-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAheDd4RQTURNi1ubRFyFhAwL9EtSZRlCV3AjSxPwh31hVVR8HbF9VySYrRQNZHk 8oQ7ad/cA/e4mhxGCZ1uDQ== 0000756428-97-000002.txt : 19970415 0000756428-97-000002.hdr.sgml : 19970415 ACCESSION NUMBER: 0000756428-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR LP CENTRAL INDEX KEY: 0000756428 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042841746 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15036 FILM NUMBER: 97579991 BUSINESS ADDRESS: STREET 1: 265 FRANKLIN ST 15TH FL CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174398118 10-Q 1 THIS IS A 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to . Commission File Number: 0-15036 PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP (Exact name of registrant as specified in its charter) Delaware 04-2841746 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 265 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 439-8118 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No ____ --- PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP Balance Sheets February 28, 1997 and August 31, 1996(Unaudited) (In thousands) Assets February 28 August 31 ----------- --------- Real estate investments: Investment properties held for sale, net $12,100 $12,100 Land 1,115 1,115 Mortgage loans, net 7,285 7,285 ------- ------- 20,500 20,500 Cash and cash equivalents 1,823 2,060 Interest receivable 60 60 Accounts receivable 47 14 Deferred expenses, net 89 99 Other assets 65 68 -------- ------- $ 22,584 $22,801 ======== ======= LIABILITIES AND PARTNERS' CAPITAL Accounts payable - affiliates $ 32 $ 32 Accounts payable and accrued expenses 49 201 Unearned rental income - 26 Tenant security deposits 72 45 Partners' capital 22,431 22,497 -------- ------- $ 22,584 $22,801 ======== ======= See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP STATEMENTS OF INCOME For the three and six months ended February 28, 1997 and February 29, 1996 (Unaudited) (In thousands, except per Unit amounts) Three Months Ended Six Months Ended February 28/29, February 28/29, ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Interest from mortgage loans $ 179 $ 179 $ 358 $ 517 Land rent 27 45 54 144 Other interest income 23 118 48 156 ------- ------- ------- ------- 229 342 460 817 Expenses: Management fees 36 37 71 88 General and administrative 76 159 171 244 Amortization of deferred expenses 5 5 9 30 ------- ------- ------- ------- 117 201 251 362 ------- ------- ------- ------- Operating income 112 141 209 455 Income from operations of investment properties held for sale, net 150 278 372 520 Gain on sale of land - - - 1,378 ------- ------- ------- ------- Net income $ 262 $ 419 $ 581 $ 2,353 ======= ======= ======= ======= Net income per Limited Partnership Unit $0.29 $0.47 $0.64 $ 2.60 ===== ===== ===== ======= Cash distributions per Limited Partnership Unit $0.35 $11.27 $0.71 $ 11.83 ===== ====== ===== ======= The above net income and cash distributions per Limited Partnership Unit are based upon the 896,993 Units ($50 per Unit) of Limited Partnership Interest outstanding during each period. See accompanying notes. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) For the six months ended February 28, 1997 and February 29, 1996 (Unaudited) (In thousands) General Limited Partners Partners -------- -------- Balance at August 31, 1995 $ (18) $29,265 Net income 24 2,329 Cash distributions (12) (10,609) ------ ------- Balance at February 29, 1996 $ (6) $20,985 ====== ======= Balance at August 31, 1996 $ 11 $22,486 Net income 6 575 Cash distributions (7) (640) ------ ------- Balance at February 28, 1997 $ 10 $22,421 ====== ======= See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP STATEMENTS OF CASH FLOWS For the six months ended February 28, 1997 and February 29, 1996 (Unaudited) Increase (Decrease) in Cash and Cash Equivalents (In thousands) 1997 1996 ---- ---- Cash flows from operating activities: Net income $ 581 $ 2,353 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of land - (1,378) Amortization of deferred expenses 10 30 Changes in assets and liabilities: Interest receivable - 58 Accounts receivable (33) 15 Other assets 3 20 Accounts payable affiliates - (12) Accounts payable and accrued expenses (152) 9 Unearned rental income (26) - Other liabilities - (50) Tenant security deposits 27 - ------ ------- Total adjustments (171) (1,308) ------ ------- Net cash provided by operating activities 410 1,045 ------ ------- Cash flows from investing activities: Net proceeds from sale of land - 3,440 Proceeds received from repayment of mortgage loan - 6,188 ------ ------- Net cash provided by investing activities - 9,628 ------ ------- Cash flows from financing activities: Distributions to partners (647) (10,621) ------ ------- Net (decrease) increase in cash and cash equivalents (237) 52 Cash and cash equivalents, beginning of period 2,060 1,851 ------ ------- Cash and cash equivalents, end of period $1,823 $ 1,903 ====== ======= See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP Notes to Financial Statements (Unaudited) 1. General The accompanying financial statements, footnotes and discussion should be read in conjunction with the financial statements and footnotes contained in the Partnership's Annual Report for the year ended August 31, 1996. In the opinion of management, the accompanying financial statements, which have not been audited, reflect all adjustments necessary to present fairly the results for the interim period. All of the accounting adjustments reflected in the accompanying interim financial statements are of a normal recurring nature. The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of February 28, 1997 and August 31, 1996 and revenues and expenses for the three and six months ended February 28, 1997 and February 29, 1996. Actual results could differ from the estimates and assumptions used. 2. Mortgage Loan and Land Investments The following are the first mortgage loans outstanding and the cost of the related land to the Partnership at February 28, 1997 and August 31, 1996 (in thousands): Amount of Mortgage Loan Cost of Land ----------------------- ------------ Property 2/28/97 8/31/96 2/28/97 8/31/96 -------- ------- ------- ------- ------- Willow Creek Apartments Wichita, Kansas $ 3,055 $ 3,055 $ 345 $ 345 Park South Apartments Charlotte, North Carolina 4,230 4,230 770 770 -------- ------- ------ ------- $ 7,285 $ 7,285 $1,115 $ 1,115 ======== ======= ====== ======= The loans are secured by first mortgages on the properties, the owner's leasehold interest in the land and an assignment of all tenant leases. Interest is payable monthly and the principal is due at maturity. The annual interest rates on the Willow Creek and Park South mortgage loans are 11% and 9%, respectively. The land leases have terms of 40 years. Among the provisions of the lease agreements, the Partnership is entitled to additional rent based upon gross revenues of the underlying properties in excess of a base amount, as defined. During the six months ended February 28, 1996, the Partnership received additional rent under the terms of the Park South Apartments land lease totalling $40,000. No additional rent was received during the six months ended February 28, 1997. The lessees have the option to purchase the land for specified periods of time, beginning between February of 1995 and December of 1997, at a price based on fair market value, as defined, but not less than the original cost to the Partnership. The Partnership's investments are structured to share in the appreciation in the value of the underlying real estate. Accordingly, upon either sale, refinancing, maturity of the mortgage loan or exercise of the option to repurchase the land, the Partnership will receive a 40% to 50% share of the appreciation above a specified base amount. The Willow Creek mortgage loan became prepayable in November 1995. Management believes that there is the potential for a near term prepayment of this loan. As a result of these circumstances, based on an expected short-term maturity, the estimated fair value of the Willow Creek mortgage loan approximated its carrying value as of February 28, 1997 since the estimated fair value of the collateral property exceeds the principal balance of the loan. The fair value of the Park South loan, which does not become prepayable until December 1997, has been estimated using discounted cash flow analysis and also approximated the loan's carrying value as of February 28, 1997. The mortgage loan secured by The Corner at Seven Corners Shopping Center became prepayable in February 1995. On December 16, 1994, the borrower notified the Partnership of its intent to prepay the loan and exercise the option to purchase the land during 1995. On November 22, 1995, the borrower of The Corner at Seven Corners loan prepaid the Partnership's first leasehold mortgage loan and purchased the Partnership's interest in the underlying land for total consideration of $9,628,000. The principal balance of the mortgage loan was $6,188,000 plus interest accrued through November 22, 1995 of $43,000. The Partnership's cost basis in the land was $2,062,000. Pursuant to the ground lease, the Partnership received $1,378,000 in excess of its land investment as its share of the appreciation in value of the operating investment property above a specified base amount. Such amount was recorded as a gain in the Partnership's financial statements for the quarter ended November 30, 1995. The net proceeds from this prepayment transaction were distributed to the Limited Partners as part of a special distribution paid on January 31, 1996 in the amount of approximately $9,598,000, or $214 per original $1,000 investment. 