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 September 30, 2005



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 (State or
other jurisdiction of incorporation or organization)  751 Broad Street, Second Floor, Newark, NJ (Address of principal executive offices) |  | 75-1933081 (I.R.S. Employer Identification No.)  07102 (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.  Yes  ü  No



Indicate by check ü whether the Registrant
is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  No ü



Indicate by check ü 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)



|                                                                                                                           |  |                    |           |                   |   |          
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | - | ---------
|                                                                                                                           |  | September 30, 2005 |           | December 31, 2004
|ASSETS                                                                                                                     |  |                    |           |                   |   |          
|Property held for sale                                                                                                     |  | $                  | 2,018,521 |                   | $ | 2,018,521
|Cash and cash equivalents ($60,000 and $0 provided as collateral atSeptember 30, 2005 and December 31, 2004, respectively) |  |                    | 1,859,727 |                   |   | 1,946,498
|Other assets                                                                                                               |  |                    | 258,917   |                   |   | 271,852  
|                                                                                                                           |  |                    |           |                   |   |          
|Total assets                                                                                                               |  |                    | 4,137,165 |                   |   | 4,236,871
|                                                                                                                           |  |                    |           |                   |   |          
|LIABILITIES                                                                                                                |  |                    |           |                   |   |          
|Estimated liquidation costs                                                                                                |  |                    | 517,542   |                   |   | 465,308  
|Estimated remediation costs                                                                                                |  |                    | 338,247   |                   |   | 500,000  
|                                                                                                                           |  |                    |           |                   |   |          
|Total liabilities                                                                                                          |  |                    | 855,789   |                   |   | 965,308  
|                                                                                                                           |  |                    |           |                   |   |          
|COMMITMENTS AND CONTINGENCIES                                                                                              |  |                    |          |                   |   |         
|Net assets available to limited and general partners                                                                       |  | $                  | 3,281,376 |                   | $ | 3,271,563
|                                                                                                                           |  |                    |           |                   |   |          
|Limited and equivalent partnership units issued and outstanding                                                            |  |                    | 51,818    |                   |   | 51,818   
|                                                                                                                           |  |                    |           |                   |   |          
|Net asset value per limited and equivalent participating units                                                             |  | $                  | 63.64     |                   | $ | 63.45    
|                                                                                                                           |  |                    |           |                   |   |          



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STATEMENT OF CHANGES IN NET ASSETS

(in process of liquidation)

(Unaudited)



|                                       |  |                  |           |                  |   |       |  |   |          
|-------------------------------------- |  | ---------------- | --------- | ---------------- | - | ----- |  | - | ---------
|                                       |  | LIMITED PARTNERS |           | GENERAL PARTNERS |   | TOTAL
|Net assetsDecember 31, 2004           |  | $                | 3,271,563 |                  | $ |      |  | $ | 3,271,563
|Net income from liquidating activities |  |                  | 9,813     |                  |   |      |  |   | 9,813    
|                                       |  |                  |           |                  |   |       |  |   |          
|Net assetsSeptember 30, 2005          |  | $                | 3,281,376 |                  | $ |      |  | $ | 3,281,376
|                                       |  |                  |           |                  |   |       |  |   |          



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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

September 30, 2005

(Unaudited)



A. General



These financial statements have been prepared without audit. In the opinion of Prudential-Bache Properties, Inc. (Managing General Partner)
(PBP), the statements of net assets as of September 30, 2005 and December 31, 2004 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 hypothetical December 31, 2005 date for purposes of estimating costs
through the conclusion of liquidation. 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 filed with the Securities and Exchange Commission for the year ended December 31, 2004.



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 miniwarehouse 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



3



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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. As of September 30, 2005 and December 31, 2004 the Statement of Net Assets reflects an accrued liability of approximately $338,000 and $500,000, 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.



The General Partners engaged an unrelated third party real estate broker CB Richard Ellis, Inc. on April 7, 2005, to market
the property on an exclusive basis for a six month period. The Partnership 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.
On August 5, 2005, the Partnership reported on Form 8-K that it has concluded its bid process for its sole remaining property, Hampton Park, accepted a bid to sell the property and is commencing the negotiation of definitive documentation (See Note
F).



Net assets in liquidation increased $10,000 during the
nine months ended September 30, 2005 but decreased $29,000 during the three months ended September 30, 2005. The increase resulted from income from operations at the Hampton Park property, and to a lesser extent, interest income, offset, in part, by
additional estimated liquidation cost accruals of $187,000 primarily for professional fees recorded during the nine months ended September 30, 2005. The decrease during the third quarter resulted from an additional accrual for professional fees of
$89,000 included in the accrual discussed above, partially offset by income from operations at the Hampton Park property.



C. Accounting Policies



Gains/Losses Regarding Property Held for Sale



Gains and losses on the sale of investment property are recognized when title, risks and rewards related to the property passes to the buyer and there are
no significant unresolved contingencies. Gains and losses are determined by the difference between the net sales proceeds and the carrying value of the property. The property held for sale carrying value is based on its estimated fair value and are
likely to differ from the actual net proceeds from any sale.



