<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 September 30, 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 0-14397
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1991528
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
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:
Title of Each Class Name of Each Exchange on 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 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
Registrant's Annual Report to Limited Partners for the fiscal year ended
September 30, 1995 is incorporated by reference into Parts I, II, and III of
this Annual Report on Form 10-K
Index to exhibits can be found on pages 9 and 10.
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(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.-3 (the ``Registrant''), a Texas
limited partnership, was formed on November 13, 1984 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, owning,
developing and operating self-storage and office/showroom warehouse complexes;
investing in unimproved commercial properties; and investing in first lien
mortgage loans on existing or to-be-constructed commercial income-producing
properties with proceeds raised through the initial sale of units of limited
partnership interest (``Units''). The Registrant's fiscal year for book and tax
purposes ends on September 30.
The Registrant operates seven improved properties consisting of three
office/showroom/warehouse complexes, three mini-storage complexes, and one
office complex, along with two unimproved properties. 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
included in the Registrant's Annual Report to Limited Partners for the year
ended September 30, 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 Partnership determined
to seek bids for all of the properties held by the Partnership. If acceptable
bids are received by the Partnership, the Partnership would 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 would
liquidate and distribute its assets to its partners. There can, of course, be no
assurance that acceptable bids will be received or that any transactions will be
consummated.
For the years ended September 30, 1995, 1994 and 1993, respectively, the
following improved properties' rental revenues exceeded 15% of the Registrant's
total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Barrow Road 18.4% 18.3% 18.1%
La Prada -- -- 15.2
</TABLE>
No tenant accounted for 10% or more of the total revenues for any of the
three years in the period ended September 30, 1995.
General partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
(``PBP''), 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 Registrant and its investments. See Note F
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 significantly 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
3
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marketed, and rental rates. The extent to which the Registrant is affected by
competition will depend in significant 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 F of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
Item 2. Properties
As of September 30, 1995 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average Occupancy
Rates for the
Year Ended Average Monthly
September 30, Land Rentable Rental Rates
Property Location 1995 (1) (in acres) Units Per Unit
- - ----------------------------------- ------------------ ---------- -------- ---------------------
<S> <C> <C> <C> <C>
IMPROVED PROPERTIES
Barrow Road (Little Rock, AR) 91% 5.3617
Office/warehouse 31 $200 - $ 500
Office/showroom 14 $300 - $ 640
Mini-storage 102 $ 50 - $ 132
Retail 12 $400 - $ 500
--------
159
--------
La Prada (Mesquite, TX) 93 8.6330
Office/warehouse 52 $350 - $ 500
Office 10 $125 - $ 500
Office/showroom 8 $350 - $ 500
--------
70
--------
Tulsa Peoria (Tulsa, OK) 87 3.2330
Office/warehouse 55 $250 - $ 450
Mini-office/warehouse 10 $150 - $ 500
Mini-storage 77 $ 40 - $ 155
--------
142
--------
Westheimer (Houston, TX) 76 3.5757
Office/warehouse 20 $350 - $ 675
Mini-storage 327 $ 15 - $ 147
--------
347
--------
Eastgate (Garland, TX) 99 2.9000
Office 14 $900 - $2,900
--------
Quail Valley (Missouri City, TX) 100 4.3710
Office/showroom 3 $550 - $1,100
Office/warehouse 32 $475 - $1,100
--------
35
--------
</TABLE>
4
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<TABLE>
<CAPTION>
Average Occupancy
Rates for the
Year Ended Average Monthly
September 30, Land Rentable Rental Rates
Property Location 1995 (1) (in acres) Units Per Unit
- - ----------------------------------- ------------------ ---------- -------- ---------------------
<S> <C> <C> <C> <C>
Mt. Holly (Mt. Holly, NJ) 93% 4.008
Mini-storage 403 $ 40 - $ 160
--------
UNIMPROVED PROPERTIES
I-35/I-20 (Dallas, TX) N/A 18.6873 None
Southlake (Southlake, TX) N/A 14.9550 None
---------- --------
65.7247 1,170
---------- --------
---------- --------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average occupancy rates are calculated by dividing occupied units by
available units as of each month-end.
The Registrant originally acquired seven properties for an aggregate purchase
price (including acquisition fees) of $15,880,415. Three unimproved properties
were subsequently acquired through foreclosure proceedings following the default
by the borrower under a mortgage loan in which the Registrant had a
participation interest. See Note D of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto. One of the
unimproved properties acquired by the Partnership has been sold.
