================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                  SECURITIES EXCHANGE ACT OF 1934.

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       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 33-35938


                       PAINEWEBBER R&D PARTNERS III, 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

         SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                        WHICH REGISTERED
         -------------------                        ----------------
               None                                       None

         SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                            Limited Partnership Units

         No voting stock has been issued by the Registrant. Neither a public nor
other market exists for the Units, and no such market is expected to develop,
therefore there was no quoted market price for the 50,000 Units.

         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              [_]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K (X).

         Indicate by check mark whether the Registrant is an accelerated filer

                  Yes           [_]             No              [X]

================================================================================
<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 the Partnership 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 having insufficient funds to commercialize
products to their maximum potential; the restructuring of Sponsor Companies; the
dependence of the Partnership on the skills of certain scientific personnel; and
the dependence of the Partnership on the General Partner.

<PAGE>

                                     PART I


ITEM 1.  BUSINESS.
-------  ---------

         PaineWebber R&D Partners III, L.P. (the "Partnership" or "Registrant")
is a Delaware limited partnership that commenced operations on June 3, 1991,
with a total of $43.1 million available for investment. Paine Webber Development
Corporation ("PWDC" or "General Partner"), an indirect, wholly-owned subsidiary
of UBS Americas Inc. (formerly Paine Webber Group Inc. ("PWG")),1 is the general
partner and manager of the Partnership. 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 (the
"Projects") with technology and biotechnology companies ("Sponsor Companies"),
which have been expected to address significant market opportunities. The
Partnership will terminate on December 31, 2015, unless its term is extended or
reduced by the General Partner.

         As of December 31, 2002, the Partnership had ongoing Projects with
Alkermes, Inc. and Cephalon, Inc. (See Exhibit A, the Annual Letter to the
Limited Partners, for a detailed discussion of the current status of the
Partnership's active Projects.) In addition to the investments in Projects, as
of December 31, 2002, the Partnership owned marketable securities as described
in Note 3 of the "Notes to Financial Statements" included in this filing on Form
10-K.

PARTNERSHIP MANAGEMENT

         The Partnership has contracted with the General Partner, pursuant to a
management agreement (the "Management Contract"), responsibility for management
and administrative services necessary for the operation of the Partnership for
which it is entitled to receive an annual management fee. As of January 1, 1997,
the General Partner ceased to charge a management fee for services rendered to
the Partnership.


-----------------------------
1    On November 3, 2000, PWG merged with and into UBS Americas Inc.

<PAGE>

(ITEM 1 CONTINUED)

         DISTRIBUTIONS

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

<TABLE>
<CAPTION>
                                                                                LIMITED      GENERAL
                                                                                PARTNERS     PARTNER
                                                                                --------     -------
<S>                                                                                <C>        <C>
         I.   Until the value of the aggregate distributions for each
              limited partnership unit ("Unit") equals $1,000 plus simple
              interest on such amount accrued at 5% per annum
              ("Contribution Payout") Contribution Payout as of December
              31, 2002 is $1,575 per Unit .....................................    99%         1%

         II.  After Contribution Payout and until the value of the
              aggregate distributions for each Unit equals $5,000 ("Final
              Payout") ........................................................    80%        20%

         III. After Final Payout ..............................................    75%        25%
</TABLE>


         During the year ended December 31, 2000, the Partnership made a cash
distribution which resulted in aggregate distributions per Unit to reach
Contribution Payout. As a result, the General Partner will be allocated 20% of
future cash distributions until Final Payout. No cash or security distributions
were remitted by the Partnership during the year ended December 31, 2002. As of
this date, the Partnership has made cash and security distributions, as valued
on the dates of distribution, since inception of $1,483 and $98 per Unit,
respectively.

PROFIT AND LOSS ALLOCATION

         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
December 31, 2002, the cumulative profits of the Partnership were $786 per Unit.

OTHER

         At December 31, 2002, the Partnership had no employees, and PWDC had no
employees other than its executive officers (see Item 10. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT). The Partnership is engaged in one primary
business segment, the management of investments in technology and biotechnology
products and companies.


ITEM 2.  PROPERTIES.
-------  -----------

         The Partnership does not own or lease any office, manufacturing or
laboratory facilities.

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.
-------  ------------------

         None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------  ----------------------------------------------------

         None.

<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
-------  ----------------------------------------------------------------------

         There is no existing public market for the Units, and no such market is
expected to develop. Units are transferable subject to certain restrictions as
set forth in the Partnership Agreement and applicable securities laws. As of
December 31, 2002, there were 4,595 Limited Partners.

