for that
day.
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 SBR, 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
SBR, 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 SBR. 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 SBR
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 SBR 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 SBR 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 SBR
The
following table sets forth the month-end closing index levels of the SBR for
each month in the period from January 1998 through September 2007. The SBR’s
closing index levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by the Company. The
historical values of the SBR should not be taken as an indication of future
performance, and no assurance can be given that the level of the SBR will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing index level of the SBR on October 2, 2007 was 3,132.95.
Month
End Closing Index Levels: January 1998-September 2007
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
January
|
541.56
|
474.87
|
867.75
|
961.09
|
1,575.05
|
2,098.12
|
February
|
558.94
|
480.23
|
930.92
|
1,074.02
|
1,599.68
|
2,024.38
|
March
|
583.39
|
478.05
|
929.27
|
1,002.04
|
1,614.88
|
2,114.87
|
April
|
588.99
|
534.21
|
788.05
|
966.65
|
1,743.36
|
2,157.09
|
May
|
581.15
|
577.00
|
792.05
|
1,009.56
|
1,558.56
|
2,234.26
|
June
|
518.70
|
613.99
|
801.02
|
1,066.05
|
1,630.68
|
2,394.46
|
July
|
451.64
|
622.48
|
802.64
|
1,134.86
|
1,694.62
|
2,534.32
|
August
|
479.35
|
691.47
|
838.89
|
1,200.43
|
1,722.80
|
2,577.89
|
September
|
419.63
|
717.72
|
902.36
|
1,337.18
|
1,715.35
|
3,006.69
|
October
|
456.02
|
743.64
|
908.55
|
1,231.71
|
1,847.16
|
-
|
November
|
473.49
|
763.45
|
952.32
|
1,317.51
|
2,003.46
|
-
|
December
|
470.45
|
866.07
|
973.47
|
1,354.94
|
2,181.25
|
-
|
The
following graph illustrates the historical performance of the 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 24.341 as of October 2, 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 Component Level during the term of the
Notes.
The
closing index level of the NKY on October 2, 2007 was 17,046.78.
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.
The
S&P 400 MidCap Index™ (“MID”)
General
We
have
derived all information relating to the S&P 400 MidCap Index™, including,
without limitation, its make-up, method of calculation and changes in its
components, from publicly available information. This information reflects
the
policies of, and is subject to change by Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. (“S&P”). The MID was developed by S&P
and is calculated, maintained and published by S&P. S&P is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the MID at any time.
The
MID
is published by S&P and is meant to provide a performance benchmark for the
medium capitalization segment of the U.S. equity markets. The MID tracks the
stock price movement of 400 companies with mid-sized market capitalizations,
primarily ranging from $1 billion to $4 billion. The market capitalization
requirements are reviewed periodically to ensure consistency with market
standards. The MID is maintained with similar methodologies and rules as the
S&P 500®
Index,
with variations only to account for differences in capitalization
requirements.
Computation
of the MID
The
MID
is calculated using a base-weighted aggregate methodology: the level of the
MID
reflects the total Market Value (as defined below) of all 400 companies (the
“Component Stocks”) as of a particular time as compared to the aggregate average
Market Value of the stocks of 400 similar companies on the base date of June
28,
1991 (the “Base Date”). An indexed number is used to represent the results of
this calculation in order to make the value easier to work with and track over
time. Historically, the “Market Value” of any Component Stock was calculated as
the product of the market price per share and the number of the then outstanding
shares of such Component Stock. As discussed below, on March 21, 2005, S&P
began to use a new methodology to calculate the Market Value of the Component
Stocks, and on September 16, 2005, S&P completed its transition to the new
calculation methodology. S&P chooses companies for inclusion in the MID with
the objective of achieving a common stock population of the medium
capitalization segment of the U.S. equity market.
S&P
may, in its sole discretion, add or delete companies from the MID to achieve
its
objectives. S&P uses criteria such as the viability of the particular
company, the extent to which that company represents the industry group to
which
it is assigned, the extent to which the company’s stock is widely-held and the
Market Value and trading activity of the stock of that company.
On
March
21, 2005, S&P began to calculate the MID based on a half float-adjusted
formula, and on September 16, 2005, the MID became fully float-adjusted. The
adjustment does not impact how S&P chooses stocks for the MID, but does
affect how companies are weighted in the MID (i.e., Market Value). Under
float-adjustment, the share counts used in calculating the MID reflect only
those shares that are available to investors, not all outstanding shares of
a
company. S&P defines three groups of shareholders whose holdings are subject
to float-adjustment:
|
·
|
holdings
by other publicly traded corporations, venture capital firms, private
equity firms, strategic partners or leveraged buyout
groups;
|
|
·
|
holdings
by government entities, including all levels of government in the
U.S. or
foreign countries; and
|
|
·
|
holdings
by current or former officers and directors of the company, founders
of
the company, or family trusts of officers, directors, or founders,
as well
as holdings of trusts, foundations, pension funds, employee stock
ownership plans, or other investment vehicles associated with and
controlled by the company.
|
Treasury
stock, stock options, restricted shares, equity participation units, warrants,
preferred stock and convertible stock are not part of the float. In situations
where holdings in a group exceed 10% of the outstanding shares of a company,
the
holdings of that group will be excluded from the float-adjusted count of shares
to be used in the MID calculation. Mutual funds, investment advisory firms,
pension funds, or foundations not associated with the company and investment
funds in insurance companies, shares of a U.S. company traded in Canada as
“exchangeable shares,” shares that trust beneficiaries may buy or sell without
difficulty or significant additional expense beyond typical brokerage fees,
and,
if a company has multiple classes of stock outstanding, shares in an unlisted
or
non-traded class if such shares are convertible by shareholders without undue
delay and cost, are also part of the float.
For
each
stock, an investable weight factor (“IWF”) is calculated by dividing the
available float shares, defined as the total shares outstanding less shares
held
in one or more of the three groups listed above where the group holdings exceed
10% of the outstanding shares, by the total shares outstanding. The
float-adjusted MID is calculated by dividing the sum of the IWF multiplied
by
both the price and the total shares outstanding for each stock by the Divisor.
For companies with multiple classes of stock, S&P calculates the weighted
average IWF for each stock using the proportion of the total company market
capitalization of each share class as weights.
