
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 93-2055                                ROBERT LUCIA, ET AL.,                               Plaintiffs, Appellants,                                          v.                 PROSPECT STREET HIGH INCOME PORTFOLIO, INC., ET AL.,                                Defendants, Appellees.                                 ____________________        No. 93-2056                                 ERIC MILLER, ET AL.,                               Plaintiffs, Appellants,                                          v.                      THE NEW AMERICAN HIGH INCOME FUND, ET AL.,                                Defendants, Appellees.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                 [Hon. A. David Mazzone, U.S. Senior District Judge]                                         __________________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Eugene A. Spector, with whom Robert  M. Roseman, Mark S.  Goldman,            _________________            __________________  ________________        Robert  G. Eisler, Spector &  Roseman, Nancy Gertner,  Jody L. Newman,        _________________  __________________  _____________   ______________        Dwyer, Collora & Gertner, Garwin, Bronzaft, Gerstein &  Fisher, Elwood        ________________________  ____________________________________  ______        S.  Simon & Associates,  Elwood S. Simon,  Wechsler, Skirnick Harwood,        ______________________   _______________   ___________________________        Halebian &  Feffer,  Robert  I. Harwood,  Levin,  Fishbein,  Sedran  &        __________________   __________________   ____________________________        Berman,  Arnold  Levin,  Esq., Kohn,  Nast  &  Graf,  P.C., Robert  S.        ______   ____________________  ___________________________  __________        Kitchenoff,  Chertow & Miller,  Marvin Miller, Shapiro  Grace & Haber,        __________   ________________   _____________  ______________________        and Edward Haber were on brief for appellants.            ____________            Thomas  J. Dougherty, with  whom Skadden,  Arps, Slate,  Meagher &            ____________________             _________________________________        Flom, was on  brief for appellees Messrs.  Omohundro, Frabotta, Carey,        ____        Cote, Meyohas and Platt.            John  D.  Donovan, Jr.,  with  whom  Ivan  B.  Knauer, Timothy  J.            ______________________               ________________  ___________        Hinkle, Kurt  S. Kusiak, and Ropes & Gray, were on brief for appellees        ______  _______________      ____________        The New High Income  Fund, Inc., Patricia Ostrander, Ellen  Terry, and        Richard E. Floor.            Robert A.  Buhlman, with whom Gerald  F. Rath and  Bingham, Dana &            __________________            _______________      _______________        Gould, were on brief for Prudential Securities Incorporated.        _____            Peter M. Saparoff and  Palmer & Dodge were on brief for  appellees            _________________      ______________        Ernest  E.  Monrad, Joseph  L. Bower,  Bernard  J. Korman,  and Franco        Modigliani.            Paul C. Madden, Paul D. Shaffner,  David Moffit, and Saul,  Ewing,            ______________  ________________   ____________      _____________        Remick  & Saul  were on  brief for  appellees Butcher  Corporation and        ______________        Bateman Eichler, Hill Richards, Inc.            Harry L. Manion, III, Thomas G.  Guiney, and Cooley, Manion, Moore            ____________________  _________________      _____________________        &  Jones, P.C. were on brief for appellee Ostrander Capital Management        ______________        Corp.            Eric  A.  Deutsch, Margaret  A.  Flanagan,  and  Testa, Hurwitz  &            _________________  ______________________        _________________        Thibeault were  on brief  for Prospect  Street High  Income Portfolio,        _________        Inc. and Prospect Street Investment Management Co., Inc.                                 ____________________                                  September 28, 1994                                 ____________________                      STAHL,  Circuit  Judge.     In  the  late   1980's,                              ______________            plaintiffs-appellants purchased shares of two  separate "junk            bond"  funds.    After  the value  of  the  purchased  shares            plummeted,  plaintiffs alleged various federal securities law            violations.   In a  series of  related rulings,  the district            court dismissed  some of plaintiffs' allegations  for failure            to  state a claim, and  granted summary judgment  in favor of            defendants  on all remaining claims.   We affirm  in part and            reverse in part.                                          I.                                          I.                                          __                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       ________________________________________                      Prior to this appeal,  the proceedings in these two            cases were not formally consolidated.  As the district  court            noted,  the two cases raise many identical issues.  Thus, our            discussion, unless  we specifically state  otherwise, applies            equally to both cases.                      In 1988,  both New  America High Income  Fund, Inc.            and  Prospect Street  High Income  Portfolio, Inc.  ("the New            America   Fund,"   and   "the  Prospect   Street   Fund,"  or            collectively "the funds") were  first publicly offered on the            New York Stock Exchange.   Each fund's purpose, as  stated in            their  nearly  identical prospectuses,  was  to  invest in  a            diversified portfolio of high yield  fixed-income securities,            commonly known as "junk bonds."                                            -3-                                          3                      In  April  1989,  well  after  the  initial  public            offerings,  a study  headed by  Professor Paul  Asquith ("the            Asquith study") disclosed that the default rate of junk bonds            was  much higher  than had been  previously believed.1   This            conclusion was reached by  calculating the adverse effects of            "aging" on junk bonds.2                        Within months of the  study, though not necessarily            as a direct result  of the study, the  market for junk  bonds            began  to collapse.  By November 1989, both funds had reduced            their  dividends,  and  the  share  value of  each  fund  had            declined considerably.                                            ____________________            1.  The results of the Asquith  study were first made  public            through various financial and general periodicals in April of            1989.  See, e.g., Kenneth N. Gilpin, Further Rise in Rates is                   ___  ____                     ________________________            Expected, N.Y. Times, Apr.  10, 1989, at D9; Linda  Sandler &            ________            Michael Siconolfi,  Junk Bonds  are Taking Their  Lumps, Wall                                ___________________________________            St.  J., Apr.  14, 1989,  at C1.   The  study itself  was not            published  until September 1989.   See Paul  Asquith, et al.,                                               ___            Original Issue High Yield Bonds:  Aging Analyses of Defaults,            _____________________________________________________________            Exchanges and Calls, 44 J. Fin., No. 4 (September 1989).            ___________________            2.  The record reveals that, prior to the Asquith study,  the            traditionally  accepted  method  of determining  annual  bond            default  rates was to divide the total number of defaults per            year by the total size of the relevant market sector for that            year.   As  the  affidavit of  Professor Asquith  points out,            however,  this  method  loses   its  accuracy  in  a  rapidly            expanding  market, such as the junk bond market of the 1970's            and  '80's, where  new issues  greatly enlarged  the existing            market.   In  other words,  the traditional  method does  not            reveal whether  a preponderance of older or  newer issues are            defaulting in a given year.                      Breaking   from   the    traditional   method    of            calculation, Asquith's  study  tracked the  default  rate  of            bonds based on their  dates of issuance.  The  study revealed            that  junk bonds become more  likely to default  as they grow            older, hence the term "aging."                                         -4-                                          4                      Plaintiffs,  who consist  of  putative  classes  of            purchasers  of each fund,  commenced parallel actions against            the  two funds.   The  First Amended  Complaints (hereinafter            "the  original complaints") were lengthy, alleging violations            of a  variety of  federal securities laws,  including section            10(b) of the  Securities Exchange  Act of 1934,  15 U.S.C.               78j(b),  and sections 11 and  12(2) of the  Securities Act of            1933, 15 U.S.C.     77k, 77l(2).3  The  gist of the  original            complaints  was  that  the  funds'  directors,  advisors  and            underwriters ("defendants") knew of, but failed to  disclose,            adverse  information   about  the  junk  bond   market.    In            particular, the complaints alleged that defendants had agreed            to act, and had in  fact acted, as purchasers of  last resort            for undesirable junk bonds; that  they knew of infirmities in                                            ____________________            3.  Sections  10(b), 11  and 12(2)  all  prohibit the  use of            materially misleading  information in the sale of securities,            and  the  same conduct  may  be  actionable under  all  three            sections.   See, e.g.,  Herman &  MacLean v.  Huddleston, 459                        ___  ____   _________________     __________            U.S. 375, 382-83 (1983) (stating that the same conduct may be            actionable under  sections 10(b) and 11); Shapiro v. UJB Fin.                                                      _______    ________            Corp., 964 F.2d  272, 279, 286-89 (3d  Cir.) (explaining that            _____            single  set  of factual  allegations  may  state claim  under            sections 11 and 12(2)), cert. denied, 113 S. Ct. 365 (1992).                                     _____ ______                 While sections 10(b), 11 and 12(2)  differ significantly            from  one another, see, e.g.,  Herman & MacLean,  459 U.S. at                               ___  ____   ________________            382;  Ernst  & Ernst  v.  Hochfelder,  425 U.S.  185,  210-11                  ______________      __________            (1976),  the   parties  focus   solely  on   the  materiality            requirement, which is common  to all three sections.   