<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, 1996
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, 1996 is incorporated by reference into Parts I, II, III and IV of
this Annual Report on Form 10-K
Index to exhibits can be found on page 9.
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I PAGE
Item 1 Business........................................................................ 3
Item 2 Properties...................................................................... 4
Item 3 Legal Proceedings............................................................... 4
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......................................................... 5
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.......................................................... 7
Item 12 Security Ownership of Certain Beneficial Owners and Management.................. 7
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............................................................. 9
Signatures.................................................................................. 14
</TABLE>
2
<PAGE>
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.
In accordance with the Consent Statement dated September 17, 1996, the
Registrant's limited partners approved the sale to Public Storage, Inc., the
property manager of the Registrant's properties, of all seven
miniwarehouse/office warehouse facilities owned by the Registrant. The
properties were sold to Public Storage, Inc. on October 31, 1996. The Registrant
received, in cash, gross sales proceeds of $11,050,000 reduced by certain
selling expenses and pro-rations of approximately $373,000. The sales proceeds
were also reduced by the payment to third parties of $644,000 representing the
principal and accrued interest on the Registrant's note payable secured by three
of the properties sold to Public Storage, Inc. The gross sales price was in
excess of the appraised value of the properties.
A distribution of $180 per limited partnership unit was made on November 14,
1996 representing the net sales proceeds reduced by a contingency reserve and
funds required to meet current and future operating costs until the liquidation
of the Registrant. The Registrant intends to sell its remaining land parcel and
liquidate in 1997 and will distribute any remaining funds at such time.
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, 1996 (``Registrant's Annual Report'') which is
filed as an exhibit hereto.
For the years ended September 30, 1996, 1995 and 1994, respectively, the
following improved properties' rental revenues exceeded 15% of the Registrant's
total revenue:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Barrow Road 19.4% 18.4% 18.3%
</TABLE>
No tenant accounted for 10% or more of the total revenues for any of the
three years in the period ended September 30, 1996.
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 E
of the financial statements in the Registrant's Annual Report which is filed as
an exhibit hereto.
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
<PAGE>
Item 2. Properties
As of September 30, 1996 the Registrant owned the following properties:
<TABLE>
<CAPTION>
Average Occupancy
Rates for the
Year Ended Average Monthly
September 30, Land Rentable Rental Rates
Property Location 1996 (1) (in acres) Units Per Unit
- ----------------------------------- ------------------ ---------- -------- ---------------------
<S> <C> <C> <C> <C>
IMPROVED PROPERTIES
Barrow Road (Little Rock, AR) 94% 5.3617
Office/warehouse 38 $200 - $ 500
Office/showroom 15 $300 - $ 640
Mini-storage 110 $ 50 - $ 132
Retail 12 $400 - $ 500
--------
175
--------
La Prada (Mesquite, TX) 95 8.6330
Office/warehouse 52 $350 - $ 500
Office 10 $125 - $ 500
Office/showroom 8 $350 - $ 500
--------
70
--------
Tulsa Peoria (Tulsa, OK) 95 3.2330
Office/warehouse 65 $150 - $ 500
Mini-storage 78 $ 40 - $ 155
--------
143
--------
Westheimer (Houston, TX) 87 3.5757
Office/warehouse 20 $350 - $ 675
Mini-storage 326 $ 15 - $ 147
--------
346
--------
Eastgate (Garland, TX) 94 2.9000
Office 14 $900 - $2,900
--------
Quail Valley (Missouri City, TX) 99 4.3710
Office/warehouse 35 $475 - $1,100
--------
Mt. Holly (Mt. Holly, NJ) 90 4.0080
Mini-storage 403 $ 40 - $ 160
--------
UNIMPROVED PROPERTIES
I-35/I-20 (Dallas, TX) N/A 18.6873 None
---------- --------
50.7697 1,186
---------- --------
---------- --------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
All of the foregoing Improved Properties were sold to Public Storage, Inc. on
October 31, 1996 as more fully described in Item 1. For additional information
describing the Registrant's properties, see Supplementary Schedule III-Real
Estate and Accumulated Depreciation on page 12 in Item 14 Exhibits, Financial
Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
None
4
<PAGE>
Item 4. Submission of Matters to a Vote of Limited Partners
Pursuant to the Consent Statement dated September 17, 1996, the limited
partners of the Registrant approved the sale to Public Storage, Inc. of
substantially all of the assets of the Registrant and the liquidation and
dissolution of the Registrant. The vote was 33,302 Units or 62.5% in favor,
1,075 Units or 2.0% against and 627 Units or 1.2% abstaining.