3. Investment Properties Held for Sale Martin Sunnyvale Research and Development Center ------------------------------------------------ The Partnership foreclosed under the terms of the mortgage loan secured by the Martin Sunnyvale Research and Development Center on July 12, 1991. The borrower had defaulted on the payment terms of the loan due to significant lease turnover during 1991. The property contains 39,000 rentable square feet and is located in Sunnyvale, California. The combined carrying value of the original land and loan investments, of $5,100,000, was adjusted to management's estimate of the fair value of the property as of the date of the foreclosure, of $3,400,000, and reclassified to investment properties held for sale. Subsequent to the date of the foreclosure and through August 31, 1994, the Partnership had recorded provisions for possible investment loss totalling $900,000 to write down the carrying value of the Martin Sunnyvale investment property to $2,500,000 to reflect additional declines in its estimated fair value, net of selling expenses. During fiscal 1996, real estate values for R&D office properties in Northern California recovered somewhat as a result of the resurgence in the growth of the high technology industries. As a result of lower market vacancy levels and increasing rental rates, the estimated fair value of the Martin Sunnyvale property improved significantly during fiscal 1996 to an amount which exceeds the cost basis established for the property in fiscal 1991 of $3,400,000. Accordingly, the Partnership adjusted the valuation account with respect to the Martin Sunnyvale property and recognized a recovery of possible investment loss of $900,000 effective in the fourth quarter of fiscal 1996. The carrying value of the investment, of $3,400,000, is included in the balance of investment properties held for sale on the accompanying balance sheets as of February 28, 1997 and August 31, 1996. During fiscal 1994, the Partnership was notified by a California state water agency of a potential environmental problem at Martin Sunnyvale. As a result of governmental required testing, management learned that there has been a contamination of the underground soil and water at the site. The environmental testing was paid for by one of the parties identified as a potential contaminator. Management believes that this contamination occurred prior to the Partnership's initial mortgage loan and ground lease investments in the property, which were made in 1985. The California state water agency has issued a site cleanup order identifying two companies which had occupied the Martin Sunnyvale property prior to the Partnership's investment. Management has engaged local counsel to monitor all legal actions to insure that the Partnership's rights are fully protected. Management will seek full indemnification from the parties identified as being potentially responsible. This matter is not expected to have any long-term impact on the market value of the operating investment property. Bell Forge Square Shopping Center --------------------------------- On October 4, 1991, the Partnership received a deed in lieu of foreclosure on the mortgage loan secured by the Bell Forge Square Shopping Center. The property, which was 90% occupied as of February 28, 1997, is comprised of 126,890 leasable square feet and is located in Nashville, Tennessee. The Managing General Partner estimated that the fair value of the investment property, net of selling expenses, at the date title to the mortgaged property was transferred was approximately equal to the combined cost of the land and the face amount of the Partnership's mortgage loan. The combined value of the land and the face amount of the mortgage loan, of $9,000,000, was reclassified to investment properties held for sale. During fiscal 1992, the Partnership had recorded a provision for possible investment loss of $600,000 to write down the carrying value of the Bell Forge Square investment property to reflect a decline in its estimated fair value, net of selling expenses, as of August 31, 1992. During fiscal 1993, the Partnership recorded an adjustment to reduce the valuation allowance by $300,000 to reflect an increase in the estimated fair value of the Bell Forge Square property as of August 31, 1993. The resulting net carrying value of $8,700,000 is included in the balance of investment properties held for sale on the accompanying balance sheets at February 28, 1997 and August 31, 1996. The Partnership recognizes income from the investment properties held for sale equal to its share of the excess of the properties' gross revenues over property operating expenses (including capital improvement costs), taxes and insurance. Combined summarized operating results of the Martin Sunnyvale Research and Development Center and Bell Forge Square Shopping Center for the three and six months ended February 28, 1997 and February 29, 1996 are as follows (in thousands): Three Months Ended Six Months Ended