<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                   FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                 ---------------------------------------------
  For Quarter Ended September 30, 2000         Commission File Number 0-17809


                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)


       Massachusetts                                       04-3005973
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

       World Trade Center East
       Two Seaport Lane, 16th Fl.
       Boston, Massachusetts                                 02210
(Address of principal executive offices)                   (Zip Code)

              Registrant's telephone number, including area code:
                                (617) 261-9000


--------------------------------------------------------------------------------
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 twelve (12) months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                Yes  X      No
<PAGE>

                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP

                                   FORM 10-Q


                     FOR QUARTER ENDED SEPTEMBER 30, 2000


                                    PART I

                             FINANCIAL INFORMATION

                                       2
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF NET ASSETS IN LIQUIDATION



                                      September 30, 2000   December 31, 1999
                                          (Unaudited)          (Audited)
                                      ------------------   -----------------
Assets

Cash and cash equivalents                  $1,553,249          $1,559,851
                                           ----------          ----------

                                           $1,553,249          $1,559,851
                                           ==========          ==========



Liabilities and net assets in liquidation

Accounts payable                           $        -          $   48,751
Accrued expenses for liquidation               49,500              64,000
                                           ----------          ----------
  Total liabilities                            49,500             112,751
                                           ----------          ----------

Net assets in liquidation:

  Limited partners ($242 per
     unit; 100,000 units authorized,
     27,641 units issued and
     outstanding)                           1,521,526           1,465,444
  General partners                            (17,777)            (18,344)
                                           ----------          ----------
Total partners' capital                     1,503,749           1,447,100
                                           ----------          ----------

                                           $1,553,249          $1,559,851
                                           ==========          ==========

          (See accompanying notes to unaudited financial statements)

                                       3
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months Ended     Nine Months Ended
                                                      September 30, 2000     September 30, 2000
                                                      ------------------     ------------------
<S>                                                   <C>                    <C>
Net assets in liquidation at
  beginning of period                                       $1,476,563           $1,447,100
                                                            ----------           ----------


Increase during period:
  Operating activities
     Interest income                                            29,018               75,525
                                                            ----------           ----------
                                                                29,018               75,525

Liquidating activities
  Change in provision for
     liquidation expenses                                       (1,832)             (18,876)
                                                            ----------           ----------
                                                                (1,832)             (18,876)
                                                            ----------           ----------

Net change in net assets in liquidation                         27,186               56,649
                                                            ----------           ----------

Net assets in liquidation at end of period                  $1,503,749           $1,503,749
                                                            ==========           ==========
</TABLE>

           (See accompanying notes to unaudited financial statements)

                                       4
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
(Unaudited)

                                         Three Months Ended  Nine Months Ended
                                         September 30, 1999  September 30, 1999
                                         ------------------  ------------------
INVESTMENT ACTIVITY

Property rentals                                 $        -          $  479,466
Property operating expenses                               -             (56,390)
Depreciation and amortization                             -             (80,126)
                                                 ----------          ----------
                                                          -             342,950

Joint venture earnings                               59,240             284,292
                                                 ----------          ----------
     Total real estate operations                    59,240             627,242

Gain on sale of property                                  -           1,118,340
Gain on sale of joint venture                     2,710,344           2,710,344
                                                 ----------          ----------
     Total real estate activity                   2,769,584           4,455,926

Interest on cash equivalents                         64,185             109,057
Reversal of accrued disposition fees                285,150             285,150
                                                 ----------          ----------
     Total investment activity                    3,118,919           4,850,133
                                                 ----------          ----------

PORTFOLIO EXPENSES

Management fee                                       68,923             124,150
General and administrative                           19,115              60,534
                                                 ----------          ----------
                                                     88,038             184,684
                                                 ----------          ----------
Net Income                                       $3,030,881          $4,665,449
                                                 ==========          ==========

Net income per
  limited partnership unit                       $   108.56          $   167.10
                                                 ==========          ==========

Cash distributions per
  limited partnership unit                       $   568.00          $   591.00
                                                 ==========          ==========

Number of limited partnership
  units outstanding during the period                27,641              27,641
                                                 ==========          ==========

          (See accompanying notes to unaudited financial statements)

                                       5
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)


                                                 Nine Months Ended
                                                September 30, 1999
                                                -------------------

Net cash provided by
operating activities                                $      947,629
                                                    --------------

Cash flows from investing activity:
  Net proceeds from sale of property                    15,588,579
  Disposition fee accrued for Brea sale                    255,900
  Reversal of deferred disposition fee                    (285,150)
                                                    --------------

Net cash provided by investing activities               15,559,329
                                                    --------------

Cash flows from financing activity:
  Distributions to partners                            (16,345,044)
                                                    --------------

Net increase in
  Cash and cash equivalents                                161,914

Cash and cash equivalents:
  Beginning of period                                    2,163,411
                                                    --------------

  End of period                                     $    2,325,325
                                                    ==============

           (See accompanying notes to unaudited financial statements)

                                       6
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (Unaudited)


     In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of September 30, 2000 and December 31, 1999 and the
changes of net assets in liquidation for the three and nine month periods ended
September 30, 2000, the results of its operations for the three and nine month
periods ended September 30, 1999 and its cash flows for the nine month period
ended September 30, 1999. These adjustments are of a normal recurring nature.

