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
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SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: AUGUST 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: 0-17149
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
(Exact name of registrant as specified in its charter)
Delaware 04-2889712
(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_____
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Parts II and IV
December 3, 1985, as supplemented
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
1996 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-5
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-5
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 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-15
<PAGE>
PART I
Item 1. Business
PaineWebber Mortgage Partners Five, L.P. (the "Partnership") is a limited
partnership formed in October 1985 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 $38,849,400 in
Limited Partnership Units (776,988 Units at $50 per Unit) from December 3, 1985
to December 2, 1987 pursuant to an Amended Registration Statement filed on Form
S-11 under the Securities Act of 1933 (Registration No. 33-934). 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 four operating properties. As discussed further
below, the Partnership's investments related to one of the properties were sold
in fiscal 1990. As of August 31, 1996, the Partnership owns two operating
properties directly as a result of foreclosure actions resulting from defaults
under the terms of the mortgage loans receivable and has one remaining loan
receivable and land investment. The Partnership's operating properties and
security for its mortgage loan investment are described below.
<TABLE>
<CAPTION>
Property name Type of Property and
and Location Date of Investment Size Type of Ownership (1)
- --------------- -------------------------- ---- ----------------------
<S> <C> <C> <C>
Hacienda Plaza (2) Retail and Office Complex 78,415 sq. ft.; Fee ownership of land and
Pleasanton, CA 8/15/86 6.3 acres of land improvements
Spartan Place (3) Shopping Center 151,489 sq. ft.; Fee ownership of land and
Spartanburg, SC 4/28/88 13.9 acres of land improvements
Park South (4) Apartments 240 units; Fee ownership of land
Charlotte, NC 12/29/88 19 acres of land subject to ground lease and
first mortgage lien on improvements
</TABLE>
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the transactions through which the Partnership has acquired
these real estate investments.
(2) On June 22, 1990, the Partnership was granted title to the Hacienda Plaza
property and assumed ownership as a result of certain defaults by the
borrower under the terms of the Partnership's mortgage loan receivable. The
Partnership has been operating the property utilizing the services of a
local property management company since the date of the foreclosure.
(3) On February 12, 1991, the Partnership received the title to the Spartan
Place property and assumed ownership as a result of certain defaults by the
borrower under the terms of the Partnership's mortgage loan receivable. The
Partnership is currently operating the property utilizing the services of a
local property management company.
(4) The Partnership owns a 23% interest in the land underlying the Park South
Apartments and has an equivalent interest in the related secured mortgage
loan. The remaining 77% interest in the land and mortgage loan receivable is
owned by an affiliated partnership, Paine Webber Qualified Plan Property
Fund Four, LP.
In November 1989, the Partnership sold the land it had previously owned
and leased back to Ballston Place Associates Limited Partnership ("BPA"). The
Partnership also allowed BPA to prepay the mortgage loan secured by the Ballston
Place Phase I apartment building. BPA made a cash payment of approximately
$11,402,000 to the Partnership on November 29, 1989 in return for the
Partnership's agreement to release the first leasehold mortgage applicable to
the Ballston Place Apartments Phase I. In connection with the sale, the
Partnership received a fixed installment note in the principal amount of
$355,200, which was to be payable in eight annual installment payments beginning
April 1, 1992 and ending on April 1, 1999. The fixed installment note was to
bear interest, beginning in April of 1992, equal to the interest rate applicable
to one-year U.S. Treasury bills and was guaranteed as to its payment by the
parent company of the borrowing entity. During fiscal 1992, the borrower failed
to make the required April 1, 1992 initial installment payment due the
Partnership and filed for protection under Chapter 11 of the U.S. Bankruptcy
Code due to defaults on the first mortgage loan secured by the property.
Throughout fiscal 1993, management pursued legal action against the guarantors
of the note in an effort to collect the principal and interest receivable.
During the quarter ended February 28, 1993, a settlement agreement between the
Partnership and the guarantors was approved by the United States Bankruptcy
Court whereby the Partnership received a cash payment of $81,000 to fully
satisfy all of the borrower's outstanding obligations to the Partnership. As a
result, the Partnership no longer has any investment interest in the Ballston
Place property.
The Partnership's investment objectives are to:
(1) preserve and protect the Limited Partners' capital;
(2) preserve the Limited Partners' buying power (i.e., provide an inflation
hedge);
(3) provide the Limited Partners with cash distributions from investment
income; and
(4) achieve long-term appreciation in the value of the Partnership's
investments.
Through August 31, 1996, the Limited Partners had received cumulative cash
distributions totalling approximately $26,532,000, or $713 per original $1,000
investment for the Partnership's earliest investors. This return includes
distributions of $322 per original $1,000 investment from the prepayment of the
Ballston Place mortgage loan and related land repurchase in November of 1989. In
addition, the Partnership retains interests in three of the four investment
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 remaining
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. While market values for commercial office
buildings have generally stabilized over the past two years, such values
continue to be depressed due to the residual effects of the overbuilding which
occurred in the late 1980's and the trend toward corporate consolidations and
downsizing which followed the last national recession. In addition, at the
present time, real estate values for retail shopping centers in certain markets
are being adversely impacted by the effects of overbuilding and consolidations
among retailers which have resulted in an oversupply of space. As discussed
further in Item 7, these general conditions have contributed to the significant
vacancy that exists at the Partnership's Spartan Place Shopping Center which has
resulted in significant declines in the property's estimated fair value over the
past three years.
The Partnership expects to finance or sell its investments and have its
mortgage loan 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. In determining the appropriate timing for the sale of
the wholly-owned operating properties, 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. As discussed further in Item 7,
the Partnership had been negotiating for the possible sale of the Spartan Place
Shopping Center during the third quarter of fiscal 1995. During the first
quarter of fiscal 1996, the potential sale transaction could not be completed.
Subsequent to the termination of this sale contract, the Partnership has
remarketed the property to other interested parties while at the same time
examining potential financing strategies for the capital and tenant improvement
costs to be incurred should the Partnership decide to hold the property through
this re-leasing period.
