<Page>

                                                          2001
-------------------------------------------------------------------------
                                                          Annual
Prudential-Bache/                                         Report
Watson & Taylor, Ltd.-2
(In Process Of Liquidation)

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                               2001 Annual Report

                                                                     March 2002

   Enclosed are the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Prudential-Bache/Watson & Taylor, Ltd.-2 (the 'Partnership') for the year ended
December 31, 2001.

   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 Law Engineering and
Environmental Services, Inc. ('LAW') identified detectable levels of
tetrachloroethene ('PCE') in the soil and ground water samples collected at the
site. LAW, 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. LAW, 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, LAW 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'). During February 2002, MDE notified the Partnership that its
responses to all previous comments on Phase I Activities have been resolved and
LAW has started the process of preparing a work plan for Phase II Activities. As
a result of the Partnership's agreement to perform the Phase I and Phase II
Activities, with the anticipation of entering the site into the VCP, the
Partnership changed the estimated date of liquidation to December 31, 2002. As
of December 31, 2001, 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. However, it is uncertain at this time what will ultimately be
required 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, albeit at a discount. It is the intention of the Partnership to
obtain from any potential buyer as complete an indemnification for any liability
in connection with remediation of the contamination of the property as possible.
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.

   We encourage you to read the attached report. Should you have any questions
concerning your investment or your account status, please contact the Client
Services Department at (212) 778-2443.

                                       1

<Page>

                         REPORT OF INDEPENDENT AUDITORS

To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-2

We have audited the accompanying statements of net assets in process of
liquidation of Prudential-Bache/Watson & Taylor, Ltd.-2 as of December 31, 2001
and 2000, and the related statements of changes in net assets in process of
liquidation for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in process of liquidation of
Prudential-Bache/Watson & Taylor, Ltd.-2 at December 31, 2001 and 2000, and the
changes in its net assets in process of liquidation for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note B to the financial statements, the Partnership adopted the
liquidation basis of accounting effective October 1, 1996.

/s/ Ernst & Young LLP
New York, New York
February 5, 2002

                                       2

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                             (limited partnership)
                            STATEMENTS OF NET ASSETS
                          (in process of liquidation)

<Table>
<Caption>
                                                                               December 31,
                                                                            2001           2000
--------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>
ASSETS
Property held for sale                                                   $2,018,521     $2,018,521
Cash and cash equivalents                                                 1,363,297      1,177,353
Other assets                                                                451,648        388,079
                                                                         ----------     ----------
Total assets                                                              3,833,466      3,583,953
                                                                         ----------     ----------
LIABILITIES
Estimated liquidation costs                                                 423,368        407,616
Estimated remediation costs                                                 500,000        500,000
                                                                         ----------     ----------
Total liabilities                                                           923,368        907,616
                                                                         ----------     ----------
Net assets available to limited and general partners                     $2,910,098     $2,676,337
                                                                         ----------     ----------
                                                                         ----------     ----------
Limited and equivalent partnership units issued and outstanding              51,818         51,818
                                                                         ----------     ----------
                                                                         ----------     ----------
--------------------------------------------------------------------------------------------------
</Table>

                      STATEMENTS OF CHANGES IN NET ASSETS
                          (in process of liquidation)
<Table>
<Caption>
                                                             LIMITED        GENERAL
                                                             PARTNERS      PARTNERS        TOTAL
---------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>           <C>
Net assets--December 31, 1998                               $2,329,897      $ --         $2,329,897
Net income from liquidating activities                         136,521        --            136,521
                                                            ----------     ---------     ----------
Net assets--December 31, 1999                                2,466,418        --          2,466,418
Net income from liquidating activities                         209,919        --            209,919
                                                            ----------     ---------     ----------
Net assets--December 31, 2000                                2,676,337        --          2,676,337
Net income from liquidating activities                         233,761        --            233,761
                                                            ----------     ---------     ----------
Net assets--December 31, 2001                               $2,910,098      $ --         $2,910,098
                                                            ----------     ---------     ----------
                                                            ----------     ---------     ----------
---------------------------------------------------------------------------------------------------
                 The accompanying notes are an integral part of these statements.
</Table>

                                       3

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

A. General

   Prudential-Bache/Watson & Taylor, Ltd.-2 (the 'Partnership') is a Texas
limited partnership formed on November 14, 1983 which will terminate in
accordance with a vote of the limited partners as described below. The
Partnership was formed for the purpose of acquiring, developing, owning and
operating mini-storage and office/warehouse facilities. The general partners of
the Partnership are Prudential-Bache Properties, Inc. ('PBP'), a wholly owned
subsidiary of Prudential Securities Group Inc., George S. Watson, and A. Starke
Taylor, III (collectively, the 'General Partners'). PBP is the Managing General
Partner of the Partnership.

