Item 1. Business
General
Prudential-Bache/Watson & Taylor, Ltd.-2 (the 'Registrant'), a Texas limited partnership, was formed on November 14, 1983 and will terminate in accordance with a vote of the limited partners as described below. The Registrant was formed for the purpose of acquiring, developing, owning and operating mini-storage and office/warehouse facilities with proceeds raised from the initial sale of units of limited partnership interests ('Units'). The Registrant's fiscal year for book and tax purposes ends on December 31.
In accordance with a consent statement dated September 17, 1996, the limited partners approved the proposed sale of all eight miniwarehouse facilities owned by the Registrant to Public Storage, Inc. ('Public') and the liquidation and dissolution of the Registrant during October 1996.
Seven of the eight properties were sold to Public during December 1996. The Registrant continues to own the Hampton Park property located in Capitol Heights, Maryland as it was not sold to Public after Phase I and Phase II Environmental Site Assessments performed during 1996 by Law Engineering and Environmental Services, Inc. ('LAW') identified detectable levels of tetrachloroethene ('PCE') in the soil and ground water samples collected at the site. LAW, at the Registrant's request, reported the PCE release to the Maryland Department of the Environment ('MDE') and has continued to cooperate with MDE.
On November 21, 2000, MDE reached a determination that it was appropriate to undertake an active remedial measure at the site. LAW, at the request of the Registrant, is in the process of submitting an application to enter the site into MDE's Voluntary Cleanup Program ('VCP'). Based on VCP regulations, MDE is required to notify the Registrant whether the site has been accepted into their program within sixty days after receiving the application. As of December 31, 2000, the Statement of Net Assets included in the Registrant's annual report to the limited partners for the year ended December 31, 2000 ('Registrant's Annual Report') reflects an accrued liability of $500,000 which represents the Registrant's best estimate of the obligation regarding the environmental issues mentioned above. The amount includes costs associated with an active remediation program over a five-year period. It is reasonably possible that the loss exposure will be in excess of the amount accrued and will be material to the Registrant and may possibly change in the near future. However, it is uncertain at this time what will ultimately be required to resolve the environmental issue at the property.
The general partners of the Registrant intend to select a broker (after submitting the application to enter the VCP) for the purpose of offering the Hampton Park property to a select group of potential buyers which specialize in the purchase of contaminated properties, albeit at a discount. It is the intention of the Registrant to obtain from any potential buyer as complete an indemnification for any liability in connection with remediation of the contamination of the property as possible. The general partners of the Registrant intend to have the broker offer the property pursuant to a sealed bid process; however, because of the environmental problem and MDE oversight, it is uncertain when any such sale could be consummated. The Registrant's liquidation and dissolution will proceed upon the sale of the Hampton Park property.
Effective February 28, 1998, American Office Park Properties, Inc., a subsidiary of Public, terminated its management of the Hampton Park property. The Registrant entered into a management agreement ('Management Agreement') with Watson & Taylor Management, Inc. ('WTMI'), an affiliate of the individual General Partners, effective March 1, 1998. WTMI will continue to be responsible for the day-to-day operation of the property, including the supervision of the on-site managers and the establishment of rental policies and rates for new rentals and renewals and will direct the marketing activity for the property.
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. For further information, see
Notes A and 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. For further information, see Note E of the financial statements in the Registrant's Annual Report which is filed as an exhibit hereto.
Item 2.
Item 2. Properties
As of December 31, 2000, the Registrant owns the following property:
(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.
The General Partners believe the Registrant's remaining property is adequately insured.
For each of the years during the three years ended December 31, 2000, the Hampton Park property rental revenues represented 96% of the Registrant's total revenue.
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 12, 2001, there were 3,407 holders of record owning 51,818 Units, inclusive of 258, 130 and 130 equivalent limited partnership units held by PBP and Messrs. Watson and Taylor, respectively. A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in Section 17.3 of the Partnership Agreement limiting the ability of a limited partner to transfer Units. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason.
There were no cash distributions paid to limited partners during 2000, 1999 and 1998.
A distribution of $300 per limited partnership unit was made on December 19, 1996 representing the net proceeds from the sale of seven of the Registrant's properties, reduced by a contingency reserve and funds required to meet the anticipated current and future operating costs until the liquidation of the Registrant. The Registrant intends to liquidate, subject to the Hampton Park property first being sold (refer to Item 1 for further discussion), 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 6 of the Registrant's Annual Report which is filed as an exhibit hereto.
