UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-15036
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
February 28, 1997 and August 31, 1996(Unaudited)
(In thousands)
Assets
February 28 August 31
----------- ---------
Real estate investments:
Investment properties held for sale, net $12,100 $12,100
Land 1,115 1,115
Mortgage loans, net 7,285 7,285
------- -------
20,500 20,500
Cash and cash equivalents 1,823 2,060
Interest receivable 60 60
Accounts receivable 47 14
Deferred expenses, net 89 99
Other assets 65 68
-------- -------
$ 22,584 $22,801
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 32 $ 32
Accounts payable and accrued expenses 49 201
Unearned rental income - 26
Tenant security deposits 72 45
Partners' capital 22,431 22,497
-------- -------
$ 22,584 $22,801
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF INCOME
For the three and six months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands, except per Unit amounts)
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest from mortgage loans $ 179 $ 179 $ 358 $ 517
Land rent 27 45 54 144
Other interest income 23 118 48 156
------- ------- ------- -------
229 342 460 817
Expenses:
Management fees 36 37 71 88
General and administrative 76 159 171 244
Amortization of deferred
expenses 5 5 9 30
------- ------- ------- -------
117 201 251 362
------- ------- ------- -------
Operating income 112 141 209 455
Income from operations of investment
properties held for sale, net 150 278 372 520
Gain on sale of land - - - 1,378
------- ------- ------- -------
Net income $ 262 $ 419 $ 581 $ 2,353
======= ======= ======= =======
Net income per Limited
Partnership Unit $0.29 $0.47 $0.64 $ 2.60
===== ===== ===== =======
Cash distributions per Limited
Partnership Unit $0.35 $11.27 $0.71 $ 11.83
===== ====== ===== =======
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>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended February 28, 1997 and February 29, 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1995 $ (18) $29,265
Net income 24 2,329
Cash distributions (12) (10,609)
------ -------
Balance at February 29, 1996 $ (6) $20,985
====== =======
Balance at August 31, 1996 $ 11 $22,486
Net income 6 575
Cash distributions (7) (640)
------ -------
Balance at February 28, 1997 $ 10 $22,421
====== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1997 and February 29, 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 581 $ 2,353
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of land - (1,378)
Amortization of deferred expenses 10 30
Changes in assets and liabilities:
Interest receivable - 58
Accounts receivable (33) 15
Other assets 3 20
Accounts payable affiliates - (12)
Accounts payable and accrued expenses (152) 9
Unearned rental income (26) -
Other liabilities - (50)
Tenant security deposits 27 -
------ -------
Total adjustments (171) (1,308)
------ -------
Net cash provided by operating activities 410 1,045
------ -------
Cash flows from investing activities:
Net proceeds from sale of land - 3,440
Proceeds received from repayment of mortgage loan - 6,188
------ -------
Net cash provided by investing activities - 9,628
------ -------
Cash flows from financing activities:
Distributions to partners (647) (10,621)
------ -------
Net (decrease) increase in cash and cash equivalents (237) 52
Cash and cash equivalents, beginning of period 2,060 1,851
------ -------
Cash and cash equivalents, end of period $1,823 $ 1,903
====== =======
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, 1996. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the results
for the interim period. All of the accounting adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of February 28, 1997 and August 31, 1996 and
revenues and expenses for the three and six months ended February 28, 1997
and February 29, 1996. Actual results could differ from the estimates and
assumptions used.
2. Mortgage Loan and Land Investments
The following are the first mortgage loans outstanding and the cost of the
related land to the Partnership at February 28, 1997 and August 31, 1996 (in
thousands):
Amount of Mortgage Loan Cost of Land
----------------------- ------------
Property 2/28/97 8/31/96 2/28/97 8/31/96
-------- ------- ------- ------- -------
Willow Creek Apartments
Wichita, Kansas $ 3,055 $ 3,055 $ 345 $ 345
Park South Apartments
Charlotte,
North Carolina 4,230 4,230 770 770
-------- ------- ------ -------
$ 7,285 $ 7,285 $1,115 $ 1,115
======== ======= ====== =======
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 annual
interest rates on the Willow Creek and Park South mortgage loans are 11% and
9%, respectively. 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 six months ended February 28, 1996, the
Partnership received additional rent under the terms of the Park South
Apartments land lease totalling $40,000. No additional rent was received
during the six months ended February 28, 1997. 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 Willow Creek mortgage loan became prepayable in November 1995. Management
believes that there is the potential for a near term prepayment of this loan.