D. 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, certain printing and other administrative services. PBP and its
affiliates receive reimbursements for costs incurred in connection with these services, the amount 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.



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Additionally, Watson & Taylor Management, Inc., 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 $20,000 and $19,000 for the nine months ended September 30, 2005
and 2004, respectively and totalled $7,000 for the three months ended September 30, 2005 and 2004, respectively.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of September 30, 2005 and December 31, 2004 for
the estimated costs expected to be incurred to liquidate the Partnership. Included in these estimated liquidation costs are $105,000 and $139,000 as of September 30, 2005 and December 31, 2004, respectively, expected to be payable to the
General Partners and their affiliates for reimbursement of certain general and administrative costs as previously discussed 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 September 30, 2005 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 and also not included in determining
the net asset value per limited and equivalent participating units.



PSG, an affiliate of PBP, owns 180 limited partnership units at September 30, 2005, for which no such waivers on profit participation are in effect.



E. Commitments and Contingencies



On January 18, 2005, the Partnership had an irrevocable standby letter of credit established in the amount of $60,000 that expires on January 7, 2006, in
favor of the MDE in connection with the Plan.



The
Partnerships contractual obligations are primarily with service providers such as PBP, ATC, Watson & Taylor Management, Inc., and an independent registered public accounting firm. The Partnerships significant contractual obligations
total approximately $537,000 as of September 30, 2005 and are due within one year.



F. Subsequent Event



On November 10, 2005, the
Partnership reported on Form 8-K that it entered into a Real Estate Purchase and Sale Agreement (the Sale Agreement) with Recycland, LLC (the Buyer) for the sale of the Partnerships Hampton Park property. As previously
disclosed, the Hampton Park site is the subject of an environmental remediation plan which was approved by the Maryland Department of the Environment (the Plan). The Sale Agreement provides that the Buyer will pay approximately
$3,200,000 to the Partnership, which takes into account anticipated offsets under the Sale Agreement for the cost of a pollution legal liability insurance policy covering certain environmental liabilities (the Environmental Insurance
Policy) and the cost of a fixed price to closure contract with Gannett Fleming Project Development Corporation and EMG Corporation (the EMG Agreement) to complete the environmental remediation work commenced by ATC
Associates Inc. through and including the issuance of a Certificate of Completion by the Maryland Department of the Environment. The Sale Agreement provides that Buyer will continue the remediation work and indemnify the Partnership for certain
environmental liabilities and performance obligations. The Partnership may have environmental liabilities which are not covered by the Environmental Insurance Policy, the EMG Agreement or the indemnification of the Buyer. The Buyer has an
opportunity to conduct due diligence and may terminate the agreement for any reason until one business day before closing. Other conditions to closing include, but are not limited to, obtaining the Environmental Insurance Policy on terms acceptable
to the Partnership and Buyer, finalizing the EMG



5



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Agreement and the assignment of certain leases, permits and service contracts. Due to these and other closing conditions and the termination provisions in
the Sale Agreement, there can be no assurance (i) that the sale to the Buyer will be consummated or when it will be consummated, or (ii) of the amount of net proceeds that will be available for distribution. There is no way of knowing the amount
that will be available for distribution until the Partnership has completed a final audit of its books and records and provided for all remaining outstanding claims and contingencies.



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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



Certain statements and information included in this Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations, estimates and projections about future events, including but not limited to, the sale of property, environmental liabilities, costs and timing of the Partnerships liquidation and dissolution, and/or statements
containing words such as anticipate(s), expect(s), intend(s), plan(s), target(s), project(s), will, believe(s), may, would,
seek(s), estimate(s) and similar expressions. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results,
net asset value per unit, performance or achievements of the Partnership to be materially different from any future results, net asset value per unit, performance, or achievements expressed or implied in such forward-looking statements. These
factors include, but are not limited to, the following: whether the Sale Agreement with the Buyer is consummated, the amount of expenses related to the sale and the reservation of amounts to pay for contingencies, the costs of liquidation and
dissolution of the Partnership, and the costs surrounding environmental liabilities. Factors that could adversely affect our operations and prospects or which could cause actual results to differ materially from the Partnerships expectations
include, but are not limited to: changes in local and national real estate market conditions and general economic conditions, including changes in the structure of pending transactions, changes in interest rates and financial and capital markets;
legislative or regulatory changes, changes in generally accepted accounting principles, policies and guidelines and/or their application to us, and such other risk factors as may be discussed in our latest Annual Report on Form 10-K and other
reports on file or subsequently filed with the Securities Exchange Commission. The Partnership disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein to reflect any
change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Although the Partnership believes its current expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Partnership can give no assurance that expectations will be attained or that actual results will not differ materially from those set forth in the forward-looking statements.



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



The Partnership has used a hypothetical liquidation date of December 31, 2005 for purposes of estimating costs through the conclusion of liquidation. 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.



