THE BEAR STEARNS COMPANIES INC.
IncomeNotes(SM)
With Maturities of Nine Months or More from Date of Issue
Registration No. 333-109793
Filed Pursuant to Rule 424(b)(3)
Pricing Supplement No. 5
(To Prospectus dated November 17, 2003,
and Prospectus Supplement dated November 17, 2003)
Trade Date: January 12, 2004
Issue Date: January 15, 2004
The date of this Pricing Supplement is January 12, 2004
Fixed Rate Notes
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Interest
Maturity Price to Discounts & Payment
CUSIP# Interest Rate Date Public Commissions Reallowance Dealer Frequency
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07387ECV7 2.80% 1/15/2007 100.00% 0.63% 0.150% 99.55% Semi
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07387ECW5 3.80% 1/15/2009 100.00% 1.00% 0.150% 99.25% Semi
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Subject to Redemption
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First
Interest Aggregate
First Interest Payment Survivor's Principal
Payment Date Amount Option Yes/No Date and Terms of Redemption Amount Net Proceeds
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7/15/2004 $14.00 Yes No N/A $4,580,000 $4,551,146
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7/15/2004 $19.00 Yes No N/A $3,874,000 $3,835,260
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Floating Rate Notes*
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CUSIP# Interest Rate Basis Initial Maturity Date Price to Discounts & Reallowance Dealer
Interest Rate Public Commissions
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07387ECX3 Consumer Price 3.95% 1/10/2014 100.00% 1.50% 0.200% 98.90%
Index-Linked, subject
to the minimum
interest rate
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Subject to Redemption
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First
Interest Interest First Interest Survivor's Date and Terms Aggregate Net
Payment Frequency Payment Date Payment Amount Option Yes/No of Redemption Principal Amount Proceeds
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Monthly 2/10/2004 $2.74 Yes No N/A $13,229,000 $13,030,565
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Minimum Interest Rate: 0.00% per year for each interest payment period
Index Maturity: 1 month, year on year
Spread: 2.185%
Interest Reset Dates: The 10th of each month during the term of the
Notes, beginning on February 10, 2004
Interest Reset Period: Monthly
Interest Payment Dates: The 10th of each month during the term of the
Notes, beginning on February 10, 2004
Interest Payment Period: Monthly
Interest Determination Dates: The 5th Business Day prior to the applicable
interest payment date
Day Count Basis: 360-day year of twelve 30-day months
*ADDITIONAL TERMS OF THE NOTES
Calculation of the Interest Rate
The interest rate for the Consumer Price Index-Linked Notes (the "Notes")
being offered by this Pricing Supplement, for each interest payment period
during the term of the Notes following the initial interest payment period, will
be the rate determined as of the applicable interest determination date pursuant
to the following formula:
[(CPIt - CPIt-12) / CPIt-12] + 2.185%
CPIt = Current Index Level of CPI (as defined below), as published
on Bloomberg CPURNSA; and
CPIt-12 = Index Level of CPI 12 months prior to CPIt.
In no case, however, will the interest rate for the Notes be less than the
minimum interest rate. The initial interest rate for the Notes will be 3.95%.
CPIt for each interest reset date is the CPI for the third calendar month
prior to such interest reset date as published and reported in the second
calendar month prior to such interest reset date. For example, for the interest
period from and including February 10, 2004 to but excluding March 10, 2004,
CPIt will be the CPI for November 2003, which was 184.5, and CPIt-12 will be the
CPI for November 2002, which was 181.3. The CPI for November 2003 was published
by BLS (as defined below) and reported on Bloomberg CPURNSA in December 2003,
and the CPI for November 2002 was published and reported in December 2002.
Consumer Price Index
The amount of interest payable on the Notes on each interest payment date
will be linked to changes in the Consumer Price Index. The Consumer Price Index
for purposes of the Notes is the non-seasonally adjusted U.S. City Average All
Items Consumer Price Index for All Urban Consumers ("CPI"), published monthly by
the Bureau of Labor Statistics of the U.S. Department of Labor ("BLS") and
reported on Bloomberg CPURNSA or any successor service. The CPI for a particular
month is published during the following month. The CPI is a measure of the
average change in consumer prices over time for a fixed market basket of goods
and services, including food, clothing, shelter, fuels, transportation, charges
for doctors and dentists services, and drugs. In calculating the index, price
changes for the various items are averaged together with weights that represent
their importance in the spending of urban households in the United States. The
contents of the market basket of goods and services and the weights assigned to
the various items are updated periodically by the BLS to take into account
changes in consumer expenditure patterns. The CPI is expressed in relative terms
in relation to a time base reference period for which the level is set at 100.0.
