<PAGE>
 
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   Form 10-Q



(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the quarter ended March 31, 1997

( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from _____ to _____


Commission File No. 2-90004


                         AMERICAN CABLE TV INVESTORS 3
                         -----------------------------
            (Exact name of Registrant as specified in its charter)
 
 
             State of California                            84-0939576
        -------------------------------               -------------------
        (State or other jurisdiction of                (I.R.S. Employer
         incorporation or organization)               Identification No.)
 
 
         5619 DTC Parkway
       Englewood, Colorado                                  80111
----------------------------------------              ------------------
(Address of principal executive offices)                 (Zip Code)
 
Registrant's telephone number, including area code:  (303) 267-5500


  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, and (2) has been subject to such filing
requirements for the past 90 days.   Yes   X       No
                                         -------      -------
<PAGE>
 
PART I - FINANCIAL INFORMATION


                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                                 Balance Sheets
                                  (unaudited)



<TABLE>
<CAPTION>
 
 
                                          March 31,   December 31,
                                             1997         1996
                                          ----------  -------------
Assets                                      amounts in thousands
------
 
<S>                                       <C>         <C>
Cash and cash equivalents                   $ 4,819        $ 4,967
                                            =======        =======
 
Liabilities and Partners' Equity
--------------------------------
 
Accounts payable and accrued expenses       $    56             67
 
Amounts due to related parties (note 4)          31            205
                                            -------        -------
 
   Total liabilities                             87            272
                                            -------        -------
 
Partners' equity (deficit):
 General partners                            (2,153)        (2,162)
 Limited partners                             6,885          6,857
                                            -------        -------
 
   Total partners' equity                     4,732          4,695
                                            -------        -------
 
Contingency (note 5)
                                            $ 4,819          4,967
                                            =======        =======
 
 
 
</TABLE>
See accompanying notes to financial statements.

                                      I-1
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                            Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
 
 
                                            Three months ended
                                                 March 31,
                                          -----------------------
                                             1997          1996
                                          ---------      --------
                                            amounts in thousands,
                                             except unit amounts
<S>                                       <C>            <C> 
Selling, general and administrative
 expenses (note 5)                             $   (37)     (124)
 
 
Interest income                                     74        69
                                               -------    ------
 
    Net earnings (loss)                        $    37       (55)
                                               =======    ======
 
Earnings (loss) per limited partnership
 unit (note 2)                                 $  0.40     (0.59)
                                               =======    ======
 
Limited partnership units outstanding           70,005    70,005
                                               =======    ======
 
 
</TABLE>

See accompanying notes to financial statements.

                                      I-2
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                         Statement of Partners' Equity

                       Three months ended March 31, 1997
                                  (unaudited)
<TABLE>
<CAPTION>
 
 
                               General   Limited
                              partners   partners  Total
                              ---------  --------  -----
                                 amounts in thousands
<S>                           <C>        <C>       <C> 
Balance at January 1, 1997     $(2,162)     6,857  4,695
 
 Net earnings                        9         28     37
                               -------      -----  -----
 
Balance at March 31, 1997      $(2,153)     6,885  4,732
                               =======      =====  =====
 
 
</TABLE>

See accompanying notes to financial statements.

                                      I-3
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                            Statements of Cash Flows
                                  (unaudited)
<TABLE>
<CAPTION>
 
 
                                            Three months ended
                                                March 31,
                                          ----------------------
                                             1997        1996
                                          -----------  ---------
                                           amounts in thousands
                                               (see note 3)
<S>                                       <C>          <C>
 
Cash flows from operating activities:
 Net earnings (loss)                          $   37        (55)
 Adjustments to reconcile net earnings
  (loss) to net cash provided by (used
  in) operating activities:
    Change in receivables                         --         29
    Change in accounts payable, accrued
     expenses and amounts due to related     
      parties                                   (185)        95
                                              ------      -----
 
       Net cash provided by (used in)
        operating activities                    (148)        69
                                              ------      -----
 
Cash flows from investing activities -
 Distribution from American Cable TV of
  Redlands Joint Venture ("Redlands")             --        210
                                              ------      -----

Cash flows from financing activities              --         --
                                              ------      -----
 
       Net increase (decrease) in cash
         and cash equivalents                   (148)       279
 
       Cash and cash equivalents:
         Beginning of period                   4,967      5,057
                                              ------      -----
 
         End of period                        $4,819      5,336
                                              ======      =====
 
 
</TABLE>
See accompanying notes to financial statements.