The Partnership's operating properties and the property securing its
mortgage loan investment are located in real estate markets in which they face
significant competition for the revenues they generate. The apartment complex
competes with numerous similar projects 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 several years has generally
caused this competition to increase in all areas of the country. The shopping
center and the retail/office complex compete for long-term commercial tenants
with numerous projects of similar type generally on the basis of location,
rental rates 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 (the "General Partners") are Fifth
Mortgage Partners, Inc. and Properties Associates 1985, L.P. Fifth Mortgage
Partners, 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, 1996, the Partnership owns two operating properties
directly as a result of foreclosures on certain mortgage loans receivable during
fiscal 1991 and 1990, as noted in Item 1 above to which reference is made for
the description, name and location of such properties. Additionally, as of
August 31, 1996 the Partnership owns, and has leased back to the sellers, the
land underlying the investment property referred to under Item 1.
Occupancy figures for each fiscal quarter during 1996, along with an average
for the year, are presented below for each property.
Percent Occupied At
------------------------------------------------
Fiscal
1996
11/30/95 2/29/96 5/31/96 8/31/96 Average
-------- ------- ------- ------- -------
Hacienda Plaza 85% 88% 82% 83% 85%
Spartan Place 38% 37% 36% 36% 37%
Park South 96% 87% 92% 94% 92%
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 Fifth Mortgage Partners, Inc. and Properties
Associates 1985, L.P. ("PA1985"), which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber Mortgage Partners
Five, L.P., PaineWebber, Fifth Mortgage Partners, 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 purported to be suing on
behalf of all persons who invested in PaineWebber Mortgage Partners Five, L.P.,
also alleged that following the sale of the partnership interests, PaineWebber,
Fifth Mortgage Partners, Inc. and PA1985 misrepresented financial information
about the Partnership's value and performance. The amended complaint alleged
that PaineWebber, Fifth Mortgage Partners, Inc. and PA1985 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 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 plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and 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
proposed settlement is scheduled to continue in November 1996.
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 against PaineWebber.
In September 1996, the court dismissed many of the plaintiffs' claims as barred
by applicable securities arbitration regulations. Mediation hearings are
scheduled to be held in December 1996. 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 the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
any 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
cannot estimate the impact, if any, of the potential indemnification claims on
the Partnership's financial statements, taken as a whole. Accordingly, no
provision for any liability which could result from the eventual outcome of
these matters has been made in the accompanying financial statements of the
Partnership.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At August 31, 1996, there were 5,962 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.
The Partnership has a Distribution Reinvestment Plan designed to enable
Unitholders to have their distributions from the Partnership invested in
additional Units of the Partnership. The terms of the Plan are outlined in
detail in the Prospectus, a copy of which Prospectus, as supplemented, in
incorporated herein by reference.
Reference is made to Item 6 below for a discussion of cash distributions
made to the Unitholders during fiscal 1996.
Item 6. Selected Financial Data
PaineWebber Mortgage Partners Five, L.P.
For the years ended August 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per Unit data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 280 $ 300 $ 247 $ 231 $ 249
Operating loss $ (178) $ (193) $ (201) $ (153) $ (561)
Provision for possible
investment loss $(1,000) $(1,000) $(1,300) $ (900) $(1,502)
Income from
investment properties
held for sale $ 467 $ 480 $ 886 $ 837 $ 901
Net loss $ (711) $ (713) $ (614) $ (215) $(1,161)
Net loss
per Limited
Partnership Unit $ (0.91) $ (0.91) $ (0.78) $ (0.27) $ (1.48)
Cash distributions
per Limited
Partnership Unit $ 0.51 $ 0.99 $ 0.86 $ 0.73 $ 0.68
Total assets $ 13,186 $14,175 $15,592 $16,977 $17,723
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 loss and cash distributions per Limited Partnership Unit are
based upon the 776,988 Limited Partnership Units outstanding during each year.
<PAGE>
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 3, 1985 to December 2, 1987 pursuant to an Amended Registration
Statement filed under the Securities Act of 1933. Gross proceeds of $38,849,400
were received by the Partnership and, after deducting selling expenses and
offering costs, $33,600,000 was invested in four operating properties in the
form of first mortgage loans and land purchase-leaseback transactions. Since the
time that the original investments were made, the Partnership has liquidated its
Ballston Place mortgage loan and land investments. In addition, the Partnership
has assumed direct ownership of the Hacienda Plaza and Spartan Place properties
subsequent to foreclosure proceedings resulting from defaults under the terms of
the Partnership's first mortgage loans. Given the potential future capital needs
of the Partnership's two wholly-owned properties, as well as the loss of income
at Spartan Place which resulted from the significant decrease in occupancy
during fiscal 1995, as discussed further below, the Partnership's quarterly
distribution rate was reduced from 3% to 1% per annum on remaining invested
capital effective for the payment made on January 12, 1996 for the quarter
ending November 30, 1995. Subsequently, the distribution rate was raised to 2%
per annum effective for the payment made on October 15, 1996 for the quarter
ended August 31, 1996. Distributions are not expected to increase further at
least until Spartan Place is either sold or its operations have been stabilized.
The Spartan Place Shopping Center, in Spartanburg, South Carolina, was 36%
occupied as of August 31, 1996. As previously reported, Circuit City vacated one
of the anchor tenant spaces at the property during the quarter ended May 31,
1995 to move to a location it believed to be better suited to its future
operations. Circuit City had occupied 16,412 square feet at the Center and
remains obligated to pay annual base rent of approximately $112,000, plus its
pro rata share of operating expenses, through the end of its lease term in
January 2008. During the second quarter of fiscal 1996, Circuit City began
withholding its rental payments as part of its efforts to negotiate a buyout of
its future rental obligations. The Partnership then aggressively pursued its
rights under the lease agreement with this tenant and, as a result of these
efforts, Circuit City paid all rent owed and is now making timely monthly rental
payments. In addition, management of Phar-Mor, another anchor tenant which
occupied 26% of the leasable space at Spartan Place, closed its store at Spartan
Place and terminated its lease in July 1995 as part of its bankruptcy
reorganization plan. A number of smaller shop space tenants also either went out
of business or failed to renew their leases during fiscal 1995 and 1996.
Re-leasing the Circuit City and Phar-Mor spaces to high-profile, strong credit
tenants will be critical to increasing shopper traffic at the center which will
be necessary to retain the existing tenants and to lease the vacant shop space.
However, such re-leasing plans could require a significant expansion and/or
repositioning of the shopping center. Alternatively, management has considered a
possible sale of the property prior to undertaking any major re-leasing
commitments and potentially spending significant funds or assuming financing for
capital and tenant improvements.
