UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: JULY 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: 0-18076
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
(Exact name of registrant as specified in its charter)
Delaware 04-3038480
(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 Depositary Receipts representing
Units of Limited Partner Interests
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 ____
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
The Prospectus of the registrant Parts II and IV
dated April 23, 1987, as supplemented
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, 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 Registrant's Depositary Units of Limited
Partnership Interest and Related Security Holde
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-4
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-4
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-14
<PAGE>
PART I
Item 1. Business
PaineWebber Insured Mortgage Partners 1-B, L.P. (the "Partnership") is a
Delaware limited partnership formed primarily for the purpose of investing in a
diversified portfolio of federally insured or coinsured mortgage loans
("Participating Insured Mortgage Loans") through the purchase of certain
mortgage-backed securities ("GNMA Securities") guaranteed as to their payment of
principal and interest by the Government National Mortgage Association ("GNMA").
On May 16, 1988, the Partnership commenced the sale of Limited Partner Interests
(the "Units"), which are evidenced by Depositary Receipts (at $100 per Unit).
Depositary Receipts were offered to the public by PaineWebber Incorporated
("PWI"), as sales agent, pursuant to a Registration Statement on Form S-11 filed
under the Securities Act of 1933 (Registration No. 33-11911). The Partnership
sold 551,604 Units of Depositary Receipts from May 16, 1988 to May 1, 1989,
representing capital contributions of approximately $55,160,000. Unitholders
will not be required to make any additional capital contributions.
The Units represent an interest assigned to persons who purchased Units
("Unitholders") from the initial limited partner of the Partnership pursuant to
the Partnership Agreement, which interest is the equivalent of a limited
partnership interest. Although Unitholders are not limited partners of the
Partnership, as Unitholders they are entitled to the same economic benefits,
including the same share of income, gains, losses, deductions, credits and cash
distributions, as if they were limited partners holding the number of limited
partnership interests represented by their Units.
The Partnership originally invested in three Participating Insured Mortgage
Loans, which were originated under or in connection with Federal Housing
Administration ("FHA") insurance programs to finance or refinance the
acquisition, construction or substantial rehabilitation of privately owned and
operating multi-family residential rental projects, (the "Projects"). The
Partnership purchased each of the GNMA Securities with proceeds raised through
its public offering from an FHA-approved mortgagee/coinsurer and GNMA
issuer/servicer. The Partnership was expected to make an investment in a fourth
Participating Insured Mortgage Loan and entered into a commitment to fund a $4.5
million loan on a to-be-built project in Orlando, Florida. During fiscal 1991,
the prospective borrower elected not to proceed with the Orlando development
and, as a result, the commitment to purchase the related GNMA securities
subsequently expired. The efforts of the General Partner to obtain a suitable
investment to replace the expired commitment were not successful, in large part
due to changes instituted by the Department of Housing and Urban Development
which have made the type of insured financing that the Partnership can invest in
very difficult to obtain. As a result, the General Partner decided to return the
majority of the previously committed funds to the Unitholders. A distribution of
approximately $4 million was paid to the Unitholders in June of 1991. The
remainder of the previously committed funds was added to the Partnership's cash
reserves. As discussed further below, one of the Partnership's Insured Mortgage
Loans was repaid in full during fiscal 1992, and the proceeds were distributed
to the Unitholders in June of 1993.
Each Participating Insured Mortgage Loan has two components, a base
component consisting of the principal amount of the mortgage loan plus interest
at a stated rate thereon and a contingent component providing for the payment of
contingent interest ("Contingent Interest") from net cash flow from Project
operations and from capital appreciation, if any, realized as a result of a
Project sale or refinancing. The principal of and the stated interest on each
Participating Insured Mortgage Loan is coinsured by the FHA ("FHA Insurance")
and is represented by a GNMA Security, the interest rate on which (the "Base
Interest") is equal to the stated interest rate on the Participating Insured
Mortgage Loan minus certain fixed fees payable to GNMA and the FHA mortgagee.
Neither FHA Insurance nor any GNMA security will provide for or support the
payment of Contingent Interest.
The Partnership has also invested in non-participating mortgage-backed
securities ("MBS") backed by single-family or multi-family mortgage loans issued
or originated in connection with the housing programs of GNMA. Investments in
non-participating MBS were limited to no more than 30% of the original net
offering proceeds.
<PAGE>
Until May 1992, the Partnership held a Participating Insured Mortgage loan
with respect to an apartment complex known as Casablanca Apartments in Boynton
Beach, Florida. During fiscal 1992, the owner of the Casablanca Apartments
complex defaulted on the scheduled debt service payments to the GNMA issuer. The
default triggered the prepayment provisions of the Partnership's GNMA
mortgage-backed security. Consequently, on May 26, 1992, GNMA prepaid the
outstanding balance of the principal and accrued interest to the Partnership
pursuant to the terms of the mortgage-backed security agreement. The Partnership
distributed the proceeds received from the Casablanca prepayment, which
aggregated $12,521,000, to the Unitholders concurrent with the regular quarterly
distribution paid on June 15, 1993.
The objectives of the Partnership are to protect and preserve the
Partnership's capital, to make quarterly distributions of cash attributable to
payments of principal and interest (including Contingent Interest) on
Participating Insured Mortgage Loans and MBS and to provide gains through the
appreciation of properties financed with Participating Insured Mortgage Loans.
Cumulative cash distributions to the Unitholders through July 31, 1996 have
totalled approximately $43,799,000, or $804 per original $1,000 investment for
the Partnership's earliest investors. Such distributions include a return of
capital totalling approximately $395 per $1,000 investment resulting from the
expired commitment and the prepayment discussed above, along with the scheduled
amortization of mortgage principal and principal prepayments from the
Partnership's mortgage-backed securities. Quarterly distributions have been paid
at a rate of 8.25% per annum on Unitholders' remaining invested capital since
inception. Unitholders' remaining capital accounts as of July 31, 1996 totalled
approximately $605 per $1,000 investment. Through July 31, 1996, the Partnership
had received $83,000 of Contingent Interest payments from its Participating
Insured Mortgage Loans.
As of July 31, 1996, the Partnership holds Participating Insured Mortgage
Loans secured by GNMA securities as described below.
GNMA
Certificate Property Name, Size Date of Interest Maturity
Number and Location (1) Acquisition Rate Date
- ------ ---------------- ----------- ---- ----
279985 Quarter Mill Apartments
266 Units
Richmond, VA 08/02/89 8.50% 10/15/31
279119 Emerald Cove Apartments
276 Units
Charlotte, NC 10/16/89 8.75% 08/15/31
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the agreements through which the Partnership has acquired
these investments.
The future performance of the Partnership will depend, in part, upon future
interest rate fluctuations, which cannot be predicted. In addition, the
Partnership's overall operating performance is subject to all of the risks
normally associated with real estate investments, including: reliance on the
owners' operating skills, including their ability to maintain occupancy levels,
meet operating expenses, maintain the property and maintain adequate insurance
coverage; adverse changes in general and/or local economic conditions; changes
in governmental regulations, real estate zoning laws, or tax laws; and other
circumstances over which the Partnership may have little or no control.
