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, during October 1996, the proposed sale to Public Storage, Inc. (“Public”) of all eight mini-warehouse facilities owned by the Registrant and the liquidation and dissolution of the Registrant.
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 identified detectable levels of tetrachloroethene (“PCE”) in the soil and ground water samples collected at the site. Prudential-Bache Properties, Inc. (“PBP” or the “Managing General Partner”) continues to work with the Maryland Department of the Environment (“MDE”) on the plan for remediation action (the “Plan”) of the Hampton Park property. For further information, see Note A and Note G of the financial statements in the Registrant’s Annual Report which is filed as an exhibit hereto.
In 2005, the general partners reported that the Registrant had placed its sole remaining property, Hampton Park, on the market for sale. A purchase and sale agreement was entered into, but was subsequently terminated. In light of the termination of the agreement, during 2005 the Managing General Partner changed its estimated liquidation date to December 31, 2006. Subsequently, during July 2006, the Managing General Partner revised its estimated liquidation date of the Registrant from December 31, 2006 to December 31, 2007. As a result, at this time, the Managing General Partner has estimated additional liquidating costs of $381,536 or $7.40 per limited and equivalent participating unit of the Registrant.
On September 19, 2006, the Managing General Partner signed an Amendment to Listing Agreement with an unrelated third party, CB Richard Ellis Inc., to market the property on an exclusive basis through December 31, 2006. This agreement has been further extended through June 30, 2007. The Registrant will seek to obtain from any potential buyer as complete an indemnification as possible for any liability in connection with remediation of the contamination of the property.
During 2006, the Managing General Partner authorized capital improvements presented by the managing agent of the Hampton Park property totaling $201,575. During the twelve months ended December 31, 2006, $198,759 of the authorized capital improvements was funded to Watson & Taylor Management, Inc. (“WTMI”), an affiliate at the individual general partners and reflected as an addition to the value of the property held for sale. An additional $60,197 of capital improvements are owed to WTMI in 2007. These amounts have also been reflected as an addition to the value of property held for sale. The Managing General Partner anticipates that these capital improvements will result in reduced operating expenses and higher rent revenues.
WTMI is responsible for the day-to-day operation of the property, including the supervision of the on-site managers, the establishment of rental policies, rates for new rentals, and renewals and directs the marketing activity for the rental of the property.
General Partners and Affiliates
The general partners of the Registrant are 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. PBP is a wholly owned subsidiary of Prudential Securities Group Inc. (“PSG”). 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.
Recent Development
On March 27, 2007, the Registrant entered into a Purchase and Sale Agreement (the “Sale Agreement”) with Eric G. Meyers, John P. Kyle, and Terry Korth, or their assignee (the “Purchasers”) for the purchase of the Registrant’s Hampton Park property.
The Sale Agreement provides that the Purchasers would pay approximately $3,500,000 to the Registrant. The Purchasers shall accept possession of the property “as is, where is, with all faults”, with no right of setoff or reduction in the purchase price. However, pursuant to the terms of the Sale Agreement, the Purchasers have an opportunity to conduct a 30-day due diligence and to terminate the agreement at any time prior to the expiration of the due diligence period. At closing, the Purchasers shall enter into a services agreement with ATC Associates Inc. (“ATC”) to carry out the environmental work specified in the Plan through and including the issuance of a Voluntary Cleanup Program (“VCP”) Certificate of Completion and any other applicable governmental closure documents (the “Environmental Services Agreement”). The Registrant shall be a third party beneficiary of the Environmental Services Agreement and, despite having a contractual obligation of indemnity with the Purchasers, shall assume control of any and all remaining portions of the environmental work, in the event that the Purchasers default on their obligations. The Registrant has obtained an environmental insurance policy regarding the property and, prior to closing, will add the Purchasers as an additional insured under the policy. In addition, at closing, the Registrant shall pay, as a credit against the purchase price, the amount owed under the Environmental Services Agreement, up to a maximum of $75,000. The closing of the purchase is further subject to additional closing conditions, including the assignment of certain leases. Due to these and other closing conditions and the termination provisions in the Sale Agreement, this transaction may never be consummated. In addition, there can be no assurance (i) as to when the sale to the Purchasers will be consummated, if at all, (ii) that the property will be sold at the current contracted purchase price, or (iii) of the amount of net proceeds that will be available for distribution.
The foregoing description of the Sale Agreement is qualified in its entirety by reference to the Sale Agreement, a copy of which is attached to this 10-K as Exhibit 10.09.
The general partners plan to liquidate the Registrant once the remaining property is sold. While the Purchaser has agreed to indemnify the Registrant for certain named matters within the Sale Agreement, the potential for additional contingent expenses and liabilities exist. Distribution of any remaining funds once the remaining property is sold will occur after payment of, and establishment of reserves for, these contingent exposures.
