<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                 AMENDMENT NO. 1


(Mark One)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED]

For the quarterly period ended          DECEMBER 31, 1996

                                       or

[ ]   TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 [NO FEE REQUIRED]

For the transition period from                       to

Commission file number                       0-10322

                         CORPORATE PROPERTY ASSOCIATES 3
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                               <C>
         CALIFORNIA                                                                  94-2708080
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK                                        10020
(Address of principal executive offices)                                      (Zip Code)
</TABLE>

Registrant's telephone number, including area code          (212) 492-1100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                    Name of each exchange on which registered

        NONE                                           NONE



           Securities registered pursuant to Section 12(g) of the Act:

                            LIMITED PARTNERSHIP UNITS
                                (Title of Class)


                                (Title of Class)

      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.

                                                               [X] Yes  [ ] No

      Indicate by check mark if disclosure of deliquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of 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 ]

      Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for Limited Partnership Units.
<PAGE>   2
                                     PART II






Item 8.  Financial Statements and Supplementary Data.


     (i) Report of Independent Accountants.

    (ii) Balance Sheets as of December 31, 1995 and 1996.

   (iii) Statements of Income for the years ended December 31, 1994, 1995 and
         1996.

    (iv) Statements of Partners' Capital for the years ended December 31, 1994,
         1995 and 1996.

     (v) Statements of Cash Flows for the years ended December 31, 1994, 1995
         and 1996.

    (vi) Notes to Financial Statements.
<PAGE>   3
                        REPORT of INDEPENDENT ACCOUNTANTS



To the Partners of
  Corporate Property Associates 3:


            We have audited the accompanying balance sheets of Corporate
Property Associates 3 (a California limited partnership) as of December 31, 1995
and 1996, and the related statements of income, partners' capital and cash flows
for each of the three years in the period ended December 31, 1996. We have also
audited the financial statement schedule included on pages 17 to 18 of this
Annual Report. These financial statements and financial statement schedule are
the responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

            We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
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 the General Partners, 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 Corporate Property
Associates 3 (a California limited partnership) as of December 31, 1995 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1996, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the financial information required to
be included therein pursuant to Securities and Exchange Commission Regulation
S-X Rule 12-28.





                                                    /s/ Coopers & Lybrand L.L.P.

New York, New York
March 17, 1997


                                      -5-
<PAGE>   4
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                                 BALANCE SHEETS

                           December 31, 1995 and 1996


<TABLE>
<CAPTION>
                                                  1995            1996
                                                  ----            ----
<S>                                           <C>             <C>
     ASSETS:

Real estate leased to others:
  Accounted for under the
    operating method:
      Land                                    $ 1,255,499     $ 1,255,499
      Buildings                                 4,514,428       4,817,871
                                              -----------     -----------
                                                5,769,927       6,073,370
      Accumulated depreciation                  1,175,202       1,364,095
                                              -----------     -----------
                                                4,594,725       4,709,275
  Net investment in direct financing leases    25,291,792      25,689,201
                                              -----------     -----------
      Real estate leased to others             29,886,517      30,398,476
Real estate held for sale                       1,853,816
Cash and cash equivalents                       1,158,302       1,496,001
Accrued interest and rents receivable             210,362         200,696
Other assets                                      114,160         435,177
                                              -----------     -----------
           Total assets                       $33,223,157     $32,530,350
                                              ===========     ===========


     LIABILITIES:

Note payable to affiliate                     $ 2,300,000     $   500,000
Accounts payable and accrued expenses              86,776          63,200
Accounts payable to affiliates                     57,298          73,313
                                              -----------     -----------
         Total liabilities                      2,444,074         636,513
                                              -----------     -----------

Commitments and contingencies

     PARTNERS' CAPITAL:

General Partners                                  191,606         214,807
Limited Partners (66,000 Limited
  Partnership Units issued and
  outstanding)                                 30,587,477      31,679,030
                                              -----------     -----------

         Total partners' capital               30,779,083      31,893,837
                                              -----------     -----------

         Total liabilities and
           partners' capital                  $33,223,157     $32,530,350
                                              ===========     ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      -6-
<PAGE>   5
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                              STATEMENTS of INCOME

