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 June 30, 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
     ü No



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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)



|                                                                                                                      |  |               |           |                   |   |          
|--------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ----------------- | - | ---------
|                                                                                                                      |  | June 30, 2007 |           | December 31, 2006
|ASSETS                                                                                                                |  |               |           |                   |   |          
|Cash and cash equivalents ($0 and $60,000 provided as collateral atJune 30, 2007 and December 31, 2006, respectively) |  | $             | 4,097,637 |                   | $ | 1,214,106
|Other assets                                                                                                          |  |               | 53,395    |                   |   | 365,361  
|Property held for sale                                                                                                |  |               |          |                   |   | 2,277,477
|                                                                                                                      |  |               |           |                   |   |          
|Total assets                                                                                                          |  |               | 4,151,032 |                   |   | 3,856,944
|                                                                                                                      |  |               |           |                   |   |          
|LIABILITIES                                                                                                           |  |               |           |                   |   |          
|Estimated liquidation costs                                                                                           |  |               | 290,138   |                   |   | 629,630  
|Estimated remediation costs                                                                                           |  |               |          |                   |   | 191,560  
|Security deposits                                                                                                     |  |               |          |                   |   | 52,543   
|Deferred revenue                                                                                                      |  |               |          |                   |   | 12,611   
|Accounts payable                                                                                                      |  |               |          |                   |   | 97,727   
|                                                                                                                      |  |               |           |                   |   |          
|Total liabilities                                                                                                     |  |               | 290,138   |                   |   | 984,071  
|                                                                                                                      |  |               |           |                   |   |          
|COMMITMENTS AND CONTINGENCIES                                                                                         |  |               |           |                   |   |          
|Net assets available to limited and general partners                                                                  |  | $             | 3,860,894 |                   | $ | 2,872,873
|                                                                                                                      |  |               |           |                   |   |          
|Limited and equivalent partnership units issued and outstanding                                                       |  |               | 51,818    |                   |   | 51,818   
|                                                                                                                      |  |               |           |                   |   |          
|Net asset value per limited and equivalent units                                                                      |  | $             | 74.88     |                   | $ | 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 income from liquidating activities |  |                  | 988,021   |                  |   |      |  |   | 988,021  
|                                       |  |                  |           |                  |   |       |  |   |          
|Net assetsJune 30, 2007               |  | $                | 3,860,894 |                  | $ |      |  | $ | 3,860,894
|                                       |  |                  |           |                  |   |       |  |   |          



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The accompanying notes are an integral part of these statements.



2



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

(a limited partnership)



NOTES TO FINANCIAL STATEMENTS

June
30, 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 June 30, 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 eighth property, the Hampton Park property located in Capital Heights, Maryland, 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).



In November 2000, the MDE determined that it was appropriate to undertake an active remedial measure at the site. In March 2001, an application was submitted to enter this site into the MDEs Voluntary Cleanup Program
(VCP). The Partnership agreed to perform certain non-invasive Phase I activities and Phase II invasive activities with the anticipation of entering the site into the VCP. After MACTEC completed additional testing and procedures during
the period 2002-2003, the MDE formally accepted the site into the VCP. The MDE approved the plan for remedial action in November 2004. In December 2004, ATC Associates Inc. (ATC) entered into an agreement with the Partnership to perform
environmental cleanup services. In 2005, the Partnership placed the remaining property on the market for sale.



3



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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 for the purchase of the Partnerships Hampton Park Property, a mini-storage and office/warehouse facility located in Capital Heights, Maryland. Meyers, Kyle
and Korth assigned their rights under the Sale Agreement to 9244 East Hampton LLC, a Maryland limited liability company (the Purchaser).



On May 24, 2007, the Partnership completed the sale of the Hampton Park Property with the Purchaser for approximately $3,200,000, in accordance with
the terms of the Sale Agreement.



At closing, the Purchaser
entered into a services agreement with ATC Associates Inc. (ATC) to carry out the environmental work specified in the plan for remediation action (the Plan) through and including the issuance of the Maryland Department of the
Environments (MDE) Voluntary Cleanup Program (VCP) Certificate of Completion and any other applicable governmental closure documents (the Environmental Services Agreement). The Partnership is a third party
beneficiary of the Environmental Services Agreement and, despite having a contractual right of indemnity from the Purchaser, has the right to assume control of any and all remaining portions of the environmental work, in the event that the Purchaser
defaults on their obligation to perform environmental investigations, remediation, and other legally required work. Under Maryland law, despite the indemnification from the Purchaser, the Partnership remains liable for some or all of the
environmental issues. The Partnership has obtained an environmental insurance policy regarding the property and has added the Purchaser as an additional insured under the policy.