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 H of the financial
statements in 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 December 13, 1995, there were 3,347 holders of record owning 53,855
Units, inclusive of 270, 135, and 135 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 fiscal quarter.
<TABLE>
<CAPTION>
Quarter Ended 1995 1994
- - ---------------- ----- -----
<S> <C> <C>
December 31 $1.25 $2.70
March 31 1.25 2.50
June 30 1.25 2.50
September 30 1.25 2.50
</TABLE>
Distributions for the years ended September 30, 1995 and 1994 were made from
cash generated by the operations of the Registrant's properties.
5
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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 cash distributions
will continue to be paid in the forseeable future with cash generated by the
operations of the Registrant's properties. For discussion of other factors that
may affect future distributions, see Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Registrant's Annual Report
which is filed as an exhibit hereto.
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 10 of the Registrant's
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
Total revenues $ 1,987,378 $ 1,919,960 $ 1,856,624 $ 1,819,136 $ 1,743,264
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on
impairment of
assets $ 2,000,000(1) $ -- $ -- $ 2,745,000 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $(1,733,919) $ 237,617 $ 246,181 $(2,539,656) $ 127,320
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per
limited partnership unit $ (33.07) $ 3.40 $ 3.55 $ (47.88) $ 1.47
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $12,742,033 $14,903,764 $15,281,959 $15,769,943 $19,244,097
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Note payable $ 638,000 $ 638,000 $ 638,000 $ 638,000 $ 638,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total distributions $ 364,033 $ 654,082 $ 715,309 $ 943,060 $ 692,989
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner
distributions per Unit $ 6.25 $ 11.23 $ 12.28 $ 16.19 $ 11.84
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- - -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon estimated amounts recoverable through future operations and
ultimate disposition of the properties and a reduced holding period until
the properties are disposed of, an additional allowance for loss on
impairment of assets of $2,000,000 was recorded as of September 30, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 11 and 12 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 10
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.
Based on a review of Forms 3 and 4 and amendments thereto furnished to the
Registrant pursuant to Rule 16a-3(e) during its most recent fiscal year and Form
5 and amendments thereto furnished to the
6
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Registrant with respect to its most recent fiscal year and written
representation pursuant to Item 405(b)(2)(i) of Regulation S-K, neither PBP nor
its directors, officers, or beneficial owners of more than 10% of the Units,
failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934 during the most recent fiscal or prior fiscal
years. However, based on the fact that the Registrant did not receive copies of
Forms 3, 4 or 5 or a written representation pursuant to Item 405(b)(2)(i) of
Regulation S-K from the individual General Partners, the Registrant is unaware
whether the individual General Partners filed on a timely basis reports required
under Section 16(a) of the Securities Exchange Act of 1934.
Prudential-Bache Properties, Inc., Managing General Partner
The directors and officers of PBP and their positions with regard to managing
the Registrant are as follows:
Name Position
Thomas F. Lynch 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
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 36, 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. He is the Senior Manager of the Direct Investment Group
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 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 virtually all of the
non-litigation legal work for PSI, including all of the PSI Law Department's
corporate and marketing-review activity. She joined PSI's Law Department in
1983; presently, she also serves in numerous capacities for other affiliated
companies.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors 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
7
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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 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.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the Managing General Partner or to the
individual General Partners 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 Partnership).
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 13, 1995, 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 December 13, 1995, 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 are allowed 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 retained its right to receive funds from the Registrant, such as
General Partner distributions and reimbursement of expenses, but waived its
right to share in any limited partner cash distributions and allocation of
Registrant's profits and losses.
As of December 13, 1995, no beneficial owner who is neither an individual
General Partner nor a director or officer of the Managing General Partner
beneficially owns more than five percent (5%) of the 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 have been no direct
financial transactions between the Registrant and the individual General
Partners or the directors or officers of the Managing General Partner.
Reference is made to Notes A and F 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
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PART IV
Page in
Annual Report
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Independent Auditors' Report--Incorporated
by reference to Registrant's Annual Report which is filed as an
exhibit hereto
Independent Auditors' Report 2
Financial Statements:
Statements of Financial Condition--September 30, 1995 and 1994 3
Statements of Operations--Three years ended September 30, 1995 4
Statements of Changes in Partners' Capital--Three years ended
September 30, 1995 5
Statements of Cash Flows--Three years ended September 30, 1995 6
Notes to Financial Statements 7
2. Financial Statement Schedules and Independent Auditors' Report on
Schedules
Independent Auditors' Report on Schedules
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Three years
ended September 30, 1995
III--Real Estate and Accumulated Depreciation at September 30, 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 or the notes thereto.
3. Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited
Partnership (1)
3.02 Amendment to the Amended and Restated Certificate and Agreement
of Limited Partnership (5)
4.01 Certificate of Limited Partnership Interest (1)
10.01 Management Agreement and Guaranty (1)
10.02 Construction Contract dated August 9, 1985, for the Barrow
Road Business Center (2)
10.03 Construction Contract dated October 31, 1985, for the LaPrada
Business Center (2)
10.04 Construction Contract dated October 16, 1984, for the Peoria
Office and Storage Park (2)
10.05 Construction Contract dated October 17, 1984, for the
Westheimer West Business Center (2)
10.11 Opinion of The Lomas & Nettleton Advisory Group, Inc. (3)
10.12 Property Management Agreement dated as of November 1, 1988 by
and between the Registrant and Public Storage Commercial
Properties Group, Inc. (4)
9
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10.13 Property Management Agreement dated as of November 1, 1988 by
and between the Registrant and Public Storage Management,
Inc. (4)
10.15 Assignment of Deed of Trust, Mortgage, Promissary Note and
Other Documents dated December 5, 1988 by First Commonwealth
Mortgage Trust to the Registrant (4)
10.16 Promissory Note in the principal amount of $638,000 executed
by the Registrant in favor of First Commonwealth Mortgage
Trust (4)
10.17 Deed of Trust, Security Agreement and Assignment of Rents
dated December 7, 1988 by the Registrant to John M. Walker,
Jr., Trustee for the benefit of First Commonwealth Mortgage
Trust (4)
10.18 Deed of Trust, Security Agreement and Assignment of Rents
dated January 4, 1989 by the Registrant to John M. Walker,
Jr., Trustee for the benefit of First Commonwealth Mortgage
Trust (5)
10.19 Mortgage Security Agreement and Assignment of Rents dated July
11, 1989 by the Registrant to First Commonwealth Mortgage
Trust (5)
13.01 Annual Report for the year ended September 30, 1995 (filed
herewith). (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 1995 Annual Report to Limited Partners is to be deemed
filed as part of this report.)
27 Financial Data Schedule
(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.
- - ------------------
(1) Filed as an exhibit to Registration Statement on Form S-11 (No. 2-94976)
and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1985 and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 8-K filed with the Commission on
March 19, 1986 and incorporated herein by reference.
(4) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1988 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1989 and incorporated herein by reference.
10
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(LOGO) 1211 Avenue of the Americas Phone: 212 403-5200
New York, New York 10036 Fax: 212 404-5700
CONSENT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Prudential-Bache/Watson & Taylor, Ltd.-3 of our report
dated November 6, 1995, included in the 1995 Annual Report to Limited
Partners of Prudential-Bache/Watson & Taylor, Ltd.-3.
Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor Ltd.-3 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
December 27, 1995
11
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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- - --------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<TABLE>
<CAPTION>
Deductions-Amounts
Year Ended Balance at Additions-Amounts Written-off During Balance at
September 30 Beginning of Year Reserved During Year Year End of Year
- - --------------- ----------------- -------------------- ------------------ ------------
<S> <C> <C> <C> <C>
1993 $ 2,745,000 -- -- $2,745,000
1994 $ 2,745,000 -- -- $2,745,000
1995 $ 2,745,000 $2,000,000 -- $4,745,000
</TABLE>
- - --------------------------------------------------------------------------------
12
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1995
<TABLE>
<CAPTION>
Costs
capitalized
Initial cost to (sold) Gross amount at which carried at
Registrant subsequent to Permanent close of period
----------------------------- acquisition writedown -------------------------------------------