         The Partnership distributes to the Partners, when available, the net
proceeds from royalty distributions, net proceeds from dispositions of portfolio
securities and any other cash in excess of amounts that are necessary for the
operation of the Partnership's business. During the years ended December 31,
2002 and 2001, the Partnership made no distributions to the Partners. During the
year ended December 31, 2000, the Partnership made a cash distribution which
resulted in aggregate distributions per Unit to reach Contribution Payout. As a
result, the General Partner was allocated 20% of the total cash distribution
over Contribution Payout. The total distribution amounted to $11,672,828 ($200
per Unit: $1,672,828 to the General Partner).


ITEM 6.  SELECTED FINANCIAL DATA.
-------  ------------------------

         See the "Selected Financial Data" on Page F-2 included in this filing
on Form 10-K.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------  -----------------------------------------------------------------------
         OF OPERATIONS.
         --------------

LIQUIDITY AND CAPITAL RESOURCES

         Partners' capital of $4.7 million at December 31, 2001, decreased to
$1.8 million at December 31, 2002, resulting from the Partnership's recognition
of a net loss of $2.9 million (as discussed in Results of Operations below).

         The Partnership's funds are invested in marketable securities until
cash is needed to pay for the ongoing management and administrative expenses of
the Partnership or for distribution to the Partners. Liquid assets decreased
from $4.8 million at December 31, 2001 to $1.9 million at December 31, 2002. The
change of $2.9 million resulted primarily from decreases in the market values of
marketable securities held as of these dates. The balance of the liquid assets
at December 31, 2002, is to be used for the payment of administrative costs
related to managing the Partnership's business and future distributions to the
Partners.

RESULTS OF OPERATIONS

   YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001:
   --------------------------------------------------------------------------

         Net loss for the year ended December 31, 2002 was $2.9 million as
compared to a net loss for the year ended December 31, 2001 of $1.0 million. The
variance of $1.9 million resulted from an unfavorable change in unrealized
depreciation of marketable securities.

         Net revenues for the years ended December 31, 2002 and 2001 were $(2.7)
million and $(0.8) million, respectively, comprised primarily of unrealized
depreciation of marketable securities. At December 31, 2002, the Partnership's
investment in 0.461 million shares of Genzyme Molecular Oncology ("GMO") had a
market value of $0.8 million ($1.75 per share) as compared to a market value of
$3.7 million ($8.00 per share) as of December 31, 2001. The Partnership
recognized unrealized depreciation of $(2.9) million for the year ended December
31, 2002. The market value of the Partnership's investment of 0.286 million
shares of Repligen Corporation ("Repligen") as of December 31, 2002 and 2001 was
$0.9 million ($3.04 per share) and $0.7 million ($2.43 per share), respectively.

<PAGE>

(ITEM 7 CONTINUED)

         The Partnership recognized unrealized appreciation of $0.2 million for
the year ended December 31, 2002. The market value of the Partnership's
investments in GMO and Repligen as of December 31, 2001 was $9.1875 per share
and $3.375 per share, respectively. Accordingly, for the year ended December 31,
2001, the Partnership recognized unrealized depreciation on its investments in
GMO and Repligen of $(0.5) million and $(0.3) million, respectively.

         There were no material variances in expenses for the year ended
December 31, 2002 as compared to this same period in 2001.

   YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000:
   --------------------------------------------------------------------------

         Net income (loss) for the years ended December 31, 2001 and 2000 was
$(1.0) million and $10.6 million, respectively. The unfavorable change of $11.6
million resulted from a decrease in revenues of this amount.

         Net revenues for the year ended December 31, 2001 were $(0.8) million
as compared to $10.7 million for this same period in 2000. The decrease was due
primarily to an unfavorable change in unrealized appreciation of marketable
securities of $1.8 million and a decrease in realized gain on sale of marketable
securities of $9.5 million. Unrealized (depreciation) appreciation for the years
ended December 31, 2001 and 2000 were $(0.8) million and $1.0 million,
respectively. At December 31, 2001, the Partnership's investment in 0.461
million shares of GMO had a market value of $3.7 million ($8.00 per share). As
of December 31, 2000, the market value of the GMO shares was $4.2 million
($9.1875 per share) resulting in the recognition of unrealized depreciation of
$0.5 million for the year ended December 31, 2001. The market value of the
Partnership's investment in Repligen of 0.286 million shares decreased from $1.0
million ($3.375 per share) at December 31, 2000 to $0.7 million ($2.43 per
share) resulting in unrealized depreciation of $0.3 million for the year ended
December 31, 2001. The market value of GMO increased from $7.00 per share as of
December 31, 1999 to $9.1875 per share as of December 31, 2000 resulting in the
recognition of unrealized appreciation of $1.0 million for the year ended
December 31, 2000. Also, for the year ended December 31, 2000, the Partnership
recognized gains from sales of marketable securities of $9.5 million. The
Partnership sold 0.252 million shares of GMO for proceeds of $9.0 million
(average price per share of $35.59) with a carrying value of $1.8 million ($7.00
per share) at December 31, 1999 and recognized a gain of $7.2 million. Also, the
Partnership sold 0.1 million shares of Repligen for proceeds of $1.6 million
(average price per share of $15.84) and recognized a gain of $1.3 million for
the year ended December 31, 2000. The Partnership exercised its warrant for
7,293 shares of Alkermes, Inc. ("Alkermes"), (recorded at its intrinsic value as
of December 31, 1999 of $44.125 per share) at $5.00 per share and sold the
shares for $188.20 per share recognizing a gain of $1.0 million for the year
ended December 31, 2000.

