UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2004~~2006

¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)
One New York Plaza, 13th floor, New York, N.Y.		10292
751 Broad Street 2nd Floor, Newark, NJ		07102
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (~~212~~973) ~~778~~802-~~1000~~6000

N/A

Former name, former address and former fiscal year, if changed since last report.

Indicate by check Ö ü 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. ü Yes Ö No

Indicate by check Ömark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, ~~(as~~or ~~defined~~a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the ~~Securities~~ Exchange Act. of(Check ~~1934~~one)~~. Yes No~~: Ö


Large accelerated filer		Accelerated filer		Non-accelerated filer ü

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No ü

SEC1296 (12-05) Potential persons who are to respond to the collection of information contained in

this form are not required to respond unless the form displays a currently valid

OMB control number.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

(a limited partnership)

STATEMENTS OF NET ASSETS

(in process of liquidation)

(Unaudited)

	June 30, 2004		December 31, 2003
	June 30, 2006		December 31, 2005
ASSETS
Property held for sale	$	2,018,521	$	2,018,521
Cash and cash equivalents		1,883,003		1,737,148
Cash and cash equivalents ($60,000 provided as collateral atJune 30, 2006 and December 31, 2005)		1,467,493		1,608,754
Other assets		~~384~~273,~~022~~876		~~399~~314,~~750~~338
Total assets		43,~~285~~759,~~546~~890		43,~~155~~941,~~419~~613
LIABILITIES
Estimated liquidation costs		~~517~~870,~~100~~969		~~517~~731,~~100~~649
Estimated remediation costs		~~500~~256,~~000~~922		~~500~~313,~~000~~865
Total liabilities		1,~~017~~127,~~100~~891		1,~~017~~045,~~100~~514
Net assets available to limited and general partners	$	3,268,446	$	3,138,319
COMMITMENTS AND CONTINGENCIES
Net assets available to limited and general partners	$	2,631,999	$	2,896,099
Limited and equivalent partnership units issued and outstanding		51,818		51,818
Net asset value per limited and equivalent units	$	51.05	$	56.17

STATEMENT OF CHANGES IN NET ASSETS

(in process of liquidation)

(Unaudited)

	LIMITED PARTNERS			~~GENERAL PARTNERS~~	GENERAL PARTNERS		~~TOTAL~~	TOTAL
Net assets—December 31, 2003	$	3,138,319		$	—		$	3,138,319
Net assets—December 31, 2005	$	2,896,099			$	—		$	2,896,099
Net income from liquidating activities		130,127			—			130,127
Net loss from liquidating activities		(264,100	)						(264,100	)
Net assets—June 30, 2004	$	3,268,446		$	—		$	3,268,446
Net assets—June 30, 2006	$	2,631,999			$	—		$	2,631,999

The accompanying notes are an integral part of these statements.

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

(a limited partnership)

NOTES TO FINANCIAL STATEMENTS

June 30, ~~2004~~2006

(Unaudited)

A. General

These financial statements have been prepared without audit. In the opinion of Prudential-Bache Properties, Inc. (the “Managing General Partner”) or (“PBP”), the statements of net assets as of June 30, ~~2004~~2006 and December 31, ~~2003~~2005 contain all adjustments necessary to state fairly such information in accordance with the liquidation basis of accounting. Prudential-Bache/Watson & Taylor, Ltd.-2 (the “Partnership”) first adopted the liquidation basis of accounting as of October 1, 1996. Accordingly, the net assets of the Partnership are stated at liquidation value, i.e., the assets have been valued at their estimated fair values, net of selling expenses, and the liabilities include estimated amounts to be incurred through the date of liquidation of the Partnership, which is in conformity with accounting principles generally accepted in the United States. Due to the nature of the Hampton Park environmental issue (see further discussion below), the date of liquidation is uncertain; however, the Partnership has utilized a December 31, ~~2005~~ 2007 date for purposes of estimating costs through the conclusion of liquidation reflecting the Managing General Partner’s best estimate. The actual remaining net proceeds from liquidation will depend upon a variety of factors and are likely to differ from the estimated amounts reflected in the accompanying financial statements.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, ~~2003~~ 2005.

