Full opinion text
OPINION GERRY, Chief Judge. The parties are presently before the court upon motion of defendants Donald J. Trump, Robert S. Trump, Harvey S. Freeman, The Trump Organization Inc., Taj Ma-hal Funding Inc., Trump Taj Mahal Inc., and Trump Taj Mahal Associates Limited (collectively “the Trump defendants”) and defendant Merrill, Lynch, Pierce, Fenner and Smith (“Merrill Lynch”) for dismissal with prejudice, pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons expressed herein, defendants’ motion is granted. BACKGROUND The Taj Mahal (“the Taj”) is a hotel/casino located on the boardwalk in Atlantic City, New Jersey. The project was initiated by Resorts International, Inc. (“Resorts”) but was later sold to the Trump defendants. In 1988, as the primary source of funding for the Taj, the Trump defendants offered and Merrill Lynch underwrote $674 million in 14% first mortgage investment bonds (“the bonds”). The bonds were issued pursuant to a prospectus dated November 9, 1988 (“the prospectus”). After, learning that the Taj intended to file Chapter 11 bankruptcy and establish a reorganization plan, various bondholders filed separate complaints in the Southern District of New York, the Eastern District of New York, and the District of New Jersey, alleging essentially similar claims that the prospectus included misrepresentations and omissions which violated federal securities fraud laws. The complaints were consolidated in multi-district litigation in this court. Plaintiffs await class certification. In May, 1991, the parties reached a tentative settlement agreement, memorialized in a “Memorandum of Understanding” (“MOU”). The MOU provided for plaintiffs to conduct “confirmatory discovery” to determine whether they believed the settlement to be a fair disposition of the case. In October 1991, the plaintiffs returned from confirmatory discovery seeking to cancel the settlement deal. Defendants moved before this court for an order allowing them to solicit approval by the plaintiff class of the proposed settlement, over the objections of all plaintiffs’ counsel. We denied that motion in a memorandum opinion and order dated November 15, 1991. This motion to dismiss, filed jointly by the Trump defendants and Merrill Lynch, followed. THE COMPLAINT Count one of plaintiffs’ complaint alleges that the prospectus “contained untrue statements of material facts and omitted to state material facts required to be stated therein which were necessary to make the statements therein not misleading,” in violation of sections 11, 12(a) and 15 of the Securities Act of 1933. Count two alleges fraud in the prospectus in violation of sections 10(b) and 20(b) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Count two also alleges, as part of the securities fraud claim, that the prospectus contained false and misleading information. Count three, a breach of fiduciary duty claim, is lodged only against defendant Donald Trump. Count four is a common law false advertising claim. Counts three and four present solely state law claims, which depend for their survival on this court retaining jurisdiction over the federal securities claims. THE PROSPECTUS The prospectus is a lengthy, detailed document. On the first page this notice appears in bold print: “See ‘Special Considerations’ for a discussion of certain factors to be considered by potential investors.” There follows a section entitled “PROSPECTUS SUMMARY” which notes inter alia that “[ujpon completion, the Taj Mahal will be the largest casino/hotel facility in Atlantic City.” Prospectus, at 3. Included in the prospectus summary is a synopsis of the Special Considerations section: Special Considerations There are special considerations associated with an investment in the Bonds. These special considerations include, among others, the ability of the Partnership to service its debt; the validity of the security of the Bonds; the possible effect of applicable fraudulent conveyance statutes; the risks regarding completing and opening the Taj Mahal; the terms of the Trump Completion Guaranty; potential conflicts of interest; competition; limitation of liability; management of the Taj Mahal; certain regulatory matters, including matters affecting ownership of the Bonds; absence of a public market for the Bonds; the maintenance of insurance; and the appraisals of the Taj Mahal. Prospectus at 4. The “Special Considerations” section opens with the following notice, in italicized print: Before making a decision to purchase any of the Bonds, prospective purchasers should consider carefully the following factors, among others set forth in this Prospectus, which could materially adversely affect (i) the operations of the Partnership and its ability to make necessary payments to the Company to meet the debt service requirements of the Bonds and (ii) the security for the Bonds. Prospectus at 8 (emphasis added). Each special consideration listed in the “Special Considerations” synopsis constitutes a subject matter heading under the “Special Considerations” section, and is explained in considerable detail there. Following the “Special Considerations” section is the meat and potatoes of the prospectus, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations of the Partnership and the Company” (“Management’s Discussion”). The entire prospectus is replete with cross-references directing potential investors to related portions of the prospectus. DISCUSSION I. Standards on Motion to Dismiss A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). We must accordingly consider the factual allegations of the complaint as true, construe them liberally, and draw all reasonable inferences in plaintiff’s favor. See Unger v. National Residents Matching Program, 928 F.2d 1392 (3d Cir.1991); Glenside West Corp. v. Exxon Co., U.S. A., Div. of Exxon Corp., 761 F.Supp. 1100 (D.N.J.1991); Gut-man v. Howard Sav. Bank, 748 F.Supp. 254 (D.N.J.1990); Leaty v. U.S., 748 F.Supp. 268 (D.N.J.1990). If, applying these standards, plaintiffs cannot state an actionable claim, the complaint must be dismissed. We take this occasion to comment on the extent to which this court may consider matters outside the pleadings on a 12(b)(6) motion to dismiss. In opposing defendants’ motion, plaintiffs have submitted considerable materials, including affidavits, deposition transcript excerpts, and an appraisal report, accompanied by' an identifying affidavit. Plaintiffs urge that we may consider these materials, which are clearly matters outside the pleadings, without'converting the 12(b) motion into a Rule 56 motion for summary judgment. We disagree. Plaintiffs rely on Swin Resource Systems v. Lycoming County, 883 F.2d 245, 247 (3d Cir.1989), cert. denied, 493 U.S. 1077, 110 S.Ct. 1127, 107 L.Ed.2d 1033 (1990), for the proposition that extraneous materials that “fall within the ambit of the complaint” may be considered on a motion to dismiss. In fact, in Swin the extraneous material considered — a deposition — was attached to the complaint at the time of filing. Plaintiffs here attached no materials, not even the prospectus, to their complaint. The depositions and other materials they now urge us to consider as falling within