         There were no material variances in expenses for the year ended
December 31, 2001 as compared to this same period in 2000.

CRITICAL ACCOUNTING POLICIES

         The General Partner makes judgements in valuing its investments in
product development projects. (See Note 5 of the "Notes to Financial Statements"
included in this filing on Form 10-K.) The General Partner's judgement involves
estimating the prospect of the Projects producing a commercially viable product.
These estimates are based on the General Partner's experience in evaluating
similar investments, publicly available information from the Sponsor Companies
and other sources the General Partner considers reliable. Based on these
estimates, as of December 31, 2002, the Partnership is carrying its investments
in product development projects at zero.

<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-------  -----------------------------------------------------------

         Substantially all of the Partnership's non-cash assets consist of
461,091 shares of GMO and 285,700 shares of Repligen. The Partnership acquired
these shares in connection with its investments in Projects. The Partnership
holds these shares until cash is needed for the payment of Partnership expenses
or to make cash distributions to the Partners.

         The carrying values of investments subject to equity price risks are
based on quoted market prices as of the balance sheet dates. Market prices are
subject to fluctuation and, consequently, the amount realized in the subsequent
sale of an investment may significantly differ from the reported market value.
Fluctuation in the market price of a security may result from perceived changes
in the underlying economic characteristics of the issuer, the relative price of
alternative investments and general market conditions. Furthermore, amounts
realized in the sale of a particular security may be affected by the relative
quantity of the security being sold.

         The table below summarizes the Partnership's equity price risks as of
December 31, 2002 and 2001 and shows the effects of a hypothetical 30% increase
and a 30% decrease in market prices as of those dates. The selected hypothetical
change does not reflect what could be considered the best or worst case
scenarios. Indeed, results could be far worse due to the nature of the equity
markets.

<TABLE>
<CAPTION>
                                                                  ESTIMATED                ESTIMATED
                                                                  MARKET VALUE AFTER       PARTNERS' CAPITAL
                                              HYPOTHETICAL        HYPOTHETICAL             AFTER HYPOTHETICAL
                           MARKET VALUE       PRICE CHANGE        CHANGE IN PRICE          CHANGE IN PRICE
                           ------------       ------------        ---------------          ---------------
<S>                        <C>                <C>                 <C>                      <C>
As of December 31, 2002    $1,675,437         30% increase        $2,178,068               $2,327,253
                                              30% decrease        $1,172,806               $1,321,991
As of December 31, 2001    $4,382,978         30% increase        $5,697,871               $6,005,805
                                              30% decrease        $3,068,085               $3,376,019
</TABLE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------  --------------------------------------------

         The information in response to this item may be found under the
following captions included in this filing on Form 10-K:

                Report of Independent Auditors (Page F-4)
                Statements of Financial Condition (Page F-5)
                Statements of Operations (Page F-6)
                Statements of Changes in Partners' Capital (Deficit) (Page F-6)
                Statements of Cash Flows (Page F-7)
                Notes to Financial Statements (Pages F-8 to F-12)


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------  ---------------------------------------------------------------
         FINANCIAL DISCLOSURE.
         ---------------------

         None.

<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------  ---------------------------------------------------

         The Registrant has no directors or executive officers. The Registrant
is managed by PWDC, which is the General Partner of the Partnership.

         Pursuant to the Management Contract, the General Partner is responsible
for the management and administrative services necessary for the operation of
the Partnership. The following table sets forth certain information with respect
to the persons who are directors and executive officers of the General Partner
as of December 31, 2002:


NAME                             AGE        POSITION AND DATE APPOINTED
-----------------------------    ---        ---------------------------

DIRECTORS
     Robert J. Chersi             41        Director since March 2001
     Stephen R. Dyer              43        Director since April 1999

EXECUTIVE OFFICERS
     Stephen R. Dyer              43        President since March 2001
     Robert J. Chersi             41        Vice President since March 2001
     Rosemarie Albergo            45        Treasurer since March 2001
     Geraldine L. Banyai          61        Secretary since June 1999


         The directors have a one-year term of office. The officers are elected
by a majority of the directors and hold office until their successors are chosen
by the directors.