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of December 13, 1996, there were 3,242 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, in light of the pending liquidation
of the Partnership, it is not expected that one will develop in the future.
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 1996 1995
- ---------------- ----- -----
<S> <C> <C>
December 31 $1.25 $1.25
March 31 1.25 1.25
June 30 1.25 1.25
September 30 -- 1.25
</TABLE>
These distributions for the years ended September 30, 1996 and 1995 were made
from cash generated by the operations of the Registrant's properties.
A special distribution of $18.66 per Unit was paid to Unitholders in May 1996
relating to the net proceeds from the sale of certain undeveloped land.
In addition, a distribution of $180 per limited partnership unit was made on
November 14, 1996 representing the net proceeds from the sale of substantially
all the Registrant's assets reduced by a contingency reserve and funds required
to meet current and future operating costs until the liquidation of the
Registrant. The Registrant intends to sell its remaining land parcel and
liquidate in 1997 and will distribute any remaining funds at such time.
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,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
Total revenues $ 2,052,890 $ 1,987,378 $ 1,919,960 $ 1,856,624 $ 1,819,136
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 338,634 $(1,733,919) $ 237,617 $ 246,181 $(2,539,656)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per
limited partnership unit $ 5.64 $ (33.07) $ 3.40 $ 3.55 $ (47.88)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $11,921,654 $12,742,033 $14,903,764 $15,281,959 $15,769,943
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Note payable $ 638,000 $ 638,000 $ 638,000 $ 638,000 $ 638,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total distributions $ 1,291,124 $ 364,033 $ 654,082 $ 715,309 $ 943,060
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner
distributions per Unit $ 23.66 $ 6.25 $ 11.23 $ 12.28 $ 16.19
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
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.
Section 16(a) Beneficial Ownership Reporting Compliance
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 filing
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.
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:
<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
Brian J. Martin 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 48, 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.
6
<PAGE>
EUGENE D. BURAK, age 51, 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.
BRIAN J. MARTIN, age 46, is a Vice President of PBP. He is a Senior Vice
President of PSI, which he joined in 1980. Mr. Martin is a Manager in the
Specialty Finance Asset Management Group and also serves in various capacities
for certain other affiliated companies. Mr. Martin is a member of the
Pennsylvania Bar.
FRANK W. GIORDANO, age 54, 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, LLC, 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 46, 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.
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 56, 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 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 53, 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.
The two individual General Partners are not related.
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 December 13, 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 December 13, 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
7
<PAGE>
and losses in the same proportion that their capital contributions as holders of
``equivalent units'' bear 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 allocations of Registrant's profits and losses based upon such
equivalent units.
As of December 13, 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 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 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>
PART IV
<TABLE>
<CAPTION>
Page in
Annual Report
<S> <C> <C> <C>
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, 1996 and 1995 3
Statements of Operations--Three years ended September 30, 1996 4
Statements of Changes in Partners' Capital--Three years ended September 30,
1996 5
Statements of Cash Flows--Three years ended September 30, 1996 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, 1996
III--Real Estate and Accumulated Depreciation at September 30, 1996
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 (2)
4.01 Certificate of Limited Partnership Interest (1)
13.01 Annual Report for the year ended September 30, 1996 (filed herewith).
(With the exception of the information and data incorporated by reference in
Items 1, 6, 7, 8 and 13 of this Annual Report on Form 10-K, no other
information or data appearing in the 1996 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--None
</TABLE>
- ------------------
(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, 1989 and incorporated herein by reference.
9
<PAGE>
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 22, 1996, included in the 1996 Annual Report to Limited
Partners of Prudential-Bache/Watson & Taylor, Ltd.-3.
