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June 10, 1996


The opinion of the court was delivered by: POLLACK

 MILTON POLLACK, Senior United States District Judge

 The "Polaris defendants" moved pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss the claims asserted against Polaris in the plaintiffs' Consolidated Complaint. The Court has converted this motion into a motion for summary judgment on behalf of the moving parties pursuant to Fed.R.Civ.P. 56. The motion rests on two primary grounds: (1) the alleged disclosure in the Polaris prospectuses of the very risks which plaintiffs claim were omitted or misrepresented; and (2) the statute of limitations.

 I. Background

 This class suit is set in the context of an alleged scheme during the 1990's undertaken by Prudential Securities International ("PSI") and its affiliates to mislead a multitude of investors, by alleged fraud, into purchasing units of interest in limited partnerships sold through PSI's Direct Investment Group ("DIG"). Plaintiffs filed a Consolidated Complaint on June 8, 1994, listing 37 named representative plaintiffs as members of a putative class action. The intended class consists of "all persons or entities, acting in their own capacity or in a representative capacity, who purchased Units in any of the Partnerships between January 1, 1980 and December 31, 1991, inclusive . . . and were damaged thereby." (Consolidated Complaint at P 22.) Excluded from the class are, inter alia, persons who have availed themselves of the fund created by Prudential's October 21, 1993 settlement with the Securities Exchange Commission.

 Polaris was one of the sponsoring organizations that sold units in limited partnerships through PSI. The Consolidated Complaint implicates eleven partnerships for which Polaris was the sponsoring organization. These include Polaris Aircraft Investors I and II (a - d) ("PAI"), sold from 1982 until 1984, and Polaris Aircraft Investment Funds I - VI ("PAIF"), sold from 1985 until 1991. *fn1" The business plan for these partnerships was to purchase used commercial jet aircraft, lease the aircraft to third parties under short-term operating leases and sell the aircraft after several years. The stated investment objectives were to generate substantial cash from leasing operations to distribute the income thereof to investors quarterly; provide cash distributions to investors upon specific sales of aircraft; and preserve investors' capital.

 II. Summary Judgment Standard

 Under Fed.R.Civ.P. 12(b), if "matters outside the pleading are presented to, and not excluded by the Court," the Court must convert defendants' 12(b)(6) motion to dismiss into a Rule 56 motion for summary judgment. Fonte v. Board of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir. 1988); Ellis v. The Civil Service Employees Assoc., Inc., 913 F. Supp. 684, 1996 WL 54308, *4 (N.D.N.Y.). Rule 12(b) instructs that prior to such conversion, courts should give parties "reasonable opportunity to present all material made pertinent" to a summary judgment motion by Rule 56. However, the Court need not provide formal notice of conversion to the parties where, as here, it has already accepted from both sides, materials other than pleadings. In re G. & A. Books, Inc., 770 F.2d 288, 295 (2d Cir. 1985), cert. denied, 475 U.S. 1015, 106 S. Ct. 1195 (1986); Goyette v. DCA Advertising Inc., 830 F. Supp. 737, 741, (S.D.N.Y. 1993).

 A motion for summary judgment may not be granted unless the Court determines that there is no genuine issue of material fact to be tried. See Fed.R.Civ.P. 56; Donahue v. Windsor Locks Bd. of Fire Commissioners, 834 F.2d 54, 57 (2d Cir. 1987). The burden of showing that no genuine factual disputes exist is on the parties seeking summary judgment, and "the court is not required to resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought." Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995). If no reasonable trier of fact could find for the non-moving party, the court may grant relief on a motion for summary judgment. Taggart v. Time, Inc., 924 F.2d 43, 46 (2d Cir. 1991).

 III. Bespeaks Caution

 The Consolidated Complaint alleges RICO claims which rely on a scheme to sell investments in 6 limited partnerships from 1985-1991 through the selective use of both misrepresentations in sales materials and prospectuses and knowingly fraudulent material omissions, particularly with respect to the residual value of aircraft purchased by Polaris. The moving defendants contend that prospectuses "bespoke caution" by disclosing all of the relevant risks; that the prospectuses addressed market demand for and residual values of the partnerships' aircraft. In response to the charge in the complaint that defendants knew but did not disclose that resale values of aircraft were forecast to decline and to be practically non-existent in the future, the defendants argue that plaintiffs seek unjustifiably to impose a duty of clairvoyance on defendants. Defendants contend that they did not have a duty to speculate in the prospectuses as to the future market conditions, e.g., "fraud by hindsight," because the decline in residual values only became apparent, they say, "years after" the partnerships were sold.