The general partners of the Partnership are PBP, George S. Watson and A. Starke Taylor, III (collectively, the “General Partners”).

B. Partnership Liquidation

In accordance with a consent statement dated September 17, 1996, the limited partners approved, during October 1996, the proposed sale of all eight ~~miniwarehouse~~mini-warehouse 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 ~~Capital~~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”) which 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

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 ~~the~~ soil and ground water. The ~~next step will be to obtain~~ MDE’s ~~approval~~approved onthe a plan for remedial action (the “Plan”) soon ~~that~~November ~~the~~24, ~~Partnership~~2004. ~~will~~In ~~have~~December ~~direction~~2004, ~~regarding~~an ~~the~~agreement ~~required~~was ~~remediation~~entered ~~and~~into ~~any~~with ~~other~~ATC ~~activities~~Associates Inc. ~~that~~(“ATC”), ~~may~~pursuant beto ~~required~~which ofATC ~~the~~will ~~Partnership~~provide orcertain ~~a prospective~~environmental ~~buyer.~~services ~~MACTEC~~to ~~has~~perform ~~been~~the ~~working~~environmental oncleanup as described in the Plan. ~~and~~During ~~has~~the ~~been~~first ~~discussing~~quarter ~~certain~~of ~~aspects~~2005, ATC began providing environmental services pursuant to the Plan. During the second quarter of 2006, the ~~plan~~ATC ~~directly~~filed an addendum to the Plan with the MDE. AsThe purpose of this addendum is to propose to the MDE several feasible and effective options for completing site remediation and obtaining a ~~result~~Certificate of Completion. While the ~~Partnership’s~~addendum ~~experience~~is inbeing ~~working~~reviewed ~~with~~by the MDE, onremediation ~~the~~continues ~~environmental~~according ~~issue,~~to the ~~Partnership~~Plan. ~~changed the~~The ~~estimated~~Managing ~~date~~General ofPartner ~~liquidation~~is innot ~~December~~presently ~~2003~~able to ~~December~~determine 31whether, ~~2005~~or ~~from~~to ~~September~~what 30extent, ~~2004.~~the Aspresently estimated cost of ~~June~~the ~~30,~~remediation will ~~2004,~~change upon the addendum implementation. The Statement of Net Assets in process of liquidation reflects an accrued liability of $~~500~~257,000 and $314,000, as of June 30, 2006 and December 31, 2005, respectively, which represents the Partnership’s best estimate of the obligation regarding the environmental issues mentioned above.; Ithowever, it is reasonably possible that the loss exposure will be in excess of the amount accrued and ~~will~~may 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~~In ~~Partnership~~2005, ~~intends~~the toGeneral ~~offer~~Partners reported that the ~~Hampton~~Partnership had ~~Park~~placed ~~property~~its tosole aremaining ~~select~~property, ~~group~~Hampton ofPark, ~~potential~~located ~~buyers~~in ~~which~~Capitol ~~specialize~~Heights, inMaryland, on the ~~purchase~~market offor ~~contaminated~~sale. ~~properties,~~A Purchase and ~~others,~~ ~~albeit~~Sale atagreement awas ~~discount~~entered ~~to take~~ into ~~account~~and ~~remediation~~subsequently ~~costs~~terminated. ItIn islight of the ~~intention~~termination of the ~~Partnership~~agreement, toduring ~~obtain~~2005 the ~~from~~Managing ~~any~~General ~~potential~~Partner ~~buyer~~changed asits ~~complete~~estimated anliquidation ~~indemnification~~date asto ~~possible~~December ~~for~~31, ~~any~~2006. ~~liability~~Subsequently, induring ~~connection~~July ~~with~~2006, ~~remediation~~the ofManaging ~~the contamination~~General Partner revised its estimated liquidation date of the ~~property.~~Partnership ~~Due~~from December 31, 2006 to ~~the~~December ~~environmental~~31, 2007. ~~problem~~As ~~and~~a ~~MDE~~result, ~~oversight~~at this time, itthe isManaging ~~uncertain~~General ~~when~~Partner ~~any~~has ~~such~~estimated ~~sale~~additional ~~could~~liquidating becosts ~~consummated.~~of ~~The~~approximately ~~Partnership’s~~$339,000 ~~liquidation~~or ~~and~~approximately ~~dissolution~~$7.00 ~~will~~per ~~proceed~~limited ~~upon~~and ~~the~~equivalent ~~sale~~participating unit of the ~~Hampton Park property~~Partnership.