the ambit of the complaint were never submitted to this court until plaintiffs opposed the current motion. We do not think that these materials fall within the ambit of the complaint, as courts in this circuit have used that phrase. The materials which plaintiffs urge us to consider are the stuff of summary judgment motions, not motions to dismiss under 12(b)(6). II. Choice of Law A threshold question is which circuit’s law should be applied to judge the actiona-bility of the prospectus. Although the case has been consolidated in this district, within the Third Circuit, the underlying cases come not only from this district but also from the Southern District of New York and the Eastern District of New York, both within the Second Circuit. The question to be decided is whether the law of the Third or Second Circuit controls our decision. In a case consolidated under 28 U.S.C. § 1407, the law of the transferor forum must be given “close consideration,” but the law of the transferee forum ultimately controls. In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1176 (D.C.Cir.1987). The federal courts spread across the country owe respect to each other's efforts and should strive to avoid conflicts, but each has an obligation to engage independently in reasoned analysis. Binding precedent for all is set only by the Supreme Court, and for the district courts within a circuit, only by the court of appeals for that circuit. Id. Accordingly, the law of the Second Circuit must be given close consideration here, but does not have stare decisis effect. As defendants point out, we are faced with a relatively blank slate on certain crucial issues in the Third Circuit, while we are well-instructed on those issues by the Second Circuit and other circuits as well. III. The Federal Securities Fraud Claims The complaint essentially sets forth claims under section 11(a) of the Securities Act of 1933, as amended, 15 U.S.C. § 77k(a); and section 10(b) the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b), and rule 10b-5 promulgated thereunder. The crux of our analysis is whether the complaint adequately alleges that the prospectus contained material false and misleading statements or omissions. The complaint alleges misrepresentations with respect to three general aspects of the prospectus: the defendants’ ability to service the debt on the bonds; the competition which the Taj Mahal would face; and the appraisals relied upon by defendants in valuing the Taj. All these aspects deal with future projections or forecasts. The complaint further alleges misrepresentations about the state of Donald Trump’s “financial empire,” contained both in the prospectus and in various media sources. In support of dismissal, defendants argue that the prospectus so “bespeaks caution” that the statements and omissions specified in the complaint are not actionable. Plaintiffs respond that no amount of cautionary language can render a false or misleading omission or a fraudulent misrepresentation not actionable; that the complaint adequately alleges such omissions and misrepresentations; and that the complaint therefore states claims of securities fraud sufficient to withstand a motion to dismiss. IV. The “Bespeaks Caution" Approach to Federal Securities Fraud Claims We examine first the “bespeaks caution” doctrine relied upon by defendants. The essence of the doctrine is that where an offering statement, such as a prospectus, accompanies statements of its future forecasts, projections and expectations with adequate cautionary language, those statements are not actionable as securities fraud. Within the past thirteen months, five circuit courts have adopted this approach to evaluating the actionability of a federal securities fraud claim based on future projections contained in a prospectus or other offering statement. See Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 (1st Cir.1991); I. Meyer Pincus & Associates v. Oppenheimer & Co,, Inc., 936 F.2d 759, 763 (2d Cir.1991); Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1040 (6th Cir.1991); Moorhead v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 949 F.2d 243, 245-46 (8th Cir.1991); In re Convergent Technologies Securities Litigation, 948 F.2d 507, 516 (9th Cir.1991). Because the trend in the law heavily favors this approach, a comprehensive examination of it is warranted: A. Origins of the “Bespeaks Caution” Approach The “bespeaks caution” formula was first devised in Polin v. Conductron Corp., 552 F.2d 797 (8th Cir.1977), a shareholder suit alleging securities fraud based on allegedly false and misleading statements in proxy statements, annual reports, and other documents. In affirming a judgment on the merits for defendants after trial, the Polin court held that the terminology employed in an annual report, specifically that results were “ ‘expected’ to show improvement” and that there was “a ‘possibility’ of a break-even soon,” were terms which “bespeak caution in outlook and fall far short of the assurances required for a finding of falsity and fraud.” Id-, 552 F.2d at 806, n. 28. Subsequently, the Second Circuit decided Luce v. Edelstein, 802 F.2d 49 (2d Cir.1986), a case generally regarded as seminal. The court in Luce found that while some of plaintiffs’ allegations were sufficient to state a claim for relief under section 10(b), including allegations that defendants made promises which they knew at the time to be false, other allegations of intentional misrepresentation as to the potential success of the defendant partnership could not survive a motion to dismiss. The challenged statements at issue were specifically addressed by cautionary language: the Offering Memorandum made it quite clear that its projections of potential cash and tax benefits were “necessarily speculative in nature” and that “[n]o assurance [could] be given that these projections [would] be realized.” Indeed, the Offering Memorandum warned prospective investors that “[ajctual results may vary from the predictions and these variations may be material. ” We are not inclined to impose liability on the basis of statements that “bespeak caution. ” Id. at 56 (emphasis added). The Luce court relied on Polin for .this proposition. District courts in the Second Circuit have followed the Luce “bespeaks caution” approach consistently. See e.g., Haggerty v. Comstock Gold Co., L.P., 765 F.Supp. 111, 114 (S.D.N.Y.1991); CL-Alexanders Laing & Cruickshank v. Goldfeld, 739 F.Supp. 158, 162 (S.D.N.Y.1990) (with respect to future projections, no liability under section 10b for statements that “bespeak caution”); Brown v. E.F. Hutton Group, 735 F.Supp. 1196, 1201-02 (S.D.N.Y.1990); Friedman v. Arizona World Nurseries Limited Partnership, 730 F.Supp. 521, 541 (S.D.N.Y.1990) (warnings and disclaimers limit degree to which investors may reasonably rely on offering document as forecast of future performance), aff'd without opinion, 927 F.2d 594 (2d Cir.1991); O’Brien v. National Property Analysts Partners, 719 F.Supp. 222, 227 (S.D.N.Y. 1989); Stevens v. Equidyne Extractive Industries 1980, Petro/Coal Program 1, 694 F.Supp. 1057, 1063 (S.D.N.Y.1988) (no liability attaches to offering memorandum purporting to be