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, 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: 0-15036
PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2841746
(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
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DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
December 14, 1984, as supplemented
PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
1995 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item2 Properties I-3
Item3 Legal Proceedings I-4
Item4 Submission of Matters to a Vote of
Security Holders I-4
PART II
Item5 Market for the Partnership's Units of Limited
Partnership Interest and Related Security
Holder Matters II-1
Item6 Selected Financial Data II-1
Item7 Management's Discussion and Analysis of
Financial Condition
and Results of Operations II-2
Item8 Financial Statements and Supplementary Data II-5
Item9 Changes in and Disagreements with Accountants
on Accounting
and Financial Disclosure II-5
PART III
Item10 Directors and Executive Officers of
the Partnership III-1
Item11 Executive Compensation III-3
Item12 Security Ownership of Certain Beneficial
Owners and Management III-3
Item13 Certain Relationships and Related Transactions III-3
PART IV
Item14 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-17
PART I
Item 1. Business
Paine Webber Qualified Plan Property Fund Four, LP (the "Partnership") is a
limited partnership formed in October 1984 under the Uniform Limited Partnership
Act of the State of Delaware for the purpose of investing in a diversified
portfolio of income-producing operating properties through land purchase-
leaseback transactions and first mortgage loans. The Partnership sold
$44,849,650 in Limited Partnership Units (896,993 Units at $50 per Unit) from
December 14, 1984 to December 13, 1985 pursuant to a Registration Statement
filed on Form S-11 under the Securities Act of 1933 (Registration No. 2-93962).
Limited Partners will not be required to make any additional capital
contributions.
The Partnership originally owned land and made first mortgage loans secured
by buildings with respect to six operating properties. As of August 31, 1995,
the Partnership's mortgage loan and land lease investments on three of the
original properties were still outstanding and the Partnership owned two
operating properties directly as the result of foreclosures resulting from
defaults on the Partnership's mortgage loans. The Partnership's investment
properties and security for its mortgage loan investments are described below.
Property name Type of Property and Type of
and Location Date of Investment Size Ownership (1)
The Corner at Seven (2) Shopping Center 70,890 net Fee ownership
Corners Shopping 1/9/85 leasable sq. ft.; of land and
Center 6.5 acres of first mortgage
Fairfax County, VA land lien on
improvements
Willow Creek
Apartments Apartments 138 Units; Fee ownership
Wichita, KS 10/31/85 7.05 acres of land of land and
first mortgage
lien on
improvements
Martin Sunnyvale Reseach and 39,286 net
Research Development leasable sq. ft.; Fee ownership
and Development Center 2.5 acres of land of land and
Center (3) 12/20/85 improvements
Sunnyvale, CA
Bell Forge Square Shopping Center 126,890 net Fee ownership
Shopping 4/29/86 leasable sq. ft.; of land and
Center (4) 11 acres of land improvements
Nashville, TN
Park South Apartments 240 Units; Fee ownership
Apartments (5) 12/29/88 19 acres of land of land and
Charlotte, NC mortgage
lien on
improvements
(1) See Notes to the Financial Statements filed with this Report for a
description of the transactions through which the Partnership has acquired
these real estate investments.
(2) Subsequent to year-end, in November 1995, the Partnership was repaid on the
first mortgage loan secured by The Corner at Seven Corners Shopping Center
and sold the land underlying the operating property at a gain. See the
further discussion below.
(3) On July 12, 1991, the Partnership foreclosed under the terms of the
mortgage loan secured by the Martin Sunnyvale Research and Development Center
for non-payment of the required monthly payments of interest. The
Partnership has been operating the property utilizing the services of a local
management company since the date of foreclosure. See Note 5 to the
Financial Statements accompanying this Annual Report for a further discussion
of this transaction.
(4) On October 4, 1991, the Partnership received a deed in lieu of foreclosure
on the mortgage loan secured by the Bell Forge Square Shopping Center due to
non-payment of the required monthly payments of interest in accordance with
the terms of the loan. The Partnership has been operating the property
utilizing the services of a local management company since the date of
foreclosure. See Note 5 to the Financial Statements accompanying this Annual
Report for a further discussion of this transaction.
(5) The Partnership owns a 77% interest in the land underlying the Park South
Apartments and has an equivalent interest in the related secured mortgage
loan. The remaining 23% interest in the land and mortgage loan receivable is
owned by an affiliated partnership, PaineWebber Mortgage Partners Five, L.P.
In addition to the above properties, the Partnership previously had an
investment interest in the Cordova Creek Apartments, a 196-unit, garden-style
apartment complex in Memphis, Tennessee. On February 20, 1990, the Partnership
foreclosed under the terms of the mortgage loan secured by the Cordova Creek
Apartments for non-payment of the required monthly payments of interest in
accordance with the terms of the loan. The Partnership operated the property,
utilizing the services of a local management company, for more than five years
during which time the Partnership received the majority of the net cash flow
generated from property operations after capital improvements. The Partnership
owned a 96.5% interest in the operating property. The remaining 3.5% interest
in the property was owned by an affiliated partnership, PaineWebber Qualified
Plan Property Fund Three, LP (`QP3''). On April 12, 1995, the Partnership sold
the property to an unaffiliated third party for $9,100,000. After payment of
required transaction costs, including payment to QP3 for its 3.5% equity
interest, the net proceeds realized by the Partnership from the sale transaction
totalled approximately $8.7 million. The Partnership realized a gain of
approximately $1.8 million on the sale of Cordova Creek.
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, 1995, the Limited Partners had received cumulative cash
distributions totalling approximately $38,670,000, or $891 per original $1,000
investment for the Partnership's earliest investors. This return includes a
distribution of $215 per original $1,000 investment following the sale of the
Cordova Creek Apartments in June 1995 ($195 from the sale of Cordova Creek and
$20 of excess Partnership reserves). Subsequent to year-end, on November 22,
1995, the Partnership received proceeds totalling $9.6 million from the
repayment of the mortgage loan secured by The Corner at Seven Corners Shopping
Center and the sale of the land underlying the operating property. The proceeds
from the sale of the land reflected a premium of $1.4 million over the
Partnership's original investment as the Partnership's share of the appreciation
in value of the property to which it was entitled under the terms of the ground
lease. The proceeds of this transaction will be distributed to the Limited
Partners in the second quarter of fiscal 1996. Subsequent to The Corner at
Seven Corners prepayment transaction, the Partnership retains an interest in
four of the six properties underlying its original mortgage loan and land
investments. The Partnership's success in meeting its capital appreciation
objective will depend upon the proceeds received from the final liquidation of
its investments. The amount of such proceeds will ultimately depend upon the
value of the underlying investment properties at the time of their final
liquidation, which cannot presently be determined. At the present time, real
estate values for R&D office buildings are generally depressed nationwide due to
an oversupply of competing space in many markets and the trend of corporate
consolidations and downsizing which has followed in the wake of the last
national recession. In addition, values for retail shopping centers in certain
markets have begun to be affected by the effects of overbuilding and
consolidations among retailers which have resulted in an oversupply of space.
Management believes that such conditions are temporary and will change as
certain market corrections occur.
The Partnership expects to finance or sell its investments and have its
mortgage loans repaid from time to time. It is expected that most sales and
repayments will be made after a period of between seven and fifteen years after
the conclusion of the offering period, although sales and repayments may occur
at earlier or later dates. Due to the combination of relatively low mortgage
interest rates and increased availability of funds for sales and mortgage
refinancings which has existed over the past two years, the likelihood of the
Partnership's loans being prepaid has increased. As discussed further above and
in Item 7, the borrower on the loan secured by The Corners at Seven Corners
Shopping Center approached the Partnership regarding a potential prepayment
transaction during fiscal 1995 and completed such a transaction subsequent to
year-end. In deciding whether to sell any of the Partnership's investments, the
Managing General Partner will consider such factors as the amount of
appreciation in value, if any, to be realized, the risks of continued investment
and the anticipated advantages to be gained from continuing to hold the
investment. The proceeds from such sales, financings or refinancings of the
investments will not be reinvested but will be distributed to the Partners, so
that the Partnership will in effect be self-liquidating.
