**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, 2004**
 **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.
      Employerincorporation
      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 onTitle
      of each class
    Which
      registeredNone
    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 o No x
 
 
 
 
 **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, actions or
achievements of the Partnership or industry results to be materially different
from any future results, performance, actions 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.
 
 
  
 **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. (“UBS Americas”), 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, 2004, the Partnership had an ongoing Project with Cephalon, Inc.
(See Note 5 of the “Notes to Financial Statements” included in this filing on
Form 10-K.) In addition, as of December 31, 2004, the Partnership owned
marketable securities as described in Note 3 of the “Notes to Financial
Statements” included in this filing on Form 10-K.
  It is the
intention of the General Partner to liquidate the Partnership’s remaining
investments in a manner that preserves value for the Partners (hereinafter
defined), while minimizing associated expenses. However, the Partnership’s
remaining Project is illiquid with uncertain prospects. The General Partner
continues to consider ways in which it can terminate the Partnership while
maintaining the Partners’ rights to any future revenues that may accrue from
that Project.
  **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.
 ****
 
 ****
 **(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.
 
 Limited
      Partners
    
    General
      PartnerI.
    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,
      2004 is $1,675 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%
   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, 2004. 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, 2004, the
cumulative profits of the Partnership were $789 per Unit.
  **Other**
  At
December 31, 2004, 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.
 ******Item
      3.**
    
    **Legal
      Proceedings.**

None.****
 **Item
      4.**
    
    **Submission
      of Matters to a Vote of Security
Holders.**
 None.
 
 
 ****
 **PART
II**
 ****
 **Item
      5.**
    
    **Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities.**
 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,
2004, there were 4,531 Limited Partners. The Partnership purchased none of its
limited partnership Units during the year ended December 31, 2004.
  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, 2004, 2003
and 2002, the Partnership made no distributions to the Partners.
 ****Item
      6.**
    
    **Selected
      Financial
Data.****
  See the
“Selected Financial Data” on Page F-2 included in this filing on Form
10-K.
 ****Item
      7.**
    
    **Ma**nagement’s
      Discussion and Analysis****of Financial Condition and Results of
      Operations.******
  **Liquidity
and Capital Resources**
  Partners’
capital of $2.5 million at December 31, 2003, decreased to $2.0 million at
December 31, 2004, resulting from the Partnership’s recognition of a net loss of
$0.5 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 $2.5 million
at December 31, 2003 to $2.1 million at December 31, 2004. The decrease of $0.4
million resulted primarily from the sale of marketable securities during 2004.
On March 1, 2004, the Board of Directors of the General Partner consented that
the Partnership sell at the then prevailing market price at the end of each
calendar quarter, as many shares of marketable securities required to pay the
Partnership’s operating expenses for which no other funds are available to the
Partnership.
  **Results
of Operations**
  Year
ended December 31, 2004 compared to the year ended December 31,
2003 :
 
 Net loss
for the year ended December 31, 2004 was $0.5 million as compared to net income
for the year ended December 31, 2003 of $0.6 million. The unfavorable variance
of $1.1 million resulted primarily from an unfavorable change in unrealized
depreciation of marketable securities.
 
