FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 1996

                                       OR

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

For the transition period from ________ to ___________

Commission file number: 0-21494


                      WNC HOUSING TAX CREDIT FUND III, L.P.

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

California                                                   33-0463432

WNC HOUSING TAX CREDIT FUND III, L.P.
3158 Redhill Avenue, Suite 120, Costa Mesa, CA  92626
(714) 622-5565


         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 ____





<PAGE>


Part I.  Financial Information

Item 1.  Financial Statements

         INDEX


                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                               INDEX TO FORM 10-Q

                    FOR THE QUARTER ENDED September 30, 1996




PART I. FINANCIAL INFORMATION

    Item 1. Financial Statements

      Balance Sheets, September 30, 1996 and December 31, 1995.................3

      Statement of Operations
        For the nine and three months ended September 30, 1996 and 1995........4

      Statement of Partners' Equity
        For the nine months ended September 30, 1996 and 1995..................5

      Statement of Cash Flows
        For the nine months ended September 30, 1996 and 1995..................6

      Notes to Financial Statements............................................8


    Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations..................................11


PART II. OTHER INFORMATION

   Item 6. Exhibits and Reports on Form 8-K...................................14

   Signatures.................................................................15


<PAGE>




FINANCIAL STATEMENTS

                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                                 BALANCE SHEETS
                    September 30, 1996 and December 31, 1995

                                                   1996              1995
                                                   ----              ----

                              ASSETS

Cash and cash equivalents                     $   439,726            $   519,652

 Investment in limited
  partnerships - Note 2                         7,671,895              8,840,410

 Other assets                                      21,442                 17,004
                                               ----------              ---------

                                              $ 8,133,063            $ 9,377,066
                                               ==========              =========


                        LIABILITIES AND PARTNERS' EQUITY

Liabilities:
 Payable to limited partnerships - Note 4     $                      $   159,730
 Accrued fees and expenses due to
   general partner and affiliates - Note 3        676,068                516,327
                                                 --------                -------
                                                  676,068                676,057
                                                 --------                -------
Partners' equity (deficit):
 General partner                                   34,048                 46,488
 Limited partners (15,000 units
 issued and outstanding)                        7,422,947              8,654,521
                                               ----------              ---------

Total partners' equity                          7,456,995              8,701,009
                                               ----------              ---------

                                              $ 8,133,063           $  9,377,066
                                               ==========              =========


                                    UNAUDITED
                 See Accompanying Notes to Financial Statements
                                      -3-
<PAGE>



                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)
                             STATEMENT OF OPERATIONS
        For the Three and Nine Months Ended September 30, 1996 and 1995

                                       1996                          1995 
                                       ----                          ---- 
                                Three          Nine          Three         Nine
                                Months        Months         Months       Months

Interest income            $     3,755     $   11,964      $ 5,099      $ 23,711
                                                                                
Other income                                                30,000        30,000
                                 ------       ------        ------        ------
                                                                              
                                 3,755        11,964        35,099       53,711
                                ------         -------       ------       ------
                                                                              

Operating expenses:
Amortization                    11,794         35,382        11,794        5,376
                                                                               
Asset management fees (Note 3 ) 74,869        224,607        74,880      218,158
Legal and accounting                 -          7,650             -        7,000
Other                            4,176         16,339           473       11,392
                                ------        -------        ------       ------
                                                                                
Total operating expenses        90,839        283,978        87,147      271,926
                                ------        -------        ------      -------

Loss from operations          (87,084)      (272,014)      (52,048)    (218,215)

Equity in loss from
 limited partnerships        (324,000)      (972,000)     (275,240)    (881,800)
                             ---------      ---------     ---------    ---------

Net loss                    $(411,084)   $(1,244,014)  $(327,288)   $(1,100,015)
                             =========    ===========   =========    ===========

Net loss allocated to:
  General partner           $  (4,111)       (12,440)     (3,273)       (11,000)
                               -------       --------     -------       --------
                                               
  Limited partners          $(406,973)    (1,231,574)   (324,015)     1,089,015)
                             =========    ===========   =========    ===========

Net loss per limited                                    
 partner units (15,000 units
 issued and outstanding)    $     (27)   $       (82)   $    (22)    $      (73)
                               ==========   ==========   ==========   ==========
                                    

                                    UNAUDITED
                 See Accompanying Notes to Financial Statements

                                      -4-
<PAGE>



                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)
                          STATEMENT OF PARTNERS' EQUITY

