PAINEWEBBER GROWTH PARTNERS THREE L P, 10-K405, 1995-07-10

PAINEWEBBER GROWTH PARTNERS THREE L P
10-K405, 1995-07-10
REAL ESTATE

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

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

FOR FISCAL YEAR ENDED: MARCH 31, 1995

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

PAINE WEBBER GROWTH PARTNERS THREE L.P.

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

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

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

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:

UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)

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

Indicate by check mark whether the registrant (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
---

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
September 3, 1985, as supplemented
y
PAINEWEBBER GROWTH PARTNERS THREE L. P.
1995 FORM 10-K

TABLE OF CONTENTS

PART I Page

Item 1 Business I-1

Item 2 Properties I-2

Item 3 Legal Proceedings I-3

Item 4 Submission of Matters to a Vote of Security Holders I-3

PART II

Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1

Item 6 Selected Financial Data II-1

Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2

Item 8 Financial Statements and Supplementary Data II-6

Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-6

PART III

Item 10 Directors and Executive Officers of the
Partnership III-1

Item 11 Executive Compensation III-3

Item 12 Security Ownership of Certain Beneficial
Owners and Management III-3

Item 13 Certain Relationships and Related Transactions III-3

PART IV

Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1

SIGNATURES IV-2

INDEX TO EXHIBITS IV-3

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 to F-25

PART I

ITEM 1. BUSINESS

PaineWebber Growth Partners Three L.P. (the "Partnership") is a limited
partnership formed in May 1985 under the Uniform Limited Partnership Act of the
State of Delaware for the purpose of investing in a portfolio of rental
apartments or commercial properties which had potential for capital
appreciation. The Partnership originally had interests in three properties: two
apartment complexes and a hotel. As discussed further below, the Partnership's
hotel property was foreclosed on by the mortgage lender on April 21, 1992. The
Partnership authorized the issuance of a maximum of 60,000 Partnership Units, at
$1,000 per Unit, of which 25,657 were subscribed and issued between September 3,
1985 and July 31, 1986. Limited Partners will not be required to make any
additional capital contributions.

As of March 31, 1995, the Partnership owned, through joint venture
partnerships, interests in the operating properties referred to below:

Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)

Tara Associates, Ltd. 208 units 10/8/85 Fee ownership of land and
Summerwind Apartments improvements
Jonesboro, Georgia (through joint venture)

St. Louis Woodchase 186 units 12/31/85 Fee ownership of land and
Associates improvements
Woodchase Apartments (through joint venture)
St. Louis, Missouri

(1)See Notes to the Financial Statements filed in Item 14(a)(1) of this Annual
Report for a description of the mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.

As further discussed in Note 6 to the accompanying financial statements of
the registrant, on April 21, 1992, the holder of the mortgage debt secured by
the LaJolla Marriott hotel foreclosed on the operating property due to the
Partnership's inability to meet the required debt service payments under the
modified terms of the loan agreement. The efforts by the Managing General
Partner to recapitalize, sell or refinance the property were unsuccessful. As a
result, the Partnership no longer has any ownership interest in this property.

The Partnership's original investment objectives were to invest the net cash
proceeds from the offering of limited partnership units in rental apartment and
commercial properties with the goals of obtaining:

(1)capital appreciation;
(2)tax losses during the early years of operations from deductions generated by
investments;
(3)equity build-up through principal repayments of mortgage loans on
Partnership properties; and
(4)cash distributions from rental income.

As a result of the foreclosure of the La Jolla Marriott Hotel referred to
above, the Partnership will be unable to achieve most of its original
objectives. The Partnership has generated tax losses from operations since

inception. However, the benefits of such losses to investors have been
significantly reduced by changes in federal income tax law subsequent to the
organization of the Partnership. Furthermore, the Partnership's investment
properties have not produced sufficient cash flow from operations to provide the
limited partners with cash distributions to date. The hotel represented
approximately 74% of the Partnership's original invested capital. Additionally,
at the present time, the estimated values of the Partnership's two remaining
residential properties are below their acquisition prices due to the
unprecedented level of overbuilding which characterized at the latter half of
the 1980's. Such overbuilding put considerable downward pressure on occupancies
and rental rates, which was a trend which continued through the early 1990's.
Over the past two years this trend has been reversed due to the lack of any
significant new construction of multi-family properties in most markets.
However, it is unlikely that this next 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. The amount 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 Partnership's two joint venture apartment property investments are
located in real estate markets in which they face significant competition for
the revenues they generate. The apartment complexes compete with numerous
projects of similar type, generally on the basis of price and amenities.
Apartment properties in all markets also compete with the single family home
market for prospective tenants. Despite this competition, the lack of new
construction of multi-family housing has allowed the oversupply which exists in

most markets to begin to be absorbed, with the result being a gradual
improvement in occupancy levels and effective rental rates and a corresponding
increase in property values. Management of the Partnership expects to continue
to see improvement in this sector of the real estate market in the near-term.

The Partnership has no real property investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment; therefore, a presentation of information about industry segments is
not applicable.

The Partnership has no salaried employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly-owned subsidiary of Paine Webber Group Inc. ("PaineWebber").

The general partners of the Partnership (the "General Partners") are Third
PW Growth Properties, Inc. and Properties Associates 1985, L.P. Third PW Growth
Properties, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber, is the managing general partner of the Partnership. The associate
general partner is Properties Associates 1985, L.P. (the "Associate General
Partner"), a Virginia limited partnership, certain limited partners of which are
also officers of the Adviser and the Managing General Partner.

The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.

ITEM 2. PROPERTIES

The Partnership owns through joint venture partnerships interests in the two
properties referred to under Item 1 above to which reference is made for the
name, location, and description of each property.

Occupancy figures for each fiscal quarter during fiscal 1995, along with an
average for the year, are presented below for each property:

Percent Occupied At
Fiscal 1995
6/30/94 9/30/94 12/31/94 3/31/95 Average

Summerwind Apartments 94% 94% 95% 98% 95%

Woodchase Apartments 93% 96% 94% 89% 93%

ITEM 3. 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. 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. The defendants' time to move against or answer
the complaint has not yet expired.

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. The General Partners
intend to vigorously contest the allegations of the action, and believe that the
action will be resolved without material adverse effect on the Partnership's
financial statements, taken as a whole.

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

None.

PART II

ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS

At March 31, 1995 there were 2,195 record holders of Units in the
Partnership. There is no public market for the resale of Units, and it is not
anticipated that a public market for the resale of Units will develop. The
Managing General Partner will not redeem or repurchase Units.

ITEM 6. SELECTED FINANCIAL DATA

PAINEWEBBER GROWTH PARTNERS THREE L.P.
FOR THE YEARS ENDED MARCH 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT FOR PER UNIT DATA)

1995 1994 1993 (1) 1992 1991

Revenues $1,394 $1,341 $ 2,521 $ 18,382 $ 20,667

Operating loss $ (376) $ (439) $ (3,654) $ (5,434) $ (4,665)

Partnership's share of
unconsolidated
venture's losses $ (236) $ (233) $ (245) $ (249) $ (436)

Loss before
xtraordinary gain $ (612) $ (672) $ (3,899) $ (5,683) $(5,101)

Extraordinary gain - - $ 11,532 - -

Net income (loss) $ (612) $ (672) $ 7,633 $ (5,683) $ (5,101)

Total assets $ 7,402 $ 7,815 $ 8,345 $ 49,372 $ 51,893

Deferred interest
payable - - - - (2) $ 896

Notes payable $ 8,330 $ 8,330 $ 8,330 $ 8,330 (2) $47,826

Per Limited
Partnership Unit:

Loss before
extraordinary

gain $ (22.64) $(24.87) $(129.37) $(210.44) $(188.86)

Extraordinary gain - - $ 367.93 - -

Net income (loss) $ (22.64) $ (24.87) $ 238.56 $(210.44) $(188.86)

(1)On April 21, 1992, the mortgage lender took title to the La Jolla Marriott
Hotel through foreclosure proceedings. As a result, the Partnership's
fiscal 1993 net operating results reflect an extraordinary gain from the
settlement of the debt obligation of $11.5 million and a loss on transfer of
assets at foreclosure of $2.9 million (included in operating loss). See
Note 6 to the accompanying financial statements of the registrant for a
further discussion.

(2)The significant decline in deferred interest payable and notes payable as of
March 31, 1992 resulted from the foreclosure, on April 21, 1992, of the
Partnership's wholly-owned operating investment property. As more fully
explained in Note 6 to the accompanying financial statements of the
registrant, at March 31, 1992 the remaining assets and liabilities of this
operating investment property were aggregated and separately classified on
the Partnership's balance sheet as assets of investment property subject to
foreclosure ($40.5 million) and liabilities of operating investment property
subject to foreclosure ($48.8 million).

The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.

The above per Limited Partnership Unit information is based upon the 25,657
Limited Partnership Units outstanding during each year.

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

LIQUIDITY AND CAPITAL RESOURCES

The Partnership offered limited partnership interests to the public from
September 3, 1985 to July 31, 1986 pursuant to a Registration Statement filed
under the Securities Act of 1933. Gross proceeds of $25,657,000 were received
by the Partnership and, after deducting selling expenses and offering costs,
approximately $17,085,000 was originally invested directly or through joint
venture interests in three operating investment properties. As previously
reported, the Partnership's investment in the LaJolla Marriott Hotel, which
represented 74% of the original investment portfolio, was lost through
foreclosure proceedings in April 1992, after a protracted period of negotiations
failed to produce a mutually acceptable restructuring, refinancing, or sale
agreement.

