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 December 31, 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.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
                      December 31, 1999 and March 31, 1999 (Unaudited)
                                 (In thousands)

                                     ASSETS

                                                 December 31   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                                 17,171      27,774
Cash and cash equivalents                              6,231       6,181
Accounts receivable                                        -         346
Prepaid expenses                                           -           6
Deferred rent receivable                                   -         135
Deferred expenses, net of accumulated amortization         -          58
Other assets                                               -          17
                                                    --------   ---------
                                                    $ 23,402   $  39,989
                                                    ========   =========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses               $     93   $     170
Net advances from consolidated ventures                    -         156
Mortgage note  payable                                 9,011       9,132
Partners' capital                                     14,298      30,531
                                                    --------   ---------
                                                    $ 23,402   $  39,989
                                                    ========   =========










                             See accompanying notes.


<PAGE>

               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three months and nine ended December 31, 1999 and 1998 (Unaudited)
                      (In thousands, except per Unit data)

                                   Three Months Ended      Nine Months Ended
                                       December 31,          December 31,
                                   ------------------      -----------------
                                     1999       1998       1999        1998
                                     ----       ----       ----        ----
Revenues:
   Rental income and expense
     reimbursements                 $    -    $ 2,102     $   439    $ 4,725
   Interest and other income           114        227         364        513
                                    ------    -------     -------    -------
                                       114      2,329         803      5,238
Expenses:

   Interest expense                    206      1,436         621      2,392
   Depreciation and amortization         -        693         192      1,744
   Property operating expenses           -        633         197      1,267
   Real estate taxes                     -        197          62        470
   General and administrative          305        194         627        452
                                    ------    -------     -------    -------
                                       511      3,153       1,699      6,325
                                    ------    -------     -------    -------
Operating loss                        (397)      (824)       (896)    (1,087)

Gain on sales of operating
  investment properties                  -     10,456       2,665     10,456

Consolidated venture partners'
  share of operations                    -       (331)          -       (331)

Partnership's share of gain on
  sale of unconsolidated operating
  investment property                    -          -          75      5,848

Partnership's share of
  unconsolidated ventures'
  income (losses)                      120        194        (198)       396
                                    ------    -------     -------    -------
Net income (loss)                   $ (277)   $ 9,495     $ 1,646    $15,282
                                    ======    =======     =======    =======

Per 1,000 Limited Partnership Units:

   Net income (loss)                $(2.04)   $ 69.93     $ 12.12    $112.55
                                    ======    =======     =======    =======

   Cash distributions               $72.00    $147.21     $133.00    $190.63
                                    ======    =======     =======    =======

   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 nine months ended December 31, 1999 and 1998 (Unaudited)
                                 (In thousands)

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

Balance at March 31, 1998                           $   (554)   $  50,304
Cash distributions                                        (9)     (25,626)
Net income                                               152       15,130
                                                    --------    ---------
Balance at December 31, 1998                        $   (411)   $  39,808
                                                    ========    =========

Balance at March 31, 1999                           $   (436)   $  30,967
Cash distributions                                         -      (17,879)
Net income                                                17        1,629
                                                    --------    ---------
Balance at December 31, 1999                        $   (419)   $  14,717
                                                    ========    =========






















                             See accompanying notes.


<PAGE>
<TABLE>


               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the nine months ended December 31, 1999 and 1998 (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<CAPTION>
                                                                            1999          1998
                                                                            ----          ----
<S>                                                                         <C>           <C>