                                      I-4
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                         Notes to Financial Statements

                                 March 31, 1997
                                  (unaudited)


(1)  Basis of Financial Statement Preparation
     ----------------------------------------
     American Cable TV Investors 3 (the "Partnership" or "ACT 3") and American
     Cable TV Investors 2 ("ACT 2") owned 35% and 65%, respectively, of
     Redlands, a joint venture which was formed to acquire, develop and operate
     cable television systems in and around Redlands, California. In connection
     with a dissolution, indemnification and contribution agreement (the
     "Dissolution Agreement"), Redlands was dissolved as of January 1, 1996. In
     accordance with the terms of the Dissolution Agreement, Redlands' net
     assets were distributed to ACT 2 and ACT 3 based on their respective
     ownership interests.

     TCI Cablevision Associates, Inc. ("Cablevision"), an indirect subsidiary of
     Tele-Communications, Inc. ("TCI"), is the managing agent of the
     Partnership.

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenue
     and expenses during the reporting period. Actual results could differ from
     those estimates.

     The accompanying financial statements of the Partnership are unaudited. In
     the opinion of management, all adjustments (consisting only of normal
     recurring accruals) have been made which are necessary to present fairly
     the financial position of the Partnership as of March 31, 1997, and the
     results of its operations for the three months ended March 31, 1997 and
     1996. The results of operations for any interim period are not necessarily
     indicative of the results for the entire year.

     These financial statements should be read in conjunction with the financial
     statements and related notes thereto included in the Partnership's December
     31, 1996 Annual Report on Form 10-K.

(2)  Allocation of Net Earnings and Net Losses
     -----------------------------------------
     Pursuant to the Partnership's limited partnership agreement, net earnings
     and net losses of the Partnership are allocated 1% to the general partners
     and 99% to the limited partners until the limited partners have received
     cumulative distributions equal to their original capital contributions
     ("Payback"). After the limited partners have received distributions equal
     to Payback, the allocations of net earnings and net losses shall be 25% to
     the general partners and 75% to the limited partners.

     Net earnings (loss) per limited partnership unit is calculated by dividing
     net earnings (loss) attributable to the limited partners by the number of
     limited partnership units outstanding during the period. The limited
     partners achieved Payback in 1994. Accordingly, the Partnership's net
     earnings (loss) for the three months ended March 31, 1997 and 1996 have
     been allocated using the post-Payback percentages set forth above.

                                                                     (continued)

                                      I-5
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                         Notes to Financial Statements


(3)  Supplemental Disclosure of Cash Flow Information
     ------------------------------------------------
     The Partnership considers investments with initial maturities of six months
     or less to be cash equivalents.  At March 31, 1997, $4,779,000 of money
     market funds was included in cash and cash equivalents.  The Partnership is
     exposed to credit loss in the event of non-performance by the other parties
     to such financial instruments.  However, the Partnership does not
     anticipate non-performance by the other parties.

(4)  Transactions with Related Parties
     ---------------------------------
     The Partnership reimburses Cablevision for direct out-of-pocket and
     indirect expenses allocable to the Partnership and for certain personnel
     employed on a full- or part-time basis to perform accounting or other
     services.  Such reimbursements amounted to $9,000 for both of the three
     month periods ended March 31, 1997 and 1996.

     Amounts due to related parties represent non-interest-bearing payables to
     TCI and its affiliates consisting of (i) the net effect of cash advances
     and certain expense allocations and (ii) the advancement of legal and other
     fees and expenses associated with the litigation described in note 5.

(5)  Litigation
     ----------
     On September 30, 1994, a limited partner of the Partnership filed suit in
     United States District Court for the District of Colorado (the "District
     Court") against the managing general partner of ACT 3. A similar suit was
     filed against the managing general partner of ACT 2. The lawsuit, as
     amended, also names certain affiliates of the Partnership's managing
     general partner as defendants.  The lawsuit alleges that the defendants
     violated disclosure requirements under the Securities Exchange Act of 1934
     and that certain defendants breached a fiduciary duty to the plaintiff in
     connection with the sale of the Redlands, California cable television
     system.  The defendants believe that the claims asserted are without merit
     and intend to vigorously defend the actions.  The defendants moved to
     dismiss various claims asserted in the complaint and the plaintiff opposed
     such motions.  The defendants' motion was denied by the District Court on
     March 24, 1995.

