<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-Q
 
(Mark One)
 
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
For the quarterly period ended September 30, 1996
 
                                       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 0-14437
 
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)
 
Delaware                                           13-3236335
--------------------------------------------------------------------------------
(State or other jurisdiction                      (I.R.S. Employer
of incorporation or organization)                Identification No.)
 
One Seaport Plaza, New York, New York               10292-0116
--------------------------------------------------------------------------------
(Address of principal executive offices)            (Zip Code)
 
Registrant's telephone number, including area code (212) 214-1016
 
                                      N/A
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
 
   Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_  No __
 <PAGE>
<PAGE>
 
                         Part I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
                            (a limited partnership)
                       STATEMENTS OF FINANCIAL CONDITION
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                      September 30,     December 31,
                                                                          1996              1995
<S>                                                                   <C>               <C>
----------------------------------------------------------------------------------------------------
ASSETS
Property held for sale                                                 $ 5,562,881      $ 9,093,268
Investment in joint venture, net                                           228,742        8,475,910
Cash and cash equivalents                                                  974,498          164,475
Mortgage loan receivable, net                                                   --          450,000
Other assets                                                                 6,253          148,029
                                                                      -------------     ------------
Total assets                                                           $ 6,772,374      $18,331,682
                                                                      -------------     ------------
                                                                      -------------     ------------
LIABILITIES AND PARTNERS' CAPITAL\
Liabilities
Accounts payable and accrued expenses                                  $   205,279      $   412,851
Tenant security deposits                                                        --           52,000
                                                                      -------------     ------------
Total liabilities                                                          205,279          464,851
                                                                      -------------     ------------
Partners' capital
Limited partners (44,503 units issued and outstanding)                   6,567,095       17,866,831
General partners                                                                --           --
                                                                      -------------     ------------
Total partners' capital                                                  6,567,095       17,866,831
                                                                      -------------     ------------
Total liabilities and partners' capital                                $ 6,772,374      $18,331,682
                                                                      -------------     ------------
                                                                      -------------     ------------
----------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements
</TABLE>
                                       2
<PAGE>
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
                            (a limited partnership)
                            STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                   Nine months ended            Three months ended
                                                     September 30,                 September 30,
                                               --------------------------     -----------------------
                                                  1996            1995           1996          1995
<S>                                            <C>             <C>            <C>            <C>
-----------------------------------------------------------------------------------------------------
REVENUES
Rental income                                  $   504,454     $1,054,523     $   81,632     $351,587
Recovery of expenses                                67,343        110,699         16,391       34,876
Interest income                                     36,362         24,313         15,301        7,021
Joint venture equity income (loss)                (473,168)       (72,542)        49,239      108,634
Gain on sale of property                         1,105,262             --      1,105,262           --
                                               -----------     ----------     ----------     --------
                                                 1,240,253      1,116,993      1,267,825      502,118
                                               -----------     ----------     ----------     --------
EXPENSES
Property operating                                 133,693         58,294         58,942       23,089
Real estate taxes                                  105,044         50,377         34,501       33,468
General and administrative                         201,091        267,967         50,932      125,501
Provision for loan loss                             89,000        150,000             --      150,000
Depreciation and amortization                           --        284,645             --       94,882
                                               -----------     ----------     ----------     --------
                                                   528,828        811,283        144,375      426,940
                                               -----------     ----------     ----------     --------
Net income                                     $   711,425     $  305,710     $1,123,450     $ 75,178
                                               -----------     ----------     ----------     --------
                                               -----------     ----------     ----------     --------
ALLOCATION OF NET INCOME
Limited partners                               $   664,450     $  169,728     $1,123,450     $ 28,202
                                               -----------     ----------     ----------     --------
                                               -----------     ----------     ----------     --------
General partners                               $    46,975     $  135,982     $       --     $ 46,976
                                               -----------     ----------     ----------     --------
                                               -----------     ----------     ----------     --------
Net income per limited partnership unit        $     14.93     $     3.81     $    25.24     $   0.63
                                               -----------     ----------     ----------     --------
                                               -----------     ----------     ----------     --------
-----------------------------------------------------------------------------------------------------
</TABLE>
 
