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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       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. Employer
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
                September 30, 1997 and March 31, 1997 (Unaudited)
                              (In thousands)

                                  ASSETS
                                                  September 30   March 31
                                                  ------------   --------
Operating investment properties:
   Land                                             $  7,351    $  7,351
   Buildings and improvements                         40,115      40,018
                                                    --------    --------
                                                      47,466      47,369
   Less accumulated depreciation                     (13,141)    (12,155)
                                                    --------    --------
                                                      34,325      35,214

Investments in unconsolidated ventures, 
  at equity                                           31,597      31,784
Cash and cash equivalents                              5,429       5,322
Escrowed cash                                            373         279
Accounts receivable                                      226         151
Prepaid expenses                                          49          50
Deferred rent receivable                                 782         832
Deferred expenses, net                                   575         646
                                                    --------    --------
                                                    $ 73,356    $ 74,278
                                                    ========    ========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses               $    585    $    271
Net advances from consolidated ventures                  319         400
Tenant security deposits                                  65         116
Bonds payable                                          2,197       2,297
Mortgage notes payable                                19,524      19,650
Other liabilities                                        331         331
Partners' capital                                     50,335      51,213
                                                    --------    --------
                                                    $ 73,356    $ 74,278
                                                    ========    ========








                             See accompanying notes.



<PAGE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and six months ended September 30, 1997 and 1996 (Unaudited)
                      (In thousands, except per Unit data)

                                     Three Months Ended      Six  Months Ended
                                        September 30,          September 30,
                                    -------------------    -------------------
                                      1997      1996          1997      1996
                                      ----      ----          ----      ----
Revenues:
   Rental income and expense
     reimbursements                $1,210    $1,382       $2,562      $2,579
   Interest and other income          100       104          200         180
                                   ------    ------       ------      ------
                                    1,310     1,486        2,762       2,759

Expenses:
   Property operating expenses        283       318          704         666
   Depreciation and amortization      531       532        1,050       1,013
   Interest expense                   475       483          948         998
   Real estate taxes                  135       141          271         279
   General and administrative         195        93          289         209
                                   ------    ------       ------      ------
                                    1,619     1,567        3,262       3,165
                                   ------    ------       ------      ------
Operating loss                       (309)      (81)        (500)       (406)

Partnership's share of
  unconsolidated ventures' 
  income                              168       129          222         205
                                   ------    ------       ------      ------

Net income (loss)                  $ (141)   $   48       $ (278)     $ (201)
                                   ======    ======       ======      ======

Net income (loss) per 1,000
  Limited Partnership Units        $(1.04)    $ 0.35      $(2.05)     $(1.48)
                                   ======     ======      ======      ======

Cash distributions per 1,000
  Limited Partnership Units        $ 2.21     $ 2.21      $ 4.42      $ 4.42
                                   ======     ======      ======      ======


   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 six months ended September 30, 1997 and 1996 (Unaudited)
                                 (In thousands)

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

Balance at March 31, 1996                           $   (494)   $ 56,173
Cash distributions                                        (6)       (594)
Net loss                                                  (2)       (199)
                                                    --------    --------
Balance at September 30, 1996                       $   (502)   $ 55,380
                                                    ========    ========

Balance at March 31, 1997                           $   (539)   $ 51,752
Cash distributions                                        (6)       (594)
Net loss                                                  (3)       (275)
                                                    --------    --------
Balance at September 30, 1997                       $   (548)   $ 50,883
                                                    ========    ========

























                             See accompanying notes.


<PAGE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the six months ended September 30, 1997 and 1996 (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                        1997        1996
                                                        ----        ----
Cash flows from operating activities:
   Net loss                                           $ (278)     $  (201)
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
     Partnership's share of unconsolidated 
       ventures' income                                 (222)        (205)
     Depreciation and amortization                     1,050        1,013
     Amortization of deferred financings costs            26           25
     Changes in assets and liabilities:
      Escrowed cash                                      (94)        (137)
      Accounts receivable                                (75)         (73)
      Prepaid expenses                                     1           26
      Deferred rent receivable                            50          (85)
      Deferred expenses                                  (19)         (56)
      Accounts payable and accrued expenses              314          167
      Advances to (from) consolidated ventures           (81)         245
      Tenant security deposits                           (51)          25
                                                      -------     -------
        Total adjustments                                899          945
                                                      ------      -------
        Net cash provided by operating activities        621          744
                                                      ------      -------

