<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, 1998
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
or organization) (I.R.S. Employer Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0128
- --------------------------------------------------------------------------------
(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, 1998 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 7.
<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.................................................................... 4
Item 8 Financial Statements and Supplementary Data..................................... 4
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 4
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.................................. 6
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules.......................... 7
Exhibits........................................................................ 7
Reports on Form 8-K............................................................. 7
Signatures.................................................................................. 12
</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 as soon as
possible, 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, 1998 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, 1998, there were 3,211 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.
No distributions have been paid to limited partners for the fiscal years
ended September 30, 1998 and 1997. The Registrant intends to liquidate as soon
as possible, 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 9 of the Registrant's
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
---------- ---------- ----------- ----------- -----------
Total revenues $ * $ * $ 2,052,890 $ 1,987,378 $ 1,919,960
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Net income (loss) $ * $ * $ 338,634 $(1,733,919) $ 237,617
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Net income (loss) per
limited partnership unit $ * $ * $ 5.64 $ (33.07) $ 3.40
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Total assets $1,230,464 $1,364,835 $11,921,654 $12,742,033 $14,903,764
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Note payable $ -- $ -- $ 638,000 $ 638,000 $ 638,000
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Total distributions $ -- $9,645,300 $ 1,291,124 $ 364,033 $ 654,082
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Limited partner
distributions per Unit $ -- $ 180.00 $ 23.66 $ 6.25 $ 11.23
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
* 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 years ended September 30, 1998 and 1997.
- -----------------------------------------------------------------------------------------------------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to page 10 of the Registrant's
Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
4
<PAGE>
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>
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
Stephen A. Tolbert Vice President and Chief Accounting Officer
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
BRIAN J. MARTIN, age 48, 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 50, 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.
STEPHEN A. TOLBERT, age 36, is a Vice President of PBP. He is a First Vice
President of PSI. Mr. Tolbert also serves in various capacities for other
affiliated companies. He has held several positions within PSI since 1988.
FRANK W. GIORDANO, age 56, 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 48, 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.
Effective November 10, 1998, Stephen A. Tolbert replaced Eugene D. Burak as
Chief Accounting Officer for the Registrant.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite terms.
5
<PAGE>
Individual General Partners
GEORGE S. WATSON, age 58, is a financial specialist and a certified public
accountant. He has been instrumental in the success of The Community Minority
Business Advancement Program sponsored by the University of Texas at Austin
College and Graduate Schools of Business. Mr. Watson is a member of the Advisory
Council of the University of Texas at Austin Business School and a member of its
Chancellor's Council. Mr. Watson attended the University of Texas at Austin,
graduating summa cum laude in 1963 with a BBA in accounting and finance. He
received his MBA in accounting and finance from the University of Texas in 1965,
graduating first in his class and summa cum laude. He also has received various
awards and scholarships and is a member of many fraternal organizations
including Phi Kappa Phi, the honorary scholastic society. Mr. Watson has over 25
years of experience in real estate and financial investments.
A. STARKE TAYLOR, III, age 55, 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. Mr. Taylor is a member of the
boards of the Dallas Theological Seminary and the Northeast Texas Regional Board
of Young Life. He is president of Sovereign Corporation, a business investment
and finance organization. Mr. Taylor has over 25 years of experience in real
estate, insurance and financial investments.
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, 1998, 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, 1998, 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, 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, 1998, 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.
6
<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
Report of Independent Auditors 2
Financial Statements:
Statements of Net Assets--September 30, 1998 and 1997 3
Statements of Changes in Net Assets--Two years ended September 30, 1998 3
Statement of Operations--Year ended September 30, 1996 4
Statement of Changes in Partners' Capital--Year ended September 30, 1996 4
Statement of Cash Flows--Year ended September 30, 1996 5
Notes to Financial Statements 6
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, 1998
III--Real Estate and Accumulated Depreciation at September 30, 1998
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,
1998 (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 1998 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.
7
<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 3,
1998, included in the 1998 Annual Report to Limited Partners of
Prudential-Bache/Watson & Taylor, Ltd.-3.
Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor, Ltd.-3 listed in Item 14(a). These schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
- ------------------------------------------------------------
/s/ Ernst & Young LLP
New York, New York
December 22, 1998
8
<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>
1996 $ 4,745,000 -- $ (343,503) $4,401,497
1997 $ 4,401,497 -- $(2,066,826)(1) $2,334,671(2)
1998 $ 2,334,671 -- $ -- $2,334,671
</TABLE>
- --------------------------------------------------------------------------------
(1) Applicable to properties which were sold during the year.
(2) Shown as a direct reduction of carrying value of property held for sale.
9
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1998
<TABLE>
<CAPTION>
Amount at which carried at
close of period
Initial cost to -----------------------------------------------
Registrant Capitalized Permanent
------------------------------ costs write-down of
Buildings subsequent to Buildings impaired
Description Land and Improvements acquisition Land and Improvements assets
- --------------------- ---------- ---------------- -------------- ---------- ---------------- -------------
<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
-----------
-----------
- -------------------------------------------------------
See notes on following page
</TABLE>
10
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO SCHEDULE III
September 30, 1998
<TABLE>
<CAPTION>
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
Year ended September 30,
---------------------------------------
1998 1997 1996
-------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of period............................ $275,000 $ 10,772,457 $21,169,442
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
-------- ------------ -----------
Balance at close of period................................ $275,000 $ 275,000 $10,772,457
-------- ------------ -----------
-------- ------------ -----------
</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, 1998 was $2,989,050.
<TABLE>
<CAPTION>
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended September 30,
---------------------------------------
1998 1997 1996
-------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of period............................ $ -- $ -- $ 4,703,648
Depreciation during the period charged to
expense................................................. -- -- 136,271
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................................ $ -- $ -- $ --
-------- ------------ -----------
-------- ------------ -----------
</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.
11
<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/ Stephen A. Tolbert Date: December 22, 1998
--------------------------------------------------
Stephen A. Tolbert
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 22, 1998
--------------------------------------------------
Brian J. Martin
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
By: /s/ Barbara J. Brooks Date: December 22, 1998
--------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
By: /s/ Stephen A. Tolbert Date: December 22, 1998
--------------------------------------------------
Stephen A. Tolbert
Vice President
By: /s/ Frank W. Giordano Date: December 22, 1998
--------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: December 22, 1998
--------------------------------------------------
Nathalie P. Maio
Director
12
<PAGE>
1998
- --------------------------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-3 Report
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
1998 Annual Report
1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We have audited the accompanying statements of net assets in process of
liquidation of Prudential-Bache/Watson & Taylor, Ltd.-3 as of September 30, 1998
and 1997, and the related statements of changes in net assets in process of
liquidation for the years then ended. In addition, we have audited the related
statements of operations, changes in partners' capital, and cash flows for the
year 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 process of liquidation of
Prudential-Bache/Watson & Taylor, Ltd.-3 as of September 30, 1998 and 1997, the
changes in its net assets in process of liquidation for the years then ended,
and the results of its operations and cash flows for the year 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
New York, New York
November 3, 1998
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF NET ASSETS
(in process of liquidation)
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------
1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 955,464 $1,089,835
Property held for sale 275,000 275,000
---------- ----------
Total assets 1,230,464 1,364,835
---------- ----------
LIABILITIES
Estimated liquidation costs 162,712 220,331
---------- ----------
Net assets available to limited and general partners $1,067,752 $1,144,504
---------- ----------
---------- ----------
Limited and equivalent partnership units issued and outstanding 53,855 53,855
---------- ----------
---------- ----------
- --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(in process of liquidation)
For the years ended September 30, 1998 and 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
Changes in estimated liquidation values of assets and
liabilities (76,752) -- (76,752)
----------- -------- -----------
Net assets in liquidation, September 30, 1998 $ 1,067,752 -- $ 1,067,752
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENT OF OPERATIONS
(going concern basis)
For the year ended September 30, 1996
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
REVENUES
Rental income $2,010,066
Interest 28,000
Other 14,824
----------
2,052,890
----------
EXPENSES
Property operating 711,167
Depreciation 136,271
Real estate taxes 225,336
General and administrative 611,985
Interest 29,497
