UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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

                                   FORM 10-Q

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

               FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995

                                      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, 1995 and March 31, 1995 (Unaudited)
                                (In thousands)

                                    ASSETS
                                                  December 31      March  31

Operating investment properties:
   Land                                           $    8,808       $    8,808
   Building and improvements                          41,287           40,975
                                                  ----------       ----------
                                                      50,095           49,783
   Less accumulated depreciation                     (10,022)          (8,895)
                                                  ----------       ----------
                                                      40,073           40,888

Investments in unconsolidated joint
 ventures, at equity                                  25,887           39,887
Cash and cash equivalents                              8,893            1,827
Escrowed cash                                            249               57
Accounts receivable                                      185              192
Accounts receivable - affiliates                          85               15
Prepaid expenses                                          29               28
Deferred rent receivable                                 704              476
Deferred expenses, net                                   683              778
                                                  ----------       ----------
                                                   $  76,788        $  84,148
                                                   =========        =========

                      LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses             $      617        $     434
Net advances from consolidated ventures                  194               29
Tenant security deposits                                  95              103
Other liabilities                                        349              348
Bonds payable                                          2,458            2,498
Notes payable                                         19,961           20,137
Partners' capital                                     53,114           60,599
                                                  ----------        ---------
                                                  $   76,788        $  84,148
                                                  ==========        =========
















                           See accompanying notes.


<PAGE>


             PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
                    CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
                     (In thousands, except per Unit data)

                                      Three Months Ended      Nine Months Ended
                                        December 31,           December 31,
                                      1995      1994          1995      1994
                                      ----      ----          ----      ----

Revenues:
   Rental income and expense
     reimbursements               $  1,166   $    925     $  3,432   $  2,980
   Interest and other income           166         83          284        193
                                  --------   --------     --------   --------
                                     1,332      1,008        3,716      3,173
Expenses:
   Property operating expenses         381        328        1,008        982
   Depreciation and amortization       409        445        1,206      1,211
   Interest expense                    557        647        1,580      2,452
   General and administrative          245        231          573        549
   Real estate taxes                   113        137          350        361
                                  --------   --------     --------   --------
                                     1,705      1,788        4,717      5,555
                                  --------   --------     --------   --------
Operating loss                        (373)      (780)      (1,001)    (2,382)

Investment income:
   Interest income on notes
    receivable from 
    unconsolidated ventures            27         28           80         80
   Partnership's share of 
    unconsolidated
    ventures' income                  121        552          467      1,660
                                  --------   --------     --------   --------

Net loss                         $   (225)   $  (200)     $  (454)   $  (642)
                                 =========   ========    =========   ========

Net loss per 1,000 Limited
  Partnership Units                $(1.65)    $(1.47)      $(3.34)   $  (4.73)
                                   ======     ======       ======    ========

Cash distributions per 1,000 Limited
  Partnership Units                $42.72      $4.72       $52.16     $ 29.48
                                   ======      =====       ======     =======


   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, 1995 and 1994 (Unaudited)
                                (In thousands)

                                                   General          Limited
                                                   Partners         Partners

Balance at March 31, 1994                        $   (478)        $  66,025
Cash distributions                                    (40)           (3,963)
Net loss                                               (7)             (635)
                                                 --------         ---------
Balance at December 31, 1994                     $   (525)        $  61,427
                                                 ========         =========

Balance at March 31, 1995                        $   (527)        $  61,126
Cash distributions                                    (19)           (7,012)
Net loss                                               (5)             (449)
                                                 --------         ---------
Balance at December 31, 1995                     $   (551)        $  53,665
                                                 ========         =========

































                           See accompanying notes.


<PAGE>


             PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
                    CONSOLIDATED  STATEMENTS  OF CASH FLOWS
 For the nine  months ended December 31, 1995 and 1994 (Unaudited)
               Increase (Decrease) in Cash and Cash Equivalents
                                (In thousands)

                                                         1995            1994
                                                         ----            ----
Cash flows from operating activities:
   Net loss                                       $     (454)      $     (642)
   Adjustments to reconcile net loss to net cash
   provided by operating activities:
     Partnership's share of unconsolidated 
       ventures' income                                 (467)          (1,660)
     Interest expense on zero coupon loans                 -            1,467
     Depreciation and amortization                     1,206            1,370
     Amortization of deferred financings costs            28                -
      Changes in assets and liabilities:
      Escrowed cash                                     (192)             (97)
      Accounts receivable                                  7               31
      Accounts receivable - affiliates                   (70)              (7)
      Deferred rent receivable                          (228)              65
      Deferred expenses and other assets                  53              (29)
      Prepaid expenses                                    (1)             (15)
      Accounts payable and accrued expenses              183              291
      Advances from consolidated ventures                165             (329)
      Tenant security deposits                            (8)              (5)
      Other liabilities                                    1                -
                                                     -------         --------
        Total adjustments                                677            1,082
                                                     -------         --------
        Net cash provided by operating activities        223              440
                                                     -------         --------

