<Page>

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

                                   FORM 10-K

(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the fiscal year ended December 31, 2001

                                       OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from _______________________ to ______________________

Commission file number 0-13518

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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


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

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

Securities registered pursuant to Section 12(b) of the Act:

                                               None
-------------------------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

                     Units of Limited Partnership Interest
--------------------------------------------------------------------------------
                                (Title of class)

   Indicate by check mark 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 mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CK]

                      DOCUMENTS INCORPORATED BY REFERENCE

   Registrant's Annual Report to Limited Partners for the year ended December
31, 2001 is incorporated by reference into Parts II and IV of this Annual Report
on Form 10-K.

   Amended and Restated Certificate and Agreement of Limited Partnership,
included as part of the Registration Statement on Form S-11 (File No. 2-88785)
filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, is incorporated by reference into Part IV of
this Annual Report on Form 10-K.

                                  Index to exhibits can be found on pages 8 & 9.

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)
                               TABLE OF CONTENTS
<Table>
<Caption>
PART I                                                                                         PAGE
<S>        <C>                                                                                 <C>
Item  1    Business..........................................................................    3
Item  2    Properties........................................................................    4
Item  3    Legal Proceedings.................................................................    4
Item  4    Submission of Matters to a Vote of Limited Partners...............................    4


PART II
Item  5    Market for the Registrant's Units and Related Limited Partner Matters.............    4
Item  6    Selected Financial Data...........................................................    5
Item  7    Management's Discussion and Analysis of Financial Condition and Results of
             Operations......................................................................    5
Item 7A    Quantitative and Qualitative Disclosures About Market Risk........................    5
Item  8    Financial Statements and Supplementary Data.......................................    5
Item  9    Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure......................................................................    5

PART III
Item 10    Directors and Executive Officers of the Registrant................................    5
Item 11    Executive Compensation............................................................    6
Item 12    Security Ownership of Certain Beneficial Owners and Management....................    7
Item 13    Certain Relationships and Related Transactions....................................    7

PART IV
Item 14    Exhibits, Financial Statement Schedules and Reports on Form 8-K...................    8
           Financial Statements and Financial Statement Schedules............................    8
           Exhibits..........................................................................    8
           Reports on Form 8-K...............................................................    9
SIGNATURES...................................................................................   14
</Table>

                                       2

<Page>
                                     PART I

Item 1. Business

General

   Prudential-Bache/Watson & Taylor, Ltd.-2 (the 'Registrant'), a Texas limited
partnership, was formed on November 14, 1983 and will terminate in accordance
with a vote of the limited partners as described below. The Registrant was
formed for the purpose of acquiring, developing, owning and operating
mini-storage and office/warehouse facilities with proceeds raised from the
initial sale of units of limited partnership interests ('Units'). The
Registrant's fiscal year for book and tax purposes ends on December 31.

   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 Registrant to Public Storage, Inc.
('Public') and the liquidation and dissolution of the Registrant.

   Seven of the eight properties were sold to Public during December 1996. The
Registrant 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 Registrant'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
Registrant, 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 Registrant, LAW and MDE, to discuss MDE's comments on the
Registrant's application, it was determined that the Registrant 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 Registrant 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 Registrant's agreement to perform the Phase I and Phase II
Activities, with the anticipation of entering the site into the VCP, the
Registrant changed the estimated date of liquidation to December 31, 2002. As of
December 31, 2001, the Statement of Net Assets included in the Registrant's
annual report to the limited partners for the year ended December 31, 2001
('Registrant's Annual Report') reflects an accrued liability of $500,000 which
represents the Registrant'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 Registrant 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 of the Registrant 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
Registrant 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 Registrant's liquidation
and dissolution will proceed upon the sale of the Hampton Park property.

   Watson & Taylor Management, Inc., 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.

General Partners

   The general partners of the Registrant are Prudential-Bache Properties, Inc.
('PBP'), George S. Watson and A. Starke Taylor, III (collectively, the 'General
Partners'). PBP is the Managing General Partner and is

                                       3

<Page>

responsible for the day-to-day operations of the Registrant and its investments.
For further information, see Notes A and E of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto.

Employees

   The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. For further information, see Note E of
the financial statements in the Registrant's Annual Report which is filed as an
exhibit hereto.

