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 MARCH 31, 1997
                                       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>



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



                                    FORM 10-Q
                                 MARCH 31, 1997

                                Table of Contents

PART I.       FINANCIAL INFORMATION                                        Page

Item 1.       Financial Statements

              Statements of Financial Condition (unaudited) at                2
              March 31, 1997 and December 31, 1996

              Statements of Operations
              (unaudited) for the three months
              ended March 31, 1997 and 1996                                   3

              Statement of Changes in Partners' Capital
              (unaudited) for the three months
              ended March 31, 1997                                            3

              Statements of Cash Flows
              (unaudited) for the three months
              ended March 31, 1997 and 1996                                   4

              Notes to Financial Statements
              (unaudited)                                                  5-11

Item 2.       Management's Discussion and Analysis of Financial              12
              Condition and Results of Operations

PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings                                              13

Item 5.       Other Information                                              13

Item 6.       Exhibits and Reports on Form 8-K                               13

              Signatures                                                     14

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)
                                                     March 31,      December 31,
                                                         1997              1996
--------------------------------------------------------------------------------
Assets:

   Cash                                         $       5,246     $       5,028

   Marketable securities, at market value           1,015,481           899,197

   Investments, at fair value                         949,877         1,633,000

   Due from product development project               760,000                 -

   Advances to product development projects                 -           135,519

   Royalty income receivable                           10,805           774,834

                                                 ------------      ------------
Total assets                                    $   2,741,409     $   3,447,578
                                                 ============      ============


Liabilities and partners' capital:

   Due to product development project           $           -     $     297,000

   Accrued liabilities                                 68,205            97,188

   Partners' capital                                2,673,204         3,053,390

                                                 ------------     -------------
Total liabilities and partners' capital         $   2,741,409    $    3,447,578
                                                 ============     =============


--------------------------------------------------------------------------------
See notes to financial statements.




                                       2

<PAGE>



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

STATEMENTS OF OPERATIONS
(unaudited)

For the three months ended March 31,                        1997           1996
--------------------------------------------------------------------------------
Revenues:
   Interest income                                  $     34,971   $     11,993
   Income from product development projects            4,359,777         31,765
   Unrealized depreciation of investments
     and marketable securities                          (237,823)      (453,101)
   Gain on sale of investments and marketable
     securities                                          540,000          8,474
                                                    ------------    -----------
                                                       4,696,925       (400,869)
                                                     ------------    -----------

Exenses:
   Expenditures under product development
     projects                                             20,483          3,013
   Management fee                                              -         68,505
   General and administrative costs                       52,386         61,809
                                                    ------------    -----------
                                                          72,869        133,327
                                                    ------------    -----------

Net income (loss)                                   $  4,624,056   $   (534,196)
                                                      ===========    ===========

Net income (loss) per partnership unit:
   Limited partners (based on 8,257 units)          $    554.42    $     (64.05)
   General partner                                  $ 46,240.56    $  (5,341.96)

                                                                                
--------------------------------------------------------------------------------
See notes to financial statements.



STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(unaudited)
                                             Limited      General
For the three months ended March 31, 1997    Partners     Partner       Total
--------------------------------------------------------------------------------

Balance at January 1, 1997               $  3,018,776   $  34,614  $  3,053,390

Net income                                  4,577,815      46,241     4,624,056
Cash distribution to partners              (4,954,200)    (50,042)   (5,004,242)

                                          -----------    --------    ----------
Balance at March 31, 1997                $  2,642,391   $  30,813   $ 2,673,204
                                          ===========    ========    ==========

              
--------------------------------------------------------------------------------
See notes to financial statements.