Our audit 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
New York, New York
December 26, 1996
10
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
- -----------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<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>
1994 $ 2,745,000 -- -- $2,745,000
1995 $ 2,745,000 $2,000,000(2) -- $4,745,000
1996 $ 4,745,000 -- $ (343,503) $4,401,497(1)
</TABLE>
- --------------------------------------------------------------------------------
(1) Shown as a direct reduction of carrying value of properties.
(2) 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.
11
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1996
<TABLE>
<CAPTION>
Gross amount at which carried at
close of period
-----------------------------------------------------------
Costs Permanent
capitalized writedown of
Initial cost to (sold) impaired as-
Registrant subsequent to sets and ac-
----------------------------- acquisition cumulated
Buildings -------------- Buildings depreciation Total
Description (NOTE C) Land and Improvements Improvements Land and Improvements (NOTES A & B) (NOTE A)
- --------------------- ---------- ---------------- -------------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
IMPROVED PROPERTIES:
Barrow Road
Little Rock, Arkansas $ 855,013 $ -- $ 2,917,238 $ 861,681 $ 2,910,570 $ 1,183,358 $ 2,588,893
La Prada
Mesquite, Texas 1,115,034 -- 2,337,450 1,123,319 2,329,165 2,110,636 1,341,848
Tulsa Peoria
Tulsa, Oklahoma 271,869 558,438 1,406,574 275,613 1,961,268 1,038,398 1,198,483
Westheimer
Houston, Texas 866,561 488,841 1,118,585 872,985 1,601,002 1,008,663 1,465,324
Eastgate
Garland, Texas 730,000 1,070,000 205,030 730,000 1,275,030 419,895 1,585,135
Quail Valley
Missouri City, Texas 375,000 1,125,000 98,885 375,000 1,223,885 400,318 1,198,567
Mt. Holly
Mt. Holly, New Jersey 260,000 1,583,521 21,163 260,000 1,604,684 745,477 1,119,207
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 -- 2,334,671 275,000
Southlake
Southlake, Texas 1,670,925 -- (1,670,925) -- -- -- --
---------- ---------------- -------------- ---------- ---------------- ------------- -----------
TOTAL $9,828,061 $4,825,800 $ 5,360,012 $7,108,269 $ 12,905,604 $ 9,241,416 $10,772,457
---------- ---------------- -------------- ---------- ---------------- ------------- -----------
---------- ---------------- -------------- ---------- ---------------- ------------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
See notes on following page
<CAPTION>
Life on which
depreciation
in latest
income
Date of Date statement
Description (NOTE C) construction acquired is computed
- --------------------- ------------ -------- --------------
<S> <C> <C> <C>
IMPROVED PROPERTIES:
Barrow Road
Little Rock, Arkansas 1985 1985 5 to 25 years
La Prada
Mesquite, Texas 1985 1985 5 to 25 years
Tulsa Peoria
Tulsa, Oklahoma 1985 1985 5 to 25 years
Westheimer
Houston, Texas 1985 1985 5 to 25 years
Eastgate
Garland, Texas -- 1988 5 to 25 years
Quail Valley
Missouri City, Texas -- 1988 5 to 25 years
Mt. Holly
Mt. Holly, New Jersey -- 1989 5 to 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
- ------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO SCHEDULE III
September 30, 1996
<TABLE>
<CAPTION>
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
Year ended September 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $21,169,442 $21,059,431 $20,971,114
Allocation of accumulated depreciation against the
carrying amount of the properties based upon the
reclassification of the properties as held for sale... (4,839,919) -- --
Allocation of allowance for loss on impairment of assets
against the carrying amount of the properties based
upon the reclassification of the properties as held
for sale.............................................. (4,401,497) -- --
Deletions during the period............................. (1,343,503) -- --
Additions during the period............................. 187,934 110,011 88,317
----------- ----------- -----------
Balance at close of period.............................. $10,772,457 $21,169,442 $21,059,431
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The deletions for the year ended September 30, 1996 resulted from the sale of
certain undeveloped land located in Southlake, Texas.
