This preliminary pricing
supplement relates to an effective registration statement under the Securities
Act of 1933, but is not complete and may be changed. We may not sell these
securities until we deliver a final pricing supplement. This preliminary pricing
supplement, the accompanying prospectus supplement and prospectus are not an
offer to sell these securities and are not soliciting an offer to buy these
securities in any state where such an offer or sale would not be
permitted.
Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-136666
Subject
to Completion, dated March 5, 2008
PRICING
SUPPLEMENT
(To
Prospectus dated August 16, 2006 and
Prospectus
Supplement dated August 16, 2006)
The
Bear Stearns Companies Inc.
$[l]
Medium-Term Notes, Series B
Buffered
Accelerated Market Participation Securities
Linked
to
the Financial Select Sector SPDR®
Fund,
due April [l],
2009
|
·
|
The
Notes are linked to the performance of the Financial Select Sector
SPDR®
Fund (the “ETF”) and are not principal protected. When we refer to Notes
in this pricing supplement, we mean Notes with a principal amount
of
$1,000.00. On the Maturity Date, you will receive the “Cash Settlement
Value,” an amount in cash depending on the ETF
Return.
|
|
·
|
The
Cash Settlement Value, per Note, will be calculated as follows:
|
|
(a)
|
if
the ETF Return is greater than zero, the Cash Settlement Value will
be
equal to the $1,000.00 principal amount of the Note plus the product
of
(i) $1,000.00 multiplied by (ii) the Upside Participation Rate (200.00%)
multiplied by (iii) the ETF Return, provided that in no event will
the
Cash Settlement Value payable at maturity exceed $[1,250.00-1,280.00]
per
Note, which represents a maximum return of [25.00-28.00]% on the
Notes;
|
|
(b)
|
if
the ETF Return is less than or equal to zero but greater than or
equal to
-10.00%, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
|
|
(c)
|
if
the ETF Return is less than -10.00%, the Cash Settlement Value for
each
Note will be equal to the $1,000.00 principal amount minus 1.00%
of the
$1,000.00 principal amount for each percentage point that the ETF
Return
is less than -10.00%. For example, if the ETF Return is -30.00%,
you will
suffer a 20.00% loss and, therefore, the Cash Settlement Value of
each
Note will be equal to 80.00% of the principal
amount.
|
|
·
|
The
ETF Return will equal the quotient of (a) the Final Price minus the
Initial Price, divided by (b) the Initial
Price.
|
|
·
|
The
Upside Participation Rate will equal
200.00%.
|
|
·
|
The
Notes will not pay interest during the term of the
Notes.
|
|
·
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
·
|
The
scheduled Calculation Date for the Notes is April [l],
2009. The Calculation Date is subject to adjustment as described
herein.
|
|
·
|
The
Maturity Date for the Notes is expected to be April [l],
2009. If the Calculation Date is postponed, the Maturity Date will
be
three Business Days following the postponed Calculation
Date.
|
|
·
|
The
CUSIP number for the Notes is
0739282U6.
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THE
NOTES ARE NOT PRINCIPAL PROTECTED. THEREFORE, YOU MAY RECEIVE LESS, AND POSSIBLY
SIGNIFICANTLY LESS, THAN YOUR INITIAL INVESTMENT IN THE
NOTES.
THERE MAY NOT BE AN ACTIVE SECONDARY MARKET IN THE NOTES, AND IF THERE WERE
TO
BE AN ACTIVE SECONDARY MARKET, IT MAY NOT BE LIQUID. YOU SHOULD REFER TO “RISK
FACTORS” BEGINNING ON PAGE PS-10.
The
Notes,
which are linked to the performance of the ETF, are not sponsored, endorsed,
sold or promoted by the Select Sector SPDR Trust, and the Select Sector SPDR
Trust makes no representations regarding the advisability of investing in the
Notes.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Notes or determined that this pricing supplement,
or the accompanying prospectus supplement and prospectus, is truthful or
complete. Any representation to the contrary is a criminal
offense.
|
Per
Note
|
|
Total
|
Initial
public offering price
|
[l]%*
|
|
$[l]
|
Agent’s
discount
|
[l]%
|
|
$[l]
|
Proceeds,
before expenses, to us
|
[l]%
|
|
$[l]
|
*Investors
who purchase an aggregate principal amount of at least $1,000,000 of this Note
offering will be entitled to purchase Notes for 99.00% of the principal
amount.
Any
additional reissuances will be offered at a price to be determined at the time
of pricing of each offering of Notes, which will be a function of the prevailing
market conditions and the share price of the ETF at the time of the relevant
sale.
We
expect
that the Notes will be ready for delivery in book-entry form only through the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about March [l],
2008,
against payment in immediately available funds. The
distribution of the Notes will conform to the requirements set forth in Rule
2720 of the Financial Industry Regulatory Authority, Inc. (“FINRA”) Conduct
Rules.
We
may
grant our affiliate Bear, Stearns & Co. Inc. a 30-day option from the date
of the final pricing supplement to purchase from us up to an additional $[l]
of Notes
at the public offering price to cover any over-allotments.
_______________
Bear,
Stearns & Co. Inc.
March
[l],
2008
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 ETF. 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 in any manner with the prospectus or prospectus supplement, this
pricing supplement will supersede those documents. In this pricing supplement,
the terms “Company,” “we,” “us” and “our” refer only to The Bear Stearns
Companies Inc. excluding its consolidated subsidiaries.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B, Linked to the Financial
Select Sector SPDR®
Fund
(the “ETF”
or
“XLF”), due April [l],
2009
(the “Notes”) are notes whose return is tied or “linked” to the performance of
the ETF. When we refer to Note or Notes in this pricing supplement, we mean
$1,000.00 principal amount of Notes. The Notes are not principal protected.
On
the Maturity Date, you will receive the Cash Settlement Value, an amount in
cash
depending on the ETF Return. The Cash Settlement Value, per Note, will be
calculated as follows:
(a) if
the
ETF Return is greater than zero, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Note plus the product of (i) $1,000.00
multiplied by (ii) the Upside Participation Rate (200.00%) multiplied by (iii)
the ETF Return; provided that in no event will the Cash Settlement Value payable
at maturity exceed $[1,250.00-1,280.00] per Note, which represents a maximum
return of [25.00-28.00]% on the Notes;
(b) if the
ETF
Return is less than or equal to zero but greater than or equal to -10.00%,
the
Cash Settlement Value will be equal to the $1,000.00 principal amount of the
Note; or
(c) if
the
ETF Return is less than -10.00%, then the Cash Settlement Value for each Note
will be equal to the $1,000.00 principal amount minus 1.00% of the $1,000.00
principal amount for each percentage point that the ETF Return is less than
-10.00%. For example, if the ETF Return is -30.00%, you will suffer a 20.00%
loss and, therefore, the Cash Settlement Value of each Note will be equal to
80.00% of the principal amount.
The
ETF
Return will equal the quotient of (a) the Final Price minus the Initial Price,
divided by (b) the Initial Price.
The
Upside Participation Rate will equal 200.00%.
Selected
Investment Considerations
|
·
|
Growth
potential—The return, if any, on the Notes is based upon whether and the
extent to which (subject to the maximum return of [25.00-28.00]%)
the
Final Price is greater than the Initial
Price.
|
|
·
|
Potential
leverage in the increase, if any, of the ETF—The Notes may be an
attractive investment for investors who have a bullish view of the
ETF
over the term of the Notes. If held to maturity, the Notes allow
you to
participate in the potential increase in the ETF, not to exceed the
maximum return of [25.00-28.00]%.
|
|
·
|
Taxes—For
discussion regarding the U.S. Federal Income Tax Treatment of these
Notes,
see “Certain U.S. Federal Income Tax Considerations” herein.
|
Selected
Risk Considerations
|
·
|
Possible
loss of principal—The Notes are not principal protected. If the ETF Return
is less than -10.00%, for each 1.00% difference between the ETF Return
and
-10.00%, you will lose an amount of your Notes equal to the product
of (i)
1.00% multiplied by (ii) the $1,000.00 principal amount of the
Notes.
|
|
·
|
No
current income—We will not pay any interest during the term of the Notes.
The yield on the Notes, therefore, may be less than the overall return
you
would earn if you purchased a conventional debt security at the same
time
and with the same Maturity Date from an issuer with a comparable
credit
rating.
|
|
·
|
Maximum
return on the Notes of [25.00-28.00]%—You will not receive more than the
maximum return of [25.00-28.00]% at maturity,
regardless of the positive percentage increase of the Final Price
over the
Initial Price.
Because the maximum return on the Notes is [25.00-28.00]%, the maximum
Cash Settlement Value is
$[1,250.00-1,280.00].
|
|
·
|
Concentration—The
Notes are linked to XLF, a fund that invests in the financial sector
of
the S&P 500®
Index. As a result, an investment in the Notes will be concentrated
in
this single sector.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the ETF or the Underlying
Stocks.
|
|
·
|
Not
exchange listed—The Notes will not be listed on any securities exchange or
quotation system, and we do not expect a trading market to develop,
which
may affect the price that you receive for your Notes upon any sale
prior
to maturity. If you sell the Notes prior to maturity, you may receive
less, and possibly significantly less, than your initial investment
in the
Notes.
|
|
·
|
Liquidity—Because
the Notes will not be listed on any securities exchange or quotation
system, we do not expect a trading market to develop, and, if such
a
market were to develop, it may not be liquid. Our subsidiary, Bear,
Stearns & Co. Inc. has advised us that they intend under ordinary
market conditions to indicate prices for the Notes upon request.
However,
we cannot guarantee that bids for outstanding Notes will be made
in the
future; nor can we predict the price at which those bids will be
made. In
any event, Notes will cease trading as of the close of business on
the
Maturity Date.
|
KEY
TERMS
Issuer:
|
The
Bear Stearns Companies Inc.
|
|
|
ETF:
|
Financial
Select Sector SPDR®
Fund, an exchange traded fund issued by the Select Sector SPDR Trust
(the
“ETF Issuer”), managed and maintained by SSgA Funds Management, Inc.
(“SSFM”), and traded on the American Stock Exchange, LLC (“AMEX”) under
the ticker symbol “XLF”.
|
|
|
Principal
Amount:
|
Each
Note will be issued in minimum denominations of $1,000.00 and $1,000.00
multiples thereafter; provided, however, that the minimum purchase
for any
purchaser domiciled in a Member state of the European Economic Area
shall
be $100,000.00. 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 $1,000.00.
|
|
|
Further
Issuances:
|
Under
certain limited circumstances, and at our sole discretion, we may
offer
further issuances of the Notes. These further issuances, if any,
will be
consolidated to form a single series with the Notes and will have
the same
CUSIP number and will trade interchangeably with the Notes immediately
upon settlement.
|
|
|
Cash
Settlement Value:
|
On
the Maturity Date, you will receive the Cash Settlement Value, an
amount
in cash that depends upon the ETF Return. The Cash Settlement Value,
per
Note, will be calculated as follows:
|
|
|
|
(a)
if the ETF Return is greater than zero, the Cash Settlement Value
will be
equal to the $1,000.00 principal amount of the Note plus the product
of
(i) $1,000.00 multiplied by (ii) the Upside Participation Rate (200.00%)
multiplied by (iii) the ETF Return; provided that in no event will
the
Cash Settlement Value payable at maturity exceed $[1,250.00-1,280.00]
per
Note, which represents a maximum return of [25.00-28.00]% on the
Notes;
|
|
|
|
(b)
if the ETF Return is less than or equal to zero but greater than
or equal
to -10.00%, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
|
|
|
|
(c)
if the ETF Return is less than -10.00%, then the Cash Settlement
Value for
each Note will be equal to the $1,000.00 principal amount minus 1.00%
of
the $1,000.00 principal amount for each percentage point that the
ETF
Return is less than -10.00%. For example, if the ETF Return is -30.00%,
you will suffer a 20.00% loss and, therefore, the Cash Settlement
Value of
each Note will be equal to 80.00% of the principal
amount.
|
|
|
ETF
Return:
|
Equals
the quotient of (a) the Final Price minus the Initial Price, divided
by
(b) the Initial Price.
|
|
|
Upside
Participation Rate:
|
Equals
200.00%.
|
|
|
Interest:
|
The
Notes will not bear interest during the term of the
Notes.
|
|
|
Initial
Price:
|
Equals
[l],
the closing share price of the ETF on March [l],
2008, as determined by the Calculation Agent.
|
|
|
Final
Price:
|
The
Final Price will be determined by the Calculation Agent and will
equal the
closing share price of the ETF on the Calculation Date as determined
by
the Calculation Agent.
|
|
|
Calculation
Date:
|
April
[l],
2009 unless
such date is not an ETF Business Day, in which case the Calculation
Date
shall be the next ETF Business Day.