February 28/29, February 28/29, ------------------ ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Rental income $ 358 $ 361 $ 743 $ 721 Other income 77 92 166 150 -------- --------- -------- ------ 435 453 909 871 Expenses: Property operating expenses 236 57 448 184 Property taxes and insurance 49 118 89 167 -------- ------- ------- ------ 285 175 537 351 --------- ------- ------- ------ Income from operations, net $ 150 $ 278 $ 372 $ 520 ======== ======= ======= ====== 4. Related Party Transactions The Adviser earned basic management fees of $71,000 and $88,000 for the six-month periods ended February 28, 1997 and February 29, 1996, respectively. Accounts payable - affiliates at both February 28, 1997 and August 31, 1996 consists of management fees of $32,000 payable to the Adviser. Included in general and administrative expenses for the six months ended February 28, 1997 and February 29, 1996 is $94,000 and $91,000, respectively, representing reimbursements to an affiliate of the Managing General Partner for providing certain financial, accounting and investor communication services to the Partnership. Also included in general and administrative expenses for the six months ended February 28, 1997 and February 29, 1996 is $3,000 and $5,000, respectively, representing fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc., for managing the Partnership's cash assets. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Partnership's wholly-owned, 39,000 square foot Martin Sunnyvale Research and Development Center remained 100% leased as of February 28, 1997. During the first quarter of fiscal 1997, the largest tenant at Martin Sunnyvale vacated 17,784 square feet when its lease expired at the beginning of November 1996. However, a replacement tenant executed a five-year lease through November 2001 for the entire 17,784 square foot space at an average rental rate which is 40% higher than the previous tenant had been paying. This transaction completed the successful re-leasing of the three tenant spaces at the property. The other two spaces were re-leased during fiscal 1996 at rental rates 40% and 60% higher than the previous leases. As a result of the significant increase in rental income, the market value of the Martin Sunnyvale property has increased substantially. Accordingly, management believes that it would be appropriate to begin to market the property for sale and interviewed several regional and national real estate brokers during the second quarter of fiscal 1997. Subsequent to the quarter-end, management contracted with a national real estate firm with a strong background in selling R&D buildings in the Silicon Valley area to market the property for sale. There are no assurances, however, that a sale transaction will be completed in the near term. As previously reported, the Partnership was notified by a California state water agency in fiscal 1994 of a potential environmental problem at Martin Sunnyvale. As a result of governmental required testing, management learned that there has been a contamination of the underground soil and water at the site. The state water agency has issued a final report identifying two tenants which had occupied the property prior to 1985 and may have caused the environmental problem. Both prior tenants are Fortune 500 companies and both have been ordered at their own expense to perform the necessary testing, cleanup and documentation as required by the California state water agency. The Partnership will be required to monitor the efforts of these two firms. The environmental testing was paid for by one of the parties identified as a potential contaminator. Management has engaged local counsel to monitor all legal actions to insure that the Partnership's rights are fully protected. In addition, management will seek full indemnification from the parties identified as being responsible. This matter is not expected to have any long-term impact on the market value of the Partnership's operating property. At the Partnership's other wholly-owned commercial investment, Bell Forge Square Shopping Center in Nashville, Tennessee, occupancy remained at 90% for the second consecutive quarter. During the first quarter, two tenants, a furniture store and a pet store, occupying 10% of the center's rentable area, vacated their spaces prior to the termination of their leases. The former furniture store tenant remains current on its rental obligations to date although it seeks to terminate its lease as soon as a new tenant can be found. The former pet store tenant which has ceased operations and stopped paying rent during the first quarter of fiscal 1997 has been issued a court order to pay its rental obligation. Although the Partnership is pursuing its rights under this court judgment to recover the rent due under the lease agreement, management is not optimistic about the likelihood of collection given the poor financial