 Net
revenues for the years ended December 31, 2004 and 2003 were $(0.2) million and
$0.9 million, respectively, comprised primarily of unrealized appreciation
(depreciation) of marketable securities. At December 31, 2004, the Partnership’s
investment in 0.026 million shares of Genzyme General Division (“GENZ”) had a
market value of $1.5 million ($58.07 per share) as compared to a market value of
$1.3 million ($49.29 per share) as of December 31, 2003. The Partnership
recognized unrealized ap preciation
of $0.2 million for the year ended December 31, 2004. During 2004, the
Partnership sold 0.093 shares of Repligen Corporation (“Repligen”). The market
value of the remaining investment in Repligen of 0.192 shares as of December 31,
2004 was $0.54 million ($2.88 per share) as compared to $0.84 million ($4.37 per
share) as of December 31, 2003. The Partnership recognized unrealized
depreciation of $0.4 million for the year ended December 31, 2004, which
includes the change in unrealized appreciation previously recorded of $0.1
million related to the sale of the Repligen shares. The market value of the
Partnership’s investment of 0.286 million shares of Repligen as of December 31,
2003 and 2002 was $1.3 million ($4.37 per share) and $0.9 million ($3.04 per
share), respectively. The Partnership recognized unrealized appreciation of $0.4
million for the year ended December 31, 2003. During the year ended December 31,
2003, in accordance with Genzyme Corporation’s decision to eliminate its
tracking stock structure and pursuant to its Restated Articles of Organization,
each share of Genzyme Molecular Oncology (“GMO”) common stock was converted to
0.05653 shares of GENZ common stock. The Partnership’s investment of 0.461
million shares of GMO was converted to 0.026 million shares of GENZ. As of
December 31, 2003, the market value of the Partnership’s investment in Genzyme
Corporation was $1.3 million as compared to $0.8 million as of December 31,
2002. The Partnership recognized unrealized appreciation of $0.5 million for the
year ended December 31, 2003.
 
 
 ****
 **(Item
7 Continued)**
  There
were no material variances in expenses for the year ended December 31, 2004 as
compared to this same period in 2003.
  Year
ended December 31, 2003 compared to the year ended December 31,
2002:
 
 Net
income (loss) for the years ended December 31, 2003 and 2002 was $0.6 million
and $(2.9) million, respectively. The increase of $3.5 million resulted from an
increase in revenues of $3.6 million offset by a n increase
in expenses of $0.1 million.
 
 Net
revenues which consisted primarily of unrealized appreciation (depreciation) of
marketable securities were $(2.7) million for the year ended December 31, 2002
as compared to $0.9 million for the year ended December 31, 2003 (refer to the
year ended December 31, 2004 compared to the year ended December 31, 2003). At
December 31, 2002, the Partnership’s investments of 0.461 million shares of GMO
and 0.286 million shares of Repligen had a market value of $0.8 million ($1.75
per share) and $0.9 million ($3.04 per share), respectively. The market value of
GMO and Repligen as of December 31, 2001 was $3.7 million ($8.00 per share) and
$0.7 million ($2.43 per share), respectively. The Partnership recognized total
net unrealized depreciation on these investments of $2.7 million for the year
ended December 31, 2002.
 
 Expenses
increased by $0.1 million from December 31, 2002 to December 31, 2003 resulting
primarily from an increase in legal expenses. The Partnership incurred
additional legal expenses for the year ended December 31, 2003, in connection
with the dissolution of its interest in Alkermes Clinical Partners, L.P.
  
 ****
 **(Item
7 Continued** )
 
 **Critical
Accounting Policies**
 
 The
General Partner makes judgments 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 judgment 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, 2004,
the Partnership is carrying its investment in the remaining product development
project at zero.
  **Item
7A** **.** **Quantitative
and Qualitative Disclosures about Market Risks.**
 
 The
Partnership’s non-cash assets subject to market risk consist of 26,065 shares of
GENZ and 192,300 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 marketable securities subject to equity price risks are based
on quoted market prices as of the dates of the Statements of Financial
Condition. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale 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, 2004
and 2003 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.
 
 Market
      Value
    
    Hypothetical
      Price
      Change
    
    Estimated
      Market
      Value After Hypothetical
      Change
      in Price
    
    Estimated
      Partners’
      CapitalAfter
      HypotheticalChange
      inPriceAs
      of December 31, 2004
    
    $
    2,067,430
    
    
    30%
      increase
      30%
      decrease
    
    $
      $
    2,687,659
      1,447,201
    
    $
      $
    2,607,906
      1,367,448As
      of December 31, 2003
    
    $
    2,533,265
    
    
    30%
      increase
      30%
      decrease
    
    $
      $
    3,293,245
      1,773,286
    
    $
      $
    3,199,533
      1,679,574
 ********
 
 ********
 ********
 **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 Registered Public Accounting Firm (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.
 ******
****Item
      9A.**
    
    ****Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.********
 (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 13(a)-15(e)
and 15(d)-15(e) 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.
 