              For the years ended December 31, 1994, 1995 and 1996



<TABLE>
<CAPTION>
                                                      1994           1995           1996
                                                  -----------    -----------    -----------
<S>                                               <C>            <C>            <C>
Revenues:
  Rental income                                   $   287,779    $   290,657    $   845,257
  Interest income from direct financing leases      7,055,695      6,502,361      4,735,487
  Other interest Income                                48,378        230,926         74,338
  Other income                                                       225,321         75,000
                                                  -----------    -----------    -----------
                                                    7,391,852      7,249,265      5,730,082
                                                  -----------    -----------    -----------

Expenses:
  Interest                                          1,602,175      1,255,047         75,158
  Depreciation                                        158,567        198,590        188,893
  General and administrative                          309,069        372,006        326,082
  Property expenses                                 1,387,498        781,442        705,915
  Amortization                                         22,405         19,605
  Writedown to net realizable value                   697,325        146,184
                                                  -----------    -----------    -----------
                                                    4,177,039      2,772,874      1,296,048
                                                  -----------    -----------    -----------

       Income before gain on settlement             3,214,813      4,476,391      4,434,034

Gain on settlement, net of $7,400,000
  writedown to net realizable value                               11,499,176
                                                  -----------    -----------    -----------
       Net income                                 $ 3,214,813    $15,975,567    $ 4,434,034
                                                  ===========    ===========    ===========


Net income allocated to:
  Individual General Partner                      $     3,215    $    15,976    $     4,434
                                                  ===========    ===========    ===========

  Corporate General Partner                       $    61,081    $   303,536    $    84,247
                                                  ===========    ===========    ===========

  Limited Partners                                $ 3,150,517    $15,656,055    $ 4,345,353
                                                  ===========    ===========    ===========

Net income per Unit
  (66,000 Limited Partnership
  Units outstanding)                              $     47.74    $    237.21    $     65.84
                                                  ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      -7-
<PAGE>   6
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                         STATEMENTS of PARTNERS' CAPITAL

              For the years ended December 31, 1994, 1995 and 1996


<TABLE>
<CAPTION>
                                            Partners' Capital Accounts
                                   ---------------------------------------------------------------
                                                                                        Limited
                                                                                        Partners'
                                                      General          Limited         Amount Per
                                      Total           Partners         Partners         Unit (a)
                                   ------------     ------------     ------------     ------------
<S>                                <C>              <C>              <C>              <C>
Balance, December 31, 1993         $ 28,967,437     $     75,372     $ 28,892,065     $        438

Distributions                        (4,656,367)         (93,127)      (4,563,240)             (69)

Net income 1994                       3,214,813           64,296        3,150,517               48
                                   ------------     ------------     ------------     ------------

Balance, December 31, 1994           27,525,883           46,541       27,479,342              417

Distributions                       (12,722,367)        (174,447)     (12,547,920)            (190)

Net income 1995                      15,975,567          319,512       15,656,055              237
                                   ------------     ------------     ------------     ------------

Balance, December 31, 1995           30,779,083          191,606       30,587,477              464

Distributions                        (3,319,280)         (65,480)      (3,253,800)             (49)

Net income 1996                       4,434,034           88,681        4,345,353               66
                                   ------------     ------------     ------------     ------------

Balance, December 31, 1996         $ 31,893,837     $    214,807     $ 31,679,030     $        481
                                   ============     ============     ============     ============
</TABLE>

(a)  Based on 66,000 Units issued and outstanding during all periods.

The accompanying notes are an integral part of the financial statements.


                                      -8-
<PAGE>   7
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                            STATEMENTS of CASH FLOWS
              For the years ended December 31, 1994, 1995 and 1996


<TABLE>
<CAPTION>
                                                             1994             1995             1996
                                                        ------------     ------------     ------------
<S>                                                     <C>              <C>              <C>
Cash flows from operating activities:
   Net Income                                           $  3,214,813     $ 15,975,567     $  4,434,034
   Adjustments to reconcile net income
     to net cash provided by operating
     activities:
     Depreciation and amortization                           180,972          218,195          188,893
     Gain on settlement, net                                              (11,499,176)
     Restructuring fees received, net of costs                              8,150,941
     Cash receipts on direct financing leases in
      excess of (less than) amortization of unearned
      income and straight-line adjustments                     9,046          (26,973)        (592,942)
     Writedown to net realizable value                       697,325          146,184
     Net change in operating assets and liabilities          545,219          (47,161)        (123,379)
                                                        ------------     ------------     ------------
        Net cash provided by operating
          activities                                       4,647,375       12,917,577        3,906,606
                                                        ------------     ------------     ------------