The aggregate cost of land, buildings and improvements, and furniture and
fixtures for Federal income tax purposes for the tax year ended September 30,
1996 was $20,546,210.
<TABLE>
<CAPTION>
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended September 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 4,703,648 $ 4,174,673 $ 3,653,135
Depreciation during the period charged to
expense............................................... 136,271 528,975 521,538
Allocation of accumulated depreciation against the
carrying amount of the properties based upon the
reclassification of the properties as held for sale... (4,839,919) -- --
----------- ----------- -----------
Balance at close of period.............................. $ -- $ 4,703,648 $ 4,174,673
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Effective December 31, 1995, the Registrant reclassified its properties from
held for use to held for sale and ceased depreciating the properties for
financial statement purposes.
NOTE C--The Eastgate, Quail Valley and Mt. Holly properties were pledged as
collateral for the
Registrant's $638,000 promissory note. See Note A and Note D of the
financial statements in the Registrant's Annual Report which is filed as an
exhibit hereto.
13
<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 27, 1996
-----------------------------------------------------------------
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 27, 1996
------------------------------------------------------------------
Thomas F. Lynch
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
By: /s/ Barbara J. Brooks Date: December 27, 1996
------------------------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
By: /s/ Eugene D. Burak Date: December 27, 1996
------------------------------------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: December 27, 1996
------------------------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: December 27, 1996
------------------------------------------------------------------
Nathalie P. Maio
Director
14
<PAGE>
1996
- ----------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-3 Report
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
1996 Annual Report
1
<PAGE>
(LOGO) 1211 Avenue of the Americas Phone: 212 773 4900
New York, New York 10036 Fax: 212 773 4501
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, 1996
and 1995, 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, 1996. 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, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
November 22, 1996
2
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Property (held for sale as of September 30, 1996) $10,772,457 $11,720,794
Cash and cash equivalents 1,139,947 1,008,091
Other assets 9,250 13,148
----------- -----------
Total assets $11,921,654 $12,742,033
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 314,401 157,860
Accrued real estate taxes 135,671 142,130
Deposits due to tenants 104,957 95,365
Due to affiliates 59,144 78,018
Unearned rental income 24,255 32,944
----------- -----------
Total liabilities 1,276,428 1,144,317
----------- -----------
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 10,428,257 11,394,078
General partners 216,969 203,638
----------- -----------
Total partners' capital 10,645,226 11,597,716
----------- -----------
Total liabilities and partners' capital $11,921,654 $12,742,033
----------- -----------
----------- -----------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $2,010,066 $ 1,953,727 $1,890,856
Interest 28,000 18,910 11,738
Other 14,824 14,741 17,366
---------- ----------- ----------
2,052,890 1,987,378 1,919,960
---------- ----------- ----------
EXPENSES
Property operating 711,167 690,174 654,914
Depreciation 136,271 528,975 521,538
Real estate taxes 225,336 210,381 212,206
General and administrative 611,985 238,637 257,627
Interest 29,497 53,130 36,058
Provision for loss on impairment of assets -- 2,000,000 --
---------- ----------- ----------
1,714,256 3,721,297 1,682,343
---------- ----------- ----------
Net income (loss) $ 338,634 $(1,733,919) $ 237,617
---------- ----------- ----------
---------- ----------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 302,004 $(1,772,234) $ 182,100
---------- ----------- ----------
---------- ----------- ----------
General partners $ 36,630 $ 38,315 $ 55,517
---------- ----------- ----------
---------- ----------- ----------
Net income (loss) per limited partnership unit $ 5.64 $ (33.07) $ 3.40
---------- ----------- ----------
---------- ----------- ----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
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, 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
Net income 302,004 36,630 338,634
Distributions (1,267,825) (23,299) (1,291,124)
----------- -------- -----------
Partners' capital--September 30, 1996 $10,428,257 $216,969 $10,645,226
----------- -------- -----------
----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,014,868 $ 2,018,576 $1,885,101
