<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-13518
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1933081
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
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 _CK_ No __
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. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Limited Partners for the year ended December 31, 1995 is
incorporated by reference into Parts I, II and IV of this Annual Report on Form
10-K.
Amended and Restated Certificate and Agreement of Limited Partnership,
included as part of the Registration Statement on Form S-11 (File No. 2-88785)
filed with Securities and Exchange Commission pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, is incorporated by reference into Part IV of
this Annual Report on Form 10-K.
Index to exhibits can be found on pages 9 and 10.
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 4
Item 3 Legal Proceedings................................................................ 5
Item 4 Submission of Matters to a Vote of Limited Partners.............................. 5
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 5
Item 6 Selected Financial Data.......................................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
Item 8 Financial Statements and Supplementary Data...................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 6
Item 11 Executive Compensation........................................................... 8
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 8
Item 13 Certain Relationships and Related Transactions................................... 8
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules........................... 9
Exhibits......................................................................... 9
Reports on Form 8-K.............................................................. 10
SIGNATURES.................................................................................. 15
</TABLE>
2
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PART I
Item 1. Business
General
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Registrant''), a Texas
limited partnership, was formed on November 14, 1983 and will terminate on
December 31, 2050 unless terminated sooner under the provisions of the Amended
and Restated Certificate and Agreement of Limited Partnership (the ``Partnership
Agreement''). The Registrant was formed for the purpose of acquiring,
developing, owning and operating mini-storage and business center facilities
with the proceeds raised from the initial sale of units of limited partnership
interest (``Units''). The Registrant's fiscal year for book and tax purposes
ends on December 31.
The Registrant operates eight improved properties, five of which are business
center facilities with mini-warehouses and three of which are solely
mini-warehouse facilities. For more information regarding the Registrant's
properties, see Item 2 Properties. For more information regarding the
Registrant's operations, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Registrant's Annual Report
to Limited Partners for the year ended December 31, 1995 (``Registrant's Annual
Report'') which is filed as an exhibit hereto. The Registrant is engaged solely
in the business of real estate investment; therefore, presentation of industry
segment information is not applicable.
On December 15, 1995, the Management Committee of the Registrant determined
to seek bids for all of the properties held by the Registrant. As of March 22,
1996, preliminary bids have been received for all properties. If bids for the
properties are deemed acceptable by the Registrant, the Registrant intends to
enter into agreements to sell the properties, subject to the approval of the
limited partners owning a majority of the Units as required by the Partnership
Agreement. If such sales are approved and consummated, the Registrant will
liquidate and distribute its net assets to its partners. There can, of course,
be no assurance that acceptable bids will be received or that any transactions
will be consummated.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
(``PBP''), George S. Watson and A. Starke Taylor, Ill (collectively, the
``General Partners''). PBP is the Managing General Partner and is responsible
for the day-to-day operations of the Registrant and its investments. See Note E
of the financial statements in the Registrant's Annual Report which is filed as
an exhibit hereto.
Competition
The General Partners and/or their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The Registrant competes with national and regional real estate owners and
operators, some of whom have more experience and resources than the Registrant.
Such owners and operators may include insurance companies, mortgage banks,
pension funds, and other real estate investors, including foreign investors,
syndicated partnerships, and real estate investment trusts. The primary factors
affecting a particular property's ability to successfully compete against other
properties include the location of such property, the suitability of its design
to a prospective tenant's needs, the manner in which it is managed and marketed,
and rental rates. The extent to which the Registrant is affected by competition
will depend, in part, on existing market conditions. The property managers,
Public Storage Management, Inc. and Public Storage Commercial Properties Group,
Inc., manage other properties which compete with the Registrant's properties
within the same geographical area.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners and/or their
affiliates receive compensation and reimbursement of expenses in connection with
such activities as described in section 11.7 of the Partnership Agreement. See
Note E of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
3
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<PAGE>
Item 2. Properties
As of December 31, 1995 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average
Occupancy Rates Monthly
for the year Rental Rates
ended Per Unit
December 31, Land Rentable as of December 31,
Property Location 1995(1) (in acres) Units 1995
- -------------------------------- ----------------- ---------- -------- ----------------------
<S> <C> <C> <C> <C>
Arlington (Arlington, Texas)
Mini-warehouse 90.8% 6.25 293 $ 19 - $107
Commercial 81 $ 125 - $950
--------
374
--------
Arapaho (Richardson, Texas)
Mini-warehouse 94.3 6.01 417 $ 19 - $315
Commercial 62 $ 225 - $790
--------
479
--------
South May/I-240 (Oklahoma City,
Oklahoma)
Mini-warehouse 86.4 3.05 379 $ 15 - $ 79
Commercial 15 $ 166 - $1,080
--------
394
--------
Santa Fe/79th St. (Oklahoma
City, Oklahoma)
Mini-warehouse 87.9 3.40 389 $ 24 - $143
--------
South May/44th St. (Oklahoma
City, Oklahoma)
Mini-warehouse 96.6 2.67 500 $ 13 - $63
--------
Timbercrest (Tulsa, Oklahoma)
Mini-warehouse 95.4 6.08 120 $ 34 - $155
Commercial 73 $ 220 - $790
--------
193
--------
Cherry Hill (Cherry Hill, New
Jersey)
Mini-warehouse 89.5 3.17 331 $ 29 - $415
--------
Hampton Park (Capitol Heights,
Maryland)
Mini-warehouse 92.9 5.87 130 $ 29 - $280
Commercial 68 $ 250 - $950
--------
198
--------
2,858
--------
--------
- ------------------------------------------------------------------------------------------------------------
(1) Average occupancy rates are calculated by averaging the monthly occupancies determined by dividing
occupied square footage by available square footage as of each month-end.
