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 FEBRUARY 28, 1995
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: 0-17146
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2752249
(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 1 of 12
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
BALANCE SHEETS
February 28, 1995 and August 31, 1994
(Unaudited)
ASSETS
February 28 August 31
Real estate investments:
Land $ 1,750,000 $ 1,750,000
Mortgage loans, net 10,177,157 10,177,157
Investment in joint venture, at equity 3,323,334 3,252,647
Investment property held for sale, net 8,300,000 8,300,000
23,550,491 23,479,804
Cash and cash equivalents 1,159,879 1,041,817
Tax and insurance escrow 284,068 187,787
Interest and other receivables, net 144,404 286,364
Prepaid expenses 5,215 14,545
$25,144,057 $25,010,317
LIABILITIES AND PARTNERS' CAPITAL
Accrued real estate taxes $ 45,850$ 170,000
Accounts payable and accrued expenses 137,471 246,352
Accounts payable - affiliates 11,136 10,633
Tenant security deposits 55,302 48,198
Note payable 1,250,780 604,166
Partners' capital 23,643,518 23,930,968
$25,144,057 $25,010,317
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended February 28, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at August 31, 1993 $(21,334) $30,695,003
Cash distributions (3,660) (362,411)
Net income 8,428 834,336
BALANCE AT FEBRUARY 28, 1994 $(16,566) $31,166,928
Balance at August 31, 1994 $(32,587) $23,963,555
Cash distributions (3,482) (344,652)
Net income 607 60,077
BALANCE AT FEBRUARY 28, 1995 $(35,462) $23,678,980
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF INCOME
For the three and six months ended February 28, 1995 and 1994
(Unaudited)
Three Months Ended Six Months Ended
February 28,
February 28,
1995 1994 1995 1994
REVENUES:
Interest from mortgage loan $ 365,618$ 429,880 $ 731,235 $ 859,761
Land rent 51,156 84,157 102,313 168,313
Other interest income 14,470 2,323 26,459 3,625
431,244 516,360 860,007 1,031,699
EXPENSES:
Management fees 11,136 10,982 21,808 21,964
General
and administrative expenses 135,309 114,408 208,400 217,046
Provision for possible uncollectible
amounts 98,446 88,095 196,891 176,189
244,891 213,485 427,099 415,199
Operating income 186,353 302,875 432,908 616,500
Partnership's share of
venture's income 34,439 21,730 70,687 81,324
Income (loss) from operations of
investment property held for
sale, net (214,635) (15,090) (442,911) 144,940
NET INCOME $ 6,157 $ 309,515 $ 60,684 $ 842,764
Net income per Limited
Partnership Unit $ 0.17 $ 8.45 $ 1.66 $ 23.02
Cash distributions per Limited
Partnership Unit $ 4.86 $ 5.00 $ 9.51 $ 10.00
The above net income and cash distributions per Limited Partnership Unit are
based upon the 36,241 Units of Limited Partnership Interest outstanding during
each period.
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $ 60,684 $ 842,764
Adjustments to reconcile net income to
net cash (used for) provided by operating activities:
Partnership's share of venture's income (70,687) (81,324)
Changes in assets and liabilities:
Tax and insurance escrow (96,281) (44,011)
Interest and other receivables 141,960 73,597
Prepaid expenses 9,330 8,945
Accrued real estate taxes (124,150) (208,807)
Accounts payable and accrued expenses (108,881) (54,845)
Accounts payable - affiliates 503 (43,953)
Tenant security deposits 7,104 3,471
Total adjustments (241,102) (346,927)
Net cash (used for)
provided by operating activities (180,418) 495,837
Cash flows from investing activities:
Distributions from joint venture - 113,333
Cash flows from financing activities:
Proceeds received from issuance of note payable 646,614 -
Distributions to partners (348,134) (366,071)
Net cash provided by (used for)
financing activities 298,480 (366,071)
Net increase in cash and cash equivalents 118,062 243,099
Cash and cash equivalents, beginning of period 1,041,817 217,617
Cash and cash equivalents, end of period $1,159,879 $ 460,716
Cash paid during the period for interest $ 41,720 $ -
See accompanying notes.
