2004-2005 IOWA INFLUENZA MARKETS

At 11:00am, Central Standard Time, Monday, September 20, 2004 a market will open for trading in contracts based on the extent of influenza in the State of Iowa during the 2004-05 influenz season. This document describes these contracts and the structure of the market in which they trade.

All transactions in this market will be denominated in Flu dollars (FLU$), the unit of exchange for this market. Accounts will be endowed with 100 FLU$ by the market managers. When the markets close, the FLU$ will converted to US$ at a rate of one to one, and remaining balances will be distributed to holders of the accounts as grants towards professional and educational expenses.

Contracts to be traded in the markets are based on the extent of influenza activity in Iowa during the 2004-2005 influenza season. Contracts will be introduced in sets of 5, with one set for each of thirteen selected weeks. The five contracts in a set cover all possible color coded activity levels as reported to the CDC by the Iowa State Epidemiologist. The color coded activity levels are those used by the CDC in its weekly report. (See http://www.cdc.gov/flu/weekly/usmap.htm)

As an example, the first set of contracts to be introduced for trading in this market is as follows:

Sets for other weeks will be introduced in separate market windows and contract codes will follow the same naming convention - "color_week" - where week numbers follow the CDC convention. (Under that convention, weeks are numbered according to the week of the year, beginning with the first week with four or more days in the new year.) The thirteen weeks to be covered by markets during the 2004-2005 influenza season are those in the table below. Except for the first few sets, each group of contracts will be open for trading for eight weeks before the closing date, and except for the first and last few weeks four groups will be open for trade at any time.

These are "Binary Contracts", meaning there are two possible liquidation values, zero and one, for each contract. Within a set of 5 contracts for a particular week, the contract that denotes the actual influenza outcome in Iowa for the week will have a liquidation value of FLU$1.00; all other contracts for that week will have values of FLU$0.00.

For example, if the CDC announces on October 15 that the state of Iowa was classified as having regional outbreaks of influenza during week 40 (which ends on Oct. 9), the contract, BLU_40, will be liquidated for 1.00 Flu dollar. If any other level of influenza is announced, the liquidation value of the BLU_40 contract will be zero. Similarly, other influenza level contracts will be liquidated for 1.00 or 0.00 Flu dollars depending upon whether or not the associated level is the one announced.

The weekly epidemiological report of the CDC will be the official source for influenza results. Those reports can be viewed at the CDC web site http://www.cdc.gov/flu/weekly/usmap.htm

Liquidation formulas can be viewed while you are logged into the IEM trading system by clicking on the market name, FLU_WKxx, at the upper right-hand corner of the market window. The judgment of the managers of the Influenza Prediction Markets will be final in resolving questions of interpretation and typographical or clerical errors.

Fixed-price bundles consisting of one share of each of the contracts for one week in this market can be purchased from or sold to the trading system at any time. The price of each bundle is FLU$1.00. Because only one outcome will be announced for each week, the total payoff from holding a bundle consisting of one of each contract until the market closes is FLU$1.00.

To buy or sell fixed-price bundles from the exchange, use the "Market Orders" option from the trading console. Select the option "FLU_WKxx (buy at fixed price)" from the Market Orders list to buy bundles. Select the "FLU_WKxx (sell at fixed price)" option to sell bundles. Purchases will be charged to your cash account and sales will be credited to your cash account.

Bundles consisting of one share of each of the contracts in this market may also be purchased and sold at current aggregate market prices rather than the fixed price of FLU$1.00. To buy a market bundle at current ASK prices, use the "Market Order" option as above but select the option "FLU_WKxx (buy at market prices)". To sell a bundle at current BID prices, select the option "FLU_WKxx (sell at market prices)".

Trading in the set of contracts for a given influenza week will close at 12:00 PM, C.D.T. on the Saturday which ends that week. As soon thereafter as results are available from the CDC (typically late the following week) liquidation values will be declared and funds credited to the cash accounts of market participants. At the same time as trading ends for one influenza week, the set of contracts for another week, 8 weeks in the future, will be introduced for trading. That process will continue through week 12, 2005.

Participation is restricted to registered traders, and registration is by invitation only. Invitations will be extended to members of the Iowa medical community and others who may have particular expertise with influenza. Any person desiring an invitation to participate may indicate that interest by following the instructions at the market web site http://outbreak.biz.uiowa.edu/outbreak/. If an account is approved by the market managers, a trader id and password will be created and returned to the applicant by email. Each trader who is granted an account will be endowed with 100 Flu dollars (FLU$), the currency for transactions in the market. For traders with open accounts, access to the market is achieved by pointing a web browser to http://outbreak.biz.uiowa.edu/trader-login.html and following the login instructions found there.

Transactions on the Influenza Prediction Markets are executed directly by the trader using a real-time web based system operating over the Internet. The system, called Web Exchange (WebEx), is maintained by the Iowa Electronic Markets project in the University of Iowa's Tippie College of Business. To access the trading system, an enrolled trader uses a web browser on any computer connected to the Internet. The URL for trader access to the market itself is http://outbreak.biz.uiowa.edu/trader-login.html. The instruction manual for the use of the trading system is at http://outbreak.biz.uiowa.edu/webexmanual/index.html. The market operates in the Central time zone and is open for trading around the clock.

Trading rules for this market are the same as those specified in the Trader's Manual for the Iowa Electronic Market. This Prospectus should be viewed as a supplement to that Trader's Manual.

The Influenza Prediction market is a joint research project involving members of the Division of Infectious Diseases and the Tippie College of Business at the University of Iowa. Contact information can be found on the project web site, http://outbreak.biz.uiowa.edu/outbreak/.