              For The Nine Months Ended September 30, 1996 and 1995



For The Nine Months Ended September 30, 1996
                                         General         Limited
                                         Partner         Partner         Total

Equity (deficit), December 31, 1995     $ 46,488      $ 8,654,521    $ 8,701,009

Net loss for the nine months ended      
September 30, 1996                      (12,440)      (1,231,574)     1,244,014)
                                        --------      -----------     ----------
                                                               

Equity (deficit), Sepember 30, 1996     $  34,048     $ 7,422,947    $ 7,456,995
                                          =======      ==========      =========





For The Nine Months Ended September 30, 1995
                                         General          Limited
                                         Partner          Partner        Total

Equity (deficit), December 31, 1994     $  62,651     $ 10,254,653  $ 10,317,304
                                                                

Net loss for the nine months ended
 September 30, 1995                       (11,000)     (1,089,015)   (1,100,015)
                                          --------     -----------   -----------

Equity (deficit), September 30, 1995    $   51,651     $ 9,165,638  $  9,217,289
                                            ======       =========     =========
                                                                                
                                                               

                                    UNAUDITED
                 See Accompanying Notes to Financial Statements
                                       -5-
<PAGE>


                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                      STATEMENT OF CASH FLOWS For The Nine
                    Months Ended September 30, 1996 and 1995

                                                        1996               1995
                                                        ----               ----
Cash flows used by operating activities:

  Net loss                                        $  (1,244,014)   $   (736,407)
    Adjustments to reconcile net loss to net
      cash used in operating activities:
      Equity in loss of limited partnerships             972,000         570,240

      Amortization                                       35,382          23,582
                                                                                
      Accrued asset management fee                      159,608          86,278
                                                                                
       Change in other assets                            (1,805)            220
       Accrued  expense due to
       general partner and affiliates                       133              58
                                                            ----            ----
Net cash used by operating activities                    (78,696)        56,029)
                                                        --------         -------

Cash flows used by investing activities:
     Investment in limited partnerships                  (20,938)      (214,871)
     Decrease in property deposits                                     (122,000)
     Increase in acquisition costs and fees                                (300)
     Distribution from limited partnerships               19,708         12,570
Cash flows used by investing activities:                  (1,230)      (324,601)
                                                          -------       --------

Cash flows used by financing activities:
                                                                     
                                                    
Net decrease in cash and cash equivalents                 (79,926)     (380,630)

Cash and cash equivalents, beginning of period            519,652     1,110,349
                                                         --------     ---------

Cash and cash equivalent, end of period              $    439,726    $  729,719
                                                          ========      =======



                                    UNAUDITED
                 See Accompanying Notes to Financial Statements


                                      -6-
<PAGE>




                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                       STATEMENT OF CASH FLOWS (CONTINUED)

                For the Nine Months Ended June 30, 1996 and 1995


Supplemental disclosure of noncash financing and investing activity

Nine months ended September 30, 1996
During the nine months ended September 30, 1996, the  Partnership's  Payables to
Limited   Partnerships   (in   connection   with  its   investments  in  limited
partnerships)  decreased by $141,425 due to various price adjuster provisions in
the respective limited partnership agreements.


--------------------------------------------------------------------------------

Nine months ended September 30, 1995

During the nine months ended  September 30, 1995, the  Partnership  incurred but
did not pay $809,053 of capital  contributions  payable (in connection  with its
investments in limited partnerships).
















                                    UNAUDITED

                 See Accompanying Notes to Financial Statements

                                      -7-
<PAGE>


                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The information  contained in the following notes to the financial statements is
condensed  from that  which  would  appear in the annual  financial  statements;
accordingly,  the  financial  statements  included  herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the Partnership's Annual Report for the year ended December 31, 1995. Accounting
measurements at interim dates  inherently  involve greater reliance on estimates
than at year end. The results of operations for the interim period presented are
not necessarily indicative of the results for the entire year.

In the opinion of the General  Partner,  the  accompanying  unaudited  financial
statements  contain  all  adjustments   (consisting  of  only  normal  recurring
accruals) necessary to present fairly the financial position as of September 30,
1996 and the results of operations and changes in cash flows for the nine months
then ended.