</TABLE>
The Managing General Partner believes the Registrant's Properties are
adequately insured.
4
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<PAGE>
For the years ended December 31, 1995, 1994 and 1993, the following
properties' rental revenue exceeded 15% of the Registrant's total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Arapaho 19% 19% 20%
Arlington 17 18 18
</TABLE>
No single tenant accounted for 10% or more of the total revenue for any of
the three years in the period ended December 31, 1995.
For additional information describing the Registrant's properties, see
Supplementary Schedule III--Real Estate and Accumulated Depreciation on page 13
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
This information is incorporated by reference to Note G of the financial
statements of the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5.Market for the Registrant's Units and Related Limited Partner Matters
As of March 1, 1996, there were 3,625 holders of record owning 51,818 Units,
inclusive of 258, 130 and 130 equivalent limited partnership units held by PBP
and Messrs. Watson and Taylor, respectively. A significant secondary market for
the Units has not developed, and it is not expected that one will develop in the
future. There are also certain restrictions set forth in Section 17.3 of the
Partnership Agreement limiting the ability of a limited partner to transfer
Units. Consequently, holders of Units may not be able to liquidate their
investments in the event of an emergency or for any other reason.
The following per Unit cash distributions were paid to limited partners on or
about 45 days after the end of the specified quarter.
<TABLE>
<CAPTION>
Quarter Ended 1995 1994
- --------------- ----- -----
<S> <C> <C>
March 31 $3.71 $4.64
June 30 3.71 5.96
September 30 3.71 5.00
December 31 3.71 3.71
</TABLE>
Distributions for the years ended December 31, 1995 and 1994 were made from
current and previously undistributed cash generated by the operations of the
Registrant's properties. Limited partner distributions were approximately
$766,000 and $1,034,000 for the years ended December 31, 1995 and 1994,
respectively. The amount of limited partner distributions that represented a
return of capital on a generally accepted accounting principles (GAAP) basis was
approximately $282,000 and $635,000 for the years ended 1995 and 1994,
respectively (return of capital on a GAAP basis is calculated as limited partner
distributions less net income allocated to limited partners). There are no
material restrictions upon the Registrant's present or future ability to make
distributions in accordance with the provisions of the Partnership Agreement.
The Registrant currently expects that recurring quarterly cash distributions
will continue to be paid in the foreseeable future from property operations. For
discussion of other factors that may affect the amounts of future distributions,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 10 and 11 of the Registrant's Annual Report which is filed
as an exhibit hereto.
5
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<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 9 of the Registrant's Annual
Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
Total revenues $ 2,841,354 $ 2,615,970 $ 2,461,721 $ 2,400,913 $ 2,436,405
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on
impairment of assets $ -- $ -- $ -- $ -- $ 1,418,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 489,304 $ 402,785 $ 347,081 $ 355,077 $(1,064,271)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner income (loss)
per Unit $ 9.40 $ 7.73 $ 6.66 $ 6.82 $ (18.90)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $14,086,449 $14,263,400 $15,072,631 $15,732,923 $16,362,156
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total distributions $ 773,886 $ 1,044,203 $ 886,930 $ 1,077,008 $ 1,247,987
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner distributions
per Unit $ 14.86 $ 20.05 $ 17.03 $ 20.68 $ 23.85
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 10 and 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the Managing General Partner.
The Registrant, the Registrant's General Partners, PBP's directors and
executive officers and any persons holding more than ten percent of the
Registrant's Units are required to report their initial ownership of such Units
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such General Partners, executive officers,
directors and other persons who own greater than ten percent of the Registrant's
Units are required by Securities and Exchange Commission regulations to furnish
the Registrant with copies of all Forms 3, 4 or 5 they file. All of these
requirements were satisfied on a timely basis. In making these disclosures, the
Registrant has relied solely on written representations of the General Partners,
PBP's directors and executive officers and other persons who own greater than
ten percent of the Registrant's Units or copies of the reports they have filed
with the Securities and Exchange Commission during and with respect to its most
recent fiscal year.