The Calculation Date is subject to adjustment as described under
“Description of the Notes - Market Disruption Events.”
|
|
|
Issue
Date:
|
March
[l],
2008.
|
|
|
Maturity
Date:
|
The
Notes are expected to mature on April [l],
2009 unless such date is not a Business Day, in which case the Maturity
Date shall be the next Business Day. If the Calculation Date is adjusted
due to the occurrence of a Market Disruption Event, the Maturity
Date will
be three Business Days following the adjusted Calculation
Date.
|
|
|
Exchange
listing:
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
|
ETF
Business Day:
|
Means
any day on which the Relevant Exchange (as defined herein) and each
Related Exchange (as defined herein) are scheduled to be open for
trading.
|
|
|
Business
Day:
|
Means
any day other than a Saturday or Sunday, on which banking institutions
in
the cities of New York, New York and London, England are not authorized
or
obligated by law or executive order to be closed.
|
|
|
Calculation
Agent:
|
Bear,
Stearns & Co. Inc. (“Bear Stearns”).
|
|
|
Underlying
Index:
|
Means,
with respect to XLF, the Financial Select Sector Index, or any successor
thereto.
|
|
|
Underlying
Stock:
|
Means
the stocks that comprise the Underlying Index, or any successors
thereto.
|
|
|
Relevant
Exchange:
|
Means
the primary exchange or market of trading for the ETF, which is currently
the AMEX, and the primary exchanges or markets of trading of any
of the
Underlying Stocks.
|
|
|
Related
Exchange:
|
Means
each exchange or quotation system where trading has a material effect
(as
determined by the Calculation Agent) on the overall market for futures
or
options contracts relating to the ETF, or the Underlying
Index.
|
|
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $1,000.00, the minimum purchase for any purchaser
domiciled in a member state of the European Economic Area shall be $100,000.00.
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 ETF over the term of the Notes,
as
measured by the ETF Return. The Notes will not bear interest, and no other
payments will be made prior to maturity. See the section “Risk Factors” for
selected risk considerations prior to making an investment in the Notes.
The
Notes
are expected to mature on April [l],
2009.
The Notes do not provide for earlier redemption. When we refer to Notes in
this
pricing supplement, we mean Notes each with a principal amount of $1,000.00.
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
the Notes principal
protected?
No.
The
Notes are not principal protected and 90.00% of your principal investment in
the
Notes is at risk of loss. If the ETF Return is less than -10.00%, for each
1.00%
difference between the ETF Return and -10.00% you will lose an amount of your
Notes equal to the product of (i) 1.00% multiplied by (ii) the $1,000.00
principal amount of the Notes.
Are
the Notes equity or debt securities?
The
Notes
are our unsecured, unsubordinated debt securities. However, the Notes differ
from traditional debt securities in that the Notes are not principal protected
and offer the opportunity to participate in the positive performance of the
ETF,
if any, subject to a maximum return of [25.00-28.00]%. If the ETF Return is
less
than -10.00%, you will receive less, and possibly significantly less, than
your
initial 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?
The
Notes
are not principal protected. On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in cash
that depends upon the ETF Return. The Cash Settlement Value, per Note, will
be
calculated as follows:
(a) if
the
ETF Return is greater than zero, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Note plus the product of (i) $1,000.00
multiplied by (ii) the Upside Participation Rate (200.00%) multiplied by (iii)
the ETF Return; provided that in no event will the Cash Settlement Value payable
at maturity exceed $[1,250.00-1,280.00] per Note, which represents a maximum
return of [25.00-28.00]% on the Notes;
(b) if
the
ETF Return is less than or equal to zero but greater than or equal to -10.00%,
the Cash Settlement Value will be equal to the $1,000.00 principal amount of
the
Note; or
(c) if
the
ETF Return is less than -10.00%, then the Cash Settlement Value for each Note
will be equal to the $1,000.00 principal amount minus 1.00% of the $1,000.00
principal amount for each percentage point that the ETF Return is less than
-10.00%. For example, if the ETF Return is -30.00%, you will suffer a 20.00%
loss and, therefore, the Cash Settlement Value of each Note will be equal to
80.00% of the principal amount.
The
ETF
Return equals the quotient of (a) the Final Price minus the Initial Price,
divided by (b) the Initial Price.
The
Upside Participation Rate equals 200.00%.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description of the
Notes.”
Will
there be additional offerings of the Notes?
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuance will increase the aggregate principal amount of the outstanding Notes
of this series to include the aggregate principal amount of any Notes bearing
the same CUSIP number that are issued pursuant to (i) any 30-day option we
grant
to Bear, Stearns & Co. Inc., and (ii) any future issuances of Notes bearing
the same CUSIP number. 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 share price of the ETF at the time of the
relevant sale.
Will
I receive
interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only payment you
will receive, if any, will be the Cash Settlement Value upon the maturity of
the
Notes.
What
is the ETF?
Unless
otherwise stated, all information on the ETF that is provided in this pricing
supplement is derived from the ETF Issuer or other publicly available sources.
The Select Sector SPDR Trust consists of separate investment portfolios (each,
a
“Select Sector SPDR®
Fund”).
Each Select Sector SPDR®
Fund is
a fund that invests in a particular sector or group of industries represented
by
a specified Select Sector Index. The companies included in each Select Sector
Index are selected on the basis of Global Industry Classification Standards
from
a defined universe of companies. The Select Sector Indices (each, a “Select
Sector Index”) upon which the Select Sector SPDR®
Funds
are based together comprise all of the companies in the S&P 500®
Index.
The investment objective of each Select Sector SPDR®
Fund is
to provide investment results that, before expenses, correspond generally to
the
price and yield performance of publicly traded equity securities of companies
in
a particular sector or group of industries, as represented by a specified market
sector index. The ETF tracks the performance of the Financial Select Sector
Index, an index representing a wide array of financial service firms with
various business lines ranging from investment management to commercial and
investment banking, all of which are members of the S&P 500®
Index.
You
can
obtain the level of XLF from the Bloomberg Professional®
service
(“Bloomberg”) under the symbol XLF <Equity> <Go>.
For
more
information, see the section “Description of the ETF.”
How
has the ETF
performed historically?
We
have
provided tables and graphs depicting the performance of the ETF from December
1998 through February 2008. You can find these tables and graphs in the section
“Description of the ETF - Historical Data on the ETF.” We have provided this
historical information to help you evaluate the behavior of the ETF in various
economic environments; however, past performance is not indicative of the manner
in which the ETF will perform in the future. You should refer to the section
“Risk Factors - The historical performance of the ETF is not an indication of
the future performance of the ETF.”
Will
the Notes be listed on a securities exchange?
The
Notes
will not be listed on any securities exchange or quotation system, and we do
not
expect a trading market to develop, which may affect the price that you receive
for your Notes upon any sale prior to maturity. Bear Stearns has advised us
that
they intend under ordinary market conditions to indicate prices for the Notes
on
request. However, we cannot guarantee that bids for outstanding Notes will
be
made in the future; nor can we predict the price at which those bids will be
made. In any event, the Notes will cease trading as of the close of business
on
the Maturity Date. You should refer generally to the section “Risk Factors.” If
you sell the Notes prior to maturity, you may receive less, and possibly
significantly less, than your initial investment in the Notes.
What
is the role of Bear Stearns?
Bear
Stearns will be our agent for the offering and sale of the Notes. After the
initial offering, Bear Stearns intends to buy and sell the Notes to create
a
secondary market for holders of the Notes, and may stabilize or maintain the
market price of the Notes during the initial distribution of the Notes. However,
Bear Stearns will not be obligated to engage in any of these market activities
or to continue them once they are begun.
Bear
Stearns also will be our Calculation Agent for purposes of calculating the
Cash
Settlement Value. Under certain circumstances, these duties could result in
a
conflict of interest between Bear Stearns’ status as our subsidiary and its
responsibilities as Calculation Agent. 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 an ETF, they may be appropriate for
investors with specific investment horizons who seek to participate in the
potential appreciation of the share price of the ETF. In particular, the Notes
may be an attractive investment for investors who:
|
·
|
want
potential upside exposure to the Underlying
Stocks;
|
|
·
|
believe
that the share price of the ETF will increase over the term of the
Notes
and that such increase will not exceed [25.00-28.00]%;
|
|
·
|
are
willing to risk the possible loss of their initial investment in
the Notes
in exchange for the opportunity to participate in the appreciation,
if
any, of the ETF of up to [12.50-14.00]% (which represents a maximum
return
per Note of [25.00-28.00]%);
|
|
·
|
are
willing to hold the Notes until maturity;
and
|
|
·
|
are
willing to forgo income in the form of interest payments on the Notes
or
dividend payments on the ETF, and on the Underlying
Stocks.
|
The
Notes
may not be a suitable investment for investors who:
|
·
|
seek
principal protection;
|
|
·
|
seek
current income or dividend payments from their
investment;
|
|
·
|
seek
an investment that offers the possibility to fully participate in
the
potential appreciation of the ETF (since the return on the Notes
is capped
at [25.00-28.00]%);
|
|
·
|
seek
an investment with an active secondary
market;
|
|
·
|
are
unable or unwilling to hold the Notes until maturity;
or
|
|
·
|
do
not have a bullish view of the ETF over the term of the
Notes.
|
What
are the U.S. federal income tax consequences of investing in the
Notes?
The
U.S.
federal income tax consequences of an investment in the Notes are complex and
uncertain. We intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts with respect to the ETF that are subject to
the
“constructive ownership” rules of section 1260 of the Internal Revenue Code of
1986, as amended (the “Code”), and, where required, to file information returns
with the Internal Revenue Service (the “IRS”) in accordance with such treatment.
Prospective investors are urged to consult their tax advisors regarding the
U.S.
federal income tax consequences of an investment in the Notes. Assuming the
Notes are treated as pre-paid cash-settled executory contracts that are subject
to the “constructive ownership” rules of section 1260 of Code, you should be
required to recognize capital gain or loss to the extent that the cash you
receive on the Maturity Date or upon a sale or exchange of the Notes prior
to
the Maturity Date differs from your tax basis on the Notes (which will generally
be the amount you paid for the Notes). Under this approach, any gain recognized
on the sale, exchange, maturity, or other taxable disposition of the Notes
that
is held for one year or less at the time of disposition would generally be
treated as short-term capital gain, and any gain recognized on the taxable
disposition of the Note that is held for more than a year at the time of
disposition would be treated as long-term capital gain only to the extent that
the U.S. holder can demonstrate that it would have realized long-term capital
gain had it held the ETF directly, and otherwise would be treated as ordinary
income that is subject to an interest charge. Because of the uncertainty
regarding the tax treatment of the Notes, we urge you to consult your tax
advisor as to the tax consequences of your investment in a Note. For a more
complete discussion of the U.S. federal income tax consequences of your
investment in a Note, please see the discussion under “Certain U.S. Federal
Income Tax Considerations.”
