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 DECEMBER 31, 1995

                                       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.

                           CONSOLIDATED BALANCE SHEETS
                December 31, 1995 and March 31, 1995 (Unaudited)
                                 (In thousands)

                                     ASSETS
                                                  December 31   March 31

Operating investment property, at cost:
   Land                                           $      670    $      670
   Buildings                                           7,932         7,932
   Equipment and improvements                            541           541
                                                  ----------     --------- 
                                                       9,143         9,143
   Less accumulated depreciation                      (3,267)       (3,065)
                                                  ----------     ---------
                                                       5,876         6,078

Investment in unconsolidated joint venture, at equity    103           254
Cash and cash equivalents                                813           704
Accounts receivable                                        2             2
Prepaid expenses                                           -            15
Deferred expenses, net                                    81           122
Other assets                                             227           227
                                                  ----------    ----------
                                                  $    7,102    $    7,402
                                                  ==========    ==========

                        LIABILITIES AND PARTNERS' DEFICIT

Accounts payable and accrued expenses            $       144    $       96
Accrued interest payable                                 222           196
Loans payable to affiliates                              357           357
Advances from consolidated venture                        32            37
Deferred management fees payable to affiliate          1,211         1,115
Notes payable                                          8,330         8,330
Partners' deficit                                     (3,194)       (2,729)
                                                 -----------   -----------
                                                 $     7,102   $     7,402
                                                 ===========   ===========










                             See accompanying notes.

                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

                    CONSOLIDATED STATEMENTS OF OPERATIONS
   For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
                      (In thousands, except per Unit data)

                                      Three Months Ended     Nine  Months Ended
                                        December 31,           December 31,
                                    1995        1994       1995         1994
                                    ----        ----       ----         ----

Revenues:
   Rental income                $   363     $   342      $1,070        $1,006
   Interest and other income          8          10          25            22
                                -------     -------      ------        ------
                                    371         352       1,095         1,028
Expenses:
   Property operating expenses      189         180         541           531
   Interest expense                 144         111         432           306
   Depreciation                      67          81         202           243
   Partnership management fees       32          32          96            96
   General and administrative        51          32         138           110
                              ----------  ---------    --------      --------
                                    483         436       1,409         1,286
                              ---------    --------     -------       -------

Operating loss                     (112)        (84)       (314)         (258)

Partnership's share of
   unconsolidated 
   venture's loss                  (40)        (40)       (151)         (171)
                                --------- -----------  --------       -------

Net loss                        $  (152)   $   (124)    $  (465)       $ (429)
                                =======    ========     =======        ======

Net loss per Limited
 Partnership Unit                $(5.66)    $ (4.61)    $(17.23)     $ (15.87)
                                 ======     ========    =======      ========

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












                             See accompanying notes.

                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

           CONSOLIDATED  STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
        For the nine months ended December 31, 1995 and 1994 (Unaudited)
                                 (In thousands)

                                                     General       Limited
                                                     Partners      Partners

Balance at March 31, 1994                          $   (82)        $(2,035)

Net loss                                               (22)           (407)
                                                   --------        --------

Balance at December 31, 1994                       $  (104)        $(2,442)
                                                   =======          =======

Balance at March 31, 1995                          $  (113)        $(2,616)

Net loss                                               (23)           (442)
                                                   --------        --------

Balance at December 31, 1995                       $  (136)        $(3,058)
                                                   ========        ========




























                             See accompanying notes.

                     PAINEWEBBER GROWTH PARTNERS THREE L.P.

                    CONSOLIDATED  STATEMENTS  OF CASH FLOWS
        For the nine months ended December 31, 1995 and 1994 (Unaudited)
               Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                        1995             1994
                                                        ----             ----
Cash flows from operating activities:
   Net loss                                      $      (465)       $    (429)
   Adjustments to reconcile net loss to net
    cash provided by operating activities:
      Partnership's share of unconsolidated
        venture's loss                                   151              171
      Depreciation                                       202              202
      Deferred management fees                            96               96
      Amortization of deferred financing costs            41               41
      Changes in assets and liabilities:
        Prepaid expenses                                  15                -
        Accounts payable and accrued expenses             48               52
        Accrued interest payable                          26               21
        Advances from consolidated venture                (5)              60
                                                ------------        ---------
         Total adjustments                               574              643
            Net cash provided by 
            operating activities                         109              214