Despite generally improving conditions in the markets for multi-family
apartment properties across the country, the estimated values of the
Partnership's two 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 1980's. Such
overbuilding put considerable downward pressure on occupancy levels and
effective rental rates, which was a trend that continued through the early
1990's. 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. 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
either sold or refinanced given the current debt structure. The debt secured by
the Summerwind property, which requires interest-only payments until maturity in
March 1997, was provided by tax-exempt municipal bonds issued by a local housing
authority. During fiscal 1995, the interest rate on such debt, which is tied to
comparable tax-exempt bond obligations, fluctuated at between approximately 4%
and 6% per annum on the venture's $8.3 million debt obligation. Cash flow from
the venture's operations for the current year would have been sufficient to
cover interest costs at an average rate of approximately 7%. 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 significantly below the
current debt obligation. It appears unlikely that market conditions will
improve sufficiently in the near-to-intermediate term to generate any 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. Although
interest rates have recently decreased after steadily rising throughout fiscal
1995, any future increase in interest rates would reduce the amount of the
excess cash flow available to cover the Partnership's operating expenses.
Nonetheless, the venture is expected to operate above breakeven throughout
fiscal 1996 due to a slight increase in rental rates and a decrease in repairs
and maintenance expenses. No significant capital improvements were made during
the current year and none are planned for next year. During the current year,
the lender released the restricted cash which had been set aside to cover debt
service shortfalls of the Summerwind joint venture. The lender released such
funds, totalling approximately $205,000, to the venture in September 1994. Such
funds were used to replenish the Partnership's cash reserves.

As previously reported, during fiscal 1994 the Partnership, along with its
co-venture partner, successfully refinanced the mortgage debt secured by the
Woodchase Apartments with the existing lender. The new nonrecourse mortgage
loan agreement contains a five-year extension of the maturity date to November
1, 1998. The note bears interest at a rate of 10.75% per annum. New payment
terms require minimum principal and interest payments totalling $66,667 on a
monthly basis. Of such payments, interest at a rate of 9% per annum is deducted
and the remainder is applied toward the outstanding principal balance. The
difference between interest at 10.75% and the minimum payments made by the
venture which are attributable to interest will accrue and bear interest on a
compounded basis. Cash flow generated by the property in excess of the minimum
principal and interest payments will be payable to the lender on a quarterly
basis to be applied against the outstanding accrued interest. Any unpaid
accrued interest will be payable at maturity. The venture's operating cash flow

for the current year was slightly in excess of the minimum principal and
interest payments due on the mortgage loan. The outstanding first mortgage loan
is fully prepayable without penalty through September 1995, after which time a
prepayment penalty would be owed on any prepayment prior to maturity.
Management is currently focusing on efforts to refinance this loan prior to the
end of this open prepayment period. However, there are no assurances that a new
financing source will be obtained. Subsequent to year-end, on May 31, 1995, the
Partnership made a loan of $164,000 to the joint venture. The joint venture used
the $164,000 to pay an application fee with respect to a potential new loan with
another lender.

In seeking to refinance the Woodchase debt obligation, management hopes to
obtain attractive, assumable financing which would reduce debt service costs,
result in net cash flow to the Partnership and enhance the marketability of the
property for a possible sale. Despite the lack of significant excess operating
cash flow under the current debt structure, an analysis of the estimated value
of the Woodchase property places the potential sales price above the level of
the current debt. 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
the potential sale and/or refinancing transactions, a program of significant
property repairs and improvements was initiated during calendar 1994 and will
continue throughout most of 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.
Management believes that cash flow from property operations will be sufficient
to cover the costs of the planned improvements. 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 is currently evaluating the Partnership's
possible future operating strategies in light of these circumstances.

Upon the sale or disposition of the Partnership's investments, the taxable
gain or loss incurred will be allocated among the partners. In the case where a
taxable gain would be incurred, gain would first be allocated to the General
Partners in an amount at least sufficient to eliminate their deficit capital
balance. Any remaining gain would then be allocated to the Limited Partners.
In certain cases, the Limited Partners could be allocated taxable income in
excess of any liquidation proceeds that they may receive. Additionally, in
cases where the disposition of any investment involves a foreclosure by, or
voluntary conveyance to, the mortgage lender, taxable income could occur without
distribution of cash. Income from the sale or disposition of the Partnership's
investments would represent passive income to the partners which could be offset
by each partners' existing passive losses, including any carryovers from prior
years.

At March 31, 1995, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $704,000. As discussed
further above, the consolidated Summerwind joint venture currently generates
positive cash flow because the variable interest rate on the venture's
outstanding mortgage indebtedness is presently at a fairly low level. As long
as this long-term rate remains low, the venture should provide excess cash flow
sufficient to cover the Partnership's operating expenses (excluding Partnership
management fees which have been deferred since September of 1986). In the event

that long-term interest rates rise significantly in the near future, this cash
flow, which represents the Partnership's sole source of liquidity, may be
impaired. The balance of cash and cash equivalents will be used for the working
capital needs of the Partnership and its consolidated joint venture. 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
1995 Compared to 1994

The Partnership's net loss decreased by $60,000 in fiscal 1995 when
compared to the prior year. The primary reasons for the decrease in net loss
were an increase in rental income at the Summerwind Apartments of $36,000, an
increase in interest income earned on cash and cash equivalents of $17,000 and
decreases in property operating expenses and general and administrative expenses
of $47,000 and $8,000, respectively. The increase in rental income at the
Summerwind Apartments was the result of an increase in rental rates, as
occupancy actually declined slightly during the year from an average of 99% for
calendar 1993 to an average of 95% for calendar 1994. Interest income earned on
cash and cash equivalents increased as a result of an increase in the average
outstanding balance of cash and cash equivalents and an increase in interest
rates earned during the year. Property operating expenses at the Summerwind
Apartments decreased due to a large decrease in repairs and maintenance
expenses. Repairs and maintenance expenses decreased mainly as a result of the
completion of the painting of all building exteriors during the prior year.
General and administrative expenses decreased as a result of a decrease in legal
fees during the current year. The Partnership incurred additional legal fees in
the prior year as a result of the refinancing of the debt secured by the

Woodchase Apartments. The positive effect of the above items on net loss was
partially offset by an increase in interest expense of $44,000. The higher
interest expense reflects an increase in the variable interest rate on the
Summerwind mortgage loan. In addition, the Partnership's share of
unconsolidated venture's loss, which represents the allocable net loss from the
Woodchase joint venture, increased by $3,000 due to an increase in interest
expense. This increase in interest expense was a result of the new terms of the
refinanced mortgage loan secured by the Woodchase Apartments which provide for
the compounding of interest on deferred amounts owed to the lender.

1994 Compared to 1993

The Partnership had a net loss of $672,000 for fiscal 1994, as compared to
net income of $7,633,000 in the prior year. The prior year net income resulted
from the foreclosure of the LaJolla Marriott Hotel which, as explained below,
resulted in an extraordinary gain from settlement of debt obligation of
$11,532,000. The extraordinary gain was partially offset by a loss on transfer
of assets at foreclosure of $2,928,000. The transfer of the Hotel's title to
the lender through foreclosure proceedings was accounted for as a troubled debt
restructuring in accordance with Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring". The
extraordinary gain arose due to the fact that the balance of the mortgage loan
and related accrued interest exceeded the estimated fair value of the Hotel
investment and other assets transferred to the lender at the time of the
foreclosure. The loss on transfer of assets resulted from the fact that the net
carrying value of the Hotel exceeded the Hotel's estimated fair value at the
time of foreclosure. Net loss prior to the extraordinary gain and the loss on
foreclosure recognized in the prior year totalled $971,000.

Net loss also includes operating loss and the Partnership's share of
unconsolidated venture's loss. Operating loss decreased by approximately 40%
during fiscal 1994 primarily due to the foreclosure of the Hotel, which had been
generating significant losses from operations prior to its foreclosure. In
addition, there was a small decrease in the net operating loss from the
Summerwind joint venture primarily due to an increase in rental income and a
decrease in the interest expense on the venture's floating rate long-term debt.
Occupancy at the Summerwind Apartments remained stable, in the high 90's,
throughout fiscal 1993 and 1994. The increase in revenues was due to the
gradual increase in rental rates made possible by generally improving market
conditions. The increase in rental income and decrease in interest expense
exceeded an increase in property operating expenses which resulted from an
increase in repairs and maintenance expenses. Partnership general and
administrative expenses and management fees remained stable, but increased as a
percentage of revenues due to the fiscal 1993 Hotel foreclosure. General and
administrative expenses did not decline with the loss of the Hotel property to
foreclosure because there is a large fixed component to the costs associated
with the Partnership's operations, which include accounting, auditing, investor
communications and regulatory compliance expenses. Partnership management
fees, which have been accrued but unpaid since September 1986, are equal to 1/2
of 1% of the Partnership's original gross offering proceeds. The Partnership's
share of unconsolidated venture's loss, which represents the operating results
of the Woodchase joint venture, decreased due to a small increase in rental
income and a large decrease in real estate taxes, which were offset in part by
an increase in repairs and maintenance expense and higher interest expense in
fiscal 1994. Interest expense increased due to an increase in the interest rate
on the venture's debt as part of the refinancing transaction completed during
fiscal 1994. The increase in rental revenues at both the Summerwind and
Woodchase properties in fiscal 1994 was reflective of the gradually improving
market conditions discussed further above. Higher repairs and maintenance
expenses were also a trend which reflected the increasing age of the properties.