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), a plan that is subject to Section
4975 of the 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
ETF. However, your ability to participate in the appreciation of the ETF is
limited. The maximum return on the Notes is [25.00-28.00]%. Therefore, the
maximum Cash Settlement Value is $[1,250.00-1,280.00] and the Cash Settlement
Value will not reflect the increase in the ETF if the ETF Return is greater
than
[12.50-14.00]%. You will be subject to significant risks not associated with
conventional fixed-rate or floating-rate debt securities. Prospective purchasers
should recognize the possibility of a substantial loss with respect to their
investment in the Notes. Prospective purchasers of the Notes should understand
the risks of investing in the Notes and should reach an investment decision
only
after careful consideration, with their advisers, of the suitability of the
Notes in light of their particular financial circumstances, the following risk
factors and the other information set forth in this pricing supplement and
the
accompanying prospectus supplement and prospectus. These risks include the
possibility that the ETF will fluctuate, and the possibility that you will
receive a substantially lower amount of principal than the amount you invested.
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, and that are important in determining the existence,
magnitude, and longevity of these risks and their influence on the value of,
or
the payment made on, the Notes.
The
Notes are not principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes
are not principal protected. If the ETF Return is less than -10.00%, for each
1.00% difference between the ETF Return and -10.00%, you will lose an amount
of
your Notes equal to the product of (i) 1.00% multiplied by (ii) the $1,000.00
principal amount of the Notes.
You
will not receive any interest payments on the Notes.
Your yield may be lower than the yield on a conventional debt security of
comparable maturity.
You
will
not receive any periodic payments of interest or any other periodic payments
on
the Notes. On the Maturity Date, you will receive a payment per Note equal
to
the Cash Settlement Value. Thus, the overall return you earn on your Notes
may
be less than that you would have earned by investing in a non-indexed debt
security of comparable maturity that bears interest at a prevailing market
rate
and is principal protected. For more specific information about the Cash
Settlement Value and for illustrative examples, you should refer to the section
“Description of the Notes.”
The
trading value of the Notes will not necessarily be directly related to the
share
price of the ETF.
Even
if
the share price of the ETF increases above the Initial Price 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 ETF Return to increase while the trading value
of
the Notes declines.
The
price of the ETF may not completely track the value of the underlying
index.
Although
the trading characteristics and valuations of the ETF will usually mirror the
characteristics and valuations of the Underlying Index, the price of the ETF
may
not completely track the value of the Underlying Index. The ETF may reflect
transaction costs and fees that are not included in the calculation of the
Underlying Index.
There
are industry concentration risks associated with Notes linked to the
ETF.
The
Notes
are linked to XLF, a fund that invests in the financial sector of the S&P
500®
Index.
As a result, an investment in the Notes will be concentrated in this single
sector. Although your investment in the Notes will not give you any ownership
or
other direct interests in the Underlying Stocks, the return on an investment
in
the Notes will be subject to certain risks similar to those associated with
direct equity investments in the Underlying Stocks.
You
must rely on your own evaluation of the merits of an investment linked to the
ETF.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the ETF, the Underlying Index and the Underlying Stocks.
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 ETF, the Underlying
Index
and the Underlying Stocks and not rely on our views with respect to future
movements in this sector and these stocks. You should make such investigation
as
you deem appropriate as to the merits of an investment linked to the
ETF.
Your
yield will not reflect dividends on the ETF or on the Underlying
Stocks.
The
yield
on the Notes does not reflect the payment of dividends or other distributions
on
the ETF or the Underlying Stocks. Furthermore, the ETF generally tracks the
performance of the Underlying Index, an index that represents companies in
the
financial sector of the S&P 500®
Index,
which does not reflect the payment of dividends or other distributions on the
Underlying Stocks. Therefore, the yield you will receive by holding the Notes
to
maturity will not be the same as if you had purchased shares in the ETF or
in
the Underlying Stocks 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.
Your
return on the Notes will not exceed [25.00-28.00]% over the term of the Notes,
regardless of the positive percentage increase of the Final Price over the
Initial Price.
If
the
ETF Return is greater than or equal to [12.50-14.00]%, the Cash Settlement
Value
will be equal to $[1,250.00-1,280.00]. Thus, if the Final Price is greater
than
[112.50-114.00]% of the Initial Price, regardless of the extent to which the
Final Price is greater than the Initial Price, we will pay you
$[1,250.00-1,280.00] per Note, which represents a maximum return of
[25.00-28.00]% on the Notes. Under these circumstances, the Cash Settlement
Value you receive at maturity will not fully reflect the performance of the
ETF.
Uncertain
tax consequences.
We
intend
to treat the Notes for all tax purpose as pre-paid cash-settled executory
contracts with respect to the ETF that are subject to the “constructive
ownership” rules of section 1260 of the Code. Under this approach, any gain
recognized on the sale, exchange, maturity, or other taxable disposition of
the
Notes that is held for one year or less at the time of disposition would
generally be treated as short-term capital gain, and any gain recognized on
the
taxable disposition of the Note that is held for more than a year at the time
of
disposition would be treated as long-term capital gain only to the extent that
the U.S. holder can demonstrate that it would have realized long-term capital
gain had it held the ETF directly, and otherwise would be treated as ordinary
income that is subject to an interest charge.
However,
although we intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts linked to the ETF that are subject to the
“constructive ownership” rules of section 1260 of the Code, there is no direct
legal authority as to the proper tax treatment of the Notes, and therefore
significant aspects of the tax treatment of the Notes are uncertain. In
particular, it is possible that you will be required to recognize income for
U.S. federal tax purposes with respect to the Notes prior to the sale, exchange
or maturity of the Notes, and it is possible that any gain or income recognized
with respect to the Notes will be treated as ordinary income rather than capital
gain.
Prospective
investors are urged to consult their tax advisors regarding the U.S. federal
income tax consequences of an investment in the Notes. Please read carefully
the
section “Certain U.S. Federal Income Tax Considerations.”+
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the share price of the ETF will fluctuate in accordance with changes in
the
financial condition of the companies issuing the Underlying Stocks, the share
prices of the Underlying Stocks generally and other factors. The financial
condition of the companies issuing the Underlying Stocks may become impaired
or
the general condition of the equity market may deteriorate, either of which
may
cause a decrease in the level of the Underlying Index, and thus in the share
price of the ETF and, consequently, in the value of the Notes. Securities are
susceptible to general equity market fluctuations and to volatile increases
and
decreases in value, as market confidence in, and perceptions regarding, the
Underlying Stocks change. Investor perceptions regarding the companies issuing
the Underlying Stocks 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 share price of the ETF
is
expected to fluctuate until the Maturity Date.
The
historical performance of the ETF is not an indication of the future performance
of the ETF.
The
historical performance of the ETF, which is included in this pricing supplement,
should not be taken as an indication of the future performance of the ETF.
While
the trading prices of the Underlying Stocks will influence the share price
of
the ETF, it is impossible to predict whether the share price of the ETF will
fall or rise. Trading prices of the Underlying Stocks will be influenced by the
complex and interrelated economic, financial, regulatory, geographic, judicial,
political and other factors that can affect the capital markets generally and
the equity trading markets on which the Underlying Stocks are traded, and by
various circumstances that can influence the share prices of the Underlying
Stocks in a specific market segment or the share price of a particular
Underlying Stock.
The
price at which you will be able to sell your Notes prior to maturity will depend
on a number of factors, and may be substantially less than the amount you had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
alternative would be to sell them. At that time, there may be an illiquid market
for Notes or no market at all. Even if you were able to sell your Notes, there
are many factors outside of our control that may affect their trading value.
We
believe that the value of your Notes will be affected by the share price and
volatility of the ETF, whether the share price of the ETF is greater than or
equal to the Initial Price, 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 share price of
the
ETF is less than, equal to or not sufficiently above the Initial Price. 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.
|
·
|
ETF
performance.
We expect that the value of the Notes prior to maturity will depend
substantially on whether the share price of the ETF is greater than
the
Initial Price. If you decide to sell your Notes when the share price
of
the ETF exceeds the Initial Price, you may nonetheless receive
substantially less than the amount that would be payable at maturity
based
on that share price of the ETF because of expectations that the share
price of the ETF will continue to fluctuate until the Final Price
is
determined. Economic, financial, regulatory, geographic, judicial,
political and other developments that affect the securities in the
ETF may
also affect the share price of the ETF and, thus, the value of the
Notes.
|
|
·
|
Volatility
of the ETF.
Volatility is the term used to describe the size and frequency of
market
fluctuations. If the volatility of the ETF increases or decreases,
the
trading value of the Notes may be adversely affected. This volatility
may
increase the risk that the share price of the ETF will decline, which
could negatively affect the trading value of Notes. The effect of
the
volatility of the ETF on the trading value of the Notes may not
necessarily decrease over time during the term of the
Notes.
|
|
·
|
Interest
rates.
We expect that the trading value of the Notes will be affected by
changes
in U.S. interest rates. In general, if U.S. interest rates increase,
the
value of the Notes may decrease, and if U.S. interest rates decrease,
the
value of the Notes is expected to increase. Interest rates may also
affect
the economy and, in turn, the level of the Underlying Index, which
would
affect the share price of the ETF, thus affecting the value of the
Notes.
Rising interest rates may lower the level of the Underlying Index,
and,
thus, the share price of the ETF and, consequently, the value of
the
Notes. Falling interest rates may increase the level of the Underlying
Index, and, thus, the share price of the ETF and, consequently, the
value
of the Notes.
|
|
·
|
Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A2 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 share price of the ETF,
it is
uncertain whether an improvement in our credit ratings, financial
condition or results of operations will have a positive effect on
the
trading value of the Notes.
|
|
·
|
Time
remaining to maturity.
A
“time premium” results from expectations concerning the share price of the
ETF during the period prior to the maturity of the Notes. As the
time
remaining to the maturity of the Notes decreases, this time premium
will
likely decrease, potentially adversely affecting the trading value
of the
Notes. As the time remaining to maturity decreases, the trading value
of
the Notes may be less sensitive to the volatility of the
ETF.
|
|
·
|
Events
involving the companies issuing the Underlying Stocks.
General economic conditions and earnings results of the companies
issuing
the Underlying Stocks, and real or anticipated changes in those conditions
or results, may affect the trading value of the Notes. For example,
some
of the Underlying Stocks may be affected by mergers and acquisitions,
which can contribute to volatility of the ETF. As a result of a merger
or
acquisition, one or more Underlying Stocks 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 Underlying
Index.
|
|
·
|
Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange or quotation
system, and we do not expect a trading market to develop. There may
not be
a secondary market in the Notes, which may affect the price that
you
receive for your Notes upon any sale prior to maturity. If a trading
market does develop, there can be no assurance that there will be
liquidity in the trading market. If the trading market for the Notes
is
limited, there may be a limited number of buyers for your Notes if
you do
not wish to hold your investment until maturity. This may affect
the price
you receive upon any sale of the Notes prior to maturity. If you
sell the
Notes prior to maturity, you may receive less, and possibly significantly
less, than your initial investment in the
Notes.
|
|
·
|
Inclusion
of commission. The
inclusion of commissions and projected profit from hedging in the
original
price of the Notes is likely to adversely affect secondary market
prices.
Assuming no change in the market conditions or any other relevant
factors,
the price, if any, at which Bear Stearns may be willing to purchase
the
Notes in secondary market transactions may be lower than the original
price of the Notes, because the original price included, and secondary
market prices are likely to exclude, commissions paid with respect
to the
Notes, as well as the projected profit included in the cost of hedging
our
obligations under the Notes. In addition, any such prices may differ
from
values determined by pricing models used by Bear Stearns as a result
of
dealer discounts, mark-ups or other transaction
costs.
|
Bear
Stearns has advised us that they intend, under ordinary market conditions,
to
indicate prices for the Notes on request. However, we cannot guarantee that
bids
for outstanding Notes will be made in the future, nor can we predict the price
at which any such bids will be made.