Cash flows from investing activities:
   Distributions from unconsolidated ventures         15,868           15,207
   Additional investments in unconsolidated ventures  (1,401)            (894)
   Payment of leasing commissions                        (65)            (299)
   Additions to operating investment properties         (312)             (59)
                                                     -------         --------
        Net cash provided by investing activities     14,090           13,955
                                                   ---------        ---------

Cash flows from financing activities:
   Distributions to partners                          (7,031)          (4,003)
   Proceeds from issuance of loans                     2,000            7,000
   Payment of deferred financing costs                     -             (260)
   Repayments of principal on notes payable           (2,176)         (18,233)
   Repayment of principal on bonds payable               (40)             (32)
                                                     -------         --------
        Net cash used for financing activities        (7,247)         (15,528)
                                                     -------         --------

Net increase (decrease) in cash and cash equivalents   7,066           (1,133)

Cash and cash equivalents, beginning of period         1,827            4,529
                                                     -------         --------

Cash and cash equivalents, end of period             $ 8,893         $  3,396
                                                     =======         ========

Cash paid during the period for interest             $ 1,553         $ 10,990
                                                     =======         ========

                           See accompanying notes.


<PAGE>


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


1.  Organization

      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, 1995.

      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.

2. Related Party Transactions

      Included in general and administrative  expenses for the nine months ended
     December  31,  1995  and  1994  is  $195,000  and  $199,000,  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 months
     ended  December  31,  1995 and 1994 is  $4,000  and  $8,000,  respectively,
     representing fees earned by Mitchell Hutchins Institutional Investors, Inc.
     for managing the Partnership's cash assets.

      Accounts  receivable - affiliates  at December 31, 1995 and March 31, 1995
     consist of investor  servicing  fees of $70,000 and $63,000,  respectively,
     due from the TCR Walnut Creek Limited Partnership and $15,000 at both dates
     due from certain  unconsolidated  joint  ventures for expenses  paid by the
     Partnership on behalf of the joint ventures.

3.  Investments in Unconsolidated Joint Ventures

      As  of  December  31,1995,   the  Partnership  has  investments  in  three
    unconsolidated  joint venture  partnerships (five at December 31,1994) which
    own   operating   investment   properties   as  described   further  in  the
    Partnership's  Annual  Report.  On November 1, 1995, the joint venture which
    owned the Richmond Park and Richland Terrace  Apartments sold the properties
    to a third party for $11 million.  The Partnership  received net proceeds of
    approximately $8 million after deducting  closing costs,  the  co-venturer's
    share of the proceeds and repayment of the $2 million borrowing described in
    Note 5. The Partnership distributed  approximately $5.1 million of these net
    proceeds to the Limited Partners in a Special  Distribution made on December
    27, 1995. The remaining sale proceeds were retained by the  Partnership  for
    the capital needs of the Partnership's  commercial properties.  In addition,
    on December  29,  1995 the joint  venture  which owned the Treat  Commons II
    Apartments  sold the  property  to a third  party  for  approximately  $12.1
    million. The Partnership received net proceeds of approximately $4.1 million
    after  deducting  closing costs and the  repayment of the existing  mortgage
    note  of  approximately   $7.3  million.   Management  plans  to  distribute
    approximately  $3.1  million  of these  net  sale  proceeds  to the  Limited
    Partners in a Special  Distribution  to be made on February  15,  1996.  The
    remaining sale proceeds of  approximately $1 million will be retained by the
    Partnership  for potential  reinvestment  in the Loehmann's  Plaza property,
    where a significant renovation and re-leasing program is currently underway.

      The  unconsolidated  joint venture  partnerships  are accounted for on the
    equity  method  in  the  Partnership's   financial  statements  because  the
    Partnership does not have a voting control interest in these joint ventures.
    The Partnership's  policy is to recognize its share of ventures'  operations
    three months in arrears.

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


<PAGE>


                    Condensed Combined Summary of Operations
 For the three and nine months ended September 30, 1995 and 1994 (in thousands)

                                    Three Months Ended      Nine Months Ended
                                      September 30,           September 30,
                                    1995        1994        1995        1994
                                    ----        ----        ----        ----
   Rental revenues and
      expense recoveries           $3,200      $3,200      $9,362      $9,209
   Interest and other income           36         102         218         287
                                  -------      ------      ------      ------
                                    3,236       3,302       9,580       9,496

   Property operating expenses      1,044       1,008       2,918       2,803
   Real estate taxes                  706         770       2,094       2,289
   Interest expense                   383          43       1,108         124
   Depreciation and amortization      959         832       2,897       2,386
                                 --------     ------      -------      ------
                                    3,092       2,653       9,017       7,602
                                 --------     -------     -------      ------
   Net income                    $    144     $   649     $   563      $1,894
                                 ========     =======     =======      ======