Buildings -------------- of impaired Buildings Total
Description (NOTE C) Land and Improvements Improvements assets Land and Improvements (NOTE A)
<S> <C> <C> <C> <C> <C> <C> <C>
- - --------------------- ---------- ---------------- -------------- ----------- ---------- ---------------- ----------
IMPROVED PROPERTIES:
Barrow Road
Little Rock, Arkansas $ 855,013 $ -- $ 2,887,734 $ -- $ 861,681 $ 2,881,066 $ 3,742,747
La Prada
Mesquite, Texas 1,115,034 -- 2,327,661 -- 1,123,319 2,319,376 3,442,695
Tulsa Peoria
Tulsa, Oklahoma 271,869 558,438 1,401,346 -- 275,613 1,956,040 2,231,653
Westheimer
Houston, Texas 866,561 488,841 1,089,466 -- 872,985 1,571,883 2,444,868
Eastgate
Garland, Texas 730,000 1,070,000 101,975 -- 730,000 1,171,975 1,901,975
Quail Valley
Missouri City, Texas 375,000 1,125,000 87,647 -- 375,000 1,212,647 1,587,647
Mt. Holly
Mt. Holly, New Jersey 260,000 1,583,521 21,162 -- 260,000 1,604,683 1,864,683
UNIMPROVED
PROPERTIES:
I-820/377
Haltom City, Texas 1,100,465 -- (1,100,465) -- -- -- --
I-35/I-20
Dallas, Texas 2,583,194 -- 26,477 -- 2,609,671 -- 2,609,671
Southlake
Southlake, Texas 1,670,925 -- 12,578 (340,000) 1,343,503 -- 1,343,503
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
TOTAL $9,828,061 $4,825,800 $ 6,855,581 $(340,000) $8,451,772 $ 12,717,670 $21,169,442
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Life on which
depreciation
in latest
Accumulated income
depreciation Date of Date statement
Description (NOTE C) (NOTE B) construction acquired is computed
<S> <C> <C> <C> <C>
- - --------------------- ----------- ------------ -------- --------------
IMPROVED PROPERTIES:
Barrow Road 5 to
Little Rock, Arkansas $1,110,120 1985 1985 25 years
La Prada 5 to
Mesquite, Texas 934,545 1985 1985 25 years
Tulsa Peoria 5 to
Tulsa, Oklahoma 826,136 1985 1985 25 years
Westheimer 5 to
Houston, Texas 675,981 1985 1985 25 years
Eastgate 5 to
Garland, Texas 349,801 -- 1988 25 years
Quail Valley 5 to
Missouri City, Texas 380,691 -- 1988 25 years
Mt. Holly 5 to
Mt. Holly, New Jersey 426,374 -- 1989 25 years
UNIMPROVED
PROPERTIES:
I-820/377
Haltom City, Texas -- -- 1985 N/A
I-35/I-20
Dallas, Texas -- -- 1985 N/A
Southlake
Southlake, Texas -- -- 1985 N/A
-----------
TOTAL $4,703,648
-----------
-----------
- - --------------------------------------------------------------------------------------------
</TABLE>
See notes on following page
13
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO SCHEDULE III
September 30, 1995
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $21,059,431 $20,971,114 $20,948,850
Net additions during the period......................... 110,011 88,317 22,264
----------- ----------- -----------
Balance at close of period.............................. $21,169,442 $21,059,431 $20,971,114
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
An additional allowance for loss on impairment of $2,000,000 was provided on
the above assets in 1995, bringing the total allowance for loss on impairment to
$4,745,000 as of September 30, 1995. See Note C of the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto.
The aggregate cost of land, buildings and improvements, and furniture and
fixtures for Federal income tax purposes for the tax year ended September 30,
1995 was $22,051,986.
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 4,174,673 $ 3,653,135 $ 3,131,669
Depreciation during the period charged to
expense............................................... 528,975 521,538 521,466
----------- ----------- -----------
Balance at close of period.............................. $ 4,703,648 $ 4,174,673 $ 3,653,135
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE C--The Eastgate, Quail Valley and Mt. Holly properties have been pledged
as collateral for the Registrant's $638,000 promissory note. See Note D
of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
14
<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.-3
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: December 28, 1995
-----------------------------------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
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.