The
actual total Market Value of the Component Stocks on the Base Date has been
set
equal to an indexed value of 100. This is often indicated by the notation
6/28/91 = 100. In practice, the daily calculation of the MID is computed by
dividing the total Market Value of the Component Stocks by a number called
the
“Divisor”. By itself, the Divisor is an arbitrary number. However, in the
context of the calculation of the MID, it is the only link to the original
Base
Period level of the MID. The Divisor keeps the MID comparable over time and
is
the manipulation point for all adjustments to the MID (“MID Maintenance”).
MID
Maintenance includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends, and
stock
price adjustments due to company restructuring or spin-offs.
To
prevent the level of the MID from changing due to corporate actions, all
corporate actions which affect the total Market Value of the MID require an
adjustment to the Divisor. By adjusting the Divisor for the change in total
Market Value, the level of the MID remains constant. This helps maintain the
level of the MID as an accurate barometer of stock market performance and
ensures that the movement of the MID does not reflect the corporate actions
of
individual companies in the MID. All adjustments to the Divisor are made after
the close of trading and after the calculation of the closing level of the
MID.
Some corporate actions, such as stock splits and stock dividends, require simple
changes in the shares outstanding and the stock prices of the companies in
the
MID and do not require adjustments to the Divisor.
The
table
below summarizes the types of MID Maintenance adjustments and indicates whether
or not an MID Divisor adjustment is required:
Corporate
Action
|
Adjustment
Factor
|
Divisor
Adjustment
|
Share
Issuance (i.e., Change > 5%)
|
Shares
outstanding plus newly issued shares
|
Yes
|
Share
Repurchase (i.e., Change > 5%)
|
Shares
outstanding minus repurchased shares
|
Yes
|
Special
Cash Dividends
|
Share
price minus special dividend
|
Yes
|
Company
Change
|
Add
new company market value minus old company market value
|
Yes
|
Stock
Split (i.e., 2 for 1)
|
Shares
outstanding multiplied by 2; stock price divided by 2
|
No
|
Rights
Offering
|
Price
of parent company minus {price of rights divided by rights
ratio}
|
Yes
|
Spin-offs
|
Price
of parent company minus {price of spin-off company divided by share
exchange ratio}
|
Yes
|
Stock
splits and stock dividends do not affect the Divisor, because following a split
or dividend, both the stock price and number of shares outstanding are adjusted
by S&P so that there is no change in the Market Value of the Component
Stock. All stock split and dividend adjustments are made after the close of
trading on the day before the ex-date.
Each
of
the corporate events exemplified in the table requiring an adjustment to the
Divisor has the effect of altering the Market Value of the Component Stock
and
consequently of altering the aggregate Market Value of the Component Stocks
(the
“Post-Event Aggregate Market Value”). In order that the level of the MID (the
“Pre-Event MID Value”) not be affected by the altered Market Value (whether up
or down) of the affected Component Stock, a new Divisor (“New Divisor”) is
derived as follows:
Tracking
the changes in the number of outstanding shares of each of the companies
included in the MID is a large part of the MID Maintenance process. Four times
per year, on a Friday close to the end of each calendar quarter, the share
totals of the companies in the MID are updated as required by any changes in
the
number of shares outstanding. After this is done, the Divisor is adjusted to
compensate for the net change in the total market value of the MID. In addition,
any changes over five percent in the current shares outstanding for the MID
companies are reviewed on a weekly basis, and when appropriate, an immediate
adjustment is made to the Divisor.
License
Agreement with S&P
We
have
entered, or are exploring entering, into a non-exclusive license agreement
with
S&P providing for the license to us, in exchange for a fee, of the right to
use the MID, which is owned and published by S&P, in connection with certain
securities, including the Notes.
The
license agreement between S&P and us provides that the following language
must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Notes
or
any member of the public regarding the advisability of investing in securities
generally or in the Notes particularly. S&P’s only relationship to us is the
licensing of certain trademarks, trade names and service marks of S&P and of
the MID, which is determined, composed and calculated by S&P without regard
to us or the Notes. S&P has no obligation to take our needs or the needs of
holders of the Notes into consideration in determining, composing, or
calculating the MID. S&P is not responsible for and has not participated in
the determination of the timing of, prices at which Notes are sold, or
quantities of the Notes to be issued or in the determination or calculation
of
the amount payable at maturity. S&P has no obligation or liability in
connection with the administration, marketing, or trading of the
Notes.
S&P
does not guarantee the accuracy and/or the completeness of the MID or any data
included therein and S&P shall have no liability for any errors, omissions,
or interruptions therein. S&P makes no warranty, express or implied, as to
results to be obtained by us, owners of the Notes, or any other person or entity
from the use of the MID or any data included therein. S&P makes no express
or implied warranties, and expressly disclaims all warranties of merchantability
or fitness for a particular purpose or use with respect to the MID or any data
included therein. Without limiting any of the foregoing, in no event shall
S&P have any liability for any lost profits or indirect, punitive, special,
or consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements between
S&P and us.”
All
disclosures contained in this pricing supplement regarding the MID, including
its make-up, method of calculation and changes in its components, are derived
from publicly available information prepared by S&P. None of us, Bear
Stearns or the Trustee assumes any responsibility for the accuracy or
completeness of such information.
Historical
Data on the MID
The
following table sets forth the month-end closing index levels of the MID for
each month in the period from January 1998 through September 2007. The MID’s
closing index levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by the Company. The
historical values of the MID should not be taken as an indication of future
performance, and no assurance can be given that the level of the MID will
increase relative to its Initial Component Level during the term of the
Notes.
The
closing index level of the MID on October 2, 2007 was 902.00.