Interest received 28,000 18,910 11,738
Other income received 14,824 14,741 17,366
Property operating expenses paid (649,026) (818,900) (576,135)
Real estate taxes paid (231,795) (213,150) (222,935)
General and administrative expenses paid (526,347) (193,821) (259,751)
Interest paid (39,610) (53,130) (36,647)
----------- ----------- ----------
Net cash provided by operating activities 610,914 773,226 818,737
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of land 1,000,000 -- --
Property improvements (187,934) (110,011) (88,317)
----------- ----------- ----------
Net cash provided by (used in) investing activities 812,066 (110,011) (88,317)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (1,291,124) (364,033) (687,731)
----------- ----------- ----------
Net increase in cash and cash equivalents 131,856 299,182 42,689
Cash and cash equivalents at beginning of year 1,008,091 708,909 666,220
----------- ----------- ----------
Cash and cash equivalents at end of year $ 1,139,947 $ 1,008,091 $ 708,909
----------- ----------- ----------
----------- ----------- ----------
- -----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 338,634 $(1,733,919) $ 237,617
----------- ----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 136,271 528,975 521,538
Provision for loss on impairment of assets -- 2,000,000 --
Changes in:
Other assets 3,898 41,949 (12,337)
Accounts payable and accrued expenses 156,541 (121,643) 77,452
Accrued real estate taxes (6,459) (2,769) (10,729)
Due to affiliates (18,874) 37,733 (1,386)
Deposits due to tenants 9,592 15,441 22,086
Unearned rental income (8,689) 7,459 (15,504)
----------- ----------- ----------
Total adjustments 272,280 2,507,145 581,120
----------- ----------- ----------
Net cash provided by operating activities $ 610,914 $ 773,226 $ 818,737
----------- ----------- ----------
----------- ----------- ----------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $(1,291,124) $ (364,033) $ (654,082)
Decrease in distribution payable -- -- (33,649)
----------- ----------- ----------
Distributions paid to partners $(1,291,124) $ (364,033) $ (687,731)
----------- ----------- ----------
----------- ----------- ----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
6
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
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.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all the properties held by the Partnership. On June 13, 1996,
the Partnership entered into a contract with Public Storage, Inc., the property
manager of the Partnership's properties, for the sale of substantially all the
Partnership's properties. This sale was subject to the approval by the limited
partners holding a majority of the limited partnership units and certain other
conditions and potential price adjustments.
In accordance with the Consent Statement dated September 17, 1996 the limited
partners approved the sale to Public Storage, Inc. of all seven
miniwarehouse/office warehouse facilities owned by the Partnership. The
properties were sold to Public Storage, Inc. on October 31, 1996. The
Partnership received, in cash, gross sales proceeds of $11,050,000 reduced by
certain selling expenses and pro-rations of approximately $373,000. The sales
proceeds were also reduced by the payment to third parties of $644,000
representing the principal and accrued interest on the Partnership's note
payable secured by three of the properties sold to Public Storage, Inc. The
gross sales price was in excess of the appraised value of the properties, which
had a carrying amount of $10,497,457 at September 30, 1996.
A distribution of $180 per limited partnership unit was made on November 14,
1996 representing the net sales proceeds reduced by a contingency reserve and
funds required to meet current and future operating costs until the liquidation
of the Partnership. The Partnership intends to sell its remaining land parcel
(carrying amount of $275,000 at September 30, 1966) and liquidate in 1997 and
will distribute any remaining funds at such time.
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.
Property
Effective October 1, 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.'' 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. As noted
above, 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 reclassified its
properties from held for use to held for sale and ceased depreciating the
properties for financial reporting purposes only. As of September 30, 1996, the
Partnership has recorded its properties for approximately its gross sales
proceeds reduced by direct selling expenses.
Prior to October 1, 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.
7
<PAGE>
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 an undiscounted basis, were below the
depreciated cost.
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.
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 from operations
are made in accordance with the Partnership Agreement and are allocated 92% to
the limited partners and 8% to the General Partners.
