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: AUGUST 31, 1996

                                      OR

           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                     For the transition period from to .

                       Commission File Number: 0-15036

                PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
             (Exact name of registrant as specified in its charter)

  Delaware                                                    04-2841746
(State of organization)                                     (I.R.S. Employer
                                                           Identification  No.)

  265 Franklin Street, Boston, Massachusetts                          02110
    (Address of principal executive office)                         (Zip Code)

Registrant's telephone number, including area code:             (617) 439-8118
                                                                --------------

         Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
Title of each class                                        which registered
     None                                                        None

          Securities registered pursuant to Section 12(g) of the Act:
                      UNITS OF LIMITED PARTNERSHIP INTEREST
                                (Title of class)

Indicate by check mark if  disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein,  and will not be contained,  to
the  best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this  Form 10-K or any
amendment to this Form 10-K.     X

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No_____

                     DOCUMENTS INCORPORATED BY REFERENCE
Documents                                                  Form 10-K Reference
Prospectus of registrant dated                                 Part IV
December 14, 1984, as supplemented




<PAGE>


              PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
                                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-4

Item  4       Submission of Matters to a Vote of Security Holders         I-5


Part  II

Item  5       Market for the Partnership's Limited Partnership
                 Interests and Related Security Holder Matters           II-1

Item  6       Selected Financial Data                                    II-1

Item  7       Management's Discussion and Analysis of Financial Condition
                 and Results of Operations                               II-2

Item  8       Financial Statements and Supplementary Data                II-5

Item  9       Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure                                II-5


Part III

Item 10       Directors and Executive Officers of the Partnership       III-1

Item 11       Executive Compensation                                    III-3

Item 12       Security Ownership of Certain Beneficial Owners and
                 Management                                             III-3

Item 13       Certain Relationships and Related Transactions            III-3


Part  IV

Item 14       Exhibits, Financial Statement Schedules and Reports
                on Form 8-K                                             IV-1

Signatures                                                              IV-2

Index to Exhibits                                                       IV-3

Financial Statements and Supplementary Data                       F-1 to F-19




<PAGE>

                                    PART I

Item 1.  Business

      Paine Webber Qualified Plan Property Fund Four, LP (the  "Partnership") is
a  limited  partnership  formed  in  October  1984  under  the  Uniform  Limited
Partnership  Act of the State of  Delaware  for the  purpose of  investing  in a
diversified  portfolio of  income-producing  operating  properties  through land
purchase-leaseback  transactions  and first mortgage loans. The Partnership sold
$44,849,650  in Limited  Partnership  Units (896,993 Units at $50 per Unit) from
December  14, 1984 to December  13, 1985  pursuant to a  Registration  Statement
filed on Form S-11 under the Securities Act of 1933  (Registration No. 2-93962).
Limited   Partners  will  not  be  required  to  make  any  additional   capital
contributions.

      The  Partnership  originally  owned  land and made  first  mortgage  loans
secured by buildings with respect to six operating properties.  As of August 31,
1996, the  Partnership's  mortgage loan and land lease investments on two of the
original  properties  were  still  outstanding  and the  Partnership  owned  two
operating  properties  directly  as the result of  foreclosures  resulting  from
defaults on the  Partnership's  mortgage  loans.  The  Partnership's  investment
properties and security for its mortgage loan investments are described below.

Property name           Type of Property and                  Type of
and Location            Date of Investment   Size             Ownership (1)
--------------          ------------------   ----             -------------

Willow Creek Apartments Apartments           138 Units;       Fee ownership
Wichita, KS             10/31/85             7.05 acres       of land and
                                             of land          first mortgage
                                                              lien   on 
                                                              improvements

                                                              

Martin Sunnyvale        Research and         39,286 net       Fee ownership
Research and            Development Center   leasable         of land and  
Development Center (2)  12/20/85             sq. ft.;         improvements
Sunnyvale, CA                                2.5 acres 
                                             of land 
  
                    

Bell Forge Square       Shopping Center      126,890 net      Fee ownership
Shopping Center (3)     4/29/86              leasable         of land and
Nashville, TN                                sq. ft.;         improvements
                                             11 acres 
                                             of land 


Park South              Apartments           240 Units;       Fee ownership
Apartments (4)          12/29/88             19 acres         of land and
Charlotte, NC                                of land          first mortgage
                                                              lien on 
                                                              improvements

(1)See  Notes  to  the  Financial  Statements  filed  with  this  Report  for  a
   description of the  transactions  through which the  Partnership has acquired
   these real estate investments.

(2)On July 12, 1991, the Partnership  foreclosed under the terms of the mortgage
   loan  secured by the Martin  Sunnyvale  Research and  Development  Center for
   non-payment of the required monthly payments of interest. The Partnership has
   been  operating  the property  utilizing  the services of a local  management
   company since the date of foreclosure. See Note 5 to the Financial Statements
   accompanying this Annual Report for a further discussion of this investment.

(3)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 due to
   non-payment of the required  monthly  payments of interest in accordance with
   the  terms of the loan.  The  Partnership  has been  operating  the  property
   utilizing  the  services  of a local  management  company  since  the date of
   foreclosure.  See Note 5 to the Financial Statements accompanying this Annual
   Report for a further discussion of this investment.

(4)The  Partnership  owns a 77% interest in the land  underlying  the Park South
   Apartments  and has an equivalent  interest in the related  secured  mortgage
   loan. The remaining 23% interest in the land and mortgage loan  receivable is
   owned by an affiliated partnership, PaineWebber Mortgage Partners Five, L.P.

      In  addition  to the above  properties,  the  Partnership  previously  had
investment interests in the Cordova Creek Apartments,  a 196-unit,  garden-style
apartment complex in Memphis, Tennessee and The Corner at Seven Corners Shopping
Center,  a 70,890  leasable  square  foot  shopping  center  located in Fairfax,
Virginia.  On February 20, 1990, the Partnership  foreclosed  under the terms of
the mortgage loan secured by the Cordova Creek Apartments for non-payment of the
required  monthly payments of interest in accordance with the terms of the loan.
The  Partnership  operated  the  property,  utilizing  the  services  of a local
management  company,  for more than five years during which time the Partnership
received the majority of the net cash flow  generated  from property  operations
after  capital  improvements.  The  Partnership  owned a 96.5%  interest  in the
Cordova Creek  operating  property.  The remaining 3.5% interest in the property
was owned by an affiliated partnership, PaineWebber Qualified Plan Property Fund
Three, LP ("QP3").  On April 12, 1995, the  Partnership  sold the property to an
unaffiliated third party for $9,100,000.  After payment of required  transaction
costs,  including payment to QP3 for its 3.5% equity interest,  the net proceeds
realized by the Partnership  from the sale  transaction  totalled  approximately
$8.7 million.  The Partnership  realized a gain of approximately $1.8 million on
the sale of Cordova Creek.

      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,  and the  Partnership's  cost  basis  in the  land  was  $2,062,000.
Pursuant  to the ground  lease,  the  Partnership  received  approximately  $1.4
million in excess of its land  investment  as its share of the  appreciation  in
value of the operating investment property above a specified base amount.

      The Partnership's investment objectives are to:

(1) preserve and protect Limited Partners' capital and related buying power;
(2) provide the Limited Partners with cash distributions from investment
    income; and
(3) achieve long-term  capital  appreciation in the value of the Partnership's
    investments.

      Through August 31, 1996, the Limited Partners had received cumulative cash
distributions totalling approximately $49,856,000, or $1,141 per original $1,000
investment for the  Partnership's  earliest  investors.  This return  includes a
distribution  of $215 per original $1,000  investment  following the sale of the
Cordova  Creek  Apartments in June 1995 ($195 from the sale of Cordova Creek and
$20 of excess  Partnership  reserves)  and a  distribution  of $214 per original
$1,000 investment following the mortgage prepayment and related land sale of The
Corner at Seven Corners  Shopping  Center.  At August 31, 1996, the  Partnership
retains  an  interest  in four of the six  properties  underlying  its  original
mortgage loan and land investments.

      As noted above, to date the Partnership has made  distributions of capital
proceeds to the Limited Partners  totalling $429 per original $1,000 investment.
The  Partnership's  success in meeting its capital  appreciation  objective will
depend upon the proceeds  received from the final  liquidation  of its remaining
investments.  The amount of such proceeds will ultimately  depend upon the value
of the underlying  investment properties at the time of their final liquidation,
which cannot presently be determined. The Partnership expects to finance or sell
its  investments  and have its mortgage  loans  repaid from time to time.  It is
expected that most sales and  repayments  will be made after a period of between
seven and fifteen years after the  conclusion of the offering  period,  although
sales and repayments may occur at earlier or later dates. Due to the combination
of relatively low mortgage  interest rates and increased  availability  of funds
for sales and mortgage refinancings which has existed over the past three years,
the  likelihood  of the  Partnership's  loans being  prepaid has  increased.  As
discussed  further  above and in Item 7, the borrower on the loan secured by The
Corners at Seven Corners Shopping Center approached the Partnership  regarding a
potential  prepayment  transaction  during  fiscal  1995  and  completed  such a
transaction  during fiscal 1996. In determining the  appropriate  timing for the
sale  of  any of  the  Partnership's  wholly-owned  investment  properties,  the
Managing   General   Partner  will  consider  such  factors  as  the  amount  of
appreciation in value, if any, to be realized, the risks of continued investment
and the  anticipated  advantages  to be  gained  from  continuing  to  hold  the
investment.  The proceeds  from such sales,  financings or  refinancings  of the
investments  will not be reinvested but will be distributed to the Partners,  so
that the Partnership will in effect be self-liquidating.

      The  Partnership's  operating  properties and the properties  securing its
mortgage loan  investments are located in real estate markets in which they face
significant  competition for the revenues they generate. The apartment complexes
compete with numerous  projects of similar type generally on the basis of price,
location and  amenities.  Apartment  properties in all markets also compete with
the local single family home market for prospective tenants. The availability of
low home  mortgage  interest  rates over the past  several  years has  generally
caused this  competition  to increase in all areas of the country.  The shopping
center and the research and development center compete for long-term  commercial
tenants with numerous  projects of similar type generally on the basis of rental
rates,  location and tenant  improvement  allowances.  At the present time, real
estate values for retail shopping centers in certain markets are being adversely
impacted by the effects of overbuilding and consolidations among retailers which
have resulted in an oversupply of space. As discussed  further in Item 7, 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.
<PAGE>
      The Partnership has no real estate investments  located outside the United
States.  The  Partnership  is  engaged  solely in the  business  of real  estate
investment.  Therefore, a presentation of information about industry segments is
not applicable.

      The  Partnership  has no  employees;  it  has,  however,  entered  into an
Advisory  Contract with  PaineWebber  Properties  Incorporated  (the "Adviser"),
which is  responsible  for the  day-to-day  operations of the  Partnership.  The
Adviser is a wholly-owned  subsidiary of  PaineWebber  Incorporated  ("PWI"),  a
wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber").

      The general partners of the Partnership are Fourth  Qualified  Properties,
Inc. and  Properties  Associates  1985,  L.P. (the "General  Partners").  Fourth
Qualified  Properties,  Inc., a wholly-owned  subsidiary of PaineWebber,  is the
Managing  General Partner of the Partnership.  The Associate  General Partner is
Properties  Associates  1985,  L.P.,  a Virginia  limited  partnership,  certain
limited  partners of which are also  officers  of the  Adviser and the  Managing
General Partner.  Subject to the Managing General Partner's  overall  authority,
the business of the Partnership is managed by the Adviser.

