<Page>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   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, 2003

                                       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
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


Texas                                           75-1933081
--------------------------------------------------------------------------------
(State or other jurisdiction of                 (I.R.S. Employer
incorporation or organization)                  Identification No.)


One Seaport Plaza, New York, N.Y.               10292-0128
--------------------------------------------------------------------------------
(Address of principal executive offices)        (Zip Code)

Registrant's telephone number, including area code (212) 214-3500

                                      N/A
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
                               report.

   Indicate by check CK 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 _CK_  No __

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

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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)

<Table>
<Caption>
                                                                      September 30,     December 31,
                                                                          2003              2002
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>
ASSETS
Property held for sale                                                 $ 2,018,521       $2,018,521
Cash and cash equivalents                                                1,671,299        1,659,883
Other assets                                                               382,647          382,677
                                                                      -------------     ------------
Total assets                                                             4,072,467        4,061,081
                                                                      -------------     ------------
LIABILITIES
Estimated remediation costs                                                500,000          500,000
Estimated liquidation costs                                                367,037          453,264
                                                                      -------------     ------------
Total liabilities                                                          867,037          953,264
                                                                      -------------     ------------
Net assets available to limited and general partners                   $ 3,205,430       $3,107,817
                                                                      -------------     ------------
                                                                      -------------     ------------
Limited and equivalent partnership units issued and outstanding             51,818           51,818
                                                                      -------------     ------------
                                                                      -------------     ------------
----------------------------------------------------------------------------------------------------
</Table>

                       STATEMENT OF CHANGES IN NET ASSETS
                          (in process of liquidation)
                                  (Unaudited)
<Table>
<Caption>
                                                              LIMITED       GENERAL
                                                              PARTNERS      PARTNERS       TOTAL
---------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>          <C>
Net assets in liquidation--December 31, 2002                 $3,107,817     $ --         $3,107,817
Net income from liquidating activities                           97,613       --             97,613
                                                             ----------     --------     ----------
Net assets in liquidation--September 30, 2003                $3,205,430     $ --         $3,205,430
                                                             ----------     --------     ----------
                                                             ----------     --------     ----------
---------------------------------------------------------------------------------------------------

<Caption>
                 The accompanying notes are an integral part of these statements.
</Table>

                                       2

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                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)

                         NOTES TO FINANCIAL STATEMENTS
                               September 30, 2003
                                  (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, 2003 and December 31, 2002 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 September 30, 2004 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 filed with the Securities and Exchange Commission for the year ended
December 31, 2002.

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 its responses to all
previous comments on Phase I Activities have been resolved. 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, for review, 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 next step will
be to obtain MDE's approval on a plan for remedial action (the 'Plan') so that
the Partnership will have direction regarding the required remediation and any
other activities that may be required of the Partnership or a prospective buyer.
MACTEC has started to develop the Plan. As a result of the Partnership's
experience in working with MDE on the environmental issue, the Partnership
changed the estimated date of liquidation to September 30, 2004. As of September
30, 2003, the Statement of Net Assets reflects an accrued liability of $500,000
which

                                       3

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represents the Partnership's best estimate of the obligation regarding the
environmental issues mentioned above. It is reasonably possible that the loss
exposure will be in excess of the amount accrued and will be material to the
Partnership and may possibly change in the near future as MDE has not yet
provided direction regarding requirements to resolve the environmental issue at
the property.

   The General Partners intend to offer the Hampton Park property to a select
group of potential buyers which specialize in the purchase of contaminated
properties, and others, albeit at a discount to take into account remediation
and monitoring costs. It is the intention of the Partnership 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. Due to the
environmental problem and MDE oversight, it is uncertain when any such sale
could be consummated. The Partnership's liquidation and dissolution will proceed
upon the sale of the Hampton Park property.

   Net assets in liquidation increased $98,000 and $53,000 during the nine and
three months ended September 30, 2003, respectively. These increases resulted
from income from operations of the Hampton Park property, and, to a lesser
extent, interest income. The year-to-date increase was partially offset by
additional expense accruals of $97,000 and $28,000 recorded within estimated
liquidation costs during the first quarter and third quarter of 2003,
respectively. These additional accruals reflected changes to the date utilized
for estimating liquidation costs and accrued a total of $7,500 for the costs of
the supplemental soil-gas sampling procedures requested by MDE (see discussion
above).

C. Related Parties

   PBP and its affiliates perform services for the Partnership which include,
but are not limited to: 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 amount of which is limited
by the provisions of the Partnership Agreement.

