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, 1997
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: 0-17147
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2798638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No ____
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
BALANCE SHEETS
February 28, 1997 and August 31, 1996 (Unaudited)
(In thousands)
ASSETS
February 28 August 31
----------- ---------
Real estate investments:
Investment property held for sale $ 4,720 $ 4,720
Land 650 1,150
Mortgage loans receivable 4,850 9,185
-------- ---------
10,220 15,055
Cash and cash equivalents 1,025 973
Interest receivable 62 85
Tax and tenant security deposit escrows 55 71
Prepaid expenses 4 14
Deferred expenses, net 7 9
-------- --------
$ 11,373 $ 16,207
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 18 $ 18
Accounts payable and accrued expenses 73 113
Tenant security deposits 12 13
Partners' capital 11,270 16,063
-------- --------
$ 11,373 $ 16,207
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the six months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1995 $ 10 $15,878
Net income 7 687
Cash distributions (6) (584)
------ -------
Balance at February 29, 1996 $ 11 $15,981
====== =======
Balance at August 31, 1996 $ 11 $16,052
Net income 13 1,260
Cash distributions (6) (6,060)
------ -------
Balance at February 28, 1997 $ 18 $11,252
====== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF INCOME
For the three and six months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands, except per Unit amounts)
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest from mortgage loans $ 156 $ 256 $ 411 $ 511
Land rent 23 48 59 81
Interest earned on short-
term investments 37 11 49 21
------ ------ ----- -----
216 315 519 613
Expenses:
Management fees 21 21 42 42
General and administrative 69 104 129 172
Amortization of deferred
expenses 1 1 2 2
------ ------ ----- -----
91 126 173 216
------ ------ ----- -----
Operating income 125 189 346 397
Income from operations of
investment property held
for sale, net 139 147 277 297
Gain on sale of land 650 - 650 -
------ ------ ----- -----
Net income $ 914 $ 336 $1,273 $ 694
====== ====== ====== =====
Net income per Limited
Partnership Unit $ 25.28 $9.26 $ 35.21 $19.17
======= ===== ======= ======
Cash distributions per Limited
Partnership Unit $161.16 $8.16 $169.32 $16.32
======= ===== ======= ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 35,794 Units of Limited Partnership Interest outstanding during
each period.
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1997 and February 29, 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 1,273 $ 694
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of land (650) -
Amortization of deferred expenses 2 2
Changes in assets and liabilities:
Interest receivable 23 -
Tax and tenant security deposit escrows 16 18
Prepaid expenses 10 7
Accounts payable and accrued expenses (40) (43)
Tenant security deposits (1) -
--------- -------
Total adjustments (640) (16)
--------- -------
Net cash provided by operating activities 633 678
--------- -------
Cash flows from investing activities:
Net proceeds from sale of land 1,150 -
Proceeds from repayment of mortgage loans 4,335 -
--------- -------
Net cash provided by investing activities 5,485 -
--------- -------
Cash flows from financing activities:
Distributions to partners (6,066) (590)
--------- -------
Net increase in cash and cash equivalents 52 88
Cash and cash equivalents, beginning of period 973 790
--------- -------
Cash and cash equivalents, end of period $ 1,025 $ 878
========= =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1996. 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.
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of February 28, 1997 and August 31, 1996 and
revenues and expenses for each of the three- and the six-month periods ended
February 28, 1997 and February 29, 1996. Actual results could differ from the
estimates and assumptions used.
2. Mortgage Loan and Land Investments
The outstanding first mortgage loans and the cost of the related land to the
Partnership at February 28, 1997 and August 31, 1996 are as follows (in
thousands):
Property Amount of Mortgage Loan Cost of Land
-------- ----------------------- ---------------------
2/28/97 8/31/96 2/28/97 8/31/96
------- ------- ------- -------
Appletree Apartments $ 4,850 $4,850 $ 650 $ 650
Omaha, NE
Woodcroft Shopping Center
Durham, NC (1)
Phase I - 3,100 - 360
Phase II - 1,235 - 140
------- ------ ------- ------
$ 4,850 $9,185 $ 650 $1,150
======= ====== ======= ======
(1) See below for discussion of the Woodcroft Shopping Center's mortgage loan
repayment and related land sale on December 20, 1996.