The Partnership is engaged solely in the business of investing in real
estate through Participating Insured Mortgage Loans and conventional MBS,
therefore, presentation of information about industry segments is not
applicable. The Partnership has no employees. Subject to the General Partner's
overall authority, the business of the Partnership is managed by PaineWebber
Properties Incorporated ("PWPI"), a wholly-owned subsidiary of PWI.
The General Partner of the Partnership (the "General Partner") is First
Insured Mortgage Partners, L.P., a Delaware limited partnership. First Insured
Mortgage Partners, Inc. (the "Managing General Partner"), a wholly-owned
subsidiary of PaineWebber Group, Inc. ("PaineWebber"), is the Managing General
Partner of the General Partner. PWI and Properties Associates 1988, L.P.
("PA1988"), a Virginia limited partnership, are the limited partners of the
General Partner. Certain officers and directors of the Managing General Partner
and certain limited partners of PA1988 are also officers and directors of PWI
and PWPI. The initial limited partner of the Partnership is PaineWebber
Depositary Corporation, a wholly-owned subsidiary of PaineWebber.
The terms of transactions between the Partnership and affiliates of the
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.
<PAGE>
Item 2. Properties
The Partnership owns no real estate. The Partnership has acquired
Participating Insured Mortgage Loans secured by the properties referred to under
Item 1 above to which reference is made for the name, location and description
of each property.
Occupancy figures for the properties securing the Partnership's
Participating Insured Mortgage Loans for each fiscal quarter during 1996, along
with an average for the year, are presented below:
Percent Occupied At
-----------------------------------------------
Fiscal
1996
10/31/95 1/31/96 4/30/96 7/31/96 Average
-------- ------- ------- ------- -------
Quarter Mill Apartments 95% 95% 96% 99% 96%
Emerald Cove Apartments 96% 94% 96% 97% 96%
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 First Insured Mortgage Partners, Inc. and Properties
Associates 1988 ("PA1988"), 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 Insured Mortgage
Partners 1-B, L.P., PaineWebber, First Insured Mortgage Partners, Inc. and
PA1988 (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
Insured Mortgage Partners 1-B, L.P., also alleged that following the sale of the
partnership interests, PaineWebber, First Insured Mortgage Partners, Inc. and
PA1988 misrepresented financial information about the Partnerships value and
performance. The amended complaint alleged that PaineWebber, First Insured
Mortgage Partners, Inc. and PA1988 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 partners of the General Partner, 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.
<PAGE>
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 the applicable statutes of limitations. The eventual outcome of this
litigation and the potential impact, if any, on the Partnership's unitholders
cannot be determined at the present time.
In July 1996, approximately 15 plaintiffs filed an action entitled Barstad
v. PaineWebber Inc. in Maricopa County, Arizona 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 is substantially similar to the
complaint in the Abbate action described above, and seeks compensatory damages
of $752,000 plus punitive damages.
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 all of 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 Partner 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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Depositary Units of Limited Partnership
Interest and Related Security Holder Matters
At July 31, 1996, there were 3,421 investors holding Depositary Receipts in
the Partnership. There is currently no public market for the resale of Units,
and it is not anticipated that a public market for Units will develop. The
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, is
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 Insured Mortgage Partners 1-B, L.P.
For the years ended July 31, 1996, 1995, 1994, 1993 and 1992
(In thousands, except per Unit data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 2,331 $ 2,410 $ 2,447 $3,283 $3,603
Gain on sale of
investments - - - $ 386 -
Net income $ 1,806 $ 1,898 $ 1,885 $ 3,058 $2,578
Net income per Unit of
Depositary Receipt $ 3.24 $ 3.41 $ 3.38 $ 5.49 $ 4.63
Cash distributions from
operations per Unit of
Depositary Receipt $ 5.08 $ 5.22 $ 5.34 $ 7.33 $ 7.49
Cash distributions from
investment prepayment
and other disposition
transactions per Unit
of Depositary Receipt - - - $ 22.70 -
Total assets $ 29,243 $30,315 $30,888 $31,639 $ 45,191
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above net income and cash distributions per Unit of Depositary Receipt
are based upon the 551,604 Units of Depositary Receipt of the Partnership
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 depositary units (at $100 per Unit) representing
limited partnership interests to the public from May 16, 1988 to May 1, 1989
pursuant to a Registration Statement filed under the Securities Act of 1933.
Gross proceeds of approximately $55,160,000 were received by the Partnership
from the offering and, after deducting selling expenses and offering costs,
approximately $42,908,000 was invested in mortgage securities. Approximately $4
million of uninvested offering proceeds was returned to the Unitholders in June
of 1991 after a proposed investment, for which such funds had been committed,
could not be completed. The Partnership originally invested approximately
$30,697,000 in three Participating Insured Mortgage Loans originated in
connection with Federal Housing Administration ("FHA") insurance to finance the
construction of multi-family residential rental projects. The Partnership also
originally invested approximately $12,211,000 in non-participating
mortgage-backed securities collateralized by pools of single-family or
multi-family mortgage loans that are guaranteed by GNMA. In May 1992, one of the
Participating Insured Mortgage Loans was prepaid at par as a result of a default
by the underlying property owner. Proceeds from this prepayment were distributed
to the Unitholders in June 1993 after an examination of reinvestment
alternatives failed to identify any suitable replacement investments.
The Partnership's investments are structured to provide maximum safety of
principal. The Partnership's principal investments in both Participating Insured
Mortgage Loans and conventional mortgage-backed securities are 100% guaranteed
by GNMA in the event of defaults by the underlying property owners. Obligations
of GNMA are backed by the full faith and credit of the Federal government. The
Partnership does face potential market risk in the event that the Partnership,
as expected, liquidates its investments in Participating Insured Mortgage Loans
and non-participating mortgage-backed securities prior to the scheduled maturity
dates of such investments. Depending on the general level of market interest
rates at the time of the sale of any of the Partnership's mortgage security
investments, the market value of the investments may be higher or lower than the
outstanding principal balances. Nonetheless, since the Partnership is not
required to be liquidated prior to the scheduled maturity dates, management can
limit the exposure to market risk by attempting to time the liquidation of the
Partnership's investments to coincide with a period of favorable interest rates.
However, management is not prohibited from selling any security at a loss and
may do so if it is believed that such a sale would be in the best interests of
the Partnership. The market value of the Partnership's Participating Insured
Mortgage Loans is also affected by the value, if any, that is attributed to the
participation features of such loans. Such value is impacted by overall real
estate market conditions and by the specific performance of the properties
securing the Partnership's participation interests. The Partnership's
non-participating MBS have coupon interest rates ranging from 7.5% to 9.5%.
Based on current market interest rate levels, the aggregate market value of
these securities at the present time would be expected to be slightly above both
their face value and amortized cost, which includes any unamortized discounts or
premiums. As of July 31, 1996, the Partnership's Participating Insured Mortgage
Loans, which carry coupon interest rates of 8.5% and 8.75%, had estimated market
values slightly above their face values due to a variety of factors, including
the participation features. Increases in market interest rates and/or
deterioration in general real estate market conditions in the near term could
cause the aggregate market value of the Participating Insured Mortgage Loans and
the portfolio of MBS investments to fall below face value and/or amortized cost.