      The terms of  transactions  between the  Partnership and affiliates of the
Managing  General  Partner of the  Partnership  are set forth in Items 11 and 13
below to which  reference  is hereby  made for a  description  of such terms and
transactions.

Item 2.  Properties

      As of August 31, 1996, the Partnership  owned,  and had leased back to the
sellers,  the land related to the two investments referred to under Item 1 above
to which  reference  is made for the  description,  name  and  location  of each
investment.  Additionally,  as of  August  31,  1996 the  Partnership  owned two
properties  directly as a result of foreclosures  resulting from defaults on the
Partnership's mortgage loans receivable as noted in Item 1.

      Occupancy  figures  for each  fiscal  quarter  during  1996  along with an
average for the year, are presented below for each property:

                                              Percent Occupied At
                              -----------------------------------------------
                                                                       Fiscal
                                                                       1996
                              11/30/95   2/29/96    5/31/96   8/31/96  Average
                              --------   -------    -------   -------  -------

Willow Creek Apartments        88%        90%       93%       95%      92%

Martin Sunnyvale Research 
  and Development Center      100%       100%      100%      100%     100%

Bell Forge Square Shopping
  Center                       97%        97%       96%      100%      98%

Park South Apartments          94%        90%       92%       94%      93%


<PAGE>


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 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 have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action  litigation,  including  releases in favor of the
Partnership  and the General  Partners,  and the  allocation of the $125 million
settlement  fund among  investors  in the various  partnerships  at issue in the
case.  As part of the  settlement,  PaineWebber  also  agreed to  provide  class
members with certain financial  guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the  direction of the court.  A final  hearing on the fairness of the
proposed settlement is scheduled to continue in November 1996.

     In February 1996,  approximately  150 plaintiffs  filed an action  entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleges,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to  state  material  facts  concerning  the  investments.  The  complaint  seeks
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
In September 1996, the court dismissed many of the plaintiffs'  claims as barred
by  applicable  securities  arbitration  regulations.   Mediation  hearings  are
scheduled to be held in December 1996. The eventual  outcome of this  litigation
and the potential  impact, if any, on the  Partnership's  unitholders  cannot be
determined at the present time.

     Under certain limited circumstances,  pursuant to the Partnership Agreement
and other contractual  obligations,  PaineWebber affiliates could be entitled to
indemnification  for expenses and  liabilities in connection with the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection  with the  settlement of the New
York Limited  Partnership  Actions.  At the present time,  the General  Partners
cannot estimate the impact, if any, of the potential  indemnification  claims on
the  Partnership's  financial  statements,  taken  as a whole.  Accordingly,  no
provision  for any  liability  which could result from the  eventual  outcome of
these  matters has been made in the  accompanying  financial  statements  of the
Partnership.

      The  Partnership  is not  subject  to any  other  material  pending  legal
proceedings.
<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders

      None.


<PAGE>

                                   PART II

Item 5.  Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters

      At August  31,  1996,  there  were  7,571  record  holders of Units in the
Partnership.  There is no public  market for the resale of Units,  and it is not
anticipated  that a public market for Units will develop.  The Managing  General
Partner will not redeem or repurchase Units.

Item 6.  Selected Financial Data

                PaineWebber Qualified Plan Property Fund Four, LP
         For the years ended August 31, 1996, 1995, 1994, 1993 and 1992
                      (In thousands, except per Unit data)

                                1996      1995        1994     1993      1992
                                ----      ----        ----     ----      ----

Revenues                       $1,287  $  2,150     $  1,963   $  2,005  $ 1,852

Operating income               $1,140  $  1,375     $  1,250   $  1,297  $ 1,140

Recovery of (provision for)
possible investment loss      $   900         -     $   (150)  $   (250) $ (800)

Gain on sale of land          $ 1,378         -            -          -       -

Gain on sale of
investment property
held for sale                      -   $  1,779            -          -       -

Income from
investment properties
held for sale                 $ 1,034  $  1,274     $  1,703   $  1,494  $ 1,437

Net income                    $ 4,452  $  4,428     $  2,803   $  2,541  $ 1,777

Per Limited Partnership Unit:
  Net income                  $  4.91  $  4.89      $   3.09    $  2.80  $  1.96

  Cash distributions from
    operations                $ 1.77   $  3.00      $   3.00    $  3.00  $  3.24

  Cash distributions from
    sale, refinancing and
    other disposition
    transactions             $  10.70  $ 10.75            -           -       -

Total assets                 $ 22,801  $29,551     $ 37,461     $37,429  $37,586

      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 Limited  Partnership Unit
are based upon the 896,993 Limited  Partnership  Units  outstanding  during each
year.



<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

Liquidity and Capital Resources

      The Partnership offered Limited  Partnership  Interests to the public from
December  14, 1984 to December  13, 1985  pursuant to a  Registration  Statement
filed under the  Securities  Act of 1933.  Gross  proceeds of  $44,849,650  were
received by the Partnership  and, after deducting  selling expenses and offering
costs,  approximately  $37,650,500  was  originally  invested  in six  operating
property   investments   in  the  form  of  first   mortgage   loans   and  land
purchase-leaseback  transactions.  Since the time that the original  investments
were made, the  Partnership  has assumed direct  ownership of the Cordova Creek,
Martin  Sunnyvale and Bell Forge Square  properties  as a result of  foreclosure
proceedings  resulting from uncured monetary defaults on the Partnership's first
mortgage  loans.  During  fiscal 1995,  the  Partnership  sold the Cordova Creek
Apartments,  and as discussed  further below, in fiscal 1996 the borrower of the
mortgage loan secured by The Corner at Seven Corners Shopping Center prepaid the
loan and purchased the  Partnership's  interest in the underlying  land. The net
proceeds of both transactions were distributed to the Limited Partners.

      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.  Such  consideration  included repayment of the principal balance of
the mortgage loan, of $6,188,000,  plus interest  accrued  through  November 22,
1995,  of  $43,000.  The  Partnership's  cost basis in the land was  $2,062,000.
Pursuant to the ground lease, the Partnership  received  $1,378,000 in excess of
its land  investment as its share of the  appreciation in value of the operating
investment  property above a specified  base amount.  The net proceeds from this
prepayment  transaction  were  distributed to the Limited  Partners as part of a
special  distribution  paid on January 31,  1996 in the amount of  approximately
$9,598,000, or $214 per original $1,000 investment. Management believes that the
amount paid to the Partnership under the terms of the ground lease reflected the
fair value of the  property  as of the date of the  prepayment  transaction,  as
supported by the Partnership's most recent independent appraisal. As a result of
the  dispositions  of  the  Cordova  Creek  and  The  Corner  at  Seven  Corners
investments,  cash flow from the  Partnership's  remaining  investments  was not
sufficient  to  support  the  prior  distribution  rate of  5.75%  per  annum on
remaining  invested capital.  As a result,  the distribution rate was reduced to
4.5% per annum  effective for the payment made on April 15, 1996 for the quarter
ended February 29, 1996.

      The  Partnership's  wholly-owned,  39,000  square  foot  Martin  Sunnyvale
Research and Development  Center was 100% occupied by three tenants as of August
31, 1996.  During fiscal 1996,  real estate values for R&D office  properties in
Northern  California  recovered  somewhat,  after  several  years  of  depressed
conditions,  as a result of the resurgence in the growth of the high  technology
industries.  Such  recovery  was evident in the  leasing  activity at the Martin
Sunnyvale  property  during  fiscal 1996.  During the fourth  quarter,  a tenant
occupying  9,502  square  feet  exercised  its option to extend its lease for an
additional  two years.  The lease  renewal was  negotiated  at a rental rate 40%
higher than the previous  rental rate. A second tenant  occupying  12,334 square
feet opted not to renew its lease,  which had an expiration date of February 28,
1997. The lease was terminated  effective  August 27, 1996 when a new tenant,  a
bio-technology  firm,  signed a five-year lease at a rental rate 60% higher than
the rate paid by the prior  tenant.  The third  tenant,  which  occupies  17,784
square feet,  plans to vacate at the end of its lease term in November 1996. The
property manager and leasing agent are working closely with prospective  tenants
to re-lease this space at a higher rental rate.  Declining market vacancy levels
and increasing  rental rates,  together with the favorable terms achieved on the
two  leases  described  above,  contributed  to a  significant  increase  in the
estimated fair value of the Martin Sunnyvale property as of August 31, 1996. The
current  estimated fair value is slightly  higher than the estimated value as of
the  fiscal  1991  date  of  the  Partnership's   foreclosure  acquisition,   of
$3,400,000,  but remains  substantially  below the  Partnership's  original cost
basis in the Martin  Sunnyvale  land and loan  investments,  of  $5,100,000.  As
previously  reported,  during fiscal 1994 the Partnership engaged the management
and  leasing  agent to explore  the market for  potential  buyers for the Martin
Sunnyvale property.  Subsequent to the time that the Partnership began to market
the property for sale, the Partnership was notified by a California  state water
agency of a potential  environmental problem at Martin Sunnyvale. As a result of
governmental  required  testing,  management  has learned  that there has been a
contamination  of the  underground  soil and water at the site.  The state water
agency has issued a final report  identifying two tenants which had occupied the
property prior to 1985 and may have caused the potential  environmental problem.
Both prior tenants are Fortune 500 companies and both have been ordered at their
own expense to perform the  necessary  testing,  cleanup  and  documentation  as
required by the  California  state water  agency.  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.  The  Partnership  had suspended its
marketing efforts during fiscal 1995 and 1996 as a result of this  environmental
matter.  Subsequent  to August 31,  1996,  management  began to analyze  whether
sufficient  progress has been made in the  remediation  process to allow for the
continuation  of the marketing  efforts.  Management  does not believe that this
situation  will have any  long-term  impact on the  market  value of the  Martin
Sunnyvale property.

      At the Partnership's other wholly-owned  commercial  investment  property,
the Bell Forge Square  Shopping  Center in Nashville,  Tennessee,  the occupancy
level at August 31, 1996 was 100%. 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.
Subsequent to August 31, 1996, a 6,402 square foot furniture store, occupying 5%
of the center's rentable area, closed its operations after generating poor sales
despite strong  marketing  efforts.  This 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 property's leasing team has begun marketing this vacant
space to prospective tenants. At the present time, real estate values for retail
shopping centers in certain markets are being adversely  impacted by the effects
of  overbuilding  and  consolidations  among retailers which have resulted in an
oversupply  of space.  Current  market  conditions in the  Nashville,  Tennessee
submarket in which Bell Forge Square is located remain strong.  It remains to be
seen whether the Bell Forge Square  property will eventually be affected by this
general trend.

     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,   the  likelihood  of  the  Partnership's   mortgage  loan
investment  being  prepaid  has been high  since the time that the terms of such
mortgage loan allowed for prepayment. 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.  The average  occupancy  level at Willow Creek for
the quarter ended August 31, 1996 was 95%, up from 93% for the previous  quarter
and 86% for the same period a year ago.  This was the fifth  straight  quarterly
increase in average occupancy at Willow Creek.  These  improvements in occupancy
are the result of an aggressive  marketing  program that has included the use of
lower rental  rates,  concessions  and shorter than  one-year  lease terms.  The
owner's  property  management team expects to implement rental rate increases in
the second quarter of fiscal 1997.

