UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                    ----------------------------------

                                    FORM 10-Q

        |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                       FOR THE QUARTER ENDED June 30, 1999

                                       OR

       |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

            For the transition period from ______ to _______ .


                         Commission File Number: 0-15705


            PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
           -----------------------------------------------------
          (Exact name of registrant as specified in its charter)


            Virginia                                           04-2918819
            --------                                           ----------
(State or other jurisdiction of                             (I.R.S.mployer
incorporation or organization)                              Identification No.)


265 Franklin Street, Boston, Massachusetts                         02110
------------------------------------------                         -----
(Address of principal executive offices)                         (Zip Code)


Registrant's telephone number, including area code  (617) 439-8118
                                                    --------------

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 |X| No |_|.

<PAGE>

               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS
                  June 30, 1999 and March 31, 1999 (Unaudited)
                                 (In thousands)

                                     ASSETS

                                                     June 30        March 31
                                                     -------        --------
Operating investment properties:
   Land                                              $     -        $   2,342
   Building and improvements                               -            5,437
                                                     -------        ---------
                                                           -            7,779
   Less accumulated depreciation                           -           (2,307)
                                                     -------        ---------
                                                           -            5,472

Investments in unconsolidated joint
  ventures, at equity                                 27,427           27,774
Cash and cash equivalents                              6,671            6,181
Accounts receivable                                      232              346
Prepaid expenses                                           2                6
Deferred rent receivable                                   -              135
Deferred expenses, net of accumulated
  amortization                                             -               58
Other assets                                               -               17
                                                     -------        ---------
                                                     $34,332        $  39,989
                                                     =======        =========

             LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses                $   128        $     170
Net advances from consolidated ventures                    -              156
Mortgage notes payable                                 9,092            9,132
Partners' capital                                     25,112           30,531
                                                     -------        ---------
                                                     $34,332        $  39,989
                                                     =======        =========










                  See accompanying notes.


<PAGE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               For the three months ended June 30, 1999 and 1998
                                   (Unaudited)
                      (In thousands, except per Unit data)

                                                    1999          1998
                                                    ----          ----
Revenues:
   Rental income and expense reimbursements       $   439         $1,256
   Interest and other income                          150            113
                                                  -------         ------
                                                      589          1,369
Expenses:
   Property operating expenses                        197            315
   Depreciation and amortization                      192            522
   Interest expense                                   208            477
   Real estate taxes                                   62            136
   General and administrative                         113            120
                                                  -------         ------
                                                      772          1,570
                                                  -------         ------
Operating loss                                       (183)          (201)

Gain on sale of operating investment property       2,665              -

Partnership's share of unconsolidated
  ventures' income                                    299            341
                                                  -------         ------

Net income                                        $ 2,781         $  140
                                                  =======         ======

Net income per 1,000 Limited
  Partnership Unit                                $ 20.47         $ 1.03
                                                  =======         ======

Cash distributions per 1,000 Limited
  Partnership Unit                                $ 61.00         $ 2.21
                                                  =======         ======


   The above per 1,000 Limited  Partnership  Units information is based upon the
134,425,741 Limited Partnership Units outstanding during each period.






                             See accompanying notes.


<PAGE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
          For the three months ended June 30, 1999 and 1998 (Unaudited)
                                 (In thousands)


                                                    General      Limited
                                                    Partners     Partners
                                                    --------     --------

Balance at March 31, 1998                           $   (554)    $  50,304
Cash distributions                                        (3)         (297)
Net income                                                 1           139
                                                    --------     ---------
Balance at June 30, 1998                            $   (556)    $  50,146
                                                    ========     =========

Balance at March 31, 1999                           $   (436)    $  30,967
Cash distributions                                         -        (8,200)
Net income                                                29         2,752
                                                    --------     ---------
Balance at June 30, 1999                            $   (407)    $  25,519
                                                    ========     =========

























                             See accompanying notes.