However, fluctuating market conditions will not result in realized gains or
losses unless the Partnership's investments are prepaid or sold prior to
maturity. Secondary market sales of the Partnership's investments would likely
only occur as part of a formal plan of liquidation for the Partnership.
The Partnership is also subject to possible reinvestment risk to the extent
that its principal investments are prepaid prior to the Partnership's expected
liquidation period. Depending on the general level of market interest rates at
the time of such a prepayment, the Partnership or an individual Unitholder might
be unable to earn a comparable yield on a similar low-risk investment upon the
reinvestment of such funds. Over the past several years, generally low market
interest rates have prompted a high level of refinancing activity, resulting in
significant prepayments on the Partnership's non-participating mortgage-backed
securities. Such prepayments have reduced the Partnership's investment income
and increased the outstanding balance of the Partnership's cash reserves.
<PAGE>
The Partnership's two remaining Participating Insured Mortgage Loans are
secured by the Emerald Cove and Quarter Mill apartment complexes. The average
occupancy level at Emerald Cove remained relatively stable during fiscal 1996,
averaging 96% for the year. As previously reported, during fiscal 1995 the owner
of the Emerald Cove Apartments received an offer to purchase the property. A
similar offer to purchase the property had been proposed in fiscal 1994 but
could not be completed. Prepayment of the Partnership's Participating Insured
Mortgage Loan is restricted through March 1997 and then requires a prepayment
penalty which declines ratably, from 5% to 2%, over the next four years. Based
on the fiscal 1995 sale offer, the Emerald Cove Project Owner made a proposal to
the Partnership to accept prepayment on its Participating Insured Mortgage Loan
at a premium in return for the Partnership's waiver of the prepayment
restrictions. Management had evaluated such proposal and, during the quarter
ended October 31, 1995, had agreed to allow the proposed transaction. However,
subsequent to the end of the first quarter of fiscal 1996, the Partnership was
notified that the potential buyer and the owner were not able to agree on final
terms for a sale and the offer to purchase the property was withdrawn. During
the quarter ended January 31, 1996, the owner of Emerald Cove received two new
offers to purchase the property and, in connection with these offers, again
requested permission to prepay the Partnership's participating loan. During the
quarter ended April 30, 1996, based on an analysis of the economic benefits to
the Partnership, the Partnership responded with terms on which it would accept
prepayment of the Participating Insured Mortgage Loan. As has been the case with
previous prepayment requests, the most recent offers to purchase the property
did not result in a sale. There are no ongoing prepayment discussions with the
Emerald Cove owner at the present time.
The Quarter Mill Apartments continued its strong operating performance
during fiscal 1996, ending the year with a 96% occupancy level. Property
operations continue to generate small amounts of excess cash flow, a portion of
which is payable to the Partnership as Contingent Interest. During fiscal 1995,
the Partnership received approximately $37,000, representing its 30% share of
the surplus cash, as defined, generated by the Quarter Mill property for
calendar years 1991, 1992, 1993 and 1994. During fiscal 1996, the Partnership
received approximately $46,000, representing its 30% share of the surplus cash,
as defined, generated by the Quarter Mill property for calendar year 1995. The
Quarter Mill Participating Insured Mortgage Loan is open to prepayment with a
specified prepayment penalty which declines ratably, from 10% to 2%, over the
next five years. To date, the Quarter Mill project owner has given no indication
of an intent to prepay the outstanding loan in the near term.
At July 31, 1996, the Partnership had cash and cash equivalents of
approximately $3,637,000. Such amounts will be utilized for distributions to the
Unitholders and for the working capital requirements of the Partnership. The
source of future liquidity and distributions to the Unitholders is expected to
be primarily through interest income and principal repayments from the
Partnership's mortgage securities, money-market interest income from invested
cash reserves, and to a lesser extent from the cash reserves themselves,
contingent interest from Participating Insured Mortgage Loans and net project
residuals from the sale or refinancing of the properties securing such
investments.
Results of Operations
1996 Compared to 1995
For the year ended July 31, 1996, the Partnership reported net income of
$1,806,000, which represents a decrease in net income of $92,000 when compared
to fiscal 1995. This decrease is primarily due to a decrease in total revenues
of $79,000. The decrease in total revenues can be attributed to the decrease in
interest income from Participating Insured Mortgage Loans and non-participating
MBS which aggregated $94,000. This decrease resulted from a decline in the
average outstanding principal balances of such investments due to scheduled
principal amortization on all of the debt securities and prepayments on the MBS.
Partially offsetting this decrease in total revenues was an increase in money
market interest of $15,000. The increase in money market interest was mainly due
to an increase in the average outstanding balance of the Partnership's cash
reserves resulting from the MBS prepayment activity. The decrease in net income
was also partly due to an increase in general and administrative expenses of
$24,000 which resulted mainly from an increase in certain required professional
services during the current fiscal year. Management fees decreased by $11,000
during fiscal 1996 due to the lower outstanding principal balances of the
Partnership's debt securities on which the fees are partially based. Such
decreases have occurred since the Partnership was fully invested due to
scheduled principal amortization and prepayment activity in the
non-participating MBS pools.
<PAGE>
1995 Compared to 1994
For the year ended July 31, 1995, the Partnership reported net income of
$1,898,000, which represented an increase in net income of $13,000 when compared
to fiscal 1994. This increase in net income resulted from declines in general
and administrative and management fee expenses. Management fees decreased by
$27,000 during fiscal 1995 due to the decline in the average outstanding
principal balances of the Partnership's investments, upon which such fees are
partially based. General and administrative expenses declined by $22,000 in
fiscal 1995 mainly due to certain non-recurring professional fees incurred in
the prior year. The decline in expenses during fiscal 1995 was partially offset
by a reduction in total revenues of $37,000. Interest income from the
Partnership's debt securities declined by $142,000, despite the receipt of
contingent interest of approximately $37,000 from the Quarter Mill investment
during fiscal 1995. The decrease in interest income from Participating Insured
Mortgage Loans and non-participating MBS resulted from a decline in the average
outstanding principal balances of such investments due to scheduled principal
amortization and prepayments on the MBS. The high level of MBS principal
prepayments experienced during fiscal 1994 substantially increased the balance
of the Partnership's cash reserves and contributed to an increase of $105,000 in
money market interest income for fiscal 1995. The increased earnings on invested
cash reserves was also partially attributable to the higher interest rates
earned during fiscal 1995.
1994 Compared to 1993
For the year ended July 31, 1994, the Partnership reported net income of
$1,885,000, which represented a decrease in net income of $1,172,000 when
compared to fiscal 1993. This decrease was the result of a decline in total
revenues of $836,000, along with a gain of $386,000 recognized in fiscal 1993 on
the sale of investments. These unfavorable changes in net income were offset, in
part, by a decrease in general and administrative and management fee expenses of
$49,000 in fiscal 1994. Revenues decreased primarily due to the return to the
Unitholders of the Casablanca prepayment proceeds in the fourth quarter of
fiscal 1993. In order to make this distribution payment, the Partnership
liquidated a U.S. Treasury Note investment and certain non-participating MBS
investments in which such proceeds had been invested pending examination of the
reinvestment alternatives. During fiscal 1993, the Partnership recorded interest
income of approximately $513,000 from the Treasury Note investment. The decline
of $346,000 in interest income earned on non-participating MBS in fiscal 1994
was primarily attributable to this Casablanca distribution liquidation as well.
