UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark
One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2007



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 0-13518



PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2

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(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Texas                                                         |  | 75-1933081                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|751 Broad Street 2nd Floor, Newark, NJ                        |  | 07102                              
|(Address of principal executive offices)                      |  | (Zip Code)                         



Registrants
telephone number, including area code (973) 802-6000



N/A

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Former name, former address and former fiscal year, if changed since last report.



Indicate by check ü
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. ü Yes     No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                   |  |                        
|----------------------- |  | ----------------- |  | -----------------------
|Large accelerated filer |  | Accelerated filer |  | Non-accelerated filer ü



Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No
ü







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PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS

PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2

(a limited partnership)



STATEMENTS OF NET ASSETS

(in process of liquidation)

(Unaudited)



|                                                                                                  |  |                |           |                   |   |          
|------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                                                                  |  | March 31, 2007 |           | December 31, 2006
|ASSETS                                                                                            |  |                |           |                   |   |          
|Property held for sale                                                                            |  | $              | 2,277,477 |                   | $ | 2,277,477
|Cash and cash equivalents ($60,000 provided as collateral atMarch 31, 2007 and December 31, 2006) |  |                | 1,090,762 |                   |   | 1,214,106
|Other assets                                                                                      |  |                | 362,457   |                   |   | 365,361  
|                                                                                                  |  |                |           |                   |   |          
|Total assets                                                                                      |  |                | 3,730,696 |                   |   | 3,856,944
|                                                                                                  |  |                |           |                   |   |          
|LIABILITIES                                                                                       |  |                |           |                   |   |          
|Estimated liquidation costs                                                                       |  |                | 641,620   |                   |   | 629,630  
|Estimated remediation costs                                                                       |  |                | 179,447   |                   |   | 191,560  
|Security deposits                                                                                 |  |                | 55,749    |                   |   | 52,543   
|Deferred revenue                                                                                  |  |                | 10,607    |                   |   | 12,611   
|Accounts payable                                                                                  |  |                | 5,887     |                   |   | 97,727   
|                                                                                                  |  |                |           |                   |   |          
|Total liabilities                                                                                 |  |                | 893,310   |                   |   | 984,071  
|                                                                                                  |  |                |           |                   |   |          
|COMMITMENTS AND CONTINGENCIES                                                                     |  |                |           |                   |   |          
|Net assets available to limited and general partners                                              |  | $              | 2,837,386 |                   | $ | 2,872,873
|                                                                                                  |  |                |           |                   |   |          
|Limited and equivalent partnership units issued and outstanding                                   |  |                | 51,818    |                   |   | 51,818   
|                                                                                                  |  |                |           |                   |   |          
|Net asset value per limited and equivalent units                                                  |  | $              | 55.03     |                   | $ | 55.72    
|                                                                                                  |  |                |           |                   |   |          



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STATEMENT OF CHANGES IN NET ASSETS

(in process of liquidation)

(Unaudited)



|                                     |  |                  |           |   |                  |   |       |  |   |           |  
|------------------------------------ |  | ---------------- | --------- | - | ---------------- | - | ----- |  | - | --------- | -
|                                     |  | LIMITED PARTNERS |           |   | GENERAL PARTNERS |   | TOTAL | 
|Net assetsDecember 31, 2006         |  | $                | 2,872,873 |   |                  | $ |      |  | $ | 2,872,873 |  
|Net loss from liquidating activities |  |                  | (35,487   | ) |                  |   |      |  |   | (35,487   | )
|                                     |  |                  |           |   |                  |   |       |  |   |           |  
|Net assetsMarch 31, 2007            |  | $                | 2,837,386 |   |                  | $ |      |  | $ | 2,837,386 |  
|                                     |  |                  |           |   |                  |   |       |  |   |           |  



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The accompanying notes are an integral part of these statements.