6
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Prudential-Bache Properties, Inc., Managing General Partner
The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:
<TABLE>
<CAPTION>
Name Position
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer,
Chairman of the Board of Directors and Director
Barbara J. Brooks Vice President--Finance and Chief Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 37, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated (``PSI''), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 47, is the Vice President--Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 50, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 52, is a Vice President of PBP. He is a Senior
Vice President of PSI and is the Senior Manager of the Specialty Finance Asset
Management area. Mr. Piskorowski has held several positions within PSI since
April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 53, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, Inc., an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 45, is a Director of PBP. She is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in various capacities for other affiliated companies.
James M. Kelso ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director effective June 30, 1995.
Effective June 30, 1995,Thomas F. Lynch, III was elected President, Chief
Executive Officer, Chairman of the Board of Directors and Director. Robert J.
Alexander ceased to serve as Vice President effective August 25, 1995. Eugene D.
Burak was elected Vice President effective October 9, 1995.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
Individual General Partners
George S. Watson, age 55, is a financial specialist and a certified public
accountant. He is also a member of the board of directors of Lyco Energy
Corporation as well as the Advisory Council of the University of Texas Business
School and a member of its Chancellor's Council. Mr. Watson attended the
University of Texas in Austin, graduating summa cum laude in 1963 with a B.B.A.
in accounting and finance. He received his M.B.A. in accounting and finance from
the University of Texas in 1965, graduating first in his class and
7
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<PAGE>
summa cum laude. He has received various awards and scholarships and is a member
of many fraternal organizations including Phi Kappa Phi, the honorary scholastic
fraternity.
A. Starke Taylor, III, age 52, holds a bachelor of business administration
degree from Southern Methodist University which was awarded in 1966. He is past
president of the North Dallas Chamber of Commerce. Active in the community, Mr.
Taylor is the chairman of the board of Priority One, an international missionary
organization, the founding chairman of the board of the Park Central Athletic
Association, a member of the Dallas regional board of the Salvation Army, and a
board member of the Dallas Theological Seminary. Mr. Taylor was recognized in
1983 by D Magazine as one of Dallas' 10 most outstanding young business leaders.
There are no family relationships among any of the foregoing individual
General Partners.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to either individual General Partner or to directors and officers
of the Managing General Partner for their services. Certain officers and
directors of the Managing General Partner receive compensation from affiliates
of the Managing General Partner, not from the Registrant, for services performed
for various affiliated entities, which may include services performed for the
Registrant; however, the Managing General Partner believes that any compensation
attributable to services performed for the Registrant is immaterial. See also
Item 13 Certain Relationships and Related Transactions for information regarding
reimbursement to the General Partners for services provided to the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1996 no individual General Partner or director or officer of
the Managing General Partner owns directly or beneficially any interest in the
voting securities of the Managing General Partner.
As of March 1, 1996, no individual General Partner or director or officer of
the Managing General Partner owns directly or beneficially any of the Units
issued by the Registrant. However, the General Partners have contributed to the
Registrant and, based on such contribution, they received ``equivalent units''
entitling them to participate in the distributions to the limited partners and
in the Registrant's profits and losses in the same proportion that the General
Partners' capital contribution bears to the total capital contributions of the
limited partners. The Managing General Partner has retained its right to receive
funds from the Registrant, such as General Partner distributions and
reimbursement of expenses, but has waived its right to share in any limited
partner cash distributions and allocation of Registrant's profits and losses
based upon such equivalent units.
As of March 1, 1996, no limited partner beneficially owns more than five
percent (5%) of the outstanding Units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there were no direct financial
transactions between the Registrant and the individual General Partners or the
directors or officers of the Managing General Partner in 1995.
Reference is made to Notes A and E of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services.
8
<PAGE>
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page
Number
in Annual
Report
---------
<S> <C> <C> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Report of Independent Auditors--Incorporated by
reference to the Registrant's Annual Report which is filed as an exhibit
hereto
Report of Independent Auditors 2
Financial Statements:
Statements of Financial Condition--December 31, 1995 and 1994 3
Statements of Operations--Three years ended December 31, 1995 4
Statements of Changes in Partners' Capital--Three years ended December 31, 4
1995
Statements of Cash Flows--Three years ended December 31, 1995 5
Notes to Financial Statements 6
2. Financial Statement Schedules and Consent of Independent Auditors
Consent of Independent Auditors
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Three years ended
December 31, 1995
III--Real Estate and Accumulated Depreciation at December 31, 1995
Notes to Schedule III--Real Estate and Accumulated Depreciation
All other schedules have been omitted because they are not applicable or the
required information is included in the financial statements and the notes
thereto.
3. Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited Partnership
(1)
3.02 Amendment Number 8 to the Amended and Restated Certificate and
Agreement of Limited Partnership (2)
4.01 Revised Form of Certificate of Limited Partnership Interest (3)
10.01 Management Agreement (1)
10.02 Property Management Agreement dated as of November 1, 1988 by and
between the Registrant and Public Storage Commercial Properties Group,
Inc. (3)
10.03 Property Management Agreement dated as of November 1, 1988 by and
between the Registrant and Public Storage Management, Inc. (3)
10.04 Agreement Relating to General Partner Interests (1)
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
13.01 Annual Report to Limited Partners for the year ended December 31, 1995
(4) (with the exception of the information and data incorporated by
reference in Items 3, 7 and 8 of this Annual Report on Form 10-K, no
other information or data appearing in the Registrant's Annual Report
is to be deemed filed as part of this report.)
27. Financial Data Schedule (4)
(b) Reports on Form 8-K
Registrant's Current Report on Form 8-K dated December 6, 1995, as filed
with the Securities and Exchange Commission on December 6, 1995, relating to
Item 5 regarding the communication of certain information to the limited
partners.
Registrant's Current Report on Form 8-K dated December 15, 1995, as filed
with the Securities and Exchange Commission on December 26, 1995, relating
to Item 5 regarding the intention of the Partnership to solicit bids for the
Partnership's properties.
</TABLE>
- ------------------
(1) Filed as an exhibit to Registration Statement on Form S-11 (No. 2-88785)
and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended March
31, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 10-K for the year ended December
31, 1988 and incorporated herein by reference.
(4) Filed herewith.
10
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<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-2
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Prudential-Bache/Watson & Taylor, Ltd.-2 of our report dated February 16,
1996, included in the 1995 Annual Report to Limited Partners of
Prudential-Bache/Watson & Taylor, Ltd.-2.
Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor, Ltd.-2 listed in Item 14(a). These schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Ernst & Young LLP
New York, New York
March 29, 1996
11
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
- -------------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
Deductions - Amounts
Year Ended Balance at Additions - Amounts Written-off During Balance at
December 31, Beginning of Year Reserved During Year Year End of Year
- ------------ ----------------- -------------------- -------------------- -----------
<S> <C> <C> <C> <C>
1993 $ 1,418,000 -- -- $ 1,418,000
1994 $ 1,418,000 -- -- $ 1,418,000
1995 $ 1,418,000 -- -- $ 1,418,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
12
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<TABLE>
<CAPTION>
Initial cost to
Registrant Costs Gross amount at which carried at
(Note B) capitalized close of period
----------------------------- subsequent ---------------------------------------------
Description Buildings and to Buildings and Total
(Note A) Land improvements acquisition Land improvements (Note C)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------- ---------- -------------- ------------ ---------- -------------- -----------
Arlington
(Arlington, Texas) $ 886,569 $1,769,760 $ 1,735,255 $ 886,569 $ 3,505,015 $ 4,391,584
Arapaho
(Richardson, Texas) 664,196 963,980 1,925,005 666,834 2,886,347 3,553,181
South May/I-240
(Oklahoma City, Oklahoma) 428,878 -- 1,623,671 428,878 1,623,671 2,052,549
Sante Fe/79th St.
(Oklahoma City, Oklahoma) 207,497 1,044,865 168,421 207,497 1,213,286 1,420,783
South May/44th St.
(Oklahoma City, Oklahoma) 178,086 995,949 117,902 178,086 1,113,851 1,291,937
Timbercrest
(Tulsa, Oklahoma) 1,443,197 -- 2,744,414 1,443,197 2,744,414 4,187,611
Cherry Hill
(Cherry Hill, New Jersey) 165,570 1,339,597 201,266 165,570 1,540,863 1,706,433
Hampton Park
(Capitol Heights, Maryland) 925,595 -- 3,262,551 926,441 3,261,705 4,188,146
---------- -------------- ------------ ---------- -------------- -----------
$4,899,588 $6,114,151 $11,778,485 $4,903,072 $ 17,889,152 $22,792,224
---------- -------------- ------------ ---------- -------------- -----------
---------- -------------- ------------ ---------- -------------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Life on
depreciation
in latest
Accumulated Statement of
Description depreciation Date(s) of Date Operations
(Note A) (Note D) construction acquired is computed
<S> <C> <C> <C> <C>
- ----------------------------- ------------- ------------- -------- ------------
Arlington 5 to
(Arlington, Texas) $ 1,751,544 1984 1984 25 years
Arapaho 5 to
(Richardson, Texas) 1,333,300 1984 1984 25 years
South May/I-240 5 to
(Oklahoma City, Oklahoma) 720,560 1984/85 1984 25 years
Sante Fe/79th St. 5 to
(Oklahoma City, Oklahoma) 583,872 1982 1984 25 years
South May/44th St. 5 to
(Oklahoma City, Oklahoma) 537,020 1982 1984 25 years
Timbercrest 5 to
(Tulsa, Oklahoma) 1,275,978 1984/85 1984 25 years
Cherry Hill 5 to
(Cherry Hill, New Jersey) 809,259 1974 1983 25 years
Hampton Park 5 to
(Capitol Heights, Maryland) 1,263,440 1985/86 1984 25 years
-------------
$ 8,274,973
-------------
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes on the following page
13
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO SCHEDULE III
December 31, 1995
NOTE A--There are no mortgages, deeds of trust or similar encumbrances against
any of the properties.
