United States
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   Form 10-Q

             (X) Quarterly Report Pursuant to Section 13 or 15(d) of
                     of the Securities Exchange Act of 1934.
                  For the quarterly period ended March 31, 1998
                                       or

          ( ) Transition Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934.
                 For the transition period from ______ to ______

                         Commission File Number 33-14582
                        PAINEWEBBER R&D PARTNERS II, L.P.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              13-3437420
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK                         10019
    (Address of principal executive offices)                          (Zip code)

       Registrant's telephone number, including area code: (212) 713-2000

                             ----------------------

         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>

                             SPECIAL NOTE REGARDING
                           FORWARD LOOKING STATEMENTS


         The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained herein, the matters discussed herein are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of PaineWebber R&D Partners II, L.P. or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions; fluctuations in the
value of securities for which only a limited, or no, public market exists;
dependence on the development of new technologies; dependence on timely
development and introduction of new and competitively priced products; the need
for regulatory approvals; the Sponsor Companies (hereinafter defined) having
insufficient funds to commercialize products to their maximum potential; the
restructuring of Sponsor Companies; the dependence of PaineWebber R&D Partners
II, L.P. on the skills of certain scientific personnel; and the dependence of
PaineWebber R&D Partners II, L.P. on the General Partner (hereinafter defined).

<PAGE>

                       PAINEWEBBER R&D PARTNERS II, L.P.
                        (a Delaware Limited Partnership)

                                   Form 10-Q
                                 March 31, 1998


                               Table of Contents


PART I.     FINANCIAL INFORMATION                                          Page

Item 1.     Financial Statements

            Statements of Financial Condition (unaudited) 
            at March 31, 1998 and December 31, 1997                          2

            Statements of Operations
            (unaudited) for the three months ended March 
            31, 1998 and 1997                                                3

            Statement of Changes in Partners' Capital
            (unaudited) for the three months ended 
            March 31, 1998                                                   3

            Statements of Cash Flows
            (unaudited) for the three months ended                
            March 31, 1998 and 1997                                          4

            Notes to Financial Statements
            (unaudited)                                                   5-10


Item 2.     Management's Discussion and Analysis of 
            Financial Condition and Results of Operations                   11

PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings                                               12

Item 6.     Exhibits and Reports on Form 8-K                                12

            Signatures                                                      13

All schedules are omitted either because they are not applicable or the
information required to be submitted has been included in the financial
statements or notes thereto.

<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAINEWEBBER R&D PARTNERS II, L.P.
(a Delaware Limited Partnership)

Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION>

                                                                  March 31,            December 31,
                                                                     1998                  1997
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                
Assets:

      Cash                                                   $            6,998    $             6,998

      Marketable securities, at market value                          6,788,002              5,166,462

      Royalty income receivable                                       1,178,594              1,105,048

      Other assets                                                       13,067                  5,000

                                                               =================     ==================
Total assets                                                 $        7,986,661    $         6,283,508
                                                               =================     ==================


Liabilities and partners' capital:

      Due to product development project                     $          138,736    $                 -

      Accrued liabilities                                                68,240                 78,770

      Partners' capital                                               7,779,685              6,204,738

                                                               =================     ==================
Total liabilities and partners' capital                      $        7,986,661    $         6,283,508
                                                               =================     ==================

-------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>

                                        2

<PAGE>

PAINEWEBBER R&D PARTNERS II, L.P.
(a Delaware Limited Partnership)

Statements of Operations
(unaudited)

<TABLE>
<CAPTION>
For the three months ended March 31,                                       1998                   1997
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                
Revenues:
      Interest income                                        $            7,539    $            34,971
      Income from product development projects                        2,426,795              4,359,777
      Unrealized depreciation of investments
        and marketable securities                                      (810,000)              (237,823)
      Gain (loss) on sale of investments and marketable
        securities                                                       (1,939)               540,000
                                                               -----------------     ------------------
                                                                      1,622,395              4,696,925
                                                               -----------------     ------------------

