UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: August 31, 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: 0-17145
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND LP
(Exact name of registrant as specified in its charter)
Delaware 13-3069311
(State of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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_____
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
October 1, 1981 as supplemented
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND LP
1996 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership Interest
and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-4
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure II-4
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners and
Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-14
<PAGE>
PART I
Item 1. Business
Paine Webber Qualified Plan Property Fund, LP (the "Partnership") is a
limited partnership formed in May 1981 under the Uniform Limited Partnership Act
of the State of Delaware to invest in a diversified portfolio of existing
income-producing real properties through land purchase-leaseback transactions
and first mortgage loans. The Partnership sold $18,781,000 in Limited
Partnership Units (18,781 Units at $1,000 per Unit) from October 1, 1981 to
September 30, 1982 pursuant to a Registration Statement on Form S-11 filed under
the Securities Act of 1933 (Registration No. 2-72166). Limited Partners will not
be required to make any additional capital contributions.
The Partnership originally acquired land and made first mortgage loans
secured by buildings with respect to four operating properties. Through August
31, 1996, the Partnership had sold or been prepaid on three of these
investments. As of August 31, 1996, the Partnership owned one operating property
directly as a result of foreclosing on a mortgage loan investment. The
Partnership's wholly-owned real estate investment is described below.
Property name Type of Property &
and Location Date of Investment Size
- ------------ ------------------ ----
Harwood Village
Shopping Center (1) Shopping Center 86,300 net
Bedford, TX 9/27/82 leasable sq. ft.;
6.9 acres of land
(1)During fiscal 1993, the borrower of the mortgage loan secured by the Harwood
Village Shopping Center defaulted on its obligation to repay the remaining
interest and principal at the scheduled maturity date of September 1, 1992.
Subsequent to the maturity date, the Partnership granted the borrower two
short-term extensions under a forbearance agreement on substantially the same
terms as the original loan. The borrower did not repay the obligation upon
the expiration of the second forbearance period at March 31, 1994. The
Partnership assumed ownership of the Harwood Village on June 19, 1995 under
the terms of a settlement of the borrower's bankruptcy proceedings. See Notes
to the Financial Statements filed with this Annual Report for a further
description of the agreements and transactions through which the Partnership
has acquired this real estate investment.
As noted above, three of the Partnership's investments have been
liquidated to date. On July 16, 1986, the owners of the 31 Milk Street building,
located in Boston, Massachusetts, executed their option under the terms of the
ground lease and sold the property. The Partnership received $4,500,000 as
repayment of its mortgage loan and, pursuant to the terms of the ground lease,
$3,250,000 of proceeds from the sale of the land, which had a cost basis of
$1,000,000. The Partnership recognized a gain of $2,250,000 on this transaction.
On December 2, 1986, the Partnership had foreclosed on the mortgage loan and
ground lease secured by the Peoples Bank Office Building for non-payment of the
required monthly payments of base rent and interest. The Partnership operated
the property, which is located in Dallas, Texas, for a number of years, using
the services of a local property management company, while attempting to
stabilize occupancy at the property until such time as conditions favorable to a
sale of the property could be achieved. On October 8, 1993, the Partnership sold
the Peoples Bank Office Building and received net proceeds of approximately
$1,587,000. The original cost of the People's Bank mortgage loan and land
investments totalled $4,150,000. On November 3, 1986, the owners of the Post Oak
Apartments, located in Louisville, Kentucky, repaid the outstanding principal
balance of a mortgage loan payable to the Partnership, repurchased the related
land and also paid additional consideration of $100,000 to the Partnership in
return for certain amendments to the ground lease, which resulted in the
Partnership retaining a residual interest in the future appreciation of the
operating property above $4,967,500. During fiscal 1994, the Partnership
received written notice from the owners of the Post Oak Apartments that they
intended to exercise their purchase option at a price of approximately
$5,023,000. After applying the 37.5% participation rate, the proceeds due to the
Partnership from the settlement of its remaining interest in the ground lease
amounted to $21,000, which the Partnership received in May 1994. As a result of
these events, the Partnership no longer holds any interest in these three
properties.
<PAGE>
The Partnership's investment objectives are to:
(1) preserve and protect Limited Partners' capital and related buying
power;
(2) provide the Limited Partners with cash distributions from investment
income; and
(3) achieve long-term capital appreciation in the value of the Partnership's
investments.
Through August 31, 1996, the Limited Partners had received cumulative cash
distributions totalling approximately $23,082,000, or $1,237 per original $1,000
investment for the Partnership's earliest investors. This return includes
distributions totalling $642 per $1,000 investment from the liquidations of the
31 Milk Street investments in July of 1986, the repayment of the Post Oak
mortgage loan and land investments in November of 1986, the sale of the Peoples
Bank Office Building in October 1993 and the liquidation of the Partnership's
residual interest in the Post Oak property in July 1994.
In all likelihood, the Partnership will not meet its capital appreciation
objective. As noted above, pending the distribution of proceeds from the final
liquidation of the remaining investment in the Harwood Village Shopping Center,
the Partnership has returned capital proceeds of $642 per original $1,000
investment to the Limited Partners. The amount of proceeds from the sale of
Harwood Village will ultimately depend upon the value of the investment property
at the time of its final liquidation, which cannot presently be determined.
However, based on current estimated market values, a near term sale of Harwood
Village would not be expected to yield sufficient proceeds in excess of the
Partnership's original cost basis in Harwood Village, of $3,918,000, to offset
the loss realized on the Peoples Bank investment. 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. It remains to be seen whether this
general trend will impact the Partnership's ability to recover its net
investment in Harwood Village. Subsequent to obtaining control of the operations
of the Harwood Village property, the Partnership began to market the property
for sale with a goal of completing a sale and a liquidation of the Partnership
by the end of calendar 1996. As discussed further in Item 7, the Partnership had
the property under contract for sale twice during fiscal 1996. However, neither
sale was completed due to problems with the potential buyers' financing plans.
Management is currently soliciting new offers through further marketing efforts
and now hopes to complete a sale of the property and a liquidation of the
Partnership during calendar year 1997. There are no assurances, however, that
such a liquidation will be completed within this time frame.
The Partnership's remaining real estate investment is subject to
significant competition for the revenues it generates from numerous properties
of similar type in the local Bedford, Texas (suburban Dallas) market. The
shopping center competes for tenants with numerous projects of similar type
generally on the basis of location, rental rates and tenant improvement
allowances. The Partnership has no real estate investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment. Therefore, a presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber").