<PAGE>

(ITEM 10 CONTINUED)

DIRECTORS

         ROBERT J. CHERSI is the Executive Vice President, Chief Financial
Officer, Treasurer and Controller of UBS PaineWebber Inc. ("PWI"). He served
most recently (prior to the UBS AG merger) as Senior Vice President and
Controller of PWI. Mr. Chersi joined PaineWebber in 1995 following the Kidder,
Peabody & Co. Incorporated ("Kidder") acquisition. Previous to his employment
with Kidder, Mr. Chersi worked for the accounting firm KPMG Peat Marwick from
1983-1988 serving banking and brokerage industry clients. Mr. Chersi is a
Certified Public Accountant and earned a Bachelor of Business Administration in
Accounting from Pace University where he graduated summa cum laude in 1983.

         STEPHEN R. DYER is a Senior Vice President and Director of Private
Investments of PWI. Prior to joining PWI in 1988, Mr. Dyer had been employed at
L.F. Rothschild & Co., Incorporated and Thomson McKinnon Securities, Inc. He
received his Bachelor of Science degree from Boston College and a Masters of
Business Administration from Indiana University. Mr. Dyer is a Certified Public
Accountant.

EXECUTIVE OFFICERS

         STEPHEN R DYER, President, see "Directors" above.

         ROBERT J. CHERSI, Vice-President, see "Directors" above.

         ROSEMARIE ALBERGO is a First Vice President of PWI. Prior to joining
PWI in 1983, Ms. Albergo was employed at KPMG Peat Marwick. She received her
Bachelor of Business Adminstration degree from Pace University and is a
Certified Public Accountant.

         GERALDINE L. BANYAI, Secretary, joined PWI in June 1993 as Assistant
Secretary of PWI and was elected Secretary in March, 1999. Ms. Banyai was
elected Divisional Vice President in April 1996 and Corporate Vice President in
April 1997. In November 1996, Ms. Banyai was elected Assistant Secretary of PWG.
Prior to joining PWI, Ms. Banyai was employed by the Philadelphia Savings Fund
Society ("PSFS") in Philadelphia for 35 years and served as Vice President and
Corporate Secretary of PSFS and 28 of its subsidiaries.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.
-------  -----------------------

         No compensation was paid directly to executive officers of PWDC by the
Registrant. PWDC serves as General Partner for the Registrant, and pursuant to a
Management Contract, is entitled to receive an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1997, the General Partner elected to discontinue the management fee
charged to the Partnership. See the section entitled "Related Party
Transactions" under the caption "Notes to Financial Statements" on pages F-8
through F-11 included in this filing on Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
-------  ------------------------------------------------------------------
         RELATED STOCKHOLDER MATTERS.
         ----------------------------

         There are no investors known to the Partnership to be beneficial owners
at March 1, 2003 of more than five percent of the Registrant's Units. No member
of management of PWDC had any beneficial interest in the Registrant's Units.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------  -----------------------------------------------

         Information in response to this item may be found in the section
entitled "Related Party Transactions" under the caption "Notes to Financial
Statements" on pages F-8 through F-11 included in this filing on Form 10-K.

ITEM 14. CONTROLS AND PROCEDURES
-------  -----------------------

(a)      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The President and
         Principal Financial Officer of the General Partner, after evaluating
         the effectiveness of the Partnership's disclosure controls and
         procedures (as defined in the Securities Exchange Act of 1934 Rules
         13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date
         of this Annual Report on Form 10-K (the "Evaluation Date")), have
         concluded that as of the Evaluation Date, the Partnership's disclosure
         controls and procedures were adequate and effective to ensure that
         material information relating to the Partnership would be made known to
         them by others within the General Partner, or its affiliates
         particularly during the period in which this Annual Report on Form 10-K
         was being prepared.

(b)      CHANGES IN INTERNAL CONTROLS. There were no significant changes in the
         Partnership's internal controls or in other factors that could
         significantly affect the Partnership's internal controls subsequent to
         the date of their evaluation, nor any significant deficiencies or
         material weaknesses in such internal controls requiring corrective
         actions. As a result, no corrective actions were taken.

<PAGE>

                                     PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
--------  -----------------------------------------------------------------

         The following documents are filed as part of the filing on Form 10-K.


EXHIBITS


A - Annual Report to Limited Partners

99.1 - Certification by Robert J. Chersi pursuant to 18 U.S.S. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


99.2 - Certification by Stephen R. Dyer pursuant to 18 U.S.S. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


FINANCIAL STATEMENTS


         The financial statements, together with the report of Ernst & Young
LLP, are listed in the accompanying index to financial statements and notes to
financial statements appearing on page F-1.

                Report of Independent Auditors (Page F-4)
                Statements of Financial Condition (Page F-5)
                Statements of Operations (Page F-6)
                Statements of Changes in Partners' Capital (Deficit) (Page F-6)
                Statements of Cash Flows (Page F-7)
                Notes to Financial Statements (Pages F-8 to F-12)

REPORTS ON FORM 8-K

         None.