~~Net~~The ~~assets~~General inPartners ~~liquidation~~intend ~~increased~~to ~~$130,127~~remarket ~~and~~the ~~$59,024~~property ~~during~~in the ~~six~~fourth quarter of 2006 once additional testing and ~~three~~remediation ~~months~~work ~~ended~~as ~~June~~well ~~30,~~as ~~2004,~~certain ~~respectively~~capital improvements are completed. The ~~increase~~General ~~resulted~~Partners ~~from~~plan ~~income~~to ~~from~~liquidate ~~operations~~the ofPartnership once the ~~Hampton~~remaining ~~Park~~ property, is sold and, to adistribute ~~lesser~~any ~~extent,~~remaining ~~interest~~funds ~~income~~after payment of and reserves for all expenses and liabilities.

Net assets in process of liquidation decreased $264,000 during the six months ended June 30, 2006. The decrease was mainly due to the additional liquidation costs as a result of the revised estimated liquidation date of the Partnership.

In April 2006, the Managing General Partner authorized capital improvements presented by the managing agent of the Hampton Park property totaling approximately $100,000. Subsequently, in July 2006, additional capital improvements of approximately $60,000 were approved. The Managing General Partner anticipates that these capital improvements will result in reduced operating expenses and higher rent revenues. These improvements are already reflected in the value of the property.

C. Related Parties

PBP and its affiliates perform services for the Partnership which include, but are not limited to the following: accounting and financial management, transfer and assignment functions, asset management, investor communications, certain 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. PBP is a wholly owned subsidiary of Prudential Securities Group, Inc. (“PSG”).

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. Effective February 2, 2004, Prudential Equity Group, Inc. was converted to a limited liability company named Prudential Equity Group, LLC (“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. 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.

PEG, an affiliate of PBP, owns 180 limited partnership units at June 30, 2004.

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,~~Affiliates of Messrs. Watson &and Taylor ~~Management~~, ~~Inc., an affiliate of~~ the individual General Partners ~~and the Partnership’s property manager~~, ~~receives~~also ~~4.5%~~perform ~~of the property’s gross revenues (as defined in the management agreement) as a management fee. Such management fees totalled $12,000 and $13,000 for the six months ended June 30, 2004 and 2003,~~certain ~~respectively,~~administrative and ~~totalled~~monitoring ~~$6,000~~functions ~~and~~on ~~$7,000~~behalf ~~for~~of the ~~three~~Partnership ~~months~~for ~~ended~~which ~~June~~they ~~30,~~receive ~~2004~~cost ~~and 2003, respectively~~reimbursement.

InAdditionally, ~~conjunction~~Watson ~~with~~& ~~the~~Taylor ~~liquidation~~Management, ~~basis of accounting~~Inc., ~~the Partnership has recorded~~ an ~~accrual~~affiliate as of ~~June 30, 2004 and December 31, 2003 for~~ the ~~estimated~~individual ~~costs expected~~General toPartners beand ~~incurred to liquidate~~ the Partnership.’s ~~Included~~property ~~in these estimated liquidation costs is $167~~manager,~~000~~ asreceives 4.5% of ~~June~~the ~~30,~~property’s ~~2004~~gross ~~and~~revenues ~~December~~(as ~~31,~~defined ~~2003,~~in ~~expected to be payable to~~ the ~~General~~management ~~Partners~~agreement) ~~and~~as ~~their~~a ~~affiliates~~management ~~during~~fee. ~~the~~Such ~~anticipated remaining~~management ~~liquidation~~fees ~~period.~~totalled ~~See~~$17,000 ~~Notes A~~ and B$13,000 for ~~a further discussion regarding~~ the ~~Partnership’s~~six ~~estimated~~months ~~liquidation~~ended ~~costs.~~June ~~The~~30, ~~actual~~2006 ~~charges~~and to2005, berespectively, ~~incurred~~and bytotalled ~~the~~$6,000 ~~Partnership~~for ~~will~~each ~~depend primarily upon the length~~ of ~~time required to~~ ~~liquidate~~ the ~~Partnership’s~~three ~~remaining~~months ~~net~~ended ~~assets, and may differ from the amounts accrued as of~~ June 30, ~~2004~~2006 and ~~such~~2005, ~~differences could be material~~respectively.