In addition, the high level of prepayment activity prompted by low market
interest rates contributed to the decline in interest income earned on the
non-participating MBS in fiscal 1994. The sale of the Treasury Note and MBS
generated the $386,000 gain in fiscal 1993. Management fees decreased by $34,000
in fiscal 1994 due to the decline in the average outstanding principal balances
of the Partnership's investments, upon which such fees are partially based,
mainly as a result of the distribution of the Casablanca prepayment proceeds.
General and administrative expenses were higher in fiscal 1993 mainly due to
certain professional fees and cash management fees incurred associated with the
temporary investment of proceeds and the exploration of reinvestment options
resulting from the Casablanca prepayment.
Inflation
The Partnership completed its seventh full year of operations in fiscal
1996. The effects of inflation and changes in prices on the Partnership's
operating results to date have not been significant.
Inflation in future periods is likely to cause increases in Partnership
operating expenses without a corresponding increase in revenues, which are
principally derived from fixed interest rates on debt securities.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data for the Partnership 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
Under the Partnership Agreement, exclusive management responsibility for
and control over the affairs of the Partnership rests with the General Partner,
First Insured Mortgage Partners, L.P., a Delaware limited partnership formed in
February 1987. The day-to-day operating responsibility for the Partnership is
delegated to PWPI by the General Partner. However, the General Partner retains
general responsibility for partnership business and oversees partnership
activities. The General Partner also supervises the registration and marketing
of the Units, approves all budgets for the Partnership prepared by PWPI and
makes all final decisions with respect to the Partnership's investments and
their acquisition and disposition.
Certain of the officers and directors of the Managing General Partner of
the General Partner, First Insured Mortgage Partners, Inc., a Delaware
corporation and a wholly-owned subsidiary of PaineWebber, are also officers
and/or directors of PWI and PWPI. Such officers and directors will devote only
so much of their time to the business of the Partnership as in their judgment is
reasonably required.
The directors of First Insured Mortgage Partners, Inc. had the primary
responsibility for selecting and negotiating investments on behalf of the
Partnership after consultation with the GNMA issuer. Before any investment was
consummated, it required approval by both a majority of the Board of Directors
of First Insured Mortgage Partners, Inc. and by a majority of the disinterested
directors of First Insured Mortgage Partners, Inc. For the purposes of this
section, "disinterested director" meant any member of the Board of Directors of
First Insured Mortgage Partners, Inc. who was not an officer or director of the
GNMA issuer.
(a) and (b) The names and ages of the directors and executive officers of
the Managing General Partner of the General Partner 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 9/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 49 2/23/87*
James A. Snyder Senior Vice President 51 7/6/92
David F. Brooks First Vice President and
Assistant Treasurer 54 2/23/87*
Timothy J. Medlock Vice President and Treasurer 35 2/25/92
Dorothy F. Haughey Secretary 70 2/23/87*
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees of First Insured Mortgage
Partners, Inc. in addition to the directors and officers mentioned above.
(d) There is no family relationship among any of the foregoing directors and
officers of the Managing General Partner of the General Partner. All of the
foregoing directors and officers have been elected to serve until the next
annual meeting of the Managing General Partner.
(e) A number 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. The business experience of each of the directors and officers
of the Managing General Partner is as follows:
<PAGE>
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 September 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 PWPI which he joined in 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 PWPI. 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 PWPI. Mr. Snyder re-joined PWPI 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. 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. From February 1989 to
October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and Assistant Treasurer of
PWPI. Mr. Brooks joined PWPI 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 PWPI which he joined in 1986. From
1986 to August of 1989, Mr. Medlock served as the Controller of the Managing
General Partner and PWPI. 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.
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 were 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 July 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 Managing General Partner receive no
current or proposed remuneration from the Partnership.
The General Partner is entitled to receive a share of the Partnership's cash
distributions and a share of profits and losses. These items are described under
Item 13.
The Partnership has paid cash distributions to the Unitholders on a
quarterly basis at a rate of 8.25% per annum on remaining invested capital from
November 15, 1988 to the present. However, the Partnership's Units of Depositary
Receipts are not actively traded on any organized exchange, and, accordingly, no
accurate price information exists 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 Depositary Units which
represent units of assigned limited partnership interest, not voting securities.
All the outstanding stock of the Managing General Partner of the General
Partner, First Insured Mortgage Partners, Inc., is owned by PaineWebber. PA1988
is a Virginia limited partnership, the limited partners of which are also
officers of PWPI. PaineWebber Depositary Corporation (the "Corporate Limited
Partner"), a Delaware corporation and an affiliate of the General Partner, is
the Initial Limited Partner. No Unitholder is known by the Partnership to own
beneficially more than 5% of the outstanding interests of the Partnership.
(b) The directors and officers of the Managing General Partner do not
directly own any Units of limited partnership interest of the Partnership. No
director or officer of the Managing General Partner possesses 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 Partner of the Partnership is First Insured Mortgage Partners,
L.P. (the "General Partner"), a wholly-owned subsidiary of PaineWebber Group
Inc. ("PaineWebber"). The Managing General Partner of the General Partner is
First Insured Mortgage Partners, Inc., (the "Managing General Partner") a
wholly-owned subsidiary of PaineWebber. Certain officers and directors of the
Managing General Partner are also officers and/or directors of PaineWebber
Properties Incorporated ("PWPI"). Properties Associates 1988, L.P. ("PA1988")
and PaineWebber Incorporated ("PWI") are the limited partners of the General
Partner. PA1988 is a Virginia limited partnership in which certain officers of
PWPI are the individual limited partners. Subject to the Managing General
Partner's overall authority, the business of the Partnership is managed by PWPI,
which is a wholly-owned subsidiary of PWI. The General Partner and other
PaineWebber affiliates will 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, financing and disposition of Partnership investments.
The Partnership entered into a Sales Agreement with PWI under which PWI
acted as sales agent for the offering of Units. In connection with the sale of
Units, PWI was to be paid sales commissions of up to 6% of the offering
proceeds. Sales commissions paid to PWI aggregated $3,278,000 through the end of
the offering period.
Origination fees were payable directly to the General Partner and its
affiliates by project owners in recognition of the participation feature of
their Participating Insured Mortgage Loans in an amount equal to 2% of the
principal balance of each Participating Insured Mortgage Loan.
In connection with the acquisition of mortgage securities, the General
Partner and its affiliates were to receive acquisition fees in an amount not to
exceed 1.5% of the gross offering proceeds for services rendered in connection
with the investment by the Partnership in mortgage securities. Acquisition fees
of $827,000 were paid by the Partnership to the General Partner and its
affiliates. The General Partner and its affiliates also received a
non-accountable acquisition expense allowance of 1.5% of the Gross Offering
Proceeds. Acquisition expenses in excess of 1.5% of the Gross Offering Proceeds
were to be paid by the General Partner. Acquisition expenses aggregating
$827,000 were paid to the General Partner and its affiliates.