Month
End Closing Index Levels: January 1998-September 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
326.70
|
|
376.70
|
|
431.79
|
|
527.90
|
|
505.29
|
|
416.91
|
|
588.06
|
|
645.97
|
|
781.02
|
|
833.02
|
February
|
|
353.39
|
|
356.50
|
|
461.48
|
|
497.26
|
|
505.38
|
|
406.43
|
|
601.51
|
|
666.85
|
|
773.60
|
|
838.10
|
March
|
|
369.00
|
|
366.10
|
|
499.69
|
|
459.92
|
|
541.10
|
|
409.47
|
|
603.56
|
|
658.87
|
|
792.11
|
|
848.47
|
April
|
|
375.39
|
|
394.59
|
|
481.85
|
|
510.31
|
|
538.22
|
|
438.79
|
|
583.29
|
|
632.76
|
|
802.69
|
|
873.66
|
May
|
|
358.15
|
|
395.87
|
|
475.17
|
|
521.59
|
|
528.58
|
|
474.54
|
|
594.70
|
|
670.05
|
|
765.56
|
|
916.30
|
June
|
|
360.08
|
|
416.70
|
|
481.77
|
|
519.12
|
|
489.52
|
|
480.21
|
|
607.69
|
|
684.94
|
|
764.87
|
|
895.51
|
July
|
|
345.76
|
|
407.46
|
|
488.97
|
|
511.05
|
|
441.71
|
|
496.84
|
|
578.90
|
|
720.38
|
|
742.51
|
|
856.33
|
August
|
|
281.10
|
|
393.08
|
|
542.90
|
|
493.79
|
|
443.42
|
|
518.77
|
|
576.62
|
|
711.49
|
|
749.96
|
|
863.00
|
September
|
|
307.02
|
|
380.59
|
|
538.81
|
|
432.03
|
|
407.38
|
|
510.42
|
|
593.20
|
|
716.33
|
|
754.25
|
|
885.06
|
October
|
|
334.05
|
|
399.62
|
|
520.17
|
|
450.77
|
|
424.63
|
|
548.52
|
|
602.20
|
|
700.38
|
|
785.01
|
|
-
|
November
|
|
350.35
|
|
420.11
|
|
480.38
|
|
483.75
|
|
448.63
|
|
567.00
|
|
637.27
|
|
733.66
|
|
809.20
|
|
-
|
December
|
|
392.31
|
|
444.67
|
|
516.76
|
|
508.28
|
|
429.79
|
|
576.01
|
|
663.31
|
|
738.05
|
|
804.37
|
|
-
|
The
following graph illustrates the historical performance of the MID based on
the
closing level on the last Component Business Day of each month from January
1998
to September 2007.
The
Russell 2000®
Index (“RTY”)
We
have
derived all information relating to the RTY, including, without limitation,
its
make-up, performance, method of calculation and changes in its components,
from
publicly available sources. Such information reflects the policies of and is
subject to change by Russell Investment Group. Russell Investment Group is
under
no obligation to continue to publish, and may discontinue or suspend the
publication of the RTY at any time.
The
RTY
is an index calculated, published, and disseminated by the Russell Investment
Group, and measures the composite price performance of stocks of 2,000 companies
incorporated and domiciled in the United States and its territories. All 2,000
stocks are traded on the New York Stock Exchange, the American Stock Exchange
LLC, or NASDAQ, and form a part of the Russell 3000®
Index.
The Russell 3000®
Index is
composed of the 3,000 largest United States companies as determined by market
capitalization and represents approximately 98.00% of the United States equity
market.
The
RTY
consists of the smallest 2,000 companies included in the Russell
3000®
Index.
The RTY is designed to track the performance of the small capitalization segment
of the United States equity market.
Only
stocks belonging to companies domiciled in the U.S. are allowed into the RTY.
Preferred and convertible preferred stock, paired shares, redeemable shares,
warrants, participating preferred stock, trust receipts, rights, royalty trusts,
limited liability companies, pink sheets, limited partnership, OTC Bulletin
Board companies and closed-end mutual funds are excluded from the RTY. Real
Estate Investment Trusts and Beneficial Trusts however, are eligible for
inclusion.
In
general, only one class of securities of a company is allowed in the RTY,
although exceptions to this general rule have been made where the Russell
Investment Group has determined that each class of securities acts independently
of the other. Stocks must trade at or above $1.00 on May 31 of each year to
be
eligible for inclusion in the RTY. However, if a stock falls below $1.00
intra-year, it will not be removed until the next reconstitution if it is still
trading below $1.00.
The
primary criterion used to determine the initial list of securities eligible
for
the Russell 3000®
Index is
total market capitalization, which is defined as the price of a company's shares
times the total number of available shares, as described below. Based on closing
values on May 31 of each year, the Russell Investment Group reconstitutes the
composition of the Russell 3000®
Index
using the then existing market capitalizations of eligible companies. As of
the
last Friday in June of each year, the Russell Index is adjusted to reflect
the
reconstitution of the Russell 3000®
Index
for that year. Real-time dissemination of the RTY began on January 1,
1987.
Computation
of the RTY
The
RTY
is a capitalization-weighted index. The RTY reflects changes in the market
value
(i.e. capitalization) of the component stocks relevant to their market value
on
a base date. The RTY is determined by adding the market values of the component
stocks, which are gotten by multiplying the price of each stock by the number
of
available shares, to get the total market capitalization of the 2,000 stocks.
The total market capitalization is then divided by a divisor, which gives the
adjusted capitalization of the RTY on the base date of December 31, 1986. The
most recently traded price for a security will be used in determining the RTY.
If a component security is not open for trading, the most recently traded price
for that stock will be used. The divisor is adjusted to reflect certain events
in order to provide consistency for the RTY. The events include changes in
the
number of common shares outstanding for component stocks, company additions
or
deletions, corporate restructurings, and other changes. Available shares are
considered to be available for trading. Exclusion of market value held by other
listed companies and large holdings by private investors (10% or more) is based
on information recorded in Securities and Exchange Commission
filings.
Annual
reconstitution is the process by which the RTY is completely rebuilt.
Reconstitution is a vital part of the creation of a benchmark which accurately
represents a particular market segment. Companies may get bigger or smaller
over
time, or change in style characteristics. Reconstitution ensures that the
correct companies are represented in the RTY.
Available
shares are assumed to be shares available for trading. Exclusion of
capitalization held by other listed companies and large holdings of private
investors (10.00% or more) is based on information recorded in Securities and
Exchange Commission filings. Other sources are used in cases of missing or
questionable data.