speculative); Feinman v. Schulman Berlin & Davis, 677 F.Supp. 168, 171 (S.D.N.Y.1988) (no reasonable reliance where offering document informed that estimates were speculative). Luce v. Edelstein also has been cited with approval by this court. In In re National Smelting of New Jersey, Inc. Bondholders’ Litigation, 722 F.Supp. 152, 171 (D.N.J.1989) (Gerry, C.J.), this court relied on Luce in granting summary judgment in favor of a third-party defendant accounting firm in a false and misleading prospectus case: In a similar situation, the Second Circuit Court of Appeals in Luce v. Edelstein refused to find 10(b) liability to the authors of an offering memorandum, which had “warned prospective investors that ‘[ajctual results may vary from the predictions and these variations may be material.' ” The court, speaking through Judge Winter, stated: “We are not in-dined to impose liability on the basis of statements that clearly bespeak caution.” Id. at 171 (citations omitted). The language at issue in that portion of National Smelting contained the following warning: “It is usually the case that one or more of the assumptions in a forecast do not materialize because events and circumstances do not occur as expected. Therefore, the actual results during the forecast period will differ from the forecasted results; the differences may be material.” Id. B. Recent Developments in the “Bespeaks Caution” Approach Most recently, the First, Second, Sixth, Eighth and Ninth Circuit Courts of Appeals have explicitly adopted the “bespeaks caution” approach to securities fraud claims. In Romani v. Shearson Lehman and Hutton, the plaintiffs had alleged that defendants fraudulently induced them into investing in a horse-breeding farm “through misrepresentations and omissions in the offering materials that falsely inflated the partnership’s financial potential.” Roma-ni, 929 F.2d at 876. Plaintiffs claimed that several material adverse facts were deliberately withheld by defendants from the prospectus. The First Circuit, however, placed dispositive weight on this statement in the prospectus: “[tjhere can be no assurance that the investment objectives of the Partnership will be obtained.” Id. at 879. This directly led the court to hold that “although the offering materials were optimistic about the prospects for [the business enterprise], the documents unquestionably warned potential investors in a meaningful way that economic conditions in the horse-breeding industry were uncertain. Documents such as this, which ‘clearly “bespeak caution,” ’ are not the stuff of which securities fraud claims are made....” Id. Similarly, in I. Meyer Pincus & Associates v. Oppenheimer & Co., the Second Circuit “declined to impose liability” on the basis of “statements contained within the prospectus [which] clearly ‘bespeak caution,’ rather than encouraging optimism.” The court accordingly ruled that the language of the prospectus, “when read in context, is not materially misleading.” I. Meyer Pincus, 936 F.2d at 763. The court also considered important the fact that “the first sentence of the Prospectus Summary, which states that the summary ‘is qualified in its entirety by reference to the more detailed information included elsewhere in the prospectus,’ unambiguously communicates the importance of reading all relevant material contained within the prospectus.” Id. (Emphasis added.) In Sinay v. Lamson & Sessions Co., the Sixth Circuit affirmed the dismissal of an action alleging securities fraud under a fraud-on-the-market theory. Citing Polin, the Sinay court held specifically that “[economic projections are not actionable if they bespeak caution.” Sinay, 948 F.2d at 1040. The court continued, [i]n determining whether the statements are actionable, the court must scrutinize the nature of the statement to determine whether the statement was false when made. While analyzing the nature of the statement, the court must emphasize whether the “prediction suggested reliability, bespoke caution, was made in good faith, or had a sound factual or historical basis.” Id. (Citations omitted.) Applying this standard, the court held that the “questioned statements herein were phrased with sufficient cautionary language.” Id. Indeed, each challenged statement was accompanied or addressed by “cautionary language.” Additionally, the Sinay court cited to the proposition that “fraud by hindsight,” the attempt to impose liability on management for unrealized economic predictions, is not actionable. Id., citing Schwartz v. Novo Industri, A/S, 658 F.Supp. 795, 799 (S.D.N.Y.1987). The Eighth Circuit reinforced its position on the “bespeaks caution” doctrine when it affirmed summary judgment for defendants in Moorhead v. Merrill Lynch. Plaintiffs in Moorhead had brought a securities fraud claim for alleged misrepresentations in a bond offering statement. They argued that defendant had “made misrepresentations, omitted material facts and made economic predictions with reckless disregard for their validity,” urging the appeals court to reverse the finding that any misrepresentations or omissions were disclosed by specific cautionary language in the challenged document. Moorhead, 949 F.2d at 245. However, in affirming the district court’s holding, the appeals court agreed that “plaintiffs could not base a federal securities fraud claim on any misrepresentation or omission in the feasibility study which was addressed by the repeated, specific warnings of significant risk factors and the disclosures of underlying factual assumptions also contained therein.” Id. at 245-46. The cautionary language considered by the Moorhead court included the following: We believe that the underlying assumptions provide a reasonable basis for management’s forecast. However, some assumptions inevitably will not materialize and unanticipated events and circumstances may occur; therefore, the actual results achieved during the forecast periods will vary from the forecast and the variations may be material. The accompanying financial forecast indicates that sufficient funds will be generated to meet [expenses], including the debt service requirements_ However, the achievement of any financial forecast is dependent upon future events, the occurrence of which cannot be assured. Id., 949 F.2d at 246 n. 2 (emphasis added). The document also contained several other examples of “no representations or assurances can be made” language. Id. Finally, the Ninth Circuit joined in adopting the “bespeaks caution” approach. The court in In re Convergent Technologies highlighted the importance of viewing the challenged statements in context, noting that “to prevail, the plaintiffs must demonstrate that a particular statement, when read in light of all the information then available to the market, or a failure to disclose particular information, conveyed a false or misleading impression.” Convergent Technologies, 948 F.2d at 512 (emphasis added). Plaintiffs in Convergent Technologies had argued that it was a violation of securities fraud laws for defendants to omit internal corporate projections from the offering statement. However, in affirming summary judgment, the court relied on Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir.1980), which