NOTE B--Initial cost represents the initial purchase price of the properties
including acquisition fees.
<TABLE>
<CAPTION>
NOTE C--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE OWNED
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year.......................... $22,623,910 $22,494,603 $22,357,361
Net additions during the year......................... 168,314 129,307 137,242
----------- ----------- -----------
Balance at close of year.............................. $22,792,224 $22,623,910 $22,494,603
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
An allowance for loss on impairment is provided for the above assets in the
amount of $1,418,000.
The aggregate cost of land, buildings and improvements and furniture and
fixtures for Federal income tax purposes for the tax year ended December 31,
1995 was $22,793,988.
<TABLE>
<CAPTION>
NOTE D--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year.......................... $ 7,511,313 $ 6,778,084 $ 6,062,723
Depreciation during the year charged to expense....... 763,660 733,229 715,361
----------- ----------- -----------
Balance at close of year.............................. $ 8,274,973 $ 7,511,313 $ 6,778,084
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
14
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-2
<TABLE>
<S> <C>
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: March 29, 1996
-----------------------------------------------------------------
Eugene D. Burak
Vice President and
Chief Accounting Officer
</TABLE>
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
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
<TABLE>
<S> <C>
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Thomas F. Lynch, III Date: March 29, 1996
------------------------------------------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Barbara J. Brooks Date: March 29, 1996
------------------------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
By: /s/ Eugene D. Burak Date: March 29, 1996
------------------------------------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: March 29, 1996
------------------------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: March 29, 1996
------------------------------------------------------------------
Nathalie P. Maio
Director
</TABLE>
15
<PAGE>
1995 ANNUAL REPORT
<PAGE>
1995
- --------------------------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-2 Report
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
1995 Annual Report
1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-2
We have audited the accompanying statements of financial condition of
Prudential-Bache/Watson & Taylor, Ltd.-2 as of December 31, 1995 and 1994, and
the related statements of operations, changes in partners' capital, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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 condition of Prudential-Bache/Watson &
Taylor, Ltd.-2 as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note B to the financial statements, in 1995, the Partnership
changed its method of accounting for the carrying value of real estate by
adopting Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Ernst & Young LLP
New York, New York
February 16, 1996
2
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Land $ 4,903,072 $ 4,903,072
Buildings and improvements 17,407,397 17,246,589
Furniture, fixtures and equipment 481,755 474,249
Less: Accumulated depreciation (8,274,973 ) (7,511,313 )
Allowance for loss on impairment of assets (1,418,000 ) (1,418,000 )
------------ ------------
Property 13,099,251 13,694,597
Cash and cash equivalents 957,903 547,459
Other assets 29,295 21,344
------------ ------------
Total assets $14,086,449 $14,263,400
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 114,004 $ 76,563
Accrued real estate taxes 105,458 99,405
Deposits due to tenants 88,910 62,660
Due to affiliates, net 66,280 24,557
Unearned rental income 46,166 50,002
------------ ------------
Total liabilities 420,818 313,187
------------ ------------
Contingencies
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,729,712 14,011,448
General partners (64,081 ) (61,235 )
------------ ------------
Total partners' capital 13,665,631 13,950,213
------------ ------------
Total liabilities and partners' capital $14,086,449 $14,263,400
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 2,822,490 $2,604,144 $2,451,667
Interest 18,864 11,826 10,054
--------------- ---------- ----------
2,841,354 2,615,970 2,461,721
--------------- ---------- ----------
EXPENSES
Property operating 1,039,761 938,587 904,712
Depreciation 763,660 733,229 715,361
General and administrative 298,370 277,636 243,939
Real estate taxes 250,259 263,733 250,628
--------------- ---------- ----------
2,352,050 2,213,185 2,114,640
--------------- ---------- ----------
Net income $ 489,304 $ 402,785 $ 347,081
--------------- ---------- ----------
--------------- ---------- ----------
ALLOCATION OF NET INCOME
Limited partners $ 484,411 $ 398,757 $ 343,610
General partners 4,893 4,028 3,471
--------------- ---------- ----------
$ 489,304 $ 402,785 $ 347,081
--------------- ---------- ----------
--------------- ---------- ----------
Net income per limited partnership unit $ 9.40 $ 7.73 $ 6.66
--------------- ---------- ----------