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Thomas F. Lynch Date: December 28, 1995
------------------------------------------------------------------
Thomas F. Lynch
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
(Principal Executive Officer)
By: /s/ Barbara J. Brooks Date: December 28, 1995
------------------------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Eugene D. Burak Date: December 28, 1995
------------------------------------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
By: /s/ Frank W. Giordano Date: December 28, 1995
------------------------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: December 28, 1995
------------------------------------------------------------------
Nathalie P. Maio
Director
15
<PAGE>
1995
- - ----------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-3 Report
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
1995 Annual Report
1
<PAGE>
(LOGO) 1211 Avenue of the Americas Phone: 212 403-5200
New York, New York 10036 Fax: 212 404-5700
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We have audited the accompanying statements of financial condition
of Prudential-Bache/Watson & Taylor, Ltd.-3 as of September 30, 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
September 30, 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.-3 as of September 30, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
November 6, 1995
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 8,451,772 $ 8,451,772
Buildings and improvements 12,368,563 12,277,288
Furniture, fixtures and equipment 349,107 330,371
Less: Accumulated depreciation and amortization (4,703,648) (4,174,673)
Allowance for loss on impairment of assets (4,745,000) (2,745,000)
----------- -----------
Net investment in property 11,720,794 14,139,758
Cash and cash equivalents 1,008,091 708,909
Other assets 13,148 55,097
----------- -----------
Total assets $12,742,033 $14,903,764
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 157,860 279,503
Accrued real estate taxes 142,130 144,899
Deposits due to tenants 95,365 79,924
Due to affiliates 78,018 40,285
Unearned rental income 32,944 25,485
----------- -----------
Total liabilities 1,144,317 1,208,096
----------- -----------
Contingencies
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 11,394,078 13,501,222
General partners 203,638 194,446
----------- -----------
Total partners' capital 11,597,716 13,695,668
----------- -----------
Total liabilities and partners' capital $12,742,033 $14,903,764
----------- -----------
----------- -----------
- - --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 1,953,727 $1,890,856 $1,834,820
Interest 18,910 11,738 12,663
Other 14,741 17,366 9,141
----------- ---------- ----------
1,987,378 1,919,960 1,856,624
----------- ---------- ----------
EXPENSES
Property operating 690,174 654,914 560,550
Depreciation and amortization 528,975 521,538 521,466
Real estate taxes 210,381 212,206 245,550
General and administrative 238,637 257,627 242,215
Interest 53,130 36,058 40,662
Provision for loss on impairment of assets 2,000,000 -- --
----------- ---------- ----------
3,721,297 1,682,343 1,610,443
----------- ---------- ----------
Net income (loss) $(1,733,919) $ 237,617 $ 246,181
----------- ---------- ----------
----------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(1,772,234) $ 182,100 $ 189,984
----------- ---------- ----------
----------- ---------- ----------
General partners $ 38,315 $ 55,517 $ 56,197
----------- ---------- ----------
----------- ---------- ----------
Net income (loss) per limited partnership unit $ (33.07) $ 3.40 $ 3.55
----------- ---------- ----------
----------- ---------- ----------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
Partners' capital--September 30, 1992 $14,388,918 $192,343 $14,581,261
Net income 189,984 56,197 246,181
Distributions (658,024) (57,285) (715,309)
----------- -------- -----------
Partners' capital--September 30, 1993 13,920,878 191,255 14,112,133
Net income 182,100 55,517 237,617
Distributions (601,756) (52,326) (654,082)
----------- -------- -----------
Partners' capital--September 30, 1994 13,501,222 194,446 13,695,668
Net income (loss) (1,772,234) 38,315 (1,733,919)
Distributions (334,910) (29,123) (364,033)
----------- -------- -----------
Partners' capital--September 30, 1995 $11,394,078 $203,638 $11,597,716
----------- -------- -----------
----------- -------- -----------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,018,576 $1,885,101 $1,804,988
Interest received 18,910 11,738 12,663
Other income received 14,741 17,366 9,141
Property operating expenses paid (818,900) (576,135) (498,474)
Real estate taxes paid (213,150) (222,935) (235,079)
General and administrative expenses paid (193,821) (259,751) (275,629)
Interest paid (53,130) (36,647) (29,479)
----------- ---------- ----------
Net cash provided by operating activities 773,226 818,737 788,131
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (110,011) (88,317) (22,264)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (364,033) (687,731) (785,178)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 299,182 42,689 (19,311)
Cash and cash equivalents at beginning of year 708,909 666,220 685,531
----------- ---------- ----------
Cash and cash equivalents at end of year $ 1,008,091 $ 708,909 $ 666,220
----------- ---------- ----------
----------- ---------- ----------
- - ----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $(1,733,919) $ 237,617 $ 246,181
----------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 528,975 521,538 521,466
Provision for loss on impairment of assets 2,000,000 -- --
Changes in:
Other assets 41,949 (12,337) (30,529)
Accounts payable and accrued expenses (121,643) 77,452 82,810
Accrued real estate taxes (2,769) (10,729) 10,471
Due to affiliates 37,733 (1,386) (42,965)
Deposits due to tenants 15,441 22,086 (1,240)
Unearned rental income 7,459 (15,504) 1,937
----------- ---------- ----------
Total adjustments 2,507,145 581,120 541,950
----------- ---------- ----------
Net cash provided by operating activities $ 773,226 $ 818,737 $ 788,131
----------- ---------- ----------
----------- ---------- ----------
- - ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $ (364,033) $ (654,082) $ (715,309)
Decrease in distribution payable -- (33,649) (69,869)
----------- ---------- ----------
Distributions paid to partners $ (364,033) $ (687,731) $ (785,178)
----------- ---------- ----------
----------- ---------- ----------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
A. General
Prudential-Bache/ Watson & Taylor, Ltd.-3 (the ``Partnership'') is a Texas
limited partnership formed on November 13, 1984 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 self-storage and office/showroom warehouse complexes;
investing in unimproved commercial properties; and investing in first lien
mortgage loans on existing or to-be-constructed commercial income-producing
properties. 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
September 30, 1995 the Partnership owned nine 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
Partnership's fiscal year for both book and tax purposes ends on September 30.