Item 2. Properties

   As of December 31, 2001, the Registrant owns the following property:

<Table>
<Caption>
                                               Average                                          Monthly
                                           Occupancy Rates                                    Rental Rates
                                         for the year ended                                     Per Unit
                                            December 31,           Land       Rentable     as of December 31,
          Property Location                    2001(1)          (in acres)     Units              2001
--------------------------------------   -------------------    ----------    --------    --------------------
<S>                                      <C>                    <C>           <C>         <C>
Hampton Park (Capitol Heights,
  Maryland)
     Mini-warehouse                             94.70%             5.87          130         $  42 - $  280
     Commercial                                 97.38%                            53         $ 350 - $1,350
                                                                              --------
                                                                                 183
                                                                              --------
                                                                              --------
</Table>

(1) Average occupancy rates are calculated by averaging the monthly occupancies
    determined by dividing occupied square footage by available square footage
    as of each month-end.

   The General Partners believe the Registrant's remaining property is
adequately insured.

   During the three years ended December 31, 2001, 2000 and 1999, the Hampton
Park property rental revenues represented 98%, 96% and 96% of the Registrant's
total revenue, respectively.

Item 3. Legal Proceedings

   None

Item 4. Submission of Matters to a Vote of Limited Partners

   None

                                    PART II

Item 5. Market for the Registrant's Units and Related Limited Partner Matters

   As of February 21, 2002, there were 3,405 holders of record owning 51,818
Units, inclusive of 258, 130 and 130 equivalent limited partnership units held
by PBP and Messrs. Watson and Taylor, respectively. A significant secondary
market for the Units has not developed, and it is not expected that one will
develop in the future. There are also certain restrictions set forth in Section
17.3 of the Amended and Restated Certificate and Agreement of Limited
Partnership limiting the ability of a limited partner to transfer Units.
Consequently, holders of Units may not be able to liquidate their investments in
the event of an emergency or for any other reason.

   There were no cash distributions paid to limited partners during 2001, 2000
and 1999.

   A distribution of $300 per limited partnership unit was made on December 19,
1996 representing the net proceeds from the sale of seven of the Registrant's
properties, reduced by a contingency reserve and funds required to meet the
anticipated current and future operating costs until the liquidation of the
Registrant. The

                                       4

<Page>
Registrant intends to liquidate, subject to the Hampton Park property first
being sold (refer to Item 1 for further discussion), and will distribute any
remaining funds at such time.

Item 6. Selected Financial Data

   As of October 1, 1996, the Registrant adopted the liquidation basis of
accounting in accordance with generally accepted accounting principles and,
therefore, there is no reporting of results of operations. Total assets at
December 31, 1997, 1998, 1999, 2000 and 2001 were $2,468,042, $2,594,664,
$3,332,496, $3,583,953 and $3,833,466, respectively. Additionally, no
distributions were made during the five years ended December 31, 2001. This data
should be read in conjunction with the financial statements of the Registrant
and the notes thereto on pages 2 through 7 of the Registrant's Annual Report
which is filed as an exhibit hereto.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

   This information is incorporated by reference to pages 8 and 9 of the
Registrant's Annual Report which is filed as an exhibit hereto.

Item 7A. 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 8. Financial Statements and Supplementary Data

   The financial statements are incorporated by reference to pages 2 through 7
of the Registrant's Annual Report which is filed as an exhibit hereto. Quarterly
financial data pursuant to Item 302 of Regulation S-K is not provided as the
Registrant follows the liquidation basis of accounting and has not reported
results of operations subsequent to 1996 in accordance with generally accepted
accounting principles.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

   None

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

   There are no directors or executive officers of the Registrant. The
Registrant is managed by the Managing General Partner.

Section 16(a) Beneficial Ownership Reporting Compliance

   The Registrant, the Registrant's General Partners, PBP's directors and
executive officers and any persons holding more than 10% of the Registrant's
Units are required to report their initial ownership of such Units and any
subsequent changes in that ownership to the Securities and Exchange Commission
on Forms 3, 4 and 5. Such General Partners, executive officers, directors and
other persons who own greater than 10% of the Registrant's Units are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partners, PBP's
directors and executive officers and other persons who own greater than 10% of
the Registrant's Units or copies of the reports they have filed with the
Securities and Exchange Commission during and with respect to its most recent
fiscal year.