                                       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,                                 1997             1996
---------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>

Cash flows from operating activities:
Net income (loss)                                             $   4,624,056     $   (534,196)
Adjustments to reconcile net income (loss) to cash
  provided by operating activities:
Unrealized depreciation of investments
  and marketable securities                                         237,823          453,101
Expenditures under product development projects                      20,483            3,013

(Increase) decrease in operating assets:
  Marketable securities                                            (130,984)          78,448
  Investments                                                       460,000                -
  Due from product development project                             (760,000)               -
  Advances to product development projects                          115,036           19,967
  Interest receivable                                                     -            1,657
  Royalty income receivable                                         764,029           (5,607)

(Decrease) increase in operating liabilities:
  Due to product development project                               (297,000)               -
  Accrued liabilities                                               (28,983)           3,969
                                                               ------------      -----------
Cash provided by operating activities                             5,004,460           20,352
                                                               ------------      -----------

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

Increase in cash                                                        218           20,352

Cash at beginning of period                                           5,028            5,858
                                                               ------------      -----------

Cash at end of period                                         $       5,246     $     26,210
                                                               ============      ===========


---------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the three months
ended March 31, 1997 and 1996.
---------------------------------------------------------------------------------------------
See notes to financial statements

</TABLE>


 

<PAGE>

                                      4


                        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, 1997
and 1996 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, 1997, are not necessarily indicative of results to be expected for the
year ended December 31, 1997. 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, 1996.

      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 is to provide long-term capital
appreciation to investors through investing in the development and
commercialization of new products with technology companies ("Sponsor
Companies"), which are expected to address significant market opportunities.
Once the product development phase was completed, the Sponsor Companies had the
option to license and commercialize the products resulting from the product
development project, and the Partnership had the right to receive payments based
upon the sale of such products. In connection with product development projects
(the "Projects"), the Partnership sought to obtain warrants to purchase the
common stock of Sponsor Companies. These warrants have the potential to provide
additional capital appreciation to the Partnership which is not directly
dependent upon the outcome of the Projects (see Note 5). In addition, the
Partnership invested as a limited partner in product development limited
partnerships. Such partnerships were formed to develop specific, new products
through contracts with Sponsor Companies. The Sponsor Companies conduct the
Projects and affiliates of the Sponsor Companies serve as general partners of
the partnerships. As such, the Partnership is engaged in diverse Projects
including product development contracts, participation in other partnerships and
investments in securities of the Sponsor Companies.



                                       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")..............................          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, 1997, the Partnership made a cash
distribution totaling $5,004,242 ($600 per Unit; $50,042 to the General
Partner). At March 31, 1997, the Partnership has made cash and security
distributions, as valued on the date of distribution, since inception of $2,466
and $7,206 per Unit, respectively.

      Effective December 10, 1996, the General Partner discontinued the right
of Limited Partners to transfer Units except for transfers that may occur as
of the result of the laws of descent and distribution and by operation of law.

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.

      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.


                                       6
<PAGE>


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



                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)




(NOTE 2 CONTINUED)

      The Partnership invested in Projects, further described in Note 5, through
one of the following two vehicles:

      o    PRODUCT DEVELOPMENT CONTRACTS
           The Partnership paid amounts to Sponsor Companies under product
           development contracts. Such amounts were expensed by the Partnership
           when incurred by the Sponsor Companies. Income from the Sponsor
           Companies is reflected in the Statements of Operations for the period
           in which the income is earned.

      o    PRODUCT DEVELOPMENT LIMITED PARTNERSHIPS
           The Partnership participates as a limited partner in product
           development limited partnerships formed to develop specific products.
           Such partnerships expensed product development costs when incurred.

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

3.    MARKETABLE SECURITIES AND INVESTMENTS

      MARKETABLE SECURITIES:


      The Partnership held the following marketable securities:

<TABLE>
<CAPTION>
                                                 MARCH 31, 1997           DECEMBER 31, 1996
                                             -----------------------   -----------------------
                                               MARKET        COST        MARKET        COST
                                             ----------   ----------   ----------   ----------
<S>                                          <C>          <C>          <C>          <C>       
Money market fund                            $  930,081   $  930,081   $  799,097   $  799,097

