UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-15036
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2841746
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No ____
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
Balance Sheets
May 31, 1996 and August 31, 1995 (Unaudited)
(In thousands)
Assets
May 31 August 31
-------- ---------
Real estate investments:
Investment properties held for sale, net $11,200 $11,200
Land 1,115 3,177
Mortgage loans, net 6,813 13,001
------- -------
19,128 27,378
Cash and cash equivalents 2,076 1,851
Interest receivable 59 118
Accounts receivable 11 23
Deferred expenses, net 104 138
Other assets 16 43
------- -------
$21,394 $29,551
======= =======
Liabilities and Partner's Capital
Accounts payable - affiliates $ 32 $ 44
Accounts payable and accrued expenses 70 137
Unearned rental income 26 26
Tenant security deposits 47 47
Other liabilities - 50
Partners' capital 21,219 29,247
------- -------
$21,394 $29,551
======= =======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended May 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
------- --------
Balance at August 31, 1994 $(35) $37,215
Net income 38 3,800
Cash distributions (21) (2,018)
---- -------
Balance at May 31, 1995 $(18) $38,997
==== =======
Balance at August 31, 1995 $(18) $29,265
Net income 29 2,854
Cash distributions (13) (10,898)
---- -------
Balance at May 31, 1996 $ (2) $21,221
==== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest from mortgage
loans $ 179 $ 353 $ 696 $1,060
Land rent 31 114 175 363
Other interest income 26 112 182 177
----- ------ ------ ------
236 579 1,053 1,600
Expenses:
Management fees 35 63 123 189
General and administrative 44 96 288 341
Amortization of deferred
expenses 4 7 34 21
----- ------ ------ ------
83 166 445 551
----- ------ ------ ------
Operating income 153 413 608 1,049
Income from operations
of investment
properties held for
sale, net 377 363 897 1,010
Gain on sale of land - - 1,378 -
Gain on sale of investment
property - 1,779 - 1,779
----- ------ ------ ------
Net income $ 530 $2,555 $2,883 $3,838
===== ====== ====== ======
Net income per Limited
Partnership Unit $0.58 $2.82 $ 3.18 $4.24
===== ===== ====== =====
Cash distributions per Limited
Partnership Unit $0.32 $0.75 $12.15 $2.25
===== ===== ====== =====
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 period.
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 2,883 $ 3,838
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of land (1,378) -
Gain on sale of investment property - (1,779)
Amortization of deferred expenses 34 21
Changes in assets and liabilities:
Interest receivable 59 -
Accounts receivable 12 23
Tax and tenant security deposit escrows - 94
Other assets 27 38
Accounts payable - affiliates (12) -
Accounts payable and accrued expenses (67) (90)
Other liabilities (50) 50
Tenant security deposits - (13)
-------- -------
Total adjustments (1,375) (1,656)
-------- -------
Net cash provided by operating activities 1,508 2,182
-------- -------
Cash flows from investing activities:
Net proceeds from sale of land 3,440 -
Proceeds received from repayment of mortgage loan 6,188 -
Net proceeds from sale of investment property - 8,680
-------- -------
Net cash provided by investing activities 9,628 8,680
-------- -------
Cash flows from financing activities:
Distributions to partners (10,911) (2,039)
--------- ---------
Net increase in cash and cash equivalents 225 8,823
Cash and cash equivalents, beginning of period 1,851 2,682
--------- --------
Cash and cash equivalents, end of period $ 2,076 $11,505
========= =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1995.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Mortgage Loan and Land Investments
The following are the first mortgage loans outstanding and the cost of the
related land to the Partnership at May 31, 1996 and August 31, 1995 (in
thousands):
Amount of Mortgage Loan Cost of Land
----------------------- ------------
Property 5/31/96 8/31/95 5/31/96 8/31/95
-------- ------- ------- ------- -------
The Corner at Seven $ - (1) $ 6,188 $ - (1) $2,062
Corners Shopping Center
Fairfax County, Virginia
Willow Creek Apartments 3,055 3,055 345 345
Wichita, Kansas
Park South Apartments 4,230 4,230 770 770
------ -------- ------ ------
Charlotte, North Carolina
7,285 13,473 1,115 3,177
Less: General loan
loss reserve (472) (472) - -
------ ------- ------ ------
$ 6,813 $13,001 $1,115 $3,177
======= ======= ====== ======
(1) See below for discussion of The Corner at Seven Corners mortgage loan
repayment and related land sale in the first quarter of fiscal 1996.
