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 September 30, 1999

                                    OR

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

            For the transition period from ______ to _______ .


Commission File Number: 0-15705


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


            Virginia                                           04-2918819
            --------                                           ----------
(State or other jurisdiction of                             (I.R.S. 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, 1999 and March 31, 1999 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                September 30    March 31
                                                ------------    --------

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

Investments in unconsolidated joint
  ventures, at equity                                 17,400      27,774
Cash and cash equivalents                             15,798       6,181
Accounts receivable                                      220         346
Prepaid expenses                                           2           6
Deferred rent receivable                                   -         135
Deferred expenses, net of accumulated
   amortization                                            -          58
Other assets                                               -          17
                                                   ---------   ---------
                                                   $  33,420   $  39,989
                                                   =========   =========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses              $     114   $     170
Net advances from consolidated ventures                    -         156
Mortgage notes payable                                 9,052       9,132
Partners' capital                                     24,254      30,531
                                                   ---------   ---------
                                                   $  33,420   $  39,989
                                                   =========   =========










                             See accompanying notes.


<PAGE>

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

                                    Three Months Ended      Six Months Ended
                                       September 30,          September 30,
                                    ------------------      -----------------
                                      1999      1998         1999       1998
                                      ----      ----         ----       ----
Revenues:
   Rental income and expense
     reimbursements                 $    -     $ 1,367      $   439    $ 2,623
   Interest and other income           100         173          250        286
                                    ------     -------      -------    -------
                                       100       1,540          689      2,909
Expenses:
   Interest expense                    207         479          415        956
   Depreciation and amortization         -         529          192      1,051
   Property operating expenses           -         319          197        634
   Real estate taxes                     -         137           62        273
   General and administrative          209         138          322        258
                                    ------     -------      -------    -------
                                       416       1,602        1,188      3,172
                                    ------     -------      -------    -------
Operating loss                        (316)        (62)        (499)      (263)

Gain on sale of operating
  investment property                    -           -        2,665          -

Partnership's share of gains
  on sales of unconsolidated
  operating investment
  properties                            75       5,848           75      5,848

Partnership's share of
  unconsolidated ventures'
  income (losses)                     (617)       (139)        (318)       202
                                    ------     -------      -------    -------

Net income (loss)                   $ (858)    $ 5,647      $ 1,923    $ 5,787
                                    ======     =======      =======    =======

Per 1,000 Limited Partnership Units:

   Net income (loss)                $(6.31)    $ 41.59      $ 14.16    $ 42.62
                                    ======     =======      =======    =======

   Cash distributions               $    -     $ 41.21      $ 61.00    $ 43.42
                                    ======     =======      =======    =======

   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, 1999 and 1998 (Unaudited)
                                 (In thousands)

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

Balance at March 31, 1998                           $   (554)  $  50,304
Cash distributions                                        (6)     (5,837)
Net income                                                58       5,729
                                                    --------   ---------
Balance at September 30, 1998                       $   (502)  $  50,196
                                                    ========   =========

Balance at March 31, 1999                           $   (436)  $  30,967
Cash distributions                                         -      (8,200)
Net income                                                20       1,903
                                                    --------   ---------
Balance at September 30, 1999                       $   (416)  $  24,670
                                                    =========  =========






















                             See accompanying notes.


<PAGE>

<TABLE>

               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the six months ended September 30, 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                                                         $   1,923    $  5,787
   Adjustments to reconcile net income to net cash
     used in operating activities:
     Gain on sale of operating investment property                       (2,665)          -
     Partnership's share of gains on sales of operating
       investment properties                                                (75)     (5,848)
     Partnership's share of unconsolidated ventures' income (losses         318      (202)
     Depreciation and amortization                                          192       1,051
     Amortization of deferred financings costs                                -          14
     Changes in assets and liabilities:
      Escrowed cash                                                           -        (213)
      Accounts receivable                                                   126          13
      Prepaid expenses                                                        4          28
      Deferred rent receivable                                                -          51
      Deferred expenses                                                       -         (52)
      Accounts payable and accrued expenses                                 (56)        143
      Advances from consolidated ventures                                  (156)       (907)
      Tenant security deposits                                                -         (24)
                                                                      ---------    --------
         Total adjustments                                               (2,312)     (5,946)
                                                                      ---------    --------
         Net cash used in operating activities                             (389)       (159)
                                                                      ---------    --------