 
  **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,
2004:
  **Name**
    
    **Age**
    
    **Position
      and Date Appointed****Directors**Robert
      J. Chersi
    
    
    43
    
    
    Director
      since March 2001Stephen
      R. Dyer
    
    
    45
    
    
    Director
      since April 1999Rosemarie
      Albergo
    
    
    47
    
    
    Director
      since December 2003**Executive
      Officers**Stephen
      R. Dyer
    
    
    45
    
    
    President
      since March 2001Robert
      J. Chersi
    
    
    43
    
    
    Vice
      President since March 2001Rosemarie
      Albergo
    
    
    47
    
    
    Treasurer
      since March 2001Geraldine
      L. Banyai
    
    
    63
    
    
    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.
  
 ****
 **(Item
10 Continued)**
  **Directors**
  **Robert
J. Chersi** is the
Executive Vice President and Chief Financial Officer of UBS Financial Services
Inc. (“UBS FS”) (formerly, UBS PaineWebber Inc.). He served most recently (prior
to the UBS AG merger) as Senior Vice President and Controller of UBS FS. Mr.
Chersi joined UBS FS 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 of UBS FS. Prior to joining UBS FS 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.
  **Rosemarie
Albergo** is a
First Vice President of UBS FS. Prior to joining UBS FS in 1983, Ms. Albergo was
employed at KPMG Peat Marwick. She received her Bachelor of Business
Administration degree from Pace University and is a Certified Public
Accountant.
  **Executive
Officers**
  **Stephen
R Dyer** ,
President, see “Directors” above.
  **Robert
J. Chersi** ,
Vice-President, see “Directors” above.
  **Rosemarie
Albergo,** **** Treasurer,
see “Directors” above.
  **Geraldine
L. Banyai** ,
Secretary, joined UBS FS in June 1993 as Assistant Secretary of UBS FS 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 UBS Americas. Prior to
joining UBS FS, 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.
  **Code
of Ethics**
 
 Neither
the General Partner nor the Partnership has adopted a code of ethics with
respect to the General Partner’s officers and directors. A code of ethics has
not been adopted because the General Partner believes that such a policy is not
required for the protection of the Limited Partners because the Partnership does
not engage in any substantial business activities, the Partnership intends to
terminate , and all
the General Partner’s officers and directors are officers and employees of UBS
Americas or its affiliates. As such, they are obligated to conduct all their
business activities, including those on behalf of the Partnership, in a fair,
honest and ethical fashion.
  
 ****
 ****
****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-12 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, 2005
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-12 included in this filing on Form 10-K.
 ****Item
      14.**
    
    ********
      Principal Accountant Fees and
      Services.******
 **Audit
Fees**
  Fees for
audit services totaled $62,500 and $56,500 for the years ended December 31, 2004
and 2003,  respectively,
including fees associated with the annual audit and the review of the
Partnership’s quarterly reports on Form 10-Q.
  **Tax
Fees**
  Fees for
tax services, including tax compliance and tax advice, totaled $12,500 and
$15,000 for the years ended December 31, 2004 and 2003,
respectively.
  **Audit-Related
and Other Fees**
  No fees
were paid to the principal accountant for audit-related or other services for
the years ended December 31, 2004 and 2003.
   