The General Partners of the Partnership are First Qualified Properties,
Inc. and Properties Associates. First Qualified Properties, Inc. (the "Managing
General Partner"), a wholly-owned subsidiary of PaineWebber, is the managing
general partner of the Partnership. The associate general partner of the
Partnership is Properties Associates (the "Associate General Partner"), a
Massachusetts general partnership, certain general partners of which are
officers of the Adviser and the Managing General Partner. Subject to the
Managing General Partner's overall authority, the business of the Partnership is
managed by the Adviser.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
<PAGE>
Item 2. Properties
As of August 31, 1996, the Partnership owned one operating property
directly, which is referred to under Item 1 above to which reference is made for
the name, location and description of such investment.
Leasing figures for each fiscal quarter during 1996, along with an average
for the year, are presented below for the Partnership's remaining operating
property:
Percent Leased At
----------------------------------------------
Fiscal
1996
11/30/95 2/29/96 5/31/96 8/31/96 Average
-------- ------- ------- ------- -------
Harwood Village Shopping
Center 98% 98% 98% 98% 98%
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber 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 First Qualified Properties, Inc. and Properties
Associates ("PA"), which are the General Partners of the Partnership and
affiliates of PaineWebber. On May 30, 1995, the court certified class action
treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber Qualified Plan
Property Fund LP, PaineWebber, First Qualified Properties, Inc. and PA (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purported to be suing on behalf of all persons who invested in PaineWebber
Qualified Plan Property Fund LP, also alleged that following the sale of the
partnership interests, PaineWebber, First Qualified Properties, Inc. and PA
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber, First Qualified
Properties, Inc. and PA violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
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 Partners, 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 is scheduled to continue in November 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
described above. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
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.
<PAGE>
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At August 31, 1996, there were 3,675 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The Managing General Partner will
not redeem or repurchase Units.
Item 6. Selected Financial Data
PaineWebber Qualified Plan Property Fund LP
For the years ended August 31, 1996, 1995, 1994, 1993 and 1992
(In thousands except per Unit data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 13 $ 322 $ 422 $ 381 $ 387
Operating income
(loss) $ (272) $ (12) $ 175 $ 145 $ 169
Income from
investment property
held for sale $ 582 $ 98 $ 9 $ 139 $ 99
Provision for possible
investment loss - - - - $ (400)
Gain on sale of
investment property - - $ 175 - -
Net income (loss) $ 310 $ 86 $ 359 $ 284 $ (132)
Per Limited
Partnership Unit:
Net income (loss) $ 16.35 $ 4.54 $ 18.92 $ 14.98 $ (6.98)
Cash distributions
from operations $ 10.76 $ 10.76 $ 11.84 $ 12.92 $ 12.92
Cash distributions
from sale, refinancing
or other disposition
transactions - $ 1.00 $ 71.00 - -
Total assets $ 4,507 $ 4,398 $ 4,468 $ 5,822 $ 5,774
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the
18,781 Limited Partnership Units outstanding during each year.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered limited partnership interests to the public from
October 1981 to September 1982 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $18,781,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
$16,668,000 was invested in four operating properties in the form of mortgage
loans and land purchase-leaseback transactions. Since the time that the initial
investments were made, the Partnership has liquidated its 31 Milk Street and
Post Oak Apartments investments at gains (including the disposition of a
residual interest in Post Oak completed during fiscal 1994). In addition, the
Partnership assumed ownership of the Peoples Bank Office Building in fiscal 1987
and the Harwood Village Shopping Center in fiscal 1995 as a result of
foreclosure proceedings after the borrowers had defaulted under the terms of the
Partnership's mortgage loans. The Partnership sold the Peoples Bank Office
Building during fiscal 1994 for an amount significantly below its original net
investment in the property. For financial reporting purposes, the Partnership
recognized a small gain in fiscal 1994 from the sale of the Peoples Bank
Building because the investment had been written down in prior years. As
discussed further below, management is currently pursuing a sale of the Harwood
Village property, which, if completed, would be followed by a liquidation of the
Partnership.
The mortgage loan secured by the Harwood Village Shopping Center was
scheduled to mature in September 1992. However, at the time of the scheduled
maturity the borrower had not obtained a new financing source to repay the
outstanding debt obligation and repurchase the land owned by the Partnership
upon which the property is located. At such time, rather than incur the
potentially substantial litigation expenses involved with the pursuit of a
foreclosure action, the Partnership agreed to allow the borrower additional time
to complete a sale or refinancing transaction in return for certain concessions.
Subsequently, this forbearance agreement with the Harwood Village borrower was
extended until March 31, 1994. The Harwood Village borrower did not repay the
outstanding mortgage loan obligation upon the expiration of the forbearance
period at March 31, 1994, and such agreement was not extended. During fiscal
1994, the Partnership commenced the process of pursuing its legal remedies under
the loan documents while engaging in negotiations for a possible third
forbearance agreement. On November 15, 1994, when negotiations regarding a third
forbearance agreement reached an impasse, the Partnership commenced foreclosure
proceedings. On December 2, 1994, the borrower filed a petition for protection
under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy proceeding stopped
the foreclosure sale of the shopping center which had been scheduled for
December 6, 1994. On December 21, 1994, the borrower filed a plan of
reorganization with the Bankruptcy Court. In this plan, the borrower proposed to
extend the maturity date of the first leasehold mortgage loan and to purchase
the Partnership's interest in the land on which the shopping center is located.
The Partnership objected to the borrower's plan of reorganization and filed a
motion to dismiss the bankruptcy proceeding. As a result of these actions, the
Partnership was successful in negotiating a settlement with the borrower,
subject to Bankruptcy Court approval, whereby the borrower would transfer
ownership title to the shopping center to the Partnership, assign its interest
in the tenant leases to the Partnership and dismiss the bankruptcy proceeding.
On June 19, 1995, the Bankruptcy Court approved the settlement and the
Partnership took title to the property.
The Adviser selected a local property management company to manage the
day-to-day operations of the shopping center, which was 98% leased as of August
31, 1996. As part of the settlement, the Partnership assumed the liability for
tenant security deposits and allowed for the payment of approximately $34,000
from property cash flow to cover certain deferred management fees and payments
to the borrower's unsecured creditors. Management believes that this settlement,
which gave the Partnership control over property operations and disposition
decisions and avoided further costly litigation, was in the Partnership's best
interests. Since June of 1995, management has focused its efforts on renewing
the leases that were scheduled to expire during 1996 and completing minor
enhancements to improve the center's marketability in preparation for a possible
sale of the property. During fiscal 1996, the Partnership purchased an
additional out-parcel of land adjacent to the Harwood Village property for
$46,000. As of November 1, 1996, the property's leasing team had successfully
renewed leases with the four tenants with 1996 expiration dates, representing
14,350 square feet, or approximately 17% of the center. A 5,200 square foot
retail clothing tenant at Harwood Village filed for bankruptcy protection during
fiscal 1996. This tenant operates a chain of stores and is expected to announce
some store closings as part of its bankruptcy reorganization plan. It is
uncertain at this time whether the Harwood Village location will be affected by
these expected store closings. Although the property is almost fully leased, the
grocery store anchor tenant vacated the shopping center several years ago but
remains obligated to pay rent and its share of operating expenses under a lease
that runs through April 2011. Approximately 10,000 square feet of the 26,000
square feet leased by this tenant is currently subject to a sub-lease agreement.