                                       5

<Page>

Prudential-Bache Properties, Inc., Managing General Partner

   The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:

Name                       Position
Brian J. Martin            Chairman of the Board of Directors
Chester A. Piskorowski     President, Chief Executive Officer and Director
Barbara J. Brooks          Vice President--Finance, Chief Financial Officer and
                             Director
Steven Carlino             Vice President and Chief Accounting Officer

   BRIAN J. MARTIN, age 51, is the Chairman of the Board of Directors of PBP. He
is a Senior Vice President of Prudential Securities Incorporated ('PSI'), an
affiliate of PBP. In his current position, Mr. Martin has responsibility for
developing various alternative investment products for the firm's high net worth
clients. Mr. Martin also serves in various capacities for certain other
affiliated companies. Mr. Martin joined PSI in 1980. Mr. Martin is a member of
the Pennsylvania Bar.

   CHESTER A. PISKOROWSKI, age 58, is the President, Chief Executive Officer and
a Director of PBP. He is a Senior Vice President of PSI and is head of its
Specialty Finance Department. Mr. Piskorowski also serves in various capacities
for certain other affiliated companies. Mr. Piskorowski has held several
positions within PSI since April 1972. Mr. Piskorowski is a member of the New
York and Federal Bars.

   BARBARA J. BROOKS, age 53, is the Vice President--Finance, Chief Financial
Officer and a Director of PBP. She is a Senior Vice President of PSI. Ms. Brooks
also serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.

   STEVEN CARLINO, age 38, is a Vice President of PBP. He is a Senior Vice
President of PSI. Mr. Carlino also serves in various capacities for other
affiliated companies. Prior to joining PSI in October 1992, he was with Ernst &
Young for six years. Mr. Carlino is a certified public accountant.

   There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.

Individual General Partners

   GEORGE S. WATSON, age 61, is a financial specialist and a certified public
accountant. He has been instrumental in the success of The Community Minority
Business Advancement Program sponsored by the University of Texas at Austin
College and Graduate Schools of Business. Mr. Watson is a member of the Advisory
Council of the University of Texas at Austin Business School and a member of its
Chancellor's Council. Mr. Watson attended the University of Texas at Austin,
graduating summa cum laude in 1963 with a BBA in accounting and finance. He
received his MBA in accounting and finance from the University of Texas in 1965,
graduating first in his class and summa cum laude. He also has received various
awards and scholarships and is a member of many fraternal organizations
including Phi Kappa Phi, the honorary scholastic society. Mr. Watson has over 25
years of experience in real estate and financial investments.

   A. STARKE TAYLOR, III, age 58, holds a bachelor of business administration
degree from Southern Methodist University which was awarded in 1966. He is past
president of the North Dallas Chamber of Commerce. Mr. Taylor is a member of the
boards of the Dallas Theological Seminary and the Northeast Texas Regional Board
of Young Life. Mr. Taylor has over 25 years of experience in real estate,
insurance and financial investments.

   The two individual General Partners are not related.

Item 11. Executive Compensation

   The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to either individual General Partner or to directors and officers
of the Managing General Partner for their services.

                                       6

<Page>

Certain officers and directors of the Managing General Partner receive
compensation from affiliates of the Managing General Partner, not from the
Registrant, for services performed for various affiliated entities, which may
include services performed for the Registrant; however, the Managing General
Partner believes that any compensation attributable to services performed for
the Registrant is immaterial. See also Item 13 Certain Relationships and Related
Transactions for information regarding reimbursement to the General Partners for
services provided to the Registrant.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   As of February 21, 2002, no individual General Partner or director or officer
of the Managing General Partner owns directly or beneficially any interest in
the voting securities of the Managing General Partner.

   As of February 21, 2002, no individual General Partner or director or officer
of the Managing General Partner owns directly or beneficially any of the Units
issued by the Registrant.

   The General Partners have contributed to the Registrant and, based on such
contribution, they received 'equivalent units' entitling them to participate in
the distributions to the limited partners and in the Registrant's profits and
losses in the same proportion that the General Partners' capital contribution
bears to the total capital contributions of the limited partners. The Managing
General Partner has retained its right to receive funds from the Registrant,
such as General Partner distributions and reimbursement of expenses, but has
waived its right to share in any limited partner cash distributions and
allocations of Registrant's profits and losses based upon such equivalent units.

