IEM PROSPECTUS 1996 RUSSIAN PRESIDENTIAL ELECTION WINNER-TAKES-ALL MARKET On Tuesday, April 1, 1996, the Iowa Electronic Market (IEM) will open trading in a winner-takes-all market based on the 1996 Russian Election. This document describes that market and should be viewed as a supplement to the Trader's Manual. Except as specified in this prospectus, trading rules for this market are the same as those specified in the Trader's Manual for the Iowa Electronic Market. Payoffs in this winner-takes-all convention market are determined solely by the outcome of the June 16, 1996 Russian Election and any subsequent runoff election that is necessary. Contracts representing the candidate who "wins" the Russian presidency (as defined in the next paragraph) or the contract representing "No election" should the election be delayed or postponed will pay off $1.00 each. All other contracts will be declared worthless. For our purposes, "winning" the Russian presidency is solely determined by the outcome of the June 16, 1996 Russian Election and any subsequent runoff election that is necessary. The "winner" will be the candidate who receives the most votes in the June 16th election should that candidate receive more than 50% of the total votes. If no candidate receives 50%, then the "winner" will be the candidate who receives the most votes in the subsequent run-off election provided that the run-off election is held no later than July 21, 1996. If the June 16th election is postponed or delayed OR if there is no candidate who wins a simple majority in the June 16th election but the subsequent run-off election is postponed or delayed beyond July 21st , the "No election" contract will be declared the "winner." CONTRACTS -- Initially there will be eight contracts in this market: six representing specific candidates, a seventh representing all other (unnamed) candidates, and the eighth representing the "No election" outcome defined above. The contracts are: Code Contract Name CHERN Viktor Chernomyrdin LEBED Alexander Lebed YAVLI Grigory Yavlinsky YELTS Boris Yeltsin ZHIRI Vladimir Zhirinovsky ZYUGA Gennady Zyuganov RUROF All Other Candidates NOELEC No election The contract, CHERN, will pay off $1 if Viktor Chernomyrdin "wins" (as defined in the third paragraph of this document) the Russian election. Similarly, the contract, LEBED, will pay off $1 if Alexander Lebed "wins" the Russian election; the contract YAVLI "wins" the Russian election; and the contract YELTS will pay off $1 if Boris Yeltsin "wins" the Russian election. The contract, RUROF, will pay off $1 if some candidate not listed in this market "wins" the Russian presidential election). The contract, NOELEC, will pay off $1 if either the June 16th election is postponed or delayed OR if there is no candidate who wins a simple majority in the June 16th election but the subsequent run-off election is postponed or delayed beyond July 21st. As the contest for the Russian presidency unfolds, new candidate-specific contracts may be added. However, once a contract is listed, it will remain active until all contracts in the market are liquidated. CREATING NEW CANDIDATE-SPECIFIC CONTRACTS -- Throughout the campaign, new candidate-specific contracts may be added as new candidates become significant contenders for the Russian presidency. When a new, candidate-specific contract is created, it will be spun-off from the RUROF contract. Each RUROF contract will be replaced by two new contracts: a candidate-specific contract and a new RUROF contract. The new RUROF contract will represent all remaining un-named candidates in the market. Since the value of the RUROF contract may change when a new candidate-specific contract is spun off, all outstanding RUROF bids and offers will be canceled at the time of the spinoff. DETERMINATION OF LIQUIDATION VALUES -- This is a winner-takes-all market. Contracts representing the "winner" (as defined above) of the Russian presidential election will pay off $1.00 each. All other contracts will be declared worthless. Liquidation formulas can be viewed by first selecting Display Options and then choosing Liquidation Formulas. MARKET CLOSING -- This market will close at noon, the day after a winner is declared. At that time, liquidation values will be declared and funds credited to the cash accounts of the market participants. UNIT PORTFOLIOS -- Unit portfolios consisting of one of each of the contracts in this market can be purchased from or sold to the IEM system at any time. The price of each unit portfolio is $1.00. Since exactly one candidate will win the nomination, the total payoff from holding a unit portfolio until the market closes is $1.00. To buy unit portfolios from the system, use the "Purchase" option from the TRADING MENU and enter 1$ as the contract name. To sell unit portfolios to the system, use the "Sell" option from the TRADING MENU and enter 1$ as the contract name. Purchases will be charged to your cash account and sales will be credited to your cash account. Unit portfolios may also be purchased from and sold to other traders at current market prices. Use the Purchase and Sell options as above but enter MKT as the contract name. The price charged for market portfolio purchases will be determined as the sum of current ask prices, and the price received for market portfolio sales will be the sum of current bid prices. Should no corresponding bid or ask be present for one of the candidates, contracts in that candidate will be excluded from the portfolio; otherwise the number of contracts purchased or sold will be the same in each candidate. MARKET ACCESS -- Current and newly enrolled IEM traders will automatically be given access rights to the 1996 Russian Presidential Election Winner-Takes-All Market. Access to this market is achieved via the "Market Selection" option on the Login, Market, and other Menus. Funds in a trader's cash account are fungible across all markets so new investment deposits are not required. Additional investments up to the maximum of $500 can be made at any time. With five days' advance notice, funds may be withdrawn on the 15th of any month.