During fiscal 1996, management reviewed the possibility that the marketability
and value of the property might be enhanced if the Partnership could regain
control of this entire space, which represents approximately 30% of the shopping
center's net leasable area, including an assignment of the current sub-lease
agreement. The Partnership or a prospective buyer would then have the
flexibility to re-lease this anchor space. Management engaged in preliminary
discussions with this former anchor tenant regarding a potential buyout of its
remaining rental obligations, but has concluded, based on such preliminary
negotiations, that such a buyout is likely not to be economically prudent or
necessary to complete a sale of the property in the near term.
Management began active marketing efforts for the Harwood Village Shopping
Center in February 1996. During the quarter ended May 31, 1996, the Partnership
signed a letter of intent to sell the Harwood Village Shopping Center to an
unrelated third party for $4,925,000. The sale remained subject to, among other
things, the negotiation of a definitive sales contract, the satisfactory
completion of the buyer's due diligence and the buyer's ability to obtain
financing. During the fourth quarter of fiscal 1996, due to the buyer's
inability to obtain the required financing, the sale transaction was not able to
be completed. Subsequently, management reviewed offers from other potential
buyers and executed a sales contract with a new buyer in August 1996 at a sales
price of $4,700,000. This sale transaction was subject to the satisfactory
completion of due diligence, which was to be completed by September 30, 1996.
Prior to September 30, 1996, the prospective buyer requested an extension of the
due diligence period. Management was willing to grant such an extension only if
the prospective buyer was willing to make a non-refundable deposit which would
be subject to forfeiture in the event that the sale did not close subsequent to
the extension period. The prospective buyer did not agree to the terms of the
extension, and the sales contract was terminated. Presently, management is
soliciting new offers through further marketing efforts and now hopes to
complete a sale of the property and a liquidation of the Partnership during
calendar year 1997. There are no assurances, however, that such a liquidation
will be completed within this time frame.
As of August 31, 1996, the Partnership had cash and cash equivalents of
approximately $376,000. Such cash and cash equivalents will be used for the
working capital requirements of the Partnership 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 Harwood Village
property and from the proceeds from the eventual sale of the operating
investment property, as discussed further above. Upon the sale of the Harwood
Village Shopping Center, the Partnership will be liquidated and a final
distribution, including any remaining cash reserves after payment of all
liquidation-related expenses, will be made to the Limited Partners.
Results of Operations
1996 Compared to 1995
The Partnership reported net income of $310,000 for the fiscal year ended
August 31, 1996, compared to net income of $86,000 for the prior year. The
increase in net income is a direct result of the foreclosure of the Harwood
Village Shopping Center on June 19, 1995, as discussed further above. The
Partnership's income statement for fiscal year 1995 reflects a partial year of
interest income and land rent from the Harwood Village mortgage loan and land
investments, which totalled $298,000, and a partial year of net operating income
from the shopping center totalling $98,000. Net operating income from Harwood
Village of $582,000 was recognized for the year ended August 31, 1996.
A decrease in the Partnership's general and administrative expenses also
contributed to the increase in net income for fiscal 1996. General and
administrative expenses decreased by $49,000 mainly as a result of a decline in
legal and other professional fees. Legal and other professional fees were higher
in the prior year as a result of the Harwood Village bankruptcy proceedings and
resulting transfer of ownership on June 19, 1995. A decrease in interest earned
on cash equivalents of $11,000 partially offset the favorable change in net
operating results for fiscal year 1996. Interest income earned on the
Partnership's cash reserves declined mainly as a result of a reduction in the
average outstanding balance of such reserves.
1995 Compared to 1994
The Partnership reported net income of $86,000 for the fiscal year ended
August 31, 1995, compared to net income of $359,000 for the prior year. The
decrease in net income of $273,000 was primarily due to the sale of the Peoples
Bank Office Building during fiscal 1994. The sale of the Peoples Bank Office
Building resulted in a gain of $175,000 because the carrying value of the
Partnership's investment had been written down in prior years to $1,500,000
based on declines in management's estimates of the property's fair value. The
investment, which had an original cost basis to the Partnership of $4,150,000,
was sold in October 1993 for net proceeds of $1,587,000. An increase in
Partnership general and administrative expenses of $88,000 also contributed to
the decrease in net income for fiscal 1995. The increase in general and
administrative expenses was mainly due to higher legal expenses. The increase in
legal fees related to the Harwood Village bankruptcy proceedings and resulting
transfer of ownership on June 19, 1995. In prior fiscal years the borrower was
contributing $5,000 monthly to the reimbursement of legal fees related to the
extension of the Harwood mortgage loan agreement. Such payments were suspended
upon the borrower's bankruptcy filing in December 1994.
The Partnership's statement of operations for fiscal 1995 reflects a
partial year of interest income and land rent from the Harwood Village mortgage
loan and land investments and a partial year of operations of the Harwood
Village operating property subsequent to the date of the ownership transfer. Net
operating income from the shopping center of $98,000 was recognized for the
period June 19, 1995 through August 31, 1995. Such net income offset the decline
of $74,000 in mortgage interest and land rent, as well as $21,000 of income
recognized in fiscal 1994 in connection with the final settlement of the Post
Oak ground lease.
1994 Compared to 1993
The Partnership reported net income of $359,000 for the fiscal year ended
August 31, 1994, which represents an increase of $75,000 when compared to net
income for fiscal 1993. The change in net income was primarily due to the sale
of the Peoples Bank Office Building during fiscal 1994. The sale of the Peoples
Bank Office Building resulted in a gain of $175,000 because the carrying value
of the Partnership's investment had been written down in prior years to
$1,500,000 based on declines in management's estimates of the property's fair
value. The gain on the sale of the Peoples Bank property was partially offset by
a decline in the Partnership's recognized share of the property's net operating
income due to the sale which occurred in October 1993. The Partnership 's
operating income, which included income from the Harwood Village land and
mortgage loan investments and Partnership operating expenses, increased by
$30,000 during fiscal 1994 mainly due to an increase in revenues as a result of
the sale of the Partnership's remaining interest in the ground lease related to
the Post Oak Apartments.