The Partnership's operating properties and the properties securing its
mortgage loan investments are located in real estate markets in which they face
significant competition for the revenues they generate. The apartment complexes
compete with numerous projects of similar type generally on the basis of price,
location and amenities. Apartment properties in all markets also compete with
the local single family home market for prospective tenants. The availability
of low home mortgage interest rates over the past three years has generally
caused this competition to increase in all areas of the country. The shopping
center and the research and development center compete for long-term commercial
tenants with numerous projects of similar type generally on the basis of rental
rates, location 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 Fourth Qualified Properties,
Inc. and Properties Associates 1985, L.P. (the "General Partners"). Fourth
Qualified Properties, Inc., a wholly-owned subsidiary of PaineWebber, is the
Managing General Partner of the Partnership. The Associate General Partner is
Properties Associates 1985, L.P., a Virginia limited partnership, certain
limited partners of which 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 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.
Item 2. Properties
As of August 31, 1995, the Partnership owned, and had leased back to the
sellers, the land related to the three investments referred to under Item 1
above to which reference is made for the description, name and location of each
investment. Additionally, as of August 31, 1995 the Partnership owned two
properties directly as a result of foreclosures resulting from defaults on the
Partnership's mortgage loans receivable as noted in Item 1.
Occupancy figures for each fiscal quarter during 1995, along with an
average of the year, are presented below for each property:
Percent Occupied At
Fiscal 1995
11/30/94 2/28/95 5/31/95 8/31/95 Average
The Corner at Seven Corners
Shopping Center 100% 100% 100% 100% 100%
Willow Creek Apartments 92% 92% 84% 86% 89%
Martin Sunnyvale Research and
Development Center 100% 100% 100% 100% 100%
Bell Forge Square Shopping
Center 95% 95% 90% 96% 94%
Park South Apartments 96% 94% 92% 97% 95%
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 Fourth Qualified Properties, Inc. and Properties
Associates 1985, L.P. (`PA1985''), which are the General Partners of 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 Mortgage Partners
Five, L.P., PaineWebber, Fourth Qualified Properties, Inc. and PA1985 (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 Paine Webber
Qualified Plan Property Fund Four, LP, also allege that following the sale of
the partnership interests, PaineWebber, Fourth Qualified Properties, Inc. and
PA1985 misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Fourth Qualified
Properties, Inc. and PA1985 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 Fourth Qualified Properties, Inc., PA1985 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.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
At August 31, 1995, there were 7,779 record holders of Units in the
Partnership. There is no public market for the resale of 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 FOUR, LP
SELECTED FINANCIAL DATA FOR THE PARTNERSHIP
For the years ended August 31, 1995, 1994, 1993, 1992 and 1991
(in thousands except per Unit data)
1995 1994 1993 1992 1991
Revenues $ 2,150 $ 1,963 $ 2,005 $ 1,852 $ 2,952
Operating income $ 1,375 $ 1,250 $ 1,297 $ 1,140 $ 2,571
Loss on foreclosure - - - - $ (1,844)
Provision for possible
investment loss, net - $ (150) $ (250) $ (800) -
Income from
investment properties
held for sale $ 1,274 $ 1,703 $ 1,494 $ 1,437 $ 454
Gain on sale of
investment property
held for sale $ 1,779 - - - -
Net income $ 4,428 $ 2,803 $ 2,541 $ 1,777 $ 1,181
Per Limited Partnership Unit:
Net income $ 4.89 $ 3.09 $ 2.80 $ 1.96 $ 1.30
Cash distributions from
operations $ 3.00 $ 3.00 $ 3.00 $ 3.24$ 3.49
Cash distributions from
sale, refinancing and
other disposition
transactions $ 10.75 - - - -
Total assets $ 29,551 $ 37,461 $ 37,429 $ 37,586 $ 38,675
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 net income and cash distributions per Limited Partnership Unit
are based upon the 896,993 Limited Partnership Units outstanding during each
year.
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
December 14, 1984 to December 13, 1985 pursuant to a Registration Statement
filed under the Securities Act of 1933. Gross proceeds of $44,849,650 were
received by the Partnership and, after deducting selling expenses and offering
costs, approximately $37,650,500 was originally invested in six operating
property investments in the form of first mortgage loans and land purchase-
leaseback transactions. Since the time that the original investments were made,
the Partnership has assumed direct ownership of the Cordova Creek, Martin
Sunnyvale and Bell Forge Square properties as a result of foreclosure
proceedings resulting from uncured monetary defaults on the Partnership's first
mortgage loans. As discussed further below, during fiscal 1995 the Partnership
sold the Cordova Creek Apartments and distributed the net proceeds to the
Limited Partners.
During the first quarter of fiscal 1995, the Partnership began actively
marketing the Cordova Creek Apartments for sale. On April 12, 1995, the
Partnership sold the property to an unaffiliated third party for $9,100,000.
This sale represented a substantial gain on the Partnership's original
investment in Cordova Creek, of $6,900,500, comprised of land purchased for
$289,500 and a $6,611,000 mortgage loan secured by the improvements. In
addition to the Partnership's initial investment, an affiliated partnership,
Paine Webber Qualified Plan Property Fund Three (`QP3'') contributed $250,000
or approximately 3.5% of the total net investment, toward the original land and
mortgage loan investments in Cordova Creek. During 1988, the borrower
experienced financial problems at this property due to the overbuilt Memphis
apartment market and eventually defaulted under the terms of the ground lease
and mortgage loan. On February 20, 1990, the Partnership, together with QP3,
foreclosed and took title to the property. At the time of the takeover, the
property was 85% occupied and poorly managed. The Partnership selected a local
property management company to operate Cordova Creek and, during 1991 and 1992,
initiated a long-term improvement program that included upgrades to the
apartment unit interiors and enhancements to the property's landscaping, signage
and building exteriors. For the past several years, Cordova Creek maintained
average occupancy levels in excess of 95% while steadily increasing rental
rates. After payment of required transaction costs, including payment to QP3
for its 3.5% equity interest, the net proceeds realized by the Partnership from
the fiscal 1995 sale transaction totalled approximately $8.7 million.
Management believes that accepting the proposed offer was in the Partnership's
best interests because market values for this 9-year old, 196-unit apartment
complex may have been at or near their peak for the current market cycle. The
Partnership made a special distribution of $215 per original $1,000 investment,
or $9,643,000, to the Limited Partners on June 15, 1995, which included the
Cordova Creek net sale proceeds and an amount of cash reserves which were deemed
to be in excess of the Partnership's expected future requirements. The Cordova
Creek investment had represented a significant source of cash flow for the
Partnership prior to the sale transaction. Cash flow from the Partnership's
remaining investments is not expected to be sufficient to support the prior
quarterly distribution rate of 6% per annum on remaining invested capital. As a
result, management reduced the distribution rate to 5.75% per annum effective
for the fourth quarter of fiscal 1995.
As previously reported, the 39,000 square foot Martin Sunnyvale Research
and Development Center was 100% occupied by three tenants as of August 31, 1995.