                   STATEMENT OF CHANGES IN PARTNERS' CAPITAL
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                             LIMITED       GENERAL
                                                            PARTNERS       PARTNERS        TOTAL
<S>                                                        <C>             <C>          <C>
---------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995                       $17,866,831     $    --      $17,866,831
Net income                                                     664,450      46,975          711,425
Distributions                                              (11,964,186)    (46,975 )    (12,011,161)
                                                           -----------     --------     -----------
Partners' capital--September 30, 1996                      $ 6,567,095     $    --      $ 6,567,095
                                                           -----------     --------     -----------
                                                           -----------     --------     -----------
---------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements
</TABLE>
                                       3
<PAGE>
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
                            (a limited partnership)
                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                              Nine months ended
                                                                                September 30,
                                                                         ---------------------------
<S>                                                                      <C>             <C>
                                                                            1996            1995
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received                                                   $   585,570     $   999,855
Recovery of expenses received                                                128,003          76,285
Interest received                                                             36,362          24,313
Real estate taxes paid, net                                                 (130,672)        (50,377)
Property operating expenses paid                                            (153,433)        (64,406)
General and administrative expenses paid                                    (301,295)       (216,009)
Security deposits paid                                                       (52,000)             --
                                                                         -----------     -----------
Net cash provided by operating activities                                    112,535         769,661
                                                                         -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of property                                         4,921,111              --
Capitalized property expenditures                                           (347,462)         (1,488)
Net proceeds from sale of mortgage loan                                      361,000              --
Distributions from joint venture in excess of income                       7,774,000         460,000
                                                                         -----------     -----------
Net cash provided by investing activities                                 12,708,649         458,512
                                                                         -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners                                                (12,011,161)     (1,359,816)
                                                                         -----------     -----------
Net increase (decrease) in cash and cash equivalents                         810,023        (131,643)
Cash and cash equivalents at beginning of period                             164,475         378,129
                                                                         -----------     -----------
Cash and cash equivalents at end of period                               $   974,498     $   246,486
                                                                         -----------     -----------
                                                                         -----------     -----------
----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income                                                               $   711,425     $   305,710
                                                                         -----------     -----------
Adjustments to reconcile net income to net cash
  provided by operating activities:
Gain on sale of property                                                  (1,105,262)             --
Joint venture equity loss                                                    473,168          72,542
Provision for loan loss                                                       89,000         150,000
Depreciation and amortization                                                     --         284,645
Changes in:
Other assets                                                                 141,776         (89,082)
Accounts payable and accrued expenses                                       (145,572)         45,846
Tenant security deposits                                                     (52,000)             --
                                                                         -----------     -----------
Total adjustments                                                           (598,890)        463,951
                                                                         -----------     -----------
Net cash provided by operating activities                                $   112,535     $   769,661
                                                                         -----------     -----------
                                                                         -----------     -----------
----------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements
</TABLE>
                                       4
<PAGE>
 
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
                            (a limited partnership)
                         NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996
                                  (Unaudited)
 
A. Basis of Presentation
 
   The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting of only
normal recurring adjustments as well as those adjustments relating to the sale
of the Ridge Plaza joint venture (``Joint Venture'') as reflected in Note D)
considered necessary for a fair presentation of the financial position of
Prudential Realty Acquisition Fund II, L.P. (the ``Partnership'') as of
September 30, 1996, the results of its operations for the nine and three months
ended September 30, 1996 and 1995 and its cash flows for the nine months ended
September 30, 1996 and 1995 have been included. Operating results for the
interim periods may not be indicative of the results expected for the full year.
It is suggested that these financial statements be read in conjunction with the
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1995.
 
B. Related Parties
 
   Prudential-Bache Properties, Inc. (``PBP'') and Prudential Realty
Partnerships, Inc. (collectively, the
``General Partners'') and their affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management,
registrar, transfer and assignment functions, asset management, investor
communications, printing and other administrative services. The amount of
reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The costs and expenses incurred on behalf of the
Partnership which are reimbursable to the General Partners and their affiliates
are:
 