The
effect of one of the factors specified above may offset some or all of any
change in the value of the Notes attributable to another factor.
Reported
prices of the ETF may be based on non-current information.
If
trading is interrupted in the Underlying Stocks, publicly available information
regarding the share price of the ETF may be based on the last reported prices.
As a result, publicly available information regarding reported closing share
prices of the ETF may at times be based on non-current information.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any shares in the ETF or in the
Underlying Stocks. 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 ETF or 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 shares in the ETF or in any Underlying
Stocks.
The
Calculation Agent is one of our affiliates, which could result in a conflict
of
interest.
Bear
Stearns will act as the Calculation Agent. The Calculation Agent will make
certain determinations and judgments in connection with calculating the Final
Price, or deciding whether a Market Disruption Event (as defined herein) has
occurred. You should refer to the sections “Description of the Notes.” Because
Bear Stearns is our affiliate, conflicts of interest may arise in connection
with Bear Stearns performing its role as Calculation Agent. Rules and
regulations regarding broker-dealers (such as Bear Stearns) require Bear Stearns
to maintain policies and procedures regarding the handling and use of
confidential proprietary information, and such policies and procedures will
be
in effect throughout the term of the Notes. Bear Stearns is obligated to carry
out its duties and functions as Calculation Agent in good faith, and using
its
reasonable judgment. See the section “Description of the Notes - Calculation
Agent.”
Our
affiliates, including Bear Stearns, may, at various times, for their proprietary
accounts and for other accounts under their management, engage in transactions
involving the Underlying Stocks, exchange-traded and over-the-counter options
on, or other derivative or synthetic instruments related to, the Underlying
Stocks, the Underlying Index and the ETF, individual futures contracts on the
Underlying Stocks, the Underlying Index and the ETF, futures contracts on the
Underlying Stocks, the Underlying Index and the ETF and/or options on these
futures contracts. These transactions may influence the value of the Underlying
Stocks, and therefore the levels of the Underlying Index and the share price
of
the ETF. 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 the section “Use of Proceeds and Hedging.” Accordingly, under
certain circumstances, conflicts of interest may arise between Bear Stearns’
responsibilities as Calculation Agent with respect to the Notes and its
obligations under our hedge.
Changes
that affect the calculation of the ETF
will affect the trading value of the Notes and the amount you will receive
at
maturity.
If
a
Merger Event, Tender Offer, Nationalization, Delisting, Insolvency, or Potential
Adjustment Event (each as defined herein in Description of the Notes -
Antidilution Adjustments) occurs, it may become difficult to determine the
trading value of the Notes or the Cash Settlement Value. If one of those
corporate events occur, the Calculation Agent will determine whether such
corporate event will have a material effect on that ETF or the Notes, or in
the
case of a Potential Adjustment Event, whether that Potential Adjustment Event
has a diluting or concentrative effect on the theoretical value of one share
of
the ETF. To the extent the Calculation Agent makes such a determination, the
Calculation Agent will make the adjustments and computations described below
in
Description of the Notes - Antidilution Adjustments. The Calculation Agent
will
make such adjustments and computations to the Initial Price, the Final Price,
the Cash Settlement Value or any other variable for the event. See “Description
of the Notes - Antidilution Adjustments.” 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.”
We
cannot control actions by any
of the companies issuing the Underlying Stocks.
Our
common stock is a component of the Underlying Index. However, we are not
affiliated with any of the other companies whose stock underlies the Underlying
Index. Actions by any company whose stock is part of the Underlying Index may
have an adverse effect on the price of its stock, the level of the Underlying
Index, the Final Price, and the trading value of the Notes. These companies
(other than us) are not involved in this offering and have no obligations with
respect to the Notes, including any obligation to take our or your interests
into consideration for any reason. These 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.
We
are
not affiliated with any of the other companies that issue the Underlying Stocks
and are not responsible for any disclosure by any such company. However, we
may
currently, or in the future, engage in business with such companies. Neither
we
nor any of our affiliates, including Bear Stearns, assumes any responsibility
for the adequacy or accuracy of any publicly available information about the
ETF, the Underlying Index or any Underlying Stock. You should make your own
investigation into the ETF, the Underlying Index and the Underlying
Stocks.
Trading
and other transactions by us or our affiliates could affect the prices of the
Underlying Stocks, the share price of the ETF, the trading value of the Notes
or
the amount you may receive at maturity.
We
and
our affiliates may from time to time buy or sell shares of the Underlying Stocks
or derivative or synthetic instruments related to those Underlying Stocks 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 the Underlying Stocks or the level of the Underlying Index
or the share price of the ETF in a manner that would be adverse to your
investment in the Notes. See the section “Use of Proceeds and
Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Bear
Stearns will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Bear Stearns as a result of transaction costs. If you sell the Notes
prior to maturity, you may receive less, and possibly significantly less, than
your initial investment in the Notes.
Hedging
activities we or our affiliates may engage in may affect the share price of
the
ETF, including the Final Price, 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 Underlying Stocks, or derivative or synthetic
instruments related to those stocks, the Underlying Index or the ETF, 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
Underlying Stocks. 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 share price of the ETF,
we cannot assure you that these activities will not affect such share price
and
the trading value of the Notes prior to maturity or the Cash Settlement Value
payable at maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the
future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports on the ETF, the Underlying Index or the Underlying Stocks.
This
research may be modified from time to time without notice and may express
opinions or provide recommendations that are inconsistent with purchasing or
holding the Notes. Any of these activities may affect the market price of the
Underlying Stocks and, thus, the level of the Underlying Index and, therefore,
the Final Price and 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 Underlying Index. 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 Underlying Stocks, including making loans to, equity
investments in, or providing investment banking, asset management or other
advisory services to, those companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third
parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Calculation Date, a Market Disruption
Event has occurred or is continuing, the determination of the share price of
the
ETF and therefore the determination of the Cash Settlement Value by the
Calculation Agent may be deferred. You should refer to the section “Description
of the Notes - Market Disruption Events.”
If
the
Calculation Agent determines that an Event of Default (as defined herein) 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 April [l],
2009
and do not provide for earlier redemption. The Notes will be issued only in
fully registered form, and in minimum denominations of $1,000.00; provided,
however, that the minimum purchase for any purchaser domiciled in a member
state
of the European Economic Area shall be $100,000.00. 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
$1,000.00 principal amount of Notes. The Notes will not be listed on any
securities exchange or quotation system.
You
should refer to the section “Certain U.S. Federal Income Tax Considerations,”
for a discussion of certain federal income tax considerations to you as a holder
of the Notes.
Future
Issuances
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuances will increase the aggregate principal amount of the outstanding Notes
of this series, plus the aggregate principal amount of any Notes bearing the
same CUSIP number that are issued pursuant to any 30-day option we grant to
Bear
Stearns. The prices of any additional offerings will be determined at the time
of pricing of each offering, which will be a function of the prevailing market
conditions and share price of the ETF at the time of the relevant
sale.
Interest
We
will
not make any periodic payments of interest on the Notes. The only payment you
will receive, if any, will be the Cash Settlement Value upon the maturity of
the
Notes.
Payment
at Maturity
Your
investment may result in a loss because the Notes are not principal protected.
On the Maturity Date, you will receive the Cash Settlement Value, an amount
in
cash that depends upon the ETF Return. The Cash Settlement Value, per Note,
will
be calculated as follows:
(a) if
the
ETF Return is greater than zero, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Note plus the product of (i) $1,000.00
multiplied by (ii) the Upside Participation Rate (200.00%) multiplied by (iii)
the ETF Return; provided that in no event will the Cash Settlement Value payable
at maturity exceed $[1,250.00-1,280.00] per Note, which represents a maximum
return of [25.00-28.00]% on the Notes;
(b) if
the
ETF Return is less than or equal to zero but greater than or equal to -10.00%,
the Cash Settlement Value will be equal to the $1,000.00 principal amount of
the
Note; or
(c) if
the
ETF Return is less than -10.00%, then the Cash Settlement Value for each Note
will be equal to the $1,000.00 principal amount minus 1.00% of the $1,000.00
principal amount for each percentage point that the ETF Return is less than
-10.00%. For example, if the ETF Return is -30.00%, you will suffer a 20.00%
loss and, therefore, the Cash Settlement Value of each Note will be equal to
80.00% of the principal amount.
The
“ETF
Return”
will
equal the quotient of (a) the Final Price minus the Initial Price, divided
by
(b) the Initial Price.
The
“Upside
Participation Rate”
equals
200.00%.
The
“Initial
Price”
equals
[l],
the
closing share price of the ETF on March [l],
2008.
The
“Final
Price”
will
be
determined by the Calculation Agent and will equal the closing share price
of
the ETF on the Calculation Date.
The
“Calculation
Date”
is
scheduled to be April [l],
2009
unless such date is not an ETF Business Day, in which case the Calculation
Date
shall be the next ETF Business Day. The Calculation Date is subject to
adjustment as described under “Description of the Notes - Market Disruption
Events.”
The
“Maturity
Date”
is
expected to be April [l],
2009
unless such date is not a Business Day, in which case the Maturity Date shall
be
the next Business Day. If the Calculation Date is adjusted due to the occurrence
of a Market Disruption Event, the Maturity Date will be three Business Days
following the adjusted Calculation Date.
An
“ETF
Business Day”
means
any day on which the Relevant Exchange (as defined herein) and each Related
Exchange (as defined herein) are scheduled to be open for trading.
A
“Business
Day”
means
any day other than a Saturday or Sunday, on which banking institutions in the
cities of New York, New York and London, England are not authorized or obligated
by law or executive order to be closed.
Illustrative
Examples
The
following tables are for illustrative purposes and are not indicative of the
future performance of the ETF or the future value of the Notes.
Because
the share price of the ETF may be subject to significant fluctuation over the
term of the Notes, it is not possible to present a chart or table illustrating
the complete range of all possible Cash Settlement Values. Therefore, the
examples do not purport to be representative of every possible scenario
concerning increases or decreases in the ETF during the term of the Notes.
You
should not construe these examples or the data included in any table below
as an
indication or assurance of the expected performance of the Notes. Numbers used
in these examples may be rounded for ease of use.
You
can
review the historical share prices of the ETF in the section of this pricing
supplement called “Description of the ETF.” The historical performance of the
ETF included in this pricing supplement should not be taken as an indication
of
the future performance of the ETF during the term of the Notes. It is impossible
to predict whether the Final Price will be greater than or less than the Initial
Price.
The
examples demonstrating the hypothetical Cash Settlement Value of a Note are
based on the following assumptions:
|
·
|
Investor
purchases $1,000.00 aggregate principal amount of Notes at the initial
public offering price of $1,000.00.
|
|
·
|
Investor
holds the Notes to maturity.
|
|
·
|
The
Initial Price is equal to
26.00.
|
|
·
|
The
maximum return on the Notes is 27.00%, or $1,270.00 per
Note.
|
|
·
|
The
Upside Participation Rate is
200.00%.
|
|
·
|
All
returns are based on a 13-month term; pre-tax
basis.
|
|
·
|
No
Market Disruption Events occur during the term of the
Notes.
|
Example
1: The ETF Return is positive and the Cash Settlement Value is capped at
$1,270.00.
In
this
example, the ETF rises over the term of the Notes. On the Calculation Date,
the
Final Price is 36.40, representing an ETF Return of 40.00%, as calculated
below:
Because
the ETF Return is positive, the Cash Settlement Value will be equal to the
$1,000.00 principal amount of the Notes plus the product of (i)
$1,000.00 multiplied by (ii) the Upside Participation Rate (200.00%) multiplied
by (iii) the ETF Return; subject to the maximum return on the Notes of 27.00%.