Inflation
The Partnership completed its fourteenth full year of operations in fiscal
1996. The effects of inflation and changes in prices on the Partnership's
revenues and expenses to date have not been significant.
The impact of inflation in future periods may be offset, in part, by an
increase in revenues because the tenant leases at the Partnership's remaining
investment property, the Harwood Village Shopping Center, contain rental
escalation and/or expense reimbursement clauses based on increases in tenant
sales and property operating expenses. Such increase in revenues would be
expected to at least partially offset the increases in Partnership and property
operating expenses resulting from inflation.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is First Qualified
Properties, Inc., a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates, a Massachusetts general partnership, certain general partners of
which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operations, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date elected
Name Office Age to Office
---- ------ --- ---------
Bruce J. Rubin President and Director 37 8/22/96
Terrence E. Fancher Director 43 10/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 49 10/29/85
James A. Snyder Senior Vice President 51 7/6/92
David F. Brooks First Vice President and Assistant
Treasurer 54 6/1/83 *
Timothy J. Medlock Vice President and Treasurer 35 6/1/88
Thomas W. Boland Vice President 34 12/1/91
Dorothy F. Haughey Secretary 70 6/1/83 *
* The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the
directors and officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
or officers of the Managing General Partner of the Partnership. All of the
foregoing directors and officers have been elected to serve until the annual
meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
Adviser. The business experience of each of the directors and officers of the
Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General
Partner. Mr. Rubin was named Chief Executive Officer of PWPI in August
1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking in
November 1995 as a Senior Vice President. Prior to joining PaineWebber, Mr.
Rubin was employed by Kidder, Peabody and served as President for KP Realty
Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a Senior
Vice President and Director of Direct Investments at Smith Barney Shearson.
Prior thereto, Mr. Rubin was a First Vice President and a real estate workout
specialist at Shearson Lehman Brothers. Prior to joining Shearson Lehman
Brothers in 1989, Mr. Rubin practiced law in the Real Estate Group at Willkie
Farr & Gallagher. Mr. Rubin is a graduate of Stanford University and
Stanford Law School.
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher
previously worked for a major law firm in New York City. He has a J.D. from
Harvard Law School, an M.B.A. from Harvard Graduate School of Business
Administration and an A.B. from Harvard College.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. He began his career in 1974 with Arthur Young & Company in Houston. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser. Mr. Snyder re-joined the Adviser in
July 1992 having served previously as an officer of PWPI from July 1980 to
August 1987. From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust Corporation where he served as the Vice President of Asset Sales prior to
re-joining PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989, Mr. Snyder was Executive Vice President and Chief Financial
Officer of Southeast Regional Management Inc., a real estate development
company.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and Assistant Treasurer of
the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980, Mr.
Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also,
from March 1974 to February 1980, the Assistant Treasurer of Capital for Real
Estate, which provided real estate investment, asset management and consulting
services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and a Vice President and Treasurer of the Adviser which he
joined in 1986. From 1986 to August of 1989, Mr. Medlock served as the
Controller. From 1983 to 1986, Mr. Medlock was associated with Deloitte Haskins
& Sells. Mr. Medlock graduated from Colgate University in 1983 and received his
Masters in Accounting from New York University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner
and a Vice President and Manager of Financial Reporting of the Adviser which
he joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack
College and an M.B.A. from Boston University.
Dorothy F. Haughey is Secretary of the Managing General Partner,
Assistant Secretary of PaineWebber and Secretary of PWI. Ms. Haughey joined
PaineWebber in 1962.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended August 31, 1996, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the
General Partners are entitled to receive a share of cash distributions and a
share of profits and losses. These items are described in Item 13.
The Partnership has paid cash distributions to the Unitholders on a
quarterly basis at a rate of 3% per annum on remaining invested capital over the
past five years. However, the Partnership's Units of Limited Partnership
Interest are not actively traded on any organized exchange, and no efficient
secondary market exists. Accordingly, no accurate price information is available
for these Units. Therefore, a presentation of historical Unitholder total
returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of Limited
Partnership Interest, not voting securities. All the outstanding stock of the
Managing General Partner, First Qualified Properties, Inc., is owned by
PaineWebber. Properties Associates, the Associate General Partner, is a
Massachusetts general partnership, with certain general partners who are also
officers of the Adviser and the Managing General Partner. Properties Associates
was the Initial Limited Partner of the Partnership. No Limited Partner is known
by the Partnership to own beneficially more than 5% of the outstanding interests
of the Partnership.
(b) Neither the directors and officers of the Managing General Partner nor
the general partners of the Associate General Partner individually own any Units
of Limited Partnership interest of the Partnership. No director or officer of
the Managing General Partner nor the general partners of the Associate General
Partner possess a right to acquire beneficial ownership of Units of Limited
Partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The Managing General Partner of the Partnership is First Qualified
Properties, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber"). The Associate General Partner is
Properties Associates, a Massachusetts general partnership, with certain general
partners who are also officers of the Adviser and the Managing General Partner.
Subject to the Managing General Partner's overall authority, the business of the
Partnership is managed by PaineWebber Properties Incorporated (the "Adviser")
pursuant to an advisory contract. The Adviser is a wholly-owned subsidiary of
PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber.
The General Partners, the Adviser and PWI receive fees and compensation
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management and disposition of Partnership
investments.
In connection with investing Partnership capital, the Adviser received
acquisition fees paid by the borrowers and sellers. The Adviser may receive a
commission in an amount not yet determinable, upon the disposition of certain
Partnership investments.
All distributable cash, as defined, for each fiscal year is distributed
quarterly in the ratio of 99% to the Limited Partners and 1% to the General
Partners. Residual proceeds resulting from disposition of Partnership
investments will be distributed generally 85% to the Limited Partners and 15% to
the General Partners, after the prior receipt by the Limited Partners of their
original capital contributions and a cumulative annual return of 15% based upon
a Limited Partner's adjusted capital contributions, as defined in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, any taxable income or
tax loss of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Taxable income arising from disposition of Partnership investments will be
allocated to the Limited and General Partners generally as residual proceeds are
distributed. Tax losses arising from disposition of Partnership investments and
taxable income for which there are no residual proceeds will be allocated 99% to
the Limited Partners and 1% to the General Partners.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer the day-to-day operations of the Partnership,
and to report periodically the performance of the Partnership to the General
Partners. The Adviser is paid a basic management fee (6% of adjusted cash flow)
and an incentive management fee (3% of adjusted cash flow subordinated to a
non-cumulative annual return to the Limited Partners equal to 10% based upon
their adjusted capital contributions) for services rendered. The Adviser earned
basic management fees of $12,000 for the year ended August 31, 1996. No
incentive management fees have been earned to date.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended August 31, 1996 is $90,000, representing reimbursements to this
affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $2,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended August 31, 1996. Fees charged by
Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND LP
By: First Qualified Properties, Inc.
