<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-43565
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 21, 1998)
U.S. $500,000,000
THE BEAR STEARNS COMPANIES INC.
6.20% GLOBAL NOTES DUE 2003
The 6.20% Global Notes Due 2003 (the "Notes") of The Bear Stearns Companies
Inc. (the "Company") are being offered for sale in the United States and in
those jurisdictions in Europe and Asia where it is legal to make such offers.
See "Underwriting".
Interest on the Notes will be payable semi-annually in same day funds on
each March 30 and September 30, beginning September 30, 1998. The Notes will
mature on March 30, 2003 and may not be redeemed by the Company prior to
maturity except upon the occurrence of certain events involving United States
taxation.
The Notes will be issued only in fully registered form and will be
represented by one or more global securities ("Global Securities") which will be
deposited with a custodian for, and registered in the name of a nominee of, The
Depository Trust Company ("DTC"). Beneficial interests in the Global Securities
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC for the accounts of its participants, including the U.S.
Depositaries (as defined herein) for each of Cedel Bank and Euroclear (as
defined herein). Except as provided herein and in the Global Securities, Notes
will not be available in definitive form. The Notes will trade in DTC's Same-Day
Funds Settlement System and, therefore, settlement of any secondary market
trading in the Notes will settle in same day funds. See "Description of Debt
Securities -- Global Securities" in the accompanying Prospectus.
Application will be made to the London Stock Exchange Limited (the "London
Stock Exchange") for the Notes to be admitted to the Official List of the London
Stock Exchange (the "Official List") and to the Listing Committee of The Stock
Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") for permission to
deal in, and listing of, the Notes thereon. No assurance can be given that
either of such applications for listing will be approved, and settlement of the
Notes is not conditional upon such listings being obtained.
The Notes will be unsecured and will rank PARI PASSU with all other
unsecured and unsubordinated indebtedness of the Company. Because the Company is
a holding company, the Notes will be effectively subordinated to the claims of
creditors of its subsidiaries with respect to the assets of those subsidiaries.
At December 31, 1997, the Company had outstanding approximately $25.0 billion of
indebtedness, none of which was secured, and subsidiaries of the Company had
outstanding approximately $1.0 billion of indebtedness (excluding $46.2 billion
relating to securities sold under repurchase agreements).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
<S> <C> <C> <C>
Per Note................................................. 99.978% .350% 99.628%
Total.................................................... $499,890,000 $1,750,000 $498,140,000
</TABLE>
(1) Plus accrued interest, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the U.S. Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deduction of estimated expenses of $260,000 payable by the Company.
--------------------------
Bear, Stearns International Limited ("BSIL") is acting as Global Coordinator
(the "Global Coordinator") for the offering of the Notes. The Notes are offered
by the several Underwriters identified below (the "Underwriters"), subject to
prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The Underwriters reserve the right to withdraw, cancel or modify the offering
and to reject orders in whole or in part. It is expected that delivery of the
Notes will be through the facilities of DTC, Cedel Bank and Euroclear on or
about March 30, 1998 against payment in same day funds.
Following completion of this offering, this Prospectus Supplement and the
accompanying Prospectus may be used by BSIL (and its affiliates) in connection
with offers and sales of the Notes in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. BSIL may act as
principal or agent in such transactions.
--------------------------
BEAR, STEARNS INTERNATIONAL LIMITED
ABN AMRO CHASE MANHATTAN INTERNATIONAL LIMITED
CITIBANK INTERNATIONAL PLC DRESDNER KLEINWORT BENSON
HSBC MARKETS LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER NATIONSBANC MONTGOMERY SECURITIES LLC
PARIBAS SALOMON SMITH BARNEY INTERNATIONAL
MARCH 24, 1998
<PAGE>
OFFERS AND SALES OF THE NOTES ARE SUBJECT TO RESTRICTIONS IN CERTAIN
JURISDICTIONS. IN PARTICULAR THERE ARE RESTRICTIONS ON THE DISTRIBUTION OF THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS AND THE OFFER OR SALE OF NOTES
IN THE UNITED KINGDOM, FRANCE, GERMANY AND HONG KONG, DETAILS OF WHICH ARE SET
OUT IN "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT. THE DISTRIBUTION OF THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS AND THE OFFERING OF THE NOTES
IN CERTAIN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW. PERSONS INTO WHOSE
POSSESSION THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS OR ANY NOTES
COME MUST INFORM THEMSELVES ABOUT, AND OBSERVE, ANY APPLICABLE RESTRICTIONS ON
THE DISTRIBUTION OF THIS DOCUMENT AND ACCOMPANYING PROSPECTUS AND THE OFFERING
AND SALE OF THE NOTES.
THE COMPANY ACCEPTS RESPONSIBILITY FOR THE INFORMATION CONTAINED IN THIS
DOCUMENT AND ACCOMPANYING PROSPECTUS (INCLUDING APPENDIX A THERETO). TO THE BEST
OF ITS KNOWLEDGE AND BELIEF (HAVING TAKEN ALL REASONABLE CARE TO ENSURE THAT
SUCH IS THE CASE) THE INFORMATION CONTAINED IN THIS DOCUMENT AND ACCOMPANYING
PROSPECTUS IS IN ACCORDANCE WITH THE FACTS AND DOES NOT OMIT ANYTHING LIKELY TO
AFFECT THE IMPORT OF SUCH INFORMATION.
THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS ARE TO BE READ AS ONE
IN CONJUNCTION WITH ALL DOCUMENTS WHICH ARE DEEMED TO BE INCORPORATED HEREIN BY
REFERENCE (SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"). THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS SHALL, SAVE AS SPECIFIED
HEREIN, BE READ AND CONSTRUED ON THE BASIS THAT SUCH DOCUMENTS ARE SO
INCORPORATED AND FORM PART HEREOF.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR CONSISTENT HEREWITH AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR THE TRUSTEE.
IN CONNECTION WITH THIS OFFERING, BSIL, ON BEHALF OF THE UNDERWRITERS, MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE NOTES OFFERED HEREBY AT A LEVEL WHICH MIGHT NOT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE
"UNDERWRITING".
References herein to "U.S. dollars" or "dollars" or "U.S. $" or "$" are to
the lawful currency of the United States of America.
------------------------
S-2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the United States
Securities and Exchange Commission (the "Commission") pursuant to Section 13 of
the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference: (i) the Company's Annual Report on Form 10-K
(including the portions of the Company's Annual Report to Stockholders and Proxy
Statement incorporated by reference therein) for the fiscal year ended June 30,
1997 (the "1997 Form 10-K"), (ii) the Company's Quarterly Report on Form 10-Q
for the quarters ended September 26, 1997 and December 31, 1997, (iii) the
Company's Current Reports on Form 8-K, dated July 29, 1997, August 13, 1997,
October 14, 1997, October 28, 1997, January 14, 1998, January 15, 1998, January
21, 1998 and January 30, 1998, (iv) the Company's Current Report on Form 8-A,
dated January 14, 1998 and (v) those documents incorporated by reference in the
accompanying Prospectus. All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus and to be a part hereof and thereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement and the accompanying Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement (whether expressly, by implication or
otherwise). Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement or the accompanying Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus Supplement and the accompanying Prospectus is delivered, upon
the written or oral request of such person, a copy of any or all documents
incorporated by reference into this Prospectus Supplement and the accompanying
Prospectus except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Corporate Communications Department, The Bear
Stearns Companies Inc., 245 Park Avenue, New York, New York 10167; telephone
number (212) 272-2000. In addition, once listing has been obtained on the London
Stock Exchange and the Hong Kong Stock Exchange, such documents will be
available from the principal office in England of BSIL in its capacity as
listing agent for the Notes in connection with the listing of the Notes on the
London Stock Exchange and from the principal office of the Paying Agent in Hong
Kong, respectively.
Where reference is made herein to the particular provisions of any contract
or other document, such provisions are qualified in all respects by reference to
all of the provisions of such contract or other document.
S-3
<PAGE>
SUMMARY OF THE OFFERING
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. AS USED HEREIN, EXCEPT AS
THE CONTEXT MAY OTHERWISE REQUIRE, THE "COMPANY" MEANS AND INCLUDES THE COMPANY,
BEAR, STEARNS & CO. INC. AND THE COMPANY'S OTHER CONSOLIDATED SUBSIDIARIES.
<TABLE>
<S> <C>
ISSUER............................ The Bear Stearns Companies Inc.
SECURITIES OFFERED................ U.S. $500,000,000 aggregate principal of 6.20% Global
Notes Due 2003.
SPECIFIED CURRENCY................ The Notes will be denominated in U.S. dollars and all
payments in respect thereof will be made in U.S.
dollars.
OFFERING PRICE.................... The Notes are being offered at a price of 99.978% of
their principal amount.
DATE OF ORIGINAL ISSUANCE
(SETTLEMENT DATE)............... March 30, 1998.
MATURITY DATE..................... March 30, 2003.
INTEREST PAYMENT DATES............ March 30 and September 30 in each year, commencing
September 30, 1998.
RANKING........................... The Notes will be unsecured and will rank PARI PASSU
with all other unsecured and unsubordinated indebtedness
of the Company. Because the Company is a holding
company, the Notes will be effectively subordinated to
the claims of creditors of its subsidiaries with respect
to the assets of those subsidiaries. At December 31,
1997, the Company had outstanding approximately $25.0
billion of indebtedness, none of which was secured, and
subsidiaries of the Company had outstanding
approximately $1.0 billion of indebtedness (excluding
approximately $46.2 billion relating to securities sold
under repurchase agreements).
MANDATORY REDEMPTION
(SINKING FUND).................. None.
OPTIONAL REDEMPTION............... The Notes may not be redeemed prior to maturity except
upon the occurrence of certain events involving U.S.
taxation. See "Redemption by the Company Upon Certain
Events" below.
PAYMENT OF ADDITIONAL AMOUNTS..... Subject to the exceptions and limitations set forth
herein, the Company will pay as additional interest or,
as the case may be, principal on the Notes such
additional amounts as are necessary in order that the
net payment by the Company or a paying agent of the
interest on and principal of the Notes to a Non-U.S.
Holder (as defined under "Certain United States Federal
Income Tax Considerations"), after deduction for any
present or future tax, assessment or governmental charge
of the United States or a political subdivision or
taxing authority thereof or therein, imposed by
withholding with respect to the payment, will not be
less than the amount provided in the Notes to be then
due and payable. See "Description of Notes--Payment of
Additional Amounts" herein.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
REDEMPTION BY THE COMPANY UPON
CERTAIN EVENTS.................. If (a) as a result of any change in, or amendment to,
the laws (or any regulations or rulings promulgated
thereunder) of the United States (or any political
subdivision or taxing authority thereof or therein), or
any change in, or amendments to, official position
regarding the application or interpretation of such
laws, regulations or rulings, which change or amendment
is announced or becomes effective on or after the date
of this Prospectus Supplement, the Company becomes or
will become obligated to pay additional amounts as
described herein under the heading "Payment of
Additional Amounts" or (b) any act is taken by a taxing
authority of the United States on or after the date of
this Prospectus Supplement, whether or not such act is
taken with respect to the Company or any affiliate, that
results in a substantial probability that the Company
will or may be required to pay such additional amounts,
then, subject to certain conditions specified herein,
the Company may, at its option, redeem, as a whole, but
not in part, the Notes on any Interest Payment Date on
not less than 30 nor more than 60 days' prior notice, at
a redemption price equal to 100% of their principal
amount, together with interest accrued thereon to the
date fixed for redemption. See "Description of
Notes--Redemption by the Company Upon a Tax Event"
herein.
USE OF PROCEEDS................... The net proceeds from the sale of the Notes,
approximately U.S. $498.0 million, will be used by the
Company for general corporate purposes, which may
include additions to working capital, the repayment of
short-term indebtedness and investments in, or
extensions of credit to, subsidiaries.
BOOK-ENTRY FORM................... The Notes will be issued only in fully registered form
and will be represented by one or more Global Securities
which will be deposited with a custodian for, and
registered in the name of a nominee of, DTC. Beneficial
interests in the Global Securities will be shown on, and
transfers thereof will be effected through, the records
maintained by DTC for the accounts of its participants,
including Cedel Bank and Euroclear. Such beneficial
interests will be in denominations of U.S. $1,000 and
integral multiples thereof. Investors may elect to hold
interests in the Global Securities in the United States
through DTC or outside the United States through Cedel
Bank, societe anonyme ("Cedel Bank") or Morgan Guaranty
Trust Company of New York, Brussels Office, as operator
of the Euroclear System ("Euroclear") if they are
participants in those systems, or indirectly through
organizations that are participants in those systems.
Except as described herein, owners of beneficial
interests in the Global Securities will not be entitled
to have Notes registered in their names and the Notes
will not be available in definitive form.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Secondary market trading between DTC participants will
occur in the ordinary way in accordance with DTC's rules
and will be settled in same day funds using DTC's
Same-Day Funds Settlement System. Secondary market
trading between Cedel Bank participants and/or Euroclear
participants will occur in the ordinary way in
accordance with the applicable rules and operating
procedures of Cedel Bank and Euroclear and will be
settled, using the procedures applicable to conventional
Eurobonds, in same day funds. Cross-market transfers
between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through
Cedel Bank participants or Euroclear participants, on
the other, will be effected through DTC by its U.S.
Depositary on behalf of Cedel Bank or Euroclear, as the
case may be, in accordance with DTC rules, regulations
and procedures. See "Description of Debt
Securities--Global Securities" in the accompanying
Prospectus and "Description of Notes--General" and
"Description of the Notes--Global Clearance and
Settlement Procedures" elsewhere in this Prospectus
Supplement.
EVENTS OF DEFAULT................. See "Description of Debt Securities--Events of Default"
in the accompanying Prospectus.
LIMITATION ON LIENS............... See "Description of Debt Securities--Limitation on
Liens" in the accompanying Prospectus.
LISTING........................... Application will be made to the London Stock Exchange
and the Hong Kong Stock Exchange for listing of the
Notes thereon. No assurance can be given that either of
such applications will be approved, and settlement of
the Notes is not conditional upon such listings being
obtained.
GOVERNING LAW..................... New York.
SELLING RESTRICTIONS.............. There are selling restrictions in relation to certain
jurisdictions, including the United Kingdom, Hong Kong,
Germany and France. See "Underwriting" herein.
</TABLE>
S-6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 1.3 for the fiscal quarter ended
December 31, 1997, 1.3 for the fiscal quarter ended September 26, 1997 and 1.4
for the year ended June 30, 1997. The ratio was calculated by dividing the sum
of fixed charges into the sum of earnings before taxes and fixed charges. Fixed
charges for these purposes consist of all interest expense and certain other
immaterial expenses.
THE BEAR STEARNS COMPANIES INC.
The Company is a holding company that, through its principal subsidiaries,
Bear, Stearns & Co. Inc. ("Bear Stearns") and Bear, Stearns Securities Corp.
("BSSC"), is a leading United States investment banking, securities trading and
brokerage firm serving corporations, governments, institutional and individual
investors worldwide. The business of the Company includes market-making and
trading in corporate, United States Government, government-agency,
mortgage-related, asset-backed and municipal securities; trading in options,
futures, foreign currencies, interest-rate swaps and other derivative products;
securities and commodities arbitrage; securities, options and commodities
brokerage; underwriting and distributing securities; providing securities
clearance services; financing customer activities; securities lending; arranging
for the private placement of securities; assisting in mergers, acquisitions,
restructurings and leveraged transactions; providing other financial advisory
services; making principal investments in leveraged acquisitions; acting as
specialist on the floor of the New York Stock Exchange ("NYSE"); providing
fiduciary and other services, such as real estate brokerage, investment
management and investment advisory and securities research.
The Company's business is conducted from its principal offices in New York
City; from domestic regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and San Francisco; from representative offices in Beijing, Geneva, Hong
Kong, Lugano and Shanghai; through international subsidiaries in Buenos Aires,
Dublin, Hong Kong, London, Paris, Sao Paulo, Singapore and Tokyo; and through
joint ventures with other firms in Belgium, Madrid, Paris and the Philippines.
The Company's foreign offices provide services and engage in investment
activities involving foreign clients and international transactions. The Company
provides trust-company services through its subsidiary, Custodial Trust Company,
located in Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the Commission.
They also are members of the NYSE, all other principal United States securities
and commodities exchanges, the National Association of Securities Dealers, Inc.
("NASD") and the National Futures Association. Bear Stearns is a "primary
dealer" in United States government securities, as designated by the Federal
Reserve Bank of New York. See "Description of the Company".
S-7
<PAGE>
DIRECTORS OF THE COMPANY
The following table sets forth certain information as of March 24, 1998
concerning directors of the Company.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED TO
SERVE AS
DIRECTOR
AGE AS OF OF
MARCH 15, PRINCIPAL OCCUPATION THE
NAME 1998 AND DIRECTORSHIPS HELD COMPANY
- ------------------------------------------ ----------------- ------------------------------------------ ----------
<S> <C> <C> <C>
James E. Cayne 64 President and Chief Executive Officer of 1985
the Company and Bear Stearns, member of
the Executive Committee of the Company
(the "Executive Committee") and Chairman
of the Management and Compensation
Committee
Carl D. Glickman 71 Private investor; in the United States, 1985
Director, Continental Health Affiliates,
Inc., Franklin Holdings, Inc., Infutech,
Inc., Lexington Corporate Properties, Inc.
and Office Max Inc.; in Israel, Director,
Alliance Tire Company (1992) Ltd. and The
Jerusalem Economic Corporation Ltd.
Alan C. Greenberg 70 Chairman of the Board of the Company and 1985
Bear Stearns and Chairman of the Executive
Committee
Donald J. Harrington 52 President, St. John's University; 1993
Director, The Reserve Fund, Reserve
Institutional Trust, Reserve Tax-Exempt
Trust, Reserve New York Tax-Exempt Trust
and Reserve Special Portfolios Trust
William L. Mack 58 Senior Managing Partner, The Mack Company; 1997
Founding Principal, Apollo Real Estate
Advisors, L.P.; General Partner, The
Apollo Real Estate Investment Funds;
Chairman of the Board of Metropolis Realty
Trust, Inc.; Director, Koger Equity, Inc.
and Vail Resorts, Inc.
Frank T. Nickell 50 President, Kelso & Company; Director, 1993
Earle M. Jorgensen Company and Peebles
Inc.
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED TO
SERVE AS
DIRECTOR
AGE AS OF OF
MARCH 15, PRINCIPAL OCCUPATION THE
NAME 1998 AND DIRECTORSHIPS HELD COMPANY
- ------------------------------------------ ----------------- ------------------------------------------ ----------
<S> <C> <C> <C>
Frederic V. Salerno 55 Senior Executive Vice President, 1992
CFO/Strategy and Director of Bell Atlantic
Corporation; Director, Avnet, Inc., Orange
& Rockland Utilities, Inc. and Viacom,
Inc.
Vincent Tese 54 Chairman, Wireless Cable International 1994
Inc.; Director, Angram, Inc., Cablevision
International, Quintel Entertainment Inc.,
Bowne & Co., Inc. and Allied Waste
Industries Inc.
Fred Wilpon 61 Chairman of the Board of Directors of 1993
Sterling Equities, Inc.; Chairman of the
Board of Directors of Pathogenesis Corp.;
President and Chief Executive Officer of
the New York Mets
</TABLE>
Mr. Cayne has been Chief Executive Officer of the Company and Bear Stearns
since July 1993. Mr. Cayne has been President of the Company for more than the
past five years.
Mr. Glickman has been a private investor for more than the past five years.
Mr. Glickman is also currently Chairman of the Compensation Committee of the
Board of Directors of the Company.
Mr. Greenberg has been Chairman of the Board of the Company for more than
the past five years. Mr. Greenberg was Chief Executive Officer of the Company
and Bear Stearns from the Company's inception until July 1993.
Father Harrington has been the President of St. John's University for more
than the past five years.
Mr. Mack has been Senior Managing Partner of The Mack Company (a national
owner, developer and investor in office and industrial buildings and other real
estate investments) for more than the past five years, and a Founding Principal
of Apollo Real Estate Advisors, L.P. (a manager of real estate investment
funds), the General Partner of the Apollo Real Estate Investment Funds, since
April 1993. Mr. Mack is also Chairman of the Board of Metropolis Realty Trust,
Inc. (the owner of high rise office buildings).
Mr. Nickell has been President of Kelso & Company, a privately held merchant
banking firm, for more than the past five years.
Mr. Salerno is the Senior Executive Vice President, CFO/Strategy of Bell
Atlantic Corporation ("Bell Atlantic"). Prior to the merger of NYNEX Corp.
("NYNEX") and Bell Atlantic, Mr. Salerno was the Vice Chairman of the Board of
NYNEX for more than the past five years.
Mr. Tese has been Chairman of Wireless Cable International Inc. (a wireless
cable company) since April 1995. Mr. Tese was Chairman of Cross Country Wireless
Inc. (a wireless cable company) from October 1994 to July 1995 and was a
corporate officer and a general partner of Cross Country Wireless Inc.'s
predecessors, Cross Country Wireless Cable-I, L.P. and Cross Country Wire Cable
West, L.P., from 1990 until October 1994. Mr. Tese was the Director of Economic
Development for the State of New York from June 1987 to December 1994. Mr. Tese
is also currently Chairman of the Audit Committee of the Board of Directors of
the Company.
S-9
<PAGE>
Mr. Wilpon has been Chairman of the Board of Directors of Sterling Equities,
Inc., a privately held entity, and certain affiliates thereof, which are
primarily real estate development/owner management companies, for more than the
past five years. Mr. Wilpon has also been President and Chief Executive Officer
of the New York Mets baseball team for more than the past five years. Mr. Wilpon
has also been Chairman of the Board of Directors of Pathogenesis Corp., a
publicly held pharmaceutical company, since May 4, 1995.
There is no family relationship among any of the directors or executive
officers of the Company.
All directors hold office until the next Annual Meeting of Stockholders or
until their successors have been duly elected and qualified. Officers serve at
the discretion of the Board of Directors.
The business address of each director is 245 Park Avenue, New York, New York
10167, U.S.A.
USE OF PROCEEDS
The net proceeds from the sale of the Notes, approximately U.S.$498.0
million, will be used by the Company for general corporate purposes, which may
include additions to working capital, the repayment of short-term indebtedness
and investments in, or extension of credit to, subsidiaries.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of December 31, 1997 and as adjusted to give
effect to the sale of the Notes offered hereby.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
SHORT-TERM BORROWINGS:
Bank Borrowing...................................................................... $ 459,889 $ 459,889
Commercial Paper.................................................................... 7,625,286 7,625,286
Medium-Term Notes & Other........................................................... 6,437,793 6,437,793
---------- -----------
TOTAL SHORT-TERM BORROWINGS..................................................... $14,522,968 1$4,522,968
---------- -----------
---------- -----------
LONG-TERM BORROWINGS:
Floating Rate Notes due 1998 to 2030................................................ $1,419,435 $1,419,435
Fixed Rate Senior Notes due 1998 to 2007; interest rates ranging from 5.75% to
9.375%.............................................................................. 4,461,039 4,961,039
Medium-Term Notes and Other......................................................... 5,014,098 5,014,098
---------- -----------
TOTAL LONG-TERM BORROWINGS...................................................... 10,894,572 11,394,572
---------- -----------
Preferred Stock Issued by Subsidiary.................................................. 150,000 150,000
Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities(1)....................................................................... 200,000 200,000
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000 shares authorized:
Adjustable Rate Cumulative Preferred Stock,
Series A--$50 liquidation preference; 3,000,000 shares issued..................... 150,000 150,000
Cumulative Preferred Stock, Series B--$200 liquidation preference;
937,500 shares issued and outstanding............................................. 187,500 187,500
Cumulative Preferred Stock, Series C--$200 liquidation preference;
500,000 shares issued and outstanding............................................. 100,000 100,000
Common Stock, $1.00 par value; 200,000,000 shares
authorized; 167,784,941 shares issued............................................. 167,785 167,785
Paid-in Capital....................................................................... 1,883,674 1,883,674
Retained Earnings..................................................................... 1,306,688 1,306,688
Capital Accumulation Plan............................................................. 694,967 694,967
Treasury Stock:
Adjustable Rate Cumulative Preferred Stock,
Series A--2,520,750 shares........................................................ (103,421) (103,421)
Common Stock--50,993,838 shares..................................................... (835,604) (835,604)
Note Receivable from ESOP Trust....................................................... (7,114) (7,114)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY...................................................... 3,544,475 3,544,475
---------- -----------
TOTAL LONG-TERM BORROWINGS, PREFERRED STOCK
ISSUED BY SUBSIDIARY, GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY SUBORDINATED DEBT SECURITIES AND STOCKHOLDERS' EQUITY.................... $14,789,047 1$5,289,047
---------- -----------
---------- -----------
</TABLE>
- ------------------------------
Notes:
(1) The "Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities" reflects capital securities issued by Bear Stearns Capital Trust
I. The trust is a wholly owned subsidiary of the Company and holds certain
subordinated debentures as its sole asset.
(2) By virtue of the nature of the business of the Company and its subsidiaries,
its borrowings, particularly its short-term borrowings, fluctuate from day
to day in the ordinary course of its business. Since December 31, 1997 there
has been no material change in the consolidated capitalization of the
Company.
(3) The Company's issued and outstanding capital stock is fully paid.
S-11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below for the fiscal years ended June 30, 1997, 1996,
1995, 1994 and 1993 have been extracted from the audited consolidated financial
statements of the Company and its subsidiaries for those years. The data set
forth below for the six months ended December 31, 1997 and 1996 have been
extracted from the unaudited consolidated financial statements of the Company
and its subsidiaries for those periods.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
IN THOUSANDS, EXCEPT SHARE DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND OTHER DATA 1997 1996 1997 1996 1995 1994 1993
- ---------------------------- ------------ ------------ ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues.................. 3,806,072 2,792,683 $ 6,077,278 $ 4,963,863 $ 3,753,572 $ 3,440,638 $ 2,853,185
Interest expense.......... 1,763,219 1,163,865 2,551,364 1,981,171 1,678,515 1,023,866 710,086
Revenues, net of interest
expense................. 2,069,853 1,628,818 3,525,914 2,982,692 2,075,057 2,416,772 2,143,099
Non-interest expenses
Employee compensation and
benefits................ 1,034,990 801,197 1,726,931 1,469,448 1,080,487 1,227,061 1,037,099
Other..................... 508,120 358,549 785,293 678,318 606,488 546,912 491,602
Total non-interest
expenses................ 1,543,110 1,159,746 2,512,224 2,147,766 1,686,975 1,773,973 1,528,701
Income before provision
for income taxes........ 526,743 469,072 1,013,690 834,926 388,082 642,799 614,398
Provision for income
taxes................... 204,903 184,111 400,360 344,288 147,471 255,834 251,951
Net income................ 321,840 284,961 $ 613,330 $ 490,638 $ 240,611 $ 386,965 $ 362,447
------------ ------------ ------------- ----------- ----------- ----------- -----------
Net income applicable to
common shares........... 309,991 272,991 $ 589,497 $ 466,145 $ 215,474 $ 362,592 $ 355,696
------------ ------------ ------------- ----------- ----------- ----------- -----------
FINANCIAL POSITION
Total assets.............. 137,511,025 105,396,150 $ 121,433,535 $92,085,157 $74,597,160 $67,392,018 $57,439,505
Long-term borrowings...... 10,894,572 6,429,221 $ 8,120,328 $ 6,043,614 $ 4,059,944 $ 3,408,096 $ 1,883,123
Stockholders' equity...... 3,894,475(1,2)3,038,489(1)$ 3,626,371(1,2)$2,895,414(1)$2,502,461(1)$2,316,566(1)$1,776,530
Common shares
outstanding(3).......... 151,567,190 151,529,085 151,561,465 151,274,714 151,465,966 149,208,420 149,353,528
------------ ------------ ------------- ----------- ----------- ----------- -----------
PER SHARE DATA
Earnings per share(3,4)... $ 2.22 $ 1.92 $ 4.20 $ 3.27 $ 1.54 $ 2.50 $ 2.47
Cash dividends declared
per common share(3)..... $ .30 $ 0.29 $ 0.59 $ 0.55 $ 0.52 $ 0.50 $ 0.47
Book value per common
share(3)................ $ 21.43 $ 17.67 $ 19.56 $ 16.03 $ 13.34 $ 12.31 $ 10.32
------------ ------------ ------------- ----------- ----------- ----------- -----------
OTHER DATA
Return on average common
equity.................. 21.9% 27.0% 27.9% 25.6% 13.5% 23.3% 28.8%
------------ ------------ ------------- ----------- ----------- ----------- -----------
Profit margin(5).......... 25.4% 28.8% 28.7% 28.0% 18.7% 26.6% 28.7%
Employees................. 8,700 7,800 8,309 7,749 7,481 7,321 6,306
------------ ------------ ------------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Includes $150 million of Exchangeable Preferred Income Cumulative Shares
which were issued by a subsidiary of the Company. See Note 8 of Notes to
Consolidated Financial Statements.