Cash flows from operating activities:
   Net income                                                              $  1,646     $ 15,282
   Adjustments to reconcile net income to net cash
     (used in) provided by operating activities:
     Gains  on  sale  of   operating   investment   properties               (2,665)     (10,456)
     Consolidated  venture  partners'  share of  operations                       -          331
     Partnership's share of gain on sale of unconsolidated operating
       investment property                                                      (75)      (5,848)
     Partnership's share of unconsolidated ventures' income (losses)            198         (396)
     Depreciation and amortization                                              192        1,744
     Changes in assets and liabilities:
      Escrowed cash                                                               -          322
      Accounts receivable                                                        346         (63)
      Prepaid expenses                                                             6          29
      Deferred rent receivable                                                     -          62
      Deferred expenses                                                            -        (588)
      Accounts payable and accrued expenses                                      (77)        (79)
      Advances from consolidated ventures                                       (156)         39
      Tenant security deposits                                                     -        (111)
                                                                           ---------    --------
         Total adjustments                                                    (2,231)    (15,014)
                                                                           ---------    --------
         Net cash (used in) provided by operating activities                    (585)        268
                                                                           ---------    --------

Cash flows from investing activities:
   Net proceeds from sales of operating investment properties                  8,155      37,776
   Distributions from unconsolidated ventures                                 10,680       7,238
   Additional investments in unconsolidated ventures                            (200)       (991)
   Additions to operating investment properties                                    -      (1,862)
                                                                           ---------    --------
         Net cash provided by investing activities                            18,635      42,161
                                                                           ---------    --------

Cash flows from financing activities:
   Distributions to partners                                                 (17,879)    (25,635)
   Repayment of principal on bonds                                                 -        (146)
   Repayment of principal on long term debt                                     (121)    (10,198)
                                                                           ---------    --------
         Net cash used in financing activities                               (18,000)    (35,979)
                                                                           ---------    --------

Net increase in cash and cash equivalents                                         50       6,450
Cash and cash equivalents, beginning of period                                 6,181       6,202
                                                                           ---------    --------
Cash and cash equivalents, end of period                                   $   6,231    $ 12,652
                                                                           =========    ========

Cash paid during the period for interest                                   $     621    $  2,392
                                                                           =========    ========
                             See accompanying notes.
</TABLE>


<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 December  31, 1999 and March 31, 1999 and  revenues  and
expenses for each of the three- and  nine-month  periods ended December 31, 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). On September 28, 1999, Daniel/Metcalf
Associates  Partnership,  a  joint  venture  in  which  the  Partnership  had an
interest,  sold the  Gateway  Plaza  property  (see Note 3).  After  these  sale
transactions,  the Partnership retains a joint venture interest in one operating
property,  the 625 North Michigan Office Building.  The Partnership is currently
focusing on potential disposition strategies for the remaining investment in its
portfolio.  Initial sale efforts  began  during the quarter  ended  December 31,
1999. As discussed  further in Note 3, the property is currently  under contract
for  sale  to an  affiliate  of the  Partnership's  co-venture  partner.  A sale
transaction  is expected  to close in late March or early  April 2000.  While no
assurances can be given,  management  currently  expects the  liquidation of the
Partnership  to be completed  during the second  quarter of calendar  year 2000.

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

      Included in general and administrative  expenses for the nine months ended
December 31, 1999 and 1998 is $183,000 and $176,000, 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  nine-month
periods ended  December 31, 1999 and 1998 is $14,000 and $11,000,  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  December  31,  1999,  the  Partnership  had  an  investment  in one
unconsolidated joint venture partnership (three at March 31, 1998) which owns an
operating  investment property 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.  Under the
equity  method,   the  assets,   liabilities,   revenues  and  expenses  of  the
unconsolidated  joint  ventures  do not  appear in the  Partnership's  financial
statements.  Instead,  the  investments  are  carried at cost  adjusted  for the
Partnership's  share of each venture's earnings,  losses and distributions.  The
Partnership reports its share of unconsolidated joint venture earnings or losses
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.