However, rental rates continue to be depressed in the Sunnyvale market due to
the substantial existing oversupply of R&D space. Future prospects for the high
technology industries in Northern California remain uncertain at the present
time. Accordingly, there are no assurances that market conditions will be
improved at the time of the expirations of the three existing leases, which are
scheduled to occur between November 1996 and April 1997. In light of this
situation, during fiscal 1994 the Partnership engaged the management and leasing
agent to explore the market for potential buyers for this investment property.
Management believed that marketing Martin Sunnyvale for sale was in the best
interests of the Partnership because by selling the property the Partnership
may be able to save the substantial costs of re-leasing the space as the
existing leases expire. If any of the existing tenants were to vacate, the
market value of Martin Sunnyvale, as well as the available property cash flow,
could be significantly reduced unless a replacement tenant is secured.
Subsequent to the time that the Partnership began to market the property for
sale, the Partnership was notified by a California state water agency of a
potential environmental problem at Martin Sunnyvale. As a result of
governmental required testing, management has learned that there has been a
contamination of the underground soil and water at the site. This contamination
may have been caused by either a previous occupant at the site or by an occupant
of a nearby property. The environmental testing was paid for by one of the
parties identified as a potential contaminator. Management believes that this
contamination occurred prior to the Partnership's initial mortgage loan and
ground lease investments in the property, which were made in 1985. The
California state water agency has issued a tentative site cleanup order
identifying two companies which had occupied the Martin Sunnyvale property prior
to the Partnership's investment. Management has engaged local counsel to
monitor all legal actions to insure that the Partnership's rights are fully
protected. In addition, management will seek full indemnification from the
parties identified as being potentially responsible. Until such time as either
a full indemnification is obtained or the property's environmental risk is
sufficiently mitigated, it is doubtful that a qualified purchaser for the
property could be found. Accordingly, the Partnership has suspended its
marketing efforts until this matter is resolved.
At the Partnership's other wholly-owned commercial investment property, the
Bell Forge Square Shopping Center in Nashville, Tennessee, the occupancy level
at August 31, 1995 was 96%, compared to 90% at May 31, 1995. This increase was
a result of the successful leasing of 6,400 square feet of space to an upscale
specialty furniture store and 2,600 square feet of space to a national financial
services firm. The space which was leased during the fourth quarter had become
available in the third quarter when a tenant moved out of the shopping center
having filed for Chapter 11 protection under the U.S. Bankruptcy Code. The
Partnership is pursuing all economically prudent legal actions against this
former tenant to recover the remaining rent due under the lease. Management is
hopeful that a satisfactory settlement will be negotiated within the next six
months. Bell Forge Square Shopping Center currently has two spaces available,
one for 3,450 square feet and another for 1,980 square feet. The Partnership's
leasing team is marketing these spaces to retailers interested in the market
area where Bell Forge Square is located. They have also re-opened negotiations
with one of the Center's anchor tenants to expand its store and extend its lease
for an additional ten years. If this expansion were to be completed, two
existing tenants that would be displaced by the expansion would be relocated
into the vacant spaces, bringing the occupancy level at Bell Forge Square to
100%.
The mortgage loans secured by the Willow Creek Apartments and The Corner at
Seven Corners Shopping Center bear interest at rates of 11.00% and 11.25% per
annum, respectively. As previously reported, since current market interest rates
for first mortgage loans are considerably lower than these rates, and with the
increased availability of credit in the capital markets for real estate
transactions, the likelihood of the Partnership's mortgage loan investments
being prepaid has been high since the time that the terms of such mortgage loans
allowed for prepayment. The Willow Creek loan became prepayable subsequent to
year-end, in November 1995. However, the Willow Creek loan includes a
prepayment premium for any prepayment between November 1995 and October 2000 at
rates between 5% and 1% of the mortgage loan balance. The Corner at Seven
Corners mortgage loan became prepayable without penalty on February 1, 1995.
During December 1994, the borrower of The Corner at Seven Corners loan sent
formal notice to the Partnership of its intent to prepay the first mortgage loan
and to exercise the option to purchase the underlying land in conjunction with a
refinancing the operating property. Subsequent to year-end, the Partnership and
the borrower agreed to terms for the repayment of the mortgage loan and purchase
of the underlying land. The proposed terms of the transaction included the full
repayment of the Partnership's mortgage loan of $6,188,000 and the payment of
$3,440,000 for obligations owing under the ground lease, representing the
repurchase of the $2,062,000 land investment and $1,378,000 as the Partnership's
share of the appreciation in value of the property. On November 22, 1995, the
transaction closed in accordance with the proposed terms and the Partnership
received gross proceeds of $9.6 million. Management believes that the amount
paid to the Partnership under the terms of the ground lease reflects the fair
value of the property, as supported by the Partnership's most recent independent
appraisal. The proceeds of this transaction will distributed to the Limited
Partners in the second quarter of fiscal 1996.
At August 31, 1995, the Partnership had available cash and cash equivalents
of approximately $1,851,000. Such cash and cash equivalents will be used for
the working capital needs of the Partnership, distributions to the partners and,
if necessary, for tenant improvement expenses and other leasing costs of the
Partnership's wholly-owned investment properties. The source of future
liquidity and distributions to the partners is expected to be through cash
generated from the Partnership's real estate and mortgage loan investments, the
repayment of the mortgage loans receivable and the future sales or refinancings
of the underlying land and the investment properties. Such sources of liquidity
are expected to be adequate to meet the Partnership's needs on both a short-term
and long-term basis. However, to the extent that the Partnership is prepaid on
either or both of its mortgage loan investments and the net proceeds are
returned to the Limited Partners, the Partnership's quarterly distribution rate
on remaining invested capital may have to be adjusted downward to reflect the
reduction in cash flows which would result from such transactions.
RESULTS OF OPERATIONS
1995 Compared to 1994
The Partnership's net income increased by $1,625,000 for the year ended
August 31, 1995, when compared to the prior year. The primary reason for the
increase in net income is the gain realized by the Partnership from the sale of
the Cordova Creek Apartments on April 12, 1995 of $1,779,000. In addition,
operating income increased by $125,000 primarily as a result of an increase in
interest income on short-term investments of $141,000. Interest income
increased due to higher interest rates earned on invested cash reserves when
compared to the prior year and a significant increase in average cash balances
as a result of the receipt and temporary investment of the Cordova Creek sale
proceeds. As discussed further above, the net proceeds of $8.7 million were
received in April 1995 and were invested pending the distribution to the Limited
Partners which occurred in June 1995. In addition, land rent revenue increased
by $46,000 due to an increase in additional rent received under the terms of The
Corner at Seven Corners and Park South ground leases. The increases in interest
income earned on short-term investments and land rent revenue were partially
offset by an increase in general and administrative expenses of $74,000.
General and administrative expenses increased mainly due to an increase in legal
and other professional fees as a result of the potential environmental problem
referred to above at the wholly-owned Martin Sunnyvale property.
The gain realized from the sale of the Cordova Creek Apartments and the
increase in the Partnership's operating income were partially offset by a
decrease in income from operations of investment properties held for sale of
$429,000 in fiscal 1995. This decrease is partly a result of the sale of the
Cordova Creek Apartments on April 12, 1995, as less than eight months of Cordova
Creek's operations are included in the current year's results. In addition,
significant capital improvement expenses were incurred at the Bell Forge Square
Shopping Center during fiscal 1995 in connection with the repair and improvement
of the property's exterior facade. In accordance with the Partnership's
accounting policy for assets held for sale, capital improvement costs are
expensed as incurred.
1994 Compared to 1993
Net income was comprised of operating income and income from operations of
the investment properties held for sale. The Partnership's net income increased
by $262,000 for the year ended August 31, 1994 when compared to the prior year.