The
following types of shares considered unavailable for the purposes of
capitalization determinations:
|
·
|
ESOP
or LESOP shares - shares of corporations that have Employee Stock
Ownership Plans that comprise 10.00% or more of the shares outstanding
are
adjusted;
|
|
·
|
Corporate
cross-owned shares - when shares of a company in the RTY are held
by
another company also in the RTY, this is considered corporate
cross-ownership. Any percentage held in this class will be
adjusted;
|
|
·
|
Large
private and corporate shares - when an individual, a group of individuals
acting together, or a corporation not in the index owns 10.00% or
more of
the shares outstanding. However, institutional holdings (investment
companies, partnerships, insurance companies, mutual funds, banks,
or
venture capital companies) are not included in this class;
and
|
|
·
|
Unlisted
share classes - classes of common stock that are not traded on a
United
States securities exchange or
NASDAQ.
|
The
following summarizes the types of RTY maintenance adjustments and indicates
whether or not an index adjustment is required.
|
·
|
“No
Replacement” Rule - Securities that leave the RTY for any reason (e.g.
mergers, acquisitions, or other similar corporate activity) are not
replaced. Therefore, the number of securities in the RTY will fluctuate
according to corporate activity.
|
|
·
|
Rule
for Corporate Action-Driven Changes - When a stock is acquired, delisted,
or moves to the pink sheets or bulletin boards on the floor of a
United
States securities exchange, the stock is deleted from the RTY at
the open
of trading on the ex-date using the previous day's closing
prices.
|
|
·
|
When
acquisitions or mergers take place within the RTY, the stock's
capitalization moves to the acquiring stock; as a result, mergers
have no
effect on the total capitalization of the RTY. Shares are updated
for the
acquiring stock at the time the transaction is final. Prior to April
1,
2000, if the acquiring stock was a member of a different index (i.e.
the
Russell 3000®
Index or the Russell 1000®
Index), the shares for the acquiring stock were not adjusted until
month
end.
|
|
·
|
Deleted
Stocks - When deleting stocks from the RTY as a result of exchange
delisting or reconstitution, the price used is the market price on
the day
of deletion, including potentially the OTC Bulletin Board price.
Previously, prices used to reflect delisted stocks were the last
traded
price on the Primary Exchange. There may be corporate events, like
mergers
or acquisitions that result in the lack of a current market price
for the
deleted security and in such an instance the latest Primary Exchange
closing price available will be
used.
|
|
·
|
Additions
for Spin-Offs - Spin-off companies are added to the parent company's
index
and capitalization tier of membership, if the spin-off is large enough.
To
be eligible, the spun-off company's total market capitalization must
be
greater than the market-adjusted total market capitalization of the
smallest security in the RTY at the latest
reconstitution.
|
|
·
|
Quarterly
IPO Additions - Eligible companies that have recently completed an
initial
public offering are added to the RTY at the end of each calendar
quarter
based on total market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent reconstitution.
Market adjustments will be made using the returns of the Russell
3000®
Index. Eligible companies will be added to the RTY using their industry's
average style probability established at the latest constitution.
|
In
order
for a company to be added to the RTY in a quarter (outside of reconstitution),
the IPO company must meet all Russell U.S. Index eligibility requirements.
Also,
the IPO company must meet the following criteria on the final trading day of
the
month prior to quarter-end : (i) price/trade; (ii) rank larger in total market
capitalization than the market-adjusted smallest company in the RTY as of the
latest June reconstitution; and (iii) meet criteria (i) and (ii) during an
initial offering period.
Each
month, the RTY is updated for changes to shares outstanding as companies report
changes in share capital to the Securities and Exchange Commission. Only
cumulative changes to shares outstanding greater than 5.00% are reflected in
the
RTY. This does not affect treatment of major corporate events, which are
effective on the ex-date.
License
Agreement with Russell Investment Group
The
Bear
Stearns Companies Inc. has entered,
or is exploring entering, into a non-exclusive license agreement with Russell
Investment Group, whereby The Bear Stearns Companies Inc. and our affiliates
and
subsidiary companies, in exchange for a fee, will be permitted to use the RTY,
which is owned and published by Russell Investment Group, in connection with
certain products, including the Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by the Russell Investment Group
(including its affiliates). Russell Investment Group has not passed on the
legality or appropriateness of, or the accuracy or adequacy of descriptions
and
disclosures relating to the Notes. Russell Investment Group makes no
representation or warranty, express or implied to the owners of the Notes or
any
member of the public regarding the advisability of investing in securities
generally or in the Notes particularly, or the ability of the RTY to track
general stock market performance. Russell Investment Group has no relationship
to The Bear Stearns Companies, Inc. other than the licensing of the RTY and
the
related trademarks for use in connection with the Notes, which index is
determined, composed and calculated by Russell Investment Group without regard
to The Bear Stearns Companies, Inc. or the Notes. Russell Investment Group
has
no obligation to take the needs of The Bear Stearns Companies, Inc. or the
owners of the Notes into consideration in determining, composing or calculating
the RTY. Russell Investment Group is not responsible for and has not
participated in the determination of the timing of, prices at, or quantities
of
the Notes to be issued or in the determination or calculation of the equation
by
which the Notes are to be converted into cash. Russell Investment Group has
no
liability in connection with the administration, marketing or trading of the
Notes.
Russell
Investment Group is under no obligation to continue the calculation and
dissemination of the RTY and the method by which the RTY is calculated and
the
name “Russell 2000®”
or
“RTY” may be changed at the discretion of Russell Investment Group. No inference
should be drawn from the information contained in this pricing supplement that
Russell Investment Group makes any representation or warranty, implied or
express, to you or any member of the public regarding the advisability of
investing in securities generally or in the Notes in particular or the ability
of the RTY to track general stock market performance. Russell Investment Group
has no obligation to take into account your interest, or that of anyone else
having an interest in determining, composing or calculating the RTY. Russell
Investment Group is not responsible for, and has not participated in the
determination of the timing of, prices for or quantities of, the Notes or in
the
determination or calculation of the equation by which the Notes are to be
settled in cash. Russell Investment Group has no obligation or liability in
connection with the administration, marketing or trading of the Notes. The
use
of and reference to the RTY in connection with the Notes have been consented
to
by Russell Investment Group.
Russell
Investment Group disclaims all responsibility for any inaccuracies in the data
on which the RTY is based, or any mistakes or errors or omissions in the
calculation or dissemination of the RTY.
Historical
Data on the RTY
The
following table sets forth the month-end closing index levels of the RTY for
each month in the period from January 1998 through September 2007. The RTY’s
closing index levels listed below were obtained from the Bloomberg Financial
Service, without independent verification by the Company. The
historical values of the RTY should not be taken as an indication of future
performance, and no assurance can be given that the level of the RTY will
increase relative to its the Initial Component Level during the term of the
Notes.