In conjunction with the liquidation basis of accounting, the Partnership has recorded an accrual as of June 30, 2006 and December 31, 2005 for the estimated costs expected to be incurred to liquidate the Partnership. Included in these estimated liquidation costs is $118,000 and $112,000 as of June 30, 2006 and December 31, 2005, 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 June 30, 2006 and such differences could be material.

PBP and the two individual General Partners of the Partnership own 258, 130 and 130 equivalent limited partnership units, respectively. PBP receives funds from the Partnership, such as General Partner distributions and reimbursement of expenses, but has waived all of its rights resulting from its ownership of equivalent limited partnership units. Accordingly, the 258 units owned by PBP are not part of the 51,560 limited and equivalent units which receive distributions and allocations of the Partnership’s profits and losses.

PSG, an affiliate of PBP, owns 180 limited partnership units at June 30, 2006, for which no such waivers on profit participation are in effect.

D. Commitments and Contingencies

On January 18, 2005, the Partnership had an irrevocable standby letter of credit established in the amount of $60,000 in favor of the MDE in connection with the Plan, which expires January 7, 2007.

E. Subsequent Events

During July 2006, the Managing General Partner revised its estimated liquidation date of the Partnership from December 31, 2006 to December 31, 2007. See Note B for more information.

In July 2006, additional capital improvements of approximately $60,000 were approved. See Note B for more information.

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

(a limited partnership)

ITEM 2. 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~~In ~~Partnership~~light ~~estimated~~of the ~~date~~termination of the Purchase and Sale Agreement in 2005 and other information, the managing general partner has changed its estimated liquidation todate beof the Partnership from December 31, ~~2005~~2006 ~~for~~to ~~purposes of~~December ~~estimating~~31, ~~costs~~2007 ~~through~~during July 2006, reflecting the ~~conclusion~~Managing ofGeneral ~~liquidation~~Partner’s best estimate. Due to the nature of the environmental issue ~~discussed in Note B to the Financial Statements~~, 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~~ mini-warehouse 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”) which 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~~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 the 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~~were ~~has~~performed ~~been~~and ~~working~~reported onto MDE during September 2003. MDE issued a response letter, dated October 24, 2003, in which it formally accepted the ~~Plan~~site into the VCP and ~~has~~informed ~~been~~the ~~discussing~~Partnership ~~certain~~that ~~aspects~~some form of remedial action is required to address elevated levels of PCE in soil and ground water. The MDE approved the plan ~~directly~~for remedial action (the “Plan”) on November 24, 2004. In December 2004, an agreement was entered into with ~~MDE~~ATC Associates Inc. As(“ATC”), apursuant ~~result~~to ofwhich ATC will provide certain environmental services to perform the ~~Partnership’s~~environmental ~~experience~~cleanup as described in ~~working with~~the ~~MDE~~Plan. onDuring the first quarter of 2005, ATC began providing environmental ~~issue~~services pursuant to the Plan. During the second quarter of 2006, the ~~Partnership~~ATC ~~changed~~filed an addendum to the ~~estimated~~Plan ~~date~~with the MDE. The purpose of ~~liquidation~~this inaddendum ~~December~~is ~~2003~~to propose to ~~December~~the ~~31,~~MDE ~~2005~~several ~~from~~feasible ~~September~~and 30effective options for completing site remediation and obtaining a Certificate of Completion. While the addendum is being reviewed by the MDE, ~~2004~~remediation continues according to the Plan. AsThe ofManaging ~~June~~General 30Partner is not presently able to determine whether, ~~2004~~or to what extent, the presently estimated cost of the remediation will change upon the addendum implementation. The Statement of Net Assets in process of liquidation reflects an accrued liability of $~~500~~257,000 and $314,000, as of June 30, 2006 and December 31, 2005 respectively, which represents the Partnership’s best estimate of the obligation regarding the environmental issues mentioned above.; Ithowever, it is reasonably possible that the loss exposure will be in excess of the amount accrued and ~~will~~ may 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~~Partnership.