(2) Includes $200 million of Guaranteed Preferred Beneficial Interests in
Company Subordinated Debt Securities which were issued by a subsidiary of
the Company. See Note 8 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect stock dividends.
(4) See Note 1 of Notes to Consolidated Financial Statements.
(5) Represents the ratio of income before provision for income taxes to
revenues, net of interest expense.
S-12
<PAGE>
DESCRIPTION OF THE NOTES
THE FOLLOWING DESCRIPTION OF THE TERMS OF THE NOTES SUPPLEMENTS, AND TO THE
EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION OF THE GENERAL TERMS OF
THE COMPANY'S DEBT SECURITIES SET FORTH IN THE ACCOMPANYING PROSPECTUS, TO WHICH
DESCRIPTION REFERENCE IS HEREBY MADE. THE FOLLOWING SUMMARY OF THE NOTES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE THERETO AND TO THE INDENTURE REFERRED TO
HEREIN. A COPY OF THE INDENTURE, AS AMENDED, HAS BEEN FILED WITH THE COMMISSION
AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THE ACCOMPANYING PROSPECTUS
IS A PART AND IS AVAILABLE AS SET FORTH UNDER "GENERAL INFORMATION".
GENERAL
The Notes constitute a single series of debt securities of the Company under
the Indenture dated as of May 31, 1991, as amended (the "Indenture"), between
the Company and The Chase Manhattan Bank (formerly known as Chemical Bank and
successor by merger to Manufacturers Hanover Trust Company), as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus. As at
the date of this Prospectus Supplement, $15,096,329,575 aggregate principal
amount of debt securities have been previously issued under the Indenture and
are outstanding.
The Notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from the date of original issue or the most
recent interest payment date to which interest has been paid, payable
semi-annually in same day funds on March 30 and September 30 (or on the next
succeeding Business Day (as defined herein) if such date is not a Business Day
provided that, in each instance, holders shall not be entitled to further
interest or other payment in respect of such delay) of each year, commencing
September 30, 1998, to each person in whose name a Note is registered at the
close of business on the immediately preceding March 15 or September 15, as the
case may be. Interest will be computed on the basis of a 360-day year of twelve
30-day months and will be payable by the Principal Paying Agent (as defined
below) to DTC, or its nominee, by wire transfer of same day funds for credit to
the accounts of DTC's participants and subsequent distribution to the beneficial
owners of the Notes, or, if the Notes are issued in certificated form, by the
Principal Paying Agent to the registered holder thereof against presentation and
surrender by such holder of its Note at the specified office of any Paying
Agent, by US dollar check drawn on a bank in New York City and mailed on the
Business Day immediately preceding the due date therefor.
The Chase Manhattan Bank, the Trustee under the Indenture, will serve as
Principal Paying Agent (the "Principal Paying Agent") for the Notes. The Company
has also agreed, so long as the Notes are listed on the London Stock Exchange
and the Hong Kong Stock Exchange, and the rules of such exchanges so require, to
appoint and maintain a transfer agent and paying agent in each of London and
Hong Kong, respectively. The Company has appointed The Chase Manhattan Bank to
serve as registrar (the "Registrar") in the Indenture. The terms "Paying Agent"
and "Transfer Agent" shall include the Principal Paying Agent and the Registrar,
respectively, together with any additional or successor such agents appointed by
the Company. The names of the initial Paying Agents and Transfer Agents and
their initial specified offices are set out below.
The Notes will mature at par on March 30, 2003. The Notes will not be
redeemable prior to maturity except upon the occurrence of certain events
involving U.S. taxation, as discussed below under "Redemption by the Company
Upon Certain Tax Events." The Company is entitled to defease the Notes subject
to compliance with the terms of the Indenture. See "Description of Debt
Securities--Defeasance" in the accompanying Prospectus.
The Notes will be issued in denominations of $1,000 and integral multiples
of $1,000 in excess thereof.
PAYMENT OF ADDITIONAL AMOUNTS
Subject to the exceptions and limitations set forth below, the Company will
pay as additional interest or, as the case may be, principal on the Notes such
additional amounts as are necessary in order that the
S-13
<PAGE>
net payment by the Company or a paying agent of the principal of and interest on
the Notes to a person that is not a U.S. Holder (as defined under "Certain
United States Federal Income Tax Considerations", below), after deduction for
any present or future tax, assessment or governmental charge of the United
States or a political subdivision or taxing authority thereof or therein,
imposed by withholding with respect to the payment, will not be less than the
amount provided in the Notes to be then due and payable; provided, however, that
the foregoing obligation to pay additional amounts shall not apply:
(1) to a tax, assessment or governmental charge that is imposed or withheld
solely by reason of the holder, or a fiduciary, settlor, beneficiary, member or
shareholder of the holder if the holder is an estate, trust, partnership or
corporation, or a person holding a power over an estate trust, partnership or
corporation, or a person holding a power over an estate or trust administered by
a fiduciary holder, being considered as:
(a) being or having been present or engaged in trade or business in the
United States or having or having had a permanent establishment in the
United States;
(b) having a current or former relationship with the United States,
including a relationship as a citizen or resident thereof;
(c) being or having been a foreign or domestic personal holding company,
a passive foreign investment company or a controlled foreign corporation
with respect to the United States or a corporation that has accumulated
earnings to avoid United States federal income tax; or
(d) being or having been a "10-percent shareholder" of the Company as
defined in section 871(h)(3) of the United States Internal Revenue Code or
any successor provision;
(2) to any holder that is not the sole beneficial owner of the Notes, or a
portion thereof, or that is a fiduciary or partnership, but only to the extent
that a beneficiary or settlor with respect to the fiduciary, a beneficial owner
or member of the partnership would not have been entitled to the payment of an
additional amount had the beneficiary, settlor, beneficial owner or member
received directly its beneficial or distributive share of the payment;
(3) to a tax, assessment or governmental charge that is imposed or withheld
solely by reason of the failure of the holder or any other person to comply with
certification, identification or information reporting requirements concerning
the nationality, residence, identity or connection with the United States of the
holder or beneficial owner of such Note, if compliance is required by statute,
by regulation of the United States Treasury Department or by an applicable
income tax treaty to which the United States is a party as a precondition to
exemption from such tax, assessment or other governmental charge;
(4) to a tax, assessment or governmental charge that is imposed otherwise
than by withholding by the Company or a paying agent from the payment;
(5) to a tax, assessment or governmental charge that is imposed or withheld
solely by reason of a change in law, regulation, or administrative or judicial
interpretation that becomes effective more than 15 days after the payment
becomes due or is duly provided for, whichever occurs later;
(6) to an estate, inheritance, gift, sales, excise, transfer, wealth or
personal property tax or a similar tax, assessment or governmental charge;
(7) to any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal of or interest on any
Note, if such payment can be made without such withholding by any other paying
agent; or
(8) in the case of any combination of items (1), (2), (3), (4), (5), (6) and
(7).
The Notes are subject in all cases to any tax, fiscal or other law or
regulation or administrative or judicial interpretation applicable thereto.
Except as specifically provided under this heading "Payment of Additional
Amounts" and under the heading "Description of Notes--Redemption by the Company
Upon Certain Tax Events," the Company shall not be required to make any payment
with respect to any tax,
S-14
<PAGE>
assessment or governmental charge imposed by any government or a political
subdivision or taxing authority thereof or therein.
REDEMPTION BY THE COMPANY UPON CERTAIN TAX EVENTS
If (a) as a result of any change in, or amendment to, the laws (or any
regulations or rulings promulgated thereunder) of the United States (or any
political subdivision or taxing authority thereof or therein), or any change in,
or amendments to, official position regarding the application or interpretation
of such laws, regulations or rulings, which change or amendment is announced or
becomes effective on or after the date of this Prospectus Supplement, the
Company becomes or will become obligated to pay additional amounts as described
herein under the heading "Payment of Additional Amounts" or (b) any act is taken
by a taxing authority of the United States on or after the date of this
Prospectus Supplement, whether or not such act is taken with respect to the
Company or any affiliate, that results in a substantial probability that the
Company will or may be required to pay such additional amounts, then the Company
may, at its option, redeem, as a whole, but not in part, the Notes on any
Interest Payment Date on not less than 30 nor more than 60 days' prior notice,
at a redemption price equal to 100% of their principal amount, together with
interest accrued thereon to the date fixed for redemption; provided that the
Company determines, in its business judgment, that the obligation to pay such
additional amounts cannot be avoided by the use of reasonable measures available
to it, not including substitution of the obligor under the Notes. No redemption
pursuant to (b) above may be made unless the Company shall have delivered to the
Trustee a written opinion of independent legal counsel of recognized legal
standing to the effect that an act taken by a taxing authority of the United
States has resulted or will result in a substantial probability that it will or
may be required to pay the additional amounts described herein under the heading
"Payment of Additional Amounts" and that the Company is therefore entitled to
redeem the Notes pursuant to their terms.
UNCLAIMED AMOUNTS
The Indenture provides that any payments in respect of principal and
interest remaining which are unclaimed for two years after their due date shall
be paid to the Company, and the holder of such Note or coupon shall thereafter,
as an unsecured creditor, look only to the Company for payment thereof.
NOTICES
All notices regarding the Notes shall be valid if published (i) in a leading
English language daily newspaper of general circulation in London, (ii) for so
long as the Notes are listed on the Hong Kong Stock Exchange (and such stock
exchange requires), in a daily newspaper of general circulation in Hong Kong and
(iii) in a leading English language daily newspaper of general circulation in
New York. It is expected that such publication will be made in (i) the FINANCIAL
TIMES or another daily newspaper in London approved by the Trustee or, if this
is not possible, in one other English language daily newspaper approved by the
Trustee with general circulation in Europe, (ii) the SOUTH CHINA MORNING POST in
Hong Kong and (iii) THE WALL STREET JOURNAL (Eastern Edition) in New York. Any
such notice will be deemed to have been given on the date of the first
publication in all the relevant newspapers.
Until such time as any definitive Notes are issued, there may, so long as
the Global Securities are held in its or their entirety on behalf of Euroclear
and/or Cedel Bank and DTC, be substituted for such publication in such
newspapers the delivery of the relevant notice to Euroclear and/or Cedel Bank
and DTC for communication by them to the holders of the Notes. Any such notice
shall be deemed to have been given to the holders of the Notes on the seventh
day after the day on which the said notice was given to Euroclear and/or Cedel
Bank or DTC.
S-15
<PAGE>
FURTHER ISSUANCE
The Company may, from time to time, without notice to, or the consent of,
the registered holders of the Notes, create and issue further notes ranking PARI
PASSU with the Notes in all respects (except for the payment of interest
accruing prior to the issue date of such further notes or except for the first
payment of interest following the issue date of such further notes) and so that
such further notes may be consolidated and form a single series with the Notes
and have the same term as to status, redemption or otherwise as the Notes.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered global
notes (the "Global Securities") which will be deposited with a custodian for, or
on behalf of, DTC, and registered in the name of Cede & Co., DTC's nominee.
Beneficial interests in the Global Securities will be represented through
book-entry accounts of financial institutions acting on behalf of beneficial
owners as direct and indirect participants in DTC ("DTC Participants").
Investors may elect to hold interests in the Global Securities through either
DTC (in the United States) or Cedel Bank, societe anonyme ("Cedel Bank") or
Morgan Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System ("Euroclear") (outside the United States) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. Cedel Bank and Euroclear will hold interests on
behalf of their participants through customers' securities accounts in Cedel
Bank's and Euroclear's names on the books of their respective depositaries,
which in turn will hold such interests in customers' securities accounts in
Cedel Bank's and Euroclear's names on the books of their respective
depositaries, which in turn will hold such interests in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A. will act
as depositary for Cedel Bank and The Chase Manhattan Bank will act as depositary
for Euroclear (in such capacities, the "U.S. Depositaries"). Beneficial
interests in the Global Securities will be held in denominations of $1,000 and
integral multiples thereof. Except as set forth below, the Global Securities may
be transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("DTC Participants")
deposit with DTC. DTC also facilitates the settlement among DTC Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in DTC Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct DTC Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other organizations.
DTC is owned by a number of its "Direct Participants" and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly. The rules applicable to DTC and DTC Participants are on
file with the Securities and Exchange Commission.
Cedel Bank is incorporated under the laws of Luxembourg as a professional
depositary. Cedel Bank holds securities for its participating organizations
("Cedel Bank Participants") and facilitates the clearance and settlement of
securities transactions between Cedel Bank Participants through electronic
book-entry charges in accounts of Cedel Bank Participants, thereby eliminating
the need for physical movement of certificates. Cedel Bank provides to Cedel
Bank Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel Bank interfaces with domestic markets in several
countries. As a professional depositary,
S-16
<PAGE>
Cedel Bank is subject to regulation by the Luxembourg Monetary Institute. Cedel
Bank Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and may include some of
the Underwriters. Indirect access to Cedel Bank is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel Bank Participant either directly
or indirectly. Distributions with respect to the Notes held beneficially through
Cedel Bank will be credited to cash accounts of Cedel Bank Participants in
accordance with its rules and procedures, to the extent received by the U.S.
Depositary for Cedel Bank.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include some of the Underwriters.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian Branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Notes held beneficially through Euroclear will
be credited to the cash accounts of Euroclear Participants in accordance with
the Terms and Conditions, to the extent received by the U.S. Depository for
Euroclear.
Definitive Notes may be issued upon (i) Euroclear and/or Cedel Bank being
closed for a continuous period of 14 days (other than by reason of public
holidays) and/or (ii) in the limited circumstances set forth in "Description of
the Debt Securities--Global Securities" of the accompanying Prospectus. If
definitive Notes are issued, payment of principal of and interest on the Notes
will be made as set forth under "Description of Notes--General", above.
Definitive Notes can be transferred by presentation for registration to the
Registrar or other transfer agent at any of their specified offices and must be
duly endorsed by the holder or his attorney duly authorized in writing, or
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the holder or his
attorney duly authorized in writing. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any exchange or registration of transfer of definitive Notes.
S-17
<PAGE>
For the purposes hereof, "Business Day" means any day, other than a Saturday
or Sunday, that is not a day on which banks are authorized or required by law or
regulation to close in New York and, where definitive Notes have been issued,
the relevant place of presentation.
GLOBAL CLEARANCE AND SETTLEMENT PROCEDURES
Initial settlement for the Notes will be made in same day funds. Secondary
market trading between DTC Participants will occur in the ordinary way in
accordance with DTC rules and will be settled in same day funds using DTC's
Same-Day Funds Settlement System. Secondary market trading between Cedel Bank
Participants and/or Euroclear Participants will occur in the ordinary way in
accordance with the applicable rules and operating procedures of Cedel Bank and
Euroclear and will be settled using the procedures applicable to conventional
eurobonds in registered form in same day funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PURCHASERS AND SELLERS. Secondary market trading
between DTC Participants will be settled using the procedures applicable to
global bonds in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CEDEL BANK PARTICIPANTS. Secondary market
trading between Euroclear Participants and/or Cedel Bank Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR CEDEL BANK PURCHASER. When
Notes are to be transferred from the account of a DTC Participant to the account
of a Euroclear or Cedel Bank Participant, the purchaser will send instructions
to Euroclear or Cedel Bank through a Euroclear or Cedel Bank Participant, as the
case may be, at least one business day prior to settlement. Euroclear or Cedel
Bank will instruct its respective depositary to receive such Notes against
payment. Payment will then be made by the depositary to the DTC Participant's
account against delivery of the Notes. After settlement has been completed, the
Notes will be credited to the respective clearing systems, and by the clearing
system, in accordance with its usual procedures, to the Euroclear or Cedel Bank
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to the value date (which would be
the preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (I.E. the trade fails), the Euroclear or
Cedel Bank cash debit will be valued instead as of the actual settlement date.
Euroclear and Cedel Bank Participants will need to make available to the
respective clearing system the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit. Under this
approach, DTC Participants may, however, take on credit exposure to Euroclear
and Cedel Bank until the interests in the Global Note are credited to their
accounts one day later.
As an alternative, if Euroclear or Cedel Bank has extended a line of credit
to a Euroclear or Cedel Bank Participant, as the case may be, such Participant
may elect not to preposition funds and allow that credit line to be drawn upon
to finance settlement. Under this procedure, Euroclear or Cedel Bank
Participants purchasing Notes would incur overdraft charges for one day,
assuming they cleared the overdraft when the Notes were credited to their
accounts. However, interest on the Notes would accrue from the value date.
Therefore, in many cases the investment income on Notes earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each participant's particular cost
of funds.
Since the settlement will occur during New York business hours, DTC
Participants can employ their usual procedures for transferring global bonds to
the respective depositaries of Euroclear or Cedel Bank
S-18
<PAGE>
for the benefit of Euroclear or Cedel Bank Participants. The sale proceeds will
be available to the DTC seller on the settlement date. Thus, to the DTC seller,
a cross-market sale transaction will settle no differently than a trade between
two Participants.
TRADING BETWEEN EUROCLEAR OR CEDEL BANK SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Euroclear and Cedel Bank Participants may
employ their customary procedures for transactions in which Notes are to be
transferred by the respective clearing system, through its respective
depositary, to a DTC Participant. The seller will send instructions to Euroclear
or Cedel Bank through a Euroclear or Cedel Bank Participant at least one
business day prior to settlement. In these cases, Euroclear or Cedel Bank will
instruct its respective depositary to credit the Notes to the DTC Participant's
account against payment. The payment will then be reflected in the account of
the Euroclear or Cedel Bank Participant on the following day, and receipt of the
cash proceeds in the Euroclear or Cedel Bank Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York).
Should the Euroclear or Cedel Bank Participant have a line of credit in its
respective clearing system and elect to be in a debt position in anticipation of
receipt of the sale proceeds in its account, the back-valuation may
substantially reduce or offset any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (I.E. the
trade fails), receipt of the cash proceeds in the Euroclear or Cedel Bank
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Euroclear or Cedel Bank to purchase Notes from
DTC Participants for delivery to Euroclear or Cedel Bank Participants should
note that these trades automatically fail on the sale side unless affirmative
action is taken. At least three techniques should be readily available to
eliminate this potential problem: (i) borrowing through Euroclear or Cedel Bank
for one day (until the purchase side of the day trade is reflected in their
Euroclear or Cedel Bank accounts) in accordance with the clearing system's
customary procedures; (ii) borrowing the Notes in the United States from a DTC
Participant no later than one day prior to settlement, which would give the
Notes sufficient time to be reflected in their Euroclear or Cedel Bank account
in order to settle the sale side of the trade; or (iii) staggering the value
date for the buy and sell sides of the trade so that the value date for the
purchase from the DTC Participant is at least one day prior to the value date
for the sale to the Euroclear or Cedel Bank Participant.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedel Bank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Company nor the Underwriters will have any responsibility for the
performance by DTC, Euroclear or Cedel Bank or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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DESCRIPTION OF THE COMPANY
GENERAL
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated under the laws of the State of Delaware on
August 21, 1985. The Company is a holding company that through its subsidiaries,
principally Bear Stearns and Bear, Stearns Securities Corp. ("BSSC"), is a
leading United States investment banking, securities trading and brokerage firm
serving corporations, governments, institutional and individual investors
worldwide. BSSC, a wholly owned subsidiary of Bear Stearns, provides
professional and correspondent clearing services, in addition to clearing and
settling the Company's proprietary and customer transactions. The Company
succeeded on October 29, 1985, to the business of Bear, Stearns & Co., a New
York limited partnership (the "Partnership").
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's business activities are highly integrated and constitute a
single industry segment. During each of the three successive fiscal years ending
June 30, 1997, classes of similar products or services outside this industry
segment represented less than 10% of consolidated revenues, operating-profit,
and assets. Financial information regarding the Company's foreign operations for
each of these fiscal years is set forth under the Notes to the Consolidated
Financial Statements in Footnote 13, entitled "Segment and Geographic Area
Data," in the Company's 1997 Annual Report to Stockholders (the "Annual
Report").
NARRATIVE DESCRIPTION OF BUSINESS
The Company is a holding company which through its principal subsidiaries,
Bear Stearns and BSSC, is a leading United States investment banking, securities
trading and brokerage firm serving corporations, governments, institutional and
individual investors worldwide. The business of the Company includes:
market-making and trading in corporate, United States government,
government-agency, mortgage-related, asset-backed and municipal securities;
trading in options, futures, foreign currencies, interest-rate swaps and other
derivative products; securities and commodities arbitrage; securities, options
and commodities brokerage; underwriting and distributing securities; providing
securities clearance services; financing customer activities; securities
lending; arranging for the private placement of securities; assisting in
mergers, acquisitions, restructurings and leveraged transactions; providing
other financial advisory services; making principal investments in leveraged
acquisitions; acting as specialist on the floor of the NYSE; providing fiduciary
and other services, such as real estate brokerage, investment management and
investment advisory; and securities research.
The Company's business is conducted from its principal offices in New York
City; from domestic regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and San Francisco; from representative offices in Beijing, Geneva, Hong
Kong, Lugano and Shanghai; through international subsidiaries in Buenos Aires,
Dublin, Hong Kong, London, Paris, Sao Paulo, Singapore and Tokyo; and through
joint ventures with other firms in Belgium, Madrid, Paris and the Philippines.
The Company's foreign offices provide services and engage in investment
activities involving foreign clients and international transactions. The Company
provides trust-company services through its subsidiary, Custodial Trust Company
("CTC"), located in Princeton, New Jersey.
Bear Stearns and BSSC are broker dealers registered with the SEC. They are
also members of the NYSE, all other principal United States securities and
commodities exchanges, the NASD and the National Futures Association ("NFA").
Bear Stearns is a "primary dealer" in United States government securities, as
designated by the Federal Reserve Bank of New York.
As of December 31, 1997, the Company had approximately 8,700 employees.
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SECURITIES TRADING ACTIVITIES
GENERAL. The Company makes inter-dealer markets and trades on a principal
basis in a wide range of instruments including: corporate debt and equity
securities; United States and foreign-government securities; government-agency
securities; mortgages and mortgage-backed securities; other asset-backed
securities; municipal and other tax-exempt securities; and interest-rate swaps
and other derivative products. Bear Stearns is one of the largest dealers in the
United States in fixed income securities, including United States government and
agency securities, mortgage-backed securities, and corporate and municipal
securities. Inventories of fixed income, listed-equity, and over-the-counter
equity securities are carried to facilitate sales to customers and other
dealers.
UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS. The Company is recognized
by the Federal Reserve Bank of New York as a primary dealer in United States
Government, government-guaranteed and agency obligations, and similar
instruments. The Company participates in the auction of, and maintains
proprietary positions in, United States Treasury bills, notes, bonds, and
stripped-coupon securities. The Company also participates as a selling group
member and/or underwriter in the distribution of various United States
government-agency and sponsored-corporation securities and maintains proprietary
positions in such securities. In connection with these activities, the Company
enters into transactions in options, futures and forward contracts to hedge its
proprietary positions. As a primary dealer, Bear Stearns furnishes weekly
reports of its inventory positions and market transactions in United States
government securities to the Federal Reserve Bank of New York. Bear Stearns also
buys and sells government securities directly with the Federal Reserve Bank of
New York as part of the Bank's open-market activities. The Company's daily
trading inventory in United States government, government-guaranteed and agency
obligations is mainly financed through the use of repurchase agreements. In
addition, the Company serves as an intermediary between borrowers and lenders of
short-term funds, mainly via repurchase and reverse-repurchase agreements.
CORPORATE FIXED INCOME SECURITIES. The Company acts as a dealer in
sovereign and corporate fixed income securities and preferred stocks in New
York, London, Hong Kong and Tokyo. It buys and sells these securities for its
own account in principal transactions with institutional and individual
customers, as well as other dealers. The Company conducts trading in the full
spectrum of U.S. dollar and non-U.S. dollar debt securities. The Company offers
hedging and arbitrage services to U.S. and foreign institutional and individual
customers utilizing financial futures and other instruments. Moreover, the
Company offers quantitative, strategic and research services relating to fixed
income securities to its U.S. and international clients. The Company
participates in the trading and sales of high yield, non-investment-grade
securities and the securities and bank loans of companies subject to pending
bankruptcy proceedings.
MORTGAGE-RELATED SECURITIES AND PRODUCTS. The Company trades and makes
markets in the following mortgage-related securities and products: Government
National Mortgage Association ("GNMA") securities; Federal Home Loan Mortgage
Corporation ("FHLMC") Participation Certificates; Federal National Mortgage
Association ("FNMA") mortgage-backed securities; Small Business Administration
loans; loans guaranteed by the Farmers Home Loan Administration; Federal Housing
Authority insured multi-family loans; real estate mortgage investment conduit
("REMIC") and non-REMIC collateralized mortgage obligations, including residual
interests; and other derivative mortgage-backed securities and products. The
Company also trades real estate mortgage loans originated by unaffiliated
mortgage lenders, both on a securitized and non-securitized basis. The Company
acts as underwriter and placement agent in transactions involving rated and
unrated mortgage-related securities issued by affiliated and unaffiliated
parties. The Company enters into significant commitments--such as forward
contracts--on GNMA, FNMA and FHLMC securities, and on other rated and unrated
mortgage-related securities. Certain rated and unrated mortgage-related
securities are considered to be liquid, while other such securities, and
non-securitized mortgage loans, are considered to be less readily marketable.
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The Company trades GNMA, FNMA and FHLMC "to be announced" securities--having
a stated coupon and the original term to maturity, although the issuer and/or
the specific pool of mortgage loans is not known at the time of the transaction.
The Company buys and sells such securities for its own account in transactions
with institutional and individual customers, as well as with other dealers.
Under the Company's trading agreements, the Company generally has the right to
request margin from its counterparty.
The Company, through various special-purpose subsidiaries, purchases, sells,
and services entire loan portfolios of varying quality. These portfolios are
generally purchased from financial institutions and other secondary
mortgage-market sellers. Prior to bidding on a portfolio of loans, an analysis
of the portfolio is performed by experienced mortgage-loan underwriters. Upon
acquisition of a loan portfolio, the loans are classified as either
investment-grade or non-investment-grade. Loan collection is emphasized for the
non-investment-grade segment of the loan portfolio. A collection department
employs a staff of workout specialists and loan counselors who assist delinquent
borrowers. If collection efforts are unsuccessful, the foreclosure unit will
commence and monitor the foreclosure process until either the borrower makes the
loan current, or the property securing the loan is foreclosed or otherwise
acquired. The portfolio may include real estate which has been foreclosed or was
in the process of foreclosure at the time of its acquisition. The foreclosure
unit maintains and markets properties through regional real estate brokers.
Investment-grade mortgage loans are sold to other institutional investors in
either securitized or non-securitized form. In addition, special-purpose
subsidiaries issue REMIC and non-REMIC collateralized mortgage obligations
directly or through trusts that are established for this purpose.