     See notes to financial statements included in the Partnership's 1999 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.


NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

     Copley Realty Income Partners 3; A Limited Partnership (the "Partnership")
is a Massachusetts limited partnership organized for the purpose of investing
primarily in newly-constructed and existing income-producing real properties.
The Partnership commenced operations in October 1988, and acquired its real
estate investments prior to the end of 1989. The Partnership sold its last
remaining investment in August 1999. On December 31, 1999, the Partnership
adopted a plan of liquidation and intends to dissolve in 2000.

     In connection with its adoption of a plan of liquidation on December 31,
1999, the Partnership also adopted the liquidation basis of accounting which,
among other things, requires that assets and liabilities be stated at their
estimated net realizable value and that estimated costs of liquidating the
Partnership be provided to the extent that they are reasonably determinable.


NOTE 2 - PROPERTY
-----------------

     On June 25, 1999, the Partnership sold the Brea West building for a gross
sale price of $8,530,000.  The Partnership received net proceeds of $8,381,091
after closing costs, and recognized a gain of $1,374,240 ($49.22 per limited
partnership unit) on the sale.  On July 29, 1999 the Partnership made a capital
distribution of $8,126,454 ($294 per limited partnership unit) from the proceeds
of the sale.  At the time of sale, a disposition fee of $255,900 was accrued but
not paid to AEW Real Estate Advisors, Inc.  This fee was subsequently reversed
in conjunction with the sale of the Partnership's last remaining investment (see
Note 3) since the limited partners did not receive a return of their capital
contributions from the sale of the Partnership's investments.

                                       7
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

NOTE 3 - REAL ESTATE JOINT VENTURES
-----------------------------------

     On August 27, 1999, the Shasta Way joint venture investment, in which the
Partnership and an affiliate owned a 58% and 42% interest, respectively, sold
its property to an unaffiliated third party for gross proceeds of $13,057,000,
of which the Partnership's 58% share was $7,573,060.  The Partnership received
its 58% share of the net proceeds, $7,444,456 after closing costs, and
recognized a gain of $2,702,113 ($96.78 per limited partnership unit) on the
sale.  On September 22, 1999 the Partnership made a capital distribution of
$7,297,224 ($264 per limited partnership unit) from the proceeds of the sale.

     The following summarized financial information is presented in the
aggregate for the Shasta Way joint venture:


              Results of Operations
              ---------------------

                                     January 1, 1999
                                         through
                                     August 27, 1999
                                     ---------------
Revenue
  Rental income                         $  997,110
  Other income                               3,335
                                        ----------
                                         1,000,445
                                        ----------
Expenses
  Operating expenses                       219,783
  Depreciation and amortization            308,955
                                        ----------
                                           528,738
                                        ----------

Net income                              $  471,707
                                        ==========


     Expenses exclude amounts owed and attributable to the Partnership and its
affiliate on behalf of their various financing arrangements with the joint
venture.

Note 4 - ACCRUED EXPENSES FOR LIQUIDATION
-----------------------------------------

     Accrued expenses for liquidation as of September 30, 2000 include estimates
of costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees and other professional services.

     During the nine months ended September 30, 2000 the Partnership incurred
$33,376 of such expenses and the managing general partner re-evaluated the
estimated costs to dissolve the Partnership. The provision for liquidation
expenses was accordingly increased by an additional $18,876 to reflect the
revised estimates.

                                       8
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

     The actual costs could vary from the related provisions due to the
uncertainty related to the length of time required to complete the liquidation
and dissolution of the Partnership. The accrued expenses do not take into
consideration possible litigation arising from the customary representations and
warranties made as part of each sale. Such costs are unknown and are not
estimable at this time.

                                       9
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

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

Liquidity and Capital Resources

     The Partnership completed its offering of units of limited partnership
interest in June 1989 and a total of 27,641 units were sold.  The Partnership
received proceeds of $24,458,317, net of selling commissions and other offering
costs, which have been used for investment in real estate and to pay related
acquisition costs, or are being retained as working capital reserves.

     On June 25, 1999, the Partnership sold the Brea West property for a gross
sale price of $8,530,000 and received net proceeds of $8,381,091 after closing
costs. On July 29, 1999, the Partnership made a capital distribution of
$8,126,454 ($294 per limited partnership unit) from the proceeds of the sale.

