<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, 1997
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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0128
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(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, 1997 is incorporated by reference into Parts II and IV of this
Annual Report on Form 10-K
Index to exhibits can be found on page 8.
<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...................................................................... 3
Item 3 Legal Proceedings............................................................... 3
Item 4 Submission of Matters to a Vote of Limited Partners............................. 4
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters....... 4
Item 6 Selected Financial Data......................................................... 4
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 5
Item 8 Financial Statements and Supplementary Data..................................... 5
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 5
PART III
Item 10 Directors and Executive Officers of the Registrant.............................. 5
Item 11 Executive Compensation.......................................................... 6
Item 12 Security Ownership of Certain Beneficial Owners and Management.................. 6
Item 13 Certain Relationships and Related Transactions.................................. 7
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules.......................... 8
Exhibits........................................................................ 8
Reports on Form 8-K............................................................. 8
Signatures.................................................................................. 13
</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 in accordance with a vote of the limited
partners as described below. 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.
On December 15, 1995, the Management Committee of the Registrant determined
to seek bids for all of the properties held by the Registrant. On June 13, 1996,
the Registrant entered into a contract with Public Storage, Inc., the property
manager of the Registrant's properties, for the sale of substantially all
the Registrant'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 a consent statement dated September 17, 1996 (the
"Consent Statement''), the limited partners approved, on
October 18, 1996, the sale to Public Storage, Inc. of all seven miniwarehouse
facilities owned by the Registrant. The properties were sold to Public Storage,
Inc. and its affiliates 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. The Registrant continues to own an
undeveloped land parcel (I-35/I-20) located in Dallas, Texas.
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 anticipated current and future operating costs until the
liquidation of the Registrant. The Registrant intends to liquidate in 1998,
subject to the sale of the remaining undeveloped land parcel, and will
distribute any remaining funds at such time.
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. See Note E of the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto.
Item 2. Properties
As of September 30, 1997 the Registrant has sold all of its properties except
for one undeveloped land parcel (I-35/I-20) consisting of 18.6873 acres located
in Dallas, Texas.
Item 3. Legal Proceedings
None
3
<PAGE>
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 1, 1997, there were 3,222 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 1997 1996
- ---------------- ------- -----
<S> <C> <C>
December 31 $ -- $1.25
March 31 -- 1.25
June 30 -- 1.25
September 30 -- --
</TABLE>
The distributions for the year ended September 30, 1996 were made from cash
generated by the operations of the Registrant's properties.
Also, 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 $180.00 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 liquidate in 1998,
subject to the sale of the remaining undeveloped land parcel, 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,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
---------- ----------- ----------- ----------- -----------
Total revenues $ * $ 2,052,890 $ 1,987,378 $ 1,919,960 $ 1,856,624
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Net income (loss) $ * $ 338,634 $(1,733,919) $ 237,617 $ 246,181
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Net income (loss) per
limited partnership unit $ * $ 5.64 $ (33.07) $ 3.40 $ 3.55
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Total assets $1,364,835 $11,921,654 $12,742,033 $14,903,764 $15,281,959
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Note payable $ -- $ 638,000 $ 638,000 $ 638,000 $ 638,000
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Total distributions $9,645,300 $ 1,291,124 $ 364,033 $ 654,082 $ 715,309
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Limited partner
distributions per Unit $ 180.00 $ 23.66 $ 6.25 $ 11.23 $ 12.28
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
* As of October 1, 1996, the Partnership adopted the liquidation basis of accounting in accordance
with generally accepted accounting principles and, therefore, there is no reporting of results of
operations for the year ended September 30, 1997.
- -----------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This information is incorporated by reference to page 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 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:
Name Position
Brian J. Martin 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
Frank W. Giordano Director
Nathalie P. Maio Director
BRIAN J. MARTIN, age 47, 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. Martin also serves in various capacities for certain other affiliated
companies. Mr. Martin joined PSI in 1980. Mr. Martin is a member of the
Pennsylvania Bar.
BARBARA J. BROOKS, age 49, 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 52, 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.
5
<PAGE>
FRANK W. GIORDANO, age 55, is a Director of PBP. He is a Senior Vice
President and Senior Counsel 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 47, 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.
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of Prudential-Bache Properties,
Inc. effective May 2, 1997. Effective May 2, 1997, Brian J. Martin was elected
President, Chief Executive Officer, Chairman of the Board of Directors and
Director of Prudential-Bache Properties, Inc.
