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, 2006

                                       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.

                 California                            33-0463432
                (State or other jurisdiction of       (I.R.S. Employer
               incorporation or organization)         Identification No.)



                     17782 Sky Park Circle, Irvine, CA 92614
                   ( Address of principle executive offices )

                                 (714) 622-5565
                              ( Telephone Number )

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          No     X
  -----------  ------------

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in rule 12b-2 of the Exchange Act).

Yes          No    X
   ----------  -------------

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

                               INDEX TO FORM 10-Q

                    For the Quarter Ended September 30, 2006

PART I. FINANCIAL INFORMATION

  Item 1. Financial Statements

          Balance Sheets
                September 30, 2006 and March 31, 2006..........................3

          Statements of Operations
                For the Three and Six Months Ended September 30, 2006 and 2005.4

          Statement of Partners' Deficit
                For the Six Months Ended September 30, 2006 ...................5

          Statements of Cash Flows
                For the Six Months Ended September 30, 2006 and 2005...........6

          Notes to Financial Statements........................................7


  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................14

  Item 3. Quantitative and Qualitative Disclosures above Market Risk..........15

  Item 4. Controls and Procedures.............................................15

PART II.  OTHER INFORMATION

  Item 1. Legal Proceedings...................................................16

  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........16

  Item 3. Defaults Upon Senior Securities.....................................16

  Item 4. Submission of Matters to a Vote of Security Holders.................16

  Item 5. Other Information...................................................16

  Item 6. Exhibits and Reports on Form 8-K....................................16

  Signatures..................................................................17

  Certifications........................................................ 18 & 19

                                       2
<PAGE>

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                     September 30, 2006            March 31, 2006
                                                                   -----------------------        ------------------
                                                                        (unaudited)
ASSETS
<S>                                                             <C>                            <C>
Cash and cash equivalents                                        $               158,578        $         156,158
Investments in Local Limited Partnerships, net (Note 2)                           22,856                   23,717
                                                                   -----------------------        ------------------
      Total Assets                                               $               181,434        $         179,875
                                                                   =======================        ==================
LIABILITIES AND PARTNERS' DEFICIT

Liabilities:
   Accrued fees and expenses due to
     General Partner and affiliates (Note 3)                     $             3,348,631        $       3,198,608

Partners' deficit:

  General Partner                                                                (72,194)                 (70,709)
  Limited Partners (15,000 Partnership Units authorized;
    15,000 Partnership Units issued and outstanding)                          (3,095,003)              (2,948,024)
                                                                   -----------------------        ------------------
      Total partners' deficit                                                 (3,167,197)              (3,018,733)
                                                                   -----------------------        ------------------
      Total Liabilities and Partners' Deficit                    $               181,434         $        179,875
                                                                   =======================        ==================
</TABLE>
                 See accompanying notes to financial statements
                                       3
<PAGE>
                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                            STATEMENTS OF OPERATIONS

         For the Three and Six Months Ended September 30, 2006 and 2005
                                   (unaudited)
<TABLE>
<CAPTION>
                                                          2006                                        2005
                                       -------------------------------------------    -------------------------------------
                                         Three Months              Six Months          Three Months          Six Months
                                       ------------------      -------------------    ----------------    -----------------
<S>                                 <C>                    <C>                     <C>                 <C>
Interest income                      $               182                      367   $             229                  468
Distribution income                                6,476                   21,179              12,354               17,782
                                       ------------------      -------------------    ----------------    -----------------
                                                   6,658                   21,546              12,583               18,250
                                       ------------------      -------------------    ----------------    -----------------
Operating expenses:
  Amortization (Note 2)                               85                      170                  85                  170
  Asset management fees (Note 3)                  74,866                  149,732              74,866              149,732
  Legal and accounting                            16,687                   16,921              10,376               15,851
  Other                                            2,066                    2,696               1,750                4,602
                                       ------------------      -------------------    ----------------    -----------------
    Total operating expenses                      93,704                  169,519              87,077              170,355
                                       ------------------      -------------------    ----------------    -----------------
Loss from operations                             (87,046)                (147,973)            (74,494)            (152,105)