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 August 31, 1994.
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 accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2.Related Party Transactions
The Adviser earned basic management fees of $21,808 and $21,964 for the
six-month periods ended February 28, 1995 and 1994, respectively. Accounts
payable - affiliates at February 28, 1995 and August 31, 1994 consists of
management fees of $11,136 and $10,633, respectively, payable to the
Adviser.
Included in general and administrative expenses for six months ended
February 28, 1995 and 1994 is $87,965 and $79,368, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months
ended February 28, 1995 and 1994 is $752 and $492, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
3.Mortgage Loan and Land Investments
The outstanding first mortgage loans and the cost of the related land to
the Partnership at February 28, 1995 and August 31, 1994 are as follows:
Property Amount of Mortgage Loan Cost of
Land
2/28/95 8/31/94 2/28/95 8/31/94
Harbour Bay Plaza $ 2,850,000 $ 2,850,000 $ 750,000$ 750,000
Sewall's Point, FL
Eden West Apartments 3,500,000 3,500,000 400,000 400,000
Omaha, NE
The Timbers Apartments 6,531,982 6,335,092 600,000 600,000
Raleigh, NC (2,256,982) (2,060,092)
4,275,000 4,275,000
Subtotal 10,625,000 10,625,000 1,750,000 1,750,000
Less: General loan
reserve (447,843) (447,843) - -
$10,177,157 $10,177,157 $ 1,750,000 $1,750,000
The loans are secured by first mortgages on the properties, the owner's
leasehold interest in the land and an assignment of all leases, where
applicable. Interest is payable monthly at rates between 11.5% and 11.75%
per annum and the principal is due at maturity. Among the provisions of the
lease agreements, the Partnership is entitled to additional rent based upon
the gross revenues in excess of a base amount, as defined. For the six-month
periods ended February 28, 1995 and 1994, no additional rents were received.
As discussed in the Annual Report, the lessees have the option to purchase
the land for specified periods of time at a price based on fair market value,
as defined, but not less than the original cost to the Partnership. As of
February 28, 1995, all of the options to purchase the land were exercisable.
The objectives of the Partnership with respect to its mortgage loan and
land investments are to provide current income from fixed mortgage interest
payments and base land rents, then to provide increases to this current
income through participation in the annual revenues generated by the
properties as they increase above the specified base amounts. In addition,
the Partnership's investments are structured to share in the appreciation in
value of the underlying real estate. Accordingly, upon either sale,
refinancing, maturity of the mortgage loan or exercise of the option to
repurchase the land, the terms of the leases call for the Partnership to
receive a 37% to 52% share of the appreciation above a specified base amount.
The Timbers Apartments
Under the terms of the Timbers modification executed in fiscal 1989, the
amount payable to the Partnership is equal to the cash flow of the property
available after the payment of operating expenses, not to exceed 11.75% of
the note balance, but in no event less than 7.75% of the note balance. The
amount deferred each year will accrue interest at the original rate of 11.75%
beginning at the end of that year and the total deferred amount plus accrued
interest will be payable upon maturity of the note in September of 1998. The
Partnership has established an allowance for possible uncollectible amounts
for the cumulative amount of deferred interest owed under the Timbers
modification ($2,256,982 at February 28, 1995 and $2,060,092 at August 31,
1994) due to the uncertainty as to the collection of the deferred interest
from this investment.
4. Investment in Joint Venture
As discussed in the Annual Report, on June 12, 1990, the borrower of the
mortgage loan secured by the Marshall's at East Lake Shopping Center,
Oxford/Concord Associates, filed a Chapter 11 petition with the United States
Bankruptcy Court for the Northern District of Georgia. On November 14, 1990,
the Bankruptcy Court ordered that both the Partnership and the borrower
submit plans for the restructuring of the mortgage loan and ground lease
agreements. During fiscal 1991, the Partnership and the borrower reached a
settlement agreement which involved the formation of a joint venture to own
and operate the property on a go-forward basis. The formation of the joint
venture was approved by the Bankruptcy Court and became effective in December
of 1991. The Partnership contributed its rights and interests under its
mortgage loan to the joint venture and the loan was extinguished. In
addition, the Partnership contributed the land underlying the operating
property to the joint venture and the related ground lease was terminated.