Cash flows from investing activities:
   Contribution to unconsolidated venture               (164)               -
   Distribution from unconsolidated venture              164                -
                                                  ----------     ------------
            Net cash provided by 
               investing activities                        -                -

Cash flows from financing activities:
   Deposits to restricted cash                             -               (3)
   Release of debt service reserve escrow                  -              205
                                                 -----------        ---------
            Net cash provided by 
               financing activities                        -              202
                                                 -----------        ---------

Net increase in cash and cash equivalents                109              416

Cash and cash equivalents, beginning of period           704              367
                                                   ---------        ---------

Cash and cash equivalents, end of period           $     813         $    783
                                                   =========         ========

Cash paid during the period for interest           $     365         $    285
                                                   =========         ========








                             See accompanying notes.


<PAGE>


                     PAINEWEBBER GROWTH PARTNERS THREE, L.P.
                          Notes to 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, 1995.

    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.

2.  Operating Investment Property

    The Partnership's  balance sheet includes one operating  investment property
    at December 31, 1995 and March 31, 1995; the Summerwind Apartments, owned by
    Tara Associates,  Ltd., a majority owned and controlled  joint venture.  The
    balance sheet and operating  results of Tara  Associates,  Ltd. are recorded
    three months in arrears to the operating  results of the  Partnership.  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.

    The following is a summary of property  operating expenses for the three and
    nine months ended September 30, 1995 and 1994 (in thousands):

                                      Three Months Ended      Nine Months Ended
                                       September 30,            September 30,
                                       1995        1994     1995        1994

      Property operating expenses:
         Repairs and maintenance    $   74      $   64     $  197       $ 177
         Utilities                      18          19         51          58
         Property taxes                 25          23         74          70
         Management fees                18          17         53          50
         Salaries and administrative     54         57        166         176
                                    -------    -------    -------      ------
                                    $  189       $ 180     $  541       $ 531
                                    ======       =====     ======       =====

3.  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.


<PAGE>


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

                             Condensed  Summary of Operations 
         For the three and nine months ended September 30, 1995 and 1994
                                 (in thousands)

                                  Three Months Ended      Nine  Months Ended
                                        September 30,          September 30,
                                    1995        1994       1995         1994
                                    ----        ----       ----         ----

  Revenues:
   Rental revenues               $  388      $  380      $1,124       $1,078
   Other income                      17           9          38           24
                               --------   ---------   ---------    ---------
                                    405         389       1,162        1,102
  Expenses:
   Interest expense                 224         214         657          641
   Property operating expenses      123         116         378          359
   Real estate taxes                 26          26          78           80
   Depreciation and amortization      90         91         265          266
                                --------   --------    --------     --------
                                    463         447       1,378        1,346
                                -------     -------     -------      -------
  Net loss                      $   (58)    $   (58)    $  (216)     $  (244)
                                =======     ========    =======      =======

  Net loss:
   Partnership's share of 
     net loss                  $    (40)   $    (40)    $  (151)     $  (171)
   Co-venturer's share
     of net loss                    (18)        (18)        (65)         (73)
                               --------    --------     -------      --------
                               $    (58)   $    (58)    $  (216)     $  (244)
                               ========    =========    =======      =======

4.  Note Payable

     Note  payable at  December  31,  1995 and March 31,  1995  consists  of the
following (in thousands):
                                                   December 31       March 31
   Mortgage  loan payable  which 
   secures  Housing  Authority of Clayton
   County Collateralized   Loan-to-Lender
   Housing  Revenue  Bonds.  The  non-recourse
   mortgage  loan is secured by a deed to
   secure  debt and a security  agreement
   covering Tara Associates  Ltd.'s real
   and personal  property.  The loan bears
   interest at a floating  rate which is
   reset  weekly  based on the market rate
   for tax exempt  securities  with similar
   maturities.  The loan is subject to
   various prepayment  provisions  including
   a mandatory redemption on March 16,
   1997, the first scheduled remarketing date,
   as defined.                                     $   8,330        $   8,330
                                                   =========        =========




<PAGE>


5. Related Party Transactions

      The Adviser earned  management  fees of $96,000 for each of the nine-month
periods ended December 31, 1995 and 1994.  Deferred  management fees at December
31, 1995 and March 31, 1995 consist of $1,212,000 and $1,115,000,  respectively,
due to  PWPI.  See the  Partnership's  Annual  Report  for  further  information
regarding deferred management fees.