Cash flows from investing activities:
   Capitalized costs                                                                          (303,443)
   Proceeds from settlement, net                                            4,850,869
   Proceeds from sale of real estate                                                         1,853,816
   Payments received in connection with
     exercise of purchase option                           2,286,195          585,000
                                                        ------------     ------------     ------------
     Net cash provided by
          investing activities                             2,286,195        5,435,869        1,550,373
                                                        ------------     ------------     ------------

Cash flows from financing activities:
   Distributions to partners                              (4,656,367)     (12,722,367)      (3,319,280)
   Payment of mortgage principal                          (1,453,396)      (1,113,283)
   Prepayment of mortgage principal                                       (14,510,913)
   Payment of note to affiliate                                                             (1,800,000)
   Proceeds from issuance of note to affiliate                              2,300,000
                                                        ------------     ------------     ------------
        Net cash used in
          financing activities                            (6,109,763)     (26,046,563)      (5,119,280)
                                                        ------------     ------------     ------------

        Net increase (decrease) in cash
          and cash equivalents                               823,807       (7,693,117)         337,699

Cash and cash equivalents,
   beginning of year                                       8,027,612        8,851,419        1,158,302
                                                        ------------     ------------     ------------

        Cash and cash equivalents,
          end of year                                   $  8,851,419     $  1,158,302     $  1,496,001
                                                        ============     ============     ============


Supplemental cash flows information:

Interest paid                                           $  1,613,684     $  1,357,609     $     97,192
                                                        ============     ============     ============
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      -9-
<PAGE>   8
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                          NOTES to FINANCIAL STATEMENTS


1.   Summary of Significant Accounting Policies:

      Use of Estimates:

        The preparation of financial statements in conformity with generally
           accepted accounting principles requires management to make estimates
           and assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           could differ from those estimates.

      Real Estate Leased to Others:

        Real estate is leased to others on a net lease basis, whereby the tenant
           is generally responsible for all operating expenses relating to the
           property, including property taxes, insurance, maintenance, repairs,
           renewals and improvements.

          Corporate Property Associates 3 (the "Partnership") diversifies its
           real estate investments among various corporate tenants engaged in
           different industries and by property type throughout the United
           States.

        The leases are accounted for under the direct financing or operating
           methods. Such methods are described below:

               Direct financing method - Leases accounted for under the direct
               financing method are recorded at their net investment (Note 5).
               Unearned income is deferred and amortized to income over the
               lease terms so as to produce a constant periodic rate of return
               on the Partnership's net investment in the lease.

               Operating method - Real estate is recorded at cost, revenue is
               recognized as rentals are earned and expenses (including
               depreciation) are charged to operations as incurred.

        The Partnership assesses the recoverability of its real estate assets,
           including residual interests, based on projections of undiscounted
           cash flows over the life of such assets. In the event that such cash
           flows are insufficient, the assets are adjusted to their estimated
           net realizable value.

        Substantially all of the Partnership's leases provide for either
           scheduled rent increases or periodic rent increases based on formulas
           indexed to increases in the Consumer Price Index ("CPI").

      Real Estate Held for Sale:

        Real estate held for sale is accounted for at the lower of cost or fair
           value less costs to sell.

      Depreciation:

        Depreciation is computed using the straight-line method over the
           estimated useful lives of components of the property, which range
           from 5 to 36 years.

      Cash Equivalents:

        The Partnership considers all short-term, highly-liquid investments that
           are both readily convertible to cash and have a maturity of generally
           three months or less at the time of purchase to be cash equivalents.
           Items classified as cash equivalents include commercial paper and
           money market funds. Substantially all of the Partnership's cash and
           cash equivalents at December 31, 1995 and 1996 were held in the
           custody of two financial institutions.


                                   Continued

                                      -10-
<PAGE>   9
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


      Income Taxes:

        A partnership is not liable for Federal income taxes as each partner
           recognizes his proportionate share of the partnership income or loss
           in his tax return. Accordingly, no provision for income taxes is
           recognized for financial statement purposes.

