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
Each
linked to a single Reference Index
·
|
This
pricing supplement relates to three (3) separate Note offerings.
Each
issue of offered Notes is linked to one, and only one, Reference
Index.
You may participate in any of the three (3) Note offerings or,
at your
election, more than one. This pricing supplement does not, however,
allow
you to purchase a Note linked to a basket of the Reference Indices
described below.
|
·
|
The
Notes are linked to a single Reference Index 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
Index Return.
|
·
|
The
Cash Settlement Value, per Note, will be calculated as follows:
|
|
(a)
|
if
the
Index 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
$1,000.00 multiplied by the lesser of (i) the Upside Participation
Rate
(200.00%) multiplied by the Index Return; and (ii) the Maximum
Return for
the Notes as set forth in the chart below
;
|
|
(b)
|
if
the Index Return is less than or equal to zero but greater than
or equal
to the Trigger Level, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Note; or
|
|
(c)
|
if
the Index Return is less than the Trigger Level, 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
Index Return is less than the Trigger Level.
|
·
|
The
Index Return will equal the quotient of (a) the Final Index Level
minus
the Initial Index Level, divided by (b) the Initial Index Level.
|
·
|
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 as set forth in the
chart
below. The Calculation Date is subject to adjustment as described
herein.
|
·
|
The
Maturity Date for the Notes is expected to be as set forth in the
chart
below. If the Calculation Date is postponed, the Maturity Date
will be
three Business Days following the postponed Calculation
Date.
|
·
|
The
following terms relate to the specific Note offering for each respective
Reference Index:
|
Reference
Index
|
Ticker
Symbol
|
Trigger
Level
|
Maximum
Return
|
CUSIP
|
Calculation
Date
|
Maturity
Date
|
Initial
Index
Level
|
Agent’s
Discount
|
Proceeds,
before
expenses,
to
us
|
Principal
Amount
1
|
The
S&P 500
®
Index
|
SPX
|
-10.00%
|
[14-17]%
|
0739282T9
|
April
[
l
],
2009
|
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
The
Nasdaq-100 Index
®
|
NDX
|
-10.00%
|
[25-28]%
|
0739282V4
|
September
[
l
],
2009
|
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
The
Dow Jones AIG Commodity Index
SM
|
DJAIG
|
-5.00%
|
[29-32]%
|
0739282W2
|
September
[
l
],
2009
|
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
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.]
Each
Reference Index is a service mark or trademark of the sponsor of that Reference
Index and has been, or will be, licensed for use by The Bear Stearns Companies
Inc. The Notes, which are linked to the performance of a single Reference
Index,
are not sponsored, endorsed, sold or promoted by the sponsor of any Reference
Index; and the sponsors of the Reference Indices make no representations
regarding the advisability of investing in a particular Note
offering.
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.
1
Investors
who purchase an aggregate principal amount of at least $1,000,000 of a
particular Note offering will be entitled to purchase Notes of that Note
offering 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 level of the Reference Index at the time of the
relevant sale.
We
expect
that the Notes will be ready for delivery in book-entry form only through
the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about [
l
],
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 15%
of
the aggregate principal amount of each offering of the 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 a single Reference Index. 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, Buffered Accelerated
Market
Participation Securities, (the “Notes”) are Notes whose return is tied or
“linked” to the performance of the Reference Index. 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 Index Return.
The
Cash Settlement Value, per Note, will be calculated as follows:
(a)
if
the
Index 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 $1,000.00
multiplied by the lesser of (i) the Upside Participation Rate (200.00%)
multiplied by the Index Return; and (ii) the Maximum Return for the Notes
as set
forth in the section “Key Terms - Summary of Terms” herein;
(b)
if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(c)
if
the
Index Return is less than the Trigger Level, 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 Index Return
is
less than the Trigger Level.
The
Index
Return will equal the quotient of (a) the Final Index Level minus the Initial
Index Level, divided by (b) the Initial Index Level.
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 per Note) the Final
Index
Level is greater than the Initial Index
Level.
|
|
·
|
Potential
leverage in the increase, if any, of the Reference Index—The Notes may be
an attractive investment for investors who have a bullish view
of the
Reference Index over the term of the Notes. If held to maturity,
the Notes
allow you to participate in the potential increase in the Reference
Index,
not to exceed the Maximum Return.
|
|
·
|
Taxes—The
U.S. federal income tax consequences of an investment in the Notes
are
complex and uncertain. We intend to treat the Notes for all tax
purposes
as pre-paid cash-settled executory contracts linked to the level
of the
Reference Index and, where required, to file information returns
with the
Internal Revenue Service in accordance with such treatment. Prospective
investors are urged to consult their tax advisors regarding the
U.S.
federal income tax consequences of an investment in the Notes.
Assuming
the Notes are treated as pre-paid cash-settled executory contracts,
you
should be required to recognize capital gain or loss to the extent
that
the cash you receive on the Maturity Date or upon a sale or exchange
of
the Notes prior to the Maturity Date differs from your tax basis
on the
Notes (which will generally be the amount you paid for the Notes).
See
“Certain U.S. Federal Income Tax Considerations” herein.
|
Selected
Risk Considerations
|
·
|
Possible
loss of principal—
The
Notes are not principal protected.
If,
on the Maturity Date, the Index Return is less than the Trigger
Level, for
each 1.00% difference between the Index Return and the Trigger
Level, 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.
|
|
·
|
The
return on the Notes is capped—You will not receive more than the Maximum
Return on the Notes at maturity
,
regardless of the positive percentage increase of the Final Index
Level
over the Initial Index Level
.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the constituents comprising
the Reference Index, nor will such payments be included in the
calculation
of the Cash Settlement Value you will receive at
maturity.
|
|
·
|
Not
exchange listed—The Notes will not be listed on any securities exchange or
quotation system, and we do not expect a trading market to develop,
which
may affect the price that you receive for your Notes upon any sale
prior
to maturity. If you sell the Notes prior to maturity, you may receive
less, and possibly significantly less, than your initial investment
in the
Notes.
|
|
·
|
Liquidity—Because
the Notes will not be listed on any securities exchange or quotation
system, we do not expect a trading market to develop, and, if such
a
market were to develop, it may not be liquid. Our subsidiary, Bear,
Stearns & Co. Inc. has advised us that they intend under ordinary
market conditions to indicate prices for the Notes upon request.
However,
we cannot guarantee that bids for outstanding Notes will be made
in the
future; nor can we predict the price at which those bids will be
made. In
any event, Notes will cease trading as of the close of business
on the
Maturity Date.
|
KEY
TERMS
The
following Key Terms relate to the specific Note offering for each respective
Reference Index:
Issuer:
|
The
Bear Stearns Companies Inc.
|
Principal
Amount:
|
The
Notes 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. 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.
|
Summary
of Terms
Reference
Index
|
Ticker
Symbol
|
Trigger
Level
|
Maximum
Return
|
CUSIP
|
Calculation
Date
|
Maturity
Date
|
Initial
Index
Level
|
Agent’s
Discount
|
Proceeds,
before
expenses,
to
us
|
Principal
Amount
|
The
S&P 500
®
Index
|
SPX
|
-10.00%
|
[14-17]%
|
0739282T9
|
April
[
l
],
2009
|
April
[
l
],
2009
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
The
Nasdaq-100 Index
®
|
NDX
|
-10.00%
|
[25-28]%
|
0739282V4
|
September
[
l
],
2009
|
September
[
l
],
2009
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
The
Dow Jones AIG Commodity Index
SM
|
DJAIG
|
-5.00%
|
[29-32]%
|
0739282W2
|
September
[
l
],
2009
|
September
[
l
],
2009
|
[
l
]
|
[
l
]
|
[
l
]
|
$[
l
]
|
Cash
Settlement Value:
|
On
the Maturity Date, you will receive the Cash Settlement Value,
an amount
in cash that depends upon the Index Return. The Cash Settlement
Value, per
Note, will be calculated as follows:
|
|
(a)
if
the Index 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
$1,000.00 multiplied by the lesser of (i) the Upside Participation
Rate
(200.00%) multiplied by the Index Return; and (ii) the Maximum
Return for
the Notes as set forth in the “Summary of Terms”;
|
|
(b)
if
the Index Return is less than or equal to zero but greater than
or equal
to the Trigger Level, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Note; or
|
|
(c)
if
the Index Return is less than the Trigger Level, 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
Index Return is less than the Trigger Level.
|
Index
Return:
|
Equals
the quotient of (a) the Final Index Level minus the Initial Index
Level,
divided by (b) the Initial Index Level.
|
Upside
Participation Rate:
|
Equals
200.00%.
|
Interest:
|
The
Notes will not bear interest during the term of the
Notes.
|
Initial
Index Level:
|
As
set forth in “Summary of Terms” above.
|
Final
Index Level:
|
The
Final Index Level will be determined by the Calculation Agent and
will
equal the closing level of the Index on the Calculation Date as
determined
by the Calculation Agent.
|
Calculation
Date:
|
As
set forth in “Summary of Terms” above
unless
such date is not an Index Business Day, in which case the Calculation
Date
shall be the next Index 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 as set forth in “Summary of Terms” above
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.
|
Index
Business Day
:
|
Means
any day on which the Relevant Exchange (as defined in “Description of the
Notes - Market Disruption Events” herein) and each Related Exchange (as
defined in “Description of the Notes - Market Disruption Events” herein)
are scheduled to be open for trading.
|
Business
Day
:
|
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”).
|
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.
Q
UESTIONS
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 Reference Index over the term
of
the Notes, as measured by the Index 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
do not provide for redemption earlier than the Maturity Date. When we refer
to
Note or Notes in this pricing supplement, we mean $1,000.00 principal amount
of
Notes. 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 a significant portion of your principal
investment in the Notes is at risk of loss. If the Index Return is less than
the
Trigger Level, for each 1.00% difference between the Index Return and the
Trigger Level 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
Reference Index, if any, subject to the Maximum Return. If the Index Return
is
less than the Trigger Level, 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 Index Return. The Cash Settlement Value, per Note,
will be
calculated as follows:
(a)
if
the
Index 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 $1,000.00
multiplied by the lesser of (i) the Upside Participation Rate (200.00%)
multiplied by the Index Return; and (ii) the Maximum Return for the Notes
as set
forth in the “Summary of Terms”;
(b)
if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(c)
if
the
Index Return is less than the Trigger Level, 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 Index Return
is
less than the Trigger Level.
The
Index
Return equals the quotient of (a) the Final Index Level minus the Initial
Index
Level, divided by (b) the Initial Index Level.
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 level of the Reference Index 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.
W
hat
is the Reference Index?
Unless
otherwise stated, all information on the Reference Index that is provided
in
this pricing supplement is derived from the Sponsor or other publicly available
sources.
For
more
information, see the section “Description of the Reference
Indices.”
How
has the
Reference Index performed historically?
We
have
provided tables and graphs depicting the performance of each Reference Index
from January 1998 through February 2008. You can find these tables and graphs
in
the section “Description of the Reference Indices - Historical Data on the
Reference Index.” We have provided this historical information to help you
evaluate the behavior of each Reference Index in various economic environments;
however, past performance is not indicative of the manner in which the Reference
Index will perform in the future. You should refer to the section “Risk Factors
- The historical performance of the Reference Index is not an indication
of the
future performance of the Reference Index.”
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 underlying Reference Index, they
may
be appropriate for investors with specific investment horizons who seek to
participate in the potential appreciation of the level of the Reference Index.
