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, 1997
                                            --------------- 
                                       OR

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

                       For the transition period from to .

                         Commission File Number: 0-15036

                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

Current Report on Form 8-K                                       Part IV
of registrant dated July 16, 1997




<PAGE>


                PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
                                 1997 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-7

Item  9       Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure                                II-7


Part III

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

Item 11       Executive Compensation                                    III-2

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-17




<PAGE>
                                   
                           
      This Form 10-K contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The  Partnership's  actual results could differ materially
from those set forth in the  forward-looking  statements.  Certain  factors that
might cause such a difference  are  discussed in Item 7 in the section  entitled
"Certain Factors Affecting Future Operating  Results"  beginning on page II-6 of
this Form 10-K.

                                     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,
1997, one of the  Partnership's  mortgage loan and land lease investments on the
original  properties  was  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 investment are described below.

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

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,  The Corner at Seven Corners Shopping
Center,  a 70,890  leasable  square  foot  shopping  center  located in Fairfax,
Virginia  and the  Willow  Creek  Apartments,  a 138-unit  apartment  complex in
Wichita,  Kansas.  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 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.

      During the  quarter  ended May 31,  1997,  the owner of the  Willow  Creek
Apartments had given notice of an intent to repurchase the underlying  land from
the  Partnership  and  prepay  its  first  leasehold  mortgage  loan,  which was
scheduled  to mature on October 31,  2000.  On July 16,  1997,  the  Partnership
received  $3,055,000 from the Willow Creek borrower,  which represented the full
repayment  of the first  leasehold  mortgage  loan  secured by the Willow  Creek
Apartments.  Simultaneously,  the Willow Creek owner purchased the Partnership's
interest in the underlying land at a price equal to the Partnership's cost basis
in the land of $345,000.  In addition,  the Partnership received a mortgage loan
prepayment penalty of 4% of the mortgage note balance,  or $122,200,  and a land
lease termination fee of $13,800 in accordance with the terms of the agreements.
Although the structure of the Partnership's  original investment in Willow Creek
entitled the Partnership to participate in the appreciated value of the property
upon a sale or  refinancing,  the value of the property  had not  increased to a
level at which the  Partnership  would  receive a  participation  payment.  As a
result of the  Willow  Creek  prepayment  transaction,  the  Partnership  made a
Special  Distribution of  approximately  $4,036,000,  or $90 per original $1,000
investment,  on August 15, 1997 to unit holders of record on July 16,  1997.  Of
this amount,  approximately  $79  represented  the net proceeds  from the Willow
Creek   transaction  and  approximately  $11  represented  a  distribution  from
Partnership reserves that exceeded future requirements.

      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, 1997, the Limited Partners had received cumulative cash
distributions totalling approximately $55,173,000, or $1,260 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), 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 and a distribution of $90 per original $1,000
investment following the mortgage prepayment and related land sale of the Willow
Creek Apartments ($79 from the proceeds of the Willow Creek transactions and $11
of excess Partnership reserves).  At August 31, 1997, the Partnership retains an
interest three 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 $519 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 be  determined  with  certainty at the present  time.  As discussed
further in Item 7, the  Partnership  is currently in the process of  negotiating
the potential sales of the  wholly-owned  Martin Sunnyvale and Bell Forge Square
properties.  In addition,  the borrower of the mortgage loan secured by the Park
South  Apartments  has indicated an intent to prepay the loan and repurchase the
underlying land in early calendar year 1998. As a result of these circumstances,
it is highly  probable that the  disposition of the remaining real estate assets
will be accomplished in fiscal 1998. 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
liquidation of the Partnership  would be expected to be completed  within 1-to-3
months from the date of the disposition of the final real estate asset.

      The  Partnership's  operating  properties  and the  property  securing its
mortgage loan  investment  are located in real estate markets in which they face
significant  competition for the revenues they generate.  The apartment  complex
competes with numerous 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, over
the past two years real  estate  values for R&D office  properties  in  Northern
California  have  improved  substantially  as a result of the  resurgence in the
growth of the high technology industries.

      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, 1997, the Partnership  owned,  and had leased back to the
seller, the land related to the one investment referred to under Item 1 above to
which reference is made for the description, name and location. Additionally, as
of August 31, 1997 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  1997  along with an
average for the year, are presented below for each property:

                                           Percent Occupied At
                              --------------------------------------------------
                                                                       Fiscal
                                                                       1997
                              11/30/96   2/28/97    5/31/97   8/31/97  Average
                              --------   -------    -------   -------  -------
Willow Creek Apartments         98%        95%        98%       N/A      N/A

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

Bell Forge Square Shopping
  Center                        90%        90%        90%        92%      91%

Park South Apartments           92%        90%        91%        92%      91%

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 Property Fund, Inc. and Properties
Associates  1985,  L.P.  ("PA85"),   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  Property Fund, Inc. and
PA85 (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 Property Fund, Inc. and
PA85  misrepresented  financial  information about the  Partnership's  value and
performance.  The amended complaint  alleged that PaineWebber,  Fourth Qualified
Property  Fund,  Inc. and PA85  violated the  Racketeer  Influenced  and Corrupt
Organizations  Act  ("RICO") and the federal  securities  laws.  The  plaintiffs
sought  unspecified  damages,  including  reimbursement for all sums invested by
them in the  partnerships,  as well as disgorgement of all fees and other income
derived  by  PaineWebber  from  the  limited  partnerships.   In  addition,  the
plaintiffs also sought treble damages under RICO.

      In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the  parties  agreed to settle the case.  Pursuant to that  memorandum  of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which  provides for the  complete  resolution  of the class  action  litigation,
including  releases in favor of the  Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs 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  and REITs.  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  was held in December  1996,
and in March 1997 the court announced its final approval of the settlement.  The
release of the $125 million of settlement  proceeds had been delayed pending the
resolution  of an appeal of the  settlement  agreement  by two of the  plaintiff
class  members.  In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement  over the objections of the two class members.  As
part of the settlement agreement, PaineWebber agreed not to seek indemnification
from the related  partnerships and real estate investment trusts at issue in the
litigation  (including the  Partnership)  for any amounts that it is required to
pay under the settlement.

      In February 1996,  approximately  150 plaintiffs  filed an action entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleged,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to state  material  facts  concerning  the  investments.  The  complaint  sought
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
In September  1996, the court  dismissed many of the  plaintiffs'  claims in the
Abbate  action as  barred  by  applicable  securities  arbitration  regulations.
Mediation  with  respect to the Abbate  action was held in December  1996.  As a
result of such mediation,  a settlement  between  PaineWebber and the plaintiffs
was reached which  provided for the complete  resolution  of this matter.  Final
releases and dismissals  with regard to this action were received  during fiscal
1997.