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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 miniwarehouse 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 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. As
of September 30, 2005 and December 31, 2004 the Statement of Net Assets reflects an accrued liability of approximately $338,000 and $500,000, 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.



The General Partners engaged an unrelated third party real estate broker CB Richard Ellis, Inc. on April 7, 2005 to market
the property on an exclusive basis for a six month period. The Partnership 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.
On August 5, 2005, the Partnership reported on Form 8-K that it has concluded its bid process for its sole remaining property, Hampton Park, accepted a bid to sell the property and is commencing the negotiation of definitive documentation.
Additionally, on November 10, 2005, the Partnership reported on Form 8-K that it entered into a Real Estate Purchase and Sale Agreement (the Sale Agreement) with Recycland, LLC (the Buyer) for the sale of the
Partnerships Hampton Park property. As previously disclosed, the Hampton Park site is the subject of an environmental remediation plan which was approved by the Maryland Department of the Environment (the Plan). The Sale Agreement
provides that the Buyer will pay approximately $3,200,000 to the Partnership, which takes into account anticipated offsets under the Sale Agreement for the cost of a pollution legal liability insurance policy covering certain environmental
liabilities (the Environmental Insurance Policy) and the cost of a fixed price to closure contract with Gannett Fleming Project Development Corporation and EMG Corporation (the EMG Agreement) to complete the
environmental remediation work commenced by ATC Associates, Inc. through and including the issuance of a



8



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Certificate of Completion by the Maryland Department of the Environment. The Sale Agreement provides that Buyer will continue the remediation work and
indemnify the Partnership for certain environmental liabilities and performance obligations. The Partnership may have environmental liabilities which are not covered by the Environmental Insurance Policy, the EMG Agreement or the indemnification of
the Buyer. The Buyer has an opportunity to conduct due diligence and may terminate the agreement for any reason until one business day before closing. Other conditions to closing include, but are not limited to, obtaining the Environmental Insurance
Policy on terms acceptable to the Partnership and Buyer, finalizing the EMG Agreement and the assignment of certain leases, permits and service contracts. Due to these and other closing conditions and the termination provisions in the Sale
Agreement, there can be no assurance (i) that the sale to the Buyer will be consummated or when it will be consummated, or (ii) of the amount of net proceeds that will be available for distribution. There is no way of knowing the amount that will be
available for distribution until the Partnership has completed a final audit of its books and records and provided for all remaining outstanding claims and contingencies.



In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of September 30, 2005
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 hypothetical
December 31, 2005 date for purposes of estimating costs through the conclusion of liquidation. 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 September 30, 2005 and such differences could be material.



Net assets in liquidation increased $10,000 during the nine months ended September 30, 2005, but decreased $29,000 during the three months ended September
30, 2005. The increase resulted from income from operations at the Hampton Park property, and to a lesser extent, interest income, offset, in part, by additional estimated liquidation cost accruals of $187,000 primarily for professional fees
recorded during the nine months ended September 30, 2005. The decrease during the third quarter resulted from an additional accrual of $89,000 included in the accrual for professional fees discussed above, partially offset by income from operations
at the Hampton Park property.



As of September 30, 2005, the
Partnership has cash and cash equivalents of $1,860,000, 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 in the sale of
the Hampton Park property and any other Partnership assets and the distribution to the limited partners of the net sales proceeds and remaining cash, after payment of all expenses and liabilities and provision for claims and contingencies.



Off-Balance Sheet Arrangements and Contractual Obligations



As of September 30, 2005, 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 E to 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, ATC, Watson & Taylor Management, Inc., and an
independent registered public accounting firm. A summary of the Partnerships significant contractual obligations as of September 30, 2005, follows:



|                     |  |                         |         |                 |   |           |  |           |   |                  |   |   |  |   |  
|-------------------- |  | ----------------------- | ------- | --------------- | - | --------- |  | --------- | - | ---------------- | - | - |  | - | -
|                     |  | Contractual Obligations
|                     |  | Payments due by period 
|                     |  | Total                   |         | Less than1 year |   | 1-3 years |  | 3-5 years |   | More than5 years
|Purchase Obligations |  | $                       | 537,000 |                 | $ | 537,000   |  | $         |  |                  | $ |  |  | $ | 
|                     |  |                         |         |                 |   |           |  |           |   |                  |   |   |  |   |  



9



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



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



Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K.



|ITEM 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.



10



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PART II. OTHER INFORMATION



Item 1. Legal ProceedingsNone



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





| | 10.07 | Real Estate Purchase and Sale Agreement dated November 4, 2005 by and between the Registrant and Recycland, LLC (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)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------



11



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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 corporation Managing General Partner |  |                        
|                                         |  |                                                                                  
|                                         |  | By: /s/ Warren S. Hoffman                                                         |  | Date: November 14, 2005
|                                         |  | Warren S. Hoffman Chief Financial Officer
and Vice President                      |  |                        



12