Income from a Terminating Sale, as defined in the Partnership Agreement, is
allocated first to all partners having negative capital account balances, to the
extent of such balances, and then to the limited partners until their capital
accounts equal their Adjusted Capital Contribution plus a Cumulative Preference
as those terms are defined in the Partnership Agreement. Loss from a Terminating
Sale is first allocated to the General Partners to the extent of their positive
capital account balances. Sales proceeds from a Terminating Sale are first used
for the payment of any debts or obligations of the Partnership, then any balance
remaining is distributed to the partners having positive capital account
balances.
Net income (loss) per limited partnership unit for all years presented is
based on 53,585 limited and equivalent units outstanding, which excludes 270
equivalent units held by PBP (see Note E) for which PBP has waived all of its
rights thereon.
C. Property Held for Sale
The Partnership's properties at September 30, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Improved properties:
Barrow Road - Little Rock, Arkansas $ 2,588,893 $ 2,632,627
La Prada - Mesquite, Texas 1,341,848 2,508,150
Tulsa Peoria - Tulsa, Oklahoma 1,198,483 1,405,517
Westheimer - Houston, Texas 1,465,324 1,768,887
Eastgate - Garland, Texas 1,585,135 1,552,174
Quail Valley - Missouri City, Texas 1,198,567 1,206,956
Mt. Holly - Mt. Holly, New Jersey 1,119,207 1,438,309
----------- -----------
10,497,457 12,512,620
----------- -----------
Unimproved properties:
I-35/I-20 - Dallas, Texas 275,000 2,609,671
Southlake - Southlake, Texas (A) -- 1,343,503
----------- -----------
275,000 3,953,174
----------- -----------
Less: allowance for loss on impairment of
assets -- (4,745,000)
----------- -----------
$10,772,457 $11,720,794
----------- -----------
----------- -----------
</TABLE>
(A) The Southlake property was sold in April 1996 for $1,000,000 net of selling
expenses. There was no book gain or loss on the sale of the unimproved land.
The allowance for loss on impairment of assets has been allocated against the
carrying value of the properties as of September 30, 1996.
8
<PAGE>
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. (See Note A)
Interest expense on the promissory note was approximately $30,000, $53,000
and $36,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
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 (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, 1996, 1995 and 1994 were approximately
$124,000, $97,000, and $102,000, 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 approximately $25,000 relating to the
reimbursement for these services for the period from November 1988 through
December 1993 during the three months ended March 31, 1994 resulting in
approximately $30,000 in expenses in fiscal 1994, $5,000 in fiscal 1995 and
$43,000 in fiscal 1996, of which approximately $12,000 was an underaccrual for
fiscal 1995.
PBP and the two 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, the 270 units owned by PBP
have been excluded from the calculation of net income per limited partnership
unit and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 253
limited partnership units at September 30, 1996.
F. 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, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $ 338,634 $(1,733,919) $237,617
Tax depreciation in excess of book, net (327,949) -- --
Book depreciation in excess of tax, net -- 55,065 50,714
Carrying costs on land held for investment, capitalized for
tax
purposes 35,030 53,926 54,303
Rent received in advance, reported as income for tax
purposes 24,255 32,944 25,485
Reversal of prior years' rents received in advance,
reported as
taxable income in prior years (32,944) (25,485) (40,989)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Additional expenses included in taxable income $ (6,205) $ (6,144) $ (6,022)
Tax loss in excess of book on sale of land (860,519) -- --
Costs related to sale of properties, capitalized for tax
purposes 313,633 -- --
Provision for loss on impairment of assets -- 2,000,000 --
--------- ----------- --------
Tax basis net income (loss) $(516,065) $ 376,387 $321,108
--------- ----------- --------
--------- ----------- --------
</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.
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
In accordance with the Consent Statement dated September 17, 1996, the
limited partners approved the sale to Public Storage, Inc. of all seven
miniwarehouse/office warehouse facilities owned by the Partnership. The
properties were sold to Public Storage, Inc. on October 31, 1996. The
Partnership received, in cash, gross sales proceeds of $11,050,000 reduced by
certain selling expenses and pro-rations of approximately $373,000. The sales
proceeds were also reduced by the payment to third parties of $644,000
representing the principal and accrued interest on the Partnership's note
payable secured by three of the properties sold to Public Storage, Inc. The
gross sales price was in excess of the appraised value of the properties.
