UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                      ----------------------------------

                                    FORM 10-Q

    |X|    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                                       OR

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

            For the transition period from  ______ to_______.


                        Commission File Number: 0-15035

                     PAINEWEBBER GROWTH PARTNERS THREE L.P.
                     --------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                                      04-2882258
              --------                                      ----------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                          Identification No.)

265 Franklin Street, Boston, Massachusetts                           02110
------------------------------------------                           -----
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code  (617) 439-8118
                                                    --------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes |X|.   No |_|.

<PAGE>

                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

                                 BALANCE SHEETS
                  June 30, 1997 and March 31, 1997 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                    June 30       March 31
                                                    -------       --------


Investment in joint venture, at equity              $     75     $      86
Cash and cash equivalents                                770         1,112
                                                    --------     ---------
                                                    $    845     $   1,198
                                                    ========     =========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses               $      5     $      26
Partners' capital                                        840         1,172
                                                    --------     ---------
                                                    $    845     $   1,198
                                                    ========     =========




        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
          For the three months ended June 30, 1997 and 1996 (Unaudited)
                                 (In thousands)

                                                 General         Limited
                                                 Partners        Partners
                                                 --------        --------

Balance at March 31, 1996                        $   (143)       $(3,196)
Net loss                                               (4)           (74)
                                                 ---------       -------
Balance at June 30, 1996                         $   (147)       $(3,270)
                                                 ========        =======

Balance at March 31, 1997                        $     83        $ 1,089
Cash distributions                                      -           (308)
Net loss                                               (1)           (23)
                                                 --------        -------
Balance at June 30, 1997                         $     82        $   758
                                                 ========        =======















                             See accompanying notes.


<PAGE>


                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
         For the three months ended June 30, 1997 and 1996 (Unaudited)
                    (In thousands, except for per Unit data)

                                                  1997         1996
                                                  ----         ----

Revenues:
   Rental income                               $     -       $   366
   Interest and other income                        15             9
                                               -------       -------
                                                    15           375

Expenses:
   Property operating expenses                       -           178
   Interest expense                                  -           130
   Depreciation                                      -            65
   Partnership management fees                       -            22
   General and administrative                       28            33
                                               -------       -------
                                                    28           428
                                               -------       -------
Operating loss                                     (13)          (53)

Partnership's share of
   unconsolidated venture's loss                   (11)          (25)
                                               -------       -------
Net loss                                       $   (24)      $   (78)
                                               =======       =======

Net loss per Limited Partnership Unit          $ (0.89)      $ (2.90)
                                               =======       =======

Cash distributions per Limited Partnership
  Unit                                         $ 12.00       $     -
                                               =======       =======


   The above net loss and cash  distributions  per Limited  Partnership Unit are
based upon the 25,657 Limited Partnership Units outstanding during each period.





















                             See accompanying notes.


<PAGE>


                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
         For the three months ended June 30, 1997 and 1996 (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                        1997             1996
                                                        ----             ----
Cash flows from operating activities:
   Net loss                                        $     (24)      $      (78)
   Adjustments to reconcile net loss to net
    cash used in operating activities:
     Partnership's share of unconsolidated 
        venture's loss                                    11               25
     Depreciation                                          -               65
     Deferred management fees                              -               22
     Amortization of deferred financing costs              -               14
     Changes in assets and liabilities:
      Prepaid expenses                                     -                5
      Accounts payable and accrued expenses              (21)              (3)
      Accrued interest payable                             -                8
      Advances from consolidated venture                   -              (65)
                                                   ---------       ----------
          Total adjustments                              (10)              71
                                                   ---------       ----------
            Net cash used in operating activities        (34)              (7)

Cash flow from financing activities:
   Distributions to partners                            (308)               -
                                                   ---------       ----------

Net decrease in cash and cash equivalents               (342)              (7)

Cash and cash equivalents, beginning of period         1,112              801
                                                   ---------       ----------

Cash and cash equivalents, end of period           $     770       $      794
                                                   =========       ==========

Cash paid during the period for interest           $       -       $      108
                                                   =========       ==========



















                             See accompanying notes.