In this example, since the ETF Return multiplied by Upside Participation Rate
is
greater than 27.00%, the Cash Settlement Value on the Maturity Date would be
capped at $1,270.00, which provides the maximum return on the Notes of 27.00%.
This example illustrates the fact that the return on your Notes will be limited
to the maximum return on the Notes of 27.00%.
Example
2: The ETF Return is positive and the Cash Settlement Value is not subject
to
the maximum return.
In
this
example, the ETF rises over the term of the Notes. On the Calculation Date,
the
Final Price is 28.60, representing an ETF Return of 10.00%, as calculated below.
Because
the ETF Return is equal to 10.00% (which, after being multiplied by the Upside
Participation Rate, is less than the maximum return of 27.00%), the Cash
Settlement Value would be $1,200.00, as calculated below.
=
$1,000.00 + ($1,000.00 x Upside Participation Rate x ETF Return)
=
$1,000.00 + ($1,000.00 x 200.00% x 10.00%)
=
$1,000.00 + $200.00
=
$1,200.00
In
this
example, the share price of the ETF rises 10.00% over the term of the Notes.
However, you would benefit from the Upside Participation Rate and your return
on
investment would be 20.00%.
Example
3: The ETF Return is negative, but is greater than -10.00%.
In
this
example, the ETF declines over the term of the Notes. On the Calculation Date,
the Final Price is 23.92, representing an ETF Return of -8.00%, as calculated
below.
Since
the
ETF Return is negative but is greater than -10.00%, the Cash Settlement Value
would equal the $1,000.00 principal amount of the Note.
In
this
example, the share price of the ETF decreases 8.00% over the term of the Notes,
and your return on investment would be 0.00%.
Example
4: The ETF Return is negative and is less than -10.00%.
In
this
example, the ETF declines over the term of the Notes. On the Calculation Date,
the Final Price is 18.20, representing an ETF Return of -30.00%, as calculated
below:
In
this
example, since the ETF Return is less than -10.00%, the Cash Settlement Value
for each Note is equal to the $1,000.00 principal amount minus 1.00% of the
$1,000.00 principal amount for each percentage point that the ETF Return is
less
than -10.00%. In this example, the ETF Return is -30.00%. Therefore, you will
suffer a 20.00% loss and receive 80.00% of the principal amount of your Notes
at
maturity, and the Cash Settlement Value for each note would be $800.00. This
example demonstrates that if the ETF Return is less than -10.00%, you will
lose
some or possibly as much as 90.00% of your initial investment in the
Notes.
Summary
of Examples 1 Through 4
Reflecting
the Cash Settlement Value
|
Example
1
|
Example
2
|
Example
3
|
Example
4
|
Initial
Price
|
26.00
|
26.00
|
26.00
|
26.00
|
Hypothetical
Final Price
|
36.40
|
28.60
|
23.92
|
18.20
|
Value
of hypothetical Final Price relative to the Initial Price
|
Higher
|
Higher
|
Lower
|
Lower
|
Principal
fully repaid?
|
Yes
|
Yes
|
Yes
|
No
|
Cash
Settlement Value per Note
|
$1,270.00
|
$1,200.00
|
$1,000.00
|
$800.00
|
Table
of Hypothetical Cash Settlement Values
Initial
Price
|
Final
Price
|
ETF
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
|
Initial
Price
|
Final
Price
|
ETF
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
26.00
|
33.28
|
+28.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
25.74
|
-1.00%
|
$1000.00
|
0.00%
|
26.00
|
33.02
|
+27.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
25.48
|
-2.00%
|
$1000.00
|
0.00%
|
26.00
|
32.76
|
+26.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
25.22
|
-3.00%
|
$1000.00
|
0.00%
|
26.00
|
32.50
|
+25.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
24.96
|
-4.00%
|
$1000.00
|
0.00%
|
26.00
|
32.24
|
+24.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
24.70
|
-5.00%
|
$1000.00
|
0.00%
|
26.00
|
31.98
|
+23.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
24.44
|
-6.00%
|
$1000.00
|
0.00%
|
26.00
|
31.72
|
+22.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
24.18
|
-7.00%
|
$1000.00
|
0.00%
|
26.00
|
31.46
|
+21.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
23.92
|
-8.00%
|
$1000.00
|
0.00%
|
26.00
|
31.20
|
+20.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
23.66
|
-9.00%
|
$1000.00
|
0.00%
|
26.00
|
30.94
|
+19.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
23.40
|
-10.00%
|
$1000.00
|
0.00%
|
26.00
|
30.68
|
+18.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
23.14
|
-11.00%
|
$990.00
|
-1.00%
|
26.00
|
30.42
|
+17.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
22.88
|
-12.00%
|
$980.00
|
-2.00%
|
26.00
|
30.16
|
+16.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
22.62
|
-13.00%
|
$970.00
|
-3.00%
|
26.00
|
29.90
|
+15.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
22.36
|
-14.00%
|
$960.00
|
-4.00%
|
26.00
|
29.64
|
+14.00%
|
$1,270.00
|
27.00%
|
|
26.00
|
22.10
|
-15.00%
|
$950.00
|
-5.00%
|
26.00
|
29.38
|
+13.00%
|
$1,260.00
|
26.00%
|
|
26.00
|
21.84
|
-16.00%
|
$940.00
|
-6.00%
|
26.00
|
29.12
|
+12.00%
|
$1,240.00
|
24.00%
|
|
26.00
|
21.58
|
-17.00%
|
$930.00
|
-7.00%
|
26.00
|
28.86
|
+11.00%
|
$1,220.00
|
22.00%
|
|
26.00
|
21.32
|
-18.00%
|
$920.00
|
-8.00%
|
26.00
|
28.60
|
+10.00%
|
$1,200.00
|
20.00%
|
|
26.00
|
21.06
|
-19.00%
|
$910.00
|
-9.00%
|
26.00
|
28.34
|
+9.00%
|
$1,180.00
|
18.00%
|
|
26.00
|
20.80
|
-20.00%
|
$900.00
|
-10.00%
|
26.00
|
28.08
|
+8.00%
|
$1,160.00
|
16.00%
|
|
26.00
|
20.54
|
-21.00%
|
$890.00
|
-11.00%
|
26.00
|
27.82
|
+7.00%
|
$1,140.00
|
14.00%
|
|
26.00
|
20.28
|
-22.00%
|
$880.00
|
-12.00%
|
26.00
|
27.56
|
+6.00%
|
$1,120.00
|
12.00%
|
|
26.00
|
20.02
|
-23.00%
|
$870.00
|
-1300%
|
26.00
|
27.30
|
+5.00%
|
$1,100.00
|
10.00%
|
|
26.00
|
19.76
|
-24.00%
|
$860.00
|
-14.00%
|
26.00
|
27.04
|
+4.00%
|
$1,080.00
|
8.00%
|
|
26.00
|
19.50
|
-25.00%
|
$850.00
|
-15.00%
|
26.00
|
26.78
|
+3.00%
|
$1,060.00
|
6.00%
|
|
26.00
|
19.24
|
-26.00%
|
$840.00
|
-16.00%
|
26.00
|
26.52
|
+2.00%
|
$1,040.00
|
4.00%
|
|
26.00
|
18.98
|
-27.00%
|
$830.00
|
-17.00%
|
26.00
|
26.26
|
+1.00%
|
$1,020.00
|
2.00%
|
|
26.00
|
18.72
|
-28.00%
|
$820.00
|
-18.00%
|
26.00
|
26.00
|
0.00%
|
$1,000.00
|
0.00%
|
|
26.00
|
18.46
|
-29.00%
|
$810.00
|
-19.00%
|
Antidilution
Adjustments
If
one of
the corporate events described below occurs, the Calculation Agent will
determine whether such corporate event will have a material effect on the ETF
or
the Notes, or in the case of a Potential Adjustment Event (as defined herein),
whether such Potential Adjustment Event has a diluting or concentrative effect
on the theoretical value of one share of the ETF. To the extent the Calculation
Agent makes such a determination, the Calculation Agent will make the
adjustments and computations described below. The Calculation Agent will also
determine the effective date of that adjustment, and the replacement of the
ETF,
if applicable. Upon making any such adjustment, the Calculation Agent will
give
notice as soon as practicable to the Trustee, stating the adjustment made.
The
Calculation Agent will provide information about the adjustments it makes upon
your written request.
If
more
than one corporate event requiring adjustment occurs, the Calculation Agent
will
make such an adjustment for each event in the order in which the events occur,
and on a cumulative basis. Thus, having adjusted the Initial Price, the Final
Price, the Cash Settlement Value or any other variable for the first corporate
event, the Calculation Agent will adjust the appropriate variables for the
second event, applying the required adjustment cumulatively.
To
the
extent the Calculation Agent makes an adjustment, it will make the adjustment
with a view to offsetting, to the extent practical, any change in your economic
position relative to the Notes that results solely from that corporate event.
The Calculation Agent may modify the antidilution adjustments as necessary
to
ensure an equitable result.
The
following corporate events are those that may require an
adjustment:
Merger
Events and Tender Offers
Merger
Events.
A
“Merger Event” shall mean, in respect of the ETF, any (i) reclassification or
change of the ETF that results in a transfer of or an irrevocable commitment
to
transfer all of the outstanding shares of the ETF to another person or entity,
(ii) consolidation, amalgamation, merger or binding share exchange of the ETF
Issuer with or into another entity or person (other than a consolidation,
amalgamation, merger or binding share exchange in which the ETF Issuer is the
continuing entity and which does not result in a reclassification or change
of
all of the shares of the ETF outstanding), (iii) takeover offer, tender offer,
exchange offer, solicitation, proposal or other event by any entity or person
to
purchase or otherwise obtain 100% of the outstanding shares of the ETF (other
than shares of the ETF owned or controlled by such other entity or person),
or
(iv) consolidation, amalgamation, merger or binding share exchange of the ETF
Issuer or its subsidiaries with or into another entity in which the ETF Issuer
is the continuing entity and which does not result in a reclassification or
change of the all of the shares of the ETF outstanding but results in the
outstanding shares of the ETF (other than shares of the ETF owned or controlled
by such other entity) immediately following such event collectively representing
less than 50% of the outstanding shares of the ETF immediately prior to such
event, in each case if the Approval Date (as defined herein) of the Merger
Event
is on or before the Calculation Date.
Tender
Offers.
A
“Tender Offer” shall mean, in respect of the voting shares of the ETF Issuer,
any takeover offer, tender offer, exchange offer, solicitation, proposal or
other event by any entity or person that results in such entity or person
purchasing, or otherwise obtaining or having the right to obtain, by conversion
or other means, not less than 10% of the outstanding voting shares of the ETF
Issuer as determined by the Calculation Agent, based upon the making of filings
with governmental or self-regulatory agencies or such other information as
the
Calculation Agent deems relevant, in each case if the Approval Date (as defined
herein) of the Tender Offer is on or before the Calculation Date.
If
a
Merger Event or a Tender Offer occurs and the consideration for the ETF consists
solely of new shares that are publicly quoted, traded or listed on the New
York
Stock Exchange, AMEX, or NASDAQ (the “New ETF”), then the ETF will be adjusted
to comprise the number of shares of the New ETF to which a holder of one share
of the ETF immediately prior to the occurrence of the Merger Event or Tender
Offer, as the case may be, would be entitled upon consummation of such Merger
Event or Tender Offer, and the Calculation Agent shall adjust any or all of
the
Initial Price, the Final Price, the Cash Settlement Value or any other variable
relevant to the terms of the Notes to account for the economic effect of such
Merger Event or Tender Offer. The Calculation Agent will determine the effective
date of any such adjustment, and the replacement of the ETF, if
applicable.