1993 Compared to 1992

The Partnership had net income of $7,633,000 for fiscal 1993, as compared to
a net loss of $5,683,000 in the prior year. The net income for fiscal 1993 was
due to the foreclosure of the LaJolla Marriott Hotel which, as explained above,
resulted in an extraordinary gain from settlement of debt obligation of
$11,532,000. The extraordinary gain was partially offset by a loss on transfer
of assets at foreclosure of $2,928,000.

The Partnership's net operating results also include operating loss and the
Partnership's share of unconsolidated venture's loss. Operating loss decreased
by approximately 87% in fiscal 1993 primarily due to the foreclosure of the
Hotel, which had been generating significant losses from operations. In
addition, net operating results from the Summerwind joint venture improved in
fiscal 1993 primarily due to a slight increase in rental income and a $141,000
decrease in interest expense. Interest expense of the Summerwind joint venture
declined due to lower interest rates on the floating rate mortgage which
encumbers the operating investment property. The Partnership's share of
unconsolidated venture's loss, which represents the operating results of the
Woodchase joint venture, decreased slightly due to a small increase in rental
income and a small decrease in property operating expenses.

Inflation

The Partnership commenced operations in 1985 and completed its ninth full
year of operations in the current fiscal year. The effects of inflation and

changes in prices on the Partnership's operating results to date have not been
significant.

Inflation in future periods may increase revenues as well as operating
expenses at the Partnership's operating investment properties. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted to keep
pace with inflation, to the extent market conditions allow, as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are included under Item 14
of this Annual Report.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

The Managing General Partner of the Partnership is Third PW Growth
Properties, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates 1985, L.P., a Virginia limited partnership, certain limited partners
of which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operation, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.

(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:

Date lected
Name Office Age to Office

Lawrence A. Cohen President and Chief
Executive Officer 41 5/15/91
Albert Pratt Director 84 5/22/85 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and
Chief Financial Officer 47 10/29/85
James A. Snyder Senior Vice President 49 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 52 5/22/85 *
Timothy J. Medlock Vice President and Treasurer 33 6/1/88
Thomas W. Boland Vice President 32 12/1/91

* The date of incorporation of the Managing General Partner

(d) There is no family relationship among any of the foregoing directors
and executive officers of the Managing General Partner of the Partnership. All
of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.

(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
investment adviser. The business experience of each of the directors and
principal executive officers of the Managing General Partner is as follows:

Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is also a member of the Board of Directors and
the Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First
Vice President of VMS Realty Partners where he was responsible for origination
and structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.

Albert Pratt is a Director of the Managing General Partner, a Consultant of
PWI, and a limited partner of the Associate General Partner. Mr. Pratt joined
PWI as Counsel in 1946 and since that time has held a number of positions
including Director of both the Investment Banking Division and the International
Division, Senior Vice President and Vice Chairman of PWI and Chairman of
PaineWebber International, Inc.

J. Richard Sipes is a Director of the Managing General Partner and a Director
of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He
joined the firm in 1978 and has served in various capacities within the Retail
Sales and Marketing Division. Before assuming his current position as Director
of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional
Manager, Branch System and Marketing Manager for a PaineWebber subsidiary,
Manager of Branch Administration and Director of Retail Products and Trading.
Mr. Sipes holds a B.S. in Psychology from Memphis State University.

Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI
in 1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining PWPI.
Mr. Arnold is a Certified Public Accountant licensed in the state of Texas.

James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company.

John B. Watts III is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser which he joined in June 1988. Mr.
Watts has had over 16 years of experience in acquisitions, dispositions and
financing of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.

David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner, a limited partner of the Associate General Partner,
and a First Vice President and Assistant Treasurer of the Adviser which he
joined in March 1980. From 1972 to 1980, Mr. Brooks was an Assistant Treasurer
of Property Capital Advisors, Inc. and also, from March 1974 to February 1980,
the Assistant Treasurer of Capital for Real Estate, which provided real estate
investment, asset management and consulting services.

Timothy J. Medlock is a Vice President and Treasurer of the Managing General
Partner and a Vice President and Treasurer of the Adviser which he joined in
1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and PWPI. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.

Thomas W. Boland is a Vice President of the Managing General Partner and a
Vice President and Manager of Financial Reporting of the Adviser which he joined
in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur Young &
Company. Mr. Boland is a Certified Public Accountant licensed in the state of
Massachusetts. He holds a B.S. in Accounting from Merrimack College and an
M.B.A. from Boston University.

(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.

(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-
percent beneficial holders are required by SEC regulations to furnish the
Partnership with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended March 31, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.

ITEM 11. EXECUTIVE COMPENSATION

The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.

The Partnership is required to pay certain fees to the Adviser and the
General Partners are entitled to receive a share of Partnership cash

distributions and a share of profits and losses. These items are described in
Item 13.

The Partnership has never paid regular quarterly distributions of excess cash
flow. Furthermore, the Partnership's Limited Partnership Units are not actively
traded on any organized exchange, and no efficient secondary market exists.
Accordingly, no accurate price information is available for these Units.
Therefore, a presentation of historical Unitholder total returns would not be
meaningful.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, Third PW Growth Properties, Inc., is owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner,
is a Virginia limited partnership, certain limited partners of which are also
officers of the Adviser and the Managing General Partner. No limited partner is
known by the Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.

(b) Neither the officers and directors of the Managing General Partner nor
the limited partners of the Associate General Partner, individually, own any
Units of limited partnership interest of the Partnership. No officer or
director of the Managing General Partner, nor any limited partner of the
Associate General Partner, possesses a right to acquire beneficial ownership of
Units of limited partnership interest of the Partnership.

(c) There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Subject to the Managing General Partner's overall authority, the business of
the Partnership is managed by PWPI pursuant to an advisory contract. The
General Partners, PWPI and other affiliates receive fees and compensation,
determined on an agreed upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management, financing and disposition of
Partnership investments. In addition, the General Partners and their affiliates
are reimbursed for their direct expenses relating to the offering of units, the
administration of the Partnership and the operations of the Partnership's real
property investments.

Selling commissions paid by the Partnership to PaineWebber Incorporated, a
wholly-owned subsidiary of PaineWebber, for the sale of Limited Partnership
interests aggregated $2,181,000 through the conclusion of the offering period.
In connection with investing Partnership capital in investment properties, PWPI
was paid acquisition fees of $1,283,000, equal to 5% of the gross proceeds of
the offering.

All distributable cash, as defined, for each fiscal year will be distributed
annually in the ratio of 95% to the Limited Partners and 5% to the General
Partners. All sale or refinancing proceeds shall be distributed in varying
proportions to the Limited and General Partners, as specified in the Partnership
Agreement.

Pursuant to the terms of the Partnership Agreement, taxable income and tax
losses of the Partnership from both current operations and capital transactions
generally will be allocated 95% to the Limited Partners and 5% to the General
Partners, except that the General Partners shall be allocated an amount of
taxable income from a capital transaction at least sufficient to eliminate their
deficit capital account balance. Allocations of the Partnership's operations
between the General Partners and the Limited Partners for financial accounting
purposes have been made in conformity with the allocations of taxable income or
tax loss.

Under the advisory contract, PWPI has specific management responsibilities:
to administer the day-to-day operations of the Partnership, and to report
periodically the performance of the Partnership to the Managing General
Partner. PWPI earns an annual management fee of up to 1/2 of 1% of the gross
offering proceeds. PWPI earned management fees of $128,000 for the year ended
March 31, 1995. PWPI has deferred payment of its management fee since September
of 1986 pending the generation of cash flow from the Partnership's investment
properties. Deferred management fees at March 31, 1995 consists of $1,115,000
due to PWPI. The advisory contract also provides that the cumulative management
fees payable to the Adviser shall not exceed $1,282,850 (5% of gross offering
proceeds) plus 5% of distributable cash generated by the Partnership. Unless
the Partnership generates distributable cash from operations, this cumulative
limitation will be reached in the second quarter of fiscal 1997.

An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for

the year ended March 31, 1995 is $48,000, representing reimbursements to this
affiliate of the Managing General Partner for providing such services to the
Partnership.

The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $2,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1995. Fees charged by Mitchell Hutchins
are based on a percentage of invested cash reserves which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of the
Adviser.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) and (2) Financial Statements and Schedules:

The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.

(3) Exhibits:

The exhibits listed on the accompanying index to exhibits at page
IV-3 are filed as part of this Report.

(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

See (a) (3) above.

(d) Financial Statement Schedules

The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership 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/ Lawrence A. Cohen
Lawrence A. Cohen
President and
Chief Executive Officer

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

By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President

Dated: June 28, 1995

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.

By:/s/ Albert Pratt Date: June 28, 1995
Albert Pratt
Director

By: /s/ J. Richard Sipes Date: June 28, 1995
J. Richard Sipes

Director

ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)

PAINE WEBBER GROWTH PARTNERS THREE L. P.