Expenses:
      Expenditures under product development
        projects                                                              -                 20,483
      General and administrative costs                                   47,448                 52,386
                                                               -----------------     ------------------
                                                                         47,448                 72,869
                                                               -----------------     ------------------

Net income                                                   $        1,574,947    $         4,624,056
                                                               =================     ==================

Net income per partnership unit:
      Limited partners (based on 8,257 units)                $           188.83    $            554.42
      General partner                                        $        15,749.47    $         46,240.56

-------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>

<TABLE>
<CAPTION>

Statement of Changes in Partners' Capital
(unaudited)
                                                                   Limited                General
For the three months ended March 31, 1998                          Partners               Partner                Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                    <C>              
Balance at January 1, 1998                                   $        6,138,610    $            66,128    $       6,204,738

Net income                                                            1,559,198                 15,749            1,574,947

                                                               =================     ==================     ================
Balance at March 31, 1998                                    $        7,697,808    $            81,877    $       7,779,685
                                                               =================     ==================     ================
                                                                                                       
----------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>

                                       3

<PAGE>

PAINEWEBBER R&D PARTNERS II, L.P.
(a Delaware Limited Partnership)

Statements of Cash Flows
(unaudited)

<TABLE>
<CAPTION>

For the three months ended March 31,                                 1998                  1997
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                
Cash flows from operating activities:
Net income                                                   $        1,574,947    $         4,624,056
Adjustments to reconcile net income to cash
  provided by operating activities:
Unrealized depreciation of investments
  and marketable securities                                             810,000                237,823

(Increase) decrease in operating assets:
  Marketable securities                                              (2,431,540)              (130,984)
  Investments                                                                 -                460,000
  Due from product development project                                        -               (760,000)
  Advances to product development projects                                    -                135,519
  Royalty income receivable                                             (73,546)               764,029
  Other assets                                                           (8,067)                     -

 Increase (decrease) in operating liabilities:
  Due to product development project                                    138,736               (297,000)
  Accrued liabilities                                                   (10,530)               (28,983)
                                                               -----------------     ------------------
Cash provided by operating activities                                         -              5,004,460
                                                               -----------------     ------------------

Cash flows from financing activities:
  Distributions to partners                                                   -             (5,004,242)
                                                               -----------------     ------------------

Increase in cash                                                              -                    218

Cash at beginning of period                                               6,998                  5,028
                                                               -----------------     ------------------

Cash at end of period                                        $            6,998    $             5,246
                                                               =================     ==================


-------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the three months ended March 31, 1998
and 1997.

-------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>

                                        4

<PAGE>

                        PAINEWEBBER R&D PARTNERS II, L.P.
                        (A DELAWARE LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. ORGANIZATION AND BUSINESS

         The financial information as of and for the periods ended March 31,
1998 and 1997 is unaudited. However, in the opinion of management of PaineWebber
R&D Partners II, L.P. ( the "Partnership"), such information includes all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation. The results of operations reported for the interim period ended
March 31, 1998 are not necessarily indicative of results to be expected for the
year ended December 31, 1998. These financial statements should be read in
conjunction with the most recent annual report of the Partnership on Form 10-K
for the year ended December 31, 1997.

         The Partnership is a Delaware limited partnership that commenced
operations on September 30, 1987 with a total of $72.0 million available for
investment. PWDC Holding Company (the "Manager") is the general partner of
PaineWebber Technologies II, L.P. (the "General Partner"), which is the general
partner of the Partnership. PWDC Holding Company is a wholly-owned subsidiary of
Paine Webber Development Corporation ("PWDC"), an indirect, wholly-owned
subsidiary of Paine Webber Group Inc. ("PWG"). The Partnership will terminate on
December 31, 2012, unless its term is extended or reduced by the General
Partner.