<PAGE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the three months ended June 30, 1999 and 1998 (Unaudited)
         Increase (Decrease) in Cash and Cash Equivalents (In thousands)

                                                            1999       1998
                                                            ----       ----
Cash flows from operating activities:
   Net income                                             $  2,781   $     140
   Adjustments to reconcile net income to net cash
     used in operating activities:
     Gain on sale of operating investment property          (2,665)          -
     Partnership's share of unconsolidated ventures'
       income                                                 (299)       (341)
     Depreciation and amortization                             192         522
     Amortization of deferred financings costs                   -          10
     Changes in assets and liabilities:
      Escrowed cash                                              -        (135)
      Accounts receivable                                      114         (60)
      Prepaid expenses                                           4          17
      Deferred rent receivable                                   -          26
      Deferred expenses                                          -         (12)
      Other assets                                               -           -
      Accounts payable and accrued expenses                    (42)        171
      Advances from consolidated ventures                     (156)       (537)
      Tenant security deposits                                   -           8
                                                          --------   ---------
         Total adjustments                                  (2,852)       (331)
                                                          --------   ---------
         Net cash used in operating activities                 (71)       (191)
                                                          --------   ---------

Cash flows from investing activities:
   Net proceeds from sale of operating investment
      property                                               8,155           -
   Distributions from unconsolidated ventures                  716         740
   Additional investments in unconsolidated ventures           (70)       (193)
   Additions to operating investment properties                  -         (44)
                                                          --------   ---------
         Net cash provided by investing activities           8,801         503
                                                          --------   ---------

Cash flows from financing activities:
   Distributions to partners                                (8,200)       (300)
   Repayment of principal on long term debt                    (40)        (74)
                                                          --------   ---------
         Net cash used in financing activities              (8,240)       (374)
                                                          --------   ---------

Net increase (decrease) in cash and cash equivalents           490         (62)
Cash and cash equivalents, beginning of period               6,181       6,202
                                                          --------   ---------
Cash and cash equivalents, end of period                  $  6,671   $   6,140
                                                          ========   =========

Cash paid during the period for interest                  $    208   $     467
                                                          ========   =========

                  See accompanying notes.


<PAGE>
              PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    General
      -------

      The accompanying financial statements,  footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended March 31, 1999. In the opinion of
management, the accompanying financial statements,  which have not been audited,
reflect all adjustments  necessary to present fairly the results for the interim
period. All of the accounting  adjustments reflected in the accompanying interim
financial statements are of a normal recurring nature.

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which  requires  management to make  estimates and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and liabilities as of June 30, 1999 and March 31, 1999 and revenues and expenses
for each of the three-month periods ended June 30, 1999 and 1998. Actual results
could differ from the estimates and assumptions used.

      The Partnership  originally  invested  approximately  $132,200,000 (net of
acquisition fees) in ten operating properties through joint venture investments.
Through  March 31, 1999,  seven of these  investments  had been sold,  including
three during fiscal 1999. In addition,  on May 14, 1999 the Partnership sold the
West Ashley  Shoppes  property  (see Note 4). After this sale  transaction,  the
Partnership retains an interest in two operating properties, which consist of an
office  complex and a retail  shopping  center.  The  Partnership  is  currently
focusing on potential  disposition  strategies for the remaining  investments in
its portfolio. Although no assurances can be given, it is currently contemplated
that sales of the  Partnership's  remaining assets could be completed by the end
of calendar year 1999. The sale of the remaining  investments  would be followed
by a liquidation of the Partnership.

2.    Related Party Transactions
      --------------------------

      Included in general and administrative expenses for the three months ended
June 30,  1999 and  1998 is  $60,000  and  $58,000,  respectively,  representing
reimbursements  to an affiliate of the Managing  General  Partner for  providing
certain  financial,  accounting  and  investor  communication  services  to  the
Partnership.

      Also included in general and  administrative  expenses for the three-month
periods  ended  June 30,  1999  and 1998 is  $3,000  and  $4,000,  respectively,
representing  fees  earned  by an  affiliate,  Mitchell  Hutchins  Institutional
Investors, Inc., for managing the
Partnership's cash assets.

3.    Investments in Unconsolidated Joint Ventures
      --------------------------------------------

      As of June 30, 1999, the Partnership had investments in two unconsolidated
joint  venture  partnerships  (three  at June  30,  1998)  which  own  operating
investment  properties as described further in the Partnership's  Annual Report.
The  unconsolidated  joint venture  partnerships are accounted for on the equity
method in the Partnership's  financial  statements  because the Partnership does
not have a voting control  interest in these joint ventures.  The  Partnership's
policy  is to  recognize  its  share of  ventures'  operations  three  months in
arrears.