Oxford/Concord Associates contributed all of its rights, title and interest
in and to the improvements, subject to the Partnership's loan, to the joint
venture.
Since the Partnership received an equity interest in full satisfaction of
its outstanding mortgage loan receivable, the transaction was accounted for
as a troubled debt restructuring in accordance with Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". Accordingly, the Partnership would have
recognized a loss to the extent that the face amount of the mortgage loan and
the carrying value of the land exceeded the fair value of the equity interest
acquired. However, management estimated that the fair value of the equity
interest acquired was approximately equal to the face amount of the loan and
the investment in land. Therefore, no loss was recorded at the time of the
restructuring. The carrying value of the mortgage loan receivable and land
comprising the Partnership's investment in Marshall's at East Lake, which
totalled $3,500,000, was reclassified to investment in joint venture,
effective December 11, 1991. Subsequent to the restructuring, the
Partnership has accounted for its equity investment as if it had acquired the
interest for cash, in accordance with SFAS No. 15. Based upon the provisions
of the joint venture agreement, the Partnership's investment in the
Marshall's joint venture is accounted for on the equity method in the
Partnership's financial statements. Under the equity method, the investment
is carried at cost, adjusted for the Partnership's share of earnings, losses
and distributions.
Summarized operating results of the venture for the three- and six-month
periods ended February 28, 1995 and 1994 are as follows:
Three Months Ended Six Months Ended
February 28,
February 28,
1995 1994 1995 1994
REVENUES:
Rental revenues and
expense reimbursements $ 106,000 $ 99,000 $ 216,000 $ 241,000
EXPENSES:
Property operating expenses 30,000 36,000 65,000 79,000
Real estate taxes 8,000 10,000 14,000 18,000
Depreciation and amortization 33,000 32,000 66,000 63,000
71,000 78,000 145,000 160,000
NET INCOME $ 35,000 $ 21,000 $ 71,000 $ 81,000
Net income:
Partnership's share of net income$ 35,000 $ 21,000 $ 71,000 $ 81,000
Co-venturer's share of net income - - - -
$ 35,000 $ 21,000 $ 71,000 $ 81,000
The joint venture agreement provides that all taxable income for any
fiscal year, will, in general, be allocated to the Partnership until it has
received income allocations equal to a nine percent return upon its invested
capital, as defined. Thereafter, taxable income will be allocated 80% to the
Partnership and 20% to Oxford/Concord Associates. In general, all tax losses
will be allocated to the Partnership.
The joint venture agreement also provides that cash flow, as defined, be
distributed monthly to the Partnership until it has received distributions
equal to a nine percent return upon its deemed invested capital of
$4,250,000. Thereafter, cash flow will be distributed 80% to the Partnership
and 20% to Oxford/Concord Associates. Proceeds from any capital transaction,
as defined, shall be distributed first to the Partnership until it has
received aggregate distributions equal to a nine percent return upon its
deemed invested capital; second, to the Partnership until it has received an
amount equal to its aggregate capital contributions, as defined; and the
balance, if any, will be distributed 80% to the Partnership and 20% to
Oxford/Concord Associates.
5. Investment Property Held for Sale
Mercantile Tower Office Building
As discussed in the Annual Report, the Partnership assumed ownership of
the Mercantile Tower Office Building, in Kansas City, Missouri, through a
deed-in-lieu of foreclosure action on April 12, 1993 as a result of certain
uncured defaults on the Partnership's mortgage loan receivable. 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. Adjustments to the
carrying value of the assets subsequent to foreclosure are recorded through
the use of a valuation allowance. The combined balance of the land and the
mortgage loan investment at the time title was transferred was $10,500,000.