 The plaintiffs responded initially that the issues could not properly be determined on the pending motion; that even their limited discovery heretofore, which was suspended initially but then was recently resumed, evidenced material issues of triable facts. Plaintiffs assert that the alleged risk disclosures made by the defendants were generalized, deliberately uninformative and falsified, incomplete, and were wholly inadequate to apprise investors of the actual risks they faced. Plaintiffs argue that defendants fraudulently concealed and intentionally and knowingly suppressed these risks, so that no reasonable inquiry would have revealed the true facts on any obligatory inquiry.

 The bespeaks caution doctrine allows courts to rule that a defendant's forward-looking representations contain enough cautionary language or risk disclosures to protect against claims of securities fraud. It has been applied at the pleading stage to dismiss securities fraud claims when prospectuses have contained extensive and specific warnings about the riskiness of investments. See In re Donald J. Trump Casino Securities Litigation, 7 F.3d 357 (3d Cir. 1993), cert. denied, 510 U.S. 1178, 127 L. Ed. 2d 565, 114 S. Ct. 1219 (1994). However, some courts have refused to apply the doctrine at the pleading stage where defendants are alleged to have information that makes even the asserted cautionary statements fraudulent. See In re Marion Merrell Dow Inc. Securities Litigation, 1993 U.S. Dist. LEXIS 14197, 1993 WL 393810, *8 (W.D.Mo.); Rubinstein v. Collins, 20 F.3d 160 (5th Cir. 1994).

 Those cases have held that while cautionary language is relevant in assessing the materiality of predictive statements, it is not dispositive. Rubinstein, 20 F.3d at 167-168. The bespeaks caution doctrine involves an examination of statements in the context in which they were made. It is thus not a per se bar to recovery in all cases where, as here, disclosure is accompanied by some cautionary language.

 Several significant limitations on the bespeaks caution doctrine appear relevant. Cautionary language cited to justify application of the doctrine must precisely address the substance of the specific statement or omission that is challenged. Trump, 7 F.3d at 371-372. In addition, cautionary language does not protect material misrepresentations or omissions when defendants knew they were false when made. Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981), rev'd in part on other grounds, 459 U.S. 375, 103 S. Ct. 683, 74 L. Ed. 2d 548 (1983); Rubinstein, 20 F.3d at 171.

 Plaintiffs' allegations and discovery data obtained to date have raised issues of material fact with respect to these limitations on the bespeaks caution doctrine. The Consolidated Complaint alleges that Polaris knew, but did not disclose, at the time the prospectus and sales pitches were designed, that it had purchased aircraft with evanescent residual values that would decline dramatically to the point of virtual non-existence as a practical matter. *fn2" Plaintiffs cite evidence gleaned during the limited discovery to date that experts retained by Polaris predicted and warned the marketeers of the limited partnerships that residual values of its aircraft would decline radically. This information contradicted both the residual value information provided in sales materials and the inadequate warnings in prospectuses that residual value could decline. General risk disclosures in the face of specific known risks which border on certainties do not bespeak caution:

To warn that the untoward may occur when the event is contingent is prudent; to caution that it is only possible for the unfavorable events to happen when they have already occurred is deceit.

 Huddleston, 640 F.2d at 544. The doctrine of bespeaks caution provides no protection to someone who warns his hiking companion to walk slowly because there might be a ditch ahead when he knows with near certainty that the Grand Canyon lies one foot away. The bespeaks caution doctrine requires a contextual analysis and, in context, even apparently specific risk disclosures like those in Polaris' prospectus are misleading if the risks are professionally stamped in internal undisclosed analyses (as they were here) as significantly greater or more certain than those portrayed in the prospectus. See In re Apple Computer Securities Litigation, 886 F.2d 1109, 1115 (9th Cir. 1989), cert. denied, 496 U.S. 943, 110 S. Ct. 3229, 110 L. Ed. 2d 676 (1990) ("There is a difference between knowing that any product in development may run into a few snags and knowing that a particular product has already developed problems . . . .").

 In Marion Merrell, 1993 U.S. Dist. LEXIS 14197, 1993 WL 393810 (W.D. Mo.), the Western District of Missouri found that asserted cautionary language, although it specifically addressed the risk that a company would not receive FDA approval of selling a prescription drug over the counter, did not go far enough given the magnitude of the risk of FDA disapproval:

 Marion Merrell, at *8. The court continued, citing Huddleston for the proposition that even qualified statements may not be sufficiently cautionary to warrant dismissing cases on motions addressed to the pleadings when defendants are alleged to have information which makes those statements fraudulent:

At this stage in litigation it cannot be judicially assumed the much vaunted OTC application was pursued with reasonable prospects of success. Thus it cannot be assumed that cautionary language that may be sufficient ninety-nine times out of a hundred was sufficient in this case.