held that “[i]t is just good general business practice to make such projections for internal corporate use. There is no evidence, however, that the estimates were made with such reasonable certainty even to allow them to be disclosed to the public.” Convergent Technologies at 516 (emphasis in original). Additionally, regarding cautionary language, the court found that the challenged prospectuses “provided more than generalized statements of risk.” Id. These included statements that future success was dependent on several enumerated factors of uncertain result, warnings of “unanticipated problems” down the line, and notice that plaintiffs were investing in a new, untried venture. Id. C. Considerations in Adopting the “Bespeaks Caution” Approach Plaintiffs respond to this body of securities fraud law by arguing that the only question properly before this court on a motion to dismiss is whether the complaint alleges false and misleading statements or omissions, or misrepresentations. They argue that they have adequately pled such claims, and that the cautionary language in the prospectus cannot insulate defendants from liability or preclude plaintiffs from stating a cognizable claim. Plaintiffs are correct in stating that a “projection that is issued without a reasonable basis is an untrue statement and actionable under § 10(b) and Rule 10b-5 if made knowingly or recklessly.” In re Craftmatic Securities Litigation, 890 F.2d 628, 645-46 (3d Cir.1989); Eisenberg v. Gagnon, 766 F.2d 770, 776 (3d Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985); Urbach v. Sayles, 779 F.Supp. 351, 355 (D.N.J.1991) (“projections or estimates can ground a fraud claim under the securities laws”). The same is true for section 11 claims. The Supreme Court has recently confirmed that “statements of reasons, opinion or belief” regarding projections are actionable under the securities fraud provisions. See Virginia Bankshares, Inc. v. Sandberg, — U.S.-, 111 S.Ct. 2749, 2758, 115 L.Ed.2d 929 (1991). However, defendants maintain that a prospectus which “bespeaks caution” displaces a misrepresentation claim. They argue that the securities fraud laws are concerned with management’s disclosure, not management’s business judgment; and that so long as full disclosure is made, unrealized future projections cannot be actionable as securities fraud. Thus, we must determine which comes first in our consideration of this case: the cautionary language of the prospectus, or the allegations of misrepresentations in the complaint. If any allegation of falsity or misrepresentation can survive a motion to dismiss, then language in a prospectus which “bespeaks caution” as to future forecasts is irrelevant. However, if adequate cautionary language in a prospectus is the equivalent of full disclosure pertaining to forecasts and predictions, relieving defendants of securities fraud liability, then plaintiffs’ claims are not actionable. In essence, the “bespeaks caution” analysis would subsume or obviate the analysis regarding adequate allegations of falsity or misrepresentation. We think that the latter view is precisely how the “bespeaks caution” doctrine should be applied. As the Eighth Circuit has held, “plaintiffs could not base a federal securities fraud claim on any misrepresentation or omission in the feasibility study which was addressed by the repeated, specific warnings of significant risk factors and the disclosures of underlying factual assumptions also contained therein.” Moorhead, 949 F.2d at 245-46 (emphasis added). In considering whether a complaint states a claim under either section 10(b) or section 11, “we examine the prospectus together with the allegations contained on the face of the complaint.” I. Meyer Pincus, 936 F.2d at 762. Thus, the allegations of the complaint are not read in isolation; they cannot be separated from the text of the prospectus, including whatever cautionary language appears in that text. Moreover, “[i]n determining whether the statements are actionable, the court must scrutinize the nature of the statement to determine whether the statement was false when made. While analyzing the.nature of the statement, the court must emphasize whether ‘the prediction suggested reliability, bespoke caution, was made in good faith, or had a sound factual or historical basis.’ ” Sinay at 1040 (quoting Isquith v. Middle South Utils., Inc., 847 F.2d 186, 204 (5th Cir.), cert. denied, 488. U.S. 926, 109 S.Ct. 310, 102 L.Ed.2d 329 (1988) (emphasis added). Thus, whether an offering statement such as a prospectus “bespeaks caution” is directly relevant to whether it is actionable. Indeed, the court “must emphasize” whether a statement “bespoke caution,” id., indicating that such a factor is at the least a powerful consideration and may even be dispositive. Thus, the “bespeaks caution” approach answers in a dispositive way a misrepresentation claim. The “bespeaks caution” analysis subsumes the misrepresentation analysis. No reasonable inference can be drawn in favor of a plaintiff that a document or statement which bespeaks caution as to future forecasts contains actionable misrepresentations. This approach is also consistent with the current state of Third Circuit law in this area. Under Craftmatic, a statement issued without a reasonable basis is untrue “if made knowingly or recklessly.” Craftmatic, 890 F.2d at 646 (emphasis added). A statement accompanied by language which “bespeaks caution” cannot be said to have been made “recklessly.” Thus, it is necessary first to consider the cautionary language of a prospectus, and to consider the challenged statements in context, in determining whether a complaint alleges actionable omissions or misrepresentations. Plaintiffs also urge us to refrain from following the guidance of Luce and other similar cases, relying for this argument on Griffin v. McNiff 744 F.Supp. 1237, 1253-54 (S.D.N.Y.1990), and Landy v. Mitchell Petroleum Technology Corp., 734 F.Supp. 608, 619 (S.D.N.Y.1990). Plaintiffs maintain that these cases rejected the “bespeaks caution” approach. In fact, Griffin and Landy did not reject that approach. They merely distinguished the facts before them from those at issue in Luce and other cases which applied the “bespeaks caution” analysis to find a claim not actionable. The Griffin court even acknowledged that warnings and disclaimers may limit the extent to which an investor can rely on the offering documents as a forecast of future events. Dismissal of securities fraud claims may be appropriate where the offering documents specifically warn plaintiffs not to rely on the alleged misrepresentations made by defendants, thus making any subsequent reliance unjustified. Griffin, 744 F.Supp. at 1253. Thus, plaintiffs’ argument that these two cases preclude our application of the “bespeaks caution” doctrine must fail. Plaintiffs also contend that, were this court to allow statements such as “no assurances can be given” to relieve defendants ■ of liability, “the securities laws would cease to have any practical effect.” They appeal to our sense of “fairness,” contending that “[i]t is admirable to bespeak caution. It is required to bespeak the whole truth. Describing