     The average  occupancy level at Park South  Apartments in Charlotte,  North
Carolina,  was 94% for the quarter  ended  August 31,  1996.  Operations  of the
property  continue to fully  support the debt service and ground lease  payments
owed to the  Partnership in addition to providing a small amount of supplemental
rent under the terms of the ground  lease.  Over the past year,  more than 3,900
new  apartment  units  have  been  added  to  the  overall   Charlotte   market.
Approximately  1,500 of these new units are in Southeast  Charlotte,  where Park
South is located,  and 708 of these new units are in Park South's submarket.  In
addition,  a new rental community is under construction  within one mile of Park
South which will include 400 rental units,  a retail center and a movie theater.
This  property's  pre-leasing  program began in late August.  In order to remain
competitive  with these new units,  Park South  currently  offers reduced rental
rates and/or discounted move-in rates to prospective tenants. As an incentive to
renew leases,  current  tenants are offered minimal rental rate increases at the
expiration of their leases. The use of rental concessions and renewal incentives
is expected to continue  during fiscal 1997.  Park South's  capital  improvement
program  continues to progress in line with the owner's  budget.  In addition to
replacing carpeting, vinyl flooring, appliances and heating and air conditioning
units  on an  as-needed  basis,  renovations  to the  clubhouse,  including  the
addition  of a fitness  room and  business  center,  are  underway  and were 60%
completed as of August 31, 1996.

    At August 31, 1996, the Partnership had available cash and cash  equivalents
of  $2,060,000.  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.


<PAGE>


Results of Operations
1996 Compared to 1995

     The Partnership's net income increased by $24,000 for the year ended August
31,  1996,  when  compared  to  the  prior  year,  despite  a  decrease  in  the
Partnership's  operating income of $707,000.  This decrease in operating income,
together  with a gain of  $1,779,000  recognized in fiscal 1995 from the sale of
the Cordova Creek Apartments and a decrease in income from investment properties
held for sale of  $240,000,  were offset by a recovery  of  $900,000  from prior
provisions  for possible  investment  loss with respect to the Martin  Sunnyvale
property, a $472,000 recovery of an allowance for uncollectible  amounts related
to  the  Partnership's  mortgage  loans  receivable  and a  gain  of  $1,378,000
recognized in fiscal 1996 in connection with the sale of the land underlying The
Corner at Seven Corners Shopping Center. Operating income decreased primarily as
a result of a decrease in revenues of $863,000. Revenues decreased mainly due to
reductions  in  interest  earned on  mortgage  loans of  $538,000  and land rent
revenue of  $310,000.  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 in November  1995. The decline in revenues was
partially  offset by a decrease of $84,000 in both  management  fees and general
and  administrative  expenses.  Management  fees decreased due to a reduction in
adjusted capital  contributions,  upon which such fees are based, as a result of
the  capital  distributions  which  followed  the  sales  of the  Cordova  Creek
Apartments   and  The  Corner  at  Seven   Corners   investments.   General  and
administrative  expenses  declined as a result of a decrease in certain required
professional services in the current year.

      The decrease in income from  operations of investment  properties held for
sale is primarily  attributable to the inclusion of the operating results of the
Cordova Creek  Apartments,  through the date of sale in April 1995, in the prior
year's income. The decrease in income from Cordova Creek was partially offset by
an  increase  in income at the Bell Forge  Square  Shopping  Center.  Net income
increased at Bell Forge Square  primarily due to an increase in rental income of
$83,000 and a decrease in capital  improvement  expenditures of $88,000.  Rental
income  increased  due to an  increase  in  occupancy  from an average of 94% in
fiscal  1995  to an  average  of  98%  for  the  current  fiscal  year.  Capital
improvement  expenditures were significantly higher in the prior year due to the
repair and improvement of the property's exterior facade. In accordance with the
Partnership's  accounting policy for assets held for sale,  capital  improvement
costs are expensed as incurred.

      The $900,000 recovery of possible  investment loss in fiscal 1996 resulted
from  the  significant  increase  in the  estimated  fair  value  of the  Martin
Sunnyvale  property due to the leasing activity and improving market  conditions
discussed  further  above.  In  accordance  with  the  Partnership's  policy  of
accounting for foreclosed assets,  increases in the estimated fair value of such
assets result in reductions of the related  valuation  allowance,  but not below
zero.  The $472,000  balance of a general loan loss reserve was reversed  during
fiscal 1996 as well.  Subsequent  to the  repayment in full of the mortgage loan
secured by The  Corner at Seven  Corners  Shopping  Center in fiscal  1996,  the
Partnership's two remaining mortgage loans are secured by residential  apartment
properties.   As  a  result  of  the  continued  improvement  in  the  operating
performance of these two properties and in the market for residential  apartment
properties in general,  management  determined  that this reserve account was no
longer required.

1995 Compared to 1994

      The  Partnership's  net income  increased by $1,625,000 for the year ended
August 31, 1995,  when  compared to the prior year.  The primary  reason for the
increase in net income was the gain realized by the Partnership from the sale of
the Cordova  Creek  Apartments  on April 12, 1995 of  $1,779,000.  In  addition,
operating income  increased by $125,000  primarily as a result of an increase in
interest income on cash  equivalents of $141,000.  Interest income increased due
to higher  interest  rates earned on invested  cash reserves in fiscal 1995 when
compared to the prior year and a  significant  increase in average cash balances
as a result of the receipt and  temporary  investment  of the Cordova Creek sale
proceeds.  As  discussed  further  above,  the net proceeds of $8.7 million were
received in April 1995 and were invested pending the distribution to the Limited
Partners which occurred in June 1995. In addition,  land rent revenue  increased
by $46,000 due to an increase in additional rent received under the terms of The
Corner at Seven Corners and Park South ground leases.  The increases in interest
income earned on  short-term  investments  and land rent revenue were  partially
offset by an increase in general and administrative expenses of $74,000. General
and  administrative  expenses  increased  mainly due to an increase in legal and
other  professional  fees as a result  of the  potential  environmental  problem
referred to above at the wholly-owned Martin Sunnyvale property.

      The gain realized from the sale of the Cordova  Creek  Apartments  and the
increase  in the  Partnership's  operating  income  were  partially  offset by a
decrease in income from  operations  of investment  properties  held for sale of
$429,000 in fiscal  1995.  This  decrease was partly a result of the sale of the
Cordova Creek Apartments on April 12, 1995, as less than eight months of Cordova
Creek's  operations  were  included in the fiscal 1995's  results.  In addition,
significant capital improvement  expenses were incurred at the Bell Forge Square
Shopping Center during fiscal 1995 in connection with the repair and improvement
of the  property's  exterior  facade.  As noted above,  in  accordance  with the
Partnership's  accounting policy for assets held for sale,  capital  improvement
costs are expensed as incurred.

1994 Compared to 1993

      Net income was comprised of operating income and income from operations of
the investment  properties held for sale. The Partnership's net income increased
by $262,000 for the year ended August 31, 1994 when  compared to the prior year.
Net  income  increased  primarily  as a result of an  increase  in  income  from
investment properties held for sale. This increase in the combined net operating
results of the Cordova Creek, Bell Forge Square and Martin Sunnyvale properties,
of $209,000,  was  primarily  due to increases in rental income at Cordova Creek
and Bell Forge  Square.  Rental  income at  Cordova  Creek  increased  due to an
increase in rental  rates and a slight  increase  in  occupancy.  Rental  income
increased  at Bell  Forge  Square  as a  result  of a  significant  increase  in
occupancy  from 85% at August 31, 1993 to 95% at August 31,  1994.  In addition,
property operating expenses decreased at both of these properties. The increases
in rental income and decreases in property  operating  expenses at Cordova Creek
and Bell Forge Square were partially offset by increases in real estate taxes at
both  properties,  which  resulted  from the receipt of tax refunds in the prior
year. Net operating income at Martin Sunnyvale remained relatively  unchanged in
fiscal 1994 when  compared to fiscal 1993 as a small  increase in rental  income
was offset by an  increase  in  property  operating  expenses.  Net income  also
increased  as a result of a decrease of $100,000 in the  provision  for possible
investment  loss. The provision  represents the net  adjustments to the carrying
values  of the  Partnership's  investment  properties  held for sale to  reflect
changes in  management's  estimate  of the fair  values of such  properties.  In
fiscal 1993, the Partnership recognized a net provision of $250,000 comprised of
a write down of the Sunnyvale  property in the amount of $550,000,  offset by an
adjustment to reduce the Bell Forge valuation  account by $300,000 to reflect an
increase in its estimated  fair value over the prior year.  In fiscal 1994,  the
Partnership  recognized a provision of $150,000 to reflect a further  decline in
the estimated fair value of the Sunnyvale  property.  The increase in the income
from  investment  properties held for sale and the decrease in the provision for
possible  investment  loss  were  partially  offset by a small  decrease  in the
Partnership's  operating  loss of $47,000  mainly due to a decrease in land rent
revenue of  $50,000.  This  decrease  in land rent  revenue  was the result of a
decline in the  additional  rents received from The Corner at Seven Corners land
lease.

Inflation

      The Partnership completed its eleventh full year of operations in 1996 and
the effects of inflation  and changes in prices on revenues and expenses to date
have not been significant.

      The impact of inflation in future  periods may be offset,  in part,  by an
increase  in  revenues  because  the  Partnership's   land  leases  provide  for
additional  rent based upon  increases in the revenues of the related  operating
properties which would tend to rise with inflation. In addition, revenues at the
wholly owned Martin Sunnyvale and Bell Forge Square properties would be expected
to rise with  inflation  because the tenant  leases  contain  rental  escalation
and/or  expense  reimbursement  clauses  based on  increases in tenant sales and
property operating expenses.  Such increases in revenues would be expected to at
least  partially  offset the  increases in  Partnership  and property  operating
expenses resulting from inflation.

Item 8.  Financial Statements and Supplementary Data

      The financial statements and supplementary data are included under Item 14
of this Annual Report.

Item 9.  Changes in and  Disagreements  with  Accountants  on Accounting  and
Financial Disclosure

      None.


<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Partnership

      The  Managing  General  Partner  of the  Partnership  is Fourth  Qualified
Properties,  Inc. a Delaware corporation,  which is a wholly-owned subsidiary of
PaineWebber.  The Associate  General  Partner of the  Partnership  is Properties
Associates 1985, L.P., a Virginia limited partnership,  certain limited partners
of which are also officers of the Adviser and the Managing General Partner.  The
Managing  General  Partner  has overall  authority  and  responsibility  for the
Partnership's operation,  however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.

      (a) and (b) The names and ages of the directors  and  principal  executive
officers of the Managing General Partner of the Partnership are as follows:

                                                                   Date
                                                                   Elected
  Name                     Office                           Age    to Office
  ----                     ------                           ---    ---------

Bruce J. Rubin       President and Director                 37      8/22/96
Terrence E. Fancher  Director                               43     10/10/96
Walter V. Arnold     Senior Vice President and Chief 
                       Financial Officer                    49     10/29/85
James A. Snyder      Senior Vice President                  51       7/6/92
David F. Brooks      First Vice President and Assistant
                        Treasurer                           54      9/19/84*
Timothy J. Medlock   Vice President and Treasurer           35       8/4/89
Thomas W. Boland     Vice President                         34      12/1/91
Dorothy F. Haughey   Secretary                              70      9/19/84*

*  The date of incorporation of the Managing General Partner

      (c) There are no other significant  employees in addition to the directors
and executive officers mentioned above.

      (d) There is no family  relationship among any of the foregoing  directors
or officers  of the  Managing  General  Partner of the  Partnership.  All of the
foregoing  directors and executive officers have been elected to serve until the
annual meeting of the Managing General Partner.