 2.  Partnership Agreement:

        The Partnership was organized on November 7, 1980 under the Uniform
           Limited Partnership Act of the State of California for the purpose of
           engaging in the business of investing in and leasing industrial and
           commercial real estate. The Corporate General Partner purchased 200
           Limited Partnership Units in connection with the Partnership's public
           offering. The Partnership will terminate on December 31, 2018, or
           sooner, in accordance with the terms of the Amended Agreement of
           Limited Partnership (the "Agreement").

        The Agreement provides that the General Partners are allocated 2% (.1%
           to the Individual General Partner, William P. Carey, and 1.9% to the
           Corporate General Partner, W. P. Carey & Co., Inc. ("W.P. Carey") and
           the Limited Partners are allocated 98% of the profits and losses as
           well as distributions of distributable cash from operations, as
           defined. The partners are also entitled to receive net proceeds from
           the sale of the Partnership properties as defined in the Agreement.
           The General Partners may be entitled to receive a subordinated
           preferred return, measured based upon the cumulative proceeds arising
           from the sale of Partnership assets. Pursuant to the subordination
           provisions of the Agreement, the preferred return may be paid only
           after the limited partners receive 100% of their initial investment
           from the proceeds of asset sales and a cumulative annual return
           ranging from 6% to 9% since the inception of the Partnership. The
           General Partners interest in such preferred return amounts to
           $731,823 based upon the cumulative proceeds from the sale of assets
           since the inception of the Partnership through December 31, 1996. The
           Partnership's ability to satisfy the subordination provisions of the
           Agreement may not be determinable until liquidation of a substantial
           portion of the Partnership's assets has been made, formal plans of
           liquidation are adopted or limited partnership units are converted to
           other securities which provide the security holder with greater
           liquidity than a limited partnership unit. Management believes that
           as of the report date, ultimate payment of the preferred return is
           reasonably possible but not probable, as defined pursuant to
           Statement of Financial Accounting Standards No. 5.

 3.  Transactions with Related Parties:

        Under the Agreement, a division of W.P. Carey is also entitled to
           receive a property management fee and reimbursement of certain
           expenses incurred in connection with the Partnership's operations.
           Property management fee in 1995 includes the effects of certain
           transactions described in Notes 10 and 11. General and administrative
           expense reimbursements consist primarily of the actual cost of
           personnel needed in providing administrative services necessary to
           the operation of the Partnership. Property management fee and general
           and administrative expense reimbursements are summarized as follows:

<TABLE>
<CAPTION>
                                                1994        1995        1996
                                                ----        ----        ----
            <S>                               <C>       <C>         <C>
            Property management fee           $162,711  $  930,191  $  218,507
            General and administrative
               expense reimbursements           84,839      86,183      84,519
                                              --------  ----------  ----------
                                              $247,550  $1,016,374  $  303,026
                                              ========  ==========  ==========
</TABLE>

        During 1994, 1995 and 1996, fees and expenses aggregating $32,352,
           $96,306 and $284,067, respectively, were incurred for legal services
           performed by a firm in which the Secretary of the Corporate General
           Partner and other affiliates is a partner.


                                   Continued

                                      -11-
<PAGE>   10
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


        The Partnership is a participant in an agreement with W.P. Carey and
           other affiliates for the purpose of leasing office space used for the
           administration of real estate entities and W.P. Carey and for sharing
           the associated costs. Pursuant to the terms of the agreement, the
           Partnership's share of rental, occupancy and leasehold improvement
           costs is based on adjusted gross revenues as defined. Net expenses
           incurred in 1994, 1995 and 1996 were $53,757, $87,907 and $67,625,
           respectively.

        The Partnership incurred interest expense of $75,158 on its note payable
           to an affiliate. The loan, evidenced by a promissory note, bears
           interest at the prime rate and is due on demand.

        The Partnership's ownership interests in certain properties are jointly
           held with affiliated entities as tenants-in-common with the
           Partnership's ownership interests in such jointly held properties
           ranging from 16.76% to 71.5%. The Partnership accounts for its assets
           and liabilities relating to tenants-in-common interests on a
           proportional basis.

 4.  Real Estate Leased to Others Accounted for Under the Operating Method:

        Scheduled future minimum rents, exclusive of renewals, under a
           noncancelable operating leases amount to approximately $1,188,000 in
           1997; $1,323,000 in 1998; $511,000 in 1999 through 2001 and aggregate
           approximately $6,369,000 through 2012.