                                 Three Months Ended       Nine Months Ended
                                    September 30,          September 30,
                                  1995        1994        1995        1994
                                  ----        ----        ----        ----
   Net income:
     Partnership's share of
       combined income          $     141   $     572    $    527    $  1,720
     Co-venturers' share of
       combined income                  3          77          36         174
                                ---------   ---------    --------    --------
                                $     144   $     649    $    563    $  1,894
                                =========   =========    ========    ========

             Reconciliation  of Partnership's  Share of Operations
         For the three and nine months ended September 30, 1995 and 1994
                                (in thousands)

                                    Three Months Ended      Nine Months Ended
                                       September 30,          September 30,
                                    1995        1994        1995        1994
                                    ----        ----        ----        ----

   Partnership's share of
     operations,
     as shown above             $   141     $   572       $   527    $  1,720
   Amortization of excess basis     (20)        (20)          (60)        (60)
                                -------     -------      --------    --------
   Partnership's share of 
     unconsolidated
     ventures' income           $   121     $   552       $   467    $  1,660
                                =======     =======       =======    ========

4.  Operating Investment Properties

    At December  31,  1995,  the  Partnership's  balance  sheet  includes  three
    operating  investment  properties;  Saratoga Center and EG&G Plaza, owned by
    Hacienda Park Associates,  the Asbury Commons  Apartments,  owned by Atlanta
    Asbury  Partnership,  and the West Ashley Shoppes Shopping Center,  owned by
    West Ashley Shoppes  Associates.  The Partnership's  policy is to report the
    operations  of these  consolidated  joint  ventures  on a  three-month  lag.
    Saratoga  Center  and  EG&G  Plaza  consists  of  four  separate  office/R&D
    buildings   comprising   approximately   185,000  square  feet,  located  in
    Pleasanton,  California. Asbury Commons Apartments is a 204-unit residential
    apartment  complex  located in Atlanta,  Georgia.  The West  Ashley  Shoppes
    Shopping  Center consists of  approximately  135,000 square feet of leasable
    retail space located in Charleston, South Carolina.

      The  following is a combined  summary of property  operating  expenses for
    Saratoga  Center and EG&G Plaza,  Asbury Commons  Apartments and West Ashley
    Shoppes  Shopping  Center for the three and nine months ended  September 30,
    1995 and 1994 (in thousands):

                                    Three Months Ended      Nine Months Ended
                                      September 30,            September 30,
                                    1995        1994        1995        1994
                                    ----        ----        ----        ----
    Property operating expenses:
      Repairs and maintenance     $   158     $   102     $   385      $  325
      Utilities                        52          69         150         171
      Salaries and related costs       48          46         128         136
      Insurance                        17          16          48          45
      Management fees                  38          35         111         106
      Administrative and other         68          60         186         199
                                  -------     -------      ------      ------
                                  $   381     $   328      $1,008      $  982
                                  =======     =======      ======      ======

5.   Notes Payable

        Notes payable on the  consolidated  balance sheet of the  Partnership at
    December  31,  1995  and  March  31,  1995  consist  of  the  following  (in
    thousands):

                                                    December 31      March 31

   9.125% mortgage note payable to an
   insurance company secured by the 625 North
   Michigan Avenue  operating  investment 
   property.  The loan requires  monthly
   principal and interest  payments of $55
   through  maturity on May 1, 1999. The
   terms of the note were modified effective
   May 31, 1994 (see discussion below).                $9,572           $9,657

   8.75%  mortgage  note payable to an
   insurance  company  secured by the Asbury
   Commons operating  investment  property. 
   The loan requires monthly principal
   and interest payments of $58 through
   maturity on October 15, 2001
   (see discussion below).                             6,911            6,980

   9.04% mortgage note payable to an 
   insurance  company  secured by the Saratoga
   Center  and EG&G  Plaza  operating 
   investment  property.  The loan  requires
   monthly  principal and interest  
   payments of $36 through  maturity on January
   20, 2002 (see   discussion below).                  3,478            3,500
                                                    --------         --------

                                                     $19,961          $20,137
                                                     =======          =======
          On April 29, 1988, the Partnership  borrowed $6,000,000 in the form of
     a zero coupon loan which had a scheduled  maturity date in May of 1995. The
     note bore interest at an effective  compounded  annual rate of 9.8% and was
     secured by the 625 North Michigan  Avenue Office  Building.  Payment of all
     interest was deferred until maturity,  at which time principal and interest
     totalling  approximately  $11,556,000 was to be due and payable. On May 31,
     1994 the Partnership  executed a modification and extension  agreement with
     the 625 North Michigan  lender.  The terms of the agreement  called for the
     Partnership to make a principal  paydown of $801,000.  The maturity date of
     the loan, which now requires  principal and interest  payments on a monthly
     basis as set forth above,  was  extended to May 31, 1999.  The terms of the
     loan  agreement  also required the  establishment  of an escrow account for
     real estate taxes, as well as a capital  improvement  escrow which is to be
     funded with monthly deposits from the Partnership aggregating approximately
     $1 million  through the  scheduled  maturity  date.