Equity in losses of Local
 Limited Partnerships (Note 2)                      (246)                    (491)            (10,329)             (20,658)
                                       ------------------      -------------------    ----------------    -----------------
Net loss                             $           (87,292)                (148,464)   $        (84,823)            (172,763)
                                       ==================      ===================    ================    =================
Net loss allocated to:
  General Partner                    $              (873)                  (1,485)   $           (848)              (1,728)
                                       ==================      ===================    ================    =================
  Limited Partners                   $           (86,419)                (146,979)   $        (83,975)            (171,035)
                                       ==================      ===================    ================    =================

Net loss per Partnership Unit        $                (6)                     (10)   $             (5)                 (11)
                                       ==================      ===================    ================    =================
Outstanding weighted Partnership
  Units                                           15,000                   15,000              15,000               15,000
                                       ==================      ===================    ================    =================
</TABLE>
                 See accompanying notes to financial statements
                                       4
<PAGE>
                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                         STATEMENT OF PARTNERS' DEFICIT

                   For the Six Months Ended September 30, 2006
<TABLE>
<CAPTION>
                                                           General               Limited
                                                           Partner              Partners                 Total
                                                        ---------------      ----------------      ------------------
<S>                                                  <C>                  <C>                   <C>
Partners' deficit at March 31, 2006                   $       (70,709)     $     (2,948,024)     $       (3,018,733)

Net loss (unaudited)                                           (1,485)             (146,979)               (148,464)
                                                        ---------------      ----------------      ------------------
Partners' deficit at September 30, 2006 (unaudited)   $       (72,194)     $     (3,095,003)     $       (3,167,197)
                                                        ===============      ================      ==================
</TABLE>
                 See accompanying notes to financial statements
                                       5
<PAGE>
                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                            STATEMENTS OF CASH FLOWS

              For the Six Months Ended September 30, 2006 and 2005
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                            2006                 2005
                                                                        --------------      ---------------
<S>                                                                 <C>                  <C>
Cash flows from operating activities:
  Net loss                                                            $     (148,464)     $      (172,763)
    Adjustments to reconcile net loss to net
       cash provided by (used in) operating activities:
        Amortization                                                             170                  170
        Equity in losses of Local Limited Partnerships                           491               20,658
        Change in accrued  fees and expenses due to
          General Partner and affiliates                                     150,023              119,907
                                                                        --------------      ---------------
Net cash provided by (used in) operating activities                            2,220              (32,028)
                                                                        --------------      ---------------
Cash flows from investing activities:
   Distributions received from Local Limited Partnerships                        200                    -
                                                                        --------------      ---------------
Net increase (decrease) in cash and cash equivalents                           2,420              (32,028)

Cash and cash equivalents, beginning of period                               156,158              212,588
                                                                        --------------      ---------------
Cash and cash equivalents, end of period                              $      158,578      $       180,560
                                                                        ==============      ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:

   Taxes paid                                                         $            -      $             -
                                                                        ==============      ===============
</TABLE>
                 See accompanying notes to financial statements
                                       6
<PAGE>
                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

General
-------

The accompanying  condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly  reports under Section 13 or 15(d) of the Securities  Exchange Act
of 1934.  Accordingly,  they do not include all of the information and footnotes
required by  accounting  principles  generally  accepted in the United States of
America for complete  financial  statements.  In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six months ended
September  30, 2006 are not  necessarily  indicative  of the results that may be
expected  for the fiscal year ending March 31,  2007.  For further  information,
refer  to  the  financial  statements  and  footnotes  thereto  included  in the
Partnership's  annual  report on Form 10-K for the fiscal  year ended  March 31,
2006.