        Contingent rents were approximately $36,000 in 1994, $39,000 in 1995 and
           $18,000 in 1996.

 5.  Net Investment in Direct Financing Leases:

        Net investment in direct financing leases is summarized as follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                              ------------
                                                         1995            1996
                                                    ------------    ------------
               <S>                                  <C>             <C>
               Minimum lease payments receivable    $ 72,193,297    $ 67,855,219
               Unguaranteed residual value            33,409,444      33,409,444
                                                    ------------    ------------ 
                                                     105,602,741     101,264,663
               Less, Unearned income                  80,310,949      75,575,462
                                                    ------------    ------------
                                                    $ 25,291,792    $ 25,689,201
                                                    ============    ============
</TABLE>

        Scheduled future minimum rents, exclusive of renewals, under
           noncancelable direct financing leases amount to approximately
           $4,375,000 in 1997, $4,339,000 in 1998, $4,321,000 in 1999,
           $4,360,000 in 2000 and $4,871,000 in 2001 and aggregate approximately
           $67,855,000 through 2013.

        Contingent rents were approximately $1,904,000 in 1994 and $1,142,000 in
           1995. No contingent rents were realized in 1996.

6.   Distributions:

        Distributions are declared and paid to partners quarterly and are
           summarized as follows:

<TABLE>
<CAPTION>
Year Ending                                 Distributions Paid to          Distributions Paid to             Per Limited
  December 31,                                General Partners                Limited Partners              Partners Unit
--------------                              ---------------------          ---------------------            -------------
<S>                                         <C>                            <C>                              <C>
    1994                                         $    93,127                    $ 4,563,240                    $  69.14
                                                 ===========                    ===========                    ========
    1995
      Quarterly distributions                    $    94,447                    $ 4,627,920                    $  70.12
      Special distribution
        - Note 10                                     80,000                      7,920,000                      120.00
                                                 -----------                    -----------                    --------
                                                 $   174,447                    $12,547,920                    $ 190.12
                                                 ===========                    ===========                    ========
    1996                                         $    65,480                    $ 3,253,800                    $  49.30
                                                 ===========                    ===========                    ========
</TABLE>


                                   Continued

                                      -12-
<PAGE>   11
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


     Distributions of $16,671 to the General Partners and $818,400 to the
     Limited Partners for the quarter ended December 31, 1996 were declared and
     paid in January 1997.


7.   Income for Federal Tax Purposes:

        Income for financial statement purposes differs from income for Federal
           income tax purposes because of the difference in the treatment of
           certain items for income tax purposes and financial statement
           purposes. A reconciliation of accounting differences is as follows:

<TABLE>
<CAPTION>
                                                    1994             1995             1996
                                               ------------     ------------     ------------
    <S>                                        <C>              <C>              <C>
    Net income per Statements of Income        $  3,214,813     $ 15,975,567     $  4,434,034
    Excess tax depreciation                      (1,423,529)      (1,364,376)        (880,310)
    Recognition of purchase installments
      as operating income                         2,286,195       (5,880,601)
    Writedown to net realizable value               697,325        7,546,184
    Restructuring fee                                              8,150,941
    Other                                          (312,950)        (474,841)        (407,625)
                                               ------------     ------------     ------------
         Income reported for Federal income
           tax purposes                        $  4,461,854     $ 23,952,874     $  3,146,099
                                               ============     ============     ============
</TABLE>


 8.  Industry Segment Information:

        The Partnership's operations consist of the investment in and the
           leasing of industrial and commercial real estate.

        In 1994, 1995 and 1996, the Partnership earned its total operating
           revenues (rental income plus interest income from direct financing
           leases) from the following lease obligors:

<TABLE>
<CAPTION>
                                         1994             %            1995             %            1996             %
                                      ----------     ----------     ----------     ----------     ----------     ----------
    <S>                               <C>            <C>            <C>            <C>            <C>            <C>
    Gibson Greetings, Inc.            $5,962,090             81%    $5,525,671             81%    $2,560,499             46%
    Cleo, Inc.                                                         150,885              2      1,349,237             24
    Hughes Markets, Inc.                 287,779              4        290,657              4        747,946             13
    AT&T Corporation                     457,818              6        458,275              7        458,807              8
    New Valley Corporation               635,786              9        367,530              6        366,944              7
    Sports & Recreation, Inc.                                                                         93,829              2
    Excel Telecommunications, Inc.                                                                     3,482
                                      ----------     ----------     ----------     ----------     ----------     ----------
                                      $7,343,473            100%    $6,793,018            100%    $5,580,744            100%
                                      ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>