<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 31st day of March
2003.

         PAINEWEBBER R&D PARTNERS III, L.P.

         By:  PaineWebber Development Corporation
                (General Partner)

         By:  /s/ Stephen R. Dyer
              -----------------------------------------
              Stephen R. Dyer
              President and Principal Executive Officer

         By:  /s/ Robert J. Chersi
              -----------------------------------------
              Robert J. Chersi
              Principal Financial and Accounting Officer



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated*, each on this 31st day of March
2003.


         /s/ Stephen R. Dyer
         -----------------------------------------
         Stephen R. Dyer
         President (principal executive officer) and Director


         /s/ Robert J. Chersi
         --------------------------------
         Robert J. Chersi
         Principal Financial and Accounting Officer and Director


* The capacities listed are with respect to PWDC, the General Partner of the
Registrant.

<PAGE>

CERTIFICATIONS
--------------

I, Stephen R. Dyer, certify that:

1.       I have reviewed this annual report on Form 10-K of PaineWebber R&D
         Partners III, L.P. (the "Partnership");

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Partnership as of, and for, the periods presented in
         this annual report;

4.       The Partnership's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership
         and we have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the Partnership is made
                  known to us by others within the Partnership, particularly
                  during the period in which this annual report is being
                  prepared;

         (b)      evaluated the effectiveness of the Partnership's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The Partnership's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the Partnership's auditors and the
         audit committee of the board of directors of the Partnership's general
         partner (or persons performing the equivalent function):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  Partnership's ability to record, process, summarize and report
                  financial data and have identified for the Partnership's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Partnership's internal controls.

6.       The Partnership's other certifying officers and I have indicated in
         this annual report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 31, 2003
                            /s/ Stephen R. Dyer
                            ---------------------------------------
                            Name:   Stephen R. Dyer
                            Title:  President of PaineWebber Development Corp.,
                                    General Partner of the Partnership

<PAGE>

CERTIFICATIONS
--------------

I, Robert J. Chersi, certify that:

1.       I have reviewed this annual report on Form 10-K of PaineWebber R&D
         Partners III, L.P. (the "Partnership");

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Partnership as of, and for, the periods presented in
         this annual report;

4.       The Partnership's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership
         and we have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the Partnership is made
                  known to us by others within the Partnership, particularly
                  during the period in which this annual report is being
                  prepared;

         (b)      evaluated the effectiveness of the Partnership's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The Partnership's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the Partnership's auditors and the
         audit committee of the board of directors of the Partnership's general
         partner (or persons performing the equivalent function):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  Partnership's ability to record, process, summarize and report
                  financial data and have identified for the Partnership's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Partnership's internal controls.

6.       The Partnership's other certifying officers and I have indicated in
         this annual report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 31, 2003

                            /s/ Robert J. Chersi
                            ---------------------------------------
                            Name:   Robert J. Chersi
                            Title:  Principal Financial Officer of PaineWebber
                                    Development Corp., as General Partner of the
                                    Partnership

<PAGE>


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


                          INDEX TO FINANCIAL STATEMENTS

DESCRIPTION                                                          PAGE

Index to Financial Statements                                        F-1

Selected Financial Data                                              F-2

Quarterly Financial Information (Unaudited)                          F-3

Report of Independent Auditors                                       F-4

Statements of Financial Condition,
    at December 31, 2002 and 2001                                    F-5

Statements of Operations,
    for the years ended December 31, 2002, 2001 and 2000             F-6

Statements of Changes in Partners' Capital (Deficit),
    for the years ended December 31, 2002, 2001 and 2000             F-6

Statements of Cash Flows,
    for the years ended December 31, 2002, 2001 and 2000             F-7

Notes to Financial Statements                                        F-8 to F-12





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.


                                       F-1
<PAGE>

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


<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
------------------------------------------------------------------------------------------------------------------------------------

Years ended December 31,                                     2002             2001           2000            1999           1998

------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>             <C>            <C>            <C>
Operating Results:

   Revenues                                               $(2,703,179)    $  (798,940)    $10,710,670    $ 4,926,324    $(1,331,137)
   Net income (loss)                                      $(2,866,290)    $  (966,353)    $10,543,808    $ 4,762,147    $(1,500,762)

Net income (loss) per partnership interest (A):

   Limited partners                                       $    (56.75)    $    (19.13)    $    208.77    $     94.29    $    (29.72)
   General partner                                        $(28,622.90)    $ (9,663.53)    $105,438.08    $ 47,621.47    $(15,007.62)


Financial Condition:

   Total assets                                           $ 1,907,451     $ 4,783,593     $ 5,743,455    $ 6,866,129    $ 9,169,050
   Partners' capital                                      $ 1,824,622     $ 4,690,912     $ 5,657,265    $ 6,786,285    $ 9,094,845

Distributions to partners:
   Cash                                                   $        --     $        --     $11,672,828    $ 7,070,707    $        --

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(A)  Based on 50,000 limited partnership units and a 1% general partnership
     interest.