     On  September  28, 1999,  Daniel/Metcalf  Associates  Partnership,  a joint
venture in which the  Partnership  had an interest,  sold the property  known as
Gateway Plaza,  located in Overland Park,  Kansas,  to an unrelated third party,
for $13.55  million.  The  Partnership  received net  proceeds of  approximately
$8,950,000  after deducting  closing costs of  approximately  $214,000,  closing
proration  adjustments  of  approximately  $344,000  and  the  repayment  of the
existing  mortgage note of approximately  $4,042,000.  The Partnership  received
100% of the sale proceeds in accordance  with the joint venture  agreement.  The
Partnership  made a  special  distribution  to the  Limited  Partners  totalling
approximately  $9,679,000, or $72 per original $1,000 investment, on October 15,
1999.  Of the $72.00 total,  $66.58  resulted from the sale of Gateway Plaza and
$5.42 was from Partnership reserves which exceeded expected future requirements.
The  Partnership  recorded a gain of  $75,000 on the sale of the  unconsolidated
operating investment property.

      As of December 31, 1999, the Partnership  retains a joint venture interest
in one operating property,  the 625 North Michigan Office Building. As discussed
in Note 1, the  Partnership  is  currently  focusing  on  potential  disposition
strategies  for the remaining  investment in its  portfolio.  During the quarter
ended September 30, 1999, the Partnership  selected a real estate brokerage firm
to market the 625 North  Michigan  Avenue  property for sale.  Materials for the
marketing  packages  for the 625 North  Michigan  property  were  finalized  and
initial sale efforts began during the quarter ended December 31, 1999. 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.  All of the best and final offers received were  substantially  in
excess of the property's 1998 year-end  estimated  value. The highest bidder was
an affiliate of the Partnership's  co-venture  partner in the 625 North Michigan
joint  venture.  After  completing  an evaluation of the offers and the relative
strength of the prospective  purchasers,  the  Partnership  chose to negotiate a
purchase and sale  agreement  with the affiliate of the  co-venturer,  which was
signed on January 13, 2000. The prospective buyer has made a deposit of $400,000
in  connection  with the  transaction  and  completed  its due  diligence  as of
February 3, 2000.  The  prospective  buyer has until February 14, 2000 to secure
its  financing  for the  transaction,  at which  time an  additional  deposit of
$600,000 is required and the entire  deposit  becomes  non-refundable.  While no
assurances can be given,  the  transaction is expected to close in late March or
early  April  2000.  The sale of the  Partnership's  interest  in the 625  North
Michigan  joint  venture  would be  followed  by an orderly  liquidation  of the
Partnership.

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

                    Condensed Combined Summary of Operations
 For the three and nine months ended September 30, 1999 and 1998 (in thousands)

                                     Three Months Ended    Nine Months Ended
                                       September 30,         September 30,
                                     ------------------    ------------------
                                      1999     1998        1999      1998
                                      ----     ----        ----      ----
Revenues:
   Rental revenues and expense
      recoveries                     $ 1,902  $ 2,298      $ 6,947   $ 7,518
   Interest and other income               3        9           45        61
                                     -------  -------      -------   -------
                                       1,905    2,307        6,992     7,579
Expenses:
   Property operating expenses           606      765        2,134     2,161
   Real estate taxes                     467      561        1,727     1,551
   Interest expense                        -       91          642       923
   Depreciation and amortization         606      672        2,503     2,399
                                     -------  -------      -------   -------
                                       1,679    2,089        7,006     7,034
                                     -------  -------      -------   -------
Operating income (loss)                  226      218          (14)      545

Gain (loss) on sales of
  operating investment properties          -        -          (13)    6,433
                                     -------  -------      -------   -------
Net income (loss)                    $   226  $   218      $   (27)  $ 6,978
                                     =======  =======      =======   =======

Net income (loss):
   Partnership's share of
    combined income                  $   133  $   211      $    28   $ 6,289
   Co-venturers' share of
    combined income (loss)                93        7          (55)      689
                                     -------  -------      -------   -------
                                     $   226  $   218      $   (27)  $ 6,978
                                     =======  =======      =======   =======
<PAGE>

               Reconciliation of Partnership's Share of Operations
         For the three and nine months ended December 31, 1999 and 1998
                                 (in thousands)