         The principal objective of the Partnership has been to provide
long-term capital appreciation to investors through investing in the development
and commercialization of new products with technology companies ("Sponsor
Companies"), which have been expected to address significant market
opportunities. The Partnership has been engaged in diverse product development
projects (the "Projects") including product development contracts, participation
in other partnerships and investments in securities of the Sponsor Companies.
Once the product development phase has been completed, the Sponsor Companies
have had the option to license and commercialize the products resulting from the
product development project, and the Partnership has had the right to receive
payments based upon the sale of such products. The Partnership obtained warrants
to purchase the common stock of Sponsor Companies to provide additional capital
appreciation to the Partnership which was not directly dependent upon the
outcome of the Projects (see Note 5).

                                       5

<PAGE>

                        PAINEWEBBER R&D PARTNERS II, L.P.
                        (A DELAWARE LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


(NOTE 1 CONTINUED)

         All distributions to the limited partners of the Partnership (the
"Limited Partners") and the General Partner (collectively, the "Partners") from
the Partnership have been made pro rata in accordance with their respective net
capital contributions. The following table sets forth the proportion of each
distribution to be received by the Limited Partners and the General Partner,
respectively:

<TABLE>
<CAPTION>

                                                                                          Limited        General 
                                                                                          Partners       Partner
                                                                                          --------       -------
<S>                                                                                         <C>            <C>
         I. Until the value of the aggregate distributions for each limited
partnership unit ("Unit") equals $10,000 plus simple interest on such amount
accrued at 7% per annum for each Unit sold at the Initial Closing (6% per annum
for each subsequent Unit sold up to the 5,000th Unit and 5% per annum for each
Unit sold thereafter) ("Contribution Payout"). At March 31, 1998, Contribution
Payout ranged from $14,375 per Unit to $17,350 per Unit .............................       99%             1%

         II. After Contribution Payout and until the value of the aggregate
distributions for each Unit equals $50,000 ("Final Payout")..........................       80%            20%

         III. After Final Payout.....................................................       75%            25%

</TABLE>

         For the three months ended March 31, 1998, the Partnership made no cash
or security distributions. At March 31, 1998, the Partnership has made cash and
security distributions, as valued on the dates of distribution, since inception
of $2,576 and $7,206 per Unit, respectively.

         Profits and losses of the Partnership are allocated as follows: (i)
until cumulative profits and losses for each Unit equals Contribution Payout,
99% to Limited Partners and 1% to the General Partner, (ii) after Contribution
Payout and until cumulative profits and losses for each Unit equals Final
Payout, 80% to Limited Partners and 20% to the General Partner, and (iii) after
Final Payout, 75% to Limited Partners and 25% to the General Partner. As of
March 31, 1998, the cumulative losses for the Partnership were $1,730 per Unit.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The financial statements are prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

         Marketable securities consist of a money market fund and common stock
which are recorded at market value. Marketable securities are not considered
cash equivalents for the Statements of Cash Flows.

                                       6

<PAGE>

                        PAINEWEBBER R&D PARTNERS II, L.P.
                        (A DELAWARE LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

(NOTE 2 CONTINUED)

         Realized and unrealized gains or losses are determined on a specific
identification method and are reflected in the Statements of Operations during
the period in which the change in value occurs.

         The Partnership invests in product development contracts with Sponsor
Companies either directly or through product development limited partnerships.
The Partnership expenses product development costs when incurred by the Sponsor
Companies and such costs are reflected as expenditures under product development
projects in the accompanying Statements of Operations. Income received and/or
accrued from investments in Projects is reflected in the Statements of
Operations for the period in which the income is earned.

         The Partnership carried warrants at a zero value in cases where the
Sponsor Company's stock was not publicly traded or the exercise period had not
been attained. To the extent that the Partnership's warrants were currently
exercisable and the Sponsor Company's stock was publicly traded, the warrants
were carried at intrinsic value (the excess of market price per share over the
exercise price per share), which approximated fair value.