Managing General Partner
By: /S/ Bruce J. Rubin
------------------
Bruce J. Rubin
President and Chief Executive Officer
By: /S/ Walter V. Arnold
---------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /S/ Thomas W. Boland
--------------------
Thomas W. Boland
Vice President
Dated: November 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Bruce J. Rubin Date: November 22, 1996
- --------------------- -----------------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: November 22, 1996
- -------------------------- -----------------------
Terrence E. Fancher
Director
<PAGE>
<TABLE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
INDEX TO EXHIBITS
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document or Other Reference
- ----------- ------------------------ ------------------
<S> <C> <C>
(3) and (4) Prospectus of the Registrant Filed with the Commission
dated October 1, 1981, supplemented, pursuant to Rule 424(c)
with particular reference to the and incorporated herein by
Restated Certificate and Agreement reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13or 15(d)
amendments thereto of the registrant of the Securities Exchange Act
together with all such contracts filed of 1934 and incorporated
as exhibits of previously filed Forms herein by reference.
8-K and Forms 10-K are hereby
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the year
ended August 31, 1996 has been
sent to the Limited Partners. An
Annual Report will besent to the
Limited Partners subsequent to
this filing.
(27) Financial Data Schedule Filed as last page of EDGAR
submission following the Financial
Statements and Financial
Statement Schedule required by
Item 14.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1) and (2) and 14(d)
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
Paine Webber Qualified Plan Property Fund, LP:
Report of independent auditors F-2
Balance sheets as of August 31, 1996 and 1995 F-3
Statements of income for the years ended August 31, 1996,
1995 and 1994 F-4
Statements of changes in partners' capital (deficit) for the years
ended August 31, 1996, 1995 and 1994 F-5
Statements of cash flows for the years ended August 31, 1996,
1995 and 1994 F-6
Notes to financial statements F-7
Financial statement schedules:
Schedule III - Real Estate Owned F-14
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Qualified Plan Property Fund, LP:
We have audited the accompanying balance sheets of Paine Webber Qualified
Plan Property Fund, LP as of August 31, 1996 and 1995, and the related
statements of income, changes in partners' capital (deficit) and cash flows for
each of the three years in the period ended August 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paine Webber Qualified Plan
Property Fund, LP at August 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended August 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
November 15, 1996
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
BALANCE SHEETS
August 31, 1996 and 1995
(In thousands, except per Unit data)
ASSETS
1996 1995
---- ----
Investment property held for sale $ 3,964 $ 3,918
Cash and cash equivalents 376 223
Escrowed cash 140 53
Accounts receivable, net of allowance for
doubtful accounts of $0 and $16 in 1996 and 1995 20 198
Prepaid insurance 7 6
--------- ---------
$ 4,507 $ 4,398
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 48 $ 38
Accounts payable - affiliates 3 3
Accrued real estate taxes 72 69
Prepaid rent - 10
Tenant security deposits 18 18
---------- ---------
Total liabilities 141 138
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 85 82
Cumulative cash distributions (111) (109)
Limited Partners ($1,000 per Unit; 18,781
Units issued):
Capital contributions, net of offering costs 16,778 16,778
Cumulative net income 10,695 10,388
Cumulative cash distributions (23,082) (22,880)
---------- ---------
Total partners' capital 4,366 4,260
---------- ---------
$ 4,507 $ 4,398
========== =========
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF INCOME
For the years ended August 31,1996, 1995 and 1994
(In thousands, except per Unit data)
1996 1995 1994
---- ---- ----
Revenues:
Interest from mortgage loan $ - $ 260 $ 325
Land rent - 38 47
Ground lease settlement - - 21
Interest earned on cash equivalents 13 24 29
------- ------- -------
13 322 422
Expenses:
Management fees 12 12 13
General and administrative 273 322 234
------- ------- ------
285 334 247
------- ------- ------
Operating income (loss) (272) (12) 175
Investment property held for sale:
Income from investment property
held for sale, net 582 98 9
Gain on sale of investment property - - 175
------- ------- ------
582 98 184
------- ------- ------
Net income $ 310 $ 86 $ 359
======= ======= ======
Net income per
Limited Partnership Unit $ 16.35 $ 4.54 $18.92
======= ======= ======
Cash distributions per
Limited Partnership Unit $ 10.76 $ 11.76 $82.84
======= ======= ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 18,781 Units of Limited Partnership Interest outstanding during
each year.
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended August 31, 1996, 1995 and 1994
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at August 31, 1993 $ (27) $ 5,623 $ 5,596
Cash distributions (2) (1,556) (1,558)
Net income 4 355 359
-------- --------- -------
Balance at August 31, 1994 (25) 4,422 4,397
Cash distributions (2) (221) (223)
Net income 1 85 86
-------- ------- -------
Balance at August 31, 1995 (26) 4,286 4,260
Cash distributions (2) (202) (204)
Net income 3 307 310
-------- ------- -------
Balance at August 31, 1996 $ (25) $ 4,391 $ 4,366
======== ======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 310 $ 86 $ 359
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Gain on sale of investment property - - (175)
Changes in assets and liabilities:
Escrowed cash (87) (3) (50)
Prepaid insurance (1) (6) 7
Accounts receivable 178 (171) 1
Accounts payable and accrued expenses 10 (31) 10
Accounts payable - affiliates - 1 (15)
Accrued real estate taxes 3 69 (39)
Prepaid rent (10) 10 -
Tenant security deposits - 18 (22)
-------- ------- -------
Total adjustments 93 (113) (283)
-------- ------- -------
Net cash provided by (used in)
operating activities 403 (27) 76
Cash flows from investing activities:
Net proceeds from sale of investment
property - - 1,587
Purchase of land (46) - -
-------- -------- -------
Net cash (used in) provided by
investing activities (46) - 1,587
Cash flows from financing activities:
Distributions to partners (204) (223) (1,558)
--------- ---------- --------
Net increase (decrease) in cash and
cash equivalents 153 (250) 105
Cash and cash equivalents,
beginning of year 223 473 368
--------- ------- --------
Cash and cash equivalents, end of year $ 376 $ 223 $ 473
========= ========= ==========
See accompanying notes.