The
closing index level of the RTY on October 2, 2007 was 831.97.
Month
End Closing Index Levels: January 1998 -September 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
January
|
|
430.05
|
|
427.22
|
|
496.23
|
|
508.34
|
|
483.10
|
|
372.17
|
|
580.76
|
|
624.02
|
|
733.20
|
|
800.34
|
February
|
|
461.83
|
|
392.26
|
|
577.71
|
|
474.37
|
|
469.36
|
|
360.52
|
|
585.56
|
|
634.06
|
|
730.64
|
|
793.30
|
March
|
|
480.68
|
|
397.63
|
|
539.09
|
|
450.53
|
|
506.46
|
|
364.54
|
|
590.31
|
|
615.07
|
|
765.14
|
|
800.71
|
April
|
|
482.89
|
|
432.81
|
|
506.25
|
|
485.32
|
|
510.67
|
|
398.68
|
|
559.80
|
|
579.38
|
|
764.54
|
|
814.57
|
May
|
|
456.62
|
|
438.68
|
|
476.18
|
|
496.50
|
|
487.47
|
|
441.00
|
|
568.28
|
|
616.71
|
|
721.01
|
|
847.18
|
June
|
|
457.39
|
|
457.68
|
|
517.23
|
|
512.80
|
|
462.65
|
|
448.37
|
|
591.52
|
|
639.66
|
|
724.67
|
|
833.70
|
July
|
|
419.75
|
|
444.77
|
|
500.64
|
|
484.78
|
|
392.42
|
|
476.02
|
|
551.29
|
|
679.75
|
|
700.56
|
|
776.12
|
August
|
|
337.95
|
|
427.83
|
|
537.89
|
|
468.56
|
|
390.96
|
|
497.42
|
|
547.93
|
|
666.51
|
|
720.53
|
|
792.86
|
September
|
|
363.59
|
|
427.30
|
|
521.37
|
|
404.87
|
|
362.27
|
|
487.68
|
|
572.94
|
|
667.80
|
|
725.59
|
|
805.45
|
October
|
|
378.16
|
|
428.64
|
|
497.68
|
|
428.17
|
|
373.50
|
|
528.22
|
|
583.79
|
|
646.61
|
|
766.84
|
|
-
|
November
|
|
397.75
|
|
454.08
|
|
445.94
|
|
460.78
|
|
406.36
|
|
546.51
|
|
633.77
|
|
677.29
|
|
786.12
|
|
-
|
December
|
|
421.96
|
|
504.75
|
|
483.53
|
|
488.50
|
|
383.09
|
|
556.91
|
|
651.57
|
|
673.22
|
|
787.66
|
|
-
|
The
following graph illustrates the historical performance of the RTY based on
the
closing level on the last Component Business Day of each month from January
1998
to September 2007.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain U.S. federal income tax consequences
of
the purchase, beneficial ownership and disposition of Notes. As used in this
discussion, the term “U.S. Holder” means a beneficial owner of a Note that
is:
•
an
individual who is a citizen or resident of the United States for U.S. federal
income tax purposes;
•
a
corporation (or other entity that is treated as a corporation for U.S. federal
tax purposes) that is created or organized in or under the laws of the United
States or any State thereof (including the District of Columbia);
•
an
estate whose income is subject to U.S. federal income taxation regardless of
its
source; or
•
a
trust
if a court within the United States is able to exercise primary supervision
over
its administration, and one or more United States persons have the authority
to
control all of its substantial decisions.
As
used
in this discussion, the term “Non-U.S. Holder” means a beneficial owner of a
Note that is, for U.S. federal income tax purposes:
•
a
nonresident alien individual,
•
a
foreign corporation,
•
an
estate whose income is not subject to U.S. federal income tax on a net income
basis, or
•
a
trust
if no court within the United States is able to exercise primary jurisdiction
over its administration or if no United States persons have the authority to
control all of its substantial decisions.
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States by reason of being present in the United States for at least
31
days in the calendar year and for an aggregate of at least 183 days during
a
three-year period ending in the current calendar year (counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present
in
the second preceding calendar year).
This
summary is based on interpretations of the Internal Revenue Code of 1986, as
amended (the “Code”), regulations issued there under, and rulings and decisions
currently in effect (or in some cases proposed), all of which are subject to
change. Any such change may be applied retroactively and may adversely affect
the federal income tax consequences described herein. This summary addresses
only U.S. Holders that purchase Notes at initial issuance and beneficially
own
such Notes as capital assets and not as part of a “straddle,” “hedge,”
“synthetic security” or a “conversion transaction” for federal income tax
purposes, or as part of some other integrated investment. This summary does
not
discuss all of the tax consequences that may be relevant to particular investors
or to investors subject to special treatment under the federal income tax laws
(such as banks, thrifts, or other financial institutions; insurance companies;
securities dealers or brokers, or traders in securities electing mark to market
treatment; mutual funds or real estate investment trusts; small business
investment companies; S corporations; investors that hold their Notes through
a
partnership or other entity treated as a partnership for federal tax purposes;
investors whose functional currency is not the U.S. dollar; certain former
citizens or residents of the United States; persons subject to the alternative
minimum tax; retirement plans or other tax-exempt entities, or persons holding
the Notes in tax-deferred or tax-advantaged accounts; or “controlled foreign
corporations” or “passive foreign investment companies” for federal income tax
purposes). This summary also does not address the tax consequences to
shareholders, or other equity holders in, or beneficiaries of, a holder, or
any
state, local or foreign tax consequences of the purchase, ownership or
disposition of the Notes.
Accordingly,
prospective investors are urged to consult their tax advisors with respect
to
the federal, state and local tax consequences of investing in the Notes, as
well
as any consequences arising under the laws of any other taxing jurisdiction
to
which they may be subject.
Prospective
purchasers of Notes should consult their tax advisors as to the federal, state,
local, and other tax consequences to them of the purchase, ownership and
disposition of Notes.