Cf. In                                                                   ___ __            re  Donald J. Trump Casino Sec. Litig.,  7 F.3d 357, 368 n.10            ______________________________________            (3d Cir. 1993)  ("Because our analysis here  is predicated on            the materiality requirement, which is common  to [plaintiffs'            section  10(b),  11  and  12(2)  claims],  we  do   not  here            distinguish between [those provisions.]"), cert.  denied, 114                                                       _____  ______            S. Ct. 1219 (1994).                                         -5-                                          5            the junk bond market at the time they publicly offered shares            of the  funds and thereafter; and  that misleading statistics            were  used  in the  prospectuses  to  portray the  historical            performance of junk bonds.4                      The  district court  dismissed many  of plaintiffs'            claims  on the pleadings, see  Miller v. New  Am. High Income                                      ___  ______    ____________________            Fund, 755 F. Supp.  1099 (D. Mass. 1991) ("Miller  I"); Lucia            ____                                       _________    _____            v. Prospect St. High Income Portfolio, Inc., 769 F. Supp. 410               ________________________________________            (D.  Mass. 1991)  ("Lucia I"),  but nonetheless  allowed both                                _______            sets of plaintiffs to replead.                      Plaintiffs' Second  Amended Complaints (hereinafter            "the revised complaints") alleged causes of action only under            sections 11 and 12(2).  All section 10(b) claims presented in            the original  complaints were  dropped.  Among  other things,            the  revised  complaints  focused  on a  ten-year  comparison            between junk  bonds  and United  States  Treasury  securities            ("Treasury   securities")   that   was   included    in   the            prospectuses.5   Though the ten-year figure  showed that junk                                            ____________________            4.  The  original  complaints also  alleged  RICO  claims and            common law fraud claims, which were dismissed by the district            court.  Plaintiffs do not appeal these dismissals.             5.  The relevant portion of the New America Fund's prospectus            states:                      The   Fund's   portfolio   will   consist                      primarily   of  "high   yield"  corporate                      bonds. . . .                      "High  yield" bonds offer  a higher yield                      to  maturity  than   bonds  with   higher                                         -6-                                          6                                            ____________________                      ratings  as  compensation for  holding an                      obligation  of an issuer  perceived to be                      less  credit worthy.   The  DBL composite                      measures  the  performance  of  the  most                      representative bonds in the  "high yield"                      market  and is compiled monthly by Drexel                      Burnham  Lambert  Incorporated.    As  of                      December  31,  1987,  the  DBL  Composite                      offered  a  yield  spread  of  484  basis                      points (i.e., 4.84%;  1% equals 100 basis                      points)  over   the  comparable  Treasury                      security,  7%  U.S.  Treasury  due  1994.                      U.S.  Treasury securities  are considered                      to have minimal risk.  The average spread                      between   the   DBL  Composite   and  the                      comparable  U.S.  Treasury issue  was 358                      basis  points for 1980,  397 basis points                      for 1981, 503 basis  points for 1982, 337                      basis points  for 1983, 311  basis points                      for 1984, 362 basis  points for 1985, 496                      basis  points  for  1986  and  451  basis                      points for 1987.                      For  the years  1977  through  1986,  the                      spread  in  yields  between "high  yield"                      securities   and    representative   U.S.                      Treasury    securities    has    averaged                      approximately 393 basis points.  For this                      period,   the   loss  in   principal  and                      interest  due to defaults on "high yield"                      securities has  averaged approximately 97                      basis points.  Thus,  for the period 1977                      to 1986, the  net average spread  between                      "high      yield"     securities      and                      representative  U.S. Treasury  securities                      (i.e., the average  spread between  "high                      yield"   securities  and   U.S.  Treasury                      securities,  minus  the  average  default                      loss  on "high yield" securities) was 296                      basis  points.   For  1987, the  loss  of                      principal and interest due to defaults is                      estimated to have been 125 basis points.