<TABLE>
<CAPTION>
                                                          Nine months ended        Three months ended
                                                            September 30,            September 30,
                                                        ----------------------    --------------------
                                                          1996         1995         1996        1995
<S>                                                     <C>          <C>          <C>         <C>
------------------------------------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and affiliates     $  32,400    $  35,200    $  4,900    $ 15,100
Prudential-Bache Properties, Inc. and affiliates          100,000       85,600      37,800      43,000
                                                        ---------    ---------    --------    --------
                                                        $ 132,400    $ 120,800    $ 42,700    $ 58,100
                                                        ---------    ---------    --------    --------
                                                        ---------    ---------    --------    --------
</TABLE>
 
   Expenses payable to the General Partners and their affiliates (which are
included in accounts payable and accrued expenses) as of September 30, 1996 and
December 31, 1995 are $74,800 and $59,600, respectively.
 
   In addition, the General Partners and their affiliates performed similar
services for the Joint Venture. The Partnership's allocable share of the costs
and expenses incurred on behalf of the Joint Venture which are reimbursable to
the General Partners and their affiliates were $8,200 and $25,900, respectively,
for the nine months ended September 30, 1996 and 1995 and $(2,000) and $9,500,
respectively, for the three months ended September 30, 1996 and 1995.
 
   Prudential Securities Incorporated (``PSI''), an affiliate of the General
Partners, owns 1,117 limited partnership units at September 30, 1996.
 
 C. Sale of Eight Forge Park Property
 
   The Partnership sold for cash its interest in Eight Forge Park, a 102,000
square foot single-story research and development building located in Franklin,
Massachusetts, on August 30, 1996 for a gross sales price of $5,060,000 less
costs to sell and pro-rations of approximately $135,000. The gross sales price
was in excess of the appraised value. The purchaser of the Eight Forge Park
property was MGI Properties, a Massachusetts business trust. A distribution was
made in September 1996 in the amount of $100.00 per
                                       5
 <PAGE>
<PAGE>
$1,000 Unit from the sale of the Eight Forge Park property with the remainder of
the net proceeds being held to meet future Partnership obligations and
contingencies, if any.
 
D. Investment in Joint Venture
 
   The Partnership has a 46% interest in a joint venture with an affiliated
limited partnership. Presented below is summarized financial information for the
Joint Venture:

<TABLE>
<CAPTION>
                                                                     September 30,      December 31,
                                                                         1996               1995
<S>                                                                  <C>                <C>
----------------------------------------------------------------------------------------------------
Assets
Property held for sale                                                 $      --        $14,978,372
Accounts receivable, net                                                 223,400            688,279
Cash and cash equivalents                                                261,246          1,427,420
                                                                     -------------      ------------
Total assets                                                           $ 484,646        $17,094,071
                                                                     -------------      ------------
                                                                     -------------      ------------
Liabilities and partners' capital
Total liabilities                                                      $  85,518        $   326,699
                                                                     -------------      ------------
Partners' capital:
Prudential Acquisition Fund I, L.P.                                      170,386          9,009,238
Prudential Realty Acquisition Fund II, L.P.                              228,742          7,758,134
                                                                     -------------      ------------
Total partners' capital                                                  399,128         16,767,372
                                                                     -------------      ------------
Total liabilities and partners' capital                                $ 484,646        $17,094,071
                                                                     -------------      ------------
                                                                     -------------      ------------
</TABLE>

<TABLE>
<CAPTION>
                                                  Nine months ended            Three months ended
                                                    September 30,                 September 30,
                                              --------------------------    -------------------------
                                                 1996            1995         1996            1995
<S>                                           <C>             <C>           <C>            <C>
-----------------------------------------------------------------------------------------------------
Revenues
Rental income                                 $  769,900      $2,093,702    $  --          $  718,969
Recovery of expenses                             250,341         801,472       --             285,690
Interest income                                   51,801          76,056        5,169          26,803
                                              ----------      ----------    ---------      ----------
                                               1,072,042       2,971,230        5,169       1,031,462
                                              ----------      ----------    ---------      ----------
Expenses
Property operating                               430,759         831,705       --             302,450
Real estate taxes                                  6,814         415,351     (106,661)        161,907
General and administrative                        46,175         115,900        4,788          55,389
Loss on sale of assets                            56,540          --           --              --
Provision for loss on impairment of assets        --             850,000       --              --
Depreciation and amortization                     --             825,945       --             245,546
                                              ----------      ----------    ---------      ----------
                                                 540,288       3,038,901     (101,873)        765,292
                                              ----------      ----------    ---------      ----------
Net income (loss)                             $  531,754      $  (67,671)   $ 107,042      $  266,170
                                              ----------      ----------    ---------      ----------
                                              ----------      ----------    ---------      ----------
</TABLE>
 
   The two shopping centers owned by the Joint Venture (``Shopping Centers'')
were sold on March 26, 1996 for a gross sales price of $15,500,000 less costs to
sell.
 