Net income increased primarily as a result of an increase in income from
investment properties held for sale. This increase in the combined net
operating results of the Cordova Creek, Bell Forge Square and Martin Sunnyvale
properties, of $209,000, was primarily due to increases in rental income at
Cordova Creek and Bell Forge Square. Rental income at Cordova Creek increased
due to an increase in rental rates and a slight increase in occupancy. Rental
income increased at Bell Forge Square as a result of a significant increase in
occupancy from 85% at August 31, 1993 to 95% at August 31, 1994. In addition,
property operating expenses decreased at both of these properties. The
increases in rental income and decreases in property operating expenses at
Cordova Creek and Bell Forge Square were partially offset by increases in real
estate taxes at both properties, which resulted from the receipt of tax refunds
in the prior year. Net operating income at Martin Sunnyvale remained relatively
unchanged in fiscal 1994 when compared to fiscal 1993 as a small increase in
rental income was offset by an increase in property operating expenses. Net
income also increased as a result of a decrease of $100,000 in the provision for
possible investment loss. The provision represents the net adjustments to the
carrying values of the Partnership's investment properties held for sale to
reflect changes in management's estimate of the fair values of such properties.
In fiscal 1993, the Partnership recognized a net provision of $250,000 comprised
of a writedown of the Sunnyvale property in the amount of $550,000, offset by an
adjustment to reduce the Bell Forge valuation account by $300,000 to reflect an
increase in its estimated fair value over the prior year. In fiscal 1994, the
Partnership recognized a provision of $150,000 to reflect a further decline in
the estimated fair value of the Sunnyvale property. The increase in the income
from investment properties held for sale and the decrease in the provision for
possible investment loss were partially offset by a small decrease in the
Partnership's operating loss of $47,000 mainly due to a decrease in land rent
revenue of $50,000. This decrease in land rent revenue was the result of a
decline in the additional rents received from The Corner at Seven Corners land
lease.
1993 Compared to 1992
The Partnership's net income increased by $764,000 for the year ended
August 31, 1993 when compared to the prior year. Operating income increased by
$157,000 in fiscal 1993 as a result of an increase in land rents of $154,000
which resulted from additional rents received under the terms of The Corner at
Seven Corners Shopping Center and Park South Apartments land leases. The
increase in land rents from these two properties resulted because the properties
generated gross revenues in excess of certain base amounts, as defined in the
ground lease documents. The increase in land rent revenue was partially offset
by a decrease in interest income on cash equivalents mainly due to a decline in
interest rates earned on invested cash reserves compared to the prior year. Net
income also increased as a result of a decrease of $550,000 in the provision for
possible investment loss and an increase of $57,000 in the income from the
investment properties held for sale. In fiscal 1992, the Partnership recorded
valuation allowances related to the Bell Forge Square and Martin Sunnyvale
properties in the amounts of $600,000 and $200,000, respectively. In fiscal
1993, the Partnership recognized a net provision of $250,000, comprised of a
further writedown of the Sunnyvale property in the amount of $550,000, offset by
an adjustment to reduce the Bell Forge Square valuation account by $300,000 to
reflect an increase in its estimated fair value over the prior year. Income
from the investment properties held for sale increased as a result of increases
in rental revenue at the Bell Forge Square Shopping Center and the Cordova Creek
Apartments.
Inflation
The Partnership completed its tenth full year of operations in 1995 and the
effects of inflation and changes in prices on 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 Partnership's land leases provide for
additional rent based upon increases in the revenues of the related operating
properties which would tend to rise with inflation. In addition, revenues at
the wholly owned Martin Sunnyvale and Bell Forge Square properties would be
expected to rise with inflation because the tenant leases contain rental
escalation and/or expense reimbursement clauses based on increases in tenant
sales and property operating expenses. Such increases in revenues would be
expected to at least partially offset the increases in Partnership and property
operating expenses resulting from inflation.
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.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Fourth Qualified
Properties, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates 1985, L.P., a Virginia limited partnership, certain limited 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 operation, 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
Lawrence A. Cohen President and Chief Executive Officer 42 5/15/91
Albert Pratt Director 84 9/19/84*
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and Chief
Financial Officer 48 10/29/85
James A. Snyder Senior Vice President 50 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and Assistant
Treasurer 53 9/19/84*
Timothy J. Medlock Vice President and Treasurer 34 8/4/89
Thomas W. Boland Vice President 33 12/1/91
Dorothy F. Haughey Secretary 69 9/19/84**
The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the directors
and executive 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 executive 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 serves as the
Adviser. The business experience of each of the directors and principal
executive officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is a also member of the Board of Directors and
the Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First
Vice President of VMS Realty Partners where he was responsible for origination
and structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is a Director of the Managing General Partner, a Consultant of
PWI and a limited partner of the Associate General Partner. Mr. Pratt joined
PWI as Counsel in 1946 and since that time has held a number of positions
including Director of both the Investment Banking Division and the International
Division, Senior Vice President and Vice Chairman of PWI and Chairman of
PaineWebber International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a Director
of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He
joined the firm in 1978 and has served in various capacities within the Retail
Sales and Marketing Division. Before assuming his current position as Director
of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional
Manager, Branch System and Marketing Manager for a PaineWebber subsidiary,
Manager of Branch Administration and Director of Retail Products and Trading.
Mr. Sipes holds a B.S. in Psychology from Memphis State University.
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. 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 and Member of the Investment Committee 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.
John B. Watts III is a Senior Vice President of the Managing General
Partner and a Senior Vice President of the Adviser which he joined in June
1988. Mr. Watts has had over 16 years of experience in acquisitions,
dispositions and finance of real estate. He received degrees of Bachelor of
Architecture, Bachelor of Arts and Master of Business Administration from the
University of Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an 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 June 1988 to August 1989, Mr. Medlock served as the
Controller of the Managing General Partner and the Adviser. 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, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
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 rates ranging from 6% to 7% 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, Fourth Qualified Properties, Inc., is owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner,
is a Virginia limited partnership, limited partners of which are also officers
of the Adviser and the Managing General Partner. Properties Associates 1985 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 limited 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 limited 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 General Partners of the Partnership are Fourth Qualified Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates 1985, L.P. (the "Associate
General Partner"), a Virginia limited partnership, certain limited partners of
which 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 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.
Distributable Cash, as defined, of the Partnership will be distributed 98%
to the Limited Partners, 1% to the General Partners and 1% to the Adviser as an
asset management fee. Residual proceeds resulting from disposition of
Partnership investments will be distributed generally, 95% to the Limited
Partners, 3.99% to the Adviser as an asset management fee and 1.01% to the
General Partners after the prior receipt by the Limited Partners of their
original capital contributions and a cumulative annual return of 12%, as set
forth in the Amended Partnership Agreement.
All taxable income or tax loss (other than from a Capital Transaction) of
the Partnership will be allocated 98.989899% to the Limited Partners and
1.010101% to the General Partners. Taxable income or tax loss arising from a
sale or refinancing of investment properties will be allocated to the Limited
Partners and the General Partners in proportion to the amounts of sale or
refinancing proceeds to which they are entitled; provided that the General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing. 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.
Acquisition fees in the amount of 3% of the gross offering proceeds were
paid to the Adviser for analyzing, structuring and negotiating the acquisitions
of the Partnership's investments. The Adviser may receive a commission, in an
amount not yet determinable, upon the disposition of certain Partnership
investments.
The Adviser has been contracted to perform specific management
responsibilities, to administer the day-to-day operations of the Partnership and
to report periodically the performance of the Partnership to the Managing
General Partner. The Adviser will be paid a basic management fee of 1/2 of 1%
of the gross proceeds of the offering, in addition to the asset management fee
described above, for these services. Basic and asset management fees totalling
$240,000 were earned for the year ended August 31, 1995.
