UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-10979
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3038189
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1996 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Operating investment property, at cost:
Land $ 950 $ 950
Building and improvements 4,088 4,088
-------- ---------
5,038 5,038
Less accumulated depreciation (1,364) (1,287)
-------- ---------
3,674 3,751
Investments in joint ventures, at equity 2,746 3,030
Cash and cash equivalents 6,450 296
Deferred expenses, net 58 74
------- -------
$12,928 $ 7,151
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 4 $ 4
Accrued expenses 30 40
Mortgage note payable 1,453 1,549
Partners' capital 11,441 5,558
------- -------
$12,928 $ 7,151
======= =======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partner Partners
------- -------
Balance at September 30, 1994 $ (59) $ 5,776
Cash distributions (3) (314)
Net income 2 236
-------- --------
Balance at June 30, 1995 $ (60) $ 5,698
======== ========
Balance at September 30, 1995 $ (61) $ 5,619
Cash distributions (3) (314)
Net income 62 6,138
-------- --------
Balance at June 30, 1996 $ (2) $ 11,443
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental revenues $ 119 $ 119 $ 358 $ 358
Interest income 17 4 27 10
------- ----- -------- ------
136 123 385 368
Expenses:
Interest expense 39 40 118 125
Management fees 5 5 13 13
Depreciation expense 26 26 77 77
General and administrative 99 170 274 380
------- ----- -------- ------
169 241 482 595
------- ----- -------- ------
Operating loss (33) (118) (97) (227)
Partnership's share of
ventures' income 24 110 263 466
Partnership's share of gain
on sale of operating
investment property 6,034 - 6,034 -
------- ----- ------- ------
Net income (loss) $ 6,025 $ (8) $6,200 $ 239
======== ====== ====== ======
Per Limited Partnership Unit:
Net income (loss) $276.83 $ (0.37) $284.83 $10.97
======= ======= ======= ======
Cash distributions $ 4.85 $ 4.85 $ 14.55 $14.55
======= ======= ======== ======
The above per Limited Partnership Unit information is based upon the 21,550
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 6,200 $ 239
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation expense 77 77
Amortization of deferred financing costs 16 16
Partnership's share of ventures' income (263) (466)
Partnership's share of gain on sale
of operating investment property (6,034) -
Changes in assets and liabilities:
Accounts payable and accrued expenses (10) 6
--------- ------
Total adjustments (6,214) (367)
--------- ------
Net cash used in operating activities (14) (128)
--------- ------
Cash flows from investing activities:
Distributions from joint ventures 6,581 554
Additional investment in joint ventures - (1)
--------- ------
Net cash provided by investing activities 6,581 553
---------- --------
Cash flows from financing activities:
Distributions to partners (317) (317)
Principal payments on mortgage note payable (96) (88)
--------- ------
Net cash used in financing activities (413) (405)
--------- ------
Net increase in cash and cash equivalents 6,154 20
Cash and cash equivalents, beginning of period 296 217
--------- ------
Cash and cash equivalents, end of period $ 6,450 $ 237
======== =======
Cash paid during the period for interest $ 102 $ 109
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained
in the Partnership's Annual Report for the year ended September 30, 1995.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
2. Related Party Transactions
Management fees earned by the Adviser totalled $13,000 for each of the
nine-month periods ended June 30, 1996 and 1995. Accounts payable
affiliates at June 30, 1996 and September 30, 1995 consists of $4,000 of
management fees payable to the Adviser at both dates.
Included in general and administrative expenses for both of the nine-month
periods ended June 30, 1996 and 1995 is $55,000, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the
Partnership.
3. Real Estate Investments
As of June 30, 1996, the Partnership directly owns one operating investment
property (Northeast Plaza) and has investments in three joint venture
partnerships which own or owned operating properties as more fully
described in the Partnership's Annual Report. The joint ventures are
accounted for by using the equity method because the Partnership does not
have a voting control interest in the ventures. Under the equity method,
the assets, liabilities, revenues and expenses of the joint ventures do not
appear in the Partnership's financial statements. Instead, the investments
are carried at cost adjusted for the Partnership's share of the ventures'
earnings, losses and distributions.