condition of the former pet store tenant. The property's leasing team is in final negotiations with a restaurant tenant for a new lease for the vacant space formerly occupied by the pet store which would cover a five-year term at a rental rate 19% higher than the previous tenant's. The restaurant would fund all of its own tenant improvements and working capital requirements. Three retail leases at Bell Forge Square are due to expire through the end of calendar 1997. The property management team expects all of these tenants to renew their leases. As previously reported, although Discovery Zone, which occupies 9% of the center's net rentable area, has filed for protection under Chapter 11 of the U.S. Bankruptcy Code, it continues to pay its post-petition rent and operate its store at Bell Forge Square. While there are likely to be some store closings as part of the company's bankruptcy reorganization plan, it is uncertain at this time whether the Bell Forge Square location would be affected by such actions. During the quarter ended February 28, 1997, management decided to explore potential opportunities to sell the Bell Forge Square property and has contracted with a regional real estate broker to market the property for sale under a 90-day agreement. At the present time, real estate values for retail shopping centers in certain markets are being adversely impacted by the effects of certain consolidations and bankruptcies among retailers which have resulted in an oversupply of space and by the generally flat rate of growth in overall retail sales. Nonetheless, since market conditions in Nashville remain generally strong, there may be favorable opportunities to complete a sale of the Bell Forge Square property in the near term. The mortgage loan secured by the Willow Creek Apartments bears interest at a rate of 11.00% per annum. As previously reported, since current market interest rates for first mortgage loans are considerably lower than this rate, and with the continued availability of credit in the capital markets for real estate transactions, there is a reasonable likelihood of the Partnership's mortgage loan investment being prepaid. The Willow Creek loan became prepayable in November 1995. However, the Willow Creek loan includes a prepayment premium for any prepayment between November 1995 and October 2000 at rates between 5% and 1% of the mortgage loan balance. To date, the Partnership has received no notice from the Willow Creek borrower indicating an intent to prepay the mortgage loan and repurchase the underlying land. Occupancy at the Park South Apartments in Charlotte, North Carolina, was 90% for the quarter ended February 28, 1997, down from 92% for the previous quarter. Operations of the property continue to fully support the debt service and ground lease payments owed to the Partnership despite a recent weakening in market conditions for existing properties in the greater Charlotte area. Over the past year, more than 3,900 new apartment units have been added to the overall Charlotte market. Approximately 1,500 of these new units are in southeast Charlotte, where Park South is located, and 708 of these new units are in Park South's submarket. In addition, a new rental community is under construction within one mile of Park South which will include 400 rental units, a retail center and a movie theater. This property's pre-leasing program began in late August. In order to remain competitive with these new units, Park South currently offers reduced rental rates and/or discounted move-in rates to prospective tenants. As an incentive to renew leases, current tenants are offered minimal increases at the expiration of their leases. The use of rental concessions and renewal incentives is expected to continue throughout fiscal 1997. At February 28, 1997, the Partnership had available cash and cash equivalents of $1,823,000. Such cash and cash equivalents will be used for the working capital needs of the Partnership, distributions to the partners and, if necessary, for tenant improvement expenses and other leasing costs of the Partnership's wholly-owned investment properties. The source of future liquidity and distributions to the partners is expected to be through cash generated from the Partnership's real estate and mortgage loan investments, the repayment of the mortgage loans receivable and the future sales or refinancings of the underlying land and the investment properties. Such sources of liquidity are expected to be adequate to meet the Partnership's needs on both a short-term and long-term basis. Results of Operations Three Months Ended February 28, 1997 - ------------------------------------ The Partnership reported net income of $262,000 for the three months ended February 28, 1997, as compared to net income of $419,000 for the same period in the prior year. This $157,000 decrease in net income is attributable to a $128,000 reduction in