In particular, the Notes may be an attractive investment for investors
who:
|
·
|
want
potential upside exposure to the constituents comprising the Reference
Index;
|
|
·
|
believe
that the level of the Reference Index will increase over the term
of the
Notes and that such increase will not exceed the Maximum Return.
|
|
·
|
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 Reference Index of up to the Maximum Return;
and
|
|
·
|
are
willing to forgo income in the form of interest payments on the
Notes or
dividend payments on the constituents of the Reference
Index.
|
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 Reference Index (since the return
on the
Notes is capped at the Maximum
Return).
|
|
·
|
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 Reference Index 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 linked to the value of the Reference Index
and,
where required, to file information returns with the Internal Revenue Service
in
accordance with such treatment. Prospective investors are urged to consult
their
tax advisors regarding the U.S. federal income tax consequences of an investment
in the Notes. Assuming the Notes are treated as pre-paid cash-settled executory
contracts, you should be required to recognize capital gain or loss to the
extent that the cash you receive on the Maturity Date or upon a sale or exchange
of the Notes prior to the Maturity Date differs from your tax basis on the
Notes
(which will generally be the amount you paid for the Notes). It is possible
that
certain of the components of the Reference Index could be treated as “pass-thru
entities” for purposes of section 1260 of the Code, in which case the
“constructive ownership” rules of section 1260 could cause a portion of any
long-term capital gain that is recognized on sale, exchange, maturity, or
other
taxable disposition of the Notes to be treated as ordinary income and subject
to
an interest charge. Because of the uncertainty regarding the tax treatment
of
the Notes, we urge you to consult your tax advisor as to the tax consequences
of
your investment in a Note. 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 Internal Revenue Code of 1986, as amended (the “Code”), including
individual retirement accounts, individual retirement annuities or Keogh
plans,
a governmental or church plan subject to any similar law or any entity the
assets of which are deemed to be “plan assets” under ERISA, Section 4975 of the
Code, any applicable regulations or otherwise, will be permitted to purchase,
hold and dispose of the Notes, subject to certain conditions. Such investors
should carefully review the discussion under “Certain ERISA Considerations” in
this pricing supplement before investing in the Notes.
RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in
the
Reference Index. However, your ability to participate in the appreciation
of the
Reference Index is limited. The return on the Notes is capped at the Maximum
Return. 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 Reference Index 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 Index Return is less than the Trigger
Level, for each 1.00% difference between the Index Return and the Trigger
Level,
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
level
of the Reference Index.
Even
if
the level of the Reference Index increases above the Initial Index Level
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 Index Return to increase while the
trading value of the Notes declines.
You
must rely on your own evaluation of the merits of an investment linked to
the
Reference Index.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Reference Index and in the constituents comprising
the
Reference Index. These views may vary over differing time horizons and are
subject to change without notice. Moreover, other professionals who deal
in the
equity or commodity markets may at any time have views that differ significantly
from ours. In connection with your purchase of the Notes, you should investigate
the Reference Index and the constituents that comprise the Reference Index
and
not rely on our views with respect to future movements in these industries
and
constituents. You should make such investigation as you deem appropriate
as to
the merits of an investment linked to the Reference Index.
Your
yield will not reflect dividends or other distributions on the securities
underlying the Reference Index.
The
Reference Index does not reflect the payment of dividends or other distributions
on its constituents. Therefore, the yield based on the Reference Index to
the
maturity of the Notes will not produce the same yield as if you had purchased
such constituents 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.
Y
our
return on the Notes will not exceed the Maximum Return over the term of the
Notes, regardless of the positive percentage increase of the Final Index
Level
over the Initial Index Level.
If
the
Index Return is greater than or equal to half of the Maximum Return, the
Cash
Settlement Value will be capped. In such case, regardless of the extent to
which
the Final Index Level is greater than the Initial Index Level, for each Note
you
hold, we will pay you the sum of (a) $1,000.00 plus (b) the product of (i)
the
Maximum Return multiplied by (ii) $1,000.00. Under these circumstances, the
Cash
Settlement Value you receive at maturity will not fully reflect the performance
of the Reference Index multiplied by the Upside Participation Rate.
Tax
consequences.
Although
we intend to treat the Notes for all tax purposes as pre-paid cash-settled
executory contracts linked to the Reference Index, 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
and commodity market risks may affect the trading value of the Notes and
the
amount you will receive at maturity.
We
expect
that the level of the Reference Index will fluctuate in accordance with changes
in the financial condition of the constituents comprising the Reference Index,
the level or price, as applicable, of the constituents comprising the Reference
Index generally and other factors. The financial condition of the constituents
comprising the Reference Index may become impaired or the general condition
of
the global equity or commodity markets may deteriorate, either of which may
cause a decrease in the level of the Reference Index and thus in the value
of
the Notes. The Reference Index is susceptible to general equity and commodity
market fluctuations and to volatile increases and decreases in value, as
market
confidence in and perceptions regarding the constituents comprising the
Reference Index change. Investor perceptions regarding the constituents
comprising the Reference Index are based on various and unpredictable factors,
including expectations regarding government, economic, monetary and fiscal
policies, inflation and interest rates, economic expansion or contraction,
and
global or regional political, economic, and banking crises. The level of
the
Reference Index is expected to fluctuate until the Maturity Date.
The
historical performance of the Reference Index is not an indication of the
future
performance of the Reference Index.
The
historical performance of the Reference Index, which is included in this
pricing
supplement, should not be taken as an indication of the future performance
of
the Reference Index. While the trading prices of the constituents comprising
the
Reference Index will determine the level of the Reference Index, it is
impossible to predict whether the level of the Reference Index will fall
or
rise. Trading prices of the constituents comprising the Reference Index 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 trading markets on which the constituents are traded,
and by various circumstances that can influence the prices of the constituents
in a specific market segment or the price of a particular
constituent.
The
price at which you will be able to sell your Notes prior to maturity will
depend
on a number of factors, and may be substantially less than the amount you
had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
alternative would be to sell them. At that time, there may be an illiquid
market
for Notes or no market at all. Even if you were able to sell your Notes,
there
are many factors outside of our control that may affect their trading value.
We
believe that the value of your Notes will be affected by the level and
volatility of the Reference Index, whether the level of the Reference Index
is
greater than or equal to the Initial Index Level, 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 level of the Reference Index is less than, equal to or
not
sufficiently above the Initial Index Level. 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.
|
·
|
Reference
Index performance
.
We expect that the value of the Notes prior to maturity will depend
substantially on whether the level of the Reference Index is greater
than
the Initial Index Level. If you decide to sell your Notes when
the level
of the Reference Index exceeds the Initial Index Level, you may
nonetheless receive substantially less than the amount that would
be
payable at maturity based on that level of the Reference Index
because of
expectations that the level of the Reference Index will continue
to
fluctuate until the Final Index Level is determined. Economic,
financial,
regulatory, geographic, judicial, political and other developments
that
affect the securities in the Reference Index may also affect the
level of
the Reference Index and, thus, the value of the
Notes.
|
|
·
|
Volatility
of the Reference Index
.
Volatility is the term used to describe the size and frequency
of market
fluctuations. If the volatility of the Reference Index increases
or
decreases, the trading value of the Notes may be adversely affected.
This
volatility may increase the risk that the level of the Reference
Index
will decline, which could negatively affect the trading value of
Notes.
The effect of the volatility of the Reference Index 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 Reference Index, which
would
affect the value of the Notes. Rising interest rates may lower
the level
of the Reference Index and, thus, the value of the Notes. Falling
interest
rates may increase the level of the Reference Index and, thus,
the value
of the Notes.
|
|
·
|
Our
credit ratings, financial condition and results of
operations
.
Actual or anticipated changes in our current credit ratings, 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 level of the
Reference
Index, 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 level of the
Reference Index 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
Reference Index.
|
|
·
|
Dividend
yield
.
The value of the Notes may also be affected by the dividend yields
on the
constituents comprising the Reference Index. In general, because
the
Reference Index does not incorporate the value of dividend payments,
higher dividend yields are expected to reduce the value of the
Notes and,
conversely, lower dividend yields are expected to increase the
value of
the Notes.
|
|
·
|
Events
involving the companies issuing the securities comprising certain
of the
Reference Indices
.
General economic conditions and earnings results of the companies
whose
stocks comprise the SPX and NDX, and real or anticipated changes
in those
conditions or results, may affect the trading value of the Notes.
For
example, some of the stocks included in the SPX and NDX may be
affected by
mergers and acquisitions, which can contribute to volatility of
the
applicable Reference Index. As a result of a merger or acquisition,
one or
more stocks in the applicable Reference Index 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 applicable Reference
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.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any of the constituents comprising
the Reference Index. Neither you nor any other holder or owner of the Notes
will
have any voting rights, any right to receive dividends or other distributions
or
any other rights with respect to such constituents. The Cash Settlement Value,
if any, will be paid in cash, and you will have no right to receive delivery
of
any constituents comprising the Reference Index.
The
DJAIG may be affected by factors affecting international commodity markets.
The
constituents underlying the DJAIG are subject to the risks of any investment
in
an index of commodities, including the risk that the general level of
commodities prices may decline.
|
·
|
The
commodities futures markets are subject to temporary distortions,
extreme
price variations or other disruptions due to conditions of illiquidity
in
the markets, the participation of speculators, government regulation
and
intervention.
|
|
·
|
Prices
of commodities and commodity futures contracts may be adversely
affected
by the promulgation of new laws or regulations or by the reinterpretation
of existing laws or regulations (including, without limitation,
those
relating to taxes and duties on commodities or commodity components)
by
one or more governments, governmental agencies or instrumentalities,
courts or other official bodies. Any such event could adversely
affect the
level of the DJAIG and, correspondingly, could adversely affect
the value
of the applicable Notes.
|
|
·
|
Commodities
prices are subject to volatile price movements over short periods
of time
and are affected by numerous factors, including, among other things,
the
structure of and confidence in the global monetary system, expectations
of
the future rate of inflation, the relative strength of the U.S.
dollar,
interest rates and borrowing and lending rates relating to such
commodity,
global and regional economic, global industrial demand, financial,
political, regulatory, judicial and other events, war (or the cessation
thereof), development of substitute products, terrorism, weather,
supply,
price levels, global energy levels, production levels and production
costs, delivery costs. Such political, economic and other developments
that affect the DJAIG may also affect the value of the applicable
Notes.
|
|
·
|
The
level of the DJAIG can fluctuate significantly due to supply and
demand
disruptions in major producing or consuming regions. Because the
commodities underlying the DJAIG are produced in a limited number
of
countries and are controlled by a small number of producers, political,
economic and supply related events in such countries could have
a
disproportionate impact on the levels of the DJAIG.
|
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
Index Level, or deciding whether a Market Disruption Event (as defined herein)
has occurred. You should refer to the sections “Description of the Notes -
Discontinuance of the Reference Index,” “- Adjustments to the Reference Index”
and “- Market Disruption Events.” Because Bear Stearns is our affiliate,
conflicts of interest may arise in connection with Bear Stearns performing
its
role as Calculation Agent. Rules and regulations regarding broker-dealers
(such
as Bear Stearns) require Bear Stearns to maintain policies and procedures
regarding the handling and use of confidential proprietary information, and
such
policies and procedures will be in effect throughout the term of the Notes.
Bear
Stearns is obligated to carry out its duties and functions as Calculation
Agent
in good faith, and using its reasonable judgment. See 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 constituents comprising the Reference Index, exchange-traded
and
over-the-counter options on, or other derivative or synthetic instruments
related to, the Reference Index, individual futures contracts on the Reference
Index and on constituents comprising the Reference Index, futures contracts
on
the Reference Index and/or options on these futures contracts. These
transactions may influence the value of such constituents, and therefore
the
level of the Reference Index. 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
Reference
Index will affect the trading value of the Notes and the amount you will
receive
at maturity.
The
Sponsor is responsible for calculating and maintaining the Reference Index.
The
policies of the Sponsor concerning the calculation of the Reference Index
will
affect the level of the Reference Index and, therefore, will affect the trading
value of the Notes and the Cash Settlement Value.
If
the
Sponsor discontinues or suspends calculation or publication of the Reference
Index, it may become difficult to determine the trading value of the Notes
or
the Cash Settlement Value. If this occurs, the Calculation Agent will determine
the value of the Notes. As a result, the Calculation Agent’s determination of
the value of the Notes will affect the amount you will receive at maturity.