The base reference period for the Notes is the 1982-1984 average.
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If the CPI is not reported on Bloomberg CPURNSA for a particular month by
3:00 PM on a interest reset date, but has otherwise been published by the BLS,
the Calculation Agent will determine the CPI as published by the BLS for such
month using such other source as it deems appropriate.
In calculating CPIt and CPIt-12 the Calculation Agent will use the most
recently available value of the CPI for any month, determined as described above
on the applicable interest reset date, even if such value has been adjusted from
a prior reported value for the relevant month. However, if a value of CPIt and
CPIt-12 used by the Calculation Agent on any interest reset date to determine
the interest rate on the Notes (an "Initial CPI") is subsequently revised by the
BLS, the Calculation Agent will continue to use the Initial CPI, and the
interest rate determined will not be revised. If the CPI is rebased to a
different year or period, the base reference period for the Notes will continue
to be the 1982-1984 reference period as long as the 1982-1984 CPI continues to
be published.
If, while the Notes are outstanding, the CPI is discontinued or
substantially altered, as determined in the sole discretion of the Calculation
Agent, the applicable substitute index for the Notes will be that chosen by the
Secretary of the Treasury for the Department of Treasury's Inflation-Linked
Treasuries as described at 62 Federal Register 846-874 (January 6, 1997). If no
such securities are outstanding, the Calculation Agent will determine a
substitute index for the Notes in accordance with general market practice at the
time.
The Calculation Agent for the Notes will be Bear, Stearns & Co. Inc. All
determinations made by the Calculation Agent will be at the sole discretion of
the Calculation Agent and will, in the absence of manifest error, be conclusive
for all purposes and binding on holders of the Notes and the Company. Because
the Calculation Agent is an affiliate of the Company, potential conflicts of
interest may exist between holders of the Notes and the Calculation Agent,
including with respect to certain determinations and judgments that the
Calculation Agent must make in determining amounts due to holders. Bear Stearns
is obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment.
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Historical Data on the Consumer Price Index
The table below sets forth the CPI as published by the BLS for the months
listed. Historical fluctuations in the CPI are not necessarily indicative of
future fluctuations, which may be greater or less than those that have occurred
historically.
Level of the Consumer Price Index
(as published by the Bureau of Labor Statistics)
January February March April May June July August September October November December
------- -------- ----- ----- --- ---- ---- ------ --------- ------- -------- --------
2003 181.7 183.1 184.2 183.8 183.5 183.7 183.9 184.6 185.2 185.0 184.5
2002 177.1 177.8 178.8 179.8 179.8 179.9 180.1 180.7 181.0 181.3 181.3 180.9
2001 175.1 175.8 176.2 176.9 177.7 178.0 177.5 177.5 178.3 177.7 177.4 176.7
2000 168.8 169.8 171.2 171.3 171.5 172.4 172.8 172.8 173.7 174.0 174.1 174.0
1999 164.3 164.5 165.0 166.2 166.2 166.2 166.7 167.1 167.9 168.2 168.3 168.3
1998 161.6 161.9 162.2 162.5 162.8 163.0 163.2 163.4 163.6 164.0 164.0 163.9
Risk Factors
The Notes are subject to special considerations. The accompanying
Prospectus, Prospectus Supplement and this Pricing Supplement do not describe
all of the risks and other ramifications of an investment in the Notes. An
investment in Notes indexed to the CPI entails significant risks that are not
associated with similar investments in conventional floating rate or fixed-rate
debt securities. Accordingly, prospective investors should consult their
financial and legal advisors as to the risks entailed by an investment in the
Notes and the suitability of the Notes in light of their particular
circumstances.
The Interest Rate on the Notes may be less than the Spread and, in Some Cases,
Could be Zero.
Interest payable on the Notes is linked to changes in the level of the CPI
during twelve-month measurement periods. If the CPI does not increase during a
relevant measurement period, which is likely to occur when there is little or no
inflation, holders of the Notes will receive interest payments for that interest
period equal to 2.185%, which is the spread. If the CPI decreases during a
relevant period, which is likely to occur when there is deflation, holders of
the Notes will receive interest payments for that interest period less than the
spread. In some cases, holders of the Notes could receive only the minimum
interest rate, which is 0.00%.
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The Interest Rate on the Notes may be Below the Rate Otherwise Payable on
Similar Fixed or Floating Rate Debt Securities Issued by Us.