          On June 20, 1988, the Partnership  borrowed $17,000,000 in the form of
     zero coupon loans due in June of 1995.  These notes bore interest at a rate
     of 10%, compounded annually. During fiscal 1991, the Partnership had repaid
     the portion of the zero coupon loans which had been secured by the Highland
     Village Apartments,  which was sold in May of 1990. The aggregate amount of
     principal  and  accrued  interest  repaid  on  May  31,  1990  amounted  to
     approximately $1,660,000.  Additionally, a paydown of principal and accrued
     interest,  totalling approximately $2,590,000, was made on August 20, 1990.
     This paydown  represented  a mandatory  repayment of the full amount of the
     principal and accrued interest which had been secured by the Ballston Place
     property, which was sold in fiscal 1990, and an optional partial prepayment
     of the principal  and accrued  interest  secured by The Gables  Apartments.
     During fiscal 1995,  the  remaining  balances of the zero coupon loans were
     repaid from the proceeds of five new conventional  mortgage loans issued to
     the Partnership's joint venture investees,  together with funds contributed
     by the Partnership, as set forth below.

        On September 27, 1994,  the  Partnership  refinanced  the portion of the
    zero coupon loan secured by the Treat Commons Phase II apartment complex, of
    approximately  $3,353,000,  with the  proceeds  of a new $7.4  million  loan
    obtained by TCR Walnut Creek Limited  Partnership.  The $7.4 million loan is
    secured by the Treat Commons apartment  complex,  carries an annual interest
    rate of 8.54% and matures in 7 years.  The loan requires  monthly  principal
    and interest  payments of $59,786.  On September 28, 1994,  the  Partnership
    repaid the  portion of the zero coupon  loan  secured by the Asbury  Commons
    apartment complex, of approximately  $3,836,000,  with the proceeds of a new
    $7 million loan obtained by the  consolidated  Asbury Commons joint venture.
    The $7 million  loan is secured by the  Asbury  Commons  apartment  complex,
    carries an annual  interest  rate of 8.75% and matures in 7 years.  The loan
    requires monthly principal and interest payments of $57,575.  On October 22,
    1994,  the  Partnership  applied a portion of the excess  proceeds  from the
    refinancings  of the Treat Commons and Asbury Commons  properties  described
    above and repaid the portion of the zero coupon loan which had been  secured
    by West  Ashley  Shoppes  of  approximately  $2,703,000  and made a  partial
    prepayment  toward the portion of the zero  coupon loan  secured by Hacienda
    Business Park of $3,000,000. On November 7, 1994, the Partnership repaid the
    portion of the zero coupon loans  secured by The Gables  Apartments  and the
    Richland  Terrace and Richmond  Park  apartment  complexes of  approximately
    $2,353,000  and  $2,106,000,  respectively,  with the proceeds of a new $5.2
    million loan secured by The Gables Apartments. The new $5.2 million loan was
    issued to the Gables joint venture, bears interest at 8.72% and matures in 7
    years. The loan requires monthly principal and interest payments of $42,646.
    On February 9, 1995,  the  Partnership  repaid the remaining  portion of the
    zero coupon loan secured by the Hacienda  Business  Park,  of  approximately
    $3,583,000,  with the proceeds of a new $3.5  million  loan  obtained by the
    consolidated  Hacienda  Park  joint  venture  along  with  additional  funds
    contributed  by the  Partnership.  The $3.5  million  loan is secured by the
    Hacienda Business Park, carries an annual interest rate of 9.04% and matures
    in 7 years.  The loan requires  monthly  principal and interest  payments of
    $35,620.  On February 10, 1995,  the  Partnership  repaid the portion of the
    zero  coupon  loan  secured by the  Loehmann's  Plaza  shopping  center,  of
    approximately  $4,093,000,  with  the  proceeds  of a new  $4  million  loan
    obtained by  Daniel/Metcalf  Associates  Partnership  along with  additional
    funds contributed by the Partnership.  The $4 million loan is secured by the
    Loehmann's Plaza shopping  center,  carries an annual interest rate of 9.04%
    and matures on February 15, 2003.  The loan requires  monthly  principal and
    interest  payments of $33,700.  Legal liability for the repayment of the new
    mortgage  loans secured by the Treat Commons,  Gables and  Loehmann's  Plaza
    properties  rests  with  the  respective   unconsolidated   joint  ventures.
    Accordingly,  these mortgage loan  liabilities  are recorded on the books of
    the  unconsolidated  joint  ventures.  The  Partnership  has indemnified TCR
    Walnut  Creek  Limited   Partnership,   Richmond   Gables   Associates   and
    Daniel/Metcalf  Associates  Partnership and the related co-venture partners,
    against  all  liabilities,   claims  and  expenses   associated  with  these
    borrowings.  The net proceeds of these loans were recorded as  distributions
    to the Partnership by the unconsolidated joint ventures.