If
a
Merger Event or a Tender Offer occurs and the consideration for the ETF includes
property other than shares of the New ETF (other than cash paid in lieu of
fractional shares), in whole or in part, then the Final Price following the
Approval Date (se defined herein) shall be equal to the Consideration Value
(as
defined herein).
“Consideration
Value” per share of the ETF means, with respect to an event (other than one in
which consideration consists solely of shares of the New ETF), the sum of (i)
in
the case of cash received in such an event, the amount of such cash so received,
and (ii) for any property other than cash received in such an event, the market
value of such property so received as of the Calculation Date. Any market value
determined pursuant to (ii) above shall be determined on the basis of market
quotations from four leading dealers in the relevant market. If that property
cannot be determined on the basis of market quotations by four leading dealers
in the relevant market, then the Calculation Agent will determine the market
value of such property.
The
“Approval Date” is the closing date of a Merger Event, or, in the case of a
Tender Offer, the date on which the person or entity making the Tender Offer
acquires or otherwise obtains the relevant percentage of the voting shares
of
the ETF Issuer.
In
the
event of a Merger Event or Tender Offer in which a holder of shares of the
ETF
may elect the form of consideration it receives in respect of such Merger Event
or Tender Offer, the consideration shall be deemed to consist of the types
and
amounts of each type of consideration distributed to a holder that makes no
such
election, as determined by the Calculation Agent.
Nationalization,
Delisting and Insolvency
Nationalization.
“Nationalization” shall mean all the assets or substantially all the assets of
the ETF Issuer are nationalized, expropriated or are otherwise required to
be
transferred to any governmental agency, authority or entity.
Insolvency.
“Insolvency” shall mean that, by reason of the voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding involving,
the ETF Issuer, (i) all of the shares of the ETF are required to be transferred
to a trustee, liquidator or other similar official or (ii) holders of the shares
of the ETF become legally prohibited from transferring them.
If
the
Announcement Date (as defined herein) for a Nationalization or Insolvency
occurs, on or prior to the Calculation Date, then the Final Price following
the
Announcement Date shall be equal to the Consideration Value (as defined herein),
which may be zero.
The
“Announcement Date” means (i) in the case of a Nationalization, the day of the
first public announcement by the relevant government authority that all or
substantially all of the assets of the ETF Issuer are to be nationalized,
expropriated or otherwise transferred to any governmental agency, authority
or
entity, (ii) in the case of a Delisting Event, the day of the first public
announcement by the primary exchange for the ETF that the ETF will cease to
trade or be publicly quoted on such exchange, or (iii) in the case of an
Insolvency, the day of the first public announcement of the institution of
a
proceeding or presentation of a petition or passing of a resolution (or other
analogous procedure in any jurisdiction) that leads to an Insolvency with
respect to the ETF Issuer. In the case of an acceleration of the maturity of
the
Notes, interest will be paid on the Notes through and excluding the related
date
of accelerated payment.
Delisting
Event.
A
“Delisting Event” shall occur if the Relevant Exchange for the ETF announces
that pursuant to the rules of such Relevant Exchange, the ETF ceases (or will
cease) to be listed, traded or publicly quoted on such Relevant Exchange for
any
reason (other than a Merger Event or Tender Offer) and is not immediately
re-listed, re-traded or re-quoted on an exchange or quotation system located
in
the same country as such Relevant Exchange.
If
a
Delisting Event occurs, then the Final Price on the Calculation Date will be
determined as follows: (i) if the ETF is not re-listed on any exchange or
quotation system located in the same country as the Relevant Exchange for the
ETF, the Final Price will be the fair market value of the ETF as determined
by
the Calculation Agent on the Calculation Date; and (ii) if the ETF is re-listed
on any exchange or quotation system located in the same country as the Relevant
Exchange for the ETF, the Final Price will be the closing price of the ETF
on
such exchange or quotation system as determined by the Calculation Agent on
the
Calculation Date.
Potential
Adjustment Events.
A
“Potential Adjustment Event” shall mean any of the following (i) a subdivision,
consolidation or reclassification of the ETF (other than a Merger Event or
Tender Offer), or a free distribution or distribution of shares of the ETF
to
existing holders by way of bonus, capitalization or similar issue; (ii) a
distribution to existing holders of shares of the ETF of (A) such shares, (B)
other capital or securities granting the right to payment of distributions
and/or proceeds of liquidation of the ETF Issuer equal, proportionate or senior
to such payments to holders of the ETF or (C) any other type of securities,
rights or warrants or other assets, in any case for payments (cash or other)
at
less than the prevailing market price, as determined by the Calculation Agent;
(iii) an extraordinary distribution paid by the ETF Issuer; (iv) a call by
the
ETF Issuer in respect of shares of the ETF that are not fully paid; (v) a
repurchase of shares of the ETF or securities convertible into or exchangeable
for such shares, by the ETF Issuer whether out of profits or capital and whether
the consideration for such repurchase is cash, securities or otherwise; or
(vi)
any other similar event that may have a diluting or concentrative effect on
the
theoretical price of the ETF other than Insolvency, Merger Event or Tender
Offer, in each case if the Potential Adjustment Event occurs before the
Calculation Date.
If
a
Potential Adjustment Event occurs, then the Calculation Agent will determine
whether such Potential Adjustment Event has a diluting or concentrative effect
on the theoretical value of one share of the ETF and, if so, will (i) make
the
corresponding adjustment(s), if any, to the Initial Price, the Final Price,
the
Cash Settlement Value of the Notes and any other variable (or any combination
thereof) as the Calculation Agent determines appropriate to account for that
diluting or concentrative effect, and (ii) determine the effective date(s)
of
any such adjustment(s).
Market
Disruption Events
If
there
is a Market Disruption Event on the Calculation Date, the Final Price will
be
determined on the first succeeding ETF Business Day on which there is no Market
Disruption Event. In no event, however, will the Calculation Date be a date
that
is postponed by more than three ETF Business Days following the original date
that, but for the Market Disruption Event, would have been the Calculation
Date.
In that case, the third ETF Business Day will be deemed to be the Calculation
Date, notwithstanding the Market Disruption Event, and the Calculation Agent
will determine the Final Price on that third ETF Business Day in accordance
with
the formula for and method of calculating the ETF in effect prior to the Market
Disruption Event using the closing level of each Underlying Stock as described
above (or, if trading in any such Underlying Stock 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 ETF Business Day. If no Market Disruption Event exists the Final Price
of
the ETF shall be determined on the scheduled Calculation Date. In the event
of a
Market Disruption Event on the Calculation Date, the Maturity Date will be
three
Business Days following the adjusted Calculation Date.
A
“Market
Disruption Event” means the occurrence or existence at any time of a condition
specified below that the Calculation Agent determines to be
material:
(a) any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange, or otherwise and whether by reason of movements in price
exceeding limits permitted by such Relevant Exchange(s) or Related Exchange(s)
or otherwise (A) relating to the ETF or any Underlying Stocks or (B) in futures
or options contracts relating to the ETF or its Underlying Index on any Related
Exchange;
(b) any
event
(other than in section (c) below) that disrupts or impairs (as determined by
the
Calculation Agent) the ability of market participants in general (A) to effect
transactions in, or obtain market values for the ETF or, any Underlying Stocks
on any Relevant Exchange(s) or (B) to effect transactions in, or obtain market
prices for, futures or options contracts relating to the ETF or its Underlying
Index on any Related Exchange;
(c) the
closure on any ETF Business Day of any Relevant Exchange or Related Exchange
prior to its Scheduled Closing Time unless such earlier closing time is
announced by such Relevant Exchange(s) or Related Exchange(s) (as the case
may
be) at least one hour prior to the earlier of (i) the actual closing time for
the regular trading session on such Relevant Exchange(s) or Related Exchange(s)
on such ETF Business Day and (ii) the submission deadline for orders to be
entered into such Relevant Exchange or Related Exchange system for execution
at
the Scheduled Closing Time (as defined herein) on such ETF Business Day;
or
(d) any
ETF
Business Day on which any Relevant Exchange or Related Exchange for the ETF
fails to open for trading during its regular trading session.
For
the
purposes of determining whether a Market Disruption Event exists at any time,
if
a Market Disruption Event occurs in respect of an Underlying Stock at any time,
then the relevant percentage contribution of that Underlying Stock to the level
of the Underlying Index shall be based on a comparison of (x) the portion of
the
level of the Underlying Index attributable to that Underlying Stock and (y)
the
overall level of the Underlying Index, in each case immediately before the
occurrence of such Market Disruption Event.
“Underlying
Index” means with respect to XLF, the Financial Select Sector Index, or any
successors thereto.
“Underlying
Stock” means the stocks that comprise the Underlying Index, or any successors
thereto.
“Relevant
Exchange” means the primary exchange or market of trading for the ETF, which is
currently the AMEX, and the primary exchanges or markets of trading of any
Underlying Stocks.
“Related
Exchange” means each exchange or quotation system where trading has a material
effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the ETF or the Underlying
Index.
“ETF
Business Day” means any day on which the Relevant Exchange and each Related
Exchange are scheduled to be open for trading.
“Scheduled
Closing Time” means, in respect of a Relevant Exchange or Related Exchange and
an ETF Business Day, the scheduled weekday closing time of such Relevant
Exchange or Related Exchange on such ETF Business Day, without regard to after
hours or any other trading outside of the regular trading session
hours.
For
purposes of the above definition:
(a) a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the Relevant Exchange, and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, Rule 4120 of the FINRA Conduct Rules
or any analogous rule or regulation enacted or promulgated by the NYSE, FINRA
or
any other self regulatory organization or the SEC of similar scope as determined
by the Calculation Agent, will be considered “material.”
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt Securities -
Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect to
any
Notes has occurred and is continuing, then the amount payable to you, as a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Bear Stearns in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations made
by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders of
the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error by
the
Calculation Agent, or any failure by it to act in good faith in making a
determination adversely affecting the payment of the Cash Settlement Value
or
interest or principal to holders of the Notes, would entitle the holders, or
the
Trustee acting on behalf of the holders, to exercise rights and remedies
available under the Indenture. If the Calculation Agent uses its discretion
to
make 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 ETF
Financial
Select Sector SPDR®
(XLF)
According
to publicly available information, XLF is an investment portolio issued by
the
ETF Issuer and managed and maintained by SSFM. XLF is an ETF that trades on
the
AMEX under the ticker symbol “XLF”. XLF invests in a wide array of financial
service firms with diversified business lines ranging from investment management
to commercial and investment banking.
The
Select Sector SPDR Trust
consists of separate Select Sector SPDR®
Funds.
Each Select Sector SPDR®
Fund is
a fund that invests in a particular sector or group of industries represented
by
a specified Select Sector Index. The companies included in each Select Sector
Index are selected on the basis of Global Industry Classification Standards
from
a defined universe of companies. The Select Sector Indices upon which the Select
Sector SPDR®
Funds
are based together comprise all of the companies in the S&P 500®
Index.
The investment objective of each Select Sector SPDR®
Fund is
to provide investment results that, before expenses, correspond generally to
the
price and yield performance of publicly traded equity securities of companies
in
a particular sector or group of industries, as represented by a specified market
sector index. XLF represents the companies that represent the Underlying
Index.
XLF
seeks
investment results that correspond generally to the price and yield performance,
before fees and expenses, of the Underlying Index. The Underlying Index measures
the performance of the financial services sector of the U.S. equity market.
The
Underlying Index includes companies in the following sub-sectors: banking,
mortgage finance, consumer finance, specialized finance, investment banking
and
brokerage, asset management and custody, corporate lending, insurance and
financial investment, and real estate including REITs.
XLF
pursues the indexing strategy of “replication” in attempting to track the
performance of Underlying Index. XLF will invest in all of the securities which
comprise the Underlying Index. XLF will normally invest at least 95% of its
total assets in common stocks that comprise the Underlying Index.