9.   Properties Formerly Leased to New Valley Corporation:

        The Partnership and Corporate Property Associates 2 ("CPA(R):2"), an
           affiliate, own 61% and 39% interests, respectively, in properties
           located in Reno, Nevada; Bridgeton, Missouri; and Moorestown, New
           Jersey. Until May 1993, the properties were leased to New Valley
           Corporation ("New Valley"). On April 1, 1993, New Valley filed a
           petition of voluntary bankruptcy seeking reorganization under Chapter
           11 of the United States Bankruptcy Code. In connection with the
           bankruptcy filing, the Bankruptcy Court approved New Valley's
           termination of its lease with the Partnership and CPA(R):2 for the
           Moorestown, New Jersey property in May 1993. In December 1994, the
           Bankruptcy Court also approved the termination of New Valley's lease
           on the Reno property effective December 31, 1994. In connection with
           the lease termination, the Partnership


                                   Continued

                                      -13-
<PAGE>   12
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


           wrote down the Reno property in 1994 to its estimated net realizable
           value of $2,000,000 and recognized a charge of $697,325 on the
           writedown. New Valley continues to lease the Bridgeton property.

        In 1995 the Partnership and CPA(R):2 entered into a net lease for the
           Moorestown property with Sports & Recreation, Inc. ("Sports &
           Recreation"). The agreement provided that after conversion of the
           facility into a retail store, a lease term of 16 years with an
           initial rent of $308,750 (of which the Partnership's share is
           $187,750) would commence. During 1996 Sports & Recreation indicated
           to the Partnership and CPA(R):2 that it had decided not to occupy the
           property and would seek to terminate the lease. At that time, the
           Partnership and CPA(R):2 rejected as inadequate Sports & Recreation's
           offer of $300,000 as a settlement in exchange for being released from
           its lease obligations. Sports & Recreation has paid all scheduled
           rents. The Partnership and CPA(R):2 expect that Sports & Recreation
           will resume discussions for the purposes of reaching a termination
           settlement; however, no discussions are currently in progress.

        On August 28, 1996 the Partnership and CPA(R):2 entered into a lease
           agreement for the Reno property with Excel Teleservices, Inc.
           ("Excel"). The lease obligations of Excel have been guaranteed by its
           parent company, Excel Telecommunications, Inc. The initial lease term
           commenced on December 26, 1996. Annual rent during the first five
           years is $532,800 increasing to $580,800 thereafter (of which the
           Partnership's share is $325,000 and $354,200, respectively). The
           lease, which has a term of ten years, provides Excel with two
           five-year renewal options with the rent during such renewal terms
           based on the then prevailing market rate. Excel has the right to
           terminate the lease at the end of the sixth lease year.

        In connection with the termination of the Moorestown and Reno leases,
           the Partnership and CPA(R):2 expect to receive a bankruptcy
           settlement from New Valley. The amount of such settlement cannot be
           estimated and no amounts that the Partnership may ultimately receive
           have been recorded in the accompanying financial statements.

10.  Gain on Settlement:

        In August 1995, the Partnership reached a settlement with The Leslie Fay
           Company ("Leslie Fay") and its surety company regarding Leslie Fay's
           lease with the Partnership. In connection with the settlement, the
           Partnership recognized a gain of $11,499,176, which consisted of
           aggregate net cash received from Leslie Fay and the surety company of
           $18,839,750 and the waiving of the $382,706 interest obligation that
           had been accrued on the Leslie Fay monthly payments, offset by the
           writedown of $7,400,000 and aggregate management fees, payable to an
           affiliate, of $323,280 on the monthly payments received from Leslie
           Fay since the beginning of the dispute in 1992. Of the rent received,
           $5,435,869 was received in 1995. Under the settlement agreement,
           Leslie Fay was required to dismiss with prejudice all of its suits
           filed against the Partnership, and the Partnership's bankruptcy claim
           against Leslie Fay, as an unsecured creditor, was reduced to
           $2,650,000. The bankruptcy claim is pending and the Partnership may
           not realize the full amount of the bankruptcy claim.