For services rendered in managing the business of the Partnership, the
Partnership shall pay the General Partner and its affiliates an Asset Management
Fee equal to 0.75% per annum of the outstanding principal balance of the
mortgage securities of the Partnership. Asset management fees of $184,000 were
earned by the General Partner and its affiliates for the year ended July 31,
1996. PWPI also furnishes additional asset management and advisory services to
the Partnership and receives additional asset management fees as compensation
for such services. The additional management fees paid by the Partnership
totalled $38,000 for the year ended July 31, 1996.
<PAGE>
Generally, all distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 97% to the Unitholders, 1% to the General
Partner and 2% to PWPI as the additional asset management fee referred to above.
Capital distributions (including distributions of principal repayments) will be
distributed 100% to the Unitholders until they have received the return of their
capital contributions and then to the General Partner until it has received a
return of its capital contribution. Thereafter, capital distributions shall be
distributed in varying proportions to the Unitholders and General Partner, as
specified in the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or loss
of the Partnership will be allocated 98.98% to the Unitholders and 1.02% to the
General Partner. Income or loss arising from a sale or refinancing of investment
properties will be allocated to the Unitholders and the General Partner
generally as residual proceeds are distributed.
An affiliate of the 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
July 31, 1996 is $88,000, representing reimbursements to this affiliate of the
General Partner 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 $18,000 (included in general and administrative expenses) for managing the
Partnership's cash assets for the year ended July 31, 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.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at Page
IV-3 are filed as part of this Report.
(b) No reports on Form 8-K were filed during the last quarter of fiscal
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 INSURED MORTGAGE PARTNERS 1-B, L.P.
By: First Insured Mortgage Partners, Inc.
Managing General Partner
By:/s/ Bruce J. Rubin
Bruce J. Rubin
President
By /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: October 25, 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: October 25, 1996
--------------------- ----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: October 25, 1996
---------------------- ----------------
Terrence E. Fancher
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
INDEX TO EXHIBITS
Page Number in the
Report or Other
Exhibit No. Description of Document Reference
- --------------- ------------------------------- ----------------------
(3) and (4) Prospectus of the Registrant Filed with the
dated April 23, 1987, as Commission pursuant to
supplemented. Rule 424(c) and
incorporated herein by
reference.
(10) Material contracts previously Filed with the
filed as exhibits to Commission pursuant to
registration statements and Section 13 or 15(d) of
amendments thereto of the the Securities Exchange
registrant together with all Act of 1934 and
such contracts filed as incorporated herein by
exhibits of previously filed reference.
Forms 8-K and Forms 10-K are
hereby incorporated herein by
reference.
(13) Annual Reports to Unitholders No Annual Report for the
year ended July 31, 1996
has been sent to the
Unitholders. An Annual
Report will be sent to
the Unitholders
subsequent to this
filing.
(27) Financial data schedule Filed as the last page
of EDGAR submission
following the Financial
Statements and Financial
Statement Schedule
required by Item 14.
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Reference
PaineWebber Insured Mortgage Partners 1-B, L.P.:
Report of independent auditors F-2
Balance sheets as of July 31, 1996 and 1995 F-3
Statements of income for the years ended July 31, 1996,
1995 and 1994 F-4
Statements of changes in partners' capital for the years
ended July 31, 1996, 1995 and 1994 F-5
Statements of cash flows for the years ended July 31, 1996,
1995 and 1994 F-6
Notes to financial statements F-7
Schedule IV - Investments in Mortgage Loans on Real Estate F-14
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
PaineWebber Insured Mortgage Partners 1-B, L.P.:
We have audited the accompanying balance sheets of PaineWebber Insured
Mortgage Partners 1-B, L.P. as of July 31, 1996 and 1995, and the related
statements of income, changes in partners' capital, and cash flows for each of
the three years in the period ended July 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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 Insured Mortgage
Partners 1-B, L.P. at July 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended July 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the financial statements, in 1994, the Partnership
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
ERNST & YOUNG LLP
Boston, Massachusetts
October 23, 1996
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
BALANCE SHEETS
July 31, 1996 and 1995
(In thousands, except for per Unit data)
ASSETS
1996 1995
---- ----
Investments in Debt Securities:
Mortgage-Backed Securities available for sale $ 6,280 $ 7,521
Participating Insured Mortgage Loans available
for sale 18,539 18,639
24,819 26,160
Cash and cash equivalents 3,637 3,274
Interest and other receivables 172 182
Deferred expenses, net of accumulated
amortization of $535 ($451 in 1995) 615 699
-------- --------
$ 29,243 $ 30,315
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 30 $ 34
Accounts payable and accrued expenses 51 36
-------- --------
Total liabilities 81 70
Partners' capital:
General Partner:
Capital contributions 1 1
Cumulative net income 221 202
Cumulative cash distributions (221) (202)
Corporate Limited Partner and Unitholder
Interests ($100 per Unit,
551,604 Units issued):
Capital contributions, net of offering costs 50,779 50,779
Cumulative net income 21,466 19,679
Net unrealized holding gain on debt securities 715 783
Cumulative cash distributions (43,799) (40,997)
-------- --------
Total partners' capital 29,162 30,245
-------- --------
$ 29,243 $ 30,315
======== ========
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF INCOME
For the years ended July 31, 1996, 1995 and 1994
(In thousands, except per Unit data)
1996 1995 1994
---- ---- ----
Revenues:
Interest income - Debt Securities $ 2,139 $ 2,233 $ 2,375
Interest income - Money Market 192 177 72
-------- -------- -------
2,331 2,410 2,447
Expenses:
General and administrative 219 195 217
Management fees 222 233 260
Amortization expense 84 84 85
-------- -------- -------
525 512 562
-------- -------- -------
Net income $ 1,806 $ 1,898 $ 1,885
======== ======== =======
Net income per Unit of Depositary Receipt $ 3.24 $ 3.41 $ 3.38
======= ======= =======
Cash distributions per Unit
of Depositary Receipt $ 5.08 $ 5.22 $ 5.34
======= ======= =======
The above net income and cash distributions per Unit of Depositary Receipt are
based upon the 551,604 Units outstanding during each year.