      Based on the  settlement  agreements  discussed  above covering all of the
outstanding  unitholder   litigation,   management  does  not  expect  that  the
resolution  of these  matters will have a material  impact on the  Partnership's
financial statements, taken as a whole

      The  Partnership  is not  subject  to any  other  material  pending  legal
proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

      None.


<PAGE>

                                   PART II

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

      At August  31,  1997,  there  were  7,253  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.  Upon  request,  the
Managing  General  Partner  will  endeavor  to assist a  Unitholder  desiring to
transfer his Units and may utilize the services of PWI in this regard. The price
to be paid for the Units will be subject to negotiation by the  Unitholder.  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, 1997, 1996, 1995, 1994 and 1993
                      (In thousands, except per Unit data)

                               1997      1996      1995      1994      1993
                               ----      ----      ----      ----      ----

Revenues                     $ 1,047   $ 2,665    $ 2,150  $ 1,963   $ 2,005

Operating income             $   448   $ 2,518    $ 1,375  $ 1,250   $ 1,297

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

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

Income from
investment properties
held for sale, net           $1,029    $ 1,034    $ 1,274  $ 1,703   $ 1,494

Net income                   $1,477    $ 4,452    $ 4,428  $ 2,803   $ 2,541

Per Limited Partnership Unit:
  Net income                 $ 1.63    $  4.91    $  4.89  $  3.09   $  2.80

  Cash distributions from
    operations               $ 1.43    $  1.77    $  3.00  $  3.00   $  3.00

  Cash distributions from
    sale, refinancing and
    other disposition
    transactions           $   4.50   $  10.70   $  10.75        -         -

Total assets               $ 18,941   $ 22,801   $ 29,551 $ 37,461  $ 37,429

      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

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified  below,  which could cause actual results to differ  materially  from
historical  results  or  those  anticipated.  The  words  "believe",   "expect",
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

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 the  borrowers  of the mortgage  loans  secured by The Corner at
Seven Corners Shopping Center and the Willow Creek Apartments  prepaid the loans
and purchased the Partnership's  interests in the underlying land in fiscal 1996
and fiscal  1997,  respectively.  The net  proceeds of these  transactions  were
distributed to the Limited Partners.

      During the  quarter  ended May 31,  1997,  the owner of the  Willow  Creek
Apartments had given notice of an intent to repurchase the underlying  land from
the  Partnership  and  prepay  its  first  leasehold  mortgage  loan,  which was
scheduled  to mature on October 31,  2000.  On July 16,  1997,  the  Partnership
received  $3,055,000 from the Willow Creek borrower,  which represented the full
repayment  of the first  leasehold  mortgage  loan  secured by the Willow  Creek
Apartments.  Simultaneously,  the Willow Creek owner purchased the Partnership's
interest in the underlying land at a price equal to the Partnership's cost basis
in the land of $345,000.  In addition,  the Partnership received a mortgage loan
prepayment penalty of 4% of the mortgage note balance,  or $122,200,  and a land
lease termination fee of $13,800 in accordance with the terms of the agreements.
Although the structure of the Partnership's  original investment in Willow Creek
entitled the Partnership to participate in the appreciated value of the property
upon a sale or  refinancing,  the value of the property  had not  increased to a
level at which the  Partnership  would  receive a  participation  payment.  As a
result of the  Willow  Creek  prepayment  transaction,  the  Partnership  made a
Special  Distribution of  approximately  $4,036,000,  or $90 per original $1,000
investment,  on August 15, 1997 to  unitholders  of record on July 16, 1997.  Of
this amount,  approximately  $79  represented  the net proceeds  from the Willow
Creek   transaction  and  approximately  $11  represented  a  distribution  from
Partnership reserves that exceeded future requirements.

      Subsequent to the distribution of the Willow Creek proceeds and the excess
reserves, the Limited Partners had received capital distributions totalling $519
per original $1,000 investment. In addition, the Partnership intends to continue
to pay quarterly operating distributions at a rate equivalent to a 5% annualized
rate of return on the $481 remaining  portion of an original  $1,000  investment
for fiscal 1998 or until there is another capital  transaction.  The Partnership
has three  remaining  real  estate  investments,  only one of which,  Park South
Apartments,  is still in its original  structure of a first  leasehold  mortgage
loan and land  investment.  As  noted  above,  the  Partnership  assumed  direct
ownership of the Martin Sunnyvale Research and Development Center and Bell Forge
Square Shopping Center properties following  foreclosure  proceedings  resulting
from defaults  under the terms of the  Partnership's  first  leasehold  mortgage
loans. As discussed further below, the Partnership has determined that it may be
the appropriate time to sell each of these wholly-owned assets.  Furthermore, as
discussed further below, the borrower of the mortgage loan secured by Park South
has indicated an intent to prepay the loan and repurchase the underlying land in
early  calendar  year  1998.  As a result of these  circumstances,  it is highly
probable  that  the  disposition  of the  remaining  real  estate  assets  and a
liquidation  of the  Partnership  will be  accomplished  in fiscal 1998. The net
proceeds from such sales and financing  transactions  will be distributed to the
Limited  Partners along with the remaining  Partnership  cash reserves after the
payment of all liquidation-related  expenses. The liquidation of the Partnership
would be  expected to be  completed  within  1-to-3  months from the date of the
disposition of the final real estate asset.

      The  Partnership's  wholly-owned,  39,000  square  foot  Martin  Sunnyvale
Research and  Development  Center  remained 100% occupied by three tenants as of
August 31, 1997. No leases expire at the property  until April 30, 1999.  During
the first quarter of fiscal 1997, the largest tenant at Martin Sunnyvale vacated
17,784  square feet when its lease  expired at the  beginning of November  1996.
However,  a replacement  tenant executed a five-year lease through November 2001
for the entire 17,784  square foot space at an average  rental rate which is 40%
higher than the previous tenant had been paying. This transaction  completed the
successful re-leasing of the three tenant spaces at the property.  The other two
spaces  were  re-leased  at the end of fiscal  1996 at rental  rates 40% and 60%
higher than the  previous  leases.  As a result of the  significant  increase in
rental income,  the market value of the Martin Sunnyvale  property has increased
substantially.  This  increase  is  reflective  of the  current  strength of the
Silicon  Valley office market as a result of the resurgence in the growth of the
high  technology  industries  over the past two years.  Accordingly,  management
believes that this would be the  appropriate  time to sell the Martin  Sunnyvale
property.  Based on the current  estimated  market  value of the  property,  the
Partnership  believes  it could  realize an amount  close to its  original  $5.1
million  investment  in Martin  Sunnyvale  from a near-term  sale. As previously
reported,  during the third  quarter of fiscal 1997 the  Partnership  contracted
with a national real estate firm with a strong  background in selling R&D office
buildings  to market  Martin  Sunnyvale  for sale.  The  property  was  marketed
extensively during the second half of fiscal 1997, and the Partnership  received
several offers from qualified third-party buyers to acquire the property.  After
reviewing  the  offers,  the  Partnership  accepted  an offer  from one of these
potential  buyers and,  subsequent  to year-end,  negotiated a purchase and sale
agreement.  However,  since any sale  transaction  remains  subject  certain due
diligence and financing contingencies,  there are no assurances that a near-term
sale will be completed.