income from operations of investment properties held for sale and a $29,000 decline in the Partnership's operating income. Income from operations of investment properties held for sale declined primarily due to a $179,000 increase in property operating expenses which was partially offset by a $69,000 decrease in property taxes and insurance. Property operating expenses increase primarily due to the capital improvement expenditures and leasing commissions related to the new tenants at the Martin Sunnyvale Research and Development Center as discussed further above. The Partnership's operating income decreased mainly due to a $113,000 decline in revenues which was partially offset by a $84,000 decrease in expenses. Revenues declined mainly due to a $95,000 decrease in other income which resulted primarily from the additional interest income earned on the cash proceeds held from The Corner at Seven Corners mortgage loan repayment and related land sale on November 22, 1995 pending the special distribution to the Limited Partners which was made on January 31, 1996. The Partnership's operating expenses decreased due to an $83,000 reduction in general and administrative expenses caused by certain additional required professional fees incurred during the three months ended February 29, 1996. Six Months Ended February 28, 1997 - ---------------------------------- The Partnership reported net income of $581,000 for the six months ended February 28, 1997, as compared to net income of $2,353,000 for the same period in the prior year. The decrease in net income is primarily attributable to the gain recognized in the prior period on the sale of The Corner at Seven Corners land, of $1,378,000. In addition, the Partnership's net income declined due to a decrease in operating income of $246,000. Operating income declined primarily due to a decrease in revenues of $357,000. Revenues decreased due to declines in interest earned on mortgage loans of $159,000, land rent revenue of $90,000 and other interest income of $108,000. Interest earned on mortgage loans and land rent revenue decreased as a result of The Corner at Seven Corners mortgage repayment and related land sale which occurred during the prior year. Interest income decreased due to the inclusion of The Corner at Seven Corners' sales proceeds in the invested cash balances in the prior period pending the special distribution to the Limited Partners which was made on January 31, 1996. The decrease in revenues was partially offset by a reduction in management fees of $17,000 and a decline in amortization of deferred expenses of $21,000. Management fees decreased due to a reduction in adjusted capital contributions, upon which such fees are based, as a result of the capital distribution which followed the sale of The Corner at Seven Corners investment. Amortization of deferred expenses decreased due to the write-off of the remaining deferred acquisition expenses associated with The Corner at Seven Corners investments at the time of the November 1995 sale. Also contributing to the decline in net income for the current six-month period is a $148,000 decrease in income from the operations of investment properties held for sale. Income from operations of investment properties held for sale declined primarily due to a $264,000 increase in property operating expenses which was partially offset by a $78,000 decrease in property taxes and insurance and a $38,000 increase in revenues. Property operating expenses increased primarily due to additional capital improvement expenditures and leasing commissions associated with the three new tenants at the Martin Sunnyvale Research and Development Center, as discussed further above. The increase in revenues is primarily attributable to the 40% to 60% increase in the lease rental rates on the three new leases at Martin Sunnyvale PART II Other Information Item 1. Legal Proceedings As previously reported, in November 1994 a series of purported class actions (the "New York Limited Partnership Actions") were filed in the United States District Court for the Southern District of New York concerning PaineWebber Incorporated's sale and sponsorship of various limited partnership investments, including those offered by the Partnership. The lawsuits were brought against PaineWebber Incorporated and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly dissatisfied partnership investors. In March 1995, after the actions were consolidated under the title In re PaineWebber Limited Partnership Litigation, the plaintiffs amended their complaint to assert claims against a variety of other defendants, including Fourth Qualified Properties, Inc. and Properties Associates ("PA"), which are the General Partners of the Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified class action treatment of the claims asserted in the litigation. The amended complaint in the New York Limited Partnership