Exhibit 13.01



Prudential-Bache/

Watson & Taylor, Ltd.-2

(In Process Of Liquidation)



2003



Annual

Report



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

2003 Annual Report



March 2004



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, 2003.



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 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 been working on the Plan and has been discussing certain aspects of the Plan directly with
MDE. 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 December 31, 2005. As of December 31, 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 final 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 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.



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



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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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the changes in its net assets in process of liquidation for each of the three years in the period ended
December 31, 2003, 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

January 23, 2004



2



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

(limited partnership)

STATEMENTS OF NET ASSETS

(in process of liquidation)



|                                                                |  |              |           |      |   |          
|--------------------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                                                |  | December 31,
|                                                                |  | 2003         |           | 2002
|                                                               
|                                                                |  |             
|ASSETS                                                          |  |              |           |      |   |          
|                                                                |  |             
|Property held for sale                                          |  | $            | 2,018,521 |      | $ | 2,018,521
|                                                                |  |             
|Cash and cash equivalents                                       |  |              | 1,737,148 |      |   | 1,659,883
|                                                                |  |             
|Other assets                                                    |  |              | 399,750   |      |   | 382,677  
|                                                                |  |              |           |      |   |          
|                                                                |  |             
|Total assets                                                    |  |              | 4,155,419 |      |   | 4,061,081
|                                                                |  |              |           |      |   |          
|                                                                |  |             
|LIABILITIES                                                     |  |              |           |      |   |          
|                                                                |  |             
|Estimated liquidation costs                                     |  |              | 517,100   |      |   | 453,264  
|                                                                |  |             
|Estimated remediation costs                                     |  |              | 500,000   |      |   | 500,000  
|                                                                |  |              |           |      |   |          
|                                                                |  |             
|Total liabilities                                               |  |              | 1,017,100 |      |   | 953,264  
|                                                                |  |              |           |      |   |          
|                                                                |  |             
|Net assets available to limited and general partners            |  | $            | 3,138,319 |      | $ | 3,107,817
|                                                                |  |              |           |      |   |          
|                                                                |  |             
|Limited and equivalent partnership units issued and outstanding |  |              | 51,818    |      |   | 51,818   
|                                                                |  |              |           |      |   |          

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STATEMENTS OF CHANGES IN NET ASSETS

(in process of liquidation)



|                                       |  |                 |           |                 |    |       |   |          
|-------------------------------------- |  | --------------- | --------- | --------------- | -- | ----- | - | ---------
|                                       |  | LIMITEDPARTNERS |           | GENERALPARTNERS |    | TOTAL
|                                      
|                                       |  |                 |          
|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
|                                       |  |                 |          
|Net income from liquidating activities |  |                 | 197,719   |                 |   |       |   | 197,719  
|                                       |  |                 |           |                 |    |       |   |          
|                                       |  |                 |          
|Net assetsDecember 31, 2002           |  |                 | 3,107,817 |                 |   |       |   | 3,107,817
|                                       |  |                 |          
|Net income from liquidating activities |  |                 | 30,502    |                 |   |       |   | 30,502   
|                                       |  |                 |           |                 |    |       |   |          
|                                       |  |                 |          
|Net assetsDecember 31, 2003           |  | $               | 3,138,319 |                 | $ |       | $ | 3,138,319
|                                       |  |                 |           |                 |    |       |   |          

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The accompanying notes are an integral part of these
statements.



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

(a limited partnership)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003 and 2002



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 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 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 been working on the Plan and has been discussing certain aspects of the Plan directly with
MDE. 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 December 31, 2005. As of December 31, 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 final 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 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



4



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could be consummated. The Partnerships liquidation and dissolution will proceed upon the sale of the Hampton Park property.



Net assets in liquidation increased $31,000 during the year ended December 31, 2003.
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 net of $275,000 of additional expense accruals made during the year. The additional accruals
reflect a change in the date utilized for estimating liquidation costs from December 31, 2003 to December 31, 2005 and accrued a total of $9,000 for the costs of the supplemental soil-gas sampling procedures requested by MDE (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 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, 2003 and 2002
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, 2005 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 Note A). 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, 2003, 2002 and 2001 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 January 2003 appraised valuation of the property reduced by estimated costs to sell and a discount associated with the uncertainty of costs to resolve the outstanding environmental issue.



5



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D.  Net Income From Liquidating Activities



Net income from liquidating activities consisted of the following:



|                                       |  |                            |         |                            |   |                            |  |   |        
|-------------------------------------- |  | -------------------------- | ------- | -------------------------- | - | -------------------------- |  | - | -------
|                                       |  | Year EndedDecember 31,2003 |         | Year EndedDecember 31,2002 |   | Year EndedDecember 31,2001
|                                       |  |                            |        
|Rental and other income                |  | $                          | 589,713 |                            | $ | 616,853                    |  | $ | 625,931
|                                       |  |                            |         |                            |   |                            |  |   |        
|                                       |  |                            |        
|Property operating expenses            |  |                            | 282,576 |                            |   | 267,865                    |  |   | 224,042
|                                       |  |                            |        
|General and administrative expenses    |  |                            | 1,593   |                            |   | 1,147                      |  |   | 1,761  
|                                       |  |                            |        
|Estimated liquidation expenses         |  |                            | 275,042 |                            |   | 150,122                    |  |   | 166,367
|                                       |  |                            |         |                            |   |                            |  |   |        
|                                       |  |                            |        
|                                       |  |                            | 559,211 |                            |   | 419,134                    |  |   | 392,170
|                                       |  |                            |         |                            |   |                            |  |   |        
|                                       |  |                            |        
|Net income from liquidating activities |  | $                          | 30,502  |                            | $ | 197,719                    |  | $ | 233,761
|                                       |  |                            |         |                            |   |                            |  |   |        



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.