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 57, 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 54, 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 1, 1997, 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 1, 1997, no individual General Partner or director or officer
of the Managing General Partner owns directly or beneficially any of the Units
issued by the Registrant. However, the General Partners have contributed to the
Registrant and, based on such contribution, they received "equivalent
units'' entitling them to participate in the distributions to the
limited partners and in the Registrant's profits and losses in the same
proportion that 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,
6
<PAGE>
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 1, 1997, 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.
7
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page in
Annual Report
<S> <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
Report of Independent Auditors 2
Financial Statements:
Statement of Net Assets--September 30, 1997 3
Statement of Financial Condition--September 30, 1996 3
Statements of Operations--Two years ended September 30, 1996 4
Statements of Changes in Partners' Capital--Two years ended September
30, 1996 5
Statement of Changes in Net Assets--Year ended September 30, 1997 5
Statements of Cash Flows--Two years ended September 30, 1996 6
Notes to Financial Statements 7
2. Financial Statement Schedules and Independent Auditors' Report on
Schedules
Consent of Independent Auditors
Schedules:
II-- Valuation and Qualifying Accounts and Reserves--Three years ended
September 30, 1997
III--Real Estate and Accumulated Depreciation at September 30, 1997
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)
10.01 Contract of Sale dated June 13, 1996 by and between the Registrant and
Public Storage, Inc. (3)
13.01 Annual Report to Limited Partners for the year ended September 30,
1997 (filed herewith). (With the exception of the information and data
incorporated by reference in Items 7 and 8 of this Annual Report on
Form 10-K, no other information or data appearing in the 1997 Annual
Report to Limited Partners is to be deemed filed as part of this
report.)
27 Financial Data Schedule (filed herewith)
(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.
(3) Filed as an exhibit to the Registrant's Proxy Statement on Schedule 14A
on September 17, 1996 and incorporated herein by reference.
8
<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 December 17,
1997, included in the 1997 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.
- ------------------------------------------------------------
/s/Ernst & Young LLP
Ernst & Young LLP
New York, New York
December 23, 1997
9
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
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>
1995 $ 2,745,000 $2,000,000(1) -- $4,745,000
1996 $ 4,745,000 -- $ (343,503) $4,401,497
1997 $ 4,401,497 -- $(2,066,826)(2) $2,334,671(3)
- --------------------------------------------------------------------------------
</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.
(2) Applicable to properties which were sold during the year.
(3) Shown as a direct reduction of carrying value of property held for sale.
10
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1997
<TABLE>
<CAPTION>
Amount at which carried at
close of period
-----------------------------------------------
Initial cost to Permanent
Registrant Capitalized writedown of
------------------------------ costs impaired
Buildings subsequent to Buildings assets
Description Land and Improvements acquisition Land and Improvements (NOTE A)
<S> <C> <C> <C> <C> <C> <C>
- --------------------- ---------- ---------- -------- ---------- ------------ -----------
UNIMPROVED
PROPERTIES:
I-35/I-20
Dallas, Texas $2,583,194 $ -- $ 26,477 $2,609,671 $ -- $ 2,334,671
---------- ---------- -------- ---------- ------------ -----------
---------- ---------- -------- ---------- ------------ -----------
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total Date
Description (NOTE A) acquired
<S> <C> <C>
- --------------------- ----------- ----
UNIMPROVED
PROPERTIES:
I-35/I-20
Dallas, Texas $ 275,000 1985
-----------
-----------
- -------------------------------------------------------
</TABLE>
See notes on following page
11
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO SCHEDULE III
September 30, 1997
<TABLE>
<CAPTION>
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<S> <C> <C> <C>
Year ended September 30,
------------------------------------------
1997 1996 1995
------------ ----------- -----------
Balance at beginning of period......................... $ 10,772,457 $21,169,442 $21,059,431
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............................ (10,497,457) (1,343,503) --
Additions during the period............................ -- 187,934 110,011
------------ ----------- -----------
Balance at close of period............................. $ 275,000 $10,772,457 $21,169,442
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The deletions for the year ended September 30, 1997 was the result of the
sale on October 31, 1996 to Public Storage, Inc. of all seven miniwarehouse
facilities owned by the Partnership. See Note C to the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto. The
deletions for the year ended September 30, 1996 resulted from the sale of
certain undeveloped land located in Southlake, Texas.