        As the fair value of the property was no longer impacted by the Leslie
           Fay lease, the Partnership wrote down the estimated fair value of the
           property, net of anticipated selling costs, to $2,000,000 and
           recognized a noncash charge of $7,400,000, which is netted against
           the gain on settlement.

        As a result of the settlement, a special distribution of $120 per
           Limited Partner Unit ($7,920,000) was declared and paid in October
           1995. In 1992, a special distribution of $50 per Limited Partner Unit
           ($3,300,000) was paid from the receipt of the $7,200,000 installment
           from Leslie Fay.


                                   Continued

                                      -14-
<PAGE>   13
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


        On January 10, 1996, the Partnership sold the vacant property to a third
           party, net of transaction costs, for $1,853,816. The Partnership
           recognized an additional writedown on the property to an amount equal
           to the net sales proceeds, resulting in a charge to income in 1995 of
           $146,184. Accordingly, no gain or loss was recognized in 1996 in
           connection with the sale.

11.  Properties Leased to Gibson Greetings, Inc.:

        In January 1982, the Partnership and CPA(R):2 entered into a net lease
           with Gibson Greetings, Inc. ("Gibson"), for three properties in
           Memphis, Tennessee; Berea, Kentucky; and Cincinnati, Ohio. In 1988,
           the Partnership and CPA(R):2 consented to Gibson's sublease of the
           Memphis, Tennessee property to a wholly-owned subsidiary, Cleo, Inc.
           ("Cleo"). The lease for the three properties had an initial term of
           20 years with two five-year renewal options and provided for minimum
           annual rentals of $5,865,000 with rent increases every five years
           based on a formula indexed to the CPI. The lease also provided Gibson
           with a purchase option which was exercisable during the tenth year of
           the lease and at the end of the initial term. Gibson declined to
           exercise its purchase option in 1992.

        In connection with Gibson's sale of the Cleo subsidiary to CSS
           Industries, Inc. ("CSS"), the Partnership, CPA(R):2 and Gibson
           entered into an agreement on November 15, 1995, whereby the Memphis,
           Tennessee property occupied by Cleo was severed from the Gibson
           master lease, the Gibson lease was amended and Cleo entered into a
           separate lease for the Tennessee property with CSS as the guarantor
           of Cleo's lease obligations. The Partnership and CPA(R):2 received
           $12,200,000 (of which the Partnership's share was $8,723,000) as a
           one-time lump sum payment in consideration for severing the Tennessee
           property from the Gibson master lease. Gibson still retains certain
           specific obligations for any environmental violations which may be
           detected and which resulted from any pre-existing conditions at the
           Tennessee property.

        The Gibson lease on the two remaining properties in Kentucky and Ohio,
           as amended, provides for an initial term which has been extended
           through November 30, 2013, and provides for one renewal term of ten
           years. Annual rent is $3,100,000 (of which the Partnership's share is
           approximately $2,367,000), with stated increases of 20% every five
           years through the end of the renewal term. The lease includes new
           purchase options exercisable on November 30, 2005 and 2010 and Gibson
           has the right to exercise the purchase option on either one of its
           leased properties or both. The option is exercisable at fair market
           value of the properties as encumbered by the lease.

        The Cleo lease provides for a ten-year term through December 31, 2005
           with two five-year renewal terms. Annual rent is $1,500,000 (of which
           the Partnership's share is approximately $1,145,000), and there is a
           rent increase effective January 1, 2001. The rent increase will be
           based on a formula indexed to the CPI; however, the increased annual
           rent will be at least $1,689,000 but no more than $1,898,000. Cleo
           has an option to purchase the property at any time during the term of
           the lease so long as there is no monetary default. Exercise of the
           purchase option requires at least six months' notice. The exercise
           price is the greater of (i) $15,000,000 or (ii) fair market value
           capped at a maximum of $16,250,000.

        In connection with the payment made by Gibson to sever the Tennessee
           property from the Gibson lease, the Partnership deferred recognition
           of a gain on restructuring of $8,150,941, consisting of the
           Partnership's $8,723,000 share of the lump sum payment offset by
           costs of $572,059, including management fees of $429,560, payable to
           an affiliate, with such deferred gain included in the net investment
           in direct financing leases. The Partnership is amortizing such
           deferred gain over the remaining initial terms of the Gibson and Cleo
           direct financing leases. Such amortization, included in interest
           income from direct financing leases, was $398,065 in 1996. The net
           proceeds from the agreement as well as other available funds were
           used to pay off the Partnership's share of the mortgage loan
           collateralized by the Gibson properties of $13,190,566 in November
           1995.