Centocor, Inc. common stock (2,800 shares)       85,400       37,324      100,100       37,324
                                             ----------   ----------   ----------   ----------
                                             $1,015,481   $  967,405   $  899,197   $  836,421
                                             ==========   ==========   ==========   ==========
</TABLE>


      In January 1996, the Partnership sold its investment of 3,227 common
shares of Alkermes, Inc. ("Alkermes") for proceeds, net of commissions, of
$34,090 and recognized a gain upon the sale for the year ended December 31,
1996, of $8,474. In February 1996, the Partnership exercised its warrant to
purchase 2,800 common shares of Centocor, Inc. ("Centocor") at an exercise price
of $37,324 ($13.33 per share). At March 31, 1997, Centocor common stock had a
market value of $30.50 per share as compared to $35.75 per share at December 31,
1996. Accordingly, the Partnership recognized unrealized depreciation of $14,700
for the three months 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 held the following investments:

<TABLE>
<CAPTION>
                                                       MARCH 31, 1997     DECEMBER 31, 1996
                                                       --------------     -----------------
<S>                                                      <C>                  <C>       
Cygnus, Inc. 
     Warrant to purchase:  255,000 common shares         $  949,877           $1,173,000
                                                                            
OEC Medical Systems, Inc.                                                   
     Warrant to purchase:  200,000 common shares               --                460,000
                                                         ----------           ----------
                                                                           
                                                         $  949,877           $1,633,000
                                                         ==========           ==========
</TABLE>
                                                                     
      The Partnership records its warrant to purchase common shares of Cygnus,
Inc. ("Cygnus") (with an exercise price of $9.90 per share) as an investment
with a carrying value equal to its intrinsic value (which approximates fair
value) -- (See Note 5). The market value of Cygnus stock as of March 31, 1997,
was $13.625 per share as compared to a market value of $14.50 per share as of
December 31, 1996. Accordingly, the Partnership recognized unrealized
depreciation of $223,123 on its warrant to purchase 255,000 Cygnus shares for
the three months ended March 31, 1997. At December 31, 1996, the market value of
OEC Medical Systems, Inc. ("OEC") stock of $15.00 per share exceeded the
exercise price of the warrant of $12.70 per share. The Partnership recorded its
investment in the OEC warrant at its intrinsic value of $460,000. During the
quarter ended March 31, 1997, the Partnership sold its OEC warrant for proceeds
of $1,000,000 and recognized a gain in the amount of $540,000. At March 31,
1996, the Partnership recorded its investment in a warrant to purchase 300,000
Cygnus shares (45,000 shares were subsequently exercised and sold by the
Partnership during 1996) at a market value of $10.975 per share as compared to a
carrying value of $12.475 per share at December 31, 1995. Accordingly, the
Partnership recognized unrealized depreciation of $450,000 for the three months
ended March 31, 1996.


4.  RELATED PARTY TRANSACTIONS

      The Manager received an annual management fee for management and
administrative services provided to the Partnership. The management fee was
payable quarterly in advance and was adjusted annually on the first day of each
fiscal year in an amount proportionate to the increase in the prior year in the
Consumer Price Index published by the United States Department of Labor. As of
July 1, 1995, the Manager had eliminated the management fee charged on all but
one Project. Commencing July 1, 1996, the Manager elected to discontinue the
management fee charged on this final Project. The management fees paid by the
Partnership to the Manager were $0 and $68,505 for the three months ended March
31, 1997 and 1996, respectively. Aggregate management fees paid since January 1,
1996, were $137,010.

      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.


                                       8
<PAGE>


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



                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)




5.  PRODUCT DEVELOPMENT PROJECTS

      The Partnership entered into nine Projects (Cadre Technologies Inc.;
Centocor Partners III, L.P. ("CP III"); Compression Labs, Incorporated; Cygnus;
FOCUS Surgery Inc. (formerly Focal Surgery, Inc. (successor to Diasonics,
Inc.)); Genentech Clinical Partners IV, L.P.; Genzyme Development Partners,
L.P.; Rogers Corporation; and Synergen Clinical Partners, L.P) which have been
fully funded. In addition, the Partnership purchased $5.9 million of common
stock of Alkermes which was distributed to its Partners in 1993 and 1994.