*                      However,   past    performance   is   not                      necessarily    indicative    of    future                      performance. . . .                      The capital  structure  of the  Fund  has                      been  designed to  take advantage  of the                                         -7-                                          7            bonds  had  outperformed  Treasury  securities,  the  revised            complaints  alleged that during  the six years  leading up to            each fund's public offering, Treasury securities had actually            outperformed junk bonds.6                         Shortly  after the  revised complaints  were filed,            defendants moved  for summary  judgment.  The  district court            began  by ruling as  a matter of  law that the  comparison to            Treasury securities in  the prospectuses was not  misleading.                                            ____________________                      historical spread in yields between "high                      yield" securities and representative U.S.                      Treasury  securities,  compared with  the                      average  default  loss  on  "high  yield"                      securities.                        *  Statistical  data appearing  above are                      based on information  provided by  Drexel                      Burnham Lambert Incorporated.            The Prospect  Street prospectus is  similarly structured  and            worded.                        We   note  in  passing  that  the  Prospect  Street            prospectus reports significantly different annual spreads for            the  years 1980 through 1987.  Because neither the Miller nor                                                               ______            the Lucia plaintiffs have argued,  either below or on appeal,                _____            that these inconsistencies are  actionable, we deem the issue            waived.            6.  Both revised complaints at   29 state:                      29.   The [Asquith] Study  also disclosed                      that high  yield  debt had  not  in  fact                      produced  higher   realized  returns  and                      lower standard deviations of returns than                      either investment grade or treasury bonds                      for the period 1982 through 1987 . . . .            The  Asquith  study,  in  turn,  relies  on  statistics  from            Marshall E. Blume  & Donald B.  Keim, Volatility Patterns  of                                                  _______________________            Fixed Income Securities, Rodney L. White Center For Financial            _______________________            Research,  Wharton School, University  of Pennsylvania (March            1989) ("the Blume and Keim study").                                         -8-                                          8            See In re New Am. High Income Fund Sec. Litig.,  834 F. Supp.            ___ __________________________________________            501,  506-07 (D.  Mass. 1993) ("Miller  II").  It  went on to                                            __________            grant summary  judgment in favor  of defendants on  all other            claims.  Id.;  Lucia v. Prospect  St. High Income  Portfolio,                     ___   _____    _____________________________________            Inc., No. 90-10781-MA  (D. Mass. Aug. 26  1993) ("Lucia II").            ____                                              ________            Plaintiffs  appeal   these  various  rulings.     We  address            plaintiffs' claims in the order in which they were decided by            the district court.                                         II.                                         II.                                         ___                                      DISCUSSION                                      DISCUSSION                                      __________            A.  Section 10(b) Claims            ________________________                      The  district  court dismissed  plaintiffs' section            10(b)  claims at  the  first  of  these cases'  two  pleading            stages.    We  affirm  that  dismissal,  though  on  somewhat            narrower  grounds  than those  relied  upon  by the  district            court.                      1.  Standard of Review                      ______________________                      Rule 12(b)(6)  dismissals are  subject  to de  novo                                                                 __  ____            review.  Northeast Doran,  Inc. v. Key Bank of Maine, 15 F.3d                     ______________________    _________________            1,  2 (1st  Cir.  1994).    While  we  generally  credit  all            allegations  in   the  complaint  and  draw   all  reasonable            inferences favorable to the plaintiff, id., Rule 9(b) imposes                                                   ___            heightened  pleading requirements  for allegations  of fraud.            "In  all averments  of  fraud or  mistake, the  circumstances                                         -9-                                          9            constituting   fraud   or  mistake   shall  be   stated  with            particularity."  Fed. R. Civ. P. 9(b).                          As we  have stated in  a recent discussion  of Rule            9(b) in the securities context:                      [G]eneral  averments  of the  defendants'                      knowledge  of  material falsity  will not                      suffice.  