During the third quarter of fiscal 1995, the Partnership received offers to
purchase Spartan Place. During the first quarter of fiscal 1996, the Partnership
entered into a purchase and sale agreement with the highest bidder at a
negotiated sales price of $6,150,000. Under the terms of the contract, the buyer
had thirty days to perform its due diligence procedures. Subsequent to the
buyer's due diligence period, the offer to purchase the property was withdrawn.
Subsequent to the termination of this sale contract, the Partnership has
remarketed the property to other interested parties while at the same time
examining potential financing strategies for the capital and tenant improvement
costs to be incurred should the Partnership decide to hold the property through
this re-leasing period. The Partnership has identified financing sources that
would provide non-recourse loans to the Partnership for the leasing costs,
provided lease terms can be finalized with prospective new anchor tenants.
During the quarter, management continued negotiations with tenants that may be
interested in occupying a new store in the location of the anchor space that was
previously occupied by Phar-Mor. The outcome of such negotiations cannot be
determined at this time. At the present time, real estate values for retail
shopping centers in certain markets are being adversely impacted by the effects
of overbuilding and consolidations amount retailers which have resulted in an
oversupply of spaces. The lack of leasing progress at Spartan Place over the
past two years and the failure to close the sale transaction referred to above,
combined with these general market conditions, have led management to conclude
that a near term sale of Spartan Place in an "as-is" condition could result in
significantly less proceeds than the contracted sales price discussed above.
Nonetheless, if firm commitments to lease the vacant anchor spaces at Spartan
Place cannot be obtained in the near term, management may conclude that a sale
of the property in an "as is" conditon would be in the best interests of the
Limited Partners.
The wholly-owned Hacienda Plaza office and retail complex was 83% leased as
of August 31, 1996, down from 86% as of August 31, 1995. As previously reported,
a substantial amount of retail space and undeveloped land remains available
within the same planned development area in which the property is located.
However, overall occupancy rates for the local office market improved
considerably during fiscal 1996, reaching the mid-to-high 90% range. Such
improvement is primarily the result of the resurgence in the growth of the high
technology industries. As a result, rental rates in the Pleasanton, California
office market have improved in recent months. In addition, a portion of the land
in the planned development area in which Hacienda Plaza is located has been
re-zoned and is being developed for residential use. Any residential development
in the immediate vicinity of Hacienda Plaza would reduce the amount of
developable land available for new competing office space and would increase the
pedestrian traffic for the retail tenants at the Partnership's property. As a
result of these conditions, operations of the Hacienda Plaza investment property
have stabilized after several years of intense local office and retail market
competition. At August 31, 1996, the occupancy level of the office portion of
the property stood at 81% while the retail portion of the property was 85%
occupied. Subsequent to the end of the fiscal year, the property's leasing team
was successful in renewing the lease with Hacienda Plaza's second largest retail
tenant, Community First National Bank, for a term of 3 years. The property's
leasing team is currently engaged in preliminary lease negotiations with an
existing office tenant that would expand into approximately 6,000 square feet of
available space. As a result of the improving market conditions, the remaining
available office space is expected to be leased at higher rental rates. During
the quarter, the property management team replaced components of the office
window systems and also made landscape improvements near the property entrance
in order to make the property more attractive to retail customers and to
potential retail and office tenants. The Managing General Partner expects to
continue to make selective capital improvements aimed at enhancing marketing and
leasing efforts until market conditions favorable to a sale of the property can
be achieved.
Occupancy at the Park South Apartments in Charlotte, North Carolina, was
94% for the quarter ended August 31, 1996. Operations of the property continue
to fully support the debt service and ground lease payments owed to the
Partnership in addition to providing a small amount of supplemental rent under
the terms of the ground lease. 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 during fiscal 1997. Park South's capital improvement program continues
to progress in line with the owner's budget. In addition to replacing carpeting,
vinyl flooring, appliances and heating and air conditioning units on an
as-needed basis, renovations to the clubhouse, including the addition of a
fitness room and business center, are underway and were 60% completed as of
August 31, 1996.
At August 31, 1996, the Partnership had available cash and cash equivalents
of $2,637,000. Such cash and cash equivalents will be used for the working
capital requirements of the Partnership, distributions to the partners and, if
necessary, for leasing costs related to the Spartan Place and Hacienda Plaza
properties. The source of future liquidity and distributions to the partners is
expected to be from the operations and future sale of the two wholly-owned
investment properties, mortgage interest and land rent payments from the
Partnership's mortgage loan and ground lease investments, interest income on the
Partnership's cash reserves, the repayment of the mortgage loan receivable and
the sale of the underlying parcel of land. In addition, as discussed further
above, the Partnership may obtain certain secured borrowings to finance the
potential leasing costs to be incurred at the Spartan Place property.
Results of Operations
1996 Compared to 1995
The Partnership had a net loss of $711,000 for the year ended August 31,
1996, as compared to a net loss of $713,000 for the prior fiscal year. A
decrease in the Partnership's operating loss was offset by a decrease in income
from investment properties held for sale in fiscal 1996 and kept net operating
results comparable to the prior year. In both years, the Partnership recognized
a provision for possible investment loss of $1,000,000 to reduce the carrying
value of the Partnership's investment in Spartan Place to management's estimate
of fair value as of August 31, 1996 and 1995. The value decline during fiscal
1995 was mainly the result of the Phar-Mor lease termination discussed further
above. The lack of leasing progress during fiscal 1996 and the general market
factors affecting retail properties across the country, as discussed further
above, contributed to an additional decline in estimated fair value which was
recognized in the current fiscal year.
The Partnership's operating loss decreased by $15,000 in fiscal 1996 mainly
due to a decline in general and administrative expenses of $32,000. General and
administrative expenses decreased primarily as a result of a reduction in
certain required professional services. A decrease of $19,000 in interest income
earned on the Partnership's cash reserves partially offset the decline in
general and administrative expenses for the current year. Interest income
decreased due to a decrease in the average interest rates earned on the
Partnership's invested cash reserves and a reduction in the average outstanding
cash balances.