The Managing General Partner and the Adviser are reimbursed for their
direct expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operations of the Partnership's real
property investments.
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, 1995 is $207,000, 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 $5,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1995. Fee 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a separate
section of this report. See Index to Financial Statements and
Financial Statement Schedules at page F-1.
Financial statements for the properties securing the Partnership's
mortgage loans have not been included since the Partnership has no
contractual right to the information and cannot otherwise practicably
obtain the information. (3)Exhibits:
The exhibits listed on the accompanying index to exhibits at page IV-
3 are filed as part of this Report.
(b)No reports on Form 8-K were filed during the last quarter of fiscal
1995.
(c)Exhibits
See (a)(3) above.
(d)Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Index to Financial Statements and
Financial Statement Schedules at page F-1.
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 FOUR, LP
By: Fourth Qualified Properties, Inc.
Managing General Partner
By: /s/ Lawrence A. Cohen
Lawrence A. Cohen
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 27, 1995
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/ Albert Pratt Date:November 27, 1995
Albert Pratt
Director
By:/s/ J. Richard Sipes Date:November 27, 1995
J. Richard Sipes
Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
INDEX TO EXHIBITS
PAGE NUMBER IN
EXHIBIT NO. DESCRIPTION OF THE REPORT OR
DOCUMENT OTHER REFERENCE
(3) and (4) Prospectus of the Filed with the
Registrant dated Commission
December 14, 1984, as pursuant to Rule
supplemented, with 424(c) and
particular reference incorporated
to the Restated herein by
Certificate and reference.
Agreement of Limited
Partnership.
(10) Material contracts Filed with the
previously filed as Commission
exhibits to pursuant to
registration Section 13 or
statements and 15(d) of the
amendments thereto of Securities
the registrant Exchange Act of
together with all such 1934 and
contracts filed as incorporated
exhibits of previously herein by
filed Forms 8-K and reference.
Forms 10-K are hereby
incorporated herein by
reference.
(13) Annual Reports to No Annual Report
Limited Partners for the year
ended August 31,
1995 has been
sent to the
Limited Partners.
An Annual Report
will be sent to
the Limited
Partners
subsequent to
this filing.
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND 14(D)
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
REFERENCE
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP:
Report of independent auditors F-2
Balance sheets as of August 31, 1995 and 1994 F-3
Statements of income for the years ended August
31, 1995, 1994 and 1993 F-4
Statements of changes in partners' capital (deficit)
for the years ended August 31, 1995, 1994 and 1993 F-5
Statements of cash flows for the years ended August
31, 1995, 1994 and 1993 F-6
Notes to financial statements F-7
Financial Statement Schedules:
Schedule III - Real Estate Owned F-15
Schedule IV - Investments in Mortgage Loans
on Real Estate F-17
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.
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Qualified Plan Property Fund Four, LP:
We have audited the accompanying balance sheets of Paine Webber Qualified
Plan Property Fund Four, LP as of August 31, 1995 and 1994, 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, 1995. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 Four, LP at August 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG
ERNST & YOUNG LLP
Boston, Massachusetts
November 22, 1995
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
BALANCE SHEETS
August 31, 1995 and 1994
(In Thousands, except per Unit data)
ASSETS
1995 1994
Real estate investments:
Investment properties held for sale, net
of allowance for possible investment
loss of $1,200 $11,200 $18,101
Land 3,177 3,177
Mortgage loans, net 13,001 13,001
27,378 34,279
Cash and cash equivalents 1,851 2,682
Interest receivable 118 118
Accounts receivable 23 37
Tax and tenant security deposit escrows - 94
Deferred expenses, net of accumulated
amortization of $227 ($197 in 1994) 138 165
Other assets 43 86
$29,551 $37,461
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 44 $ 56
Accounts payable and accrued expenses 137 130
Unearned rental income 26 26
Tenant security deposits 47 69
Other liabilities 50 -
Total liabilities 304 281
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 359 314
Cumulative cash distributions (378) (350)
Limited Partners ($50 per Unit,
896,993 Units issued):
Capital contributions, net of offering costs 40,309 40,309
Cumulative net income 27,626 23,243
Cumulative cash distributions (38,670) (26,337)
Total partners' capital 29,247 37,180
$29,551 $37,461
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF INCOME
For the years ended August 31, 1995, 1994 and 1993
(In Thousands, except per Unit data)
1995 1994 1993
REVENUES:
Interest from mortgage loans $ 1,413 $ 1,413 $ 1,413
Land rent 512 466 516
Interest earned on cash equivalents
and other income 225 84 76
2,150 1,963 2,005
EXPENSES:
Management fees 240 252 252
General and administrative 508 434 429
Amortization of deferred expenses 27 27 27
775 713 708
Operating income 1,375 1,250 1,297
Investment properties held for sale:
Provision for possible investment
loss, net - (150) (250)
Income from investment properties
held for sale 1,274 1,703 1,494
Gain on sale of investment property
held for sale 1,779 - -
3,053 1,553 1,244
NET INCOME $ 4,428 $ 2,803 $ 2,541
Net income per Limited Partnership Unit $ 4.89 $3.09 $2.80
Cash distributions per Limited
Partnership Unit $13.75 $3.00 $3.00
The above net income and cash distributions per Limited Partnership Unit
are based upon the 896,993 Units ($50 per Unit) of Limited Partnership Interest
outstanding during each year.
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended August 31, 1995, 1994 and 1993
(In Thousands)
General Limited
Partners Partners Total
Balance at August 31, 1992 $ (34) $37,307 $37,273
Net income 26 2,515 2,541
Cash distributions (28) (2,691) (2,719)
BALANCE AT AUGUST 31, 1993 (36) 37,131 37,095
Net income 28 2,775 2,803
Cash distributions (27) (2,691) (2,718)
BALANCE AT AUGUST 31, 1994 (35) 37,215 37,180
Net income 45 4,383 4,428
Cash distributions (28) (12,333) (12,361)
BALANCE AT AUGUST 31, 1995 $ (18) $ 29,265 $ 29,247
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1995 1994 1993
Cash flows from operating activities:
Net income $ 4,428 $ 2,803 $ 2,541
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of investment property
held for sale (1,779) - -
Provision for possible investment
loss, net - 150 250
Amortization of deferred expenses 27 27 27
Changes in assets and liabilities:
Interest and land rent receivable - - 7
Accounts receivable 14 15 55
Tax and tenant security deposits
escrows 94 (9) (25)
Other assets 43 (43) 8
Accounts payable - affiliates (12) (34) 7
Accounts payable and accrued expenses 7 (44) 8
Tenant security deposits (22) 6 7
Unearned rental income - 18 -
Other liabilities 50 - -
Total adjustments (1,578) 86 344
Net cash provided by operating
activities 2,850 2,889 2,885
Cash flows from investing activities:
Net proceeds from sale of investment
property held for sale 8,680 - -
Cash flows from financing activities:
Distributions to partners (12,361) (2,718) (2,719)
Net (decrease) increase in cash and
cash equivalents (831) 171 166
Cash and cash equivalents,
beginning of year 2,682 2,511 2,345
Cash and cash equivalents,
end of year $ 1,851 $ 2,682 $ 2,511
See accompanying notes.
1. General
Paine Webber Qualified Plan Property Fund Four, LP (the "Partnership") is a
limited partnership organized pursuant to the laws of the State of Delaware
in October 1984 for the purpose of investing in a diversified portfolio of
existing income-producing real properties through land purchase-leasebacks
and first mortgage loans. The Partnership authorized the issuance of Units
(the "Units") of Limited Partnership Interest of which 896,993 Units (at $50
per Unit) were subscribed and issued between December 14, 1984 and December
13, 1985.