Consistent with Fed. R. Civ. P.                      9(b),  the  complaint   must  set   forth                      specific facts that make it reasonable to                      believe  that  defendant[s]  knew that  a                      statement   was   materially   false   or                      misleading.  The  rule requires that  the                      particular times, dates, places  or other                      details   of   the   alleged   fraudulent                      involvement of the actors be alleged.            Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 361 (1st            ________    __________________________            Cir. 1994)  (citations and internal quotation marks omitted).            "We have  been especially rigorous in  demanding such factual            support  in  the securities  context."    Romani v.  Shearson                                                      ______     ________            Lehman  Hutton, 929 F.2d 875, 878 (1st Cir. 1991).  Moreover,            ______________            this  heightened pleading  is required  "even when  the fraud            relates  to matters  peculiarly within  the knowledge  of the            opposing party." Id.                             ___                      2.  The Original Complaints                      ___________________________                      Plaintiffs'  original  complaints  alleged  various            wrongdoing  by   defendants.    The  common   thread  running            throughout  the  original   complaints,  however,  was   that            defendants knew of  infirmities in the junk  bond market, and            that  they   nonetheless  entered  a  vast   web  of  illicit            agreements with Drexel Burnham  Lambert, and with former junk                                         -10-                                          10            bond dealer Michael Milken, in order  to become purchasers of            last resort for undesirable junk bonds.                       The  district court  properly concluded  that these            general  allegations in  the original complaints  were wholly            conclusory.   No  factual  basis is  put  forward to  support            plaintiffs'  theory that  defendants  consorted with  Drexel,            that  they dealt with Michael Milken, that they agreed to act            as purchasers of last resort  for undesirable bonds, or  that            they knew  enough to anticipate the impending fall-out of the            junk bond market.   Because all  of plaintiffs' 10(b)  claims            rely  fundamentally  on  such  unsupported  allegations,  the            district court properly dismissed these claims for failure to            meet Rule 9(b).7  Cf.  Romani, 929 F.2d at 878  (finding that                              ___  ______            complaint failed to satisfy Rule  9(b) where it contained "no            factual allegations that would support a reasonable inference            that  adverse  circumstances  existed  at  the  time  of  the            offering,  and  were  known  and  deliberately  or recklessly            disregarded by defendants").            B.  Section 11 and 12(2) Claims            _______________________________                                            ____________________            7.  Given   adequate   grounds   to  support   dismissal   of            plaintiffs'  section 10(b)  claims, we  expressly  decline to            address  the district court's  "loss causation" analysis, and            its  use of Bastian v.  Petren Resources Corp.,  892 F.2d 680                        _______     ______________________            (7th Cir.), cert.  denied, 496 U,S. 906 (1990),  in rejecting                        _____  ______            these same claims.                                         -11-                                          11                      As noted above, plaintiffs were allowed to replead.            Defendants'  motions for summary  judgment soon followed, and            summary judgment was granted in favor of defendants.                      1.  Standard of Review                      ______________________                      "A district  court's grant  of summary judgment  is            subject  to plenary review."   Calenti v. Boto,  24 F.3d 335,                                           _______    ____            338  (1st Cir.  1994).   We  read  the record  indulging  all            inferences  in favor of  the non-moving  party. Id.   Summary                                                            ___            judgment is appropriate only "if the  pleadings, depositions,            answers to interrogatories, and admissions on file,  together            with  the affidavits, if any,  show that there  is no genuine            issue as  to any material  fact and that the  moving party is            entitled to a judgment as a matter of law."  Fed. R. Civ.  P.            56(c).    In  seeking  to  forestall  the  entry  of  summary            judgment, a  nonmovant may not  rely upon allegations  in its            pleadings.   Rather, the  nonmovant must "set  forth specific            facts showing that there is a genuine issue for trial."  Fed.            R. Civ. P. 56(e).                      2.  Parallel Paths Diverge                      __________________________                      Both   complaints   alleged   that   the   six-year            comparison  favored  Treasury  securities.   