                                     Three Months Ended    Nine Months Ended
                                       December 31,           December 31,
                                    -------------------   -------------------
                                      1999      1998        1999      1998
                                      ----      ----        ----      ----
   Partnership's share of
     operations, as shown above      $   133  $   211      $   28    $ 6,289
   Amortization of excess basis          (13)     (17)       (151)       (45)
                                     -------  -------      ------    -------
   Partnership's share of
     unconsolidated ventures'
     net income (loss)               $   120  $   194      $ (123)   $ 6,244
                                     =======  =======      ======    =======

      The  Partnership's  share of the net income  (loss) of the  unconsolidated
joint  ventures  is  presented  as follows  in the  accompanying  statements  of
operations (in thousands):

                                    Three Months Ended    Nine Months Ended
                                       December 31,           December 31,
                                    -------------------   -------------------
                                      1999      1998        1999      1998
                                      ----      ----        ----      ----
   Partnership's share of
     unconsolidated ventures'
     income (losses)                 $   120   $  194      $ (198)   $   396
   Partnership's share of gains
     on sales of unconsolidated
     operating investment
     properties                            -        -          75      5,848
                                     -------   ------      ------    -------
                                     $   120   $  194      $ (123)   $ 6,244
                                     =======   ======      ======    =======

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

      The  Partnership's  balance sheet at March 31, 1999 included one operating
investment  property (three at March 31, 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 $61 per  original  $1,000  investment,  on June 15,  1999.  The
Partnership  recorded  a gain  of  $2,665,000  on  the  sale  of  the  operating
investment property.

      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 Apartments
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.
<PAGE>

5.    Mortgage Note Payable
      ---------------------

     Mortgage note payable on the consolidated balance sheets of the Partnership
at  December  31,  1999  and  March  31,  1999  consists  of the  following  (in
thousands):

                                                December 31       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 in May 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 December 31,
     1999 and March 31, 1999.                      $ 9,011           $ 9,132
                                                   =======           =======

<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
-------------------------------

      Subsequent  to the  sales of the  Gateway  Plaza and West  Ashley  Shoppes
properties  on September 28, 1999 and May 14, 1999,  respectively,  as discussed
further below,  the  Partnership's  only  remaining real estate  investment is a
joint venture interest in the 625 North Michigan Office Building.  As previously
reported,  management is currently focusing on potential disposition  strategies
for the remaining investment in the Partnership's portfolio.  With regard to the
remaining  commercial  office  property,  the  Partnership  is working  with the
property's  leasing and management  team to develop and implement  programs that
will protect and enhance value and maximize  cash flow at the property  while at
the same time exploring potential sale opportunities.  During the prior quarter,
the  Partnership  selected a real estate  brokerage firm to market the 625 North
Michigan  Avenue  property for sale.  Materials for the marketing  packages were
finalized and initial sale efforts  began during the quarter ended  December 31,
1999. As discussed  further below,  the property is currently under contract for
sale to an affiliate of the Partnership's co-venture partner. A sale transaction
is expected to close in late March or early April 2000.  While no assurances can
be given,  management currently expects the liquidation of the Partnership to be
completed during the second quarter of calendar year 2000.

     On  September  28, 1999,  Daniel/Metcalf  Associates  Partnership,  a joint
venture in which the  Partnership  had an interest,  sold the property  known as
Gateway Plaza,  located in Overland Park,  Kansas,  to an unrelated third party,
for $13.55  million.  The  Partnership  received net  proceeds of  approximately
$8,950,000  after deducting  closing costs of  approximately  $214,000,  closing
proration  adjustments  of  approximately  $344,000  and  the  repayment  of the
existing  mortgage note of approximately  $4,042,000.  The Partnership  received
100% of the sale proceeds in accordance  with the joint venture  agreement.  The
Partnership  made a  special  distribution  to the  Limited  Partners  totalling
approximately  $9,679,000, or $72 per original $1,000 investment, on October 15,
1999.  Of the $72.00 total,  $66.58  resulted from the sale of Gateway Plaza and
$5.42 was from Partnership reserves which exceeded expected future requirements.
The Partnership  recognized a gain of $75,000 during the quarter ended September
30, 1999 in connection with the sale of the Gateway Plaza property.