2.Summary of Significant Accounting Policies
Investment properties held for sale represent assets acquired by the
Partnership through foreclosure proceedings on first mortgage loans. The
Partnership's policy is to carry these assets 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 assets at the date of foreclosure.
Declines in the estimated fair value of the assets subsequent to foreclosure
are recorded through the use of a valuation allowance. Subsequent increases
in the estimated fair value of the assets result in reductions of the
valuation allowance, but not below zero. All costs incurred to hold the
assets are charged to expense and no depreciation expense is recorded.
The Partnership's investments in land subject to ground leases are carried
at the lower of cost or net realizable value. The net realizable value of a
real estate investment held for long-term investment purposes is measured by
the recoverability of the investment through expected future cash flows on
an undiscounted basis, which may exceed the property's current market value.
The net realizable value of a property held for sale approximates its
current market value. None of the Partnership's land investments were held
for sale as of August 31, 1995 or 1994. The Partnership has reviewed FAS
No. 121 ``Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of'' which is effective for financial statements
for years beginning after December 15, 1995, and believes this new
pronouncement will not have a material effect on the Partnership's financial
statements.
Mortgage loans receivable are carried at cost. The Partnership's policy is
to provide for any valuation allowances for its mortgage loan investments on
a specific identification basis, principally by evaluating the market value
of the underlying collateral since the loans are collateral dependent. In
addition, a general loan loss reserve of $860,000 was recorded in fiscal
1990 reflecting management's assessment of the general credit risk
applicable to the Partnership's portfolio of mortgage loan investments taken
as a whole. During fiscal 1991, $388,000 of this loan loss reserve was
reversed due to the acquisition of certain properties through foreclosure on
the outstanding mortgage loans receivable. The balance in the general loan
loss reserve at August 31, 1995 and 1994 was $472,000 (see Note 4).
Deferred expenses represent acquisition fees paid to PaineWebber Properties
Incorporated (the "Adviser") as compensation for analyzing, structuring and
negotiating the Partnership's real estate investments. These fees are being
amortized using the straight-line method over the terms of the remaining
mortgage loans receivable, which range from thirteen to fifteen years.
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with original maturities of 90 days or less to be cash
equivalents.
No provision for income taxes has been made as the liability for such taxes
is that of the partners rather than the Partnership.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are Fourth Qualified Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber"), and Properties Associates 1985, L.P.
(the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which 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 the Adviser
pursuant to an advisory contract. The Adviser is a wholly-owned subsidiary
of PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of
PaineWebber.
Acquisition fees in the amount of 3% of the gross offering proceeds were
paid to the Adviser for analyzing, structuring and negotiating the
acquisitions of the Partnership's investments. The Adviser may receive a
commission, in an amount not yet determinable, upon the disposition of
certain Partnership investments.
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.
Distributable Cash, as defined, of the Partnership will be distributed 98%
to the Limited Partners, 1% to the General Partners and 1% to the Adviser as
an asset management fee. Residual proceeds resulting from disposition of
Partnership investments will be distributed generally, 95% to the Limited
Partners, 3.99% to the Adviser as an asset management fee and 1.01% to the
General Partners after the prior receipt by the Limited Partners of their
original capital contributions and a cumulative annual return of 12%, as set
forth in the Amended Partnership Agreement.
All taxable income or tax loss (other than from a Capital Transaction) of
the Partnership will be allocated 98.989899% to the Limited Partners and
1.010101% to the General Partners. Taxable income or tax loss arising from
a sale or refinancing of investment properties will be allocated to the
Limited Partners and the General Partners in proportion to the amounts of
sale or refinancing proceeds to which they are entitled; provided that the
General Partners shall be allocated at least 1% of taxable income arising
from a sale or refinancing. 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.
The Adviser has been contracted to perform specific management
responsibilities, to administer the day-to-day operations of the Partnership
and to report periodically the performance of the Partnership to the
Managing General Partner. The Adviser will be paid a basic management fee
of 1/2 of 1% of the gross proceeds of the offering, in addition to the asset
management fee described above, for these services. Basic and asset
management fees totalling $240,000, $252,000 and $252,000 were earned for
the years ended August 31, 1995, 1994 and 1993, respectively. Accounts
payable - affiliates at August 31, 1995 and 1994 consists of management fees
of $44,000 and $56,000, respectively, payable to the Adviser.
The Managing General Partner and the Adviser are reimbursed for their direct
expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operations of the Partnership's real
property investments.
Included in general and administrative expenses for the years ended August
31, 1995, 1994 and 1993 is $207,000, $186,000 and $180,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
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 $5,000, $7,000 and $4,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively.
4.Real Estate Investments
The following first mortgage loans were outstanding at August 31, 1995 and
1994 (in thousands):
Date of
Amount of Loan Loan and
Property 1995 1994 Interest Rate Maturity
The Corner at $ 6,188 $ 6,188 11.25% 1/9/85
Seven Corners 2/1/98
Shopping Center
Fairfax, VA
Willow Creek 3,055 3,055 Years 1 to 5 - 10.50%
10/31/85
Apartments Thereafter 11% 12/1/00
Wichita, KS
Park South 4,230 4,230 9% 12/29/88
Apartments 12/29/01
Charlotte, NC
13,473 13,473
Less: Allowance
for possible
uncollectible
amounts (1) (472) (472)
$13,001 $13,001
(1)The balance of the allowance for possible uncollectible amounts at August
31, 1995 and 1994 represents a general loan loss reserve recorded during
fiscal 1990 (see Note 2). This balance was reduced to $472,000 during
fiscal 1991 from its original balance of $860,000 as a result of the
foreclosures of Martin Sunnyvale Research and Development Center and Bell
Forge Square Shopping Center (see Note 5.)
In general, the loans are secured by first mortgages on the properties, the
owner's leasehold interest in the land and an assignment of all tenant leases,
where applicable. Interest is payable monthly and the principal is due at
maturity.
In relation to the above-mentioned mortgage loans, the following land purchase-
leaseback transactions had also been entered into as of August 31, 1995 and 1994
(in thousands):
Cost of Land
to the Partnership
Property 1995 1994 Annual Base Rent
The Corner at Seven $ 2,062 $ 2,062 $232
Corners Shopping
Center
Fairfax, VA
Willow Creek Apartments 345 345 Years 1 to 5 - $36
Wichita, KS Thereafter - $38
Park South Apartments (1) 770 770 $ 69
Charlotte, NC
$ 3,177 $ 3,177
The Partnership owns a 77% interest in the land underlying the Park South
Apartments and has an equivalent interest in the first secured mortgage loan
secured by the improvements. The remaining 23% interest in the land and
mortgage loan receivable is owned by an affiliated partnership, PaineWebber
Mortgage Partners Five, L.P.
The land leases have terms of 40 years. Among the provisions of the lease
agreements, the Partnership is entitled to additional rent based upon gross
revenues from the operating properties in excess of a base amount, as defined.
During fiscal 1995, 1994 and 1993, the Partnership received additional rent of
$126,000, $98,000 and $156,000, respectively, from The Corner at Seven Corners
Shopping Center land investment. In addition, during fiscal 1995, 1994 and
1993, the Partnership received additional rent of $47,000, $29,000 and $21,000,
respectively, from the Park South Apartments land investment. The lessees have
the option to purchase the land for specified periods of time, beginning between
January of 1995 and December of 1997, at a price based on the fair market value,
as defined, but not less than the original cost to the Partnership. As of
August 31, 1995, only the option to purchase the land under The Corner at Seven
Corners Shopping Center was exercisable. Subsequent to year-end, on November 1,
1995, the option to purchase the land underlying the Willow Creek Apartments
became 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 property as they increase
above a specified base amount. 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 or exercise
of the option to repurchase the land, the Partnership will receive a 40% to 50%
share of the appreciation above a specified base amount.