Organization

WNC Housing Tax Credit Fund III, L.P. (the  "Partnership")  was formed under the
California  Revised  Limited  Partnership  Act on May 10,  1991,  and  commenced
operations on September 30, 1992. The Partnership was formed to invest primarily
in other limited  partnerships which will own and operate  multi-family  housing
complexes that will qualify for low income housing credits.

The general partner is WNC Tax Credit Partners,  L.P. (the "General Partner"), a
California limited  partnership.  WNC & Associates,  Inc. and Wilfred N. Cooper,
Sr. are the general partners of the General Partner.  The Cooper Revocable Trust
owns 67% of the outstanding stock of WNC & Associates,  Inc. John B. Lester, Jr.
is the original limited partner of the Partnership and owns,  through the Lester
Family Trust, 29% of the outstanding stock of WNC & Associates, Inc.

The General Partner has a 1% interest in operating  profits and losses,  taxable
income and loss and in cash available for distribution from the Partnership. The
limited  partners  will  be  allocated  the  remaining  99% of  these  items  in
proportion  to their  respective  investments.  After the limited  partners have
received sale or refinancing  proceeds equal to their capital  contributions and
their  preferred  return (as defined in the  Partnership's  Agreement of Limited
Partnership) and the general partner has received a subordinated disposition fee
any  additional  sale or  refinancing  proceeds will be  distributed  90% to the
limited partners (in proportion to their respective  investments) and 10% to the
General Partner.

The  Partnership  considers  all bank  certificates  of deposit with an original
maturity of three months or less to be cash equivalents.

                                      -8-
<PAGE>


                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS

At  September  30,  1996,  the  Partnership  had  acquired  limited  partnership
interests  in  forty-eight  limited  partnerships  which own and  operate  fifty
apartment  complexes.  All of these have completed  construction as of September
30, 1996.

The Partnership,  as a limited partner, is a 99% owner and is entitled to 99% of
the operating profits and losses of the limited partnerships.

Following is a summary of the  components  of the  Partnership's  investment  in
limited partnerships as of September 30, 1996 and December 31, 1995 :
                                                     1996                 1995
                                                     ----                 ----
      Investment balance,
        beginning of period                     $  8,840,410       $  9,933,747
      Investment in limited partnerships           (141,425)            280,275
      Increase in acquisition fees and costs                                300
      Equity in loss of limited
        partnership                                (972,000)         (1,312,450)
      Distributions                                 (19,708)            (14,286)
      Amortization of capitalized
        acquisition costs                           (35,382)            (47,176)
                                                    --------            --------
      Investment balance,
        end of period                           $  7,671,895        $  8,840,410
                                                   =========           =========

Selected  operating  information from the combined  financial  statements of the
limited  partnerships  for the nine months ended September 30, 1996 and 1995 are
as follows:

                                                     1996                 1995
                                                     ----                 ----
           Total revenue                         $ 4,409,000        $  3,996,400
                                                   ---------           ---------

           Interest expense                        1,394,000           1,181,700
           Depreciation                            1,466,000           1,420,300
           Operating expenses                      2,531,000           2,285,200
                                                   ---------           ---------
           Total expenses                         5,391,000           4,887,200
                                                   ---------           ---------

           Net loss                              $($982,000)        $ (890,800) 
                                                   =========          ========= 
          Net loss allocable to
            the Partnership                      $($972,000)         $($881,800)
                                                   =========           =========

                                      -9-
<PAGE>

                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - RELATED PARTY TRANSACTIONS

Under the terms of its  Agreement of Limited  Partnership,  the  Partnership  is
obligated to the General Partner or its affiliates for an annual  management fee
equal  to .5% of the  invested  assets  (defined  as the  Partnership's  capital
contributions plus its allocable  percentage of the permanent  financing) of the
limited  partnerships.  Fees of $149,738 and $143,278 were incurred for the nine
months ended September 30, 1996 and 1995, respectively.

Accrued fees and advances due to  affiliates of General  Partner  consist of the
following at September 30, 1996 and December 31, 1995:

                                                        1996             1995
                                                        -----            -----

           Advances made for expenses                  2,675          $    2,541
           Asset management fee                    $ 673,393             513,786
                                                     -------             -------
                                                   $ 676,068          $  516,327


NOTE 4 - CAPITAL CONTRIBUTIONS PAYABLE

Capital  contributions  payable represent amounts which are due at various times
based on conditions specified in the respective limited partnership  agreements.
These  contributions  are payable in  installments,  are  generally due upon the
limited  partnership  achieving certain  operating  benchmarks and are generally
expected to be paid within two years of the Partnership's initial investment.