Cash flows from investing activities:
   Distributions from unconsolidated ventures          1,153        1,358
   Additional investments in unconsolidated ventures    (744)        (747)
   Payment of leasing commissions                          -          (52)
   Additions to operating investment properties          (97)        (209)
                                                      ------      -------
        Net cash provided by investing activities        312          350
                                                      ------      -------

Cash flows from financing activities:
   Distributions to partners                            (600)        (600)
   Repayment of principal on long term debt             (226)        (201)
                                                      ------      -------
        Net cash used in financing activities           (826)        (801)
                                                      ------      -------

Net increase in cash and cash equivalents                107          293
Cash and cash equivalents, beginning of period         5,322        5,126
                                                      ------      -------
Cash and cash equivalents, end of period              $5,429      $ 5,419
                                                      ======      =======
Cash paid during the period for interest              $  922      $   946
                                                      ======      =======
                             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, 1997. 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  September  30, 1997 and March 31, 1997 and revenues and
expenses for each of the three-and  six-month  periods ended  September 30, 1997
and 1996. Actual results could differ from the estimates and assumptions used.

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

      Included in general and administrative expenses for the three months ended
September 30, 1997 and 1996 is $114,000 and $106,000, 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 months
ended  September  30,  1997  and  1996  is  $10,000  and  $7,000,  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  September  30,  1997,  the  Partnership  had  investments  in three
unconsolidated   joint  venture  partnerships  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.

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

                    Condensed Combined Summary of Operations
           For the three and six months ended June 30, 1997 and 1996
                                 (in thousands)

                                   Three Months Ended      Six Months Ended
                                        June 30,               June 30,
                                   ------------------    -----------------
                                    1997       1996         1997      1996
                                    ----       ----         ----      ----
Revenues:
   Rental revenues and expense
     recoveries                  $2,527      $2,419      $4,751     $4,860
   Interest and other income         75          10         239         48
                                 ------      ------      ------     ------
                                  2,602       2,429       4,990      4,908

Expenses:
   Property operating expenses      962         682       1,767      1,460
   Real estate taxes                564         571       1,067      1,113
   Interest expense                 192         181         396        402
   Depreciation and amortization    692         805        1,482     1,611
                                 ------      ------      ------     ------
                                  2,410       2,239       4,712      4,586
                                 ------      ------      ------     ------
Net income                       $  192      $  190      $  278     $  322
                                 ======      ======      ======     ======

Net income:
   Partnership's share of 
     combined income             $  183      $  144      $  251     $  234
   Co-venturers' share of 
     combined income                  9          46          27         88 
                                 ------      ------      ------     ------
                                 $  192      $  190      $  278     $  322
                                 ======      ======      ======     ======
<PAGE>

               Reconciliation of Partnership's Share of Operations
         For the three and six months ended September 30, 1997 and 1996
                                 (in thousands)

                                    Three Months Ended      Six Months Ended
                                       September 30,          September 30,
                                   -------------------   --------------------
                                    1997       1996         1997      1996
                                    ----       ----         ----      ----
   Partnership's share of 
     operations, as shown
     above                        $   183     $   144      $  251    $  234
   Amortization of excess
     basis                            (15)        (15)        (29)      (29)
                                  -------     -------      ------    ------
   Partnership's share of 
     unconsolidated
     ventures' income             $   168     $   129      $  222    $  205
                                  =======     =======      ======    ======

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

      The Partnership's  balance sheets at September 30, 1997 and March 31, 1997
include three operating  investment  properties owned by joint ventures in which
the  Partnership  has a controlling  interest;  Saratoga  Center and EG&G Plaza,
owned by Hacienda  Park  Associates,  the Asbury  Commons  Apartments,  owned by
Atlanta Asbury Partnership,  and the West Ashley Shoppes shopping center,  owned
by West Ashley Shoppes  Associates.  The  Partnership's  policy is to report the
operations of these  consolidated  joint ventures on a three-month lag. Saratoga
Center and EG&G Plaza consists of four separate office/R&D  buildings comprising
approximately  185,000 square feet,  located in Pleasanton,  California.  Asbury
Commons  Apartments  is a  204-unit  residential  apartment  complex  located in
Atlanta,   Georgia.   The  West  Ashley  Shoppes  shopping  center  consists  of
approximately   135,000  square  feet  of  leasable   retail  space  located  in
Charleston, South Carolina.