On June 19, 1996, the joint venture, which owned the Camelot Apartments,
sold the operating investment property for $15,150,000. The Partnership
received net sales proceeds of approximately $5.9 million after deducting
closing costs, the repayment of the two outstanding first mortgage loans,
the buyout of an underlying ground lease and the co-venturers' share of the
net proceeds. The Partnership will make a special distribution to the
Limited Partners from the Camelot sales proceeds of approximately $5.5
million, or $256 per original $1,000 investment, on August 15, 1996. The
remaining net proceeds will be added to the Partnership's cash reserves to
provide for the potential capital needs of the Partnership's three
remaining investments.
<PAGE>
Summarized operating results of the three joint ventures for the three and
nine months ended June 30, 1996 and 1995 are as follows:
Condensed Combined Summary of Operations
For the three and nine months ended June 30, 1996 and 1995
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Rental revenues and
expense recoveries $1,499 $1,484 $4,492 $4,593
Interest and other income 2 40 128 115
------- ------ ------ ------
1,501 1,524 4,620 4,708
Property operating expenses 789 665 2,192 1,923
Interest expense 440 432 1,310 1,293
Depreciation and amortization 204 207 608 620
------- ------ ------ ------
1,433 1,304 4,110 3,836
------- ------ ------ ------
Operating income 68 220 510 872
Gain on sale of operating
investment property 11,996 - 11,996 -
------- ------ ------ ------
Net income $12,064 $ 220 $12,506 $ 872
======= ======= ======= ======
Net income:
Partnership's share of
combined income $ 7,520 $ 135 $ 7,809 $ 541
Co-venturers' share of
combined income 4,544 85 4,697 331
-------- -------- -------- ------
$ 12,064 $ 220 $ 12,506 $ 872
======== ======== ======== ======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1996 and 1995 (in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of combined
income, as shown above $ 7,520 $ 135 $ 7,809 $ 541
Amortization of excess basis (1,462) (25) (1,512) (75)
------- -------- ------- --------
Partnership's share of
ventures' net income $ 6,058 $ 110 $ 6,297 $ 466
======= ======= ======= ======
<PAGE>
The Partnership's share of ventures' net income is presented as follows on
the accompanying statements of operations (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of ventures'
income $ 24 $ 110 $ 263 $ 466
Partnership's share of
gain on sale of operating
investment property 6,034 - 6,034 -
------ ------- ------- -----
$ 6,058 $ 110 $ 6,297 $ 466
======= ======= ======= ======
4. Note and Interest Receivable, Net
Note and interest receivable at June 30, 1996 and September 30, 1995
consists of a $3,445,336 note received in connection with the Partnership's
sale of its joint venture interest in the Briarwood joint venture in
December of 1984. The note has been netted against deferred gain on the sale
of a like amount on the Partnership's balance sheet. The note bears interest
at 9% annually, matures on January 1, 2000 and is subordinated to a first
mortgage loan. Interest and principal payments on the note are payable only
to the extent of net cash flow from the properties sold, as defined in the
sale documents. Any interest not received accrues additional interest of 9%
per annum. The Partnership's policy has been to defer recognition of all
interest income on the note until collected due to the uncertainty of its
collectibility. To date, the Partnership has not received any interest
payments. Per the terms of the note agreement, accrued interest receivable
as of June 30, 1996 would be approximately $5,872,000. Since the properties
securing the note continue to generate operating deficits and the
Partnership's note receivable is subordinated to other first mortgage debt,
there is significant uncertainty as to the collectibility of both the
principal and accrued interest as of June 30, 1996. As a result, the portion
of the remaining gain to be recognized, which is represented by the note and
accrued interest, has been deferred until realized in cash.
<PAGE>
5. Mortgage Note Payable and Contingencies
The mortgage note payable at June 30, 1996 and September 30, 1995 is secured
by the Partnership's wholly-owned Northeast Plaza Shopping Center. On March
29, 1994, the Partnership refinanced the existing wraparound mortgage note
secured by Northeast Plaza, which had been in default for over two years,
with a new loan issued by the prior underlying first mortgage lender. The
new loan, in the initial principal amount of $1,722,000, has a term of five
years and bears interest at a fixed rate of 9% per annum. Monthly principal
and interest payments of approximately $21,900 are due until maturity in May
1999. The loan may be prepaid at anytime without penalty.
Management believes that the Partnership's efforts to sell or refinance the
Northeast Plaza property have been impeded by potential buyer and lender
concerns of an environmental nature with respect to the property. During
1990, it was discovered that certain underground storage tanks of a Mobil
service station located adjacent to the shopping center had leaked and
contaminated the groundwater in the vicinity of the station. Since the time
that the contamination was discovered, Mobil Oil Corporation (Mobil) has
investigated the problem and is progressing with efforts to remedy the soil
and groundwater contamination under the supervision of the Florida
Department of Environmental Regulation, which has approved Mobil's remedial
action plan. During fiscal 1990, the Partnership had obtained an
indemnification agreement from Mobil in which Mobil agreed to bear the cost
of all damages and required clean-up expenses. Furthermore, Mobil
indemnified the Partnership against its inability to sell, transfer, or
obtain financing on the property because of the contamination.