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. The Partnership will be unable to provide the total initial distribution amount per unit until the Partnership has completed a final audit of its books and records and makes
reasonable provision for all remaining outstanding and potential claims and contingencies. At this time the Partnership anticipates that it may establish a reserve, which it presently expects to be in the form of a liquidating trust, to address
these contingent liabilities and potential claims. It is anticipated that this reserve will be needed for approximately three years. The reserve will be an estimate and will be subject to a number of assumptions. In the event the assumptions change,
the reserve amount could change materially. Depending on the outcome of such potential claims and contingencies, there may be another distribution in the future, but there is no assurance that this will occur. All distributions will be determined in
accordance with the Partnership Agreement.



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 Managing 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 Managing 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 Managing
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.





4



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Net assets in liquidation increased $988,021 during the six months ended June 30, 2007. The increase was
mainly due to an operating profit at the property level of $52,994, interest income of $37,670, reduction of remediation expense of $113,993, and gain on sale of property of $862,139, partially offset by liquidating costs of $78,775.



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 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.



On May 11, 2007, the Partnership amended the management agreement, previously entered into with Watson & Taylor Management, Inc. (WTMI), an affiliate of the individual General Partners and
the Partnerships property manager 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,
which originally paid WTMI 4.5% of the propertys gross revenues, was amended to compensate WTMI for its services in connection with the accelerated capital improvement program. In addition the Amended Management Agreement clarified that
management services that remained necessary after the closing of the sale of the Property were to be provided by WTMI for up to sixty days at set hourly rates of $100-$150, subject to the applicable provisions of the Partnership Agreement. Such
management fees totaled $15,331 and $17,320 for the six months ended June 30, 2007 and 2006, respectively, and $8,657 and $6,285 for the three months ended June 30, 2007 and 2006, respectively.



On May 24, 2007, in connection with the sale of the Hampton Park property,
the Partnership and WTMI terminated the property management agreement obligations of WTMI. A copy of that termination agreement is attached hereto as Exhibit 10.11.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of June 30, 2007
and December 31, 2006 for the estimated costs expected to be incurred to liquidate the Partnership. Included in these estimated liquidation costs is $52,045 and $83,675 as of June 30, 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 June 30, 2007 and such differences could be material.



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.



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 June 30, 2007, for which no such waivers on profit participation are in effect.



5



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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 was further extended on January 7, 2007 through February 7, 2008.
However, due to the sale of the property and after approval by the MDE, the letter of credit was cancelled on June 8, 2007.



The Partnerships cash and cash equivalents consists of cash deposits maintained in a money market account in one major international financial
institution, which is in excess of the federal insurance limit.



E.
Subsequent Events



None.



6



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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 the Managing General Partner.



Date of Liquidation



In light of the sale of the remaining Partnership property, Hampton Park, the Managing General Partner continues to estimate the liquidation date of the
Partnership to be December 31, 2007, reflecting the Managing General Partners best estimate. 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. The Partnership will be unable to provide the total initial distribution amount per unit until the Partnership has completed a final audit of its books and records and makes reasonable provision for all
remaining outstanding and potential claims and contingencies. At this time the Partnership anticipates that it may establish a reserve, which it presently expects to be in the form of a liquidating trust, to address these contingent liabilities and
potential claims. It is anticipated that this reserve will be needed for approximately three years. The reserve will be an estimate and will be subject to a number of assumptions. In the event the assumptions change, the reserve amount could change
materially. Depending on the outcome of such potential claims and contingencies, there may be another distribution in the future but there is no assurance that this will occur. All distributions will be determined in accordance with the Partnership
Agreement.



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
eighth property, the Hampton Park property located in Capital Heights, Maryland, 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). For further information, see Note B of the financial statements.



In November 2000, the MDE determined that it was appropriate to undertake an active remedial measure at the site. In March 2001, an application was submitted to enter this site into the MDEs Voluntary Cleanup
Program (VCP). The Partnership agreed to perform certain non-invasive Phase I activities and Phase II invasive activities with the anticipation of entering the site into the VCP. After MACTEC completed additional testing and procedures
during the period 2002-2003, the MDE formally accepted the site into the VCP. The MDE approved the plan for remedial action in November 2004. In December 2004, ATC Associates Inc. (ATC) entered into an agreement with the Partnership to
perform environmental cleanup services. In 2005, the Partnership placed the remaining property on the market for sale.