Certain balances from prior years have been reclassified to conform with the
current year's financial statement presentation.
Property and equipment
Property investments are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Property investments are 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 valuation allowance is recorded when
estimated amounts recoverable through future operations and ultimate disposition
of the property are below depreciated cost.
The Financial Accounting Standards Board has issued 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 will be
adopted by the Partnership as of October 1, 1995 for its financial statements
for the year ended September 30, 1996. Under SFAS No. 121, impairment for
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
property's carrying value. If a property is determined to be impaired, it should
be recorded at the lower of its carrying value or its fair value. For properties
that are held for sale, SFAS No. 121 proscribes that they should be reported at
the lower of carrying amount or fair value less cost to sell. The Partnership
believes that the implementation of SFAS No. 121 will not have a material effect
on the Partnership's results of operations or financial position (see Note I).
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market.
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.
7
<PAGE>
Profit and loss allocations and distributions
Net operating income before depreciation is allocated 92% to the limited
partners and 8% to the General Partners. Net operating loss, provision for loss
on impairment of assets, and depreciation are allocated 99% to the limited
partners and 1% to the General Partners.
Distributions of cash are made in accordance with the Partnership Agreement
and are allocated 92% to the limited partners and 8% to the General Partners.
Net income (loss) per limited partnership unit for the year ended September
30, 1995 is based on 53,585 limited and equivalent units outstanding, which
excludes 270 equivalent units held by PBP (see Note F) for which PBP has waived
all of its rights therein. Prior years' per unit amounts have been restated to
eliminate the equivalent units held by PBP.
C. Investment in Property
The Partnership's properties at September 30, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Improved properties:
Barrow Road - Little Rock, Arkansas $ 2,632,627 $ 2,694,631
LaPrada - Mesquite, Texas 2,508,150 2,585,605
Tulsa Peoria - Tulsa, Oklahoma 1,405,517 1,474,119
Westheimer - Houston, Texas 1,768,887 1,823,370
Eastgate - Garland, Texas 1,552,174 1,595,311
Quail Valley - Missouri City, Texas 1,206,956 1,256,732
Mt. Holly - Mt. Holly, New Jersey 1,438,309 1,501,816
----------- -----------
12,512,620 12,931,584
----------- -----------
Unimproved properties:
I-35/I-20 - Dallas, Texas 2,609,671 2,609,671
Southlake - Southlake, Texas 1,343,503 1,343,503
----------- -----------
3,953,174 3,953,174
----------- -----------
Less: allowance for loss on impairment of
assets (4,745,000) (2,745,000)
----------- -----------
$11,720,794 $14,139,758
----------- -----------
----------- -----------
</TABLE>
Based upon estimated amounts recoverable through future operations and
ultimate disposition of the properties and a reduced holding period until the
properties are disposed of, an additional allowance for loss on impairment of
assets of $2,000,000 was recorded as of September 30, 1995.
D. Note Payable
On March 5, 1986, the Partnership purchased an 88.81% participating interest
in a $5,700,000 loan (the ``Loan'') from First Commonwealth Mortgage Trust (the
``Lender'') to TriProperties, Ltd. (the ``Borrower''), an affiliate of Messrs.
Watson and Taylor. The Loan was secured by the Mt. Holly, Eastgate and Quail
Valley properties (collectively, the ``Mortgaged Properties'').
On December 5, 1988, following the default by the Borrower under the Loan,
the Partnership and the Lender entered into an agreement whereby the Lender
assigned the note evidencing the Loan to the Partnership in exchange for the
Partnership's issuance to the Lender of a promissory note in the amount of
$638,000. The Partnership's promissory note bears interest, payable quarterly,
at a rate equal to 11.19% of net cash flow from the Mortgaged Properties and the
full amount thereof is due on January 30, 1999, the maturity date of the Loan.
Subsequently, the Partnership foreclosed and took title to each of the Mortgaged
Properties and granted a first lien on such properties to the Lender as
collateral for the Partnership's $638,000 promissory note.
Interest expense on the promissory note was $53,130, $36,058 and $40,662 for
the years ended September 30, 1995, 1994 and 1993, respectively.