And  the  Miller                                                                   ______            plaintiffs, unlike the Lucia plaintiffs, in their response to                                   _____            defendants' motion  for  summary judgment,  set  forth  facts            showing that the six-year figure, as well as a shorter three-            year figure, actually favored Treasury securities.  Moreover,                                         -12-                                          12            the district court squarely addressed this argument in ruling            on the Miller  defendants' motion for summary judgment.   See                   ______                                             ___            In re New Am. High Income Fund Sec. Litig., 834 F. Supp. 501,            __________________________________________            506-07  (D. Mass.  1993).   Accordingly, we  see no  merit to            defendants' argument that the  Miller plaintiffs waived  this                                           ______            issue.                       The Lucia plaintiffs,  however, failed to  preserve                          _____            this  issue.  In  fact, the  Lucia plaintiffs'  opposition to                                         _____            defendants' summary judgment motion fails to even mention the            six-year comparison.   Despite the  striking similarities  in            these two cases, the Lucia plaintiffs pursued a significantly                                 _____            different  tack in  opposing defendants'  motion  for summary            judgment,  and  failed  to  argue that  the  Prospect  Street            prospectus was  misleading due  to its  failure to  include a            shorter-term  comparison  to Treasury  securities.   As noted            above,  a nonmovant faced with  a motion for summary judgment            may not rest on its pleadings.  Moreover, we see no reason in            this case to relax our general rule that "theories not raised            squarely before the district court cannot be surfaced for the            first  time  on  appeal."  McCoy v.  Massachusetts  Inst.  of                                       _____     ________________________            Technology, 950  F.2d 13, 22  (1st Cir. 1991),  cert. denied,            __________                                      _____ ______            112 S. Ct. 1939  (1992).  Accordingly, our discussion  of the            six-year comparison applies only to the Miller case.                                                    ______                      3.  Materiality under Sections 11 and 12(2) and the                      ___________________________________________________            Omission of the Six-Year Comparison            ___________________________________                                         -13-                                          13                      Sections 11 and  12(2) both  prohibit, inter  alia,                                                             _____  ____            the  use of  any "untrue  statement of  a material  fact," 15            U.S.C.  77l(2), as  well  the use  of  any information  which            "omits  to state a material  fact necessary in  order to make            the statements, in the light of the circumstances under which            they  are made,  not misleading."   Id.;  see also  15 U.S.C.                                                ___   ___ ____            77k(a).                        The boundaries  of  materiality in  the  securities            context are clearly enunciated in our case law.                      The mere fact that an investor might find                      information  interesting or  desirable is                      not sufficient to satisfy the materiality                      requirement.     Rather,  information  is                      "material" only if  its disclosure  would                      alter the "total mix" of  facts available                                 _____ ___                      to  the  investor  and  "if  there  is  a                      substantial likelihood  that a reasonable                      ___________ __________                      shareholder would  consider it important"                      to the investment decision.            Milton v.  Van Dorn Co.,  961 F.2d 965,  969 (1st Cir.  1992)            ______     ____________            (quoting  Basic,  Inc.  v.  Levinson, 485  U.S.  224,  231-32                      ____________      ________            (1988)).    It is  equally  well established  that  "[w]hen a            corporation does make  a disclosure--whether it be  voluntary            or  required--there  is  a  duty  to  make  it  complete  and            accurate."  Roeder  v. Alpha  Indus., Inc., 814  F.2d 22,  26                        ______     ___________________            (1st Cir. 1987).   Moreover, disclosed facts may "not  be `so            incomplete as  to mislead.'"  Backman v. Polaroid  Corp., 910                                          _______    _______________            F.2d 10, 16  (1st Cir. 1990) (en banc)  (quoting SEC v. Texas                                                             ___    _____            Gulf Sulphur Co.,  401 F.2d  833, 862 (2d  Cir. 1968),  cert.            ________________                                        _____            denied, 394 U.S. 976 (1969)).            ______                                         -14-                                          14                      In addition, the fact that a statement is literally            accurate does not preclude liability under federal securities            laws.   "Some  statements,  although literally  accurate, can            become, through  their context  and  manner of  presentation,            devices  which  mislead  investors.   