   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 Law Engineering and
Environmental Services, Inc. ('LAW') identified detectable levels of
tetrachloroethene ('PCE') in the soil and ground water samples collected at the
site. LAW, 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. LAW, 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, LAW 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'). During February 2002, MDE notified the Partnership that its
responses to all previous comments on Phase I Activities have been resolved and
LAW has started the process of preparing a work plan for Phase II Activities. As
a result of the Partnership's agreement to perform the Phase I and Phase II
Activities, with the anticipation of entering the site into the VCP, the
Partnership changed the estimated date of liquidation to December 31, 2002. As
of December 31, 2001, 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. However, it is uncertain at this time what will ultimately be
required 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, albeit at a discount. It is the intention of the Partnership to
obtain from any potential buyer as complete an indemnification for any liability
in connection with remediation of the contamination of the property as possible.
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 $234,000 during the year ended December
31, 2001. The increase was primarily the result of income from operations of the
Hampton Park property, and to a lesser extent, interest income. The increase was
partially offset by $166,000 of additional accruals made during the year. The
additional accruals reflected a change in the date utilized for estimating
liquidation costs from September 30, 2001 to December 31, 2002 and $46,000 for
the costs of Phase I and Phase II Activities to be performed (see discussion
above).

   Watson & Taylor Management, Inc. ('WTMI'), an affiliate of the individual
general partners is responsible for the day-to-day operation of the property,
including the supervision of the on-site managers and the

                                       4


<Page>

establishment of rental policies and rates for new rentals and renewals and
directs the marketing activity for the property under a management agreement
('Management Agreement') entered into with the Partnership. The Management
Agreement may be terminated by either party with 60 days' written notice, with
or without cause, and can be terminated upon a sale of the property. WTMI
receives 4.5% of the property's gross revenues (as defined in the Management
Agreement) as a management fee.

B. Summary of Significant Accounting Policies

Basis of accounting

   The Partnership adopted the liquidation basis of accounting effective October
1, 1996. Accordingly, the net assets of the Partnership at December 31, 2001 and
2000 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, the date of liquidation is uncertain; however, the
Partnership has utilized a December 31, 2002 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. The Partnership's
fiscal year for both book and tax purposes ends on December 31.

Income taxes

   The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.

Profit and loss allocations and distributions

   Income from a Terminating Sale, as defined in the Amended and Restated
Certificate and Agreement of Limited Partnership ('the Partnership Agreement'),
is allocated first to all partners having negative capital account balances, to
the extent of such balances, and then to the limited partners until their
capital accounts equal their Adjusted Capital Contribution plus a Cumulative
Preference as those terms are defined in the Partnership Agreement. Sales
proceeds from a Terminating Sale are first used for the payment of any debts or
obligations of the Partnership, then any balance remaining is distributed to the
partners having positive capital account balances.

   PBP has waived its right to share in any limited partner cash distributions
and allocations of the Partnership's profits and losses with respect to the 258
equivalent units it holds (see Note E).

C. Property Held for Sale

   The Partnership's property as of December 31, 2001, 2000 and 1999 consisted
solely of Hampton Park, a miniwarehouse facility located in Capitol Heights,
Maryland. It is uncertain at this time what the Partnership will ultimately
realize from the sale of the property due to the property's environmental issue
(see Note A). However, the carrying amount of the property appears to be
recoverable based on a March 2000 appraised valuation of the property (reduced
by estimated costs to sell) less estimated costs to resolve the environmental
issue.

                                       5

<Page>

D. Net Income From Liquidating Activities

   Net income from liquidating activities consisted of the following:

<Table>
<Caption>
                                                           Year Ended      Year Ended      Year Ended
                                                          December 31,    December 31,    December 31,
                                                              2001            2000            1999
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Rental and other income                                     $625,931        $599,874        $542,053
                                                          ------------    ------------    ------------
Property operating expenses                                  224,042         221,982         198,593
General and administrative expenses                            1,761           1,343           4,467
Estimated liquidation expenses                               166,367         166,630         202,472
                                                          ------------    ------------    ------------
                                                             392,170         389,955         405,532
                                                          ------------    ------------    ------------
Net income from liquidating activities                      $233,761        $209,919        $136,521
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</Table>