----------
1,714,256
----------
Net income $ 338,634
----------
----------
ALLOCATION OF NET INCOME
Limited partners $ 302,004
----------
----------
General partners $ 36,630
----------
----------
Net income per limited partnership unit $ 5.64
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(going concern basis)
For the year ended September 30, 1996
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
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>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENT OF CASH FLOWS
(going concern basis)
For the year ended September 30, 1996
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,014,868
Interest received 28,000
Other income received 14,824
Property operating expenses paid (649,026)
Real estate taxes paid (231,795)
General and administrative expenses paid (526,347)
Interest paid (39,610)
-----------
Net cash provided by operating activities 610,914
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of land 1,000,000
Property improvements (187,934)
-----------
Net cash provided by investing activities 812,066
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (1,291,124)
-----------
Net increase in cash and cash equivalents 131,856
Cash and cash equivalents at beginning of year 1,008,091
-----------
Cash and cash equivalents at end of year $ 1,139,947
-----------
-----------
- -------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 338,634
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 136,271
Changes in:
Other assets 3,898
Accounts payable and accrued expenses 156,541
Accrued real estate taxes (6,459)
Due to affiliates (18,874)
Deposits due to tenants 9,592
Unearned rental income (8,689)
-----------
Total adjustments 272,280
-----------
Net cash provided by operating activities $ 610,914
-----------
-----------
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
A. General
Prudential-Bache/ Watson & Taylor, Ltd.-3 (the 'Partnership') is a Texas
limited partnership formed on November 13, 1984 and 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 as soon as possible,
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, 1998
and 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.
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market.
6
<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, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Unimproved properties:
I-35/I-20 - Dallas, Texas $275,000 $275,000
-------- --------
-------- --------
</TABLE>
The allowance for loss on impairment of assets has been allocated against
the carrying value of the properties as of September 30, 1997 and September 30,
1998.
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, 1998, the Partnership continues to own
an undeveloped land parcel (I-35/I-20) in Dallas, Texas.
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 for the
year ended September 30, 1996.
7
<PAGE>
E. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management; transfer and
assignment functions; asset management (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 year ended September 30, 1996, was $124,000.
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 $43,000 relating to the reimbursement for
these services 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 recorded an accrual as of September 30, 1998 and 1997 for the
estimated costs expected to be incurred to liquidate the Partnership. Included
in these estimated liquidation costs at September 30, 1998 and 1997 are $97,000
and $101,000, respectively, 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, 1998.
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, 1998.
8
<PAGE>
F. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes to net loss for tax reporting purposes for the years ended
September 30, 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $ (76,752)(a) $ 144,578(b) $ 338,634
Tax depreciation in excess of book, net -- (20,037) (327,949)
Carrying costs on land held for investment, capitalized for
tax
purposes -- -- 35,030
Rent received in advance, reported as income for tax
purposes -- (24,255) 24,255
Reversal of prior years' rents received in advance,
reported as
taxable income in prior years -- -- (32,944)
Additional expenses included in taxable income -- -- (6,205)
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 106,971 209,871 --
Estimated liquidation costs previously recorded for
financial statement purposes deductible currently for tax
purposes (164,590) -- --
Costs related to sale of properties, capitalized for tax
purposes -- -- 313,633
--------- ----------- ---------
Tax basis net loss $(134,371) $(2,134,679) $(516,065)
--------- ----------- ---------
--------- ----------- ---------
(a) Represents a decrease in the estimated liquidation values of assets and liabilities which is
reflected in the Statement of Changes in Net Assets as of September 30, 1998.
(b) 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.
9
<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 as soon as
possible, 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 1998, 1997 and 1996 periods.
Year 2000
The Partnership has considered, and is taking appropriate actions to address,
the possible adverse effects of the Year 2000 on its systems and operations.
Accordingly, the Partnership believes the Year 2000 will not have significant
adverse effects on its systems and operations.
10
<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
11
<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-30-1998
<PERIOD-START> SEP-30-1997
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 12-Mos
<CASH> 955,464
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 275,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,230,464
<CURRENT-LIABILITIES> 162,712
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,067,752
<TOTAL-LIABILITY-AND-EQUITY> 1,230,464
<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>