INDEX TO EXHIBITS

Page Number in the Report
Exhibit No. Description of Document Or Other Reference

(3) and (4) Prospectus of the Partnership Filed with the Commission
dated September 3, 1985 as pursuant to Rule 424(c)
supplemented, with particular and incorporated herein by
reference to the Restated reference.
Certificate and Agreement of
Limited Partnership

(10) Material contracts previously Filed with the Commission
filed as exhibits to registration pursuant to Section 13 or
statements and amendments thereto 15(d) or the Securities
of the registrant together with all Act of 1934 and
such contracts filed as exhibits of incorporated herein by
previously filed Forms 8-K and Forms reference.
10-K are hereby incorporated herein
by reference.

(13) Annual Report to Limited Partners No Annual Report for
fiscal 1995 has been sent
to the Limited Partners.
An Annual Report will
be sent to the Limited
Partners subsequent to
this filing.

(22) List of subsidiaries Included in Item I of Part
I of this Report page I-1,
to which reference is
hereby made.

ANNUAL REPORT ON FORM 10-K

ITEM 14(A)(1) AND (2) AND ITEM 14(D)

PAINEWEBBER GROWTH PARTNERS THREE L. P.

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Reference

PAINEWEBBER GROWTH PARTNERS THREE L. P.:

Report of independent auditors F-2

Consolidated balance sheets as of March 31, 1995 and 1994 F-3

Consolidated statements of operations for the years ended
March 31, 1995, 1994 and 1993 F-4

Consolidated statements of changes in partners' deficit
for the years ended March 31, 1995, 1994 and 1993 F-5

Consolidated statements of cash flows for the years ended
March 31, 1995, 1994 and 1993 F-6

Notes to consolidated financial statements F-7

Schedule III - Real Estate and Accumulated Depreciation F-17

ST. LOUIS WOODCHASE ASSOCIATES:

Report of independent auditors F-18

Balance sheets as of December 31, 1994 and 1993 F-19

Statements of operations and changes in partners' capital
(deficit) for the years ended December 31, 1994, 1993 and 1992 F-20

Statements of cash flows for the years ended December 31,
1994, 1993 and 1992 F-21

Notes to financial statements F-22

Schedule III - Real Estate and Accumulated Depreciation F-25

Other financial statement schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.

REPORT OF INDEPENDENT AUDITORS

The Partners

PaineWebber Growth Partners Three L.P.:

We have audited the accompanying consolidated balance sheets of PaineWebber
Growth Partners Three L.P. as of March 31, 1995 and 1994, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for each of the three years in the period ended March 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PaineWebber
Growth Partners Three L.P. at March 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
June 23, 1995

PAINEWEBBER GROWTH PARTNERS THREE L.P.

CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
(In Thousands, except for per Unit Data)

ASSETS

1995 1994

Operating investment property, at cost:
Land $ 670 $ 670
Buildings 7,932 7,932
Equipment and improvements 541 525
9,143 9,127
Less accumulated depreciation (3,065) (2,795)
6,078 6,332

Investment in unconsolidated joint
venture, at equity 254 489
Cash and cash equivalents 704 367
Restricted cash - 201
Accounts receivable 2 2
Prepaid expenses 15 20
Deferred expenses, net of accumulated amortization
of $265 ($210 in 1994) 122 177
Other assets 227 227
$ 7,402 $ 7,815

LIABILITIES AND PARTNERS' DEFICIT

Accounts payable and accrued expenses $ 96 $ 91
Accrued interest payable 196 167
Loans payable to affiliates 357 357
Advances from consolidated venture 37 -
Deferred management fees payable to affiliate 1,115 987
Notes payable 8,330 8,330

Total liabilities 10,131 9,932

Partners' deficit:
General Partners:
Capital contribution 1 1
Cumulative net loss (114) (83)

Limited Partners ($1,000 per Unit, 25,657
units outstanding at March 31, 1995 and 1994):
Capital contributions, net of offering
costs of $3,193 22,464 22,464
Cumulative net loss (24,779) (24,198)
Cumulative cash distributions (301) (301)
Total partners' deficit (2,729) (2,117)
$ 7,402 $ 7,815

See accompanying notes.

PAINEWEBBER GROWTH PARTNERS THREE L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1995, 1994 and 1993
(In Thousands, except for per Unit Data)

1995 1994 1993
REVENUES:
Rental income $ 1,361 $ 1,325 $ 1,270
Interest income 33 16 7
Hotel revenues - - 1,244
1,394 1,341 2,521
EXPENSES:
Hotel operating expenses - - 1,112
Loss on transfer of assets
at foreclosure - - 2,928
Interest expense and related fees 462 418 749
Depreciation expense 270 269 373
Property operating expenses 752 799 718
Partnership management fees 128 128 128
General and administrative 158 166 167
1,770 1,780 6,175

Operating loss (376) (439) (3,654)

Partnership's share of unconsolidated
venture's loss (236) (233) (245)

Loss before extraordinary gain (612) (672) (3,899)

Extraordinary gain from settlement
of debt obligation - - 11,532
Net income (loss) $ (612) $ (672) $ 7,633

Net income (loss) per Limited Partnership Unit:

Loss before extraordinary gain $ (22.64) $ (24.87) $(129.37)
Extraordinary gain - - 367.93
Net income (loss) $ (22.64) $ (24.87) $ 238.56

The above per Limited Partnership Unit information is based upon the 25,657
Limited Partnership Units outstanding for each year.

See accompanying notes.

PAINEWEBBER GROWTH PARTNERS THREE L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the years ended March 31, 1995, 1994 and 1993
(In Thousands)

General Limited
Partners Partners Total

Balance at March 31, 1992 $ (1,561) $ (7,517) $ (9,078)

Net income 1,513 6,120 7,633

BALANCE AT MARCH 31, 1993 (48) (1,397) (1,445)

Net loss (34) (638) (672)

BALANCE AT MARCH 31, 1994 (82) (2,035) (2,117)

Net loss (31) (581) (612)

BALANCE AT MARCH 31, 1995 $ (113) $ (2,616) $ (2,729)

See accompanying notes.

PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)

1995 1994 1993

Cash flows from operating activities:
Net income (loss) $ (612) $ (672) $ 7,633
Adjustments to reconcile net
income (loss) to net cash
provided by (used for) operating
activities:
Partnership's share of
unconsolidated venture's loss 236 233 245
Depreciation expense 270 269 373
Amortization of deferred
financing costs 55 55 354
Deferred management fees 128 128 161
Interest expense on note payable - - 4
Loss on transfer of assets at foreclosure - - 2,928
Extraordinary gain from settlement of debt - - (11,532)
Changes in assets and liabilities:
Cash subject to transfer at foreclosure - - (8)
Accounts receivable - 125 (227)
Inventories - - (90)
Prepaid expenses 5 13 3
Other assets - - (6)
Due to Marriott - - 45
Accounts payable and accrued expenses 4 (8) (66)
Accrued interest payable 29 25 28
Accounts payable - affiliates - (2) (9)
Advances from consolidated venture 37 - -
Total adjustments 744 838 (7,797)

Net cash provided by (used for)
operating activities 152 166 (164)

Cash flows from investing activities:
Net withdrawals from escrow
reserve for repairs and replacements - - 56
Additions to operating investment
properties (16) (1) -
Net cash provided by (used for)
investing activities (16) (1) 56

Cash flows from financing activities:
Deposits to/withdrawals from
restricted cash 201 (4) (5)
Net cash provided by (used for)
financing activities 201 (4) (5)

Net increase (decrease) in cash
and cash equivalents 337 161 (113)

Cash and cash equivalents,
beginning of year 367 206 319

Cash and cash equivalents,
end of year $ 704 $ 367 $ 206

Cash paid during the year
for interest $ 252 $ 214 $ 367

See accompanying notes.

1. General

PaineWebber Growth Partners Three L.P. (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in May
1985 for the purpose of investing in a portfolio of rental apartments or
commercial properties which had potential for capital appreciation. The
Partnership authorized the issuance of units (the "Units") of limited
partnership interests (at $1,000 per Unit) of which 25,657 were subscribed
and issued between September 3, 1985 and July 31, 1986. The Partnership
originally invested the proceeds of the offering in three operating
properties. As further discussed in Note 6, on April 21, 1992 the
Partnership's largest asset, the LaJolla Marriott Hotel, was foreclosed on
by the mortgage lender after extensive workout negotiations failed to
produce an acceptable modification agreement.

2. Summary of Significant Accounting Policies

The joint ventures in which the Partnership has invested are required to
maintain their accounting records on a calendar year basis for income tax
reporting purposes. As a result, the Partnership records its share of the
operations of the joint ventures based on financial information which is
three months in arrears to that of the Partnership.

The accompanying consolidated financial statements include the
Partnership's investments in two joint venture partnerships which own opera-
ting properties. As further discussed in Note 4, the Partnership acquired
complete control of Tara Associates, Ltd. in fiscal 1990 as a result of an
amendment to the joint venture agreement. Accordingly, the accompanying
financial statements present the financial position and results of
operations of this joint venture on a consolidated basis. As discussed
above, the joint venture has a December 31 year-end and operations of the
venture continue to be reported on a three-month lag. All material
transactions between the Partnership and the joint venture have been
eliminated upon consolidation, except for lag period cash transfers. The
joint venture's operating investment property (Summerwind Apartments) is
carried at the lower of cost, adjusted for certain guaranteed payments (see
Note 4) and accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the Partnership's investment through
expected future cash flows on an undiscounted basis, which may exceed the
property's current market value. The net realizable value of a property
held for sale approximates its market value. The Partnership's investment
in the Summerwind Apartments was considered to be held for long-term
investment purposes as of March 31, 1995 and 1994.