The decrease of $13,000 in income from investment property held for sale
during fiscal 1996 is due to a decrease of $155,000 in net income at Spartan
Place. The decrease in net income at Spartan Place resulted from a decline in
rental income of $280,000. Rental income decreased mainly due to the termination
of the 40,000 square foot Phar-Mor lease in July 1995 and the failure to
re-lease this space during fiscal 1996. A decrease of $127,000 in operating
expenses at Spartan Place partially offset the decrease in rental income.
Operating expenses at Spartan Place decreased mainly due to reductions in bad
debt expense of $51,000, repairs and improvements expense of $24,000 and real
estate taxes of $46,000. The higher bad debt expense in the prior year is
attributable to the store closings of the shopping center's two anchor tenants
and the related number of smaller shop space tenants that subsequently went out
of business. The decrease in net income at Spartan Place was partially offset by
an increase in net income of $142,000 at Hacienda Plaza. The increase in net
income at Hacienda Plaza was mainly due to a decrease in operating expenses of
$184,000. Operating expenses decreased because during the prior year the
property experienced a fair amount of tenant turnover, downsizing and
re-locating. Such leasing activity resulted in increased bad debt expense in the
prior year from tenants who vacated the property and expenditures on tenant
improvements to re-lease the vacated space. In addition, a number of capital
improvement projects were completed during the prior year at Hacienda Plaza.
Under the Partnership's accounting policy with respect to assets held for sale,
capital and tenant improvement costs and leasing commissions are expensed as
incurred. A decrease in revenues at Hacienda Plaza of $42,000 partially offset
the decrease in operating expenses. The decrease in revenues was mainly due to
the decline in the average occupancy from 87% during fiscal 1995 to 84% in
fiscal 1996.
1995 Compared to 1994
The Partnership's net loss increased by $99,000 in fiscal 1995, when
compared to the prior year. The primary reason for this increase was a decline
in income from investment properties held for sale of $407,000. Income from
investment properties held for sale decreased mainly due to an increase in real
estate tax expense at Spartan Place and significant capital improvement and
leasing costs incurred at Hacienda Plaza. Real estate taxes increased by $86,000
at Spartan Place. At Hacienda Plaza, despite ending fiscal 1995 at the same 86%
leasing level that existed at August 31, 1994, the property experienced a fair
amount of tenant turnover, downsizing and relocation during the year. Such
leasing activity resulted in increased bad debt expense from tenants who vacated
the property and expenditures on tenant improvements and leasing commissions to
re-lease the vacated space. In addition, certain capital improvement projects
were completed during the year at Hacienda Plaza. As noted above, under the
Partnership's accounting policy with respect to assets held for sale, capital
and tenant improvement costs and leasing commissions are expensed as incurred.
An overall increase in rental revenues at Hacienda Plaza offset the decrease in
rental income at Spartan Place which resulted from the decrease in occupancy
during fiscal 1995, as discussed further above.
The decrease in income from investment properties held for sale was
partially offset by a decrease in the provision for possible investment loss in
fiscal 1995. The provision for possible investment loss decreased by $300,000 in
fiscal 1995. The fiscal 1995 provision of $1 million represents an adjustment to
reduce the carrying value of the investment in Spartan Place to management's
estimate of fair value at August 31, 1995. The value decline during fiscal 1995
was primarily the result of the Phar-Mor lease termination discussed further
above. No adjustment was made to the carrying value of the Hacienda Plaza
investment for fiscal 1995. In fiscal 1994, the Partnership recorded an
additional provision of $400,000 related to the Hacienda Plaza property, along
with a $900,000 adjustment to the carrying value of the Spartan Place Shopping
Center, to reflect additional declines in management's estimates of the fair
values of the investment properties. In addition to the decrease in the
provision for possible investment loss, the Partnership's operating loss
decreased by $8,000 in fiscal 1995. Operating loss decreased due to an increase
in interest income of $47,000, which resulted from an increase in interest rates
earned on cash and cash equivalents when compared to the prior year, and an
increase in land rent revenue from the Park South Apartments of $6,000. The
increases in interest income and land rent revenue were partially offset by an
increase in general and administrative expenses of $44,000 primarily due to an
increase in professional fees.
1994 Compared to 1993
The Partnership reported a net loss of $614,000 for the year ended August
31, 1994, as compared to a net loss of $215,000 in the prior fiscal year. This
unfavorable change in the Partnership's operating results was primarily due to
an increase in the provision for possible investment loss during fiscal 1994.
The provision for possible investment loss increased by $400,000, from $900,000
in fiscal 1993 to $1,300,000 in fiscal 1994. The fiscal 1993 provision
represented an adjustment to reduce the carrying value of the investment in
Hacienda Plaza to management's estimate of fair value as of August 31, 1993. In
fiscal 1994, the Partnership recorded an additional provision of $400,000
related to the Hacienda Plaza property, along with a $900,000 adjustment to the
carrying value of the Spartan Place Shopping Center, to reflect additional
declines in management's estimates of the fair values of the investment
properties. The unfavorable change in the Partnership's operations could also be
partly attributed to an increase of $48,000 in the Partnership's operating loss,
which was offset by an increase in income from the operations of investment
properties held for sale. The primary reason for the increase in the
Partnership's operating loss was a partial recovery of $81,000 recorded in
fiscal 1993 on the Ballston Place note receivable which had been fully reserved
for in fiscal 1992. Income from investment properties held for sale, which
represents the combined net operating income of the Hacienda Plaza and Spartan
Place properties, increased by $49,000 in fiscal 1994 mainly due to decreases in
all expense categories, most notably real estate taxes. Real estate tax expense
declined during fiscal 1994 due to an increase in real estate tax reimbursements
at the Spartan Place Shopping Center. The favorable change in expenses at
Spartan Place and Hacienda Plaza was offset by a decrease in rental revenues at
Hacienda Plaza. The decrease in Hacienda Plaza's rental income was due to a
decrease in occupancy during the first half of fiscal 1994.
Inflation
The Partnership completed its tenth full year of operations in fiscal 1996
and the effects of inflation and changes in prices on the Partnership's 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 two wholly-owned commercial
properties have leases which require the tenants to pay for a significant
portion of the property operating expenses. In addition, the Partnership's
remaining land lease provides for additional rent based upon increases in the
revenues of the related operating property which would tend to rise with
inflation. Such increases in revenues would be expected to at least partially
offset the increases in Partnership and property operating expenses resulting
from inflation. As noted above, the wholly-owed Spartan Place Shopping Center
currently has a significant amount of unleased space. During a period of
significant inflation, increased operating expenses attributable to space that
remained unleased at such time would not be recoverable and would adversely
affect the Partnership's net cash flow.