As a result of the terms of the sales contract for the property, the Managing General Partner has estimated additional liquidating costs for property sale commissions and property/recording taxes of $58,950 or $1.14 per limited and equivalent participating unit of the Registrant.
Item 1A.
Item 1A. Risk Factors
The following risks should be carefully considered. These risks could materially affect the Registrant’s net assets in the process of liquidation, cause the value of the Units to decline materially or cause actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Registrant. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned below.
The liquidation of the Partnership may extend beyond the current estimate of December 31, 2007.
The liquidation date is dependent upon the sale of the one remaining property within the Registrant and the subsequent payment of, and establishment of reserves for, any remaining or contingent expenses and liabilities. There are no assurances on if and when acceptable terms and conditions will be agreed to by a prospective purchaser. Any sale may not be completed in time to complete the liquidation by December 31, 2007.
Liquidation costs may exceed those currently recorded in the financial results of the Registrant.
The costs included in the December 31, 2006 financial report were the best estimates available at that time. Given the condition of the remaining property, if the environmental remediation plan is not completed
as scheduled, the property is not sold, or for any other reason the liquidation timeline exceeds December 31, 2007, the costs related to property management, administration, legal fees, and costs and other expenses may exceed current estimates.
Environmental remediation costs may exceed those currently recorded in the financial results of the Registrant.
As the remediation plan progresses, and additional or unknown environmental issues are uncovered, the current plan and timeline and recorded cost estimates may not be sufficient to complete the cleanup or to address additional environmental concerns and liabilities.
Environmental issues with the property may limit the number of potential buyers.
While an approved remediation plan is in place to correct the condition of the property, it may be difficult to consumate a sale with a buyer willing to purchase the property prior to having the remediation plan completed and a certificate issued by the Maryland Department of Environment.
Market conditions, including interest rates, may have a material impact on our ability to sell this property.
The ability to sell this property is dependent on several economic conditions:
•
The real estate market values of comparable properties in the surrounding area have a direct impact on our ability to have an acceptable offer presented.
•
Vacancy rates of surrounding buildings as well as vacant rental units within this property will be a key factor in attracting potential offers.
•
The interest rates associated with a buyer’s financing may directly impact the ability for a potential buyer to obtain funding to purchase the property.
Our operating and financial performance and our financial condition, as well as the value of our real estate asset, are subject to the risks incidental to the ownership and operation of real estate.
Our results of operations and financial condition, and the value of our remaining real estate asset, are subject to the risks normally associated with the ownership and operation of real estate properties. These risks include, but are not limited to, the following:
•
bankruptcy, insolvency, or credit deterioration of our tenants and our ability to collect rent from our tenants;
•
increases in operating costs, including utilities, real estate taxes, state and local taxes, heightened security costs, and costs incurred for periodic renovations and repairs that are necessary;
•
national, regional, and local economic climate;
•
local real estate conditions (such as an oversupply of land or a reduction in demand for real estate in the area);
•
competition from other available property;
•
government regulations and changes in real estate, zoning, land use, environmental, or tax laws;
•
interest rate levels and the availability of financing;
•
potential liabilities under environmental and other laws;
•
change in the availability and affordability of insurance (particularly involving environmental concerns) on commercially reasonable terms, in levels of coverage necessary for our real remaining property;
•
attractiveness and location of the property; and
•
quality of maintenance, insurance, and management services.
In addition, applicable federal, state and local regulations, zoning and tax laws, and potential liability under environmental and other laws may affect real estate values. Further, we must make significant expenditures, including property taxes, maintenance costs, insurance costs, and related charges, throughout the period that we own our real property regardless of whether the property is producing any
income, or is producing enough income to cover our costs. The risks associated with real estate investments may adversely affect our operating results and financial position, and therefore, may adversely affect the amount of distributions payable to the limited partners of the Registrant. If we are not able to renew leases or enter into new leases on favorable terms, or at all, as our existing leases expire, our revenue, operating results, and cash flows will be reduced.
We may be unable to renew leases, lease vacant space, or re-lease space as leases expire, which could adversely affect our business and our ability to pay distributions to our limited partners.
If we cannot renew leases, we may be unable to re-lease our remaining property at rates equal to or above the current rate. Even if we can renew leases, tenants may be able to negotiate lower rates as a result of market conditions. Any of these factors could adversely impact our financial condition, results of operations, cash flow, and our ability to pay distributions to the limited partners.
Termination of our management arrangement could harm our business.