Cash flows from investing activities:
   Net proceeds from sale of operating investment property                8,155           -
   Distributions from unconsolidated ventures                            10,308       6,445
   Additional investments in unconsolidated ventures                       (177)       (652)
   Additions to operating investment properties                               -        (366)
                                                                      ---------    --------
         Net cash provided by investing activities                       18,286       5,427
                                                                      ---------    --------

Cash flows from financing activities:
   Distributions to partners                                             (8,200)     (5,843)
   Repayment of principal on long term debt                                 (80)       (203)
                                                                      ---------    --------
         Net cash used in financing activities                           (8,280)     (6,046)
                                                                      ---------    --------

Net increase (decrease) in cash and cash equivalents                      9,617        (778)
Cash and cash equivalents, beginning of period                            6,181       6,202
                                                                      ---------    --------
Cash and cash equivalents, end of period                              $  15,798    $  5,424
                                                                      =========    ========

Cash paid during the period for interest                              $     415    $    942
                                                                      =========    ========

                             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  September  30, 1999 and March 31, 1999 and revenues and
expenses for each of the three-and  six-month  periods ended  September 30, 1999
and 1998. Actual results could differ from the estimates and assumptions used.

      The Partnership  originally  invested  approximately  $132,200,000 (net of
acquisition fees) in ten operating properties through joint venture investments.
Through  March 31, 1999,  seven of these  investments  had been sold,  including
three during fiscal 1999. In addition,  on May 14, 1999 the Partnership sold the
West Ashley Shoppes property (see Note 4). 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.  Materials  for the  marketing  packages  for the 625 North  Michigan
property have been  finalized  and initial sale efforts are currently  underway.
While the  Partnership  expects to have the 625 North Michigan  Avenue  property
under a contract for sale before  December 31, 1999,  it is unlikely that both a
sale of the property  and a subsequent  liquidation  of the  Partnership  can be
completed by December 31, 1999.  While no  assurances  can be given,  management
currently  expects the  liquidation of the  Partnership to be completed by March
31, 2000.

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

      Included in general and administrative expenses for the three months ended
September 30, 1999 and 1998 is $120,000 and $116,000, respectively, representing
reimbursements  to an affiliate of the Managing  General  Partner for  providing
certain  financial,  accounting  and  investor  communication  services  to  the
Partnership.

      Also included in general and  administrative  expenses for the three-month
periods ended  September  30, 1999 and 1998 is $4,000 and $8,000,  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,  1999,  the  Partnership  had an  investment  in one
unconsolidated  joint venture partnership (two at September 30, 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.

      On September  28, 1999,  Daniel/Metcalf  Associates  Partnership,  a joint
venture in 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's  policy is to
recognize its share of ventures'  operations  three months in arrears.  However,
the Partnership's policy is also to record significant lag-period transaction in
the period in which they occur.  Accordingly,  the  Partnership  accelerated the
recognition of the operating  results of Daniel Metcalf  Associates  Partnership
during the quarter  ended  September  30, 1999 and recorded a gain of $75,000 on
the sale of the operating investment property.

      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.

      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, 1999 and 1998
                                 (in thousands)

                                    Three Months Ended      Six Months Ended
                                          June 30,              June 30,
                                    ------------------      ----------------
                                      1999     1998          1999     1998
                                      ----     ----          ----     ----
Revenues:
   Rental revenues and expense
      recoveries                    $ 2,601   $ 2,607       $ 5,045   $ 5,220
   Interest and other income             29        31            42        52
                                    -------   -------       -------   -------
                                      2,630     2,638         5,087     5,272
Expenses:
   Property operating expenses          887       733         1,528     1,396
   Real estate taxes                    788       564         1,260       990
   Interest expense                     556       625           642       832
   Depreciation and amortization      1,042       903         1,897     1,727
                                    -------   -------       -------   -------
                                      3,273     2,825         5,327     4,945
                                    -------   -------       -------   -------
Operating income (loss)               (643)      (187)         (240)      327

Gain (loss) on sale of operating
  investment property                  (13)     6,433           (13)    6,433
                                    -------   -------       -------   -------
Net income (loss)                   $ (656)   $ 6,246       $  (253)  $ 6,760
                                    =======   =======       ========  =======

