Item 1. Business
General
Prudential-Bache/Watson & Taylor, Ltd.-3 (the ``Registrant''), a Texas limited partnership, was formed on November 13, 1984 and will terminate on December 31, 2050 unless terminated sooner under the provisions of the Amended and Restated Certificate and Agreement of Limited Partnership (the ``Partnership Agreement''). The Registrant was formed for the purpose of acquiring, owning, developing and operating self-storage and office/showroom warehouse complexes; investing in unimproved commercial properties; and investing in first lien mortgage loans on existing or to-be-constructed commercial income-producing properties with proceeds raised through the initial sale of units of limited partnership interest (``Units''). The Registrant's fiscal year for book and tax purposes ends on September 30.
In accordance with the Consent Statement dated September 17, 1996, the Registrant's limited partners approved the sale to Public Storage, Inc., the property manager of the Registrant's properties, of all seven miniwarehouse/office warehouse facilities owned by the Registrant. The properties were sold to Public Storage, Inc. on October 31, 1996. The Registrant received, in cash, gross sales proceeds of $11,050,000 reduced by certain selling expenses and pro-rations of approximately $373,000. The sales proceeds were also reduced by the payment to third parties of $644,000 representing the principal and accrued interest on the Registrant's note payable secured by three of the properties sold to Public Storage, Inc. The gross sales price was in excess of the appraised value of the properties.
A distribution of $180 per limited partnership unit was made on November 14, 1996 representing the net sales proceeds reduced by a contingency reserve and funds required to meet current and future operating costs until the liquidation of the Registrant. The Registrant intends to sell its remaining land parcel and liquidate in 1997 and will distribute any remaining funds at such time.
For more information regarding the Registrant's properties, see Item 2
Item 2. Properties
As of September 30, 1996 the Registrant owned the following properties:
(1) Average occupancy rates are calculated by averaging the monthly occupancies determined by dividing occupied square footage by available square footage as of each month-end.
All of the foregoing Improved Properties were sold to Public Storage, Inc. on October 31, 1996 as more fully described in Item 1. For additional information describing the Registrant's properties, see Supplementary Schedule III-Real Estate and Accumulated Depreciation on page 12 in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Limited Partners
Pursuant to the Consent Statement dated September 17, 1996, the limited partners of the Registrant approved the sale to Public Storage, Inc. of substantially all of the assets of the Registrant and the liquidation and dissolution of the Registrant. The vote was 33,302 Units or 62.5% in favor, 1,075 Units or 2.0% against and 627 Units or 1.2% abstaining.
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of December 13, 1996, there were 3,242 holders of record owning 53,855 Units, inclusive of 270, 135, and 135 equivalent limited partnership units held by PBP and Messrs. Watson and Taylor, respectively. A significant secondary market for the Units has not developed, and, in light of the pending liquidation of the Partnership, it is not expected that one will develop in the future. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason.
The following per Unit cash distributions were paid to limited partners on or about 45 days after the end of the specified fiscal quarter.
These distributions for the years ended September 30, 1996 and 1995 were made from cash generated by the operations of the Registrant's properties.
A special distribution of $18.66 per Unit was paid to Unitholders in May 1996 relating to the net proceeds from the sale of certain undeveloped land.
In addition, a distribution of $180 per limited partnership unit was made on November 14, 1996 representing the net proceeds from the sale of substantially all the Registrant's assets reduced by a contingency reserve and funds required to meet current and future operating costs until the liquidation of the Registrant. The Registrant intends to sell its remaining land parcel and liquidate in 1997 and will distribute any remaining funds at such time.
Item 6.
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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This information is incorporated by reference to pages 11 and 12 of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 8.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
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:
THOMAS F. LYNCH, III, age 37, is the President, Chief Executive Officer, Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice President of Prudential Securities Incorporated (``PSI''), an affiliate of PBP. Mr. Lynch also serves in various capacities for other affiliated companies. Mr. Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 48, is the Vice President--Finance and Chief Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in various capacities for other affiliated companies. She has held several positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice President of PSI. Prior to joining PSI in September 1995, he was a management consultant for three years and was with Equitable Capital Management Corporation from March 1990 to May 1992. Mr. Burak is a certified public accountant.
BRIAN J. MARTIN, age 46, is a Vice President of PBP. He is a Senior Vice President of PSI, which he joined in 1980. Mr. Martin is a Manager in the Specialty Finance Asset Management Group and also serves in various capacities for certain other affiliated companies. Mr. Martin is a member of the Pennsylvania Bar.
FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice President of PSI and an Executive Vice President and General Counsel of Prudential Mutual Fund Management, LLC, an affiliate of PSI. Mr. Giordano also serves in various capacities for other affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. She is a Senior Vice President and Deputy General Counsel of PSI and supervises non-litigation legal work for PSI. She joined PSI's Law Department in 1983; presently, she also serves in various capacities for other affiliated companies.