      As previously reported,  preliminary marketing materials were prepared and
initial sale efforts for Gateway Plaza Shopping  Center were undertaken in March
1999. A marketing  package was then  finalized  and  comprehensive  sale efforts
began in early April 1999. By July 7, 1999, 14 offers were  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
then negotiated a purchase and sale agreement which was signed on July 21, 1999.
The prospective buyer completed its due diligence review work on August 23, 1999
and subsequently made a non-refundable deposit of $250,000. The sale transaction
closed on September 28, 1999 after the prospective buyer secured its financing.

      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.

      The 625 North  Michigan  Office  Building  in Chicago,  Illinois,  was 95%
leased as of December 31, 1999, compared to 91% leased as of September 30, 1999.
During the third  quarter of fiscal 2000,  one tenant  leasing a total of 10,858
square feet signed a new short-term  lease and took occupancy.  In addition,  an
existing tenant expanded its leased space by 6,395 square feet. This new leasing
was partially  offset when three tenants  occupying a total of 4,354 square feet
moved from the building.  Over the next year, 3 leases  representing  a total of
approximately  10,000 square feet will expire. Two of these leases  representing
3,000  square  feet will not be renewed  because  that space is  included in the
retail  redevelopment  plan, and the third tenant currently expects to move from
the  building  when its lease for 7,000  square feet expires on August 31, 2000.
The  property's  leasing team  continues to negotiate  with several  prospective
tenants which have  expressed an interest in leasing space at 625 North Michigan
Avenue. As previously  reported,  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.  Once
this  approval  was  obtained,   the  Partnership   began  exploring   potential
opportunities to sell this property with the development rights.

      As previously  reported,  during the quarter ended  September 30, 1999 the
Partnership  selected  a real  estate  brokerage  firm to  market  the 625 North
Michigan Avenue property for sale.  Materials for the marketing packages for the
625 North Michigan property were finalized and initial sale efforts began during
the quarter  ended  December 31,  1999.  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. All of the
best and final offers  received were  substantially  in excess of the property's
1998  year-end  estimated  value.  The highest  bidder was an  affiliate  of the
Partnership's  co-venture partner in the 625 North Michigan joint venture. After
completing  an  evaluation  of the  offers  and  the  relative  strength  of the
prospective  purchasers,  the Partnership chose to negotiate a purchase and sale
agreement with the affiliate of the co-venturer, which was signed on January 13,
2000. The  prospective  buyer has made a deposit of $400,000 in connection  with
the  transaction  and completed  its due  diligence as of February 3, 2000.  The
prospective  buyer has until  February 14, 2000 to secure its  financing for the
transaction, at which time an additional deposit of $600,000 is required and the
entire deposit  becomes  non-refundable.  While no assurances can be given,  the
transaction  is expected to close in late March or early April 2000. The sale of
the  Partnership's  interest in the 625 North  Michigan  joint  venture would be
followed by an orderly liquidation of the Partnership.

      At  December  31,  1999,  the  Partnership  had  available  cash  and cash
equivalents of approximately $6,231,000.  Such cash and cash equivalents,  along
with the future cash flow distributions from the remaining  operating  property,
will be utilized for the working capital requirements of the Partnership and, as
necessary,  for the capital needs of the Partnership's one remaining  commercial
property.  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  property  and proceeds  received  from the sale or
refinancing  of such  property.  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 December 31, 1999
------------------------------------