Organization
------------

WNC Housing Tax Credit Fund III, L.P. ("the Partnership"),  a California Limited
Partnership,  was  formed  on May  10,  1991  under  the  laws of the  State  of
California.  The Partnership was formed to acquire limited partnership interests
or membership interests in other Local Limited Partnerships or limited liability
companies  ("Local  Limited   Partnerships")   which  own  multi-family  housing
complexes ("Housing Complexes") that are eligible for Federal low-income housing
tax credits ("Low Income Housing Tax Credits").

The general  partner of the  Partnership is WNC Tax Credit  Partners,  L.P. (the
"General  Partner").  The  general  partners  of the  General  Partner are WNC &
Associates,  Inc.  ("Associates")  and Wilfred N.  Cooper,  Sr. The chairman and
president  of  Associates  own  substantially  all of the  outstanding  stock of
Associates.  The  business of the  Partnership  is conducted  primarily  through
Associates,  as the  Partnership  and General Partner have no employees of their
own.

The Partnership  shall continue in full force and effect until December 31, 2050
unless  terminated  prior to that date pursuant to the partnership  agreement or
law.

The  Partnership  Agreement  authorized  the  sale of up to  15,000  of  Limited
Partnership interest  ("Partnership  Units") at $1,000 per Partnership Unit. The
offering of  Partnership  Units  concluded on September  30, 1993, at which time
15,000 Partnership Units representing subscriptions in the amount of $15,000,000
had been accepted.  The General Partner has 1% interest in operating profits and
losses,  taxable income and losses,  in cash available for distribution from the
Partnership and Low Income Housing Tax Credits of the Partnership. The investors
(the "Limited  Partne")  will be allocated the remaining 99% of these items in
proportion to their respective investments.

The  proceeds  from the  disposition  of any of the  Local  Limited  Partnership
properties  will be used  first  to pay  debts  and  other  obligations  per the
respective Local Limited Partnership Agreement. Any remaining proceeds will then
be paid to the  Partnership.  The sale of a Housing  Complex  may be  subject to
other restrictions and obligations.  Accordingly, there can be no assurance that
a Local Limited Partnership will be able to sell its Housing Complex. Even if it
does so, there can be no assurance that any significant  amounts of cash will be
distributed to the  Partnership.  Should such  distributions  occur, the Limited
Partners  will be  entitled  to  receive  distributions  equal to their  capital
contributions  and their  return on  investment  (as defined in the  Partnership
Agreement) and the General  Partners would then be entitled to receive  proceeds
equal to their capital contributions from the remainder.  Any additional sale or
refinancing  proceeds  will  be  distributed  99% to the  Limited  Partners  (in
proportion to their respective investments) and 1% to the General Partners.

                                       7
<PAGE>
                     WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Risks and Uncertainties
-----------------------

An investment in the  Partnership  and the  Partnership's  investments  in Local
Limited  Partnerships  and their Housing  Complexes are subject to risks.  These
risks may impact the tax benefits of an investment in the  Partnership,  and the
amount of proceeds  available for distribution to the Limited Partners,  if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:

The Low Income Housing Tax Credit rules are extremely complicated. Noncompliance
with these  rules  results in the loss of future Low Income  Housing Tax Credits
and the fractional recapture of Low Income Housing Tax Credits already taken. In
most  cases  the  annual  amount  of Low  Income  Housing  Tax  Credits  that an
individual  can use is limited to the tax  liability  due on the  person's  last
$25,000 of taxable income. The Local Limited  Partnerships may be unable to sell
the Housing Complexes at a price which would result in the Partnership realizing
cash   distributions  or  proceeds  from  the  transaction.   Accordingly,   the
Partnership  may be unable to distribute any cash to its  investors.  Low Income
Housing  Tax  Credits  may  be  the  only  benefit  from  an  investment  in the
Partnership.