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended July 31, 1996, 1995 and 1994
(In thousands)
Corporate
Limited
General Partner and
Partner Unitholders Total
------- ----------- -----
Balance at July 31, 1993 $ 7 $ 31,539 $ 31,546
Adjustment to reflect change
in accounting principle (Note 2) - 359 359
Net income 19 1,866 1,885
Cash distributions (25) (2,946) (2,971)
----- --------- -------
Balance at July 31, 1994 1 30,818 30,819
Net unrealized holding gain on
debt securities - 424 424
Net income 19 1,879 1,898
Cash distributions (19) (2,877) (2,896)
------ --------- --------
Balance at July 31, 1995 1 30,244 30,245
Net unrealized holding loss on
debt securities - (68) (68)
Net income 19 1,787 1,806
Cash distributions (19) (2,802) (2,821)
------ --------- --------
Balance at July 31, 1996 $ 1 $ 29,161 $ 29,162
====== ======== ========
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF CASH FLOWS
For the years ended July 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 1,806 $ 1,898 $1,885
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense 84 84 85
Amortization of discount/premium on
mortgage securities 17 17 17
Changes in assets and liabilities:
Interest and other receivables 10 7 25
Accounts payable - affiliates (4) (2) (21)
Accounts payable and accrued expenses 15 3 (3)
-------- -------- --------
Total adjustments 122 109 103
-------- -------- --------
Net cash provided by
operating activities 1,928 2,007 1,988
------- -------- --------
Cash flows from investing activities:
Principal collections on Mortgage-Backed
Securities 1,185 1,049 3,285
Principal collections on Participating
Insured Mortgage Loans 71 64 59
-------- -------- --------
Net cash provided by
investing activities 1,256 1,113 3,344
-------- -------- --------
Cash flows from financing activities:
Distributions to Unitholders and partners (2,821) (2,896) (2,971)
------- -------- --------
Net cash used in financing
activities (2,821) (2,896) (2,971)
-------- -------- --------
Net increase in cash and cash equivalents 363 224 2,361
Cash and cash equivalents, beginning of year 3,274 3,050 689
------- -------- -------
Cash and cash equivalents, end of year $ 3,637 $ 3,274 $ 3,050
======== ======= =======
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
Notes to Financial Statements
1. Organization
PaineWebber Insured Mortgage Partners 1-B, L.P., a Delaware limited
partnership, was organized for the purpose of investing in a diversified
portfolio of federally insured or coinsured mortgage loans ("Participating
Insured Mortgage Loans") through the purchase of certain mortgage-backed
securities ("GNMA securities"). The Partnership has also invested in
non-participating mortgage-backed securities ("MBS") backed by single-family
or multi-family mortgage loans issued or originated in connection with the
housing programs of the Government National Mortgage Association ("GNMA").
On May 16, 1988, the Partnership commenced the sale of Limited Partnership
Interests (the "Units"), which are evidenced by Depositary Receipts (at $100
per Unit).
The Partnership's initial capital was $3,000, representing capital
contributions of $1,000 by the General Partner and $2,000 by the Corporate
Limited Partner (PaineWebber Depositary Corporation). The Partnership issued
551,604 Units from May 16, 1988 to May 1, 1989, representing capital
contributions of $55,160,425. The Units represent an interest assigned to
persons who purchased Units ("Unitholders") from the initial limited partner
of the Partnership pursuant to the Partnership Agreement, which interest is
the equivalent of a limited partnership interest. Although Unitholders are
not limited partners of the Partnership, as Unitholders they are entitled to
the same economic benefits, including the same share of income, gains,
losses, deductions, credits and cash distributions, as if they were limited
partners holding the number of limited partnership interests represented by
their Units.
2. 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 requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of July 31, 1996 and 1995 and revenues
and expenses for each of the three years in the period ended July 31, 1996.
Actual results could differ from the estimates and assumptions used.
Prior to July 31, 1994, the Partnership's investments in debt securities
were carried at amortized cost. As of July 31, 1994, the Partnership elected
application of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115). Under the provisions of SFAS No. 115, investments in debt and equity
securities are classified as either trading securities, held-to-maturity, or
available for sale based on management's intentions as to their ultimate
disposition. The Partnership's debt securities have been classified as
available for sale as of July 31, 1996 and 1995 and are stated at fair value
on the accompanying balance sheets at those dates. In accordance with SFAS
No. 115, the net unrealized holding gain or loss as of the date that the
statement was first applied was recorded as an adjustment of the balance of
a separate component of equity. Future unrealized holding gains or losses on
securities classified as available for sale are reported as a net amount in
the separate component of equity until realized. Information regarding the
fair value of the Partnership's debt securities is disclosed in Notes 4 and
5. The related discounts or premiums for these GNMA securities are being
amortized using the straight-line method, which approximates the effective
interest method, over a period of 15 years.
In addition to the debt securities which are carried at fair value on
the Partnership's balance sheets, the cash and cash equivalents, accounts
receivable, 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." The carrying amount of these assets and
liabilities approximates their fair value as of July 31, 1996 due to the
short-term maturities of these instruments.
Deferred expenses consist of legal fees incurred in connection with the
organization of the Partnership and acquisition fees and acquisition
expenses paid to the General Partner and its affiliates as compensation for
analyzing, structuring and negotiating the Partnership's investments.
Organizational costs have been amortized using the straight-line method over
a five-year period. Acquisition fees and expenses are being amortized using
the straight-line method over 15 years (the expected holding period of the
investments).
For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents. The Partnership's cash reserves and excess cash flow are
generally invested in money market instruments, principally overnight
investment-grade commercial paper.
No provision for income taxes has been made as the liability for such
taxes is that of the partners and Unitholders rather than the Partnership.
3. The Partnership Agreement and Related Party Transactions
The General Partner of the Partnership is First Insured Mortgage
Partners, L.P. (the "General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber"). The Managing General Partner of the
General Partner is First Insured Mortgage Partners, Inc., (the "Managing
General Partner") a wholly-owned subsidiary of PaineWebber. Certain officers
and directors of the Managing General Partner are also officers and/or
directors of PaineWebber Properties Incorporated ("PWPI"). Properties
Associates 1988, L.P. ("PA1988") and PaineWebber Incorporated ("PWI") are
the limited partners of the General Partner. PA1988 is a Virginia limited
partnership in which certain officers of PWPI are the individual limited
partners. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by PWPI, which is a wholly-owned
subsidiary of PWI. The General Partner and other PaineWebber affiliates will
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, financing and disposition of Partnership investments.
The Partnership entered into a Sales Agreement with PWI under which PWI
acted as sales agent for the offering of Units. In connection with the sale
of Units, PWI was to be paid sales commissions of up to 6% of the offering
proceeds. Sales commissions paid to PWI aggregated $3,278,000 through the
end of the offering period.
Origination fees were payable directly to the General Partner and its
affiliates by project owners in recognition of the participation feature of
their Participating Insured Mortgage Loans in an amount equal to 2% of the
principal balance of each Participating Insured Mortgage Loan.
In connection with the acquisition of mortgage securities, the General
Partner and its affiliates were to receive acquisition fees in an amount not
to exceed 1.5% of the gross offering proceeds for services rendered in
connection with the investment by the Partnership in mortgage securities.
Acquisition fees of $827,000 were paid by the Partnership to the General
Partner and its affiliates. The General Partner and its affiliates also
received a non-accountable acquisition expense allowance of 1.5% of the
Gross Offering Proceeds. Acquisition expenses in excess of 1.5% of the Gross
Offering Proceeds were to be paid by the General Partner. Acquisition
expenses aggregating $827,000 were paid to the General Partner and its
affiliates.