 Merrell, at *9.

 Like other Limited Partnerships sold by Prudential during the 1980's, the Polaris Partnerships were structured as direct investments. The limited discovery to date has revealed that Polaris was directly involved in marketing its limited partnerships. Polaris authored most of the sales material given to brokers and investors *fn3" Polaris told brokers and investors that its investment strategy would work as follows *fn4"

. In approximately 8-12 years, the partnerships' aircraft would be sold at prices equal to, or above, their original cost to the partnerships. The limited partners' original capital would then be returned. The limited partners would also receive the benefit of any appreciation of their capital if the planes sold for more than their original purchase price.

 Hence, Polaris said that its investment strategy offered "regular, high-yielding income, and opportunity for substantial overall returns, and, of course, capital preservation" *fn5" and its return through the proclaimed residual values on sales.

 The critical component of Polaris' investment strategy was the value of the aircraft at the end of the Partnerships' lives (i.e. the "residual values"). The only way that this strategy could make any economic sense to a potential investor and that the investment strategy of capital preservation could be met was if the partnership aircraft were expected to be worth at the end of the partnerships' lives at least as much as they were at the beginning. *fn6" If, on the other hand, the value of the aircraft was professionally believed to diminish during the period of partnership operations in perceptible segments, it would be impossible for the partnerships to preserve capital, investors' distributions would constitute a return of capital and investors would suffer capital losses (all as happened here). In sum, there would be no "high-yielding income," "substantial overall returns" or "capital preservation."

 Polaris commissioned BK Associates ("BK"), a well-respected aircraft appraiser, to furnish it with residual values of the aircraft purchased. These appraisers reported an expectable, vanishing value for the residuals. The auditors of the company required those appraisals of current fair market value for their financial reports because a portion of the expected resale value, was booked as income to Polaris in each year's income reports. Throughout the offering period of the Income Funds, BK's reports to Polaris continued to conclude that the residual value of Partnership Aircraft would fall significantly, but these consequences were never revealed to purchasers and no amount of suspicion or inquiry by diligent purchasers, could have elicited these facts so material to the value of the investments. Another appraisal organization utilized by the defendants reached similar adverse conclusions in 1988 on residual values. See Avitas Report.

 The allegations made by plaintiffs parallel those of several other Southern District cases in which defendants knew that projected profits could never be realized. In Matignon Finance, Inc. v. Ameritel Communications Corporation, 1989 U.S. Dist. LEXIS 14937, 1989 WL 153282, *5 (S.D.N.Y.), the court rejected a motion to dismiss claims that a defendant issued a private placement memorandum ("PPM") stating that its product was experiencing a "successful reception" and investors could expect to receive cash distributions of profits when it knew that its product was not functioning properly and was losing money. Although the defendant's PPM stated that the investment was "high risk" and that "some assumptions inevitably will not materialize and unanticipated events and circumstances may occur," the court concluded that these warnings were not enough:

The Court does not find . . . however, that the cautionary language resolves the issue of fraud. Plaintiffs do not allege merely that the projected profits were not realized by Tel-Com, but that the projected profits were never intended to be realized and that defendants are responsible for contriving the failed venture.

 Similarly, in Kane v. Wichita Oil Income Fund, 1991 U.S. Dist. LEXIS 15458, 1991 WL 233266, *2 (S.D.N.Y.), the court rejected a motion to dismiss securities fraud claims using similar logic:

as alleged in the complaint, there are many examples of information, both included in and omitted from the offering memorandum, that created the impression that Wichita Oil would yield a profit, where no profit was actually possible . . .from their longstanding experience in the oil industry, defendants knew, but failed to disclose, that the amount of money needed to bring the wells up to full production was out of proportion to the income expected to be generated at full production levels, dooming Wichita Oil to economic failure.

 The court concluded that while defendants might ultimately succeed at trial on a bespeaks caution defense, the plaintiffs' allegations were sufficient to survive a motion to dismiss.

 The logic behind these decisions is clear. Warnings of possible detriment are insufficient if they are simply a smoke screen to cover a company's internal reasonably informed certainty of detriment. Plaintiffs allege that the projections in the offering materials as to return of investors' capital through residual value of the acquired aircraft by Polaris were not honestly-held beliefs at the time they were made. *fn7" To award summary judgment on the basis of warnings which followed these misstatements would undermine the legitimacy of the bespeaks caution doctrine:

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