ASSET-BACKED SECURITIES. The Company acts as underwriter and placement
agent with respect to investment- and non-investment-grade, asset-backed
securities issued by unaffiliated third parties. These asset-backed securities
include: securities backed by consumer automobile receivables originated by the
captive finance subsidiaries of automobile manufacturers, commercial banks and
finance companies; credit card receivables; and home-equity lines of credit or
second mortgages. The Company also trades and makes markets in these
asset-backed securities. The market for asset-backed securities is of relatively
recent origin. While there are ready markets for the investment-grade,
asset-backed securities described above, other varieties may lack liquidity.
MUNICIPAL SECURITIES AND RELATED PRODUCTS. The Company is a dealer in
tax-exempt and taxable municipal securities and instruments including: general
obligation and revenue bonds; notes; leases; and variable-rate obligations
issued by states, counties, cities, and state and local governmental
authorities. The Company is active as a managing underwriter of negotiated and
competitive new security issuances and on a select basis, provides financial
advisory services. The Company makes markets in a broad spectrum of long- and
short-term municipal securities, mainly to facilitate transactions with
institutional and individual customers, as well as other dealers. As agent for
issuers and for a fee, the Company remarkets short-term debt instruments to
investors in the variable rate, demand bond market. The Company periodically
uses both municipal and treasury bond futures to hedge its cash-market bond
inventory. In addition, the Company maintains a municipal arbitrage portfolio
for its own account consisting of municipal futures and cash bond positions. The
Company's underwriting, trading and sales activities are supported by a
municipal research group.
ARBITRAGE. The Company engages for its own account in both "classic" and
"risk" securities-arbitrage. The Company's risk arbitrage activity generally
involves the purchase of a security at a discount from a value which is expected
to be realized if a proposed or anticipated merger, recapitalization, tender or
exchange offer is consummated. In classic arbitrage the Company seeks to profit
from temporary discrepancies (i) between the price of a security in two or more
markets, (ii) between the price of a convertible security and its underlying
security, (iii) between securities that are, or will be, exchangeable at a later
date, and (iv) between the prices of securities with contracts settling on
differing dates.
BLOCK TRADING. The Company effects transactions in large blocks of
securities exceeding 50,000 shares, mainly with institutional customers.
Transactions are handled on an agency basis whenever possible,
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but the Company may be required to take a long or short position in a security
to the extent that an offsetting purchaser or seller is not immediately
available.
STRATEGIC STRUCTURING AND TRANSACTIONS (SST). The Company targets mispriced
assets using sophisticated models and proprietary quantitative methods. The
Company maintains substantial proprietary trading and investment positions in
domestic and foreign markets across a wide spectrum of equity and commodity
securities including listed and over the counter options, futures and swaps.
FOREIGN EXCHANGE. The Company trades in foreign exchange, including: major
and minor currencies on a spot and forward basis; listed and over-the-counter
foreign-currency options; and foreign-currency futures. Currency option
strategies are made available to customers to help them meet their specific risk
management objectives.
DERIVATIVES. The Company manages a customer-driven business which focuses
on individually-negotiated derivative instruments across the fixed income,
currency, credit, and equity markets. Among the products in which the Company is
most active are interest rate swaps and options, equity swaps and options,
currency swaps and options, credit derivatives, and tax exempt derivatives. The
Company also structures products which combine derivatives having both
privately- and publicly-placed debt and/or equity components. By tailoring
products across the spectrum of derivatives markets, the Company designs
solutions to meet customers' asset-liability management, investment, and capital
market needs.
OVER-THE-COUNTER EQUITY SECURITIES. The Company makes markets on a
principal basis in common and preferred stocks, warrants, and other securities
traded on the NASD's Automated Quotation System and otherwise in the
over-the-counter market. Principal transactions with customers are effected at a
net price equal to the prevailing inter-dealer price, plus or minus a mark-up or
mark-down.
EMERGING MARKETS. The Company provides financial services in various
emerging markets worldwide including: securities brokerage; equity and fixed
income trading and sales; securities research; and a full range of investment
banking, capital formation and advisory services. As part of these activities,
the Company manages and participates in public offerings and arranges with
institutional investors the private placement of debt and equity securities. The
markets currently covered by the Company include Latin America, Asia, and
Eastern Europe.
SPECIALIST ACTIVITIES. The Company is a participant in a specialist unit on
the NYSE which performs specialist functions in 135 NYSE-listed stocks. This
market-making operation is conducted through a joint venture with a member
organization pursuant to a joint-account agreement. The market-making function
of the specialist unit involves risk of loss during periods of market
fluctuation, since specialists are obliged to take positions in their issues
counter to the direction of the market in order to minimize short-term
imbalances in the auction market.
BROKERAGE ACTIVITIES
A major portion of the Company's revenues is derived from customer
commissions on brokerage transactions in equity and debt securities. The Company
is one of the leading firms in the United States in providing brokerage services
to institutional investors. The Company's brokerage clients include United
States and foreign institutional investors such as investment advisors, mutual
funds, commercial banks, insurance companies, pension and profit-sharing funds,
and high-net-worth individuals. A significant portion of the Company's
commission business is generated by institutional clients--often in block trades
requiring special marketing and trading expertise--and from transactions
originated by the correspondent organizations for whom the Company provides
securities-clearance services. The largest portion of the Company's commission
revenue is derived from brokerage transactions in listed securities.
INSTITUTIONAL. A substantial portion of the Company's commission business
involves the execution of transactions in corporate securities for U.S. and
foreign institutional investors. The primary source of
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revenue from equity activities is negotiated-commission revenue earned from
providing customers with liquidity, trading expertise, trade-processing
capability, and investment advice. Investment advice includes economic
forecasts, industry and company analyses, overall strategic guidance and Company
recommendations.
INDIVIDUAL INVESTORS. The Company's individual-investor sales force
concentrates on servicing individual clients possessing a high net-worth and
corporations engaging in securities transactions of a size sufficient to benefit
from the Company's full range of institutional-caliber services.
OPTION AND INDEX PRODUCTS. The Company provides an array of equity and
index option-related execution services to institutional and individual clients.
The Company utilizes sophisticated research and computer modeling to formulate
for clients specific recommendations relating to options and index trading.
FUTURES. The Company provides transaction services for customers who trade
contracts in futures, financial instruments and physical products, including
options on futures and physical commodities. These products are based on
selected stock indices, fixed income securities, currencies, agricultural and
energy products and precious metals. Domestic trading is subject to extensive
regulation by the Commodity Futures Trading Commission ("CFTC") pursuant to the
Commodity Exchange Act and the Commodity Futures Trading Commission Act of 1974.
International trading activities are subject to regulation by the respective
regulatory authorities in the location where the futures or commodity exchange
resides, including the Securities and Futures Authority ("SFA") in the United
Kingdom.
The margin requirements covering substantially all transactions in futures
contracts are subject to the particular exchange's regulations. In the United
States, the Company is a clearing member of the Chicago Board of Trade, the
Chicago Mercantile Exchange, Inc., the New York Mercantile Exchange and other
principal futures exchanges. The Company is a member of the International
Petroleum Exchange ("IPE"), the London Commodity Exchange ("LCE"), the London
International Financial Futures Exchange ("LIFFE"), and Marche a Terme
International de France ("MATIF") in Europe; and a "special" member of the Tokyo
Stock Exchange for clearing Japanese government bond futures.
INTERNATIONAL. BSIL is a London based securities broker dealer and engages
in several types of activities including principal and agency transactions,
underwriting, and investment banking. BSIL is a member of the SFA, the IPE, the
LIFFE, the International Securities Market Association ("ISMA") and the London
Securities & Derivatives Exchange Limited ("OMLX"). Another London subsidiary,
Bear Stearns International Trading Limited ("BSIT"), is a market-maker in
various non-U.S. dollar denominated equity securities and engages in index and
derivative arbitrage. BSIT is a member of the London Stock Exchange and the
Stock Exchange Automated Quotations International ("SEAQ").
The Company's French subsidiary is Bear Stearns Finance S.A. ("BSFSA").
BSFSA is a regulated French broker dealer and is a member of the MATIF.
Bear Stearns Bank plc ("Bank") is an Irish based bank, which was
incorporated in 1996 and subsequently granted a banking license under Section 9
of the Irish Central Bank Act, 1971.
Bear Stearns (Japan) Ltd. ("BSJL") is a broker dealer registered with the
Japanese Ministry of Finance. BSJL sells equity and fixed income securities to
Japanese institutional customers. BSJL has a special membership on the Tokyo
Stock Exchange. Bear Stearns Hong Kong Ltd. is a member of the Securities and
Futures Commission and sells U.S. commodities to retail customers. Bear Stearns
Asia Ltd. is a member of the Hong Kong Stock Exchange and sells equity and fixed
income securities and derivative products to institutional and retail customers
in Asia (excluding Japan) and also provides investment banking services to
institutional clients. Bear Stearns Singapore Pte. Limited is a broker dealer
registered with the Monetary Authority of Singapore and sells fixed income and
equity securities to institutional investors in Singapore and Southeast Asia.
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INVESTMENT BANKING
The Company is a major global investment banking firm providing a full range
of capital formation and advisory services to a broad spectrum of clients. The
Company manages and participates in public offerings and arranges the private
placement of debt and equity securities directly with institutional investors.
The Company provides advisory services to clients on a wide range of financial
matters and assists with mergers, acquisitions, leveraged buyouts, divestitures,
corporate reorganizations, and recapitalizations.
The Company's strategy is to concentrate a major portion of its corporate
finance business development efforts within those industries in which the
Company has established a leadership position in providing investment banking
services. Industry specialty groups include chemicals, energy, entertainment,
financial services, forest products, gaming, health care, industrial, insurance,
lodging, merchandising, media/communications, oil and gas, pharmaceuticals, real
estate, retailing, satellite, technology, and utilities. These groups are
responsible for initiating, developing and maintaining client relationships, and
for executing transactions involving these clients. The Company has focused
primarily on those industries in which the Company also has a strong research
capability.
In addition to being structured according to distinct industry groups, the
Company has a number of professionals who specialize in specific types of
transactions. These include mergers and acquisitions ("M&A"), equity offerings,
high yield securities, and other transaction specialties.
MERGERS AND ACQUISITIONS. The Company is active in arranging various M&A
transactions for its clients. The Company participates in a broad range of
domestic and international assignments including acquisitions, divestitures,
strategic restructurings, proxy contests, leveraged buyouts, and defenses
against unsolicited takeovers.
EQUITY OFFERINGS. The equity capital markets group focuses on providing
financing for issuers of equity and convertible equity securities in the public
markets. The group assists in the origination, and is responsible for the
structuring and execution, of transactions for a broad range of clients.
HIGH YIELD SECURITIES. The high yield securities group focuses on providing
financing in the public and private capital markets. The group is responsible
for originating, structuring, and executing high yield transactions across a
wide range of companies and industries, as well as managing client relationships
with both high yield corporate issuers and financial sponsors of leveraged
transactions.
LEVERAGED ACQUISITIONS. As part of its investment banking activities, the
Company occasionally makes investments as principal in leveraged acquisitions
and in leveraged buy-out funds as a limited partner. The Company's investments
generally take the form of equity securities, either common or preferred stock.
Equity securities purchased in these transactions generally are held for
appreciation and are not readily marketable. While the Company believes that the
current carrying value of these instruments is at least equal to their eventual
realizable value, it is not possible to determine whether, or when, the Company
will realize the value of these investments.
COMMERCIAL REAL ESTATE. The Company is engaged in a variety of real estate
activities on a nationwide basis. It provides comprehensive real estate-related
investment banking, capital markets and financial advisory services.
SECURITIES CLEARANCE ACTIVITIES
The Company provides a full range of securities clearing services to
clients. Organizations that are engaged in the retail or institutional brokerage
business and are members of the NYSE and/or NASD comprise one category of
correspondent clearing clients called "fully-disclosed correspondents." In
addition, the Company has extensive involvement in the clearing of securities
transactions for other types
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of clients such as: hedge funds, market-makers, specialists, arbitrageurs, money
managers, and other professional investors trading at multiple securities firms
called "professional clearing clients".
Besides commissions and service charges realized from securities clearing
activities, the Company also earns substantial amounts of interest income. The
Company extends credit directly to the customers of correspondent firms in order
to facilitate the conduct of customer securities transactions on a margin basis.
The correspondents indemnify the Company against margin losses on their
customers' accounts. The Company also extends margin credit directly to
correspondents to the extent that such firms pledge proprietary assets as
collateral. Since the Company must rely on the guaranties and general credit of
the correspondents, the Company may be exposed to significant risk of loss if
correspondents are unable to meet their financial commitments should there be a
substantial adverse change in the value of margined securities. The
correspondent clearing business for hedge funds, market-makers, arbitrageurs,
specialists, and other professional traders can require a substantial commitment
of the Company's capital involving varying degrees of risk. The Company has
developed computerized control systems to monitor and analyze risk on a daily
basis.
In addition to clearing trades, the Company provides other products and
services to its correspondents such as recordkeeping, trading reports,
accounting, general back-office support, securities lending, reorganization and
custody of securities. The Company's Prime Broker Plus system provides
consolidated reporting and securities processing for professional investors
executing trades at more than one securities firm. The financial
responsibilities arising from the Company's clearing relationships are allocated
in accordance with agreements with correspondents. To the extent that the
correspondent has available resources, the Company is protected against claims
by customers of the correspondent when the latter has been allocated
responsibility for a function giving rise to a claim. However, if the
correspondent is unable to meet its obligations, dissatisfied customers may
attempt to seek recovery from the Company.
The Company attempts to broaden, wherever possible, its relationships with
correspondent clearing clients. In addition to performing administrative,
operational and settlement functions, the Company also advises correspondents on
communications systems and makes available to them a variety of non-brokerage
products and services on favorable terms enabling them to benefit from the
Company's centralized purchasing power.
INTEREST
The Company derives substantial net interest income from customer margin
loans and securities lending.
CUSTOMER FINANCING. Securities transactions are effected for customers on
either a cash or margin basis. In margin transactions, the Company extends
credit to the customer, subject to various regulatory and internal requirements,
which is collateralized by securities and cash in the customer's account, for a
portion of the purchase price. The Company receives income from interest charged
on the extension of credit; the rate of interest charged to customers for margin
financing is based upon the Federal funds rate or brokers-call rate. By allowing
customers to purchase securities on margin, the Company assumes the risk of loss
if an adverse market movement reduces the value of the collateral below the
amount of a customer's indebtedness. The Company's net interest income is
impacted by the volume of customer borrowings and by the prevailing levels of
interest rates.
SECURITIES LENDING ACTIVITIES. In connection with both its trading and
brokerage activities, the Company borrows and lends securities to brokers and
dealers to cover short sales and to complete transactions in which customers
have failed to deliver securities by settlement date. The borrower of securities
is required to deposit cash or other collateral or to post a letter of credit
with the lender. The borrower of securities generally receives a rebate (based
on the amount of cash deposited) or pays a fee calculated to yield a negotiated
rate-of-return for the lender. Stock borrow and stock loan transactions are
generally executed pursuant to written agreements with counterparties which
require that (i) securities borrowed
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and loaned be marked-to-market on a daily basis, (ii) excess collateral be
refunded, and (iii) deficit collateral be furnished. Mark-to-market adjustments
are usually made on a daily basis through the facilities of various clearing
houses to reflect changes in the market value of loaned securities.
OTHER ACTIVITIES
ASSET MANAGEMENT. The Company's asset management division manages equity
and fixed income assets for some of the United States' leading corporate pension
plans, public systems, endowments, foundations, multi-employer plans, insurance
companies, corporations, families and high net-worth individuals. With more than
$8 billion under management, the asset management division provides its clients
with diverse products, expertise and experience for enhancing investment returns
by identifying, and taking advantage of, investment opportunities in the
financial markets. Institutional products include: Large, Mid and Small Cap
Value Equity; Global and Emerging Markets Fixed Income; and Alternative
Investment Strategies.
In addition, the asset management division serves individual investors
through its management of The Bear Stearns Funds, a family of mutual funds which
include: S&P Stars; Large Cap Value; Small Cap Value; The Insiders Select; Total
Return Bond; and The Emerging Markets Debt.
EQUITIES RESEARCH. The equity research department analyzes and provides
timely information and opinions on over 100 industries and more than 850
companies, both domestic and international. In addition to more than 80
analysts, its staff includes a market strategist, an economics team, and
accounting specialists, all of whom analyze the impact of broader economic
factors and regulatory changes on the market and individual stocks.
FIXED INCOME RESEARCH. A fixed income research unit contained within the
Company's Financial Analytics and Structured Transactions Group (F.A.S.T.)
provides financial engineering and securitization capabilities, investment
research, fixed income portfolio management and analytical systems and trading
technology for mortgage-related and fixed income securities. This unit also
performs original research on valuation techniques and provides consulting
services.
OTHER RESEARCH. A high-grade, fixed income research unit, consisting of
approximately 15 analysts and researchers, provides similar services in respect
of high-grade, fixed income securities. A high yield, fixed income research unit
consisting of approximately 15 analysts and researchers, provides similar
services in respect of high yield, fixed income securities. The Company derives
revenues for its research activities principally from securities transactions in
an agency or dealer capacity; from its consulting services; and, from offering
some of its research products for a fee.
CUSTODIAL TRUST COMPANY. The Company offers a range of trust company and
securities-clearance services through its wholly owned subsidiary CTC. CTC
provides the Company with banking powers, such as access to the securities and
funds-wire services of the Federal Reserve System. CTC provides fiduciary,
custody and agency services for institutional accounts; the clearance of
government securities for institutions and dealers; the processing of mortgage
and mortgage-related products, including derivatives and CMO products; and
commercial lending. At December 31, 1997, CTC held over $69.1 billion of assets
for non-affiliated institutional clients such as pension funds, mutual funds,
endowment funds, religious organizations and insurance companies.
FIDUCIARY SERVICES. The Company is an investment consultant which assists
pension and welfare funds, other institutional investors and high-net-worth
individual clients in structuring and executing their investment affairs.
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ADMINISTRATION AND OPERATIONS
Administration and operations personnel are responsible for the processing
of securities transactions; the receipt, identification and delivery of funds
and securities; internal financial controls; accounting functions; office
services; the custody of customer securities; and the overseeing of margin
accounts of the Company and correspondent organizations. The processing,
settlement, and accounting for transactions for the Company, correspondent
organizations, and the customers of correspondent organizations is handled by a
staff of approximately 3,500 employees located in separate operations offices in
New York City and Whippany, New Jersey and, to a lesser extent, the Company's
offices worldwide.
The Company executes its own and correspondent transactions on all United
States exchanges and in the over-the-counter market. The Company clears all of
its U.S. and international transactions (I.E. delivery of securities sold,
receipt of securities purchased, and transfer of related funds) through its own
facilities, unaffiliated commercial banks and through memberships in various
clearing corporations. However, certain government, government-agency and
mortgage-related securities transactions are cleared through CTC.
There is considerable fluctuation in the volume of transactions the Company
processes, clears and settles. Operations personnel monitor day-to-day
operations to assure compliance with applicable laws, rules and regulations. The
Company records transactions and posts its books on a daily basis. Failure to
keep current and accurate books and records can render the Company liable to
disciplinary action by governmental and self-regulatory organizations.
The Company maintains its own data processing facilities, which have been
expanded significantly in recent years.
The Company believes its internal controls and safeguards are adequate, but
recognizes that fraud and misconduct by customers and employees, including the
possible theft of securities, are risks inherent in the securities industry. As
required by the NYSE and certain other authorities, the Company carries a
broker's blanket-bond insurance covering the loss or theft of securities, check-
and draft-forgery, embezzlement, and the misplacement of securities. This
blanket-bond policy provides fidelity coverage and coverage for loss or theft of
securities, fraudulent trading, and securities forgery of up to $200 million
subject to a deductible of $2.5 million per occurrence.
COMPETITION
The Company encounters intense competition in all aspects of the securities
business and competes directly with other securities firms--both U.S. and
foreign--many having substantially greater capital and resources and offering a
wider range of financial services than does the Company. Besides competition
from firms in the securities business, in recent years the Company has
experienced increasing competition from other sources, such as commercial banks
and insurance companies. The Company believes that the principal factors
affecting competition involve the caliber and abilities of professional
personnel, the relative prices of the services and products being offered, and
the quality of its services.
REGULATIONS AND OTHER FACTORS AFFECTING THE COMPANY AND THE SECURITIES INDUSTRY
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. Bear Stearns
and BSSC are registered as broker dealers with the SEC and are registered as
broker dealers in all 50 states and the District of Columbia. Additionally, Bear
Stearns is registered as an investment adviser with the SEC. Much of the
regulation of broker dealers has been delegated to self-regulatory
organizations, principally the NASD, the Municipal Securities Rulemaking Board,
and national securities exchanges such as the NYSE, which has been designated by
the SEC as the primary regulator of certain of the Company's subsidiaries,
including Bear Stearns and BSSC. These self-regulatory organizations
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(i) adopt rules, subject to approval by the SEC, which govern the industry and
(ii) conduct periodic examinations of the Company's operations. Securities firms
are also subject to regulation by state securities administrators in those
states in which they conduct business.
Broker dealers are subject to regulations which cover all aspects of the
securities business including: sales methods; trade practices; use and
safekeeping of customer funds and securities; capital structures; recordkeeping;
and the conduct of directors, officers and employees. The types of regulations
to which investment advisers are subject include: record keeping; fee
arrangements; client disclosure; and the conduct of directors, officers and
employees. The mode of operation and profitability of broker dealers or
investment advisers may be directly affected by new legislation; changes in
rules promulgated by the SEC and self-regulatory organizations; and changes in
the interpretation or enforcement of existing laws and rules. The SEC,
self-regulatory organizations, and state securities commissions may conduct
administrative proceedings which can result in censures, fines, the issuances of
cease-and-desist orders, and the suspension or expulsion of a broker dealer or
an investment adviser, its officers or employees. The principal purpose of
regulation and discipline of broker dealers and investment advisers is the
protection of customers and the securities markets, rather than the protection
of creditors and stockholders of broker dealers or investment advisers. On
occasion the Company's subsidiaries have been subject to routine investigations
and proceedings, and sanctions have been imposed for infractions of various
regulations, none of which, to date, has had a material adverse effect on the
Company or its business.
The Market Reform Act of 1990 was adopted for the following reasons: (i) to
strengthen regulatory oversight of the securities markets, (ii) to improve the
financial condition of market participants, and (iii) to improve the safety and
efficiency of market mechanisms by creating a system for providing information
and oversight for the parents and other affiliates of broker dealers. The SEC
has adopted the Risk Assessment Reporting Requirements for Brokers and Dealers
(the "Risk Assessment Rules") to implement the provisions of the Market Reform
Act of 1990. The Risk Assessment Rules require that broker dealers: (i) develop
an organizational chart; (ii) maintain risk management procedures or standards
for monitoring and controlling the risks resulting from activities of material
associated persons; (iii) maintain and preserve records and other information;
and (iv) file quarterly reports covering the risk-management procedures and the
financial and securities activities of the holding companies of broker dealers,
or broker dealer affiliates or subsidiaries that are reasonably likely to have a
material impact on the financial and operational condition of the broker dealer.
The Insider Trading and Securities Fraud Enforcement Act of 1988 augments
enforcement of the securities laws through a variety of measures designed to
provide greater deterrence, detection, and punishment of insider-trading
violations. Among other things, the law (i) expands the scope of civil penalties
to controlling persons who fail to take adequate steps to prevent insider
trading, (ii) initiates a bounty program by giving the SEC discretion to reward
informants who provide assistance to the agency and (iii) requires broker
dealers and investment advisors to establish and enforce written policies and
procedures reasonably designed to prevent the misuse of inside information.
The Government Securities Act of 1986 (the "Government Securities Act")
established a comprehensive and coordinated pattern for the regulation of
brokers, dealers and financial institutions who trade in government securities,
which includes Bear Stearns. Under the Government Securities Act, Bear Stearns
is subject to Department of Treasury regulations covering among other things:
capital adequacy; custody and use of government securities; and transfers and
control of government securities subject to repurchase transactions.
The commodities industry in the United States is subject to regulation under
the Commodity Exchange Act, as amended. The CFTC is the federal agency charged
with the administration of the Commodity Exchange Act and the regulations
thereunder. Bear Stearns and BSSC are registered with the CFTC as futures
commission merchants and are subject to regulation as such by the CFTC and
various domestic boards of trade and other commodity exchanges. Bear Stearns'
and BSSC's commodity-futures
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business is also regulated by the NFA, a not-for-profit membership corporation,
which has been designated a registered futures association by the CFTC.
As registered broker dealers and member firms of the NYSE, both Bear Stearns
and BSSC are subject to the Net Capital Rule (Rule 15c3-1) under the Exchange
Act, which has been adopted through incorporation by reference in NYSE Rule 325.
The Net Capital Rule, which specifies minimum net capital requirements for
registered broker dealers, is designed to measure the general financial
integrity and liquidity of a broker dealer and requires that at least a minimal
portion of its assets be kept in relatively liquid form.
Bear Stearns and BSSC are also subject to the net capital requirements of
the CFTC and various commodity exchanges which generally require that Bear
Stearns and BSSC maintain a minimum net capital equal to the greater of the
alternative net capital requirement provided for under the Exchange Act or 4% of
the funds required to be segregated under the Commodity Exchange Act and the
regulations promulgated thereunder.
Compliance with the Net Capital Rule could limit those operations of Bear
Stearns and/or BSSC which require significant capital usage, such as
underwriting, trading and the financing of customer margin-account debit
balances. The Net Capital Rule could also restrict the Company's ability to
withdraw capital from Bear Stearns or BSSC, which in turn could limit the
Company's ability to pay dividends, pay interest, repay debt, or redeem or
purchase shares of its outstanding capital stock. Additional information
regarding net-capital requirements is set forth in the Annual Report, Notes to
Consolidated Financial Statements, Footnote 7, entitled "Regulatory
Requirements".
Bear Stearns and BSSC are members of the Securities Investor Protection
Corporation ("SIPC") which provides insurance protection for customer accounts
held by the firm of up to $500,000 for each customer, subject to a limitation of
$100,000 for cash balance claims in the event of the liquidation of a broker
dealer. In addition, the BSSC purchased $99.5 million of additional
security-positions coverage from a private insurer for each of the BSSC's
customers.
The activities of the Company's bank and trust company subsidiary, CTC, are
regulated by the New Jersey Department of Banking and the Federal Deposit
Insurance Corporation ("FDIC"). FDIC regulations applicable to CTC limit the
extent to which CTC and Bear Stearns may have common officers and directors or
may share physical facilities. FDIC regulations require certain disclosures in
connection with joint advertising or promotional activities conducted by Bear
Stearns and CTC. Such regulations also restrict certain activities of CTC in
connection with the securities business of Bear Stearns. Federal legislation
limits (i) an expansion in the scope of the activities of CTC, (ii) the annual
rate of increase in its assets, (iii) the cross-marketing of certain services
with its affiliates and (iv) the use of overdrafts at Federal Reserve banks on
behalf of affiliates.
The Company does a substantial volume of business in the international fixed
income and equity markets through BSIL and is a market-maker in certain non-U.S.
dollar-denominated securities and engages in index and derivative arbitrage
through BSIT. BSIL and BSIT are subject to both the United Kingdom Financial
Services Act 1986, which governs all aspects of the investment business in the
United Kingdom, and the regulations of the SFA which includes: regulatory
capital; sales and trading practices; use and safekeeping of customer funds;
securities recordkeeping; margin practices and procedures; registration
standards for individuals; and periodic reporting and settlement procedures.
BSIL and BSIT are subject to supervision by and are regulated in accordance with
the rules of the SFA. BSIL is a member of the IPE, the LIFFE, the ISMA, the OMLX
and the LCE. BSIT is a member of the London Stock Exchange and SEAQ
International.