      As previously reported, the Partnership was notified by a California state
water agency in fiscal 1994 of a potential  environmental  problem at the Martin
Sunnyvale  property.  As a result of governmental  required testing,  management
learned that there has been a contamination of the underground soil and water at
the site.  The state  water  agency has issued a final  report  identifying  two
tenants  which had occupied  the property  prior to 1985 and may have caused the
environmental  problem.  Both prior  tenants are Fortune 500  companies and both
have been ordered at their own expense to perform the necessary testing, cleanup
and  documentation  as  required  by the  California  state  water  agency.  The
Partnership  will be required  to monitor  the  efforts of these two firms.  The
environmental  testing  was  paid  for by one of  the  parties  identified  as a
potential  contaminator.  Management  has engaged  local  counsel to monitor all
legal actions to insure that the Partnership's rights are fully protected.  This
matter is not expected to have any  long-term  impact on the market value of the
Partnership's  operating  property and should not affect the possible  near-term
sale of the property discussed further above.

      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, 1997 was 92%.  During the first quarter of fiscal 1997,  two
tenants,  a  furniture  store and a pet  store,  occupying  10% of the  center's
rentable  area,  vacated their spaces prior to the  termination of their leases.
During the third quarter, the Partnership  negotiated and received a termination
fee from the furniture  store in exchange for a space reduction under its lease.
The space taken back by the  Partnership,  totalling 2,400 square feet, was then
leased to a dental operation for a seven-year term. The furniture store had been
paying its rent under the terms of the lease on the remaining 4,000 square feet,
which  expires in October  2000.  However,  subsequent  to  year-end  the tenant
defaulted  on its rental  payment  obligations.  The  Partnership  is  currently
pursuing its legal remedies.  The dental center's average annual rent per square
foot is  approximately  50%  higher  than  the rate  under  the  lease  with the
furniture store. The termination fee was used to pay for tenant improvements for
the dental  center.  The former pet store  tenant which  ceased  operations  and
stopped  paying rent  during the first  quarter of fiscal 1997 has been issued a
court order to pay its rental  obligation.  Although the Partnership is pursuing
its rights  under this court  judgment  to recover  the rent due under the lease
agreement, management is not optimistic about the likelihood of collection given
the poor  financial  condition of the former pet store tenant.  During the third
quarter,  the  property's  leasing team  executed a new  five-year  lease with a
restaurant  tenant for the vacant space formerly  occupied by the pet store at a
rental rate 19% higher than the previous tenant's. The restaurant agreed to fund
all of its own tenant improvements and working capital requirements. Also during
the third  quarter,  a 3,160 square foot sporting  goods store renewed its lease
for an additional five years at a rate which is 17% more than its original lease
rate. Other leasing activity during the fourth quarter included the renewal of a
2,000 square foot lease with a finance company and the renewal of a 2,930 square
foot lease with a  bookstore.  The  property's  leasing  team is in  preliminary
discussions  with a 3,300 square foot furniture store tenant whose lease expires
in fiscal year 1998.  Subsequent to August 31, 1997, the occupancy level at Bell
Forge Square improved to 97% when the restaurant  tenant which leased the former
6,000  square foot pet store  completed  renovations  and opened for business on
October 9, 1997.  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.

      Based on management's  assessment of the potential for appreciation in the
value of the Bell Forge Square property,  the Partnership  decided to market the
property for sale during fiscal 1997. During the second quarter, the Partnership
hired a  Nashville-based  real  estate firm  specializing  in the sale of retail
properties  to market  the Bell Forge  Square  Shopping  Center  for sale.  This
property was also marketed extensively during the second half of fiscal 1997. As
a result of these efforts,  the Partnership received offers from two prospective
third-party  buyers.  After reviewing the offers,  the  Partnership  accepted an
offer from one of these potential buyers and is currently negotiating a purchase
and sale agreement.  However,  since any sale transaction remains subject to the
execution  of a  definitive  agreement,  as well as certain  due  diligence  and
financing  contingencies,  there are no assurances that a near-term sale will be
completed.

      The average  occupancy level at Park South Apartments in Charlotte,  North
Carolina,  was 92% for the quarter  ended  August 31,  1997.  Operations  of the
property  continue to fully  support the debt service and ground lease  payments
owed to the  Partnership  despite a weakening in market  conditions for existing
properties  in the  greater  Charlotte  area over the past year.  A  significant
number of new apartment  units have been added to the overall  Charlotte  market
during this time period,  including  several hundred new units which are in Park
South's  sub-market,  and a substantial  amount of  additional  units are either
currently  under  construction  or in the  planning  stages.  In order to remain
competitive  with these new units,  Park South  currently  offers reduced rental
rates and/or discounted move-in rates to prospective tenants. As an incentive to
renew leases, current tenants are offered minimal increases at the expiration of
their leases.  The use of rental  concessions and renewal incentives is expected
to continue for the near term.  Notwithstanding  the current market  conditions,
management  believes  that the long-term  prospects for the Park South  property
remain positive due to the property's strong position within the marketplace and
the region's outlook for job and population  growth over the next several years.
The current  occupancy level is in line with the levels of the eight  properties
which compete directly with Park South.

      The first  mortgage  loan  secured by Park South  matures on December  28,
2001,  however, it opens to prepayment without penalty on December 29, 1997. The
owner of the Park South Apartments has recently indicated that it may prepay the
first  leasehold  mortgage loan and repurchase the underlying land in early 1998
in  conjunction  with a sale of the property.  However,  there are no assurances
that this sale  transaction and the resulting  prepayments of the  Partnership's
investments will occur within this time frame. The Partnership's Park South land
investment  contains a  participation  feature which entitles the Partnership to
share in the  appreciation of the property upon a sale or refinancing.  Based on
recent  third-party  valuations,  this  property has an estimated  value that is
higher than the Partnership's combined original loan and land investments.  As a
result,  it is anticipated  that the  Partnership  will realize its original net
investments  plus some portion of the appreciated  value of the property when it
is sold.

