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


                                   FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

                  For the Nine Months Ended September 30, 1996
                       Commission File Number 33-28493-A

                           CONDEV LAND FUND III, LTD.
                           --------------------------
             (Exact name of registrant as specified in its charter)

               FLORIDA                                59-2943405
               -------                                ----------
        (State or other jurisdiction of             (I.R.S. Employer
         incorporation of organization)             Identification No.)

                               2487 Aloma Avenue
                           Winter Park, Florida 32792
                    (Address of principal executive offices)

Registrant's telephone number, including area code: (407) 679-1748


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 report), and (2) has been subject to such filing
requirements for the past 90 days.  YES  X     NO       .
                                       ------     ------       
<PAGE>
 
                           CONDEV LAND FUND III, LTD.

                                     INDEX

                                                            PAGE
                                                            NUMBER
PART I.  FINANCIAL INFORMATION:

         ITEM 1.    Financial Statements

                    Statement of Assets,
                    Liabilities and Partner's
                    Capital - September 30, 1996 and
                    December 31, 1995                          3

                    Statement of Income & Expense
                    Three Months Ended September 30, 1996
                    and September 30, 1995                     4

                    Statement of Income & Expense
                    Nine Months Ended September 30, 1996
                    and September 30, 1995                     5

                    Statement of Cash Receipts and
                    Disbursements-Nine months ended
                    September 30, 1996                         6

                    Notes to Financial Statements              7 - 9

         ITEM 2.    Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations                              9

PART II. OTHER INFORMATION:

         ITEM 6.    Exhibits and Reports on Form 8-K           9
<PAGE>
 
                         PART I.  FINANCIAL INFORMATION



Item 1.  Financial Statements:
         ---------------------

The accompanying financial statements, in the opinion of Condev Associates, the
general partner of Condev Land Fund III, Ltd., reflect all adjustments (which
include only normal recurring adjustments) necessary to a fair statement of the
financial position, the results of operations and the changes in cash position
for the periods presented.

                           CONDEV LAND FUND III, LTD.
             STATEMENT OF ASSETS, LIABILITIES AND PARTNER'S CAPITAL
                   SEPTEMBER 30, 1996, AND DECEMBER 31, 1995
                                        


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
 
                                   September 30, 1996  December 31, 1995
                                   ------------------  -----------------
                                                           (AUDITED) 
<S>                                <C>                 <C> 
 
Cash and Cash Equivalents               $  115,410        $   122,078
Investment in Joint Venture (2)          1,354,149          1,532,130
Land, at cost (3)                          405,467            405,467
Organization Costs                           4,386              4,386
                                        ----------        -----------
 
Total Assets:                           $1,879,412        $ 2,064,061
                                        ==========        ===========
</TABLE>


                       LIABILITIES AND PARTNER'S CAPITAL
                       ---------------------------------
<TABLE>
<CAPTION>
 
<S>                                <C>                 <C>
Liabilities                             $    1,170        $     1,170
                                        ----------        -----------
                                                        
Partner's Capital:                                      
  General Partner                       $      218        $(      186)
  Limited Partners                       1,878,024          2,063,077
  Distribution - Current Year                   --                 --
                                        ----------        -----------
                                                       
    Total Partner's Capital:            $1,878,242        $2,062,891
                                        ----------        ----------
                                                        
   Total Liabilities and Partner's                     
 Capital:                               $1,879,412        $2,064,061
                                        ==========        ==========
</TABLE>

                                       3
<PAGE>
 
                           CONDEV LAND FUND III, LTD.
                        STATEMENT OF INCOME AND EXPENSE
          THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                     September 30, 1996  September 30, 1995
                                     ------------------  ------------------
          INCOME
          ------
<S>                                  <C>                 <C>
 
Interest and Other Income                  $ 1,286              $3,171
                                      
Equity in Income of Joint Venture           48,009                   0
                                           -------              ------
                                      
Total Income                               $49,295              $3,171
                                      
                                      
          OPERATING EXPENSES          
          ------------------
                                      
Professional Fees                                0                   0
                                      
Equity in Loss of Joint Venture                  0                   0
                                      
Office Expense                                 930               1,887
                                           -------              ------
                                      
     Total Operating Expenses:             $   930              $1,887
                                           -------              ------
                                      
     Net Profit/(Loss)                     $48,365              $1,284
                                           =======              ======
 
</TABLE>

                                       4
<PAGE>
 
                           CONDEV LAND FUND III, LTD.
                        STATEMENT OF INCOME AND EXPENSE
          NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                     September 30, 1996  September 30, 1995
                                     ------------------  -------------------
          INCOME
          ------
<S>                                  <C>                 <C>
 