3. MARKETABLE SECURITIES AND INVESTMENTS

   MARKETABLE SECURITIES:

         The Partnership held the following marketable securities:

<TABLE>
<CAPTION>

                                                              March 31, 1998                          December 31, 1997
                                                     ------------------------------------------------------------------------
                                                         Market                Cost               Market              Cost
                                                     ------------------------------------------------------------------------
<S>                                                  <C>                  <C>                 <C>                <C>         
Money market fund                                    $  2,828,000         $  2,828,000        $     98,335       $     98,335
Cygnus, Inc. (255,000 common shares)                         ----                 ----           5,068,127          2,524,500
             (240,000 common shares)                    3,960,002            2,376,000                ----               ----
                                                     ------------         ------------        ------------       ------------
                                                     $  6,788,002         $  5,204,000        $  5,166,462       $  2,622,835
                                                     ============         ============        ============       ============
</TABLE>

         In September 1997, the Partnership exercised its warrant for 255,000
shares of Cygnus, Inc. ("Cygnus") at an aggregate exercise price of $2,524,500
($9.90 per share). During the quarter ended March 31, 1998, the Partnership sold
15,000 Cygnus shares for proceeds, net of commissions, of $296,186 ($19.75 per
share). The carrying value of the shares as of December 31, 1997 was $19.875 per
share. At March 31, 1998, the market price per share was $16.50 and,
accordingly, the Partnership recognized unrealized depreciation for the three
months ended March 31, 1998, of $810,000 (see Note 8 - Subsequent Event). The
market value of the Cygnus stock at March 31, 1997, was $13.625 per share as
compared to a carrying value of $14.50 per share at December 31, 1996. The
Partnership recognized unrealized depreciation of $223,125 on its warrant to
purchase 255,000 Cygnus shares for the quarter ended March 31, 1997.

                                       7

<PAGE>

                        PAINEWEBBER R&D PARTNERS II, L.P.
                        (A DELAWARE LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

(NOTE 3 CONTINUED)

INVESTMENTS:

         The Partnership recorded its warrant to purchase common shares of OEC
Medical Systems, Inc. ("OEC") (with an exercise price of $12.70 per share) as an
investment with a carrying value equal to its intrinsic value (which
approximated fair value). During the quarter ended March 31, 1997, the
Partnership sold the OEC warrant, with a carrying value as of December 31, 1996
of $460,000, for proceeds of $1,000,000 and recognized a gain in the amount of
$540,000 for the three months ended March 31, 1997.

4. RELATED PARTY TRANSACTIONS

         The Manager is entitled to receive an annual management fee for
services rendered to the Partnership. Commencing July 1, 1996, the Manager
elected to discontinue the management fee charged to the Partnership.

         The money market fund invested in by the Partnership is managed by an
affiliate of PaineWebber Incorporated ("PWI").

         PWDC and PWI, and its affiliates, have acted in an investment banking
capacity for several of the Sponsor Companies. In addition, PWDC and its
affiliates have direct limited partnership interests in some of the same
Projects as the Partnership.

5. PRODUCT DEVELOPMENT PROJECTS

         Of the Partnership's ten original Projects, three are ongoing or have
had current activity: Centocor Partners III, L.P. ("CP III"); Genzyme
Development Partners, L.P.; and Synergen Clinical Partners, L.P. ("SCP").

         In February 1995, a Class A limited partner of SCP commenced an action
against the general partner of SCP and others. The complaint alleged that the
defendants caused or permitted the release of misleading statements regarding
the potential market for Interleukin-Receptor Antagonist ("IL-1ra") (a potential
treatment of inflammatory diseases), preclinical and clinical trial results, and
the possibility of IL-1ra becoming licensed for sale either in the United States
or Europe. The complaint sought damages on behalf of a class including limited
partners of SCP and limited partners of the Partnership (the "SCP Class"). On
December 2, 1997, the parties entered into a proposed settlement (the "SCP
Settlement") whereby the initial settlement payment to the SCP Class would
aggregate $16.5 million; class counsel would limit their request for attorney's
fees and costs to $3.0 million; and the SCP Class would be entitled to receive
rights to additional payments of $9.0 million (if the Food and Drug
Administration approves an IL-1ra product for market) and $50.0 million (if
IL-1ra product sales exceed $650 million before the year 2020). On January 16,
1998, the SCP Settlement received final approval from the court. On January 26,
1998, class counsel was awarded $3.0 million in fees and costs to be paid out of
the initial settlement payment. On March 3, 1998, the Partnership received and
recorded as income the amount of $1,248,624 representing its share of the
initial settlement payment as a Class A limited partner of SCP and,
simultaneously, SCP was terminated.

