<TABLE>
<S>    <C>




                                                     UNITED STATES
                                          SECURITIES AND EXCHANGE COMMISSION
                                                Washington, D.C. 20549

                                                       FORM 10-Q


(Mark One)

[XX]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

For           the            quarterly            period           ended            September            30,
                                                                        ------------------------------------
1995

                                                                          OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For                  the                   transition                   period                   from
to



For          Quarter           Ended           September          30,          1995           Commission           File
No. 0-14414


                                                        American           Income          3          Limited
-------------------------------------------------------------------------------------------------------------
Partnership
                                               (Exact name of registrant as specified in its charter)

Massachusetts
04-2809323
(State or other jurisdiction of                                                             (IRS Employer
 incorporation or organization)                                                              Identification No.)

98 North Washington Street, Boston, MA
02114
(Address of principal executive offices)                                                    (Zip Code)

Registrant's          telephone          number,          including          area          code          (617)
                                                                                                         -----
854-5800




 (Former  name,  former  address and former  fiscal year,  if changed since last
report.)

     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

                                   APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                                      PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate  by check mark  whether  the  registrant  has filed all  documents  and  reports  required to be filed by
Sections 12, 13, or 15(d) of the Securities  Exchange Act of 1934 subsequent to the  distribution of securities under a
plan  confirmed by a court 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     No
</TABLE>


<PAGE>





2





<TABLE>
<CAPTION>

                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                      FORM 10-Q

                                                        INDEX


<S>                                                                                                       <C>
                                                                                                          Page

PART I.  FINANCIAL INFORMATION:


     Item 1.  Financial Statements

         Statement of Net Assets in Liquidation
              at September 30, 1995 and December 31, 1994                                                     3

         Statement of Changes in Net Assets in Liquidation
              for the nine months ended September 30, 1995 and
              for the period July 1, 1994 to September 30, 1994                                               4

         Statement of Operations
              for the period January 1, 1994 to June 30, 1994                                                 5

         Statement of Cash Flows
              for the period January 1, 1994 to June 30, 1994                                                 6

         Notes to the Financial Statements                                                                  7-8


     Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
9-10


PART II.  OTHER INFORMATION:

     Items 1 - 6                                                                                            11
</TABLE>


<PAGE>





                            The accompanying notes are an integral part
6
                                             of these financial statements.

<TABLE>
<CAPTION>
                                         AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                         STATEMENT OF NET ASSETS IN  LIQUIDATION
                                        September 30, 1995 and December 31, 1994

                                                      (Unaudited)



                                                                             September 30,        December 31,
ASSETS                                                                              1995                 1994
------                                                                       -------------------  -----------

<S>                                                                           <C>                   <C>            
Cash and cash equivalents                                                     $         70,023      $       604,724

Accounts receivable - affiliate                                                             --                5,618
                                                                              ----------------      ---------------

        Total assets                                                          $          70,023     $        610,342
                                                                              =================     ================



LIABILITIES

Accrued liabilities                                                           $         18,373      $         3,000

Accrued liabilities - affiliate                                                          5,140                5,271

Cash distribution payable to partners                                                       --              204,255
                                                                              ----------------      ---------------

        Total liabilities                                                               23,513              212,526
                                                                              ----------------      ---------------

        Net assets                                                            $          46,510     $        397,816
                                                                              =================     ================



</TABLE>

























<TABLE>
<CAPTION>

                                         AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                   STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

                                                       (Unaudited)

                                                                           For the Nine              For the Period
                                                                          Months Ended                 July 1, 1994 to
                                                                     September 30, 1995         September 30, 1994


<S>                                                                 <C>              <C>
Lease revenue                                                       --
                                                                                                  $
                                                                                                  921
Interest income                                                      $               10,663     22,035

Other income                                                        --                          15,000

Gain on sale of equipment                                                                       467,287

Cash distributions                                                  (204,255)                   (765,956)

Liquidating distribution                                            (100,000)                   --

Depreciation                                                        --                          (88,589)

Interest expense - affiliate                                        --                          (10,630)

Equipment management fees - affiliate                               --                          (46)

Operating expenses - affiliate                                                      (57,714)
                                                                    -----------------------
                                                                                                (57,470)
     Net decrease in net assets in
        liquidation during the period                                (351,306)                  (417,448)