      In  August  1995,  in order to have  sufficient  funds to  proceed  with a
     renovation program at one of its joint venture properties,  the Partnership
     secured a one year loan in the amount of $2 million,  collateralized by the
     Partnership's  share of the proceeds from a future sale or  refinancing  of
     the Richmond  Park/Richland  Terrace Apartments.  The note required monthly
     interest-only  payments at a variable  rate of the  lender's  prime plus 1%
     through the scheduled maturity date of August 2, 1996. On November 1, 1995,
     the Partnership repaid the note with the proceeds from the sale of Richmond
     Park/Richland Terrace (see Note 3).

6.   Bonds Payable

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

7.   Contingencies

      The Partnership is involved in certain legal actions. The Managing General
     Partner  believes these actions will be resolved  without  material adverse
     effect on the Partnership's financial statements, taken as a whole.



<PAGE>





             PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP

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


Liquidity and Capital Resources

     As previously  reported,  in light of the current  strength of the national
real estate market with respect to multi-family apartment properties, management
had examined the Partnership's  four apartment  properties to identify whether a
current sale of one or more of these  properties  might be in the  Partnership's
best interests.  Based on such analysis,  the Richmond Park/Richland Terrace and
Treat Commons II properties  were  determined  to be the best  candidates  for a
current sale. In the case of Richmond  Park and Richland  Terrace,  the economic
growth in the  Portland,  Oregon area has been among the best in the country for
some time.  Such results may lead to increased  levels of  development  activity
which  could  limit the  current  favorable  trends in the market  for  existing
apartment properties.  Accordingly, management believed that the market value of
Richmond  Park and  Richland  Terrace  was at or near  its peak for the  current
market cycle and began to actively  market the property for sale in fiscal 1995.
On November 1, 1995, the Partnership sold the Richmond Park and Richland Terrace
properties to a third party for $11 million.  The Partnership  received net sale
proceeds  of  approximately  $8  million  after  deducting  closing  costs,  the
co-venture  partner's  share of the  proceeds  and  repayment  of the $2 million
short-term   note  discussed   further  below.   The   Partnership   distributed
approximately   $5.1  million  of  this  amount,  or  $38  per  original  $1,000
investment,  to the Limited Partners in a Special  Distribution made on December
27, 1995.  The remaining  sale proceeds were retained by the  Partnership  to be
used for the capital needs of its commercial properties.

     In the case of Treat Commons,  the Partnership  owned Phase II of a 2-phase
development.  During fiscal 1995,  management  learned that the owner of Phase I
had decided to market the  property  for sale.  Management  believed  there were
advantages to a joint  marketing  effort of both phases which could maximize the
sale  proceeds to the  Partnership  and began  working with the Phase I owner to
actively  market the property for sale during fiscal 1996. On December 29, 1995,
the  Partnership  sold the Treat  Commons  II  Apartments  to a third  party for
approximately  $12.1  million.  The  Partnership  received net sale  proceeds of
approximately  $4.1 million after  deducting  closing costs and the repayment of
the  existing  mortgage  note on the  property of  approximately  $7.3  million.
Management plans to distribute approximately $3.1 million of this amount, or $23
per  original  $1,000   investment,   to  the  Limited  Partners  in  a  Special
Distribution  to be made on February 15, 1996.  The  remaining  sale proceeds of
approximately  $1 million  will be retained  by the  Partnership  for  potential
reinvestment in the Loehamann's Plaza property,  where a significant  renovation
and re-leasing  program is currently  underway,  as discussed  further below. If
these funds are not needed for use at Loehmann's  Plaza,  management will likely
distribute them to the Limited Partners sometime during fiscal 1997.

     As a result of the reduction in  Partnership  cash flow  resulting from the
fiscal 1996 sale  transactions  described above,  management  determined that it
would be necessary to reduce the Partnership's  distribution rate from its level
of 2% on remaining  invested  capital to 1% effective for the payment to be made
on February 15, 1996 for the quarter ended December 31, 1995.  Distributions are
expected  to remain at this level  until the  leasing  status of the  commercial
properties has been stabilized.