     On August 27, 1999, the Shasta Way joint venture in which the Partnership
and an affiliate owned a 58% and 42% interest, respectively, sold its property
for a gross sale price of $13,057,000, of which the Partnership's 58% share was
$7,573,060. The Partnership received its 58% share of the net proceeds, after
closing costs, in the amount of $7,444,456. On September 22, 1999, the
Partnership made a capital distribution of $7,297,224 ($264 per limited
partnership unit) from the proceeds of the sale.

     In connection with a sale of property in July 1997, and the two sales in
June and August 1999, capital of $20,951,878 ($758 per limited partnership unit)
has been returned to the limited partners, reducing the adjusted capital
contribution to $242 per unit.

     At September 30, 2000, the Partnership had $1,553,249 in cash and cash
equivalents which is being retained primarily as a reserve in the event of any
claims for breach of representations or warranties in connection with the sale
of Shasta Way, and as an additional reserve in connection with the liquidation
of the Partnership. The Partnership intends to liquidate in 2000. Distributions
of cash from operations relating to the first two quarters of 1999 were made at
the annualized rate of 5.0% on the adjusted capital contribution of $800 per
unit. Cash distributions related to the third quarter of 1999 were made at an
annualized rate of 6.0% on the weighted average capital contribution of $569.65
per unit. The increase was due to higher cash receipts from the Shasta Way joint
venture due to a later than anticipated sale date. There have been no
distributions from operations since the distribution related to the third
quarter of 1999 due to the sale of the Partnership's last remaining investment
in August, 1999. When all Partnership expenses have been settled, a distribution
of the remaining cash reserves will be made.

                                       10
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

Results of Operations
---------------------

     Operating Factors

     As discussed above, the Partnership sold the Brea West property on June 25,
1999.  The Partnership received net proceeds of $8,381,091, after closing costs
and recognized a gain of $1,374,240 ($49.22 per limited partnership unit).  The
property was 100% leased to a single tenant at the time of sale.

     As discussed above, the Shasta Way joint venture, in which the Partnership
and an affiliate owned a 58% and 42% interest, respectively, sold its property
on August 27, 1999. The Partnership received its 58% share of the net proceeds,
after closing costs, in the amount of $7,444,456 and recognized a gain of
$2,702,113 ($96.78 per limited partnership unit). The Shasta Way property was
100% leased at the time of sale.

     Investment Results

     There are no real estate comparative operating results for the three and
nine month periods ended September 30, 2000 and 1999 due to the sales of the
Partnership's last two remaining properties in 1999, as discussed above.

     For the comparable three and nine month periods of 2000 and 1999, interest
on cash and cash equivalents decreased $35,167 and $33,532, respectively. These
decreases are due to the sale of the Partnership's last remaining investments,
discussed above.

     Portfolio Expenses

     The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. General and administrative expenses
incurred in 1999 primarily consist of real estate appraisal, printing, legal,
accounting and investor servicing fees. General and administrative expenses for
the three and nine months periods ended September 30, 1999 were $19,115 and
$60,534, respectively.

     There was no management fee incurred during the first three quarters of
2000 due to the discontinuance of operating cash distributions as a result of
the sales of the Partnership's last two remaining properties in 1999, as
discussed above.

                                       11
<PAGE>

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP


     Costs to dissolve and liquidate the Partnership include legal fees,
accounting fees, tax preparation fees, filing fees and other professional
services.  During the nine months ended September 30, 2000, the Partnership
incurred $33,374 of such expenses and the managing general partner re-evaluated
the estimated costs to dissolve the Partnership.  The provision for liquidation
expenses was accordingly increased by $18,876 to reflect the revised estimates.

                                       12
<PAGE>

                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP



                                   FORM 10-Q

                     FOR QUARTER ENDED SEPTEMBER 30, 2000

                                    PART II

                               OTHER INFORMATION



Items 1-5   Not Applicable

Item 6.     Exhibits and Reports on Form 8-K

            a.   Exhibits:   (27) Financial Data Schedule

            b.   Reports on Form 8-K: No current reports on Form 8-K were filed
                 during the quarter ended September 30, 2000.

                                       13
<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.



                             COPLEY REALTY INCOME PARTNERS 3; A LIMITED
                             PARTNERSHIP
                             (Registrant)


November 7, 2000
                              /s/ Alison L. Husid
                              -------------------------------
                                Alison L. Husid
                                President, Chief Executive Officer and Director
                                of Managing General Partner,
                                Third Income Corp.



November 7, 2000
                             /s/ Jem A. Hudgins
                             --------------------------------
                               Jem A. Hudgins
                               Treasurer and Principal Financial and Accounting
                               Officer of Managing General Partner, Third Income
                               Corp.

                                       14