                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------------------------------------------------------------
                                                                       Net Income (Loss)
                                                                   Per Partnership Unit (A)
                                          Net Income       --------------------------------------
                        Revenues            (Loss)         Limited Partners    General Partner
-------------------------------------------------------------------------------------------------
<S>                   <C>              <C>                 <C>                 <C>
 Calendar 2002

 4th Quarter          $    576,906     $    538,333           $   10.65            5,383.33

 3rd Quarter              (707,324)        (749,145)             (14.83)          (7,491.45)

 2nd Quarter            (1,936,800)      (1,990,141)             (39.40)         (19,901.41)

 1st Quarter              (635,961)        (665,337)             (13.17)          (6,653.37)

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

 Calendar 2001

 4th Quarter          $    257,966     $    220,169           $    4.37            2,201.69

 3rd Quarter            (2,801,907)      (2,845,859)             (56.35)           (28,458.59)

 2nd Quarter             2,313,340        2,269,709               44.94             22,697.09

 1st Quarter              (568,339)        (610,372)             (12.09)            (6,103.72)

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

 Calendar 2000

 4th Quarter          $ (3,201,347)    $ (3,244,727)          $  (64.24)         $ (32,447.27)

 3rd Quarter               249,743          207,185                4.10              2,071.85

 2nd Quarter            (1,369,686)      (1,414,086)             (28.00)           (14,140.86)

 1st Quarter            15,031,960       14,995,436              296.91            149,954.36

-------------------------------------------------------------------------------------------------
</TABLE>

(A)  Based on 50,000 limited partnership units and a 1% general partnership
     interest.


                                       F-3
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



To the Partners of PaineWebber R&D Partners III, L.P.

We have audited the accompanying statements of financial condition of
PaineWebber R&D Partners III, L.P. as of December 31, 2002 and 2001, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PaineWebber R&D Partners III,
L.P. at December 31, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.



/s/ Ernst & Young LLP
Ernst & Young LLP

New York, New York
March 24, 2003


                                       F-4
<PAGE>

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

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                  December 31,         December 31,
                                                          2002                 2001
------------------------------------------------------------------------------------
<S>                                               <C>                  <C>
Asset:

      Marketable securities, at market value      $  1,907,451         $  4,783,593
                                                  ============         ============


Liabilities and partners' capital:

      Accrued liabilities                         $     82,829         $     92,681

      Partners' capital                              1,824,622            4,690,912

                                                  ------------         ------------
Total liabilities and partners' capital           $  1,907,451         $  4,783,593
                                                  ============         ============

------------------------------------------------------------------------------------
</TABLE>

See notes to financial statements.




                                      F-5
<PAGE>

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                     2002             2001               2000
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>               <C>
Revenues:
      Interest income                                          $      4,362      $     18,593      $    211,215
      Income from product development projects                           --                --            23,785
      Unrealized  (depreciation) appreciation of
       marketable securities and investments                     (2,707,541)         (817,533)        1,009,868
      Net realized gain on sale of marketable
        securities and investments                                       --                --         9,465,802
                                                               ------------      ------------      ------------
                                                                 (2,703,179)         (798,940)       10,710,670
Expenses:
      General and administrative costs                              163,111           167,413           166,862
                                                               ------------      ------------      ------------

Net income (loss)                                              $ (2,866,290)     $   (966,353)     $ 10,543,808
                                                               ============      ============      ============
Net income (loss) per partnership unit:
      Limited partners (based on 50,000 units)                 $     (56.75)     $     (19.13)     $     208.77
      General partner                                          $ (28,662.90)     $  (9,663.53)     $ 105,438.08

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

<CAPTION>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

                                                                 LIMITED            GENERAL
FOR THE YEARS ENDED DECEMBER 31,                                 PARTNERS           PARTNERS           TOTAL
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>               <C>
Balance at January 1, 2000                                     $  6,716,887      $     69,398      $  6,786,285

Cash distributions to partners                                  (10,000,000)       (1,672,828)      (11,672,828)
Net income                                                       10,438,370           105,438        10,543,808
                                                               ------------      ------------      ------------

Balance at December 31, 2000                                      7,155,257        (1,497,992)        5,657,265
Net loss                                                           (956,690)           (9,663)         (966,353)
                                                               ------------      ------------      ------------

Balance at December 31, 2001                                      6,198,567        (1,507,655)        4,690,912
Net loss                                                         (2,837,627)          (28,663)       (2,866,290)
                                                               ------------      ------------      ------------

Balance at December 31, 2002                                   $  3,360,940      $ (1,536,318)     $  1,824,622
                                                               ============      ============      ============
----------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to financial statements.