     During  fiscal  1995,  the  Partnership  secured  a  new  tenant,  under  a
seven-year  lease,  for the vacant 31,000 square foot building at Hacienda Park.
The Partnership  agreed to pay for the tenant  improvement  costs to modify this
space  to  the  needs  of  the  new  tenant.  Tenant  improvements  and  leasing
commissions related to this lease totalled  approximately  $630,000.  During the
first quarter of fiscal 1996, the Partnership leased an additional 10,808 square
foot space to this same  tenant.  During the current  quarter,  the  Partnership
leased the remaining  10,027 square feet of available  space at Hacienda Park to
an existing tenant.  In addition,  a 31,000 square foot tenant executed a 5-year
renewal of its lease  obligation,  which was due to expire in March  1996.  As a
result of these developments,  the Hacienda Park investment property,  which was
89% leased as of March 31, 1995,  was fully  leased as of December 31, 1995.  At
Loehmann's  Plaza,  management  is in the process of  completing a major capital
enhancement and  repositioning  program which is scheduled for completion in the
spring of 1996. The improvement program, which is expected to cost a total of $2
million,  is necessary in order for the  property to remain  competitive  in its
market.  As part of the  repositioning  program,  management  believed  it would
significantly enhance the value of the shopping center to replace the property's
anchor tenant,  Loehmann's,  which occupied 15,000 square feet, or approximately
10%, of the  property's  net  leasable  area.  Loehmann's,  which is no longer a
prominent  retailer in the Kansas City area, was not serving as a major draw for
the center and was paying a  substantially  below market lease rate. On November
7, 1995,  the  Partnership  completed the  negotiation  of an agreement  whereby
Loehamann's consented to terminate its lease, vacate the property and relinquish
control of its space to the  Partnership  in return  for a payment  of  $75,000.
Subsequent to the  termination of the  Loehamann's  lease,  the property was 76%
leased.  Management  is  currently  in  discussions  with a number of  potential
replacement  national credit anchor tenants for the entire  Loehamann's space. A
lease with a national credit anchor tenant would greatly enhance the position of
the  property  in its  marketplace,  resulting  in  increased  cash  flow and an
improved ability to lease vacant shop space.  Tenant  improvement costs to lease
the Loehmann's  space are likely to be  significant  and would be in addition to
the $2 million referred to above. A portion of the funds required to pay for the
capital improvement work at Loehmann's Plaza is expected to come from a $550,000
Renovation and Occupancy  Escrow withheld by the lender from the proceeds of the
$4 million  loan secured by the  property  which was obtained in February  1995.
Funds may be released from the Renovation and Occupancy  Escrow to reimburse the
venture for the costs of the planned  renovations  in the event that the venture
satisfies  certain  requirements  which include  specified  occupancy and rental
income thresholds.  If such requirements have not been met within 18 months from
the date of the loan  closing,  the lender  may apply the  balance of the escrow
account to the payment of loan principal.  In addition, the lender required that
the  Partnership   unconditionally   guaranty  up  to  $1,400,000  of  the  loan
obligation.  This  guaranty  will be  released  in the  event  that the  venture
satisfies the requirement for the release of the Renovation and Occupancy Escrow
funds or upon the repayment,  in full, of the entire  outstanding  mortgage loan
liability.  In order to have  sufficient  funds to proceed  with the  Loehmann's
Plaza  renovation  program  prior to the sale of the Richmond  Park and Richland
Terrace properties, management had secured a short term loan in the amount of $2
million.  The note  which  was  obtained  in  August  1995 had an August 2, 1996
maturity date and required monthly interest-only payments at a variable interest
rate  of the  lender's  prime  plus  one  percent.  On  November  1,  1995,  the
Partnership  repaid  this  note  with the  proceeds  from  the sale  transaction
discussed  above. The remainder of the funds required to pay for the improvement
program  and  re-leasing  costs at  Loehmann's  Plaza  will be  provided  by the
proceeds  retained  by the  Partnership  from  the  sale of the  Richmond  Park,
Richland Terrace and Treat Commons II properties.

     A  significant  amount  of  funds  may  also be  needed  to pay for  tenant
improvement  costs to re-lease  the vacant  anchor  tenant  space at West Ashley
Shoppes in the near term. As previously  reported,  Children's Palace closed its
retail  store at the center in May 1991 and  subsequently  filed for  bankruptcy
protection  from  creditors.  Although the  negotiations  with a strong national
retailer to occupy approximately one-half of the old Children's Palace space did
not materialize,  management is encouraged by the improving economic  conditions
in the Charleston market and is optimistic that a national credit tenant will be
identified to lease the vacant anchor tenant space at West Ashley Shoppes.  West
Ashley's  other major anchor  tenant,  Phar-Mor,  has recently  emerged from the
protection of Chapter 11 of the U.S.  Bankruptcy Code. While Phar-Mor has closed
a number of its stores nationwide as part of its bankruptcy reorganization,  the
Phar-Mor  drugstore at West Ashley Shoppes will remain in operation as expected.
Capital  improvement  and leasing  costs at 625 North  Michigan  are expected to
continue to be significant for the foreseeable future due to the size and age of
the building,  the large number of leases and the competitive  conditions  which
exist in the market for downtown  Chicago  office space.  The  renovation of the
building's facade is expected to be completed during calendar 1996.