      At  August  31,  1997,  the   Partnership  had  available  cash  and  cash
equivalents of $1,711,000.  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  loan  receivable  and the  future  sales or  refinancings  of the
underlying  land and the  investment  properties.  Such sources of liquidity are
expected to be adequate to meet the Partnership's needs on both a short-term and
long-term basis.

Results of Operations
1997 Compared to 1996
---------------------

      The  Partnership's  net income  decreased by $2,975,000 for the year ended
August 31, 1997,  when compared to the prior year. Net income  decreased  mainly
due to a $1,378,000  gain  recognized in the prior year in  connection  with the
sale of the land underlying The Corner at Seven Corners  Shopping Center and the
fiscal 1996  recoveries of a $900,000  prior  provision for possible  investment
loss with respect to the Martin Sunnyvale  property and a $472,000 allowance for
uncollectible amounts related to the Partnership's mortgage loans receivable. In
addition,  the  Partnership's net income decreased due to reductions in interest
from mortgage loans (prior to the prepayment penalty discussed below), land rent
and interest and other  income of $201,000,  $85,000 and $76,000,  respectively.
Interest from mortgage  loans and land rent  decreased  primarily as a result of
The Corner at Seven Corners and Willow Creek  mortgage  prepayments  and related
land sales which occurred in November 1995 and July 1997, respectively. Interest
earned on cash equivalents decreased due to the inclusion of The Corner at Seven
Corners'  mortgage  prepayment  and land  sale  proceeds  in the  invested  cash
balances  in the prior year  pending  the  special  distribution  to the Limited
Partners which was made on January 31, 1996.  These  unfavorable  changes in net
income were partially offset by the $122,000 penalty received by the Partnership
from the July 1997  prepayment  of the mortgage loan secured by the Willow Creek
Apartments,  as discussed further above, and by a decrease in management fees of
$15,000.  Management  fees  decreased  due to a reduction  in  adjusted  capital
contributions,  upon  which  such fees are  based,  as a result  of the  capital
distribution which followed the prepayment  transaction  involving The Corner at
Seven Corners  investments.  Management fees will decline further in fiscal 1998
as a result of the distribution of the Willow Creek proceeds in August 1997.

      A $5,000 decrease in income from investment  properties held for sale also
contributed  to  the  decrease  in net  income  for  fiscal  1997.  Income  from
investment  properties held for sale decreased mainly due to a $158,000 increase
in property operating expenses which was partially offset by a $103,000 increase
in rental income and expense  reimbursements  and a $44,000 decrease in property
taxes and insurance  expenses.  Property operating expenses increased mainly due
to an increase in leasing  commissions  associated with the three new tenants at
the  Martin  Sunnyvale  Research  and  Development  Center  and an  increase  in
advertising  expense at the Bell Forge Square Shopping Center due to the decline
in  occupancy  from  100% at  August  31,  1996 to 92% at August  31,  1997,  as
discussed  further  above.  Property  taxes  and  insurance  expenses  decreased
primarily due to the receipt of prior years'  property  taxes refunds for Martin
Sunnyvale during fiscal 1997. Rental income and expense reimbursements increased
due to rental rate increases at both the Martin  Sunnyvale and Bell Forge Square
properties.

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.  This increase in net income
was primarily due to 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.  These favorable changes in net income were offset by a gain of
$1,779,000  recognized  in  fiscal  1995  from  the  sale of the  Cordova  Creek
Apartments,  a decrease in income from  investment  properties  held for sale of
$240,000 and by 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 declines in interest
and land rent  revenues were  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 during fiscal 1996.

      The decrease in income from  operations of investment  properties held for
sale was 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  fiscal  1996.  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 were 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.  The net  proceeds  from the Cordova  Creek sale 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.

Certain Factors Affecting Future Operating Results
--------------------------------------------------

      The following factors could cause actual results to differ materially from
historical results or those anticipated:

      Real Estate  Investment  Risks.  Real property  investments are subject to
varying degrees of risk.  Revenues and property values may be adversely affected
by the  general  economic  climate,  the local  economic  climate and local real
estate conditions,  including (i) the perceptions of prospective  tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide  adequate  management  and  maintenance  of the  property;  (iii) the
inability  to  collect  rent due to  bankruptcy  or  insolvency  of  tenants  or
otherwise;  and (iv) increased  operating costs.  Real estate values may also be
adversely  affected by such  factors as  applicable  laws,  including  tax laws,
interest rate levels and the availability of financing.

      Effect of  Uninsured  Loss.  The  Partnership  carries,  or  requires  its
borrower to carry,  comprehensive liability,  fire, flood, extended coverage and
rental loss  insurance  with respect to its  properties  with insured limits and
policy  specifications  that  management  believes  are  customary  for  similar
properties.  There  are,  however,  certain  types  of  losses  (generally  of a
catastrophic  nature such as wars,  floods or  earthquakes)  which may be either
uninsurable, or, in management's judgment, not economically insurable. Should an
uninsured loss occur,  the Partnership  could lose both its invested  capital in
and anticipated profits from the affected property.

      Possible Environmental Liabilities. Under various federal, state and local
environmental laws,  ordinances and regulations,  a current or previous owner or
operator of real property may become liable for the costs of the  investigation,
removal and  remediation  of  hazardous or toxic  substances  on,  under,  in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was  responsible  for, the presence of
such hazardous or toxic substances.

      The  Partnership is not aware of any  notification by any private party or
governmental  authority  of any  non-compliance,  liability  or  other  claim in
connection with environmental conditions at any of its properties, including the
groundwater contamination at the Martin Sunnyvale property described above, that
it  believes  will  involve  any  expenditure  which  would be  material  to the
Partnership,  nor is the Partnership aware of any  environmental  condition with
respect to any of its properties that it believes will involve any such material
expenditure.  However,  there  can  be no  assurance  that  any  non-compliance,
liability, claim or expenditure will not arise in the future.