For services rendered in managing the business of the Partnership, the
Partnership shall pay the General Partner and its affiliates an Asset
Management Fee equal to 0.75% per annum of the outstanding principal balance
of the mortgage securities of the Partnership. Asset management fees of
$184,000, $193,000 and $209,000 were earned by the General Partner and its
affiliates for the years ended July 31, 1996, 1995 and 1994, respectively.
PWPI also furnishes additional asset management and advisory services to the
Partnership and receives additional asset management fees as compensation
for such services. The additional management fees paid by the Partnership
totalled $38,000, $40,000 and $51,000 for the years ended July 31, 1996,
1995 and 1994, respectively. Accounts payable - affiliates at July 31, 1996
and 1995 includes $30,000 and $31,000, respectively, of management fees
payable to the General Partner and its affiliates.
Generally, all distributable cash, as defined, for each fiscal year
shall be distributed quarterly in the ratio of 97% to the Unitholders, 1% to
the General Partner and 2% to PWPI as the additional asset management fee
referred to above. Accounts payable - affiliates at July 31, 1995 includes
$3,000 of distributions payable to the General Partner. Capital
distributions (including distributions of principal repayments) will be
distributed 100% to the Unitholders until they have received the return of
their capital contributions and then to the General Partner until it has
received a return of its capital contribution. Thereafter, capital
distributions shall be distributed in varying proportions to the Unitholders
and General Partner, as specified in the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or
tax loss of the Partnership will be allocated 98.98% to the Unitholders and
1.02% to the General Partner. Income or loss arising from a sale or
refinancing of investment properties will be allocated to the Unitholders
and the General Partner generally as residual proceeds are distributed.
Allocations of income or loss for financial reporting purposes have been
made in conformity with allocations of taxable income or tax loss set forth
in the Partnership Agreement.
Included in general and administrative expenses for the years ended July
31, 1996, 1995 and 1994 is $88,000, $100,000 and $105,000, respectively,
representing reimbursements to an affiliate of the General Partner for
providing certain financial, accounting and investor communication services
to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins
earned fees of $18,000, $14,000 and $31,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1996, 1995 and 1994, respectively.
4. Mortgage-Backed Securities
At July 31, 1996 and 1995 the Partnership held non-participating
mortgage-backed securities ("MBS") backed by single-family or multi-family
mortgage loans issued or originated in connection with the housing programs
of the Government National Mortgage Association ("GNMA"), and guaranteed by
GNMA, as follows (in thousands):
July 31, 1996 July 31, 1995
--------------------------- ------------------------
Estimated Estimated
Market Face Amortized Market Face Amortized
Description Value Value Cost Value Value Cost
----------- ----- ----- ---- ----- ----- ----
9.5% GNMA Pool $ 2,228 $ 2,071 $ 2,055 $2,575 $ 2,427 $ 2,407
9.0% GNMA Pool 362 347 358 533 501 513
8.0% GNMA Pool 3,363 3,326 3,468 4,050 3,968 4,124
7.5% GNMA Pool 327 330 328 363 363 360
------- ------- ------- ------ ------ -------
$ 6,280 $ 6,074 $ 6,209 $7,521 $7,259 $ 7,404
======= ======= ======= ====== ====== =======
As discussed further in Note 2, the Partnership's investments in MBS are
carried at fair value as of July 31, 1996 and 1995. Investments in MBS are
valued based on quoted market prices. The amortized cost of the MBS
represents the face value of the securities net of unamortized premium or
discount. Investments in non-participating MBS were limited to no more than
30% of the original net offering proceeds per the terms of the Partnership's
offering prospectus.
The 9.5% MBS, which were purchased at a discount on December 14, 1988,
carry a coupon interest rate of 9.5% per annum and include loans with
scheduled maturities between June 2009 and December 2009. The 9.0% MBS,
which were purchased at a premium on November 16, 1989, carry a coupon
interest rate of 9.0% per annum and include loans with scheduled maturities
between June 2001 and September 2002. The 8.0% MBS, which were purchased at
a premium on July 30, 1992, carry a coupon interest rate of 8.0% per annum
and include loans with scheduled maturities in June 2022. The 7.5% MBS,
which were purchased at a discount on October 30, 1992, carry a coupon
interest rate of 7.50% per annum and include loans with scheduled maturities
in March 2022. The loans included in these GNMA pool programs may be
prepaid, without penalty, at any time.
5. Investments in Participating Insured Mortgage Loans
Participating Insured Mortgage Loans secured by GNMA securities
outstanding at July 31, 1996 and 1995 are comprised of the following (in
thousands):
July 31, 1996 July 31, 1995
-------------------- ------------------
GNMA Estimated Estimated
Certificate Interest Market Amortized Market Amortized
Number Property Rate Value Cost Value Cost
------ -------- ---- ----- ---- ----- ----
279985 Quarter Mill 8.50% $ 7,441 $ 7,198 $ 7,492 $ 7,228
279119 Emerald Cove 8.75% 11,098 10,697 11,147 10,745
------- ------- ------- -------
$18,539 $17,895 $18,639 $17,973
======= ======= ======= =======
As discussed further in Note 2, the Partnership's investments in
Participating Insured Mortgage Loans are carried at fair value as of July
31, 1996 and 1995. Investments in Participating Insured Mortgage Loans, for
which quoted market prices are not available, are valued by an independent
pricing service which determines the valuations based on the reported
financial results of the underlying properties and a comparison of recent
market trades of securities with similar characteristics. Descriptions of
the properties financed by the Partnership's loans and the loan agreements
themselves are summarized below:
Quarter Mill Apartments
The Partnership acquired a Participating Insured Mortgage Loan with
respect to a 266-unit apartment complex known as Quarter Mill Apartments
located in Richmond, Virginia (the "Virginia Project"). Construction of the
Virginia Project was completed in November of 1990. Initial closing of this
Participating Insured Mortgage loan took place on August 2, 1989. The
project owner is Amurcon Corporation. The Base Component of this
Participating Insured Mortgage Loan is coinsured by FHA and represented by
GNMA Securities with an initial face value of $7,316,600, which GNMA
Securities bore interest at the rate of 10.25% during construction of the
Virginia Project and 8.50% thereafter. Effective May 1, 1991, the
construction loan was converted to a permanent loan with a principal balance
of $6,525,000. On June 21, 1991 an additional $791,600 was funded,
completing the Partnership's investment of $7,316,600. Monthly payments of
principal and interest totalling approximately $53,528 are due through
maturity, on October 15, 2031. Scheduled principal repayments of $118,421
have been received through July 31, 1996.
Emerald Cove Apartments
The Partnership acquired a Participating Insured Mortgage Loan with
respect to a 276-unit apartment complex known as Emerald Cove Apartments in
Charlotte, North Carolina (the "North Carolina Project"). Initial closing of
this Participating Insured Mortgage Loan took place on October 16, 1989. The
project owners are Ronald Curry and Ralph Abercia. The Base Component of
this Participating Insured Mortgage Loan is coinsured by FHA and represented
by GNMA Securities with an initial face value of $10,783,900 at closing,
which GNMA Securities bore interest at the rate of 10.25% during
construction of the North Carolina Project and 8.75% thereafter. During
fiscal 1992, the Partnership funded its remaining commitment on the
investment of approximately $1,184,000 and, effective May 1, 1992, the
investment was converted to a permanent loan with a principal balance of
$10,776,500. The Partnership paid a premium of $107,840 to the GNMA issuer
to obtain the original loan commitment due to the fact that the permanent
loan interest rate was higher than comparable market rates at the time of
the initial closing. The premium is being amortized on the straight-line
method, which approximates the effective interest method, over 15 years.