      (e) All of the directors and officers of the Managing General Partner hold
similar  positions in affiliates of the Managing General Partner,  which are the
corporate general partners of other real estate limited  partnerships  sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
Adviser.  The  business  experience  of  each  of the  directors  and  principal
executive officers of the Managing General Partner is as follows:

      Bruce  J.  Rubin is  President  and  Director  of the  Managing  General
Partner.  Mr. Rubin was named  President and Chief  Executive  Officer of PWPI
in August 1996. Mr. Rubin joined  PaineWebber Real Estate  Investment  Banking
in November  1995 as a Senior Vice  President.  Prior to joining  PaineWebber,
Mr.  Rubin was  employed  by Kidder,  Peabody and served as  President  for KP
Realty Advisers,  Inc. Prior to his association  with Kidder,  Mr. Rubin was a
Senior Vice  President  and  Director of Direct  Investments  at Smith  Barney
Shearson.  Prior  thereto,  Mr.  Rubin was a First Vice  President  and a real
estate  workout  specialist  at  Shearson  Lehman  Brothers.  Prior to joining
Shearson  Lehman  Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at  Willkie  Farr &  Gallagher.  Mr.  Rubin is a  graduate  of  Stanford
University and Stanford Law School.



<PAGE>


      Terrence E.  Fancher was  appointed a Director of the  Managing  General
Partner in October  1996.  Mr.  Fancher is the Managing  Director in charge of
PaineWebber's  Real Estate Investment  Banking Group. He joined PaineWebber as
a result  of the  firm's  acquisition  of  Kidder,  Peabody.  Mr.  Fancher  is
responsible  for the origination  and execution of all of  PaineWebber's  REIT
transactions,  advisory assignments for real estate clients and certain of the
firm's real estate debt and principal  activities.  He joined Kidder,  Peabody
in 1985 and,  beginning in 1989, was one of the senior executives  responsible
for  building   Kidder,   Peabody's  real  estate   department.   Mr.  Fancher
previously  worked for a major law firm in New York City.  He has a J.D.  from
Harvard  Law  School,  an M.B.A.  from  Harvard  Graduate  School of  Business
Administration and an A.B. from Harvard College.

      Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing  General  Partner and a Senior Vice  President and Chief  Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the  acquisition  of Rotan  Mosle,  Inc.  where he had been First Vice
President and Controller  since 1978,  and where he continued  until joining the
Adviser.  Mr. Arnold is a Certified Public  Accountant  licensed in the state of
Texas.

      James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser.  Mr. Snyder re-joined the Adviser in
July 1992  having  served  previously  as an  officer  of PWPI from July 1980 to
August 1987.  From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust  Corporation where he served as the Vice President of Asset Sales prior to
re-joining  PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989,  Mr. Snyder was Executive  Vice President and Chief  Financial
Officer  of  Southeast  Regional  Management  Inc.,  a real  estate  development
company.

      David F. Brooks is a First Vice  President and Assistant  Treasurer of the
Managing  General Partner and a First Vice President and an Assistant  Treasurer
of the Adviser.  Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant  Treasurer of Property  Capital  Advisors,  Inc. and
also,  from March 1974 to February 1980, the Assistant  Treasurer of Capital for
Real  Estate,  which  provided  real estate  investment,  asset  management  and
consulting services.

      Timothy J.  Medlock is a Vice  President  and  Treasurer  of the  Managing
General  Partner and a Vice  President  and  Treasurer  of the Adviser  which he
joined  in 1986.  From  June  1988 to August  1989,  Mr.  Medlock  served as the
Controller of the Managing  General Partner and the Adviser.  From 1983 to 1986,
Mr. Medlock was associated with Deloitte Haskins & Sells. Mr. Medlock  graduated
from Colgate  University in 1983 and received his Masters in Accounting from New
York University in 1985.

     Thomas W. Boland is a Vice President of the Managing  General Partner and a
Vice President and Manager of Financial Reporting of the Adviser which he joined
in 1988.  From 1984 to 1987,  Mr.  Boland was  associated  with  Arthur  Young &
Company.  Mr. Boland is a Certified Public  Accountant  licensed in the state of
Massachusetts.  He holds a B.S.  in  Accounting  from  Merrimack  College and an
M.B.A. from Boston University.

     Dorothy F. Haughey is Secretary of the Managing General Partner,  Assistant
Secretary of PaineWebber and Secretary of PWI. Ms. Haughey joined PaineWebber in
1962.

      (f) None of the directors  and officers was involved in legal  proceedings
which are  material to an  evaluation  of his or her ability or  integrity  as a
director or officer.

      (g)  Compliance  With  Exchange Act Filing  Requirements:  The  Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's  limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial  holders are required by SEC  regulations to furnish the  Partnership
with copies of all Section 16(a) forms they file.

      Based solely on its review of the copies of such forms received by it, the
Partnership  believes  that,  during the year ended August 31, 1996,  all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.


<PAGE>


Item 11.  Executive Compensation

      The directors and officers of the  Partnership's  Managing General Partner
receive no current or proposed remuneration from the Partnership.

    The  Partnership  is  required  to pay  certain  fees to the Adviser and the
General  Partners  are entitled to receive a share of cash  distributions  and a
share of profits and losses. These items are described in Item 13.

    The  Partnership  has  paid  cash  distributions  to  the  Unitholders  on a
quarterly basis at rates ranging from 4.5% to 7% per annum on remaining invested
capital over the past five years.  However,  the Partnership's  Units of Limited
Partnership  Interest are not actively traded on any organized exchange,  and no
efficient secondary market exists. Accordingly, no accurate price information is
available for these Units.  Therefore,  a presentation of historical  Unitholder
total returns would not be meaningful.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      (a) The  Partnership  is a limited  partnership  issuing  Units of Limited
Partnership  Interest,  not voting securities.  All the outstanding stock of the
Managing  General  Partner,  Fourth  Qualified  Properties,  Inc.,  is  owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner, is
a Virginia limited  partnership,  limited partners of which are also officers of
the Adviser and the Managing General Partner. Properties Associates 1985 was the
Initial Limited Partner of the  Partnership.  No limited partner is known by the
Partnership to own beneficially more than 5% of the outstanding interests of the
Partnership.

      (b) Neither the directors and officers of the Managing General Partner nor
the limited partners of the Associate General Partner individually own any Units
of Limited  Partnership  interest of the Partnership.  No director or officer of
the Managing General Partner nor the limited  partners of the Associate  General
Partner  possess a right to  acquire  beneficial  ownership  of Units of Limited
Partnership interest of the Partnership.

      (c) There exists no arrangement,  known to the Partnership,  the operation
of  which  may at a  subsequent  date  result  in a  change  in  control  of the
Partnership.

Item 13.  Certain Relationships and  Related Transactions

      The General Partners of the Partnership are Fourth  Qualified  Properties,
Inc. (the "Managing General Partner"), a wholly-owned  subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates 1985, L.P. (the "Associate
General Partner"),  a Virginia limited partnership,  certain limited partners of
which are also officers of the Adviser and the Managing General Partner. Subject
to the  Managing  General  Partner's  overall  authority,  the  business  of the
Partnership  is managed by the Adviser  pursuant to an  advisory  contract.  The
Adviser is a wholly-owned  subsidiary of  PaineWebber  Incorporated  ("PWI"),  a
wholly-owned subsidiary of PaineWebber.

      The General  Partners,  the Adviser and PWI receive fees and  compensation
determined  on an  agreed-upon  basis,  in  consideration  of  various  services
performed  in  connection  with the sale of the  Units,  the  management  of the
Partnership  and the  acquisition,  management  and  disposition  of Partnership
investments.

      Distributable Cash, as defined, of the Partnership will be distributed 98%
to the Limited Partners,  1% to the General Partners and 1% to the Adviser as an
asset  management  fee.   Residual   proceeds   resulting  from  disposition  of
Partnership  investments  will  be  distributed  generally,  95% to the  Limited
Partners,  3.99% to the  Adviser  as an asset  management  fee and  1.01% to the
General  Partners  after the prior  receipt  by the  Limited  Partners  of their
original  capital  contributions  and a cumulative  annual return of 12%, as set
forth in the Amended Partnership Agreement.

      All taxable income or tax loss (other than from a Capital  Transaction) of
the  Partnership  will be  allocated  98.989899%  to the  Limited  Partners  and
1.010101%  to the General  Partners.  Taxable  income or tax loss arising from a
sale or  refinancing of investment  properties  will be allocated to the Limited
Partners  and the  General  Partners  in  proportion  to the  amounts of sale or
refinancing  proceeds  to which they are  entitled;  provided  that the  General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing.  Allocations of the  Partnership's  operations  between the General
Partners and the Limited  Partners for financial  accounting  purposes have been
made in conformity with the allocations of taxable income or tax loss.

      Acquisition  fees in the amount of 3% of the gross offering  proceeds were
paid to the Adviser for analyzing,  structuring and negotiating the acquisitions
of the Partnership's  investments.  The Adviser may receive a commission,  in an
amount  not yet  determinable,  upon  the  disposition  of  certain  Partnership
investments.

      The  Adviser  has  been   contracted   to  perform   specific   management
responsibilities, to administer the day-to-day operations of the Partnership and
to report  periodically  the  performance  of the  Partnership  to the  Managing
General Partner. The Adviser will be paid a basic management fee of 1/2 of 1% of
the gross  proceeds of the  offering,  in addition to the asset  management  fee
described above,  for these services.  Basic and asset management fees totalling
$156,000 were earned for the year ended August 31, 1996.

      The  Managing  General  Partner and the Adviser are  reimbursed  for their
direct expenses  relating to the offering of Units,  the  administration  of the
Partnership  and  the  acquisition  and  operations  of the  Partnership's  real
property investments.

      An affiliate of the Managing General Partner performs certain  accounting,
tax  preparation,  securities  law compliance  and investor  communications  and
relations  services  for the  Partnership.  The  total  costs  incurred  by this
affiliate in providing  such  services are  allocated  among  several  entities,
including the Partnership.  Included in general and administrative  expenses for
the year ended August 31, 1996 is $169,000,  representing reimbursements to this
affiliate for providing such services to the Partnership.

      The  Partnership  uses the  services  of Mitchell  Hutchins  Institutional
Investors,  Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a  subsidiary  of  Mitchell  Hutchins  Asset  Management,  Inc.,  an
independently operated subsidiary of PaineWebber.  Mitchell Hutchins earned fees
of $15,000  (included in general and  administrative  expenses) for managing the
Partnership's  cash assets during fiscal 1996. Fee charged by Mitchell  Hutchins
are based on a percentage of invested  cash  reserves  which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI.



<PAGE>



                                   PART IV



Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a) The following documents are filed as part of this report:

         (1) and (2)   Financial Statements and Schedules:

             The  response to this portion of Item 14 is submitted as a separate
             section  of this  report.  See Index to  Financial  Statements  and
             Financial Statement Schedules at page F-1.

             Financial  statements for the properties securing the Partnership's
             mortgage loans have not been included since the  Partnership has no
             contractual   right  to  the  information   and  cannot   otherwise
             practicably obtain the information.

         (3) Exhibits:

             The exhibits listed on the  accompanying  index to exhibits at page
             IV-3 are filed as part of this Report.

     (b) No reports on Form 8-K were filed  during the fourth  quarter of fiscal
     1996.


     (c) Exhibits

             See (a)(3) above.