For  that  reason,  the            disclosure required by the securities laws is measured not by            literal  truth,  but  by  the  ability  of  the  material  to            accurately  inform rather  than mislead  prospective buyers."            McMahan v. Wherehouse Entertainment,  Inc., 900 F.2d 576, 579            _______    _______________________________            (2d  Cir. 1990), cert. denied,  501 U.S. 1249  (1991).  Under                             _____ ______            the  foregoing standards,  "emphasis  and gloss  can, in  the            right circumstances, create liability."  Isquith v. Middle S.                                                     _______    _________            Utils., Inc., 847 F.2d 186, 203 (5th Cir.), cert. denied, 488            ____________                                _____ ______            U.S. 926 (1988).                      Finally, we  note that  the question of  whether an            omission or  misleading statement is material  "is normally a            jury  question and  should not  be taken  from it  unless the            court has engaged in meticulous and well articulated analysis            of each item of withheld or misrepresented information."  SEC                                                                      ___            v. Seabord Corp., 677 F.2d  1301, 1306 (9th Cir. 1982).   See               _____________                                          ___            also   Milton,  961   F.2d   at   970  ("`[T]he   [objective]            ____   ______            determination [of materiality] requires  delicate assessments            of the inferences a  `reasonable shareholder' would draw from            a given  set of [undisputed]  facts and  the significance  of            those inferences to him  and those assessments are peculiarly                                         -15-                                          15            ones  for the trier of  fact.'") (quoting TSC  Indus. Inc. v.                                                      ________________            Northway,  Inc., 426 U.S. 438, 450 (1976)); Isquith, 847 F.2d            _______________                             _______            at  208   (stating  that  the  adequacy   of  disclosures  in            securities cases is generally a question for a jury).                      As we have said, plaintiffs argue that the ten-year            comparison between Treasury securities and junk bonds, though            accurate,   was  misleading   because  a   shorter,  six-year            comparison favored  Treasury securities.  We  begin by noting            that the six  years at issue are the six  years leading up to            the  fund's public offering.   Moreover, while any one or two            years might favor Treasury securities without amounting to an            unfavorable  trend,  we  think  that  a  six-year  comparison            favoring Treasury  securities is  substantial enough  to cast            some  doubt  on  the  reliability of  the  reported  ten-year            figure.   In other words,  we cannot say  as a matter  of law            that  the undisclosed information  about the  six-year period            would  not  alter the  total mix  of  facts available  to the            investor.   Rather,  a  jury  could  find  that  there  is  a            substantial  likelihood that  a reasonable  shareholder would            consider the six-year comparison  important to the investment            decision.  See Milton, 961 F.2d at 969.                           ___ ______                      We expressly  decline to  make hard and  fast rules            about the  time length of reported  investment results, i.e.,            we  do not  hold  that ten-year  comparisons  must always  be            accompanied by shorter-term comparisons.  Nor do we hold that                                         -16-                                          16            a  plaintiff always creates a triable issue of fact by merely            unearthing unfavorable news regarding shorter  time intervals            than those reported.                        Moreover, the unfavorable  six-year figure in  this            case  does  not  necessarily render  the  ten-year comparison                             ___________            misleading.   Rather, a  jury, knowing the  individual annual            returns  over the ten-year period at issue (which are not now            ascertainable  on the  record before  us) and  perhaps having            other guideposts for determining the relative  reliability of            shorter- and longer-term bond comparisons, may conclude  that            the ten-year  comparison standing alone is  not misleading at            all.           Because the district  court felt it irrelevant            that  defendants  had  not   reported  the  claimed  six-year            negative trend,  it gave no  attention to whether  the Miller                                                                   ______            plaintiffs had adequately established a factual base -- viz.,            that  defendants knew,  or reasonably  should have  known, of            that change of circumstances.  While we have some doubt about            the adequacy  of the Miller plaintiffs'  proof of defendants'                                 ______            knowledge, we  nonetheless recognize  that discovery on  this            issue was limited.   We reverse and remand to  permit further            discovery in this area.   