     Net assets in liquidation at
        the beginning of the period
                                                                     397,816                    928,202
                                                                     -------                    -------
     Net assets in liquidation at
        the end of the period                                        $                          $
                                                                     =======================    =
                                                                     46,510                     510,754
                                                                     ======                     =======
     Cash distributions declared
       per limited partnership unit                                                             $
                                                                     $                                              9.37
                                                                     ========================                       ====
                                                                     2.50
                                                                     ====
</TABLE>






<PAGE>


<TABLE>
<CAPTION>

                                         AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                STATEMENT OF OPERATIONS
                                    for the period January 1, 1994 to June 30, 1994

                                                      (Unaudited)





Income:

<S>                                                                                          <C>             
    Lease revenue                                                                            $        144,495

    Interest income                                                                                     6,069

    Gain on sale of equipment                                                                          71,736


      Total income                                                                                    222,300

Expenses:

    Depreciation                                                                                      288,052

    Equipment management fees - affiliate                                                               7,225

    Operating expenses - affiliate                                                                     77,760
                                                                                             ----------------

      Total expenses                                                                                  373,037


Net loss                                                                                     $       (150,737)
                                                                                             ================


Net loss
  per limited partnership unit                                                               $
                                                                                             (1.84)
Cash distributions declared
  per limited partnership unit                                                               $            12.50
                                                                                             ==================


</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                                         AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                STATEMENT OF CASH FLOWS
                                    for the period January 1, 1994 to June 30, 1994

                                                      (Unaudited)






Cash flows from (used in) operating activities:
<S>                                                                                         <C>               
Net loss                                                                                    $        (150,737)

Adjustments to reconcile net loss to net cash from operating activities:
     Depreciation                                                                                     288,052
     Gain on sale of equipment                                                                        (71,736)

Changes in assets and liabilities Decrease in:
     rents receivable                                                                                   5,833
     accounts receivable - affiliate                                                                   34,815

  Increase (decrease) in:
     accrued liabilities                                                                                3,250
     accrued liabilities - affiliate                                                                   (2,467)
     deferred rental income                                                                           (30,322)
                                                                                            -----------------

        Net cash from operating activities                                                             76,688

Cash flows from investing activities:
  Proceeds from equipment sales                                                                     1,458,799

        Net cash from investing activities                                                          1,458,799

Cash flows used in financing activities:
  Distributions paid                                                                               (1,072,339)

        Net cash used in financing activities                                                      (1,072,339)
                                                                                            -----------------

Net increase in cash and cash equivalents                                                             463,148

Cash and cash equivalents at beginning of period                                                      106,303
                                                                                            -----------------

Cash and cash equivalents at end of period                                                  $         569,451
                                                                                            =================


</TABLE>


<PAGE>



7


                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP
                                          Notes to the Financial Statements

                                                  September 30, 1995
                                                     (Unaudited)


NOTE 1 - BASIS OF PRESENTATION

        The  financial  statements  presented  herein are prepared in conformity
with generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of  Regulation  S-X of the  Securities  and  Exchange
Commission and are unaudited. As such, these financial statements do not include
all  information  and footnote  disclosures  required under  generally  accepted
accounting  principles for complete financial statements and,  accordingly,  the
accompanying  financial  statements  should  be read  in  conjunction  with  the
footnotes presented in the 1994 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1994 Annual Report.

        Beginning July 1, 1994, the General Partner initiated the liquidation of
the  Partnership  in  accordance  with the Amended and  Restated  Agreement  and
Certificate  of Limited  Partnership  (the  "Restated  Agreement,  as amended").
Accordingly, the financial statements herein for the nine months ended September
30,  1995 and for the  period  July 1,  1994 to  September  30,  1994  have been
prepared on a liquidation basis of accounting.

        In the opinion of management,  all adjustments (consisting of normal and
recurring adjustments)  considered necessary to present fairly the Partnership's
net assets in  liquidation  at September  30, 1995 and  December  31, 1994,  its
changes in net assets in  liquidation  for the nine months ended  September  30,
1995 and for the period July 1, 1994 to September  30, 1994,  and results of its
operations  and its cash flows for the period  January 1, 1994 to June 30,  1994
have been made and are reflected.

NOTE 2 - CASH

        At September 30, 1995, the Partnership  had $65,000  invested in reverse
repurchase  agreements  secured  by U.S.  Treasury  Bills or  interests  in U.S.
Government securities.

NOTE 3 - REVENUE RECOGNITION

        All of the Partnership's  primary and renewal leases had expired and all
of the  associated  equipment  was sold as of December 31, 1994. No future rents
are due.