Net income (loss):
   Partnership's share of
     combined income (loss)         $ (418)   $ 5,723       $  (105)  $ 6,078
   Co-venturers' share of
     combined income (loss)           (238)       523          (148)      682
                                    ------    -------       -------   -------
                                    $ (656)   $ 6,246       $  (253)  $ 6,760
                                    ======    =======       =======   =======

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

                                    Three Months Ended      Six Months Ended
                                       September 30,          September 30,
                                    ------------------      ----------------
                                      1999     1998          1999     1998
                                      ----     ----          ----     ----
   Partnership's share of
     operations, as shown above     $ (418)   $ 5,723       $ (105)   $ 6,078
   Amortization of excess basis       (124)       (14)        (138)       (28)
                                    ------    -------       ------    -------
   Partnership's share of
     unconsolidated ventures'
     net income (loss)              $ (542)   $ 5,709       $ (243)   $ 6,050
                                    ======    =======       ======    =======
<PAGE>

      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      Six Months Ended
                                       September 30,          September 30,
                                    ------------------      ----------------
                                      1999      1998         1999      1998
                                      ----      ----         ----      ----
   Partnership's share of
     unconsolidated ventures'
     income (losses)                $ (617)   $  (139)      $ (318)   $  202
   Partnership's share of gains
     on sales of unconsolidated
     operating investment
     properties                         75      5,848           75     5,848
                                    -------   -------       ------    ------
                                    $ (542)   $ 5,709       $ (243)   $6,050
                                    ======    =======       ======    ======

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

      The  Partnership's  balance sheet at March 31, 1999 included one operating
investment  property  (three at September  30, 1998) owned by a joint venture in
which  the  Partnership  had  a  controlling   interest:   West  Ashley  Shoppes
Associates.  On May 14, 1999,  West Ashley Shoppes  Associates sold the property
known as West Ashley  Shoppes,  located in  Charleston,  South  Carolina,  to an
unrelated  third party for $8.1  million.  In addition,  on May 12,  1999,  West
Ashley  Shoppes  Associates  had sold an adjacent  outparcel  of land to another
unrelated  third  party  for  $280,000.  The  May 14  transaction  involved  the
remaining real estate owned by the joint venture. The Partnership received total
net proceeds from the two sale  transactions of  approximately  $8,070,000 after
deducting  closing  costs of  approximately  $225,000 and net closing  proration
adjustments  of  approximately  $85,000.  The  Partnership  distributed  the net
proceeds of the West Ashley Shoppes sale transactions to the Limited Partners in
the form of a  special  distribution  in the  amount  of  approximately  $60 per
original  $1,000  investment on June 15, 1999.  The  Partnership's  policy is to
report the operations of the  consolidated  joint ventures on a three-month lag.
However,  the  Partnership's  policy  is also to record  significant  lag-period
transactions  in the period in which they occur.  Accordingly,  the  Partnership
accelerated  the  recognition  of the operating  results of West Ashley  Shoppes
Associates  during  the  quarter  ended  June 30,  1999 and  recorded  a gain of
$2,665,000 on the sale of the operating investment property.

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

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

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

      Mortgage  notes  payable  on  the  consolidated   balance  sheets  of  the
Partnership  at September  30, 1999 and March 31, 1999 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,  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
September 30, 1999 and March 31, 1999           $   9,052        $   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 sale of the Gateway  Plaza  property on  September  28,
1999, 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.  The  Partnership has recently  selected a real estate  brokerage
firm to market the 625 North Michigan  Avenue  property for sale.  Materials for
the  marketing  packages  have been  finalized  and  initial  sale  efforts  are
currently underway. While the Partnership expects to have the 625 North Michigan
Avenue  property  under a contract  for sale before  December  31,  1999,  it is
unlikely  that both a sale of the property and a subsequent  liquidation  of the
Partnership  can be completed by December 31, 1999.  While no assurances  can be
given,  management  currently  expects the  liquidation of the Partnership to be
completed by March 31, 2000.