We are a party to a management services agreement, pursuant to which the day-to-day operations, maintenance, repair, and renting of our properties is handled by a management company. Our arrangement is long-term, but may be terminated in accordance with certain notice provisions of our management services agreement. The termination of such agreement could have a material adverse effect on the Registrant’s operations, and could result in loss of revenue or increased operating expenses.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations, and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating additional expenses including higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
The Registrant has had operating losses in the past and may continue to do so in the future which could reduce our cash flow and funds available for future distributions to the limited partners.
Our property is subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, and administrative expenses. The Registrant has had losses in the past and may continue to incur losses in future periods, and such losses may materially impact the amounts available for future distributions to the limited partners.
We are subject to environmental regulations and environmental compliance expenditures and liabilities
Our business is subject to many environmental laws and regulations with respect our remaining property. We have incurred, and expect to continue to incur, expenditures to comply with applicable environmental laws and regulations, and to continue the remediation work on our remaining property. Moreover, some or all of the environmental laws and regulations to which we are subject could become more stringent or more stringently enforced in the future. Our further evaluation of our remaining property and the discovery of currently unknown contamination may given rise to additional material remediation costs. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines and penalties or enforcement actions.
A public market does not exist for our limited partnership Units, therefore the limited partners may experience difficulty in selling their Units.
Currently there is no public market for our limited partnership Units, and none is expected to be established, so limited partners may not be able to find a buyer for their Units. In addition they may not be able to sell their Units at their desired price. Also, our Amended and Restated Certificate and Agreement of Limited Partnership, as amended, contains certain restrictions on transfers of limited partnership Units, including volume limitations, among others.
Item 2.
Item 2. Properties
As of December 31, 2006, 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 Managing General Partner believes the Registrant’s remaining property is adequately insured.
During the three years ended December 31, 2006, 2005, and 2004, the Hampton Park property rental revenues represented approximately 90%, 92%, and 95% of the Registrant’s total revenue, respectively.
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, Related Limited Partner Matters and Issuer Purchases of Equity Securities
As of March 13, 2007, there were 3,332 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 Amended and Restated Certificate and Agreement of Limited Partnership 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 2006, 2005, and 2004.
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 after payment of and reserves for all expenses and actual and contingent liabilities.
Item 6.
Item 6. Selected Financial Data
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. Total assets at December 31, 2002, 2003, 2004, 2005, and 2006 were $4,129,771, $4,214,496, $4,314,259, $4,008,453, and $3,856,944, respectively. Additionally, no distributions were made during the five years ended December 31, 2006. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 3 through 8 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 9 through 10 of the Registrant’s Annual Report which is filed as an exhibit hereto.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 3 through 8 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 1996 in accordance with generally accepted accounting principles.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
As of the end of the period covered by this report, the Managing General Partner carried out an evaluation, under the supervision and with the participation of the officers of the Managing General Partner, including the Managing General Partner’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based upon that evaluation, the Managing General Partner’s chief executive officer and chief financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
In designing and evaluating the Registrant’s disclosure controls and procedures (as defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934 (“Exchange Act”)), the Managing General Partner recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as the Registrant’s are designed to do,
and the Managing General Partner necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that the Registrant’s disclosure controls and procedures provide such reasonable assurance.
There have not been any changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.
Item 9B. Other Information
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’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. The filing requirement for Form 3 was not timely satisfied by the reporting person of PBP but has since been filed. In making these disclosures, the Registrant has relied solely on written representations of the General Partners, PBP’s directors and executive officers or on copies of the reports they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. The current directors and executive officers of PBP did not hold any securities or make any transfers during the last 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
Richard F. Welch
Chairman of the Board of Directors, President, and Chief Executive Officer
Warren S. Hoffman
Chief Financial Officer and Vice President
Bernard J. Jacob
Treasurer
Moon Bae Chung
Vice President and Director
Wayne R. Clarke
Vice President and Director
RICHARD F. WELCH, age 48, has been the Chairman of the Board of Directors, President and Chief Executive Officer of PBP since June 6, 2005. He is also a Vice President of Prudential Financial Inc. (“Prudential”) and serves in various capacities for certain other affiliated companies. Mr. Welch has been responsible for the business management of Prudential’s divested and discontinued products and lines of business since 1999. Mr. Welch joined Prudential in 1983.
WARREN S. HOFFMAN, age 51, was elected Chief Financial Officer and Vice President of PBP on June 6, 2005. He is also a Vice President of Prudential, and serves in various capacities for certain other affiliated companies. Mr. Hoffman has been responsible for the financial reporting of Prudential’s divested and discontinued products and lines of business since 2000. Mr. Hoffman joined Prudential in 1978.
WAYNE R. CLARKE, age 47, has been a Vice President of PBP since June 6, 2005. Mr. Clarke is also a Vice President of Prudential, and has managed the business support functions of its divested and discontinued products and lines of business since April 2005. From July 1998 to April 2005, Mr. Clarke held
various Finance and Operations positions with PSG. He also serves in various capacities in certain other affiliated companies. Mr. Clarke joined Prudential in 1989, and is a Certified Public Accountant.