The Partnership has invested in a limited number of Local Limited  Partnerships.
Such  limited  diversity  means that the  results of  operation  of each  single
Housing  Complex  will have a greater  impact on the  Partnership.  With limited
diversity,   poor   performance   of  one  Housing   Complex  could  impair  the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage  indebtedness.  If a Local Limited  Partnership failed to
pay its  mortgage,  it  could  lose  its  Housing  Complex  in  foreclosure.  If
foreclosure  were to occur during the first 15 years,  the loss of any remaining
Low Income  Housing Tax  Credits,  a  fractional  recapture  of prior Low Income
Housing Tax Credits,  and a loss of the Partnership's  investment in the Housing
Complex would occur.  The  Partnership  is a limited  partner or a  non-managing
member of each Local Limited Partnership. Accordingly, the Partnership will have
very  limited   rights  with  respect  to   management   of  the  Local  Limited
Partnerships.  The Partnership will rely totally on the Local General  Partners.
Neither the  Partnership's  investments in Local Limited  Partnerships,  nor the
Local  Limited  Partnerships'  investments  in Housing  Complexes,  are  readily
marketable.  To the extent the Housing Complexes receive government financing or
operating subsidies,  they may be subject to one or more of the following risks:
difficulties  in obtaining  tenants for the Housing  Complexes;  difficulties in
obtaining  rent  increases;  limitations on cash  distributions;  limitations on
sales or refinancing of Housing Complexes; limitations on transfers of interests
in Local Limited Partnerships; limitations on removal of Local General Partners;
limitations on subsidy programs; and possible changes in applicable regulations.
Uninsured casualties could result in loss of property and Low Income Housing Tax
Credits and recapture of Low Income Housing Tax Credits  previously  taken.  The
value of real estate is subject to risks from fluctuating  economic  conditions,
including employment rates, inflation,  tax, environmental,  land use and zoning
policies, supply and demand of similar properties,  and neighborhood conditions,
among others.

The  ability of Limited  Partners to claim tax losses  from the  Partnership  is
limited.  The IRS may audit the  Partnership or a Local Limited  Partnership and
challenge the tax treatment of tax items.  The amount of Low Income  Housing Tax
Credits and tax losses  allocable to the  investors  could be reduced if the IRS
were successful in such a challenge.  The  alternative  minimum tax could reduce
tax benefits from an investment  in the  Partnership.  Changes in tax laws could
also impact the tax benefits from an investment  in the  Partnership  and/or the
value of the Housing Complexes.

Substantially  all of the Low  Income  Housing  Tax  Credits  anticipated  to be
realized from the Local Limited Partnerships have been realized. The Partnership
does not anticipate  being allocated a significant  amount of Low Income Housing
Tax Credits from the Local Limited  Partnerships in the future.  Until the Local
Limited  Partnerships  have  completed  the 15 year Low  Income  Housing  Credit
compliance  period,  risks  exist for  potential  recapture  of prior Low Income
Housing Tax Credits.
                                       8
<PAGE>
                     WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Risks and Uncertainties, continued
----------------------------------

No trading  market for the  Partnership  Units exists or is expected to develop.
Limited  Partners  may be unable to sell  their  Partnership  Units  except at a
discount  and  should  consider  their  Partnership  Units  to  be  a  long-term
investment.  Individual  Limited Partners will have no recourse if they disagree
with actions authorized by a vote of the majority of Limited Partners.

Associates has agreed to continue providing  advances  sufficient enough to fund
the operations  and working  capital  requirements  of the  Partnership  through
September 30, 2007,  if the  Partnership  were to  experience a working  capital
deficiency.

Anticipated  future and  existing  cash  resources  of the  Partnership  are not
sufficient   to  pay  existing   liabilities   of  the   Partnership.   However,
substantially all of the existing  liabilities of the Partnership are payable to
the General  Partner and/or its  affiliates.  Though the amounts  payable to the
General Partner and/or its affiliates are contractually  currently payable,  the
Partnership  anticipates that the General Partner and/or its affiliates will not
require the payment of these contractual  obligations until capital reserves are
in excess of the aggregate of then  existing  contractual  obligations  and then
anticipated future foreseeable  obligations of the Partnership.  The Partnership
would be adversely  affected  should the General  Partner  and/or its affiliates
demand current  payment of the existing  contractual  obligations and or suspend
services for this or any other reason.