                                       F-6
<PAGE>

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

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                     2002             2001               2000
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>               <C>
Cash flows from operating activities:
Net income (loss)                                               $ (2,866,290)    $   (966,353)     $ 10,543,808
Adjustments to reconcile net income (loss)  to
  cash provided by operating activities:
  Unrealized depreciation (appreciation)
   of marketable securities and investments                        2,707,541          817,533        (1,009,868)

Decrease  in operating assets:
  Marketable securities                                              168,601          142,329         2,113,143
  Advances to product development projects                                --               --            19,399

(Decrease) increase in operating liabilities:
  Accrued liabilities                                                 (9,852)           6,491             6,346
                                                                ------------     ------------      ------------
Cash provided by  operating activities                                    --               --        11,672,828
                                                                ------------     ------------      ------------

Cash flows from financing activities:
  Distributions to partners                                               --               --       (11,672,828)
                                                                ------------     ------------      ------------

Decrease in cash                                                          --               --                --

Cash at beginning of period                                               --               --                --
                                                                ------------     ------------      ------------

Cash at end of period                                           $         --     $         --      $         --
                                                                ============     ============      ============
</TABLE>

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

Supplemental disclosure of cash flow information:
The Partnership paid no cash for interest or taxes during the years ended

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

See notes to financial statements.



                                       F-7

<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS


1.   ORGANIZATION AND BUSINESS

         PaineWebber R&D Partners III, L.P. (the "Partnership") is a Delaware
limited partnership that commenced operations on June 3, 1991. Paine Webber
Development Corporation ("PWDC" or the "General Partner"), an indirect,
wholly-owned subsidiary of UBS Americas Inc. (formerly Paine Webber Group Inc.
("PWG"))(1) is the general partner and manager of the Partnership. The
Partnership will terminate on December 15, 2015, 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 and biotechnology 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 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).




----------

(1)  On November 3, 2000, PWG merged with and into UBS Americas Inc.


                                      F-8
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS


(NOTE 1 CONTINUED)


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

<TABLE>
<CAPTION>
                                                                                         LIMITED         GENERAL
                                                                                         PARTNERS        PARTNER
                                                                                         --------        -------
<S>                                                                                      <C>             <C>
     I.  Until the value of the aggregate distributions for each limited
         partnership unit ("Unit") equals $1,000 plus simple interest on such
         amount accrued at 5% per annum ("Contribution Payout") Contribution
         Payout as of December 31, 2002 is $1,575 per Unit........................         99%               1%

    II.  After Contribution Payout and until the value of the aggregate
         distributions for each Unit equals $5,000 ("Final Payout")...............         80%              20%

   III.  After Final Payout.......................................................         75%              25%
</TABLE>


During the year ended December 31, 2000, the Partnership made a cash
distribution which resulted in aggregate distributions per Unit to reach
Contribution Payout. As a result, the General Partner will be allocated 20% of
future cash distributions until Final Payout. No cash or security distributions
were remitted by the Partnership during the year ended December 31, 2002. As of
this date, the Partnership has made cash and security distributions, as valued
on the dates of distribution, since inception of $1,483 and $98 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 December
31, 2002, the cumulative profits of the Partnership were $786 per Unit.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The financial statements are prepared in conformity with accounting
principles generally accepted in the United States 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 generally determined on a
specific identification method and are reflected in the Statements of Operations
during the period in which the sale or change in value occurs.


                                      F-9
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS


(NOTE 2 CONTINUED)

         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. 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.

3.   MARKETABLE SECURITIES

         The Partnership held the following marketable securities at:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2002                  DECEMBER 31, 2001
                                    ----------------------------       ----------------------------
                                     CARRYING                            CARRYING
                                       VALUE             COST              VALUE            COST
                                    -----------      -----------       -----------      -----------
<S>                                 <C>              <C>               <C>              <C>
Money market fund                   $   232,014      $   232,014       $   400,615      $   400,615

Genzyme Molecular Oncology                                                                  646,609
    (461,091 common shares)             806,910          646,609         3,688,728

Repligen Corporation (Note 7)
    (285,700 common shares)             868,527          901,433           694,250          901,433
                                    -----------      -----------       -----------      -----------
                                    $ 1,907,451      $ 1,780,056       $ 4,783,593      $ 1,948,657
                                    ===========      ============      ===========      ===========
</TABLE>