      Competition. The financial performance of the Partnership's remaining real
estate  investments  will be  significantly  impacted  by the  competition  from
comparable  properties in its local market area. The occupancy levels and rental
rates  achievable at the  properties are largely a function of supply and demand
in  the  market.  In  many  markets  across  the  country   development  of  new
multi-family  properties has increased  significantly in the past year. Existing
apartment  properties in such markets could be expected to experience  increased
vacancy levels,  declines in effective rental rates and, in some cases, declines
in estimated  market  values as a result of the increased  competition.  The R&D
office  segment  has begun to  experience  limited new  development  activity in
selected areas after several years of virtually no new supply being added to the
market. The retail segment of the real estate market is currently suffering from
an oversupply of space in many markets  resulting  from  overbuilding  in recent
years and the trend of consolidations  and bankruptcies among retailers prompted
by the  generally  flat rate of growth in  overall  retail  sales.  There are no
assurances  that  these  competitive  pressures  will not  adversely  affect the
operations  and/or market values of the Partnership's  investment  properties in
the future.

      Availability of a Pool of Qualified Buyers.  The availability of a pool of
qualified and  interested  buyers for the  Partnership's  remaining  real estate
assets is critical to the Partnership's ability to realize the current estimated
fair  market  values of such  assets  and to  complete  the  liquidation  of the
Partnership  on a timely  basis.  Demand by buyers  of  multi-family  apartment,
office and retail  properties is affected by many  factors,  including the size,
quality,  age,  condition  and  location  of  the  subject  property,  potential
environmental  liability concerns, the existing debt structure,  the quality and
stability of the tenant roster, the terms of any long-term leases, the liquidity
in the debt and equity  markets for asset  acquisitions,  the  general  level of
market interest rates and the general and local economic climates.

Inflation
---------

      The Partnership  completed its twelfth full year of operations in 1997 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 partially  offset by an
increase  in  revenues  because  the  Partnership's   land  lease  provides  for
additional  rent based upon  increases in the revenues of the related  operating
property which would tend to rise with  inflation.  Revenues from the Bell Forge
Square Shopping Center and the Martin Sunnyvale  Research and Development Center
would also 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.  During a  period  of
significant inflation,  increased operating expenses attributable to space which
remained  unleased  at such time would not be  recoverable  and would  adversely
affect the Partnership's net cash flow.

Item 8.  Financial Statements and Supplementary Data

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

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

      None.


<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Partnership

      The  Managing  General  Partner  of the  Partnership  is 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                 38      8/22/96
Terrence E. Fancher  Director                               44     10/10/96
Walter V. Arnold     Senior Vice President and Chief 
                       Financial Officer                    50     10/29/85
David F. Brooks      First Vice President and Assistant
                       Treasurer                            55      9/19/84*
Timothy J. Medlock   Vice President and Treasurer           36       8/4/89
Thomas W. Boland     Vice President and Controller          35      12/1/91
Dorothy F. Haughey   Secretary                              71      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.

      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  and  Controller  of the  Managing
General  Partner and a Vice  President and  Controller 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, 1997,  all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.

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 6% 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
$141,000 were earned for the year ended August 31, 1997.

      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, 1997 is $184,000,  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 $7,000  (included in general and  administrative  expenses)  for managing the
Partnership's  cash assets during fiscal 1997. 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) A Current  Report on Form 8-K dated  July 16,  1997 was filed to report
         the  repayment  of the first  leasehold  mortgage  loan  secured by the
         Willow Creek Apartments and related sale of the Partnership's  interest
         in the underlying land and is hereby incorporated herein by reference.


     (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 and Controller



Dated:  November 26, 1997

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 26, 1997
   --------------------                                -----------------
   Bruce J. Rubin
   Director



By:/s/ Terrence E. Fancher                      Date:  November 26, 1997
   -----------------------                             -----------------
   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
<TABLE>
<CAPTION>
                                                          Page Number in the Report
Exhibit No.    Description of Document                    or Other Reference
-----------    -----------------------                    ------------------
<S>            <C>                                        <C>
(3) and (4)   Prospectus of the Registrant                Filed with the Commission
              dated December 3, 1985, supplemented,       pursuant to Rule 424(c)
              with particular reference to the            and incorporated herein by
              Restated Certificate and Agreement          reference.
              Limited Partnership.


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


(13)          Annual Reports to Limited Partners          No Annual Report for the year
                                                          ended August 31, 1997 has been
                                                          sent to the Limited Partners.  An
                                                          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.

</TABLE>













<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, 1997 and 1996                      F-3

      Statements of income for the years ended August 31, 1997,
        1996 and 1995                                                    F-4

      Statements of changes in partners' capital (deficit) for the years
        ended August 31, 1997, 1996 and 1995                             F-5

      Statements of cash flows for the years ended August 31, 1997,
        1996 and 1995                                                    F-6

      Notes to financial statements                                      F-7

      Financial Statement Schedules:

          Schedule III - Real Estate Owned                              F-15
          Schedule IV - Investments in Mortgage Loans on Real Estate    F-17


      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,  1997 and 1996,  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,  1997.  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,  1997 and 1996,  and the  results of its
operations  and its cash flows for each of the three  years in the period  ended
August 31, 1997, 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 20, 1997





<PAGE>


               PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                                 BALANCE SHEETS
                            August 31, 1997 and 1996
                      (In thousands, except per Unit data)

                                     ASSETS

                                                          1997          1996
                                                          ----          ----
Real estate investments:
   Investment properties held for sale, net
     of allowance for possible investment
     loss of $300                                     $ 12,100      $ 12,100
   Land                                                    770         1,115
   Mortgage loans                                        4,230         7,285
                                                      --------      --------
                                                        17,100        20,500

Cash and cash equivalents                                1,711         2,060
Interest receivable                                         32            60
Accounts receivable                                          9            14
Deferred expenses, net of accumulated
  amortization of $295 ($266 in 1996)                       70            99
Other assets                                                19            68
                                                      --------      --------
                                                      $ 18,941      $ 22,801
                                                      ========      ========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts payable - affiliates                         $     32      $     32
Accounts payable and accrued expenses                      190           201
Unearned rental income                                       3            26
Tenant security deposits                                    72            45
                                                      --------      --------
      Total liabilities                                    297           304

Partners' capital:
  General Partners:
   Capital contributions                                     1             1 
   Cumulative net income                                   418           404
   Cumulative cash distributions                          (407)         (394)

  Limited Partners ($50 per Unit,
     896,993 Units issued):
   Capital contributions, net of  offering costs        40,309        40,309
   Cumulative net income                                33,496        32,033
   Cumulative cash distributions                       (55,173)      (49,856)
                                                      --------      --------
      Total partners' capital                           18,644        22,497
                                                      --------      --------
                                                      $ 18,941      $ 22,801
                                                      ========      ========








                             See accompanying notes.