      On July 2, 1998, Richmond Gables Associates,  a joint venture in which the
Partnership  held an interest,  sold The Gables at Erin Shades  Apartments to an
unrelated  third  party  for  $11,500,000.  After  deducting  closing  costs and
property  adjustments  of $320,000,  The Gables joint venture  received net sale
proceeds  of  $11,180,000.  These  net sale  proceeds  were  split  between  the
Partnership  and its  co-venture  partner  in  accordance  with the terms of The
Gables joint venture  agreement.  The Partnership  received  $10,602,000 and the
non-affiliated  co-venture  partner received $578,000 as their share of the sale
proceeds. From its share of the proceeds, the Partnership prepaid its refinanced
original  zero coupon loan secured by the  property  and the related  prepayment
fee, the sum of which was $5,449,000. The Partnership distributed the $5,153,000
of net  proceeds  from the sale of The  Gables,  along  with an  amount  of cash
reserves that exceeded  expected future  requirements,  in the form of a special
distribution  totalling  approximately  $5,243,000,  or $39 per original  $1,000
investment, on July 20, 1998.
<PAGE>

      Summarized  operations  of the  unconsolidated  joint  ventures,  for  the
periods indicated, are as follows.

                    Condensed Combined Summary of Operations
               For the three months ended March 31, 1999 and 1998
                                 (in thousands)

                                                 1999              1998
                                                 ----              ----
Revenues:
   Rental revenues and expense recoveries       $2,444            $2,613
   Interest and other income                        13                21
                                                ------            ------
                                                 2,457             2,634
Expenses:
   Property operating expenses                     641               663
   Real estate taxes                               472               426
   Interest expense                                 86               207
   Depreciation and amortization                   855               824
                                                ------            ------
                                                 2,054             2,120
                                                ------            ------
Net income                                      $  403            $  514
                                                ======            ======

Net income:
   Partnership's share of combined income       $  313            $  355
   Co-venturers' share of combined income           90               159
                                                ------            ------
                                                $  403            $  514
                                                ======            ======

               Reconciliation of Partnership's Share of Operations
                For the three months ended June 30, 1999 and 1998
                                 (in thousands)

                                                 1999              1998
                                                 ----              ----
   Partnership's share of operations,
    as shown above                              $  313            $  355
   Amortization of excess basis                    (14)              (14)
                                                ------            ------
   Partnership's share of unconsolidated
    ventures' net income                        $  299            $  341
                                                ======            ======

4.    Operating Investment Properties
      -------------------------------

      The  Partnership's  balance sheet at March 31, 1999 included one operating
investment  property  (three at June 30, 1998) owned by a joint venture in which
the Partnership had a controlling interest:  West Ashley Shoppes Associates.  On
May 14, 1999,  West Ashley  Shoppes  Associates  sold the property known as West
Ashley Shoppes,  located in Charleston,  South  Carolina,  to an unrelated third
party for $8.1  million.  In  addition,  on May 12,  1999,  West Ashley  Shoppes
Associates  had sold an adjacent  outparcel of land to another  unrelated  third
party for $280,000.  The May 14  transaction  involved the remaining real estate
owned by the joint venture. The Partnership received total net proceeds from the
two sale transactions of approximately  $8,070,000 after deducting closing costs
of approximately $225,000 and net closing proration adjustments of approximately
$85,000. The Partnership distributed the net proceeds of the West Ashley Shoppes
sale transactions to the Limited Partners in the form of a special  distribution
in the amount of  approximately  $60 per original $1,000  investment on June 15,
1999.

      On November 20, 1998,  Hacienda Park Associates,  a joint venture in which
the  Partnership  had a controlling  interest,  sold the Hacienda  Business Park
property to an unrelated third party for $25 million.  The property consisted of
four separate office/R&D buildings comprising approximately 185,000 square feet,
located in  Pleasanton,  California.  The  Partnership  received net proceeds of
approximately   $20,861,000  after  deducting  closing  costs  of  approximately
$278,000,  net closing  proration  adjustments  of  approximately  $89,000,  the
repayment of the existing  first mortgage note of  approximately  $3,769,000 and
accrued interest of approximately $3,000.