The Company, like other securities firms, is directly affected by such
things as: national and international economic and political conditions; broad
trends in business and finance; legislation and regulations affecting the
national and international financial and business communities; currency values;
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the level and volatility of interest rates; and fluctuations in the volume and
the price levels in the securities and commodities markets. These and other
factors can affect the Company's volume of security new-issues, mergers,
acquisitions, and business restructurings; the stability and liquidity of
securities and commodities markets; and, the ability of issuers, other
securities firms and counterparties to perform on their obligations. Decreases
in the volume of security new-issues, mergers, acquisitions or restructurings
generally result in lower revenues from investment banking and, to a lesser
extent, reduced principal transactions. A reduced volume of securities and
commodities transactions and reduced market liquidity generally result in lower
revenues from principal transactions and commissions. Lower price levels for
securities may result in a reduced volume of transactions, and may also result
in losses from declines in the market value of securities held in proprietary
trading and underwriting accounts. In periods of reduced sales and trading or
investment banking activity, profitability may be adversely affected because
certain expenses remain relatively fixed. Sudden and sharp declines in the
market values of securities and/or the failure of issuers and counterparties to
perform on their obligations can result in illiquid markets. In such markets,
the Company may not be able to sell securities and/or may have difficulty in
hedging its securities positions. Such market conditions, if prolonged, may also
lower the Company's revenues from investment banking and principal transactions.
The Company's securities trading, derivatives, arbitrage, market-making,
specialist, leveraged-buyout and underwriting activities are conducted by the
Company on a principal basis and expose the Company to significant risk of loss.
Such risks include market, counterparty credit, and liquidity risks. See "Item
7A. Quantitative and Qualitative Disclosure about Market Risk," in Part II of
the Form 10-K.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Weil, Gotshal & Manges LLP, special tax counsel to the
Company, the following summary accurately describes the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes to initial holders purchasing Notes at the "issue price". For this
purpose, the "issue price" of a Note equals the first price at which a
substantial amount of the Notes is sold to the public for money (not including
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers). This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
administrative pronouncements, judicial decisions and existing and proposed
Treasury regulations. All of the foregoing are subject to change, possibly on a
retroactive basis, and any such change could affect the continuing validity of
this disclosure. Weil, Gotshal & Manges LLP undertakes no obligation to
supplement this opinion to reflect any changes in laws that may occur after the
date hereof.
This summary discusses only Notes held as capital assets within the meaning
of Section 1221 of the Code. It does not discuss all of the tax consequences
that may be relevant to a holder in light of the holder's particular
circumstances or to holders subject to special rules, such as certain financial
institutions, insurance companies, dealers in securities or foreign currencies,
persons holding Notes as part of a straddle, hedging or conversions transaction,
or U.S. Holders whose functional currency (as defined in Code Section 985) is
not the U.S. dollar. Finally, this summary does not discuss investors in
pass-through entities that hold the Notes, nor does it describe tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction, or,
except to the limited extent under "--Tax Consequences to Non-U.S. Holders", any
possible applicability of U.S. federal gift or estate taxation. PERSONS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD
TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
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<PAGE>
As used in this summary, the term "U.S. Holder" means the beneficial owner
of a Note that is (i) for United States federal income tax purposes a citizen or
resident of the United States (including certain former citizens and former
long-term residents), (ii) a corporation created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust with respect to the administration of
which a court within the United States is able to exercise primary supervision
and one or more United States persons have the authority to control all
substantial decisions of the trust.
As used in this summary, the term "Non-U.S. Holder" means an owner of a Note
that is an individual, corporation, trust, or estate other than a "U.S. Holder".
TAX CONSEQUENCES TO UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest and Additional Amounts (as defined in the Indenture) paid or
accrued on Notes will be taxable to U.S. Holders as ordinary interest income.
Such amounts will be included in U.S. Holders' income at the time such payments
are accrued or are received in accordance with the U.S. Holder's method of
accounting for United States federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts attributable to
accrued interest) and such U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note generally will equal the U.S. Holder's
cost of acquiring the Note (net of accrued interest), increased by the amount
includable as market discount (if the holder elects to accrue market discount
currently) and reduced by any amortized bond premium, principal payments, and
the amount of any other payments except payments of interest on the Notes.
Gain or loss realized on the sale, exchange or retirement of a Note will be
capital gain or loss. Recently enacted legislation revised the holding period
and tax rates applicable to certain capital gains. For individuals, gain from
the sale or exchange of the Notes will be taxed at different rates depending
upon whether the holding period is one year or less, more than one year but not
more than 18 months, or more than 18 months. U.S. Holders should consult their
tax advisors with respect to applicable rates and holding periods, and netting
rules for capital losses.
PURCHASERS OF NOTES AT OTHER THAN ORIGINAL ISSUE PRICE OR DATE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire Notes either (a) other than at the time of original
issuance or (b) at the time of original issuance other than at the issue price,
including those provisions of United States tax law relating to the treatment of
"market discount", "acquisition premium", and "amortizable bond premium". Such
purchasers should consult their tax advisors as to the consequences to them of
the acquisition, ownership and disposition of the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING FOR U.S. HOLDERS
Information reporting to the Internal Revenue Service is required for
interest payments and original issue discount accruals for certain non-corporate
U.S. Holders (including individuals). These non-corporate U.S. Holders may be
subject to backup withholding at a rate of 31% on payments of principal, premium
and interest (including original issue discount, if any) on, and the proceeds of
disposition of, a Note. Backup withholding will apply only if the U.S. Holder
(i) fails to furnish its Taxpayer Identification Number ("TIN"), which for an
individual would be his Social Security Number, (ii) furnishes an incorrect TIN,
(iii) is notified by the Internal Revenue Service that it has failed to properly
report payments of
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interest and dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. The
application for exemption is available by providing a properly completed
Internal Revenue Service Form W-9. U.S. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
INCOME AND WITHHOLDING TAX
The following is a summary of certain material United States federal income
tax consequences that may be applicable to Non-U.S. Holders of the Notes. For
purposes of the following discussion, interest and gain on the sale, exchange or
other disposition of the Note will be considered "U.S. trade or business income"
if such income or gain is (i) effectively connected with the conduct of a U.S.
trade or business or (ii) in the case of a treaty resident, attributable to a
permanent establishment (or, in the case of an individual, to a fixed base) in
the United States.
Under present United States federal law, and subject to the discussion below
concerning backup withholding:
(a) payment of principal, interest and Additional Amounts (if any) on
the Notes by the Company or any paying agent to any Non-U.S. Holder will not
be subject to the 30% United States federal withholding tax, provided that,
in the case of interest, (i) such Non-U.S. Holder does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, is not a controlled
foreign corporation related, directly or indirectly, to the Company through
stock ownership, and is not a bank receiving interest described in Section
881(c)(3)(A) of the Code and (ii) the statement requirement set forth in
Section 871(h) or Section 881(c) of the Code has been fulfilled with respect
to the beneficial owner, as discussed below; and
(b) a Non-U.S. Holder of a Note will not be subject to United States
federal income tax on gain realized on the sale, exchange or other
disposition of such Note, unless (i) such Non-U.S. Holder is an individual
who is present in the United States for 183 days or more in the taxable year
of disposition, and meets certain other conditions, (ii) such gain is U.S.
trade or business income or (iii) such holder is subject to the rules
applicable to certain former citizens and residents of the United States.
Sections 871(h) and 881(c) of the Code require that, in order to obtain the
portfolio interest exemption from withholding tax described in paragraph (a)
above, either the beneficial owner of a Note, or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and that is holding the Note on behalf of such beneficial owner,
files a statement with the withholding agent that the beneficial owner of the
Note is not a U.S. Holder. The Financial Institution must certify, under
penalties of perjury, that such statement has been received from the beneficial
owner by it or by a financial institution between it and the beneficial owner
and furnish the payor with a copy thereof. Such requirement will be fulfilled if
the beneficial owner of a Note certifies on United States Internal Revenue
Service Form W-8 (or such successor form as the Internal Revenue Service
designates), under penalties of perjury, that it is not a U.S. Holder and
provides its name and address, and any Financial Institution holding the Note on
behalf of the beneficial owner files a statement with the withholding agent to
the effect that it has received such a statement (and furnishes the withholding
agent with a copy thereof).
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The gross amount of interest payments to a non-U.S. Holder that does not
qualify for the portfolio interest exception and that is not U.S. trade or
business income will be subject to withholding of U.S. federal income tax at a
rate of 30% unless a U.S. income tax treaty applies to reduce or eliminate
withholding. To claim the benefits of a tax treaty, the non-U.S. Holder must
provide a Form 1001 (or such successor form as the Internal Revenue Service
designates) prior to the payment of interest.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest on the Note or gain realized on its sale,
exchange or other disposition is U.S. trade or business income, the Non-U.S.
Holder will generally be subject to regular United States income tax on such
effectively connected income in the same manner as if it were a U.S. Holder. See
"--Tax Consequences to United States Holders" above. In lieu of the certificate
described in the preceding paragraph, such a Non-U.S. Holder will be required to
provide to the Company a properly executed United States Internal Revenue
Service Form 4224 (or such successor form as the Internal Revenue Service
designates) in order to claim an exemption from withholding tax. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments.
A Note held by an individual who is not a citizen or resident of the United
States at the time of his death will not be subject to United States federal
estate tax as a result of such individual's death, provided that the individual
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote and, at the
time of such individual's death, payments with respect to such Note would not
have been effectively connected to the conduct by such individual of a trade or
business in the United States.
Each Non-U.S. Holder of a Note should be aware that if it does not properly
provide the required Internal Revenue Service form, or if the Internal Revenue
Service form is not properly transmitted to and received by the United States
person otherwise required to withhold United States federal income tax, interest
on the Note may be subject to United States withholding tax at a 30% rate.
BACKUP WITHHOLDING AND INFORMATION REPORTING FOR NON-U.S. HOLDERS
Under certain circumstances, the United States Internal Revenue Service
requires information reporting and backup withholding of United States federal
income tax at a rate of 31% with respect to payments to certain non-corporate
Non-U.S. Holders (including individuals). Information reporting and backup
withholding will apply unless such non-corporate Non-U.S. Holders certify to the
withholding agent that the beneficial owner of the Note is not a U.S. Holder.
This certification requirement will generally be satisfied by the certification
provided to avoid the 30% withholding tax (described above).
The payment of the proceeds of a disposition of a Note by a Non-U.S. Holder
to or through the United States office of a broker or through a non-United
States branch of a United States broker generally will be subject to information
reporting and backup withholding at a rate equal to 31% of the gross proceeds
unless the Non-U.S. Holder certifies on Internal Revenue Service Form W-8 that
the beneficial owner of the Note is not a U.S. Holder or otherwise establishes
an exemption. The payment of the proceeds of a disposition of a Note by a
Non-U.S. Holder to or through a non-United States office of a non-United States
broker will not be subject to backup withholding or information reporting unless
the non-United States broker has certain United States relationships or
connections.
Non-U.S. Holders of Notes should consult their tax advisors regarding the
application of withholding, information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such Non-U.S. Holder's
United States federal income tax liability and may
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entitle such Non-U.S. Holder to a refund, provided that the required information
is furnished to the United States Internal Revenue Service.
THE U.S. FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. PROSPECTIVE U.S. HOLDERS AND NON-U.S. HOLDERS OF THE NOTES ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
EFFECTS OF CHANGES IN SUCH LAWS.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
to be dated March 27, 1998 (the "Underwriting Agreement") between the Company
and the Underwriters named below, the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
the Company, the aggregate principal amount of Notes set forth opposite its name
below.
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
- ----------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns International Limited.................................... $ 450,000,000
ABN AMRO Bank N.V...................................................... 5,000,000
Banque Paribas......................................................... 5,000,000
Chase Manhattan International Limited.................................. 5,000,000
Citibank International plc............................................. 5,000,000
Dresdner Bank AG London Branch......................................... 5,000,000
Lehman Brothers International (Europe)................................. 5,000,000
Midland Bank plc....................................................... 5,000,000
Morgan Stanley & Co. International Limited............................. 5,000,000
NationsBanc Montgomery Securities LLC.................................. 5,000,000
Salomon Brothers International Limited................................. 5,000,000
-----------------
Total.............................................................. $ 500,000,000
-----------------
-----------------
</TABLE>
The Underwriters have advised the Company that they propose to offer some or
all of the Notes to the public at the offering price set forth on the cover page
of this Prospectus Supplement and any balance to certain dealers at a price that
reflects concessions not in excess of 0.250% of the principal amount of the
Notes. Such dealers may reallow a concession to other dealers not in excess of
0.10% of the principal amount of the Notes. After the initial offering to the
public, the public offering price and other selling terms may be changed.
In the event of default by one or more Underwriters, the Underwriting
Agreement provides that in certain circumstances other underwriters may be
substituted or the commitment of each non-defaulting Underwriter may be
increased up to 10 per cent. However, if the default involves more than 10 per
cent. of the aggregate principal amount of the Notes, the Underwriting Agreement
may be terminated.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the Notes if any are purchased.
BSIL is acting as Global Coordinator for the offering of the Notes. The
Underwriters propose initially to offer the Notes for sale in the United States
and in those jurisdictions in Europe and Asia where it is legal to make such
offers. However, no action has been or, except in connection with the
application for listing the Notes on the Official List of the London Stock
Exchange, will be taken in any jurisdiction by the Underwriters or the Company
that would permit a public offering of the Notes or possession or
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distribution of this Prospectus Supplement and the accompanying Prospectus in
any jurisdiction, other than the United States, where, or in any circumstances
in which, action for that purpose is required.
Each Underwriter has represented and agreed that (a) it has not offered or
sold and will not offer or sell any Notes to persons in the United Kingdom,
prior to the earlier of the expiry of the period of six months from the
Settlement Date and the admission of the Notes to listing in accordance with
Part IV of the Financial Services Act 1986, except to those persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Financial Services Act 1986, (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom, and (c) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Notes, other than any
document which consists of or any part of listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by listing rules under Part IV of the Financial Services Act 1986, to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a person
to whom the document may otherwise lawfully be issued or passed on.
Each Underwriter has represented and agreed to and with the Company that the
Notes will be issued outside France and, in connection with their initial
distribution, that such Underwriter and its affiliates have not offered or sold,
and will not offer or sell, directly or indirectly, any Notes to the public in
France, and has not distributed, and will not distribute or cause the Prospectus
Supplement and the accompanying Prospectus or any other offering material
relating to such Notes to be distributed to the public in France.
Each Underwriter has represented and agreed to and with the Company that
such Underwriter and its affiliates have not, directly or indirectly, offered or
sold and will not, directly or indirectly, offer or sell in Germany the Notes,
other than in accordance with the provisions of the German Securities Sales
Prospectus Act of 13th December, 1990, as amended, or any other laws applicable
in Germany governing the issue, offering and sale of securities.
Each Underwriter has represented and agreed that:
(a) it has not offered or sold and will not offer or sell in Hong Kong,
by means of any documents, any of the Notes other than to persons whose
ordinary business it is to buy or sell shares or debentures (whether as
principal or agent) or in circumstances which do not constitute an offer to
the public within the meaning of the Companies Ordinance (Cap. 32) of Hong
Kong; and
(b) unless it is a person permitted to do so under the securities laws
of Hong Kong, it has not issued or had in its possession and will not issue
or have in its possession for the purpose of issue any advertisement,
invitation or document relating to the Notes other than with respect to
Notes intended to be disposed of to persons outside Hong Kong or to be
disposed of in Hong Kong only to persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or
agent.
Each Underwriter has agreed that it will (to the best of its knowledge and
belief) comply with all applicable securities laws and regulations in force in
any jurisdiction in which it offers, sells or delivers any of the Notes or
possesses or distributes this Prospectus Supplement and accompanying Prospectus
and will obtain any consent, approval or permission which is (to the best of its
knowledge and belief) required by it for the purchase, offer, sale or delivery
by it of the Notes under the laws and regulations in force in any jurisdiction
to which it is subject or in which it makes such purchases, offers, sales or
deliveries and neither the Company nor any other Underwriter shall have any
responsibility therefor.
S-36
<PAGE>
Purchasers of the Notes may be required to pay stamp taxes and other charges
in accordance with the laws and practices of the country of purchase in addition
to the issue price set forth on the cover page hereof.
The Notes are a new issue of securities with no established trading market.
Although the Company intends to cause the Notes to be listed on the London Stock
Exchange and the Hong Kong Stock Exchange, no assurance can be given that either
of such applications will be approved, nor does the Company intend to apply for
listing of the Notes on a national securities exchange in the United States. The
Company has been advised by BSIL that, following completion of the offering of
the Notes, BSIL and its affiliates and certain of the other Underwriters intend
to make a market in the Notes, although they are under no obligation to do so
and may discontinue any market-making activities at any time without notice.
Accordingly, there can be no assurance 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.
All secondary trading in the Notes will settle in same day funds. See
"Description of the Notes-- Global Clearance and Settlement Procedures."
It is expected that delivery of the Notes will be made against payment
therefor on or about March 30, 1998, which is the fourth business day following
the date hereof (such settlement cycle being herein referred to as "T+4").
Purchasers of Notes should note that the ability to settle secondary market
trades of the Notes executed on the date of pricing may be affected by the T+4
settlement.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the United
States Securities Act of 1933, as amended, or contribute to payments the
Underwriters may be required to make in respect thereof.
BSIL, in its capacity as an Underwriter, has committed to purchase from the
Company 90 per cent. of the principal amount of the Notes being underwritten by
the Underwriters, on the same basis as the other Underwriters. BSIL is a
wholly-owned subsidiary of the Company. To the extent that part or all of the
Notes so purchased by BSIL are not resold by it at the initial offering price,
the funds derived from the sale of the Notes by the Company and its subsidiaries
on a consolidated basis may be reduced, because the Company and its subsidiaries
will not derive any additional funds from Notes purchased by BSIL and not
resold. BSIL intends to resell any Notes that it is unable to resell from time
to time, at prevailing market prices, subject to applicable prospectus delivery
and other legal requirements.
BSIL intends to resell a substantial amount of the Notes being purchased
from the Company to Bear Stearns, a wholly-owned subsidiary of the Company. The
Company and its subsidiaries will not derive any additional funds from Notes
purchased by Bear Stearns and not resold by Bear Stearns.
Certain of the Underwriters and their affiliates engage from time to time in
general financing and banking transactions with the Company and its affiliates.
In addition, the Trustee is an affiliate of Chase Manhattan International
Limited, one of the Underwriters.
The offer and sale of the Notes in respect of which this Prospectus
Supplement is delivered complies with the requirements set forth in Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") regarding underwriting securities of an affiliate of an NASD member.
In order to facilitate the offering, BSIL, in its capacity as Global
Coordinator of the offering, may over-allot or effect transactions which
stabilize or maintain the market price of the Notes at a level which might not
otherwise prevail in the open market. Specifically, BSIL, on behalf of the
Underwriters, may over-allot or otherwise create a short position in the Notes
for the account of the Underwriters by selling more Notes than have been sold to
them by the Company. BSIL, on behalf of the Underwriters, may elect to cover any
such short position by purchasing Notes in the open market. Such transactions,
if commenced, may be discontinued at any time.
S-37
<PAGE>
LEGAL OPINIONS
The validity of the Notes offered hereby will be passed upon for the Company
by Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 and
for the Underwriters by Allen & Overy, Swiss Bank Tower, 10 East 50th Street,
New York, New York 10022.
GENERAL INFORMATION
The Company is incorporated with shares and limited liability under the laws
of the State of Delaware, the United States. The Company's registered office is
at Prentice Hall, 32 Loockerman Suite L-100, Dover, DE 19901, U.S.A. The
Company's principal executive office is 245 Park Avenue, New York, NY 10167,
U.S.A.
So long as the Notes are outstanding, copies of the following documents will
be available from the principal executive office of the Company and from the
specified offices of the Paying Agents in London and Hong Kong, respectively:
(i) the Certificate of Incorporation and By-laws of the Company;
(ii) the published audited consolidated financial statements of the Company
and its subsidiaries contained in the Company's Annual Report on Form
10-K for the two financial years ended June 30, 1997;
(iii) the published unaudited consolidated financial statements of the
Company and its subsidiaries contained in the Company's Quarterly Report
on Form 10-Q for the six month periods ended December 31, 1997 and
December 31, 1996;
(iv) the Underwriting Agreement and the Indenture;
(v) a copy of this Prospectus Supplement and accompanying Prospectus; and
(vi) any other documents incorporated herein by reference.
The consolidated financial statements of the Company and its subsidiaries
for each of the three financial years ended June 30, 1997 were audited, without
qualification, by Deloitte & Touche LLP, 2 World Financial Center, New York, NY
10281, U.S.A., independent certified public accountants, in accordance with
auditing standards generally accepted in the United States.
Deloitte & Touche LLP have given and have not withdrawn their written
agreement to inclusion in this Prospectus Supplement of their report dated
September 2, 1997 addressed to the Board of Directors and Stockholders of The
Bear Stearns Companies Inc. in the form and context in which it appears.
Weil, Gotshal & Manges LLP have given and have not withdrawn their written
agreement to the inclusion of their tax summary in this Prospectus Supplement in
the form and context in which it appears.
The directors of the Company confirm that the report of Deloitte & Touche
LLP relating to the Company was unqualified.
Other than as disclosed or contemplated herein, there has been no
significant change in the financial or trading position of the Company or of the
Company and its subsidiaries or material adverse change in the financial
position or prospects of the Company or the Company and its subsidiaries since
June 30, 1997.
In the normal course of its business, the Company or its subsidiaries have
been named as defendant in numerous civil actions arising out of their
activities as broker and dealer in securities, as an underwriter, as an
investment banker, as employer or arising out of alleged employee misconduct.
Several of these actions are class actions that allege damages in large or
indeterminate amounts. Although the ultimate outcome of these actions cannot be
ascertained at this time, it is the opinion of management of the Company, after
consultation with relevant counsel, that the resolution of these actions will
not have a material adverse effect on the consolidated financial position of the
Company. Subject to the foregoing, there are no legal or arbitration proceedings
(including any such proceedings which are pending or threatened) of which the
Company is aware which may have or have had during the 12 months before the date
of this document a significant effect on the consolidated financial position of
the Company and its subsidiaries.
The Notes have been assigned Euroclear and Cedel Bank Common Code No.
8590290, International Security Identification Number (ISIN) US073902 BJ61 and
CUSIP No. 073902 BJ6.
S-38
<PAGE>
APPENDIX A
FINANCIAL INFORMATION
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF THE BEAR STEARNS COMPANIES INC.
We have audited the accompanying consolidated statements of financial
condition of The Bear Stearns Companies Inc. and Subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of income, cash flows and
changes in stockholders' equity for each of the three years in the period ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Bear Stearns Companies Inc.
and Subsidiaries at June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
September 2, 1997
F-1
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARE DATA
REVENUES
Commissions............................................. $ 732,343 $ 686,548 $ 546,939
Principal transactions.................................. 1,571,332 1,239,697 842,575
Investment banking...................................... 663,249 607,338 348,886
Interest and dividends.................................. 3,058,452 2,393,266 1,987,297
Other income............................................ 51,902 37,014 27,875
---------------- ---------------- ----------------
Total revenues.......................................... 6,077,278 4,963,863 3,753,572
Interest expenses....................................... 2,551,364 1,981,171 1,678,515
---------------- ---------------- ----------------
Revenues, net of interest expense..................... 3,525,914 2,982,692 2,075,057
---------------- ---------------- ----------------
---------------- ---------------- ----------------
NON-INTEREST EXPENSES
Employee compensation and benefits...................... 1,726,931 1,469,448 1,080,487
Floor brokerage, exchange and clearance fees............ 141,211 129,509 109,040
Communications.......................................... 102,926 92,827 85,711
Occupancy............................................... 88,419 85,899 83,247
Depreciation and amortization........................... 89,719 69,878 59,274
Advertising and market development...................... 69,765 56,797 57,036
Data processing......................................... 36,620 34,305 33,650
Other expenses.......................................... 256,633 209,103 178,530
---------------- ---------------- ----------------
Total non-interest expenses........................... 2,512,224 2,147,766 1,686,975
---------------- ---------------- ----------------
Income before provision for income taxes................ 1,013,690 834,926 388,082
Provision for income taxes.............................. 400,360 344,288 147,471
---------------- ---------------- ----------------
Net income.............................................. $ 613,330 $ 490,638 $ 240,611
---------------- ---------------- ----------------
Net income applicable to common shares.................. $ 589,497 $ 466,145 $ 215,474
---------------- ---------------- ----------------
Earnings per share...................................... $ 4.20 $ 3.27 $ 1.54
---------------- ---------------- ----------------
Weighted average common and common equivalent shares
outstanding........................................... 147,847,885 148,855,048 147,755,982
---------------- ---------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------------- -------------
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARE
DATA
ASSETS
Cash and cash equivalents......................................................... $ 1,249,132 $ 127,847
Cash and securities deposited with clearing organizations or segregated in
compliance with federal regulations............................................. 1,448,814 1,702,124
Securities purchased under agreements to resell................................... 28,340,599 24,517,275
Securities borrowed............................................................... 40,711,280 29,611,207
Receivables:
Customers....................................................................... 8,572,521 7,976,373
Brokers, dealers and others..................................................... 1,227,947 811,391
Interest and dividends.......................................................... 405,892 305,725
Financial instruments owned, at fair value........................................ 38,437,280 26,222,134
Property, equipment and leasehold improvements, net of accumulated depreciation
and amortization of $415,681 and $318,657 in 1997 and 1996, respectively........ 379,533 331,924
Other assets...................................................................... 660,537 479,157
-------------- -------------
Total Assets...................................................................... $ 121,433,535 $ 92,085,157
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings............................................................. $ 14,416,671 $ 9,867,619
Securities sold under agreements to repurchase.................................... 39,431,216 33,353,899
Payables:
Customers....................................................................... 29,921,386 21,905,015
Brokers, dealers and others..................................................... 2,808,359 1,847,599
Interest and dividends.......................................................... 452,662 448,121
Financial instruments sold, but not yet purchased, at fair value.................. 20,784,796 13,916,581
Accrued employee compensation and benefits........................................ 907,337 712,962
Other liabilities and accrued expenses............................................ 964,409 1,094,333
-------------- -------------
109,686,836 83,146,129
-------------- -------------
Commitments and contingencies
Long-term borrowings.............................................................. 8,120,328 6,043,614
-------------- -------------
Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities...................................................................... 200,000
Preferred Stock issued by subsidiary.............................................. 150,000 150,000
-------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock................................................................... 437,500 437,500
Common Stock, $1.00 par value; 200,000,000 shares authorized; 167,784,941 shares
and 159,803,764 shares issued in 1997 and 1996, respectively.................... 167,785 159,804
Paid-in capital................................................................... 1,874,016 1,696,217
Retained earnings................................................................. 1,031,736 694,108
Capital Accumulation Plan......................................................... 655,007 471,191
Treasury Stock, at cost
Adjustable Rate Cumulative Preferred Stock, Series A: 2,520,750 shares and
2,341,350 shares in 1997 and 1996, respectively (103,421) (95,389)
Common Stock: 50,191,531 shares and 41,664,729 shares in 1997 and 1996,
respectively.................................................................. (772,551) (598,217)
Note receivable from ESOP trust................................................... (13,701) (19,800)
-------------- -------------
Total Stockholders' Equity........................................................ 3,276,371 2,745,414
-------------- -------------
Total Liabilities and Stockholders' Equity........................................ $ 121,433,535 $ 92,085,157
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TREASURY STOCK
--------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE
RATE
CUMULATIVE
PREFERRED
STOCK
COMMON CAPITAL SERIES A-$50
PREFERRED STOCK PAID-IN RETAINED ACCUMULATION LIQUIDATION
STOCK $1 PAR VALUE CAPITAL EARNINGS PLAN PREFERENCE
--------- ------------ ----------- --------- ------------ --------------
IN THOUSANDS, EXCEPT SHARE DATA
BALANCE, JUNE 30, 1994........................ $ 437,500 $ 144,965 $ 1,447,066 $ 388,685 $ 275,415 $ (85,507)
Net Income.................................... 240,611
Cash dividends declared
Common ($0.60 per share).................... (67,475)
Preferred................................... (25,137)
Purchase of Treasury Stock
Common Stock (4,293,726 shares).............