As a result of the contamination of the groundwater at Northeast Plaza, the
Partnership has incurred certain damages, primarily related to the inability
to sell the property and to delays in the process of refinancing the
property's mortgage indebtedness. The Partnership has incurred significant
out-of-pocket and legal expenses in connection with such sale and
refinancing efforts. Despite repeated requests by the Partnership for
compensation under the terms of the indemnification agreement, to date Mobil
has refused to compensate the Partnership for any of these damages. During
the first quarter of fiscal 1993, the Partnership filed suit against Mobil
for breach of indemnity and property damage. On April 28, 1995, Mobil Oil
Corporation was successful in obtaining a Partial Summary Judgment which
removed the case from the Federal Court system. Subsequently, the
Partnership has filed an action in the Florida State Court system. This
action is for substantially all of the same claims and utilizes the
substantial discovery and trial preparation work already completed for the
Federal case. A jury trial is scheduled to commence on September 23, 1996.
The outcome of these legal proceedings cannot presently be determined.
The Partnership is involved in certain other legal actions. At the present
time, the General Partner is unable to estimate what impact, if any, the
resolution of these matters may have on the Partnership's financial
statements, taken as a whole.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As previously reported, given the current strength of the national real
estate market with respect to multi-family apartment properties, management
began to actively market the Camelot Apartments for sale during the fourth
quarter of fiscal 1995. In addition, the Partnership had engaged in preliminary
discussions with its co-venture partners regarding the possible sale of the
Partnership's interest in the Camelot joint venture. In accordance with the
terms of the joint venture agreement, the co-venturers had the right to match
any third party offer obtained to buy the property. On June 19, 1996, the joint
venture which owned the Camelot Apartments sold the operating investment
property to an unrelated third party for $15,150,000. The Partnership received
net sales proceeds of approximately $5.9 million after deducting closing costs,
the repayment of the two outstanding first mortgage loans, the buyout of an
underlying ground lease and the co-venturers' share of the net proceeds. The
Partnership will make a special distribution to the Limited Partners from the
Camelot sale proceeds of approximately $5.5 million, or $256 per original $1,000
investment, on August 15, 1996. The remaining net proceeds will be added to the
Partnership's cash reserves to provide for the potential capital needs of the
Partnership's three remaining investments. As a result of the sale of the
Camelot property at a substantial gain on the Partnership's original investment,
the return of the capital proceeds to the Limited Partners and the replenishing
of the Partnership's cash reserve balances, management expects to be able to
increase the Partnership's distribution rate for operating cash flow
distributions in future quarters. Effective for the distribution to be made on
November 15, 1996 for the quarter ended September 30, 1996, the distribution
rate is expected to increase from 3% to 5% per annum on the $390.25 portion of a
Limited Partner's original $1,000 investment which will remain following the
special distribution of the Camelot proceeds.
The Partnership's three remaining investment properties are retail
shopping centers, two of which are located in Florida and one of which is
located in Texas. At the present time, real estate values for retail shopping
centers in certain markets are being adversely impacted by the effects of
overbuilding and consolidations among retailers which have resulted in an
oversupply of space. Currently, occupancy levels at all three of the
Partnership's retail properties remain fairly strong, and operations to date
have not been significantly affected by this general trend. At the Pine Trail
Shopping Center, occupancy increased to 97% as of June 30, 1996, up from 96% as
of March 31, 1996. During the current quarter, the property's leasing team
signed a new five-year lease with a bakery that is scheduled to open a 2,400
square foot store in September. In addition, the leasing team completed
negotiations with an existing optical store for a five-year renewal of its lease
at a rental rate significantly above the rate per square foot in this tenant's
previous lease. There are now two vacant spaces at the Center, a 1,000 square
foot space and a 7,400 square foot location. A lease with one of the Center's
largest tenants, Marshalls, occupying 30,000 square feet, was due to expire in
December 1996. Subsequent to the quarter-end, this tenant informed management of
its intent to exercise a five-year renewal option of this lease obligation.