--------------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1992 $15,180,890 $(49,410 ) $15,131,480
Net income 343,610 3,471 347,081
Distributions (878,048) (8,882 ) (886,930)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1993 14,646,452 (54,821 ) 14,591,631
Net income 398,757 4,028 402,785
Distributions (1,033,761) (10,442 ) (1,044,203)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1994 14,011,448 (61,235 ) 13,950,213
Net income 484,411 4,893 489,304
Distributions (766,147) (7,739 ) (773,886)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1995 $13,729,712 $(64,081 ) $13,665,631
----------- --------- -----------
----------- --------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,836,953 $ 2,643,526 $2,388,310
Interest received 18,864 11,826 10,054
General and administrative expenses paid (235,304) (357,496) (240,197)
Property operating expenses paid (1,023,664) (1,000,891) (990,453)
Real estate taxes paid (244,205) (261,994) (267,410)
--------------- ----------- ----------
Net cash provided by operating activities 1,352,644 1,034,971 900,304
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (168,314) (129,307) (137,242)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (773,886) (1,063,610) (878,048)
--------------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 410,444 (157,946) (114,986)
Cash and cash equivalents at beginning of year 547,459 705,405 820,391
--------------- ----------- ----------
Cash and cash equivalents at end of year $ 957,903 $ 547,459 $ 705,405
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 489,304 $ 402,785 $ 347,081
--------------- ----------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 763,660 733,229 715,361
Changes in:
Other assets (7,951) 47,363 (32,813)
Accounts payable and accrued expenses 37,441 (94,526) (145,078)
Accrued real estate taxes 6,053 1,739 (16,782)
Due to affiliates, net 41,723 (47,638) 23,079
Deposits due to tenants 26,250 (1,997) 33,789
Unearned rental income (3,836) (5,984) (24,333)
--------------- ----------- ----------
Total adjustments 863,340 632,186 553,223
--------------- ----------- ----------
Net cash provided by operating activities $ 1,352,644 $ 1,034,971 $ 900,304
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $ (773,886) $(1,044,203) $ (886,930)
Increase (decrease) in distribution payable -- (19,407) 8,882
--------------- ----------- ----------
Distributions paid to partners $ (773,886) $(1,063,610) $ (878,048)
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited Partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Partnership'') is a Texas
limited partnership formed on November 14, 1983 which will terminate on December
31, 2050 unless terminated sooner under the provisions of the Amended and
Restated Certificate and Agreement of Limited Partnership (the ``Partnership
Agreement''). The Partnership was formed for the purpose of acquiring, owning,
developing and operating mini-storage and business center facilities. The
general partners of the Partnership are Prudential-Bache Properties, Inc.
(``PBP''), a wholly-owned subsidiary of Prudential Securities Group Inc., George
S. Watson, and A. Starke Taylor, III (collectively, the ``General Partners'').
PBP is the Managing General Partner and is responsible for the day-to-day
operations of the Partnership and its investments. At December 31, 1995, the
Partnership owned eight properties.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain balances from prior years have been reclassified to conform with the
current year's financial statement presentation.
Property
Effective December 31, 1995, the Partnership adopted 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.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its
estimated fair value. For properties that are held for sale, SFAS No. 121 states
that they should be recorded at the lower of carrying amount or estimated fair
value less costs to sell. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. Accordingly, effective December 31, 1995, the Partnership has
reclassified its properties from held for use to held for sale and has ceased
depreciating the properties for financial statement purposes only. The adoption
of SFAS No. 121 had no material effect on the financial position of the
Partnership as of December 31, 1995.
The determination of estimated fair value is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future years.
Prior to December 31, 1995, the Partnership carried its property investments
at the lower of depreciated cost or estimated amounts recoverable through future
operations and ultimate disposition of the property. Property investments were
depreciated or amortized using the straight-line method over their estimated
economic lives which range from 5 to 25 years depending on property type. A
provision for loss on impairment of assets was recorded when estimated amounts
recoverable through future operations and ultimate disposition of the property
on a undiscounted basis were below depreciated cost.
6
<PAGE>
<PAGE>
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
Net income from operations is allocated 99% to the limited partners and 1% to
the General Partners. Net loss from operations is allocated 92% to the limited
partners and 8% to the General Partners.