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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2

(a limited partnership)



NOTES TO FINANCIAL STATEMENTS

March
31, 2007

(Unaudited)



A. General



These financial statements have been prepared without audit. In the opinion of Prudential-Bache Properties, Inc. (the Managing General Partner
or PBP), the statements of net assets as of March 31, 2007 and December 31, 2006 contain all adjustments necessary to state fairly such information in accordance with the liquidation basis of accounting. Prudential-Bache/Watson &
Taylor, Ltd.-2 (the Partnership) first adopted the liquidation basis of accounting as of October 1, 1996. Accordingly, the net assets of the Partnership are stated at liquidation value, i.e., the assets have been valued at their
estimated fair values, net of selling expenses, and the liabilities include estimated amounts to be incurred through the date of liquidation of the Partnership, which is in conformity with accounting principles generally accepted in the United
States. Due to the nature of the Hampton Park environmental issue (see further discussion below), the date of liquidation is uncertain; however, the Partnership has utilized a December 31, 2007 date for purposes of estimating costs through the
conclusion of liquidation reflecting the Managing General Partners best estimate. The actual remaining net proceeds from liquidation will depend upon a variety of factors and are likely to differ from the estimated amounts reflected in the
accompanying financial statements.



Certain information and
footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. It is suggested that these financial statements be read in conjunction
with the audited financial statements and notes thereto included in the Partnerships Annual Report on Form 10-K/A filed with the Securities and Exchange Commission for the year ended December 31, 2006.



The general partners of the Partnership are PBP, George S. Watson and
A. Starke Taylor, III (collectively, the General Partners).



B. Partnership Liquidation



In accordance with
a consent statement dated September 17, 1996, the limited partners approved, during October 1996, the proposed sale of all eight mini-warehouse facilities owned by the Partnership to Public Storage, Inc. (Public) and the liquidation and
dissolution of the Partnership.



Seven of the eight properties
were sold to Public during December 1996. The Partnership 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
MACTEC Engineering and Consulting, Inc. (MACTEC) identified detectable levels of tetrachloroethene (PCE) in the soil and ground water samples collected at the site. MACTEC, at the Partnerships request, reported the PCE
release to the Maryland Department of the Environment (MDE).



On November 21, 2000, MDE reached a determination that it was appropriate to undertake an active remedial measure at the site. MACTEC, at the request of the Partnership, submitted an application to enter the site into
MDEs Voluntary Cleanup Program (VCP) during March 2001. During a meeting on May 16, 2001 between the Partnership, MACTEC and MDE, to discuss MDEs comments on the Partnerships application, it was determined that the
Partnership would perform a non-invasive Phase I Environmental Site Assessment Update (Phase I Activities) and would subsequently, upon review and agreement with MDE, move to perform certain Phase II invasive sampling and analytical
procedures (Phase II Activities) with the anticipation of entering the site into the VCP. During the first quarter of 2002, MDE notified the Partnership that Phase I



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Activities were satisfactorily completed. Additionally, MACTEC completed the fieldwork for Phase II Activities (under a work plan that MDE reviewed) during
2002. The procedures and findings were documented in a Phase II Site Characterization and Risk Assessment Report (the Report) that was sent to MDE on February 13, 2003. During April 2003, MDE requested supplemental soil-gas sampling
procedures be performed. These procedures were performed and reported to MDE during September 2003. MDE issued a response letter, dated October 24, 2003, in which it formally accepted the site into the VCP and informed the Partnership that some form
of remedial action is required to address elevated levels of PCE in soil and ground water. The MDE approved the plan for remedial action (the Plan) on November 24, 2004. In December 2004, an agreement was entered into with ATC Associates
Inc. (ATC), pursuant to which ATC will provide certain environmental services to perform the environmental cleanup as described in the Plan. During the first quarter of 2005, ATC began providing environmental services pursuant to the
Plan. During the second and third quarters of 2006, ATC filed an addendum to the Plan with the MDE, which was approved on May 4, 2007. The purpose of this RAP addendum is to provide alternative mechanisms to mitigate the potential risk at the site
so that if site conditions change there are approved options in place. The remediation continues according to the Plan and this addendum. The Statement of Net Assets in process of liquidation reflects an accrued liability of $179,447 and $191,560,
as of March 31, 2007 and December 31, 2006, respectively, which represents the Partnerships best estimate of the obligation regarding the environmental issues mentioned above; however, it is reasonably possible that the loss exposure will
be in excess of the amount accrued and may be material to the Partnership.



In 2005, the General Partners reported that the Partnership had placed its sole remaining property, Hampton Park, located in Capitol Heights, Maryland, on the market for sale. A purchase and sale agreement was entered
into and 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 Partnership from December 31, 2006 to December 31, 2007.