The estimated fair value of the operating property at the date of
foreclosure, net of selling expenses, was $9,500,000. Accordingly, a write-
down of $1,000,000 was recorded as a loss on foreclosure in fiscal 1993. An
additional write-down of $1,200,000 was recorded as a provision for possible
investment loss in fiscal 1994 to reflect a further decline in management's
estimate of the fair value of the investment property. The net carrying
value of the Mercantile Tower investment property as of February 28, 1995 and
August 31, 1994, of $8,300,000, is classified as an investment property held
for sale on the Partnership's balance sheet.
The Partnership records income or loss from the investment property held
for sale in the amount of the difference between the property's gross
revenues and the sum of property operating expenses (including leasing costs
and improvement expenses), interest, property taxes and insurance.
Summarized operating results for Mercantile Tower for the three- and six-
month periods ended February 28, 1995 and 1994 are as follows:
Three Months Ended Six Months Ended
February 28,
February 28,
1995 1994 1995 1994
Rental revenues and expense
recoveries $ 485,374 $502,575 $ 855,438 $984,802
Interest and other income 2,274 3,924 4,536 6,673
487,648 506,499 859,974 991,475
Property operating expenses 607,302 406,371 1,128,479 619,909
Interest expense 26,335 - 41,720 -
Property taxes and insurance 68,646 115,218 132,686 226,626
702,283 521,589 1,302,885 846,535
Income (loss) from operations of
investment property held
for sale, net $(214,635) $ (15,090) $ (442,911) $144,940
Property operating expenses for the three and six months ended February
28, 1995 include capital improvements and leasing costs totalling
approximately $338,000 and $627,000, respectively.
6. Note payable
Note payable as of February 28, 1995 and August 31, 1994 consists of the
following secured indebtedness:
February 28, 1995 August 31, 1994
Line-of-credit borrowings secured by the
Mercantile Tower property (see Note 5). Draws
under the line, up to a maximum of $2,000,000,
can be made through March 15, 1996, only to
fund approved leasing and capital improvement
costs related to the Mercantile Tower
property. The outstanding borrowings bear
interest at the prime rate plus 1% per annum.
Interest-only payments are due on a monthly
basis through February 1995. Thereafter,
monthly principal and interest payments are
due through maturity on February 10, 2001. $1,250,780 $604,166
7.Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions
will be resolved without material adverse effect on the Partnership's
financial statements, taken as a whole.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As previously reported, the Partnership assumed ownership of the Mercantile
Tower Office Building on April 12, 1993. The Managing General Partner has
engaged the services of a local property management company to carry out the
day-to-day operations of the building under the direction of the Adviser. The
occupancy level at Mercantile has increased to 63% at February 28, 1995, up from
59% the previous quarter, due to three new leases with local law firms. The
property is in need of significant funds to pay for leasing costs, certain
deferred maintenance and capital improvements. Subsequent to the date that the
Partnership assumed control of the building's operations, the management company
has used cash flow from operations to complete a capital improvement program
which included various structural, cosmetic and aesthetic improvements and
enhancements to the building's common areas that were necessary as an initial
step to effectively market and lease the vacant space. In addition to the
capital improvements completed to date, the Mercantile Tower property will
require significant funds in order to pay for tenant improvements and leasing
commissions required to lease the currently vacant space and stabilize
operations. The Partnership expects to provide these funds from the cash flow
of the property, certain secured borrowings and, to the extent necessary, from
the Partnership's cash reserves. During fiscal 1994, the Partnership closed on
a $2 million line of credit which will be used to pay for the majority of the
required tenant improvement and capital enhancement costs anticipated over the
next 18 months. This nonrecourse, fully amortizable line of credit is payable
with interest at 1% over prime, and has a 7-year term with interest-only
payments in the first year. The line of credit borrowings are collateralized
by a first lien against the Mercantile Tower property, which includes an
adjoining parking facility. The draw period has a 2-year term which ends in
March 1996, and draw downs under the line of credit can only be made in
connection with costs associated with signed leases and contracts for capital
improvements. As of February 28, 1995, the Partnership had drawn approximately
$1,251,000 under the line of credit. If leasing activity progresses as
expected, management anticipates drawing the entire $2 million balance of the
line of credit before March 1996. Until a stabilized occupancy level is
achieved and the line of credit borrowings are repaid, the Partnership's
investment in Mercantile Tower is not expected to generate any significant
excess cash flow.