      On December 21, 1998, Atlanta Asbury Partnership, a joint venture in which
the  Partnership  had a  controlling  interest,  sold the  Asbury  Commons to an
unrelated third party for $13.345  million.  The Asbury Commons  Apartments is a
204-unit  residential  apartment  complex  located  in  Atlanta,   Georgia.  The
Partnership  received net proceeds of  approximately  $5,613,000 after deducting
closing  costs of  approximately  $291,000,  closing  proration  adjustments  of
approximately   $90,000,   the  repayment  of  the  existing  mortgage  note  of
approximately  $6,598,000,  accrued  interest  of  approximately  $10,000  and a
prepayment penalty of approximately $743,000.

      The  Partnership's  policy is to report the operations of the consolidated
joint ventures on a three-month lag. However,  the Partnership's  policy is also
to record significant lag-period transactions in the period in which they occur.
Accordingly,  the  Partnership  accelerated  the  recognition  of the  operating
results of West Ashley Shoppes Associates during the quarter ended June 30, 1999
and  recorded  a gain of  $2,665,000  on the  sale of the  operating  investment
property.

5.    Mortgage Notes Payable
      -----------------------

      Mortgage  notes  payable  on  the  consolidated   balance  sheets  of  the
Partnership  at June 30, 1999 and March 31, 1999  consist of the  following  (in
thousands):
                                                June 30          March 31
                                                -------          --------

     9.125% mortgage note payable by the
     Partnership to an insurance company
     secured  by the 625 North  Michigan
     Avenue     operating     investment
     property.  The  terms  of the  note
     were  modified  effective  May  31,
     1994.  The  loan  requires  monthly
     principal and interest  payments of
     $83  through  maturity  on  May  1,
     2000.   In   addition,   the   loan
     requires   monthly  deposits  to  a
     capital   improvement  escrow.  The
     fair  value  of the  mortgage  note
     approximated  its carrying value at
     June 30,  1999 and March 31, 1999          $  9,092         $ 9,132
                                                ========         =======

      On April 29, 1988, the  Partnership  borrowed  $6,000,000 in the form of a
zero coupon loan secured by the 625 North Michigan  Office  Building which had a
scheduled maturity date in May of 1995. The terms of the loan agreement required
that if the loan ratio,  as defined,  exceeded 80%, the Partnership was required
to deposit  additional  collateral  in an amount  sufficient  to reduce the loan
ratio to 80%. During fiscal 1994, the lender informed the Partnership that based
on an interim property appraisal, the loan ratio exceeded 80% and that a deposit
of additional collateral was required.  Subsequently,  the Partnership submitted
an appraisal  which  demonstrated  that the loan ratio exceeded 80% by an amount
less than previously  demanded by the lender.  In December 1993, the Partnership
deposited  additional  collateral  of  $208,876  in  accordance  with the higher
appraised  value.  The lender accepted the  Partnership's  deposit of additional
collateral but disputed  whether the  Partnership had complied with the terms of
the loan agreement  regarding the 80% loan ratio.  During the quarter ended June
30, 1994,  an agreement was reached with the lender of the zero coupon loan on a
proposal to refinance the loan and resolve the outstanding  disputes.  The terms
of the  agreement  called for the  Partnership  to make a principal  pay down of
$801,000,  including the  application of the additional  collateral  referred to
above. The maturity date of the loan, which now requires  principal and interest
payments on a monthly  basis as set forth  above,  was extended to May 31, 1999.
The terms of the loan  agreement  also required the  establishment  of an escrow
account for real estate taxes, as well as a capital  improvement escrow which is
to  be  funded  with  monthly   deposits   from  the   Partnership   aggregating
approximately $1 million through the scheduled  maturity date. Formal closing of
the modification and extension  agreement  occurred on May 31, 1994.  During the
quarter ended June 30, 1999, the Partnership  negotiated a one-year extension of
the  maturity  date to May 31,  2000.  The  interest  rate of 9.125% and monthly
interest payments of $83,000 remain unchanged. The Partnership paid an extension
fee of $46,000 to obtain the extension.

