Iowa Electronic Markets Henry B. Tippie College of Business W283 PBB University of Iowa Iowa City, IA 52242 iem@uiowa.edu IEM PROSPECTUS: 1996 PRESIDENTIAL ELECTION WINNER-TAKES-ALL MARKET On Tuesday, October 25, 1994, the Iowa Electronic Market (IEM) opened trading in a winner-takes-all market based on the 1996 Presidential 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 presidential market are determined solely by the candidate who receives the largest number of popular votes in the November 12, 1996 Presidential Election. Contracts in the candidate receiving the largest number of popular votes will payoff $1 each, all others will expire worthless. Payoffs are NOT affected by the outcome of the electoral college or any vote taken by the House of Representatives should such vote be necessary. CONTRACTS--The financial contracts traded in this market are: Code Contract Name CLIN Clinton - Democrat OTDEM Other Non-Clinton Democrat REP Republican Candidate ROF96 Other Candidate (neither Democrat nor Republican nominee) The label "CLIN" denotes the joint outcome that Bill Clinton wins the Democratic nomination AND the Democratic nominee subsequently receives the largest number of popular votes in the presidential election. Should Clinton be nominated and subsequently drop out of the race and be replaced by another nominee from the Democratic party, shares in Clinton will automatically be transferred to shares in the replacement. The label "OTDEM" denotes the joint outcome that some Democrat other than Bill Clinton wins the Democratic nomination AND subsequently receives the largest number of popular votes in the presidential election. OTDEM contracts can only payoff if Clinton doe not receive the Democratic nomination. The label "REP" denotes the outcome that the candidate nominated by the Republican Convention receives the largest number of popular votes in the presidential election. The label "ROF96" denotes the outcome that some candidate other than the Democratic and Republican nominees receives the largest number of popular votes in the presidential election. Neither of these two contracts are tied to specific candidates. DETERMINATION OF LIQUIDATION VALUES-- This is a winner-takes-all market. Contracts representing the candidate who receives the largest number of votes in the election will be paid $1.00 each. All other contracts will be declared worthless. Contracts labeled CLIN will each payoff $1 if Bill Clinton wins the Democratic nomination AND the Democratic nominee subsequently receives the largest number of popular votes in the presidential election. If Clinton does not win the Democratic nomination, then all CLIN contracts will expire worthless at the time the Democratic Convention announces its candidate. Contracts labeled OTDEM will each payoff $1 if some Democrat other than Bill Clinton wins the Democratic nomination AND subsequently receives the largest number of popular votes in the presidential election. If Clinton wins the Democratic nomination, then all OTDEM contracts will expire worthless at the time the Democratic Convention announces its candidate. Contracts labeled REP will each payoff $1 if the candidate named by the Republican Convention receives the largest number of popular votes in the presidential election. Contracts labeled ROF96 will each payoff $1 if a candidate other than the ones nominated by the Democratic and Republican Conventions receives the largest number of popular votes in the presidential election. These liquidation formulas can be viewed by first selecting Display Options and then choosing Liquidation Formulas. MARKET CLOSING--This market will close at noon, Wednesday, November 6, 1996, the day after the presidential election. As soon after the election as official election returns are announced, liquidation values will be declared and funds credited to the cash accounts of the market participants. UNIT PORTFOLIOS-- Unit portfolios consisting of one share 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 receive the largest number of votes in a particular election, 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 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.