BERNARD J. JACOB, age 51, was appointed Treasurer of PBP on August 1, 2006. He is also a Senior Vice President and Treasurer of Prudential. Mr. Jacob joined Prudential in January 2002 where he assumed responsibility for developing and coordinating strategic business planning and development activities for the Insurance Division. From March 2004 to August 2006, Mr. Jacob served as the Senior Financial Officer for Prudential’s U.S. Individual Life and Annuities business segments. Prior to joining Prudential, Mr. Jacob was Executive Vice President and Chief Financial Officer at Pro-Act Technology Corporation from June 2000 to January 2001.
MOON BAE CHUNG, age 64, was elected Vice President and Director of PBP in May 2004. He is also a Vice President of Prudential, managing its portfolio of divested and discontinued products and lines of businesses since 1999. He also serves in various capacities of certain other affiliated companies. Mr. Chung joined Prudential in 1996.
Effective as of the close of business on August 1, 2006, C. Edward Chaplin resigned from his position as Treasurer of PBP. Effective as of the close of business on August 1, 2006, Bernard J. Jacob was appointed as Treasurer of PBP.
The Managing General Partner has adopted a code of ethics, which is posted on Prudential’s website at www.investor.prudential.com. Any amendments and any waiver under this code of ethics granted to any of the Managing General Partner’s directors or executive officers will be on that website. In addition, the Managing General Partner’s chief executive officer and chief financial officer, as well as its directors and other employees are also subject to a broader code of conduct, known as Making the Right Choices, which has been adopted by the Managing General Partner’s corporate parent.
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.
The Registrant does not have an audit committee. The Managing General Partner acts on behalf of the Registrant in this capacity.
Individual General Partners
GEORGE S. WATSON, age 66, 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 30 years of experience in real estate and financial investments.
A. STARKE TAYLOR, III, age 63, 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 30 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 not material. 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 13, 2007, there were 3,332 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.
As of March 13, 2007, 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 13, 2007, no individual General Partner or director or officer of the Managing General Partner owns directly or beneficially any of the limited partnership Units issued by the Registrant, but are entitled to certain participation rights, referred to as “equivalent units”.
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 13, 2007, 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. Direct financial transactions between the Registrant and the individual General Partners or the directors or officers of the Managing General Partner during 2006 included reimbursement of expenses.
WTMI is paid a management fee for being responsible for the day-to-day operation of the property. See Note A of the financial statements for more information.
The Managing General Partner has the authority and approves all transactions, otherwise allowed by the Amended and Restated Certificate and Agreement of Limited Partnership, with related parties including reimbursements of expenses, management fees, and distributions. The Amended and Restated Certificate and Agreement of Limited Partnership, addresses the conflicts of interest and generally requires that payments to the General Partners or affiliates not exceed the lesser of the cost to the General Partners of affiliates or 90% of the amount which the Registrant would be required to pay an independent third party.
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.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees and All Other Fees
Audit Fees
Fees for audit services totalled $67,000 and $62,000 in 2006 and 2005, respectively, including fees associated with the annual audit and the reviews of the Registrant’s quarterly reports on Form 10-Q.
Tax Fees
Fees for tax services, including tax compliance, tax advice and printing and mailing of limited partners tax information totalled $36,050 and $33,000 in 2006 and 2005, respectively.
The Board of Directors of PBP, the Managing General Partner of Registrant, approved the appointment of the independent registered public accounting firm and its fees, for 2006. The independent registered public accounting firm has full access to the senior management of PBP.
We have been advised by PricewaterhouseCoopers LLP that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Registrant or its affiliates.
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.
(6) Filed as an exhibit to Registrant’s Form 10-K for the year ended December 31, 2004 and incorporated herein by reference.
(7) Filed as an exhibit to Registrant’s Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant’s Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006
See notes on the following page.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO SCHEDULE III
December 31, 2006
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, 2006 was $1,717,275.
NOTE D-RECONCILIATION SUMMARY OF TRANSACTIONS-ACCUMULATED DEPRECIATION
The Partnership ceased depreciating the property for financial reporting purposes when the property was 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/ Warren S. Hoffman
Date: April 2, 2007
Warren S. Hoffman
Chief Financial Officer and Vice President
(principal accounting and financial officer of 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: /s/ Richard F. Welch
Date: April 2, 2007
Richard F. Welch
Director of Prudential-Bache Properties, Inc.
(principal executive officer of registrant)
By: /s/ Wayne R. Clarke
Date: April 2, 2007
Wayne R. Clarke
Director of Prudential-Bache Properties, Inc.