 ****
 **PART
IV**
  ****Item
      15.**
    
    ********
      Exhibits and Financial Statement
      Schedules.******
  The
following documents are filed as part of the filing on Form 10-K.
  **Exhibits**
  **31.1**
    
    Chief
      Executive Officer - Certification pursuant to Rule 13a-14(a) or Rule
      15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.**31.2**
    
    Chief
      Financial Officer - Certification pursuant to Rule 13a-14(a) or Rule
      15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.**32.1**
    
    Chief
      Executive Officer - Certification pursuant to Rule 13a-14(b) or Rule
      15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**32.2**
    
    Chief
      Financial Officer - Certification pursuant to Rule 13a-14(b) or Rule
      15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section
      1350, as adopted pursuant to Section 906of 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 Registered Public Accounting Firm (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)
  
  **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 30th day of March
2005.
 **PAINEWEBBER
      R&D PARTNERS III, L.P.**By:
    
    PaineWebber
      Development Corporation(General
      Partner)By:
    
    /s/
      Stephen R. DyerStephen
      R. DyerPresident(Principal
      Executive Officer)By:
    
    /s/ 
      Robert J. ChersiRobert
      J. ChersiVice
      President(Principal
      Financial and Accounting Officer)




**PAINEWEBBER
R&D PARTNERS III, L.P.**


**(a
Delaware Limited Partnership)**








**Index
to Financial Statements**




Description
    
    PageIndex
      to Financial Statements
    
    F-1Selected
      Financial Data
    
    F-2Quarterly
      Financial Information (Unaudited)
    
    F-3Report
      of Independent Registered Public Accounting Firm
    
    F-4Statements
      of Financial Condition, at December 31, 2004 and 2003
    
    F-5Statements
      of Operations, for the years ended December 31, 2004, 2003 and
      2002
    
    F-6Statements
      of Changes in Partners’ Capital (Deficit), for the years ended December
      31, 2004, 2003 and 2002
    
    F-6Statements
      of Cash Flows, for the years ended December 31, 2004, 2003 and
      2002
    
    F-7Notes
      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






**PAINEWEBBER
      R&D PARTNERS III, L.P.****(a
      Delaware Limited Partnership)****Selected
      Financial Data**At
      and for the years ended December 31,
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000Operating
      Results:Revenues
    
    $
    (249,105
    )
    $
    858,752
    
    $
    (2,703,179
    )
    $
    (798,940
    )
    $
    10,710,670Net
      income (loss)
    
    $
    (451,876
    )
    $
    614,931
    
    $
    (2,866,290
    )
    $
    (966,353
    )
    $
    10,543,808Net
      income (loss) per partnership interest (A):Limited
      partners
    
    $
    (8.95
    )
    $
    12.18
    
    $
    (56.75
    )
    $
    (19.13
    )
    $
    208.77General
      partner
    
    $
    (4,518.76
    )
    $
    6,149.31
    
    $
    (28,622.90
    )
    $
    (9,663.53
    )
    $
    105,438.08Financial
      Condition:Total
      assets
    
    $
    2,082,760
    
    $
    2,533,265
    
    $
    1,907,451
    
    $
    4,783,593
    
    $
    5,743,455Partners'
      capital
    
    $
    1,987,677
    
    $
    2,439,553
    
    $
    1,824,622
    
    $
    4,690,912
    
    $
    5,657,265Distributions
      to partners:Cash
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    11,672,828
  (A) Based
on 50,000 limited partnership units and a 1% general partnership
interest.




F-2




**PAINEWEBBER
      R&D PARTNERS III, L.P.****(a
      Delaware Limited Partnership)****Quarterly
      Financial Information (Unaudited)**Net
      Income (Loss)Net
      income
    
    Per
      Partnership Unit (A)Revenues
    
    (Loss)
    
    Limited
      Partners
    
    General
      PartnerCalendar
      20044th
      Quarter
    
    $
    295,376
    
    $
    252,437
    
    $
    5.00
    
    $
    2,524.373rd
      Quarter
    
    
    43,212
    
    
    (19,187
    )
    
    (0.38
    )
    
    (191.87
    )2nd
      Quarter
    
    
    (139,432
    )
    
    (187,183
    )
    
    (3.71
    )
    