      On January 31, 1996, Genzyme Corporation ("Genzyme") made an offer (the
"Offer") to the general partner of Genzyme Development Partners, L.P. ("GDP")
(of which the Partnership owns a limited partnership interest) to acquire the
assets of GDP in exchange for common shares of Genzyme. The Offer was made in
lieu of Genzyme's existing option to purchase the outstanding partnership
interests in GDP for a lump-sum cash payment and certain future royalty
payments. On May 6, 1996, Genzyme withdrew its Offer to purchase the assets of
GDP.

      On January 31, 1997, pursuant to the provisions of the Partnership
Purchase Option Agreement between 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 of $3,325,000 and will receive future payments based on sales of certain
products developed by CP III.

      If the Projects produce any product for commercial sale, the Sponsor
Companies have 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 the option to purchase the Partnership's
interest in the technology. In consideration for such purchase options, the
Partnership has received warrants to purchase shares of common stock of the
Sponsor Companies. At March 31, 1997, the market price per common share of
Cygnus exceeded the exercise price per share of the warrant and, accordingly,
the Partnership recorded this warrant as an investment with a carrying value
equal to the intrinsic value which approximates fair value (see Note 3). At
March 31, 1997, the Partnership owned the following warrants:

<TABLE>
<CAPTION>
                                        NUMBER OF SHARES        EXERCISE                                3/31/97
                                           THAT CAN BE           PRICE              EXERCISE         MARKET PRICE
                                            PURCHASED          PER SHARE             PERIOD           PER SHARE*
                                            ---------          ---------             ------           ----------
<S>                                         <C>                 <C>             <C>                   <C>      
Cayenne Software, Inc. (A)                  193,000             $  16.19        Current to 6/97        $   4.250
                                                           
Cygnus, Inc. (B)                            255,000             $   9.90        Current to 9/97        $  13.625
</TABLE>
                                                         
*  The share prices of these technology companies are generally highly volatile
   and the shares are often thinly traded. The market prices indicated as of
   March 31, 1997 may not be indicative of the ultimate values, if any, that may
   be realized by the Partnership.



                                       9
<PAGE>


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



                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)



(NOTE 5 CONTINUED)

   (A)  On July 19, 1996, Cadre Technologies Inc. ("Cadre") merged with Bachman
        Information Systems to form Cayenne Software Inc. ("Cayenne"). As a
        result of the merger, the Partnership's warrant to purchase 625,000
        common shares of Cadre at an exercise price of $5.00 per share converted
        into a warrant to purchase 193,000 common shares of Cayenne.

   (B)  The carrying value of this warrant at its intrinsic value has been
        included in Investments in the accompanying Statements of Financial
        Condition.

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.


                                       10

<PAGE>


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



                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)



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 is required to increase the percentages of
profits and revenues from ReoPro that it pays to CP III investors. Centocor,
however, has taken the position that only $500,000 of the $100 million must be
shared with CP III and that Centocor has no obligation to increase the
percentages of ReoPro profits and revenues that it pays to CP III investors. The
Partnership is seeking 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. There can be no assurance that the Partnership's claim
will be successful.

      Centocor has 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 1996, Mr. Abdo moved to amend his complaint to assert claims on
behalf of CP III against one of PWDC's two nominees on the CDC III Board of
Directors. In July 1996, Mr. Abdo moved to amend his complaint to assert claims
on behalf of CP III against a former director of CDC III nominated by PWDC. 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 by 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. The Court has granted 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.

      The parties in these suits are currently considering ways and means to
resolve the issues without further litigation.

      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. 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 on a
pro rata basis.