<PAGE>
PAINEWEBBER QUALIFIED PLAN PROPERTY FUND LP
Notes to Financial Statements
1. Organization and Nature of Operations
Paine Webber Qualified Plan Property Fund, LP (the "Partnership") is a
limited partnership organized pursuant to the laws of the State of Delaware
for the purpose of investing in a diversified portfolio of existing
income-producing real properties through land purchase-leaseback
transactions and first mortgage loans. The Partnership sold $18,781,000 in
Limited Partnership Units (18,781 Units at $1,000 per Unit) from October 1,
1981 to September 30, 1982 pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933. The net proceeds from the offering of
Limited Partnership Units were originally invested in land and first
mortgage loans with respect to four operating properties. Through August 31,
1996, the Partnership had been prepaid on or had sold its interests in three
of these investments. The Partnership's remaining investment is a
wholly-owned shopping center property located in Bedford, Texas. As
discussed further in Note 4, the Partnership assumed ownership of the
Harwood Village Shopping Center on June 19, 1995 as a result of foreclosure
proceedings initiated due to a default on the Partnership's mortgage loan.
Subsequent to obtaining ownership of the Harwood Village Shopping Center,
the Partnership began to market the property for sale with a goal of
completing a sale and liquidation of the Partnership by the end of calendar
year 1996. As discussed further in Note 4, the Partnership had the property
under contract for sale twice during fiscal 1996. However, neither sale was
completed due to problems with the potential buyers' financing plans.
Management is currently soliciting new offers through further marketing
efforts and now hopes to complete a sale of the property and a liquidation
of the Partnership during calendar year 1997. There are no assurances,
however, that such a liquidation will be completed within this time frame.
2. Use of Estimates and Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of August 31, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended August
31, 1996. Actual results could differ from the estimates and assumptions
used.
Investment property held for sale at August 31, 1996 and 1995 represents
an asset acquired by the Partnership through foreclosure proceedings on a
first mortgage loan (see Note 4). The Partnership's policy is to carry this
asset at the lower of cost or estimated fair value (net of selling
expenses). The Partnership's cost basis is equal to the fair value of the
asset at the date of foreclosure. Declines in the estimated fair value of
the asset subsequent to foreclosure would be recorded through the use of a
valuation allowance. All costs incurred to hold the asset are charged to
expense and no depreciation expense is recorded.
Escrowed cash on the accompanying balance sheets consists of cash reserved
for real estate taxes, insurance premiums and tenant security deposits.
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with original maturities of ninety days or less to be
cash equivalents.
The cash and cash equivalents, escrowed cash, accounts receivable,
accounts payable and accrued expenses, accounts payable - affiliates and
accrued real estate taxes appearing on the accompanying balance sheets
represent financial instruments for purposes of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." The carrying amount of these assets and liabilities
approximates their fair value as of August 31, 1996 due to the short-term
maturities of these instruments.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership.
<PAGE>
3. The Partnership Agreement and Related Party Transactions
The Managing General Partner of the Partnership is First Qualified
Properties, Inc. (the "Managing General Partner"), a wholly-owned subsidiary
of PaineWebber Group Inc. ("PaineWebber"). The Associate General Partner is
Properties Associates, a Massachusetts general partnership, with certain
general partners who are also officers of the Adviser and the Managing
General Partner. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by PaineWebber
Properties Incorporated (the "Adviser") pursuant to an advisory contract.
The Adviser is a wholly-owned subsidiary of PaineWebber Incorporated
("PWI"), a wholly-owned subsidiary of PaineWebber.
The General Partners, the Adviser and PWI receive fees and compensation
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management and disposition of Partnership
investments. In connection with investing Partnership capital, the Adviser
received acquisition fees paid by the borrowers and sellers. The Adviser may
receive a commission in an amount not yet determinable, upon the disposition
of certain Partnership investments.
All distributable cash, as defined, for each fiscal year is distributed
quarterly in the ratio of 99% to the Limited Partners and 1% to the General
Partners. Residual proceeds resulting from disposition of Partnership
investments will be distributed generally 85% to the Limited Partners and
15% to the General Partners, after the prior receipt by the Limited Partners
of their original capital contributions and a cumulative annual return of
15% based upon a Limited Partner's adjusted capital contributions, as
defined in the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, any taxable income or
tax loss of the Partnership will be allocated 99% to the Limited Partners
and 1% to the General Partners. Allocations of the Partnership's operations
between the General Partners and the Limited Partners for financial
accounting purposes have been made in conformity with the allocations of
taxable income or tax loss. Taxable income arising from disposition of
Partnership investments will be allocated to the Limited and General
Partners generally as residual proceeds are distributed. Tax losses arising
from disposition of Partnership investments and taxable income for which
there are no residual proceeds will be allocated 99% to the Limited Partners
and 1% to the General Partners.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer the day-to-day operations of the
Partnership, and to report periodically the performance of the Partnership
to the General Partners. The Adviser is paid a basic management fee (6% of
adjusted cash flow) and an incentive management fee (3% of adjusted cash
flow subordinated to a non-cumulative annual return to the Limited Partners
equal to 10% based upon their adjusted capital contributions) for services
rendered. The Adviser earned basic management fees of $12,000, $12,000 and
$13,000 for the years ended August 31, 1996, 1995 and 1994, respectively. No
incentive management fees have been earned to date. Accounts payable -
affiliates at both August 31, 1996 and 1995 consist of management fees of
$3,000 payable to the Adviser.
Included in general and administrative expenses for the years ended August
31, 1996, 1995 and 1994 is $90,000, $112,000 and $98,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
<PAGE>
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins"), an affiliate of the Managing General
Partner, for the managing of cash assets. Mitchell Hutchins is a subsidiary
of Mitchell Hutchins Asset Management, Inc., an independently operated
subsidiary of PaineWebber. Mitchell Hutchins earned $2,000 (included in
general and administrative expenses) for managing the Partnership's cash
assets for each of the years ended August 31, 1996, 1995 and 1994.
4. Investment Property Held for Sale
In September 1982, the Partnership purchased the land underlying the
Harwood Village Shopping Center for $500,000 and issued a mortgage loan in
the amount of $3,418,000 to the owner of the shopping center. The land was
leased back to the owner of the shopping center pursuant to the terms of a
ground lease. The loan was secured by a first mortgage on the property, the
owner's leasehold interest in the land and an assignment of all tenant
leases. Interest was payable monthly and the principal was due at maturity,
on September 1, 1992. The Partnership notified the borrower that the loan
would be called at its maturity date, however, the borrower was unable to
repay the obligation at that time. Subsequently, the Partnership agreed to
grant the borrower a seven-month extension under a forbearance agreement on
substantially the same terms as the original loan while they attempted to
complete a sale or refinancing that would enable them to repay the
obligation to the Partnership. Effective April 1, 1993, the Partnership
granted the borrower a second extension of the forbearance agreement to
March 31, 1994 in an effort to give the borrower additional time to complete
the sale or refinancing. Under the terms of the agreement, the loan
continued to bear interest, payable monthly, at 9.5%. In addition, the
borrower was required to make additional payments of $5,000 for each month
during the extension period, to be applied first against legal and other
costs incurred by the Partnership associated with the agreement, second to
accrued interest and principal on a $25,000 deferred payment allowed in
fiscal 1990, and third to the principal balance of the loan. As part of the
terms of the forbearance agreement, the base amount beyond which the
Partnership shared in the appreciation in value of the underlying property
under the terms of the ground lease was to be reduced by $125,000 for every
three months that the loan was outstanding subsequent to April 1, 1993.