In
addition, if the Sponsor discontinues or suspends calculation of the Reference
Index at any time prior to the Maturity Date and a Successor Index (as defined
herein) is not available or is not acceptable to the Calculation Agent, then
the
Calculation Agent will determine the amount payable on the Maturity Date
by
reference to a group of constituents and a computation methodology that the
Calculation Agent determines will (as closely as reasonably possible) replicate
the Reference Index. The level of the Reference Index is only one of the
factors
that will affect this determination and the value of the Notes prior to
maturity. See the sections “Description of the Notes - Discontinuance of the
Reference Index” and “Description of the Reference Index.”
The
Sponsor may change the companies underlying the Reference Index in a way
that
adversely affects the level of the Index and consequently the value of the
Notes.
The
Sponsor can add, delete or substitute the constituents comprising the Reference
Index or make other methodological changes that could adversely change the
level
of the Reference Index, the Final Index Level and the value of the Notes.
You
should realize that changes in constituents comprising the Reference Index
may
affect the Reference Index, as a newly added constituent may perform
significantly better or worse than the constituent or constituents it
replaces.
We
cannot control actions by any of the companies whose stocks are included
in the
Reference Indices.
Our
common stock is a component of the SPX. However, we are not affiliated with
any
of the other companies whose stock underlies a Reference Index. Actions by
any
company whose stock is part of a Reference Index may have an adverse effect
on
the price of its stock, the Final Index Level, 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 included in any Reference
Index
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
Reference Index or any company included in the Reference Index. You should
make
your own investigation into the Reference Index and the constituents comprising
the Reference Index.
We
and our affiliates have no affiliation with the Sponsor and are not responsible
for its public disclosure of information.
We
and
our affiliates are not affiliated in any way with the Sponsor (except for
the
licensing arrangements discussed in the section “Description of the Reference
Indices—License Agreement”) and have no ability to control or predict the
Sponsor’s actions, including any errors in or discontinuation of disclosure
regarding its methods or policies relating to the calculation of the Reference
Index. Neither we nor any or our affiliates assumes any responsibility for
the
adequacy or accuracy of the information about the Reference Index or the
Sponsor
contained in this pricing supplement. You, as an investor in the Notes, should
make your own investigation into the Reference Index and the Sponsor. The
Sponsor is not involved in any way in the offering of the Notes and has no
obligation to consider your interests as an owner of Notes when it takes
any
actions that might affect the value of the Notes.
Trading
and other transactions by us or our affiliates could affect the prices of
the
constituents comprising the Reference Index, the level of the Reference Index,
the trading value of the Notes or the amount you may receive at
maturity.
We
and
our affiliates may from time to time buy or sell interests in the securities
underlying a Reference Index or derivative or synthetic instruments related
to
those securities for our own accounts in connection with our normal business
practices or in connection with hedging our obligations under the Notes and
other instruments. These trading activities may present a conflict of interest
between your interest in the Notes and the interests we and our affiliates
may
have in our proprietary accounts, in facilitating transactions, including
block
trades, for our other customers and in accounts under our management. The
transactions could affect the prices of those securities or the level of
the
Reference Index 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 level of the
Reference Index, including the Final Index Level, and, accordingly, increase
or
decrease the trading value of the Notes prior to maturity and the Cash
Settlement Value you would receive at maturity. To the extent that we or
any of
our affiliates has a hedge position in any of the securities that comprise
the
Reference Index, or derivative or synthetic instruments related to those
securities or the Reference Index, we or any of our affiliates may liquidate
a
portion of such holdings at or about the time of the maturity of the Notes
or at
or about the time of a change in the securities that underlie the Reference
Index. 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 level of the Reference Index, we cannot assure
you
that these activities will not affect such level and the trading value of
the
Notes prior to maturity or the Cash Settlement Value payable at
maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a
long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the
future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports on the Reference Index or the constituents comprising the
Reference Index. 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 constituents comprising the Reference Index and, therefore, the
Final
Index Level 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 Reference 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 securities included in the Reference Index, 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 level of the
Reference Index 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 below)
has
occurred, a holder of the Notes will only receive an amount equal to the
trading
value of the Notes on the date of such Event of Default, adjusted by an amount
equal to any losses, expenses and costs to us of unwinding any underlying
hedging or funding arrangements, all as determined by the Calculation Agent.
You
should refer to the section “Description of the Notes—Event of Default and
Acceleration.”
You
should decide to purchase the Notes only after carefully considering the
suitability of the Notes in light of your particular financial circumstances.
You should also carefully consider the tax consequences of investing in the
Notes. You should refer to the section “Certain U.S. Federal Income Tax
Considerations” and discuss the tax implications with your own tax
advisor.
DESCRIPTION
OF THE NOTES
The
following description of the Notes (referred to in the accompanying prospectus
supplement as the “Other Indexed Notes”) supplements the description of the
Notes in the accompanying prospectus supplement and prospectus. This is a
summary and is not complete. You should read the indenture, dated as of May
31,
1991, as amended (the “Indenture”), between us and The Bank of New York as
successor in interest to JPMorgan Chase Bank, N.A., as trustee (the “Trustee”).
A copy of the Indenture is available as set forth under the section of the
prospectus “Where You Can Find More Information.”
General
The
Notes
are part of a single series of debt securities under the Indenture described
in
the accompanying prospectus supplement and prospectus designated as Medium-Term
Notes, Series B. The Notes are unsecured and will rank equally with all of
our
unsecured and unsubordinated debt, including the other debt securities issued
under the Indenture. Because we are a holding company, the Notes will be
structurally subordinated to the claims of creditors of our subsidiaries.
The
aggregate principal amount of the Notes will be $[
l
].
The
Notes are expected to mature on the date set forth in the “Summary of Terms”
table in the section entitled “Key Terms” herein, 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 level of the Reference Index 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 Index Return. The Cash Settlement Value, per Note,
will be calculated as follows:
(a)
if
the
Index 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 $1,000.00
multiplied by the lesser of (i) the Upside Participation Rate (200.00%)
multiplied by the Index Return; and (ii) the Maximum Return for the Notes
as set
forth in the “Summary of Terms”;
(b)
if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(c)
if
the
Index Return is less than the Trigger Level, 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 Index Return
is
less than the Trigger Level.
The
“
Index
Return
”
will
equal the quotient of (a) the Final Index Level minus the Initial Index Level,
divided by (b) the Initial Index Level.
The
“
Upside
Participation Rate
”
equals
200.00%.
The
“
Initial
Index Level
”
with
respect to SPX, equals [
l
]
,
the
closing level of the SPX on [
l
],
2008,
as determined by the Calculation Agent; with respect to NDX, equals [
l
]
,the
closing level of the NDX on [
l
]
,
2008,
as determined by the Calculation Agent; with respect to DJAIG, equals [
l
]
,
the
closing level of the DJAIG on [
l
]
,
2008,
as determined by the Calculation Agent.
The
“
Final
Index Level
”
will
be
determined by the Calculation Agent and will equal the closing level of the
Reference Index on the Calculation Date.
The
“
Calculation
Date
”
with
respect to SPX is [
l
]
,
2009;
with respect to NDX is [
l
]
,
2009;
and with respect to DJAIG is [
l
]
,
2009
unless such date is not an Index Business Day, in which case the Calculation
Date shall be the next Index Business Day. The Calculation Date is subject
to
adjustment as described under “Description of the Notes - Market Disruption
Events.”
The
“
Maturity
Date
”
with
respect SPX is expected to be [
l
]
;
with
respect to NDX is expected to be [
l
]
;
and
with respect to DJAIG is expected to be [
l
]
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
“
Index
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 and graphs are for illustrative purposes and are not indicative
of the future performance of the Reference Index or the future value of the
Notes.
Because
the level of the Reference Index 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 Reference Index during
the
term of the Notes. You should not construe these examples or the data included
in any table or graph 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 levels of the Reference Index in the section of this
pricing supplement called “Description of the Reference Indices.” The historical
performance of the Reference Index included in this pricing supplement should
not be taken as an indication of the future performance of the Reference
Index
during the term of the Notes. It is impossible to predict whether the Final
Index Level will be greater than or less than the Initial Index
Level.
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 Index Level is equal to
1,350.00.
|
|
·
|
The
Maximum Return on the Notes is 23.00%, or $1,230.00 per
Note.
|
|
·
|
The
Upside Participation Rate is
200.00%.
|
|
·
|
The
Trigger Level is -10.00%.
|
|
·
|
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 Index Return is positive and the Cash Settlement Value is capped at
$1,230.00.
In
this
example, the
Reference
Index
rises over the term of the Notes. On the Calculation Date, the Final Index
Level
is 1,890.00, representing an Index Return of 40.00%, as calculated
below:
Because
the Index Return is positive, the Cash Settlement Value will be equal to
the
$1,000.00 principal amount of the Notes plus the product of
$1,000.00
multiplied by the lesser of (i) the Upside Participation Rate (200.00%)
multiplied by the Index Return; and (ii) the Maximum Return for the Notes.
In
this example, since the Index Return is greater than 11.50% and the product
of
the Index Return and 200% is greater than the Maximum Index Return, the Cash
Settlement Value on the Maturity Date would be capped at $1,230.00, which
provides the Maximum Return on the Notes of 23.00%. This example illustrates
the
fact that the return on your Notes will be limited to the Maximum Return
on the
Notes of 23.00%.
Example
2: The Index Return is positive and the Cash Settlement Value is not subject
to
the Maximum Return.
In
this
example, the Reference Index rises over the term of the Notes. On the
Calculation Date, the Final Index Level is 1,485.00, representing an Index
Return of 10.00%, as calculated below.
Because
the Index Return is equal to 10.00% (which, after being multiplied by the
Upside
Participation Rate, is less than the Maximum Return of 23.00%), the Cash
Settlement Value would be $1,200.00, as calculated below.
=
$1,000.00 + ($1,000.00 x Upside Participation Rate x Fund 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 level of the Reference Index 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 Index Return is negative, but is greater than the Trigger Level.
In
this
example, the Reference Index declines over the term of the Notes. On the
Calculation Date, the Final Index Level is 1,242.00, representing an Index
Return of 8.00%, as calculated below.
Since
the
Index Return is negative but is greater than the Trigger Level of -10.00%,
the
Cash Settlement Value would equal the $1,000.00 principal amount of the
Note.
In
this
example, the level of the Reference Index decreases 8.00% over the term of
the
Notes, and your return on investment would be 0.00%.
Example
4: The Index Return is negative and is less than the Trigger Level of -10.00%.
