<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 June 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 Identification
incorporation or organization)             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>
                                                                         June 30,      December 31,
                                                                           2003            2002
---------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
ASSETS
Property held for sale                                                  $2,018,521      $2,018,521
Cash and cash equivalents                                                1,613,669       1,659,883
Other assets                                                               363,335         382,677
                                                                        ----------     ------------
Total assets                                                             3,995,525       4,061,081
                                                                        ----------     ------------
LIABILITIES
Estimated remediation costs                                                500,000         500,000
Estimated liquidation costs                                                343,277         453,264
                                                                        ----------     ------------
Total liabilities                                                          843,277         953,264
                                                                        ----------     ------------
Net assets available to limited and general partners                    $3,152,248      $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                           44,431       --             44,431
                                                             ----------     --------     ----------
Net assets in liquidation--June 30, 2003                     $3,152,248     $ --         $3,152,248
                                                             ----------     --------     ----------
                                                             ----------     --------     ----------
---------------------------------------------------------------------------------------------------

<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
                                 June 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 June 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 March 31, 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 are
presently being performed. After the supplemental procedures are completed and
once the site is formally entered into the VCP, MDE provides direction regarding
future monitoring, assessment or remediation activities at the site that may be
required of the Partnership or a prospective buyer. As of June 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. The amount includes costs associated with
an active remediation program over a five-year period. 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

                                       3
 
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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 $44,000 and $70,000 during the six and
three months ended June 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 an additional
expense accrual of $97,000 recorded within estimated liquidation costs during
the quarter ended March 31, 2003. This additional accrual reflected a change in
the date utilized for estimating liquidation costs from December 31, 2003 to
March 31, 2004 and accrued $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 each company's respective
retail securities brokerage and clearing operations within a new firm, which
will be headquartered in Richmond, Virginia. Under the agreement, Prudential
will have a 38% ownership interest in the new firm and Wachovia will own 62%.
The transaction, which includes the securities brokerage, securities clearing,
and debt capital markets operations of Prudential Securities Incorporated
('PSI'), but does not include the equity sales, trading and research operations
or commodity brokerage and derivative operations of PSI (which were renamed
Prudential Equity Group, Inc. upon closing), closed July 1, 2003. PBP will
continue to be an indirect 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 $13,000 for both the six
months ended June 30, 2003 and 2002, respectively, and totalled $7,000 for both
the three months ended June 30, 2003 and 2002, respectively.

   In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of June 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 $89,000 and $164,000 as of June 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 June 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
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 June 30, 2003. Prudential Equity Group is an indirect wholly-owned
subsidiary of Prudential Financial, Inc.

                                       4

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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 are
presently being performed. After the supplemental procedures are completed and
once the site is formally entered into the VCP, MDE provides direction regarding
future monitoring, assessment or remediation activities at the site that may be
required of the Partnership or a prospective buyer. As of June 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. The amount includes costs associated with
an active remediation program over a five-year period. 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 June 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 March 31, 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
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, 2003.

   Net assets in liquidation increased $44,000 and $70,000 during the six and
three months ended June 30, 2003, respectively. These increases resulted from
income from operations of the Hampton Park property,

                                       5

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and, to a lesser extent, interest income. The year-to-date increase was
partially offset by an additional expense accrual of $97,000 recorded within
estimated liquidation costs during the quarter ended March 31, 2003. This
additional accrual reflected a change in the date utilized for estimating
liquidation costs from December 31, 2003 to March 31, 2004 and accrued $7,500
for the costs of the supplemental soil-gas sampling procedures requested by MDE
(see discussion above).

   As June 30, 2003, the Partnership has cash and cash equivalents of
$1,600,000. 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.

                                       6
 
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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--Effective June 2003, William C. Yip was elected by
        the Board of Directors of Prudential-Bache Properties, Inc. as Chief
        Financial Officer and Vice President replacing Steven Weinreb.

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

                                       7

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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: August 14, 2003
     ----------------------------------------
     William C. Yip
     Chief Financial Officer and Vice
     President

                                       8