8
<PAGE>
E. Minimum Future Lease Revenues
The Partnership earns a portion of its rental income from month-to-month
leasing arrangements; however, the Partnership also has certain noncancellable
operating leases with tenants at the Partnership's properties. The minimum
future rental revenues receivable under these noncancellable operating leases at
the Partnership's improved properties are approximately $516,000 and $136,000
for the years ending September 30, 1996 and 1997, respectively.
F. 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 (including direct management of the
Partnership's unimproved properties), 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 September 30, 1995, 1994 and 1993 were approximately
$97,000, $102,000, and $89,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. The Partnership recorded $25,850 relating to the reimbursement for
these services for the period from November 1988 through December 1993 during
the three months ended March 31, 1994. Beginning January 1, 1994, the
Partnership has incurred $1,250 quarterly for the continuing reimbursement of
these services.
PBP and Messrs. Watson and Taylor, the individual General Partners of the
Partnership, own 270, 135 and 135 equivalent limited partnership units,
respectively. PBP receives funds from the Partnership, such as General Partner
distributions and reimbursement of expenses, but has waived all of its rights
resulting from its ownership of equivalent limited partnership units.
Accordingly, limited partner distributions per Unit and net income (loss) per
Unit are calculated net of 270 equivalent limited partnership Units.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 253
limited partnership units at September 30, 1995.
G. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes to net income for tax reporting purposes for the years ended
September 30, 1995, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $(1,733,919) $237,617 $246,181
Book depreciation and amortization in excess of tax 84,391 82,243 82,498
Carrying costs on land held for investment, capitalized for
tax purposes 53,926 54,303 54,812
Rent received in advance, reported as income for tax
purposes 32,944 25,485 40,989
Reversal of prior years' rents received in advance, reported
as taxable income in prior years (25,485) (40,989) (39,052)
Tax depreciation and amortization in excess of book (29,326) (31,529) (31,126)
Additional expenses included in taxable income (6,144) (6,022) (6,022)
Provision for loss on impairment of assets 2,000,000 -- --
----------- -------- --------
Tax basis net income $ 376,387 $321,108 $348,280
----------- -------- --------
----------- -------- --------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of book to tax income
adjustments.
H. 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
9
<PAGE>
<PAGE>
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 No. 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.
I. Subsequent Event
In November 1995, distributions of approximately $67,000 and $6,000 were paid
to the Limited Partners and the General Partners, respectively, for the quarter
ended September 30, 1995.
J. Event Subsequent to Date of Auditors' Report
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. If acceptable
bids are received by the Partnership, the Partnership would 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 would
liquidate and distribute its assets to its partners. There can, of course, be no
assurance that acceptable bids will be received or that any transactions will be
consummated.
10
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates three office/showroom/warehouse facilities,
three mini-storage complexes, and one office facility, along with two parcels of
undeveloped land. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. If acceptable bids are received by the Partnership, the Partnership
would 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 would liquidate and distribute its 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 September 30, 1995 (``fiscal 1995''), the Partnership's
cash and cash equivalents increased by approximately $299,000 to $1,008,000 due
to cash flows from operations for the quarter ended September 30, 1995 in excess
of distributions and capital expenditures and cash retained for future property
improvements. Distributions paid during the year ended September 30,
1995 totaled approximately $364,000, of which $335,000 and $29,000 were
paid to the limited partners and General Partners, respectively. These
distributions were funded from cash generated by the operations of its
properties.
The Partnership believes that it will continue to be able to meet its cash
requirements in the foreseeable future with cash generated by the operations of
its properties. However, the Partnership's ability to make future distributions
to the partners and the amount of the distributions that may be made will be
affected by the amount of cash generated by the Partnership from operations of
the properties, the amount expended for capital improvements and the amount set
aside for budgeted capital improvements.
Capital improvements are currently budgeted at approximately $256,000 for
calendar year 1996. Included in the calendar year 1996 budget, is an estimate
for a roof replacement at the Eastgate property, the need for which has been
accelerated by storm damage.
Results of Operations
Average occupancies for the years ended September 30, 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
Property 1995 1994 1993
<S> <C> <C> <C>
-------------------------------------------------------------------------
Barrow Road 91% 92% 89%
La Prada 93 95 94
Tulsa Peoria 87 90 94
Westheimer 76 81 83
Eastgate 99 96 90
Quail Valley 100 98 94
Mt. Holly 93 88 83
</TABLE>
(Occupancies are calculated by dividing occupied units by available units.)
