<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 September 30, 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>
                                                                 September 30,    December 31,
                                                                      1997           1996
                                                                 ------------     -----------
Assets                                                             amounts in thousands
------
<S>                                                            <C>             <C>
Cash and cash equivalents                                            $ 4,954          4,967
                                                                     =======         ======
Liabilities and Partners' Equity
--------------------------------
 
Accounts payable and accrued expenses                                $   274             67
 
Amounts due to related parties (note 4)                                  109            205
                                                                     -------         ------
 
    Total liabilities                                                    383            272
                                                                     -------         ------
 
Partners' equity (deficit):
 General partners                                                     (2,193)        (2,162)
 Limited partners                                                      6,764          6,857
                                                                     -------         ------
 
    Total partners' equity                                             4,571          4,695
                                                                     -------         ------
 
Contingency (note 5)
                                                                     $ 4,954          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       Nine months
                                                     ended             ended
                                                 September 30,     September 30,
                                               -----------------  ----------------
                                                 1997     1996     1997     1996
                                               --------  -------  -------  -------
<S>                                            <C>       <C>      <C>      <C>
                                                     amounts in thousands,
                                                      except unit amounts
 
General and administrative expenses 
   (note 5)                                    $  (218)     (98)    (285)    (377)
 
Interest income                                     67       58      161      260
 
Other income                                        --       32       --       32
                                               -------   ------   ------   ------
 
    Net loss                                   $  (151)      (8)    (124)     (85)
                                               =======   ======   ======   ======
Loss per limited partnership unit
    (note 2)                                   $ (1.62)   (0.09)   (1.33)   (0.91)
                                               =======   ======   ======   ======
 
Limited partnership units outstanding           70,005   70,005   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

                     Nine months ended September 30, 1997
                                  (unaudited)


<TABLE>
<CAPTION>
                                                            General    Limited
                                                           partners   partners   Total
                                                           ---------  ---------  ------
<S>                                                        <C>        <C>        <C>
                                                              amounts in thousands
 
Balance at January 1, 1997                                  $(2,162)     6,857   4,695
 
 Net loss                                                       (31)       (93)   (124)
                                                            -------      -----   -----
 
Balance at September 30, 1997                               $(2,193)     6,764   4,571
                                                            =======      =====   =====
</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>
                                                                          Nine months ended
                                                                            September 30,
                                                                        ----------------------
                                                                            1997        1996
                                                                        ------------  --------
<S>                                                                     <C>           <C>
                                                                        amounts in thousands
                                                                            (see note 3)
 
Cash flows from operating activities:
  Net loss                                                                   $ (124)      (85)
  Adjustments to reconcile net loss to net cash 
   used in operating activities:
      Change in receivables                                                      --        29
      Change in accounts payable, accrued expenses 
       and amounts due to related parties                                       111      (287)
                                                                             ------     -----
 
      Net cash used in operating activities                                     (13)     (343)
                                                                             ------     -----
Cash flows from investing activities -
  Distribution from Redlands                                                     --       210
                                                                             ------     -----

Cash flows from financing activities                                             --        --
                                                                             ------     -----
 
      Net decrease in cash and cash equivalents                                 (13)     (133)
 
      Cash and cash equivalents:
       Beginning of period                                                    4,967     5,057
                                                                             ------     -----
 
       End of period                                                         $4,954     4,924
                                                                             ======     =====
</TABLE>


See accompanying notes to financial statements.


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

                         Notes to Financial Statements

                               September 30, 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 in 1984 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 revenues
     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 September 30, 1997, and the
     results of its operations for the nine months ended September 30, 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 (the
     "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 loss per limited partnership unit is calculated by dividing net 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 losses for the nine months ended
     September 30, 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 September 30, 1997, $4,934,000 of money
     market funds were 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 $27,000 for both of the nine
     month periods ended September 30, 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 ACT 3 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 managing general partner as
     defendants. The lawsuit, as amended, alleges that the defendants violated
     disclosure requirements under the Securities Exchange Act of 1934 and that
     certain defendants breached a fiduciary duty to the plaintiffs in
     connection with the sale of the Redlands, California cable television
     system.

     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 2 as of the close
     of business on October 1, 1993, excluding, however, the defendants, their
     parent corporations, subsidiaries, and affiliates.  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 3 (the "Consolidated
     Cases").

     On or about October 27, 1997, the defendants entered into a preliminary
     settlement agreement (the "Settlement Agreement") in connection with the
     Consolidated Cases. On November 5, 1997, the District Court approved the
     form of notice to be transmitted to the class members relative to the
     proposed settlement, and scheduled a hearing before the District Court (the
     "Settlement Hearing") for January 7, 1998 at 3 p.m., to determine whether
     the Settlement Agreement should be approved and whether a final judgment
     should be entered in connection with the Settlement Agreement. Counsel for
     the class members will endeavor to mail to class members a notice of the
     Settlement Hearing along with the plan for distributing the settlement
     amount as set forth in the Settlement Agreement.

                                                                     (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 September 30, 1997, ACT 2 and ACT 3 have received requests from the
     general partners and certain of their affiliates for the advancement of
     legal and other fees and expenses associated with the above-described
     lawsuit totaling $2.3 million.  Consistent with the terms of the
     Partnership Agreement, this amount has been advanced by ACT 2 and ACT 3.
     ACT 3's 50% share of such fees and expenses for the nine months ended
     September 30, 1997 and 1996, which total $206,000 and $313,000,
     respectively, has been included in general and administrative expenses in
     the accompanying financial statements.  


                                      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 and nine
month periods ended September 30, 1997 and 1996 include (i) 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.  Interest income for the nine
month period ended September 30, 1997, has been decreased by $34,000 to reverse
the overaccrual of interest income in prior periods.

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

     ACT 3 anticipates that it will make liquidating distributions in connection
with its dissolution as soon as possible following the final determination and
satisfaction of ACT 3's liabilities.  In this regard, as described in note 5 to
the accompanying financial statements, a Settlement Agreement has been entered
into in connection with the Consolidated Cases.  Liquidating distributions will
be made as soon as practicable upon approval of the Settlement Agreement and
entry of final judgment.

                                      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 September 30, 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:    November 10, 1997        By:  /s/ Gary K. Bracken
                                       ------------------------------
                                       Gary K. Bracken
                                       Vice President and Controller
                                       (Principal Accounting Officer)


                                     II-2