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. Interest is payable monthly and the principal is due at maturity. The
interest rates on the mortgage loans range from 9.0% to 11.25%. 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 of
the underlying properties in excess of a base amount, as defined. During the
nine months ended May 31, 1996, the Partnership received additional rent
under the terms of the Park South Apartments land lease totalling $44,000.
During the nine months ended May 31, 1995, the Partnership received
additional rent under the terms of The Corner at Seven Corners Shopping
Center and Park South Apartments land leases totalling $71,000 and $38,000,
respectively. The lessees have the option to purchase the land for specified
periods of time, beginning between February of 1995 and December of 1997, at
a price based on fair market value, as defined, but not less than the
original cost to the Partnership. The Partnership's investments are
structured to share in the appreciation in the value of the underlying real
estate. Accordingly, upon either sale, refinancing, maturity of the mortgage
loan or exercise of the option to repurchase the land, the 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 during 1995. On November 22, 1995, the borrower
of The Corner at Seven Corners loan prepaid the Partnership's first leasehold
mortgage loan and purchased the Partnership's interest in the underlying land
for total consideration of $9,628,000. The principal balance of the mortgage
loan was $6,188,000 plus interest accrued through November 22, 1995 of
$43,000. The Partnership's cost basis in the land was $2,062,000. Pursuant to
the ground lease, the Partnership received $1,378,000 in excess of its land
investment as its share of the appreciation in value of the operating
investment property above a specified base amount. The net proceeds from this
prepayment transaction were distributed to the Limited Partners as part of a
special distribution paid on January 31, 1996 in the amount of approximately
$9,598,000, or $214 per original $1,000 investment.
3. Investment Properties Held for Sale
Martin Sunnyvale Research and Development Center
The Partnership foreclosed under the terms of the mortgage loan secured by
the Martin Sunnyvale Research and Development Center on July 12, 1991. The
borrower had defaulted on the payment terms of the loan due to significant
lease turnover during 1991. The property contains 39,000 rentable square feet
and is located in Sunnyvale, California. The combined carrying value of the
original land and loan investments, of $5,100,000, was adjusted to
management's estimate of the fair value of the property as of the date of the
foreclosure, of $3,400,000, and reclassified to investment properties held
for sale. Since the date of foreclosure, the Partnership has recorded
provisions for possible investment loss totalling $900,000 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 sheets at May
31, 1996 and August 31, 1995.
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. 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 severely 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. 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. Due to
this and other recently discovered environmental contamination in the area,
there have been several lawsuits filed by California state water agencies
against prior occupants of this site and nearby sites. 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 potentially responsible. Until such time as either a full
indemnification is obtained or the property's environmental risk is
eliminated, 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.
<PAGE>
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 contains 127,000 rentable square feet and is located in Nashville,
Tennessee. 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
at the time of the foreclosure. 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 a subsequent increase
in the estimated fair value of the Bell Forge Square property. The resulting
net carrying value of $8,700,000 is included in the balance of investment
properties held for sale on the accompanying balance sheets at May 31, 1996
and August 31, 1995.
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 196 - unit 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.
During the quarter ended May 31, 1995, the Partnership sold the Cordova Creek
Apartments to an unaffiliated third party for $9,100,000. After payment of
required transaction costs and compensation to QP3 for its 3.5% interest, the
net proceeds realized by the Partnership from the sale totalled approximately
$8.7 million. Closing of this sale occurred on April 12, 1995. A special
distribution of approximately $9,643,000, or $215 per original $1,000
investment, was made to Limited Partners on June 15, 1995, which represented
approximately $195 from the Cordova Creek net sale proceeds and $20 as a
distribution from cash reserves which were deemed to be in excess of the
Partnership's expected future requirements.
<PAGE>
The Partnership recognizes income from the investment properties held for
sale equal to its share of the excess of the properties' gross revenues over
the sum of property operating expenses (including capital improvement costs),
taxes and insurance. Combined summarized operating results of the Martin
Sunnyvale and Bell Forge investment properties held for sale for the three
and nine months ended May 31, 1996 and 1995 and for the Cordova Creek
Apartments for the three and nine months ended May 31, 1995 are shown below
(in thousands):
Three Months Ended Nine Months Ended
May 31, May 31,
----------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental income $ 366 $ 456 $1,087 $ 1,783
Other income 63 72 213 227
----- ----- ------ -------
429 528 1,300 2,010
Expenses:
Property operating
expenses 47 78 231 707
Property taxes and
insurance 5 87 172 279
----- ----- ------ -------
52 165 403 986
----- ----- ------ -------
Income from operations, net $ 377 $ 363 $ 897 $ 1,024
====== ===== ====== =======
Partnership's share of
combined operations $ 377 $ 363 $ 897 $ 1,010
QP3's share of Cordova Creek
operations - - - 14
------ ----- ------ -------
$ 377 $ 363 $ 897 $ 1,024
====== ===== ====== =======
Property operating expenses for the nine months ended May 31, 1995 included
capital improvement costs at the Bell Forge Square Shopping Center of
approximately $326,000.