     (d) Financial Statement Schedules

             The  response to this portion of Item 14 is submitted as a separate
             section  of this  report.  See Index to  Financial  Statements  and
             Financial Statement Schedules at page F-1.










<PAGE>



                                  SIGNATURES

   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                              PAINE WEBBER QUALIFIED PLAN
                              PROPERTY FUND FOUR, LP


                              By:  Fourth Qualified Properties, Inc.
                                   Managing General Partner



                              By:  /s/ Bruce J. Rubin
                                   Bruce J. Rubin
                                   President and Chief Executive Officer




                              By:  /s/ Walter V. Arnold
                                   Walter V. Arnold
                                   Senior Vice President and
                                   Chief Financial Officer



                              By:  /s/ Thomas W. Boland
                                   Thomas W. Boland
                                   Vice President



Dated:  November 22, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Partnership in
the capacity and on the dates indicated.



By:/s/ Bruce J. Rubin                           Date:  November 22, 1996
   ----------------------                              -----------------
   Bruce J. Rubin
   Director



By:/s/ Terrence E. Fancher                      Date   November 22, 1996
   -----------------------                             -----------------
   Terrence E. Fancher
   Director



<PAGE>


                          ANNUAL REPORT ON FORM 10-K
                                Item 14(a)(3)

              PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP


                              INDEX TO EXHIBITS






                                                     Page Number in the Report
Exhibit No.    Description of Document               or Other Reference
-----------    -----------------------               --------------------------

(3) and (4) Prospectus of the Registrant             Filed with the Commission
            dated December 3, 1985, supplemented,    pursuant to Rule 424(c)
            with particular reference to the         and incorporated herein by
            Restated Certificate and Agreement       reference.
            Limited Partnership.


(10)        Material contracts previously filed as   Filed with the Commission
            exhibits to registration statements and  pursuant to Section 13 or
            amendments thereto of the registrant     15(d) of the Securities 
            together with all such contracts filed   Exchange Act of 1934 and 
            as exhibits of previously filed Forms    incorporated herein by
            8-K and Forms 10-K are hereby            reference.
            incorporated herein by reference.


(13)        Annual Reports to Limited Partners       No Annual Report for the
                                                     year ended August 31, 1996 
                                                     has been sent   to  the 
                                                     Limited Partners. Annual 
                                                     Report will be sent to the 
                                                     Limited Partners 
                                                     subsequent to this filing.


(27)        Financial Data Schedule                  Filed  as  last  page of
                                                     EDGAR submission following
                                                     the Financial Statements
                                                     and Financial Statement
                                                     Schedule required by
                                                     Item 14.



<PAGE>
                          ANNUAL REPORT ON FORM 10-K
                       Item 14(a)(1) and (2) and 14(d)

              PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

       INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                                                      Reference

Paine Webber Qualified Plan Property Fund Four, LP:

      Report of independent auditors                                     F-2

      Balance sheets as of August 31, 1996 and 1995                      F-3

      Statements of income for the years ended August 31, 1996, 1995
         and 1994                                                        F-4

      Statements of changes in partners' capital (deficit) for the years
         ended  August 31, 1996, 1995 and 1994                           F-5

      Statements of cash flows for the years ended August 31, 1996, 
         1995 and 1994                                                   F-6

      Notes to financial statements                                      F-7

      Financial Statement Schedules:

          Schedule III - Real Estate Owned                              F-17
          Schedule IV - Investments in Mortgage Loans on Real Estate    F-19


      Other  schedules  have been omitted since the required  information is not
present or not  present  in amounts  sufficient  to  require  submission  of the
schedule,  or because the  information  required  is  included in the  financial
statements, including the notes thereto.




<PAGE>



                        REPORT OF INDEPENDENT AUDITORS



The Partners of
Paine Webber Qualified Plan Property Fund Four, LP:


      We have audited the accompanying  balance sheets of Paine Webber Qualified
Plan  Property  Fund Four,  LP as of August 31,  1996 and 1995,  and the related
statements of income,  changes in partners' capital (deficit) and cash flows for
each of the three years in the period  ended  August 31,  1996.  Our audits also
included the financial  statement  schedules  listed in the Index at Item 14(a).
These  financial   statements  and  schedules  are  the  responsibility  of  the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects,  the financial position of Paine Webber Qualified Plan
Property  Fund Four,  LP at August  31,  1996 and 1995,  and the  results of its
operations  and its cash flows for each of the three  years in the period  ended
August 31, 1996, in conformity with generally  accepted  accounting  principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial  statements taken as a whole,  present fairly
in all material respects the information set forth therein.






                                                       /S/ ERNST & YOUNG LLP
                                                       ---------------------
                                                       ERNST & YOUNG LLP




Boston, Massachusetts
November 15, 1996





<PAGE>


              PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                                BALANCE SHEETS
                           August 31, 1996 and 1995
                     (In thousands, except per Unit data)

                                    ASSETS

                                                        1996            1995
                                                        ----            ----
Real estate investments:
   Investment properties held for sale, net
     of allowance for possible investment
     loss of $300 ($1,200 in 1995)                    $12,100        $11,200
   Land                                                 1,115          3,177
   Mortgage loans, net of allowance for possible
     uncollectible amounts of $472 in 1995              7,285         13,001
                                                      -------        -------
                                                       20,500         27,378

Cash and cash equivalents                               2,060          1,851
Interest receivable                                        60            118
Accounts receivable                                        14             23
Deferred expenses, net of accumulated
  amortization of $266 ($227 in 1995)                      99            138
Other assets                                               68             43
                                                      -------        -------
                                                      $22,801        $29,551
                                                      =======        =======

                      LIABILITIES AND PARTNERS' CAPITAL

Accounts payable - affiliates                         $    32        $    44
Accounts payable and accrued expenses                     201            137
Unearned rental income                                     26             26
Tenant security deposits                                   45             47
Other liabilities                                           -             50
                                                      -------        --------
      Total liabilities                                   304            304

Partners' capital:
  General Partners:
   Capital contributions                                    1              1
   Cumulative net income                                  404            359
   Cumulative cash distributions                         (394)          (378)

  Limited Partners ($50 per Unit, 
     896,993 Units issued):
   Capital contributions, net of  offering costs       40,309         40,309
   Cumulative net income                               32,033         27,626
   Cumulative cash distributions                      (49,856)       (38,670)
                                                      -------        -------
       Total partners' capital                         22,497         29,247
                                                      -------        -------
                                                      $22,801        $29,551
                                                      =======        =======








                           See accompanying notes.


<PAGE>


              PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                             STATEMENTS OF INCOME
              For the years ended August 31, 1996, 1995 and 1994
                     (In thousands, except per Unit data)

                                               1996       1995          1994
                                               ----       ----          ----
Revenues:
   Interest from mortgage loans             $     875     $ 1,413     $ 1,413
   Land rent                                      202         512         466
   Interest earned on cash equivalents
     and other income                             210         225          84
                                            ---------     -------     -------
                                                1,287       2,150       1,963
Expenses:
   Management fees                                156         240         252
   General and administrative                     424         508         434
   Amortization of deferred expenses               39          27          27
   Recovery of allowance for 
     uncollectible amounts                       (472)          -           -
                                            ---------     -------     -------
                                                  147         775         713
                                            ---------     -------     -------
Operating income                                1,140       1,375       1,250

Investment properties held for sale:
   Recovery of (provision for) 
     possible investment loss                     900           -        (150)
   Gain on sale of land                         1,378           -           -
   Gain on sale of investment property
     held for sale                                  -       1,779           -
   Income from investment properties
     held for sale, net                         1,034       1,274       1,703
                                            ---------    --------     -------
                                                3,312       3,053       1,553
                                            ---------    --------     -------
Net income                                  $   4,452    $  4,428     $ 2,803
                                            =========    ========     =======

Net income per Limited Partnership Unit        $ 4.91     $  4.89       $3.09
                                               ======     =======       =====

Cash distributions per Limited
 Partnership Unit                              $12.47      $13.75       $3.00
                                               ======      ======       =====



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 year.












                           See accompanying notes.


<PAGE>


               PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
               For the years ended August 31, 1996, 1995 and 1994
                                 (In thousands)


                                         General     Limited
                                         Partners    Partners     Total
                                         --------    --------     -----

Balance at August 31, 1993                 $ (36)  $  37,131   $  37,095

Net income                                    28       2,775       2,803

Cash distributions                           (27)     (2,691)     (2,718)
                                          ------  ----------  ----------

Balance at August 31, 1994                   (35)     37,215      37,180

Net income                                    45       4,383       4,428

Cash distributions                           (28)    (12,333)    (12,361)
                                          ------    --------   ---------

Balance at August 31, 1995                   (18)     29,265      29,247

Net income                                    45       4,407       4,452

Cash distributions                           (16)    (11,186)    (11,202)
                                          ------    --------   ---------

Balance at August 31, 1996                $   11    $ 22,486    $ 22,497
                                          ======    ========    ========























                           See accompanying notes.



<PAGE>


               PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                            STATEMENTS OF CASH FLOWS
               For the years ended August 31, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                               1996      1995          1994
                                               ----      ----          ----

Cash flows from operating activities:
   Net income                              $  4,452      $ 4,428      $ 2,803
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Recovery of allowance for 
       uncollectible amounts                  (472)            -            -
     Recovery of (provision for) possible
      investment loss                         (900)            -          150
     Gain on sale of land                   (1,378)            -            -
     Gain on sale of investment property
       held for sale                              -       (1,779)           -
     Amortization of deferred expenses           39           27           27
     Changes in assets and liabilities:
       Interest receivable                       58            -            -
       Accounts receivable                        9           14           15
       Tax and tenant security deposits
         escrows                                  -           94           (9)
       Other assets                             (25)          43          (43)
       Accounts payable - affiliates            (12)         (12)         (34)
       Accounts payable and accrued expenses     64            7          (44)
       Tenant security deposits                  (2)         (22)           6
       Unearned rental income                     -            -           18
       Other liabilities                        (50)          50            -
                                           --------      -------        -----
         Total adjustments                   (2,669)      (1,578)          86
                                           --------      -------        -----
         Net cash provided by 
          operating activities                1,783        2,850        2,889
                                           --------      -------        -----


Cash flows from investing activities:
   Net proceeds from sale of land             3,440            -            -
   Repayment of mortgage loan receivable      6,188            -            -
   Net proceeds from sale of 
     investment property  held for sale           -        8,680            -
                                           --------     --------       ------
         Net cash provided by
           investing activities               9,628        8,680            -
                                           --------     --------       ------

Cash flows from financing activities:
   Distributions to partners                (11,202)     (12,361)       (2,718)
                                          ---------     --------      --------

Net increase (decrease) in cash and
  cash equivalents                              209         (831)         171

Cash and cash equivalents,
  beginning of year                           1,851        2,682        2,511
                                          ---------     --------     --------

Cash and cash equivalents,
  end of year                             $   2,060      $ 1,851      $ 2,682
                                          =========      =======      =======




                           See accompanying notes.



<PAGE>


              PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                        NOTES TO FINANCIAL STATEMENTS

1.  Organization and Nature of Operations

    Paine Webber Qualified Plan Property Fund Four, LP (the  "Partnership") is a
    limited partnership  organized pursuant to the laws of the State of Delaware
    in October 1984 for the purpose of investing in a  diversified  portfolio of
    existing  income-producing real properties through land  purchase-leasebacks
    and first mortgage loans.  The Partnership  authorized the issuance of Units
    (the "Units") of Limited Partnership Interest of which 896,993 Units (at $50
    per Unit) were subscribed and issued between  December 14, 1984 and December
    13, 1985.

