MacroShares are fully-collateralized equity securities that deliver the returns (or inverse returns) of important asset classes and valuable economic interests. As listed, exchange-traded securities they can be purchased or sold throughout the trading day.

Although there are some similarities, they differ in several important ways:

• MacroShares are structured as trusts. They are exchange traded products registered under the Securities Act of 1933 and the Securities Exchange Act of 1934, and are subject to SEC prospectus delivery and periodic reporting requirements. MacroShares represent an undivided interest in the assets of a trust. Trust asset balances change over time according to movements in the reference index, and they generate interest income from short-term U.S. government obligations and repurchase agreements held as collateral. In contrast, ETFs are structured as investment companies under The Investment Company Act of 1940, and must purchase, hold and manage financial instruments in order to replicate an index. ETNs are unsecured promissory notes.
• Every MacroShares product strategy is comprised of a pair of securities that trade separately in the secondary market: “Up” and “Down”. The “Up” security holders own an economic interest in the upward movement of a reference index; the “Down” security holders own an economic interest in the downward movement of the same reference index.
• Unlike traditional exchange-traded funds (ETFs), MacroShares are typically issued with terms of 5-20 years, and among other factors, market prices generally reflect expectations of reference index returns over intermediate and long-term investment horizons. MacroShares terminate prior to stated maturity in the event that the reference index falls below or rises above specified levels. Please read the applicable prospectus for further information concerning early termination triggers and other important details.
• Unlike exchange-traded notes (ETNs) and ETFs, MacroShares investors bear no issuer credit risk and no hidden counterparty risks. MacroShares investments are fully-collateralized by short-term U.S. Government obligations, overnight repurchase agreements secured by Treasuries and cash.
• Treasury collateral of MacroShares generate income that defrays trust expenses and can produce quarterly distributions that supplement capital returns.

“Paired” issuance is a fundamental aspect of the MacroShares structure. This arrangement is consistent with aspects of other risk transfer instruments. For example, in a futures market, for every “long” contract, there is a simultaneous offsetting “short”; in a swap market, one party simultaneously commits to pay what the counterparty agrees to receive and vice-versa. However, unlike a swap, a MacroShare is exchange-traded and entails no counterparty or credit risk. Additionally, swaps and futures instruments may be less suitable, or even non-permitted, for certain investors and risk managers. MacroShares enable both individual and institutional investors to rebalance their risk portfolio without the costs, tax consequences, added complexity and documentation that futures or swaps can entail.

No.

The UV of MacroShares offer highly efficient tracking (and inverse tracking) of the Reference Index when the U.S. Treasury collateral produces income that consistently covers trust expenses. If trust expenses exceed trust income, the degree of underlying value (UV) tracking accuracy will be compromised.

At any moment in time, UV reflects the current “book value” of the security if it were terminated and redeemed . The UV is derived from the historical path of the “spot” reference index as it migrates from its level on the fund inception date, along with any trust net income that has accrued.

Adjustments to account for trust income and expenses are accrued daily after the close of trading; adjustments to account for changes in the S&P/CS Composite-10 Home Price Index are made monthly after the close of trading on the last Tuesday of each month (the index is updated and published before the opening of trading on the last Tuesday of each month).

• The expected return (or expected inverse returns) of a reliable reference index over the expected remaining life of the security, and
• A stream of periodic income distributions (as available), generated from interest on the short-term U.S. Treasury securities and repurchase agreements for U.S. government obligations held by each trust, net of trust expenses.

It is important to remember that unlike traditional exchange-traded funds (ETFs), MacroShares are typically issued with terms of 5-20 years. Although UV will offer accurate tracking (and inverse tracking) of the Reference Index when the MacroShares U.S. Treasury collateral produces income that consistently covers trust expenses , the market prices of MacroShares can reflect, among other factors, expectations of reference index returns and interest rates over intermediate or long-term investment horizons. Thus, at any moment in time, market prices will reflect both the current UV, and the expected path, or “future performance”, of the reference index over the remaining life of the MacroShares, along with the attendant trust net income that will accrue based upon trust collateral balances.

If you purchase shares at a premium, and hold the shares until maturity or termination, you will realize a profit on your investment when the UV appreciates more than the premium paid. For example, if you purchased shares at a 10% premium to UV, and the UV finishes 15% above its level at the time of purchase, you would realize a 5% profit. Investors should consider both market price and Underlying Value before making investment decisions.

If you purchase shares at a discount, and hold the shares until maturity or termination, you will realize a profit on your investment when the UV depreciates less than the discount paid. For example, if you purchased shares at a 15% discount to UV, and the UV finishes 10% below its level at the time of purchase, you would realize a 5% profit. Investors should consider both market price and Underlying Value before making investment decisions.

The paired trust structure permits the pledging (through settlement contracts and income distribution agreements) of short-term U.S. Treasuries and short-term collateralized repurchase agreements (“short-term investments”) along with accrued income between the MacroShares “Up” and “Down” trusts. Thus, safe, liquid, interest-earning assets shift between the “Up” MacroShares trust and the “Down” MacroShares trust over time, according to a predetermined formula that is driven by changes in the reference index. Please refer to the prospectus for additional details.

Net income is calculated from the interest earned on the short-term investments held in the MacroShares trusts, net of trust expenses. Several factors will impact distribution amounts (if any), including interest rate movements and changes to the reference index price. Income is accrued daily based on the underlying value of each trust, with any payments made quarterly. Unlike other exchange-traded products, MacroShares are collateralized by short-term U.S. Treasuries, and the income generated by these securities defrays trust expenses and can produce quarterly distributions payable to you, the investor.

Each MacroShares issue can entail different costs, and total per-share expenses can diminish over time as trust assets grow. Further, in any given period, trust income may offset or exceed expenses. Please refer to the applicable MacroShares prospectus for more details.

MacroShares are publicly-traded partnerships. Income derived from your MacroShares investment and distributions will be reported on a Schedule K-1. Income dirived from United States Government Securities is exempt from state and local income taxes; income from repurchase agreements is not. Gains or losses on sales of shares are treated as capital gains or losses, with long-term capital gains treatment potentially available. However, you should always consult your tax advisor to understand your specific tax situation.

Yes, MacroShares are both short-sale eligible and margin eligible.

MacroShares are a relatively new security structure, and may be linked to assets classes or economic indictors that otherwise have limited access and/or liquidity. Generally, as the number of MacroShares outstanding and market participants increases, bid/offer spreads should diminish, making the market more efficient. As with any security, always use prudent judgment when entering buy and sell orders, using limit orders whenever possible.

• Retail & Institutional Investors MacroShares can be bought and sold on any trading day through most brokerage accounts. Like traditional stock transactions, investors buying or selling MacroShares on an exchange may incur brokerage costs and other transaction fees.
• Authorized Participants & Institutional Investors Shares may only be purchased from, or tendered for redemption to the relevant MacroShares trust by Authorized Participants in blocks of shares, and only together with the same number of shares from the companion (“Up” or “Down”). Deadlines for placing creation and redemption orders each day apply, and can vary by product (e.g., for MacroShares $100 Oil, creation or redemption orders must be placed at least 30 minutes prior to the close of NYMEX trading).

MacroShares are publicly-traded partnerships. Income derived from your MacroShares investment and distributions will be reported to you on a Schedule K-1. Any income is generally expected to be exempt from state and local income tax. Gains or losses on sales of shares are treated as capital gains or losses, with long-term capital gains treatment potentially available. However, you should always consult your tax advisor to understand your specific tax situation.