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.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Fifth Mortgage
Partners, 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
---- ------ --- ---------
Bruce J. Rubin President and Director 37 8/22/96
Terrence E. Fancher Director 43 10/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 49 10/29/85
James A. Snyder Senior Vice President 51 7/6/92
David F. Brooks First Vice President and
Assistant Treasurer 54 8/27/85 *
Timothy J. Medlock Vice President and Treasurer 35 6/1/88
Thomas W. Boland Vice President 34 12/1/91
Dorothy F. Haughey Secretary 70 8/27/85 *
* 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 ("PWPI") serves as the
Adviser. The business experience of each of the directors and principal
executive officers of the Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General Partner.
Mr. Rubin was named President and Chief Executive Officer of PWPI in August
1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking in November
1995 as a Senior Vice President. Prior to joining PaineWebber, Mr. Rubin was
employed by Kidder, Peabody and served as President for KP Realty Advisers,
Inc. Prior to his association with Kidder, Mr. Rubin was a Senior Vice
President and Director of Direct Investments at Smith Barney Shearson. Prior
thereto, Mr. Rubin was a First Vice President and a real estate workout
specialist at Shearson Lehman Brothers. Prior to joining Shearson Lehman
Brothers in 1989, Mr. Rubin practiced law in the Real Estate Group at Willkie
Farr & Gallagher. Mr. Rubin is a graduate of Stanford University and Stanford
Law School.
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher
previously worked for a major law firm in New York City. He has a J.D. from
Harvard Law School, an M.B.A. from Harvard Graduate School of Business
Administration and an A.B. from Harvard College.
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. He began his career in 1974 with Arthur Young & Company in Houston. 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 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.
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, 1996, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
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 1% to 3% 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, Fifth Mortgage Partners, Inc., is owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner, is
a Virginia limited partnership, certain 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 Fifth Mortgage Partners, 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.
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.
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 10%, as set
forth in the Amended Partnership Agreement.
Any 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 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 base 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. The Adviser earned base and asset
management fees totalling $136,000 for the year ended August 31, 1996. In
accordance with the Partnership Agreement, management fees payable in respect to
any fiscal year ending prior to December 1, 1987 were to be deferred to the
extent that cash distributions were insufficient to provide a 9% non-cumulative
annual return to the limited partners in respect to such fiscal year. Any
portion of the management fees so deferred ($245,000 at August 31, 1996) are to
be paid (without interest) from cash distributions in any succeeding fiscal year
after the limited partners have received a 9% annual return for that fiscal year
or from Residual Proceeds, as defined.
The Managing General Partner and its affiliates 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, 1996 is $127,000, 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 $10,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1996. Fees 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.
<PAGE>
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 property securing the Partnership's
remaining mortgage loan 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 fourth quarter of
fiscal 1996.
(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.
<PAGE>
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.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
By: Fifth Mortgage Partners, Inc.
Managing General Partner
By: /s/ Bruce J. Rubin
Bruce J. Rubin
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, 1996
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/ Bruce J. Rubin Date: November 27, 1996
-------------------- -----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: November 27, 1996
------------------------ -----------------
Terrence E. Fancher
Director
<PAGE>
<TABLE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
INDEX TO EXHIBITS
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document or Other Reference
- ----------- ------------------------ ------------------
<S> <C> <C>
(3) and (4) Prospectus of the Registrant Filed with the Commission
dated December 3, 1985, supplemented, pursuant to Rule 424(c)
with particular reference to the and incorporated herein by
Restated Certificate and Agreement reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13or 15(d)
amendments thereto of the registrant of the Securities Exchange Act
together with all such contracts filed of 1934 and incorporated
as exhibits of previously filed Forms herein by reference.
8-K and Forms 10-K are hereby
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the year
ended August 31, 1996 has been
sent to the Limited Partners. An
Annual Report will besent to the
Limited Partners subsequent to
this filing.
(27) Financial Data Schedule Filed as last page of EDGAR
submission following the Financial
Statements and Financial
Statement Schedule required by
Item 14.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1) and (2) and 14(d)
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
PaineWebber Mortgage Partners Five, L.P.:
Report of independent auditors F-2
Balance sheets as of August 31, 1996 and 1995 F-3
Statements of operations for the years ended August 31, 1996,
1995 and 1994 F-4
Statements of changes in partners' capital (deficit) for the years
ended August 31, 1996, 1995 and 1994 F-5
Statements of cash flows for the years ended August 31, 1996,
1995 and 1994 F-6
Notes to financial statements F-7
Financial Statement Schedules:
Schedule III - Real Estate Owned F-14
Schedule IV - Investments in Mortgage Loans on Real Estate F-15
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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
PaineWebber Mortgage Partners Five, L.P.:
We have audited the accompanying balance sheets of PaineWebber Mortgage
Partners Five, L.P. as of August 31, 1996 and 1995, and the related statements
of operations, changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended August 31, 1996. 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 PaineWebber Mortgage
Partners Five, L.P. at August 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996, 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 LLP
ERNST & YOUNG LLP
Boston, Massachusetts
November 27, 1996
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
BALANCE SHEETS
August 31, 1996 and 1995
(In thousands, except per Unit data)
ASSETS
1996 1995
---- ----
Real estate investments:
Investment properties held for sale, net
of allowance for possible investment
loss of $7,140 ($6,140 in 1995) $ 8,900 $ 9,900
Land 230 230
Mortgage loan receivable 1,270 1,270
------- -------
10,400 11,400
Cash and cash equivalents 2,637 2,692
Interest and land rent receivable 10 10
Accounts receivable 87 26
Prepaid expenses 27 17
Deferred expenses, net of accumulated
amortization of $38 ($33 in 1995) 25 30
------- -------
$13,186 $14,175
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 33 $ 33
Accounts payable and accrued expenses 307 192
Tenant security deposits 85 79
Deferred management fees 245 245
-------- -------
Total liabilities 670 549
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 83 90
Cumulative cash distributions (185) (181)
Limited Partners ($50 per Unit, 776,988
Units issued and outstanding):
Capital contributions, net of offering costs 34,968 34,968
Cumulative net income 4,181 4,885
Cumulative cash distributions (26,532) (26,137)
-------- -------
Total partners' capital 12,516 13,626
-------- -------
$ 13,186 $14,175
======== =======
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF OPERATIONS
For the years ended August 31, 1996, 1995 and 1994
(In thousands, except per Unit data)
1996 1995 1994
---- ---- ----
Revenues:
Interest from mortgage loan $ 114 $ 114 $ 114
Land rent 34 35 29
Other interest income 132 151 104
-------- ------- -------
280 300 247
Expenses:
Management fees 136 139 138
General and administrative 317 349 305
Amortization of deferred expenses 5 5 5
-------- ------- -------
458 493 448
-------- ------- -------
Operating loss (178) (193) (201)
Investment properties held for sale:
Provision for possible investment loss (1,000) (1,000) (1,300)
Income from investment
properties held for sale, net 467 480 887
-------- ------- -------
(533) (520) (413)
-------- ------- -------
Net loss $ (711) $ (713) $ (614)
======== ======== =======
Net loss per Limited
Partnership Unit $ (0.91) $ (0.91) $ (0.78)
======= ======= =========
Cash distributions per Limited
Partnership Unit $ 0.51 $ 0.99 $ 0.86
======= ======= =========
The above net loss and cash distributions per Limited Partnership Unit are
based upon the 776,988 Units of Limited Partnership Interest outstanding during
each year.