The mortgage loan secured by The Corner at Seven Corners Shopping Center became
prepayable in February 1995. On December 16, 1994, the borrower notified the
Partnership of its intent to prepay the loan and exercise the option to purchase
the land in conjunction with a refinancing of the operating property. Along
with such formal notice, the borrower sent a $50,000 deposit to the Partnership
in accordance with the terms of the ground lease. Subsequent to year-end, the
Partnership and the borrower agreed to terms for the repayment of the mortgage
loan and purchase of the underlying land. The proposed terms of the transaction
included the full repayment of the Partnership's mortgage loan of $6,188,000 and
the payment of $3,440,000 for obligations owing under the ground lease,
representing the repurchase of the $2,062,000 ground investment and $1,378,000
as the Partnership's share of the appreciation in value of the property. On
November 22, 1995, the transaction closed in accordance with the proposed terms
and the Partnership received gross proceeds of $9.6 million. Management
believes that the amount paid to the Partnership under the terms of the ground
lease reflects the fair value of the property, as supported by the Partnership's
most recent independent appraisal. The proceeds of this transaction will
distributed to the Limited Partners in the second quarter of fiscal 1996.
5. Investment Properties Held for Sale
At August 31, 1995, the Partnership owned two operating investment properties
(three at August 31, 1994) directly as a result of foreclosure proceedings
prompted by defaults under the terms of the first mortgage loans held by the
Partnership. The balance of investment properties held for sale on the
accompanying balance sheet at August 31, 1995 and 1994 is comprised of the
following net carrying values (in thousands):
1995 1994
Cordova Creek Apartments $ - $ 6,901
Martin Sunnyvale Research and
Development Center 2,500 2,500
Bell Forge Square Shopping Center 8,700 8,700
$ 11,200 $18,101
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. Declines in the estimated
fair value of the assets subsequent to foreclosure are recorded through the use
of a valuation allowance. Subsequent increases in the estimated fair value of
the assets result in reductions of the valuation allowance, but not below zero.
As of August 31, 1995, the aggregate cost basis of the investment properties
held for sale for federal income tax purposes is approximately $14,678,000.
Descriptions of the transactions through which the Partnership acquired these
properties and of the properties themselves are summarized below:
CORDOVA CREEK APARTMENTS
The Partnership foreclosed under the terms of the mortgage loan secured by
Cordova Creek Apartments on February 20, 1990, due to non-payment of the
required interest payments. As a result of the foreclosure, the Partnership
owned the land and improvements and employed a local property management
company to manage the day-to-day operations of the apartment complex, which is
located in Memphis, Tennessee. An affiliated partnership, PaineWebber
Qualified Plan Property Fund Three, LP ("QP3"), originally invested $250,000
for a 3.5% interest in the mortgage loan secured by Cordova Creek and the
related ground lease. As a result of the foreclosure, QP3 retained a 3.5%
interest in the net cash flow and the eventual sale proceeds related to the
operating property.
The fair value of the operating property, net of selling expenses, at the
date of foreclosure was estimated by management to be approximately equal to
the combined cost basis of the land and the original face amount of the
mortgage loan, totalling $6,900,500. This amount is included in the balance
of investment properties held for sale at August 31, 1994.
On April 12, 1995, the Partnership sold the Cordova Creek Apartments to an
unaffiliated third party for $9,100,000. After payment of required
transaction costs, including payment to QP3 for its 3.5% equity interest, the
net proceeds realized by the Partnership from the sale were approximately
$8.7 million. A special distribution of $215 per original $1,000 investment,
or $9,643,000, was made to Limited Partners on June 15, 1995, which
represented approximately $195 from the Cordova Creek net sales proceeds and
$20 as a distribution from cash reserves which were deemed to be in excess of
the Partnership's expected future requirements.
MARTIN SUNNYVALE RESEARCH AND DEVELOPMENT CENTER
On July 12, 1991, the Partnership foreclosed under the terms of the
mortgage loan secured by the Martin Sunnyvale Research and Development
Center. The borrower had defaulted on the payment terms of the loan due to
significant lease turnover during 1991. The property, which was 100%
occupied as of August 31, 1995, is comprised of 39,286 leasable square feet
and is located in Sunnyvale, California. The Partnership recognized a loss
on foreclosure of $1,742,000 in fiscal 1991 in connection with its
acquisition of the property. The loss consisted of a write-down of
$1,700,000 to the combined cost basis of the land and the face amount of the
mortgage loan and a $42,000 write-off of the unamortized balance of deferred
expenses incurred in connection with the original acquisition of the
investment in 1985. The $1,700,000 write-down reflected management's
estimate of the fair value of the investment property, net of selling
expenses, at the date of the foreclosure. The combined carrying value of the
original land and loan investments, of $5,100,000, was adjusted to this
estimate of $3,400,000, and reclassified to investment properties held for
sale. During fiscal 1994, 1993 and 1992, the Partnership recorded provisions
for possible investment loss of $150,000, $550,000 and $200,000,
respectively, to write down the carrying value of the Martin Sunnyvale
investment property to reflect additional declines in its estimated fair
value, net of selling expenses. The resulting net carrying value of
$2,500,000 is included in the balance of investment properties held for sale
on the accompanying balance sheet at August 31, 1995 and 1994.
During fiscal 1994, the Partnership engaged the management and leasing
agent to explore the market for potential buyers for the investment property,
which is 100% leased to three tenants. All of the existing leases are
scheduled to expire within the next 2 years. Management believed that
marketing Martin Sunnyvale for sale was in the best interests of the
Partnership because by selling the property the Partnership may be able
to save the substantial costs of re-leasing the space as the existing leases
expire. If any of the existing tenants were to vacate, the market value of
Martin Sunnyvale, as well as the available property cash flow, could be
significantly reduced unless a replacement tenant is secured. Subsequent to
the time that the Partnership began to market Martin Sunnyvale for sale, the
Partnership was notified by a California state water agency of a potential
environmental problem at Martin Sunnyvale. As a result of governmental
required testing, management has learned that there has been a contamination
of the underground soil and water at the site. This contamination may have
been caused by either a previous occupant at the site or by an occupant of a
nearby property. The environmental testing was paid for by one of the
parties identified as a potential contaminator. Management believes that
this contamination occurred prior to the Partnership's initial mortgage loan
and ground lease investments in the property, which were made in 1985. The
California state water agency has issued a tentative site cleanup order
identifying two companies which had occupied the Martin Sunnyvale property
prior to the Partnership's investment. Management has engaged local counsel
to monitor all legal actions to insure that the Partnership's rights are
fully protected. Management will seek full indemnification from the parties
identified as being potentially responsible. Until such time as either a
full indemnification is obtained or the property's environmental risk is
sufficiently mitigated, it is doubtful that a qualified purchaser for the
property could be found. Accordingly, the Partnership has suspended its
marketing efforts until this matter is resolved.