Capital improvements completed during the quarter ended June 30, 1996 included a
roof replacement for a 12,000 square foot portion of the Center.
Central Plaza Shopping Center ended the third quarter at a 92% occupancy
level, compared to 89% as of March 31, 1996. The increase in occupancy is the
result of the move-in of a 5,700 square foot retail eye care tenant. In
addition, the property's leasing team is marketing a number of small spaces
currently available at the Center. During the current quarter, roof replacement
work began on the roofs above the spaces occupied by the Center's two anchor
tenants, Best Buy and Service Merchandise. Additionally, the parking lot was
re-striped during the quarter.
<PAGE>
As discussed in the Partnership's Annual Report, management believes that
the Partnership's efforts to sell or refinance the Northeast Plaza property have
been impeded by potential lender concerns of an environmental nature with
respect to the property. During 1990, it was discovered that certain underground
storage tanks of a Mobil service station located adjacent to the shopping center
had leaked and contaminated the groundwater in the vicinity of the station.
Since the time that the contamination was discovered, Mobil has investigated the
problem and is progressing with efforts to remedy the soil and groundwater
contamination under the supervision of the Florida Department of Environmental
Regulation, which has approved Mobil's remedial action plan. During fiscal 1990,
the Partnership had obtained a formal indemnification agreement from Mobil Oil
Corporation in which Mobil agreed to bear the cost of all damages and required
clean-up expenses. Furthermore, Mobil indemnified the Partnership against its
inability to sell, transfer or obtain financing on the property because of the
contamination. As a result of the contamination of the groundwater at Northeast
Plaza, the Partnership has incurred certain damages, primarily related to the
inability to sell the property and to delays in the process of refinancing the
property's mortgage indebtedness. The Partnership has incurred significant
out-of-pocket and legal expenses in connection with such sale and refinancing
efforts. Despite repeated requests by the Partnership for compensation under the
terms of the indemnification agreement, to date Mobil has refused to compensate
the Partnership for any of these damages. During the first quarter of fiscal
1993, the Partnership filed suit against Mobil for breach of indemnity and
property damage. On April 28, 1995, Mobil Oil Corporation was successful in
obtaining a Partial Summary Judgment which removed the case from the Federal
Court system. Subsequently, the Partnership filed an action in the Florida State
Court system. This action is for substantially all of the same claims and
utilizes the substantial discovery and trial preparation work already completed
for the Federal case. A jury trial is scheduled to commence on September 23,
1996. The outcome of these legal proceedings cannot presently be determined.
At June 30, 1996, the Partnership had available cash and cash equivalents
of $6,450,000. Such balance includes the Partnership's share of the proceeds of
the Camelot sale transaction discussed further above. As noted above,
approximately $5.4 million of such proceeds will be distributed to the Limited
Partners on August 15, 1996. The remaining balance of the cash and cash
equivalents will be used for working capital requirements and distributions to
the partners. The source of future liquidity and distributions to the partners
is expected to be through cash generated from the operations of the
Partnership's income-producing investment properties and proceeds received from
the sale or refinancing of such properties or sales of the Partnership's
interests in such properties. Such sources of liquidity are expected to be
sufficient to meet the Partnership's needs on both a short-term and long-term
basis. In addition, the Partnership has a note receivable that it received as a
portion of the proceeds from the sale of its interest in the Briarwood joint
venture in fiscal 1985. The note and related accrued interest receivable have
been netted against a deferred gain of a like amount on the accompanying balance
sheet. The interest owed on the note receivable is currently payable only to the
extent that the related properties generate excess net cash flow. To date, no
payments have been received on the note, which matures on January 1, 2000, and
none are expected in the near future. Since the operating properties continue to
generate net cash flow deficits and the Partnership's note receivable is
subordinated to the existing first mortgage debt, there is significant
uncertainty as to the collectibility of the principal and accrued interest.
Proceeds, if any, received on the note would represent a source of additional
liquidity for the Partnership.