Federal
Income Tax Treatment of U.S. Holders
Accruals
of Original Issue Discount on the Notes
For
U.S.
federal income tax purposes, we intend to treat the Notes as “contingent payment
debt instruments” (“CPDIs”) subject to taxation under the “noncontingent bond
method.” Under the noncontingent bond method, U.S. Holders of the Notes will
accrue OID over the term of the Notes based on the Notes’ “comparable yield.” As
a result, U.S. Holders will be required to include OID over the term of the
Notes even though no cash payments will be made with respect to the Notes until
maturity.
In
general, the comparable yield of a CPDI is equal to the yield at which its
issuer would issue a fixed-rate debt instrument with terms and conditions
similar to those of the CPDI, including the level of subordination, term, timing
of payments, and general market conditions. If a hedge of the CPDI is available
that, if integrated with the CPDI, would produce a synthetic debt instrument
with a determinable yield to maturity, the comparable yield will be equal to
the
yield on the synthetic debt instrument. Alternatively, if such a hedge is not
available, but fixed-rate debt instruments of the issuer trade at a price that
reflects a spread above a benchmark rate, the comparable yield is the sum of
the
value of the benchmark rate on the issue date and the spread. Under the
noncontingent bond method, the issuer’s reasonable determination of a comparable
yield is respected and binding on holders of the CPDI.
Based
on
these factors, we estimate that the comparable yield of the Notes will be an
annual rate of approximately 6.05%, compounded annually. U.S. Holders may obtain
the actual comparable yield by contacting The Bear Stearns Companies Inc.,
Bill
Bamber at (212) 272-6635. U.S. Holders will accrue OID in respect of the Notes
at a rate equal to the comparable yield. The amount of OID allocable to each
annual accrual period will be the product of the “adjusted issue price” of the
Notes at the beginning of each such annual accrual period and the comparable
yield. The “adjusted issue price” of the Notes at the beginning of an accrual
period will equal the issue price of the Notes, increased by the OID accrued
in
all prior periods. The issue price of the Notes will be the first price at
which
a substantial amount of the Notes are sold to the public for money (excluding
sales to bond houses, brokers or similar persons or organizations acting in
the
capacity of underwriters, placement agents or wholesalers). U.S. Holders may
obtain the issue price of the Notes by contacting The Bear Stearns Companies
Inc., Bill Bamber at (212) 272-6635. (The accrual of OID by U.S. Holders that
purchase their Notes at a price other than the issue price of the Notes will
be
subject to an adjustment described below.) The amount of OID includible in
income of each U.S. Holder for each taxable year will equal the sum of the
“daily portions” of the total OID on the Notes allocable to each day during the
taxable year in which a U.S. Holder held the Notes, regardless of the U.S.
Holder’s method of accounting. The daily portion of the OID is determined by
allocating to each day in any accrual period a ratable portion of the OID
allocable to such accrual period. Under the noncontingent bond method, the
comparable yield of a CPDI is used to construct a projected payment schedule
that reflects an estimate of the Cash Settlement Value upon the maturity of
the
Notes and which is adjusted to produce the comparable yield. U.S. Holders may
obtain the projected payment schedule by contacting The Bear Stearns Companies
Inc., Bill Bamber at (212) 272-6635.
Under
the
noncontingent bond method, the projected payment schedule is not revised to
account for changes in circumstances that occur while the Notes are
outstanding.
The
comparable yield and the projected payment amount for the Notes are used to
determine accruals of OID for tax purposes only, and are not assurances by
us or
any of our affiliates with respect to the actual yield or payments on the Notes
and do not represent expectations by any such person regarding a Note’s yield or
the index price return amount.
A
U.S.
Holder will generally be bound by our determination of the comparable yield
and
projected payment schedule for the Notes, unless the U.S. Holder determines
its
own projected payment schedule and comparable yield, explicitly discloses such
schedule to the Internal Revenue Service (the “IRS”), and explains to the IRS
the reason for preparing its own schedule. We believe that the projected payment
schedule and comparable yield that we provide for the Notes will be reasonable
and therefore will be respected by the IRS. Our determination, however, is
not
binding on the IRS, and the IRS could conclude that some other comparable yield
or projected payment schedule should be used for the Notes.
A
U.S.
Holder that purchases a Note for an amount other than the issue price of the
Note will be required to adjust its OID inclusions to account for the
difference. These adjustments will affect the U.S. Holder’s basis in the Note.
Reports to US Holders may not include these adjustments. U.S. Holders that
purchase Notes at other than the issue price should consult their tax advisors
regarding these adjustments.
Sale,
Exchange, Retirement, or Other Disposition of the Notes
If
the
payment of the Cash Settlement Value on the Maturity Date exceeds the projected
maturity amount in the projected payment schedule, a U.S. Holder will be
required to include such excess in income as ordinary interest on the Maturity
Date. Alternatively, if the Cash Settlement Value payment is less than the
projected maturity amount, the shortfall will be treated as an offset to any
OID
otherwise includible in income by the U.S. Holder with respect to the Note
for
the taxable year in which the Maturity Date occurs, and any remaining portion
of
such shortfall may be recognized and deducted by the U.S. Holder as an ordinary
loss that will not be subject to the two percent floor limitation imposed on
miscellaneous deductions under section 67 of the Code.
A
U.S.
Holder will generally recognize gain or loss on the sale, exchange, or other
disposition of a Note to the extent that the amount realized is more or less
than its purchase price, increased by the OID previously accrued by the U.S.
Holder on the Note. In general, any gain realized by a U.S. Holder on the sale,
exchange or other disposition of a Note will be treated as ordinary interest
income, and any loss realized will be treated as an ordinary loss to the extent
of the OID previously accrued by the U.S. Holder on the Note, and the loss
will
not be subject to the two percent floor limitation imposed on miscellaneous
deductions under section 67 of the Code. Any loss in excess of the accrued
OID
will be treated as a capital loss. The deductibility of capital losses by U.S.
Holders is subject to limitations.