   Joint venture equity loss includes a write-off of $718,000 during the three
months ended March 31, 1996 of the remaining Partnership costs incurred in the
acquisition of the Joint Venture investment that were in excess of its basis in
the Joint Venture. These excess costs were previously being amortized over a
twenty-year period and were written-off as a result of the sale of the Joint
Venture properties.
 
                                       6
<PAGE>
 
                  PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
                            (a limited partnership)
      ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
Liquidity and Capital Resources
 
   The Partnership has a real estate investment portfolio consisting of one
commercial property and an equity interest in a joint venture (the ``Joint
Venture'') which owned two shopping centers (``Shopping Centers''). The Shopping
Centers owned by the Joint Venture were sold on March 26, 1996 for a gross sales
price of $15,500,000 less costs to sell. In August 1996, the Partnership sold
its other commercial property, Eight Forge Park, for a gross sales price of
$5,060,000 less costs to sell and pro-rations.
 
   In January 1996, the General Partners mailed to all limited partners a
Consent Solicitation Statement asking for their written consent to approve (i) a
plan of sale of the remaining assets of the Partnership and (ii) the complete
liquidation and dissolution of the Partnership, as more fully described in the
Statement. As of March 11, 1996, the limited partners holding a majority of the
limited partnership units approved the plan of sale and complete liquidation and
dissolution of the Partnership. The General Partners are attempting to sell the
remaining property and liquidate the Partnership in 1997.
 
   During the nine months ended September 30, 1996, the Partnership's cash and
cash equivalents increased $810,000 because cash generated by operating
activities, net proceeds from the sale of the Eight Forge Park property and the
mortgage loan and distributions from the Joint Venture exceeded capital
expenditures and distributions paid to the partners.
 
Cash Distributions
 
   Cash distributions during the nine months ended September 30, 1996 totalled
$12,011,000, of which the limited partners received $11,964,000 ($268.84 per
unit) and the General Partners received the remainder. These distributions
consisted of $135.00 per unit and $16.22 per unit paid in April 1996 and May
1996, respectively, from the sale of the Shopping Centers, $8.12 per unit paid
in May 1996 from the sale of the first mortgage loan, $100.00 per unit paid in
September 1996 from the sale of Eight Forge Park and $9.50 per unit from current
and prior undistributed cash flow from operations of the directly-owned and
Joint Venture properties.
 
   The Partnership has only one property remaining consisting of a vacant
warehouse located in Rancho Cucamonga, California. As a result, the Partnership
has suspended recurring quarterly distributions from operations. However, it is
expected that when this property is sold, a significant portion of the net sales
proceeds will be distributed shortly after the closing.
 
Capital Improvements--Directly-Owned Properties
 
   For the nine months ended September 30, 1996, the Partnership incurred
$285,000 for tenant improvements and leasing commissions at Eight Forge Park and
the warehouse facility in Rancho Cucamonga. Projected capital expenditures for
the remainder of 1996 are estimated at $260,000 primarily for potential leasing
commissions at the warehouse facility in Rancho Cucamonga. These capital
improvements will be funded from prior undistributed cash balances.
 
Results of Operations
 
   The Partnership's net income for the nine and three months ended September
30, 1996 increased $406,000 and $1,048,000, respectively, as compared to 1995.
The variances for the directly-owned properties and Joint Venture investment are
described below.
 
Directly-Owned Properties
 
   Eight Forge Park, a 102,000 square foot single-story research and development
building located in Franklin, Massachusetts, was sold on August 30, 1996 for a
gross sales price of $5,060,000 less costs to sell and pro-rations of
approximately $135,000. The gross sales price was in excess of the appraised
value. As a result of the sale, the Partnership recorded a gain on sale of
property of $1,105,000 in the third quarter of 1996.
 