    (1,871.83
    )1st
      Quarter
    
    
    (448,261
    )
    
    (497,943
    )
    
    (9.86
    )
    
    (4,979.43
    )Calendar
      20034th
      Quarter
    
    $
    (213,681
    )
    $
    (279,029
    )
    $
    (5.52
    )
    $
    (2,790.29
    )3rd
      Quarter
    
    
    201,849
    
    
    118,688
    
    
    2.35
    
    
    1,186.882nd
      Quarter
    
    
    538,194
    
    
    492,208
    
    
    9.75
    
    
    4,922.081st
      Quarter
    
    
    332,390
    
    
    283,064
    
    
    5.60
    
    
    2,830.64Calendar
      20024th
      Quarter
    
    $
    576,906
    
    $
    538,333
    
    $
    10.65
    
    $
    5,383.333rd
      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
    )
  (A) Based
on 50,000 limited partnership units and a 1% general partnership
interest.
  F-3




Report of
Independent Registered Public Accounting Firm
 
 
 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. (the “Partnership”) as of December 31, 2004 and 2003,
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, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an
audit of the Partnership’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Partnership's internal control over financial reporting. Accordingly we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
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 the Partnership at December 31,
2004 and 2003, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles.
 
 /s/ Ernst
& Young LLP
 
 New York,
New York
 March 11,
2005
 
 F-4


**PAINEWEBBER
      R&D PARTNERS III, L.P.****(a
      Delaware Limited Partnership)****Statements
      of Financial Condition**December
      31,
    
    December
      31,2004
    
    2003Asset:Marketable
      securities, at market value
    
    $
    2,082,760
    
    $
    2,533,265Liabilities
      and partners' capital:Accrued
      liabilities
    
    $
    95,083
    
    $
    89,482Due
      to bank
    
    
    -
    
    
    4,23095,083
    
    
    93,712Partners'
      capital
    
    
    1,987,677
    
    
    2,439,553Total
      liabilities and partners' capital
    
    $
    2,082,760
    
    $
    2,533,265
  See notes
to financial statements.


F-5




**PAINEWEBBER
      R&D PARTNERS III, L.P.****(a
      Delaware Limited Partnership)****Statements
      of Operations**For
      the years ended December 31,
    
    2004
    
    2003
    
    2002Revenues:Interest
      income
    
    $
    76
    
    $
    924
    
    $
    4,362Realized
      loss on sale of marketable securities
    
    
    (78,022
    )
    
    -
    
    
    -Unrealized
      (depreciation) appreciation ofmarketable
      securities
    
    
    (171,159
    )
    
    857,828
    
    
    (2,707,541
    )(249,105
    )
    
    858,752
    
    
    (2,703,179
    )Expenses:General
      and administrative costs
    
    
    202,771
    
    
    243,821
    
    
    163,111Net
      income (loss)
    
    $
    (451,876
    )
    $
    614,931
    
    $
    (2,866,290
    )Net
      income (loss) per partnership unit:Limited
      partners (based on 50,000 units)
    
    $
    (8.95
    )
    $
    12.18
    
    $
    (56.75
    )General
      partner
    
    $
    (4,518.76
    )
    $
    6,149.31
    
    $
    (28,662.90
    )**Statements
      of Changes in Partners' Capital (Deficit)**Limited
    
    
    GeneralFor
      the years ended December 31, 2004, 2003 and 2002
    
    
    Partners
    
    
    Partner
    
    
    TotalBalance
      at January 1, 2002
    
    $
    6,198,567
    
    $
    (1,507,655
    )
    $
    4,690,912Net
      loss
    
    
    (2,837,627
    )
    
    (28,663
    )
    
    (2,866,290
    )Balance
      at December 31, 2002
    
    
    3,360,940
    
    
    (1,536,318
    )
    
    1,824,622Net
      income
    
    
    608,782
    
    
    6,149
    
    
    614,931Balance
      at December 31, 2003
    
    
    3,969,722
    
    
    (1,530,169
    )
    