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended August 31, 1996, 1995 and 1994
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at August 31, 1993 $ (62) $ 16,474 $ 16,412
Net loss (6) (608) (614)
Cash distributions (7) (672) (679)
-------- --------- ---------
Balance at August 31, 1994 (75) 15,194 15,119
Net loss (7) (706) (713)
Cash distributions (8) (772) (780)
--------- --------- ---------
Balance at August 31, 1995 (90) 13,716 13,626
Net loss (7) (704) (711)
Cash distributions (4) (395) (399)
-------- --------- --------
Balance at August 31, 1996 $ (101) $ 12,617 $ 12,516
======== ========= ========
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net loss $ (711) $ (713) $ (614)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Provision for possible investment loss 1,000 1,000 1,300
Amortization of deferred expenses 5 5 5
Changes in assets and liabilities:
Accounts receivable (61) 62 1
Prepaid expenses (10) 7 (1)
Accounts payable - affiliates - - (28)
Accounts payable and accrued
expenses 115 60 (68)
Tenant security deposits 6 16 3
-------- --------- --------
Total adjustments 1,055 1,150 1,212
-------- --------- --------
Net cash provided by
operating activities 344 437 598
Cash flows from financing activities:
Distributions to partners (399) (780) (679)
--------- --------- --------
Net decrease in cash and
cash equivalents (55) (343) (81)
Cash and cash equivalents,
beginning of year 2,692 3,035 3,116
--------- -------- ---------
Cash and cash equivalents, end of year $ 2,637 $ 2,692 $ 3,035
======== ======= ========
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Operations
PaineWebber Mortgage Partners Five, L.P. (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in
October 1985 for the purpose of investing in a diversified portfolio of
existing income-producing real properties through land purchase-leasebacks
and first mortgage loans. The initial capital was $2,000, representing
capital contributions of $1,000 by the General Partners and $1,000 for
twenty units by the Initial Limited Partner. The Partnership authorized the
issuance of Units (the "Units") of Limited Partnership Interest of which
776,988 Units (at $50 per Unit) were subscribed and issued between December
3, 1985 and December 2, 1987.
The Partnership originally owned land and made first mortgage loans
secured by buildings with respect to four operating properties. The
Partnership's investments related to one of the properties were sold in
fiscal 1990. As of August 31, 1996, the Partnership owns two operating
properties directly as a result of foreclosure actions resulting from
defaults under the terms of the mortgage loans receivable and has one
remaining loan receivable and land investment. See Notes 4 and 5 for a
further discussion of the Partnership's outstanding real estate investments.
2. Use of Estimates and Summary of Significant Accounting Policies
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 August 31, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended August
31, 1996. Actual results could differ from the estimates and assumptions
used.
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 a ground lease is 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. The Partnership's land investment was not held for
sale as of August 31, 1996 or 1995. 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.
The Partnership's mortgage loan receivable is carried at the lower of cost
or fair value. The Partnership's policy is to provide for any valuation
allowances for its mortgage loan investment on a specific identification
basis, principally by evaluating the market value of the underlying
collateral since the loan is collateral dependent.
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
costs are being amortized using the straight-line method over the term of
the remaining mortgage loan (13 years).
For purposes of reporting cash flows, cash and cash equivalents include
all highly liquid investments with original maturities of 90 days or less.
The mortgage loan receivable, cash and cash equivalents, interest and land
rent receivable, accounts receivable, accounts payable - affiliates and
accounts payable and accrued expenses appearing on the accompanying balance
sheets represent financial instruments for purposes of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." With the exception of the mortgage loan receivable,
the carrying amount of these assets and liabilities approximates their fair
value as of August 31, 1996 due to the short-term maturities of these
instruments. Information regarding the fair value of the Partnership's
mortgage loan receivable is provided in Note 4. The fair value of the
mortgage loan receivable is estimated using discounted cash flow analysis
and further considers an independent appraisal of the underlying collateral
property. Such appraisal makes use of a combination of certain generally
accepted valuation techniques, including direct capitalization, discounted
cash flows and comparable sales analysis.
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 Fifth Mortgage Partners, 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.
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.
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 generally be distributed 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 10%, as set
forth in the Amended Partnership Agreement.
Any 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 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 base 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. The Adviser earned base and asset
management fees totalling $136,000, $139,000 and $138,000 for the years
ended August 31, 1996, 1995 and 1994, respectively. Accounts payable -
affiliates at both August 31, 1996 and 1995 includes $33,000 of management
fees payable to PWPI. In accordance with the Partnership Agreement,
management fees payable in respect to any fiscal year ending prior to
December 1, 1987 were to be deferred to the extent that cash distributions
were insufficient to provide a 9% non-cumulative annual return to the
limited partners in respect to such fiscal year. Any portion of the
management fees so deferred ($245,000 at August 31, 1996 and 1995) are to be
paid (without interest) from cash distributions in any succeeding fiscal
year after the limited partners have received a 9% annual return for that
fiscal year or from Residual Proceeds, as defined.