      The  following is a combined  summary of property  operating  expenses for
Saratoga  Center and EG&G Plaza,  Asbury Commons  Apartments and the West Ashley
Shoppes  shopping  center for the three and six months  ended June 30,  1997 and
1996 (in thousands):
                                    Three Months Ended      Six Months Ended
                                         June 30,               June 30,
                                   -------------------    -------------------
                                    1997       1996         1997      1996
                                    ----       ----         ----      ----

      Property operating expenses:
        Repairs and maintenance   $   77      $  131       $  233     $ 227
        Utilities                     59          43          112        90
        Salaries and related costs    29          40           79        82
        Insurance                     17          16           33        33
        Management fees               35          40           82        79
        Administrative and other      66          48          165       155
                                  ------      ------       ------     -----
                                  $  283      $  318       $  704     $ 666
                                  ======      ======       ======     =====

5.    Bonds Payable
      -------------

      Bonds  payable  consist  of the  Hacienda  Park joint  venture's  share of
liabilities  for bonds issued by the City of  Pleasanton,  California for public
improvements  that benefit Hacienda  Business Park and the operating  investment
property  and are secured by liens on the  operating  investment  property.  The
bonds for which the operating  investment property is subject to assessment bear
interest  at  rates  ranging  from  5%  to  7.87%,   with  an  average  rate  of
approximately   7.2%.   Principal  and  interest  are  payable  in   semi-annual
installments  and mature in years 2004 through  2017. In the event the operating
investment  property is sold,  the liability for the bond  assessments  would be
transferred  to the buyer.  Therefore,  the Hacienda Park joint venture would no
longer be liable for the bond assessments. 6. Mortgage Notes Payable

      Mortgage  notes  payable  on  the  consolidated   balance  sheets  of  the
Partnership  at September  30, 1997 and March 31, 1997 consist of the  following
(in thousands):
                                                September 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,
     1999.   In   addition,   the   loan
     requires   monthly  deposits  to  a
     capital   improvement  escrow.  The
     fair  value  of the  mortgage  note
     approximated  its carrying value at
     September  30,  1997 and  March 31,
     1997.                                          $ 9,351        $ 9,418

     8.75%  mortgage note payable by the
     consolidated     Atlanta     Asbury
     Partnership to an insurance company
     secured  by  the   Asbury   Commons
     operating investment property.  The
     loan requires monthly principal and
     interest  payments  of $55  through
     maturity on October 15,  2001.  The
     fair  value  of the  mortgage  note
     approximated  its carrying value at
     June  30,  1997  and  December  31,
     1996.                                            6,769          6,806

     9.04%  mortgage note payable by the
     consolidated      Hacienda     Park
     Associates to an insurance  company
     secured by the Saratoga  Center and
     EG&G  Plaza  operating   investment
     property. The loan requires monthly
     principal and interest  payments of
     $36 through maturity on January 20,
     2002.   The   fair   value  of  the
     mortgage  note   approximated   its
     carrying value at June 30, 1997 and
     December 31, 1996.                               3,404          3,426
                                                    -------        -------
                                                    $19,524        $19,650
                                                    =======        =======

      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 bears  interest at 8.72% and matures in November  2001.  The loan  requires
monthly  principal and interest  payments of $43,000.  On February 10, 1995, the
Partnership  repaid an  outstanding  zero coupon loan secured by the  Loehmann's
Plaza shopping center, 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 Loehmann's  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 loans secured by the Gables and Loehmann's  Plaza properties rests with
the respective  unconsolidated  joint  ventures.  Accordingly  the mortgage loan
liabilities  are recorded on the books of these  unconsolidated  joint ventures.
The Partnership has indemnified  Richmond Gables  Associates and  Daniel/Metcalf
Associates  Partnership  and  the  related  co-venture  partners,   against  all
liabilities, claims and expenses associated with these borrowings.

<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, 1997 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 with
respect to multi-family  apartment properties 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.  Although there are no
assurances,  it is  currently  contemplated  that  sales  of  the  Partnership's
remaining assets could be completed within the next 2-to-3 years.