In
this
example, the Reference Index declines over the term of the Notes. On the
Calculation Date, the Final Index Level is 945.00, representing an Index
Return
of -30.00%, as calculated below:
In
this
example, where the Index Return is less than the Trigger Level of -10.00%,
the
Cash Settlement Value payable at maturity would be $800.00 because 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
Index
Return is less than the Trigger Level. In this example, the Index Return
is
-30.00%. Therefore, you will suffer a 20% loss and receive 80% of the principal
amount of your investment at maturity. This example demonstrates that if
the
Index Return is less than the Trigger Level of -10.00%, you will lose some
or
possibly up to 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
Index Level
|
1,350.00
|
1,350.00
|
1,350.00
|
1,350.00
|
Hypothetical
Final Index Level
|
1,890.00
|
1,485.00
|
1,242.00
|
945.00
|
Value
of Final Index Level relative to
the
Initial Index Level
|
Higher
|
Higher
|
Lower
|
Lower
|
Principal
fully repaid?
|
Yes
|
Yes
|
Yes
|
No
|
Cash
Settlement Value per Note
|
$1,230.00
|
$1,200.00
|
$1,000.00
|
$800.00
|
Table
of Hypothetical Cash Settlement Values
Initial
Index Level
|
Final
Index Level
|
Index
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
|
Initial
Index Level
|
Final
Index Level
|
Index
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
1,350.00
|
1,728.00
|
+28.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,336.50
|
-1.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,714.50
|
+27.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,327.00
|
-2.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,701.00
|
+26.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,309.50
|
-3.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,687.50
|
+25.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,296.00
|
-4.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,674.00
|
+24.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,282.50
|
-5.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,660.50
|
+23.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,269.00
|
-6.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,647.00
|
+22.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,255.50
|
-7.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,633.50
|
+21.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,242.00
|
-8.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,620.00
|
+20.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,228.50
|
-9.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,606.50
|
+19.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,215.00
|
-10.00%
|
$1000.00
|
0.00%
|
1,350.00
|
1,593.00
|
+18.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,201.50
|
-11.00%
|
$990.00
|
-1.00%
|
1,350.00
|
1,579.50
|
+17.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,188.00
|
-12.00%
|
$980.00
|
-2.00%
|
1,350.00
|
1,566.00
|
+16.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,174.50
|
-13.00%
|
$970.00
|
-3.00%
|
1,350.00
|
1,552.50
|
+15.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,161.00
|
-14.00%
|
$960.00
|
-4.00%
|
1,350.00
|
1,539.00
|
+14.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,147.50
|
-15.00%
|
$950.00
|
-5.00%
|
1,350.00
|
1,525.50
|
+13.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,134.00
|
-16.00%
|
$940.00
|
-6.00%
|
1,350.00
|
1,512.00
|
+12.00%
|
$1,230.00
|
23.00%
|
|
1,350.00
|
1,120.50
|
-17.00%
|
$930.00
|
-7.00%
|
1,350.00
|
1,498.50
|
+11.00%
|
$1,220.00
|
22.00%
|
|
1,350.00
|
1,107.00
|
-18.00%
|
$920.00
|
-8.00%
|
1,350.00
|
1,485.00
|
+10.00%
|
$1,200.00
|
20.00%
|
|
1,350.00
|
1,093.50
|
-19.00%
|
$910.00
|
-9.00%
|
1,350.00
|
1,471.50
|
+9.00%
|
$1,180.00
|
18.00%
|
|
1,350.00
|
1,080.00
|
-20.00%
|
$900.00
|
-10.00%
|
1,350.00
|
1,458.00
|
+8.00%
|
$1,160.00
|
16.00%
|
|
1,350.00
|
1,066.50
|
-21.00%
|
$890.00
|
-11.00%
|
1,350.00
|
1,444.50
|
+7.00%
|
$1,140.00
|
14.00%
|
|
1,350.00
|
1,053.00
|
-22.00%
|
$880.00
|
-12.00%
|
1,350.00
|
1,431.00
|
+6.00%
|
$1,120.00
|
12.00%
|
|
1,350.00
|
1,039.50
|
-23.00%
|
$870.00
|
-1300%
|
1,350.00
|
1,417.50
|
+5.00%
|
$1,100.00
|
10.00%
|
|
1,350.00
|
1,026.00
|
-24.00%
|
$860.00
|
-14.00%
|
1,350.00
|
1,404.00
|
+4.00%
|
$1,080.00
|
8.00%
|
|
1,350.00
|
1,012.50
|
-25.00%
|
$850.00
|
-15.00%
|
1,350.00
|
1,390.50
|
+3.00%
|
$1,060.00
|
6.00%
|
|
1,350.00
|
999.00
|
-26.00%
|
$840.00
|
-16.00%
|
1,350.00
|
1,377.00
|
+2.00%
|
$1,040.00
|
4.00%
|
|
1,350.00
|
985.50
|
-27.00%
|
$830.00
|
-17.00%
|
1,350.00
|
1,363.50
|
+1.00%
|
$1,020.00
|
2.00%
|
|
1,350.00
|
972.00
|
-28.00%
|
$820.00
|
-18.00%
|
1,350.00
|
1,350.00
|
0.00%
|
$1,000.00
|
0.00%
|
|
1,350.00
|
958.50
|
-29.00%
|
$810.00
|
-19.00%
|
Discontinuance
of the Reference Index
If
the
Sponsor discontinues publication of or otherwise fails to publish the Reference
Index and such Sponsor or another entity publishes a successor or substitute
index that the Calculation Agent determines to be comparable to the discontinued
Reference Index (such index being referred to herein as a “Successor Index”),
then the Final Index Level for such Reference Index will be determined by
reference to the level of such Successor Index at the close of trading on
the
relevant exchanges or markets for the Successor Index on the date as of which
such Final Index Level for such Reference Index is to be determined.
Upon
any
selection by the Calculation Agent of a Successor Index, the Calculation
Agent
will cause notice thereof to be furnished to us and the Trustee. If a Successor
Index is selected by the Calculation Agent, the Successor Index will be used
as
a substitute for the Reference Index for all purposes, including for purposes
of
determining whether a Market Disruption Event exists with respect to the
Reference Index.
If
the
Reference Index is discontinued or if the Sponsor fails to publish the Reference
Index prior to, and such discontinuance is continuing on, the Calculation
Date
and the Calculation Agent determines that no Successor Index is available
at
such time, then in connection with its calculation of the Cash Settlement
Value,
the Calculation Agent will determine the level to be used for the Final Index
Level for the Reference Index. The level to be used for the Final Index Level
will be computed by the Calculation Agent in accordance with the formula
for and
method of calculating the Reference Index last in effect prior to the
discontinuance, failure or modification but using only those securities that
comprised the Reference Index immediately prior to that discontinuance, failure
or modification. In such event, the Calculation Agent will cause notice thereof
to be furnished to us and the Trustee.
Notwithstanding
these alternative arrangements, discontinuance of the publication of the
Reference Index may adversely affect the value of, and trading in, the
Notes.
Adjustments
to the
Reference
Index
If
at any
time the method of calculating the Reference Index or a Successor Index,
or the
value thereof, is changed in a material respect, or if the Reference Index
or a
Successor Index is in any other way modified so that such index does not,
in the
opinion of the Calculation Agent, fairly represent the level of the Reference
Index or such Successor Index had such changes or modifications not been
made,
then, for purposes of calculating the Initial Index Level, the Final Index
Level
or the Cash Settlement Value or making any other determinations as of or
after
such time, the Calculation Agent will make such calculations and adjustments
as
the Calculation Agent determines may be necessary in order to arrive at a
level
of an index comparable to the Reference Index or such Successor Index, as
the
case may be, as if such changes or modifications had not been made, and
calculate the Cash Settlement Value (including the components thereof) with
reference to such Reference Index or such Successor Index, as adjusted.
Accordingly, if the method of calculating the Reference Index or a Successor
Index is modified so that the level of such index is a fraction of what it
would
have been if it had not been modified (e.g., due to a split in the index),
then
the Calculation Agent will adjust such index in order to arrive at a level
for
the Reference Index or such Successor Index as if it had not been modified
(e.g., as if such split had not occurred). In such event, the Calculation
Agent
will cause notice thereof to be furnished to us and the
Trustee.
In
the
event that, on the Calculation Date, the Reference Index is not calculated
by
the Sponsor but is calculated by a third party acceptable to the Calculation
Agent, the Calculation Agent will use such third party’s calculation as its
reference for determining the level of the Reference Index.
Market
Disruption Events
If
there
is a Market Disruption Event on the Calculation Date, the Final Index Level
will
be determined on the first succeeding Index 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 Index Business Days following the
original date that, but for the Market Disruption Event, would have been
the
Calculation Date. In that case, the third Index Business Day will be deemed
to
be the Calculation Date, notwithstanding the Market Disruption Event, and
the
Calculation Agent will determine the Final Index Level on that third Index
Business Day in accordance with the formula for and method of calculating
the
Reference Index in effect prior to the Market Disruption Event using the
price
of each security in the Reference Index on the primary exchange or trading
system on which such security is then listed or admitted to trading (or,
if
trading in any such security has been materially suspended or materially
limited, the Calculation Agent’s estimate of the price that would have prevailed
on the primary exchange or trading system on which such security is then
listed
or admitted to trading but for such suspension or limitation) as of that
third
Index Business Day.
A
“
Market
Disruption Event
”
means
the occurrence or existence at any time of a condition specified below that
the
Calculation Agent determines to be material:
(a)
any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Relevant Exchanges or Related Exchanges
or
otherwise, (A) relating to any security underlying the Reference Index or
(B) in
futures or options contracts relating to the Reference Index on any Related
Exchange;
(b)
any
event
(other than an event described in (c) below) that disrupts or impairs (as
determined by the Calculation Agent) the ability of market participants in
general (A) to effect transactions in, or obtain market values for or relating
to any security underlying the Reference Index or (B) to effect transactions
in,
or obtain market values for, futures or options contracts relating to the
Reference Index on any Related Exchange;
(c)
the
closure on any Index Business Day of any Relevant Exchange relating to any
security underlying the Reference Index or any Related Exchange prior to
its
weekday closing time, without regard to after hours or any other trading
outside
of the regular trading session hours, unless such earlier closing time is
announced by such Relevant Exchange or Related Exchange at least one hour
prior
to the earlier of (i) the actual closing time for the regular trading session
on
such Relevant Exchange or Related Exchange on such Index Business Day for
such
Relevant Exchange or Related Exchange and (ii) the submission deadline for
orders to be entered into the Relevant Exchange system for execution at the
close of trading on such Index Business Day for such Relevant Exchange or
Related Exchange; or
(d)
any
Index
Business Day on which any Relevant Exchange or Related Exchange fails to
open
for trading during its regular trading session.
“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 Reference Index.
“Relevant
Exchange” means the primary exchange or market of trading of any security then
included in the Reference Index.
“Index
Business Day” means any day on which the Relevant Exchange and each Related
Exchange are scheduled to be open for trading.
For
purposes of the above definition:
(a)
a
limitation on the hours in a trading day and/or number of days of trading
will
not constitute a Market Disruption Event if it results from an announced
change
in the regular business hours of the Relevant Exchange, and
(b)
for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, 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 REFERENCE IND
ICES
The
S&P 500
®
Index
(“SPX”)
We
have
derived all information relating to the SPX, including, without limitation,
its
make-up, performance, method of calculation and changes in its composition,
from
publicly available sources. That information reflects the policies of and
is
subject to change by Standard & Poor’s. Standard & Poor’s is under no
obligation to continue to publish, and may discontinue or suspend the
publication of the SPX at any time.
Standard
& Poor’s publishes the SPX. The SPX is a capitalization-weighted index and
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the SPX, discussed below in further
detail, is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate
average market value of the common stocks of 500 similar companies during
the
base period of the years 1941 through 1943. As of March 4, 2008, shares of
424
companies included in the SPX are traded on the New York Stock Exchange and
shares of 76 companies included in the SPX are traded on The NASDAQ Global
Select Market or the NASDAQ Global Market (collectively, the “NASDAQ”). Standard
& Poor’s chooses companies for inclusion in the SPX with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the New
York
Stock Exchange (the “NYSE”), which Standard & Poor’s uses as an assumed
model for the composition of the total market. Relevant criteria employed
by
Standard & Poor’s include the viability of the particular company, the
extent to which that company represents the industry group to which it is
assigned, the extent to which the market price of that company’s common stock is
generally responsive to changes in the affairs of the respective industry
and
the market value and trading activity of the common stock of that company.
Ten
main groups of companies comprise the SPX with the number of companies included
in each group, as of March 4, 2008, indicated in parenthesis: Industrials
(56),
Utilities (31), Telecommunication Services (9), Materials (28), Information
Technology (71), Energy (36), Consumer Staples (39), Consumer Discretionary
(87), Health Care (51) and Financials (92). Changes in the SPX are reported
daily in the financial pages of many major newspapers, on the Bloomberg
Professional
®
service
(“Bloomberg”) under the symbol “SPX” and on the Standard & Poor’s website
(http://www.sandp.com). Information contained in the Standard & Poor’s
website is not incorporated by reference in, and should not be considered
a part
of, this pricing supplement. The SPX does not reflect the payment of dividends
on the stocks included in the SPX.