Monthly payments of principal and interest totalling approximately $81,105
are due through maturity, on August 15, 2031. Scheduled principal repayments
of $151,513 have been received through July 31, 1996.
Provisions Applicable to Both of the Participating Insured Mortgage Loans
of the Partnership:
The closing of the Participating Insured Mortgage Loans was subject to
conditions with respect to satisfactory completion of construction. The
Partnership purchased the GNMA Securities representing each of the above
Participating Insured Mortgage Loans with proceeds raised through its public
offering from an FHA-approved mortgagee/coinsurer and GNMA issuer/servicer.
As required by the Partnership's investment criteria, the Participating
Insured Mortgage Loans may not be repaid by the applicable project owner, in
whole or in part, for a period of five years from the date of initial
endorsement of each such Loan for FHA Insurance (unless required or
permitted by HUD or as a result of the partial or total destruction or
condemnation of the Project). The Participating Insured Mortgage Loans may
thereafter be prepaid at various premiums which decline over the next
four-to-five-year period. After nine or ten years from the date of initial
endorsement of a Participating Insured Mortgage Loan for FHA Insurance, such
loan may be prepaid without premium. Although the permanent phase of each
such Participating Insured Mortgage Loan will have a term of approximately
40 years, payable in substantially equal installments consisting of
principal and interest over such term, each loan provides the Partnership
with the option to require such loan be repaid in full beginning not later
than the twelfth anniversary of its date of initial endorsement for FHA
Insurance.
The Contingent Component of the Participating Insured Mortgage Loans
provides for the payment of Contingent Interest equal to 25% of the Net
Project Cash Flow, if any, (30% for the Virginia Project) and 25% of the Net
Project Residuals, if any, derived from the applicable Project; provided,
however, that to the extent the applicable Project fails to generate certain
minimum amounts of Net Project Cash Flow, the share of Net Project Residuals
to which the Partnership is entitled may be increased to up to 50%. In
addition to the deduction for the outstanding principal balance of the first
mortgage relating to each Participating Insured Mortgage Loan, Net Project
Residuals shall also be reduced by certain FHA-approved development costs
and by certain amounts advanced by the applicable project owner from its own
funds to fund operating deficits or provide working capital for the
applicable Project. The obligation of a project owner to pay Contingent
Interest will be evidenced by a Subordinated Promissory Note of such project
owner which will in turn be secured by a second mortgage on the applicable
Project. The obligations of each project owner to pay Contingent Interest is
or will be secured by a lien on all of the interests in such project owner.
Neither FHA Insurance nor any GNMA Security will provide for the payment of
Contingent Interest with respect to any Participating Insured Mortgage Loan.
No Contingent Interest has been earned with respect to the Emerald Cove
Participating Insured Mortgage Loan to date. During fiscal 1996 and 1995,
the Partnership received approximately $46,000 and $37,000, respectively,
representing its 30% share of the surplus cash generated by the Quarter Mill
property. Such amounts are included in interest income on the accompanying
1996 and 1995 statements of income. No amounts of Contingent Interest were
received prior to fiscal 1995.
The future performance of the Partnership will depend, in part, upon
future interest rate fluctuations, which cannot be predicted. In addition,
the Partnership's overall operating performance is subject to all of the
risks normally associated with real estate investments, including: reliance
on the owners' operating skills, including their ability to maintain
occupancy levels, meet operating expenses, maintain the property and
maintain adequate insurance coverage; adverse changes in general and/or
local economic conditions; changes in governmental regulations, real estate
zoning laws, or tax laws; and other circumstances over which the Partnership
may have little or no control.
6. 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 First Insured Mortgage Partners, Inc. and
Properties Associates 1988 ("PA1988"), 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
Insured Mortgage Partners 1-B, L.P., PaineWebber, First Insured Mortgage
Partners, Inc. and PA1988 (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 Insured Mortgage Partners 1-B,
L.P., also alleged that following the sale of the partnership interests,
PaineWebber, First Insured Mortgage Partners, Inc. and PA1988
misrepresented financial information about the Partnerships value and
performance. The amended complaint alleged that PaineWebber, First Insured
Mortgage Partners, Inc. and PA1988 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
partners of the General Partner, 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 the applicable
statutes of limitations. The eventual outcome of this litigation and the
potential impact, if any, on the Partnership's unitholders cannot be
determined at the present time.
<PAGE>
In July 1996, approximately 15 plaintiffs filed an action entitled
Barstad v. PaineWebber Inc. in Maricopa County, Arizona 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 is substantially
similar to the complaint in the Abbate action described above, and seeks
compensatory damages of $752,000 plus punitive damages.
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 all of 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 Partner 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.
7. Subsequent Event
On September 15, 1996, the Partnership distributed $688,000 to the
Unitholders, $16,000 to the General Partner and $30,000 to PWPI as an asset
management fee for the quarter ended July 31, 1996.
<PAGE>
<TABLE>
Schedule IV - Investments in Mortgage Loans on Real Estate
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
July 31, 1996
(In thousands)
<CAPTION>
Carrying Amount of loans
Coupon Final maturity Periodic Face amount amount of subject to delinquent
Description Interest rate date payment terms of mortgages mortgages principal or interest
- ----------- ------------- ---- ------------- ------------ --------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA Single Loan Pool:
Quarter Mill Apts. 8.50% 10/15/2031 Interest and $ 7,198 $ 7,441 N/A
Apartment Complex principal payable
Richmond, VA monthly ($53,525)
Pool #279985 through maturity.
Emerald Cove Apts. 8.75% 8/15/2031 Interest and 10,632 11,098 N/A
Apartment Complex principal payable
Charlotte, NC monthly ($81,105)
Pool #279119 through maturity.
-------- -------
TOTALS $ 17,830 $18,539
======== =======
1996 1995 1994
---- ---- ----
Balance at beginning of year $18,639 $18,374 $18,110
Collections of principal (71) (64) (59)
Amortization of premium (7) (7) (7)
Adjustment to reflect
change in accounting
principle and net unrealized
holding gains (losses) (1) (22) 336 330
------- ------- -------
Balance at close of year $18,539 $18,639 $18,374
======= ======= =======
Notes:
<FN>
(1) See Note 2 to the accompanying financial statements for a discussion of the
change in accounting principle effective July 31, 1994.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the twelve months ended July
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> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 3637
<SECURITIES> 6280
<RECEIVABLES> 18539
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3809
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29243
<CURRENT-LIABILITIES> 81
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29162
<TOTAL-LIABILITY-AND-EQUITY> 29243
<SALES> 0
<TOTAL-REVENUES> 2331
<CGS> 0
<TOTAL-COSTS> 525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1806
<INCOME-TAX> 0
<INCOME-CONTINUING> 1806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1806
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.24
</TABLE>