<PAGE>


               PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                              STATEMENTS OF INCOME
               For the years ended August 31, 1997, 1996 and 1995
                      (In thousands, except per Unit data)

                                                  1997       1996        1995
                                                  ----       ----        ----
Revenues:
   Interest from mortgage loans              $     796   $    875   $   1,413
   Land rent                                       117        202         512
   Interest earned on cash equivalents
     and other income                              134        210         225
   Gain on sale of land                              -      1,378           -
                                             ---------   --------   ---------
                                                 1,047      2,665       2,150

Expenses:
   Management fees                                 141        156         240
   General and administrative                      429        424         508
   Amortization of deferred expenses                29         39          27
   Recovery of allowance for 
     uncollectible amounts                           -       (472)          -
                                             ---------   --------   ---------
                                                   599        147         775
                                             ---------   --------   ---------
Operating income                                   448      2,518       1,375

Investment properties held for sale:
   Recovery of possible investment loss              -        900           -
   Gain on sale of investment property
     held for sale                                   -          -       1,779
   Income from investment properties
     held for sale, net                          1,029      1,034       1,274
                                             ---------   --------   ---------
                                                 1,029      1,934       3,053
                                             ---------   --------   ---------
Net income                                   $   1,477   $  4,452   $   4,428
                                             =========   ========   =========

Net income per Limited Partnership Unit         $ 1.63     $ 4.91     $  4.89
                                                ======     ======     =======

Cash distributions per Limited
 Partnership Unit                               $ 5.93     $12.47      $13.75
                                                ======     ======      ======



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, 1997, 1996 and 1995
                                 (In thousands)


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

Net income                                    14       1,463       1,477

Cash distributions                           (13)     (5,317)     (5,330)
                                          ------    --------    --------

Balance at August 31, 1997                $   12    $ 18,632    $ 18,644
                                          ======    ========    ========
























                             See accompanying notes.



<PAGE>


               PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP

                            STATEMENTS OF CASH FLOWS
               For the years ended August 31, 1997, 1996 and 1995
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                 1997        1996        1995
                                                 ----        ----        ----

Cash flows from operating activities:
   Net income                                $  1,477    $  4,452    $  4,428
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Recovery of allowance for 
       uncollectible amounts                        -        (472)          -
     Recovery of possible investment loss           -        (900)          -
     Gain on sale of land                           -      (1,378)          -
     Gain on sale of investment property
       held for sale                                -           -      (1,779)
     Amortization of deferred expenses             29          39          27
     Changes in assets and liabilities:
       Interest receivable                         28          58           -
       Accounts receivable                          5           9          14
       Tax and tenant security deposits escrows     -           -          94
       Other assets                                49         (25)         43
       Accounts payable - affiliates                -         (12)        (12)
       Accounts payable and accrued expenses      (11)         64           7
       Tenant security deposits                    27          (2)        (22)
       Unearned rental income                     (23)          -           -
       Other liabilities                            -         (50)         50
                                              -------     -------     -------
         Total adjustments                        104      (2,669)     (1,578)
                                              -------     -------     -------
         Net cash provided by
           operating activities                 1,581       1,783       2,850
                                              -------     -------     -------

Cash flows from investing activities:
   Net proceeds from sale of land                 345       3,440           -
   Repayment of mortgage loan receivable        3,055       6,188           -
   Net proceeds from sale of 
     investment property held for sale              -           -       8,680
                                              -------     -------     --------
         Net cash provided by 
          investing activities                  3,400       9,628       8,680
                                              -------     -------     -------
Cash flows from financing activities:
   Distributions to partners                  (5,330)     (11,202)    (12,361)
                                             -------      -------     -------

Net (decrease) increase in cash and
  cash equivalents                             (349)          209        (831)

Cash and cash equivalents,
  beginning of year                           2,060         1,851       2,682
                                            -------       -------     -------

Cash and cash equivalents,
  end of year                               $ 1,711       $ 2,060     $ 1,851
                                            =======       =======     =======



                             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 three of the original operating properties. As of August 31, 1997, one of the
Partnership's   mortgage  loan  and  land  lease  investments  on  the  original
properties  was 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.

      As discussed  further in Notes 4 and 5, the  Partnership is in the process
of actively marketing its two wholly-owned properties for sale and expects to be
prepaid during fiscal 1998 on the remaining  mortgage loan and land investments.
The  disposition of all of the remaining real estate assets would be followed by
a liquidation of the Partnership which could be accomplished prior to the end of
fiscal 1998.  There are no  assurances,  however,  that the  disposition  of the
remaining assets and the liquidation of the Partnership will be completed within
this time frame.

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, 1997 and 1996 and  revenues  and expenses for
each of the three years in the period  ended  August 31,  1997.  Actual  results
could differ from the estimates and assumptions used.

      The Partnership's investments in land subject to ground leases are carried
at cost or an amount less than cost if indicators  of impairment  are present in
accordance  with  statement of Financial  Accounting  Standards  (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  of," which was  adopted  in fiscal  1997.  SFAS No.  121  requires
impairment  losses to be recorded on long-lived  assets used in operations  when
indicators of impairment are present and the  undiscounted  cash flows estimated
to be generated by those assets are less than the assets  carrying  amount.  The
Partnership   generally  assesses  indicators  of  impairment  by  a  review  of
independent  appraisal  reports  on each  operating  investment  property.  Such
appraisals  make use of a combination of certain  generally  accepted  valuation
techniques,   including  direct   capitalization,   discounted  cash  flows  and
comparable  sales  analysis.  SFAS No. 121 also  addresses  the  accounting  for
long-lived assets that are expected to be disposed of.

      Investment  properties  held for sale  represent  assets  acquired  by the
Partnership  through  foreclosure   proceedings  on  first  mortgage  loans.  In
accordance with SFAS No. 121, 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,
including capital  improvements and leasing costs, are charged to expense and no
depreciation expense is recorded.

      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.

      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 term of the
remaining  mortgage  loan  receivable,  of  thirteen  years.  Deferred  expenses
attributable to investments  that are sold or prepaid are fully amortized in the
year of disposal.

      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 and cash and cash  equivalents  appearing on
the accompanying balance sheets represent financial  instruments for purposes of
Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about Fair
Value  of  Financial   Instruments."  The  carrying  amount  of  cash  and  cash
equivalents  approximates  its fair value as of August 31,  1997 and 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 (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
$141,000, $156,000 and $240,000 were earned for the years ended August 31, 1997,
1996 and 1995,  respectively.  Accounts  payable - affiliates at both August 31,
1997 and 1996 consists of management fees of $32,000 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,  1997,  1996 and 1995 is  $184,000,  $169,000  and  $207,000,  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 $7,000, $15,000 and $5,000 (included in general and administrative  expenses)
for managing the  Partnership's  cash assets during fiscal 1997,  1996 and 1995,
respectively.