Computation
of the SPX
Standard
& Poor’s currently computes the SPX as of a particular time as
follows:
(i)
the
product of the market price per share and the number of then outstanding
shares
of each Reference Index stock as determined as of that time (referred to
as the
“market value” of that stock);
(ii)
the
market values of all Reference Index stocks as of that time are
aggregated;
(iii)
the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv)
the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “Base
Value”);
(v)
the
current aggregate market value of all Reference Index stocks is divided by
the
Base Value; and
(vi)
the
resulting quotient, expressed in decimals, is multiplied by ten.
While
Standard & Poor’s currently employs the above methodology to calculate the
SPX, no assurance can be given that Standard & Poor’s will not modify or
change this methodology in a manner that may affect the performance of the
SPX.
Standard
& Poor’s adjusts the foregoing formula to offset the effects of changes in
the market value of a Reference Index stock that are determined by Standard
& Poor’s to be arbitrary or not due to true market
fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities
of the
company,
|
|
·
|
the
substitution by Standard & Poor’s of particular Reference Index stocks
in the SPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all Reference Index stocks, after taking account of the new market price
per
share of the particular Reference Index stock or the new number of outstanding
shares of that stock or both, as the case may be, and then determines the
new
base value in accordance with the following formula:
The
result is that the base value is adjusted in proportion to any change in
the
aggregate market value of all Reference Index stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these
causes
upon the SPX.
In
addition, Standard & Poor’s’ standard practice is to remove all closely held
shares and shares held between corporations who are both in the calculations
of
the SPX and an Index Reference Index’s market value.
License
Agreement with Standard and Poor’s
The
Company has entered or expects to enter into a non-exclusive license agreement
with Standard & Poor’s providing for the license to us, in exchange for a
fee, of the right to use the SPX, which is owned and published by Standard
&
Poor’s, in connection with certain securities, including the Notes.
The
license agreement between Standard & Poor’s and us provides that the
following language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s.
Standard & Poor’s makes no representation or warranty, express or implied,
to the owners of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes particularly.
Standard & Poor’s only relationship to us is the licensing of certain
trademarks, trade names and service marks of Standard & Poor’s and of the
SPX, which is determined, composed and calculated by Standard & Poor’s
without regard to us or the Notes. Standard & Poor’s has no obligation to
take our needs or the needs of holders of the Notes into consideration in
determining, composing, or calculating the SPX. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of,
prices at which Notes are sold, or quantities of the Notes to be issued or
in
the determination or calculation of the amount payable at maturity. Standard
& Poor’s has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
Standard
& Poor’s does not guarantee the accuracy or the completeness of the SPX or
any data included therein and Standard & Poor’s shall have no liability for
any errors, omissions, or interruptions therein. Standard & Poor’s makes no
warranty, express or implied, as to results to be obtained by us, owners
of the
Notes, or any other person or entity from the use of the SPX or any data
included therein. Standard & Poor’s makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for
a
particular purpose or use with respect to the SPX or any data included therein.
Without limiting any of the foregoing, in no event shall Standard & Poor’s
have any liability for any lost profits or indirect, punitive, special, or
consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements
between
Standard & Poor’s and the Company.”
Historical
D
ata
on the
SPX
The
following table sets forth the month-end closing index levels of the
SPX
for each
month in the period from January 1998 through February 2008. The
SPX’s
closing
index levels listed below were obtained from Bloomberg, without independent
verification by the Company.
The
historical values of the
SPX
should not be taken as an indication of future performance, and no assurance
can
be given that the level of the
SPX
will increase relative to its the Initial Index Level during the term of
the
Notes.
The
closing index level of the
SPX
on March
4, 2008 was 1,326.75.
Month-End
Closing Index Levels: January 1998 -February 2008
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
January
|
980.28
|
1,279.64
|
1,394.46
|
1,366.01
|
1,130.20
|
855.70
|
1,131.13
|
1,181.27
|
1,280.08
|
1,438.24
|
1,378.55
|
February
|
1,049.34
|
1,238.33
|
1,366.42
|
1,239.94
|
1,106.73
|
841.15
|
1,144.94
|
1,203.60
|
1,280.66
|
1,406.82
|
1,330.36
|
March
|
1,101.75
|
1,286.37
|
1,498.58
|
1,160.33
|
1,147.39
|
848.18
|
1,126.21
|
1,180.59
|
1,294.83
|
1,420.86
|
|
April
|
1,111.75
|
1,335.18
|
1,452.43
|
1,249.46
|
1,076.92
|
916.92
|
1,107.30
|
1,156.85
|
1,310.61
|
1,482.37
|
|
May
|
1,090.82
|
1,301.84
|
1,420.60
|
1,255.82
|
1,067.14
|
963.59
|
1,120.68
|
1,191.50
|
1,270.09
|
1,530.62
|
|
June
|
1,133.84
|
1,372.71
|
1,454.60
|
1,224.42
|
989.82
|
974.50
|
1,140.84
|
1,191.33
|
1,270.20
|
1,503.35
|
|
July
|
1,120.67
|
1,328.72
|
1,430.83
|
1,211.23
|
911.62
|
990.31
|
1,101.72
|
1,234.18
|
1,276.66
|
1,455.27
|
|
August
|
957.28
|
1,320.41
|
1,517.68
|
1,133.58
|
916.07
|
1,008.01
|
1,104.24
|
1,220.33
|
1,303.82
|
1,473.99
|
|
September
|
1,017.01
|
1,282.71
|
1,436.51
|
1,040.94
|
815.28
|
995.97
|
1,114.58
|
1,228.81
|
1,335.85
|
1,526.75
|
|
October
|
1,098.67
|
1,362.93
|
1,429.40
|
1,059.78
|
885.76
|
1,050.71
|
1,130.20
|
1,207.01
|
1,377.94
|
1,549.38
|
|
November
|
1,163.63
|
1,388.91
|
1,314.95
|
1,139.45
|
936.31
|
1,058.20
|
1,173.82
|
1,249.48
|
1,400.63
|
1,481.14
|
|
December
|
1,229.23
|
1,469.25
|
1,320.28
|
1,148.08
|
879.82
|
1,111.92
|
1,211.92
|
1,248.29
|
1,418.30
|
1,468.36
|
|
The
following graph illustrates the historical performance of the SPX based on
the
closing level on the last Index Business Day of each month from January 1998
to
February 2008.
The
Nasdaq-100 Index
®
(“NDX”)
We
have
derived all information relating to the Index, including, without limitation,
its make-up, performance, method of calculation and changes in its components,
from publicly available sources. That information reflects the policies of,
and
is subject to change by the Nasdaq Stock Market, Inc. (“Nasdaq”). Nasdaq is
under no obligation to continue to publish, and may discontinue or suspend
the
publication of the Index at any time. We make no representation or warranty
as
to the accuracy or completeness of any information relating to the
NDX.
The
NDX
is determined and calculated by Nasdaq and was developed and first published
in
January 1985 by Nasdaq. The NDX is a modified capitalization-weighted index
of
100 of the largest non-financial companies listed on The NASDAQ Stock Market
LLC. The NDX constitutes a broadly diversified segment of the largest securities
listed on The NASDAQ Stock Market LLC and includes companies across a variety
of
major industry groups. At any moment in time, the value of the NDX equals
the
aggregate value of the then-current NDX share weights of each of the NDX
component securities, which are based on the total shares outstanding of
each
such NDX component security, multiplied by each such security’s respective last
sale price on The NASDAQ Stock Market LLC (which may be the official closing
price published by The NASDAQ Stock Market LLC), and divided by a scaling
factor
(the “divisor”), which becomes the basis for the reported NDX value. The divisor
serves the purpose of scaling such aggregate value (otherwise in the trillions)
to a lower order of magnitude which is more desirable for NDX reporting
purposes.
To
be
eligible for inclusion in the NDX, a security must be traded on the The NASDAQ
Stock Market LLC and meet the other eligibility criteria, including the
following: the security’s U.S. listing must be exclusively on the NASDAQ Global
Select Market or the NASDAQ Global Market (unless the security was dually
listed
on another U.S. market prior to January 1, 2004 and has continuously maintained
such listing), the security must be of a non-financial company; only one
class
of security per issuer is allowed; the security may not be issued by an issuer
currently in bankruptcy proceedings; the security must have an average daily
trading volume of at least 200,000 shares; the security must have “seasoned” on
The NASDAQ Stock Market LLC or another recognized market (generally a company
is
considered to be seasoned by Nasdaq if it has been listed on a market for
at
least two years; in the case of spin-offs, the operating history of the spin-off
will be considered); if the security would otherwise qualify to be in the
top
25% of the securities included in the NDX by market capitalization for the
six
prior consecutive month ends, then a one-year “seasoning” criteria would apply;
if the security is of a foreign issuer, it must have listed options or be
eligible for listed-options trading; the issuer of the security may not have
annual financial statements with an audit opinion which the auditor or the
company have indicated cannot be currently relied upon; and the issuer of
the
security may not have entered into a definitive agreement or other arrangement
which would result in the security no longer being listed on The NASDAQ Stock
Market LLC within the next six months.
In
addition, to be eligible for continued inclusion in the NDX, the following
criteria apply: the security’s U.S. listing must be exclusively on the NASDAQ
Global Select Market or the NASDAQ Global Market (unless the security was
dually
listed on another U.S. market prior to January 1, 2004 and has continuously
maintained such listing); the security must be of a non-financial company;
the
security may not be issued by an issuer currently in bankruptcy proceedings;
the
security must have an average daily trading volume of at least 200,000 shares;
if the security is of a foreign issuer, it must have listed options or be
eligible for listed-options trading; the issuer of the security may not have
annual financial statements with an audit opinion which the auditor or the
company have indicated cannot be currently relied upon; and the security
must
have an adjusted market capitalization equal to or exceeding 0.10% of the
aggregate adjusted market capitalization of the NDX at each month end. In
the
event a company does not meet this criterion for two consecutive month ends,
it
will be removed from the NDX effective after the close of trading on the
third
Friday of the following month.
The
securities in the NDX are monitored every day by Nasdaq with respect to changes
in total shares outstanding arising from secondary offerings, stock repurchases,
conversions or other corporate actions. Nasdaq has adopted the following
quarterly scheduled weight adjustment procedures with respect to such changes.
If the change in total shares outstanding arising from such corporate action
is
greater than or equal to 5.0%, such change is made to the NDX on the evening
prior to the effective date of such corporate action or as soon as practical
thereafter. Otherwise, if the change in total shares outstanding is less
than
5.0%, then all such changes are accumulated and made effective at one time
on a
quarterly basis after the close of trading on the third Friday in each of
March,
June, September and December. In either case, the NASDAQ-100 Index
®
share
weights for such NDX component securities are adjusted by the same percentage
amount by which the total shares outstanding have changed in such NDX component
securities.
Additionally,
Nasdaq may periodically (ordinarily, several times per quarter) replace one
or
more component securities in the NDX due to mergers, acquisitions, bankruptcies
or other market conditions, or due to delisting if an issuer chooses to list
its
securities on another marketplace, or if the issuers of such component
securities fail to meet the criteria for continued inclusion in the
NDX.
The
NDX
share weights are also subject, in certain cases, to a rebalancing. Ordinarily,
whenever there is a change in the NDX share weights or a change in a component
security included in the NDX, Nasdaq adjusts the divisor to assure that there
is
no discontinuity in the value of the NDX which might otherwise be caused
by such
change.