NOTE 4 - RELATED PARTY TRANSACTIONS

        All operating  expenses incurred by the Partnership are paid by American
Finance Group ("AFG") on behalf of the  Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred during the nine
months  ended  September  30,  1995 and 1994,  which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:


<PAGE>




<TABLE>
<CAPTION>



                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP
                                          Notes to the Financial Statements

                                                     (Continued)

8


                                                                         1995                  1994
                                                                     ------------         ---------

<S>                                                                                      <C>        
        Interest expense - affiliate                                          --         $    10,630
        Equipment management fees                                             --               7,271
        Reimbursable operating expenses
           due to third parties                                       $   42,306             126,230
        Administrative charges                                            15,408               9,000
                                                                     -----------       -------------

                                 Total                                $   57,714          $  153,131
                                                                      ==========          ==========


</TABLE>





NOTE 5 - LIQUIDATION PROCEEDINGS

         On October 31, 1995,  the General  Partner as trustee  (the  "Trustee")
executed a Declaration of Trust  establishing a Liquidating  Trust (the "Trust")
to satisfy any unforeseen  expenses of the Partnership  that may arise after the
dissolution date as a result of the Partnership's  equipment leasing activities.
Organization  of the Trust will have the additional  benefit of terminating  the
Partnership's  income tax reporting  obligations after 1995. The General Partner
transferred   $100,000,   representing  a  liquidating   distribution,   into  a
non-interest  bearing  custodian  account  (the  "Account")  of the  Trust.  The
remainder of the  Partnership's  operating cash, after settlement of all accrued
liabilities,   expected  to  be  approximately  $46,500  or  $0.57  per  limited
partnership  unit,  will  be  transferred  into  the  Account  on  or  near  the
Partnership's  dissolution  date in the fourth quarter of 1995.  Amounts held in
the Trust  will be  reserved  for a period  not to exceed  seven  years (or such
shorter time as counsel for the Partnership advises will be sufficient to assure
that all claims against the Partnership have been presented). To the extent that
the balance of the Account exceeds the ultimate  liabilities of the Partnership,
the Trustee will distribute such remaining  balance to the  beneficiaries of the
Trust Account,  which  beneficiaries will consist of the General Partner and the
Limited  Partners  in  accordance  with their  respective  percentage  ownership
interests in the Partnership as of the dissolution date.





<PAGE>





12


                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                      FORM 10-Q

                                            PART I. FINANCIAL INFORMATION


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

Overview

        On July 1, 1994, the General  Partner  initiated the  liquidation of the
Partnership.  The  Partnership  was  organized  in 1986 to  acquire  and lease a
diversified  portfolio  of  capital  equipment  to  third-party  lessees  and to
distribute the net proceeds from  operating and  remarketing  activities,  after
satisfaction of all expenses and debt service obligations,  to the Partners. The
Partnership was capitalized with $20,221,250 of equity from the Limited Partners
and $50,000 of equity  from the General  Partner  and  acquired  $34,595,921  of
equipment,  subject to related indebtedness.  All of the Partnership's equipment
was sold by the end of 1994.  Dissolution  of the  Partnership  was initiated on
October 31, 1995 through the creation of a Liquidating Trust described in Note 5
to the accompanying financial statements.

Results of Operations

        The Statement of Changes in Net Assets in  Liquidation  is presented for
the nine  months  ended  September  30,  1995 and for the period July 1, 1994 to
September  30, 1994 and reflects the  liquidation  of assets  during the period.
Accordingly,  a comparison  between current and prior year reporting  periods is
not meaningful and is not presented.

        For the period ended  September  30, 1995,  the  Partnership  recognized
$10,663 of interest  income  generated  from the  temporary  investment of cash.
Operating  expenses  paid or accrued  consisted  principally  of  administrative
charges,  professional  service costs,  such as audit and legal fees, as well as
printing and distribution expenses. These charges amounted to $57,714 during the
period ended  September  30, 1995.  The  Partnership  has accrued for  operating
expenses anticipated through its dissolution date.

Liquidity and Capital Resources

        The  Partnership  will have limited cash activities for the remainder of
its  existence.  Prior to its  dissolution,  cash  transactions  are expected to
result from the receipt of interest  income on  short-term  investments  and the
payment of operating  expenses,  discussed  above.  At September  30, 1995,  the
Partnership  had  $70,023 of cash,  substantially  all of which was  invested in
interest-bearing investments. See Note 2 to the financial statements herein.