   As of February 21, 2002, no limited partner beneficially owns more than 5% of
the outstanding Units issued by the Registrant.

Item 13. Certain Relationships and Related Transactions

   The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the individual General
Partners or the directors or officers of the Managing General Partner during
2001.

   Reference is made to Notes A and E of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services.

                                       7

<Page>

                                    PART IV

<Table>
<Caption>
                                                                                           Page
                                                                                         Number in
                                                                                       Annual Report
<S>            <C>                                                                 <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)            1. Financial Statements and Report of Independent
                  Auditors--incorporated by reference to the Registrant's Annual
                  Report which is filed as an exhibit hereto

                  Report of Independent Auditors                                             2
                  Financial Statements:
                  Statements of Net Assets--December 31, 2001 and 2000                       3
                  Statements of Changes in Net Assets--Years ended December 31,
                  2001, 2000 and 1999                                                        3
                  Notes to Financial Statements                                              4

               2. Financial Statement Schedules and Consent of Independent Auditors
                  Consent of Independent Auditors
                  Schedules:
                  II-- Valuation and Qualifying Accounts and Reserves--Three years
                  ended December 31, 2001
                  III--Real Estate and Accumulated Depreciation at December 31,
                  2001
                  Notes to Schedule III--Real Estate and Accumulated Depreciation
                  All other schedules have been omitted because they are not
                  applicable or the required information is included in the
                  financial statements and the notes thereto.

               3. Exhibits
                  Description:
                  2.01 Consent Statement dated September 17, 1996 (1)
                  3.01 Amended and Restated Certificate and Agreement of Limited
                       Partnership (2)
                  3.02 Amendment Number 8 to Amended and Restated Certificate and
                       Agreement of Limited Partnership (3)
                  4.01 Revised Form of Certificate of Limited Partnership Interest (4)
                  10.01 Management Agreement (2)
                  10.02 Property Management Agreement dated as of November 1, 1988
                        by and between the Registrant and Public Storage Commercial
                        Properties Group, Inc. (4)
                  10.03 Property Management Agreement dated as of November 1, 1988
                        by and between the Registrant and Public Storage
                        Management, Inc. (4)
                  10.04 Agreement Relating to General Partner Interests (2)
                  10.05 Management Agreement dated March 1, 1998 by and between the
                        Registrant and Watson & Taylor Management, Inc., a Texas
                        corporation (5)
</Table>

                                       8

<Page>

<Table>
<S>               <C>                                                                 <C>
                  13.01 Registrant's Annual Report to Limited Partners for the year
                        ended December 31, 2001 (with the exception of the information
                        and data incorporated by reference in Items 7 and 8 of this
                        Annual Report on Form 10-K, no other information or data
                        appearing in the Registrant's Annual Report is to be deemed
                        filed as part of this report)
(b)               Reports on Form 8-K--None
</Table>

------------------
(1)  Filed on the Registrant's Proxy Statement on Schedule 14A and incorporated
     herein by reference.

(2)  Filed as an exhibit to Registration Statement on Form S-11 (No. 2-88785)
     and incorporated herein by reference.

(3)  Filed as an exhibit to Registrant's Form 10-Q for the quarter ended March
     31, 1990 and incorporated herein by reference.

(4)  Filed as an exhibit to Registrant's Form 10-K for the year ended December
     31, 1988 and incorporated herein by reference.

(5)  Filed as an exhibit to Registrant's Form 10-K for the year ended December
     31, 1997 and incorporated herein by reference.

                                       9

<Page>

                        CONSENT OF INDEPENDENT AUDITORS

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

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Prudential-Bache/Watson & Taylor, Ltd.-2 of our report dated February 5,
2002, included in the 2001 Annual Report to Partners of Prudential-Bache/Watson
& Taylor, Ltd.-2.

Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor, Ltd.-2 listed in Item 14(a). These schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

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

                                       10

<Page>

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

          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                               December 31, 2001
-------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets

<Table>
<Caption>
                                                                  Deductions - Amounts
 Year Ended         Balance at          Additions - Amounts        Written-off During       Balance at
December 31,     Beginning of Year      Reserved During Year              Year              End of Year
------------     -----------------      --------------------      --------------------      -----------
<S>              <C>                    <C>                       <C>                       <C>
    1999            $ 1,418,000               --                        --                  $ 1,418,000(1)
    2000            $ 1,418,000               --                        --                  $ 1,418,000(1)
    2001            $ 1,418,000               --                        --                  $ 1,418,000(1)
-------------------------------------------------------------------------------------------------------
(1) Shown as a direct deduction of carrying value of property held for sale.
</Table>

                                       11

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)
             SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 2001
<Table>
<Caption>
                                                                                              Amount at which carried at
                                                                                                     close of year
                                                                                    -----------------------------------------------
                                        Initial cost to                                                                Valuation
                                          Registrant                  Costs                                          allowance on
                                           (Note B)                capitalized                                      impaired assets
                                 -----------------------------      subsequent                                      and accumulated
         Description                            Buildings and           to                       Buildings and       depreciation
          (Note A)                  Land         Improvements      acquisition        Land        Improvements       (Notes C & D)
-----------------------------    ----------     --------------     ------------     --------     --------------     ---------------
<S>                              <C>            <C>                <C>              <C>          <C>                <C>
Hampton Park
(Capitol Heights, Maryland)      $  925,595       $       --       $ 3,774,366      $926,441       $3,773,520         $ 2,681,440
                                 ----------     --------------     ------------     --------     --------------     ---------------
                                 ----------     --------------     ------------     --------     --------------     ---------------
-----------------------------------------------------------------------------------------------------------------------------------

<Caption>

         Description             Total          Dates of          Date
          (Note A)              (Note C)      construction      acquired
-----------------------------  ----------     -------------     --------
<S>                              <C>          <C>               <C>
Hampton Park
(Capitol Heights, Maryland)    $2,018,521         1985/86         1984
                               ----------
                               ----------
------------------------------------------------------------------------
</Table>

                        See notes on the following page.

                                       12

<Page>

                    PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
                            (a limited partnership)
                             NOTES TO SCHEDULE III
                               December 31, 2001

NOTE A--There are no mortgages, deeds of trust or similar encumbrances against
        the remaining property.
NOTE B--Initial cost represents the initial purchase price of the property
        including acquisition fees.
NOTE C--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<Table>
                                                                     Year ended December 31,
                                                             ----------------------------------------
                                                                2001          2000           1999
                                                             ----------    ----------    ------------
<S>                                                          <C>           <C>           <C>

Balance at beginning of year..............................   $2,018,521    $2,018,521    $  1,518,521
Additions during the year--capitalization of environmental
  costs                                                              --            --         500,000
                                                             ----------    ----------    ------------
Balance at close of year..................................   $2,018,521    $2,018,521    $  2,018,521
                                                             ----------    ----------    ------------
                                                             ----------    ----------    ------------
</Table>

   The aggregate cost of land, buildings and improvements, and furniture and
fixtures, net of depreciation, for Federal income tax purposes as of December
31, 2001 was $2,230,957.

    NOTE D--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION

   The Partnership ceased depreciating the properties for financial reporting
purposes when the properties were reclassified as held for sale as of December
31, 1995.

                                       13

<Page>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) 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/ Steven Carlino                       Date: March 4, 2002
     ----------------------------------------
     Steven Carlino
     Vice President and
     Chief Accounting Officer

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.

By: Prudential-Bache Properties, Inc.,
    A Delaware corporation,
    Managing General Partner

    By: /s/ Brian J. Martin                       Date: March 4, 2002
    -----------------------------------------
    Brian J. Martin
    Chairman of the Board of Directors

    By: /s/ Chester A. Piskorowski                Date: March 4, 2002
    -----------------------------------------
    Chester A. Piskorowski
    President, Chief Executive Officer
    and Director

    By: /s/ Barbara J. Brooks                     Date: March 4, 2002
    -----------------------------------------
    Barbara J. Brooks
    Vice President-Finance,
    Chief Financial Officer and Director

    By: /s/ Steven Carlino                        Date: March 4, 2002
    -----------------------------------------
    Steven Carlino
    Vice President

                                       14