Occupancy at the Marshall's at East Lake Shopping Center as of February 28,
1995 was 92%, up from its level of 84% one year ago and improved from its level
of 89% for the previous quarter. However, effective rental rates in this
Atlanta sub-market remain depressed due to an oversupply of competing space. As
a result of a decline in revenues, along with certain capital improvement costs
incurred in the current period, the Partnership did not receive any cash flow
distributions from the Marshall's joint venture for the six months ended
February 28, 1995. Subsequent to the quarter-end, the venture made a
distribution of approximately $57,000 to the Partnership. Annual distributions
of $150,000 to $200,000 are expected from this investment based on the
property's current leasing status. As previously reported, Marshall's, the
center's anchor tenant, opened another store in 1994 at a new competitive center
four miles from the Marshall's at East Lake Shopping Center. Marshall's sales
at East Lake have been very strong and their management has confirmed that they
plan to keep the East Lake store open. However, there can be no assurances that
such plans are not subject to change. The initial term of the Marshall's lease
at East Lake runs to January 31, 2003. Notwithstanding their obligation under
the lease agreement, the loss of the center's only anchor tenant could have
serious adverse effects on management's ability to retain its other tenants and
to lease vacant space. Management intends to monitor this situation closely.
Occupancy at Eden
West Apartments, The Timbers Apartments and Harbour Bay Plaza remained strong at
98%, 96% and 90%, respectively. Eden West and Timbers have also shown
substantial increases in rental rates when compared to the prior year. The
mortgage loans secured by these three properties bear interest at rates between
11.5% and 11.75% per annum. With general real estate market conditions
improving along with the state of the overall economy, and with credit in the
capital markets for real estate transactions more accessible than in prior
years, it is possible, although not certain given the recent increase in
interest rates, that the current loans secured by these properties could be
refinanced at lower rates. However, the Partnership's mortgage loans contain
certain restrictions with regard to prepayments. The Timbers loan contains a
prohibition against prepayment until September 1, 1997. The Eden West loan
prohibited prepayment through June 1, 1994 and includes a prepayment premium for
any prepayment between June 1994 and May 1998 at rates between 5% and 1.25% of
the mortgage loan balance. The Harbour Bay Plaza loan, which has a scheduled
maturity date of December 1, 1995, became fully prepayable without penalty
effective January 1994. In addition to repaying the outstanding mortgage loans,
the borrowers would be required to exercise their options to purchase the
related land at the time of any prepayment transaction, including in such
purchase price the Partnership's share, if any, of the property's appreciation
called for under the terms of the ground lease. As a practical matter, this
requirement could make it difficult for the borrowers to finance a prepayment
transaction. During the quarter ended November 30, 1994, the Harbour Bay Plaza
borrower approached the Partnership with an offer to pay off the mortgage loan
and repurchase the underlying land. The offer was rejected by the Partnership
due to management's belief that the offer did not comply with the terms of the
ground lease. During the current quarter, the Partnership engaged in
discussions with the borrower regarding possible changes to the borrower's offer
which would bring it into compliance with the ground lease. The result of such
discussions could be a prepayment transaction which might be consummated by the
end of fiscal 1995. However, at the present time no assurances can be given
regarding the likelihood or timing of any possible prepayment transaction.
Based on the current estimated market value of the property, the Partnership
expects to receive a small premium upon the eventual sale of its Harbour Bay
Plaza land investment.
At February 28, 1995, the Partnership had available cash and cash
equivalents of approximately $1,160,000. Such cash and cash equivalents will be
used for the Partnership's working capital requirements and for distributions to
the partners. The Partnership began implementing small increases in the
quarterly distribution rate to the Limited Partners commencing with the payment
made in October 1994 for the quarter ended August 31, 1994. The distribution
rate is expected to reach 2.5% per annum on remaining invested capital by the
third quarter of fiscal 1995. The distribution rate is expected to stabilize at
2.5% thereafter for the foreseeable future. The source of future liquidity and
distributions to the partners is expected to be through cash generated from the
operations of the Partnership's real estate and mortgage loan investments,
repayment of the Partnership's mortgage loans receivable and the proceeds from
the sales or refinancings of the underlying land, the operating investment
property and the joint venture investment property.