The interest rates on the mortgage loans range from 11% to 11.25% per annum.
The land leases have terms of 40 years. Among the provisions of the lease
agreements, the Partnership is entitled to additional rent based upon the
gross revenues from the operating properties in excess of a base amount, as
defined. For the six months ended February 28, 1997 and February 29, 1996,
additional rent of $4,000 and $17,000, respectively, was earned from the
Woodcroft Shopping Center investments. The lessees have the option to
purchase the land for specified periods of time, as discussed in the Annual
Report, at a price based on fair market value, as defined, but in no event
less than the original cost to the Partnership. As of February 28, 1997, the
option to purchase the land underlying the Appletree Apartments was
exercisable. The Partnership's investments were structured to share in the
appreciation in value of the underlying real estate. Accordingly, upon either
sale, refinancing, maturity of the mortgage or exercise of the option to
purchase the land, the Partnership will receive a share of the appreciation
above a specified base amount.
In December 1996, Woodcroft's owner agreed upon sale terms with a third-party
buyer. The sale transaction closed on December 20, 1996. As part of the
transaction, the Partnership received $4,335,000 from the Woodcroft borrower
which represented the full repayment of the first leasehold mortgage loan
secured by the Woodcroft Shopping Center which matured on December 17, 1996.
Simultaneously, the Woodcroft borrower purchased the Partnership's interest
in the underlying land for the amount of $500,000. In addition, under the
terms of the ground lease, the Partnership was entitled to a share of the
property's appreciation. This resulted in a participation payment to the
Partnership of $650,000. In total, the Partnership received $5,485,000 to
close the transaction. As a result of this transaction, the Partnership made
a special distribution of $153 per original $1,000 investment on January 15,
1997 to unitholders of record as of December 20, 1996. This special
distribution was paid along with the regular quarterly distribution for the
quarter ended November 30, 1996. Subsequent to the Woodcroft special
distribution, the Partnership's annualized distribution rate was adjusted
from 6.5% to 5.5% beginning with the distribution for the quarter ended
February 28, 1997, which will be made on April 15, 1997.
During the last quarter of fiscal 1995, the Partnership received notice from
the Appletree borrower of its intent to prepay the Partnership's mortgage
loan and repurchase the underlying land. The borrower reported that it had
secured the necessary financing to complete this transaction. However, the
amount to be received by the Partnership as its share of the appreciation of
the Appletree property has not been agreed upon to date. The terms of the
Partnership's ground lease provide for the possible resolution of disputes
between the parties over value issues through an arbitration process. The
borrower could force the Partnership to submit to such an arbitration process
during fiscal 1997, although to date it has given no formal indication of an
intent to do so. In addition to the amount to be determined as the
Partnership's share of the property's appreciation under the ground lease,
the terms of the Appletree mortgage loan require a prepayment penalty which
would be equal to 2.5% of the outstanding principal balance of $4,850,000 for
any prepayment prior to April 30, 1997. Subsequent to April 30, 1997, the
prepayment penalty declines to 1.5% for the next twelve months after which
there would be no prepayment penalty for the remainder of the term, through
maturity in June 1999. If completed, the proceeds of any prepayment
transaction would be distributed to the Limited Partners. As a result of the
Woodcroft repayment transaction described above and the sale of the
Partnership's wholly-owned investment property subsequent to the quarter
ended February 28, 1997 (see Note 4), the Appletree mortgage loan and
underlying land are the Partnership's only remaining investments.
Consequently, a prepayment transaction involving the Appletree investments
would be followed by a liquidation of the Partnership. However, a prepayment
transaction remains contingent on, among other things, a resolution of the
value issue. Accordingly, there are no assurances that a prepayment
transaction and a liquidation of the Partnership will be consummated in the
near term.
As discussed further above, the Woodcroft loan was repaid in December 1996,
and there is the potential for a near-term prepayment of the Appletree loan.
As a result of these circumstances, based on an expected short-term maturity,
the estimated fair value of the Partnership's remaining mortgage loan
instrument approximated its carrying value as of February 28, 1997 since the
estimated fair value of the collateral property exceeded the principal
balance of the loan.