Federal
Income Tax Treatment of Non-U.S. Holders
Payments
on the Notes to Non-U.S. Holders will not be subject to U.S. federal income
or
withholding tax if the following conditions are satisfied:
•
the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total
combined voting power of all classes of our stock entitled to vote,
•
the
Non-U.S. Holder is not a controlled foreign corporation for U.S. federal income
tax purposes that is related to us through actual or constructive
ownership,
•
the
Non-U.S. Holder is not a bank receiving interest on a loan made in the ordinary
course of its trade or business,
•
the
stocks included in the Components are actively traded within the meaning of
section 871(h)(4)(C)(v) of the Code, and
•
the
payments are not effectively connected with a trade or business conducted by
the
Non-U.S. Holder in the United States and either (a) the Non-U.S. Holder provides
a correct, complete and executed IRS Form W-8BEN, Form W-8EXP or Form W-8IMY
(or
successor form) with all of the attachments required by the IRS, or (b) the
Non-U.S. Holder holds its Note through a qualified intermediary (generally
a
foreign financial institution or clearing organization or a non-U.S. branch
or
office of a U.S. financial institution or clearing organization that is a party
to a withholding agreement with the IRS) which has provided to us an IRS Form
W-8IMY stating that it is a qualified intermediary and has received
documentation upon which it can rely to treat the payment as made to a foreign
person.
We
expect
that the stocks included in the Components will be treated as actively traded
within the meaning of section 871(h)(4)(C)(v). If any of the above conditions
are not satisfied, payments on the Notes will be subject to a withholding tax
equal to 30% of any income with respect to a Note for which amounts were not
previously withheld, unless an income tax treaty reduces or eliminates the
tax
or the income with respect to the Note is effectively connected with the conduct
of a U.S. trade or business and the Non-U.S. Holder provides a correct, complete
and executed IRS Form W-8ECI. In the latter case, the Non-U.S. Holder will
be
subject to U.S. federal income tax with respect to all income with respect
to
the Note at regular rates applicable to U.S. taxpayers, unless an income tax
treaty reduces or eliminates the tax, and Non-U.S. Holders that are treated
as
corporations for federal income tax purposes may also be subject to a 30% branch
profits tax, unless an income tax treaty reduces or eliminates the branch
profits tax.
Federal
Estate Tax Treatment of Non-U.S. Holders
A
Note
held by an individual who at death is a Non-U.S. Holder will not be includible
in the Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes if
payments on the Notes to the Non-U.S. Holder would not have been subject to
U.S.
federal income or withholding tax at the time of death under the tests described
above.
Information
Reporting and Backup Withholding
Information
reporting will apply to certain payments on a Note (including interest and
OID)
and proceeds of the sale of a Note held by a U.S. Holder that is not an exempt
recipient (such as a corporation). Backup withholding may apply to payments
made
to a U.S. Holder if (a) the U.S. Holder has failed to provide its correct
taxpayer identification number on IRS Form W-9, (b) we have been notified by
the
IRS of an underreporting by the U.S. Holder (underreporting generally refers
to
a determination by the IRS that a payee has failed to include in income on
its
tax return any reportable dividend and interest payments required to be shown
on
a tax return for a taxable year), or (c) we have been notified by the IRS that
the tax identification number provided to the IRS on an information return
does
not match IRS records or that the number was not on the information
return.
Backup
withholding and nonresident alien withholding will not be required with respect
to interest paid to Non- U.S. Holders, so long as we have received from the
Non-U.S. Holder a correct and complete IRS Form W-8BEN, W-8ECI, W-8EXP or Form
W-8IMY with all of the attachments required by the IRS. Interest paid to a
Non-U.S. Holder will be reported on IRS Form 1042-S which is filed with the
IRS
and sent to Non-U.S. Holders.
Information
reporting and backup withholding may apply to the proceeds of a sale of a Note
by a Non-U.S. Holder made within the United States or conducted through certain
U.S. related financial intermediaries, unless we receive one of the tax forms
described above.
Backup
withholding is not an additional tax and may be refunded (or credited against
your U.S. federal income tax liability, if any). The information reporting
requirements may apply regardless of whether withholding is required. For
Non-U.S. Holders, copies of the information returns reporting such interest
and
withholding also may be made available to the tax authorities in the country
in
which a Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
THE
PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX IMPLICATIONS OF
AN
INVESTMENT IN NOTES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR
OWN
TAX ADVISORS PRIOR TO INVESTING TO DETERMINE THE TAX IMPLICATIONS OF SUCH
INVESTMENT IN LIGHT OF EACH SUCH INVESTOR’S PARTICULAR
CIRCUMSTANCES.
CERTAIN ERISA
CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section 406 of
ERISA prohibits similar transactions involving employee benefit plans that
are
subject to ERISA (“ERISA Plans”). Qualified Plans, IRAs and ERISA Plans are
referred to as “Plans.”
Persons
who have such specified relationships are referred to as “parties in interest”
under ERISA and as “disqualified persons” under the Code. “Parties in interest”
and “disqualified persons” encompass a wide range of persons, including any
fiduciary (for example, an investment manager, trustee or custodian) of a Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, certain
of
our affiliates, and/or Fifth Third is a fiduciary and/or a service provider
(or
otherwise is a “party in interest” or “disqualified person”) would constitute or
result in a prohibited transaction under Section 406 of ERISA or Section 4975
of
the Code, unless such the Notes are acquired or held pursuant to and in
accordance with an applicable statutory or administrative exemption. Each of
us,
Bear Stearns, Bear, Stearns Securities Corp., and Fifth Third is considered
a
"disqualified person" under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we, Bear Stearns, nor Fifth Third can
be
a “party in interest” to any IRA other than certain employer-sponsored IRAs, as
only employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the recently enacted Pension Protection Act of 2006 contains
a new statutory exemption from the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code for transactions involving certain
parties in interest or disqualified persons who are such merely because they
are
a service provider to a Plan, or because they are related to a service provider.
Generally, the new exemption would be applicable if the party to the transaction
with the Plan is a party in interest or a disqualified person to the Plan but
is
not (i) an employer, (ii) a fiduciary who has or exercises any discretionary
authority or control with respect to the investment of the Plan assets involved
in the transaction, (iii) a fiduciary who renders investment advice (within
the
meaning of ERISA and Section 4975 of the Code) with respect to those assets,
or
(iv) an affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this
new
statutory exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of
the
Code) and purchasing Notes on behalf of a Plan will be deemed to represent
that
(x) the fiduciary has made a good faith determination that the Plan is paying
no
more than, and is receiving no less than, adequate consideration in connection
with the transaction and (y) neither we, any of our affiliates, nor Fifth Third
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this new exemption. Any purchaser that
is a
Plan is encouraged to consult with counsel regarding the application of the
new
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, certain of our affiliates, and/or Fifth Third should consult
with counsel before making any acquisition. Each purchaser of any Notes, the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law (“Similar Law”) similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
(“Similar Law Plans”) should consider applicable Similar Law when investing in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s acquisition and holding of the Notes will not result in a
non-exempt violation of applicable Similar Law.