A distribution of $180 per limited partnership unit was made on November
14, 1996 representing the net sales proceeds reduced by a contingency reserve
and funds required to meet current and future operating costs until the
liquidation of the Partnership. The Partnership intends to sell its remaining
land parcel and liquidate in 1997 and will distribute any remaining funds at
such time.
During the year ended September 30, 1996 (``fiscal 1996''), the Partnership's
cash and cash equivalents increased by approximately $132,000 to $1,140,000 due
to cash flows from property operations and net proceeds from the sale of land in
excess of distributions to partners and capital expenditures. Distributions paid
during the year ended September 30, 1996 totaled approximately $1,291,000, of
which $1,268,000 and $23,000 were paid to the limited partners and General
Partners, respectively. These distributions were funded from property operations
and from the net proceeds of approximately $1,000,000 from the sale of the
Southlake, Texas unimproved land in April 1996.
Results of Operations
Average occupancies for the years ended September 30, 1996, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
Property 1996 1995 1994
<S> <C> <C> <C>
-------------------------------------------------------------------------
Barrow Road 94% 90 % 88%
La Prada 95 96 97
Tulsa Peoria 95 92 94
Westheimer 87 78 83
Eastgate 94 99 96
Quail Valley 99 100 98
Mt. Holly 90 92 90
</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.)
1996 vs. 1995
Net income increased by approximately $2,073,000 for fiscal 1996 as compared
to the year ended September 30, 1995 (``fiscal 1995'') primarily due to the
$2,000,000 allowance for loss on impairment of assets recorded in fiscal 1995.
Excluding this allowance for loss, net income increased by approximately $73,000
in fiscal 1996 as compared to fiscal 1995 for the reasons discussed below.
Rental income increased by approximately $56,000 for fiscal 1996 as compared
to fiscal 1995. Rental income increased at the Barrow Road, Tulsa Peoria, and
Westheimer properties primarily due to increased average occupancies, and at La
Prada primarily due to increased rental rates. Rental income at Eastgate
decreased primarily due to lower occupancies while the remaining two properties
remained relatively stable.
Interest income increased approximately $9,000 during fiscal 1996 as compared
to fiscal 1995 because of increases in average cash balances available to be
invested in short-term investments.
11
<PAGE>
Property operating expenses increased approximately $21,000 during fiscal
1996 as compared to fiscal 1995 primarily due to increases in utilities,
insurance, and leasing commission expenses which were partially offset by
decreases in repair and maintenance expenses.
General and administrative expenses increased by approximately $373,000
during fiscal 1996 as compared to fiscal 1995 primarily due to the accrual of
$314,000 for professional fees and other costs relating to the solicitation of
the consent of the limited partners for the sale of the properties.
Depreciation expense decreased by approximately $393,000 for fiscal 1996 as
compared to fiscal 1995 due to the reclassification of the Partnership's
properties from held for use to held for sale as of December 31, 1995. Under
generally accepted accounting principles, such properties are no longer
depreciated and, therefore, no depreciation expense has been recorded for the
nine months ended September 30, 1996. However, depreciation was recorded for
income tax purposes.
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 decreased by
approximately $24,000 in fiscal 1996 as compared to fiscal 1995 primarily as a
result of decreased net cash flows from operations at the three properties.
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
$2,000,000 allowance for loss on impairment of assets. Before the allowance 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.
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 E 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 net cash flows from operations at the three properties.
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>
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-30-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 12-Mos
<CASH> 1,139,947
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,250
<PP&E> 10,772,457
<DEPRECIATION> 136,271
<TOTAL-ASSETS> 11,921,654
<CURRENT-LIABILITIES> 1,276,428
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,645,226
<TOTAL-LIABILITY-AND-EQUITY> 11,921,654
<SALES> 0
<TOTAL-REVENUES> 2,052,890
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,684,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,497
<INCOME-PRETAX> 338,634
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,634
<EPS-PRIMARY> 5.64
<EPS-DILUTED> 0
</TABLE>