3. Related Party Transactions
The Adviser earned basic management fees of $42,000 for both of the six-month
periods ended February 28, 1997 and February 29, 1996. Accounts payable -
affiliates at both February 28, 1997 and August 31, 1996 consists of
management fees of $18,000 payable to the Adviser.
Included in general and administrative expenses for both of the six-month
periods ended February 28, 1997 and February 29, 1996 is $78,000,
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, 1997 and February 29, 1996 is $1,000 and $3,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
<PAGE>
4. Investment Properties
As discussed in the Annual Report, the Partnership foreclosed under the terms
of the mortgage loan secured by the Westside Creek Apartments on March 23,
1989 due to nonpayment of the required debt service. The Adviser has employed
a local property management company to conduct the day-to-day operations of
the property under the direction of the Managing General Partner since
assuming ownership. The property consists of 142 units and is located in
Little Rock, Arkansas. The net carrying value of the Partnership's investment
in the Westside Creek Apartments, of $4,720,000, is classified as investment
property held for sale on the accompanying balance sheets as of February 28,
1997 and August 31, 1996.
During the quarter ended November 30, 1996, the Partnership received an offer
to purchase the Westside Creek property and entered into negotiations for a
sale contract. The sale, to an unrelated third-party, closed subsequent to
the end of the second quarter, on March 28, 1997, at a sale price of
$6,100,000. The Partnership will recognize a gain of approximately $1.2
million on the sale of Westside Creek in the third quarter of fiscal 1997. As
a result of the sale of the Partnership's wholly-owned Westside Creek
Apartments, a Special Distribution of approximately $6,336,000, or $177 per
original $1,000 investment, will be made on April 15, 1997 to unitholders of
record as of March 28, 1997. Of this amount, approximately $167 represents
net proceeds from the sale of the Westside Creek Apartments and $10
represents a distribution of Partnership reserves that exceed expected future
requirements. Due to the reduction in the Partnership's cash flow resulting
from the sale of Westside Creek, the Partnership's annualized distribution
rate will be adjusted from 5.5% to 4.5% beginning with the distribution for
the quarter ending May 31, 1997, which will be made on July 15, 1997. The
4.5% annualized rate will be paid on a Limited Partner's remaining capital
account of $172 per original $1,000 investment, which reflects the $177
return of capital resulting from the Westside Creek sale.
The Partnership recognizes income from the operations of investment property
held for sale in the amount of the excess of the property's gross revenues
over the sum of property operating expenses (including capital improvement
costs), taxes and insurance. Summarized operating results of the Westside
Creek investment property for the three- and six-month periods ended February
28, 1997 and February 29, 1996 are as follows (in thousands):
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income $ 223 $ 246 $ 457 $ 492
Other income 9 7 16 15
------ ------- ------ ------
232 253 473 507
Expenses:
Property operating expenses 72 85 154 168
Property taxes and insurance 21 21 42 42
------ ------- ------ ------
93 106 196 210
------ ------- ------ ------
Income from operations, net $ 139 $ 147 $ 277 $ 297
====== ======= ====== ======
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As reported in the first quarter, in December 1996 the owner of the
Woodcroft Shopping Center agreed upon sale terms with a third-party buyer. The
sale transaction closed on December 20, 1996. As part of the transaction, the
Partnership received $4,335,000 from the Woodcroft borrower which represented
the full repayment of the first leasehold mortgage loan secured by the Woodcroft
Shopping Center which matured on December 17, 1996. Simultaneously, the
Woodcroft borrower purchased the Partnership's interest in the underlying land
for the amount of $500,000. In addition, under the terms of the ground lease,
the Partnership was entitled to a share of the property's appreciation. This
resulted in a participation payment to the Partnership of $650,000. In total,
the Partnership received $5,485,000 to close the transaction. As a result of
this transaction, the Partnership made a special distribution of $153 per
original $1,000 investment on January 15, 1997 to unitholders of record as of
December 20, 1996. This special distribution was paid along with the regular
quarterly distribution for the quarter ended November 30, 1996. Subsequent to
the Woodcroft special distribution, the Partnership's annualized distribution
rate was adjusted from 6.5% to 5.5% beginning with the distribution for the
quarter ended February 28, 1997, which will be made on April 15, 1997.