4. Related Party Transactions
The Adviser earned basic management fees of $123,000 and $189,000 for the
nine-month periods ended May 31, 1996 and 1995, respectively. Accounts
payable - affiliates at May 31, 1996 and August 31, 1995 consist of
management fees of $32,000 and $44,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine months ended May
31, 1996 and 1995 is $139,000 and $156,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended May 31, 1996 and 1995 is $5,000 and $4,000, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
5. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to estimate the impact, if any, of
these matters on the Partnership's financial statements, taken as a whole.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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, LP ("QP3") contributed $250,000 or
approximately 3.5% of the total net investment, toward the original land and
mortgage loan investments in Cordova Creek. After payment of required
transaction costs and compensation to QP3 for its 3.5 % interest, the net
proceeds realized by the Partnership from the sale totalled approximately $8.7
million. The Partnership made a special distribution of approximately
$9,643,000, or $215 per original $1,000 investment, 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.
On November 22, 1995, the borrower of The Corner at Seven Corners loan
prepaid the Partnership's first leasehold mortgage loan and purchased the
Partnership's interest in the underlying land for total consideration of
$9,628,000. The principal balance of the mortgage loan was $6,188,000 plus
interest accrued through November 22, 1995 of $43,000. The Partnership's cost
basis in the land was $2,062,000. Pursuant to the ground lease, the Partnership
received $1,378,000 in excess of its land investment as its share of the
appreciation in value of the operating investment property above a specified
base amount. The net proceeds from this prepayment transaction were distributed
to the Limited Partners as part of a special distribution paid on January 31,
1996 in the amount of approximately $9,598,000, or $214 per original $1,000
investment. Management believes that the amount paid to the Partnership under
the terms of the ground lease reflected the fair value of the property as of the
date of the prepayment transaction, as supported by the Partnership's most
recent independent appraisal. As a result of the dispositions of the Cordova
Creek and The Corner at Seven Corners investments, cash flow from the
Partnership's remaining investments would not be sufficient to support the prior
distribution rate of 5.75% per annum on remaining invested capital. As a result,
the distribution rate was reduced to 4.5% per annum effective for the payment
made on April 15, 1996 for the quarter ended February 29, 1996.
The Partnership's wholly-owned, 39,000 square foot Martin Sunnyvale
Research and Development Center is 100% occupied by three tenants. During the
quarter ended May 31, 1996, one of the three tenants at the property indicated
that it will be relocating its operations and will not renew its lease for
12,334 square feet upon its expiration in February 1997. The Partnership's
management and leasing teams have already begun working with prospective tenants
as part of the efforts to re-lease this space. Annual base rental payments from
the tenant which will be vacating the property total $111,000. A second tenant,
occupying 9,502 square feet, has exercised its option to extend its lease for
two years to April 1999. The third and largest tenant at Martin Sunnyvale
remains undecided about its lease for 17,784 square feet which expires in
November 1996. As previously reported, 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. The state water agency has issued a final report identifying two tenants
which had occupied the property prior to 1985 and may have caused the potential
environmental problem. Both prior tenants are Fortune 500 companies and both
have been ordered at their own expense to perform the necessary testing, cleanup
and documentation as required by the California state water agency. The
Partnership will be required to monitor the efforts of these two firms. The
environmental testing was paid for by one of the parties identified as a
potential contaminator. 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 responsible.
At the Partnership's other wholly-owned commercial investment, Bell Forge
Square Shopping Center in Nashville, Tennessee, occupancy stood at 96% at May
31, 1996, unchanged from August 31, 1995. Bell Forge Square currently has 3,450
square feet of available space to lease. As discussed in the Annual Report, the
Partnership and its leasing agent are negotiating with one of the Center's
anchor tenants to expand its store and extend its lease. If completed, such
expansion and related tenant relocations could bring the occupancy level at Bell
Forge Square up to 100%. During the current quarter, Discovery Zone, which is
one of the major tenants at Bell Forge Square, filed for Chapter 11 bankruptcy
protection. Discovery Zone occupies approximately 11,800 square feet, or 9% of
the center's net rentable area. Discovery Zone is expected to close certain of
its facilities as part of a bankruptcy reorganization plan. It is uncertain at
this time, whether the Bell Forge Square location would be affected by any of
these store closings. In any event, as a result of the relatively healthy
condition in the Nashville market for retail space, management believes that the
Discovery Zone space could be re-leased quickly at a comparable rental rate in
the event that the lease is terminated as part of the bankruptcy proceedings.