<PAGE>


                     PAINEWEBBER GROWTH PARTNERS THREE, L.P.
                  Notes to Consolidated Financial Statements
                                   (Unaudited)

1.  General

    The accompanying  financial statements,  footnotes and discussions should be
    read in connection with the financial  statements and footnotes contained in
    the  Partnership's  Annual  Report for the year ended March 31, 1997. In the
    opinion of management, the accompanying financial statements, which have not
    been  audited,  reflect  all  adjustments  necessary  to present  fairly the
    results for the interim period. All of the accounting  adjustments reflected
    in the accompanying  interim financial  statements are of a normal recurring
    nature.

    The  accompanying  financial  statements  have been  prepared on the accrual
    basis  of  accounting  in  accordance  with  generally  accepted  accounting
    principles which requires  management to make estimates and assumptions that
    affect the reported  amounts of assets and  liabilities  and  disclosures of
    contingent assets and liabilities as of June 30, 1997 and March 31, 1997 and
    revenues  and expenses for each of the  three-month  periods  ended June 30,
    1997  and  1996.   Actual  results  could  differ  from  the  estimates  and
    assumptions used.

    As  discussed  further  in Note 3, as a result of the sale of the  operating
    property  owned by the  Summerwind  joint  venture  in  December  1996,  the
    Partnership  has one  remaining  joint  venture  investment,  the  Woodchase
    Apartments  (see  Note  4).  Management  of  the  Partnership  is  currently
    evaluating  a  potential  liquidation  of the  Partnership  which  could  be
    accomplished  prior to the end of  fiscal  1998.  There  are no  assurances,
    however,  that the disposition of the Partnership's  remaining asset will be
    accomplished within this time frame.

2. Related Party Transactions

    The Adviser earned  management  fees of $22,000 for the  three-month  period
    ended June 30, 1996. A limitation on cumulative  management  fees payable to
    the Adviser was reached in the first quarter of fiscal 1997. The Advisor had
    deferred  payment of management fees beginning in September 1986 pending the
    generation of cash flow from the  Partnership's  investment  properties.  As
    part of the settlement  agreement  finalized in the fourth quarter of fiscal
    1997 regarding the class action lawsuit discussed in the Annual Report,  the
    Adviser  agreed to waive any amounts due to it under the  advisory  contract
    with the Partnership.  Consequently,  $1,265,000 of deferred management fees
    were written off and recognized as an extraordinary gain in fiscal 1997. See
    the Partnership's Annual Report for further information regarding management
    fees.

    Included in general and administrative  expenses for both of the three-month
    periods ended June 30, 1997 and 1996 is $11,000, representing reimbursements
    to an  affiliate  of the  Managing  General  Partner for  providing  certain
    financial,   accounting   and   investor   communication   services  to  the
    Partnership.

    Also  included  in  general  and  administrative  expenses  for  both of the
    three-month  periods  ended June 30,  1997 and 1996 is $1,000,  representing
    fees earned by an  affiliate,  Mitchell  Hutchins  Institutional  Investors,
    Inc., for managing the Partnership's cash assets.

3.  Sale of Operating Investment Property

    The  Partnership  previously  had an investment in one operating  investment
    property;  the  Summerwind  Apartments,  owned by Tara  Associates,  Ltd., a
    majority  owned and  controlled  joint  venture.  Tara  Associates,  Ltd., a
    Georgia limited partnership (the "joint venture"), was organized on December
    19,  1983 to acquire and operate a 208-unit  apartment  complex,  Summerwind
    Apartments,   located  in  Jonesboro,  Georgia.  On  October  8,  1985,  the
    Partnership  acquired  a 70%  general  partnership  interest  in  the  joint
    venture.  The remaining 30% general and limited  partnership  interests were
    owned by John Lie-Nielson (the "co-venturer").  Effective February 23, 1990,
    the co-venturer's  general  partnership  interest was converted to a limited
    partnership  interest,  thereby  giving  the  Partnership  control  over the
    operating investment property.