an investment as speculative is not a license to misrepresent material facts.” This is a misreading of the “bespeaks caution” approach, and indeed of the policies behind the securities fraud laws themselves. The “bespeaks caution” approach demands far more than merely describing an investment as speculative. It neither immunizes fraud nor nullifies the securities fraud protections of sections 11 and 10b. These laws are intended to ensure that investors have all the information they need in order to make educated investment decisions. We think that the “bespeaks caution” doctrine is itself an endorsement of that fundamental concept of the securities laws, the touchstone of which is disclosure. We do note the troubling possibility that the “bespeaks caution” doctrine will encourage management to conceal deliberate misrepresentations beneath the mantle of broad cautionary language. It is for this reason that the “bespeaks caution” doctrine applies only to precise cautionary language which directly addresses itself to future projections, estimates or forecasts in a prospectus. A blanket warning that the within investment is “risky,” for example, would be insufficient to ward against a federal securities fraud claim. Nor would our holding here apply to cautionary language regarding actual facts, such as past performance of an existing investment or the contents of appraisals or other expert reports referenced in the prospectus. Having established the legal framework in which to analyze the prospectus at issue here, we now turn to apply that framework. V. Plaintiffs’ First Claim — The Ability of Partnership to Service the Debt on the Bonds Plaintiffs’ primary complaint is that defendants did not have a reasonable basis for believing that it could service the debt on the bonds, and that defendants made various omissions or misrepresentations with respect to their ability to do so. We therefore begin by perusing the portions of the prospectus which relate to this claim. A. The Prospectus The “Special Considerations” section discussed supra contains several cautionary sub-sections, the first of which is entitled “Ability of the Partnership to Service Debt.” This sub-section includes the following cautionary language: Upon consummation of the offering of the Bonds, the Partnership will have outstanding indebtedness in the aggregate principal amount of $675,000,000.... The casino business in Atlantic City, New Jersey has a seasonal nature of which summer is the peak season. The anticipated opening date of the Taj Mahal is on or about February 15, 1990. Since the third interest payment date on the Bonds 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 sole business of the Partnership will be to acquire, construct and operate the Taj Mahal and its ancillary facilities. 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 the Company 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. See “Capitalization” and “Business of the Partnership.” The Taj Mahal will be the largest casino/hotel complex in Atlantic City, with approximately twice the room capacity and casino space of many of the existing casino/hotels in Atlantic City. Neither the Partnership nor any 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 on the Note and/or any future borrowings by the Partnership. Prospectus at 8 (emphasis added). The next sub-section in “Special Considerations,” entitled “Security for the Bonds,” contains the following pertinent statements: If an Event of Default occurs prior to completion of the Taj Mahal, upon foreclosure and sale of the Collateral, there would not be sufficient proceeds to pay the principal of, and accrued interest on, the Bonds.... In addition, if an Event of Default occurs with respect to the Bonds after completion of the Taj Ma-hal, there can be no assurance that the liquidation of the Collateral would produce proceeds in an amount which would be sufficient to pay the principal of, and accrued interest on, the Bonds. See “Description of the Bonds — Security” and “ — Non-recourse.” In any foreclosure sale of the Taj Ma-hal, the purchaser would need to be licensed to operate the Taj Mahal under the New Jersey Casino Control Act and the regulations promulgated thereunder. ... Because potential bidders must satisfy such requirements, the number of potential bidders in a foreclosure sale would be less than in foreclosures of other types of facilities and such requirements may delay the sale of, and may adversely affect the sales price for, the Taj Mahal. The ability to repossess and dispose of the Collateral upon acceleration of the Bonds is likely to be significantly impaired or delayed by applicable bankruptcy law if a bankruptcy case were to be commenced by or against the Partnership prior to the repossession or disposition of the Collateral by the Trustee or the Bondholders. Prospectus at 9 (emphasis added). Following the “Special Considerations” section is the “Management’s Discussion” portion of the prospectus. It states in pertinent part that: After the completion and opening of the Taj Mahal, the Partnership will rely on cash generated from the Taj Mahal’s operations to service its debt and provide for anticipated capital requirements. The Partnership believes that funds generated from the operation of the Taj Mahal will be sufficient to cover all of its debt service (interest and principal). No assurance can be given, however, that actual operating results will meet the Partnership’s expectations. See “Spécial Considerations — Ability of the Partnership to Service Debt” and “Special Considerations — Risks Regarding Completing and Opening the Taj Mahal— Consequences of Delay.” Prospectus at 28 (emphasis added). These excerpts represent the portions of the prospectus implicated by plaintiffs’ challenge that defendants violated federal securities laws by failing to inform that the partnership could not service its debt. We must examine them in light of the law set forth supra, in order to determine whether plaintiffs have stated a claim upon which relief may be granted. B.. Application of the “Bespeaks Caution” Approach The heart of plaintiffs’ claim is that defendants possessed no reasonable basis for the statement in the prospectus that they believed the Taj could generate sufficient funds to cover all the debt service on the- bonds. They base this claim on one sentence buried in the middle of the prospectus: “The Partnership believes that funds generated from the operation of the Taj Mahal will be sufficient to cover all of its debt service (interest and principal).” Plaintiffs have extracted one lone statement from this comprehensive document and attempted to persuade the court that standing alone and read out of context it is sufficient to state a federal securities fraud claim. We are not so persuaded. The above-quoted language from the prospectus is a striking example of a document which truly “bespeaks caution.” Indeed, this prospectus “ ‘virtually bristle[s] with warnings’ as to the extremely risky nature of the investment described herein, as well as the highly speculative nature of the memoranda’s projections as to future results.” Haggerty, 765 F.Supp. at 115 (iquoting CL-Alexanders