As a result of these circumstances, based on an expected short-term maturity,
the estimated fair value of the Willow Creek mortgage loan approximated its
carrying value as of February 28, 1997 since the estimated fair value of the
collateral property exceeds the principal balance of the loan. The fair value
of the Park South loan, which does not become prepayable until December 1997,
has been estimated using discounted cash flow analysis and also approximated
the loan's carrying value as of February 28, 1997.
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. Such amount was recorded
as a gain in the Partnership's financial statements for the quarter ended
November 30, 1995. 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. Subsequent to the date of the foreclosure and through August 31,
1994, the Partnership had recorded provisions for possible investment loss
totalling $900,000 to write down the carrying value of the Martin Sunnyvale
investment property to $2,500,000 to reflect additional declines in its
estimated fair value, net of selling expenses. During fiscal 1996, real
estate values for R&D office properties in Northern California recovered
somewhat as a result of the resurgence in the growth of the high technology
industries. As a result of lower market vacancy levels and increasing rental
rates, the estimated fair value of the Martin Sunnyvale property improved
significantly during fiscal 1996 to an amount which exceeds the cost basis
established for the property in fiscal 1991 of $3,400,000. Accordingly, the
Partnership adjusted the valuation account with respect to the Martin
Sunnyvale property and recognized a recovery of possible investment loss of
$900,000 effective in the fourth quarter of fiscal 1996. The carrying value
of the investment, of $3,400,000, is included in the balance of investment
properties held for sale on the accompanying balance sheets as of February
28, 1997 and August 31, 1996.
During fiscal 1994, 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 learned that there has
been a contamination of the underground soil and water at the site. 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 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.
This matter is not expected to have any long-term impact on the market value
of the operating investment property.
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 90% occupied as of February 28, 1997, 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 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 sheets at February 28, 1997 and August 31, 1996.
<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
property operating expenses (including capital improvement costs), taxes and
insurance. Combined summarized operating results of the Martin Sunnyvale
Research and Development Center and Bell Forge Square Shopping Center for the
three and six months ended February 28, 1997 and February 29, 1996 are as
follows (in thousands):
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------ -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income $ 358 $ 361 $ 743 $ 721
Other income 77 92 166 150
-------- --------- -------- ------
435 453 909 871
Expenses:
Property operating expenses 236 57 448 184
Property taxes and insurance 49 118 89 167
-------- ------- ------- ------
285 175 537 351
--------- ------- ------- ------
Income from operations, net $ 150 $ 278 $ 372 $ 520
======== ======= ======= ======
4. Related Party Transactions
The Adviser earned basic management fees of $71,000 and $88,000 for the
six-month periods ended February 28, 1997 and February 29, 1996,
respectively. Accounts payable - affiliates at both February 28, 1997 and
August 31, 1996 consists of management fees of $32,000 payable to the
Adviser.
Included in general and administrative expenses for the six months ended
February 28, 1997 and February 29, 1996 is $94,000 and $91,000, 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 six months ended
February 28, 1997 and February 29, 1996 is $3,000 and $5,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
<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
- -------------------------------
The Partnership's wholly-owned, 39,000 square foot Martin Sunnyvale
Research and Development Center remained 100% leased as of February 28, 1997.
During the first quarter of fiscal 1997, the largest tenant at Martin Sunnyvale
vacated 17,784 square feet when its lease expired at the beginning of November
1996. However, a replacement tenant executed a five-year lease through November
2001 for the entire 17,784 square foot space at an average rental rate which is
40% higher than the previous tenant had been paying. This transaction completed
the successful re-leasing of the three tenant spaces at the property. The other
two spaces were re-leased during fiscal 1996 at rental rates 40% and 60% higher
than the previous leases. As a result of the significant increase in rental
income, the market value of the Martin Sunnyvale property has increased
substantially. Accordingly, management believes that it would be appropriate to
begin to market the property for sale and interviewed several regional and
national real estate brokers during the second quarter of fiscal 1997.
Subsequent to the quarter-end, management contracted with a national real estate
firm with a strong background in selling R&D buildings in the Silicon Valley
area to market the property for sale. There are no assurances, however, that a
sale transaction will be completed in the near term.
As previously reported, the Partnership was notified by a California state
water agency in fiscal 1994 of a potential environmental problem at Martin
Sunnyvale. As a result of governmental required testing, management 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 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. This
matter is not expected to have any long-term impact on the market value of the
Partnership's operating property.
At the Partnership's other wholly-owned commercial investment, Bell Forge
Square Shopping Center in Nashville, Tennessee, occupancy remained at 90% for
the second consecutive quarter. During the first quarter, two tenants, a
furniture store and a pet store, occupying 10% of the center's rentable area,
vacated their spaces prior to the termination of their leases. The former
furniture store tenant remains current on its rental obligations to date
although it seeks to terminate its lease as soon as a new tenant can be found.