                                       11
<PAGE>


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


LIQUIDITY AND CAPITAL RESOURCES

      Partners' capital decreased from $3.1 million at December 31, 1996, to
$2.7 million at March 31, 1997, resulting from the recognition of income of $4.6
million for the three months ended March 31, 1997 (as more fully explained in
Results of Operations below) offset by a cash distribution to the Partners of
$5.0 million.

      The Partnership's working capital is invested in marketable securities and
a money market fund. Liquid assets at March 31, 1997 and December 31, 1996, were
$1.0 million and $0.9 million, respectively. The increase of $0.1 million was
due primarily to proceeds received from the sale of a Project of $3.3 million
and the sale of an investment of $1.0 million plus distributions received from a
Project of $0.8 million offset, in part, by a cash distribution of $5.0 million.
The balance of liquid assets will be used for the payment of administrative
costs related to managing the Partnership's investments.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1996:

      Net income for the quarter ended March 31, 1997 was $4.6 million as
compared to a net loss of $0.5 million for the quarter ended March 31, 1996. The
favorable variance of $5.1 million resulted from an increase in revenues of this
amount.

      Revenues for the quarters ended March 31, 1997 and 1996 were $4.7 million
and $(0.4) million, respectively. The increase of $5.1 million was due primarily
to increases of $4.4 million in income from product development projects and
$0.5 million in a gain on the sale of an investment plus a decrease in
unrealized depreciation of investments of $0.2 million. 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 certain products 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. During the quarter ended March 31, 1997,
the Partnership sold its warrant to purchase 200,000 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. Unrealized depreciation of investments and marketable securities for
the quarters ended March 31, 1997 and 1996 was $0.2 million and $0.4 million,
respectively. For the three months ended March 31, 1997, the Partnership
recognized unrealized depreciation of $0.2 million with respect to its warrant
to purchase 255,000 common shares of Cygnus. The market value of the shares
decreased from $14.50 per share as of December 31, 1996 to $13.625 per share at
March 31, 1997. As of March 31, 1996, the Partnership recognized unrealized
depreciation of $0.4 million on its warrant to purchase 300,000 Cygnus shares to
reflect a decrease in the market value of Cygnus stock from $22.375 at December
31, 1995 to $20.875 at March 31, 1996.



                                       12

<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, 1996.

           IN RE:  PAINEWEBBER PARTNERSHIP LITIGATION

                 Information regarding this action was disclosed on the
           Partnership's Form 10-K for the year ended December 31, 1996. In
           March 1997, the United States District Court for the Southern
           District of New York (the "District Court") approved a definitive
           settlement agreement and plan of allocation signed in July 1996 as
           fair and reasonable. One investor, who had objected to the settlement
           in the District Court, has appealed to the United States Court of
           Appeals for the Second Circuit from the District Court's approval of
           the settlement.

           ACTION AGAINST AMGEN BOULDER, INC.

                 Information regarding this action was disclosed on the
           Partnership's Form 10-K for the year ended December 31, 1996. In
           February 1997, the parties announced a proposed settlement of this
           action, pursuant to which the defendants would pay $14,550,000, less
           attorney's fees and costs, to class members, and the limited
           partners' interests in Synergen Clinical Partners, L.P. ("SCP") would
           be terminated. The settlement is conditioned on, among other things,
           the approval of two-thirds of the current limited partnership
           interests in SCP and final court approval. The General Partner has
           concluded that the proposed settlement is inadequate and not in the
           best interests of the Partnership. Accordingly, the General Partner,
           on behalf of the Partnership, intends to oppose the proposed
           settlement.

ITEM 5.    OTHER INFORMATION

                 Effective December 10, 1996, the General Partner discontinued
           the right of Limited Partners to transfer Units except for transfers
           that may occur as a result of the laws of descent and distribution or
           by operation of law.

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

           A)    EXHIBITS:

                 None

           B)    REPORTS ON FORM 8-K:

                 None.



                                       13
<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 14th day of
November 1996.


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



                  By:    Anthony M. DiIorio/s/
                         ---------------------------------
                         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.