                                       8

<PAGE>

(NOTE 5 CONTINUED)

         On January 31, 1997, pursuant to the provisions of the Partnership
Purchase Option Agreement between Centocor, Inc. ("Centocor") and the
Partnership, Centocor exercised its option to purchase the limited partnership
interests of CP III, including those owned by the Partnership. The Partnership
received an initial payment and will receive future quarterly payments based on
sales of ReoPro, a drug developed by CP III. For the quarters ended March 31,
1998 and 1997, the Partnership received and/or accrued income from CP III in the
amount of $1,170,001 and $4,359,777, respectively.

         If the Projects produce any product for commercial sale, the Sponsor
Companies have had the option to enter into joint ventures or royalty agreements
with the Partnership to manufacture and market the products developed. In
addition, the Sponsor Companies have had the option to purchase the
Partnership's interest in the technology. In consideration for such purchase
options, the Partnership received warrants to purchase shares of common stock of
the Sponsor Companies. As of March 31, 1998, the Partnership held no warrants.

6. INCOME TAXES

         The Partnership is not subject to federal, state or local income taxes.
Accordingly, the individual Partners are required to report their distributive
shares of realized income and loss on their individual federal and state income
tax returns.

7. LEGAL PROCEEDING

         On July 12, 1995, the Partnership commenced a derivative action against
Centocor and Centocor Development Corporation III ("CDC III") in the Chancery
Court of Delaware (the "Court") arising from certain agreements entered into by
Centocor and Eli Lilly & Company ("Lilly") in July 1992. The Partnership's
complaint alleges, among other things that: at least $25 million of the $100
million paid by Lilly to Centocor represents profits from the sale of ReoPro, a
Centocor drug, that Centocor is required to share with CP III; and because of
the Lilly transaction, Centocor was required to increase the percentages of
profits and revenues from ReoPro that it pays to CP III investors. Centocor had
taken the position that only $500,000 of the $100 million had to be shared with
CP III and that Centocor had no obligation to increase the percentages of ReoPro
profits and revenues that it pays to CP III investors. The Partnership sought to
proceed on behalf of CP III. The complaint seeks to require Centocor and CDC III
to pay damages to CP III and to increase the percentages of future ReoPro
profits and revenues that Centocor must pay to CP III and its investors.

         Centocor answered the Partnership's complaint, as well as a similar
complaint filed by John E. Abdo, another limited partner of CP III, denying the
material allegations of those complaints and asserting purported affirmative
defenses and third-party claims against PWG, PWDC and PWI.

         In April and July 1996, Mr. Abdo moved to amend his complaint to assert
claims on behalf of CP III against two of PWDC's nominees to the CDC III Board
of Directors. On July 12, 1996, counsel chosen by Centocor to represent CP III
moved to disqualify the Partnership from serving as a plaintiff in this action,
alleging that Mr. Abdo should be the sole plaintiff because the Partnership has
conflicts of interest with CP III and its other limited partners, including
conflicts arising out of the alleged claims against the PWDC nominees. Mr. Abdo
and Centocor also moved to disqualify the Partnership. In January 1997, the
Court granted, in part, Mr. Abdo's motion to amend his complaint to assert
claims against the PWDC nominees. The Court has not ruled on the motions to
disqualify.