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. On February 14, 2007 this agreement was further extended through June 30, 2007. The Partnership has sought and will continue to seek to obtain from any buyer as complete an
indemnification as possible for any liability in connection with remediation of the contamination of the property. The General Partners plan to liquidate the Partnership once the remaining property is sold and to distribute any remaining funds after
payment of, and establishment of reserves for all remaining or contingent expenses and liabilities.



On March 27, 2007, the Partnership 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 Partnerships Hampton Park property.



The Sale Agreement provides that the Purchasers would pay approximately $3,500,000 to the Partnership.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 had 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 to carry out the environmental work specified in the Plan through and including the
issuance of a VCP Certificate of Completion and any other applicable governmental closure documents (the Environmental Services Agreement). The Partnership shall be a third party beneficiary of the Environmental Services Agreement and,
despite having a contractual right of indemnity from 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 Partnership 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 purchase price will be reduced by the amount owed under the Environmental
Service Agreement, up to a maximum of $75,000. The



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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 General Partners plan to liquidate the Partnership once the remaining property is sold. While the Purchaser has agreed to indemnify the Partnership
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
Partnership. The amounts were included in the financial statements of the Partnership as of December 31, 2006.



The Partnership adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48), as required, on January 1, 2007. FIN 48 requires the General Partner to determine whether a tax position of the Partnership is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement which could result in the Partnership recording a tax liability that would reduce partners capital. FIN 48 must be applied to all existing tax positions upon initial
adoption and the cumulative effect, if any, is to be reported as an adjustment to partners capital as of January 1, 2007. Based on its analysis, the General Partner has determined that the adoption of FIN 48 did not have a material impact
to the Partnerships financial statements upon adoption. However, the General Partners conclusions regarding FIN 48 may be subject to review and adjustment at a later date based on factors including, but not limited to, further
implementation guidance expected from the FASB, and on-going analyses of tax laws, regulations and interpretations thereof.



In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reporting periods beginning after November 15, 2007. The adoption of
SFAS 157 did not have a material impact on the Partnerships financial statements.



Net assets in liquidation decreased $35,487 during the three months ended March 31, 2007. The decrease was mainly due to an operating profit at the property level of $38,352 and interest income of $12,115, offset by
liquidating cost of $85,954.



During the quarter ended March
31, 2007, an additional $60,197 of capital improvements that had been previously approved was expended at the Hampton Park property. This was reflected as an addition to the value of the property held for sale as of December 31, 2006. The Managing
General Partner anticipates that these capital improvements will result in reduced operating expenses and higher rent revenues.



C. Related Parties



PBP and its affiliates perform services for the Partnership which include, but are not limited to the following: accounting and financial management,
transfer and assignment functions, asset management, investor



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communications, printing and other administrative services. PBP and its affiliates receive reimbursements for costs incurred in connection with these
services, the type of which is limited by the provisions of the Partnership Agreement. PBP is a wholly owned subsidiary of Prudential Securities Group, Inc. (PSG).



Affiliates of Messrs. Watson and Taylor, the individual General Partners, also perform certain administrative and monitoring
functions on behalf of the Partnership for which they receive cost reimbursement.



Additionally, Watson & Taylor Management, Inc. (WTMI), an affiliate of the individual General Partners and the Partnerships property manager, receives 4.5% of the propertys gross revenues
(as defined in the management agreement) as a management fee. Such management fees totalled $6,674 and $11,035 for the three months ended March 31, 2007 and 2006, respectively.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of March 31, 2007
and December 31, 2006 for the estimated costs expected to be incurred to liquidate the Partnership. Included in these estimated liquidation costs is $65,412 and $83,675 as of March 31, 2007 and December 31, 2006, 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 March 31, 2007 and such differences could be material.



PBP and the two individual General Partners of the Partnership own 258, 130 and 130 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 258 units owned by PBP are not part of
the 51,560 limited and equivalent units which receive distributions and allocations of the Partnerships profits and losses.



PSG, an affiliate of PBP, owns 180 limited partnership units at March 31, 2007, for which no such waivers on profit participation are in effect.