      Included in general and administrative expenses for the nine-month periods
ended  December  31,  1995  and  1994  is  $35,000  and  $23,000,  respectively,
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 the  nine-month
periods  ended  December  31, 1995 and 1994 is $2,000 and $1,000,  respectively,
representing fees earned by Mitchell Hutchins Institutional Investors,  Inc. for
managing the Partnership's cash assets.

6. Contingencies

      The Partnership is involved in certain legal actions. The Managing General
Partner  believes that such actions will be resolved  without  material  adverse
effect on the Partnership's financial statements, taken as a whole.




<PAGE>



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

Liquidity and Capital Resources

    Despite  generally  improving  conditions  in the markets  for  multi-family
apartment   properties   across  the  country,   the  estimated  values  of  the
Partnership's two remaining investment properties,  the Summerwind and Woodchase
apartment  complexes,  remain below their acquisition prices at the present time
as a result of the  impact on real  estate  values  caused by the  unprecedented
level of overbuilding  which  characterized  the latter half of the 1980s.  Such
overbuilding  put  considerable   downward  pressure  on  occupancy  levels  and
effective  rental  rates,  which was a trend that  continued  through  the early
1990s.  Over the past three years,  this trend has been reversed due to the lack
of significant  new  construction  of  multi-family  properties in most markets.
However,  management believes it is unlikely that this current market cycle will
result in peak property values which equal or exceed the values in effect at the
time of the  Partnership's  inception.  As a result,  management does not expect
that the Partnership will recover the full amounts of its initial investments in
the Summerwind and Woodchase apartment complexes, which represent a combined 26%
of  the  Partnership's  original  investment  portfolio.  The  portion  of  such
investments  which will be  recovered,  if any,  will depend  upon the  ultimate
selling  prices  obtained  for  the  properties  at  the  time  of  their  final
dispositions, which cannot presently be determined.

    The Summerwind joint venture is currently  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.  However,  based on the current  estimated market
value of the property,  management is of the opinion that the property cannot be
sold for an amount which would yield any significant proceeds to the Partnership
above the outstanding debt balance.  In addition,  management  believes that the
property could not be refinanced,  given the current debt  structure,  without a
significant  discount on the existing  first  mortgage loan. The debt secured by
the Summerwind property, which requires interest-only payments until maturity in
March  1997,  was  provided  by  tax-exempt  bonds  issued  by a  local  housing
authority.  The  interest  rate  on such  debt,  which  is  tied  to  comparable
tax-exempt bond obligations,  has fluctuated at between  approximately 4% and 6%
per annum on the venture's $8.3 million debt obligation over the past two years.
Cash  flow  from the  venture's  operations  is  currently  sufficient  to cover
interest costs at an average rate of approximately  8%.  Nonetheless,  such cash
flow  would not be  sufficient  to  support  conventional  financing,  including
monthly principal amortization,  at current market interest rates.  Furthermore,
due to the  rates  of  return  demanded  by  potential  buyers  of  multi-family
residential  properties at the present  time, an analysis of the venture's  cash
flow before debt service  implies a market value which is below the current debt
obligation. It appears unlikely that market conditions will improve sufficiently
in the  near-to-intermediate  term to generate any  significant  value above the
outstanding   debt  position.   Consequently,   in  the  event  that  operations
deteriorate or the variable  interest rate on the  Summerwind  debt increases to
such an extent that cash flow from property  operations is insufficient to cover
the required debt service, the Partnership would not support cash flow deficits.
Under such circumstances, the mortgage loan would be allowed to go into default,
and foreclosure, in all likelihood,  would not be contested.  Management intends
to continue to operate  the  property to maximize  cash flow in the near term at
least  until  a  decision  is  reached  as  to  whether  to  hold  or  sell  the
Partnership's Woodchase investment, as discussed further below.