Cash from operations is being distributed 99% to the limited partners and 1%
to the General Partners. Proceeds from the sale of the properties and
liquidation of the Partnership will be distributed in accordance with the
Partnership Agreement.
Net income per limited partnership unit is based on 51,560 limited and
equivalent units outstanding, which excludes 258 equivalent units held by PBP
(see Note E) for which PBP has waived all of its rights therein. Per unit
amounts for 1993 have been restated to eliminate the equivalent units held by
PBP.
C. Property
The Partnership's property is comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
<S> <C> <C>
1995 1994
----------- -----------
Arlington-Arlington, Texas $ 2,640,040 $ 2,751,933
Arapaho-Richardson, Texas 2,219,881 2,333,594
South May/I-240-Oklahoma City, Oklahoma 1,331,989 1,392,284
Santa Fe/79th St.-Oklahoma City,
Oklahoma 836,911 845,778
South May/44th St.-Oklahoma City,
Oklahoma 754,917 757,343
Timbercrest-Tulsa, Oklahoma 2,911,633 3,032,380
Cherry Hill-Cherry Hill, New Jersey 897,174 939,270
Hampton Park-Capitol Heights, Maryland 2,924,706 3,060,015
----------- -----------
14,517,251 15,112,597
Less: allowance for loss on
impairment of assets (1,418,000) (1,418,000)
----------- -----------
$13,099,251 $13,694,597
----------- -----------
----------- -----------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, the following
properties' rental revenue exceeded 15% of the Partnership's total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Arapaho 19% 19% 20%
Arlington 17 18 18
</TABLE>
No single tenant accounted for 10% or more of the total revenue for any of
the three years in the period ended December 31, 1995.
D. Minimum Future Lease Revenues
The Partnership earns a majority of its rental income from month-to-month and
other short-term leasing arrangements. The Partnership also has certain
noncancellable operating leases on the Partnership's properties. The minimum
future rental revenues receivable under these noncancellable operating leases at
the Partnership's improved properties are approximately $205,000 and $41,000 for
the years ending December 31, 1996 and 1997, respectively.
7
<PAGE>
<PAGE>
E. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management, transfer and
assignment functions, asset management, investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the years ended December 31, 1995, 1994 and 1993 were approximately $104,000
$95,000 and $101,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. In 1994, the Partnership recorded approximately $31,000 for the
reimbursement of certain prior periods' general, administrative and monitoring
expenses incurred by affiliates of the individual General Partners.
Approximately $24,000 was incurred in 1995.
PBP and the individual General Partners of the Partnership, own 258, 130 and
130 equivalent limited partnership units, respectively. PBP receives funds from
the Partnership, such as General Partner distributions and reimbursement of
expenses, but waived all of its rights resulting from its ownership of
equivalent limited partnership units. Accordingly, limited partner distributions
per Unit and net income per Unit are calculated net of 258 equivalent limited
partnership Units.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at December 31, 1995.
F. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income (loss) for tax reporting purposes for the years ended
December 31, 1995, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net income per financial statements $489,304 $ 402,785 $ 347,081
Rent received in advance, net of reversal of prior year amount (3,836) (5,984) (24,333)
Bad debt (recovery) provision for book purposes (25,000) (15,000) 40,000
Tax depreciation and amortization in excess of book amounts (234,947) (357,299) (376,058)
-------- --------- -----------
Tax basis net income (loss) $225,521 $ 24,502 $ (13,310)
-------- --------- -----------
-------- --------- -----------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments.
G. Contingencies
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceedings under the caption In re Prudential Securities Incorporated Limited
Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees and PBP. The Partnership was not named a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995, PBP, PSI and other Prudential defendants entered into a
Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI.
8
<PAGE>
<PAGE>
H. Subsequent Event
In February 1996, distributions of approximately $191,000 and $2,000 were
paid to the limited partners and to the General Partners, respectively, for the
quarter ended December 31, 1995.
9
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates five mini-warehouse/business center
facilities and three mini-warehouse facilities. On December 15, 1995, the
Management Committee of the Partnership determined to seek bids for all the
properties held by the Partnership. As of March 22, 1996, preliminary bids have
been received for all properties. If bids for the properties are deemed
acceptable by the Partnership, the Partnership intends to enter into agreements
to sell the properties, subject to the approval of the limited partners owning a
majority of the Units as required by the Partnership Agreement. If such sales
are approved and consummated, the Partnership will liquidate and distribute its
net assets to its partners. There can, of course, be no assurance that
acceptable bids will be received or that any transactions will be consummated.
During the year ended December 31, 1995, the Partnership's cash and cash
equivalents increased by approximately $410,000 due to net cash from property
operations in excess of capital expenditures and distributions to the partners.
Distributions during the year ended December 31, 1995 totaled approximately
$774,000 of which $766,000 was paid to the limited partners and $8,000 to
General Partners. These distributions were funded from property operations.