     As discussed in the Annual Report,  management  discovered the existence of
certain potential  construction problems at the Asbury Commons Apartments during
fiscal 1997. The initial analysis of the construction problems at Asbury Commons
revealed  extensive  deterioration  of the wood trim and  evidence of  potential
structural  problems  affecting  the exterior  breezeways,  the decks of certain
apartment unit types and the stairway towers. A design and construction team was
organized  to further  evaluate  the  potential  problems,  make  cost-effective
remediation  recommendations  and  implement the repair  program.  Based on this
evaluation, the structural problems may be more extensive and cost significantly
more than originally estimated. It will also require further investigation which
together with eventual  construction  repair work may result in  disruptions  to
property  operations  while units are possibly  taken out of service for testing
and repairs. The cost of the repair work required to remediate this situation is
currently estimated at between  approximately $1.5 to $2 million.  Subsequent to
the end of the second  quarter,  bid  application  packages were  distributed to
pre-qualified  contractors.  Management  anticipates that construction contracts
will be executed  and that repair and  replacement  work will  commence in early
calendar  year 1998 and finish  during the summer.  During the first  quarter of
fiscal 1998, the Partnership  filed a warranty claim against the manufacturer of
the  wood-composite  siding used throughout  Asbury  Commons.  During the second
quarter,  the Partnership filed a warranty claim against the manufacturer of the
fiberglass-composite  roofing  shingles  installed  when the property was built.
While  there  can  be no  assurances  regarding  the  Partnership's  ability  to
successfully  recover any damages  relating to the siding and roofing  shingles,
the  Partnership  will  diligently  pursue  these and other  potential  recovery
sources. The Partnership believes that it has adequate cash reserves to fund the
repair work at Asbury Commons regardless of whether any recoveries are realized.

      The average  occupancy level at the Asbury Commons  Apartments was 96% for
the quarter ended September 30, 1997,  compared to 84% for the prior quarter and
93% for the same period one year ago. As  previously  reported,  the  property's
average  occupancy level had slipped to 81% in March of 1997. On April 1, 1997 a
national  property  management  firm was hired to take over management at Asbury
Commons.  The property's  average occupancy level now compares  favorably to the
local market average of 92%. During the second quarter,  the ongoing lease-up of
newly constructed apartments in the local market forced two competing properties
with  previously  higher rents to drop their  asking rents to levels  similar to
Asbury  Commons.  As rental rates at Asbury  Commons have been at the low end of
the  market  range,  as part of the  successful  effort to  stabilize  occupancy
levels,  the property's  leasing staff was able to hold rental rates steady. Now
that occupancy  levels at the property have stabilized,  the property's  leasing
staff had  discontinued  all rental  concessions  by the end of the quarter.  As
reported  in the  first  quarter,  the  management  team had  indicated  that it
believed  effective rents could be increased at Asbury Commons through  improved
signage,   targeted  advertising  and  promotion,  and  selected  unit  interior
upgrades.  A  review  of  rental  rates  and  interior  amenities  at  competing
properties  during the past few quarters  indicated that upgrades to each unit's
door and cabinet hardware,  closet-shelving,  and kitchen-area lighting,  should
enable the leasing team to raise rental  rates  significantly  enough to warrant
the  additional   investment.   Accordingly,   the  management  team  has  begun
implementing the unit interior upgrades at each new lease and lease renewal.
<PAGE>

      Loehmann's  Plaza Shopping  Center in Overland Park,  Kansas  remained 90%
leased and 89%  occupied as of  September  30,  1997,  unchanged  from the prior
quarter but improved from a 79%  occupancy  level of one year ago. As previously
reported,  the  property's  leasing  team  signed a 13,410  square  foot  lease,
representing 9% of the Center's  leasable area, with Gateway 2000 Country Stores
to  occupy  the  former  Loehmann's  space.   Gateway  2000  Country  Stores,  a
manufacturer  and retailer of personal  computers,  opened its new store on June
30, 1997. The property's management team reports that customer traffic levels at
the Center have  increased  since the  openings  of both the 13,410  square foot
Gateway store and the  re-opening  of an expanded  13,000 square foot Alpine Hut
store during the first quarter of fiscal 1998.  Other tenant activity during the
first quarter  included the signing of a three-year  lease  extension  agreement
with an existing  1,920  square foot  tenant,  the closing on the April 30, 1997
lease  expiration  date of a 4,289  square foot store with weak  sales,  and the
closing of a 2,000 square foot store of a credit  tenant whose lease  expires in
July 2000.  It is  anticipated  that this tenant will continue to pay its rental
payments  and  contractual  share  of  operating   expenses  through  the  lease
expiration  date or until the space is re-leased to another  tenant.  During the
current quarter,  the leasing team signed a three-year lease with a 1,455 square
foot  tenant to  replace an  existing  tenant  with weak sales and below  market
rental  rates.  Currently,  the  leasing  team is  negotiating  with a number of
tenants to lease the  remaining  9,900  square  feet of vacant shop space in the
Center.  With the  September  1997  grand  opening of a new  grocery  store near
Loehmann's Plaza, there has been an increase in shopper traffic levels along the
Center's  road  frontage.  When a  lease-up  of the  remaining  vacant  space at
Loehmann's Plaza is completed,  management  believes that the property should be
in a position to be marketed for a potential sale.