The Partnership has reviewed FAS No. 121 ``Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of'' which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Partnership's financial statements.

Depreciation expense is computed using the straight-line method over an
estimated useful life of thirty years for buildings and five years for the
equipment and improvements. Acquisition fees paid to PaineWebber Properties
Incorporated (PWPI) have been capitalized and are included in the cost of
the operating investment property.

The Partnership accounts for its other joint venture investment using
the equity method because the Partnership does not have majority voting
control. Under the equity method the investment in a joint venture is
carried at cost adjusted for the Partnership's share of the venture's
earnings and losses and distributions. See Note 5 for a description of this
joint venture partnership.

The consolidated joint venture leases apartment units under leases with
terms generally of one year or less. Rental income is recorded monthly as
earned.

As more fully discussed in Note 6, on April 21, 1992, the holder of the
mortgage debt secured by the Partnership's wholly-owned hotel property in La
Jolla, California, foreclosed on the property due to the Partnership's
failure to make full and timely debt service payments. As a result of the
foreclosure, all of the remaining assets and liabilities related to this
operating investment property were transferred to the lender or otherwise
disposed of upon foreclosure. The wholly-owned operating investment
property (the LaJolla Marriott Hotel) had been carried at cost less
accumulated depreciation. Depreciation expense had been computed using the
straight-line method over an estimated useful life of thirty years for the
building and ten years for equipment and improvements. Acquisition fees
paid to PWPI and other expenses, including certain professional fees and a
guaranty fee paid to Marriott Corporation, were capitalized as part of the
cost of the operating investment property.

Deferred expenses at March 31, 1995 and 1994 consist of loan fees of
Tara Associates, Ltd., the Partnership's consolidated joint venture, which
are being amortized on a straight-line basis over the remaining term of the
loan. The amortization of such fees is included in interest expense on the
accompanying statements of operations.

For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.

Certain fiscal 1994 and 1993 amounts have been reclassified to conform
to the fiscal 1995 presentation.

No provision for income taxes has been made as the liability for such
taxes is that of the individual partners rather than the Partnership. Upon
the sale or disposition of the Partnership's investments, the taxable gain
or loss incurred will be allocated among the partners. In the case where a
taxable gain would be incurred, gain would first be allocated to the General
Partners in an amount at least sufficient to eliminate their deficit capital
balance. Any remaining gain would then be allocated to the Limited
Partners. In certain cases, the Limited Partners could be allocated taxable
income in excess of any liquidation proceeds that they may receive.
Additionally, in cases where the disposition of any investment involves a
foreclosure by, or voluntary conveyance to, the mortgage lender, taxable
income could occur without distribution of cash. Income from the sale or
disposition of the Partnership's investments would represent passive income

to the partners which could be offset by each partners' existing passive
losses, including any carryovers from prior years.
.
3. The Partnership Agreement and Related Party Transactions

The General Partners of the Partnership are Third PW Growth Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber") and Properties Associates 1985, L.P.
(the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of PWPI and the Managing General
Partner. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by PWPI pursuant to an advisory
contract. The General Partners, PWPI and other affiliates receive fees and
compensation, determined on an agreed upon basis, in consideration of
various services performed in connection with the sale of the Units, the
management of the Partnership and the acquisition, management, financing and
disposition of Partnership investments. In addition, the General Partners
and their affiliates are reimbursed for their direct expenses relating to
the offering of units, the administration of the Partnership and the
operations of the Partnership's real property investments.

Selling commissions paid by the Partnership to PaineWebber Incorporated,
a wholly-owned subsidiary of PaineWebber, for the sale of Limited
Partnership interests aggregated $2,181,000 through the conclusion of the
offering period. In connection with investing Partnership capital in
investment properties, PWPI was paid acquisition fees of $1,283,000, equal
to 5% of the gross proceeds of the offering.

All distributable cash, as defined, for each fiscal year will be
distributed annually in the ratio of 95% to the Limited Partners and 5% to
the General Partners. All sale or refinancing proceeds shall be distributed
in varying proportions to the Limited and General Partners, as specified in
the Partnership Agreement.

Pursuant to the terms of the Partnership Agreement, taxable income and
tax losses of the Partnership from both current operations and capital
transactions generally will be allocated 95% to the Limited Partners and 5%
to the General Partners, except that the General Partners shall be allocated
an amount of taxable income from a capital transaction at least sufficient
to eliminate their deficit capital account balance. Allocations of the
Partnership's operations between the General Partners and the Limited
Partners for financial accounting purposes have been made in conformity with
the allocations of taxable income or tax loss.

Under the advisory contract, PWPI has specific management
responsibilities: to administer the day-to-day operations of the
Partnership, and to report periodically the performance of the Partnership
to the Managing General Partner. PWPI earns an annual management fee of up
to 1/2 of 1% of the gross offering proceeds. PWPI earned management fees of
$128,000 for each of the three years ended March 31, 1995, 1994 and 1993.
PWPI has deferred payment of its management fee since September of 1986
pending the generation of cash flow from the Partnership's investment
properties. Deferred management fees at March 31, 1995 and 1994 consists of
$1,115,000 and $987,000, respectively, due to PWPI. The advisory contract
also provides that the cumulative management fees payable to the Adviser
shall not exceed $1,282,850 (5% of gross offering proceeds) plus 5% of
distributable cash generated by the Partnership. Unless the Partnership

generates distributable cash from operations, this cumulative limitation
will be reached in the second quarter of fiscal 1997.

Included in general and administrative expenses for the years ended
March 31, 1995, 1994 and 1993 is $48,000, $45,000 and $53,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.

The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $2,000, $0 and $2,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively.

4. Operating Investment Property

As of March 31, 1995 and 1994, the Partnership's balance sheet includes
one consolidated 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 Tara Associates, Ltd. joint venture
agreement was amended to provide that the co-venturer's entire general
partnership interest be converted to a limited partnership interest. In
addition, the amended agreement specifies that the co-venturer shall have no
further liability for guaranty fees or mandatory loans, as discussed further
below. The conversion of the co-venturer's interest to that of a limited
partner effectively gave the Partnership complete control over the
investment property. As a result, the accompanying financial statements
present the financial position and results of operations of the joint
venture on a consolidated basis. As discussed in Note 2, the Partnership's
policy is to report the operations of the joint venture on a three-month
lag. The aforementioned amendment did not change the partners' ownership
percentages in the venture or any other terms of the original joint venture
agreement besides those referred to above.

The aggregate cash investment by the Partnership for its interest was
approximately $2,427,000 (including an acquisition fee of $141,000 paid to
the Adviser). The apartment complex was acquired subject to a mortgage loan
of $8,330,000 at the time of closing. On March 15, 1990, the mortgage loan
was refinanced, as discussed further in Note 7.

The joint venture agreement provides that distributable funds will be
distributed as follows: 1) to repay interest and principal on optional
loans; 2) to repay interest and principal on mandatory loans; 3) to the
Partnership until it has received $180,800 per calendar year for the period
from the date of organization; and 4) any remainder 70% to the Partnership
and 30% to the co-venturer. Net proceeds from a sale or refinancing shall
be made in the same manner as (1) through (3) above; and then: (4) to the

Partnership until it shall have received cumulative distributions of
$2,599,000; and; (5) any remainder, 70% to the Partnership and 30% to the
co-venturer.

Losses shall be allocated 100% to the Partnership and income shall be
allocated in the same proportion as distributable funds. If no funds were
distributed, then income is to be allocated 100% to the Partnership.

The joint venture agreement provides that if additional cash was required
to fund negative cash flow for a period of 24 months ending in October 1987
(the guaranty period), the co-venturer and an affiliate of the co-venturer
were obligated to fund any capital deficits, as defined, of the joint
venture. The joint venture received payments aggregating $647,485 through
the end of the Guaranty Period. Such payments have been recorded as a
reduction in the basis of the operating investment property for financial
reporting purposes. For a period of twelve months following the guaranty
period, the co-venturer and an affiliate were obligated to make mandatory
loans to the joint venture to fund any negative cash flow. The mandatory
loans bear interest at the prime rate plus 1% of the lending institution.
At December 31, 1994 and 1993, the joint venture had mandatory loans payable
to the co-venturer and an affiliate of $357,000. Subsequent to October
1988, if the joint venture requires additional cash, it may be provided by
either partner as optional loans. Optional loans bear interest at the prime
rate plus 1% per annum. The Partnership has optional loans receivable from
the venture totalling $801,000 and $1,149,000 at December 31, 1994 and 1993,
respectively. Outstanding accrued interest payable to the Partnership
totalled $4,000 and $30,000 as of December 31, 1994 and 1993, respectively.
The principal balance of these optional loans, along with the related
interest expense and accrued interest, are eliminated in consolidation.

The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The management fee is equal to 5% of the
gross receipts, as defined.

The following is a summary of property operating expenses for the years
ended December 31, 1994, 1993 and 1992 (in thousands):

1994 1993 1992
Property operating expenses:
Repairs and maintenance $ 208 $ 288 $ 220
Salaries and related expenses 153 132 145
Administrative and other 117 118 112
Property taxes 118 92 90
Utilities 88 102 87
Management fees 68 67 64
$ 752 $ 799 $ 718

5. Investment in Unconsolidated Joint Venture

The Partnership has an investment in one unconsolidated joint venture,
St. Louis Woodchase Associates. The unconsolidated joint venture is
accounted for on the equity method in the Partnership's financial statements
based on financial information of the venture which is three months in
arrears to that of the Partnership.