     The Partnership  reported a net loss of $277,000 for the three months ended
December 31, 1999, as compared to net income of  $9,495,000  for the same period
in the prior year. This unfavorable  change in net income (loss) was primarily a
result of the gains of  $10,456,000  realized from the sale of two  consolidated
operating  investment  properties during the prior period.  The Partnership sold
the consolidated Hacienda Business Park on November 20, 1998 and realized a gain
of $9,051,000.  The Partnership sold the consolidated  Asbury Commons Apartments
on  December  21,  1998 and  realized a gain of  $1,405,000.  In  addition,  the
Partnership's  share of  unconsolidated  ventures'  income  decreased by $74,000
during the current three-month period. The Partnership's share of unconsolidated
ventures' income decreased primarily due to the sale of Gateway Plaza. The prior
period includes net income from Gateway Plaza of $196,000.  This decrease in net
income from Gateway Plaza was  partially  offset by an increase in net income at
625 North  Michigan  of $120,000  mainly due to an  increase in rent  escalation
revenues.

      The decrease in gains on sale of operating  investment  properties and the
decrease in the  Partnership's  share of  unconsolidated  ventures'  income were
partially offset by a decrease in the Partnership's  operating loss of $427,000.
The decrease in the  Partnership's  operating loss was primarily a result of the
sale of the consolidated  West Ashley Shoppes,  Hacienda Park and Asbury Commons
operating  investment  properties,  whose operating results were included in the
prior period operating loss. The consolidated  expenses  decreased by $2,561,000
while rental income decreased by $2,102,000 as a result of the sales.

Nine Months Ended December 31, 1999
-----------------------------------

     The Partnership reported net income of $1,646,000 for the nine months ended
December 31, 1999 as compared to net income of  $15,282,000  for the same period
in the prior year.  The decrease in net income of  $13,636,000  was  primarily a
result  of the  gains  realized  from  the sale of  three  operating  investment
properties  during  the prior  period.  The  Partnership  sold the  consolidated
Hacienda  Business Park on November 20, 1998 and realized a gain of  $9,051,000.
In addition,  the Partnership sold the consolidated Asbury Commons Apartments on
December  21,  1998 and  realized a gain of  $1,405,000.  The  Partnership  also
realized a gain of $5,848,000 in connection with the sale of the  unconsolidated
Gables  Apartments  during the nine months ended  December  31, 1998.  The gains
realized from the sales of the three operating investment  properties during the
prior period  exceeded the gain  realized on the sale of the  consolidated  West
Ashley Shoppes  property of $2,665,000 and the  Partnership's  share of the gain
realized on the sale of the  unconsolidated  Gateway  Plaza  property of $75,000
during the current  nine-month  period.  In addition,  there was an  unfavorable
change in the Partnership's share of unconsolidated ventures' income (losses) of
$594,000 during the current  nine-month  period.  The unfavorable  change in the
Partnership's  share of  unconsolidated  ventures' income (losses) was primarily
due to declines in net income at the 625 North  Michigan and Gateway Plaza joint
ventures.  Net income decreased at 625 North Michigan mainly due to increases in
repairs  and  maintenance  expense and real estate  taxes.  The  decrease in net
income at Gateway Plaza was  primarily  due to a prepayment  penalty of $373,000
recognized  upon the payoff of the debt secured by Gateway  Plaza at the time of
the sale of the property.

      The decrease in gains on sale of operating  investment  properties and the
unfavorable change in the Partnership's share of unconsolidated ventures' income
(losses) were partially offset by a decrease in the Partnership's operating loss
of $191,000.  The decrease in the  Partnership's  operating loss was primarily a
result of the sales of the consolidated  West Ashley Shoppes,  Hacienda Park and
Asbury Commons  operating  investment  properties,  whose operating results were
included in the prior period operating loss. The consolidated expenses decreased
by  $4,718,000  while rental  income  decreased by $4,286,000 as a result of the
sales.  The  decrease in  operating  loss  resulting  from the sale of the three
consolidated  properties in the prior period was partially offset by an increase
in general and  administrative  expenses  of  $175,000.  The higher  general and
administrative  expenses  were the result of an  increase  in  certain  required
professional services for the current nine-month period.


<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:

      NONE


<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:  February 11, 2000