     On November 3, 1995, the District Court granted the plaintiff's motion for
     certification of this case as a class action.  The class has been defined
     to include all persons who were limited partners of ACT 3 as of the close
     of business on October 1, 1993, excluding, however, the defendants, their
     parent corporations, subsidiaries, and affiliates.  On August 5, 1996, the
     defendants filed a motion for summary judgment on all of the plaintiff's
     claims, as well as separate partial summary judgment motions with respect
     to certain of the plaintiff's claims.  The plaintiff filed a cross-motion
     for partial summary judgment on one aspect of the case.  The motions have
     been fully briefed, however, the District Court has not yet ruled on such
     motions.  On January 7, 1997, the District Court issued an order
     consolidating this case with a similar case filed against the managing
     general partner of ACT 2 (the "Consolidated Cases").  The Consolidated
     Cases have been set for a four week jury trial beginning September 29,
     1997.



                                                                     (continued)

                                      I-6
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)

                         Notes to Financial Statements

     Section 21 of the Partnership Agreement provides that the General Partners
     and their affiliates, subject to certain conditions set forth in more
     detail in the Partnership Agreement, are entitled to be indemnified for any
     liability or loss incurred by them by reason of any act performed or
     omitted to be performed by them in connection with the business of ACT 3,
     provided that the General Partners determine, in good faith, that such
     course of conduct was in the best interests of ACT 3 and did not constitute
     proven fraud, negligence, breach of fiduciary duty or misconduct.

     Through March 31, 1997, ACT 3 and ACT 2 have received requests from the
     General Partners and certain affiliates for the advancement of legal and
     other fees and expenses associated with the above-described lawsuit
     totaling $1.9 million.  Consistent with the terms of the Partnership
     Agreement, this amount has been advanced by ACT 3 and ACT 2.  ACT 3's 50%
     share of such fees and expenses for the three months ended March 31, 1997
     and 1996 which total $12,000 and $102,000, respectively, has been included
     in selling, general, and administrative expenses in the accompanying
     financial statements. Fees and expenses incurred by the defendants will
     continue to be paid in equal shares by ACT 3 and ACT 2 as they are incurred
     and approved.

     The litigation will have the effect of delaying the Partnership's final
     cash distributions.  In addition, any successful indemnification claims by
     the defendants would have the effect of reducing the amount of such final
     cash distributions.

                                      I-7
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)


Management's Discussion and Analysis of
---------------------------------------
 Financial Condition and Results of Operations
 ---------------------------------------------

     Material Changes in Results of Operations
     -----------------------------------------

     The Partnership is no longer engaged in the cable television business and
is currently seeking to make a final determination of its liabilities so that
liquidating distributions can be made in connection with its dissolution.
Accordingly, the Partnership's results of operations for the three month periods
ended March 31, 1997 and 1996 include (i) $12,000 and $102,000, respectively for
the advancement of legal and other fees and expenses associated with the
litigation described in note 5 to the accompanying financial statements, (ii)
costs associated with the administration of the Partnership, and (iii) interest
income earned on the Partnership's invested cash and cash equivalents.

     Material Changes in Financial Condition
     ---------------------------------------

     The Partnership anticipates that it will make liquidating distributions in
connection with its dissolution as soon as possible following the final
determination and satisfaction of its liabilities.  However, the Partnership
currently is unable to predict the timing or amount of such final cash
distributions due primarily to the existence of the litigation described in note
5 to the accompanying financial statements.

                                      I-8
<PAGE>
 
                         AMERICAN CABLE TV INVESTORS 3
                            (A Limited Partnership)



PART II - OTHER INFORMATION


Item 6.   Exhibits and Reports on Form 8-K
-------   --------------------------------

     (a)  Exhibits:

          (27) Financial Data Schedule

     (b)  Reports on Form 8-K filed during the quarter ended March 31, 1997
          - none

                                      II-1
<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 thereunto duly authorized.
 
                            AMERICAN CABLE TV INVESTORS 3
                              (A Limited Partnership)
 
                       By:  IR-TCI PARTNERS III,
                            Its Managing General Partner
 
                       By:  TCI VENTURES, INC.,
                            A General Partner
 
 
 
Date: May 13, 1997     By:  /s/ Gary K. Bracken
                            ------------------------------
                            Gary K. Bracken
                            Vice President and Controller
                            (Principal Accounting Officer)
 

                                      II-2