D. Commitments and Contingencies



On January 7, 2006, the Partnership extended through January 7, 2007 an
irrevocable standby letter of credit established originally on January 18, 2005 in the amount of $60,000. The letter of credit was issued to satisfy security requirements from the MDE regarding the Hampton Park property. The letter of credit has
been further extended on January 7, 2007 through February 7, 2008.



E.
Subsequent Events



On April 4, 2007, the Partnership
reimbursed to WTMI the $60,197 of capital improvements that were expended as of March 31, 2007. Please see Note B of the financial statements for more information.



On April 25, 2007, the due diligence period for the Sale Agreement expired. The Purchasers now have until the closing
deadline, May 25, 2007, to close on the Sale Agreement. Although the due diligence period has passed, the Purchasers shall have the right to cancel the Sale Agreement if (i) the Purchasers object in writing to any title matters that are not
Permitted Exceptions and that adversely affect the Purchasers title to the property if such matters appear on a title report issued after the expiration of the due diligence period and the Seller does not remedy such objection, (ii) the Seller
is in breach of its performance obligations or representations and warranties under the Sale Agreement, (iii) there is a change in Laws arising after the expiration of the due diligence period (New Laws) that results in the use,
ownership or operation of the Property failing to comply with any such New Laws, which would require the expenditure of in excess of $25,000 to remedy and Seller does not cause the Property to be in material compliance with such New Laws prior to
the Closing Deadline (plus up to an additional 120 days), (iv) the Property is the subject of a condemnation with a value in excess of $350,000,



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(v) the Property is the subject of an uninsured casualty that Seller does not repair, (vi) the Property is the subject of a casualty that would cost in
excess of $350,000 to repair, or (vii) Seller enters into a New Lease (except for a self storage facility with a term not exceeding 1 year at a market rental rate), amendment or termination of an existing Lease or assignment or sublease of an
existing Lease without the Purchasers consent. In the event of a Purchaser defaults, the Seller can either waive the default or keep the $150,000 deposit. 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 amount of net proceeds that will be available for distribution.



On May 11, 2007, the Partnership amended the management agreement, previously entered into with WTMI to adjust the
management fee payable to WTMI for the period of time January 1, 2005 through March 31, 2007 from 4.5% to 6.0% (the Amended Management Agreement). The management agreement was amended to compensate WTMI for its services in connection
with the accelerated capital improvement program. In addition the Amended Management Agreement also clarifies that management services that remain necessary after the closing of the sale of the Property will be provided by WTMI for up to sixty days
at set hourly rates of $100-$150, subject to the applicable terms of the Amended and Restated Certificate and Partnership Agreement of the Partnership.



The foregoing description of the Amended Management Agreement is qualified in its entirety by reference to the Amended Management Agreement, a copy of
which is attached to this 10-Q as Exhibit 10.10.



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PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2

(a limited partnership)



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



Critical Accounting Policies



Preparation of
the financial statements and related disclosures in compliance with generally accepted accounting principles requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Partnerships
application of these policies involves judgments which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the assumptions or judgments applied in determining the following matters, among
others, could have a material impact on future financial results. As such, actual results may differ from the estimates used by management.



Date of Liquidation



In light of the termination of the Purchase and Sale Agreement in 2005 and other information, the Managing General Partner has changed its estimated
liquidation date of the Partnership from December 31, 2006 to December 31, 2007, reflecting the Managing General Partners best estimate. Due to the nature of the environmental issue, the date of liquidation is uncertain and a change to that
assumption date could materially impact the financial statements and disclosures.



Assumption Regarding the Property Held for Sale



It is uncertain at this time what the Partnership will ultimately realize from the sale of the Hampton Park property due to the propertys environmental issue (see discussion below). Additionally, there is
uncertainty regarding the ultimate costs of environmental remediation at the Hampton Park property and significant changes to PBPs assumptions could materially impact the financial statements and disclosures.



Liquidity and Capital Resources



In accordance with a consent statement dated September 17, 1996, the limited
partners approved, during October 1996, the proposed sale of all eight mini-warehouse facilities owned by the Partnership to Public Storage, Inc. (Public) and the liquidation and dissolution of the Partnership.



Seven of the eight properties were sold to Public during December 1996. The
Partnership 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. 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 B of the financial statements.



In 2005, the General Partners reported that the Partnership had placed its sole remaining property, Hampton Park, located in Capitol Heights, Maryland, on
the market for sale. A purchase and sale agreement was entered into and 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 Partnership from December 31, 2006 to December 31, 2007.



