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notes totaling $159,990. Two other limited partners contributed
cash of $2,500 and $4,000 and notes of $12,500 and $20,000,
respectively.
The notes executed by the limited partners were due over a
period of approximately 11 years, with the first payment due on
May 1 of the year following the date on which the note was
executed and with additional annual payments commencing on
December 1 of the fifth year after the note was executed.
In the prospectus for the partnership, the benefits to the
limited partners were described as follows:
(1) 6:1 Write Off - An investor may be able to deduct
from his taxable income in 198_ six times the
amount of his cash contribution made during the
first year of partnership operations.
(2) Capital Gains Treatment of Profits - Investors may
only have to report 40% of profits from the
partnership in their taxable incomes.
(3) High Profit Potential - If 4,100 customers are
obtained by year 5, and retained at a royalty of
$250 per year to the partnership, each investor
can expect an average annual after tax return of
up to 45% of his initial investment.
Nothing in the prospectus described how the software to be
developed by the partnership would be manufactured, distributed,
or marketed. Under the heading “Risk Factors”, the prospectus
stated, in part, the following:
The proposed researchers appear to have the
skills, experience and commitment to produce the
product ordered by the partnership. However, in the
Investment Engineers, LTD. project, there are no funds,
neither can there be funds (without loss of tax
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Last modified: May 25, 2011