Common Stock issued out of treasury (2,561,732
shares)..................................... 6,475 (18,637)
Income tax benefits attributable to Common
Stock issued out of treasury................ 4,674
5% stock dividend (7,237,630 shares).......... 7,238 99,022 (106,354)
Note repayment from ESOP Trust................
Allocation under Capital Accumulation Plan.... 87,560
--------- ------------ ----------- --------- ------------ --------------
BALANCE, JUNE 30, 1995........................ 437,500 152,203 1,557,237 430,330 344,338 (85,507)
Net Income.................................... 490,638
Cash dividends declared
Common ($0.60 per share).................... (70,293)
Preferred................................... (24,493)
Purchase of Treasury Stock
Adjustable Rate Cumulative Preferred Stock,
Series A (222,800 shares)................. (9,882)
Common Stock (8,513,944 shares).............
Common Stock issued out of treasury (3,289,549
shares)..................................... 9,213 (54,849)
Income tax benefits attributable to Common
Stock issued out of treasury................ 5,294
5% stock dividend (7,601,040 shares).......... 7,601 124,473 (132,074)
Note repayment from ESOP Trust................
Allocation under Capital Accumulation Plan.... 181,702
--------- ------------ ----------- --------- ------------ --------------
BALANCE, JUNE 30, 1996........................ $ 437,500 $ 159,804 $ 1,696,217 $ 694,108 $ 471,191 $ (95,389)
--------- ------------ ----------- --------- ------------ --------------
<CAPTION>
<S> <C> <C>
NOTE
COMMON RECEIVABLE
STOCK FROM ESOP
$1 PAR VALUE TRUST
------------ -----------
IN THOUSANDS, EXCEPT SHARE DATA
BALANCE, JUNE 30, 1994........................ $ (410,882) $ (30,676)
Net Income....................................
Cash dividends declared
Common ($0.60 per share)....................
Preferred...................................
Purchase of Treasury Stock
Common Stock (4,293,726 shares)............. (72,915)
Common Stock issued out of treasury (2,561,732
shares)..................................... 25,604
Income tax benefits attributable to Common
Stock issued out of treasury................
5% stock dividend (7,237,630 shares)..........
Note repayment from ESOP Trust................ 5,229
Allocation under Capital Accumulation Plan....
------------ -----------
BALANCE, JUNE 30, 1995........................ (458,193) (25,447)
Net Income....................................
Cash dividends declared
Common ($0.60 per share)....................
Preferred...................................
Purchase of Treasury Stock
Adjustable Rate Cumulative Preferred Stock,
Series A (222,800 shares).................
Common Stock (8,513,944 shares)............. (186,863)
Common Stock issued out of treasury (3,289,549
shares)..................................... 46,839
Income tax benefits attributable to Common
Stock issued out of treasury................
5% stock dividend (7,601,040 shares)..........
Note repayment from ESOP Trust................ 5,647
Allocation under Capital Accumulation Plan....
------------ -----------
BALANCE, JUNE 30, 1996........................ $ (598,217) $ (19,800)
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
TREASURY STOCK
--------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE
RATE
CUMULATIVE
PREFERRED
STOCK
COMMON CAPITAL SERIES A-$50
PREFERRED STOCK PAID-IN RETAINED ACCUMULATION LIQUIDATION
STOCK $1 PAR VALUE CAPITAL EARNINGS PLAN PREFERENCE
--------- ------------ ----------- ----------- ------------ --------------
<CAPTION>
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996...................... $ 437,500 $ 159,804 $ 1,696,217 $694,108 $ 471,191 $(95,389)
Net Income.................................. 613,330
Cash dividends declared
Common ($0.60 per share).................. (69,928)
Preferred................................. (23,890)
Purchase of Treasury Stock
Adjustable Rate Cumulative................
Preferred Stock, Series A (179,400
shares)................................. (8,032)
Common Stock (7,230,103 shares)...........
Common Stock issued out of treasury (745,399
shares)................................... 350 (12,298 )
Income tax benefits attributable to Common
Stock issued out of treasury.............. 3,546
5% stock dividend (7,981,177 shares)........ 7,981 173,903 (181,884)
Note repayment from ESOP Trust..............
Allocation under Capital Accumulation
Plan...................................... 196,114
--------- ------------ ----------- ----------- ------------ --------------
BALANCE, JUNE 30, 1997...................... $ 437,500 $ 167,785 $ 1,874,016 $ 1,031,736 $ 655,007 $ (103,421)
--------- ------------ ----------- ----------- ------------ --------------
--------- ------------ ----------- ----------- ------------ --------------
<CAPTION>
<S> <C> <C>
NOTE
COMMON RECEIVABLE
STOCK FROM ESOP
$1 PAR VALUE TRUST
------------ -----------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C>
BALANCE, JUNE 30, 1996...................... $ (598,217 ) $ (19,800 )
Net Income..................................
Cash dividends declared
Common ($0.60 per share)..................
Preferred.................................
Purchase of Treasury Stock
Adjustable Rate Cumulative................
Preferred Stock, Series A (179,400
shares).................................
Common Stock (7,230,103 shares)........... (186,742 )
Common Stock issued out of treasury (745,399
shares)................................... 12,408
Income tax benefits attributable to Common
Stock issued out of treasury..............
5% stock dividend (7,981,177 shares)........
Note repayment from ESOP Trust.............. 6,099
Allocation under Capital Accumulation
Plan......................................
------------ -----------
BALANCE, JUNE 30, 1997...................... $ (772,551 ) $ (13,701 )
------------ -----------
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JUNE 30, JUNE 30, JUNE 30,
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 613,330 $ 490,638 $ 240,611
Adjustments to reconcile net income to cash used in operating
activities:
Depreciation and amortization........................................ 89,719 69,878 59,274
Deferred income taxes................................................ (101,859) (189) (11,488)
Other................................................................ 73,699 61,474 28,351
Decreases (increases) in operating receivables:
Cash and securities deposited with clearing organizations or segregated
in compliance with federal regulations............................... 253,310 (392,551) 1,680,375
Securities purchased under agreements to resell........................ (3,823,324) (5,576,531) 575,020
Securities borrowed.................................................... (11,100,073) (4,979,119) (3,558,880)
Receivables:
Customers............................................................ (596,148) (1,982,601) 1,272,837
Brokers, dealers and others.......................................... (416,556) (232,715) 401,776
Financial instruments owned.......................................... (12,215,146) (4,712,636) (7,065,580)
Other assets......................................................... (80,975) (67,439) (85,858)
Increases (decreases) in operating payables:
Securities sold under agreements to repurchase....................... 6,077,317 3,769,175 2,721,602
Payables:
Customers.......................................................... 8,016,371 5,668,404 (151,321)
Brokers, dealers and others........................................ 968,282 675,016 330,678
Financial instruments sold, but not yet purchased.................... 6,868,215 2,675,463 2,889,860
Accrued employee compensation and benefits........................... 137,967 207,023 (146,346)
Other liabilities and accrued expenses............................... (138,288) 773,208 (3,964)
------------- ----------- -----------
Cash used in operating activities...................................... (5,374,159) (3,553,502) (823,053)
------------- ----------- -----------
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings................................ 4,549,052 1,296,842 710,466
Issuance of long-term borrowings....................................... 3,129,439 2,654,134 1,040,090
Net proceeds from issuance of subsidiary securities.................... 199,884
Capital Accumulation Plan.............................................. 196,114 181,702 87,560
Common Stock distributions............................................. 4,006 6,497 18,088
Note repayment from ESOP Trust......................................... 6,099 5,647 5,229
Payments for:
Retirement of Senior Notes........................................... (1,062,844) (674,000) (400,300)
Treasury Stock purchases............................................. (202,296) (191,474) (70,373)
Cash dividends paid.................................................... (93,784) (95,001) (92,642)
------------- ----------- -----------
Cash provided by financing activities.................................. 6,725,670 3,184,347 1,298,118
------------- ----------- -----------
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements............ (137,328) (88,935) (100,334)
Purchases of investment securities and other assets.................... (108,480) (134,321) (1,172)
Proceeds from sale of investment securities and other assets........... 15,582 19,757 32,338
------------- ----------- -----------
Cash used in investing activities...................................... (230,226) (203,499) (69,168)
------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents................... 1,121,285 (572,654) 405,897
Cash and cash equivalents, beginning of year........................... 127,847 700,501 294,604
------------- ----------- -----------
Cash and cash equivalents, end of year................................. $ 1,249,132 $ 127,847 $ 700,501
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
Non-cash financing activities totaled $0, $7,522 and $2,250, for the years ended
June 30, 1997, 1996 and 1995, respectively.
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Bear
Stearns Companies Inc. and its subsidiaries (the "Company"). All material
intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform with the current year's presentation
or restated for the effects of stock dividends. The consolidated financial
statements are prepared in conformity with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
The Company, through its principal subsidiaries, Bear, Stearns & Co. Inc.
("Bear Stearns"), Bear, Stearns Securities Corp. ("BSSC") and Bear, Stearns
International Limited ("BSIL"), is primarily engaged in a single line of
business as a securities broker and dealer, which comprises several classes of
services, such as principal transactions, agency transactions and underwriting
and investment banking.
FINANCIAL INSTRUMENTS
Proprietary securities and commodities transactions, commission revenues and
related expenses are recorded on a trade date basis. Financial instruments owned
and financial instruments sold, but not yet purchased, including contractual
commitments arising pursuant to futures, forward and option contracts, interest
rate swaps and other derivative contracts are recorded at fair value with the
resulting net unrealized gains and losses reflected in net income.
Fair value is generally based on quoted market prices. If quoted market
prices are not available, or if liquidating the Company's position is reasonably
expected to impact market prices, fair value is determined based on other
relevant factors, including dealer price quotations, price activity for
equivalent instruments and valuation pricing models. Valuation pricing models
consider time value and volatility factors underlying financial instruments as
well as other relevant economic measurements.
Equity securities acquired as a result of leveraged acquisition transactions
are reflected in the consolidated financial statements at their initial cost
until such time as significant transactions or developments indicate that a
change in the carrying value of the securities is appropriate. Generally the
carrying values of these securities will be increased only in those instances
where market values are readily ascertainable by reference to substantial
transactions occurring in the marketplace. Reductions to the carrying value of
these securities are made in the event that the Company's estimate of net
realizable value has declined below the carrying value.
SECURITIES TRANSACTIONS
Customer transactions are recorded on a settlement date basis, which is
generally three business days after trade date, while the related commission
revenues and expenses are recorded on a trade date basis.
COLLATERALIZED SECURITIES TRANSACTIONS
Transactions involving purchases of securities under agreements to resell
("reverse repurchase agreements") or sales of securities under agreements to
repurchase ("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale or repurchase amounts
plus accrued interest. It is the Company's policy to take possession of
securities with a market value in excess of the principal amount loaned plus the
accrued interest thereon in order to collateralize reverse repurchase
agreements. Similarly, the Company is required to provide securities to
counterparties in order
F-7
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to collateralize repurchase agreements. The Company's agreements with
counterparties generally contain contractual provisions allowing for additional
collateral to be obtained, or excess collateral returned, when necessary. It is
the Company's policy to value collateral daily and to obtain additional
collateral, or to retrieve excess collateral from counterparties, when deemed
appropriate.
Securities borrowed and securities loaned are recorded based upon the amount
of cash collateral advanced or received. Securities borrowed transactions
facilitate the settlement process and require the Company to deposit cash,
letters of credit or other collateral with the lender. With respect to
securities loaned, the Company receives collateral in the form of cash or other
collateral. The amount of collateral required to be deposited for securities
borrowed, or received for securities loaned, is an amount generally in excess of
the market value of the applicable securities borrowed or loaned. The Company
monitors the market value of securities borrowed and loaned on a daily basis,
with additional collateral obtained, or excess collateral refunded as necessary.
FIXED ASSETS
Depreciation of property and equipment is provided by the Company on a
straight-line basis over the estimated useful life of the asset. Amortization of
leasehold improvements is provided on a straight-line basis over the lesser of
the estimated useful life of the asset or the remaining life of the lease.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated at
year-end rates of exchange, while income statement items are translated at
average rates of exchange for the year. Gains or losses resulting from foreign
currency transactions are included in net income.
INCOME TAXES
The Company and certain of its subsidiaries file a consolidated federal
income tax return. The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income
Taxes". Under SFAS 109, deferred income taxes are provided based upon the net
tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities. In addition, deferred income taxes are
determined using the enacted tax rates and laws which will be in effect when the
related temporary differences are expected to be reversed.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income applicable to Common
and Common Equivalent Shares by the weighted average number of Common Stock and
Common Stock Equivalents outstanding during each period presented. Common Stock
Equivalents include the assumed distribution of shares of Common Stock issuable
under certain of the Company's deferred compensation arrangements, with
appropriate adjustments made to net income for expense accruals related thereto.
Additionally, shares of Common Stock issued or issuable under various employee
benefit plans are included as Common Stock Equivalent Shares.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company has
defined cash equivalents as liquid investments not held for sale in the ordinary
course of business with original maturities of three months or less. Cash
payments for interest approximated interest expense for the years ended
F-8
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
June 30, 1997, 1996 and 1995. Income taxes paid totaled $478.4 million, $279.0
million and $125.6 million for the fiscal years 1997, 1996 and 1995,
respectively.
2--FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires
the Company to report the fair value of financial instruments, as defined.
Approximately 99.1% of the Company's assets and 99.5% of the Company's
liabilities are carried at fair value or contracted amounts which approximate
fair value.
Financial instruments owned and financial instruments sold, but not yet
purchased are carried at fair value. Assets which are recorded at contracted
amounts approximating fair value consist largely of short-term secured
receivables, and include reverse repurchase agreements, securities borrowed and
certain other receivables. Similarly, the Company's short-term liabilities such
as bank loans, commercial paper, medium-term notes, repurchase agreements,
securities loaned and certain other payables are recorded at contracted amounts
approximating fair value. These instruments generally have variable interest
rates and short-term maturities, in many cases overnight, and, accordingly, are
not materially affected by changes in interest rates.
The estimated fair value of the Company's long-term borrowings, based upon
market rates of interest available to the Company at June 30, 1997 for debt
obligations of similar maturity, was approximately $8.1 billion, which was less
than the aggregate carrying value by approximately $7.7 million. However, the
Company enters into interest rate swaps and other transactions designed to
either convert its fixed rate debt into floating rates or otherwise hedge its
exposure to interest rate movements. Accordingly, unrecognized gains on interest
rate swaps and other transactions hedging the Company's long-term borrowings
substantially offset the effect of changes in interest rates on the fair value
of the Company's long-term borrowings. For discussion of the Company's financial
instruments with off-balance-sheet risk see Note 11.
F-9
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3--FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold, but not yet
purchased consisting of the Company's proprietary trading and investment
accounts, at fair value, as of June 30, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
FINANCIAL INSTRUMENTS OWNED:
US government and agency......................................................... $ 13,275,828 $ 8,258,074
Other sovereign governments...................................................... 1,847,691 656,699
Corporate equity................................................................. 8,351,399 5,225,171
Convertible debt................................................................. 2,928,800 3,267,399
Corporate debt................................................................... 4,961,737 4,739,512
Derivative financial instruments................................................. 2,780,231 1,855,617
Mortgages and other mortgage-backed securities................................... 3,745,779 1,796,322
Other............................................................................ 545,815 423,340
------------- -------------
$ 38,437,280 $ 26,222,134
------------- -------------
------------- -------------
FINANCIAL INSTRUMENTS SOLD, BUT NOT YET PURCHASED:
US government and agency......................................................... $ 8,695,621 $ 5,502,459
Other sovereign governments...................................................... 1,479,278 964,808
Corporate equity................................................................. 4,976,169 4,469,425
Corporate debt................................................................... 1,099,700 877,576
Derivative financial instruments................................................. 4,412,986 2,088,621
Other............................................................................ 121,042 13,692
------------- -------------
$ 20,784,796 $ 13,916,581
------------- -------------
------------- -------------
</TABLE>
Financial instruments sold, but not yet purchased represent obligations of
the Company to deliver the specified financial instrument at the contracted
price, and thereby create a liability to repurchase the financial instrument in
the market at prevailing prices. Accordingly, these transactions result in off-
balance-sheet risk as the Company's ultimate obligation to satisfy the sale of
financial instruments sold, but not yet purchased may exceed the amount
recognized in the Consolidated Statements of Financial Condition.
4--SHORT-TERM FINANCING
The Company's short-term financing is generally obtained on a secured basis
through the use of repurchase agreements and securities lending arrangements.
Additionally, the Company obtains short-term financing on an unsecured basis
through the issuance of commercial paper, medium-term notes and bank loans.
Repurchase agreements are collateralized principally by US government and agency
securities. Securities lending arrangements are typically secured by corporate
equity and debt securities, utilizing both securities owned by the Company and
customers' securities. The interest rates on such short-term borrowings reflect
money market rates of interest at the time of the transactions.
Borrowings made under the Company's commercial paper programs were $7.8
billion and $4.3 billion at June 30, 1997 and 1996, respectively. During the
fiscal years 1997 and 1996, the weighted average interest rates on such
borrowings were 5.47% and 5.66%, respectively. The weighted average rates at
June 30, 1997 and 1996 were 5.59% and 5.33%, respectively.
F-10
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4--SHORT-TERM FINANCING (CONTINUED)
At June 30, 1997 and 1996, the Company had outstanding $5.7 billion and $4.9
billion, respectively, principal amount of Medium-Term Notes maturing from six
to 18 months from the date of issue. The Medium-Term Notes generally bear
interest at variable rates based upon the London Interbank Offered Rate
("LIBOR"). During the fiscal years 1997 and 1996, the weighted average interest
rates on the Medium-Term Notes were 5.63% and 5.85%, respectively. The weighted
average rates at June 30, 1997 and 1996 were 5.84% and 5.55%, respectively.
At June 30, 1997 and 1996, the Company had outstanding $39.4 billion and
$33.4 billion of repurchase agreements. During the fiscal years 1997 and 1996,
the weighted average interest rates on the repurchase agreements were 5.30% and
5.41%, respectively. The weighted average rates at June 30, 1997 and 1996 were
5.44% and 5.15%, respectively.
Short-term borrowings at June 30, 1997 and 1996 included $920.5 million and
$651.1 million, respectively, of bank loans. During the fiscal years 1997 and
1996, the weighted average interest rates on such bank loans were 5.36% and
5.40%, respectively. The weighted average rates at June 30, 1997 and 1996 were
4.56% and 5.33%, respectively.
5--LONG-TERM BORROWINGS
Long-term borrowings at June 30 consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Floating-Rate Notes due 1998 to 2030.................................................. $ 1,122,461 $ 924,129
Fixed-Rate Senior Notes due 1998 to 2005; interest rates ranging from
5 3/4% to 9 3/8%.................................................................... 3,068,453 2,568,696
Medium-Term Notes & Other............................................................. 3,929,414 2,550,789
------------ ------------
Total long-term borrowings............................................................ $ 8,120,328 $ 6,043,614
------------ ------------
------------ ------------
</TABLE>
The Floating-Rate Notes are unsecured and bear interest at rates primarily
related to LIBOR. For those Floating-Rate Notes which are not based upon LIBOR,
the Company has entered into interest rate swaps and certain other transactions
in order to convert them into floating rates based upon LIBOR. During the years
ended June 30, 1997 and 1996, the weighted average effective interest rates on
the Floating-Rate Notes were 5.88% and 6.29%, respectively. The weighted average
effective interest rates on the Floating-Rate Notes at June 30, 1997 and 1996
were 6.06% and 5.85%, respectively.
The Company has entered into interest rate swaps and certain other
transactions in order to convert its Fixed-Rate Senior Notes into floating rates
based upon LIBOR. The weighted average effective interest rates on the Company's
Fixed-Rate Senior Notes during the fiscal years 1997 and 1996 were 6.21% and
6.45%, respectively. The weighted average effective interest rates on the
Company's Senior Notes at June 30, 1997 and 1996 were 6.22% and 6.01%,
respectively.
The Company's Medium-Term Notes have maturities ranging from 18 months to 30
years from the date of issue and bear interest at either a fixed rate or a
variable rate primarily based upon LIBOR. During the fiscal years 1997 and 1996,
the weighted average interest rates on the Medium-Term Notes were 5.85% and
6.11%, respectively. The weighted average interest rates on the Company's
Medium-Term Notes at June 30, 1997 and 1996 were 6.02% and 5.81%, respectively.
F-11
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5--LONG-TERM BORROWINGS (CONTINUED)
Maturities of long-term borrowings at June 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
FISCAL YEAR AMOUNT
- ---------------------------------------------------------------------------- ------------
1998........................................................................ $ 1,576,734
1999........................................................................ 1,532,869
2000........................................................................ 1,059,431
2001........................................................................ 1,336,409
2002........................................................................ 532,074
Thereafter.................................................................. 2,082,811
------------
$ 8,120,328
------------
------------
</TABLE>
Instruments governing certain indebtedness of the Company contain various
covenants, the most restrictive of which require the maintenance of minimum
levels of stockholders' equity by the Company and Bear Stearns. At June 30,
1997, the Company and Bear Stearns were in compliance with all covenants
contained in these various debt agreements.
6--INCOME TAXES
The provision (benefit) for income taxes for the fiscal years ended June 30
consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
- --------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CURRENT:
Federal.......................................... $ 326,359 $ 212,686 $ 103,944
State and local.................................. 139,676 108,652 40,681
Foreign.......................................... 36,184 23,139 14,334
----------- ----------- -----------
Total current.................................... $ 502,219 $ 344,477 $ 158,959
----------- ----------- -----------
----------- ----------- -----------
DEFERRED:
Federal.......................................... $ (74,346) $ 2,596 $ (8,322)
State and local.................................. (27,513) (2,785) (3,166)
----------- ----------- -----------
Total deferred................................... (101,859) (189) (11,488)
----------- ----------- -----------
Total provision for income taxes................. $ 400,360 $ 344,288 $ 147,471
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-12
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets (liabilities) as
of June 30 were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
- --------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Deferred compensation............................ $ 304,238 $ 214,484 $ 153,564
Valuation reserves............................... 15,304 19,848 14,491
Liability reserves............................... 93,631 57,199 23,663
Other............................................ 25,398 13,264 5,833
----------- ----------- -----------
Total deferred tax assets........................ $ 438,571 $ 304,795 $ 197,551
----------- ----------- -----------
----------- ----------- -----------
DEFERRED TAX LIABILITIES:
Partnerships..................................... $ (106,379) $ (82,314) $ (60,893)
Unrealized appreciation.......................... (117,616) (98,787) (4,864)
Depreciation..................................... (15,261) (19,026) (19,266)
Other............................................ (7,467) (14,679) (22,728)
----------- ----------- -----------
Total deferred tax liabilities................... $ (246,723) $ (214,806) $ (107,751)
----------- ----------- -----------
Net deferred tax asset........................... $ 191,848 $ 89,989 $ 89,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A reconciliation of the statutory federal income tax rates and the Company's
effective tax rates for the fiscal years ended June 30 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate.................................................. 35.0% 35.0% 35.0%
State and local taxes, not of federal benefit................... 6.9 8.5 6.3
Dividend exclusion.............................................. (1.8) (1.9) (3.6)
Other, net...................................................... (0.6) (0.4) 0.3
--- --- ---
Effective tax rate.............................................. 39.5% 41.2% 38.0%
--- --- ---
--- --- ---
</TABLE>
Not included in the reconciliation table reflected above are approximately
$3.5 million, $5.3 million and $4.7 million of income tax benefits attributable
to the distribution of Common Stock under the Capital Accumulation Plan for
Senior Managing Directors, as amended (the "CAP Plan"), other deferred
compensation plans and the exercise of stock options, credited directly to
paid-in capital, for fiscal 1997, 1996 and 1995, respectively.
7--REGULATORY REQUIREMENTS
Bear Stearns and BSSC, a subsidiary of Bear Stearns, are registered broker
dealers and, accordingly, are subject to Rule 15c3-1 under the Securities
Exchange Act of 1934 (the "Net Capital Rule") and the capital rules of the New
York Stock Exchange, Inc. ("NYSE") and other principal exchanges of which Bear
Stearns and BSSC are members. Bear Stearns and BSSC have consistently operated
in excess of the minimum net capital requirements imposed by the capital rules.
Included in the computation of net capital of Bear Stearns is net capital of
BSSC in excess of 5% of aggregate debit items arising from customer
transactions, as defined. At June 30, 1997, Bear Stearns' net capital, as
defined, of $1.43 billion exceeded the minimum requirement by $1.40 billion.
F-13
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7--REGULATORY REQUIREMENTS (CONTINUED)
BSIL and certain other wholly owned London-based subsidiaries are subject to
regulatory capital requirements of the Securities and Futures Authority, a
self-regulatory organization established pursuant to the United Kingdom
Financial Services Act of 1986.
The regulatory rules referred to above, and certain covenants contained in
various instruments governing indebtedness of the Company, Bear Stearns and
other regulated subsidiaries, may restrict the Company's ability to withdraw
capital from its regulated subsidiaries, which in turn could limit the Company's
ability to pay dividends. At June 30, 1997, approximately $1.9 billion of net
assets of consolidated subsidiaries were restricted as to the payment of cash
dividends and advances to the Company.
8--PREFERRED STOCK
PREFERRED STOCK ISSUED BY THE BEAR STEARNS COMPANIES INC.
The Company issued 3.0 million shares of Adjustable Rate Cumulative
Preferred Stock, Series A (the "Preferred Stock"). The Preferred Stock has a
liquidation preference of $50 per share and is entitled to dividends, on a
cumulative basis, at a rate equal to 135 basis points below the highest of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year
Constant Maturity Rate, as defined; however, the dividend rate for any dividend
period may not be less than 5.50% per annum, nor greater than 11.00% per annum.
The Company may redeem the Preferred Stock, either in whole or in part, at a
redemption price of $50 per share plus accumulated and unpaid dividends. The
weighted average dividend rate on the Preferred Stock was 5.63% during the year
ended June 30, 1997. During the year ended June 30, 1997, the Company
repurchased 179,400 shares at a cost of approximately $8.0 million. At June 30,
1997, the Company held 2,520,750 shares of Preferred Stock in treasury.
The Company has outstanding 7.5 million depositary shares representing
937,500 shares of Cumulative Preferred Stock, Series B ("Series B Preferred
Stock"), having an aggregate liquidation preference of $187.5 million. Each
depositary share represents a one-eighth interest in a share of Series B
Preferred Stock. Dividends on the Series B Preferred Stock are payable at an
annual rate of 7.88%. Series B Preferred Stock is redeemable at the option of
the Company at any time on or after April 15, 1998, in whole or in part, at a
redemption price of $200 per share (equivalent to $25 per depositary share),
plus accrued and unpaid dividends.
The Company has outstanding 4.0 million depositary shares representing
500,000 shares of Cumulative Preferred Stock, Series C ("Series C Preferred
Stock"), having an aggregate liquidation preference of $100.0 million. Each
depositary share represents a one-eighth interest in a share of Series C
Preferred Stock. Dividends on the Series C Preferred Stock are payable at an
annual rate of 7.60%. Series C Preferred Stock is redeemable at the option of
the Company at any time on or after July 15, 1998, in whole or in part, at a
redemption price of $200 per share (equivalent to $25 per depositary share),
plus accrued and unpaid dividends.