     At December 31, 1995, the Partnership and its  consolidated  joint ventures
had available cash and cash equivalents of approximately  $8,893,000.  Such cash
and cash  equivalents  includes the $41.  million net proceeds  from the sale of
Treat Commons in December 1995. As discussed further above, $3.1 million of such
proceeds will be distributed  to the Limited  Partners in February 1996, and the
balance will be retained  initially for potential use as part of the  Loehmann's
Plaza renovation program.  The balance of such cash and cash equivalents amounts
will be utilized for the working capital  requirements of the  Partnership,  for
reinvestment  in certain of the  Partnership's  properties (as required) and for
distributions to the partners.  The source of future liquidity and distributions
to the partners is expected to be through cash generated from  operations of the
Partnership's  income-producing investment properties and proceeds received from
the sale or  refinancing  of such  properties.  Such  sources of  liquidity  are
expected to be sufficient to meet the  Partnership's  needs on both a short-term
and long-term basis.

Results of Operations
Three Months Ended December 31, 1995

     The Partnership  reported a net loss of $225,000 for the three months ended
December 31, 1995,  as compared to a net loss of $200,000 for the same period in
the prior  year.  This  increase in net loss was the result of a decrease in the
Partnership's  share of  unconsolidated  ventures'  income of $431,000 which was
almost  entirely  offset by a decrease in the  Partnership's  operating  loss of
$407,000.  These offsetting changes in unconsolidated  ventures' results and the
Partnership's  operating  loss  reflect a change  in the  entity  reporting  the
interest  expense  associated with the borrowings  secured by the  Partnership's
operating  investment  properties.  As more fully discussed in the Partnership's
Annual Report, the Partnership refinanced the majority of the zero coupon loans,
which had been issued  directly  to the  Partnership,  with the  proceeds of new
loans obtained by the  respective  joint  ventures.  This caused a change in the
entity  reporting  the  interest  expense  from  the  Partnership  to the  joint
ventures.  As a result,  the interest expense component of operating loss on the
Partnership's  consolidated  statements of operations declined by $90,000 in the
current  three-month  period despite the additional  interest  expense  incurred
during the  current  quarter on the  $2,000,000  temporary  borrowing  described
above.  However,  this  decrease was offset by a reduction in the  Partnership's
share of income from its unconsolidated joint ventures in the current period due
to the recognition of interest expense by the unconsolidated ventures on the new
borrowings.  Overall,  interest  costs on the  outstanding  mortgage  loans have
declined  slightly  as a result of the  refinancings  because the new loans were
obtained  with  lower  interest  rates  than the prior zero  coupon  loans.  The
Partnership's  operating  loss,  prior to the effect of the  change in  interest
expense,  decreased by $317,000 primarily due to increases in rental revenues at
the consolidated Asbury Commons and Hacienda Park joint ventures for the current
three-month period and as well as increases in interest income.  Rental revenues
at Asbury  Commons  increased  by $71,000 over the same period in the prior year
primarily  due to increases  in rental rates at the property  over the past year
made  possible by the strong  Atlanta  market.  Rental  income at Hacienda  Park
increased  by $193,000  for the  current  three-month  period  mainly due to the
leasing activity referred to above.  Interest income increased due to the higher
average cash balances resulting from the receipt of the  Richmond/Richland  sale
proceeds.

    The  Partnership's  share of unconsolidated  ventures' income,  prior to the
effect of the change in interest expense  described above,  decreased by $91,000
for the nine months  ended  December  31, 1995  primarily  due to an increase in
combined  depreciation and amortization  expense.  Depreciation and amortization
expense  increased by $127,000 mainly due to an acceleration of the depreciation
rate at 625 North  Michigan  and  additional  capital  improvements  made to the
Loehmann's Plaza property during the past year.

Nine Months Ended December 31, 1995

     The  Partnership  reported a net loss of $454,000 for the nine months ended
December 31, 1995,  as compared to a net loss of $642,000 for the same period in
the prior year.  This  decrease in net loss for the  current  nine-month  period
resulted from a decrease in operating  loss of  $1,381,000,  which was partially
offset by a decrease  in the  Partnership's  share of  unconsolidated  ventures'
income of  $1,193,000.  As  discussed  above in the results for the three months
ended December 31, 1995, the major reasons for these offsetting  changes are the
change  in the  entity  reporting  the  interest  expense  associated  with  the
borrowings  secured by the  Partnership's  operating  investment  properties and
improvement in rental revenues at the  consolidated  Asbury Commons and Hacienda
Park joint ventures.  The  Partnership's  operating loss, prior to the effect of
the change in interest expense,  decreased by $509,000 for the nine months ended
December  31,  1995  primarily  due to  increases  in rental  revenues at Asbury
Commons and Hacienda Park.  Revenues at the Asbury Commons Apartments  increased
by $211,000 over the prior period  primarily due to increases in rental rates at
the  property  over the past year made  possible by the strong  Atlanta  market.
Rental income at Hacienda Park increased by $263,000 for the current  nine-month
period mainly due to the leasing activity  referred to above. In addition to the
increase in rental revenues from the  consolidated  properties,  interest income
increased  by $91,000 in the  current  period  mainly due to an  increase in the
average outstanding balance of the Partnership's cash reserves.