      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 is 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 $57,000 and matures on October 1,
2002.  The  proceeds of the new loan were used to repay the  existing $8 million
debt as well as  cover a  portion  of the  refinancing  costs.  The  Partnership
advanced  $164,000  to the  venture to cover the  remaining  transaction  costs.
Although the principal amount of the new loan increased slightly,  the venture's
annual debt service  payments have been reduced by $112,000 due to the reduction
in the interest rate, resulting in positive cash flow for the joint venture, the
majority of which  should be due to the  Partnership.  During the quarter  ended
December 31, 1995, the Partnership  received a distribution of $164,000 from the
joint venture in repayment of the advances  referred to above which were made in
connection with the September 1995 refinancing transaction.

     In  refinancing  the  Woodchase  debt   obligation,   management   obtained
attractive, assumable financing which reduces debt service costs, results in net
cash flow to the Partnership and enhances the  marketability of the property for
a possible  sale. An analysis of the estimated  value of the Woodchase  property
places the  potential  sale price above the level of the current debt by between
$2 million to $3 million.  Depending on management's view of the relevant market
factors affecting the property's long-term  appreciation  potential,  management
may determine that a sale of the Woodchase property in the near-term would be in
the Partnership's best interests. In order to prepare the Woodchase property for
a potential  sale  transaction,  a program of significant  property  repairs and
improvements  was initiated  during  calendar 1994 and has continued  throughout
calendar 1995.  Such  improvements  include  repairing  exterior wood siding and
apartment balconies,  painting the exterior of the buildings,  replacing some of
the roofs and  redecorating  the clubhouse.  The work on the exterior siding and
the balconies has been completed and was paid for out of cash flow from property
operations.  Additional planned  improvements will be worked on in calendar 1996
as cash flow is available. If the Partnership's interest in Woodchase were sold,
a  liquidation  of  the   Partnership   would  likely  be  initiated,   and  the
Partnership's interest in Summerwind would be sold or assigned, most likely only
for a nominal amount. In any event, management must weigh the costs of continued
operations  against the realistic hopes for any future additional  recoveries of
the Partnership's  original investments in Woodchase and Summerwind.  Management
continues to evaluate the Partnership's  possible future operating strategies in
light of these circumstances.

     At December 31, 1995, the  Partnership and its  consolidated  joint venture
had available cash and cash equivalents of approximately  $813,000.  The balance
of such cash and cash  equivalents will be used for the working capital needs of
the Partnership and its  consolidated  joint venture.  Expected future cash flow
distributions  from the  Summerwind  and  Woodchase  joint  ventures  should  be
sufficient to cover the Partnership's  operating expenses (excluding Partnership
management fees which have been deferred since September of 1986). The source of
future  liquidity  and  distributions  to the partners is expected to be through
proceeds  received from the sale or refinancing of the two remaining  investment
properties.

Results of Operations
Three Months Ended December 31, 1995

      The Partnership's net loss increased by $28,000 for the three months ended
December 31, 1995 as compared to the same period in the prior year. The increase
in the  Partnership's  net loss for the third  quarter  of  fiscal  1996 was the
result of an  increase  in the  Partnership's  operating  loss of  $28,000.  The
Partnership's  operating loss increased primarily due to an increase in interest
expense of $33,000. Interest expense increased as a result of an increase in the
average interest rate paid during the current three-month period on the variable
rate  mortgage  loan  secured  by the  consolidated  Summerwind  Apartments.  In
addition, property operating expenses increased at Summerwind by $9,000 due to a
small increase in repairs and maintenance  costs.  The increases in interest and
property  operating  expenses  were  partially  offset by an  increase in rental
income at  Summerwind  of $21,000 for the  current  three-month  period.  Rental
income increased as a result of an increase in rental rates over the same period
in the prior year.

      The Partnership's share of unconsolidated venture's loss, which represents
the operating  results of the Woodchase joint venture,  remained  unchanged when
compared to the same period in the prior year as increases  in interest  expense
and property  operating  expenses  were offset by  increases  in rental  income.
Interest  expense  increased as a result of the  compounding  of interest  which
occured  under  the  terms  of the  venture's  prior  mortgage  debt  which  was
refinanced  in  September  1995,  as  discussed  further  above.  Rental  income
increased  for the  current  three-month  period  due to rental  rate  increases
implemented as a result of the fairly strong market  conditions  existing in the
suburban St. Louis market.