Also as reported during the quarter ended November 30, 1996, the Partnership
received an offer to purchase the Westside Creek property and entered into
negotiations for a sale contract. Westside Creek consisted of two
separately-owned phases which shared their amenities with one another and
allocated expenses by agreement through a common management company. The sale
transaction involved both phases, which management believes maximized the
proceeds to the Partnership. The Partnership owned Phase I which included the
common entrance, leasing office and clubhouse, and had negotiated a favorable
allocation of the sales price with the owner of Phase II based on Phase I's
physical advantages. In order to capitalize on this potential for a combined
sale of both phases, and in light of the possible near-term repayment of the
Appletree mortgage loan and related land sale, management believed that pursuing
a current sale of the Westside Creek property was in the best interests of the
Limited Partners. The transaction closed subsequent to the end of the quarter on
March 28, 1997. Westside Creek Phase I was sold for $6,100,000. This amount
compares favorably to the Partnership's original net investment in Westside
Creek of $4,850,000.
As a result of the sale of the Partnership's wholly-owned Westside Creek
Apartments, a Special Distribution of approximately $6,336,000, or $177 per
original $1,000 investment, will be made on April 15, 1997 to unitholders of
record as of March 28, 1997. Of this amount, approximately $167 represents net
proceeds from the sale of the Westside Creek Apartments and $10 represents a
distribution of Partnership reserves that exceed expected future requirements.
It should be noted that due to the reduction in the Partnership's cash flow
resulting from the sale of Westside Creek, the Partnership's annualized
distribution rate will be adjusted from 5.5% to 4.5% beginning with the
distribution for the quarter ending May 31, 1997, which will be made on July 15,
1997. The 4.5% annualized rate will be paid on a Limited Partner's remaining
capital account of $172 per original $1,000 investment, which reflects the $177
return of capital resulting from the Westside Creek sale.
During the last quarter of fiscal 1995, the Partnership received notice from
the Appletree borrower of its intent to prepay the Partnership's mortgage loan
and repurchase the underlying land. The borrower had represented that it had
received the necessary financing to complete this transaction. However, the
amount to be received by the Partnership as its share of the appreciation in the
Appletree property has not been agreed upon to date. The terms of the ground
lease provide for the possible resolution of disputes between the parties over
value issues through an arbitration process. The borrower could force the
Partnership to submit to such an arbitration process during fiscal 1997,
although to date it has given no formal indication of an intent to do so. In
addition to the amount to be determined as the Partnership's share of the
property's appreciation under the ground lease, the terms of the Appletree
mortgage loan require a prepayment penalty which would be equal to 2.5% of the
outstanding principal balance of $4,850,000 for any prepayment prior to April
30, 1997. Subsequent to April 1997, the prepayment penalty declines to 1.5% for
the next twelve months, after which there would be no prepayment penalty for the
remainder of the term, until maturity in June 1999. If completed, the proceeds
of any prepayment transaction would be distributed to the Limited Partners. As a
result of the Woodcroft repayment transaction in December 1996 and the sale of
the wholly-owned Westside Creek Apartments in March 1997, the Appletree mortgage
loan and underlying land are the Partnership's only remaining investments.
Consequently, a prepayment transaction involving the Appletree investments would
be followed by a liquidation of the Partnership. However, a prepayment
transaction remains contingent on, among other things, a resolution of the value
issue, and the borrower has not pursued negotiation efforts in recent months.
Accordingly, there are no assurances that a prepayment transaction and a
liquidation of the Partnership will be consummated in the near term.
At February 28, 1997, the Partnership had available cash and cash equivalents
of approximately $1,025,000. Such cash and cash equivalents will be used for
working capital requirements and for distributions to the partners. The source
of future liquidity and distributions to the partners is expected to be through
cash generated from the repayment of the remaining mortgage loan receivable and
the proceeds from the sale of the land underlying the Appletree Apartments. Such
sources of liquidity are expected to be adequate to meet the Partnership's needs
on both a short-term and long-term basis.