    The Partnership  originally owned land and made first mortgage loans secured
    by buildings with respect to six operating investment  properties.  To date,
    the Partnership has sold or been prepaid on its investments  with respect to
    two of the  original  operating  properties.  As of  August  31,  1996,  the
    Partnership's  mortgage  loans  and  land  lease  investments  on two of the
    original  properties were still  outstanding,  and the Partnership owned two
    operating  properties directly as a result of foreclosing under the terms of
    its mortgage loans receivable. See Notes 4 and 5 for a further discussion of
    the Partnership's outstanding real estate investments.

2. Use of Estimates and Summary of Significant Accounting Policies

    The  accompanying  financial  statements  have been  prepared on the accrual
    basis  of  accounting  in  accordance  with  generally  accepted  accounting
    principles  which require  management to make estimates and assumptions that
    affect the reported  amounts of assets and  liabilities  and  disclosures of
    contingent  assets  and  liabilities  as of  August  31,  1996  and 1995 and
    revenues and expenses for each of the three years in the period ended August
    31, 1996.  Actual  results could differ from the  estimates and  assumptions
    used.

    Investment  properties  held  for  sale  represent  assets  acquired  by the
    Partnership  through  foreclosure  proceedings on first mortgage loans.  The
    Partnership's  policy  is to  carry  these  assets  at the  lower of cost or
    estimated fair value (net of selling expenses). The Partnership's cost basis
    is equal  to the  fair  value  of the  assets  at the  date of  foreclosure.
    Declines in the estimated fair value of the assets subsequent to foreclosure
    are recorded through the use of a valuation allowance.  Subsequent increases
    in the  estimated  fair  value of the  assets  result in  reductions  of the
    valuation  allowance,  but not below  zero.  All costs  incurred to hold the
    assets are charged to expense and no depreciation expense is recorded.

    The  Partnership's  investments in land subject to ground leases are carried
    at the lower of cost or net realizable  value. The net realizable value of a
    real estate investment held for long-term investment purposes is measured by
    the  recoverability of the investment  through expected future cash flows on
    an undiscounted basis, which may exceed the property's current market value.
    The net  realizable  value of a  property  held for  sale  approximates  its
    current market value. None of the  Partnership's  land investments were held
    for sale as of August 31, 1996 or 1995. The Partnership has reviewed FAS No.
    121 "Accounting  for the Impairment of Long-Lived  Assets and for Long-Lived
    Assets To Be Disposed Of" which is effective  for financial  statements  for
    years beginning after December 15, 1995, and believes this new pronouncement
    will not have a material effect on the Partnership's financial statements.

    Mortgage  loans  receivable  are carried at the lower of cost or fair value.
    The Partnership's  policy is to provide for any valuation allowances for its
    mortgage loan investments on a specific identification basis, principally by
    evaluating the market value of the underlying collateral since the loans are
    collateral  dependent.  In addition, a general loan loss reserve of $860,000
    was  recorded  in fiscal  1990  reflecting  management's  assessment  of the
    general credit risk  applicable to the  Partnership's  portfolio of mortgage
    loan investments taken as a whole. During fiscal 1991, $388,000 of this loan
    loss  reserve was  reversed  due to the  acquisition  of certain  properties
    through foreclosure on the outstanding mortgage loans receivable.  In fiscal
    1996, the remainder of this loan loss reserve, of $472,000,  was reversed as
    a result of continued  improvements  in the  operating  performances  of the
    underlying  collateral  properties  and in real estate market  conditions in
    general (see Note 4).

    Deferred expenses represent acquisition fees paid to PaineWebber  Properties
    Incorporated (the "Adviser") as compensation for analyzing,  structuring and
    negotiating the Partnership's real estate investments.  These fees are being
    amortized  using the  straight-line  method over the terms of the  remaining
    mortgage loans receivable, which range from thirteen to fifteen years.

    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  mortgage  loans  receivable,   cash  and  cash  equivalents,   interest
    receivable,  accounts receivable, accounts payable - affiliates and accounts
    payable and accrued liabilities appearing on the accompanying balance sheets
    represent  financial  instruments  for  purposes of  Statement  of Financial
    Accounting  Standards  No. 107,  "Disclosures  about Fair Value of Financial
    Instruments." With the exception of mortgage loans receivable,  the carrying
    amount of these assets and liabilities  approximates  their fair value as of
    August  31,  1996 due to the  short-term  maturities  of these  instruments.
    Information  regarding the fair value of the  Partnership's  mortgage  loans
    receivable  is  provided  in  Note 4.  The  fair  value  of  mortgage  loans
    receivable  is estimated  using  discounted  cash flow  analysis and further
    considers independent  appraisals of the underlying  collateral  properties.
    Such  appraisals  make use of a combination  of certain  generally  accepted
    valuation techniques, including direct capitalization, discounted cash flows
    and comparable sales analysis (see Note 4 for a further discussion).

    No provision  for income taxes has been made as the liability for such taxes
    is that of the partners rather than the Partnership.

3.  The Partnership Agreement and Related Party Transactions

    The General  Partners of the  Partnership are Fourth  Qualified  Properties,
    Inc.  (the  "Managing  General  Partner"),  a  wholly-owned   subsidiary  of
    PaineWebber Group Inc. ("PaineWebber"), and Properties Associates 1985, L.P.
    (the "Associate General Partner"),  a Virginia limited partnership,  certain
    limited  partners of which are also officers of the Adviser and the Managing
    General  Partner.   Subject  to  the  Managing  General   Partner's  overall
    authority,  the  business  of the  Partnership  is  managed  by the  Adviser
    pursuant to an advisory contract.  The Adviser is a wholly-owned  subsidiary
    of  PaineWebber   Incorporated   ("PWI"),   a  wholly-owned   subsidiary  of
    PaineWebber.

    Acquisition  fees in the amount of 3% of the gross  offering  proceeds  were
    paid  to  the  Adviser  for  analyzing,   structuring  and  negotiating  the
    acquisitions  of the  Partnership's  investments.  The Adviser may receive a
    commission,  in an amount  not yet  determinable,  upon the  disposition  of
    certain Partnership investments.

    The General  Partners,  the Adviser  and PWI receive  fees and  compensation
    determined on an agreed-upon  basis, in  consideration  of various  services
    performed in connection  with the sale of the Units,  the  management of the
    Partnership and the  acquisition,  management and disposition of Partnership
    investments.

    Distributable  Cash, as defined,  of the Partnership will be distributed 98%
    to the Limited Partners, 1% to the General Partners and 1% to the Adviser as
    an asset  management fee.  Residual  proceeds  resulting from disposition of
    Partnership  investments will be distributed  generally,  95% to the Limited
    Partners,  3.99% to the Adviser as an asset  management fee and 1.01% to the
    General  Partners  after the prior receipt by the Limited  Partners of their
    original capital contributions and a cumulative annual return of 12%, as set
    forth in the Amended Partnership Agreement.

    All taxable  income or tax loss (other than from a Capital  Transaction)  of
    the  Partnership  will be allocated  98.989899% to the Limited  Partners and
    1.010101% to the General Partners. Taxable income or tax loss arising from a
    sale or  refinancing  of  investment  properties  will be  allocated  to the
    Limited  Partners and the General  Partners in  proportion to the amounts of
    sale or refinancing  proceeds to which they are entitled;  provided that the
    General  Partners  shall be allocated at least 1% of taxable  income arising
    from a sale or  refinancing.  Allocations  of the  Partnership's  operations
    between  the  General  Partners  and  the  Limited  Partners  for  financial
    accounting  purposes have been made in conformity  with the  allocations  of
    taxable income or tax loss.

    The   Adviser   has  been   contracted   to  perform   specific   management
    responsibilities, to administer the day-to-day operations of the Partnership
    and  to  report  periodically  the  performance  of the  Partnership  to the
    Managing General Partner. The Adviser will be paid a basic management fee of
    1/2 of 1% of the gross  proceeds of the  offering,  in addition to the asset
    management  fee  described  above,  for  these  services.  Basic  and  asset
    management  fees totalling  $156,000,  $240,000 and $252,000 were earned for
    the years  ended  August 31,  1996,  1995 and 1994,  respectively.  Accounts
    payable - affiliates at August 31, 1996 and 1995 consists of management fees
    of $32,000 and $44,000, respectively, payable to the Adviser.

    The Managing General Partner and the Adviser are reimbursed for their direct
    expenses  relating  to the  offering  of Units,  the  administration  of the
    Partnership  and the acquisition  and operations of the  Partnership's  real
    property investments.

    Included in general and  administrative  expenses for the years ended August
    31, 1996,  1995 and 1994 is $169,000,  $207,000 and $186,000,  respectively,
    representing  reimbursements to an affiliate of the Managing General Partner
    for  providing  certain  financial,  accounting  and investor  communication
    services to the Partnership.

    The  Partnership  uses  the  services  of  Mitchell  Hutchins  Institutional
    Investors,  Inc.  ("Mitchell  Hutchins")  for the  managing of cash  assets.
    Mitchell  Hutchins is a subsidiary of Mitchell  Hutchins  Asset  Management,
    Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins
    earned  fees  of  $15,000,  $5,000  and  $7,000  (included  in  general  and
    administrative  expenses) for managing the Partnership's  cash assets during
    fiscal 1996, 1995 and 1994, respectively.

4. Real Estate Investments

      The following first mortgage loans were outstanding at August 31, 1996 and
1995 (in thousands):

                                                                     Date of
                            Amount of Loan                           Loan and
         Property          1996      1995     Interest Rate          Maturity
         --------          ----      ----     -------------          --------

      The Corner at      $   -    $ 6,188     11.25%                   1/9/85
      Seven Corners                                                    2/1/98
      Shopping Center
      Fairfax, VA (1)

      Willow Creek       3,055      3,055     Years 1 to 5 - 10.50%    10/31/85
      Apartments                              Thereafter 11%           10/31/00
      Wichita, KS

      Park South         4,230      4,230     9%                       12/29/88
      Apartments                                                       12/28/01
      Charlotte, NC
                         7,285     13,473
      Less: Allowance
            for
            possible 
            uncollectible
            amounts (2)     -       (472)
                       ------    -------
                      $ 7,285    $13,001
                      =======    =======

(1) As discussed further below, the mortgage loan secured by The Corner at Seven
    Corners Shopping Center was prepaid on November 22, 1995.

(2) The balance of the  allowance for possible  uncollectible  amounts at August
    31, 1995 represented a general loan loss reserve recorded during fiscal 1990
    (see Note 2). This balance was reduced to $472,000  during  fiscal 1991 from
    its original  balance of $860,000 as a result of the  foreclosures of Martin
    Sunnyvale  Research and  Development  Center and Bell Forge Square  Shopping
    Center (see Note 5).  Subsequent  to the  repayment  in full of the mortgage
    loan secured by The Corner at Seven Corners  Shopping Center in fiscal 1996,
    the  Partnership's  two remaining  mortgage loans are secured by residential
    apartment  properties.  As a  result  of the  continued  improvement  in the
    operating  performance  of  these  two  properties  and  in the  market  for
    residential  apartment  properties in general,  the Partnership reversed the
    remainder of this loan loss reserve in fiscal 1996. The recovery of $472,000
    is reflected on the accompanying income statement.