    On December 27, 1996, Tara Associates,  Ltd. sold the Summerwind  Apartments
    to an unrelated  third party for a net price of $550,000 plus the assumption
    of the  outstanding  principal  balance of the mortgage  loan secured by the
    property  of   $8,330,000.   The   Partnership   received  net  proceeds  of
    approximately  $319,000 after  deducting  closing costs and other credits to
    the  buyer.  The  Partnership  made a special  distribution  to the  Limited
    Partners on June 13, 1997 in the amount of  approximately  $308,000,  or $12
    per original $1,000 investment, from the proceeds of this transaction.

    For income tax reporting purposes, the Summerwind joint venture was required
    to maintain its  accounting  records on a calendar year basis.  As a result,
    the  Partnership  had accounted for its joint  venture  investment  based on
    financial  information  which was three  months  in  arrears  to that of the
    Partnership.  The  following  is a summary of  property  operating  expenses
    reported on the Partnership's  consolidated statements of operations for the
    three months ended March 31, 1996 (in thousands):

                                                        1996
                                                        ----
      Property operating expenses:
         Repairs and maintenance                      $   66
         Utilities                                        18
         Property taxes                                   25
         Management fees                                  18
         Salaries and administrative                      51
                                                      ------
                                                      $  178
                                                      ======

4.  Unconsolidated Joint Venture Partnership

    The Partnership has an investment in one unconsolidated  joint venture,  St.
    Louis Woodchase Associates,  which owns and operates an operating investment
    property,  as more fully described in the Partnership's  Annual Report.  The
    unconsolidated  joint  venture is accounted  for on the equity method in the
    Partnership's  financial  statements because the Partnership does not have a
    voting  control  interest  in the  venture.  Under the  equity  method,  the
    investment  is  carried  at cost  adjusted  for the  Partnership's  share of
    venture's earnings and losses and distributions.  The Partnership recognizes
    its share of the operating results of its unconsolidated joint venture based
    on  financial  results of the venture  which are three  months in arrears to
    that of the Partnership.

    Summarized  operating results of the unconsolidated  joint venture,  for the
    periods indicated, are as follows:

                         Condensed Summary of Operations
               For the three months ended March 31, 1997 and 1996
                                 (in thousands)

                                         1997        1996
                                         ----        ----
  Revenues:
   Rental revenues                    $   385     $   358
   Other income                            16          15
                                      -------     -------
                                          401         373
  Expenses:
   Interest expense                       158         158
   Property operating expenses            128         134
   Real estate taxes                       23          22
   Depreciation                           108          95
                                      -------     -------
                                          417         409
  Net loss                            $   (16)    $   (36)
                                      =======     =======

  Net loss:
   Partnership's share of net loss    $   (11)    $   (25)
   Co-venturer's share of net loss         (5)        (11)
                                      -------     -------
                                      $   (16)    $   (36)
                                      =======     =======


<PAGE>



                     PAINEWEBBER GROWTH PARTNERS THREE L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Relating to Forward-Looking Statements
--------------------------------------------------

   The following  discussion  of financial  condition  includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified  in Item 7 of the  Partnership's  Annual  Report on Form 10-K for the
year ended March 31, 1997 under the heading  "Certain  Factors  Affecting Future
Operating  Results",  which could cause actual results to differ materially from
historical  results  or  those  anticipated.  The  words  "believe",   "expect",
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

Liquidity and Capital Resources
-------------------------------

   During the third quarter of fiscal 1997, the  Partnership  signed a letter of
intent with an unrelated third party to sell the Summerwind Apartments for a net
price of $550,000 in cash.  The net purchase  price  reflected the assumption by
the  purchaser of the  $8,330,000  first  mortgage loan secured by the operating
investment  property.  The  Partnership  received net proceeds of  approximately
$319,000  after  deducting  closing  costs and other  credits to the buyer.  The
Partnership made a special distribution to the Limited Partners on June 13, 1997
in the amount of approximately  $308,000, or $12 per original $1,000 investment,
from the proceeds of this transaction.  The Partnership's original investment in
the Summerwind joint venture,  which  represented 13% of the original  portfolio
investment,  totalled  approximately $2.4 million.  Despite recovering less than
15% of the  original  investment,  management  believes it was the right time to
sell this asset in light of the property's  estimated  market value, the limited
potential  for near-term  appreciation  and the lack of options for extending or
refinancing the venture's long-term debt.