4.   Real Estate Investments
     -----------------------

      The following first mortgage loans were outstanding at August 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>

                                                                           Date of
                           Amount of Loan                                  Loan and
         Property          1997      1996        Interest Rate             Maturity
         --------          ----      ----        -------------             --------
         <S>             <C>      <C>            <C>                       <C>
      Willow Creek       $    -   $ 3,055        Years 1 to 5 - 10.50%     10/31/85
      Apartments                                 Thereafter 11%            10/31/00
      Wichita, KS (1)

      Park South          4,230     4,230        9%                        12/29/88
      Apartments                                                           12/28/01
      Charlotte, NC
                        -------   -------
                        $ 4,230   $ 7,285
                        =======   =======

</TABLE>

(1)   As discussed  further below, the mortgage loan secured by the Willow Creek
      Apartments was prepaid on July 16, 1997.

      The  remaining  loan is  secured  by a first  mortgage  on the Park  South
property,  the owner's  leasehold  interest in the land and an assignment of all
tenant leases. Interest is payable monthly and the principal is due at maturity.
The first  mortgage  loan secured by the Park South  Apartments  is scheduled to
mature on December 28, 2001,  however, it opens to prepayment without penalty on
December 29, 1997.  Subsequent to the end of fiscal 1997,  the owner of the Park
South  Apartments has indicated that it may prepay the first leasehold  mortgage
loan and  repurchase  the  underlying  land  described  below  in early  1998 in
conjunction with a sale of the property. There are no assurances,  however, that
this  sale  transaction  and  the  resulting  prepayment  of  the  Partnership's
investments  will occur within this time frame. The fair value of the Park South
loan approximates its carrying value as of August 31, 1997.

      In relation to the  above-mentioned  mortgage  loans,  the following  land
purchase-leaseback transactions had also been entered into as of August 31, 1997
and 1996 (in thousands):

                                      Cost of Land
                                   to the Partnership
            Property               1997          1996      Annual Base Rent
            --------               ----          ----      ----------------

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

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

(1)As discussed  further below,  the  Partnership  sold the land  underlying the
   Willow Creek Apartments on July 16, 1997.

(2)The  Partnership  owns a 77% interest in the land  underlying  the Park South
   Apartments and has an equivalent  interest in the first 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, the  Partnership  received  additional rent of $126,000 from
The Corner at Seven Corners  Shopping  Center land  investment  (see  discussion
below). In addition, during fiscal 1997, 1996 and 1995, the Partnership received
additional  rent of $13,000,  $44,000 and $47,000,  respectively,  from the Park
South  Apartments  land  investment.  The  remaining  lessee  has the  option to
purchase the land for a specified period of time, beginning in December of 1997,
at a price based on the fair  market  value,  as defined,  but not less than the
original cost to the Partnership.

      The  objectives of the  Partnership  with respect to its mortgage loan and
land  investments  are to provide  current income from fixed  mortgage  interest
payments and base land rents,  then to provide  increases to this current income
through  participation in the annual revenues  generated by the property as they
increase  above  a  specified  base  amount.  In  addition,   the  Partnership's
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 50% share of the appreciation above a specified base amount.

      During the  quarter  ended May 31,  1997,  the owner of the  Willow  Creek
Apartments had given notice of an intent to repurchase the underlying  land from
the Partnership and prepay its first leasehold mortgage loan which was scheduled
to mature on October  31,  2000.  On July 16,  1997,  the  Partnership  received
$3,055,000 from the Willow Creek borrower,  which represented the full repayment
of the first  leasehold  mortgage  loan secured by the Willow Creek  Apartments.
Simultaneously,  the Willow Creek owner purchased the Partnership's  interest in
the underlying land at a price equal to the Partnership's cost basis in the land
of $345,000.  In addition,  the Partnership  received a mortgage loan prepayment
penalty  of 4% of the  mortgage  note  balance,  or  $122,200,  and a land lease
termination  fee of  $13,800  in  accordance  with the terms of the  agreements.
Although the structure of the Partnership's  original investment in Willow Creek
entitled the Partnership to participate in the appreciated value of the property
upon a sale or  refinancing,  the value of the property  had not  increased to a
level at which the  Partnership  would  receive  a  participation  payment.  The
proceeds of this  transaction were distributed to the Limited Partners on August
15,  1997 in the  form of a  special  distribution  of $90 per  original  $1,000
investment. Of this amount,  approximately $79 represented the net proceeds from
the Willow Creek transaction and approximately $11 represented a distribution of
Partnership reserves that exceeded future requirements.

      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.
During fiscal 1996,  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.  The proceeds of this  transaction,  in
the amount of $214 per  original  $1,000  investment,  were  distributed  to the
Limited Partners in the second quarter of fiscal 1996.

5.   Investment Properties Held for Sale
     -----------------------------------

      At  August  31,  1997  and  1996,  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, 1997 and 1996 is comprised
of the following net carrying values (in thousands):

                                                    1997             1996
                                                    ----             ----
      Martin Sunnyvale Research and
        Development Center                       $  3,400          $  3,400
      Bell Forge Square Shopping Center             8,700             8,700
                                                 --------          --------
                                                 $ 12,100          $ 12,100
                                                 ========          ========

      The  Partnership  complies with the  guidelines  set forth in SFAS No. 121
(see Note 2) to account for its investment  properties held for sale. Under SFAS
No. 121, a foreclosed  asset deemed to be held for sale 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, 1997,  the aggregate
cost basis of the  investment  properties  held for sale for federal  income tax
purposes is approximately $15,053,000.

      Descriptions of the  transactions  through which the Partnership  acquired
these properties and of the properties themselves are summarized below:

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,  1997,  is  comprised  of 39,286  leasable  square  feet and is  located  in
Sunnyvale,  California.  No leases expire at the property  until April 30, 1999.
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.  During fiscal 1996,  real
estate  values  for R&D  office  properties  in  Northern  California  recovered
somewhat  as a result of the  resurgence  in the  growth of the high  technology
industries.  As a result of lower market vacancy  levels and  increasing  rental
rates,  the  estimated  fair value of the  Martin  Sunnyvale  property  improved
significantly  during  fiscal 1996 to an amount  which  exceeded  the cost basis
established  for the  property in fiscal 1991 of  $3,400,000.  Accordingly,  the
Partnership  adjusted the valuation account with respect to the Martin Sunnyvale
property  and  recognized  a recovery  of possible  investment  loss of $900,000
effective  in the  fourth  quarter of fiscal  1996.  The  carrying  value of the
investment,  of $3,400,000,  is included in the balance of investment properties
held for sale on the accompanying balance sheets as of August 31, 1997 and 1996.