      All of the  improvements  and leasing costs  incurred at Loehmann's  Plaza
have been paid for using the property net cash flow and Partnership  reserves. A
portion  of the  funds  required  to pay for  the  capital  improvement  work at
Loehmann's  Plaza was expected to come from a $550,000  Renovation and Occupancy
Escrow  withheld by the lender from the proceeds of a $4 million loan secured by
the property which was obtained in February 1995. Funds were to be released from
the  Renovation  and Occupancy  Escrow to reimburse the venture for the costs of
the  planned  renovations  in the  event  that  the  venture  satisfied  certain
requirements,  which included specified  occupancy and rental income thresholds.
If such  requirements  were not met  within 18 months  from the date of the loan
closing,  the lender had the right to apply the balance of the escrow account to
the  payment  of loan  principal.  In  addition,  the lender  required  that the
Partnership  unconditionally  guaranty up to $1,400,000 of the loan  obligation.
This guaranty was to be released in the event that the joint  venture  satisfied
the requirement for the release of the Renovation and Occupancy  Escrow funds or
upon the repayment,  in full, of the entire outstanding mortgage loan liability.
Despite not meeting the  occupancy and rental  income  thresholds  until June of
1997 with the opening of the Gateway store, the lender has agreed to release the
full amount of the Renovation  and Occupancy  escrow to the  Partnership  and to
eliminate  the  Partnership's  guaranty.  The  funds  from  the  Renovation  and
Occupancy Escrow will be used to replenish the Partnership's cash reserves.

     During the current quarter,  the property's leasing team signed a lease for
the previously  vacant 36,416 square foot former Children's Palace space at West
Ashley  Shoppes.   The  tenant,   Waccamaw,  a  national  home  goods  retailer,
anticipates  opening the new store  during the first  calendar  quarter of 1998.
Tenant  improvement  costs and leasing  commissions  for the Waccamaw  lease are
expected  to  total   approximately   $500,000  and  will  be  funded  from  the
Partnership`s cash reserves. As Waccamaw should generate significant  additional
customer traffic at the Center,  the leasing team anticipates  stronger interest
from prospective tenants for the available 7,750 square feet of shop space. Also
during the current quarter, the leasing team at West Ashley Shoppes signed three
new  small-shop  leases  totalling  5,250 square  feet.  With the signing of the
Waccamaw  lease  after the  quarter  end,  the  Center is now 94%  leased.  West
Ashley's  other major anchor  tenant,  Phar-Mor,  emerged from the protection of
Chapter 11 of the U.S. Bankruptcy Code during fiscal 1996. While Phar-Mor closed
a number of its stores nationwide as part of its bankruptcy reorganization,  the
company remains obligated under a lease at West Ashley which runs through August
2002.

      The 625 North  Michigan  Office  Building  in Chicago,  Illinois,  was 89%
leased at September 30, 1997,  compared to 87% at the end of the prior  quarter.
During the second quarter,  one new tenant signed a lease for 7,011 square feet,
and two tenants  totalling  2,577 square feet renewed their  leases.  During the
next twelve months,  leases for eight tenants  occupying 14,750 square feet will
expire.  The property's leasing team expects four of the eight tenants occupying
7,035 square feet to renew,  and the remaining space is expected to be leased to
new tenants.  Rental rates in the local market continue to improve steadily. The
elevator  modernization  project at 625 North Michigan is nearing completion now
that  all  four  low-rise  elevators  and two of the  four  high-rise  cars  are
complete.  The remaining two high-rise  cars are expected to be completed by the
end of calendar year 1997. The elevator  controls upgrade project is progressing
on schedule and within the budgeted cost of approximately  $700,000.  Management
is  currently  analyzing a  potential  project to upgrade  the  building  lobby,
recapture  currently  unleasable  first  floor  space,  and  convert  all of the
leasable  first  floor  space to retail  usage.  Rental  rates paid by  high-end
retailers on North Michigan Avenue are substantially  greater than those paid by
office tenants. While the costs of such a project would be substantial, it could
have a  significantly  positive  effect  on the  market  value of the 625  North
Michigan  property.  A  comprehensive  cost-benefit  analysis of this  potential
project is expected to be completed over the next several months.