The interest rate on the Notes, if equal to the spread or lower, including
the minimum interest rate, is below what we would currently expect to pay as of
the date of this Pricing Supplement if we issued non-callable senior debt
securities with a fixed or floating rate and similar maturity to that of the
Notes. Any interest payable in excess of the minimum interest rate on the Notes
will be based upon the difference in the level of the CPI determined as of the
measurement dates specified in the formula listed above, plus the spread.
Your Interest Rate is Based upon the CPI. The CPI Itself and the way the BLS
Calculates the CPI may Change in the Future.
There can be no assurance that the BLS will not change the method by which
it calculates the CPI. In addition, changes in the way the CPI is calculated
could reduce the level of the CPI and lower the interest payment with respect to
the Notes. Accordingly, the amount of interest, if any, payable on the Notes,
and therefore the value of the Notes, may be significantly reduced. If the CPI
is substantially altered (as determined in the sole discretion of the
Calculation Agent), a substitute index will be employed to calculate the
interest payable on the Notes as described above.
The Historical Levels of the CPI are not an Indication of the Future Levels of
the CPI.
The historical levels of the CPI are not an indication of the future
levels of the CPI during the term of the Notes. In the past, the CPI has
experienced periods of volatility, and such volatility may occur in the future.
Fluctuations and trends in the CPI that have occurred in the past are not
necessarily indicative, however, of fluctuations that may occur in the future.
Holders of the Notes will receive interest payments that will be affected
by changes in the CPI. Such changes may be significant. Changes in the CPI are a
function of the changes in specified consumer prices over time, which result
from the interaction of many factors over which we have no control.
Certain US Federal Income Tax Considerations
Set forth below is a summary of certain US federal income tax
considerations relevant to the beneficial owner of Notes that is a US Holder (as
defined in the accompanying Prospectus Supplement). This summary does not
address investors that may be subject to special tax rules or investors that
hold Notes as part of an integrated investment. This summary supplements the
discussion contained in the accompanying Prospectus Supplement under the heading
"Certain US Federal Income Tax Considerations."
We intend to treat the Notes as "variable rate debt instruments" for
federal income tax purposes. Assuming the Notes are so treated, under the
Treasury regulations governing variable rate debt instruments that bear interest
that is unconditionally payable at
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least annually at a single objective rate, payments of interest on the Notes
will be taxable to a US Holder as ordinary interest income at the time that such
payments are accrued or received, in accordance with the US Holder's method of
tax accounting. In the case of a US Holder that uses the accrual method of tax
accounting, the amount of interest accrued during an accrual period will be
determined by assuming that the Notes bear interest at a fixed interest rate
that reflects the yield that is reasonably expected for the Notes, and the
interest allocable to the accrual period will be adjusted to reflect the
interest actually paid during the accrual period. A US Holder may submit a
written request to the address set forth under "Where You Can Find More
Information" in the accompanying Prospectus to obtain the "reasonably expected"
rate for the Notes. Assuming the Notes are treated as variable rate debt
instruments, upon the disposition of a Note by sale, exchange, redemption, or
repayment of principal at maturity, a US Holder will generally recognize taxable
gain or loss equal to the difference between the amount realized on the
disposition (other than amounts attributable to accrued interest) and the US
Holder's adjusted tax basis in the Notes. Prospective investors should consult
the discussion under the heading "Certain US Federal Income Tax Considerations -
Variable Rate Debt Instruments" and "Certain US Federal Income Tax
Considerations - Sale, Exchange, Redemption, or Repayment of the Notes" in the
accompanying Prospectus Supplement.
Alternatively, it is possible that the Internal Revenue Service (the
"IRS") could assert that the Notes are subject to special rules governing
"contingent payment debt instruments" ("CPDIs"). If the IRS were successful in
this assertion, US Holders would be required to accrue original issue discount
income, subject to adjustments, at the "comparable yield" of the Notes and any
gain recognized with respect to the Notes generally would be treated as ordinary
income. Prospective investors are urged to consult their tax advisors regarding
the tax consequences to them of purchasing the Notes, including the possibility
that the Notes could be treated as CPDIs.
The preceding discussion is only a summary of certain of the tax
implications of an investment in Notes. Prospective investors are urged to
consult with their own tax advisors prior to investing to determine the tax
implications of such investment in light of each such investor's particular
circumstances.
***
The distribution of IncomeNotes will conform to the requirements set forth in
Rule 2720 of the NASD Conduct Rules.
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