      On November 7, 1994,  the  Partnership  repaid  certain  outstanding  zero
coupon  loans  secured by The Gables  Apartments  and the  Richland  Terrace and
Richmond Park apartment  complexes of  approximately  $2,353,000 and $2,106,000,
respectively,  with the proceeds of a new $5.2 million loan obtained by Richmond
Gables  Associates  and secured by The Gables  Apartments.  The new $5.2 million
loan bore interest at 8.72% and was scheduled to mature in 7 years. As discussed
further  in Note 3, The  Gables  Apartments  was  sold on July 2,  1998 and this
mortgage loan was repaid in full. On February 10, 1995, the  Partnership  repaid
an outstanding  zero coupon loan secured by Gateway Plaza  (formerly  Loehmann's
Plaza), of approximately $4,093,000,  with the proceeds of a new $4 million loan
obtained by  Daniel/Metcalf  Associates  Partnership along with additional funds
contributed  by the  Partnership.  The $4 million loan is secured by the Gateway
Plaza shopping  center,  carries an annual interest rate of 9.04% and matures on
February 15, 2003. The loan requires monthly  principal and interest payments of
$34,000.  Legal  liability for the repayment of the new mortgage loan secured by
the Gateway Plaza property rests with the related  unconsolidated joint venture.
Accordingly  the  mortgage  loan  liability  is  recorded  on the  books  of the
unconsolidated  joint venture.  The Partnership  has indemnified  Daniel/Metcalf
Associates   Partnership  and  the  related   co-venture   partner  against  all
liabilities, claims and expenses associated with this borrowing.

<PAGE>



               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified  in Item 7 of the  Partnership's  Annual  Report on Form 10-K for the
year ended March 31, 1999 under the heading  "Certain  Factors  Affecting Future
Operating  Results," which could cause actual results to differ  materially from
historical  results  or  those  anticipated.   The  words  "believe,"  "expect,"
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

Liquidity and Capital Resources
-------------------------------

      In light of the continued  strength in the national real estate market and
the recent improvements in the office/R&D property markets,  management believes
that this may be an opportune time to sell the Partnership's remaining operating
investment  properties.  As  a  result,  management  is  currently  focusing  on
potential   disposition   strategies  for  the  remaining   investments  in  the
Partnership's portfolio.  With regard to the two remaining commercial office and
retail  properties,  the Partnership is working with each property's leasing and
management team to develop and implement  programs that will protect and enhance
value and maximize cash flow at each property  while at the same time  exploring
potential sale opportunities.  Although there are no assurances, it is currently
contemplated that sales of the Partnership's remaining assets could be completed
by the end of calendar year 1999.

      With the sale of the Asbury Commons Apartments, Hacienda Business Park and
The Gables Apartments  properties during fiscal 1999 and the resulting reduction
in distributable  cash flow to be received by the Partnership,  the payment of a
regular quarterly distribution was discontinued beginning with the quarter ended
March 31, 1999. A final  regular  quarterly  distribution  of $2.21 per original
$1,000  investment  was made on February 12, 1999 for the quarter ended December
31, 1998.

      On May 14, 1999, West Ashley Shoppes Associates,  a joint venture in which
the Partnership had an interest, sold the property known as West Ashley Shoppes,
located in  Charleston,  South  Carolina,  to an unrelated  third party for $8.1
million.  In addition,  on May 12, 1999, West Ashley Shoppes Associates had sold
an adjacent outparcel of land to another unrelated third party for $280,000. The
May 14  transaction  involved  the  remaining  real  estate  owned by the  joint
venture.  The  Partnership  received  total  net  proceeds  from  the  two  sale
transactions  of  approximately  $8,070,000  after  deducting  closing  costs of
approximately  $225,000 and net closing  proration  adjustments of approximately
$85,000.  In addition,  the  Partnership  received  final net cash flow from the
property of approximately $168,000 after the payment of final operating expenses
and the liquidation of the joint venture. As previously reported,  with a strong
occupancy level and a stable base of tenants,  the  Partnership  believed it was
the opportune time to sell West Ashley Shoppes.  As part of a plan to market the
property for sale, the Partnership  selected a national real estate firm that is
a  leading  seller of this  property  type.  Preliminary  sales  materials  were
prepared and initial marketing efforts were undertaken.  A marketing package was
then  finalized  and  comprehensive  sale efforts  began in November  1998. As a
result  of  these  efforts,  ten  offers  were  received.  After  completing  an
evaluation  of  those  offers  and  the  relative  strength  of the  prospective
purchasers, the Partnership selected an offer. A purchase and sale agreement was
negotiated with an unrelated third-party  prospective buyer and a non-refundable
deposit of  $150,000  was made on  January  29,  1999.  This  prospective  buyer
completed its due diligence  review work and the  transaction  closed on May 14,
1999, as described  above. As a result of the sale of West Ashley  Shoppes,  the
Partnership made a Special Distribution of approximately  $8,200,000, or $61 per
original $1,000 investment, on June 15, 1999 to unitholders of record on May 14,
1999. The Partnership  recognized a gain of $2,665,000  during the quarter ended
June 30, 1999 in connection with the sale of the West Ashley Shoppes property.