E. 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.

   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, WTMI receives 4.5% of the property's gross revenues (as defined
in the Management Agreement) as a management fee. Such management fees totalled
$26,000, $26,000 and $24,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

   In conjunction with the liquidation basis of accounting, the Partnership has
recorded an accrual as of December 31, 2001 and 2000 for the estimated costs
expected to be incurred to liquidate the Partnership. Included in these
estimated liquidation costs is $155,000 and $161,000 as of December 31, 2001 and
2000, respectively, expected to be payable to the General Partners and their
affiliates during the anticipated remaining liquidation period. The actual
charges to be incurred by the Partnership will depend primarily upon the length
of time required to liquidate the Partnership's remaining net assets, and may
differ from the amounts accrued as of December 31, 2001.

   PBP and the 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 Securities Incorporated ('PSI'), an affiliate of PBP, owns 180
limited partnership units at December 31, 2001.

F. Income Taxes

   The following is a reconciliation of net income for financial reporting
purposes to net income for tax reporting purposes:

<Table>
<Caption>
                                                                  For the year ended December 31
                                                               -------------------------------------
                                                                 2001          2000          1999
                                                               ---------     ---------     ---------
<S>                                                            <C>           <C>           <C>
Net income for financial reporting purposes (a)                $ 233,761     $ 209,919     $ 136,521
Estimated liquidation costs, deducted for books not tax          166,367       166,630       202,472
Liquidation costs incurred, deducted for tax not book           (150,615)     (125,092)     (101,192)
Tax depreciation and amortization in excess of book amounts     (139,258)     (139,570)     (138,418)
                                                               ---------     ---------     ---------
Tax basis net income                                           $ 110,255     $ 111,887     $  99,383
                                                               ---------     ---------     ---------
                                                               ---------     ---------     ---------
</Table>

   (a) Represents net income from liquidating activities which is reflected in
       the Statement of Changes in Net Assets as well as Note D.

                                       6

<Page>

   The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments and the initial charge to partners' capital of syndication costs,
for book purposes, when the Partnership was formed.

                                       7

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)
          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 Law Engineering and
Environmental Services, Inc. ('LAW') identified detectable levels of
tetrachloroethene ('PCE') in the soil and ground water samples collected at the
site. LAW, 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. LAW, 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, LAW 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'). During February 2002, MDE notified the Partnership that its
responses to all previous comments on Phase I Activities have been resolved and
LAW has started the process of preparing a work plan for Phase II Activities. As
a result of the Partnership's agreement to perform the Phase I and Phase II
Activities, with the anticipation of entering the site into the VCP, the
Partnership changed the estimated date of liquidation to December 31, 2002. As
of December 31, 2001, 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. However, it is uncertain at this time what will ultimately be
required 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, albeit at a discount. It is the intention of the Partnership to
obtain from any potential buyer as complete an indemnification for any liability
in connection with remediation of the contamination of the property as possible.
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 December 31, 2001 for the estimated costs expected to
be incurred to liquidate the Partnership. Due to the nature of the Hampton Park
environmental issue, the date of liquidation is uncertain. However, as mentioned
above, the Partnership has utilized a December 31, 2002 date for purposes of
estimating costs through the conclusion of liquidation reflecting the Managing
General Partner's best estimate. The actual charges to be incurred by the
Partnership will depend primarily upon the length of time required to liquidate
the Partnership's remaining net assets, and may differ from the amounts accrued
as of December 31, 2001.

   Net assets in liquidation increased $234,000 during the year ended December
31, 2001. The increase was primarily the result of income from operations of the
Hampton Park property, and to a lesser extent, interest income. The increase was
partially offset by $166,000 of additional accruals made during the year. The
additional accruals reflected a change in the date utilized for estimating
liquidation costs from September 30, 2001 to December 31, 2002 and $46,000 for
the costs of Phase I and Phase II Activities to be performed (see discussion
above).

                                       8

<Page>

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 corresponding 2001, 2000 and 1999 periods.

                                       9

<Page>

                               OTHER INFORMATION

The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:

        Prudential-Bache/Watson & Taylor, Ltd.-2/0TH
        Peck Slip Station
        P.O. Box 2303
        New York, New York 10273-0005

                                       10


<Page>

0TH                                                 PRESORTED
Peck Slip Station                                   STANDARD
P.O. Box 2303                                      U.S. POSTAGE
New York, NY 10273-0005                                PAID
                                                  Automatic Mail

PBW&T2/171650