~~The~~In ~~Partnership~~2005, ~~intends~~the toGeneral ~~offer~~Partners reported that the ~~Hampton~~partnership ~~Park~~had ~~property~~placed toits asole ~~select~~remaining ~~group~~property, ofHampton ~~potential~~Park, ~~buyers~~located ~~which~~in ~~specialize~~Capitol inHeights, ~~the~~Maryland, ~~purchase~~on ~~of contaminated~~the ~~properties,~~market ~~and~~for ~~others,~~sale. ~~albeit~~A atPurchase aand ~~discount~~Sale toagreement ~~take~~was entered into ~~account~~and ~~remediation~~subsequently ~~costs~~terminated. ItIn islight of the ~~intention~~ termination of the ~~Partnership~~agreement, toduring ~~obtain~~2005 ~~from~~the ~~any~~Managing ~~potential~~General ~~buyer~~Partner aschanged ~~complete~~its anestimated ~~indemnification~~liquidation asdate ~~possible~~to ~~for~~December ~~any~~31, ~~liability~~2006. inSubsequently, ~~connection with~~during ~~remediation~~July of2006, the ~~contamination~~Managing ofGeneral ~~the~~Partner ~~property.~~revised ~~Due~~its toestimated ~~the~~liquidation ~~environmental~~date ~~problem~~of ~~and~~the ~~MDE~~Partnership ~~oversight~~from December 31, it2006 isto ~~uncertain~~December ~~when~~31, ~~any~~2007. ~~such~~As ~~sale~~a ~~could~~result, beat ~~consummated.~~this ~~The~~time, the Managing General ~~Partners~~Partner ~~intend~~has toestimated ~~liquidate~~additional ~~the~~liquidating ~~Partnership~~costs ~~subject~~of toapproximately ~~the~~$339,000 ~~Hampton~~or ~~Park property~~approximately ~~first~~$7.00 ~~being~~per ~~sold,~~limited and ~~will~~equivalent ~~distribute~~participating ~~any~~unit ~~remaining~~of ~~funds at such time~~the Partnership.

InThe ~~conjunction~~General ~~with~~Partners ~~the~~intend ~~liquidation basis of accounting, the Partnership has recorded an accrual as of June 30, 2004 for the estimated costs expected~~ to beremarket ~~incurred to liquidate~~ the ~~Partnership. Due to the nature of the Hampton Park~~ ~~environmental~~property ~~issue,~~in the ~~date~~fourth ofquarter ~~liquidation is uncertain. However, as mentioned above, the Partnership has utilized a December 31, 2005 date for purposes~~ of ~~estimating~~2006 ~~costs~~once ~~through~~additional ~~the~~testing ~~conclusion of liquidation reflecting the Managing General Partner’s best estimate~~ and ~~giving~~remediation ~~consideration~~work toas ~~the~~well ~~progress~~as ~~that~~certain ~~has~~capital ~~been~~improvements ~~made~~are ~~with MDE (see discussion above)~~completed. The ~~actual~~General ~~charges~~Partners plan to beliquidate ~~incurred by~~ the Partnership ~~will~~once ~~depend primarily upon~~ the ~~length~~remaining ofproperty ~~time~~is ~~required~~sold and to ~~liquidate the~~distribute ~~Partnership’s~~any remaining ~~net~~funds ~~assets,~~after ~~and~~payment ~~may differ from the amounts accrued as~~ of ~~June 30, 2004~~ and ~~such~~reserves ~~differences~~for ~~could~~all beexpenses ~~material~~and liabilities.

Net assets in ~~liquidation~~process ~~increased~~of ~~$130,000~~liquidation ~~and~~decreased $59264,000 during the six ~~and three~~ months ended June 30, ~~2004~~2006. The ~~increase~~decrease ~~resulted~~was ~~from~~mainly ~~income~~due ~~from~~to ~~operations of~~ the ~~Hampton~~additional ~~Park~~liquidation ~~property,~~costs ~~and~~as to a ~~lesser~~result ~~extent,~~of ~~interest~~the ~~income~~revised estimated liquidation date of the Partnership.