Condensed financial statements of the unconsolidated joint venture, for
the periods indicated, are as follows:

CONDENSED BALANCE SHEETS
December 31, 1994 and 1993
(in thousands)
Assets
1994 1993
Current assets $ 96 $ 93
Operating investment property, net 8,032 8,320
Deferred expenses, net 70 62
$ 8,198 $ 8,475

Liabilities and Venturers' Capital (Deficit)

Current portion of long-term mortgage debt $ 93 $ 85
Other current liabilities 276 157
Other liabilities 38 35
Loans from partners and accrued interest 344 323
Long-term mortgage debt 7,809 7,902

Partnership's share of venturers' capital 245 480
Co-venturer's share of venturers' deficit (607) (507)
$ 8,198 $ 8,475

CONDENSED SUMMARY OF OPERATIONS
For the years ended December 31, 1994, 1993 and 1992
(in thousands)

1994 1993 1992
Rental revenues $ 1,443 $ 1,387 $ 1,368
Interest income 1 3 3
Other income 32 35 38
Total revenues 1,476 1,425 1,409

Property operating expenses 586 584 601
Interest expense 884 830 816
Depreciation and amortization 342 344 342
Total expenses 1,812 1,758 1,759

Net loss $ (336) $ (333) $ (350)

Net loss:
Partnership's share of net loss $ (236) $ (233) $ (245)
Co-venturer's share of net loss (100) (100) (105)
$ (336) $ (333) $ (350)

RECONCILIATION OF PARTNERSHIP'S INVESTMENT
March 31, 1995 and 1994
(in thousands)

1995 1994

Partnership's share of
capital at December 31,
as shown above $ 245 $ 480
Partnership's share of
venture's current liabilities 9 9
Investment in unconsolidated
joint venture,
at equity at March 31 $ 254 $ 489

Investment in unconsolidated joint venture, at equity, at March 31, 1995 and
1994 is the Partnership's net investment in the Woodchase joint venture.
The joint venture is subject to a partnership agreement which determines the
distribution of available funds, the disposition of the venture's assets and
the rights of the partners, regardless of the Partnership's percentage
ownership interest in the venture. Substantially all of the Partnership's
investment in this joint venture is restricted as to distributions.

A description of the unconsolidated joint venture's property and the terms of
the joint venture agreement are summarized below:

St. Louis Woodchase Associates - St. Louis, Missouri

St. Louis Woodchase Associates, a Missouri general partnership (the "joint
venture") was organized on December 27, 1985 by PaineWebber Growth Partners
Three, L. P., a Delaware limited partnership (the "Partnership") and St.
Louis Woodchase Company, Ltd. (the "co-venturer") to acquire and operate
Woodchase Apartments, a 186-unit apartment complex in St. Louis, Missouri.
The co-venturer is an affiliate of The Paragon Group. The property was
purchased on December 31, 1985.

The aggregate cash investment by the Partnership for its interest was
approximately $2,465,000 (including an acquisition fee of $145,000 paid to
the Adviser). The apartment complex was encumbered by a mortgage loan of
$10,200,000 at the time of purchase. On June 7, 1988 the joint venture
which owns the Woodchase Apartments entered into an agreement with the
original mortgage holder which permitted the repayment of the mortgage on
July 1, 1988 at a discount of more than $2 million. During fiscal 1994, the

joint venture refinanced its $8,000,000 nonrecourse mortgage notes payable
secured by the operating investment property with the existing lender. The
new note payable has an effective date of November 1, 1993 and formally
closed on March 1, 1994. The note bears interest at 9% and is payable in
monthly installments, including principal and interest of $66,667 through
November 1, 1998. Additional interest at the rate of 1.75% shall accrue
monthly on the outstanding principal balance and 10.75% shall accrue on the
unpaid interest balance. Subject to the terms of the loan agreement, net
cash flow from operations, as defined and if available, will be applied to
fund the additional interest quarterly. In addition, the joint venture is
required to submit monthly escrow deposits of $3,875 for a replacement
reserve. Amounts in the replacement reserve have been pledged as additional
collateral for the operating investment property. The mortgage loan is
fully prepayable without penalty through September 1995, after which time a
prepayment penalty would be owed on any prepayment prior to maturity. The
venture is currently seeking to refinance this obligation. However, there
are no assurances that a new financing source will be obtained. Subsequent
to year-end, on May 31, 1995, the Partnership made a loan of $164,000 to the
joint venture. The joint venture used the $164,000 to pay an application
fee with respect to a potential new loan with another lender.

The joint venture agreement provides that the Partnership will receive from
available cash flow (after payment of any interest on operating loans by the
parties to the joint venture) an annual, cumulative preferred base return,
payable monthly, of 8% of the Partnership's net investment. Thereafter any
remaining cash flow shall be distributed 70% to the Partnership and 30% to
the co-venturer. The Partnership's cumulative preference return in arrears
totalled approximately $1,666,000 and $1,479,000 at December 31, 1994 and
1993, respectively.

After the end of each month during the year in which the Partnership has not
received its cumulative preference return, the co-venturer shall distribute
to the Partnership the lesser of (a) the excess, if any, of the
Partnership's cumulative preference return over the aggregate amount of net
cash flow previously distributed to the Partnership during the year or (b)
any net cash flow distributed to the co-venturer during the year.

Net income and net loss from operations shall be allocated in any year in
the same proportions as actual cash distributions, provided that the co-
venturer shall not be allocated less than 30% of the net income or net loss
after the Partnership has received cumulative losses equal to $4,086,250.
The Partnership was allocated cumulative losses equal to this threshold
during 1990. Additionally, the co-venturer shall not be allocated net
income in excess of cash distributions distributed to it during any year.

Upon sale or refinancing, proceeds shall be distributed in the following
order of priority (after payment of mortgage debt and other indebtedness of
the joint venture): 1) the Partnership and the co-venturer shall receive
any amounts due for operating loans or additional cash contributions; 2) the
Partnership shall receive $2,685,250 plus certain closing costs incurred; 3)
the Partnership shall receive the aggregate amount of its cumulative annual
preference return not previously distributed; 4) the co-venturer shall
receive any accrued interest and principal of mandatory loans (as described
below); 5) the manager of the complex, an affiliate of the co-venturer,
shall receive any subordinated management fees. Any remaining proceeds
shall be distributed 70% to the Partnership and 30% to the co-venturer.

The co-venturer guaranteed payment of all operating expenses and debt
service plus a $3,000 annual return to the Partnership from the date of
closing through December 31, 1987 (the Guaranty Period). The joint venture
received payments aggregating $347,000 during the Guaranty Period. Such
amounts have been recorded as a reduction of the basis of the operating
property for financial reporting purposes. The co-venturer was required to
make mandatory loans to the joint venture to pay all operating expenses and
debt service plus a $3,000 annual return to the Partnership for the twelve-
month period following the Guaranty Period. Mandatory loans totalling
$130,000 have been made by the co-venturer. Such loans bear interest at 1%
above the prime lending rate. The co-venturer was paid a fee of $288,000 in
consideration for its agreement to provide the guaranty and make the
mandatory loans. After the mandatory loan period, if additional cash is
required in connection with the joint venture, it may be provided by the
Partnership and the co-venturer as loans (evidenced by operating notes) to
the joint venture. Such loans are to be provided 70% by the Partnership and
30% by the co-venturer. Operating loans totalling $87,000 were made 100% by
the co-venturer through December 31, 1994. Interest payable to the co-
venturer on the mandatory and optional loans totalled $127,000 and $106,000
at December 31, 1994 and 1993, respectively.

The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the joint venture
upon the occurrence of certain events. The management fee is equal to 5% of
the gross receipts, as defined.

6. Foreclosure on Operating Investment Property

The LaJolla Marriott Hotel (the "Hotel"), is a 14-story, 274,200 square
foot complex with 360 guest rooms located on approximately 4.6 acres of land
in LaJolla, California. The Hotel was purchased by the Partnership in
December of 1985. The Hotel did not generate sufficient cash flow to cover
the required debt service and, as a result, the Partnership defaulted under
the terms of the debt agreement. On April 21, 1992, the holder of the first
mortgage loan secured by the Hotel took title to the property through
foreclosure proceedings after a protracted period of negotiations failed to
produce an acceptable modification agreement.

The transfer of the Hotel's title to the lender was accounted for as a
troubled debt restructuring in accordance with Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". As a result, the Partnership recorded an
extraordinary gain from settlement of debt obligation of $11,532,000,
partially offset by a loss on transfer of assets at foreclosure of
$2,928,000. The extraordinary gain arises due to the fact that the balance
of the mortgage loan and related accrued interest exceeded the estimated
fair market value of the Hotel investment, and other assets transferred to
the lender, at the time of the foreclosure. The loss on transfer of assets
results from the fact that the net carrying value of the Hotel exceeded its
estimated fair value at the time of the foreclosure.