On July 1, 2003, Prudential Financial, Inc. (Prudential) and Wachovia Corp. (Wachovia) combined their separate retail securities brokerage
and clearing businesses under a new holding company named Wachovia/Prudential Financial Advisors, LLC (WPFA), owned 62% by Wachovia and 38% by Prudential. 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. PEG was a registered
broker-dealer and a member of the NASD and all major securities exchanges and conducted the equity research, domestic and international equity sales and trading operations, and commodity brokerage and derivative operations it had previously
conducted as PSI until December 31, 2003. As part of the process of reorganizing its business structure, Prudential Securities Group Inc. (PSG), the direct parent of PEG and a wholly-owned subsidiary of Prudential, transferred the
commodity brokerage, commodity clearing and derivative operations previously performed by PEG to another PSG wholly-owned subsidiary, Prudential Financial Derivatives, LLC (PFD) effective January 1, 2004. Like PEG, PFD is registered as a
futures commission merchant under the Commodity Exchange Act and is a member of the National Futures Association. PBP also remains 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, WTMI receives 4.5% of the propertys gross revenues (as defined in the Management Agreement) as a management fee. Such management fees totaled $26,000, $27,000 and $26,000 for the years ended December 31, 2003, 2002 and
2001, respectively.



In conjunction with the liquidation basis of
accounting, the Partnership has recorded an accrual as of December 31, 2003 and 2002 for the estimated costs expected to be incurred to liquidate the Partnership. Included in these estimated liquidation costs is $167,000 and $164,000 as of December
31, 2003 and 2002, 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, 2003.



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



6



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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.



PEG, an affiliate of PBP,
owns 180 limited partnership units at December 31, 2003.



F.  Income Taxes



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



|                                                            |  |                                |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                            |  | For the year ended December 31 |         
|                                                            |  | 2003                           |          |   | 2002 |   |          | 2001 | 
|                                                            |  |                                |         
|Net income for financial reporting purposes (a)             |  | $                              | 30,502   |   |      | $ | 197,719  |      |  | $ | 233,761  |  
|                                                            |  |                                |         
|Estimated liquidation costs, deducted for books not tax     |  |                                | 275,042  |   |      |   | 150,122  |      |  |   | 166,367  |  
|                                                            |  |                                |         
|Liquidation costs incurred, deducted for tax not book       |  |                                | (211,206 | ) |      |   | (120,226 | )    |  |   | (150,615 | )
|                                                            |  |                                |         
|Tax depreciation and amortization in excess of book amounts |  |                                | (139,218 | ) |      |   | (139,346 | )    |  |   | (139,258 | )
|                                                            |  |                                |          |   |      |   |          |      |  |   |          |  
|                                                            |  |                                |         
|Tax basis net income (loss)                                 |  | $                              | (44,880  | ) |      | $ | 88,269   |      |  | $ | 110,255  |  
|                                                            |  |                                |          |   |      |   |          |      |  |   |          |  



---

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



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



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

(a limited partnership)

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



Critical Accounting Policies



Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles requires the application of appropriate
technical accounting rules and guidance, as well as the use of estimates. The Partnerships application of these policies involves judgments which, in and of themselves, could materially impact the financial statements and disclosures. A future
change in the assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial results. As such, actual results may differ from the estimates used by management.



Date of Liquidation



The Partnership estimated the date of liquidation to be 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.



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 next step will be to obtain MDEs approval on a plan for



8



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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 been working on the Plan and has been discussing certain aspects of the Plan directly with MDE. 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 December 31, 2005. As of December 31, 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 final 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 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 December 31, 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, as mentioned above, the Partnership has utilized a December 31, 2005 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 December 31, 2003.



Net assets in liquidation increased $31,000 during the year ended December 31, 2003. 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 net of $275,000 of additional expense accruals made during the year. The additional accruals reflect a change in the date utilized for estimating liquidation costs from
December 31, 2003 to December 31, 2005 and accrued a total of $9,000 for the costs of the supplemental soil-gas sampling procedures requested by MDE (see discussion above).



As of December 31, 2003, the Partnership has cash and cash equivalents of $1,737,000, 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,
after payment of all expenses and liabilities, of the net sales proceeds and remaining cash.



Off-Balance Sheet Arrangements and Contractual Obligations



As of December 31, 2003, 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
agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers, such as our accountants, undertake in performing services which are in the best interests of the
Partnership. While the Partnerships exposure under such indemnification provisions can not be estimated, these general business indemnifications are not expected to have a material impact on the Partnerships financial position.



The Partnerships contractual obligations are primarily with
service providers such as PBP, WTMI, accountants, etc. A summary of the Partnerships significant contractual obligations as of December 31, 2003, follows:



|                        |         |      |   |         |  |   |       
|----------------------- | ------- | ---- | - | ------- |  | - | ------
|Contractual Obligations
|Payments due by year   
|Total                   |         | 2004 |   | 2005   
|$                       | 172,000 |      | $ | 120,000 |  | $ | 52,000
|                        |         |      |   |         |  |   |       



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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 corresponding 2003, 2002 and 2001 periods.



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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



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OTH

Peck Slip Station

P.O. Box 2303

New York, NY 10273-0005



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PBW&T2/171650