Exit Strategy
-------------

The IRS  Compliance  Period for  low-income  housing  tax credit  properties  is
generally  15  years  following   construction  or  rehabilitation   completion.
Associates was one of the first in the industry to offer syndicated  investments
in Low Income Housing Tax Credits.  The initial  programs are  completing  their
compliance periods.

With that in mind,  the General  Partner is continuing its review of the Housing
Complexes,  with special emphasis on the more mature properties such as any that
have  satisfied  the IRS  compliance  requirements.  The review  considers  many
factors,  including  extended  use  requirements  (such as those due to mortgage
restrictions  or state  compliance  agreements),  the  condition  of the Housing
Complex,  and the tax  consequences to the Limited Partners from the sale of the
Housing Complex.

Upon  identifying  those  Housing  Complexes  with the highest  potential  for a
successful sale, refinancing or syndication,  the Partnership expects to proceed
with  efforts to  liquidate  them.  The  objective  is to  maximize  the Limited
Partners'  return  wherever   possible  and,   ultimately,   to  wind  down  the
Partnership.  Local Limited Partnership interests may be disposed of any time by
the General  Partner in its  discretion.  As of September  30, 2006,  no Housing
Complexes  have  completed  15  year  compliance  period  or been  selected  for
disposition. The dissolution of the Partnership was not imminent as of September
30, 2006 and therefore the Partnership  continues to be accounted for as a going
concern.

The  proceeds  from the  disposition  of any of the  Local  Limited  Partnership
properties  will be used  first  to pay  debts  and  other  obligations  per the
respective Local Limited Partnership Agreement. Any remaining proceeds will then
be paid to the  Partnership.  The sale of a Housing  Complex  may be  subject to
other restrictions and obligations.  Accordingly, there can be no assurance that
a Local Limited Partnership will be able to sell its Housing Complex. Even if it
does so, there can be no assurance that any significant  amounts of cash will be
distributed to the  Partnership.  Should such  distributions  occur, the Limited
Partners  will be  entitled  to  receive  distributions  equal to their  capital
contributions  and their  return on  investment  (as defined in the  Partnership
Agreement) and the General  Partners would then be entitled to receive  proceeds
equal to their capital contributions from the remainder.  Any additional sale or
refinancing  proceeds  will  be  distributed  99% to the  Limited  Partners  (in
proportion to their respective investments) and 1% to the General Partners.

                                       9
<PAGE>
                     WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Method of Accounting For Investments in Limited Partnerships
------------------------------------------------------------

The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting,  whereby the Partnership adjusts its investment
balance for its share of the Local Limited  Partnerships'  results of operations
and for  any  contributions  made or  distributions  received.  The  Partnership
reviews the  carrying  amount of an  individual  investment  in a Local  Limited
Partnership for possible  impairment whenever events or changes in circumstances
indicate that the carrying  amount of such  investment  may not be  recoverable.
Recoverability  of such investment is measured by the estimated value derived by
management,  generally  consisting of the sum of the remaining future Low Income
Housing  Credits  estimated to be allocable to the Partnership and the estimated
residual  value  to  the  Partnership.  If an  investment  is  considered  to be
impaired,  the  Partnership  reduces the carrying value of its investment in any
such Local Limited  Partnership.  The  accounting  policies of the Local Limited
Partnerships,  generally,  are  expected  to be  consistent  with  those  of the
Partnership.  Costs incurred by the Partnership in acquiring the investments are
capitalized  as part of the investment  account and are being  amortized over 30
years. (See Note 2)