      On September  28, 1999,  Daniel/Metcalf  Associates  Partnership,  a joint
venture in 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 91%
leased as of  September  30,  1999,  compared to 92% leased as of June 30, 1999.
During the second quarter of fiscal 2000, two tenants  leasing a total of 12,913
square feet renewed their leases. In addition, two new tenants signed leases and
took  occupancy on 2,909 square feet of space.  This new leasing was offset when
three  tenants  occupying a total of 7,530 square feet moved from the  building.
Over the next year, 6 leases representing a total of approximately 14,350 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; three
tenants  representing  4,350  square feet will close their  operations,  and the
sixth  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.  Now that this
approval  has  been  obtained,  the  Partnership  is  simultaneously   exploring
potential opportunities to sell this property with the development rights.

      At September 30, 1999, the Partnership and its consolidated joint ventures
had available  cash and cash  equivalents  of  approximately  $15,798,000.  This
balance  includes the  distribution  of $9,679,000 made on October 15, 1999 as a
result of the sale of the Gateway Plaza  property,  as discussed  further above.
The remainder of such cash and cash equivalents will be utilized for the working
capital requirements of the Partnership and, as necessary, for the capital needs
of the Partnership's  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.

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

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

      The Partnership reported a net loss of $858,000 for the three months ended
September 30, 1999 as compared to net income of  $5,647,000  for the same period
in the prior year. This unfavorable  change in net income (loss) was primarily a
result  of the  Partnership's  share of the gain  realized  from the sale of The
Gables  at  Erin  Shades  Apartments  during  the  prior  period.   Due  to  the
Partnership's policy of recognizing  significant lag-period  transactions in the
period in which they occur,  the Partnership  accelerated the recognition of the
operating  results of the Gables at Erin Shades  Apartments joint venture during
the quarter  ended  September  30,  1998 and  realized a gain of  $5,848,000  in
connection with the sale of the operating investment property. The Partnership's
share of the gain  realized on the sale of The Gables at Erin Shades  Apartments
of $5,848,000  during the prior period exceeded the  Partnership's  share of the
gain  realized on the sale of the Gateway Plaza  property of $75,000  during the
current three-month period.

       In addition,  the Partnership's  operating loss increased by $254,000 and
the Partnership's share of unconsolidated ventures' losses increased by $478,000
during  the  current  three-month  period.  The  increase  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. In addition,  general and administrative expenses increased by $71,000 for
the current  three-month  period mainly due to higher legal expenses incurred in
connection with the Partnership's  liquidation  efforts. The Partnership's share
of unconsolidated  ventures' losses increased primarily due to a decrease 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.

Six Months Ended September 30, 1999
-----------------------------------

      The Partnership reported net income of $1,923,000 for the six months ended
September 30, 1999 as compared to net income of  $5,787,000  for the same period
in the prior year.  The  decrease in net income of  $3,864,000  was  primarily a
result  of the  Partnership's  share of the gain  realized  from the sale of The
Gables  at  Erin  Shades  Apartments  during  the  prior  period.   Due  to  the
Partnership's policy of recognizing  significant lag-period  transactions in the
period in which they occur,  the Partnership  accelerated the recognition of the
operating  results of the Gables at Erin Shades  Apartments joint venture during
the quarter  ended  September  30,  1998 and  realized a gain of  $5,848,000  in
connection with the sale of the operating investment property. The Partnership's
share of the gain  realized on the sale of The Gables at Erin Shades  Apartments
of $5,848,000  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 six-month period.

      In addition,  the  Partnership's  operating loss increased by $236,000 and
the Partnership's share of unconsolidated  ventures' income (losses) declined by
$520,000 during the current six-month period.  The increase 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. In addition,  general and administrative expenses increased by $64,000 for
the current  six-month  period mainly due to higher legal  expenses  incurred in
connection with the Partnership's liquidation efforts. The unfavorable change in
the  Partnership's  share  of  unconsolidated   ventures'  income  (losses)  was
primarily due to a decrease 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.


<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings  NONE

Item 2. through 5.         NONE

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits:      NONE

(b) Reports on Form 8-K:

      A Current Report on Form 8-K dated September 28, 1999 was filed during the
current  quarter to report the sale of the Gateway Plaza  property and is hereby
incorporated herein by reference.




<PAGE>



               PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP


                                   SIGNATURES

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


                         PAINEWEBBER EQUITY PARTNERS TWO
                               LIMITED PARTNERSHIP


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



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






Dated:  November 12, 1999