Actions alleged that, in connection with the sale of interests in Paine Webber Qualified Plan Property Fund Four, LP, PaineWebber, Fourth Qualified Properties, Inc. and PA (1) failed to provide adequate disclosure of the risks involved; (2) made false and misleading representations about the safety of the investments and the Partnership's anticipated performance; and (3) marketed the Partnership to investors for whom such investments were not suitable. The plaintiffs, who purported to be suing on behalf of all persons who invested in Paine Webber Qualified Plan Property Fund Four, LP, also alleged that following the sale of the partnership interests, PaineWebber, Fourth Qualified Properties, Inc. and PA misrepresented financial information about the Partnership's value and performance. The amended complaint alleged that PaineWebber, Fourth Qualified Properties, Inc. and PA violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal securities laws. The plaintiffs sought unspecified damages, including reimbursement for all sums invested by them in the partnerships, as well as disgorgement of all fees and other income derived by PaineWebber from the limited partnerships. In addition, the plaintiffs also sought treble damages under RICO. In January 1996, PaineWebber signed a memorandum of understanding with the plaintiffs in the New York Limited Partnership Actions outlining the terms under which the parties agreed to settle the case. Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited $125 million into an escrow fund under the supervision of the United States District Court for the Southern District of New York to be used to resolve the litigation in accordance with a definitive settlement agreement and plan of allocation. On July 17, 1996, PaineWebber and the class plaintiffs submitted a definitive settlement agreement which provides for the complete resolution of the class action litigation, including releases in favor of the Partnership and the General Partners, and the allocation of the $125 million settlement fund among investors in the various partnerships at issue in the case. As part of the settlement, PaineWebber also agreed to provide class members with certain financial guarantees relating to some of the partnerships. The details of the settlement are described in a notice mailed directly to class members at the direction of the court. A final hearing on the fairness of the settlement was held in December 1996, and in March 1997 the court issued a final approval of the settlement. In February 1996, approximately 150 plaintiffs filed an action entitled Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests, including those offered by the Partnership. The complaint alleged, among other things, that PaineWebber and its related entities committed fraud and misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs by selling or promoting limited partnership investments that were unsuitable for the plaintiffs and by overstating the benefits, understating the risks and failing to state material facts concerning the investments. The complaint sought compensatory damages of $15 million plus punitive damages against PaineWebber. Mediation with respect to the Abbate action was held in December 1996. As a result of such mediation, a settlement between PaineWebber and the plaintiffs was reached which provides for the complete resolution of such action. Final releases and dismissals with regard to this action are expected to be received in April 1997. Under certain limited circumstances, pursuant to the Partnership Agreement and other contractual obligations, PaineWebber affiliates could be entitled to indemnification for expenses and liabilities in connection with the litigation described above. However, PaineWebber has agreed not to seek indemnification for the amounts it is required to pay in connection with the settlement of the New York Limited Partnership Actions. At the present time, the General Partners believe that the resolution of these maters will not have a material impact on the Partnership's financial statements, taken as a whole. Items 2 through 5: NONE Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: NONE (b) Reports on Form 8-K: NONE PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP By: FOURTH QUALIFIED PROPERTIES, INC. Managing General Partner By: /s/ Walter V. Arnold -------------------- Walter V. Arnold Senior Vice President and Chief Financial Officer Dated: April 14, 1997 EX-27 2 ARTICLE 5 FDS FOR THE SIX MONTHS ENDED 2/28/97
5 This schedule contains summary financial information extracted from the Partnership's audited financial statements for the quarter ended February 28, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS AUG-31-1997 FEB-28-1997 1,823 0 7,392 0 0 1,930 13,215 0 22,584 153 0 0 0 0 22,431 22,584 0 832 0 251 0 0 0 581 0 581 0 0 0 581 0.64 0.64
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