The
sale
of any Note to a Plan or a Similar Law Plan is in no respect a representation
by
us or any of our affiliates that such an investment meets all relevant legal
requirements with respect to investments by Plans or Similar Law Plans generally
or any particular Plan or Similar Law Plan, or that such an investment is
appropriate for a Plan or a Similar Law Plan generally or any particular Plan
or
Similar Law Plan.
USE
OF PROCEEDS AND HEDGING
We
will
use the net proceeds from the sale of the Notes for general corporate purposes.
We or one or more of our subsidiaries (including BSIL) may hedge our obligations
under the Notes by the purchase and sale of the stocks included in the
Component, exchange-traded and over-the-counter options on, or other derivative
or synthetic instruments related to, the Component, individual futures contracts
on the Component and on stocks included in the Component, futures contracts
on
the Component and/or options on these futures contracts. At various times after
the initial offering and before the maturity of the Notes, depending on market
conditions (including the levels of the Components), in connection with hedging
with respect to the Notes, we expect that we and/or one or more of our
subsidiaries will increase or decrease those initial hedging positions using
dynamic hedging techniques and may take long or short positions in any of these
instruments. We or one or more of our subsidiaries may also take positions
in
other types of appropriate financial instruments that may become available
in
the future. If we or one or more of our subsidiaries has a long hedge position
in any of these instruments then we or one or more of our subsidiaries may
liquidate a portion of these instruments at or about the time of the maturity
of
the Notes. Depending on, among other things, future market conditions, the
total
amount and the composition of such positions are likely to vary over time.
We
will not be able to ascertain our profits or losses from any hedging position
until such position is closed out and any offsetting position or positions
are
taken into account. Although we have no reason to believe that such hedging
activity will have a material effect on the price of any of these instruments
or
on the level of the Component, we cannot guarantee that we and one or more
of
our subsidiaries will not affect such levels as a result of its hedging
activities. You should also refer to “Use of Proceeds” in the accompanying
prospectus.
SUPPLEMENTAL
PLAN OF
DISTRIBUTION
Subject
to the terms and conditions set forth in the Distribution Agreement dated as
of
April 20, 2007, as amended, we have agreed to sell to Fifth Third, as principal,
and Fifth Third has agreed to purchase from us, the aggregate principal amount
of Notes set forth opposite its name below.
Agent
|
Principal
Amount
of
Notes
|
Fifth
Third Securities, Inc.
|
$[l]
|
Total
|
$[l]
|
The
Agent
intends to initially offer $[l]
of the
Notes to the public at the offering price set forth on the cover page of this
pricing supplement, and to subsequently resell the remaining principal amount
of
the Notes at prices related to the prevailing market prices at the time of
resale. In the future, the Agent may repurchase and resell the Notes in
market-making transactions, with resales being made at prices related to
prevailing market prices at the time of resale or at negotiated prices. We
will
offer the Notes to Fifth Third at a discount of [l]%
of the
price at which the Notes are offered to the public. Fifth Third may reallow
a
discount to other agents not in excess of [l]%
of the
public offering price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 13-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $[l]
at the
public offering price, less the Agent’s discount, to cover any over-allotments.
The Agent may over-allot or effect transactions which stabilize or maintain
the
market price of the Notes at a level higher than that which might otherwise
prevail in the open market. Specifically, the Agent may over-allot or otherwise
create a short position in the Notes for its own account by selling more Notes
than have been sold to it by us. If this option is exercised, in whole or in
part, subject to certain conditions, the Agent will become obligated to purchase
from us and we will be obligated to sell to the Agent an amount of Notes equal
to the amount of the over-allotment exercised. The Agent may elect to cover
any
such short position by purchasing Notes in the open market. No representation
is
made as to the magnitude or effect of any such stabilization or other
transactions. Such stabilizing, if commenced, may be discontinued at any time
and in any event shall be discontinued within a limited period. No other party
may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange and we do not expect a trading market
will develop. Fifth Third has advised us that, following completion of the
offering of the Notes, it intends under ordinary market conditions to indicate
prices for the Notes on request, although it is under no obligation to do so
and
may discontinue any market-making activities at any time without notice.
Accordingly, no guarantees can be given as to whether an active trading market
for the Notes will develop or, if such a trading market develops, as to the
liquidity of such trading market. We cannot guarantee that bids for outstanding
Notes will be made in the future; nor can we predict the price at which any
such
bids will be made. The Notes will cease trading as of the close of business
on
the Maturity Date.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
|
|
|
|
|
|
|
|
You
should only rely on the information contained in this pricing
supplement
and the accompanying prospectus supplement and prospectus. We
have not
authorized anyone to provide you with information or to make
any
representation to you that is not contained in this pricing supplement
or
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not
rely on it.
This pricing supplement and the accompanying prospectus supplement
and
prospectus are not an offer to sell these securities, and these
documents
are not soliciting an offer to buy these securities, in any jurisdiction
where the offer or sale is not permitted. You should not under
any
circumstances assume that the information in this pricing supplement
and
the accompanying prospectus supplement and prospectus is correct
on any
date after their respective dates.
|
|
The
Bear Stearns
Companies
Inc.
$[l]
Medium-Term
Notes, Series B
5-Year
Note
Linked
to a Portfolio of
Indices
Due
November [l],
2012
PRICING
SUPPLEMENT
Fifth
Third Securities, Inc.
November
[l],
2007
|
|
TABLE
OF CONTENTS
|
|
|
|
Pricing
Supplement
|
|
Page
|
|
Summary
|
|
|
Key
Terms
|
4
|
|
Questions
and Answers
|
7
|
|
Risk
Factors
|
12
|
|
Description
of the Notes
|
21
|
|
Description
of the Portfolio
|
30
|
|
Certain
U.S. Federal Income Tax Considerations
|
53
|
|
Certain
ERISA Considerations
|
56
|
|
Use
of Proceeds and Hedging
|
58
|
|
Supplemental
Plan of Distribution
|
58
|
|
Legal
Matters
|
59
|
|
|
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
|
|
|
|
|
|