Results of Operations
Three Months Ended February 28, 1997
- ------------------------------------
The Partnership reported net income of $914,000 for the three-month period
ended February 28, 1997, as compared to net income of $336,000 for the same
period in the prior year. This $578,000 favorable change in net operating
results is primarily due to the gain of $650,000 recognized in the current
period on the sale of the land underlying the Woodcroft Shopping Center, as
discussed further above. Decreases in operating income of $64,000 and income
from investment property held for sale of $8,000 partially offset the gain on
the sale of the Woodcroft land. Operating income decreased mainly due to
declines in interest income from mortgage loans of $100,000 and land rent of
$25,000. Interest income from mortgage loans and land rent decreased due to the
Woodcroft Shopping Center's mortgage loan repayment and land sale in December
1996, as discussed further above. A reduction in general and administrative
expenses of $35,000 and an increase in interest earned on short-term investments
of $26,000 partially offset the decreases in interest income from mortgage loans
and land rent for the current three-month period. General and administrative
expenses declined primarily due to a decrease in certain required professional
services in the current period. Interest earned on short-term investments
increased mainly due to the higher average outstanding cash balances resulting
from the temporary investment of the Woodcroft mortgage loan repayment and land
sale proceeds prior to the special distribution to the Limited Partners which
occurred on January 15, 1997.
The decrease in income from investment property held for sale of $8,000 is
primarily attributable to a decrease in rental income at the Westside Creek
Apartments for the current three-month period. Rental income decreased due to a
decline in the property's average occupancy level when compared to the same
period in the prior year as a result of the competitive conditions in the Little
Rock, Arkansas apartment market.
Six Months Ended February 28, 1997
- ----------------------------------
The Partnership reported net income of $1,273,000 for the six-month period
ended February 28, 1997, as compared to net income of $694,000 for the same
period in the prior year. This $579,000 favorable change in net operating
results is primarily due to the gain of $650,000 recognized in the current
period on the sale of the land underlying the Woodcroft Shopping Center, as
discussed further above. Decreases in operating income of $51,000 and income
from investment property held for sale of $20,000 partially offset the gain on
the sale of the Woodcroft land. Operating income declined mainly due to
decreases in interest income from mortgage loans of $100,000 and land rent of
$22,000. Interest income from mortgage loans and land rent decreased due to the
Woodcroft Shopping Center's mortgage loan repayment and land sale in December
1996, as discussed further above. A reduction in general and administrative
expenses of $43,000 and an increase in interest earned on short-term investments
of $28,000 partially offset the decreases in interest income from mortgage loans
and land rent. General and administrative expenses declined primarily due to a
decrease in certain required professional services in the current period.
Interest earned on short-term investments increased mainly due to the higher
average outstanding cash balances resulting from the temporary investment of the
Woodcroft mortgage loan repayment and land sale proceeds prior to the special
distribution to the Limited Partners which occurred on January 15, 1997.
<PAGE>
The decrease in income from investment property held for sale of $20,000
is primarily attributable to a decrease in rental income at the Westside Creek
Apartments for the current six-month period. Rental income decreased due to a
decline in the property's average occupancy level when compared to the same
period in the prior year as a result of the competitive conditions in the Little
Rock, Arkansas apartment market.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously reported, 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
Third 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 Three, LP., PaineWebber, Third 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 purported to be suing on behalf of all persons who invested in
PaineWebber Qualified Plan Property Fund Three, LP., also alleged that following
the sale of the partnership interests, PaineWebber, Third Qualified Properties,
Inc. and Properties Associates misrepresented financial information about the
Partnership's value and performance. The amended complaint alleged that
PaineWebber, Third Qualified Properties, Inc. and Properties Associates 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 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 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 settlement was held in December 1996, and in
March 1997 the court issued a final approval of the settlement.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
Mediation with respect to the Abbate action was held in December 1996. As a
result of such mediation, a settlement between PaineWebber and the plaintiffs
was reached which provides for the complete resolution of such action. Final
releases and dismissals with regard to this action are expected to be received
in April 1997.
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
the 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
believe that the resolution of these matters will not have a material impact on
the Partnership's financial statements, taken as a whole.
<PAGE>
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, 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 THREE, LP
By: THIRD QUALIFIED PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended February 28,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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