   The  Summerwind  joint  venture  had been  generating  excess  cash flow from
operations  as a result of the low level of the  variable  interest  rate on the
venture's  first  mortgage  loan.  Such  excess  cash flow was being used to pay
Partnership  operating  expenses.  The debt secured by the Summerwind  property,
which  required   interest-only  payments  on  a  monthly  basis,  consisted  of
tax-exempt revenue bonds issued by a local housing authority.  The interest rate
on such debt,  which was tied to comparable  tax-exempt  bond  obligations,  was
significantly lower than rates on conventional mortgage financing.  In fact, the
venture's   cash  flow  would  likely  not  have  been   sufficient  to  support
conventional  financing,  including monthly principal  amortization,  at current
market  interest rates.  The mortgage loan secured by the Summerwind  Apartments
was subject to various prepayment provisions including a mandatory redemption on
March  16,  1997,  the first  scheduled  remarketing  date,  as  defined,  which
coincided  with the expiration of the letter of credit  agreement  which secured
the underlying bonds. Unless the letter of credit was replaced or extended,  the
venture's  mortgage loan would have been  immediately  due and payable upon this
scheduled expiration date. Management's estimate of the fair market value of the
Summerwind  Apartments  put the value of the  property at or slightly  above the
amount of the outstanding first mortgage loan as of December 1996.  Accordingly,
it was  unlikely  that the  property  would  have  satisfied  a letter of credit
issuer's  loan-to-value  ratio  requirements for issuing a new letter of credit.
Consequently,  the  property  would  likely  have been  subject  to  foreclosure
proceedings  during  fiscal 1997 if the  Partnership  had not completed the sale
transaction.  The price  that the buyer was  willing  to pay for the  Summerwind
property  was based  mainly  upon the  ability to receive  current net cash flow
after  completing  a  modification  and  extension  agreement  with the mortgage
lender. The modification and extension agreement required that the buyer deposit
significant additional collateral with the mortgage lender.

   As a result of the sale of the Summerwind Apartments, the Partnership has one
remaining joint venture investment, the Woodchase Apartments.  Management of the
Partnership is currently  focusing on achieving a near-term sale of the property
and possibly  completing a liquidation  of the  Partnership by the end of fiscal
1998.  There  are no  assurances,  however,  that  both the  disposition  of the
remaining investment and the liquidation of the Partnership will be accomplished
within this time frame. On September 13, 1995, the  Partnership,  along with its
co-venture  partner,  refinanced  the  mortgage  debt  secured by the  Woodchase
Apartments  with a new lender.  The new  non-recourse  mortgage  loan was in the
initial  principal amount of $8,200,000 and bears interest at a rate of 7.5% per
annum.  The new  loan  requires  monthly  principal  and  interest  payments  of
approximately  $57,000  and  matures  on October 1,  2002.  In  refinancing  the
Woodchase debt obligation, management obtained assumable financing which reduced
the venture's debt service costs and enhances the  marketability of the property
for a possible sale. The occupancy  level at the Woodchase  Apartments  averaged
94% for the quarter ended June 30, 1997,  compared to 93% for the prior quarter.
Local market conditions for multi-family properties in the St. Louis area remain
strong  with a limited  amount of new  construction  activity in  progress,  and
concessions are longer offered to prospective renters at the Woodchase property.
As a result,  the  property's  leasing  team has  implemented  a 4% rental  rate
increase  on new and renewal  leases  currently  being  signed.  The  property's
management team is also continuing its efforts to remain  competitive with newer
properties in the market by replacing the roofs on three buildings and repairing
deteriorating wood on a number of apartment balconies.  A program of significant
property  repairs and improvements was initiated at Woodchase during fiscal 1995
in  anticipation  of  the  venture's   refinancing  efforts  and  has  continued
subsequent  to the  refinancing  in  anticipation  of a  potential  sale  of the
property.  This  program,  combined  with  the  continued  improvements  in  the
apartment  segment of the real estate  market,  has enhanced the market value of
the Woodchase property over the past several years. As a result, the Partnership
is expected to recover its original net investment in the Woodchase property, of
$2.3 million,  from a near term sale transaction.  As previously  reported,  the
Partnership  and its  co-venture  partner have been  exploring the potential for
selling  Woodchase  Apartments and have had  discussions  with brokerage  firms.
Subsequent to the end of the first quarter, the Partnership reached an agreement
with the joint  venture  partner and selected a broker to offer the property for
sale. The marketing  process has begun, and sales packages are being distributed
to prospective buyers.