Results of Operations
Three Months Ended June 30, 1996
The Partnership reported net income of $6,025,000 for the three months
ended June 30, 1996, as compared to a net loss of $8,000 for the same period in
the prior year. The Partnership's net income for the current three-month period
is a result of the Partnership's share of the gain recognized from the sale of
the Camelot Apartments, as discussed above. The gain recognized by the Camelot
joint venture totalled $11,996,000 and the Partnership's share of such gain
amounted to $6,034,000, net of the write-off of the unamortized balance of the
Partnership's excess basis in the Camelot joint venture of $1,437,000. The
Partnership's share of ventures' income (excluding the gain on the sale of the
Camelot Apartments) decreased by $86,000 for the three months ended June 30,
1996, when compared to the same period in the prior year. The primary reasons
for this decline were an increase in real estate taxes at Central Plaza and
higher repairs and maintenance expenses at Pine Trails and Camelot in the
current three-month period.
The Partnership's operating loss decreased by $85,000 for the three months
ended June 30, 1996, when compared to the same period in the prior year.
Operating loss decreased mainly as a result of a decrease in general and
administrative expenses of $71,000 and an increase in interest income of
$13,000. General and administrative expenses decreased primarily as a result of
incremental expenses incurred in the prior year relating to the annual
independent valuation of the Partnership's operating properties. Interest income
increased due to the higher average outstanding cash balances during the current
three-month period resulting from the receipt of the Camelot sale proceeds.
Nine Months Ended June 30, 1996
The Partnership reported net income of $6,200,000 for the nine months
ended June 30, 1996, as compared to net income of $239,000 for the same period
in the prior year. The substantial increase in the Partnership's net income for
the current nine-month period is primarily a result of the Partnership's share
of the gain from the sale of the Camelot Apartments, as discussed above.
Partially offsetting the gain on the Camelot sale, the Partnership's share of
ventures' income decreased by $203,000, when compared to same period in the
prior year. This unfavorable change in the Partnership's share of ventures'
income was primarily a result of an increase in combined property operating
expenses. These expenses increased mainly as a result of higher repairs and
maintenance expenses at the Camelot joint venture relating to the preparation of
the property for sale, an increase in real estate taxes at Central Plaza and an
increase in maintenance expenses at the Pine Trail for the current nine-month
period.
The Partnership's operating loss decreased by $130,000 for the nine months
ended June 30, 1996, when compared to the same period in the prior year.
Operating loss decreased mainly as a result of a decrease in general and
administrative expenses of $106,000 and an increase in interest income of
$17,000. General and administrative expenses decreased primarily as a result of
incremental expenses incurred in the prior year relating to the annual
independent valuation of the Partnership's operating properties. A decrease in
legal expenditures relating to the Mobil litigation discussed above also
contributed to the decrease in general and administrative expenses for the
current nine-month period. Interest income increased due to the higher average
outstanding cash balances during the current nine-month period resulting from
the receipt of the Camelot sale proceeds.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "new York Limited Partnership Actions")
were filed in the United State District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and PaineWebber Group
Inc. (together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated under
the title In re PaineWebber Limited Partnership Litigation, the plaintiffs
amended their complaint to assert claims against a variety of other defendants,
including Third Income Properties, Inc., which is the General Partner of the
Partnership and an affiliate of PaineWebber. On May 30, 1995, the court
certified class action treatment of the claims asserted in the litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partner, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement has been scheduled for October 25, 1996.
In June 1996, approximately 50 plaintiffs filed an action entitled
Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests, including those
offered by the Partnership. The complaint is substantially similar to the
complaint in the Abbate action described in prior reports, and seeks
compensatory damages of $3.4 million plus punitive damages.
The status of the other litigation involving the Partnership and its
General Partner remains unchanged from the description provided in the
Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the General Partner cannot estimate the
impact, if any, of the potential indemnification claims on the Partnership's
financial statements, taken as a whole. Accordingly, no provision for any
liability which could result from the eventual outcome of these matters has been
made in the accompanying financial statements of the Partnership.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES THREE
LIMITED PARTNERSHIP
By: THIRD INCOME PROPERTIES, INC.
General Partner
By:/s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 6450
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6450
<PP&E> 7784
<DEPRECIATION> 1364
<TOTAL-ASSETS> 12928
<CURRENT-LIABILITIES> 34
<BONDS> 1453
0
0
<COMMON> 0
<OTHER-SE> 11441
<TOTAL-LIABILITY-AND-EQUITY> 12928
<SALES> 0
<TOTAL-REVENUES> 6,682
<CGS> 0
<TOTAL-COSTS> 364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
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<INCOME-TAX> 0
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</TABLE>