As of June 30, ~~2004~~2006, the Partnership ~~had~~ has cash and cash equivalents of $1,~~883~~467,000, 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~~partner in accordance with the partnership agreement provisions, after payment of all expenses and liabilities, of the net sales proceeds and remaining cash.

Off-Balance Sheet Arrangements and Contractual Obligations

As of June 30, ~~2004~~2006, 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~~a ~~entered~~standby ~~into~~letter ~~in the normal course~~ of ~~business,~~credit ~~which may include indemnification provisions related to certain risks service providers, such~~ as ~~our~~further ~~accountants,~~discussed ~~undertake~~ in ~~performing~~Note ~~services~~D ~~which~~and ~~are~~those inthat ~~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~~ likely to have a material ~~impact~~current or future effect on the Partnership’s financial position.

The Partnership’s contractual obligations are primarily with service providers such as PBP, ATC, Watson & Taylor Management, Inc., ~~accountants,~~and ~~etc~~a registered public accounting firm. A summary of the Partnership’s significant contractual obligations as of June 30, ~~2004,~~2006 is as follows:

Contractual Obligations
Payments due by year
Payments due by period
Total	~~2004~~Less than1 year		~~2005~~	1-3 years		3-5 years		More than5 years
$172,000	$120,000		$52,000
$755,000	$	562,000		$	193,000	$	—	$	—

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 results of operations.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K~~None.

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Managing General Partner carried out an evaluation, under the supervision and with the participation of the officers of the Managing General Partner, including the Managing General Partner’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures. Based upon that evaluation, the Managing General Partner’s chief executive officer and chief financial officer concluded that the Partnership’s disclosure controls and procedures are effective.

~~There~~In ~~have~~designing ~~not~~and ~~been~~evaluating ~~any~~the ~~changes~~Partnership’s indisclosure ~~our internal~~ controls ~~over~~and procedures ~~financial reporting~~ (as defined in Rules 13a-15(e) ~~and~~or 15d-15(e) ~~under~~of the Securities Exchange Act of 1934, as(“Exchange ~~amended~~Act”)), ~~during~~ the ~~quarter~~Managing toGeneral ~~which~~Partner ~~this~~recognized ~~report~~that ~~relates~~any ~~that~~controls ~~have~~and procedures, no matter how well designed and operated, can ~~materially~~provide ~~affected~~only reasonable assurances of achieving the desired control objectives, oras the Partnership’s are ~~reasonably~~designed ~~likely~~to do, and the Managing General Partner necessarily was required to ~~materially~~apply ~~affect,~~its ~~our~~judgment ~~internal~~in evaluating the cost-benefit relationship of possible controls ~~over~~and ~~financial~~procedures. ~~reporting~~We believe that the Partnership’s disclosure controls and procedures provide such reasonable assurance.

There have not been any changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal ~~Proceeding~~Proceedings—None

Item 21A. ~~Changes~~Risk Factors—There have been no material changes relating to the risk factors that were previously provided in ~~Securities,~~the ~~Use~~Company’s ofForm ~~Proceeds~~10-K ~~and~~for ~~Issuer~~the ~~Purchases~~period ended ofDecember ~~Equity~~31, ~~Securities—None~~2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—None

Item 3. Defaults Upon Senior Securities—None

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:

4.01 Revised Certificate of Limited Partnership Interest (filed as an exhibit to Registrant’s Form 10-K for the year ended December 31, 1988 and incorporated herein by reference)

31.1

Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)

31.2

Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)

32.1

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)

32.2

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)

(b) Reports on Form 8-K:

(i) A report on Form 8-K was filed on May 11, 2004 pursuant to items 4 and 7 to announce the resignation of the Partnership’s independent auditors.

(ii) A report on Form 8-K was filed on May 17, 2004 pursuant to item 4 to announce the appointment of the Partnership’s new independent auditors.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Prudential-Bache/Watson & Taylor, Ltd.-2
By:	Prudential-Bache Properties, Inc.A Delaware corporationManaging General Partner
	By: /s/ William C. Yip	Date: August 16, 2004
	By: /s/ Warren S. Hoffman	Date: August 14, 2006
	William C. Yip Chief Financial Officer and Vice President
	Warren S. Hoffman Chief Financial Officer and Vice President

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