PREFERRED STOCK ISSUED BY SUBSIDIARIES
Bear Stearns Finance LLC ("BSF"), a wholly owned subsidiary of the Company,
has outstanding $150.0 million Exchangeable Preferred Income Cumulative Shares
("EPICS"), Series A, which have a liquidation value of $25 per share, and an
annual dividend rate of 8.00%. The EPICS are callable at the option of BSF, in
whole or in part, at any time on or after February 28, 1999, at their stated
liquidation value.
F-14
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8--PREFERRED STOCK (CONTINUED)
The proceeds of the EPICS issuance were loaned by BSF to the Company under
the terms of a 30-year subordinated loan agreement. This agreement allows the
Company to extend the maturity of the loan through two 30-year renewal options.
On any given monthly dividend date, the Company has the right, subject to
certain conditions, to issue to BSF, in exchange for such note, depositary
shares evidencing Preferred Stock of the Company. In the event of such exchange,
BSF is required to redeem the EPICS, in their entirety, solely in exchange for
such depositary shares.
In January 1997, Bear Stearns Capital Trust I (the "Trust"), a wholly owned
subsidiary of the Company, issued $200.0 million of Guaranteed Preferred
Beneficial Interests in Company Subordinated Debt Securities (the "Capital
Securities"). The Capital Securities are fixed/adjustable rate capital
securities which have a liquidation value of $1,000 per capital security.
Holders of the Capital Securities are entitled to receive semi-annual
preferential cumulative cash distributions at an annual rate of 7% through
January 2002. Thereafter the distributions will be at a variable rate based on
three-month LIBOR plus a margin of 1.75%. The proceeds of the issuance of the
Capital Securities were used to purchase fixed/ adjustable rate junior
subordinated deferrable interest debentures (the "Subordinated Debentures")
issued by the Company. The Subordinated Debentures are the sole assets of the
Trust. The Subordinated Debentures will mature on January 15, 2007. The interest
rate on the Subordinated Debentures is the same as the rate on the Capital
Securities. The Company's guarantee of the Capital Securities, considered
together with the other obligations of the Company with respect to Capital
Securities, constitutes a full and unconditional guarantee by the Company of the
Trust's obligation under the Capital Securities issued by the Trust.
9--EMPLOYEE BENEFIT PLANS
The Company has a qualified non-contributory profit sharing plan covering
substantially all employees. Contributions are made at the discretion of
management in amounts that relate to the Company's level of income before
provision for income taxes. The Company's expense related to the profit sharing
plan for the years ended June 30, 1997, 1996 and 1995 was $12.5 million, $11.1
million, and $4.5 million, respectively.
The Company maintains a non-qualified defined contribution retirement plan
covering substantially all account executives. The plan provides for retirement
benefits to be paid based upon a percentage of each participant's compensation
and the performance of certain participant selected investment options for
benefits accrued. The Company's expense for this plan for the years ended June
30, 1997, 1996 and 1995 was $9.4 million, $7.2 million and $4.5 million,
respectively.
The Company maintains a $40 million leveraged employee stock ownership plan
(the "ESOP") covering substantially all full time employees. Pursuant to the
terms of a Brokerage and Loan Agreement, the Company advanced funds to the ESOP
trust to acquire shares of Common Stock in open market transactions. Advances
made under the ESOP Note (the "Note") bear interest at a rate of 8.00% per
annum. The Note is repayable in seven annual principal installments which
commenced December 31, 1992. The Note is expected to be repaid through a
combination of contributions by the Company and dividends on the shares of
Common Stock held by the ESOP trust. The note receivable from the ESOP trust is
reflected as a reduction in the Company's stockholders' equity. The Company's
expense related to the ESOP for the years ended June 30, 1997, 1996 and 1995 was
$5.9 million, $6.2 million and $6.0 million, respectively.
F-15
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10--EMPLOYEE STOCK PLANS
CAPITAL ACCUMULATION PLAN
The CAP Plan allows participants to defer a defined minimum percentage of
their total annual compensation. Participants' compensation generally must be
deferred for a minimum of five years from the date it was otherwise payable and
is credited to participants' deferred compensation accounts in the form of CAP
Units. The number of CAP Units credited is a function of the amount deferred by
each participant and the average per share cost of Common Stock acquired by the
Company in the open market on behalf of the CAP Plan. The aggregate number of
CAP Units that may be credited to participants in any fiscal year may not exceed
the number of shares of Common Stock acquired by the Company.
Each CAP Unit gives the participant an unsecured right to receive, on an
annual basis, an amount equal to the Company's pre-tax income or loss per share,
as defined by the CAP Plan, less the value of changes in the Company's book
value per Common Share during such fiscal year resulting from increases or
decreases in the Company's consolidated retained earnings (the "earnings
adjustment"). The earnings adjustment will be credited to each participant's
deferred compensation account in the form of additional CAP Units, subject to
the limitations discussed above, based on the number of CAP Units in such
account at the end of each fiscal year. Upon completion of the deferral period,
participants are entitled to receive shares of Common Stock equal to the number
of CAP Units then credited to their respective deferred compensation accounts.
During the years ended June 30, 1997, 1996 and 1995, participants deferred
compensation of approximately $191.8 million, $139.7 million and $71.8 million,
respectively. During the years ended June 30, 1997, 1996 and 1995, the Company
recognized expense of approximately $56.4 million, $36.7 million and $20.9
million, respectively, attributable to CAP Units or cash credited to
participants' deferred compensation accounts with respect to earnings
adjustments. As of July 1, 1997, pursuant to the terms of the CAP Plan,
7,494,518 CAP Units were credited to participants' deferred compensation
accounts with respect to the deferrals and earnings made during fiscal year
1997. In addition, $50.8 million which represented the balance of the deferral
was credited to the participants' deferred compensation cash accounts. The
aggregate number of shares of Common Stock distributable pursuant to the
Company's obligation for CAP Units at June 30, 1997, 1996 and 1995 was
approximately 34.0 million, 27.2 million and 22.2 million, respectively.
Compensation deferred pursuant to the CAP Plan and allocated to participants'
deferred compensation accounts in the form of CAP Units is shown as a separate
component of the Company's stockholders' equity.
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, in its capacity as a dealer in over-the-counter derivative
financial instruments and in connection with its proprietary market-making and
trading activities, enters into transactions in a variety of cash and derivative
financial instruments in order to reduce its exposure to market risk, which
includes interest rate, exchange rate, equity price and commodity price risk.
SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," defines a derivative as a future, forward, swap or
option contract, or other financial instrument with similar characteristics such
as caps, floors and collars. Generally these financial instruments represent
future commitments to exchange interest payment streams or currencies or to
purchase or to sell other financial instruments at specific terms at specified
future dates. Option contracts provide the holder with the right, but not the
obligation, to purchase or sell a financial instrument at a specific price
before or on an established date. These
F-16
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
financial instruments may have market and/or credit risk in excess of amounts
recorded in the Consolidated Statements of Financial Condition.
The Company's principal transactions revenues by reporting categories,
including derivatives, for the fiscal years ended June 30, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ------------ ----------
<S> <C> <C> <C>
Fixed income............................................................ $ 919,604 $ 677,475 $ 473,704
Equity.................................................................. 393,875 389,898 306,326
Foreign exchange and other derivative financial instruments............. 257,853 172,324 62,545
------------ ------------ ----------
Total principal transactions............................................ $ 1,571,332 $ 1,239,697 $ 842,575
------------ ------------ ----------
</TABLE>
MARKET RISK
Derivative financial instruments involve varying degrees of
off-balance-sheet market risk whereby changes in the level or volatility of
interest rates, foreign currency exchange rates or market values of the
underlying financial instruments or commodities may result in changes in the
value of the financial instrument in excess of the amounts currently reflected
in the Consolidated Statements of Financial Condition. The Company's exposure to
market risk is influenced by a number of factors, including the relationships
among financial instruments with off-balance-sheet risk and between financial
instruments with off-balance-sheet risk and the Company's proprietary securities
and commodities inventories as well as the volatility and liquidity in the
markets in which the financial instruments are traded. In many cases, the use of
financial instruments serves to modify or offset market risk associated with
other transactions and, accordingly, serves to decrease the Company's overall
exposure to market risk. The Company attempts to control its exposure to market
risk arising from the use of these financial instruments through the use of
hedging strategies and various analytical monitoring techniques. In order to
measure derivative activity, notional or contract amounts are frequently
utilized. Notional/contract amounts, which are not included on the balance
sheet, are used to calculate contractual cash flows to be exchanged and
generally are not actually paid or received, with the exception of currency
swaps and foreign exchange and mortgage-backed securities forwards. The
notional/contract amounts of financial instruments that give rise to off-
balance-sheet market risk are indicative only of the extent of involvement in
the particular class of financial instrument and are not necessarily an
indication of overall market risk.
F-17
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
The following table represents the notional/contract amounts of the
Company's outstanding derivative financial instruments as of June 30:
<TABLE>
<CAPTION>
IN BILLIONS 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Interest Rate:
Swap agreements, including options, swaptions, caps, collars and floors...................... $ 208.3 $ 175.2
Futures contracts............................................................................ 34.3 60.5
Options held................................................................................. 4.0 3.0
Options written.............................................................................. 0.7 3.1
Foreign Exchange:
Futures contracts............................................................................ 19.9 2.3
Forward contracts............................................................................ 13.6 7.9
Options held................................................................................. 10.0 3.2
Options written.............................................................................. 9.4 3.3
Mortgage-Backed Securities:
Forward contracts............................................................................ 40.5 23.0
Equity:
Swap agreements.............................................................................. 6.0 3.8
Futures contracts............................................................................ 0.6 0.5
Options held................................................................................. 2.8 1.1
Options written.............................................................................. 2.9 1.3
</TABLE>
FAIR VALUE
The derivative instruments used in the Company's trading and dealer
activities, as described further in Note 1, are recorded at fair value on a
daily basis with the resulting unrealized gains or losses recorded in the
Consolidated Statements of Financial Condition and the related income or loss
reflected in revenues derived from principal transactions.
The fair values of derivative financial instruments held or issued for
trading purposes as of June 30 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
<S> <C> <C> <C> <C>
IN MILLIONS ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------- --------- ----------- ----------- -----------
Swap agreements................................... $ 730 $ 1,250 $ 678 $ 846
Futures and forward contracts..................... 172 248 280 307
Options held...................................... 1,880 897
Options written................................... 2,927 968
</TABLE>
F-18
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
The average monthly fair values of the derivative financial instruments for
the fiscal years ended June 30 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
<S> <C> <C> <C> <C>
IN MILLIONS ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------- --------- ----------- ----------- -----------
Swap Agreements................................... $ 734 $ 1,029 $ 611 $ 698
Futures and forward contracts..................... 245 218 286 275
Options held...................................... 1,120 704
Options written................................... 1,657 795
</TABLE>
The majority of the Company's transactions with off-balance-sheet risk are
short-term in duration with a weighted average maturity of approximately 2.99
years and 2.22 years at June 30, 1997 and 1996, respectively. The maturities for
notional/contract amounts outstanding for derivative financial instruments as of
June 30, 1997 were as follows:
<TABLE>
<CAPTION>
LESS THAN 1 TO 3 3 TO 5 GREATER THAN
IN BILLIONS 1 YEAR YEARS YEARS 5 YEARS TOTAL
- ------------------------------------- ----------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Swap Agreements...................... $ 43.3 $ 65.4 $ 53.4 $ 52.2 $ 214.3
Futures contracts.................... 42.7 10.3 1.7 0.1 54.8
Forward contracts.................... 54.1 54.1
Options held......................... 14.6 0.2 1.7 0.3 16.8
Options written...................... 10.9 0.1 1.7 0.3 13.0
----------- --------- --------- ----- ---------
Total................................ $ 165.6 $ 76.0 $ 58.5 $ 52.9 $ 353.0
----------- --------- --------- ----- ---------
----------- --------- --------- ----- ---------
Percent of total..................... 46.9% 21.5% 16.6% 15.0% 100%
----------- --------- --------- ----- ---------
----------- --------- --------- ----- ---------
</TABLE>
CREDIT RISK
The notional/contract amounts of these instruments do not represent the
Company's potential risk of loss due to counterparty nonperformance. Credit risk
arises from the potential inability of counterparties to perform in accordance
with the terms of the contract. The Company's exposure to credit risk associated
with counterparty nonperformance is limited to the net replacement cost of
over-the-counter contracts in a gain position which are recognized in the
Company's Consolidated Statements of Financial Condition. Exchange traded
financial instruments, such as futures and options, generally do not give rise
to significant counterparty exposure due to the margin requirements of the
individual exchanges. Options written generally do not give rise to counterparty
credit risk since they obligate the Company (not its counterparty) to perform.
The Company has controls in place to monitor credit exposures by limiting
transactions with specific counterparties and assessing the future
creditworthiness of counterparties. The Company also seeks to control credit
risk by following an established credit approval process, monitoring credit
limits, and requiring collateral where appropriate.
F-19
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
The following table summarizes the credit quality of the Company's
trading-related derivatives by showing counterparty credit ratings for the
replacement cost of contracts in a gain position, net of $462.1 million and
$414.8 million of collateral, respectively, at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ------------------------------------------------------------------- --------- ---------
<S> <C> <C>
NET
REPLACEMENT
RATING(1) COST
AAA................................................................ $ 92.4 $ 48.0
AA................................................................. 201.7 86.1
A.................................................................. 152.9 93.2
BBB................................................................ 40.6 25.6
BB and Lower....................................................... 16.5 2.6
Non-rated.......................................................... 36.7 21.3
</TABLE>
- ------------------------
(1) Rating Agency Equivalent
CUSTOMER ACTIVITIES
The Company's clearance activities for both clearing clients and customers
involve the execution, settlement and financing of customers' securities and
commodities transactions. Customers' securities activities are transacted on
either a cash or margin basis, while customers' commodities transactions are
generally transacted on a margin basis subject to individual exchange
regulations. In connection with these activities, the Company executes and
clears customers' transactions involving the sale of borrowed securities ("short
sales") and the writing of option contracts. These transactions may expose the
Company to off-balance-sheet risk in the event that customers are unable to
fulfill their contractual obligations and customers' margin deposits are
insufficient to fully cover their losses. In the event the customers fail to
satisfy their obligations, the Company may be required to purchase or sell
financial instruments at prevailing market prices in order to fulfill the
customers' obligations.
The Company seeks to control the risks associated with its customers'
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. The Company monitors required
margin levels daily and, pursuant to such guidelines, may require customers to
deposit additional cash or collateral, or to reduce positions, when deemed
necessary. The Company also establishes credit limits for customers engaged in
commodity activities that are monitored daily. Additionally, with respect to the
Company's correspondent clearing activities, introducing correspondent firms are
required to guarantee the contractual obligations of their customers.
The Company's customer-financing and securities-settlement activities may
require the Company to pledge customers' securities as collateral to satisfy
exchange margin deposit requirements or to support various secured-financing
sources such as bank loans, securities loaned and repurchase agreements. In the
event the counterparties are unable to meet their contractual obligations to
return customer securities pledged as collateral, the Company may be exposed to
the risk of acquiring the securities at prevailing market prices in order to
satisfy its customers' obligations. The Company seeks to control this risk by
monitoring the market value of securities pledged on a daily basis and by
requiring adjustments of collateral levels in the event of excess market
exposure. Moreover, the Company establishes credit limits for such activities
and monitors credit compliance daily.
F-20
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company is engaged in various securities underwriting, brokerage and
trading activities. These services are provided to a diverse group of domestic
and foreign corporations, governments and individual and institutional
investors. A substantial portion of the Company's transactions are
collateralized and are executed with, or made on behalf of, institutional
investors, including other brokers and dealers, commercial banks, insurance
companies, pension plans and mutual funds and other financial institutions. The
Company's exposure to credit risk, associated with the nonperformance of
customers in fulfilling their contractual obligations, pursuant to securities
and commodities transactions, can be directly impacted by volatile or illiquid
trading markets which may impair customers' ability to satisfy their obligations
to the Company. The Company attempts to minimize credit risk associated with
these activities by monitoring customers' credit exposure and collateral values
on a daily basis and by requiring additional collateral to be deposited with or
returned to the Company. A significant portion of the Company's securities
processing activities includes clearing transactions for hedge funds,
specialists, market-makers, risk arbitrageurs and other professional traders.
Due to the nature of their operations, which may include a significant level of
margin activity, short selling and option writing, the Company may have
significant credit exposure should these customers be unable to meet their
commitments. The Company seeks to control this risk by monitoring margin
collateral levels on a daily basis for compliance with both regulatory and
internal guidelines. Additional collateral is requested when necessary. To
further control this risk, the Company has developed computerized risk control
systems which analyze customers' sensitivity to major market movements. When
deemed necessary, the Company will require the customers to deposit additional
margin collateral, or reduce positions, if it is determined that the customers'
activities may be subject to above-normal market risks.
NON-TRADING DERIVATIVES ACTIVITY
In order to modify the interest rate characteristics of its long and
short-term debt, the Company also engages in non-trading derivatives activities.
The Company has issued dollar and foreign currency-denominated debt with both
variable and fixed-rate interest payment obligations. The Company has entered
into interest rate swaps primarily based on LIBOR, in order to convert
fixed-rate interest payments on its debt obligations into variable-rate
payments. Interest payment obligations on variable-rate debt obligations may
also be modified through interest rate swaps which may change the underlying
basis or reset frequency. In addition, for foreign currency debt obligations
which are not used to fund assets in the same currency, the Company has entered
into currency swap agreements which effectively convert the debt into dollar
obligations.
These financial instruments with off-balance-sheet risk are subject to the
same market and credit risks as those which are traded in connection with the
Company's market-making and trading activities. The Company has the same
controls in place to monitor these risks.
At June 30, 1997 and 1996, the Company had outstanding interest rate and
currency swap agreements with a notional principal amount of $7.9 billion and
$6.0 billion, respectively. The interest rate swap agreements entered into
reduced net interest expense on the Company's long-term and short-term debt
obligations by $29.4 million, $15.9 million and $21.1 million for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively. The difference to be
received or paid on the swap agreements is included in interest expense as
incurred, and any related receivable or payable is reflected accordingly as an
asset or liability.
F-21
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12--COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies office space under leases which expire at various dates
through 2016. The lease commitments include the lease of the Company's
headquarters at 245 Park Avenue, New York City which expires on December 31,
2002. In addition, in September 1997, the Company entered into a 99-year ground
lease at 383 Madison Avenue, New York City, pursuant to which an office tower
will be developed and built. The site will serve as the new worldwide
headquarters and will be completed by the expiration of the current lease at 245
Park Avenue. At June 30, 1997, future minimum aggregate annual rentals payable
under these noncancelable leases (net of subleases), including 383 Madison
Avenue, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Fiscal Year
1998....................................................................... 65,069
1999....................................................................... 62,519
2000....................................................................... 143,823
2001....................................................................... 54,477
2002....................................................................... 52,162
Aggregate amount thereafter.................................................... 238,615
</TABLE>
The various leases contain provisions for periodic escalations to the extent
of increased operating and other costs. Rental expense, including escalations,
under these leases was $79.5 million, $77.0 million, and $73.8 million, for the
years ended June 30, 1997, 1996 and 1995, respectively.
LETTERS OF CREDIT
At June 30, 1997, the Company was contingently liable for unsecured letters
of credit of $2.5 billion and letters of credit of $78.0 million secured by
financial instruments which are principally used as deposits for securities
borrowed and for satisfying margin deposits at option and commodity exchanges.
BORROW VERSUS PLEDGE
At June 30, 1997, US government and agency securities with a market value of
approximately $5.7 billion had been pledged against borrowed securities with an
approximate market value of $5.6 billion.
LITIGATION
In the normal course of business, the Company has been named as a defendant
in several lawsuits which involve claims for substantial amounts. Although the
ultimate outcome of these suits cannot be ascertained at this time, it is the
opinion of management, after consultation with counsel, that the resolution of
such lawsuits will not have a material adverse effect on the results of
operations or the financial condition of the Company.
13--SEGMENT AND GEOGRAPHIC AREA DATA
The Company is primarily engaged in a single line of business as a
securities broker and dealer, which comprises several classes of services, such
as principal transactions, agency transactions, and underwriting
F-22
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13--SEGMENT AND GEOGRAPHIC AREA DATA (CONTINUED)
and investment banking. These activities constitute a single industry segment
for purposes of SFAS 14. Information regarding the Company's operations for the
fiscal years ended June 30 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
- ---------------------------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Foreign revenues...................................................... $ 535,275 $ 460,055 $ 252,825
Domestic revenues..................................................... 5,542,003 4,503,808 3,500,747
------------- ------------ ------------
Consolidated revenues................................................. 6,077,278 4,963,863 3,753,572
------------- ------------ ------------
------------- ------------ ------------
Foreign income before provision for income taxes...................... 28,790 53,470 3,147
Domestic income before provision for income taxes..................... 984,900 781,456 384,935
------------- ------------ ------------
Consolidated income before provision for income taxes................. 1,013,690 834,926 388,082
------------- ------------ ------------
------------- ------------ ------------
Foreign assets........................................................ 22,148,655 17,219,879 10,428,506
Domestic assets....................................................... 99,284,880 74,865,278 64,168,654
------------- ------------ ------------
Consolidated assets................................................... 121,433,535 92,085,157 74,597,160
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Because of the international nature of the financial markets and the
resultant integration of US and non-US services, it is difficult to precisely
separate foreign operations. The Company conducts and manages these activities
with a view toward the profitability of the Company as a whole. Accordingly, the
foreign operations information is, of necessity, based upon management judgments
and internal allocations.
F-23
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14-QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
- ----------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1997
Revenues..................................... $ 1,236,153 $ 1,556,530 $ 1,511,301 $ 1,773,294 $ 6,077,278
------------ ------------ ------------ ------------ ------------
Interest expense............................. 547,469 616,396 576,836 810,663 2,551,364
------------ ------------ ------------ ------------ ------------
Revenues, net of interest expense............ 688,684 940,134 934,465 962,631 3,525,914
Non-interest expenses
Employee compensation and benefits........... 344,372 456,825 464,596 461,138 1,726,931
Other........................................ 165,795 192,754 194,094 232,650 785,293
------------ ------------ ------------ ------------ ------------
Total non-interest expenses.................. 510,167 649,579 658,690 693,788 2,512,224
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes..... 178,517 290,555 275,775 268,843 1,013,690
Provision for income taxes................... 70,068 114,043 110,294 105,955 400,360
------------ ------------ ------------ ------------ ------------
Net income................................... 108,449 176,512 165,481 162,888 613,330
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Earnings per share(1)........................ 0.72 1.21 1.14 1.15 4.20
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Cash dividends declared per common
share(1)(2)................................ 0.14 0.14 0.15 0.15 0.59
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
- ----------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996
Revenues..................................... $ 1,074,434 $ 1,190,063 $ 1,295,996 $ 1,403,370 $ 4,963,863
------------ ------------ ------------ ------------ ------------
Interest expense............................. 456,945 502,403 503,754 518,069 1,981,171
------------ ------------ ------------ ------------ ------------
Revenues, net of interest expense............ 617,489 687,660 792,242 885,301 2,982,692
Non-interest expenses
Employee compensation and benefits........... 306,997 345,427 392,442 424,582 1,469,448
Other........................................ 154,082 161,352 177,985 184,899 678,318
------------ ------------ ------------ ------------ ------------
Total non-interest expenses.................. 461,079 506,779 570,427 609,481 2,147,766
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes..... 156,410 180,881 221,815 275,820 834,926
Provision for income taxes................... 62,564 75,725 92,944 113,055 344,288
------------ ------------ ------------ ------------ ------------
Net income................................... 93,846 105,156 128,871 162,765 490,638
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Earnings per share(1)........................ 0.60 0.69 0.86 1.12 3.27
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Cash dividends declared per common
share(1)(2)................................ 0.14 0.14 0.14 0.14 0.55
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(1) Adjusted to reflect stock dividends.
(2) Total does not equal the sum of four quarters due to rounding.
F-24
<PAGE>
APPENDIX B
SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below for the six months ended December 31, 1997 have
been extracted from the unaudited financial statements of the Company and its
subsidiaries for the six months ended December 31, 1997 and 1996. The results
for the interim period ended December 31, 1997 are not necessarily indicative of
the results for the full year.