The borrower did not repay the mortgage loan obligation due at March 31,
1994, and the forbearance agreement was not extended. During fiscal 1994,
the Partnership commenced the process of pursuing its legal remedies under
the loan documents while engaging in negotiations for a possible third
forbearance agreement. On November 15, 1994, when negotiations regarding a
third forbearance agreement reached an impasse, the Partnership commenced
foreclosure proceedings. On December 2, 1994, the borrower filed a petition
for protection under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy
proceeding stopped the foreclosure sale of the shopping center which had
been scheduled for December 6, 1994. On December 21, 1994, the borrower
filed a plan of reorganization with the Bankruptcy Court. In this plan, the
borrower proposed to extend the maturity date of the mortgage loan and to
purchase the Partnership's interest in the land on which the shopping center
is located. The Partnership objected to the borrower's plan of
reorganization and filed a motion to dismiss the bankruptcy proceeding. As a
result of these actions, the Partnership was successful in negotiating a
settlement with the borrower, subject to Bankruptcy Court approval, whereby
the borrower would transfer title to the shopping center to the Partnership,
assign its interest in the tenant leases to the Partnership and dismiss the
bankruptcy proceeding. As part of the settlement, the Partnership agreed to
allow expenses of approximately $34,000 to be paid out of property cash flow
to cover certain deferred management fees and payments to the borrower's
unsecured creditors. On June 19, 1995, the Bankruptcy Court approved the
settlement agreement and the Partnership assumed the title to the property.
The Harwood Village Shopping Center consists of 86,300 net rentable square
feet and is located in Bedford, Texas (suburban Dallas). The Adviser has
employed a local management company to operate the property on the
Partnership's behalf. As noted above, prior to the foreclosure transaction
the Partnership's investments in Harwood Village consisted of a 9.5%
mortgage loan in the amount of $3,418,000 and land with a cost basis of
$500,000 which was subject to a ground lease. Annual rent due under the
terms of the ground lease totalled $47,500. The Partnership complies with
the guidelines set forth in the Statement of Position entitled "Accounting
for Foreclosed Assets," issued by the American Institute of Certified
Public Accountants, to account for its investment properties acquired
through foreclosures. Under the Statement of Position, a foreclosed asset
is recorded at the lower of cost or estimated fair value, reduced by the
estimated costs to sell the asset. Cost is defined as the fair value of the
asset at the date of the foreclosure. Management believed that the fair
value of the Harwood Village Shopping Center was approximately equal to the
aggregate carrying value of the Partnership's land and mortgage loan
investments at the date of the foreclosure, of $3,918,000. Accordingly,
such carrying values were reclassified to investment property held for sale
on the Partnership's balance sheet as of the date of foreclosure. During
fiscal 1996, the Partnership purchased an additional out-parcel of land
adjacent to the Harwood Village property for $46,000 which is included in
the balance of investment property held for sale as of August 31, 1996.
Declines in the estimated fair value of the asset subsequent to foreclosure
would be recorded through the use of a valuation allowance. Subsequent
increases in the estimated fair value of the asset result in a reduction in
the valuation allowance, but not below zero. There is no valuation
allowance on the Harwood Village property on the accompanying balance
sheets as of August 31, 1996 and 1995.
During the quarter ended May 31, 1996, the Partnership signed a letter of
intent to sell the Harwood Village Shopping Center to an unrelated third
party for $4,925,000. The sale remained subject to, among other things, the
negotiation of a definitive sales agreement, the satisfactory completion of
the buyer's due diligence and the buyer's ability to obtain financing.
During the fourth quarter of fiscal 1996, due to the buyer's inability to
obtain the required financing, the sale transaction was not able to be
completed. Subsequently, management reviewed offers from other potential
buyers and executed a sales contract with a new buyer in August 1996 at a
sales price of $4,700,000. This sale transaction was subject to the
satisfactory completion of due diligence, which was to be completed by
September 30, 1996. At the end of the due diligence period, the prospective
buyer requested an extension of the due diligence period to finalize its
financing plans and to conduct additional environmental testing at the
property. Management was willing to grant such an extension only if the
prospective buyer was willing to make its deposit non-refundable and
subject to forfeiture in the event that the sale did not close subsequent
to the extension period. The prospective buyer did not agree to the terms
of the extension, and the sales contract was terminated. Presently,
management is soliciting new offers through further marketing efforts and
new hopes to complete a sale of the property during calendar year 1997.
However, since no definitive agreement has been signed to date, there can
be no assurances that a sale transaction will be completed. If a sale does
occur, it would be followed by a liquidation of the Partnership.
The Partnership records income from the investment property held for sale
in the amount of the difference between the property's gross revenues and
property operating expenses (including leasing costs and improvement
expenses), taxes and insurance. Summarized operating results for Harwood
Village for the year ended August 31, 1996 and the period from June 19,
1995 (the effective date of foreclosure) to August 31, 1995 are as follows
(in thousands):
1996 1995
---- ----
Revenues:
Rental revenues and expense recoveries $ 811 $ 146
Expenses:
Property operating expenses 84 6
Property taxes and insurance 115 22
Bad debt expense - 16
Management fees 30 4
----- -------
229 48
----- ---=---
Income from investment property held for
sale, net $ 582 $ 98
===== =======
5. Sale of Investment Property
On December 2, 1986, the Partnership foreclosed on the mortgage loan and
ground lease secured by the Peoples Bank Office Building due to nonpayment
of the required interest and land rent payments. Subsequent to the
foreclosure, the Partnership owned the property directly and operated it
using the services of a local management company. The office building is
comprised of 72,400 net rentable square feet and is located in Dallas,
Texas. On October 8, 1993, the Partnership sold the Peoples Bank Office
Building for $1,650,000. Net proceeds from the sale, after closing costs,
totalled approximately $1,587,000. The net proceeds exceeded the carrying
value of the investment, which was net of an allowance for possible
investment loss of $2,310,000, and resulted in a gain on the sale of
approximately $175,000. Approximately $250,000 of the net proceeds were
added to cash reserves to ensure that the Partnership has sufficient
liquidity to conduct its business through its anticipated liquidation. The
remaining net proceeds were paid out to the Limited Partners through a
special distribution of $71 per original $1,000 investment in January 1994.