NOTE 5 - INCOME TAXES

No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.



                                      -10-

<PAGE>



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

         Liquidity and Capital Resources

The Partnership raised funds from investors through its public offering of units
of limited  partnership  interest  ("Units")  and  intends to apply such  funds,
including the installment  payments of the limited partners' promissory notes as
received,  to the acquisition of investments in partnerships,  acquisition fees,
the establishment of reserves, the payment of operating expenses and the payment
of expenses of this offering.

As of September 30, 1996, the Partnership has received  subscriptions for 15,000
units  consisting of cash of $15,000,000.  The  Partnership's  primary source of
capital has been the proceeds from its offering.

Overall,  as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately  $79,900 and $380,000 for
the nine months ended September 30, 1996 and 1995,  respectively.  This decrease
in cash was attributable to the Partnership's  investing  activities,  primarily
the payments for the Partnership's investments in limited partnerships.  The net
proceeds  from the offering  (i.e.,  cash capital  contributions  less  offering
costs) are sufficient to fund the Partnership's  remaining investing obligations
(capital  contributions  due  limited  partnerships).  No cash was  provided  by
financing  activities  during the six months ended  September 30, 1996 and 1995.
All funds due from  investors had been  received as of September 30, 1996.  Cash
used by the  Partnership's  operating  activities  was  minimal  compared to the
Partnership's other activities and consisted primarily of payments for operating
fees and expenses. Cash provided from operations consisted primarily of interest
received on cash  deposits.  The major  components of all these  activities  are
discussed in greater detail below.

As of September 30, 1996 and December 31, 1995, the Partnership had made capital
contributions  to local  limited  partnerships  in the  amount of  approximately
$10,908,000 and $10,876,000.

The Partnership's investments will not be readily marketable and may be affected
by adverse  general  economic  conditions  which, in turn,  could  substantially
increase the risk of operating  losses for the  apartment  complexes,  the local
limited  partnerships  and the  Partnership.  These  problems  may result from a
number of factors,  many of which cannot be controlled  by the General  Partner.
Nevertheless,  the General Partner anticipates that capital raised from the sale
of the Units will be  sufficient  to fund the  Partnership's  future  investment
commitments and proposed operations.

                                      -11-
<PAGE>

Upon  termination  of  the  offering  of  limited  partnership  interests,   The
Partnership established working capital reserves of 3% of capital contributions,
an amount which is  anticipated  to be  sufficient  to satisfy  general  working
capital and  administrative  expense  requirements of the Partnership  excluding
payment  of the  asset  management  fee as well  as  expenses  attendant  to the
preparation  of tax  returns  and  reports  to the  limited  partners  and other
investor servicing obligations of the Partnership.  Liquidity would, however, be
adversely affected by unanticipated or greater than anticipated operating costs.
The  Partnership's  liquidity  could also be  affected  by defaults or delays in
payment of the  promissory  notes,  from which a portion of the working  capital
reserves is expected to be funded.  To the extent that working capital  reserves
are  insufficient  to satisfy the cash  requirements of the  Partnership,  it is
anticipated  that  additional  funds would be sought through bank loans or other
institutional   financing.   The  General   Partner  may  also  apply  any  cash
distributions  received from the local limited partnerships for such purposes or
to replenish or increase working capital reserves.

As part  of its  application  for  government  assistance,  each  local  limited
partnership  must  establish to the  satisfaction  of the agency  providing  the
government  assistance that the local limited  partnership  will have sufficient
funds to complete  construction or rehabilitation of its apartment complex. None
of the local limited  partnerships  has any material capital  commitments  other
than the completion of its apartment complex.

It is not  expected  that any of the  local  limited  partnerships  in which the
Partnership will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant  amount. Such cash from
operations,  if any,  would  first  be used to meet  operating  expenses  of the
Partnership,  including the payment of the asset  management  fee to the General
Partner.