     At June 30, 1997, the Partnership  had available cash and cash  equivalents
of approximately  $770,000.  Such cash and cash equivalents will be used for the
working capital needs of the Partnership through its expected  liquidation.  The
source of future  liquidity and  distributions to the partners is expected to be
through the proceeds  received from the sale or refinancing of the Partnership's
remaining investment property.  Subsequent to the eventual sale of the Woodchase
investment, the net sale proceeds, along with the remaining Partnership reserves
after the payment of all  liquidation-related  expenses,  will be distributed to
the Limited Partners.

Results of Operations
Three Months Ended June 30, 1996
--------------------------------

      The Partnership  reported a net loss of $24,000 for the three months ended
June 30,  1997 as  compared  to a net loss of $78,000 for the same period in the
prior year.  This  $54,000  decrease in the  Partnership's  net loss is due to a
$40,000 decrease in the  Partnership's  operating loss and a $14,000 decrease in
the  Partnership's  share of  unconsolidated  venture's loss. The  Partnership's
operating  loss  decreased  mainly  because the operating  results for the three
months ended June 30, 1996 included  $22,000 of management fee expense and a net
operating  loss of  $7,000  from  the  consolidated  Summerwind  joint  venture.
Management  fees are no longer  charged  to the  Partnership  as a result of the
settlement  agreement  finalized  during fiscal 1997  regarding the class action
lawsuit,  as discussed in the Annual Report.  As discussed above, the Summerwind
Apartments  were sold to an  unrelated  third party on  December  27,  1996.  In
addition,  a $6,000  increase in interest and other income and a $5,000 decrease
in  general  and  administrative  expenses  contributed  to the  decline  in the
Partnership's  operating loss for the current three-month  period.  Interest and
other income  increased due to the higher average  outstanding cash balances for
the current  three-month  period resulting from the temporary  investment of the
proceeds from the December 1996 sale of the Summerwind  Apartments  prior to the
special  distribution  to the Limited  Partners which occurred on June 13, 1997.
General and  administrative  expenses  decreased  mainly due to a  reduction  in
certain required professional services during the current three-month period.

      The Partnership's share of unconsolidated venture's loss, which represents
the  operating  results of the  Woodchase  joint  venture,  decreased by $14,000
primarily due to a $27,000 increase in rental revenue which was partially offset
by a $13,000 increase in depreciation  expense.  Rental revenue increased mainly
due to an  increase  in average  rental  rates  during the  current  three-month
period. Depreciation expense increased due to additional capital improvements at
the  property  during  fiscal  1997  which  were  made in an  effort  to  remain
competitive with newer properties in the St.
Louis market, as discussed further above.


<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings                   
                       NONE

Item 2. through 5.     NONE

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:         NONE

(b)   Reports on Form 8-K:

     No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.




<PAGE>




                     PAINEWEBBER GROWTH PARTNERS THREE L.P.


                                   SIGNATURES


Pursuant  to the  requirements  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.


                     PAINEWEBBER GROWTH PARTNERS THREE L.P.


                      By: THIRD PW GROWTH PROPERTIES, INC.
                            Managing General Partner




                           By:  /s/ Walter V. Arnold
                                --------------------
                                Walter V. Arnold
                                Senior Vice President and
                                Chief Financial Officer

Date: August 13, 1997