Annual
Ranking Review
The
NDX
component securities are evaluated on an annual basis, except under
extraordinary circumstances which may result in an interim evaluation, the
“Annual Ranking Review”. Securities listed on The NASDAQ Stock Market LLC which
meet the eligibility criteria described above are ranked by market value
using
closing prices as of the end of October and publicly available total shares
outstanding as of the end of November. NDX-eligible securities which are
already
in the NDX and which are in the top 150 eligible securities (based on market
value) are retained in the NDX provided that such security was ranked in
the top
100 eligible securities as of the previous year’s ranking review. Securities not
meeting such criteria are replaced. The replacement securities chosen are
the
largest market capitalization NDX-eligible securities not currently in the
NDX.
Generally, the list of annual additions and deletions is publicly announced
via
a press release in the early part of December. Replacements are made effective
after the close of trading on the third Friday in December. Moreover, if
at any
time during the year a NDX component security is no longer traded on Nasdaq,
or
is otherwise determined by Nasdaq to become ineligible for continued inclusion
in the NDX, the security will be replaced with the largest market capitalization
security not currently in the NDX and meeting the NDX eligibility criteria
listed above.
Rebalancing
of the NDX for Modified Capitalization-weighted Methodology
Effective
after the close of trading on December 18, 1998, the NDX has been calculated
under a “modified capitalization-weighted” methodology, which is a hybrid
between equal weighting and conventional capitalization weighting. This
methodology is expected to: (1) retain in general the economic attributes
of
capitalization weighting; (2) promote portfolio weight diversification (thereby
limiting domination of the NDX by a few large stocks); (3) reduce NDX
performance distortion by preserving the capitalization ranking of companies;
and (4) reduce market impact on the smallest NDX component securities from
necessary weight re-balancings.
Under
the
methodology employed, on a quarterly basis coinciding with Nasdaq’s quarterly
scheduled weight adjustment procedures described above, the NDX component
securities are categorized as either “Large Stocks” or “Small Stocks” depending
on whether their current percentage weights (after taking into account such
scheduled weight adjustments due to stock repurchases, secondary offerings
or
other corporate actions) are greater than, or less than or equal to, the
average
percentage weight in the NDX (i.e., as a 100-stock index, the average percentage
weight in the NDX is 1.0%).
Such
quarterly examination will result in a NDX rebalancing if either one or both
of
the following two weight distribution requirements are not met: (1) the current
weight of the single largest market capitalization NDX component security
must
be less than or equal to 24.0% and (2) the “collective weight” of those NDX
component securities whose individual current weights are in excess of 4.5%,
when added together, must be less than or equal to 48.0%. In addition, Nasdaq
may conduct a special rebalancing if it is determined necessary to maintain
the
integrity of the NDX.
If
either
one or both of these weight distribution requirements are not met upon quarterly
review or Nasdaq determines that a special rebalancing is required, a weight
rebalancing will be performed in accordance with the following plan. First,
relating to weight distribution requirement (1) above, if the current weight
of
the single largest NDX component security exceeds 24.0%, then the weights
of all
Large Stocks will be scaled down proportionately towards 1.0% by enough for
the
adjusted weight of the single largest NDX component security to be set to
20.0%.
Second, relating to weight distribution requirement (2) above, for those
NDX
component securities whose individual current weights or adjusted weights
in
accordance with the preceding step are in excess of 4.5%, if their “collective
weight” exceeds 48.0%, then the weights of all Large Stocks will be scaled down
proportionately towards 1.0% by just enough for the “collective weight,” so
adjusted, to be set to 40.0%.
The
aggregate weight reduction among the Large Stocks resulting from either or
both
of the above re-scalings will then be redistributed to the Small Stocks in
the
following iterative manner. In the first iteration, the weight of the largest
Small Stock will be scaled upwards by a factor which sets it equal to the
average NDX weight of 1.0%. The weights of each of the smaller remaining
Small
Stocks will be scaled up by the same factor reduced in relation to each stock’s
relative ranking among the Small Stocks such that the smaller the NDX component
security in the ranking, the less the scale-up of its weight. This is intended
to reduce the market impact of the weight rebalancing on the smallest component
securities in the NDX.
In
the
second iteration, the weight of the second largest Small Stock, already adjusted
in the first iteration, will be scaled upwards by a factor which sets it
equal
to the average index weight of 1.0%. The weights of each of the smaller
remaining Small Stocks will be scaled up by this same factor reduced in relation
to each stock’s relative ranking among the Small Stocks such that, once again,
the smaller the stock in the ranking, the less the scale-up of its
weight.
Additional
iterations will be performed until the accumulated increase in weight among
the
Small Stocks exactly equals the aggregate weight reduction among the Large
Stocks from rebalancing in accordance with weight distribution requirement
(1)
and/or weight distribution requirement (2).
Then,
to
complete the rebalancing procedure, once the final percent weights of each
NDX
component security are set, the NDX share weights will be determined anew
based
upon the last sale prices and aggregate capitalization of the NDX at the
close
of trading on the Thursday in the week immediately preceding the week of
the
third Friday in March, June, September, and December. Changes to the NDX
share
weights will be made effective after the close of trading on the third Friday
in
March, June, September, and December and an adjustment to the NDX divisor
will
be made to ensure continuity of the NDX. Ordinarily, new rebalanced weights
will
be determined by applying the above procedures to the current NDX share weights.
However, Nasdaq may from time to time determine rebalanced weights, if
necessary, by instead applying the above procedure to the actual current
market
capitalization of the NDX components. In such instances, Nasdaq would announce
the different basis for rebalancing prior to its implementation.
Historical
Data on the NDX
The
following table sets forth the month-end closing index levels of the NDX
for
each month in the period from January 1998 through February 2008. The NDX
closing index levels listed below were obtained from the Bloomberg, without
independent verification by the Company.
The
historical values of the NDX should not be taken as an indication of future
performance, and no assurance can be given that the level of the NDX will
increase relative to its Initial Index Level during the term of the
Notes.
The
closing level of the NDX on March 4, 2008 was 1,743.70.
Month-End
Closing Levels: January 1998 - February 2008
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
January
|
1,071.13
|
2,127.19
|
3,570.05
|
2,593.00
|
1,550.17
|
983.05
|
1,493.08
|
1,519.63
|
1,710.75
|
1,792.28
|
1,841.42
|
February
|
1,194.13
|
1,925.28
|
4,266.94
|
1,908.32
|
1,359.22
|
1,009.74
|
1,470.38
|
1,511.02
|
1,670.57
|
1,761.65
|
1,745.27
|
March
|
1,220.66
|
2,106.39
|
4,397.84
|
1,573.25
|
1,452.81
|
1,018.66
|
1,438.41
|
1,482.53
|
1,703.66
|
1,772.36
|
|
April
|
1,248.12
|
2,136.39
|
3,773.18
|
1,855.15
|
1,277.07
|
1,106.06
|
1,401.36
|
1,420.79
|
1,700.71
|
1,867.75
|
|
May
|
1,192.07
|
2,089.70
|
3,324.08
|
1,799.89
|
1,208.34
|
1,197.89
|
1,466.22
|
1,542.63
|
1,579.58
|
1,928.19
|
|
June
|
1,337.34
|
2,296.77
|
3,763.79
|
1,830.19
|
1,051.41
|
1,201.69
|
1,516.64
|
1,493.52
|
1,575.23
|
1,934.10
|
|
July
|
1,377.26
|
2,270.93
|
3,609.35
|
1,683.61
|
962.11
|
1,276.94
|
1,400.39
|
1,605.14
|
1,509.43
|
1,932.06
|
|
August
|
1,140.34
|
2,396.87
|
4,077.59
|
1,469.70
|
942.38
|
1,341.20
|
1,368.68
|
1,581.71
|
1,579.73
|
1,988.73
|
|
September
|
1,345.48
|
2,407.90
|
3,570.61
|
1,168.37
|
832.52
|
1,303.70
|
1,412.74
|
1,601.66
|
1,654.13
|
2,091.11
|
|
October
|
1,400.52
|
2,637.44
|
3,282.30
|
1,364.78
|
989.54
|
1,416.39
|
1,486.72
|
1,579.18
|
1,732.54
|
2,238.98
|
|
November
|
1,557.96
|
2,966.71
|
2,506.54
|
1,596.05
|
1,116.10
|
1,424.25
|
1,571.50
|
1,672.56
|
1,791.25
|
2,089.10
|
|
December
|
1,836.01
|
3,707.83
|
2,341.70
|
1,577.05
|
984.36
|
1,467.92
|
1,621.12
|
1,645.20
|
1,756.90
|
2,084.93
|
|
The
following graph illustrates the historical performance of the NDX based on
the
closing level on the last Index Business Day of each month from January 1998
to
February 2008.
The
Dow Jones AIG Commodity Index
SM
(“DJAIG”)
General
Unless
otherwise stated, we have derived all information regarding the DJAIG provided
in this pricing supplement, including its composition, method of calculation
and
changes in components, from Dow Jones and AIG Financial Products, Inc.
(“AIG-FP”), publicly available sources and other sources we believe to be
reliable. Such information reflects the policies of, and is subject to change
by, Dow Jones and AIG-FP. Dow Jones and AIG-FP are under no obligation to
continue to publish, and may discontinue or suspend the publication of, the
DJAIG at any time. Additionally, Dow Jones and AIG-FP can add, delete or
substitute the components underlying the DJAIG or make other methodological
changes that could change the level of the DJAIG. Dow Jones and AIG-FP have
no
obligation to consider the interests of the holders of the Notes in calculating
or revising the DJAIG. We do not assume any responsibility for the accuracy
or
completeness of any information relating to the DJAIG.
The
DJAIG
was introduced in July 1998 to provide a diversified and liquid benchmark
for
physical commodities as an asset class. The DJAIG currently is composed of
the
prices of nineteen exchange-traded futures contracts on physical commodities.
An
exchange-traded futures contract is a bilateral agreement providing for the
purchase and sale of a specified type and quantity of a commodity or financial
instrument during a stated delivery month for a fixed price. The commodities
(on
which the futures contracts are based) included in the DJAIG for 2007 are
aluminum, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean
hogs,
live cattle, natural gas, nickel, silver, soybeans, soybean oil, sugar, unleaded
gasoline, wheat and zinc. Futures contracts on the Index are currently listed
for trading on the Chicago Board of Trade (“CBOT”).
The
Dow Jones-AIG Commodity Index Advisory Committee and Supervisory
Committee
Prior
to
February 2007, the Dow Jones-AIG Commodity Index Oversight Committee (the
“Oversight Committee”) assisted Dow Jones and AIG-FP in connection with the
operation of the DJAIG. The Oversight Committee included prominent members
of
the financial, academic and legal communities and met annually to consider
changes to be made to the DJAIG for the coming year.
In
February 2007, Dow Jones and AIG-FP announced modifications to the rules
regarding the Oversight Committee. A new two tier structure composed of an
Advisory Committee and a Supervisory Committee was adopted to replace the
previous single Oversight Committee. The purpose of this two tiered structure
is
to expand the breadth of input into the decision-making process, while also
providing a mechanism for a more rapid reaction in the event of any market
disruptions or extraordinary changes in market conditions.
The
Supervisory Committee is currently composed of three individuals, one each
from
Dow Jones Indexes (a division of Dow Jones), AIG-FP and Banque AIG (a subsidiary
of AIG-FP). The Advisory Committee currently consists of nine leading figures
from the financial and academic communities. The Supervisory Committee will
make
all final decisions relating to the Index, given any advice and recommendations
of the Advisory Committee.
As
described in more detail below, the DJAIG is re-weighted and rebalanced each
year in January on a price-percentage basis. The annual weightings for the
DJAIG
are determined each year in June or July by AIG-FP, announced in July and
implemented the following January. The most recent composition of the DJAIG
was
approved by the Oversight Committee at a meeting held in July 2006. The next
DJAIG re-weightings and rebalancing will be implemented in January 2008,
upon
approval of the Supervisory Committee.