The Managing General Partner and its affiliates 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, 1996, 1995 and 1994 is $127,000, $157,000 and $139,000, 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 $10,000, $5,000, and $9,000 for the years ended August 31, 1996, 1995
and 1994, respectively, (included in general and administrative expenses)
for managing the Partnership's cash assets.
4. Mortgage Loan and Land Investments
The following first mortgage loan was outstanding at August 31, 1996 and
1995 (in thousands):
Date of Loan
Property Amount of Loan Interest Rate and Maturity
-------- ------------------- ------------- ------------
1996 1995
---- ----
Park South $ 1,270 $ 1,270 9.00% 12/29/88
Charlotte, NC 12/28/01
The loan is secured by a first mortgage on the Park South Apartments
property, 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 fair value of the Park South loan, which does not become
prepayable until December 1997, approximates its carrying value as of August
31, 1996.
In relation to the above-mentioned mortgage loan, the following land
purchase-leaseback transaction had also been entered into as of August 31,
1996 and 1995 (in thousands):
Cost of Land
Property to the Partnership Annual Base Rental
-------- ------------------ ------------------
1996 1995
---- ----
Park South $ 230 $ 230 $ 21 through 12/28/28
The Partnership owns a 23% interest in the land underlying the Park South
Apartments and has an equivalent interest in the first mortgage loan secured
by the operating property. The remaining 77% interest in the land and
mortgage loan receivable is owned by an affiliated partnership, Paine Webber
Qualified Plan Property Fund Four, LP. The land lease has a term of 40
years. Among the provisions of the lease agreement, the Partnership is
entitled to additional rent based upon gross revenues in excess of a base
amount, as defined. The Partnership received $13,000, $14,000 and $8,000 of
additional rent from its Park South land lease during fiscal 1996, fiscal
1995 and fiscal 1994, respectively. The lessee has the option to repurchase
the land for a specified period of time beginning in December of 1997 at a
price based on the fair market value, as defined, but not less than the
original cost to the Partnership.
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 remaining investment is 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 50% share of the
appreciation above a specified base amount.
5. Investment Properties Held for Sale
At August 31, 1996 and 1995, the Partnership owned two operating
investment properties 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, 1996 and 1995 is comprised of the
following net carrying values (in thousands):
1996 1995
---- ----
Hacienda Plaza $ 4,900 $ 4,900
Spartan Place Shopping Center 4,000 5,000
-------- --------
$ 8,900 $ 9,900
======== ========
<PAGE>
Descriptions of the transactions through which the Partnership acquired
these properties and of the properties themselves are summarized below:
Hacienda Plaza
The Partnership assumed ownership of Hacienda Plaza on June 22, 1990. The
property, which is comprised of 78,415 square feet of leasable office/retail
space, was 83% leased as of August 31, 1996. The property, which is located
in Pleasanton, California, had been operating below breakeven since the
inception of the loan and therefore had not been generating sufficient cash
flow to cover the mortgage interest and land rent payments due to the
Partnership. Rather than continue to support the cash flow shortfalls to
keep the mortgage loan current, the borrower agreed to transfer the
property's title to the Partnership. The combined balance of the land and
the mortgage loan investments at the time title was transferred was
$9,789,000. The estimated fair value of the operating property at the date
of foreclosure was $8,200,000. Accordingly, a write-down of $1,589,000 was
recorded in fiscal 1990. During fiscal 1994, 1993, 1992 and 1991, the
Partnership recorded provisions for possible investment loss of $400,000,
$900,000, $562,000 and $1,438,000, respectively, to write down the net
carrying value of the Hacienda Plaza investment property to reflect
additional declines in its estimated fair value, net of selling expenses.
The net carrying value of the investment property as of both August 31, 1996
and 1995 was $4,900,000, after a valuation allowance of $3,300,000.
Spartan Place Shopping Center
The Partnership assumed ownership of the Spartan Place Shopping Center, in
Spartanburg, South Carolina, on February 12, 1991. The property, which
consists of 151,489 square feet of leasable retail space, was 36% leased as
of August 31, 1996. Rather than continue to support the cash shortfalls
between the cash flow from property operations and required debt service to
keep the mortgage loan current, the borrower agreed to transfer the title to
the property to the Partnership in fiscal 1991. The combined balance of the
land and the mortgage loan investment at the time title was transferred,
including the unamortized balance of deferred costs associated with the
original acquisition of the Spartan Place investments, was $8,419,000.
Management estimated that the fair value of the property, net of selling
expenses, at the time of the foreclosure was $7,840,000. Accordingly, a loss
of $579,000 was recorded in fiscal 1991 to adjust the carrying value to this
estimate and the investment was reclassified to investment properties held
for sale. During fiscal 1996, 1995, 1994 and 1992, the Partnership recorded
provisions for possible investment loss of $1,000,000, $1,000,000, $900,000
and $940,000, respectively, to write down the net carrying value of the
Spartan Place investment property to reflect additional declines in its
estimated fair value, net of selling expenses. The net carrying value of the
investment property was $4,000,000 and $5,000,000 as of August 31, 1996 and
1995, respectively. Such carrying values are net of valuation allowances of
$3,840,000 and $2,840,000, respectively.
During fiscal 1996, the Partnership entered into a preliminary agreement
to sell the Spartan Place property to a third party. Subsequent to the
buyer's due diligence period, the offer was withdrawn. Subsequent to the
termination of this sales contract, the Partnership has remarketed the
property to other interested parties while at the same time examining
potential financing strategies for the capital and tenant improvement costs
to be incurred should the Partnership decide to hold the property through
this re-leasing period. The property, as noted above, has a substantial
amount of vacant space. Funds for such re-leasing costs would be provided
from a combination of Partnership cash reserves and secured borrowings.