The Registrant continues to own an undeveloped land parcel (I-35/I-20)
located in Dallas, Texas.
The aggregate cost of land for Federal income tax purposes as of September
30, 1997 was $2,989,050.
<TABLE>
<CAPTION>
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended September 30,
------------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period......................... $ -- $ 4,703,648 $ 4,174,673
Depreciation during the period charged to
expense.............................................. -- 136,271 528,975
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
------------ ----------- -----------
------------ ----------- -----------
</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.
12
<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 29, 1997
-------------------------------------------
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 Partner) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Brian J. Martin Date: December 29, 1997
----------------------------------------------
Brian J. Martin
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
By: /s/ Barbara J. Brooks Date: December 29, 1997
----------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
By: /s/ Eugene D. Burak Date: December 29, 1997
---------------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: December 29, 1997
---------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: December 29, 1997
---------------------------------------------
Nathalie P. Maio
Director
13
<PAGE>
1997
- --------------------------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-3 Report
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
1997 Annual Report
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We have audited the accompanying statement of net assets in process of
liquidation of Prudential-Bache/Watson & Taylor, Ltd.-3 as of September 30, 1997
and the related statement of changes in net assets in process of liquidation for
the year then ended. In addition, we have audited the accompanying statement of
financial condition, as of September 30, 1996, and the related statements of
operations, changes in partners' capital, and cash flows for each of the two
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 net assets in liquidation of Prudential-Bache/Watson
& Taylor, Ltd.-3 as of September 30, 1997, the changes in its net assets in
liquidation for the year then ended, its financial condition as of September 30,
1996, and the results of its operations and its cash flows for each of the two
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note B to the financial statements, the Partnership adopted the
liquidation basis of accounting effective October 1, 1996.
- ------------------------------------------------------------
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
December 17, 1997
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENT OF NET ASSETS
(in process of liquidation)
September 30, 1997
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,089,835
Property held for sale 275,000
-----------
Total assets 1,364,835
-----------
LIABILITIES
Estimated liquidation costs 220,331
-----------
Net assets available to limited and general partners $ 1,144,504
-----------
-----------
Limited and equivalent partnership units issued and outstanding 53,855
-----------
-----------
- --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF FINANCIAL CONDITION
(going concern basis)
September 30, 1996
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $10,772,457
Cash and cash equivalents 1,139,947
Other assets 9,250
-----------
Total assets $11,921,654
-----------
-----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000
Accounts payable and accrued expenses 314,401
Accrued real estate taxes 135,671
Deposits due to tenants 104,957
Due to affiliates 59,144
Unearned rental income 24,255
-----------
Total liabilities 1,276,428
-----------
Partners' capital
Limited partners (53,855 limited and equivalent units issued and outstanding) 10,428,257
General partners 216,969
-----------
Total partners' capital 10,645,226
-----------
Total liabilities and partners' capital $11,921,654
-----------
-----------
- -------------------------------------------------------------------------------------------------
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
(going concern basis)
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
REVENUES
Rental income $2,010,066 $ 1,953,727
Interest 28,000 18,910
Other 14,824 14,741
---------- -----------
2,052,890 1,987,378
---------- -----------
EXPENSES
Property operating 711,167 690,174
Depreciation 136,271 528,975
Real estate taxes 225,336 210,381
General and administrative 611,985 238,637
Interest 29,497 53,130
Provision for loss on impairment of assets -- 2,000,000
---------- -----------
1,714,256 3,721,297
---------- -----------
Net income (loss) $ 338,634 $(1,733,919)
---------- -----------
---------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 302,004 $(1,772,234)
---------- -----------
---------- -----------
General partners $ 36,630 $ 38,315
---------- -----------
---------- -----------
Net income (loss) per limited partnership unit $ 5.64 $ (33.07)
---------- -----------
---------- -----------
- --------------------------------------------------------------------------------------------------
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
(going concern basis)
For the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
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
----------- -------- -----------