At May 31, 1996, the Partnership had available cash and cash equivalents
of approximately $2,076,000. 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 investment properties acquired through foreclosure proceedings.
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.
Results of Operations
Three Months ended May 31, 1996
The Partnership reported net income of $530,000 for the three months ended
May 31, 1996, as compared to net income of $2,555,000 for the same period in the
prior year. The decrease in net income was primarily attributable to the gain
realized from the sale of Cordova Creek Apartments on April 12, 1995 of
$1,779,000. In addition, operating income decreased by $260,000. Operating
income decreased mainly due to decreases in interest earned on mortgage loans,
land rent revenue and other interest income. The decreases in interest earned on
mortgage loans of $174,000 and land rent revenue of $83,000 are a result of The
Corner at Seven Corners mortgage loan repayment and related land sale in
November 1995, as discussed further above. Interest earned on short term
investments decreased by $86,000 due to a decrease in the Partnership's average
outstanding cash reserve balances as a result of the receipt of the Cordova
Creek proceeds in April 1995. The decreases in interest earned on mortgage
loans, land rent revenue and other interest income were partially offset by
decreases in general and administrative expenses and management fees of $52,000
and $28,000, respectively. General and administrative expenses decreased as a
result of a decrease in certain required professional fees. Management fees
decreased due to a decrease in adjusted capital contributions, upon which such
fees are based, due to the capital distributions which followed the sales of the
Cordova Creek Apartments and The Corner at Seven Corners investments. Income
from operations of investment properties held for sale increased by $10,000 for
the current three-month period primarily due to a decrease in real estate taxes
at the Bell Forge Square Shopping Center.
Nine Months ended May 31, 1996
The Partnership reported net income of $2,883,000 for the nine months
ended May 31, 1996, as compared to net income of $3,838,000 for the same period
in the prior year. This decrease in net income was attributable to a decrease in
the gain realized on sale of investments of $401,000, a decrease in operating
income of $441,000 and a decline in income from investment properties held for
sale of $113,000. The decrease in the gain realized from the sale of investments
is due to the dispositions of the Cordova Creek Apartments on April 12, 1995 and
The Corner at Seven Corners land on November 22, 1995. The gain realized from
sale of the Cordova Creek Apartments was $1,779,000 as compared to the gain
realized from the sale of The Corner at Seven Corners land of $1,378,000. The
Partnership's operating income decreased mainly as a result of decreases in
interest earned on mortgage loans of $364,000 and land rent revenue of $188,000.
Interest earned on mortgage loans and land rent revenue decreased as a result of
The Corner at Seven Corners mortgage loan repayment and related land sale. The
decrease in operating revenues was partially offset by decreases in management
fees of $66,000 and general and administrative expenses of $53,000. Management
fees decreased due to a decrease in adjusted capital contributions, upon which
such fees are based, as a result of the capital distributions which followed the
sales of the Cordova Creek Apartments and The Corner at Seven Corners
investments. General and administrative expenses decreased as a result of a
decrease in certain required professional fees.
The decrease in income from operations of investment properties held for
sale is primarily attributable to the inclusion of the operating results of the
Cordova Creek Apartments, through the date of sale in April 1995, in the prior
year's income. This decrease in income was partially offset by a decrease in
capital improvement expenditures incurred at the Bell Forge Square Shopping
Center in the current nine-month period. Such expenses were significantly higher
in the prior year due to the repair and improvement of the property's exterior
facade.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, Fourth Qualified Properties, Inc. and Properties
Associates 1985, L.P., the General Partners of the Partnership, were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
Partnership. In January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation which the parties
expect to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to unitholders in Paine Webber Qualified Plan
Property Fund Four, LP.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. The eventual outcome
of this litigation and the potential impact, if any, on the Partnership's
unitholders cannot be determined at the present time.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this litigation.
At the present time, the General Partners cannot estimate the impact, if any, of
these potential indemnification claims on the Partnership's financial
statements, taken as a whole.
Items 2 through 5: NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER QUALIFIED PLAN PROPERTY
FUND FOUR, LP
By: FOURTH QUALIFIED PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: July 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended May 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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