The
Underlying Index is a theoretical financial calculation, while XLF is an actual
investment portfolio. The performance of XLF and the Underlying Index will
vary
somewhat due to transaction costs, asset valuations, market impact, corporate
actions (such as mergers and spin-offs) and timing variances. A figure of 100%
would indicate perfect correlation. Any correlation of less than 100% is called
“tracking error.” XLF, using a replication strategy, can be expected to have a
lesser tracking error than a fund using representative sampling strategy.
Representative sampling is a strategy in which a fund invests in a
representative sample of securities in an Underlying Index.
The
shares of XLF are registered under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and the Investment Company Act of 1940, as amended
(the “Investment Company Act”). Companies with securities registered under the
Exchange Act and Investment Company Act are required to file financial and
other
information specified by the SEC periodically. Information provided to or filed
with the U.S. Securities and Exchange Commission (“SEC”) by the ETF Issuer can
be inspected or copied at the SEC’s public reference room located at 100 F
Street, N.E., Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the public reference room by calling the SEC
at
1-800-SEC-0330. Information provided to or filed with the SEC by the ETF Issuer
pursuant to the Exchange Act and Investment Company Act can be located through
the SEC’s website at http://www.sec.gov.
In
addition, information regarding XLF may be obtained from other sources
including, but not limited to, press releases, newspaper articles, other
publicly disseminated documents, and at http://www.sectorspdr.com. Information
on http://www.sectorspdr.com is not incorporated by reference into this pricing
supplement. We make no representations or warranty as to the accuracy or
completeness of the information derived from these public sources.
The
Select Sector SPDR®
Funds
are registered marks of The McGraw-Hill Companies, Inc. The copyright and all
rights to XLF belong to the ETF Issuer. The Notes are not sponsored, endorsed,
sold or promoted by the ETF Issuer or The McGraw-Hill Companies, Inc. Neither
the ETF Issuer nor The McGraw-Hill Companies, Inc. makes any representations
or
warranties to the holders of the Notes or any member of the public regarding
the
advisability of investing in the Notes. The ETF Issuer has no obligation to
continue to list XLF and may de-list XLF.
Neither
we nor any or our affiliates makes any representation to you as to the
performance of XLF.
Historical
Performance of XLF
The
following table sets forth the month-end closing ETF share prices of XLF for
each month in the period from December 1998 through February 2008.
XLF’s
closing
share prices listed below were obtained from Bloomberg, without independent
verification by the Company. The
historical prices of XLF should not be taken as an indication of future
performance, and no assurance can be given that the share price of XLF will
increase relative to its the Initial Price during the term of the
Notes.]
The
closing share price of XLF on March 3, 2008 was 25.48.
Month
End Closing Share Prices: January 1998 -February 2008
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
January
|
N/A
|
23.84
|
23.06
|
29.43
|
26.00
|
21.72
|
29.05
|
29.87
|
31.95
|
37.08
|
29.14
|
February
|
N/A
|
24.22
|
20.59
|
27.45
|
25.55
|
21.05
|
29.88
|
29.67
|
32.63
|
35.95
|
25.83
|
March
|
N/A
|
24.94
|
24.27
|
26.54
|
27.15
|
20.76
|
29.40
|
28.39
|
32.55
|
35.63
|
-
|
April
|
N/A
|
26.69
|
24.5
|
27.50
|
26.46
|
23.37
|
28.12
|
28.44
|
33.96
|
37.01
|
-
|
May
|
N/A
|
25.08
|
25.05
|
28.71
|
26.38
|
24.56
|
28.60
|
29.28
|
32.68
|
37.90
|
-
|
June
|
N/A
|
26.09
|
23.75
|
28.40
|
25.14
|
24.55
|
28.58
|
29.47
|
32.34
|
36.18
|
-
|
July
|
N/A
|
24.50
|
25.84
|
28.13
|
23.05
|
25.62
|
27.97
|
29.93
|
33.08
|
32.90
|
-
|
August
|
N/A
|
23.42
|
28.47
|
26.27
|
23.48
|
25.32
|
28.88
|
29.44
|
33.47
|
33.75
|
-
|
September
|
N/A
|
22.13
|
29.00
|
24.68
|
20.67
|
25.41
|
28.46
|
29.52
|
34.62
|
34.32
|
-
|
October
|
N/A
|
25.56
|
28.75
|
24.33
|
22.56
|
27.17
|
28.61
|
30.42
|
35.43
|
33.73
|
-
|
November
|
N/A
|
24.44
|
27.28
|
25.91
|
23.40
|
27.07
|
29.50
|
31.87
|
35.68
|
31.00
|
-
|
December
|
23.44
|
23.77
|
29.50
|
26.30
|
22.00
|
28.13
|
30.53
|
31.67
|
36.74
|
28.93
|
-
|
The
following graph illustrates the historical performance of XLF based on the
closing level on the last ETF Business Day of each month from December 1998
to
February 2008.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain of the material U.S. federal income
tax
consequences of the purchase, beneficial ownership, and disposition of the
Notes. For purposes of this summary, a “U.S. holder” is a beneficial owner of a
Note that is:
|
·
|
an
individual who is a citizen or a resident of the United States, for
federal income tax purposes;
|
|
·
|
a
corporation (or other entity that is treated as a corporation for
federal
tax purposes) that is created or organized in or under the laws of
the
United States or any State thereof (including the District of
Columbia);
|
|
·
|
an
estate whose income is subject to federal income taxation regardless
of
its source; or
|
|
·
|
a
trust if a court within the United States is able to exercise primary
supervision over its administration, and one or more United States
persons
(as defined for federal income tax purposes) have the authority to
control
all of its substantial decisions.
|
For
purposes of this summary, a “non-U.S. holder” is a beneficial owner of a Note
that is:
|
·
|
a
nonresident alien individual for federal income tax
purposes;
|
|
·
|
a
foreign corporation for federal income tax
purposes;
|
|
·
|
an
estate whose income is not subject to federal income tax on a net
income
basis; or
|
|
·
|
a
trust if no court within the United States is able to exercise primary
jurisdiction over its administration or if United States persons
(as
defined for federal income tax purposes) do not have the authority
to
control all of its substantial
decisions.
|
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States for federal income tax purposes by reason of being present in
the
United States for at least 31 days in the calendar year and for an aggregate
of
at least 183 days during a three year period ending in the current calendar
year
(counting for those purposes all of the days present in the current year, one
third of the days present in the immediately preceding year, and one sixth
of
the days present in the second preceding year).
This
summary is based on interpretations of the Code, regulations issued thereunder,
and rulings and decisions currently in effect (or in some cases proposed),
all
of which are subject to change. Any of those changes may be applied
retroactively and may adversely affect the federal income tax consequences
described herein. This summary addresses only holders that purchase Notes at
initial issuance, and own Notes as capital assets and not as part of a
“straddle,” “hedge,” “synthetic security,” or “conversion transaction” for
federal income tax purposes or as part of some other integrated investment.
This
summary does not discuss all of the tax consequences that may be relevant to
particular investors or to investors subject to special treatment under the
federal income tax laws (such as banks, thrifts or other financial institutions;
insurance companies; securities dealers or brokers, or traders in securities
electing mark-to-market treatment; regulated investment companies or real estate
investment trusts; small business investment companies; S corporations;
investors that hold their Notes through a partnership or other entity treated
as
a partnership for federal tax purposes; investors whose functional currency
is
not the U.S. dollar; certain former citizens or residents of the United States;
persons subject to the alternative minimum tax; retirement plans or other
tax-exempt entities, or persons holding the Notes in tax-deferred or
tax-advantaged accounts; or “controlled foreign corporations” or “passive
foreign investment companies” for federal income tax purposes). This summary
does not discuss the tax consequences that may be relevant to persons that
own
in the aggregate, directly or indirectly (including by reason of investing
in
the Notes) more than 5 percent of any entity included in the ETF. This summary
also does not address the tax consequences to shareholders, or other equity
holders in, or beneficiaries of, a holder, or any state, local or foreign tax
consequences of the purchase, ownership or disposition of the Notes.
This
summary was not intended or written to be used, and cannot be used, for the
purpose of avoiding U.S. federal, state, or local tax penalties. This summary
was written in connection with the promotion or marketing by the Issuer of
the
Notes addressed in this summary. Prospective investors are urged to consult
their tax advisors with respect to the federal, state and local tax consequences
of investing in the Notes based on the taxpayer’s particular circumstances, as
well as any consequences arising under the laws of any other taxing jurisdiction
to which they may be subject.
PROSPECTIVE
PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES.
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of
securities with terms that are substantially the same as those of the Notes.
Accordingly, the proper U.S. federal income tax treatment of the Notes is
uncertain. Under one approach, the Notes would be treated as pre-paid
cash-settled executory contracts with respect to the ETF that are subject to
the
“constructive ownership” rules of section 1260 of the Code. We intend to treat
the Notes consistent with this approach, and pursuant to the terms of the Notes,
you agree (in the absence of an administrative or judicial ruling to the
contrary) to treat the Notes consistent with this approach. Except as otherwise
provided in “—Alternative Characterizations and Treatments,” the balance of this
summary assumes that the Notes are so treated.
Federal
Income Tax Treatment of U.S. Holders
Upon
the
receipt of cash at maturity of a Note or upon the sale, exchange or other
disposition of a Note in a taxable transaction, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized
at
maturity or upon the sale, exchange or other disposition and the U.S. holder’s
tax basis in the Note. A U.S. holder’s tax basis in a Note will generally be
equal to the U.S. holder’s cost for the Note. Any gain recognized on the sale,
exchange, maturity, or other taxable disposition of the Notes that is held
for
one year or less at the time of disposition would generally be treated as
short-term capital gain, and any gain recognized on the taxable disposition
of
the Note that is held for more than a year at the time of disposition would
be
treated as long-term capital gain only to the extent that the U.S. holder can
demonstrate that it would have realized long-term capital gain had it held
the
ETF directly, and otherwise would be treated as ordinary income that is subject
to an interest charge. The interest charge is equal to the amount of interest
that would be imposed on the underpayment of tax (currently at a rate equal
to
9% for corporate taxpayers with underpayments in excess of $100,000 and 7%
for
all other taxpayers) that would have resulted if the recharacterized ordinary
income had been included in gross income in the years it accrued, based on
an
accrual at a constant rate to maturity of 2.25% (for instruments with a term
of
three years or less issued in March 2008) over the period during which the
U.S.
holder holds the Note.
Because
the U.S. holder does not share in distributions made on the ETF, these
distributions should be excluded from the calculation of the amount and
character of gain, if any, that would have been realized had the U.S. holder
held the ETF directly. However, if the ETF changes its positions within a year
of the maturity, sale, exchange or other disposition of the Note by a U.S.
holder, the U.S. holder will be unable to demonstrate that it would have
recognized long-term capital gain with respect to that portion of the ETF.
Long-term capital gains of non-corporate taxpayers are generally eligible for
reduced rates of taxation. The ability of U.S. holders to use capital losses
to
offset ordinary income is limited.
In
Notice
2008-2, the IRS and the Treasury Department requested comments as to whether
the
purchaser of certain pre-paid forward contracts (which may include the Notes)
should be required to accrue income under a mark-to-market, accrual or other
methodology, and whether income and gain on such a security should be ordinary
or capital. Accordingly, it is possible that regulations or other guidance
could
provide that a U.S. holder of a Note is required to accrue income in respect
of
a Note prior to the receipt of payments under the Note or its earlier sale.
Moreover, it is possible that any such regulations or other guidance could
treat
all income and gain of a U.S. holder in respect of a Note as ordinary income
(including gain on a sale). It is unclear whether any regulations or other
guidance would apply to the Notes (possibly on a retroactive basis). You are
urged to consult your own tax advisor regarding Notice 2008-2 and the possible
effect to you of the issuance of regulations or other guidance that affects
the
federal income tax treatment of the Notes.
