<PAGE>

                United States Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

     X    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
   -----  Exchange Act of 1934
                 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1998

or

          Transition Report Pursuant to Section 13 of 15(d) of the Securities
   -----  Exchange Act of 1934
                  For the transition period from ____ to ____

                         COMMISSION FILE NUMBER: 0-11769

                          CONAM REALTY INVESTORS 3 L.P.
                          -----------------------------
              EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER

        California                                                13-3176625
        ----------                                                ----------
STATE OR OTHER JURISDICTION OF                I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION

1764 San Diego Avenue
San Diego, CA  92110  Attn. Robert J. Svatos                       92110-1906
--------------------------------------------                       ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES                               ZIP CODE

                                 (619) 297-6771
                                 --------------
               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes X   No
                                   ---    ---


<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS                                            AT AUGUST 31,          AT NOVEMBER 30,
                                                                                1998                     1997
   ------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                      <C>
   ASSETS
   Investments in real estate:
       Land                                                               $ 5,817,668              $ 5,817,668
       Buildings and improvements                                          22,506,515               22,465,678
                                                                   --------------------------------------------
                                                                           28,324,183               28,283,346
       Less accumulated depreciation                                      (11,833,274)             (11,223,921)
                                                                   --------------------------------------------
                                                                           16,490,909               17,059,425
   Cash and cash equivalents                                                  852,951                  796,824
   Restricted cash                                                            132,846                  109,843
   Other assets, net of accumulated amortization
       of $238,471 in 1998 and $206,209 in 1997                               142,026                  109,293
   ------------------------------------------------------------------------------------------------------------
   ------------------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                   $ 17,618,732             $ 18,075,385
   ------------------------------------------------------------------------------------------------------------
   ------------------------------------------------------------------------------------------------------------
   LIABILITIES AND PARTNERS' CAPITAL
   Liabilities:

       Mortgages payable                                                    8,191,266                8,292,972
       Distribution payable                                                   133,333                  146,659
       Accounts payable and accrued expenses                                  323,380                  218,266
       Due to general partner and affiliates                                   15,397                   16,703
       Security deposits                                                      101,113                  101,198
                                                                   --------------------------------------------
          Total Liabilities                                                 8,764,489                8,775,798
                                                                   --------------------------------------------
   Partners' Capital

       General Partner                                                       (995,512)                (955,059)
       Limited Partners (80,000 Units outstanding)                          9,849,755               10,254,646
                                                                   --------------------------------------------
          Total Partners' Capital                                           8,854,243                9,299,587
   ------------------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND PARTNERS' CAPITAL                        $ 17,618,732             $ 18,075,385
   ------------------------------------------------------------------------------------------------------------
   ------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                       NINE MONTHS ENDED
                                                      AUGUST 31,                               AUGUST 31,
                                             1998                  1997                1998                 1997
--------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                  <C>                   <C>
INCOME
Rental                                  $   918,651           $   881,207          $ 2,733,857           $ 2,677,955
Interest and other                            7,465                 7,864               12,708                28,965
                                        ----------------------------------------------------------------------------
       Total Income                         926,116               889,071            2,746,565             2,706,920
--------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating                          455,940               432,699            1,356,044             1,313,253
Depreciation and amortization               229,604               231,094              688,690               689,467
Interest                                    180,441               183,714              543,843               553,449
General and administrative                   39,330                35,812              141,653               124,443
Write-off of assets                          44,793                     -               61,680                     -
                                        ----------------------------------------------------------------------------
       Total Expenses                       950,108               883,319            2,791,910             2,680,612
--------------------------------------------------------------------------------------------------------------------
       NET INCOME (LOSS)                $   (23,992)          $     5,752          $   (45,345)          $    26,308
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
    To the General Partner              $      (240)          $       575          $      (454)          $     2,631
    To the Limited Partners                 (23,752)                5,177              (44,891)               23,677
--------------------------------------------------------------------------------------------------------------------
       NET INCOME (LOSS)                $   (23,992)          $     5,752          $   (45,345)          $    26,308
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
    (80,000 UNITS OUTSTANDING)          $     (0.30)          $      0.07          $     (0.56)          $      0.30
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</TABLE>


CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL

FOR THE NINE MONTHS ENDED AUGUST 31, 1998

<TABLE>
<CAPTION>
                                                   GENERAL               LIMITED
                                                   PARTNER               PARTNERS                 TOTAL
----------------------------------------------------------------------------------------------------------
<S>                                             <C>                    <C>                    <C>
BALANCE (DEFICIT) AT NOVEMBER 30, 1997          $   (955,059)          $ 10,254,646           $  9,299,587
Net income (loss)                                       (454)               (44,891)               (45,345)
Distributions ($4.50 per Unit)                       (39,999)              (360,000)              (399,999)
----------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT AUGUST 31, 1998            $   (995,512)          $  9,849,755           $  8,854,243
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED AUGUST 31, 1998                                        1998                 1997
------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                          $   (45,345)          $    26,308
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
    Depreciation and amortization                                              688,690               689,467
    Write-off of assets                                                         61,680                     -
    Increase (decrease) in cash arising from changes in operating
    assets and liabilities:
       Fundings to restricted cash                                            (107,082)             (119,936)
       Release of restricted cash  to property operations                       84,079                81,926
       Other assets                                                            (64,995)               28,127
       Accounts payable and accrued expenses                                   105,114                68,458
       Due to general partner and affiliates                                    (1,306)               (1,063)
       Security deposits                                                           (85)              (15,268)
                                                                          ----------------------------------
Net cash provided by operating activities                                      720,750               758,019
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate                                                      (203,783)             (353,096)
Insurance recovery of real estate additions                                     54,191                     -
                                                                          ----------------------------------
Net cash used for investing activities                                        (149,592)             (353,096)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments                                                   (101,706)             (105,234)
Distributions                                                                 (413,325)             (488,889)
                                                                          ----------------------------------
Net cash used for financing activities                                        (515,031)             (594,123)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                            56,127              (189,200)
Cash and cash equivalents, beginning of period                                 796,824             1,084,483
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                   $   852,951           $   895,283
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest                                   $   483,791           $   553,449
------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Write-off of buildings and improvements                                    $  (108,755)          $         -
Write-off of accumulated depreciation                                      $   (47,075)          $         -
------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's 1997 Annual Report.

The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of August 31, 1998 and the
results of operations for the three and nine months ended August 31, 1998 and
1997, consolidated cash flows for the nine months ended August 31, 1998 and
1997, and the statement of consolidated partners' capital for the nine months
ended August 31, 1998. Results of operations for the periods are not necessarily
indicative of the results to be expected for the full year.

No significant events have occurred subsequent to fiscal year 1997, and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a) (5).


<PAGE>

PART I, ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

At August 31, 1998, the Partnership had cash and cash equivalents of $852,951
compared with $796,824 at November 30, 1997. The increase in cash and cash
equivalents is due to less cash being used for fixed assets additions, lower
distributions, and the insurance recovery of $54,191 for defective roofing
repairs. The Partnership expects sufficient cash to be generated from operations
to meet its current operating expenses.

The General Partner declared a regular cash distribution of $1.50 per unit for
the quarter ended August 31, 1998 which is to be paid in October, 1998. The
General Partner will determine the amount of future quarterly distributions
based on the Partnership's available cash flow and future cash needs.

RESULTS OF OPERATIONS

Partnership operations for the three and nine months ended August 31, 1998
generated net losses of ($23,992) and ($45,345), respectively, compared with net
income of $5,752 and $26,308, respectively, for the corresponding periods in
fiscal 1997. The decrease for the three months ended August 31, 1998 is
primarily attributable to an increase in property operating expenses and a
write-off of assets of $44,793, partially off-set by an increase in rental
income. The decrease for the nine months ended August 31, 1998 is primarily
attributable to an increase in property operating expenses and general and
administrative expenses and a write-off of assets of $61,680, somewhat offset by
the increase in rental income.

Rental income totaled $918,651 and $2,733,857 for the three and nine months,
respectively, ended August 31, 1998 compared with $881,207 and $2,677,955,
respectively, for the corresponding periods in fiscal 1997 resulting from an
increase in rental income primarily from increased rental rates at Autum Heights
and Ponte Vedra Beach Village II and increased occupancy at Skyline Village.

Property operating expenses for the three and nine months ended August 31, 1998
totaled $455,940 and $1,356,044, respectively, compared with $432,699 and
$1,313,253, respectively, for the corresponding period in fiscal 1997. The
increase for the three months ended August 31, 1998 is due to an increase in
rental administration expenses. The increase for the nine months ended August
31, 1998 is primarily attributable to increased utilities expense.

During the first nine months of fiscal 1998 and 1997, average occupancy levels
at the Partnership's properties were as follows:

<TABLE>
<CAPTION>
          PROPERTY                                    1998              1997
          -------------------------------------------------------------------
<S>                                                   <C>               <C>
          Autumn Heights                                94%               94%
          Ponte Vedra Beach Village II                  92%               94%
          Skyline Village                               94%               90%
          -------------------------------------------------------------------
</TABLE>

The decreae in occupancy at Ponte Vedra Beach Village II is due to strong
competition associated with increased construction in Florida. This decrease in
occupancy is off-set by increased rental rates resulting in increased total
rental income. The Tucson market continues to improve from its overbuilt
situation of two years ago, resulting in increased occupancy and total rental
income at Skyline Village, however, rental concessions are still required to
maintain current occupancy levels.


<PAGE>

OTHER INFORMATION

PART II        Not applicable

ITEMS 1-5      Exhibits and reports on Form 8-K

ITEMS 6        (a) Exhibits

                       (27) Financial Data Schedule

               (b) Reports on Form 8-K  - No reports on Form 8-K were filed
                   during the quarter ended August 31, 1998.


<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                        CONAM PROPERTY SERVICES IV, LTD.
                General Partner of ConAm Realty Investors 3 L.P.

                           BY:   CONTINENTAL AMERICAN DEVELOPMENT, INC.
                                 GENERAL PARTNER

Date:  October 13, 1998            BY:/s/ DANIEL J. EPSTEIN
                                          -----------------
                                  Daniel J. Epstein
                                  Director, President, and Principal Executive
                                  Officer

Date:  October 13, 1998            BY:/s/ ROBERT J. SVATOS
                                          ----------------
                                  Robert J. Svatos
                                  Vice President and Director