----------- -------- -----------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(in process of liquidation)
For the year ended September 30, 1997
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net assets in liquidation, October 1, 1996 $10,428,257 $216,969 $10,645,226
Gain on sale of properties 327,104 3,304 330,408
Changes in estimated liquidation values of assets and
liabilities 34,443 (220,273) (185,830)
Distributions (9,645,300) -- (9,645,300)
----------- -------- -----------
Net assets in liquidation, September 30, 1997 $ 1,144,504 $ -- $ 1,144,504
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
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
(going concern basis)
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,014,868 $ 2,018,576
Interest received 28,000 18,910
Other income received 14,824 14,741
Property operating expenses paid (649,026) (818,900)
Real estate taxes paid (231,795) (213,150)
General and administrative expenses paid (526,347) (193,821)
Interest paid (39,610) (53,130)
----------- -----------
Net cash provided by operating activities 610,914 773,226
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of land 1,000,000 --
Property improvements (187,934) (110,011)
----------- -----------
Net cash provided by (used in) investing activities 812,066 (110,011)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (1,291,124) (364,033)
----------- -----------
Net increase in cash and cash equivalents 131,856 299,182
Cash and cash equivalents at beginning of year 1,008,091 708,909
----------- -----------
Cash and cash equivalents at end of year $ 1,139,947 $ 1,008,091
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 338,634 $(1,733,919)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 136,271 528,975
Provision for loss on impairment of assets -- 2,000,000
Changes in:
Other assets 3,898 41,949
Accounts payable and accrued expenses 156,541 (121,643)
Accrued real estate taxes (6,459) (2,769)
Due to affiliates (18,874) 37,733
Deposits due to tenants 9,592 15,441
Unearned rental income (8,689) 7,459
----------- -----------
Total adjustments 272,280 2,507,145
----------- -----------
Net cash provided by operating activities $ 610,914 $ 773,226
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------------------
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, 1997
A. General
Prudential-Bache/ Watson & Taylor, Ltd.-3 (the
"Partnership'') is a Texas limited partnership formed on
November 13, 1984 which will terminate in accordance with a vote of the limited
partners as described below. 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 of 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 a consent statement dated September 17, 1996 (the
"Consent Statement''), the limited partners approved, on
October 18, 1996, the sale to Public Storage, Inc. of all seven miniwarehouse
facilities owned by the Partnership. The properties were sold to Public Storage,
Inc. and its affiliates 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. The Partnership continues to own an
undeveloped land parcel (I-35/I-20) located in Dallas, Texas. It is uncertain at
this time when the sale of this property will occur.
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 liquidate in 1998, subject to the
sale of the remaining undeveloped land parcel, and will distribute any remaining
funds at such time.
B. Summary of Significant Accounting Policies
Basis of accounting
The Partnership adopted the liquidation basis of accounting effective October
1, 1996. Accordingly, the net assets of the Partnership at September 30, 1997
are stated at liquidation value, i.e., the assets have been valued at their
estimated net realizable values and the liabilities include estimated amounts to
be incurred through the date of liquidation of the Partnership. The actual
remaining net proceeds from liquidation will depend upon a variety of factors
and are likely to differ from the amounts reflected in the accompanying
financial statements. Prior to October 1, 1996, the books and records of the
Partnership were maintained on a going concern accrual basis of accounting. The
Partnership's fiscal year for both book and tax purposes ends on September
30.
Property
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 and 1997, the
Partnership recorded its properties at the lower of the carrying amount or
estimated fair value less costs to sell.
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market.
7
<PAGE>
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, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
-------- -----------
<S> <C> <C>
Improved properties:
Barrow Road - Little Rock, Arkansas $ -- $ 2,588,893
La Prada - Mesquite, Texas -- 1,341,848
Tulsa Peoria - Tulsa, Oklahoma -- 1,198,483
Westheimer - Houston, Texas -- 1,465,324
Eastgate - Garland, Texas -- 1,585,135
Quail Valley - Missouri City, Texas -- 1,198,567
Mt. Holly - Mt. Holly, New Jersey -- 1,119,207
-------- -----------
-- 10,497,457
Unimproved properties:
I-35/I-20 - Dallas, Texas 275,000 275,000
-------- -----------
$275,000 $10,772,457
-------- -----------
-------- -----------
</TABLE>
The allowance for loss on impairment of assets has been allocated against
the carrying value of the properties as of September 30, 1996 and September 30,
1997.
Pursuant to the Consent Statement dated September 17, 1996, the partnership
sold all of its improved properties to Public Storage, Inc. and its affiliates
on October 31, 1996. As of September 30, 1997, the Partnership continues to own
an undeveloped land parcel (I-35/I-20) in Dallas, Texas.