Laing, 739 F.Supp. at 162). In stating their “no reasonable basis” claim, plaintiffs have utterly disregarded the entire “Special Considerations” section of the prospectus, as well as the language immediately following the challenged statement, which reads: “No assurance can be given, however, that actual operating results will meet the Partnership’s expectations.” Thus, plaintiffs have attempted to base their case on a statement which is in fact directly addressed by specific, cautionary language throughout the prospectus and immediately following the challenged statement. Plaintiffs have failed to confront the fact that the context of an allegedly false and misleading statement is a crucial consideration. The actionability of an isolated statement in a challenged prospectus depends upon its framework. This is as true in a “bespeaks caution” case as in any other securities fraud case. Solitary statements alone cannot support a federal securities law claim when read out of context. See, e.g., TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976) (in section 14a proxy statement case, materiality is determined by the “total mix” of information available to the investor); I. Meyer Pincus, 936 F.2d at 763; Convergent Technologies, 948 F.2d at 512. Here the context fairly screams caution. As a matter of law, we find that no reasonable investor could have been misled by the sole sentence, buried in the middle of the prospectus and preceded by pages of pertinent warnings, which plaintiffs claim was misleading. Ultimately, the text of the prospectus itself shields defendants from liability, for it is a carefully crafted, fully disclosing document. In Moorhead, a case factually similar to this case, the district court rejected plaintiffs’ federal securities fraud claim because the challenged document “contained a number of risk statements, detailed cautionary language and disclosures about the underlying economic assumptions, any of which could have affected [management’s] ability to pay back the bonds.” Moorhead, 949 F.2d at 245. We think that the case at bar is no different. Such inclusions speak directly to the reasonable basis of management’s beliefs. Certainly management is not required to offer investments pursuant to a prospectus which disparages the very viability of that investment. In fact, the prospectus does set forth the basis for management’s “belief” in its ability to meet the debt service: the AGI Report, the appraisal of the future worth of the Taj. Plaintiffs allege that this appraisal itself was made without a “reasonable basis,” and therefore management’s reliance on it also has no reasonable basis. However, we find that this attenuated linkage cannot support a claim of securities fraud. In attempting to distinguish Romani, I. Meyer Pincus, Sinay, Moorhead and Convergent Technologies, plaintiffs argue that while the alleged misrepresentations in those cases were directly contradicted by disclaimers, the same is not true in this case. Upon close inspection of the prospectus here, we cannot agree. If anything, this prospectus includes even more specifically tailored disclaimers directly addressing each challenged statement, than did the offering materials at issue in those five appellate decisions. This distinction must therefore be rejected. C. Fraud by Hindsight We are wary, too, of the dangers raised by claims of “fraud by hindsight.” Monday morning quarterbacking cannot present actionable securities fraud claims.. “The fact that a projection or estimate turned out to be incorrect, standing alone, does not even raise an inference that the statement was fraudulent when made.” Urbach v. Sayles, 779 F.Supp. 351, 358 (D.N.J.1991). Indeed, [t]he story in this complaint is familiar in securities litigation. At one time the firm bathes itself in a favorable light. Later the firm discloses that things are less rosy. The plaintiff contends that the difference must be attributable to fraud. “Must be” is the critical phrase, for the complaint offers no information other than the differences between the two statements of the firm’s condition. Because only a fraction of financial determinations reflects fraud, plaintiffs may not proffer the different financial statements and rest. Investors must point to some facts suggesting that the difference is attributable to fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.), cert. denied, — U.S.-, 111 S.Ct. 347, 112 L.Ed.2d 312 (1990). In the case at bar, “defendants anticipated profits, not losses. It is true that defendants’ roseate economic anticipations were doomed, but economic prognostication, though faulty, does not, without more, amount to fraud.” Polin, 552 F.2d at 805. In short, fraud by hindsight is not an actionable claim. See Schwartz v. Novo Industri A/S, 658 F.Supp. 795, 799 (S.D.N.Y.1987)- (“[pjlaintiff fails to offer a single objective fact to suggest that the prediction was other than an honestly held view.... the complaint is an example of alleging ‘fraud by hindsight’ and therefore not actionable under § 10b and Rule 10b-5”). Moreover, the prospectus gave fair warning that the success of the Taj and the partnership’s ability to service the debt on the bonds depended entirely on numerous future conditions and occurrences, many of them out of defendants’ control. Thus, the prohibition against fraud by hindsight claims and the “bespeaks caution” doctrine go hand in hand. Plaintiffs have relied heavily, almost exclusively, on the allegation that there was no reasonable basis for the statement that “[t]he Partnership believes that funds gem erated from the operation of the Taj Mahal will be sufficient to cover all of its debt service (interest and principal).” Considerations of cautionary language aside, a claim based solely on this statement simply is not actionable, for it alleges nothing more than fraud by hindsight. The Taj wás not ultimately able to generate funds sufficient to cover all of its debt service, and plaintiffs have cried “fraud” as a salve to their disappointment in a failed investment. However, failure of an investment is not intrinsically equatable with fraud in the offering of that investment. Such an equation is the very essence of fraud by hindsight. The complaint itself dictates this interpretation of plaintiffs' claim. Plaintiffs’ allegation of “no reasonable basis” is a naked assertion unsupported by any factual allegations in the complaint. Plaintiffs provide no foundation for their assertion that defendants either had no reasonable basis for its belief, or that defendants did not in fact hold that beliéf. While we are instructed to draw all reasonable inferences in favor of a complainant, we concur with the reasoning in DiLeo, that no reasonable inferences of fraud can be drawn from conclusory allegations devoid of factual basis. Plaintiffs must show “objective evidence” that the challenged statement represents a dishonestly held belief, or a belief without reasonable basis. For example, in Sinay, “the plaintiffs did not offer any objective evidence that the statements were anything other than honestly held convictions based on the historical information which Lamson possessed.” Sinay, 948 F.2d at 1040. That is