Under its  partnership  agreement the  Partnership  does not have the ability to
assess its partners for additional  capital  contributions to provide capital if
needed  by the  Partnership  or  local  limited  partnerships.  Accordingly,  if
circumstances arise that cause the local limited partnerships to require capital
in addition to that  contributed by the  Partnership and any equity of the local
general partners, the only sources from which such capital needs will be able to
be  satisfied  (other than the limited  reserves  available  at the  Partnership
level) will be (i) third-party debt financing  (which may not be available,  if,
as expected, the apartment complexes owned by the local limited partnerships are
already  substantially  leveraged),  (ii)  additional  equity  contributions  or
advances of the local general partners,  (iii) other equity sources (which could
adversely  affect the  Partnership's  interest in tax credits,  cash flow and/or
proceeds of sale or refinancing of the apartment complexes and result in adverse
tax  consequences to the limited  partners),  or (iv) the sale or disposition of
the apartment  complexes (which could have the same adverse effects as discussed
in (iii) above).  There can be no assurance  that funds from any of such sources
would be readily available in sufficient amounts to fund the capital requirement
of the local limited partnerships in question.  If such funds are not available,
the  local  limited  partnerships  would  risk  foreclosure  on their  apartment
complexes if they were unable to re-negotiate the terms of their first mortgages
and any other debt secured by the apartment  complexes to the extent the capital
requirements of the local limited partnerships relate to such debt.
                                      -12-
<PAGE>

  Results of Operations

As of September  30, 1996 the  Partnership  had acquired 48 limited  partnership
interests. Each of the 50 apartment complexes owned by such limited partnerships
receives  government  assistance and each of them has received a reservation for
federal low income housing credits.

Consistent  with  the   partnership's   investment   objectives,   each  limited
partnership is generating or is expected to generate  federal low income housing
credits for a period of approximately  ten years,  commencing with completion of
construction or rehabilitation of its apartment  complex(es),  and (as discussed
below) is  generating  or is  expected  to  generate  losses  until  sale of the
apartment complex(es).

As reflected on its  Statements of  Operations,  the  Partnership  has a loss of
approximately $1,244,000 and $1,100,000 the nine months ended September 30, 1996
and  1995,  respectively.  The  components  items of  revenue  and  expense  are
discussed below.

Revenue - Partnership revenues consisted entirely of interest earned on investor
promissory  note and on cash  deposits  held in  financial  institutions  (i) as
reserves, or (ii) pending investment in limited  partnerships.  Interest revenue
in future years will be a function of prevailing  interest  rates and the amount
of cash balances.  It is  anticipated  that the  Partnership  will maintain cash
reserves in an amount not materially in excess of the minimum amount required by
its partnership agreement, which is 3% of capital contributions.

Expenses - The most  significant  component  of  operating  expenses  is, and is
expected to be, the asset management fee (called "Partnership management fee" in
the  Statements of  Operations).  The asset  management  fee is equal to 0.5% of
invested assets in limited partnerships;  accordingly, the amount to be incurred
in the future is a function of the level of such invested assets (i.e.,  the sum
of the Partnership's  capital contributions to the limited partnerships plus the
Partnership's  share of the debts  related to the apartment  complexes  owned by
such limited  partnerships).  Amortization  expense consists of the amortization
over  a  period  of 30  years  of  the  9%  selection  fee  and  other  expenses
attributable to the acquisition of limited partnership interests.

Office expenses consists of the Partnership's  administrative  expenses, such as
accounting and legal fees, bank charges and investor reporting expenses.

Equity in losses from limited  partnerships - The Partnership's equity in losses
from  limited  partnerships  is  equal to 99% of the  aggregate  net loss of the
limited  partnerships.  After rent-up,  the limited partnerships are expected to
generate  losses during each year of  operations;  this is so because,  although
rental income is expected to exceed cash operating  expenses,  depreciation  and
amortization  deductions  claimed by the limited  partnerships  are  expected to
exceed net rental income.

                                      -13
<PAGE>



Part II.  Other Information

Item 1.  Legal Proceedings

         None.

Item 6.  Exhibits and Reports on Form 8-K

1.  None..


         No reports on Form 8-K were filed  during the quarter  ended  September
30, 1996.


                                      -14-
<PAGE>


         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.

WNC HOUSING TAX CREDIT FUND III, L.P.

By   WNC Tax Credit Partners, L.P., General Partner:

By:   WNC & ASSOCIATES, INC.        General Partner


By:  /s/ John B. Lester, Jr.
     John B. Lester, Jr.        President

Date: November 12, 1996


By:  /s/  Theodore M. Paul
     Theodore M. Paul  Vice President-Finance

Date: November 12, 1996




                                      -15-