    2,439,553Net
      loss
    
    
    (447,357
    )
    
    (4,519
    )
    
    (451,876
    )Balance
      at December 31, 2004
    
    $
    3,522,365
    
    $
    (1,534,688
    )
    $
    1,987,677
  See
      notes to financial statements.
   F-6
  **PAINEWEBBER
      R&D PARTNERS III, L.P.****(a
      Delaware Limited Partnership)****Statements
      of Cash Flows**For
      the years ended December 31,
    
    
    2004
    
    
    2003
    
    
    2002Cash
      flows from operating activities:Net
      income (loss)
    
    $
    (451,876
    )
    $
    614,931
    
    $
    (2,866,290
    )Adjustments
      to reconcile net income (loss) tocash
      provided by operating activities:Unrealized
      depreciation (appreciation)of
      marketable securities
    
    
    171,159
    
    
    (857,828
    )
    
    2,707,541Decrease
      in operating assets:Marketable
      securities
    
    
    279,346
    
    
    232,014
    
    
    168,601Increase
      (decrease) in operating liabilities:Accrued
      liabilities
    
    
    5,601
    
    
    6,653
    
    
    (9,852
    )Due
      to bank
    
    
    (4,230
    )
    
    4,230
    
    
    —Cash
      provided by operating activities
    
    
    —
    
    
    —
    
    
    —Decrease
      in cash
    
    
    —
    
    
    —
    
    
    —Cash
      at beginning of period
    
    
    —
    
    
    —
    
    
    —Cash
      at end of period
    
    $
    —
    
    $
    —
    
    $
    —
  Supplemental
disclosure of cash flow information:
  The
Partnership paid no cash for interest or taxes during the years ended December
31, 2004, 2003 and 2002.
 .
 See notes
to financial statements.
  F-7


**PAINEWEBBER
R&D PARTNERS III, L.P.**
 **(a
Delaware Limited Partnership)**
 
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2004**


**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. (“UBS Americas”) 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.




F-8





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

**NOTES
TO FINANCIAL STATEMENTS**
**December
31, 2004****


****


**(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.





**Limited
      Partners**
    
    **General
      Partner**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,
      2004 is $1,675 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%





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, 2004. 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, 2004, the
cumulative profits of the Partnership were $789 per Unit.





Pursuant
to the terms of the Agreement of Limited Partnership, upon termination of the
Partnership, the General Partner is required to pay to the Partnership an amount
in cash equal to the debit balance in the General Partner’s capital account.
Such amount then becomes part of the assets of the Partnership.





**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.


****


F-9


****


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

**NOTES
TO FINANCIAL STATEMENTS**
**December
31, 2004****


****


**(Note
2 Continued)**




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.




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:




**December
      31, 2004**
    
    **December
      31, 2003****Carrying
      Value**
    
    **Cost**
    
    **Carrying
      Value**
    
    **Cost**Money
      market fund
    
    $
    15,330
    
    $
    15,330
    
    $
    —
    
    $
    —Genzyme
      General Division
      (26,065
      common shares)
    
    
    1,513,608
    
    
    646,609
    
    
    1,284,757
    
    
    646,609Repligen
      Corporation
      (192,300
      and 285,700 common shares as of December 31, 2004 and 2003,
      respectively)
    
    
    553,822
    
    
    606,757
    
    
    1,248,508
    
    
    901,433$
    2,082,760
    
    $
    1,268,696
    
    $
    2,533,265
    
    $
    1,548,042
   At
December 31, 2004, and 2003, the Partnership recorded its investment of 26,065
shares of Genzyme General Division (“GENZ”) at a market value of $58.07 per
share and $49.29 per share, respectively. Accordingly, the Partnership
recognized unrealized appreciation of $228,851 for the year ended December 31,
2004. In accordance with Genzyme Corporation’s decision to eliminate its
tracking stock structure and pursuant to its Restated Articles of Organization,
on June 30, 2003, each share of Genzyme Molecular Oncology (“GMO”) common stock
was converted to 0.05653 shares of GENZ. The Partnership’s investment of 461,091
shares of GMO was exchanged for 26,065 shares of GENZ. The exchange of GMO
shares was based on 130% of the average daily closing prices for GMO for the
twenty consecutive business days commencing May 8, 2003. Gains associated with
the exchange, as well as changes in the market value of the shares have been
included in unrealized appreciation of marketable securities in the Statement of
Operations. The market value of the Partnership’s investment in GMO as
 