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 bore interest, payable
quarterly, at a rate equal to 11.19% of net cash flow from the Mortgaged
Properties and the full amount thereof was 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. The
note was paid in full with accrued interest at the time of the sale of the
Partnership's miniwarehouse facilities.
Interest expense on the promissory note was approximately $30,000 and $53,000
for the years ended September 30, 1996 and 1995, 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 and 1995 were $124,000 and $97,000,
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 $5,000 relating to the reimbursement for
these services for the year ended September 30, 1995 and $43,000 for the year
ended September 30, 1996, of which approximately $12,000 was an underaccrual
from the previous year.
In conjunction with the adoption of the liquidation basis of accounting, the
Partnership has recorded an accrual as of September 30, 1997 for the estimated
costs expected to be incurred to liquidate the Partnership. Included in these
estimated liquidation costs is $101,000 expected to be payable to the General
Partners and their affiliates during the anticipated remaining liquidation
period. The actual charges to be incurred by the Partnership will depend
primarily upon the length of time required to liquidate the Partnership's
remaining net assets, and may differ from the amounts accrued as of September
30, 1997.
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, an affiliate of PBP, owns 253 limited
partnership units at September 30, 1997.
9
<PAGE>
F. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes to net income (loss) for tax reporting purposes for the years
ended September 30, 1997, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $ 144,578(a) $ 338,634 $(1,733,919)
Tax depreciation in excess of book, net (20,037) (327,949) --
Book depreciation in excess of tax, net -- -- 55,065
Carrying costs on land held for investment, capitalized
for tax
purposes -- 35,030 53,926
Rent received in advance, reported as income for tax pur-
poses (24,255) 24,255 32,944
Reversal of prior years' rents received in advance,
reported as
taxable income in prior years -- (32,944) (25,485)
Additional expenses included in taxable income -- (6,205) (6,144)
Tax loss in excess of book on sale of land -- (860,519) --
Tax loss in excess of book amount on sale of properties (2,444,836) -- --
Estimated liquidation costs recorded for financial
statement
purposes only 209,871 -- --
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) $(2,134,679) $(516,065) $ 376,387
----------- --------- -----------
----------- --------- -----------
(a) Includes gain on sale of properties of $330,408, partially offset by a decrease in the estimated
liquidation values of assets and liabilities of $185,830, which are reflected in the Statement of
Changes in Net Assets as of September 30, 1997.
</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
As more fully described in Notes A and C to the financial statements, the
Partnership sold substantially all of its properties on October 31, 1996 for net
proceeds of $10,677,000. On November 14, 1996, the Partnership paid
distributions from the net proceeds of this sale in the amount of $180 per
limited partnership unit. The Partnership has retained funds for a contingency
reserve and to meet current and future operating costs until the liquidation of
the Partnership. The Partnership continues to own an undeveloped land parcel
located in Dallas, Texas. The Partnership intends to liquidate in 1998, subject
to the sale of the remaining undeveloped land parcel, and will distribute any
remaining funds at such time. Estimated costs expected to be incurred through
the date of liquidation of the Partnership have been accrued in the accompanying
financial statements.
Results of Operations
As a result of the Partnership adopting the liquidation basis of accounting
in accordance with generally accepted accounting principles as of October 1,
1996 and thus not reporting results of operations thereafter, and the sale of
substantially all of the properties in October 1996, there is no management
discussion comparing the corresponding 1997 and 1996 periods.
1996 vs. 1995
Net income increased $2,073,000 for the year ended September 30, 1996
("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 $73,000 in fiscal 1996 as compared to
fiscal 1995 for the reasons discussed below.
Rental income increased $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 $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.
Property operating expenses increased $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 $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 $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 $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.
11
<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
12
<PAGE>
Peck Slip Station BULK RATE
P.O. Box 2016 U.S. POSTAGE
New York, NY 10272 PAID
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-30-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 12-Mos
<CASH> 1,089,835
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,089,835
<PP&E> 275,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,364,835
<CURRENT-LIABILITIES> 220,331
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,144,504
<TOTAL-LIABILITY-AND-EQUITY> 1,364,835
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>
Registrant adopted the liquidation basis of accounting
on October 1, 1996, and, accordingly, does not
reflect operations subsequent to October 1, 1996. See
Note A to the financial statements for further details.
</FN>
</TABLE>