      The four  buildings  comprising the Hacienda Park  investment  property in
Pleasanton,  California,  remained 100% leased to four tenants at the end of the
second quarter.  However, as previously reported, one of the property's tenants,
which  leases  51,683  square  feet,  or 28% of the  property's  leasable  area,
announced  that it planned to relocate  from  Hacienda  Business Park into a new
building under construction in the local market.  This tenant has several leases
with  expiration  dates in 1998,  1999 and 2001 and fully leases one of the four
buildings  comprising Hacienda Business Park plus 10,027 square feet in a second
building.  The tenant vacated Hacienda Park and consolidated its operations into
the new  building in September  1997.  This tenant will remain  responsible  for
rental payments and its contractual share of operating expenses until the leases
expire. Nonetheless, the property's leasing team is diligently working to secure
replacement  tenants for this 51,683  square feet.  Because the existing  rental
rates  on the  leases  of this  tenant  are  below  current  market  rates,  the
Partnership  could have an  opportunity  to re-lease  any  vacated  space at the
higher  prevailing  market  rental  rates.  In any event,  provided  there is no
dramatic  increase in either planned  speculative  development or  build-to-suit
development  with current  tenants in the local market,  the  Partnership can be
expected to achieve a higher sale price for the  Hacienda  Park  property as the
existing  below-market  leases  approach their  expiration  dates.  Accordingly,
management  plans to defer any sale efforts for the immediate future in order to
capture  this  expected  increase in value.  In the  meantime,  management  will
continue to closely monitor all planned development activity in this market.

      The  average  occupancy  level at The  Gables  Apartments  was 96% for the
quarter  ended  September  30, 1997,  compared to 95% for the same period a year
ago. The Richmond,  Virginia  market  continues to experience  strong demand for
apartments resulting from strong job, household formation and population growth.
As job growth is projected to continue  during the next few years,  the economic
outlook  for  Richmond   remains   strong.   While  there  are  three  apartment
communities, comprising approximately 900 units, under construction in the local
market,  only one 280-unit  community is considered  competition  for The Gables
Apartments.  The other  communities  are  located  at least  five miles from The
Gables  and  offer  larger  units  at  significantly  higher  rents.  Additional
apartment  construction  projected  to start in the  spring of 1998  includes  a
144-unit  second phase of a competing  community and a 508-unit  project located
five miles west of The Gables.  Capital  improvement  work planned at The Gables
for the third  quarter of fiscal 1998  includes  the  painting  of the  building
exteriors.

      At September 30, 1997, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately  $5,429,000.  Such cash
and  cash   equivalent   amounts  will  be  utilized  for  the  working  capital
requirements   of  the   Partnership,   for   reinvestment  in  certain  of  the
Partnership's  properties including the anticipated  construction repair work at
Asbury Commons and the capital needs of the Partnership's  commercial properties
(as discussed further above) and for  distributions to the partners.  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.

Results of Operations
Three Months Ended September 30, 1997
-------------------------------------