1995 vs. 1994
Net income decreased by approximately $1,972,000 for fiscal 1995 as compared
to the year ended September 30, 1994 (``fiscal 1994'') primarily due to the
additional $2,000,000 allowance for loss on impairment of assets as further
discussed in Note C to the financial statements. Before the provision for loss
on impairment of assets, net income increased by approximately $28,000 for
fiscal 1995 as compared to fiscal 1994 for the reasons discussed below.
Rental income increased by approximately $63,000 for fiscal 1995 as compared
to fiscal 1994. Rental income increased at the Eastgate, Quail Valley, and Mt.
Holly properties primarily due to increased average occupancies. Rental income
was up at Tulsa Peoria and Barrow Road due to increased rental rates. Rental
income at La Prada and Westheimer remained stable as lower occupancies offset
higher rental rates.
11
<PAGE>
Interest income increased approximately $7,000 during fiscal 1995 as compared
to fiscal 1994 because of increases in average cash balances available to be
invested in short-term investments.
Property operating expenses increased approximately $35,000 during fiscal
1995 as compared to fiscal 1994 primarily due to increases in property payroll
costs at Westheimer, Tulsa Peoria, La Prada, and Quail Valley partially offset
by decreases in repairs and maintenance and utilities expenses at the majority
of the properties.
General and administrative expenses decreased approximately $19,000 during
fiscal 1995 as compared to fiscal 1994 primarily due to the accrual of prior
periods' general, administrative and monitoring expense reimbursements in the
second quarter of fiscal 1994 as further discussed in Note F to the financial
statements offset by increased professional fees and by increased office
expenses at the property level.
Interest expense on the Partnership's note payable is calculated as a
percentage of net cash flow from the three properties (Eastgate, Quail Valley
and Mt. Holly) which collateralize the note. Interest expense increased by
approximately $17,000 in fiscal 1995 as compared to fiscal 1994 as a result of
increased cash flows from operations at the three properties.
1994 vs. 1993
Net income decreased by approximately $9,000 for fiscal 1994 as compared to
the year ended September 30, 1993 (``fiscal 1993'') for the reasons discussed
below.
Rental income increased approximately $56,000 for fiscal 1994 as compared to
fiscal 1993 primarily due to additional revenue derived from the Quail Valley,
Eastgate and Mt. Holly properties resulting from increased average occupancies.
Rental income at the Barrow Road, Westheimer and La Prada properties remained
stable from year to year. Rental income at the Tulsa Peoria property decreased
due to lower average occupancies.
Other income increased approximately $8,000 during fiscal 1994 as compared to
fiscal 1993 primarily due to billboard advertising revenue recognized during the
current period.
Property operating expenses increased by approximately $94,000 during fiscal
1994 as compared to fiscal 1993 due to increases in repairs and maintenance,
property-related payroll expenses and leasing commissions of approximately
$41,000, $26,000, and $9,000, respectively, as well as increases in insurance
and utilities of approximately $7,000 and $21,000, respectively, due to higher
rates.
Real estate taxes decreased approximately $33,000 due to reassessed property
values, and to a lesser extent, lower tax rates during fiscal 1994.
General and administrative expenses increased by approximately $15,000 in
fiscal 1994 as compared to fiscal 1993 primarily due to the accrual of current
and prior periods' general, administrative and monitoring expense reimbursements
in the second quarter of fiscal 1994 as further discussed in Note F to the
financial statements. This increase was partially offset by lower professional
fees.
12
<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.-3
P.O. Box 2016
Peck Slip Station
New York, NY 10272-2016
13
<PAGE>
Prudential Securities Incorporated BULK RATE
Peck Slip Station U.S. POSTAGE
P.O. Box 2016 PAID
New York, NY 10272 Automatic Mail
PBW&T3/35643/171666
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B/Watson & Taylor, Ltd.-3
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> P-B/Watson & Taylor, Ltd.-3
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 12-Mos
<CASH> 1,008,091
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,148
<PP&E> 11,720,794
<DEPRECIATION> 528,975
<TOTAL-ASSETS> 12,742,033
<CURRENT-LIABILITIES> 506,317
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,597,716
<TOTAL-LIABILITY-AND-EQUITY> 12,742,033
<SALES> 0
<TOTAL-REVENUES> 1,987,378
<CGS> 0
<TOTAL-COSTS> 1,721,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000,000
<INTEREST-EXPENSE> 53,130
<INCOME-PRETAX> (1,733,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,733,919)
<EPS-PRIMARY> (33.07)
<EPS-DILUTED> 0
</TABLE>