The Partnership's ability to make future distributions to the partners and
the amount that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, but also by
the amount expended for property improvements and the amount set aside for
anticipated property improvements. Property improvements are currently budgeted
at approximately $127,000 for 1996.
Results of Operations
Average occupancy rates for the years ended December 31, 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
Property 1995 1994 1993
<S> <C> <C> <C>
--------------------------------------------------------
Arlington 90.8% 91.4% 86.2%
Arapaho 94.3 92.6 92.9
South May/I-240 86.4 87.5 77.9
Santa Fe 87.9 97.5 91.8
South May/44th St. 96.6 94.7 86.8
Timbercrest 95.4 92.7 88.8
Cherry Hill 89.5 87.4 84.2
Hampton Park 92.9 82.2 78.6
--------------------------------------------------------
</TABLE>
(Average occupancy rates are calculated by averaging the monthly occupancies
determined by dividing occupied square footage by available square footage as of
each month-end.)
1995 vs. 1994
Net income increased by approximately $87,000 for the year ended December 31,
1995 as compared to the year ended December 31, 1994 for the reasons discussed
below.
Rental income increased by approximately $218,000 for the year ended December
31, 1995 as compared to the year ended December 31, 1994. Rental income
increased primarily due to improved rental rates at all properties. In addition,
all of the properties except Arlington, South May/I-240 and Santa Fe had an
increase in average occupancies.
Property operating expenses increased by approximately $101,000 for the year
ended December 31, 1995 compared to the year ended December 31, 1994. These
increases were due to higher property level payroll costs at all properties
except Santa Fe, higher utility expense at all properties except South May
/I-240 and Arapaho, and increased insurance expense primarily at Arlington and
Hampton Park. These
10
<PAGE>
<PAGE>
increases were partially offset by decreases in repairs and maintenance expense
especially at Arapaho, Timbercrest, South May/I-240 and Cherry Hill. Management
fees also increased because they are based on rental income. In addition,
leasing commissions have increased since more of the commercial units have been
leased.
General and administrative expenses increased by approximately $21,000 for
the year ended December 31, 1995 as compared to the year ended December 31,
1994. The increases are primarily due to increased professional fees and higher
costs associated with administering the Partnership.
1994 vs. 1993
Net income increased by approximately $56,000 for the year ended December 31,
1994 as compared to the year ended December 31, 1993 for the reasons discussed
below.
Rental income increased by approximately $152,000 for the year ended December
31, 1994 as compared to the year ended December 31, 1993. Rental income
increased due to increases in average occupancies at the Cherry Hill, South
May/I-240, Santa Fe, and South May/44th St. properties and an increase in
average rental rates at the Arapaho property. These increases were partially
offset by fluctuating average occupancies and rental rates at the Timbercrest
property. Rental income remained stable at the Arlington property because higher
average occupancy was offset by lower rental rates. The increased rental income
also reflects the impact of a non-recurring write-off of uncollectible
receivables at Hampton Park recorded in 1993.
Property operating expenses increased by approximately $34,000 for the year
ended December 31, 1994 compared to the year ended December 31, 1993 due
primarily to increases in property level payroll costs, insurance rates and
repairs and maintenance expenses at the Hampton Park and Timbercrest properties.
General and administrative expenses increased by approximately $34,000 for
the year ended December 31, 1994 as compared to the the year ended December 31,
1993 due to an accrual in 1994 of current and prior periods' general,
administrative and monitoring expenses owed to affiliates of the individual
General Partners and, to a lesser extent, a refund of legal fees received in
1993.
11
<PAGE>
<PAGE>
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission is available to limited partners without charge upon
written request to:
Prudential-Bache/Watson & Taylor, Ltd.-2
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
12
<PAGE>
<PAGE>
Peck Slip Station
BULK RATE
P.O. Box 2016
U.S. POSTAGE
New York, NY 10272-2016
PAID
Automatic Mail
PBW&T2A/9N171658
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor Ltd 2
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000737296
<NAME> P-B Watson & Taylor Ltd 2
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 12-Mos
<CASH> 957,903
<SECURITIES> 0
<RECEIVABLES> 29,295
<ALLOWANCES> (1,418,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,792,224
<DEPRECIATION> (8,274,973)
<TOTAL-ASSETS> 14,086,449
<CURRENT-LIABILITIES> 420,818
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,665,631
<TOTAL-LIABILITY-AND-EQUITY> 14,086,449
<SALES> 0
<TOTAL-REVENUES> 2,841,354
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,352,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 489,304
<INCOME-TAX> 0
<INCOME-CONTINUING> 489,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489,304
<EPS-PRIMARY> 9.40
<EPS-DILUTED> 0
</TABLE>