     The Partnership  reported a net loss of $141,000 for the three months ended
September  30, 1997, as compared to net income of $48,000 for the same period in
the prior year.  This  unfavorable  change in the  Partnership's  net  operating
results is primarily attributable to an increase in the Partnership's  operating
loss which was  partially  offset by an increase in the  Partnership's  share of
unconsolidated  ventures' income. The Partnership's  operating loss increased by
$228,000,  when compared to the same period in the prior year, due to a decrease
in total revenues of $176,000 and an increase in total expenses of $52,000.  The
decrease  in the  Partnership's  revenues  consisted  of a $172,000  decrease in
rental income and a $4,000 decrease in interest and other income.  Rental income
decreased mainly due to an decrease in rental income at the consolidated  Asbury
Commons and West Ashley Shoppes joint ventures which was partially  offset by an
increase  in rental  income at the  consolidated  Hacienda  Park joint  venture.
Rental  income  decreased  at West  Ashley  Shoppes due to a decrease in average
occupancy and substantial  decreases in common area  maintenance  reimbursements
and insurance reimbursements. Rental income decreased at Asbury Commons due to a
decrease in average  occupancy.  Rental income at Hacienda Park increased mainly
due to the  expansion  of a major  tenant and a lease  renewal of another  major
tenant,  both at substantially  higher rates,  during fiscal 1997.  Interest and
other income increased as a result of a small increase in the average balance of
cash and cash  equivalents  outstanding  when compared to the same period in the
prior year.

      The  $52,000  increase  in total  expenses  is mainly  attributable  to an
increase  in general  and  administrative  expenses  of  $102,000.  General  and
administrative  expenses  increased  primarily  due to an  increase  in  certain
required  professional fees,  including legal fees related to the examination of
potential   recovery  sources  for  the  repair  costs  at  the  Asbury  Commons
Apartments,   as  discussed   further   above.   The  increase  in  general  and
administrative expenses was partially offset by a decrease in property operating
expenses of $35,000.  Property operating  expenses decreased  primarily due to a
decrease  in repairs  and  maintenance  expenses of $54,000 due to a decrease in
such expenses at the  consolidated  Asbury Commons joint  venture.  As discussed
further  above,  the  Partnership  is  still in the  process  of  assessing  the
magnitude  of the  required  repairs at Asbury  Commons  and expects to begin to
incur repair costs during the fourth quarter of fiscal 1998.

     The  Partnership's  share of  unconsolidated  ventures' income increased by
$39,000 primarily due to an increase in net income at the Loehmann's Plaza joint
venture of $93,000 which was partially offset by a decrease in net income at the
625 North Michigan joint venture.  Net income  increased at the Loehmann's Plaza
joint  venture due to an increase in rental income as a result of an increase in
average occupancy.  Net income decreased at the 625 North Michigan joint venture
primarily due to an increase in repairs and maintenance  expenses as a result of
the elevator modernization project discussed above.

Six Months Ended September 30, 1997
-----------------------------------

     The  Partnership  reported a net loss of $278,000  for the six months ended
September 30, 1997, as compared to a net loss of $201,000 for the same period in
the prior year.  This  increase in the  Partnership's  net loss  resulted from a
$94,000 increase in the Partnership's  operating loss which was partially offset
by a $17,000 increase in the  Partnership's  share of  unconsolidated  ventures'
income.  The increase in the  Partnership's  operating  loss was  primarily  the
result of  increases  in general  and  administrative,  property  operating  and
depreciation  and amortization  expenses.  General and  administrative  expenses
increased by $80,000  primarily  due to an increase in legal and other  required
professional  fees, as discussed  further  above.  Property  operating  expenses
increased by $38,000 primarily due to an increase in utilities expense at Asbury
Commons  and  administrative   expenses  at  Hacienda  Park.   Depreciation  and
amortization  expense  increased by $37,000 due to small  increases at all three
consolidated  joint ventures during the current six-month period.  The increases
in  property  operating  expenses,  general  and  administrative  expenses,  and
depreciation  and  amortization  expense were partially  offset by a decrease in
interest expense and an increase in interest and other income.  Interest expense
decreased  by  $50,000  mainly  as a result  of the  scheduled  amortization  of
mortgage principal balances outstanding.  Interest and other income increased by
$20,000 due to a small  increase in the interest  rates earned on invested  cash
equivalents  and a small  increase in the average  balance of such invested cash
equivalents.

      The Partnership's  share of  unconsolidated  ventures' income increased by
$17,000 primarily due to an increase in net income at the Loehmann's Plaza joint
venture of $128,000  which was  partially  offset by a decrease in net income at
the 625 North Michigan joint venture.  Net income  increased at Loehmann's Plaza
due to an  increase  in  rental  income as a result of an  increase  in  average
occupancy.  Net  income  decreased  at the  625  North  Michigan  joint  venture
primarily due to an increase in repairs and maintenance  expenses as a result of
the elevator modernization project discussed above.



<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:

     No Current Reports on Form 8-K were filed during the period covered by this
report.




<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:  November 10, 1997