      During fiscal 1997, the Partnership contracted with a national real estate
firm with a strong  background in selling R&D office  buildings to market Martin
Sunnyvale for sale. The property was marketed extensively during the second half
of fiscal 1997,  and the  Partnership  received  several  offers from  qualified
third-party  buyers to acquire the property.  After  reviewing  the offers,  the
Partnership accepted an offer from one of these potential buyers and, subsequent
to year-end,  negotiated a purchase and sale  agreement.  Based upon the current
estimated market value of the Martin Sunnyvale property, the Partnership expects
to recognize a sizable gain if a sale transaction is completed in the near-term.
However, since the sale transaction remains subject to certain due diligence and
financing  contingencies,  there are no assurances that a near-term sale will be
completed.

      During fiscal 1994,  the  Partnership  was notified by a California  state
water  agency of a potential  environmental  problem at Martin  Sunnyvale.  As a
result of governmental required testing,  management learned that there has been
a contamination of the underground soil and water at the site. The environmental
testing  was  paid  for  by  one  of  the  parties  identified  as  a  potential
contaminator.  Management believes that this contamination occurred prior to the
Partnership's  initial  mortgage  loan  and  ground  lease  investments  in  the
property,  which were made in 1985. The California state water agency has issued
a site cleanup order  identifying  two  companies  which had occupied the Martin
Sunnyvale property prior to the Partnership's investment. Management has engaged
local  counsel to monitor  all legal  actions to insure  that the  Partnership's
rights are fully  protected.  This matter is not expected to affect the possible
near-term sale of the operating investment property discussed further above.

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 92% occupied as of August 31, 1997, is comprised of 126,890
leasable  square  feet and is  located in  Nashville,  Tennessee.  The  Managing
General Partner estimated that the fair value of the investment property, net of
selling  expenses,  at the date title to the mortgaged  property was transferred
was approximately  equal to the combined cost of the land and the face amount of
the  Partnership's  mortgage loan. The  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 sheets at August 31, 1997 and 1996.

      During fiscal 1997, the Partnership  hired a  Nashville-based  real estate
firm  specializing in the sale of retail  properties to market Bell Forge Square
Shopping Center for sale. This property was also marketed extensively during the
second  half of fiscal  1997.  As a result  of these  efforts,  the  Partnership
received offers from two  prospective  third-party  buyers.  After reviewing the
offers, the Partnership accepted an offer from one of these potential buyers and
is  negotiating a purchase and sale  agreement.  Based on the current  estimated
market  value of the Bell forge  Square  property,  the  Partnership  expects to
realize  an  amount  equal  to or  greater  than the net  carrying  value of the
operating  investment  property  if a  sale  transaction  is  completed  in  the
near-term.  However, since any sale transaction remains subject to the execution
of a  definitive  agreement,  as well as certain  due  diligence  and  financing
contingencies, there are no assurances that a near-term sale will be completed.

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, 1997, 1996 and
1995 are as follows (in thousands):

                                                1997       1996         1995
                                                ----       ----         ----
      Rental income and expense 
        reimbursements                        $1,552     $1,449       $2,121
      Other income                               283        277          282
                                              ------     ------       ------
                                               1,835      1,726        2,403

      Property operating expenses (1)            619        461          774
      Property taxes and insurance               187        231          329
                                              ------     ------       ------
                                                 806        692        1,103
                                              ------     ------       ------
      Income from operations, net             $1,029     $1,034       $1,300
                                              ======     ======       ======

      Partnership's share of combined
        operations                            $1,029     $1,034       $1,274
      QP3's share of Cordova Creek
        operations                                 -          -           26
                                              ------     ------       ------
                                              $1,029     $1,034       $1,300
                                              ======     ======       ======

(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, 1997, 1996 and 1995 is capital  improvement costs of $246,000,  $239,000
    and $326,000, respectively.
<PAGE>
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
    ----------------------          ------
        1998                        $1,600
        1999                         1,407
        2000                         1,089
        2001                           924
        2002                           586
        Thereafter                     778
                                    ------
                                    $6,384
                                    ======

7.   Subsequent Event
     ----------------

      On October 15, 1997,  the  Partnership  distributed  $3,000 to the General
Partners,  $320,000 to the Limited Partners and paid $3,000 to the Adviser as an
asset management fee for the quarter ended August 31, 1997.


<PAGE>


Schedule III - Real Estate Owned

               Paine Webber Qualified Plan Property Fund Four, LP
                                 August 31, 1997
                                 (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
---------------        ---------------   -----------     ----------  ----------
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            --------        -------  
                          $14,870        $13,170
                         ========        =======
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, 1997. 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,
      1997.  The  aggregate  cost of the  investments  for  federal  income  tax
      purposes is approximately $15,823,000.

  (C) Reconciliation of real estate owned:

                                            1997        1996         1995
                                            ----        ----         ----

      Balance at beginning of year       $13,515    $ 15,577      $22,478
      Sale of land and investment 
        property (3)                        (345)     (2,062)      (6,901)
                                         -------    --------      -------
      Balance at end of year             $13,170    $ 13,515      $15,577
                                         =======    ========      =======
    
 (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, 1997. 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,  1997.  See  discussion  in Note 5 to the
    financial statements.

 (3)See  discussion in Notes 4 and 5 to the financial  statements  regarding the
    fiscal 1997 sale of the land  underlying  the Willow Creek  Apartments,  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, 1997
                                 (In thousands)
<CAPTION>
                                                                                               Principal
                                                                                               amount of
                                                                                               loans subject
                                                  Periodic         Face         Carrying       to delinquent
                   Interest  Final maturity       payment          amount       of amount      of principal
Description        rate           date            terms            mortgage     mortgage       or interest
-----------        --------  -----------------    ------           --------     --------       -----------
<S>                <C>       <C>                 <C>              <C>          <C>            <C>
First Mortgage Loan:

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

TOTALS                                                              --------    --------
                                                                    $  4,230    $  4,230
                                                                    ========    ========

                                                        1997        1996        1995
                                                        ----        ----        ----
Balance at beginning of year                        $  7,285     $13,001     $13,001
Additions during the year (1)                              -         472           -
Reductions during year (2)                            (3,055)     (6,188)          -
                                                    --------     -------     -------
Balance at end of year                              $  4,230    $  7,285     $13,001
                                                    ========    ========     =======


  (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  loans  receivable  secured by the Willow Creek
      Apartments  and The Corner at Seven Corners  Shopping  Center were repaid in
      full on July 16, 1997 and November 22, 1995, respectively.
</TABLE>