Robert R. Gray, Jr. and Vickey L. Gray - Page 10

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          their discussions of tax advantages, risk of audit, and risk of             
          litigation in the Tax Court, would have alerted a prudent and               
          reasonable investor to the questionable nature of the promised              
          deductions and investment tax credits.  To be sure, although the            
          first page of the prospectus refers to an "exciting business                
          opportunity while taking advantage of current tax laws," it                 
          mentions very little about that opportunity.  Instead, it heavily           
          emphasized the benefits derived from the investment tax credit.             
               Encore's prospectus in substance contains only one page that           
          discusses the Gospel record market.  That discussion lacks the              
          slightest degree of specificity and is otherwise presented in               
          very general terms.  Further, the prospectus does not                       
          specifically address the master recordings leased by Encore, the            
          quality of such recordings, nor any other facets of the Encore              
          program.                                                                    
               Although the prospectus contains a section entitled  “How              
          Our Program Works,” that section is a single page in length and             
          contains a mere four paragraphs.  Three paragraphs are devoted to           
          the tax aspects of the program, while one paragraph refers to the           
          lease agreement.  The remainder of the page outlines in tabular             
          form the amount of advance payment required from the lessee and             
          the amount of investment tax credit passed through to the lessee.           
               The "Financial Section" of the prospectus contains two                 
          paragraphs and discusses the investment tax credit available with           
          respect to the sound recordings and computer software.  There is            




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Last modified: May 25, 2011