      With the sale of West Ashley  Shoppes,  the  Partnership has two remaining
real estate  investments  which  consist of joint  venture  interests in Gateway
Plaza and 625 North Michigan Avenue.  Gateway Plaza Shopping Center is a 143,300
square foot retail property located in Overland Park (Kansas City),  Kansas.  As
previously reported, during fiscal 1999 the Partnership selected a national real
estate  firm that is a leading  seller of small  retail  centers  to market  the
Gateway Plaza property for sale.  Preliminary  sales materials were prepared and
initial marketing efforts were undertaken in March 1999. A marketing package was
then finalized and  comprehensive  sale efforts began in early April 1999. As of
April 30, 1999,  several  offers had been  received.  To reduce the  prospective
buyer's  due  diligence  work and the time  required  to  complete  it,  updated
operating  reports as well as  environmental  information  on the property  were
provided to the top prospective  buyers, who were asked to submit best and final
offers. After completing an evaluation of these offers and the relative strength
of the prospective purchasers,  the Partnership selected an offer and negotiated
a purchase and sale agreement in May 1999. However, subsequently the prospective
buyer  decided to  terminate  the sales  contract at the  conclusion  of its due
diligence period.  The Partnership then decided to remarket the property in June
1999. By early July, 14 offers had been received. After completing an evaluation
of these offers and the relative  strength of the  prospective  purchasers,  the
Partnership  selected an offer and  subsequently  negotiated a purchase and sale
agreement which was signed on July 21, 1999. However, since the sale transaction
remains  contingent  upon,  among other things,  satisfactory  completion of the
buyer's due diligence, there are no assurances that the sale will be completed.

      Gateway Plaza is under a contract for sale to this  unrelated  third-party
buyer for $13,550,000.  The Partnership is expected to receive distributable net
sale proceeds of approximately  $9,050,000 from the transaction  after deducting
estimated  closing costs and property  proration  adjustments  of  approximately
$500,000 and a deduction for the payment of the  $4,000,000  first mortgage debt
secured by the property. If this potential sale transaction closes as described,
a Special Distribution of approximately $67.00 per original $1,000 investment is
expected to be paid to the Limited Partners by October 31, 1999.

      The 625 North  Michigan  Office  Building  in Chicago,  Illinois,  was 92%
leased as of June 30, 1999,  compared to 93% leased as of March 31,  1999.  Over
the next year,  eight  leases  representing  a total of 12,939  square  feet are
scheduled  to expire.  The  property's  leasing  team  expects that two of these
tenants  occupying  3,547 square feet will renew,  and that the remaining  space
will be  leased  to new  tenants.  The  property's  leasing  team  continues  to
negotiate with two prospective tenants that would lease a total of approximately
7,450 square feet. As previously reported, the local market continues to display
an improving  trend. In this local market,  where there is no current or planned
new  construction of office space, the market vacancy level at June 30, 1999 has
been reduced to 8.6%,  which places more upward  pressure on rental  rates.  The
higher effective rents currently being achieved at 625 North Michigan Avenue are
expected to increase cash flow and value as new tenants sign leases and existing
tenants sign lease  renewals in calendar  year 1999.  The  Partnership  has been
actively  working with the  co-venture  partner on potential  redevelopment  and
leasing  opportunities  with specialty and fashion  retailers  looking to locate
stores near the building.  These retailers pay significantly higher rental rates
than office rental rates.  Formal approval received from the City Council during
fiscal  1999 to enclose  the arcade  sections  of the first  floor will  greatly
improve the chances of adding a major retail  component to the building's  North
Michigan  Avenue  frontage.  Now  that  this  approval  has been  obtained,  the
Partnership is  simultaneously  exploring  potential  opportunities to sell this
property with the development  rights.  Subsequent to the quarter ended June 30,
1999, the  Partnership  selected a real estate  brokerage firm to market the 625
North  Michigan  property for sale.  Materials  for the  marketing  packages are
currently being finalized and  comprehensive  sale efforts are expected to begin
by September 30, 1999.