"Equity  in losses of the Local  Limited  Partnerships"  for each  period  ended
September 30, 2006 and 2005 have been recorded by the  Partnership  based on six
months of results  estimated  by  management  of the  Partnership.  Management's
estimate for the six-month  period is based on either actual  unaudited  results
reported  by  the  Local  Limited  Partnerships  or  historical  trends  in  the
operations of the Local Limited Partnerships.  In subsequent quarterly financial
statements,  upon  receiving  the actual  annual  results  reported by the Local
Limited  Partnerships,  management  reverses its prior  estimate and records the
actual results reported by the Local Limited  Partnerships.  Equity in losses of
the Local Limited  Partnerships  allocated to the Partnership are not recognized
to the extent that the investment  balance would be adjusted below zero. As soon
as the investment  balance  reaches zero,  amortization  of the related costs of
acquiring the investment are accelerated to the extent of losses  available.  If
the  Local  Limited   Partnerships  report  net  income  in  future  years,  the
Partnership  will resume applying the equity method only after its share of such
net income  equals the share of net losses not  recognized  during the period(s)
the equity method was suspended. (See Note 2)

Distributions  received from the Local Limited Partnerships are accounted for as
a  reduction  of  the  investment  balance.  Distributions  received  after  the
investment has reached zero are recognized as distribution income.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  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 materially differ from those
estimates.

Concentration of Credit Risk
----------------------------

At September  30, 2006,  the  Partnership  maintained  cash  balances at certain
financial   institutions  in  excess  of  the  federally  insured  maximum.  The
Partnership  believes it is not  exposed to any  significant  financial  risk on
cash.

Cash and Cash Equivalents
-------------------------

The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash  equivalents.  As of September
30, 2006 and March 31, 2006, the Partnership had no cash equivalents.

                                       10
<PAGE>
                     WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Net Loss Per Partnership Unit
-----------------------------

Net loss per Partnership  Unit is calculated  pursuant to Statement of Financial
Accounting  Standards No. 128, Earnings Per Share. Net loss per Partnership Unit
includes no dilution  and is computed  by  dividing  loss  allocated  to Limited
Partners by the weighted average number of Partnership Units outstanding  during
the  period.  Calculation  of  diluted  net  loss  per  Partnership  Unit is not
required.

Income Taxes
------------

No provision for income taxes has been  recorded in the financial  statements as
any  liability  and or benefits  for income  taxes flows to the  partners of the
Partnership and is their obligation and/or benefit.  For income tax purposes the
Partnership reports on a calendar year basis.

Revenue Recognition
-------------------

The  Partnership  is entitled to receive  reporting  fees from the Local Limited
Partnerships.  The  intent  of  the  reporting  fees  is  to  offset  (in  part)
administrative costs incurred by the Partnership in corresponding with the Local
Limited  Partnerships.  Due to the  uncertainty of the collection of these fees,
the Partnership recognizes reporting fees as collections are made.

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
--------------------------------------------

As of the periods  presented,  the Partnership has acquired limited  partnership
interests  in 48 Local  Limited  Partnerships,  each of which  owns one  Housing
Complex, except one Local Limited Partnership that owns three Housing Complexes,
consisting  of an aggregate  of 1,685  housing  units.  The  respective  General
Partners of the Local Limited  Partnerships manage the day-to-day  operations of
the entities.  Significant Local Limited Partnership  business decisions require
approval  from the  Partnership.  The  Partnership,  as a  limited  partner,  is
generally  entitled  to 99%,  as  specified  in the  Local  Limited  Partnership
agreements,  of the operating profits and losses,  taxable income and losses and
tax credits of the Local Limited Partnerships.

The following is a summary of the equity method  activity of the  investments in
Local Limited Partnerships for the periods presented below:
<TABLE>
<CAPTION>
                                                                   For the Six               For the Year
                                                                   Months Ended                  Ended
                                                                September 30, 2006          March 31, 2006
                                                              -----------------------      ------------------
<S>                                                          <C>                        <C>
     Investments per balance sheet, beginning of period       $              23,717      $           57,307
     Equity in losses of limited partnerships                                  (491)                (32,221)
     Distributions received from Local Limited Partnerships                    (200)                 (1,029)
     Amortization of capitalized acquisition fees and
     costs                                                                     (170)                   (340)
                                                                ---------------------      ------------------
     Investments per balance sheet, end of period             $              22,856      $           23,717
                                                                =====================      ==================
</TABLE>
                                       11
<PAGE>
                      WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
-------------------------------------------------------