The former pet store tenant which has ceased operations and stopped paying rent
during the first quarter of fiscal 1997 has been issued a court order to pay its
rental obligation. Although the Partnership is pursuing its rights under this
court judgment to recover the rent due under the lease agreement, management is
not optimistic about the likelihood of collection given the poor financial
condition of the former pet store tenant. The property's leasing team is in
final negotiations with a restaurant tenant for a new lease for the vacant space
formerly occupied by the pet store which would cover a five-year term at a
rental rate 19% higher than the previous tenant's. The restaurant would fund all
of its own tenant improvements and working capital requirements. Three retail
leases at Bell Forge Square are due to expire through the end of calendar 1997.
The property management team expects all of these tenants to renew their leases.
As previously reported, although Discovery Zone, which occupies 9% of the
center's net rentable area, has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code, it continues to pay its post-petition rent and operate its
store at Bell Forge Square. While there are likely to be some store closings as
part of the company's bankruptcy reorganization plan, it is uncertain at this
time whether the Bell Forge Square location would be affected by such actions.
During the quarter ended February 28, 1997, management decided to explore
potential opportunities to sell the Bell Forge Square property and has
contracted with a regional real estate broker to market the property for sale
under a 90-day agreement. At the present time, real estate values for retail
shopping centers in certain markets are being adversely impacted by the effects
of certain consolidations and bankruptcies among retailers which have resulted
in an oversupply of space and by the generally flat rate of growth in overall
retail sales. Nonetheless, since market conditions in Nashville remain generally
strong, there may be favorable opportunities to complete a sale of the Bell
Forge Square property in the near term.
The mortgage loan secured by the Willow Creek Apartments bears interest at
a rate of 11.00% per annum. As previously reported, since current market
interest rates for first mortgage loans are considerably lower than this rate,
and with the continued availability of credit in the capital markets for real
estate transactions, there is a reasonable likelihood of the Partnership's
mortgage loan investment being prepaid. The Willow Creek loan became prepayable
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. To date, the Partnership has received no
notice from the Willow Creek borrower indicating an intent to prepay the
mortgage loan and repurchase the underlying land.
Occupancy at the Park South Apartments in Charlotte, North Carolina, was
90% for the quarter ended February 28, 1997, down from 92% for the previous
quarter. Operations of the property continue to fully support the debt service
and ground lease payments owed to the Partnership despite a recent weakening in
market conditions for existing properties in the greater Charlotte area. Over
the past year, more than 3,900 new apartment units have been added to the
overall Charlotte market. Approximately 1,500 of these new units are in
southeast Charlotte, where Park South is located, and 708 of these new units are
in Park South's submarket. In addition, a new rental community is under
construction within one mile of Park South which will include 400 rental units,
a retail center and a movie theater. This property's pre-leasing program began
in late August. In order to remain competitive with these new units, Park South
currently offers reduced rental rates and/or discounted move-in rates to
prospective tenants. As an incentive to renew leases, current tenants are
offered minimal increases at the expiration of their leases. The use of rental
concessions and renewal incentives is expected to continue throughout fiscal
1997.
At February 28, 1997, the Partnership had available cash and cash
equivalents of $1,823,000. 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.
Results of Operations
Three Months Ended February 28, 1997
- ------------------------------------
The Partnership reported net income of $262,000 for the three months ended
February 28, 1997, as compared to net income of $419,000 for the same period in
the prior year. This $157,000 decrease in net income is attributable to a
$128,000 reduction in income from operations of investment properties held for
sale and a $29,000 decline in the Partnership's operating income. Income from
operations of investment properties held for sale declined primarily due to a
$179,000 increase in property operating expenses which was partially offset by a
$69,000 decrease in property taxes and insurance. Property operating expenses
increase primarily due to the capital improvement expenditures and leasing
commissions related to the new tenants at the Martin Sunnyvale Research and
Development Center as discussed further above.
The Partnership's operating income decreased mainly due to a $113,000 decline in
revenues which was partially offset by a $84,000 decrease in expenses. Revenues
declined mainly due to a $95,000 decrease in other income which resulted
primarily from the additional interest income earned on the cash proceeds held
from The Corner at Seven Corners mortgage loan repayment and related land sale
on November 22, 1995 pending the special distribution to the Limited Partners
which was made on January 31, 1996. The Partnership's operating expenses
decreased due to an $83,000 reduction in general and administrative expenses
caused by certain additional required professional fees incurred during the
three months ended February 29, 1996.