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. On February 14, 2007 this agreement was further extended through June 30, 2007. The Partnership has sought and will continue to seek to obtain from any
buyer as complete an indemnification as possible for any



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liability in connection with remediation of the contamination of the property. The General Partners plan to liquidate the Partnership once the remaining
property is sold and to distribute any remaining funds after payment of all expenses and liabilities.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of March 31, 2007 for the estimated costs expected to
be incurred to liquidate the Partnership. Due to the nature of the Hampton Park environmental issue, the date of liquidation is uncertain. However, as mentioned above, the Partnership has utilized a December 31, 2007 date for purposes of estimating
costs through the conclusion of liquidation reflecting the Managing General Partners best estimate. 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 the subsequent payment of, and establishment of reserves for, any remaining or contingent expenses and liabilities, and may differ from the amounts accrued as of March 31, 2007.



On March 27, 2007, the Partnership 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 Partnerships Hampton Park property. Please see Note B of the financial
statements for further information.



Net assets in liquidation
decreased $35,487 during the three months ended March 31, 2007. The decrease was mainly due to an operating profit at the property level of $38,352 and interest income of $12,115, offset by liquidating cost of $85,954.



As of March 31, 2007, the Partnership has cash and cash equivalents of
$1,090,762, which is sufficient to meet the working capital requirements of the Partnership for the foreseeable future. The future liquidation and dissolution of the Partnership will result from the sale of the Hampton Park property and any other
Partnership assets and the distribution to the limited partners, after payment of, and reserves for, all expenses and liabilities, of the net sales proceeds and remaining cash.



Off-Balance Sheet Arrangements and Contractual Obligations



As of March 31, 2007, the Partnership had not utilized special purpose entities to facilitate off-balance sheet financing
arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind other than a standby letter of credit as further discussed in Note D and those that are not likely to have a material current or future effect on the
Partnerships financial position.



The Partnerships
contractual obligations are primarily with service providers such as PBP, ATC, WTMI, and a registered public accounting firm. A summary of the Partnerships significant contractual obligations as of March 31, 2007 is as follows:



|                        |  |                 |         |           |   |           |  |                  |   |  |   |  
|----------------------- |  | --------------- | ------- | --------- | - | --------- |  | ---------------- | - |  | - | -
|Contractual Obligations
|Payments due by period 
|Total                   |  | Less than1 year |         | 1-3 years |   | 3-5 years |  | More than5 years
|$484,246                |  | $               | 346,532 |           | $ | 137,714   |  | $                |  |  | $ | 
|                        |  |                 |         |           |   |           |  |                  |   |  |   |  



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, it is not reporting results of operations thereafter, and therefore there is no management discussion comparing the results of operations.



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|ITEM  3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



None.



|ITEM  4. | 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 Partnerships disclosure
controls and procedures. Based upon that evaluation, the Managing General Partners chief executive officer and chief financial officer concluded that the Partnerships disclosure controls and procedures are effective.



In designing and evaluating the Partnerships disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) 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 Partnership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 Partnership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 quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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PART II. OTHER INFORMATION



Item 1. Legal ProceedingsNone



Item 1A. Risk FactorsThere have been no material changes relating to the risk factors that were previously provided in the Companys Form 10-K/A for the period
ended December 31, 2006.



Item 2. Unregistered Sales of Equity Securities and
Use of ProceedsNone



Item 3. Defaults Upon Senior SecuritiesNone



Item 4. Submission of Matters to a Vote of Security HoldersNone



Item 5. Other InformationNone



Item 6. Exhibits



| | 10.10 | Amended and Restated Management Agreement, dated May 11, 2007, by and between the Registrant and Watson & Taylor Management, Inc., a Texas Corporation. (filed herewith)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
| | ---- | -------------------------------------------------------------------------------



| | 31.2 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
| | ---- | -------------------------------------------------------------------------------



| | 32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



Pursuant to the requirements 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 corporationManaging General
Partner |  |                   
|                                         |  |                                                                                
|                                         |  | By: /s/ Warren S. Hoffman                                                       |  | Date: May 15, 2007
|                                         |  | Warren S. Hoffman Chief Financial Officer
and Vice President                    |  |                   



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