Interest and Other Income                  $ 5,003           $   5,798
                                  
Equity in Income of Joint Venture           48,009                   0
                                           -------           ---------
                                  
Total Income                               $53,012           $   5,798
                                  
          OPERATING EXPENSES      
          ------------------
                                  
Professional Fees                            7,000               7,000
                                  
Equity in Loss of Joint Venture                990                   0
                                  
Office Expense                               4,638               4,565
                                           -------           ---------
                                  
     Total Operating Expenses:             $12,628           $  11,565
                                           -------           ---------
                                  
     Net Profit/(Loss)                     $40,384           $(  5,767)
                                           =======           =========
 
</TABLE>

                                       5
<PAGE>
 
                           CONDEV LAND FUND III, LTD.
                            STATEMENT OF CASH FLOWS
                      NINE MONTHS ENDED SEPTEMBER 30, 1996


     Cash Flows from Operating Activities:

          Net Income                                    $  40,384
          Adjustments to Reconcile Net Income
          To Net Cash Provided by Operating
          Activities:
               Equity in income of joint venture         ( 48,009)
               Cash Provided by Changes in:
                         Interest receivable                    0
                                                        ---------

     Net Cash Provided in Operating Activities:         $(  7,625)

     Cash Flows from Investing Activities:

          Distributions from Joint Venture, net         $ 225,000
          Investments In Joint Ventures                 $     990
                                                        ---------
                                                     
     Net Cash Used in Investing Activities:             $ 225,990
                                                        ---------
                                                     
     Cash Flows from Financing Activities:           
          Distributions to Partners                      (225,032)
                                                        ---------
                                                     
     Net Cash Provided by Financing Activities:         $(225,032)
                                                     
                                                     
     Net decrease in Cash                               $(  6,668)

     Cash and Cash Equivalents at Beginning of Year     $ 122,078


     Cash and Cash Equivalents at End of Period         $ 115,410
                                                        =========

                                       6
<PAGE>
 
Note 1    BUSINESS:
-------   -------- 

          Condev Land Fund III, Ltd. (the "Partnership") was formed on February
          15, 1989 pursuant to the provisions of the Florida Revised Uniform
          Limited Partnership Act for the purpose of acquiring and holding for
          investment unimproved land in Central Florida.

          The Offering Period for the Partnership originally scheduled to
          expire on July 2, 1990 was extended to June 30, 1991.  As of June
          30, 1991, the Partnership had received $2,446,000 in partnership
          capital.

          The Partnership has made two investments.  Refer to Note 2
          INVESTMENT IN JOINT VENTURE and Note 3 INVESTMENT IN LAND for
          details.

          Unless terminated earlier as provided under the terms of the
          Partnership Agreement, the Partnership will continue in existence
          until December 31, 1996.  Thereafter, the Partnership will be in
          liquidation with no change in status of the limited partners or
          the general partner.

Note 2    INVESTMENT IN JOINT VENTURE:
          --------------------------- 

          The Partnership owns a 90% interest in Condev Osceola Joint Venture.
          The joint venture partner, Condev Osceola, Ltd., is a private
          partnership sponsored by the general partner. On May 31, 1991, Condev
          Osceola Joint Venture purchased two parcels of land aggregating 8.6
          acres and related sewer capacity within the Kyng's Heath commercial
          subdivision on S.R. 535 near its intersection with Highway 192 in
          Osceola County, Florida. The property is zoned tourist-commercial in
          Osceola County, Florida.

          The purchase price of this property was $1,740,000 or $4.64 per square
          foot, and the purchase price for the sewer capacity was $22,400. The
          Partnership received an appraisal on this property of $2,260,000 or
          $6.02 per square foot.

          On February 28, 1996, Condev Osceola Joint Venture entered into a
          Contract for Sale of Real Estate with a timeshare developer and
          operator for 5.08 acres of this site and the related sewer capacity.
          On August 28, 1996, the Joint Venture concluded the sale. The buyer
          was Orlando Resort Development Group, which intends to build 92 time-
          share units and related amenities on the site.

          The purchase price was $1,250,000, or approximately $250,000 per acre.
          In addition, the buyer reimbursed the Joint Venture $22,400 for sewer
          capacity reserved for the site. The buyer made a cash payment at
          closing of $350,000, and issued its promissory note in the amount of
          $900,000 to the Joint Venture. The Joint Venture retains a mortgage on
          the land until the note is repaid. Terms of the note include quarterly
          interest at the rate of 8% and three equal annual principal payments
          of $300,000 each. It is anticipated that the note will be repaid
          substantially sooner as it is likely that the developer will want to
          release land from the mortgage to begin the development of the site.

                                       7
<PAGE>
 
          The Joint Venture continues to own 2.94 acres of land in this
          location.