 
 F-10


****


**PAINEWEBBER
R&D PARTNERS III, L.P.**


**(a
Delaware Limited Partnership)**





**NOTES
TO FINANCIAL STATEMENTS**


**December
31, 2004**











of
December 31, 2002 and 2001 was $806,910 and $3,688,728, respectively. The
Partnership recognized unrealized appreciation (depreciation) on in its
investment in Genzyme Corporation of $477,847 and $(2,881,818) for the years
ended December 31, 2003 and 2002.





During
2004, the Partnership sold 93,400 shares of Repligen Corporation (“Repligen”)
for total proceeds of $216,654. The cost basis of the shares was $294,676
resulting in the recognition of loss upon the sale of $78,022 for the year ended
December 31, 2004. The market value per share of Repligen was $2.88, $4.37, and
$3.04 at December 31, 2004, 2003 and 2002, respectively. The market value as of
December 31, 2001 was $2.43 per share. The Partnership recognized unrealized
(depreciation) appreciation of $(400,010), $379,981 and $174,277 for the years
ended December 31, 2004, 2003 and 2002, respectively. Unrealized depreciation of
$(400,010) for the year ended December 31, 2004, includes the change in
unrealized appreciation previously recorded of $113,483 related to the sale of
Repligen shares.





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.





**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
Financial Services Inc. (“UBS FS”).





PWDC and
UBS FS, and its affiliates, have acted in an investment banking capacity for
several of the Sponsor Companies. In addition, PWDC and its affiliates have had
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**






As of December 31, 2004, the Partnership has an interest in one remaining
Project: a $6.0 million investment in Cephalon Clinical Partners, L.P. (“CCP”),
a $45.0 million limited partnership formed to fund the development, clinical
testing, manufacturing and marketing of MyotrophinTM for use in the treatment of
amyotrophic lateral sclerosis and certain other peripheral neuropathies. If CCP
produces a product for commercial sale, Cephalon, Inc. (as Sponsor Company) has
the option to license the Partnership’s technology to manufacture and market the
product developed. In addition, Cephalon, Inc.






F-11





**PAINEWEBBER
R&D PARTNERS III, L.P.**
 **(a
Delaware Limited Partnership)**
 
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2004**




**(Note
5 Continued)**




has the
option to purchase the Partnership’s interest in the technology. As of December
31, 2004, the Partnership is carrying this investment at zero.




At
December 31, 2002, the Partnership had a $6.0 million investment in Alkermes
Clinical Partners, L.P. (“ACP”), a $46.0 million limited partnership formed to
fund the development, clinical testing, manufacturing and marketing of Cereport
(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. In October 2003 the general partner of ACP solicited proxies from the
limited partners of ACP for their
consideration and vote upon the proposed termination, liquidation and
dissolution of ACP. In November 2003, the General Partner of the Partnership
voted the Partnership’s interest in ACP in favor of the termination. On December
17, 2003, ACP was terminated. There was no liquidating distribution to ACP’s
limited partners (including the Partnership).





**6.
Income Taxes**





The
Partnership is not subject to federal, state or local income taxes. Each Partner
separately takes into account, on their individual tax return, their share of
the income, gains, losses deductions or credits for the Partnership’s taxable
year whether or not any distribution is made to any Partner. Accordingly, no
provision has been made in the accompanying financial statements for federal,
state or local taxes.








F-12