Following such discovery, the court            may then reconsider defendants' motion  for summary judgment,            if defendants choose to renew it.                      Thus, on  the current state  of the  record in  the            Miller case, summary judgment on this issue was improper.  We            ______                                         -17-                                          17            agree with  the district  court that the  ten-year comparison            "paints  a much rosier picture," New America, 834 F. Supp. at                                             ___________            507, than  the six-year comparison.   Having established this            fact, the district  court erred in  concluding in the  Miller                                                                   ______            case that the comparison nonetheless  was not misleading as a            matter of law.                      4.  Other Summary Judgment Issues                      _________________________________                      While  fact  issues  remain  with   regard  to  the            Treasury security comparison in the Miller case, the district                                                ______            court properly  granted summary judgment on  all other issues            in  both cases.   For  example,  plaintiffs alleged  that (1)            defendants  knew or  should  have known  of  the effect  that            "aging" calculations  have on determining junk  bond returns,            and  (2) defendants should not have used the DBL composite as            an  indicator of past performance of  junk bonds because that            composite failed to account for "forced bond exchanges."8                        It is  doubtless true, as  plaintiffs allege,  that            several significant studies with regard to "aging" discovered            statistical  infirmities  in   the  traditional  methods   of            calculating junk  bond returns.  However,  these studies were            completed only after the prospectuses were issued.  Moreover,            according to affidavits in the record, the Asquith study  was                                            ____________________            8.  Forced  bond exchanges, also  known as  "distressed" bond            exchanges,  occur when a bond issuer,  rather than default on            its existing  obligations, exchanges  them for a  new set  of            obligations.                                         -18-                                          18            the first study  of its  kind to display  the infirmities  of            previous  calculation methods.   Plaintiffs failed  to adduce            any facts  which, contrary to  defendants' affidavits,  would            tend to show that defendants were aware of these infirmities,            or that they could or should  have been aware of the  effects            of  "aging" analysis  at  the time  the funds  were initially            offered  to the public.  Given plaintiffs' failure to raise a            triable issue of fact, we  affirm the district court's  grant            of summary judgment on this issue.                      A   similar   analysis   disposes  of   plaintiffs'            allegation that  the DBL composite, relied  on extensively by            defendants in the prospectuses,  failed to account for forced            bond exchanges.  Defendants  offered affidavits to the effect            that  forced bond exchanges in fact were accounted for in the            DBL composite.  Plaintiffs offer no evidence to the contrary.            Accordingly,  we find no error  in the district court's grant            of summary judgment on this issue.  Because further discovery            will occur in the Miller case, we leave to the district court                              ______            the formulation  of the extent of  that discovery, consistent            with the ruling made herein.                      Lastly, defendant Prudential Bache,  an underwriter            of the New America  Fund, argues that claims against  it were            untimely filed.  The district court did not rule  on when the            statute of  limitations in this case began to run, nor can we            make  such   a  determination   on  the  record   before  us.                                         -19-                                          19            Accordingly, we  leave this important procedural  issue to be            determined in the first instance by the district court.                                         III.                                         III.                                         ____                                      CONCLUSION                                      CONCLUSION                                      __________                      We  have carefully  considered all  other arguments            and find them to be either  waived or without merit.  For the            foregoing reasons,  the various orders of  the district court            are                      Affirmed in full as  to the Lucia case, and,  as to                      ___________________________________________________            the  Miller  case, affirmed  in part,  reversed in  part, and            _____________________________________________________________            remanded   for  further  proceedings   consistent  with  this            _____________________________________________________________            opinion.            ________                                         -20-                                          20