    The  Partnership's  share of unconsolidated  ventures' income,  prior to the
effect of the change in interest expense described above,  decreased by $209,000
for the nine months  ended  December  31, 1995  primarily  due to  increases  in
combined  depreciation and amortization and property operating  expenses,  which
were partially  offset by increases in combined  rental income and a decrease in
real estate tax expense.  Depreciation  and  amortization  expense  increased by
$511,000  mainly due to an acceleration  of the  depreciation  rate at 625 North
Michigan  and  additional  capital  improvements  made to the  Loehmann's  Plaza
property during the past year. Property operating expenses increased by $115,000
for  the  current  nine-month  period  due in  part to  additional  repairs  and
maintenance costs incurred at the 625 North Michigan property to seal and repair
a portion of the building's  facade.  Property operating expenses also increased
due to additional expenses incurred at Richland Terrace, Richmond Park and Treat
Commons II to prepare the properties for sale in the current year. Rental income
increased by $153,000 over the prior period mainly due to increased occupancy at
625 North  Michigan and Treat  Commons II as well as  increased  rental rates at
Richmond Gables.




<PAGE>



                                     PART II

                                Other Information

Item 1. Legal Proceedings

     In  November  1994,  a series of  purported  class  actions  (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of 70 limited  partnership  investments,  including those offered by
the Partnership.  The lawsuits were brought against PaineWebber Incorporated and
Paine Webber Group Inc.  (together  "PaineWebber"),  among others,  by allegedly
dissatisfied  partnership  investors.  In March  1995,  after the  actions  were
consolidated under the title In re PaineWebber Limited  Partnership  Litigation,
the  plaintiffs  amended their  complaint to assert claims  against a variety of
other  defendants,   including  Second  Equity  Partners,  Inc.  and  Properties
Associates  1986,  L.P.  ("PA1986"),  which  are  the  General  Partners  of the
Partnership and affiliates of PaineWebber.  On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.

     The amended complaint in the New York Limited  Partnership  Actions alleges
that, in connection  with the sale of interests in PaineWebber  Equity  Partners
Two Limited Partnership,  PaineWebber,  Second Equity Partners,  Inc. and PA1986
(1) failed to provide adequate disclosure of the risks involved;  (2) made false
and  misleading  representations  about the  safety of the  investments  and the
Partnership's  anticipated  performance;  and (3)  marketed the  Partnership  to
investors for whom such  investments  were not  suitable.  The  plaintiffs,  who
purport to be suing on behalf of all persons who invested in PaineWebber  Equity
Partners Two Limited  Partnership,  also allege that  following  the sale of the
partnership  interests,  PaineWebber,  Second Equity  Partners,  Inc. and PA1986
misrepresented   financial   information  about  the  Partnership's   value  and
performance.  The amended  complaint  alleges that  PaineWebber,  Second  Equity
Partners,  Inc.  and  PA1986  violated  the  Racketeer  Influenced  and  Corrupt
Organizations Act ("RICO") and the federal  securities laws. The plaintiffs seek
unspecified  damages,  including  reimbursement for all sums invested by them in
the  partnerships,  as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships.  In addition,  the plaintiffs also
seek treble damages under RICO.

     In January 1996,  PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement agreement and plan of allocation which the parties expect
to submit  to the  court for its  consideration  and  approval  within  the next
several months. Until a definitive settlement and plan of allocation is approved
by the court,  there can be no assurance  what, if any,  payment or non-monetary
benefits will be made available to investors in PaineWebber  Equity Partners Two
Limited  Partnership.  Pursuant to provisions of the  Partnership  Agreement and
other contractual  obligations,  under certain circumstances the Partnership may
be  required  to  indemnify  Second  Equity  Partners,  Inc.,  PA1986  and their
affiliates  for costs  and  liabilities  in  connection  with  this  litigation.
Management has had discussions with representatives of PaineWebber and, based on
such discussions,  the Partnership does not believe that PaineWebber  intends to
invoke the aforementioned  indemnifications in connection with the settlement of
this litigation.

Item 2. through 5.  NONE

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:    NONE

(b)  Reports on Form 8-K:

     On  November  16,  1995 a  Current  Report  on Form  8-K was  filed  by the
registrant  reporting the November 1, 1995 sale of the joint venture which owned
the Richmond Park and Richland Terrace Apartments.

     On  January  16,  1996 a  Current  Report  on  Form  8-K was  filed  by the
registrant reporting the December 29, 1995 sale of the joint venture which owned
the Treat Commons Phase II Apartments



<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 13, 1996