In general,  the loans are secured by first  mortgages  on the  properties,  the
owner's  leasehold  interest in the land and an assignment of all tenant leases,
where  applicable.  Interest  is payable  monthly  and the  principal  is due at
maturity.

In  relation  to  the   above-mentioned   mortgage  loans,  the  following  land
purchase-leaseback transactions had also been entered into as of August 31, 1996
and 1995 (in thousands):

                                      Cost of Land
                                   to the Partnership
            Property               1996          1995      Annual Base Rent
            --------               ----          ----      ----------------

      The Corner at Seven         $    -       $ 2,062          $232
        Corners Shopping
        Center
      Fairfax, VA (1)

      Willow Creek Apartments        345           345      Years 1 to 5 - $36
      Wichita, KS                                           Thereafter - $38

      Park South Apartments (2)      770           770         $  69
      Charlotte, NC               ------       -------
                                 $ 1,115       $ 3,177
                                 =======       =======

(1)As discussed  further below,  the  Partnership  sold the land  underlying The
   Corner at Seven Corners Shopping Center on November 22, 1995.

(2)The  Partnership  owns a 77% interest in the land  underlying  the Park South
   Apartments and has an equivalent  interest in the first secured mortgage loan
   secured by the  improvements.  The  remaining  23%  interest  in the land and
   mortgage loan receivable is owned by an affiliated  partnership,  PaineWebber
   Mortgage Partners Five, L.P.

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 from the operating  properties in excess of a base amount,  as defined.
During  fiscal  1995 and  1994,  the  Partnership  received  additional  rent of
$126,000 and $98,000,  respectively,  from The Corner at Seven Corners  Shopping
Center land  investment.  In addition,  during fiscal 1996,  1995 and 1994,  the
Partnership   received   additional  rent  of  $44,000,   $47,000  and  $29,000,
respectively,  from the Park South Apartments land investment.  The lessees have
the option to purchase  the land for  specified  periods of time,  beginning  in
November  1995 for Willow Creek and December of 1997 for Park South,  at a price
based on the fair market value, as defined,  but not less than the original cost
to the Partnership.

The  objectives  of the  Partnership  with respect to its mortgage loan and land
investments are to provide current income from fixed mortgage  interest payments
and base land rents,  then to provide  increases to this current  income through
participation in the annual revenues  generated by the property as they increase
above a specified base amount. In addition,  the  Partnership's  investments are
structured to share in the  appreciation in value of the underlying real estate.
Accordingly, upon either sale, refinancing, maturity of the mortgage or exercise
of the option to repurchase the land, the Partnership  will receive a 40% to 50%
share of the appreciation above a specified base amount.

The mortgage loan secured by The Corner at Seven Corners  Shopping Center became
prepayable  in February  1995. On December 16, 1994,  the borrower  notified the
Partnership of its intent to prepay the loan and exercise the option to purchase
the land in conjunction with a refinancing of the operating property. Along with
such formal notice,  the borrower sent a $50,000  deposit to the  Partnership in
accordance  with the terms of the ground  lease.  During the current  year,  the
Partnership  and the borrower  agreed to terms for the repayment of the mortgage
loan and purchase of the underlying land. The terms of the transaction  included
the full  repayment of the  Partnership's  mortgage loan of  $6,188,000  and the
payment of $3,440,000 for obligations owing under the ground lease, representing
the  repurchase  of the  $2,062,000  ground  investment  and  $1,378,000  as the
Partnership's  share of the  appreciation in value of the property.  On November
22, 1995, the transaction closed and the Partnership  received gross proceeds of
$9.6 million.  Management believes that the amount paid to the Partnership under
the terms of the  ground  lease  reflected  the fair value of the  property,  as
supported by the Partnership's most recent independent  appraisal.  The proceeds
of this  transaction  were  distributed  to the  Limited  Partners in the second
quarter of fiscal 1996.

The Willow Creek mortgage loan became  prepayable in November  1995.  Management
believes that the potential for a near term  prepayment of this loan is high. As
a result of these circumstances,  based on an expected short-term maturity,  the
estimated fair value of the Willow Creek mortgage loan approximates its carrying
value as of August 31,  1996 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  approximates the loan's
carrying value as of August 31, 1996.

5.  Investment Properties Held for Sale

At August 31, 1996 and August 31,  1995,  the  Partnership  owned two  operating
investment  properties directly as a result of foreclosure  proceedings prompted
by defaults under the terms of the first mortgage loans held by the Partnership.
In addition,  the Partnership sold an operating investment property which it had
owned directly during fiscal 1995. The balance of investment properties held for
sale on the accompanying  balance sheet at August 31, 1996 and 1995 is comprised
of the following net carrying values (in thousands):

                                                    1996             1995
                                                    ----             ----
      Martin Sunnyvale Research and
        Development Center                        $ 3,400           $ 2,500
      Bell Forge Square Shopping Center             8,700             8,700
                                                  -------           -------
                                                  $12,100           $11,200
                                                  =======           =======

The  Partnership  complies  with the  guidelines  set forth in the  Statement of
Position  entitled  "Accounting for Foreclosed  Assets",  issued by the American
Institute  of  Certified  Public  Accountants,  to  account  for its  investment
properties  acquired through  foreclosures.  Under the Statement of Position,  a
foreclosed  asset is  recorded  at the lower of cost or  estimated  fair  value,
reduced by the  estimated  costs to sell the asset.  Cost is defined as the fair
value of the asset at the date of the  foreclosure.  Declines  in the  estimated
fair value of the assets  subsequent to foreclosure are recorded through the use
of a valuation  allowance.  Subsequent  increases in the estimated fair value of
the assets result in reductions of the valuation allowance,  but not below zero.
As of August 31, 1996,  the aggregate  cost basis of the  investment  properties
held for sale for federal income tax purposes is approximately $14,764,000.

Descriptions of the  transactions  through which the Partnership  acquired these
properties and of the properties themselves are summarized below:
<PAGE>
   Martin Sunnyvale Research and Development Center

      On July 12,  1991,  the  Partnership  foreclosed  under  the  terms of the
   mortgage  loan  secured  by the Martin  Sunnyvale  Research  and  Development
   Center.  The borrower had  defaulted on the payment  terms of the loan due to
   significant lease turnover during 1991. The property, which was 100% occupied
   as of August 31, 1996,  is comprised  of 39,286  leasable  square feet and is
   located  in  Sunnyvale,  California.  The  Partnership  recognized  a loss on
   foreclosure of $1,742,000 in fiscal 1991 in connection  with its  acquisition
   of the  property.  The loss  consisted of a write-down  of  $1,700,000 to the
   combined  cost basis of the land and the face amount of the mortgage loan and
   a $42,000 write-off of the unamortized  balance of deferred expenses incurred
   in connection  with the original  acquisition  of the investment in 1985. The
   $1,700,000  write-down reflected  management's  estimate of the fair value of
   the  investment  property,  net  of  selling  expenses,  at the  date  of the
   foreclosure.  The  combined  carrying  value  of the  original  land and loan
   investments,  of $5,100,000, was adjusted to this estimate of $3,400,000, and
   reclassified to investment properties held for sale. During fiscal 1994, 1993
   and 1992, the Partnership recorded provisions for possible investment loss of
   $150,000,  $550,000 and  $200,000,  respectively,  to write down the carrying
   value of the Martin  Sunnyvale  investment  property  to  reflect  additional
   declines in its estimated fair value, net of selling expenses.  The resulting
   net carrying  value of  $2,500,000  is included in the balance of  investment
   properties  held for sale on the  accompanying  balance  sheet at August  31,
   1995.  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.  Such recovery was evident in the
   leasing activity at the Martin Sunnyvale  property during fiscal 1996. During
   the fourth quarter, a tenant occupying 9,502 square feet exercised its option
   to extend  its lease for an  additional  two  years.  The lease  renewal  was
   negotiated  at a rental  rate 40% higher than the  previous  rental  rate.  A
   second  tenant  occupying  12,334  square  feet opted not to renew its lease,
   which had an expiration  date of February 28, 1997.  The lease was terminated
   effective  August 27, 1996 when a new tenant  signed a  five-year  lease at a
   rental  rate 60%  higher  than the rate paid by the prior  tenant.  The third
   tenant,  which occupies 17,784 square feet, plans to vacate at the end of its
   lease term in November  1996.  The  property  manager  and leasing  agent are
   working closely with  prospective  tenants to re-lease this space at a higher
   rental rate. 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 in the fiscal  1996  income  statement.  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 sheet as of August 31,
   1996.

      During fiscal 1994,  the  Partnership  engaged the  management and leasing
   agent to explore  the market for  potential  buyers for the Martin  Sunnyvale
   investment  property.  Subsequent to the time that the  Partnership  began to
   market the property for sale,  the  Partnership  was notified by a California
   state water agency of a potential  environmental problem at Martin Sunnyvale.
   As a result of  governmental  required  testing,  management has learned that
   there has been a contamination of the underground soil and water at the site.
   This  contamination may have been caused by either a previous occupant at the
   site or by an occupant of a nearby property.  The  environmental  testing was
   paid  for by  one of the  parties  identified  as a  potential  contaminator.
   Management   believes  that  this   contamination   occurred   prior  to  the
   Partnership's  initial  mortgage  loan and ground  lease  investments  in the
   property,  which were made in 1985.  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.
   The  Partnership  had suspended its marketing  efforts during fiscal 1995 and
   1996 as a result of this environmental matter. Subsequent to August 31, 1996,
   management began to analyze whether sufficient  progress has been made in the
   remediation process to allow for the continuation of the marketing efforts.

   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 100%  occupied as of August 31,  1996,  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 Partnership
   recognized a loss in fiscal 1991 of $101,000,  representing  the write-off of
   the unamortized  balance of deferred expenses incurred in connection with the
   original acquisition of the Bell Forge Square investment.  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 sheet at August 31, 1996 and 1995.

   Cordova Creek Apartments

      The Partnership foreclosed under the terms of the mortgage loan secured by
   Cordova Creek  Apartments  on February 20, 1990,  due to  non-payment  of the
   required interest payments.  As a result of the foreclosure,  the Partnership
   owned the land and  improvements  and  employed a local  property  management
   company to manage the day-to-day  operations of the apartment complex,  which
   is located in Memphis,  Tennessee.  An  affiliated  partnership,  PaineWebber
   Qualified Plan Property Fund Three, LP ("QP3"),  originally invested $250,000
   for a 3.5%  interest in the mortgage  loan  secured by Cordova  Creek and the
   related  ground lease.  As a result of the  foreclosure,  QP3 retained a 3.5%
   interest in the net cash flow and the eventual sale  proceeds  related to the
   operating property.  The fair value of the operating property, net of selling
   expenses,  at the date of  foreclosure  was  estimated  by  management  to be
   approximately  equal to the combined  cost basis of the land and the original
   face amount of the mortgage loan, totalling $6,900,500.

      On April 12, 1995, the Partnership sold the Cordova Creek Apartments to an
   unaffiliated   third  party  for   $9,100,000.   After  payment  of  required
   transaction costs, including payment to QP3 for its 3.5% equity interest, the
   net proceeds  realized by the  Partnership  from the sale were  approximately
   $8.7 million. A special  distribution of $215 per original $1,000 investment,
   or  $9,643,000,  was  made to  Limited  Partners  on  June  15,  1995,  which
   represented  approximately $195 from the Cordova Creek net sales proceeds and
   $20 as a distribution from cash reserves which were deemed to be in excess of
   the Partnership's expected future requirements.