The Partnership recognizes income from the investment properties held for
sale in the amount of the excess of the properties' gross revenues over
property operating expenses (including capital improvement expenses and
leasing commissions), taxes, insurance and other expenses. Combined
summarized operating results for Hacienda Plaza and Spartan Place for the
years ended August 31, 1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994
---- ---- ----
Revenues:
Rental income and
expense reimbursements $ 1,558 $ 1,914 $ 1,866
Other income 44 12 8
-------- -------- -------
1,602 1,926 1,874
Expenses:
Property operating expenses 403 812 580
Property taxes and insurance 322 367 316
Administrative and other expenses 410 267 91
--------- --------- ---------
1,135 1,446 987
--------- ---------- --------
Income from investment
properties held for sale, net $ 467 $ 480 $ 887
========= =========== ========
<PAGE>
6. Leases
The Hacienda Plaza and Spartan Place 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
---------------------- ------
1997 $ 1,145
1998 991
1999 893
2000 831
2001 667
Thereafter 4,755
---------
$ 9,282
=========
7. Contingencies
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 Fifth Mortgage Partners, Inc. and Properties
Associates 1985, L.P. ("PA1985"), which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court
certified class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber Mortgage
Partners Five, L.P., PaineWebber, Fifth Mortgage Partners, 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 purported to be suing on behalf of all persons who invested in
PaineWebber Mortgage Partners Five, L.P., also alleged that following the
sale of the partnership interests, PaineWebber, Fifth Mortgage Partners,
Inc. and PA1985 misrepresented financial information about the Partnership's
value and performance. The amended complaint alleged that PaineWebber, Fifth
Mortgage Partners, Inc. and PA1985 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 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 plan of
allocation. On July 17, 1996, PaineWebber and the class plaintiffs submitted
a definitive settlement agreement which has been preliminarily approved by
the court and 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 proposed
settlement is scheduled to continue in November 1996.
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 against PaineWebber. In September 1996, the court dismissed many of
the plaintiffs' claims as barred by applicable securities arbitration
regulations. Mediation hearings are scheduled to be held in December 1996.
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 the
litigation described above. However, PaineWebber has agreed not to seek
indemnification for any 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 cannot estimate the impact, if any, of the potential
indemnification claims on the Partnership's financial statements, taken as a
whole. Accordingly, no provision for any liability which could result from
the eventual outcome of these matters has been made in the accompanying
financial statements.
8. Subsequent Event
On October 15, 1996, the Partnership distributed $1,000 to the General
Partners, $132,000 to the Limited Partners, and $1,000 to the Adviser as
asset management fees for the quarter ended August 31, 1996.
<PAGE>
<TABLE>
Schedule III - Real Estate Owned
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
August 31, 1996
(In thousands)
<CAPTION>
Gross Amount at
Cost of Which Carried Date of
Investment to at Close of Original Size of
Description Partnership (A) Period (A) Investment Investment
----------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Retail and Office
Complex
Pleasanton, CA $ 9,789 $ 8,200 (1) 8/15/86 78,415
rentable
square feet on
6.3 acres of
land
Shopping Center
Spartanburg, SC 8,250 7,840 (2) 4/28/88 151,489
square feet
on 13.9 acres
Land underlying
apartment complex (B)
Charlotte, NC 230 230 12/29/88 19 acres
------- -------
$18,269 $16,270
======= =======
</TABLE>
Notes:
(A) These amounts represent the original cost of each investment and the
gross amount at which these investments are carried on the balance
sheet at August 31, 1996. The aggregate cost for federal income tax
purposes at August 31, 1996 is approximately $17,307,000.
(B) A senior mortgage on the apartment property in North Carolina is held
by PaineWebber Mortgage Partners Five, L.P. See Schedule IV.
(C) Reconciliation of real estate owned:
1996 1995 1994
---- ---- ----
Balance at beginning of year $16,270 $16,270 $16,270
Additions during the year - - -
------- ------- -------
Balance at end of year $16,270 $16,270 $16,270
======= ======= =======
(1) The Partnership assumed ownership of Hacienda Plaza, in Pleasanton,
California, on June 22, 1990 as the result of foreclosure proceedings.
The cost of the land and balance of the mortgage loan at the time title
was transferred was $9,789,000. The Partnership recorded a $1,589,000
write-down to reflect the estimate of the property's fair value at the
time of the foreclosure. During fiscal 1994, 1993, 1992 and 1991, the
Partnership recorded provisions for possible investment loss of
$400,000, $900,000, $562,000 and $1,438,000, respectively, to provide
for further declines in the estimated fair value, net of selling
expenses, of the Hacienda Plaza investment property. The net carrying
value of the investment on the Partnership's balance sheet at August
31, 1996 amounted to $4,900,000. See Note 5 to the financial statements
for a further discussion.
(2) The Partnership assumed ownership of the Spartan Place Shopping Center,
in Spartanburg, South Carolina, on February 12, 1991 as a result of
foreclosure proceedings. The cost of the land ($1,600,000) and the
balance of the mortgage loan ($6,650,000) at the time title was
transferred totalled $8,250,000. The Partnership recorded a $410,000
write-down to reflect the estimate of the property's fair value at the
time of foreclosure. In fiscal 1996, 1995, 1994 and 1992, the
Partnership recorded provisions for possible investment loss of
$1,000,000, $1,000,000, $900,000 and $940,000, respectively, to reflect
additional declines in the estimated fair value, net of selling
expenses, of the Spartan Place property. The net carrying value of the
investment on the Partnership's balance sheet at August 31, 1996
amounted to $4,000,000. See Note 5 to the financial statements for a
further discussion.
<PAGE>
Schedule IV - Investments in Mortgage Loans on Real Estate
<TABLE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
August 31, 1996
(In thousands)
<CAPTION>
Principal
amount of
loans subject
Carrying to delinquent
Final maturity Periodic Face amount of amount of principal
Description Interest rate Date payment terms mortgage mortgage or interest
----------- ------------- -------------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loans:
Apartment Complex 9% December 28, 2001 Interest monthly, $ 1,270 $ 1,270 -
Charlotte, NC principal at
maturity ------- -------
TOTALS $ 1,270 $ 1,270
======= =======
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 1,270 $ 1,270 $ 1,270
Additions during the year - - -
Reductions during the year - - -
-------- ------- -------
Balance at end of year $ 1,270 $ 1,270 $ 1,270
======== ======= =======
</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, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 2,637
<SECURITIES> 0
<RECEIVABLES> 1,367
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,761
<PP&E> 9,130
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,186
<CURRENT-LIABILITIES> 425
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,516
<TOTAL-LIABILITY-AND-EQUITY> 13,186
<SALES> 0
<TOTAL-REVENUES> 747
<CGS> 0
<TOTAL-COSTS> 458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (711)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