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 for the purchase of the Partnerships



7



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Hampton Park Property, a mini-storage and office/warehouse facility located in Capital Heights, Maryland. Meyers, Kyle and Korth assigned their rights under
the Sale Agreement to 9244 East Hampton LLC, a Maryland limited liability company (the Purchaser). Please see Note B of the financial statements for further information.



On May 24, 2007, the Partnership completed the sale of the Hampton Park Property with the Purchaser for approximately
$3,200,000, in accordance with the terms of the Sale Agreement.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of June 30, 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 June 30, 2007.



Net assets in liquidation increased $988,021 during the six months ended June 30, 2007. The increase was mainly due to an operating profit at the
property level of $52,994 and interest income of $37,670, reduction of remediation expense of $113,993, and gain on sale of property of $862,139, partially offset by liquidating costs of $78,775.



As of June 30, 2007, the Partnership had cash and cash equivalents of
$4,097,637, which is sufficient to meet the working capital requirements of the Partnership for the foreseeable future.



Off-Balance Sheet Arrangements and Contractual Obligations



As of June 30, 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 of the financial statements 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, WTMI, and a registered public accounting firm. A summary of the Partnerships significant contractual obligations as of June 30, 2007 is as follows:



|                        |  |                 |         |           |   |           |  |                  |   |  |   |  
|----------------------- |  | --------------- | ------- | --------- | - | --------- |  | ---------------- | - |  | - | -
|Contractual Obligations
|Payments due by period 
|Total                   |  | Less than1 year |         | 1-3 years |   | 3-5 years |  | More than5 years
|$186,526                |  | $               | 186,526 |           | $ |          |  | $                |  |  | $ | 
|                        |  |                 |         |           |   |           |  |                  |   |  |   |  



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.



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



None.



8



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|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.



9



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PART II. OTHER INFORMATION



Item 1. Legal ProceedingsNone



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.



While the one remaining property within the Partnership has been sold, the liquidation date may be impacted by certain terms of the sale
agreement. The Partnership indemnifies the purchaser of the last property sold for certain claims for 120 days after the date of closing. If the Purchaser of the last property sold submits a claim, this could impact the Partnerships ability to
liquidate the Partnership by the current estimated date.



Liquidation costs
may exceed those currently recorded in the financial results of the Partnership.



The costs included in the December 31, 2006 audited financial report were the best estimates available at that time and have been updated based on current expectations. If the purchaser of the last property sold defaults on their
assumption of the remediation plan or for any other reason the liquidation timeline exceeds December 31, 2007, the costs related to administration, legal fees, and costs and other expenses may exceed current estimates.



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.



Potential losses in future periods may materially impact future distributions.



The Partnership 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. While the last remaining property has been sold, the terms of the sale contract provide the Purchaser of the last property sold with a specified timeframe to file indemnification
claims. The potential exists for these to be costly and directly impact any future distributions to the limited partners.



There are significant restrictions on the transfer of our limited partnership Units and, if a liquidating trust is established, those Units will no longer be
transferable at all.



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. In addition, if a liquidating trust is established and the Partnership is
terminated, the Units will no longer be transferable. If a liquidating trust is established, any beneficial interests that would be issued to the former limited partners, would not be transferable.



10



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If the Purchaser of the Hampton Park property defaults on its remedial obligations, the Partnerships ability to
terminate may be further delayed.



The Purchaser of the last property sold
entered into a service agreement with ATC Associates to continue the approved remediation action plan to clean-up the property. The Partnership is a third party beneficiary of the agreement but under Maryland law, despite the indemnification from
the Purchaser of the last property sold, the Partnership may be liable for some or all of the environmental issues. This could lead to additional costs and further delay the Partnerships ability to terminate the Partnership and distribute any
funds to the limited partners.



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



| | 10.11 | Termination of Property Management Agreement, dated May 24, 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(a) and 15d-14(a) (filed herewith)
| | ---- | -------------------------------------------------------------------------------------



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



11



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SIGNATURE



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: August 14, 2007
|                                         |  | Warren S. Hoffman Chief Financial Officer
and Vice President                    |  |                      



12