<PAGE>
Six Months Ended February 28, 1997
- ----------------------------------
The Partnership reported net income of $581,000 for the six months ended
February 28, 1997, as compared to net income of $2,353,000 for the same period
in the prior year. The decrease in net income is primarily attributable to the
gain recognized in the prior period on the sale of The Corner at Seven Corners
land, of $1,378,000. In addition, the Partnership's net income declined due to a
decrease in operating income of $246,000. Operating income declined primarily
due to a decrease in revenues of $357,000. Revenues decreased due to declines in
interest earned on mortgage loans of $159,000, land rent revenue of $90,000 and
other interest income of $108,000. Interest earned on mortgage loans and land
rent revenue decreased as a result of The Corner at Seven Corners mortgage
repayment and related land sale which occurred during the prior year. Interest
income decreased due to the inclusion of The Corner at Seven Corners' sales
proceeds in the invested cash balances in the prior period pending the special
distribution to the Limited Partners which was made on January 31, 1996. The
decrease in revenues was partially offset by a reduction in management fees of
$17,000 and a decline in amortization of deferred expenses of $21,000.
Management fees decreased due to a reduction in adjusted capital contributions,
upon which such fees are based, as a result of the capital distribution which
followed the sale of The Corner at Seven Corners investment. Amortization of
deferred expenses decreased due to the write-off of the remaining deferred
acquisition expenses associated with The Corner at Seven Corners investments at
the time of the November 1995 sale.
Also contributing to the decline in net income for the current six-month
period is a $148,000 decrease in income from the operations of investment
properties held for sale. Income from operations of investment properties held
for sale declined primarily due to a $264,000 increase in property operating
expenses which was partially offset by a $78,000 decrease in property taxes and
insurance and a $38,000 increase in revenues. Property operating expenses
increased primarily due to additional capital improvement expenditures and
leasing commissions associated with the three new tenants at the Martin
Sunnyvale Research and Development Center, as discussed further above. The
increase in revenues is primarily attributable to the 40% to 60% increase in the
lease rental rates on the three new leases at Martin Sunnyvale
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously reported, in November 1994 a series of purported class
actions (the "New York Limited Partnership Actions") were filed in the United
States District Court for the Southern District of New York concerning
PaineWebber Incorporated's sale and sponsorship of various limited partnership
investments, including those offered by the Partnership. The lawsuits were
brought against PaineWebber Incorporated and Paine Webber Group Inc. (together
"PaineWebber"), among others, by allegedly dissatisfied partnership investors.
In March 1995, after the actions were consolidated under the title In re
PaineWebber Limited Partnership Litigation, the plaintiffs amended their
complaint to assert claims against a variety of other defendants, including
Fourth Qualified Properties, Inc. and Properties Associates ("PA"), which are
the General Partners of the Partnership and affiliates of PaineWebber. On May
30, 1995, the court certified class action treatment of the claims asserted in
the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in Paine Webber Qualified Plan
Property Fund Four, LP, PaineWebber, Fourth Qualified Properties, Inc. and PA
(1) failed to provide adequate disclosure of the risks involved; (2) made false
and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purported to be suing on behalf of all persons who invested in Paine Webber
Qualified Plan Property Fund Four, LP, also alleged that following the sale of
the partnership interests, PaineWebber, Fourth Qualified Properties, Inc. and PA
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber, Fourth Qualified
Properties, Inc. and PA violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and the General Partners, and the
allocation of the $125 million settlement fund among investors in the various
partnerships at issue in the case. As part of the settlement, PaineWebber also
agreed to provide class members with certain financial guarantees relating to
some of the partnerships. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the settlement was held in December 1996, and in
March 1997 the court issued a final approval of the settlement.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
Mediation with respect to the Abbate action was held in December 1996. As a
result of such mediation, a settlement between PaineWebber and the plaintiffs
was reached which provides for the complete resolution of such action. Final
releases and dismissals with regard to this action are expected to be received
in April 1997.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
the amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
believe that the resolution of these maters will not have a material impact on
the Partnership's financial statements, taken as a whole.
<PAGE>
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: April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended February 28,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,823
<SECURITIES> 0
<RECEIVABLES> 7,392
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,930
<PP&E> 13,215
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,584
<CURRENT-LIABILITIES> 153
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,431
<TOTAL-LIABILITY-AND-EQUITY> 22,584
<SALES> 0
<TOTAL-REVENUES> 832
<CGS> 0
<TOTAL-COSTS> 251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 581
<INCOME-TAX> 0
<INCOME-CONTINUING> 581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