RESULTS OF OPERATIONS
The Partnership's net income decreased by approximately $782,000 for the six
months ended February 28, 1995, in comparison to the same period in the prior
year, primarily due to a decrease in mortgage interest and land rent revenues
and a substantial increase in property operating expenses at the Mercantile
Tower property which is reflected in the income (loss) from operations of
investment property held for sale. In addition, revenues from Mercantile Tower
dropped by approximately $132,000 in the current six-month period due to a
decline in occupancy from 72% at February 28, 1994 to 63% at February 28, 1995,
coupled with a decrease in effective rental rates. The net operating results of
the Mercantile Tower Office Building in the current six-month period also
include certain costs, totalling approximately $627,000, related to the
improvements and leasing costs incurred subsequent to obtaining the credit line
discussed further above. As a result of the Partnership's accounting policy
with regard to its investment properties acquired through foreclosure, all costs
associated with holding the asset are expensed as incurred. Mortgage interest
and land rent revenues declined by approximately $195,000 for the six months
ended February 28, 1995 due to the sale of the Howard Johnson's Motor Lodge
effective April 1, 1994, which resulted in the repayment of the Partnership's
mortgage loan receivable and the termination of the Partnership's ground lease.
Similar changes in Mercantile Tower revenues and expenses and mortgage interest
and land rent revenues account for the $303,000 decline in net income for the
three months ended February 28, 1995, as compared to the same period in the
prior year. The Partnership's share of venture's income decreased by
approximately $11,000 in the six-month period ended February 28, 1995 due to
lower rental revenues at the Marshall's at East Lake Shopping Center as a result
of a decline in effective rental rates over the past two fiscal years. However,
revenues from Marshall's were higher for the three months ended February 28,
1995, as compared to the same period in the prior year, as a result of the
occupancy gains achieved in the current quarter, as discussed further above. As
a result, the Partnership's share of venture's income increased by approximately
$13,000 for the current three-month period.
PART II
OTHER INFORMATION
Item 1. 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
defendants, including Second Qualified Properties, Inc. and Properties
Associates, which are the General Partners in the Partnership and affiliates of
PaineWebber.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Qualified Plan
Property Fund Two, LP, PaineWebber, Second Qualified Properties, Inc. and
Properties Associates (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 purport to be suing on behalf of all persons who invested in
PaineWebber Qualified Plan Property Fund Two, LP, also allege that following the
sale of the partnership interests, PaineWebber, Second Qualified Properties,
Inc. and Properties Associates misrepresented financial information about the
Partnership's value and performance. The amended complaint alleges that
PaineWebber, Second Qualified Properties, Inc. and Properties Associates
violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the
federal securities laws. The plaintiffs seek 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 seek treble damages
under RICO. The defendants' time to move against or answer the complaint has
not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Second Qualified Properties, Inc., Properties Associates and their
affiliates for costs and liabilities in connection with this litigation. The
General Partners intend to vigorously contest the allegations of the action, and
believe that the action will be resolved without material adverse effect on the
Partnership's financial statements, taken as a whole.
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.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
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 QUALIFIED PLAN PROPERTY
FUND TWO, LP
By: SECOND QUALIFIED PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: April 13, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended February 28,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 1,443,947
<SECURITIES> 0
<RECEIVABLES> 10,321,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,588,351
<PP&E> 13.373,334
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,144,057
<CURRENT-LIABILITIES> 249,759
<BONDS> 1,250,780
<COMMON> 0
0
0
<OTHER-SE> 23,643,518
<TOTAL-LIABILITY-AND-EQUITY> 25,144,057
<SALES> 0
<TOTAL-REVENUES> 930,694
<CGS> 0
<TOTAL-COSTS> 427,099
<OTHER-EXPENSES> 442,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 60,684
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,684
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
</TABLE>