Alternative
Characterizations and Treatments
Although
we intend to treat each Note as a pre-paid cash-settled executory contract
that
is subject to the “constructive ownership” rules of section 1260 of the Code, as
described above, there are no statutory provisions, regulations, published
rulings or judicial decisions addressing the characterization of securities
with
terms that are substantially the same as those of the Notes, and therefore
the
Notes could be subject to some other characterization or treatment for U.S.
federal income tax purposes. For example, each Note could be treated as a
“contingent payment debt instrument” for U.S. federal income tax purposes. In
this event, a U.S. holder would be required to accrue original issue discount
income, subject to adjustments, at the “comparable yield” of the Notes and any
gain recognized with respect to the Note generally would be treated as ordinary
income. Prospective investors should consult their tax advisors as to the
federal income tax consequences to them if the Notes are treated as debt
instruments for federal income tax purposes.
Other
alternative federal income tax characterizations or treatments of the Notes
are
possible, and if applied could also affect the amount, the timing and the
character of the income, gain, or loss with respect to the Notes.
Prospective
investors in the Notes should consult their tax advisors as to the tax
consequences to them of purchasing Notes, including any alternative
characterizations and treatments.
Federal
Income Tax Treatment of Non-U.S. Holders
A
non-U.S. holder that is not subject to U.S. federal income tax as a result
of
any direct or indirect connection to the United States other than its ownership
of a Note and is not an individual present in the United States for 183 days
or
more in the year the gain is recognized should not be subject to U.S. federal
income or withholding tax in respect of the Notes so long as (1) the non-U.S.
holder provides an appropriate statement, signed under penalties of perjury,
identifying the non-U.S. holder and stating, among other things, that the
non-U.S. holder is not a United States person (as defined for federal income
tax
purposes), (2) the non-U.S. holder is not a bank that has purchased the Notes
in
the ordinary course of its trade or business of making loans, as described
in
section 881(c)(3)(A) of the Code, (3) the non-U.S. holder is not a “10-percent
shareholder” within the meaning of section 871(h)(3)(B) of the Code or a
“related controlled foreign corporation” within the meaning of section
881(c)(3)(C) of the Code with respect to us, and (4) the ETF and its constituent
stocks are actively traded within the meaning of 871(h)(4)(C)(v) of the Code.
We
expect that the ETF will be treated as actively traded within the meaning of
section 871(h)(4)(C)(v) of
the
Code.
If
any of
these conditions are not met, a 30% withholding tax may apply to payments on
the
Notes, unless an income tax treaty reduces or eliminates such tax or the income
is effectively connected with the conduct of a trade or business within the
United States by such non-U.S. holder. In the latter case, such non-U.S. holder
should be subject to U.S. federal income tax with respect to all income from
the
Notes at regular rates applicable to U.S. taxpayers, and, for a foreign
corporation, possibly branch profits tax, unless an applicable treaty reduces or
eliminates such tax.
If
the
non-U.S. holder is an individual that is present in the United States for 183
days or more in the taxable year of the maturity, sale, exchange or other
disposition and certain other conditions are satisfied, in which case the
non-U.S. holder will generally be subject to tax at a rate of 30% on the amount
by which the non-U.S. holder's capital gains derived from the maturity, sale,
exchange, retirement or other disposition of the Notes and other assets that
are
from U.S. sources exceed capital losses allocable to U.S. sources.
In
Notice
2008-2, the IRS and the Treasury Department requested comments as to whether
foreign holders of certain pre-paid forward contracts (which may include the
Notes) should be subject to withholding tax on a deemed income accrual.
Accordingly, it is possible that regulations or other guidance could provide
that a non-U.S. holder of a Note will be subject to U.S. withholding tax in
respect of the Note. It is unclear whether any regulations or other guidance
would apply to the Notes (possibly on a retroactive basis). You are urged to
consult your own tax advisor regarding Notice 2008-2 and the possible effect
to
you of the issuance of regulations or other guidance that could impose U.S.
withholding tax in respect of the Notes.
Information
Reporting and Backup Withholding
Distributions
made on the Notes and proceeds from the sale of Notes to or through certain
brokers may be subject to a “backup” withholding tax on “reportable payments”
unless, in general, the holder of Notes complies with certain procedures or
is
an exempt recipient. Any amounts so withheld from distributions on the Notes
generally would be refunded by the IRS or allowed as a credit against the holder
of Notes federal income tax, provided the holder of Notes makes a timely filing
of an appropriate tax return or refund claim.
Reports
will be made to the IRS and to holder of Notes that are not exempt from the
reporting requirements.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section 406 of
ERISA prohibits similar transactions involving employee benefit plans that
are
subject to ERISA (“ERISA Plans”). Qualified Plans, IRAs and ERISA Plans are
referred to as “Plans.”
Persons
who have such specified relationships are referred to as “parties in interest”
under ERISA and as “disqualified persons” under the Code. “Parties in interest”
and “disqualified persons” encompass a wide range of persons, including any
fiduciary (for example, an investment manager, trustee or custodian) of a Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a “party in interest” or “disqualified person”) would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such the Notes are acquired or held pursuant
to
and in accordance with an applicable statutory or administrative exemption.
Each
of us, Bear Stearns and Bear Stearns Securities Corp. is considered a
“disqualified person” under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we nor Bear Stearns can be a “party in
interest” to any IRA other than certain employer-sponsored IRAs, as only
employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the Pension Protection Act of 2006 contains a statutory
exemption from the prohibited transaction provisions of Section 406 of ERISA
and
Section 4975 of the Code for transactions involving certain parties in interest
or disqualified persons who are such merely because they are a service provider
to a Plan, or because they are related to a service provider. Generally, the
exemption would be applicable if the party to the transaction with the Plan
is a
party in interest or a disqualified person to the Plan but is not (i) an
employer, (ii) a fiduciary who has or exercises any discretionary authority
or
control with respect to the investment of the Plan assets involved in the
transaction, (iii) a fiduciary who renders investment advice (within the meaning
of ERISA and Section 4975 of the Code) with respect to those assets, or (iv)
an
affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this statutory
exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code)
and
purchasing Notes on behalf of a Plan will be deemed to represent that (x) the
fiduciary has made a good faith determination that the Plan is paying no more
than, and is receiving no less than, adequate consideration in connection with
the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined herein) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this exemption. Any purchaser that is
a
Plan is encouraged to consult with counsel regarding the application of the
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes, the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law (“Similar Law”) similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
(“Similar Law Plans”) should consider applicable Similar Law when investing in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s (direct or indirect) 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 Underlying Stocks,
exchange-traded and over-the-counter options on, or other derivative or
synthetic instruments related to, the Underlying Stocks, the Underlying Index
and the ETF, futures contracts on the Underlying Stocks, the Underlying Index
and the ETF 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 share price of the ETF), 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 share price of the ETF, we cannot guarantee that we and one or more
of
our subsidiaries will not affect such share prices as a result of its hedging
activities. You should also refer to “Use of Proceeds” in the accompanying
prospectus.
SUPPLEMENTAL
PLAN OF
DISTRIBUTION
Subject
to the terms and conditions set forth in the Distribution Agreement dated as
of
June 19, 2003, as amended, we have agreed to sell to Bear Stearns, as principal,
and Bear Stearns has agreed to purchase from us, the aggregate principal amount
of Notes set forth opposite its name below.
Agent
|
Principal
Amount of Notes
|
Bear,
Stearns & Co. Inc.
|
$[l]
|
Total
|
$[l]
|
The
Agent
intends to initially offer $[l]
of the
Notes to the public at the offering price set forth on the cover page of this
pricing supplement, and to subsequently resell the remaining principal amount
of
the Notes at prices related to the prevailing market prices at the time of
resale. Investors who purchase an aggregate principal amount of at least
$1,000,000 of this Note offering will be entitled to purchase Notes for 99.00%
of the principal amount. In the future, the Agent may repurchase and resell
the
Notes in market-making transactions, with resales being made at prices related
to prevailing market prices at the time of resale or at negotiated prices.
We
will offer the Notes to Bear Stearns at a discount of [l]%
of the
price at which the Notes are offered to the public. Bear Stearns may reallow
a
discount to other agents not in excess of [l]%
of the
public offering price.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 30-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $[l]
at the
public offering price, less the agent’s discount, to cover any over-allotments.
The Agent may over-allot or effect transactions which stabilize or maintain
the
market price of the Notes at a level higher than that which might otherwise
prevail in the open market. Specifically, the Agent may over-allot or otherwise
create a short position in the Notes for its own account by selling more Notes
than have been sold to it by us. If this option is exercised, in whole or in
part, subject to certain conditions, the Agent will become obligated to purchase
from us and we will be obligated to sell to the Agent an amount of Notes equal
to the amount of the over-allotment exercised. The Agent may elect to cover
any
such short position by purchasing Notes in the open market. No representation
is
made as to the magnitude or effect of any such stabilization or other
transactions. Such stabilizing, if commenced, may be discontinued at any time
and in any event shall be discontinued within a limited period. No other party
may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange or quotation system, and we do not
expect a trading market will develop. Bear Stearns has advised us that,
following completion of the offering of the Notes, it intends under ordinary
market conditions to indicate prices for the Notes on request, although it
is
under no obligation to do so and may discontinue any market-making activities
at
any time without notice. Accordingly, no guarantees can be given as to whether
an active trading market for the Notes will develop or, if such a trading market
develops, as to the liquidity of such trading market. We cannot guarantee that
bids for outstanding Notes will be made in the future; nor can we predict the
price at which any such bids will be made. The Notes will cease trading as
of
the close of business on the Maturity Date.
Because
Bear Stearns is our wholly-owned subsidiary, each distribution of the Notes
will
conform to the requirements set forth in Rule 2720 of the FINRA Conduct
Rules.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
|
|
|
You
should only rely on the information contained in this pricing supplement,
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,
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not rely
on it.
This pricing supplement, the accompanying prospectus supplement and
prospectus are not an offer to sell these Notes, and these documents
are
not soliciting an offer to buy these Notes, 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, 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
Linked
to the Financial Select Sector
SPDR®
Fund
Due
April [l],
2009
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
March
[l],
2008
|
TABLE
OF CONTENTS
|
|
|
|
Pricing
Supplement
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-6
|
|
Risk
Factors
|
PS-10
|
|
Description
of the Notes
|
PS-17
|
|
Description
of the ETF
|
PS-27
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-29
|
|
Certain
ERISA Considerations
|
PS-32
|
|
Use
of Proceeds and Hedging
|
PS-33
|
|
Supplemental
Plan of Distribution
|
PS-33
|
|
Legal
Matters
|
PS-34
|
|
Prospectus
Supplement
|
|
|
Risk
Factors
|
S-3
|
|
Pricing
Supplement
|
S-8
|
|
Description
of Notes
|
S-8
|
|
Certain
US Federal Income Tax Considerations
|
S-32
|
|
Supplemental
Plan of Distribution
|
S-46
|
|
Listing
|
S-47
|
|
Validity
of the Notes
|
S-47
|
|
Glossary
|
S-47
|
|
Prospectus
|
|
|
Where
You Can Find More Information
|
1
|
|
The
Bear Stearns Companies Inc.
|
2
|
|
Use
of Proceeds
|
4
|
|
Description
of Debt Securities
|
4
|
|
Description
of Warrants
|
16
|
|
Description
of Preferred Stock
|
21
|
|
Description
of Depositary Shares
|
25
|
|
Description
of Depository Contracts
|
28
|
|
Description
of Units
|
31
|
|
Book-Entry
Procedures and Settlement
|
33
|
|
Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
|
43
|
|
Plan
of Distribution
|
44
|
|
ERISA
Considerations
|
48
|
|
Legal
Matters
|
49
|
|
Experts
|
49
|
|
|
|
|
|
|
|
|