The statement the plaintiffs assail as misleading is contained in the MD & A section of the prospectus, which follows the sizable “Special Considerations” section, a section notable for its extensive and detailed disclaimers and cautionary statements. More precisely, the prospectus explained that, because of its status as a new venture of unprecedented size and scale, a variety of risks inhered in the Taj Mahal which could affect the Partnership’s ability to repay the bondholders. For example, it stated:
The casino business in Atlantic City, New Jersey has a seasonal nature of which summer is the peak season…. Since the third interest payment date on the Bonds [ (which constitutes the first interest payment not paid out of the initial financing) ] occurs before the summer season, the Partnership will not have the benefit of receiving peak season cash flow prior to the third interest payment date, which could adversely affect its ability to pay interest on the Bonds.
… The Taj Mahal has not been completed and, accordingly, has no operating history. The Partnership, therefore, has no history of earnings and its operations will be subject to all of the risks inherent in the establishment of a new business enterprise. Accordingly, the ability of the Partnership to service its debt to [Taj Mahal Funding Inc., which issued the bonds,] is completely dependent upon the success of that operation and such success will depend upon financial, business, competitive, regulatory and other factors affecting the Taj Mahal and the casino industry in general as well as prevailing economic conditions….
The Taj Mahal will be the largest casino/hotel complex in Atlantic City, with aproximately twice the room capacity and casino space of many of the existing casino/hotels in Atlantic City. [No] other casino/hotel operator has had experience operating a complex the size of the Taj Mahal in Atlantic City. Consequently, no assurance can be given that, once opened, the Taj Mahal will be profitable or that it will generate cash flow sufficient to provide for the payment of the debt service….
Prospectus at 8.
The prospectus went on to relate, as part of its “Security for the Bonds” subsection, the potential effect of the Partnership’s default on its mortgage payments. For example, this subsection unreservedly explained that if a default occurred prior to completion of the Taj Mahal, “there would not be sufficient proceeds [from a foreclosure sale of the Taj Mahal] to pay the principal of, and accrued interest on, the Bonds.” Prospectus at 9.
The “Special Considerations” section also detailed the high level of competition for customers the completed Taj Mahal would face once opened to the public:
Competition in the Atlantic City casino/hotel market is intense. At present, there are twelve casino/hotels in Atlantic City…. Some Atlantic City casino/hotels recently have completed renovations or are in the process of expanding and improving their facilities…. The Partnership believes that, based upon historical trends, casino win per square foot of casino space will decline in 1990 as a result of a projected increase in casino floor space, including the opening of the Taj Mahal.
Prospectus at 14 (emphasis added). In a section following the MD & A section, the prospectus reiterated its reference to the intense competition in the Atlantic City casino industry:
Growth in Atlantic City casino win is expected to be restrained until further improvements to the City’s transportation system and infrastructure are undertaken and completed and the number of non-casino hotel rooms and existing convention space are increased. No assurance call be given with respect to either the future growth of the Atlantic City gaming market or the ability of the Taj Mahal to attract a representative share of that market.
Prospectus at 33. The prospectus additionally reported that there were risks of delay in the construction of the Taj Mahal and a risk that the casino might not receive the numerous essential licenses and permits from the