<PAGE>
Operating income, net of expenses from the People's Bank property for
fiscal 1994 (through the date of sale) is comprised of the following
revenues and expenses (in thousands):
1994
----
Revenues:
Rental revenues and other income $ 49
Expenses:
Property operating expenses 40
------
Income from investment
property held for sale, net $ 9
======
6. Ground Lease Settlement
On November 3, 1986, the owners of the Post Oak Apartments, located in
Louisville, Kentucky, refinanced the property, which was subject to a first
mortgage and a ground lease held by the Partnership, with the Partnership's
consent. From the refinancing proceeds, the Partnership received $2,800,000
for the repayment of its mortgage loan and $400,000 for the effective sale
of the underlying land, which had a cost basis to the Partnership of
$300,000. Under the terms of the refinancing agreement, the Partnership was
still entitled in the future to its share of sale or refinancing proceeds
above $4,967,500 in accordance with the terms of the ground lease, as
amended. During fiscal 1994, the Partnership received written notice from
the owners of the Post Oak Apartments that they intended to exercise their
purchase option at a price of approximately $5,023,000. After applying the
37.5% participation rate, the proceeds due to the Partnership from the
ground lease settlement amounted to $21,000, which the Partnership received
in May 1994. As a result of this settlement of the Partnership's remaining
interest in the ground lease, the Partnership no longer holds any interest
in the Post Oak property.
7. Leases
The Partnership leases retail space at the Harwood Village Shopping Center
under operating leases which provide for fixed minimum rents and
reimbursements of certain operating costs. Rental revenues are recognized
on a straight-line basis over the life of the related lease. Minimum future
rental revenues to be received by the Partnership under noncancellable
operating leases are as follows (in thousands):
1997 $ 612
1998 591
1999 515
2000 388
2001 329
Thereafter 1,023
-------
$ 3,458
=======
Rental income of approximately $100,000 and $21,000 was received from a
lease with Minyard Food Stores, Inc. for the year ended August 31, 1996 and
the period June 19, 1995 to August 31, 1995, respectively. Such amounts
comprised 16% of total base rental income for each of those periods. No
other tenant accounted for more than 10% of the Partnership's rental income
during these periods.
8. Contingencies
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District
Court for the Southern District of New York concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership
investments, including those offered by the Partnership. The lawsuits were
brought against PaineWebber Incorporated and Paine Webber 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 First Qualified Properties, Inc. and Properties
Associates ("PA"), which are the General Partners of the Partnership and
affiliates of PaineWebber. On May 30, 1995, the court certified class
action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber Qualified
Plan Property Fund LP, PaineWebber, First Qualified Properties, Inc. and PA
(1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments
and the Partnership's anticipated performance; and (3) marketed the
Partnership to investors for whom such investments were not suitable. The
plaintiffs, who purported to be suing on behalf of all persons who invested
in PaineWebber Qualified Plan Property Fund LP, also alleged that following
the sale of the partnership interests, PaineWebber, First Qualified
Properties, Inc. and PA misrepresented financial information about the
Partnership's value and performance. The amended complaint alleged that
PaineWebber, First Qualified Properties, Inc. and PA violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal
securities laws. The plaintiffs sought unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships. In addition, the plaintiffs also sought treble
damages under RICO.
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
partners of 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 is scheduled to continue
in November 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 described above. However, PaineWebber has agreed not to seek
indemnification for any amounts it is required to pay in connection with
the settlement of the New York Limited Partnership Actions. 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.
9. Subsequent Event
On October 15, 1996, the Partnership distributed $510 to the General
Partners and $50,521 to the Limited Partners for the quarter ended August
31, 1996.
<PAGE>
<TABLE>
Schedule III - Real Estate Owned
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
August 31, 1996
<CAPTION>
Original
Cost Basis of Gross Amount
Investment at Which Carried
to at Close of Date of Size of
Description Partnership (A) Period (A) Investment Investment
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shopping $ 3,918 $ 3,964 9/27/82 86,300
Center leasable
Bedford, TX square feet on
6.9 acres
------- --------
$ 3,918 $ 3,964
======= ========
</TABLE>
Notes:
(A) These amounts represent the initial cost to the Partnership of the
remaining investment and the gross amount at which the investment is
carried on the balance sheet at August 31, 1996. The cost basis of the
investment for federal income tax purposes is $3,964,000.
(B) Reconciliation of real estate owned:
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 3,918 $ 500 $ 4,310
Additions during the year (1) 46 3,418 -
Sales/Dispositions during the year (2) - - (3,810)
------- -------- --------
Balance at end of year $ 3,964 $ 3,918 $ 500
======= ======== ========
(1) The Partnership originally owned the land underlying the shopping center in
Bedford, Texas, and had made a first mortgage loan secured by the operating
property. As of September 1, 1992, the borrower defaulted on its obligation
to repay the principal and outstanding accrued interest on the mortgage
loan. The Partnership agreed to grant the borrower an extension to March
31, 1994 on substantially the same terms as the original loan while they
attempted to complete a sale or refinancing that would enable them to repay
the obligation to the Partnership. The borrower did not repay the mortgage
loan obligation due at March 31, 1994, and the forbearance agreement was
not extended. On December 2, 1994, the borrower filed a petition for
protection under Chapter 11 of the U.S. Bankruptcy Code. As a result of
these actions, the Partnership was successful in negotiating a settlement
with the borrower, whereby the borrower would transfer title to the
shopping center to the Partnership, assign its interest in the tenant
leases to the Partnership and dismiss the bankruptcy proceeding. On June
19, 1995, the Bankruptcy Court approved the settlement and the Partnership
assumed title to the property. During fiscal 1996, the Partnership
purchased an additional out-parcel of land adjacent to the Harwood Village
property for $46,000, which is included in the balance of investment
property held for sale as of August 31, 1996. See Note 4 to the
accompanying financial statements for a further discussion.
(2) The Partnership foreclosed on the mortgage loan secured by the Peoples Bank
Office Building property on December 2, 1986. As discussed in Note 5 to the
accompanying financial statements, the property, which had a gross cost
basis of $3,810,000, was sold on October 8, 1993, and the Partnership
received net sale proceeds of approximately $1,587,000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended August 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 376
<SECURITIES> 0
<RECEIVABLES> 20
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 543
<PP&E> 3,964
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,507
<CURRENT-LIABILITIES> 141
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,366
<TOTAL-LIABILITY-AND-EQUITY> 4,507
<SALES> 0
<TOTAL-REVENUES> 595
<CGS> 0
<TOTAL-COSTS> 285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 310
<INCOME-TAX> 0
<INCOME-CONTINUING> 310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310
<EPS-PRIMARY> 16.35
<EPS-DILUTED> 16.35
</TABLE>