                                       9

<PAGE>

(NOTE 7 CONTINUED)

         In June 1997, the parties to the Partnership's action entered into an
agreement to settle the action. The agreement provides, among other things, for
Centocor to pay to CP III investors (including the Partnership, a former limited
partner in CP III) in the aggregate: $10.8 million, net of attorneys' fees and
expenses as may be awarded by the Court; an additional $5.0 million, if and when
cumulative world-wide sales of ReoPro exceed $600 million; and possible
additional payments totaling $2.2 million, depending upon regulatory
developments in Japan. The Partnership will only receive its allocable share of
these amounts if, and when, payments under the agreement are remitted by
Centocor.

         The agreement further provides for revisions to the ReoPro royalties
payable by Centocor to CP III investors through 2007. Under the agreement, those
royalties would be paid based on revenues from end-sales by Lilly and other
distributors, as opposed to Centocor's revenues on its sales to distributors.
For 1997 and 1998, Centocor would pay an aggregate of 6.5% of the first $175
million of United States end-sale revenues, 3.25% of such revenues above $175
million, and 3.25% of foreign end-sales revenues. For 1999 through 2007,
Centocor would pay an aggregate of 6.5% of the first $250 million of United
States end-sale revenues, 4% of such revenues above $250 million, and 3.25% of
foreign end-sales revenues. The agreement provides that investors will not
receive less than Centocor would otherwise have paid based on Centocor's sales
of ReoPro. As of March 31, 1998, the Partnership has not accrued income related
to the settlement.

         On June 27, 1997, the Court entered an order: preliminarily approving
the settlement; providing for notice to a class consisting of all holders of CP
III Class A and C limited partnership interests as of the close of business on
January 31, 1997, and all holders of CP III Class B limited partnership
interests as of the close of business on May 31, 1997, and their transferees,
successors, and assigns, other than defendants; and designating the
Partnership's counsel as counsel for the class.

         Mr. Abdo and Pharmaceutical Partners, L.P., another former limited
partner of CP III, have objected to the proposed settlement. They have asserted,
among other things, that the consideration is inadequate and that the proposed
allocations of the consideration among the classes of former limited partners of
CP III improperly favors the Partnership. On September 4, 1997, the Court held a
hearing on the objections and reserved decision.

         PWDC has been advancing, and may continue to advance, the funds
necessary to pay the Partnership's legal fees and expenses relating to this
litigation. In the event of a recovery on behalf of CP III, the Court may award
legal fees and expenses to the Partnership's counsel to be paid out of the CP
III recovery. Counsel for the Partnership has stated that they intend to apply
to the Court for an award of fees and expenses in an amount up to $1.5 million.
Counsel for Mr. Abdo has stated that he intends to object to any such
application, and, if the settlement is approved, will himself apply for an award
of fees and expenses. It is anticipated that: the net proceeds of any recovery
will be distributed to the limited partners of CP III, including the
Partnership, on a pro rata basis; the Partnership and/or its counsel will
reimburse PWDC; and any remaining Partnership proceeds will be distributed to
the Partners of the Partnership in accordance with the distribution criteria
outlined in Note 1.

8. SUBSEQUENT EVENT

         As of May 6, 1998, the market value of the Cygnus shares has decreased
to approximately $2.8 million ($11.625 per share) from approximately $4.0
million ($16.50 per share) at March 31, 1998.

                                       10

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
        OF OPERATIONS.

LIQUIDITY AND CAPITAL RESOURCES

         Partners' capital increased from $6.2 million at December 31, 1997, to
$7.8 million at March 31, 1998 resulting from the recognition of income of $1.6
million for the three months ended March 31, 1998 (as more fully explained in
Results of Operations below).

         The Partnership's working capital is invested in marketable securities
and a money market fund. Liquid assets at March 31, 1998 and December 31, 1997
were $6.8 and $5.2 million, respectively. The increase of $1.6 million was due
primarily to distributions received from Projects of $2.5 million offset, in
part, by a decline in the market value of securities held as of March 31, 1998,
of $0.8 million. The balance of liquid assets will be used for the payment of
administrative costs related to managing the Partnership's business and future
distributions to the Partners.