                                   Continued

                                      -15-
<PAGE>   14
                         CORPORATE PROPERTY ASSOCIATES 3
                       (a California limited partnership)

                    NOTES to FINANCIAL STATEMENTS, Continued


12.  Property Leased to Hughes Markets, Inc.:

        The Partnership and Corporate Property Associates 4 ("CPA(R):4"), an
           affiliate, own a dairy processing facility in Los Angeles, California
           as tenants-in-common with 16.76% and 83.24% ownership interests,
           respectively. On May 1, 1996, the Partnership and CPA(R):4 entered
           into a lease amendment agreement with the lessee, Hughes Markets,
           Inc. ("Hughes"), to extend the lease term from April 30, 1996 to
           April 30, 1998. Under the extension agreement, Hughes' monthly rent
           increased to $336,166 (of which the Partnership's share is $56,341)
           from $151,686 (of which the Partnership's share was $25,420). At the
           end of the lease term, Hughes is obligated to pay a lump sum rental
           payment of $3,500,000 (of which the Partnership's share will be
           approximately $587,000). Hughes has an option to extend the lease on
           a month-to-month basis for up to six months at a rental of $500,000
           per month.

        In accordance with the lease amendment agreement, Hughes has provided
           the Partnership and CPA(R):4 an irrevocable letter of credit in the
           amount of $3,500,000, an amount equal to Hughes' lump sum payment
           obligation. For financial reporting purposes, the $3,500,000 lump sum
           rental payment due at the end of the lease term is being recognized
           on a straight-line basis over the lease extension term. For the year
           ended December 31, 1996, the difference between scheduled rents under
           the lease and rent recognized for financial reporting purposes
           including the adjustment for lump sum payment amounts to $195,533.


13.  Environmental Matters:

        All of the Partnership's properties are subject to environmental
           statutes and regulations regarding the discharge of hazardous
           materials and related remediation obligations. All of the
           Partnership's properties are currently leased to corporate tenants.
           The Partnership generally structures a lease to require the tenant to
           comply with all laws. In addition, substantially all of the
           Partnership's net leases include provisions which require tenants to
           indemnify the Partnership from all liabilities and losses related to
           their operations at the leased properties. The costs for remediation,
           which are being performed and paid for by the affected tenant at
           three of the properties, are not expected to be material. In the
           event that the Partnership absorbs a portion of such costs because of
           a tenant's failure to fulfill its obligations, the General Partners
           believe such expenditures will not have a material adverse effect on
           the Partnership's financial condition, liquidity or results of
           operations.

        In 1994, based on the results of Phase I environmental reviews performed
           in 1993, the Partnership voluntarily conducted Phase II environmental
           reviews on four of its properties. The Partnership believes, based on
           the results of Phase I and Phase II reviews, that its properties are
           in substantial compliance with Federal and state environmental
           statutes and regulations. Portions of certain properties have been
           documented as having a limited degree of contamination, principally
           in connection with surface spills from facility activities. For those
           conditions which were identified, the Partnership advised the
           affected tenants of the Phase II findings and of their obligations to
           perform required remediation.


14.  Disclosures About Fair Value of Financial Instruments:

        The carrying amounts of cash, receivables and accounts payable and
           accrued expenses approximate fair value because of the short maturity
           of these items.


                                   Continued

                                      -16-
<PAGE>   15
                                   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.


                        CORPORATE PROPERTY ASSOCIATES 3
                        (a California limited partnership)

                        BY:   W. P. CAREY & CO., INC.

    09/03/97             BY:   /s/ Steven M. Berzin
--------------                --------------------------------
     Date                     Claude Fernandez
                              Executive Vice President and
                              Chief Financial Officer
                              (Principal Financial Officer)



    09/03/97             BY:   /s/ Claude Fernandez
--------------                --------------------------------
     Date                     Claude Fernandez
                              Executive Vice President and
                              Chief Administrative Officer
                              (Principal Accounting Officer)


                                      -17-