   In February 2003, Prudential Financial, Inc. ('Prudential') and Wachovia
Corp. ('Wachovia') announced an agreement to combine their separate retail
securities brokerage and clearing businesses under a new holding company named
Wachovia/Prudential Financial Advisors, LLC ('WPFA'), to be owned 62% by
Wachovia and 38% by Prudential. The transaction closed July 1, 2003. As a
result, the retail brokerage operations of Prudential Securities Incorporated
('PSI') were contributed to Wachovia Securities, LLC ('Wachovia Securities').
Wachovia Securities is wholly-owned by WPFA and is a registered broker-dealer
and a member of the National Association of Securities Dealers, Inc. ('NASD')
and all major securities exchanges. Effective July 1, 2003, PSI changed its name
to Prudential Equity Group, Inc. ('PEG'). PEG remains an indirectly wholly-owned
subsidiary of Prudential and is a registered broker-dealer and a member of the
NASD and all major securities exchanges. PEG continues to conduct the equity
research, domestic and international equity sales and trading operations, and
commodity brokerage and derivative operations it previously conducted as PSI.
PBP also remains an indirectly wholly-owned subsidiary of Prudential.

   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., 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 for both the nine
months ended September 30, 2003 and 2002, respectively, and totalled $6,000 for
both the three months ended September 30, 2003 and 2002, respectively.

   In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of September 30, 2003 and December 31, 2002 for the
estimated costs expected to be incurred to liquidate the Partnership. Included
in these estimated liquidation costs is $118,000 and $164,000 as of September
30, 2003 and December 31, 2002, respectively, expected to be payable to the
General Partners and their affiliates during the anticipated remaining
liquidation periods. See Notes A and B for a further discussion regarding the
Partnership's estimated liquidation costs. 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, 2003.

   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

                                       4

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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.

   Prudential Equity Group, an affiliate of PBP, owns 180 limited partnership
units at September 30, 2003. Prudential Equity Group is an indirect wholly-owned
subsidiary of Prudential Financial, Inc.

                                       5

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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

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 its responses to all
previous comments on Phase I Activities have been resolved. 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, for review, 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 next step will
be to obtain MDE's approval on a plan for remedial action (the 'Plan') so that
the Partnership will have direction regarding the required remediation and any
other activities that may be required of the Partnership or a prospective buyer.
MACTEC has started to develop the Plan. As a result of the Partnership's
experience in working with MDE on the environmental issue, the Partnership
changed the estimated date of liquidation to September 30, 2004. As of September
30, 2003, the Statement of Net Assets reflects an accrued liability of $500,000
which represents the Partnership's best estimate of the obligation regarding the
environmental issues mentioned above. It is reasonably possible that the loss
exposure will be in excess of the amount accrued and will be material to the
Partnership and may possibly change in the near future as MDE has not yet
provided direction regarding requirements to resolve the environmental issue at
the property.

   The General Partners intend to offer the Hampton Park property to a select
group of potential buyers which specialize in the purchase of contaminated
properties, and others, albeit at a discount to take into account remediation
and monitoring costs. It is the intention of the Partnership 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. Due to the
environmental problem and MDE oversight, it is uncertain when any such sale
could be consummated. The General Partners intend to liquidate the Partnership
subject to the Hampton Park property first being sold, and will distribute any
remaining funds at such time.

   In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of September 30, 2003 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, the
Partnership has utilized a September 30, 2004 date for purposes of estimating
costs through the conclusion of liquidation reflecting the Managing General
Partner's best estimate and giving consideration to the progress that has been
made with MDE (see discussion above). The actual charges to be incurred by the
Partnership

                                       6

<Page>

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, 2003.

   Net assets in liquidation increased $98,000 and $53,000 during the nine and
three months ended September 30, 2003, respectively. These increases resulted
from income from operations of the Hampton Park property, and, to a lesser
extent, interest income. The year-to-date increase was partially offset by
additional expense accruals of $97,000 and $28,000 recorded within estimated
liquidation costs during the first quarter and third quarter of 2003,
respectively. These additional accruals reflected changes to the date utilized
for estimating liquidation costs and accrued a total of $7,500 for the costs of
the supplemental soil-gas sampling procedures requested by MDE (see discussion
above).

   As of September 30, 2003, the Partnership has cash and cash equivalents of
$1,671,000. 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, after payment of all expenses and
liabilities, of the net sales proceeds and remaining cash.

Results of Operations

   As a result of the Partnership adopting the liquidation basis of accounting
as of October 1, 1996, in accordance with accounting principles generally
accepted in the United States, the Partnership no longer reports 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.

   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 fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

                                       7

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                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings--None

Item 2. Changes in Securities--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 and Reports on Form 8-K

       (a) Exhibits

        Description:

          4.01 Revised Certificate of Limited Partnership Interest (filed as
               an exhibit to Registrant's Form 10-K for the year ended
               December 31, 1988 and incorporated herein by reference)

          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)

       (b) Reports on Form 8-K--None

                                       8

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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/ William C. Yip                       Date: November 13, 2003
    ------------------------------------------
    William C. Yip
    Chief Financial Officer and Vice President

                                       9