Nine Months Ended December 31, 1995

      The  Partnership's net loss increased by $36,000 for the nine months ended
December  31,  1995,  as compared  to the same  period in the prior  year.  This
increase  in the  Partnership's  net loss was the result of an  increase  in the
Partnership's  operating  loss of  $56,000.  The  Partnership's  operating  loss
increased primarily due to an increase in interest expense of $126,000. Interest
expense  increased as a result of an increase in the average  interest rate paid
during the period on the variable rate mortgage loan secured by the consolidated
Summerwind Apartments.  The increase in interest expense was partially offset by
an increase in rental income at Summerwind of $64,000.  Rental income  increased
as a result of an  increase  in rental  rates over the same  period in the prior
year. The increase in the Partnership's operating loss was partially offset by a
decrease of $20,000 in the Partnership's share of unconsolidated venture's loss,
which  represents  the operating  results of the Woodchase  joint  venture.  The
decrease in the Partnership's share of unconsolidated  venture's loss was mainly
a result of an increase in rental income at Woodchase in the current period. The
increase in rental income, of $46,000, was attributable to rental rate increases
implemented as a result of the fairly strong market  conditions  existing in the
suburban St. Louis market.  Slight increases in the venture's property operating
expenses and depreciation charges partially offset the increase in rental income
for the current nine-month period.



<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings

     In  November  1994,  a series of  purported  class  actions  (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments,  including those offered
by the Partnership.  The lawsuits were brought against PaineWebber  Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied  partnership  investors.  In March  1995,  after the  actions  were
consolidated under the title In re PaineWebber Limited  Partnership  Litigation,
the  plaintiffs  amended their  complaint to assert claims  against a variety of
other  defendants,  including  Third PW Growth  Properties,  Inc. and Properties
Associates  1985,  L.P.  ("PA1985"),  which  are  the  General  Partners  of the
Partnership and affiliates of PaineWebber.  On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.

     The amended complaint in the New York Limited  Partnership  Actions alleges
that, in connection  with the sale of interests in PaineWebber  Growth  Partners
Three L.P., PaineWebber,  Third PW Growth Properties, Inc. and PA1985 (1) failed
to  provide  adequate  disclosure  of the  risks  involved;  (2) made  false and
misleading   representations  about  the  safety  of  the  investments  and  the
Partnership's  anticipated  performance;  and (3)  marketed the  Partnership  to
investors for whom such  investments  were not  suitable.  The  plaintiffs,  who
purport to be suing on behalf of all persons who invested in PaineWebber  Growth
Partners  Three L.P.,  also allege that  following  the sale of the  partnership
interests,   PaineWebber,   Third  PW  Growth   Properties,   Inc.   and  PA1985
misrepresented   financial   information  about  the  Partnership's   value  and
performance.  The amended complaint  alleges that  PaineWebber,  Third PW Growth
Properties,  Inc.  and PA1985  violated  the  Racketeer  Influenced  and Corrupt
Organizations Act ("RICO") and the federal  securities laws. The plaintiffs seek
unspecified  damages,  including  reimbursement for all sums invested by them in
the  partnerships,  as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships.  In addition,  the plaintiffs also
seek treble damages under RICO.

     In January 1996,  PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement agreement and plan of allocation which the parties expect
to submit  to the  court for its  consideration  and  approval  within  the next
several months. Until a definitive settlement and plan of allocation is approved
by the court,  there can be no assurance  what, if any,  payment or non-monetary
benefits  will be made  available to investors in  PaineWebber  Growth  Partners
Three  L.P.  Pursuant  to  provisions  of the  Partnership  Agreement  and other
contractual  obligations,  under certain  circumstances  the  Partnership may be
required  to  indemnify  Third PW  Growth  Properties,  Inc.,  PA1985  and their
affiliates  for costs  and  liabilities  in  connection  with  this  litigation.
Management has had discussions with representatives of PaineWebber and, based on
such discussions,  the Partnership does not believe that PaineWebber  intends to
invoke the aforementioned  indemnifications in connection with the settlement of
this litigation.

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:  February 13, 1996