      At June 30, 1999, the Partnership and its consolidated  joint ventures had
available cash and cash equivalents of approximately  $6,671,000.  Such cash and
cash  equivalents  will be utilized for the working capital  requirements of the
Partnership and, as necessary,  for the capital needs of the  Partnership's  two
remaining   commercial   properties.   The  source  of  future   liquidity   and
distributions  to the  partners is expected to be through  cash  generated  from
operations  of the  Partnership's  income-producing  investment  properties  and
proceeds received from the sale or refinancing of such properties.  Such sources
of liquidity are expected to be sufficient  to meet the  Partnership's  needs on
both a short-term and long-term basis.

      As noted above, the Partnership  expects to be liquidated prior to the end
of calendar 1999.  Notwithstanding  this, the  Partnership  believes that it has
made all necessary  modifications to its existing systems to make them year 2000
compliant and does not expect that  additional  costs  associated with year 2000
compliance,  if any, will be material to the Partnership's results of operations
or financial position.

Results of Operations
Three Months Ended June 30, 1999
--------------------------------

      The  Partnership  reported net income of  $2,781,000  for the three months
ended June 30, 1999 as compared to net income of $140,000 for the same period in
the prior year.  The  increase in net income was  primarily a result of the gain
realized  from  the  sale of the  operating  investment  property  owned  by the
consolidated  West Ashley  Shoppes joint venture during the current  period.  As
discussed  further above,  the  Partnership  sold the  consolidated  West Ashley
Shoppes property on May 14, 1999. Due to the Partnership's policy of recognizing
significant  lag-period  transactions  in the  period in which they  occur,  the
Partnership  accelerated  the  recognition of the operating  results of the West
Ashley Shoppes joint venture during the quarter ended June 30, 1999 and realized
a gain of  $2,665,000 in  connection  with the sale of the operating  investment
property.  In addition,  the  Partnership's  operating loss decreased by $18,000
during  the  current  three-month  period.  The  decrease  in the  Partnership's
operating loss was primarily a result of the sale of the  consolidated  Hacienda
Park and Asbury Commons operating investment properties, whose operating results
were included in the prior period operating loss.

      The  gain on the  sale of West  Ashley  Shoppes  and the  decrease  in the
Partnership's  operating  loss  were  partially  offset  by a  decrease  in  the
Partnership's   share  of  unconsolidated   ventures'  income  for  the  current
three-month period. The Partnership's  share of unconsolidated  ventures' income
decreased by $42,000 for the three  months ended June 30, 1999 when  compared to
the same period in the prior year. This decrease was primarily due to a decrease
in net income at the 625 North Michigan and Gateway Plaza properties. Net income
decreased  at 625 North  Michigan  mainly  due to an  increase  in  repairs  and
maintenance expense and real estate taxes. The decrease in net income at Gateway
Plaza was primarily due to an increase in depreciation expense.


<PAGE>


                          PART II
                     Other Information

Item 1. Legal Proceedings  NONE

Item 2. through 5.         NONE

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits:            NONE

(b) Reports on Form 8-K:

      A  Current  Report on Form 8-K dated  May 14,  1999 was filed  during  the
current  quarter to report the sale of the West Ashley  Shoppes  property and is
hereby incorporated herein by reference.




<PAGE>



    PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP


                        SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                         PAINEWEBBER EQUITY PARTNERS TWO
                               LIMITED PARTNERSHIP


                             By:  Second Equity Partners, Inc.
                                  ----------------------------
                                  Managing General Partner



                             By: /s/ Walter V. Arnold
                                 ---------------------
                                 Walter V. Arnold
                                 Senior Vice President and
                                 Chief Financial Officer






Dated:  August 9, 1999