There are no family relationships among any of the foregoing directors or officers. All of the foregoing officers and/or directors have indefinite terms.
Individual General Partners
George S. Watson, age 56, is a financial specialist and a certified public accountant. He is also a member of the board of directors of Lyco Energy Corporation as well as the Advisory Council of the University of Texas Business School and a member of its Chancellor's Council. Mr. Watson attended the University of Texas in Austin, graduating summa cum laude in 1963 with a B.B.A. in accounting and finance. He received his M.B.A. in accounting and finance from the University of Texas in 1965, graduating first in his class and summa cum laude. He has received various awards and scholarships and is a member of many fraternal organizations including Phi Kappa Phi, the honorary scholastic fraternity.
A. Starke Taylor, III, age 53, holds a bachelor of business administration degree from Southern Methodist University which was awarded in 1966. He is past president of the North Dallas Chamber of Commerce. Active in the community, Mr. Taylor is the chairman of the board of Priority One, an international missionary organization, the founding chairman of the board of the Park Central Athletic Association, a member of the Dallas regional board of the Salvation Army, and a board member of the Dallas Theological Seminary. Mr. Taylor was recognized in 1983 by D Magazine as one of Dallas' 10 most outstanding young business leaders.
The two individual General Partners are not related.
Item 11.
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 13, 1996, no individual General Partner or director or officer of the Managing General Partner owns directly or beneficially any interest in the voting securities of the Managing General Partner.
As of December 13, 1996, no individual General Partner or director or officer of the Managing General Partner owns directly or beneficially any of the Units issued by the Registrant. However, the General Partners have contributed to the Registrant and, based on such contribution, they received ``equivalent units'' entitling them to participate in the distributions to the limited partners and in the Registrant's profits
and losses in the same proportion that their capital contributions as holders of ``equivalent units'' bear to the total capital contributions of the limited partners. The Managing General Partner has retained its right to receive funds from the Registrant, such as General Partner distributions and reimbursement of expenses, but has waived its right to share in any limited partner cash distributions and allocations of Registrant's profits and losses based upon such equivalent units.
As of December 13, 1996, no limited partner beneficially owns more than five percent (5%) of the outstanding Units issued by the Registrant.
Item 13.
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.
PART IV
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(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.
CONSENT OF INDEPENDENT AUDITORS
To the Partners Prudential-Bache/Watson & Taylor, Ltd.-3
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Prudential-Bache/Watson & Taylor, Ltd.-3 of our report dated November 22, 1996, included in the 1996 Annual Report to Limited Partners of Prudential-Bache/Watson & Taylor, Ltd.-3.
Our audit also included the financial statement schedules of Prudential-Bache/Watson & Taylor Ltd.-3 listed in Item 14(a). These schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York December 26, 1996
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3 (a limited partnership) SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
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(1) Shown as a direct reduction of carrying value of properties.
(2) Based upon estimated amounts recoverable through future operations and ultimate disposition of the properties and a reduced holding period until the properties are disposed of, an additional allowance for loss on impairment of assets of $2,000,000 was recorded as of September 30, 1995.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3 (a limited partnership) SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION September 30, 1996
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3 (a limited partnership) NOTES TO SCHEDULE III September 30, 1996
The deletions for the year ended September 30, 1996 resulted from the sale of certain undeveloped land located in Southlake, Texas.
The aggregate cost of land, buildings and improvements, and furniture and fixtures for Federal income tax purposes for the tax year ended September 30, 1996 was $20,546,210.
Effective December 31, 1995, the Registrant reclassified its properties from held for use to held for sale and ceased depreciating the properties for financial statement purposes.
NOTE C--The Eastgate, Quail Valley and Mt. Holly properties were pledged as collateral for the Registrant's $638,000 promissory note. See Note A and Note D of the financial statements in the Registrant's Annual Report which is filed as an exhibit hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc., A Delaware corporation, Managing General Partner By: /s/ Eugene D. Burak Date: December 27, 1996 ----------------------------------------------------------------- Eugene D. Burak Vice President Chief Accounting Officer for the Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with respect to the General Partners) and on the dates indicated.
By: Prudential-Bache Properties, Inc., A Delaware corporation, Managing General Partner By: /s/ Thomas F. Lynch Date: December 27, 1996 ------------------------------------------------------------------ Thomas F. Lynch President, Chief Executive Officer, Chairman of the Board of Directors and Director By: /s/ Barbara J. Brooks Date: December 27, 1996 ------------------------------------------------------------------ Barbara J. Brooks Vice President-Finance and Chief Financial Officer By: /s/ Eugene D. Burak Date: December 27, 1996 ------------------------------------------------------------------ Eugene D. Burak Vice President By: /s/ Frank W. Giordano Date: December 27, 1996 ------------------------------------------------------------------ Frank W. Giordano Director By: /s/ Nathalie P. Maio Date: December 27, 1996 ------------------------------------------------------------------ Nathalie P. Maio Director