The following is a summary of Hotel revenues and operating expenses from
April 1, 1992 through the date of foreclosure, April 21, 1992 (in
thousands):

Period
ended
April 12, 1992
REVENUES:
Guest rooms $ 670
Food and beverage 465
Other revenues 109
$ 1,244
OPERATING EXPENSES:
Guest rooms $ 168
Food and beverage 383
Management fees 70
Selling, general and
administrative 11
Operating expenses 438
Real estate and personal
property tax 42
$ 1,112

The operating expenses noted above include significant transactions with
Marriott Corporation. All Hotel employees were employees of Marriott and
the related payroll costs were allocated to the Hotel operations by
Marriott. A majority of the supplies and food purchased by the Hotel were
purchased from an affiliate of Marriott. In addition, Marriott also
allocated employee benefit costs, advertising costs and management training
costs to the Hotel.

7. Notes payable

Notes payable at March 31, 1995 and 1994 consists of the following (in
thousands):

1995 1994
Mortgage loan payable which secures Housing
Authority of Clayton County Collateralized
Loan-to-Lender Housing Revenue Bonds. The
nonrecourse mortgage loan is secured by a deed
to secure debt and a security agreement
covering Tara Associates Ltd.'s real and
personal property. See discussion below
regarding refinancing in calendar
year 1990. $ 8,330 $ 8,330

The Summerwind Apartments were originally financed with the proceeds of a
10 7/8% mortgage loan which secured $8,330,000 1983 Series A Housing
Authority of Clayton County Collateralized Loan-to-Lender Housing Revenue
Bonds. On March 15, 1990, the original loan secured by the Summerwind
Apartments was refinanced through the issuance of $8,330,000 of 1989 Series
Housing Authority of Clayton County Collateralized Loan-to-Lender Revenue
Bonds. The refinancing changed the interest rate on the bond from a fixed
rate of 10-7/8% per annum to a floating rate. The floating rate is reset
weekly based on the market rate for tax exempt securities with similar
maturities, as determined by the bond underwriter (5.7% and 3.4% at December
31, 1994 and 1993, respectively). The maximum interest rate is 15%. During
the floating rate period, the Partnership may elect, with the written consent
of the lender and the Credit Facility obligor, as defined, to have the
floating rate converted to a fixed rate. If the floating rate is converted
to a fixed rate, the bonds would then be subject to a redemption premium as

specified in the Bond Agreement. Interest only is payable monthly in arrears
on the first day of each month and on the maturity date of the loan. The new
mortgage loan is subject to various prepayment provisions including a
mandatory redemption on March 16, 1997, the first scheduled remarketing date,
as defined.

The revenue bonds, which are secured by the mortgage loan, are also
secured by an irrevocable letter of credit agreement (the Agreement) between
the lender and the Housing Authority of Clayton County. The letter of
credit, which will expire on March 16, 1997, is an irrevocable obligation of
the lender up to an amount sufficient to pay the then outstanding principal
of the bonds plus 45 days interest calculated at 15% per annum. Under the
terms of the Agreement, the joint venture must pay a fee to the lender at an
annual rate of 1% of the mortgage loan. The fee is payable monthly in
arrears until termination of the Agreement. During 1994, 1993 and 1992, fees
incurred under the letter of credit were $83,300 in each year and have been
included in interest expense and related fees in the accompanying statement
of operations.

The Summerwind mortgage loan agreement provides, among other things, that
at least 20% of the project units are to be set aside for "low income
housing", as defined. In addition, the loan has certain prepayment
penalties, including the mandatory repayment of the outstanding balance of
the loan upon a determination that interest on the underlying revenue bonds
is includable for Federal income tax purposes in income of the recipients.

Also, as part of the refinancing agreement for the Summerwind mortgage
loan, the Partnership was required to place $200,000 into a debt service
fund, held jointly by the Partnership and the lender. These monies were

restricted solely for debt service shortfalls of the operating property, but
were to be returned to the Partnership if the property achieved specified
operating results. The balance of the restricted cash was $201,000 at
December 31, 1993. During the current year, the lender released the
restricted cash which had been set aside to cover debt service shortfalls of
the Summerwind joint venture. The lender released such funds, totalling
approximately $205,000, to the venture in September 1994.

8. Commitments and Contingencies

Tara Associates, Ltd. has entered into a security contract which covers
fire, burglary, and emergency protection on the apartment units. The
contract expires August 11, 1995. Future minimum payments are $14,000 for
the year ended December 31, 1995.

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

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
PAINE WEBBER GROWTH PARTNERS THREE, L.P.

SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION

March 31, 1995
(In Thousands)
<TABLE>
<CAPTION>

Costs
Capitalized Life on Which
Initial Cost to (Removed) Depreciation
Partnership Subsequent to Gross Amount at Which Carried at in Latest
Venture Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summerwind
Apartments
Jonesboro,
GA $ 8,330 $ 720 $ 8,611 $ (188) $670 $8,473 $ 9,143 $ 3,065 1985 10/8/85 5 - 30 yrs

Notes

(A) The aggregate cost of real estate owned at March 31, 1995 for Federal income tax purposes is approximately $9,348.
(B) See Note 7 of Notes to Financial Statements for a description of the debt encumbering the property.
(C) Reconciliation of real estate owned:
1995 1994 1993

Balance at beginning of period $ 9,127 $9,126 $ 9,126
Acquisitions and improvements 16 1 -
Balance at end of period $ 9,143 $9,127 $ 9,126

(D) Reconciliation of accumulated depreciation:

Balance at beginning of period $ 2,795 $2,526 $ 2,257
Depreciation expense 270 269 269
Balance at end of period $ 3,065 $2,795 $ 2,526

(E)Costs removed subsequent to acquisition represent guaranty payments from the co-venturer (See Note 4).
</TABLE>

REPORT OF INDEPENDENT AUDITORS

The Partners
St. Louis Woodchase Associates:

We have audited the accompanying balance sheets of St. Louis Woodchase
Associates (the "Joint Venture") as of December 31, 1994 and 1993 and the
related statements of operations and changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1994.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Joint Venture's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Louis Woodchase Associates
at December 31, 1994 and 1993, and the results of its operations and its cash

flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

ERNST & YOUNG LLP

Boston, Massachusetts
January 20, 1995

ST. LOUIS WOODCHASE ASSOCIATES

BALANCE SHEETS

December 31, 1994 and 1993
(In Thousands)

ASSETS

1994 1993

Current Assets:
Cash and cash equivalents $ 66 $ 43
Escrow deposits 18 1
Rent receivable 2 -
Prepaid expenses 10 9
Refinancing deposit - 40
Total current assets 96 93

Operating investment property, at cost:
Land 983 983
Building and improvements 10,039 9,994
Furniture and fixtures 762 753
11,784 11,730
Less accumulated depreciation (3,752) (3,410)
Net operating investment property 8,032 8,320

Deferred expenses, net of accumulated amortization
of $22 ($3 in 1993) 70 62
$ 8,198 $ 8,475

LIABILITIES AND PARTNERS' DEFICIT

Current Liabilities:
Current portion of long-term debt $ 93 $ 85
Accounts payable 10 12
Accrued interest 246 95
Accrued expenses 16 49

Payable to property manager 4 -
Total current liabilities 369 241

Tenant security deposits 29 26
Distribution payable to partner 9 9
Partner loans and accrued interest 344 323
Long-term debt 7,809 7,902
Partners' deficit (362) (26)
$ 8,198 $ 8,475

See accompanying notes.

ST. LOUIS WOODCHASE ASSOCIATES

STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1994, 1993 and 1992
(In Thousands)

1994 1993 1992

REVENUES:
Rental income $ 1,443 $ 1,387 $ 1,368
Interest income 1 2 3
Other revenues 32 35 38
1,476 1,424 1,409

EXPENSES:
Depreciation expense 342 343 343
Mortgage interest 884 830 815
Interest expense on partner loans 21 18 19
Repairs and maintenance 86 95 60
Salaries and related costs 117 130 121
Real estate taxes 105 103 159
Management fees 72 71 70
Utilities 63 52 59
General and administrative 82 75 77
Insurance 26 27 24
Professional fees 14 13 12
1,812 1,757 1,759

Net loss (336) (333) (350)

Partners' capital (deficit),
beginning of year (26) 307 657

Partners' capital (deficit),

end of year $ (362) $ (26) $ 307

See accompanying notes.

ST. LOUIS WOODCHASE ASSOCIATES

STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)

1994 1993 1992

Cash flows from operating activities:
Net loss $ (336) $ (333) $ (350)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 342 343 343
Amortization of deferred interest 19 16 15
Changes in assets and liabilities:
Escrow deposits (17) 2
Rents receivable (2) -
Prepaid expenses (1) (1) 1
Accounts payable (2) (5) 2
Accrued expenses (32) 35 1
Accrued interest 151 28 -
Accrued interest on partner loans 21 18 19

Tenant security deposits 3 (3) (9)
Payable to property manager 4 (2) -
Total adjustments 486 429 374
Net cash provided by (used for)
operating activities 150 96 24

Cash flows from investing activities:
Additions to operating investment property (54) (6) (2)

Cash flows from financing activities:
Increase (decrease) in deposit 40 (40) -
Increase in deferred expenses (27) (65) -
Payments of principal on long-term debt (86) (13) -
Net cash used for financing
activities (73) (118) -

Net increase (decrease) in
cash and cash equivalents 23 (28) 22

Cash at beginning of year 43 71 49

Cash and cash equivalents,
end of year $ 66 $ 43 $ 71

Cash paid during the year
for interest $ 714 $ 787 $ 800

See accompanying notes.