virtually the same situation as is presented by the complaint now under review. In Sinay the district court dismissed the complaint pursuant to Rule 12(b)(6), and that dismissal was affirmed. Dismissal is appropriate on these grounds here as well. D. Further Considerations Regarding the Ability to Service Debt on the Bonds Claim In addition to the “no reasonable basis” allegation, the complaint lists five related “failures to disclose” which purport to allege factual omissions in the prospectus. None can withstand the scrutiny of either the “bespeaks caution” inquiry, or the analysis employed in determining whether a complaint states a claim upon which relief may be granted. First, a federal securities fraud suit is not a game of “edit to win.” It is neither the right nor the responsibility of investors, disgruntled or otherwise, to draft the prospectus themselves from the position of hindsight. It is management’s responsibility to draft a prospectus which makes full disclosure. Bespeaking caution is an essential part of such disclosure, particularly regarding future projections. Plaintiffs cannot state a claim based on how, in retrospect, they would have preferred the cautionary language to be drafted. Nor are there any factual allegations in the complaint going to show that these omissions or failures to disclose were fraudulent. Plaintiffs also allege that the prospectus “omitted to state, as required by Item 303 of Regulation S-K, that there existed ‘known ... uncertainties’ regarding whether operation of the Taj Mahal would generate sufficient funds to cover all of its debt service.... ” It is beyond this court’s ken how plaintiffs could support such an allegation, considering the repeated warnings in the prospectus that there most definitely were “uncertainties” as to the ability of the Taj partnership to cover its debt service. For example, the prospectus clearly stated that there was no history of earnings at the Taj; that operations at the Taj would be “subject to all of the risks inherent in the establishment of a new business enterprise;” that the ability of the partnership to service its debt was “completely dependent” on many diverse factors, some not even within the partnership’s control; and that “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 on the Note and/or any future borrowings by the Partnership.” Given this language, which we think unquestionably bespeaks caution, we fail to see how plaintiffs could succeed in convincing a reasonable jury that the prospectus “omitted to state” uncertainties regarding the partnership’s ability to generate funds sufficient to cover all of its debt service. E. The Taj Funding Claim We note here a related allegation of plaintiffs, the claim that the prospectus failed to disclose that operation of the Taj involved an “excessive, unwarranted, and unprecedented debt component relative to total capitalization. Out of the $805 million total projected cost for acquisition, construction, initial financing and related costs, no more than $75 million (or only nine percent) represented capital contributions.” Complaint, ¶ 36. This allegation also charges that the prospectus failed to disclose that “no other Atlantic City casino project was so thinly capitalized and, therefore, so vulnerable to downturns in the industry and economic downturns generally.” We must therefore examine the language in the prospectus regarding the financing structure of the Taj. In the “Special Considerations”sub-section entitled “The Financing,” the prospectus states that “Approximately $805,000,-000 will be required to (i) fund amounts needed to complete construction of and open the Taj Mahal ... (ii) repay all indebtedness incurred in financing the cost of and to pay certain assumed liabilities with respect to, the acquisition of the Property ..., and (iii) pay related expenses expected to be incurred_” Prospectus at 24. Beneath that appears the following chart: Sources of Funds (1) Gross proceeds of the Bonds.$675,000,000 (2) Capital contribution. 75,000,000 (3) Other sources. 55,000,000 Total.$805,000,000 Footnote (2) states that the $75,000,000 capital contribution is to “be contributed to the Partnership by Donald J. Trump upon issuance of the Bonds." In light of this disclosure, plaintiffs cannot state a securities fraud claim based upon an allegation that the prospectus failed to disclose the debt component ratio. Such an allegation is patently false. However, all reasonable inferences must be drawn from the complaint. It is perhaps reasonable to infer that plaintiffs claim, not that the prospectus failed to set forth the actual numbers, but that defendants failed to characterize those numbers as “excessive,” “unprecedented,” “unwarranted” and “thinly capitalized ... [relative to] other Atlantic City casino project[s].” However, given this inference, plaintiffs still cannot successfully state a securities fraud claim. A prospectus, while required to “bespeak caution,” is not required to apply pejorative or derogatory descriptors to the investment it is selling. See, e.g., Goldberg v. Meridor, 567 F.2d 209, 218 n. 8 (2d Cir.1977) (Section 10b and Rule 10b-5 do not require characterizations of transactions “with pejorative nouns or adjectives”), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978); O’Brien v. National Property Analysis Partners, 719 F.Supp. 222, 228 (S.D.N.Y.1989) (claim that defendants failed to characterize fees and expenses of transaction as “excessive” not actionable; such a claim “admitt[ed] that the amount of fees and expenses was disclosed”); Valente v. PepsiCo, Inc., 454 F.Supp. 1228, 1253 (D.Del.1978) (citing Goldberg v. Meridor). Accordingly, this allegation would not be actionable under federal securities laws simply for lacking descriptors such as “excessive” and “unwarranted.” Nor is there any legal obligation for management to compare itself, unfavorably or otherwise, to industry competitors. Comparison shopping is the responsibility of the reasonable investor. This brings us to the end of plaintiffs’ claim that the disclosures in the prospectus regarding management’s ability to service the debt on the bonds were false, misleading and fraudulent. Plaintiffs cannot state a claim for which relief could be granted, and accordingly this part of the complaint is dismissed. VI. Plaintiffs’ Second Claim — Competition Next, plaintiffs allege that the prospectus failed to adequately disclose the risks to the Taj’s success posed by competition in the casino industry. Accordingly, we first examine the statements in the prospectus dealing with such competition. A. The Prospectus The risks of competition are first raised in the “Special Considerations” sub-section entitled “Competition.” It is worth excerpting here the entire contents of that sub-section: Competition in the Atlantic City casino/hotel market is intense. At present, there are twelve 'casino/hotels in Atlantic City, including Trump Castle Hotel & Casino (which is currently undergoing an expansion program) and Trump Plaza Hotel and Casino (which is currently undergoing an extensive refurbishment and renovation program). See “Potential Conflicts of Interest” above. Some Atlantic City casino/hotels