      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  Cordova  Creek
   Apartments  (through  the  date  of  sale),  Martin  Sunnyvale  Research  and
   Development  Center and Bell Forge Square Shopping Center for the years ended
   August 31, 1996, 1995 and 1994 are as follows (in thousands):

                                              1996       1995         1994
                                              ----       ----         ----

      Rental income and expense 
        reimbursements                       $1,449      $2,121      $2,498
      Other income                              277         282         250
                                              1,726       2,403       2,748

      Property operating expenses (1)           461         774         722
      Property taxes and insurance              231         329         297
                                             ------      ------      ------
                                                692       1,103       1,019
                                             ------      ------      ------
      Income from operations, net            $1,034      $1,300      $1,729
                                             ======      ======      ======

      Partnership's share of combined
         operations                          $1,034      $1,274      $1,703
      QP3's share of Cordova Creek
         operations                              -           26          26
                                             ------      ------      ------
                                             $1,034      $1,300      $1,729
                                             ======      ======      ======
<PAGE>
(1) As  discussed in Note 2, in  accordance  with the  Partnership's  accounting
    policy for assets held for sale,  capital  improvement costs are expensed as
    incurred. Included in property operating expenses for the years ended August
    31, 1996, 1995 and 1994 is capital  improvement costs of $239,000,  $326,000
    and $72,000, respectively.

6.  Leases

        The Martin  Sunnyvale and Bell Forge Square  investment  properties have
    operating  leases with tenants  which  provide for fixed  minimum  rents and
    reimbursements of certain operating costs. Rental revenues are recognized on
    a straight-line basis over the life of the related lease agreements. Minimum
    future   rental   revenues  to  be  received   by  the   Partnership   under
    noncancellable  operating  leases for the next five years and thereafter are
    as follows (in thousands):

    Year ending August 31,          Amount
    ----------------------          ------

        1997                        $1,298
        1998                         1,148
        1999                           954
        2000                           733
        2001                           563
        Thereafter                   1,145
                                    ------
                                    $5,841
                                    ======

7.    Contingencies

         In November  1994, a series of purported  class  actions (the "New York
      Limited  Partnership  Actions")  were filed in the United States  District
      Court  for  the  Southern  District  of New  York  concerning  PaineWebber
      Incorporated's   sale  and  sponsorship  of  various  limited  partnership
      investments, including those offered by the Partnership. The lawsuits were
      brought  against  PaineWebber  Incorporated  and Paine  Webber  Group Inc.
      (together   "PaineWebber"),   among  others,  by  allegedly   dissatisfied
      partnership investors.  In March 1995, after the actions were consolidated
      under the title In re  PaineWebber  Limited  Partnership  Litigation,  the
      plaintiffs  amended their  complaint to assert claims against a variety of
      other  defendants,   including  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 have agreed to settle the case.  Pursuant to
      that memorandum of understanding,  PaineWebber  irrevocably deposited $125
      million  into an escrow fund under the  supervision  of the United  States
      District Court for the Southern District of New York to be used to resolve
      the litigation in accordance  with a definitive  settlement  agreement and
      plan of allocation. On July 17, 1996, PaineWebber and the class plaintiffs
      submitted a definitive  settlement  agreement which has been preliminarily
      approved by the court and  provides  for the  complete  resolution  of the
      class action  litigation,  including  releases in favor of the Partnership
      and  the  General  Partners,  and  the  allocation  of  the  $125  million
      settlement  fund among  investors in the various  partnerships at issue in
      the case. As part of the  settlement,  PaineWebber  also agreed to provide
      class members with certain  financial  guarantees  relating to some of the
      partnerships.  The details of the  settlement  are  described  in a notice
      mailed  directly to class members at the  direction of the court.  A final
      hearing  on the  fairness  of the  proposed  settlement  is  scheduled  to
      continue in November 1996.

         In February 1996, approximately 150 plaintiffs filed an action entitled
      Abbate v.  PaineWebber  Inc.  in  Sacramento,  California  Superior  Court
      against   PaineWebber   Incorporated  and  various   affiliated   entities
      concerning  the  plaintiffs'  purchases  of  various  limited  partnership
      interests,  including  those  offered by the  Partnership.  The  complaint
      alleges,  among other things,  that  PaineWebber and its related  entities
      committed  fraud  and  misrepresentation  and  breached  fiduciary  duties
      allegedly  owed  to  the  plaintiffs  by  selling  or  promoting   limited
      partnership  investments  that were  unsuitable  for the plaintiffs and by
      overstating  the  benefits,  understating  the risks and  failing to state
      material  facts   concerning   the   investments.   The  complaint   seeks
      compensatory   damages  of  $15  million  plus  punitive  damages  against
      PaineWebber.   In  September   1996,  the  court  dismissed  many  of  the
      plaintiffs'  claims  as  barred  by  applicable   securities   arbitration
      regulations. Mediation hearings are scheduled to be held in December 1996.
      The eventual outcome of this litigation and the potential  impact, if any,
      on the Partnership's unitholders cannot be determined at the present time.

         Under  certain  limited  circumstances,  pursuant  to  the  Partnership
      Agreement and other contractual obligations,  PaineWebber affiliates could
      be entitled to indemnification  for expenses and liabilities in connection
      with the litigation described above.  However,  PaineWebber has agreed not
      to  seek  indemnification  for  any  amounts  it is  required  to  pay  in
      connection  with  the  settlement  of the  New  York  Limited  Partnership
      Actions.  At the present time, the General  Partners  cannot  estimate the
      impact,   if  any,  of  the  potential   indemnification   claims  on  the
      Partnership's  financial  statements,  taken as a whole.  Accordingly,  no
      provision for any liability  which could result from the eventual  outcome
      of these matters has been made in the accompanying financial statements.

8.    Subsequent Event

         On October 15, 1996, the Partnership  distributed $3,000 to the General
      Partners, $320,000 to the Limited Partners and $3,000 to the Adviser as an
      asset management fee for the quarter ended August 31, 1996.


<PAGE>

Schedule III - Real Estate Owned

              Paine Webber Qualified Plan Property Fund Four, LP
                               August 31, 1996
                                (In thousands)

                                         Gross Amount at
                      Cost of            Which Carried   Date of
                      Investment to      at Close of     Original    Size of
Description (A)       Partnership (B)    Period  (B)     Investment  Investment

Land underlying        $  345              $  345        10/31/85    7.05 acres
  apartment complex
Wichita, KS

Research and            5,100               3,400 (1)    12/20/85    2.5 acres
  Development Center                                                 39,286 
Sunnyvale, CA                                                         sq. ft.

Shopping Center         9,000               9,000 (2)     4/29/86    11 acres
Nashville, TN                                                        126,890
                                                                      sq. ft.

Land underlying          770                 770         12/29/88    19 acres
  apartment complex
Charlotte, NC        -------              -------
                     $15,215              $13,515
                     =======              =======
Notes:

  (A) Senior mortgages on the properties  related to the land investments listed
      above are held by Paine Webber Qualified Plan Property Fund Four, LP as of
      August 31, 1996. See Schedule IV.

  (B) These amounts  represent the cost of each  investment and the gross amount
      at which the  investment  is carried on the balance sheet as of August 31,
      1996.  The  aggregate  cost of the  investments  for  federal  income  tax
      purposes is approximately $15,879,000.

  (C) Reconciliation of real estate owned:
                                          1996        1995        1994
                                          ----        ----        ----

      Balance at beginning of year      $15,577      $22,478      $22,478
      Sale of land and investment
        property (3)                     (2,062)      (6,901)           -
                                        -------      -------      -------
      Balance at end of year            $13,515      $15,577      $22,478
                                        =======      =======      =======

 (1)The  Partnership  foreclosed  on the  mortgage  loan  secured  by the Martin
    Sunnyvale  Research and  Development  Center on July 12, 1991.  The combined
    cost of the land and the face amount of the mortgage loan were  estimated by
    management  to be  greater  than the fair  value of the  investment,  net of
    selling costs, at the date of foreclosure by $1,700,000. During fiscal 1994,
    1993 and 1992, the Partnership  recorded  provisions for possible investment
    loss of  $150,000,  $550,000  and  $200,000,  respectively,  to provide  for
    further  declines in the estimated fair value, net of selling  expenses,  of
    the  Martin  Sunnyvale   investment   property.   During  fiscal  1996,  the
    Partnership  recorded a recovery of possible  investment loss of $900,000 to
    reverse the existing allowance account as a result of a significant increase
    in the estimated fair value of the operating property. The carrying value of
    $3,400,000 is included in the balance of investment properties held for sale
    on the accompanying balance sheet at August 31, 1996. See discussion in Note
    5 to the financial statements.


<PAGE>


Schedule III - Real Estate Owned (continued)



 (2)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
    fair value of the investment, net of estimated selling costs, at the date of
    foreclosure was estimated to be approximately  equal to the combined cost of
    the land and face  amount of the  mortgage  loan.  At August 31,  1991,  the
    balance  of the  mortgage  loan  and  land  investments  of  $9,000,000  was
    reclassified to investment  property  subject to acquisition by foreclosure.
    During  fiscal  1992,  the  Partnership  recorded a provision  for  possible
    investment  loss of $600,000 to provide for a decline in the estimated  fair
    value, net of selling costs, of the Bell Forge Square  investment  property.
    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 property.  The net carrying  value of $8,700,000 is included in
    the  balance  of  investment  properties  held for sale on the  accompanying
    balance  sheet  as of  August  31,  1996.  See  discussion  in Note 5 to the
    financial statements.

 (3)See  discussion in Note 5 to the financial  statements  regarding the fiscal
    1996 sale of the land underlying The Corner at Seven Corners Shopping Center
    and the fiscal 1995 sale of the Cordova Creek Apartments.


<PAGE>




<TABLE>
Schedule IV - Investments in Mortgage Loans on Real Estate

                             PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
                                              August 31, 1996
                                               (In thousands)
<CAPTION>
                                                                                                         Principal
                                                                                                         amount of
                                                                                                         loans subject
                                                          Periodic                   Face       Carrying    to delinquent
                       Interest    Final maturit          payment                    amount of   amount of   principal
Description            rate           date                terms                      mortgage    mortgage    or interest
-----------            ---------   -----------------      ------                     --------    --------    -----------
<S>                     <C>        <C>                    <C>                        <C>         <C>          <C>
 First Mortgage Loans:

Apartment Complex         11%      October 31, 2000       Interest monthly,          $ 3,055      $ 3,055      -
Wichita, KS                                               principal at
                                                          maturity

Apartment Complex         9%       December 28, 2001      Interest monthly,            4,230        4,230      - 
Charlotte, NC                                             principal at
                                                          maturity                   -------      -------

TOTALS                                                                               $ 7,285      $ 7,285
                                                                                     =======      ========

                                                      1996        1995        1994
                                                      ----        ----        ----

Balance at beginning of year                         $13,001     $13,001     $13,001
Additions during the year (1)                            472           -           -
Reductions during year (2)                            (6,188)          -           -
                                                    --------     -------     -------
Balance at end of year                              $  7,285     $13,001     $13,001
                                                    ========     =======     =======

</TABLE>

  (1) See Notes 2 and 4 to the accompanying financial statements for information
    regarding the fiscal 1996 adjustment of a certain  valuation account related
    to the outstanding mortgage loans receivable.

 (2)As discussed  further in Note 4 to the  accompanying  financial  statements,
    the  Partnership's  mortgage loan receivable  secured by The Corner at Seven
    Corners Shopping Center was repaid in full on November 22, 1995.