1. Summary of Significant Accounting Policies

General

St. Louis Woodchase Associates, a Missouri general partnership, (the
"Joint Venture") was organized on December 27,1985 in accordance with a
Joint Venture Agreement between PaineWebber Growth Partners Three Limited
Partnership (the "Partnership") and St. Louis Woodchase Company, Ltd. (the
"Co-Venturer"). The Joint Venture was organized to purchase and operate an
apartment complex in St. Louis County, Missouri.

Basis of Presentation

Generally, the records of the joint venture are maintained on the
accrual basis of accounting used for federal income tax purposes and
adjusted to generally accepted accounting principles for financial reporting
purposes, principally for depreciation.

Operating investment property

The operating investment property is carried at the lower of cost,
adjusted for certain guaranteed payments and accumulated depreciation, or
net realizable value. The net realizable value of a property held for long-

term investment purposes is measured by the recoverability of the investment
from expected future cash flows on an undiscounted basis, which may exceed
the property's market value. The net realizable value of a property held
for sale approximates its current market value. The operating investment
property was considered to be held for long-term investment purposes as of
December 31, 1994 and 1993. Depreciation expense is computed using the
straight-line method over an estimated useful life of thirty years for
buildings and improvements and five years for furniture and fixtures.
Acquisition fees have been capitalized and are included in the cost of the
operating investment properties.

The Joint Venture has reviewed FAS No. 121 ``Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of'' which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Joint Venture's financial statements.

Deferred expenses

Deferred expenses at both December 31, 1994 and December 31, 1993 relate
to costs associated with the refinancing of debt in 1993. Deferred financing
costs are amortized using the straight-line method over the respective terms
of the loans. The amortization of such fees is included in interest expense
on the accompanying statements of operations.

Refinancing deposit

The deposit represents an amount related to the refinancing of the long-
term debt. The deposit was refunded at the closing date of the loan
refinancing (See Note 4).

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, cash deposited with banks and certificates of deposit with
original maturities of three months or less.

Income tax matters

The Joint Venture is not a taxable entity and the results of its
operations are included in the tax returns of the partners. Accordingly, no
income tax provision is reflected in the accompanying financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the
current year presentation.

2. The Partnership Agreement

The joint venture agreement provides that the Partnership will receive
from available cash flow (after payment of any interest on operating loans
by the parties to the joint venture) an annual, cumulative preferred base
return, payable monthly, of 8% of the Partnership's net investment.
Thereafter any remaining cash flow shall be distributed 70% to the
Partnership and 30% to the Co-Venturer. The Partnership's cumulative
preference returns in arrears were approximately $1,666,000 and $1,479,000
at December 31, 1994 and 1993, respectively.

After the end of each month during the year in which the Partnership has
not received its cumulative preference return, the Co-Venturer shall

distribute to the Partnership the lesser of (a) the excess, if any, of the
Partnership's cumulative preference return over the aggregate amount of net
cash flow previously distributed to the Partnership during the year or (b)
any net cash flow distributed to the Co-Venturer during the year.

Net income and net loss from operations shall be allocated in any year
in the same proportions as actual cash distributions, provided that the Co-
Venturer shall not be allocated less than 30% of the net income or net loss
after the Partnership has received cumulative losses equal to $4,086,250.
The Partnership was allocated cumulative losses equal to this threshold
during 1990. Additionally, the Co-Venturer shall not be allocated net
income in excess of cash distributions distributed to it during any year.

Upon sale or refinancing, proceeds shall be distributed in the following
order of priority (after payment of mortgage debt and other indebtedness of
the Joint Venture): 1) the Partnership and the Co-Venturer shall receive
any amounts due for operating loans or additional cash contributions; 2) the
Partnership shall receive $2,685,250 plus certain closing costs incurred; 3)
the Partnership shall receive the aggregate amount of its cumulative annual
preference return not previously distributed; 4) the Co-Venturer shall
receive any accrued interest and principal on mandatory loans (as described
below); 5) the manager of the complex, an affiliate of the Co-Venturer,
shall receive any subordinated management fees. Any remaining proceeds
shall be distributed 70% to the Partnership and 30% to the Co-Venturer.

The Co-Venturer guaranteed payment of all operating expenses and debt
service plus a $3,000 annual return to the Partnership from the date of
closing through December 31, 1987 (the Guaranty Period). The Joint Venture
received payments aggregating $347,290 during the Guaranty Period. Such

amounts have been recorded as a reduction of the basis of the operating
property for financial reporting purposes. The Co-Venturer was required to
make mandatory loans to the joint venture to pay all operating expenses and
debt service plus a $3,000 annual return to the Partnership for the twelve-
month period following the Guaranty Period. Mandatory loans totalling
$130,211 have been made by the Co-Venturer. Such loans bear interest at 1%
above the prime lending rate. The Co-Venturer was paid a fee of $288,000 in
consideration for its agreement to provide the guaranty and make the
mandatory loans. After the mandatory loan period, if additional cash is
required in connection with the Joint Venture, it may be provided by the
Partnership and the Co-Venturer as loans (evidenced by operating notes) to
the Joint Venture. Such loans are to be provided 70% by the Partnership and
30% by the Co-Venturer and would bear interest at the prime rate. In the
event that a partner fails to make its respective share of a loan, the other
partner may make the loan to the Joint Venture for the defaulting partner's
share at twice the prime rate. Operating loans totalling $87,000 have been
made 100% by the Co-Venturer through December 31, 1994.

The joint venture has entered into a property management contract with
an affiliate of the Co-Venturer, cancellable at the option of the joint
venture upon the occurrence of certain events. The management fee is equal
to 5% of the gross receipts, as defined.

The Combined Joint Ventures have reviewed FAS No. 121 ``Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of'' which is effective for financial statements for years beginning after
December 15, 1995, and believes this new pronouncement will not have a
material effect on the combined financial statements.

3. Partner loans

Partner loans consist of the following (in thousands):
1994 1993
Deficit loans, payable to the
Co-Venturer, interest
at 1% over prime
(9.5% at December 31, 1994) $ 130 $ 130

Operating loans, payable to the
Co-Venturer, interest
at prime (8.5% at December 31, 1994) 26 26

Operating loans, payable to the
Co-Venturer, interest
at twice the prime rate
(17.0% at December 31, 1994) 61 61
$ 217 $ 217

Repayment of the above loans (and accrued interest) is limited to net
cash flow and capital proceeds, as defined. The loans are nonrecourse to
the Joint Venture.

Unpaid interest on partner loans at December 31, 1994 and 1993 totalled
approximately $127,000 and $106,000, respectively. Interest on the $61,000
operating loan is first in priority for payment from net cash flow available
for distribution.

4. Long-term debt

Long-term debts consists of a nonrecourse mortgage note payable secured
by the operating investment property in the initial amount of $8,000,000.
The note bears interest at 9% and is payable in monthly installments,
including principal and interest of $66,667 through November 1, 1998.
Additional interest at the rate of 1.75% shall accrue monthly on the
outstanding principal balances and 10.75% shall accrue on the unpaid
interest balance. Subject to the terms of the loan agreement, net cash flow
from operations, as defined and if available, will be applied to fund the
additional interest quarterly. In addition, the Joint Venture is required
to submit monthly escrow deposits of $3,875 for a replacement reserve.
Amounts in the replacement reserve have been pledged as additional
collateral for the operating investment property. The mortgage loan is
fully prepayable without penalty through September 30, 1995, after which a
prepayment penalty would be owed on any prepayment prior to maturity. The
venture is currently seeking to refinance the outstanding first mortgage
loan obligation. However, there are no assurances that a new financing
source will be obtained.

The scheduled annual principal payments to retire the long-term debt are
as follows:

1995 $ 93,000
1996 101,000
1997 111,000
1998 7,597,000
$ 7,902,000

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
ST. LOUIS WOODCHASE ASSOCIATES

SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Life on Which
Initial Cost to (Removed) Depreciation
Partnership Subsequent to Gross Amount at Which Carried in Latest
Venture Acquisition at End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Woodchase
Apartments
St. Louis,
MO $ 7,902 $1,013 $9,924 $ 847 $983 $10,801 $11,784 $ 3,752 1985 12/31/85 5 - 30 yrs

Notes

(A) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes is approximately $12,006.

(B) See Note 4 of Notes to Financial Statements for a description of the debt encumbering the property.

Balance at beginning of period $ 11,730 $ 11,724 $ 11,722
Acquisitions and improvements 54 6 2
Balance at end of period $ 11,784 $ 11,730 $ 11,724

(D) Reconciliation of accumulated depreciation:

Balance at beginning of period $ 3,410 $ 3,067 $ 2,724
Depreciation expense 342 343 343
Balance at end of period $ 3,752 $ 3,410 $ 3,067

(E) Costs removed represent guaranty payments from the co-venturer (see Note 2).

</TABLE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's annual financial statements for the year ended 3/31/95 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,053
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,053
<PP&E> 3,127
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,180
<CURRENT-LIABILITIES> 55
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,125
<TOTAL-LIABILITY-AND-EQUITY> 4,180
<SALES> 0
<TOTAL-REVENUES> 227
<CGS> 0
<TOTAL-COSTS> 292
<OTHER-EXPENSES> 161
<LOSS-PROVISION> 2,019
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,245)
<EPS-PRIMARY> (66.54)
<EPS-DILUTED> (66.54)