        On October 31,  1995,  the General  Partner as trustee  (the  "Trustee")
executed a Declaration of Trust  establishing a Liquidating  Trust (the "Trust")
to satisfy any unforeseen  expenses of the Partnership  that may arise after the
dissolution date as a result of the Partnership's  equipment leasing activities.
Organization  of the Trust will have the additional  benefit of terminating  the
Partnership's  income tax reporting  obligations after 1995. The General Partner
transferred   $100,000,   representing  a  liquidating   distribution,   into  a
non-interest  bearing  custodian  account  (the  "Account")  of the  Trust.  The
remainder of the  Partnership's  operating cash after  settlement of all accrued
liabilities,   expected  to  be  approximately  $46,500  or  $0.57  per  limited
partnership  unit,  will be  transferred  into the Trust  Account on or near the
Partnership's  dissolution  date in the fourth quarter of 1995.  Amounts held in
the Trust  Account  will be reserved  for a period not to exceed seven years (or
such shorter time as counsel for the  Partnership  advises will be sufficient to
assure that all claims  against the  Partnership  have been  presented).  To the
extent that the balance of the Trust Account exceeds the ultimate liabilities of
the Partnership,  the General Partner will distribute such remaining  balance to
the beneficiaries of the Trust Account,  which beneficiaries will consist of the
General  Partner and the Limited  Partners in accordance  with their  respective
percentage ownership interests in the Partnership as of the dissolution date.






                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                      FORM 10-Q

                                            PART I. FINANCIAL INFORMATION

                                                     (Continued)


        For the nine months ended September 30, 1995, the  Partnership  declared
total cash distributions payable to partners of $204,255. In accordance with the
Restated Agreement, as amended, the Limited Partners were allocated 99% of these
distributions,  or $202,212 and the General Partner was allocated 1%, or $2,043.
Since  inception,  the Partnership  has  distributed  $21,002,832 to the Limited
Partners  and $212,150 to the General  Partner.  Additionally,  the  Partnership
transferred $100,000, representing a liquidating distribution, into
the Account of the Trust as described  above.  The Partnership  declared no cash
distribution  for the quarter  ended  September  30, 1995 and expects to make no
further  quarterly  distributions  of cash  to its  Partners,  except  as may be
available in the Trust Account (described above) at the date of its liquidation.
Cash  distributions paid to the Limited Partners consist of both a return of and
a return  on  capital.  Final  yield on  investment  will be  determined  at the
Partnership's dissolution date.





<PAGE>



                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP

                                                      FORM 10-Q

                                              PART II. OTHER INFORMATION



        Item 1.                             Legal Proceedings
                                            Response:  None

        Item 2.                             Changes in Securities
                                            Response:  None

        Item 3.                             Defaults upon Senior Securities
                                            Response:  None

        Item 4.                             Submission of Matters to a Vote of
                                            Security Holders
                                            Response:  None

        Item 5.                             Other Information
                                            Response:  None

        Item 6(a).                          Exhibits

                                   99(d)    Declaration of Trust to establish a
                                            liquidating trust

        Item 6(b).                          Reports on Form 8-K
                                            Response:  None









<PAGE>



                                                    SIGNATURE PAGE





        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report  has been  signed  below on  behalf  of the  registrant  and in the
capacity and on the date indicated.



                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP

                            By:     AFG Leasing Associates, a Massachusetts
                                 general partnership and the General Partner of
                                         the Registrant.

                          By:     AFG Leasing Incorporated, a Massachusetts
                              corporation and general partner in such general
                                      partnership.


                                 By:
                                         Gary M. Romano
                                         Vice President and Controller
                                         (Duly Authorized Officer and
                                         Principal Accounting Officer)



                                 Date:



<PAGE>





                                                    SIGNATURE PAGE





        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report  has been  signed  below on  behalf  of the  registrant  and in the
capacity and on the date indicated.



                                        AMERICAN INCOME 3 LIMITED PARTNERSHIP


                              By:      AFG Leasing Associates, a Massachusetts
                                 general partnership and the General Partner of
                                        the Registrant.

                          By:      AFG Leasing Incorporated, a Massachusetts
                               corporation and general partner in such general
                                        partnership.


                               By:      /s/ Gary M. Romano
                                        Gary M. Romano
                                        Vice President and Controller
                                        (Duly Authorized Officer and
                                        Principal Accounting Officer)



                               Date:    November 13, 1995