recently have completed renovations or are in the process of expanding and improving their facilities. In September 1988, a easi-no/hotel added 30,000 square feet to its casino floor space and 507 rooms to its hotel capacity. Moreover, another casino/hotel has begun constructing a new hotel tower with approximately 800 rooms, which is scheduled to open in 1989 and which will permit the casino/hotel to add up to 60,000 square feet to its casino floor space. Preliminary plans have been announced for the construction of a new casino/hotel which, if constructed, is expected' to open by 1991 and to have approximately 60,000 square feet of casino floor space. Preliminary plans also exist for the construction of two additional casino/hotels, each with approximately 600 hotel rooms and 60,000 square feet of casino floor space, neither of which, if constructed, is expected to open before 1992. In addition, both the Resorts Casino Hotel, which is expected to be renovated, and the Showboat Casino and Hotel (“Showboat”) are situated next to the Taj Mahal and will each be connected to the Taj Mahal by an elevated pedestrian walkway. 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). Additionally, under “Potential Conflicts of Interest” in “Special Considerations,” the prospectus states that “[t]he Trump Casinos compete directly with each other and with other Atlantic City casino/hotels and will compete with the Taj Mahal for casino, hotel and restaurant customers and for convention business.” Prospectus at 14. Considerations of competition in the casino/hotel industry are revisited in the “Management’s Discussion” section of the prospectus. In addition to repeating that “[cjompetition in the Atlantic City casino/hotel market is intense,” this section notes that the “Atlantic City Casino industry is currently experiencing a significant increase in capacity, which is generally measured by available casino floor space.” Prospectus at 33. After again detailing the various current and anticipated expansions, renovations and future construction in the area, the section continues: The Taj Mahal would also compete with any casinos in jurisdictions close to New Jersey that may authorize casino gaming in the future. Legislation permitting casino gaming has been proposed, from time to time, in various states. The Partnership also faces competition from casinos located in Nevada, Puerto Rico, the Caribbean and The Bahamas, as well as from other forms of legalized gaming in New Jersey and its surrounding states such as lotteries, horse racing, jai alai and dog racing. 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. Growth in Atlantic City 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 can 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. The profitability of the Taj Mahal could be affected by its proximity to the Resorts Casino Hotel, which is being acquired by Griffin Co., and the Showboat, which is owned and operated by an entity not affiliated with the Partnership .... The Taj Mahal, Resorts Casino Hotel and Showboat are located at the eastern end of the Boardwalk, approximately one-half mile to one and one-half miles to the east of eight other Atlantic City casino/hotels. The effect of the concentration of the majority of the casino/hotels at the opposite end of the Boardwalk has historically been to attract the gaming patron volume to that area and away from the eastern end of the Boardwalk, where the Taj Mahal will be located. The Partnership believes that the opening of the Taj Mahal and the proximity of the Showboat and Resorts Casino Hotel will attract an increased volume of patrons to the vicinity of the Taj Mahal. Casinos in Atlantic City must be located in approved hotel facilities which offer dining, entertainment and other guest facilities. Competition among casino/hotels is intense and is based primarily upon promotional allowances; advertising; the attractiveness of the casino area; service; quality and price of rooms, food and beverages; restaurant, convention and parking facilities; and entertainment. In order to compete effectively with all other Atlantic City casino/hotels, the Partnership intends to offer complimentary drinks, meals, room accommodations and/or travel arrangements to its preferred customers, as well as cash bonuses and other incentives pursuant to approved bus coupon programs. Prospectus at 34 (emphasis added). B. Application of the “Bespeaks Caution” Approach We begin by commenting on the volume and degree of cautionary language regarding competition. Here again, the prospectus virtually bristles with warnings. And, these warnings are specifically tailored to the purported misrepresentations and omissions. Plaintiffs base their allegation of a cover-up of competitive risks on the prospectus statement that the partnership “believes that the opening of the Taj Mahal in the proximity of the Showboat and Resorts Casino Hotel will attract an increased volume of patrons to the vicinity of the Taj Mahal.” According to the complaint, this statement violates federal securities fraud laws because it “fails to address the fact that drawing gambling dollars from one casino to another would fail to materially increase the casino win for Taj Mahal on average.” Plaintiffs claim that this was materially misleading. However, the prospectus in fact admits that casino wins are expected to decrease in at least the near future, and deliberately offers no assurances of increases in casino wins. Moreover, the challenged statement does not say that the Taj will draw more gaming patrons away from Showboat and Resorts, but merely that the clustering of the three casinos together at that end of the boardwalk could attract more patrons to the vicinity of the Taj. The complaint continues, “[i]n fact, it would cost more money to attract gamblers from one casino to another than would be earned by any increase in business, thereby not increasing the casino win, but rather decreasing it.” Again, plaintiffs disregard the very language of the prospectus they seek to challenge. Noting for a third time that competition in the Atlantic City casino industry is intense, the prospectus warns that success is predicated on all sorts of promotional and advertising incentives; and sets forth some of the tactics the Taj will have to employ in order to compete effectively. These include complimentary drinks, meals, room accommodations and travel arrangements for preferred customers. Surely this indicates that effective competition will cost money. As in I. Meyer Pincus, here “the prospectus states exactly the ‘fact’ that [plaintiff] contends has been covered up....” I. Meyer Pincus, 936 F.2d at 762. Plaintiffs also attack the competition disclosures of the prospectus from another angle; They claim that the statement about attracting more patrons to the vicinity of the Taj, Showboat and Resorts was materially misleading because it “failed to disclose the material fact that the opening of the Taj Mahal in the proximity of the Showboat, Trump Castle, Trump Plaza, and Resorts Casino Hotel would materially increase the risk that either the Castle, the Plaza or the Taj Mahal would fail or be unable to service its debt.”