      A summary of the assets, liabilities and venturers' capital of Condev
      Osceola Joint Venture as of September 30, 1996 are as follows:

 
                      ASSETS
                      ------
        
          Cash                                   $   15,883
          Note Receivable                           900,000
          Investments in land                       589,715
                                                 ----------
                                                 $1,505,598
 
              LIABILITIES AND VENTURERS' CAPITAL
              ----------------------------------
 
          Accounts Payable                              988
          Venturers Capital                       1,452,366
          Current Profit/(Loss)                      52,244
                                                 ----------
                                                 $1,505,598
                                                 ==========


Note 3    INVESTMENT IN LAND:
          -------------------

          In 1993, the Partnership purchased a 10-acre parcel of commercially
          zoned land fronting on the east side of U.S. Highway 27 in Lake
          County, Florida, approximately 1.5 miles north of the U.S. 192 and
          U.S. 27 intersection.

          The purchase price of the property was $400,000 or $.92 per square
          foot. The Partnership received a $400,000 appraisal of the land at the
          time of acquisition.

Note 4    DISTRIBUTIONS TO PARTNERS:
          --------------------------

          Pursuant to the partnership agreement, cash flow generated each year
          by the Partnership is to be distributed 99% to the limited partners
          and 1% to the general partner. There were no cash flow distributions
          during the first nine months of 1996.

          Pursuant to the partnership agreement, proceeds realized from the sale
          of properties, after the establishment of reserves for future
          operating costs, are to be distributed at least annually. There was a
          distribution to limited partners during the third quarter of 1996 in
          the amount of $225,032 relating to the sale of land described in Note
          2 above.

Note 4    RELATED PARTY TRANSACTIONS:
          ---------------------------

          The Partnership Agreement provides for the reimbursement to the
          general partner of administrative expenses incurred in the direct
          operation of the partnership. For the nine months ended September 30,
          1996, a total of $ 2,790 was reimbursed to the general partner for
          direct expenses incurred.

                                       8
<PAGE>
 
          When properties are sold, an affiliate of the general partner may be
          paid real estate commissions in amounts customarily charged by others
          rendering similar services with such commissions plus commissions paid
          to nonaffiliated brokers not to exceed 10% of the gross sales price.
          No real estate commissions were paid to the general partner or any
          affiliate during the nine months ended September 30, 1996.

          The general partner is obligated to loan up to $100,000 to the
          Partnership during its term to meet working capital requirements. No
          such loans were made to the Partnership during the nine months ended
          September 30, 1996.

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          -----------------------------------------------------------
          AND RESULTS OF OPERATIONS
          -------------------------

          For the nine months ended September 30, 1996 total income was $53,012.
          This came from interest earned on deposits and short-term investments,
          sign rental income and the sale of one property in the third quarter
          (see Note 2 for details). For the nine months ended September 30,
          1995, total income was $5,798. There were no sales of property during
          the 1995 period. Expenses for the nine months ended September 30, 1996
          were $12,628, primarily professional fees and office expenses,
          compared to total expenses of $11,565 for the same period in 1995. The
          reason for the increase in expenses was higher equity in the loss of
          Joint Venture which rose from $0 for the first nine months of 1995 to
          $990 in the comparable 1996 period. This results from a change in
          accounting policy whereby these expenses are recognized on a quarterly
          basis rather than annually. Net income for the nine months ending
          September 30, 1996 was $40,384, compared to a net loss of $5,767 for
          the comparable period in 1995.

          Total assets declined from $2,064,061 at December 31, 1995 to
          $1,879,412 at September 30, 1996. This reflects the cash received and
          distributed to limited partners relating to the sale discussed in Note
          2. Assets can be expected to continue to decline as properties are
          sold and as the mortgage note is repaid, and distributions are made to
          limited partners.

          Liquidity remained at a satisfactory level. Cash and equivalents
          decreased slightly from $122,078 at 1995 year-end to $115,410 at
          September 30, 1996.
 

                                    PART II

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K:
          ---------------------------------

          (A)  Exhibits/Index

               None

          (B)  Reports on Form 8-K

               There were no reports of Form 8-K for the period ended September
               30, 1996.

                                       9
<PAGE>
 
                           CONDEV LAND FUND III, LTD.
                                   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.


                                       CONDEV LAND FUND III, LTD.
                                       BY: Condev Associates, General Partner






October 25, 1996                       /s/ Robert N. Gardner
----------------                       --------------------------------------  
      DATE                             Robert N. Gardner, Partner



October 25, 1996                       /s/ Joseph J. Gardner
----------------                       --------------------------------------
      DATE                             Joseph J. Gardner, Partner

                                       10