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................ $ 1,269,745 $ 1,249,132
Cash and securities deposited with clearing organizations or segregated in
compliance with federal regulations............................................ 2,806,890 1,448,814
Securities purchased under agreements to resell.................................. 33,997,149 28,340,599
Securities borrowed.............................................................. 42,821,711 40,711,280
Receivables:
Customers...................................................................... 12,683,829 8,572,521
Brokers, dealers and others.................................................... 1,458,913 1,227,947
Interest and dividends......................................................... 416,653 405,892
Financial instruments owned, at fair value....................................... 40,818,227 38,437,280
Property, equipment and leasehold improvements, net of accumulated depreciation
and amortization............................................................... 434,587 379,533
Other assets..................................................................... 803,321 660,537
-------------- --------------
Total Assets..................................................................... $ 137,511,025 $ 121,433,535
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Short-term borrowings............................................................ $ 14,522,968 $ 14,416,671
Securities sold under agreements to repurchase................................... 46,243,472 39,431,216
Payables:
Customers...................................................................... 35,663,578 29,921,386
Brokers, dealers and others.................................................... 1,357,043 2,808,359
Interest and dividends......................................................... 574,092 452,662
Financial instruments sold, but not yet purchased, at fair value................. 22,450,080 20,784,796
Accrued employee compensation and benefits....................................... 773,943 907,337
Other liabilities and accrued expenses........................................... 1,136,802 964,409
-------------- --------------
122,721,978 109,686,836
-------------- --------------
Commitments and contingencies
Long-term borrowings............................................................. 10,894,572 8,120,328
-------------- --------------
Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities..................................................................... 200,000 200,000
Preferred stock issued by subsidiary............................................. 150,000 150,000
-------------- --------------
Stockholders' Equity
Preferred Stock................................................................ 437,500 437,500
Common Stock, $1.00 par value; 200,000,000 shares authorized; 167,784,941
shares issued at December 31, 1997 and June 30, 1997......................... 167,785 167,785
Paid-in capital................................................................ 1,883,674 1,874,016
Retained earnings.............................................................. 1,306,688 1,031,736
Capital Accumulation Plan...................................................... 694,967 655,007
Treasury stock, at cost
Adjustable Rate Cumulative Preferred Stock, Series A--2,520,750 shares at
December 31, 1997 and June 30, 1997........................................ (103,421) (103,421)
Common Stock--50,993,838 shares and 50,191,531 shares at December 31, 1997
and June 30, 1997, respectively............................................ (835,604) (772,551)
Note receivable from ESOP Trust................................................ (7,114) (13,701)
-------------- --------------
Total Stockholders' Equity....................................................... 3,544,475 3,276,371
-------------- --------------
Total Liabilities and Stockholders' Equity....................................... $ 137,511,025 $ 121,433,535
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues
Commissions......................................... $ 230,496 $ 183,584 $ 443,940 $ 345,154
Principal transactions.............................. 390,512 429,239 782,026 724,131
Investment banking.................................. 278,884 183,138 498,212 291,832
Interest and dividends.............................. 1,081,298 745,610 2,045,869 1,405,867
Other income........................................ 11,877 14,959 36,025 25,699
------------- ------------- ------------- -------------
Total Revenues...................................... 1,993,067 1,556,530 3,806,072 2,792,683
Interest expense.................................... 919,304 616,396 1,736,219 1,163,865
------------- ------------- ------------- -------------
Revenues, net of interest expense................... 1,073,763 940,134 2,069,853 1,628,818
------------- ------------- ------------- -------------
Non-interest expenses
Employee compensation and benefits.................. 535,793 456,825 1,034,990 801,197
Floor brokerage, exchange and clearance fees........ 43,522 34,447 83,107 66,013
Communications...................................... 28,824 24,778 56,957 49,334
Depreciation and amortization....................... 27,427 21,450 53,444 41,418
Occupancy........................................... 25,387 21,945 48,933 43,291
Advertising and market development.................. 20,057 16,683 36,011 31,439
Data processing and equipment....................... 12,460 8,206 24,694 15,761
Other expenses...................................... 120,688 65,245 204,974 111,293
------------- ------------- ------------- -------------
Total non-interest expenses......................... 814,158 649,579 1,543,110 1,159,746
------------- ------------- ------------- -------------
Income before provision for income taxes............ 259,605 290,555 526,743 469,072
Provision for income taxes.......................... 99,383 114,043 204,903 184,111
------------- ------------- ------------- -------------
Net income.......................................... $ 160,222 $ 176,512 $ 321,840 $ 284,961
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income applicable to common shares.............. $ 154,299 $ 170,573 $ 309,991 $ 272,991
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share.................................. $ 1.11 $ 1.21 $ 2.22 $ 1.92
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common and common equivalent shares
outstanding....................................... 152,312,886 148,780,833 152,757,258 149,826,973
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cash dividends declared per common share............ $ 0.15 $ 0.14 $ 0.30 $ 0.29
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 321,840 $ 284,961
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization..................................................... 53,444 41,418
Deferred income taxes............................................................. (58,468) (38,419)
Other............................................................................. 56,738 33,010
(Increases) decreases in operating receivables:
Cash and securities deposited with clearing organizations or segregated in
compliance with federal regulations............................................. (1,358,076) (450,007)
Securities purchased under agreements to resell................................... (5,656,550) (2,544,512)
Securities borrowed............................................................... (2,110,431) (1,602,738)
Receivables:
Customers....................................................................... (4,111,308) (70,838)
Brokers, dealers and others..................................................... (230,966) (1,086,106)
Financial instruments owned....................................................... (2,380,947) (6,936,876)
Other assets...................................................................... (14,591) 174,340
Increases (decreases) in operating payables:
Securities sold under agreements to repurchase.................................... 6,812,256 6,326,918
Payables:
Customers....................................................................... 5,742,192 2,666,872
Brokers, dealers and others..................................................... (1,454,246) (384,326)
Financial instruments sold, but not yet purchased................................. 1,665,284 2,139,589
Accrued employee compensation and benefits........................................ (184,391) (193,796)
Other liabilities and accrued expenses............................................ 286,743 (550,219)
------------- -------------
Cash used in operating activities................................................... (2,621,477) (2,190,729)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings............................................. 106,297 2,753,292
Issuance of long-term borrowings.................................................... 3,433,171 862,638
Capital Accumulation Plan........................................................... 51,010 (10,714)
Common Stock distributions.......................................................... 7,552 10,729
Note repayment from ESOP Trust...................................................... 6,587 6,099
Payments for:
Retirement of Senior Notes........................................................ (660,299) (478,944)
Treasury stock purchases.......................................................... (71,165) (105,655)
Cash dividends paid................................................................. (47,160) (47,064)
------------- -------------
Cash provided by financing activities............................................... 2,825,993 2,990,381
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements......................... (108,498) (52,442)
Purchases of investment securities and other assets................................. (80,807) (78,661)
Proceeds from sales of investment securities and other assets....................... 5,402 35,671
------------- -------------
Cash used in investing activities................................................... (183,903) (95,432)
------------- -------------
Net increase in cash and cash equivalents........................................... 20,613 704,220
Cash and cash equivalents, beginning of period...................................... 1,249,132 127,847
------------- -------------
Cash and cash equivalents, end of period............................................ $ 1,269,745 $ 832,067
------------- -------------
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-28
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The Bear Stearns Companies Inc. and its subsidiaries (the
"Company"). All material intercompany transactions and balances have been
eliminated. Certain prior period amounts have been reclassified to conform with
the current period's presentation or restated for the effects of stock
dividends. The consolidated financial statements reflect all adjustments which,
in the opinion of management, are normal and recurring and are necessary for a
fair statement of the results for the interim periods presented. The
consolidated financial statements are prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. The nature of the Company's business is such that the results of any
interim period may not be indicative of the results to be expected for an entire
fiscal year.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold, but not yet
purchased consist of the Company's proprietary trading and investment accounts,
at fair value, as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
IN THOUSANDS 1997 1997
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Financial instruments owned:
US government and agency......................................................... $ 8,641,199 $ 9,163,407
Other sovereign governments...................................................... 2,663,875 1,847,691
Corporate equity and convertible debt............................................ 10,905,220 11,280,199
Corporate debt................................................................... 5,777,656 4,961,737
Derivative financial instruments................................................. 3,556,782 2,780,231
Mortgages and other mortgage-backed securities................................... 8,811,676 7,858,200
Other............................................................................ 461,819 545,815
------------- -------------
$ 40,818,227 $ 38,437,280
------------- -------------
------------- -------------
Financial instruments sold, but not yet purchased:
US government and agency......................................................... $ 8,014,466 $ 8,687,884
Other sovereign governments...................................................... 3,119,594 1,479,278
Corporate equity................................................................. 4,221,154 4,985,396
Corporate debt................................................................... 1,676,024 1,099,700
Derivative financial instruments................................................. 5,358,404 4,412,986
Other............................................................................ 60,438 119,552
------------- -------------
$ 22,450,080 $ 20,784,796
------------- -------------
------------- -------------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company was contingently liable for unsecured
letters of credit of approximately $2.2 billion and letters of credit of
approximately $104.0 million secured by financial instruments that are
principally used as deposits for securities borrowed and to satisfy margin
deposits at option and commodity exchanges.
F-29
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In the normal course of business, the Company has been named as a defendant
in several lawsuits which involve claims for substantial amounts. Although the
ultimate outcome of these suits cannot be ascertained at this time, it is the
opinion of management, after consultation with counsel, that the resolution of
such suits will not have a material adverse effect on the results of operations
or the financial condition of the Company.
4. NET CAPITAL REQUIREMENTS
The Company's principal operating subsidiary, Bear Stearns & Co. Inc. ("Bear
Stearns") and Bear Stearns' wholly owned subsidiary, Bear, Stearns Securities
Corp. ("BSSC"), are registered broker-dealers and, accordingly, are subject to
Securities and Exchange Commission Rule 15c3-1 (the "Net Capital Rule") and the
capital rules of the New York Stock Exchange, Inc. ("NYSE") and other principal
exchanges of which Bear Stearns and BSSC are members. Bear Stearns and BSSC have
consistently operated in excess of the minimum net capital requirements imposed
by the capital rules. Included in the computation of net capital of Bear Stearns
is net capital of BSSC in excess of 5% of aggregate debit items arising from
customer transactions, as defined. At December 31, 1997, Bear Stearns' net
capital, as defined, of $1.62 billion exceeded the minimum requirement by $1.59
billion.
Bear Stearns International Limited ("BSIL") and certain other wholly owned,
London-based subsidiaries are subject to regulatory capital requirements of the
Securities and Futures Authority.
5. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share, ("SFAS 128") during the quarter ended December 31, 1997.
SFAS 128 simplifies the standards for computing and presenting earnings per
share ("EPS") previously found in APB Opinion No. 15, Earnings Per Share, and
makes them comparable to international EPS standards. As the Company has a
simple capital structure and makes a single presentation of earnings per share
on the income statement, the adoption of this standard did not affect the
reported amounts of EPS for the current or comparable period. EPS is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding during each period presented. Common shares
include the assumed distribution of shares of common stock issuable under
certain of the Company's deferred compensation arrangements, with appropriate
adjustments made to net income for expense accruals related thereto.
Additionally, shares of common stock issued or issuable under various employee
benefit plans are included as common shares.
6. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the six-months
ended December 31, 1997 and December 31, 1996. Income taxes paid totaled $227.1
million and $218.4 million for the six-months ended December 31, 1997 and
December 31, 1996, respectively.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, in its capacity as a dealer in over-the-counter derivative
financial instruments and in connection with its proprietary market-making and
trading activities, enters into transactions in a variety of
F-30
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
cash and derivative financial instruments in order to reduce its exposure to
market risk, which includes interest rate, exchange rate, equity price and
commodity price risk. SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," defines a derivative as a
future, forward, swap, or option contract, or other financial instruments with
similar characteristics such as caps, floors and collars. Generally these
financial instruments represent future commitments to exchange interest payment
streams or currencies or to purchase or sell other financial instruments at
specific terms at specified future dates. Option contracts provide the holder
with the right, but not the obligation, to purchase or sell a financial
instrument at a specific price before or on an established date. These financial
instruments may have market and/or credit risk in excess of amounts recorded in
the Consolidated Statements of Financial Condition.
In order to measure derivative activity, notional or contract amounts are
frequently utilized. Notional/ contract amounts, which are not included on the
balance sheet, are used to calculate contractual cash flows to be exchanged and
are generally not actually paid or received, with the exception of currency
swaps and foreign exchange forwards and mortgage-backed securities forwards. The
notional/contract amounts of financial instruments that give rise to
off-balance-sheet market risk are indicative only of the extent of involvement
in the particular class of financial instrument and are not necessarily an
indication of overall market risk.
The following table represents the notional/contract amounts of the
Company's outstanding derivative financial instruments as of December 31, 1997
and June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
IN BILLIONS 1997 1997
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Interest Rate:
Swap agreements, including options, swaptions, caps, collars, and floors............... $ 251.7 $ 208.3
Futures contracts...................................................................... 36.7 34.3
Options held........................................................................... 4.5 4.0
Options written........................................................................ 0.5 0.7
Foreign Exchange:
Futures contracts...................................................................... 12.0 19.9
Forward contracts...................................................................... 20.1 13.6
Options held........................................................................... 14.5 10.0
Options written........................................................................ 13.1 9.4
Mortgage-Backed Securities:
Forward Contracts...................................................................... 44.3 40.5
Equity:
Swap agreements........................................................................ 7.5 6.0
Futures contracts...................................................................... 1.2 0.6
Options held........................................................................... 4.4 2.8
Options written........................................................................ 3.7 2.9
</TABLE>
F-31
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
The derivative instruments used in the Company's trading and dealer
activities are recorded at fair value on a daily basis with the resulting
unrealized gains or losses recorded in the Consolidated Statements of Financial
Condition and the related income or loss reflected in revenues derived from
principal transactions.
The fair values of derivative financial instruments held or issued for
trading purposes as of December 31, 1997 and June 30, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
IN MILLIONS ASSETS LIABILITIES ASSETS LIABILITIES
- ------------------------------------------------------------- --------- ----------- ----------- -----------
Swap agreements.............................................. $ 1,013 $ 1,163 $ 730 $ 1,250
Futures and forward contracts................................ 259 316 172 248
Options held................................................. 2,292 1,880
Options written.............................................. 3,906 2,927
</TABLE>
The average monthly fair values of the derivative financial instruments for
the six-months ended December 31, 1997 and the fiscal year ended June 30, 1997
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
IN MILLIONS ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------------------- --------- ----------- ----------- -----------
Swap agreements............................................... $ 990 $ 1,336 $ 734 $ 1,029
Futures and forward contracts................................. 283 325 245 218
Options held.................................................. 2,501 1,120
Options written............................................... 3,692 1,657
</TABLE>
The notional/contract amounts of these instruments do not represent the
Company's potential risk of loss due to counterparty nonperformance. Credit risk
arises from the potential inability of counterparties to perform in accordance
with the terms of the contract. The Company's exposure to credit risk associated
with counterparty nonperformance is limited to the net replacement cost of
over-the-counter contracts in a gain position which are recognized in the
Company's Consolidated Statements of Financial Condition. Exchange-traded
financial instruments, such as futures and options, generally do not give rise
to significant counterparty exposure due to the margin requirements of the
individual exchanges. Generally, options written do not give rise to
counterparty credit risk since they obligate the Company (not its counterparty)
to perform. The Company's net replacement cost of derivatives in a gain position
after consideration of collateral at December 31, 1997 was approximately
$1,310.2 million.
F-32
<PAGE>
PROSPECTUS
$7,096,595,162
THE BEAR STEARNS COMPANIES INC.
DEBT SECURITIES AND WARRANTS
The Company may issue and sell from time to time, in one or more series with
an aggregate initial public offering price of up to $7,096,595,162 (or the
equivalent in foreign denominated currency or units based on or relating to such
currencies), debt securities ("Debt Securities"), consisting of debentures,
notes and/or other unsecured evidences of indebtedness, and warrants
("Warrants") to purchase Debt Securities or to buy and sell government debt
securities, currencies, currency units, currency indices or currency baskets,
stock indices, stock baskets, commodities, commodity indices or other indices or
references. The Debt Securities and Warrants are herein collectively referred to
as the "Securities." The Debt Securities and Warrants may be offered
independently or together for sale directly to purchasers or through dealers,
underwriters or agents. The Company will offer the Securities to the public on
terms determined by market conditions. The Securities may be sold for, and
principal of and interest on Debt Securities and the cash settlement value of
the Warrants may be payable in, United States dollars, foreign denominated
currency or currency units, in each case, as the Company specifically
designates.
The accompanying Prospectus Supplement sets forth the specific designation,
aggregate principal amount, purchase price, maturity, interest rate (or manner
of calculation thereof), time of payment of interest (if any), currency or
currency units in which payments will be made (if other than United States
dollars), terms for any conversion or exchange (including any provisions for
adjustment of such terms), listing (if any) on a securities exchange and any
other specific terms of the Debt Securities, the purchase price, exercise price,
exercise period, detachability and any other specific terms of any Warrants and
the name of and compensation to each dealer, underwriter or agent (if any)
involved in the sale of the Securities. The managing underwriters with respect
to each series sold to or through underwriters will be named in the accompanying
Prospectus Supplement. Such underwriters (and any representative thereof),
dealers or agents may include Bear, Stearns & Co. Inc., a wholly owned
subsidiary of the Company.
There are no restrictions in the Indenture (as defined in the Prospectus) on
the ability of the Company or its subsidiaries to incur additional unsecured
indebtedness or on the ability of the Company to incur additional secured
indebtedness except that the Indenture restricts the Company from incurring any
indebtedness for borrowed money that is secured by a pledge of the Voting Stock
of any Restricted Subsidiary (each as defined in the Prospectus) without
effectively providing that the Notes and other indebtedness of the Company under
the Indenture will be secured equally and ratably with such secured
indebtedness.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR ANY SUPPLEMENT
HERETO. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities may be offered through dealers, through underwriters or
through agents designated from time to time, as set forth in the accompanying
Prospectus Supplement. The net proceeds to the Company will be, in the case of a
dealer, the sales price to such dealer, in the case of an underwriter, the
public offering price less the applicable underwriting discount or commission,
and, in the case of an agent, the public offering price less the applicable
agency commission, in each case, less other expenses attributable to issuance
and distribution. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
This Prospectus and the accompanying Prospectus Supplement may be used by
Bear, Stearns & Co. Inc. in connection with offers and sales of Debt Securities
and Warrants in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale or otherwise. Bear, Stearns & Co.
Inc. may act as a principal or agent in such transactions.
------------------------
BEAR, STEARNS & CO. INC.
January 21, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF CERTAIN SECURITIES
HEREUNDER MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE
AFFECT THE PRICE OF THOSE SECURITIES, INCLUDING OVERALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. SEE "PLAN OF
DISTRIBUTION."
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at the Citicorp Center, 5000 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New
York 10048, and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such information may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
Reports, proxy statements and other information concerning the Company can also
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-8989), are incorporated herein by
reference: (i) the Annual Report on Form 10-K (including the portions of the
Company's Annual Report to Stockholders and Proxy Statement incorporated by
reference therein) for the fiscal year ended June 30, 1997 (the "1997 Form
10-K"), (ii) the Quarterly Report on Form 10-Q for the quarter ended September
26, 1997, (iii) the Current Reports on Form 8-K, dated July 29, 1997, August 13,
1997, October 14, 1997, October 28, 1997 and January 14, 1998 and (iv) the
Current Report on Form 8-A, dated January 14, 1998. All documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Securities shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all documents incorporated by reference into this Prospectus
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to Corporate Communications Department, The Bear Stearns Companies
Inc., 245 Park Avenue, New York, New York 10167; telephone number (212)
272-2000.
------------------------
3
<PAGE>
THE COMPANY
The Company is a holding company that, through its principal subsidiaries,
Bear, Stearns & Co. Inc. ("Bear Stearns") and Bear, Stearns Securities Corp.
("BSSC"), is a leading United States investment banking, securities trading and
brokerage firm serving corporations, governments, institutional and individual
investors worldwide. The business of the Company includes: market-making and
trading in corporate, United States Government, government-agency,
mortgage-related, asset-backed and municipal securities; trading in options,
futures, foreign currencies, interest-rate swaps and other derivative products;
securities and commodities arbitrage; securities, options and commodities
brokerage; underwriting and distributing securities; providing securities
clearance services; financing customer activities; securities lending; arranging
for the private placement of securities; assisting in mergers, acquisitions,
restructurings and leveraged transactions; providing other financial advisory
services; making principal investments in leveraged acquisitions; acting as
specialist on the floor of the New York Stock Exchange ("NYSE"); providing
fiduciary and other services, such as real estate brokerage, investment
management and investment advisory; and securities research.
The Company's business is conducted from its principal offices in New York
City; from domestic regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and San Francisco; from representative offices in Beijing, Geneva, Hong
Kong, Lugano and Shanghai; through international subsidiaries in Buenos Aires,
Dublin, Hong Kong, London, Paris, Sao Paulo, Singapore and Tokyo; and through
joint ventures with other firms in Belgium, Madrid, Paris and the Philippines.
The Company's foreign offices provide services and engage in investment
activities involving foreign clients and international transactions. The Company
provides trust-company services through its subsidiary, Custodial Trust Company,
located in Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the Commission.
They also are members of the NYSE, all other principal United States securities
and commodities exchanges, the National Association of Securities Dealers, Inc.
(the "NASD") and the National Futures Association. Bear Stearns is a "primary
dealer" in United States government securities, as designated by the Federal
Reserve Bank of New York.
The Company is incorporated in Delaware.The principal executive office of
the Company is located at 245 Park Avenue, New York, New York 10167; its
telephone number is (212) 272-2000.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include additions to working capital, the
repayment of short-term indebtedness and investments in, or extensions of credit
to, subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 1.3 for the fiscal quarter ended
September 26, 1997 and 1.4, 1.4, 1.2, 1.6 and 1.8 for the fiscal years ended
June 30, 1997, 1996, 1995, 1994 and 1993, respectively. These ratios were
calculated by dividing the sum of fixed charges into the sum of earnings before
taxes and fixed charges. Fixed charges for these purposes consist of all
interest expense and certain other immaterial expenses.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
GENERAL
THE FOLLOWING DESCRIPTION SETS FORTH CERTAIN GENERAL TERMS AND PROVISIONS OF
THE DEBT SECURITIES TO WHICH ANY PROSPECTUS SUPPLEMENT MAY RELATE. THE
PARTICULAR TERMS OF THE DEBT SECURITIES OFFERED BY ANY PROSPECTUS SUPPLEMENT AND
THE EXTENT, IF ANY, TO WHICH SUCH GENERAL TERMS AND PROVISIONS WILL NOT APPLY TO
THE DEBT SECURITIES SO OFFERED WILL BE DESCRIBED IN THE PROSPECTUS SUPPLEMENT
RELATING TO THOSE DEBT SECURITIES.
The Debt Securities will be issued under an Indenture, dated as of May 31,
1991 (the "Indenture"), between the Company and The Chase Manhattan Bank
(formerly known as Chemical Bank and successor by merger to Manufacturers
Hanover Trust Company), as trustee (the "Trustee"). A copy of the Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part (the "Registration Statement"). The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture, including the definitions therein of certain terms.
The Indenture does not limit the principal amount of Debt Securities that
may be issued thereunder, and provides that Debt Securities may be issued
thereunder in one or more series up to the aggregate principal amount that may
be authorized from time to time by the Company. The Company from time to time
may, without the consent of the Holders of outstanding Debt Securities, provide
for the issuance of other debt securities under the Indenture in addition to the
Debt Securities authorized on the date of this Prospectus. The Indenture
provides the Company with the ability, in addition to the ability to issue Debt
Securities with terms different than those of Debt Securities previously issued,
to "reopen" a previous issue of a series of Debt Securities and issue additional
Debt Securities of such series. Debt Securities in an aggregate principal amount
of up to $7,096,595,162 may be offered pursuant to this Prospectus. As of the
date of this Prospectus, $14,164,829,575 aggregate principal amount of Debt
Securities have been issued under the Indenture and are outstanding.
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities offered thereby for the terms of those Debt
Securities, including, where applicable (1) the title of the Debt Securities and
the series of which those Debt Securities are a part; (2) the aggregate
principal amount of, or any limit on the aggregate principal amount of, those
Debt Securities; (3) the date or dates on which those Debt Securities will
mature; (4) the rate or rates per annum (which may be fixed or variable) at
which those Debt Securities will bear interest, if any; (5) the date or dates on
which such interest, if any, will be payable and the record date or dates
relating thereto; (6) the provisions, if any, for redemption of those Debt
Securities and the redemption price thereof; (7) the sinking fund requirements,
if any, with respect to those Debt Securities; (8) whether those Debt Securities
provide for payment in United States dollars, a foreign currency or a composite
currency; (9) the terms, if any, on which such Debt Securities may be converted
into or exchanged for stock or other securities of the Company or other
entities, including the period during which such Debt Securities may be so
converted or exchanged and any specific provisions for adjustment of such terms;
(10) the form (registered or bearer or both) in which those Debt Securities may
be issued and any restrictions applicable to the exchange of one form for
another and to the offer, sale and delivery of the Debt Securities in either
form; (11) whether those Debt Securities will be issued in book-entry form (a
"Global Security") or in certificated form; (12) whether and under what
circumstances the Company will pay additional amounts ("Additional Amounts")
relating to specified taxes, assessments or other governmental charges in
respect of those Debt Securities and whether the Company has the option to
redeem those Debt Securities rather than pay such Additional Amounts, and the
terms of any such redemption; (13) if the amount of payments of principal of
(and premium, if any) or interest, if any, on, and Additional Amounts in respect
of those Debt Securities may be determined with reference to an index, formula
or other method based on a coin or currency other than that in which the Debt
Securities are stated to be payable, the manner in which those amounts will be
determined; (14)
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the provisions, if any, for the defeasance of those Debt Securities; and (15)
any other terms of those Debt Securities not inconsistent with the provisions of
the Indenture.
From time to time Debt Securities may be issued that provide for
determination of the amount of payments of principal (and premium, if any), or
interest, if any, by reference to an index, exchange rate, formula, currency,
commodity, individual security, basket of securities or other method. Holders of
such Debt Securities may receive a payment of principal (and premium, if any) or
interest, if any, that is greater or less than the amount of principal (and
premium, if any) or interest, if any, that otherwise would be payable on the
dates of payment thereof but for such reference, depending on the value on such
dates of the applicable index, exchange rate, formula, currency, commodity,
individual security, basket of securities or other method. Information as to the
methods for determining the amount of principal (and premium, if any), and
interest, if any, payable on any date, the index, exchange rate, formula,
currency, commodity, individual security, basket of securities or other method
to which the amount payable on such date is linked and certain additional tax
considerations (if material) will be set forth in the applicable Prospectus
Supplement.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities will be issued only in registered form without coupons ("Registered
Securities") in denominations of $1,000 and integral multiples thereof, and in
bearer form with or without coupons ("Bearer Securities") in the denomination of
$5,000. If Bearer Securities of a series are issued, the federal income tax
consequences and other special considerations applicable to those Bearer
Securities will be described in the Prospectus Supplement relating to that
series.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the corporate trust
office or agency of the Trustee in the City and State of New York, subject to
the limitations provided in the Indenture, without the payment of any service
charge, other than any tax or other governmental charge that may be imposed in
connection therewith. Bearer Securities will be transferable by delivery.
Provisions with respect to the exchange of Bearer Securities of any series will
be described in the Prospectus Supplement relating thereto.
If the principal of (and premium, if any) or any interest on Debt Securities
of any series are payable in a foreign or composite currency, the restrictions,
elections, federal income tax consequences, specific terms and other information
with respect to those Debt Securities and such currency will be described in the
Prospectus Supplement relating to that series.
One or more series of Debt Securities may be sold at a substantial discount
below its or their stated principal amount, bearing no interest or interest at a
rate that at the time of issuance is below market rate. One or more series of
Debt Securities may be variable rate debt securities that may be exchangeable
for fixed rate debt securities. Federal income tax consequences and other
special considerations applicable to any such series will be described in the
Prospectus Supplement relating thereto.
The Debt Securities will be unsecured and will rank PARI PASSU with all
other unsecured and unsubordinated indebtedness of the Company. The Company
extends credit to its subsidiaries from time to time. Extensions of credit to
subsidiaries may be subordinated to the claims of unaffiliated creditors of
those subsidiaries. In addition, since the Company is a holding company, the
right of the Company and hence the right of creditors of the Company (including
the Holders of the Debt Securities) to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization, or otherwise,
is necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of the Company itself as a creditor of the
subsidiary may be recognized. Furthermore, dividends, loans and advances to the
Company from certain of its subsidiaries, including Bear Stearns and BSSC, are
restricted by net capital requirements under the Exchange Act and under rules of
certain exchanges and other regulatory bodies and by covenants governing certain
indebtedness of those subsidiaries.
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Unless otherwise provided in the applicable Prospectus Supplement, the
principal of (and premium, if any) and any interest on Debt Securities will be
payable (in the case of Registered Securities) at the corporate trust office or
agency of the Trustee in the City and State of New York or (in the case of
Bearer Securities) at the office of the Trustee located outside the United
States maintained for such purpose; provided, however, that payment of interest
other than interest payable at maturity (or on the date of redemption, if any,
if the Debt Securities are redeemable by the Company prior to maturity, or on
the date of repayment, if the Debt Securities are repayable at the option of the
Holder thereof prior to maturity) on Registered Securities may be made at the
option of the Company by check mailed to the address of the person entitled
thereto or, at the option of a Holder of at least $10,000,000 in principal
amount of Registered Securities, by wire transfer to an account designated by
such Holder in writing at least 16 days prior to the date on which such payment
is due. Unless otherwise provided in the applicable Prospectus Supplement, no
payment on a Bearer Security will be made by mail to an address in the United
States or by wire transfer to an account maintained by the Holder thereof in the
United States or will otherwise be made inside the United States.
NOTICES
Unless otherwise provided in the applicable Prospectus Supplement, any
notice required to be given to a Holder of a Debt Security of any series that is
a Registered Security will be mailed to the last address of such Holder set
forth in the applicable Security Register. Any notice required to be given to a
Holder of a Debt Security that is a Bearer Security will be published in a daily
newspaper of general circulation in the city or cities specified in the
Prospectus Supplement relating to such Bearer Security.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or definitive form. Unless and until it is
exchanged in whole or in part for the individual Debt Securities represented
thereby, a Global Security may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any nominee to a successor of the Depositary or a
nominee of the successor.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary will credit on its
book-entry system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of institutions
that have accounts with the Depositary ("participants"). The accounts to be
credited shall be designated by the underwriters of the Debt Securities, or if
the Debt Securities are offered and sold directly by the Company or through
agents, by the Company or those agents. Ownership of beneficial interest in a
Global Security will be limited to participants or persons that may hold
beneficial interests through participants. Ownership of beneficial interest in a
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary's participants or
persons that hold through participants. The laws of some states require that
certain purchasers of securities take physical delivery of securities. Such
limits and such laws may limit the market for beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of a Global Security, the Depositary or nominee, as the case
may be, will be considered the sole owner or Holder of the Debt Securities
represented by the Global Security for all purposes under the Indenture. Except
as
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provided below, owners of beneficial interests in a Global Security will not be
entitled to have Debt Securities represented by Global Securities registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities in definitive form and will not be considered the owners or
Holders thereof under the Indenture.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities and Bearer Warrants" below, payments of principal of (and
premium, if any) and any interest on the individual Debt Securities registered
in the name of the Depositary or its nominee will be made to the Depositary or
its nominee, as the case may be, as the Holder of such Global Security. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of a Global Security, or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests and each of
them may act or refrain from acting without liability on any information
provided by the Depositary. The Company expects that the Depositary, upon
receipt of any payment of principal, premium or interest in respect of a Global
Security, will credit immediately the accounts of the participants with payment
in amounts proportionate to their respective holdings in principal amount of
beneficial interest in a Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in a Global Security will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments of principal, premium or
interest in respect thereof will be subject to the restrictions discussed under
"Limitations on Issuance of Bearer Securities and Bearer Warrants" below.