Four
Main Principles Guiding the Creation of the Dow Jones-AIG
DJAIG
The
DJAIG
was created using the following four main principles:
•
Economic significance. The DJAIG is intended to represent the importance
of a
diversified group of commodities to the world economy. To achieve a fair
representation, the DJAIG uses both liquidity data and U.S. dollar-weighted
production data in determining the relative quantities of included commodities.
The DJAIG primarily relies on liquidity data, or the relative amount of trading
activity of a particular commodity, as an important indicator of the value
placed on that commodity by financial and physical market participants. The
DJAIG also relies on production data as a useful measure of the importance
of a
commodity to the world economy. Production data alone, however, may
underestimate the economic significance of storable commodities (such as
gold)
relative to non-storable commodities (such as live cattle). Production data
alone also may underestimate the investment value that financial market
participants place on certain commodities, and/or the amount of commercial
activity that is centered around various commodities. Put another way,
production statistics alone do not necessarily provide as accurate a blueprint
of economic importance as the pronouncements of the markets themselves. The
DJAIG thus relies on data that is both an inherent aspect of the futures
market
(liquidity) and external to the futures market (production) in determining
relative weightings.
•
Diversification. A second major goal of the DJAIG is to provide diversified
exposure to commodities as an asset class. As described further below,
diversification rules have been established and are applied
annually.
•
Continuity. The third goal of the DJAIG is to be responsive to the changing
nature of commodity markets in a manner that does not completely reshape
the
character of the index from year to year. The DJAIG is intended to provide
a
stable benchmark.
•
Liquidity. Another goal of the DJAIG is to provide a highly liquid index.
The
explicit inclusion of liquidity as a weighting factor helps to ensure that
the
DJAIG can accommodate substantial investment flows. The liquidity of an index
affects transaction costs associated with current investments. It also may
affect the reliability of historical price performance.
Daily
Calculations
The
DJAIG
is calculated daily by Dow Jones, in conjunction with AIG-FP, by applying
the
impact of the changes to the futures prices of commodities included in the
DJAIG
(based on their relative weightings) to the previous day’s DJAIG value. Since
the futures contracts included in the DJAIG are for physical commodities,
they
must be rolled periodically according to a fixed schedule in order to maintain
exposure to the underlying commodities without taking delivery. The rollover
for
each contract occurs over a period of five business days during such applicable
period.
Annual
Reweightings and Rebalancings of the Index
The
DJAIG
is reweighted and rebalanced each year in January on a price-percentage basis.
The annual weightings for the DJAIG are determined each year in June by AIG-FP,
under the supervision of the Advisory and Supervisory Committees, announced
in
July and implemented the following January. The composition of the Index
for
2007 was approved by the Oversight Committee at a meeting held in July
2006.
Determination
of Relative Weightings
The
relative weightings of the component commodities included in the DJAIG are
determined annually according to both liquidity and dollar-adjusted production
data in 2/3 and 1/3 shares, respectively. Each June, for each commodity
designated for potential inclusion in the DJAIG, liquidity is measured by
the
Commodity Liquidity Percentage (“CLP”) and production by the Commodity
Production Percentage (“CPP”). The CLP for each commodity is determined by
taking a five-year average of the product of trading volume and the historic
U.S. dollar value of the futures contract selected as the reference contract
for
that commodity (the “Designated Contract”), and dividing the result by the sum
of such products for all commodities which were designated for potential
inclusion in the DJAIG. The CPP is determined for each commodity by taking
a
five-year average of annual world production figures, adjusted by the historic
U.S. dollar value of the Designated Contract, and dividing the result by
the sum
of such production figures for all the commodities that were designated for
potential inclusion in the DJAIG. The CLP and the CPP are then combined (using
a
ratio of 2:1) to establish the DJAIG Percentage (“CIP”) for each commodity. This
CIP is then adjusted in accordance with certain diversification rules in
order
to determine the commodities that will be included in the DJAIG (the “Index
Commodities”) and their respective percentage weights, as described
below.
DJAIG
Multipliers
Subject
to the Diversification Rules discussed below, CIPs are incorporated into
the
DJAIG by calculating the new unit weights for each Index Commodity. On the
fourth business day of each new calendar year (the “CIM Determination Date”),
the CIPs, along with the settlement prices on that date for Designated Contracts
included in the DJAIG, are used to determine a “DJAIG Multiplier” or “CIM” for
each Index Commodity. This CIM is used to achieve the percentage weightings
of
the Index Commodities, in dollar terms, indicated by their respective CIPs.
After the CIMs are calculated, they remain fixed throughout the year. As
a
result, the observed price percentage of each Index Commodity will float
throughout the year, until the CIMs are reset the following year based on
new
CIPs.
Diversification
Rules
The
DJAIG
is designed to provide diversified exposure to commodities as an asset class.
To
ensure that no single commodity or commodity sector dominates the index,
the
index relies on several diversification rules, which are applied annually
when
the DJAIG is re-weighted and rebalanced on a price-percentage basis. The
following diversification rules are applied to the annual re-weighting and
rebalancing of the DJAIG as of January of the applicable year:
•
No
related group of commodities (e.g., energy, precious metals, livestock, or
grains) may constitute more than 33% of the index.
•
No
single commodity may constitute more than 15% of the index.
•
No
single commodity, together with its derivatives (e.g., crude oil, together
with
heating oil and unleaded gasoline), may constitute more than 25% of the
index.
•
No
single commodity that is in the index may constitute less than 2% of the
index.
Following
the annual re-weighting and rebalancing of the DJAIG in January, the percentage
of any single commodity or group of commodities will fluctuate and may exceed
or
be less than the percentages set forth above.
Commodities
Available for Inclusion in the DJAIG
Commodities
have been selected which are believed to be sufficiently significant to the
world economy to merit consideration and which are the subject of a qualifying
related futures contract. The 23 potential commodities currently are aluminum,
cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lead,
live
cattle, lean hogs, natural gas, nickel, platinum, silver, soybeans, soybean
oil,
sugar, tin, unleaded gasoline, wheat and zinc.
The
DJAIG Is a Rolling Index
The
DJAIG
is composed of futures contracts on physical commodities. Unlike equities,
which
typically entitle the holder to a continuing stake in a corporation, commodity
futures contracts normally specify a certain date for the delivery of the
underlying physical commodity. In order to avoid delivering the underlying
physical commodities and to maintain exposure to the underlying physical
commodities, periodically futures contracts on physical commodities specifying
delivery on a nearby date must be sold and futures contracts on physical
commodities that have not yet reached the delivery period must be purchased.
The
rollover for each contract occurs over a period of five business days each
month
according to a pre-determined schedule. This process is known as “rolling” a
futures position.
License
Agreement with Dow Jones & Company Inc. and AIG Financial Products
Corp.
The
Bear
Stearns Companies Inc. has entered, or is exploring entering, into a
non-exclusive license agreement with Dow Jones & Company Inc. and AIG
Financial Products Corp., whereby The Bear Stearns Companies Inc. and its
affiliates and subsidiary companies, in exchange for a fee, will be permitted
to
use the DJAIG, which is owned and published by Dow Jones & Company Inc. and
AIG Financial Products Corp., in connection with certain products, including
the
Notes.
The
Notes
are not sponsored, endorsed, sold or promoted by the Dow Jones & Company
Inc. and AIG Financial Products Corp. (including their affiliates). Dow Jones
& Company Inc. and AIG Financial Products Corp. have not passed on the
legality or appropriateness of, or the accuracy or adequacy of descriptions
and
disclosures relating to the Notes. Dow Jones & Company Inc. and AIG
Financial Products Corp. make no representation or warranty, express or implied
to the owners of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes particularly,
or the ability of the DJAIG to track general stock market performance. Dow
Jones
& Company Inc. and AIG Financial Products Corp. have no relationship to The
Bear Stearns Companies, Inc. other than the licensing of the DJAIG and the
related trademarks for use in connection with the Notes, which index is
determined, composed and calculated by Dow Jones & Company Inc. and AIG
Financial Products Corp. without regard to The Bear Stearns Companies, Inc.
or
the Notes. Dow Jones & Company Inc. and AIG Financial Products Corp. have no
obligation to take the needs of The Bear Stearns Companies, Inc. or the owners
of the Notes into consideration in determining, composing or calculating
the
DJAIG. Dow Jones & Company Inc. and AIG Financial Products Corp. are not
responsible for and have not participated in the determination of the timing
of,
prices at, or quantities of the Notes to be issued or in the determination
or
calculation of the equation by which the Notes are to be converted into cash.
Dow Jones & Company Inc. and AIG Financial Products Corp. have no liability
in connection with the administration, marketing or trading of the
Notes.
Dow
Jones
& Company Inc. and AIG Financial Products Corp. are under no obligation to
continue the calculation and dissemination of the DJAIG and the method by
which
the DJAIG is calculated and the name “Dow Jones AIG Commodity Index” may be
changed at the discretion of Dow Jones & Company Inc. and AIG Financial
Products Corp.. No inference should be drawn from the information contained
in
this pricing supplement that Dow Jones & Company Inc. and AIG Financial
Products Corp. make any representation or warranty, implied or express, to
you
or any member of the public regarding the advisability of investing in
securities generally or in the Notes in particular or the ability of the
DJAIG
to track general stock market performance. Dow Jones & Company Inc. and AIG
Financial Products Corp. have no obligation to take into account your interest,
or that of anyone else having an interest in determining, composing or
calculating the DJAIG. Dow Jones & Company Inc. and AIG Financial Products
Corp. are not responsible for, and has not participated in the determination
of
the timing of, prices for or quantities of, the Notes or in the determination
or
calculation of the equation by which the Notes are to be settled in cash.
Dow
Jones & Company Inc. and AIG Financial Products Corp. have no obligation or
liability in connection with the administration, marketing or trading of
the
Notes. The use of and reference to the DJAIG in connection with the Notes
have
been consented to by Dow Jones & Company Inc. and AIG Financial Products
Corp..
Dow
Jones
& Company Inc. and AIG Financial Products Corp. disclaim all responsibility
for any inaccuracies in the data on which the DJAIG is based, or any mistakes
or
errors or omissions in the calculation or dissemination of the
DJAIG.
Historical
Performance of the DJAIG
The
following table sets forth the month-end closing index levels of the DJAIG
for
each month in the period from January 1998 through February 2008. The DJAIG
closing index levels listed below were obtained from Bloomberg, without
independent verification by us.
The
historical values of the DJAIG should not be taken as an indication of future
performance, and no assurance can be given that the level of the DJAIG will
increase relative to its the Initial Index Level during the term of the
Notes.
The
closing index level of the DJAIG on March 4, 2008 was 213.859.
Month-End
Closing Levels: January 1998 - February 2008
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
January
|
111.93
|
77.19
|
96.82
|
111.37
|
88.31
|
118.64
|
137.62
|
146.82
|
173.67
|
166.09
|
192.29
|
February
|
106.69
|
74.24
|
98.06
|
110.48
|
90.48
|
122.53
|
146.45
|
156.89
|
162.23
|
171.01
|
215.52
|
March
|
106.52
|
81.02
|
98.52
|
105.37
|
99.59
|
113.17
|
150.84
|
162.09
|
165.19
|
171.96
|
|
April
|
104.68
|
84.00
|
96.88
|
108.71
|
99.43
|
112.36
|
148.05
|
152.29
|
175.77
|
173.22
|
|
May
|
99.12
|
78.56
|
103.12
|
106.09
|
97.76
|
118.82
|
150.44
|
150.73
|
176.68
|
172.72
|
|
June
|
96.56
|
82.60
|
104.76
|
101.57
|
99.52
|
115.79
|
144.03
|
152.89
|
173.24
|
169.67
|
|
July
|
90.35
|
83.73
|
99.00
|
102.57
|
98.83
|
116.40
|
146.41
|
159.33
|
178.03
|
172.45
|
-
|
August
|
84.27
|
88.21
|
108.17
|
102.23
|
102.58
|
120.90
|
143.56
|
170.82
|
170.88
|
165.57
|
-
|
September
|
90.45
|
92.44
|
106.98
|
95.11
|
106.29
|
120.90
|
153.18
|
178.25
|
159.96
|
178.25
|
-
|
October
|
87.46
|
88.42
|
103.82
|
90.41
|
105.05
|
126.57
|
155.55
|
166.52
|
166.82
|
183.52
|
-
|
November
|
80.85
|
90.09
|
111.59
|
90.96
|
105.25
|
126.09
|
153.41
|
166.40
|
175.21
|
177.25
|
-
|
December
|
77.80
|
92.27
|
114.61
|
89.03
|
110.28
|
135.27
|
145.60
|
171.15
|
166.51
|
184.96
|
-
|
The
following graph illustrates the historical performance of the DJAIG based
on the
closing level on the last Index Business Day of each month from January 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 Index. 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.