RESULTS OF OPERATIONS

         THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1997:

         Net income for the quarters ended March 31, 1998 and 1997 was $1.6
million and $4.6 million, respectively. The unfavorable variance of $3.0 million
resulted primarily from a decrease in revenues.

         Revenues for the quarters ended March 31, 1998 and 1997 were $1.6
million and $4.7 million, respectively. The decrease was due to (i) a decrease
in income from product development projects of $2.0 million; (ii) an increase in
unrealized depreciation of investments and marketable securities of $0.6
million; and (iii) a decrease in gain on sale of marketable securities and
investments of $0.5 million. Income from product development projects was $2.4
million and $4.4 million for the quarters ended March 31, 1998 and 1997,
respectively. On January 31, 1997, Centocor exercised its option to purchase the
limited partnership interests of CP III (including those owned by the
Partnership). The Partnership received an initial payment of $3.3 million and
the right to receive future payments based upon sales of a certain product
developed by CP III. In addition, as of March 31, 1997, the Partnership received
and/or accrued income due in connection with its investment in CP III of $1.1
million. The Partnership accrued income relating to CP III in the amount of $1.2
million for the quarter ended March 31, 1998. Also, for this period, the
Partnership recognized income from its investment in SCP in the amount of $1.2
million representing its share of the initial settlement payment received as a
Class A limited partner of SCP. Unrealized depreciation of investments and
marketable securities for the quarters ended March 31, 1998 and 1997 was $0.8
million and $0.2 million, respectively. The market value of the Partnership's
investment in 0.24 million shares of Cygnus decreased from $19.875 per share at
December 31, 1997 to $16.50 per share at March 31, 1998 resulting in the
recognition of unrealized depreciation of $0.8 million for the three months
ended March 31, 1998. For the three months ended March 31, 1997, the Partnership
recognized unrealized depreciation of $0.2 million with respect to its warrant
to purchase 0.255 million common shares of Cygnus. The market value of the
shares decreased form $14.50 per share as of December 31, 1996 to $13.625 per
share at March 31, 1997. During the quarter ended March 31, 1997, the
Partnership sold its warrant to purchase 0.2 million shares of OEC with a
carrying value equal to its intrinsic value as of December 31, 1996 of $0.5
million for proceeds of $1.0 million and recognized a gain of $0.5 million from
the sale for the quarter ended March 31, 1997.

         There were no material variances in expenses for the quarter ended
March 31, 1998 as compared to the same period in 1997.

                                       11

<PAGE>

                           PART II OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

         ACTION AGAINST CENTOCOR, INC. AND CENTOCOR DEVELOPMENT CORPORATION III

               Information regarding this action was disclosed on the
         Partnership's Form 10-K for the year ended December 31, 1997.

         ACTION AGAINST AMGEN BOULDER, INC.

               Information regarding this action was disclosed on the
         Partnership's Form 10-K for the year ended December 31, 1997. On
         January 16, 1998, the SCP Settlement received final approval from the
         court. On January 26, 1998, class counsel was awarded $3.0 million in
         fees and costs to be paid out of the initial settlement payment. On
         March 3, 1998, the Partnership received and recorded as income the
         amount of $1.2 million representing its share of the initial settlement
         payment as a Class A limited partner of SCP and, simultaneously, SCP
         was terminated.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         A) EXHIBITS:

            None

         B) REPORTS ON FORM 8-K:

            None

                                       12

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 15th day of
May 1998.

                        PAINEWEBBER R&D PARTNERS II, L.P.

                        By: PaineWebber Technologies II, L.P.
                            (General Partner)

                        By: PWDC Holding Company
                            (general partner of the General Partner)

                        By: /s/ Dhananjay M. Pai
                        -----------------------
                        Dhananjay M. Pai
                        President*

                        By: /s/ Anthony M. DiIorio
                        --------------------------
                        Anthony M. DiIorio
                        Principal Financial and Accounting Officer*


*  The capacities listed are with respect to PWDC Holding Company, the Manager,
   as well as PWDC, the parent company of the Manager.

                                       13