Nine Months* Ended September 30, ------------- Total revenues $ 2,209,270 ------------- ------------- Net income $ 619,119 ------------- ------------- Limited partner net income per Unit $ 11.89 ------------- ------------- Total assets $14,325,486 ------------- ------------- Total distributions $ 580,329 ------------- ------------- Limited partner distributions per Unit $ 11.13 ------------- -------------
* As of October 1, 1996, the Registrant adopted the liquidation basis of accounting in accordance with generally accepted accounting principles and, therefore, there is no reporting of results of operations subsequent to September 30, 1996. Total assets at December 31, 1996, 1997, 1998, 1999 and 2000 were $2,810,113, $2,468,042, $2,594,664, $3,332,496 and $3,583,953, respectively. Additionally, a distribution of $300 per limited partnership unit (totalling $15,467,667) was made on December 19, 1996. No distributions were made during the four years ended December 31, 2000.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This information is incorporated by reference to page 7 of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 6 of the Registrant's Annual Report which is filed as an exhibit hereto. Quarterly financial data pursuant to Item 302 of Regulation S-K is not provided as the Registrant follows the liquidation basis of accounting and has not reported results of operations subsequent to September 30, 1996 in accordance with generally accepted accounting principles.
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 10% 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 10% 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 10% 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 executive officers of PBP and their positions with regard to managing the Registrant are as follows:
Name Position
Brian J. Martin Chairman of the Board of Directors Chester A. Piskorowski President, Chief Executive Officer and Director Barbara J. Brooks Vice President--Finance, Chief Financial Officer and Director Steven Carlino Vice President and Chief Accounting Officer
BRIAN J. MARTIN, age 50, is the Chairman of the Board of Directors of PBP. He is a Senior Vice President of Prudential Securities Incorporated ('PSI'), an affiliate of PBP. In his current position, Mr. Martin has responsibility for developing various alternative investment products for the firm's high net worth clients. 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.
CHESTER A. PISKOROWSKI, age 57, is the President, Chief Executive Officer and a Director of PBP. He is a Senior Vice President of PSI and is head of its Specialty Finance Department. Mr. Piskorowski also serves in various capacities for certain other affiliated companies. Mr. Piskorowski has held several positions within PSI since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
BARBARA J. BROOKS, age 52, is the Vice President--Finance, Chief Financial Officer and a Director 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.
STEVEN CARLINO, age 37, is a Vice President of PBP. He is a Senior Vice President of PSI. Mr. Carlino also serves in various capacities for other affiliated companies. Prior to joining PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a certified public accountant.
Effective April 19, 2000 and May 3, 2000, respectively, Nathalie P. Maio resigned as a Director and Stephen A. Tolbert resigned as a Vice President of PBP. Effective April 19, 2000, Steven Carlino replaced Stephen A. Tolbert as Chief Accounting Officer for the Registrant and Barbara J. Brooks became a Director of PBP.
There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and executive officers have indefinite terms.
Individual General Partners
GEORGE S. WATSON, age 60, 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 57, 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. 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.
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 March 12, 2001, 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 March 12, 2001, 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.
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 the General Partners' capital contribution bears 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 March 12, 2001, no limited partner beneficially owns more than 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 during 2000.
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
- ------------------ (1) Filed on the Registrant's Proxy Statement on Schedule 14A and incorporated herein by reference.
(2) Filed as an exhibit to Registration Statement on Form S-11 (No. 2-88785) and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference.
(4) Filed as an exhibit to Registrant's Form 10-K for the year ended December 31, 1988 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
CONSENT OF INDEPENDENT AUDITORS
To the Partners Prudential-Bache/Watson & Taylor, Ltd.-2
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Prudential-Bache/Watson & Taylor, Ltd.-2 of our report dated February 8, 2001, included in the 2000 Annual Report to Partners of Prudential-Bache/Watson & Taylor, Ltd.-2.
Our audits also included the financial statement schedules of Prudential-Bache/Watson & Taylor, Ltd.-2 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 February 8, 2001
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2 (a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES December 31, 2000
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2 (a limited partnership) SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000
See notes on the following page.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2 (a limited partnership) NOTES TO SCHEDULE III December 31, 2000
NOTE A--There are no mortgages, deeds of trust or similar encumbrances against the remaining property. NOTE B--Initial cost represents the initial purchase price of the property including acquisition fees. NOTE C--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
The aggregate cost of land, buildings and improvements, and furniture and fixtures, net of depreciation, for Federal income tax purposes as of December 31, 2000 was $2,370,215.
NOTE D--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
(1) The Partnership ceased depreciating the properties for financial reporting purposes when the properties were reclassified as held for sale as of December 31, 1995.
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.-2
By: Prudential-Bache Properties, Inc., A Delaware corporation, Managing General Partner
By: /s/ Steven Carlino Date: March 15, 2001 ---------------------------------------- Steven Carlino Vice President and Chief Accounting Officer
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: March 15, 2001 ----------------------------------------- Brian J. Martin Chairman of the Board of Directors
By: /s/ Chester A. Piskorowski Date: March 15, 2001 ----------------------------------------- Chester A. Piskorowski President, Chief Executive Officer and Director
By: /s/ Barbara J. Brooks Date: March 15, 2001 ----------------------------------------- Barbara J. Brooks Vice President-Finance, Chief Financial Officer and Director
By: /s/ Steven Carlino Date: March 15, 2001 ----------------------------------------- Steven Carlino Vice President