         At December 31, 2002, 2001 and 2000, the Partnership recorded its
investment of 461,091 shares of Genzyme Molecular Oncology ("GMO") at a market
value of $1.75 per share, $8.00 per share and $9.1875 per share, respectively.
Accordingly, the Partnership recognized unrealized depreciation of $2,881,818
and $547,546 for the years ended December 31, 2002 and 2001, respectively.
During the year ended December 31, 2000, the Partnership sold 252,000 shares of
GMO for proceeds of $8,968,599 (average price per share of $35.59). The shares
had a carrying value as of December 31, 1999 of $1,764,000 ($7.00 per share)
and, thus, recognized a gain from the sale of $7,204,599. The Partnership
recorded its remaining investment of 461,091 shares at a market value of $9.1875
per share as of December 31, 2000 as compared to a market value of $7.00 per
share at December 31, 1999. For the year ended December 31, 2000 the Partnership
recognized unrealized appreciation of $1,008,637 for the year then ended.

         The Partnership's investment in Repligen Corporation ("Repligen") had a
market value of $3.04 and $2.43 per share at December 31, 2002 and 2001,
respectively. The market value as of December 31, 2000 was $3.375 per share. The
Partnership recognized unrealized appreciation (depreciation) of $172,277 and
$(269,987) for the years ended December 31, 2002 and 2001. At December 31, 1999
the Partnership owned warrants to purchase 133,000 and 252,700 shares of
Repligen at exercise prices of $2.50 per share and $3.50 per share,
respectively. The market value of Repligen as of that date was $3.125 per share.
The Partnership recorded its warrant to purchase 133,000 shares at the intrinsic
value of $83,124. During the year ended December 31, 2000, the Partnership
exercised the warrants at an aggregate exercise price of $1,216,950. The
Partnership sold 100,000 shares for aggregate proceeds of $1,584,026 (average
price per share of $15.84). The Partnership recognized a gain from the sale for
the year ended December 31, 2000 of $1,246,957.


                                      F-10
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS


(NOTE 3 CONTINUED)

         The Partnership owned a warrant to purchase 7,293 shares of Alkermes,
Inc. ("Alkermes") at an exercise price of $5.00 per share. At December 31, 1999,
the market value of Alkermes was $49.125 per share. As of this date, the
Partnership recorded the warrant at its intrinsic value of $321,804 and
recognized unrealized appreciation of this amount for the year then ended.
During the year ended December 31, 2000, the Partnership exercised the warrant
at an aggregate exercise price of $36,465 and sold the Alkermes shares for
aggregate net proceeds of $1,372,515 ($188.20 per share). The Partnership
recognized a gain from the sale of $1,014,246 for the year ended December 31,
2000.

4.   RELATED PARTY TRANSACTIONS

         The General Partner is entitled to receive an annual management fee for
management and administrative services provided to the Partnership. As of
January 1, 1997, the General Partner 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 UBS PaineWebber Inc. ("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 product
development limited partnerships as the Partnership.

           Pursuant to the terms of the Partnership Agreement, the General
Partner is required to restore its deficit capital account, if any, by remitting
cash equal to such amount to the Partnership.

5.   PRODUCT DEVELOPMENT PROJECTS

      Of the Partnership's seven original Projects, the following two Projects
are currently active: a $6.0 million investment in Alkermes Clinical Partners,
L.P., a $46.0 million limited partnership formed to fund the development,
clinical testing, manufacturing and marketing of Cereport(TM) (formerly known as
RMP-7) for use in tHe treatment of diseases of the brain and central nervous
system by enabling the delivery of drugs across the blood brain barrier; and a
$6.0 million investment in Cephalon Clinical Partners, L.P., a $45.0 million
limited partnership formed to fund the development, clinical testing,
manufacturing and marketing of Myotrophin(TM) for uSe in the treatment of
amyotrophic lateral sclerosis and certain other peripheral neuropathies. As of
December 31, 2002, the Partnership is carrying these investments at zero.

      If the Projects produce any product for commercial sale, the Sponsor
Companies have the option to license the Partnership's technology 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 granting such purchase options, the Partnership received
warrants to purchase shares of common stock of certain of the Sponsor Companies.
As of December 31, 2002, the Partnership had exercised all of its warrants.

6.   INCOME TAXES

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


                                      F-11
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS


7.   SUBSEQUENT EVENT

         On March 3, 2003, the Board of Directors of Repligen adopted a
shareholder rights plan to help protect investors against potential hostile
takeover attempts. Under the plan a dividend was declared of one purchase right
for each outstanding share of common stock held as of March 17, 2003. (The
Partnership continued to own 285,700 Repligen shares as of this date). The
rights are not immediately exercisable and will be "triggered" upon such time
that a purchaser acquires 15% or more of Repligen's outstanding common stock.
The rights entitle the holder to purchase $100 worth of Repligen common stock at
a purchase price of $50.00. Repligen has stated that, as of March 17, 2003, they
are not aware of any attempt to acquire control of the company.






                                      F-12