BELL FORGE SQUARE SHOPPING CENTER
On October 4, 1991, the Partnership received a deed in lieu of foreclosure
on the mortgage loan secured by the Bell Forge Square Shopping Center. The
property, which was 96% occupied as of August 31, 1995, is comprised of
126,890 leasable square feet and is located in Nashville, Tennessee. The
Managing General Partner estimated that the fair value of the investment
property, net of selling expenses, at the date title to the mortgaged
property was transferred was approximately equal to the combined cost of the
land and the face amount of the Partnership's mortgage loan. The Partnership
recognized a loss in fiscal 1991 of $101,000, representing the write-off of
the unamortized balance of deferred expenses incurred in connection with the
original acquisition of the Bell Forge investment. The combined value of the
land and the face amount of the mortgage loan, of $9,000,000, was
reclassified to investment properties held for sale. During fiscal 1992, the
Partnership had recorded a provision for possible investment loss of $600,000
to write down the carrying value of the Bell Forge Square investment property
to reflect a decline in its estimated fair value, net of selling expenses, as
of August 31, 1992. During fiscal 1993, the Partnership recorded an
adjustment to reduce the valuation allowance by $300,000 to reflect an
increase in the estimated fair value of the Bell Forge Square property as of
August 31, 1993. The resulting net carrying value of $8,700,000 is included
in the balance of investment properties held for sale on the accompanying
balance sheet at August 31, 1995 and 1994.
The Partnership recognizes income from the investment properties held for
sale equal to its share of the excess of the properties' gross revenues over
property operating expenses (including capital improvement costs), taxes and
insurance. Combined summarized operating results of the Cordova Creek
Apartments (through the date of sale), Martin Sunnyvale Research and
Development Center and Bell Forge Shopping Center for the years ended August
31, 1995, 1994 and 1993 are as follows (in thousands):
1995 1994 1993
Rental income and expense
reimbursements $2,121 $2,498 $2,301
Other income 282 250 281
2,403 2,748 2,582
Property operating expenses 774 722 813
Property taxes and insurance 329 297 254
1,103 1,019 1,067
Income from operations $1,300 $1,729 $1,515
Partnership's share of
combined operations $1,274 $1,703 $1,494
QP3's share of Cordova
Creek operations 26 26 21
$1,300 $1,729 $1,515
6. Leases
The Martin Sunnyvale and Bell Forge investment properties have operating
leases with tenants 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 agreements. Minimum future
rental revenues to be received by the Partnership under noncancellable
operating leases for the next five years and thereafter are as follows (in
thousands):
Year ending August 31, Amount
1996 $ 1,357
1997 885
1998 696
1999 547
2000 395
Thereafter 493
$4,373
7. Subsequent Event
On October 13, 1995, the Partnership distributed $5,000 to the General
Partners and $506,000 to the Limited Partners, and $5,000 to the Adviser as
an asset management fee for the quarter ended August 31, 1995.
8. Contingencies
The Partnership is involved in certain legal actions. The Managing
General Partner believes that such actions will be resolved without
material adverse effect on the Partnership's financial statements, taken as
a whole.
<TABLE>
<CAPTION>
Schedule III - Real Estate Owned
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
August 31, 1995
(in thousands)
Gross Amount at
Cost of Which Carried Date of
Investment to at Close of Original Size of
Description (A) Partnership (B) Period (B) Investment Investment
<S> <C> <C> <C> <C>
<C>
Land underlying $ 2,062 $ 2,062 1/9/85 6.5 acres
Shopping Center (1)
Fairfax County, VA
Land underlying 345 345 10/31/85 7.05 acres
Apartment Complex
Wichita, KS
Research and 5,100 3,400 (2) 12/20/85 2.5 acres
Development Center 39,286 sq. ft.
Sunnyvale, CA
Shopping Center 9,000 9,000 (3) 4/29/86 11 acres
Nashville, TN 126,890 sq. ft.
Land underlying 770 770 12/29/88 19 acres
apartment complex
Charlotte, NC
$17,277 $15,577
Notes:
(A) Senior mortgages on the properties related to the land investments listed above are held by Paine Webber Qualified Plan
Property Fund Four, LP as of August 31, 1995. See Schedule IV.
(B) These amounts represent the cost of each investment and the gross amount at which the investment is carried on the balance
sheet as of August 31, 1995. The aggregate cost of the investments for federal income tax purposes is approximately
$17,855,000.
(C) Reconciliation of real estate owned:
1995 1994 1993
Balance at beginning of year $22,478 $22,478 $22,478
Sale of investment property (4) (6,901) - -
Balance at end of year $15,577 $22,478 $22,478
(1) As discussed further in Note 4 to the financial statements, the Partnership sold the land underlying The Corner at Seven
Corners Shopping Center subsequent to year-end, on November 22, 1995.
(2) The Partnership foreclosed on the mortgage loan secured by the Martin Sunnyvale Research and Development Center on July 12,
1991. The combined cost of the land and the face amount of the mortgage loan were estimated by management to be greater than
the fair value of the investment, net of selling costs, at the date of foreclosure by $1,700,000. During fiscal 1994 and 1993,
the Partnership recorded provisions for possible investment loss of $150,000 and $550,000, respectively, to provide for further
declines in the estimated fair value, net of selling expenses, of the Martin Sunnyvale investment property. The net carrying
value of $2,500,000 is included in the balance of investment properties held for sale on the accompanying balance sheet at
August 31, 1995. See discussion in Note 5 to the financial statements.
(3) On October 4, 1991, the Partnership received a deed in lieu of foreclosure on the mortgage loan secured by the Bell Forge
Square Shopping Center. The fair value of the investment, net of estimated selling costs, at the date of foreclosure was
estimated to be approximately equal to the combined cost of the land and face amount of the mortgage loan. At August 31, 1991,
the balance of the mortgage loan and land investments of $9,000,000 was reclassified to investment property subject to
acquisition by foreclosure. During fiscal 1992, the Partnership recorded a provision for possible investment loss of $600,000
to provide for a decline in the estimated fair value, net of selling costs, of the Bell Forge Square investment property.
During fiscal 1993, the Partnership recorded an adjustment to reduce the valuation allowance by $300,000 to reflect an increase
in the estimated fair value of the property. The net carrying value of $8,700,000 is included in the balance of investment
properties held for sale on the accompanying balance sheet as of August 31, 1995. See discussion in Note 5 to the financial
statements.
(4) See discussion in Note 5 to the financial statements regarding the sale in 1995 of the Cordova Creek Apartments.
</TABLE>
<TABLE>
<CAPTION>
Schedule IV - Investments in Mortgage Loans on Real Estate
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
AUGUST 31, 1995
(In Thousands)
Principal
amount of
loans subject
Periodic Face Carrying to delinquent
Interest Final maturity payment amount of amount of principal
Description rate date terms mortgage mortgage or interest
<S> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS:
Shopping Center 11.25% January 9, 1998 Interest monthly, $ 6,188 $ 6,188 -
Fairfax, VA (1) principal at
maturity
Apartment Complex 11% October 31, 2000 Interest monthly, 3,055 3,055 -
Wichita, KS principal at
maturity
Apartment Complex 9% December 28, 2001 Interest monthly, 4,230 4,230 -
Charlotte, NC principal at
maturity
Less: Allowance for possible
uncollectible amounts (2) (472) (472)
TOTALS $13,001 $13,001
1995 1994 1993
Balance at beginning of year $13,001 $13,001 $13,001
Additions during the year - - -
Reductions during year - - -
Balance at end of year $13,001 $13,001 $13,001
(1) As discussed further in Note 4 to the financial statements, the
Partnership sold the land underlying The Corner at Seven Corners Shopping
Center subsequent to year-end, on November 22, 1995.
(2)See Notes 2 and 4 to the accompanying financial statements for information regarding
certain valuation accounts.
</TABLE>
<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, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 1,851
<SECURITIES> 0
<RECEIVABLES> 13,142
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,992
<PP&E> 14,377
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,551
<CURRENT-LIABILITIES> 254
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 29,247
<TOTAL-LIABILITY-AND-EQUITY> 29,551
<SALES> 0
<TOTAL-REVENUES> 5,203
<CGS> 0
<TOTAL-COSTS> 775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,428
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,428
<EPS-PRIMARY> 4.89
<EPS-DILUTED> 4.89
</TABLE>