In
General
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of
securities with terms that are substantially the same as those of the Notes.
Accordingly, the proper U.S. federal income tax treatment of the Notes is
uncertain. Under one approach, the Notes would be treated as pre-paid
cash-settled executory contracts with respect to the Index. We intend to
treat
the Notes consistent with this approach, and pursuant to the terms of the
Notes,
you agree (in the absence of an administrative or judicial ruling to the
contrary) to treat the Notes consistent with this approach. Except as otherwise
provided in “—Alternative Characterizations and Treatments,” the balance of this
summary assumes that the Notes are so treated.
Federal
Income Tax Treatment of U.S. Holders
Upon
the
receipt of cash at maturity of a Note or upon the sale, exchange or other
disposition of a Note in a taxable transaction, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized
at
maturity or upon the sale, exchange or other disposition and the U.S. holder’s
tax basis in the Note. A U.S. holder’s tax basis in a Note will generally be
equal to the U.S. holder’s cost for the Note. Any such gain or loss generally
will constitute capital gain or loss, and if held for more than a year at
the
time of maturity, sale, exchange or other disposition, generally should be
long-term capital gain or loss. Long-term capital gains of non-corporate
taxpayers are generally eligible for reduced rates of taxation. The ability
of
U.S. holders to use capital losses to offset ordinary income is
limited.
It
is
possible that one or more of the components of the index may be treated as
a
“pass-thru entity” for purposes of section 1260 of the Code. In this case, it is
possible that the Notes may be subject to the “constructive ownership” rules of
section 1260 of the Code. If section 1260 applies to the Notes, the portion
of
any long-term capital gain that is recognized on the sale, exchange, maturity,
or other taxable disposition of the Notes and is attributable to a component
of
the Index that is a pass-thru entity for purposes of section 1260 of the
Code
may be treated as ordinary income and subject to an interest charge. Prospective
investors in the securities should consult their tax advisors as to the
possibility that one or more of the components of the Index is treated as
a
pass-thru entity for purposes of section 1260, and section 1260 applies to
their
Notes.
Alternative
Characterizations and Treatments
Although
we intend to treat each Note as a pre-paid cash-settled executory contract
as
described above, there are no statutory provisions, regulations, published
rulings or judicial decisions addressing the characterization of securities
with
terms that are substantially the same as those of the Notes, and therefore
the
Notes could be subject to some other characterization or treatment for U.S.
federal income tax purposes. For example, each Note could be treated as a
“contingent payment debt instrument” for U.S. federal income tax purposes. In
this event, a U.S. holder would be required to accrue original issue discount
income, subject to adjustments, at the “comparable yield” of the Notes and any
gain recognized with respect to the Note generally would be treated as ordinary
income. Prospective investors should consult their tax advisors as to the
federal income tax consequences to them if the Notes are treated as debt
instruments for federal income tax purposes.
In
addition, certain proposed Treasury regulations require the accrual of income
on
a current basis for contingent payments made under certain “notional principal
contracts.” The preamble to the proposed regulations states that the “wait and
see” method of accounting does not properly reflect the economic accrual of
income on those contracts and requires current accrual of income for some
contracts already in existence. While the proposed regulations do not apply
to
the Notes, the preamble to the proposed regulations indicates that similar
timing issues exist in the case of pre-paid forward contracts and therefore
similar timing issues may exist in the case of executory contracts. If the
IRS
or the U.S. Treasury Department publishes future guidance requiring current
economic accrual for contingent payments on pre-paid forward or executory
contracts, it is possible that a U.S. holder could be required to accrue
income
over the term of the Notes.
On
December 7, 2007, the Internal Revenue Service and the Treasury Department
issued Notice 2008-2 under which they requested comments as to whether the
purchaser of an exchange traded note or pre-paid forward contract (such as
a
note that we intend (and you agree) to treat as a forward or other executory
contract, or as a put and a deposit, for U.S. federal income tax purposes)
should be required to accrue income during its term under a mark-to-market,
accrual or other methodology, whether income and gain on such a note or contract
should be ordinary or capital, and whether foreign holders should be subject
to
withholding tax on any deemed income accrual. 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 the 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).
Finally, it is possible that a non-U.S. holder of the note could be subject
to
U.S. withholding tax in respect of a note. It is unclear whether any regulations
or other guidance would apply to the notes (possibly on a retroactive basis).
Prospective investors are urged to consult with their tax advisors regarding
Notice 2008-2 and the possible effect to them of the issuance of regulations
or
other guidance that affects the federal income tax treatment of the
notes.
Other
alternative federal income tax characterizations or treatments of the Notes
are
possible, and if applied could also affect the amount, the timing and the
character of the income, gain, or loss with respect to the Notes.
Prospective
investors in the Notes should consult their tax advisors as to the tax
consequences to them of purchasing Notes, including any alternative
characterizations and treatments.
Federal
Income Tax Treatment of Non-U.S. Holders
In
general, the gain realized on the maturity, sale, exchange or other disposition
of the Notes by a non-U.S. holder should not be subject to U.S. federal income
tax unless the gain is effectively connected with a trade or business conducted
by the non-U.S. holder in the United States, in which case the non-U.S. holder
will generally be subject to U.S. federal income tax on any income or gain
in
respect of the Note at the regular rates applicable to U.S. taxpayers, and,
for
a foreign corporation, possibly branch profits tax, unless an applicable
treaty
reduces or eliminates such tax, or the non-U.S. holder is an individual that
is
present in the United States for 183 days or more in the taxable year of
the
maturity, sale, exchange or other disposition and certain other conditions
are
satisfied, in which case the non-U.S. holder will generally be subject to
tax at
a rate of 30% on the amount by which the non-U.S. holder's capital gains
derived
from the maturity, sale, exchange, retirement or other disposition of the
Notes
and other assets that are from U.S. sources exceed capital losses allocable
to
U.S. sources.
Information
Reporting and Backup Withholding
Distributions
made on the Notes and proceeds from the sale of Notes to or through certain
brokers may be subject to a “backup” withholding tax on “reportable payments”
unless, in general, the holder of Notes complies with certain procedures
or is
an exempt recipient. Any amounts so withheld from distributions on the Notes
generally would be refunded by the IRS or allowed as a credit against the
holder
of Notes federal income tax, provided the holder of Notes makes a timely
filing
of an appropriate tax return or refund claim.
Reports
will be made to the IRS and to holder of Notes that are not exempt from the
reporting requirements.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section 406
of
ERISA prohibits similar transactions involving employee benefit plans that
are
subject to ERISA (“ERISA Plans”). Qualified Plans, IRAs and ERISA Plans are
referred to as “Plans.”
Persons
who have such specified relationships are referred to as “parties in interest”
under ERISA and as “disqualified persons” under the Code. “Parties in interest”
and “disqualified persons” encompass a wide range of persons, including any
fiduciary (for example, an investment manager, trustee or custodian) of a
Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the
Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a “party in interest” or “disqualified person”) would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such the Notes are acquired or held pursuant
to
and in accordance with an applicable statutory or administrative exemption.
Each
of us, Bear Stearns and Bear Stearns Securities Corp. is considered a
“disqualified person” under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we nor Bear Stearns can be a “party in
interest” to any IRA other than certain employer-sponsored IRAs, as only
employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the Pension Protection Act of 2006 contains a statutory
exemption from the prohibited transaction provisions of Section 406 of ERISA
and
Section 4975 of the Code for transactions involving certain parties in interest
or disqualified persons who are such merely because they are a service provider
to a Plan, or because they are related to a service provider. Generally,
the
exemption would be applicable if the party to the transaction with the Plan
is a
party in interest or a disqualified person to the Plan but is not (i) an
employer, (ii) a fiduciary who has or exercises any discretionary authority
or
control with respect to the investment of the Plan assets involved in the
transaction, (iii) a fiduciary who renders investment advice (within the
meaning
of ERISA and Section 4975 of the Code) with respect to those assets, or (iv)
an
affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this statutory
exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code)
and
purchasing Notes on behalf of a Plan will be deemed to represent that (x)
the
fiduciary has made a good faith determination that the Plan is paying no
more
than, and is receiving no less than, adequate consideration in connection
with
the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this exemption. Any purchaser that is
a
Plan is encouraged to consult with counsel regarding the application of the
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes,
the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section
3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law (“Similar Law”) similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
(“Similar Law Plans”) should consider applicable Similar Law when investing in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s (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 instruments included in the
Reference Index, exchange-traded and over-the-counter options on, or other
derivative or synthetic instruments related to, the Reference Index, individual
futures contracts on the Reference Index and on instruments included in the
Reference Index, futures contracts on the Reference Index 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
level
of the Reference Index), in connection with hedging with respect to the Notes,
we expect that we and/or one or more of our subsidiaries will increase or
decrease those initial hedging positions using dynamic hedging techniques
and
may take long or short positions in any of these instruments. We or one or
more
of our subsidiaries may also take positions in other types of appropriate
financial instruments that may become available in the future. If we or one
or
more of our subsidiaries has a long hedge position in any of these instruments
then we or one or more of our subsidiaries may liquidate a portion of these
instruments at or about the time of the maturity of the Notes. Depending
on,
among other things, future market conditions, the total amount and the
composition of such positions are likely to vary over time. We will not be
able
to ascertain our profits or losses from any hedging position until such position
is closed out and any offsetting position or positions are taken into account.
Although we have no reason to believe that such hedging activity will have
a
material effect on the price of any of these instruments or on the level
of the
Reference Index, we cannot guarantee that we and one or more of our subsidiaries
will not affect such levels as a result of its hedging activities. You should
also refer to “Use of Proceeds” in the accompanying prospectus.
SUPPLEMENTAL
PLAN
of
Distribution
Subject
to the terms and conditions set forth in the Distribution Agreement dated
as of
June 19, 2003, as amended, we have agreed to sell to Bear Stearns, as principal,
and Bear Stearns has agreed to purchase from us, the aggregate principal
amount
of Notes set forth opposite its name below.
Reference
Index
|
CUSIP
|
Agent
|
Principal
Amount of Notes
|
The
S&P 500
®
Index
|
0739282T9
|
Bear,
Stearns & Co. Inc.
|
[
l
]
|
|
|
|
|
The
NASDAQ-100 Index
®
|
0739282V4
|
Bear,
Stearns & Co. Inc.
|
|
|
|
|
|
The
Dow Jones AIG Commodity Index
SM
|
0739282W2
|
Bear,
Stearns & Co. Inc.
|
|
For
each
Note offering, the Agent intends to initially offer an amount of the Notes
to
the public equal to the aggregate principal amount as set forth on the cover
page 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 a
particular 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 15% of the aggregate principal amount of each offering of the
Note 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
Buffered
Accelerated Market Participation Securities
Linked
to a single Reference Index
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 Reference Indices
|
PS-25
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-38
|
|
Certain
ERISA Considerations
|
PS-41
|
|
Use
of Proceeds and Hedging
|
PS-42
|
|
Supplemental
Plan of Distribution
|
PS-42
|
|
Legal
Matters
|
PS-43
|
|
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
|
|
|
|
|
|