   Rental income for the nine and three months ended September 30, 1996
decreased $495,000 and $203,000 respectively, as compared to 1995 at the
warehouse facility in Rancho Cucamonga, California,
                                       7
 <PAGE>
<PAGE>
due to its vacancy in March 1996. The Partnership is presently seeking to sell
the property. Property operating expenses for the nine and three months ended
September 30, 1996 increased by $75,000 and $31,000, as compared to 1995
primarily due to increases in repairs and maintenance and advertising expenses
partially offset by reduced insurance costs.
 
   Interest income for the nine and three months ended September 30, 1996
increased $12,000 and $8,000, respectively, as compared to 1995 primarily due to
an increased average cash balance as a result of the proceeds from the sales of
both the Shopping Centers and the Eight Forge Park property.
 
   Real estate taxes for the nine months ended September 30, 1996 increased
$55,000 as compared to 1995 primarily as a result of a refund received in the
second quarter of 1995 from a successful appeal of the 1992 and 1993 taxes at
the Rancho Cucamonga warehouse facility. Real estate taxes for the three months
ended September 30, 1996 were comparable to 1995.
 
   General and administrative expenses for the nine and three months ended
September 30, 1996 decreased $67,000 and $75,000, respectively, compared to 1995
primarily due to decreased costs to administer the Partnership and to costs
incurred in the prior year relating to the Consent Solicitation Statement.
 
   Depreciation expense for the nine and three months ended September 30, 1996
decreased $285,000 and $95,000, respectively, as compared to 1995 due to the
reclassification of the Partnership's properties from held for use to held for
sale as of December 31, 1995. Under generally accepted accounting principles,
such properties are no longer depreciated and, therefore, no depreciation
expense was recorded for the nine months ended September 30, 1996.
 
Joint Venture Investment
 
   The sale of the two shopping centers owned by the Joint Venture occurred on
March 26, 1996 at a gross sales price of $15,500,000 less costs to sell,
resulting in a $56,000 loss on the sale.
 
   Joint venture equity loss includes a write-off of $718,000 during the three
months ended March 31, 1996 of the remaining Partnership costs incurred in the
acquisition of the Joint Venture investment that were in excess of its basis in
the Joint Venture. These excess costs were previously being amortized over a
twenty-year period and were written-off as a result of the sale of the Joint
Venture properties.
 
   During the third quarter of 1996, the Joint Venture received $107,000 as a
result of the successful appeal of the 1995 real estate assessment values of the
Shopping Centers. The amount was recorded as a reduction of the 1996 real estate
tax expense.
 
                                       8
 <PAGE>
<PAGE>
 
                           PART II. OTHER INFORMATION
Item 1.   Legal Proceedings--None
Item 2.   Changes in Securities--None
Item 3.   Defaults Upon Senior Securities--Not Applicable
Item 4.   Submission of Matters to a Vote of Security Holders--None
Item 5.   Other Information--None
Item 6.   Exhibits and Reports on Form 8-K
          a. Exhibits
          Description:
          3 and 4 Amended and Restated Agreement of Limited Partnership(1)
                  Amendment to Limited Partnership Agreement dated as of 
                    January 1, 1987(2)
          27       Financial Data Schedule (filed herewith)
          b. Reports on Form 8-K--Registrant's Current Report on Form 8-K 
             dated August 30, 1996, as filed with the Securities and 
             Exchange Commission on September 13, 1996, relating to
             Item 2 regarding the sale of the Eight Forge Park property.

---------------
(1) Incorporated by reference to Prospectus dated February 14, 1985, filed with
    the Commission pursuant to Rule 424(b) under the Securities Act of 1933
 
(2) Incorporated by reference to Exhibits 3 and 4 of Registrant's Annual Report
    on Form 10-K for the year ended December 31, 1988
 
                                       9
<PAGE>
                                   SIGNATURES
 
   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
Prudential Realty Acquisition Fund II, L.P.
 
By: Prudential-Bache Properties, Inc.
    A Delaware corporation, General Partner
    By: /s/ Eugene D. Burak                       Date: November 14, 1996
    -----------------------------------------
    Eugene D. Burak
    Vice President
    Chief Accounting Officer for the Registrant
                                       10