If interest is paid on a bearer Global Security, or if no interest has been
paid but the bearer Global Security remains outstanding beyond a reasonable
period of time after the restricted period (as defined in applicable U.S.
Treasury regulations) has ended, the Depositary must provide the Company with a
certificate to the effect that the owners of the beneficial interests in the
Global Security are non-U.S. persons or U.S. persons that are permitted to hold
bearer securities under applicable U.S. Treasury regulations. In general, U.S.
persons that are permitted to hold bearer securities are U.S. persons who
acquire the securities through the foreign branch of certain U.S. financial
institutions and certain U.S. financial institutions that hold the securities
for resale to non-U.S. persons or who hold the securities on their own account
through a foreign branch. The certificate must be provided within a reasonable
period of time after the end of the restricted period, but in no event later
than the date when interest is paid. The certificate must be based on statements
provided to the Depositary by the owners of the beneficial interests.
If the Depositary is at any time unwilling or unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Company within 90 calendar days, then the Company will issue Debt Securities in
certificated form in exchange for all outstanding Global Securities. In
addition, the Company (but not a Holder) may at any time determine not to have
Debt Securities represented by a Global Security and, in that event, will issue
Debt Securities in definitive form in exchange for all Global Securities. In any
such instance, an owner of a beneficial interest in the Global Securities to be
exchanged will be entitled to delivery in definitive form of Debt Securities
equal in principal amount to such beneficial interest and to have such Debt
Securities registered in its name. Individual Debt Securities of the series so
issued will be issued (a) as Registered Securities in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof if
the Debt Securities of that series are issuable as Registered Securities, (b) as
Bearer Securities in the denomination or denominations specified by the Company
if the Debt Securities of that series are issuable as Bearer Securities or (c)
as either Registered or Bearer Securities, if the Debt Securities of that series
are issuable in either form. See, however, "Limitations on Issuance of Bearer
Securities and Bearer Warrants" below for a description of certain restrictions
on the issuance of individual Bearer Securities in exchange for beneficial
interests in a Global Security.
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LIMITATION ON LIENS
The Indenture provides that the Company may not, and may not permit any
Restricted Subsidiary to, issue, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money secured by a pledge of, lien on or security
interest in any shares of Voting Stock of any Restricted Subsidiary without
effectively providing that the securities issued under the Indenture, including
the Debt Securities, will be secured equally and ratably with such secured
indebtedness. The term "Restricted Subsidiary" as defined in the Indenture means
Bear Stearns, Custodial Trust Company, BSSC and any other subsidiary of the
Company owning, directly or indirectly, any of the common stock of, or
succeeding to a significant portion of the business, property or assets of, a
Restricted Subsidiary, or with which a Restricted Subsidiary is merged or
consolidated.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, organized and existing under
the laws of the United States of America or any state thereof, provided that (a)
the corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or that shall have received such assets shall expressly
assume payment of the principal of, and premium, if any, and interest on, (and
any Additional Amounts payable in respect of) the Debt Securities and the
performance and observance of all of the covenants and conditions of the
Indenture to be performed or observed by the Company, and (b) the Company or
such successor corporation shall not immediately thereafter be in default under
the Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, the
Indenture does not restrict (i) a consolidation, merger, sale of assets or other
similar transaction that may adversely affect the creditworthiness of the
Company or a successor or combined entity, (ii) a change in control of the
Company or (iii) a highly leveraged transaction involving the Company, whether
or not involving a change in control, and the Indenture therefore will not
protect holders of the Debt Securities from the substantial impact that any of
the foregoing transactions may have on the value of the Debt Securities.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the outstanding Debt Securities of each series affected thereby, provided
that no such modification or amendment may, without the consent of the Holder of
each outstanding Debt Security affected thereby (a) change the Stated Maturity
or the date of any installment of principal of, or interest on, any Debt
Security or change the Redemption Price or the Optional Redemption Price
thereof; (b) reduce the principal amount of, or the rate of interest on, or the
amount of any Additional Amount payable in respect of, any Debt Security or
reduce the amount of principal that could be declared due and payable prior to
the Stated Maturity of that Debt Security, or change the obligation of the
Company to pay any Additional Amounts (except as contemplated or permitted under
the Indenture), or reduce the amount of the principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the maturity
of that Debt Security pursuant to the Indenture; (c) change the place or
currency of any payment of principal, premium, if any, or interest on any Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security; (e) reduce the percentage in
principal amount of the outstanding Debt Securities of any series, the consent
of whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of outstanding Debt Securities
necessary to waive any past default to less than a majority. Except with respect
to certain fundamental provisions, the Holders of at least a majority in
principal amount of outstanding Debt Securities of any series may, with respect
to that series, waive past defaults under the Indenture and waive compliance by
the Company with certain provisions of the Indenture.
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EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with respect to
any series of Debt Securities: (a) default in the payment of interest on, or any
Additional Amounts payable in respect of, any Debt Securities of that series
when due, which default has continued for 30 days; (b) default in the payment of
the principal of, and premium, if any, on, any Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Debt Security of that series; (d) default in the performance of
any other covenant of the Company contained in the Indenture or in the Debt
Securities of that series, which default has continued for 60 days after written
notice as provided in the Indenture; (e) default for 10 days after notice as
provided in the Indenture, in respect of any other indebtedness for borrowed
money of the Company or any Restricted Subsidiary in excess of $10,000,000 that
has been declared due and payable prior to maturity; (f) certain events of
bankruptcy, insolvency or reorganization; and (g) any other Event of Default
with respect to Debt Securities of that series. Within 90 days after the
occurrence of any default, the Trustee shall notify all holders of Debt
Securities of such default, unless such default shall have been cured or waived;
PROVIDED, HOWEVER, that, except in the case of a default in the payment of the
principal of (and premium, if any) or interest on, or any additional amounts
with respect to, any Debt Security or in the payment of any sinking fund
installment with respect to any Debt Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or responsible officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the holders of the Debt Securities; and PROVIDED FURTHER, that in
the case of any default of the character specified in clause (d) above, no such
notice shall be given until at least 30 days after the occurrence thereof. The
Trustee or the Holders of 25% in principal amount (or any lesser amount that may
be provided for in the Debt Securities of that series) of the outstanding Debt
Securities of that series may declare the principal amount of all outstanding
Debt Securities of that series due and payable immediately if an Event of
Default with respect to the Debt Securities of that series shall occur and be
continuing at the time of declaration. At any time after a declaration of
acceleration has been made with respect to the Debt Securities of any series,
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the outstanding
Debt Securities of that series may rescind any declaration of acceleration and
its consequences, if all payments due (other than those due solely as a result
of acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all outstanding
Debt Securities of that series, except in a case of failure to pay the principal
of, and premium, if any, or interest on, or any Additional Amounts payable in
respect of, any Debt Security of that series for which payment had not been
subsequently made or in respect of a covenant or provision that cannot be
modified or amended without the consent of the Holder of each outstanding Debt
Security of that series.
The Holders of a majority in principal amount of the outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to Debt Securities of that series,
provided that this direction shall not be in conflict with any rule of law or
the Indenture. Before proceeding to exercise any right or power under the
Indenture at the direction of those Holders, the Trustee shall be entitled to
receive from those Holders reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
Indenture.
DEFEASANCE
(a) the deposit and related defeasance would not cause the Holders of the
Debt Securities of the series being defeased to recognize income, gain or loss
for United States Federal income tax purposes and
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(b) if the Debt Securities of that series are then listed on the NYSE, the
exercise of the option would not result in delisting. Defeasance provisions, if
any, with respect to any series of Debt Securities may be specified by the
Company under the terms of the Indenture.
DESCRIPTION OF WARRANTS
THE FOLLOWING DESCRIPTION SETS FORTH CERTAIN GENERAL TERMS AND PROVISIONS OF
THE WARRANTS TO WHICH ANY PROSPECTUS SUPPLEMENT MAY RELATE. THE PARTICULAR TERMS
OF THE WARRANTS OFFERED BY ANY PROSPECTUS SUPPLEMENT AND THE EXTENT, IF ANY, TO
WHICH SUCH GENERAL TERMS AND PROVISIONS WILL NOT APPLY TO THE WARRANTS SO
OFFERED WILL BE DESCRIBED IN THE PROSPECTUS SUPPLEMENT RELATING TO THOSE
WARRANTS.
The Company may issue Warrants for the purchase of Debt Securities, Warrants
to buy or sell debt securities of or guaranteed by the United States or other
sovereign states ("Government Debt Securities"), Warrants to buy or sell
currencies, currency units or units of a currency index or currency basket,
Warrants to buy or sell units of a stock index or stock basket and Warrants to
buy and sell a commodity or units of a commodity index or basket. Warrants may
be offered independently of or together with any series of Debt Securities and
may be attached to or separate from those Debt Securities. The Warrants will be
settled either through physical delivery or through payment of a cash settlement
value as set forth herein and in any applicable Prospectus Supplement. Each
series of Warrants will be issued under a separate warrant agreement (a "Warrant
Agreement") to be entered into between the Company and a bank or a trust
company, as warrant agent (the "Warrant Agent"), all as described in the
Prospectus Supplement relating to that series of Warrants. The Warrant Agent
will act solely as the agent of the Company under the applicable Warrant
Agreement and in connection with the certificates for the Warrants (the "Warrant
Certificates"), if any, of that series, and will not assume any obligation or
relationship of agency or trust for or with any holders of those Warrant
Certificates or beneficial owners of those Warrants. The following summaries of
certain provisions of the forms of Warrant Agreements and Warrant Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Warrant Agreements and the
Warrant Certificates, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
Reference is hereby made to the Prospectus Supplemnt relating to the
particular series of Warrants, if any, offered thereby for the terms of thse
Warrants, including, where applicable: (1) whether the Warrant is for Debt
Securities, Government Debt Securities, currencies, currency units, currency
indices or currency baskets, stock indices, stock baskets, commodities,
commodity indices or any other index or reference as therein described; (2) the
offering price; (3) the currency, currency unit, currency index or currency
basket based on or relating to currencies for which those Warrants may be
purchased; (4) the date on which the right to exercise those Warrants will
commence and the date (the "Expiration Date") on which that right will expire;
(5) whether those Warrants are to be issuable in registered form ("Registered
Warrants") or bearer form ("Bearer Warrants"); (6) whether those Warrants are
extendable and the period or periods of such extendibility; (7) the terms upon
which Bearer Warrants, if any, of any series may be exchanged for Registered
Warrants of that series; (8) whether those Warrants will be issued in book-entry
form (a "Global Warrant Certificate") or in certificated form; (9) United States
federal income tax consequences applicable to those Warrants; and (10) any other
terms of those Warrants not inconsistent with the applicable Warrant Agreement.
If the offered Warrants are to purchase Debt Securities, the Prospectus
Supplement will also describe (1) the designation, aggregate principal amount,
currency, currency unit or currency basket and other terms of the Debt
Securities purchasable upon exercise of those Warrants; (2) the designation and
terms of the Debt Securities with which those Warrants are issued and the number
of those Warrants issued with each such Debt Security; (3) the date or dates on
and after which those Warrants and the related Debt Securities will be
separately transferable; and (4) the principal amount of Debt Securities
purchasable
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upon exercise of one offered Warrant and the price at which and currency,
currency unit or currency basket in which such principal amount of Debt
Securities may be purchased upon such exercise. Prior to exercising their
Warrants, holders of those Warrants will not have any of the rights of Holders
of the Debt Securities of the series purchasable upon such exercise, including
the right to receive payments of principal of, or premium, if any, or interest,
if any, on, those Debt Securities, or to enforce any of the covenants in the
Indenture.
If the offered Warrants are to buy or sell Government Debt Securities or a
currency, currency unit, currency index or currency basket, the Prospectus
Supplement will describe the amount and designation of the Government Debt
Securities or currency, currency unit, currency index or currency basket, as the
case may be, subject to each Warrant, whether those Warrants provide for cash
settlement or delivery of the Government Debt Securities or currency, currency
unit, currency index or currency basket upon exercise.
If the offered Warrants are Warrants on a stock index or a stock basket,
those Warrants will provide for payment of an amount in cash determined by
reference to increases or decreases in such stock index or stock basket, and the
Prospectus Supplement will describe the terms of those Warrants, the stock index
or stock basket covered by those Warrants and the market to which the stock
index or stock basket relates.
If the offered Warrants are Warrants on a commodity or commodity index,
those Warrants will provide for cash settlement or delivery of the particular
commodity or commodity index. The Prospectus Supplement will describe the terms
of those Warrants, the commodity or commodity index covered by those Warrants
and the market, if any, to which the commodity or commodity index relates.
Registered Warrants of any series will be exchangeable for Registered
Warrants of the same series representing in the aggregate the number of Warrants
surrendered for exchange. Warrant Certificates, to the extent exchangeable, may
be presented for exchange, and Registered Warrants may be presented for
transfer, at the corporate trust office of the Warrant Agent for that series of
Warrants (or any other office indicated in the Prospectus Supplement relating to
that series of Warrants). Warrants to buy or sell Government Debt Securities or
a currency, currency unit, currency index or currency basket, and Warrants on
stock indices or stock baskets or on commodities or commodity indices, may be
issued in the form of a single Global Warrant Certificate, registered in the
name of the nominee of the depository of the Warrants, or may initially be
issued in the form of definitive certificates that may be exchanged, on a fixed
date, or on a date or dates selected by the Company, for interests in a Global
Warrant Certificate, as set forth in the applicable Prospectus Supplement.
Bearer Warrants will be transferable by delivery. The Prospectus Supplement will
describe the terms of exchange applicable to any Bearer Warrants.
EXERCISE OF WARRANTS
Each Warrant will entitle the Holder to purchase such principal amount of
the Debt Securities or buy or sell such amount of Government Debt Securities or
of a currency, currency unit, currency index or currency basket, commodity or
commodities at the exercise price, or receive a settlement value in respect of
such amount of Government Debt Securities or of a currency, currency unit,
currency index or currency basket, stock index or stock basket, commodity or
commodity index, as shall in each case be set forth in or calculable from, the
Prospectus Supplement relating to that series of Warrants or as otherwise set
forth in the Prospectus Supplement. Warrants may be exercised at the corporate
trust office of the Warrant Agent (or any other office indicated in the
Prospectus Supplement relating to those Warrants) at any time up to 5:00 p.m.
New York time on the date set forth in the Prospectus Supplement relating to
those Warrants or as may be otherwise set forth in the Prospectus Supplement.
After such time on that date (or such later date to which such date may be
extended by the Company), unexercised Warrants will become void.
Subject to any restrictions and additional requirements that may be set
forth in the Prospectus Supplement relating thereto, Warrants may be exercised
by delivery to the Warrant Agent of the Warrant Certificate evidencing such
Warrants properly completed and duly executed and of payment as provided in the
Prospectus Supplement of the amount required to purchase the Debt Securities, or
(except in the case
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of Warrants providing for cash settlement) payment for or delivery of the
Government Debt Securities or currency, currency unit, currency basket, stock
index, stock basket, commodity or commodity index, as the case may be, purchased
or sold upon such exercise. Only Registered Securities will be issued and
delivered upon exercise of Registered Warrants. Warrants will be deemed to have
been exercised upon receipt of such Warrant Certificate and any payment, if
applicable, at the corporate trust office of the Warrant Agent or any other
office indicated in the Prospectus Supplement and the Company will, as soon as
practicable thereafter, issue and deliver the Debt Securities purchasable upon
such exercise, or buy or sell such Government Debt Securities or currency,
currency unit, currency basket, commodity or commodities or pay the settlement
value in respect of the Warrants. If fewer than all of the Warrants represented
by such Warrant Certificate are exercised, a new Warrant Certificate will be
issued for the remaining amount of the Warrants. Special provisions relating to
the exercise of any Bearer Warrants or automatic exercise of Warrants will be
described in the related Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER WARRANTS
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in the offering
of any Bearer Security will agree that, in connection with the original issuance
of such Bearer Security or during the restricted period (as defined in
applicable U.S. Treasury regulations) of such Bearer Security, they will not
offer, sell or deliver such Bearer Security, directly or indirectly, to a U.S.
Person or to any person within the United States, except to the extent permitted
under U.S. Treasury regulations.
Each Bearer Security, including Bearer Global Securities that will not be
exchanged for definitive individual Securities prior to the stated maturity,
will bear on the face of the Security and on any interest coupons that may be
detachable therefrom a legend to the following effect: "Any United States Person
who holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the Internal Revenue Code." The sections referred to in the legend
provide that, with certain exceptions, a United States taxpayer who holds Bearer
Securities will not be allowed to deduct any loss, and will not be eligible for
capital gain treatment with respect to any gain, realized on a sale, exchange,
redemption or other disposition of those Bearer Securities. The legend described
above will also be evidenced on any book-entry system maintained with respect to
the Bearer Securities.
As used herein, "United States" means the United States of America and its
possessions, and "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States, or an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security. Following the availability of a definitive Global Security in bearer
form, or individual Bearer Securities, and subject to any further limitations
described in the applicable Prospectus Supplement, the temporary Global Security
will be exchangeable for interests in such definitive Global Security or for
such individual Bearer Securities, respectively, only upon receipt of a
"Certificate of Non-U.S. Beneficial Ownership" unless such a certificate has
already been provided by the Depositary because interest has been paid on the
Global Security or because a reasonable period of time after the end of the
restricted period has passed.
Limitations on the offer, sale, delivery and exercise of Bearer Warrants
(including a requirement that a Certificate of Non-U.S. Beneficial Ownership be
delivered upon exercise of a Bearer Warrant) will be described in the Prospectus
Supplement relating to those Bearer Warrants.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Securities in any of three ways: (i) to
underwriters (including Bear Stearns) or dealers, who may act directly or
through a syndicate represented by one or more managing underwriters (including
Bear Stearns); (ii) through broker-dealers (including Bear Stearns) designated
by the Company to act on its behalf as agents; or (iii) directly to one or more
purchasers. Each Prospectus Supplement will set forth the manner and terms of
the offering of the Securities covered thereby, including (i) whether that
offering is being made to underwriters or through agents; (ii) any underwriting
discounts, dealer concessions, agency commissions and any other items that may
be deemed to constitute underwriters', dealers' or agents' compensation, and
(iii) the purchase price or initial public offering price of the Securities and
the anticipated proceeds to the Company from the sale of the Securities.
When Securities are to be sold to underwriters, unless otherwise set forth
in the applicable Prospectus Supplement, the obligations of the underwriters to
purchase those Securities will be subject to certain conditions precedent but
the underwriters will be obligated to purchase all of the Securities if any are
purchased. The Securities will be acquired by the underwriters for their own
account and may be resold by the underwriters, either directly to the public or
to securities dealers, from time to time in one or more transactions, including
negotiated transactions, either at fixed public offering price or at varying
prices determined at the time of sale. The initial public offering price, if
any, and any concessions allowed or reallowed to dealers, may be changed from
time to time.
To the extent that any Securities underwritten by Bear Stearns are not
resold by Bear Stearns for an amount at least equal to the public offering price
thereof, the proceeds from the offering of those Securities will be reduced.
Bear Stearns intends to resell any of those Securities from time to time
following termination of the offering at varying prices related to prevailing
market prices at the time of sale, subject to applicable prospectus delivery
requirements.
Unless otherwise indicated in the applicable Prospectus Supplement, when
Securities are sold through an agent, the designated agent will agree, for the
period of its appointment as agent, to use its best efforts to sell the
Securities for the Company's account and will receive commissions from the
Company as set forth in the applicable Prospectus Supplement.
Securities purchased in accordance with a redemption or repayment pursuant
to their terms may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing by one or more firms
("remarketing firms") acting as principals for their own accounts or as agents
for the Company. Any remarketing firm will be identified and the terms of its
agreement, if any, with the Company and its compensation will be described in
the Prospectus Supplement. Remarketing firms may be deemed to be underwriters in
connection with the Securities remarketed by them.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Securities at the public offering price set forth in
the Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a future date specified in the Prospectus Supplement.
These contracts will be subject only to those conditions set forth in the
applicable Prospectus Supplement and the Prospectus Supplement will set forth
the commissions payable for solicitation of these contracts.
Underwriters and agents participating in any distribution of Securities may
be deemed "underwriters" within the meaning of the Securities Act and any
discounts or commissions they receive in connection therewith may be deemed to
be underwriting compensation for the purposes of the Securities Act. Those
underwriters and agents may be entitled, under their agreements with the
Company, to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution by the
Company to payments that they may be required to make in respect of those civil
liabilities. Various of those underwriters or agents may be customers of, engage
in transactions with or perform services for the Company or its affiliates in
the ordinary course of business.
14
<PAGE>
Following the initial distribution of any series of Securities, Bear Stearns
may offer and sell previously issued Securities of that series from time to time
in the course of its business as a broker-dealer. Bear Stearns may act as
principal or agent in those transactions. This Prospectus and the Prospectus
Supplement applicable to those Securities will be used by Bear Stearns in
connection with those transactions. Sales will be made at prices related to
prevailing prices at the time of sale.
In order to facilitate the offering of certain Securities hereunder, certain
persons participating in the offering of those Securities may engage in
transactions that stabilize, maintain or otherwise affect the price of those
Securities during and after the offering of those Securities. Specifically, if
so set forth in the applicable Prospectus Supplement, the underwriters of those
Securities may over-allot or otherwise create a short position in those
Securities for their own account by selling more of those Securities than have
been sold to them by the Company and may elect to cover any such short position
by purchasing those Securities in the open market. In addition, the underwriters
may stabilize or maintain the price of those Securities by bidding for or
purchasing those Securities in the open market and may impose penalty bids,
under which selling concessions allowed to syndicate members or other
broker-dealers participating in the offering are reclaimed if Securities
previously distributed in the offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the Securities at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of Securities to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions, if
commenced, may be discontinued at any time.
Because Bear Stearns is a wholly owned subsidiary of the Company, each
distribution of Securities will conform to the requirements set forth in Rule
2720 of the NASD Conduct Rules.
ERISA CONSIDERATIONS
Section 4975 of the Internal Revenue Code of 1986, as amended (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 the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), prohibits similar
transactions involving employee benefit plans that are subject to ERISA ("ERISA
Plans"). Qualified Plans, IRAs and ERISA Plans are hereinafter collectively
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 (e.g., investment manager, trustee or custodian), any
person providing services (e.g., a broker), 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.
Each of the Company, Bear Stearns and BSSC is considered a "party in
interest" or "disqualified person" with respect to many Plans, including IRAs
established with any of them. The purchase and/or holding of Securities by a
Plan with respect to which the Company, Bear Stearns and/or BSSC 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 Securities
are acquired or held pursuant to and in accordance with an applicable statutory
or administrative exemption.
Applicable exemptions may include the exemption for services under Section
408(b)(2) of ERISA and certain prohibited transaction class exemptions ("PTCEs")
(e.g., PTCE 84-14 relating to qualified professional asset managers, PTCE 96-23
relating to certain in-house asset managers, PTCE 90-1 relating to insurance
company pooled separate accounts, PTCE 91-38 relating to bank collective trust
funds, PTCE
15
<PAGE>
95-60 relating to insurance company general accounts and PTCEs 75-1 and 86-128
relating to securities transactions involving employee benefit plans and
broker-dealers).
A fiduciary who causes an ERISA Plan to engage in a non-exempt prohibited
transaction may be subject to a penalty under ERISA. Code Section 4975 generally
imposes an excise tax on Disqualified Persons who engage, directly or
indirectly, in similar types of non-exempt transactions with the assets of Plans
subject to such Section.
In accordance with ERISA's general fiduciary requirement, a fiduciary with
respect to any ERISA Plan who is considering the purchase of Securities on
behalf of such plan 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. Plans established with, or for which services are provided by,
the Company, Bear Stearns and/or BSSC should consult with counsel prior to
making any such acquisition.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from the Company's 1997
Annual Report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
VALIDITY OF THE SECURITIES
The validity of the Debt Securities and the Warrants will be passed upon for
the Company by Weil, Gotshal & Manges LLP, New York, New York.
16
<PAGE>
PRINCIPAL EXECUTIVE OFFICE
OF THE COMPANY
THE BEAR STEARNS COMPANIES INC.
245 Park Avenue
New York, NY 10167
TRUSTEE, REGISTRAR AND PRINCIPAL PAYING AGENT
THE CHASE MANHATTAN BANK
450 West 33rd Street
New York, NY 10001
PAYING AGENTS AND TRANSFER AGENTS
<TABLE>
<S> <C>
THE CHASE MANHATTAN BANK THE CHASE MANHATTAN BANK
Trinity Towers Edinburgh Tower
9 Thomas More Street 15 Queens Road
London E1 9YT Central, Hong Kong
</TABLE>
LEGAL ADVISERS
<TABLE>
<S> <C>
TO THE UNDERWRITERS AS TO US AND ENGLISH LAW TO THE COMPANY AS TO US LAW
ALLEN & OVERY WEIL, GOTSHAL & MANGES LLP
Swiss Bank Tower 767 Fifth Avenue
10 East 50th Street New York, NY 10153
New York, NY 10022
</TABLE>
TO THE UNDERWRITERS AS TO HONG KONG LAW
ALLEN & OVERY
Three Exchange Square
8 Connaught Place
Hong Kong
AUDITORS OF THE COMPANY
DELOITTE & TOUCHE LLP
1633 Broadway
New York, NY 10019
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
CONSISTENT WITH THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents
by Reference................................. S-3
Summary of the Offering........................ S-4
Ratio of Earnings to Fixed Charges............. S-7
The Bear Stearns Companies Inc................. S-7
Use of Proceeds................................ S-10
Capitalization................................. S-11
Selected Consolidated Financial Data........... S-12
Description of the Notes....................... S-13
Description of the Company..................... S-20
Certain United States Federal Income Tax
Considerations............................... S-31
Underwriting................................... S-35
Legal Opinions................................. S-38
General Information............................ S-38
Report of the Independent Auditors of The Bear
Stearns Companies Inc........................ F-1
Financial Statements........................... F-2
<CAPTION>
PROSPECTUS
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 3
The Company.................................... 4
Use of Proceeds................................ 4
Ratio of Earnings to Fixed Charges............. 4
Description of Debt Securities................. 5
Description of Warrants........................ 11
Limitations on Issuance of Bearer Securities
and Bearer Warrants.......................... 13
Plan of Distribution........................... 14
ERISA Considerations........................... 15
Experts........................................ 16
Validity of the Securities..................... 16
</TABLE>
$500,000,000
THE BEAR STEARNS
COMPANIES INC.
6.20% GLOBAL NOTES
DUE 2003
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
BEAR, STEARNS INTERNATIONAL LIMITED
ABN AMRO
CHASE MANHATTAN INTERNATIONAL
LIMITED
CITIBANK INTERNATIONAL PLC
DRESDNER KLEINWORT BENSON
HSBC MARKETS
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
PARIBAS
SALOMON SMITH BARNEY INTERNATIONAL
MARCH 24, 1998
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