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telephone, but he did not discuss it with anyone other than those
who recommended the investment and those who were involved with
it. The partnership was formed on December 20, 1982. At this
time, petitioner had investments in stocks, bonds, mutual funds,
real estate, and other partnership ventures.
Petitioner received and read a private placement memorandum,
dated April 1, 1982, relating to his investment in the
partnership. Prefatory material in the memorandum contained the
following caveats:
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO CONSTRUE
THIS MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS AS
CONSTITUTING LEGAL OR TAX ADVICE. * * * INVESTORS ARE URGED
TO CONSULT THEIR OWN COUNSEL AS TO ALL MATTERS CONCERNING
THIS INVESTMENT.
* * * * * * *
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE
INTENDED OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC
RETURN OR TAX ADVANTAGES WHICH MAY ACCRUE TO THE INVESTORS
IN THE UNITS.
EACH PURCHASER OF UNITS HEREIN SHOULD AND IS EXPECTED
TO CONSULT WITH HIS OWN TAX ADVISOR AS TO THE TAX ASPECTS.
In a section entitled “Use of Proceeds”, an estimation of various
expenditures, the memorandum stated that approximately 95 percent
of the capital contributions from the partners would be allocated
to the research and development contract (regardless of the total
amount of the contributions). The only other expenses were to be
organizational costs and commissions. One of the “risk factors”
listed for the investment contained the following discussion:
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