Selected  financial  information for the six months ended September 30, 2006 and
2005 from the unaudited combined condensed  financial  statements of the limited
partnerships in which the Partnership has invested as follows:


                   COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                       2006                      2005
                                                               ----------------------      ------------------
<S>                                                         <C>                          <C>
        Revenues                                             $             3,912,000      $        3,522,000
                                                               ----------------------      ------------------
        Expenses:
          Operating expenses                                               2,668,000               2,424,000
          Interest expense                                                   822,000                 712,000
          Depreciation and amortization                                      927,000                 872,000
                                                               ----------------------      ------------------
        Total expenses                                                     4,417,000               4,008,000
                                                               ----------------------      ------------------
        Net loss                                             $              (505,000)     $         (486,000)
                                                               ======================      ==================
                                                             $              (500,000)     $         (480,000)
        Net loss allocable to the Partnership
                                                               ======================      ==================
        Net loss recorded by the Partnership                 $                     -      $          (21,000)
                                                               ======================      ==================
</TABLE>
Certain Local Limited  Partnerships  have incurred  operating losses and/or have
working  capital  deficiencies.  In the event these Local  Limited  Partnerships
continue to incur significant operating losses, additional capital contributions
by the Partnership  and/or the Local General Partners may be required to sustain
the  operations  of such  Local  Limited  Partnerships.  If  additional  capital
contributions are not made when they are required, the Partnership's  investment
in certain of such Local Limited  Partnerships  could be impaired,  and the loss
and recapture of the related tax credits could occur.

                                       12
<PAGE>
                     WNC HOUSING TAX CREDIT FUND III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                    For the Quarter Ended September 30, 2006
                                   (unaudited)

NOTE 3 - RELATED PARTY TRANSACTIONS

Under the terms of the  Partnership  Agreement  the  Partnership  has paid or is
obligated to the General Partner or its affiliates for the following fees:

(a)  Annual asset  management fee. An annual asset  management fee equal to 0.5%
     of the invested assets of the Local Limited  Partnerships.  Invested Assets
     means the sum of the Partnership's  Investment in Local Limited Partnership
     Interests  and the  Partnership's  allocable  share  of the  amount  of the
     mortgage loans on and other debts related to, the Housing  Complexes  owned
     by such Local Limited  Partnerships.  Fees of $149,732 were incurred during
     each of the six months ended  September 30, 2006 and 2005. The  Partnership
     paid the  General  Partner or its  affiliates  $13,750 and $20,625 of those
     fees during the six months ended September 30, 2006 and 2005, respectively.

(b)  Subordinated  disposition fee. A subordinated  disposition fee is earned in
     an amount  equal to 1% of the sales price of real estate  sold.  Payment of
     this fee is  subordinated  to the  Limited  Partners  receiving a preferred
     return of 16% through  December 31, 2002 and 6%  thereafter  (as defined in
     the  Partnership  Agreement) and is payable only if the General  Partner or
     its  affiliates  render  services  in the sales  effort.  No such fees were
     earned for the periods presented.

(c)  The  Partnership  reimburses  the  General  Partner or its  affiliates  for
     operating expenses incurred on behalf of the Partnership. Operating expense
     reimbursements were approximately  $5,575 and $29,652 during the six months
     ended September 30, 2006 and 2005, respectively.

The accrued fees and expenses due to General Partner and affiliates consisted of
the following at:
<TABLE>
<CAPTION>
                                                      September 30, 2006               March 31, 2006
                                                    ---------------------          -------------------
<S>                                            <C>                              <C>
   Asset management fee payable                  $              3,329,878                   3,193,896
   Reimbursement  for  expenses  paid by the
   General Partner and/or its affiliates                           18,753                       4,712
                                                    ----------------------         -------------------
                                                 $              3,348,631       $           3,198,608
                                                    ======================         ===================
</TABLE>
The General  Partner and/or its affiliates do not anticipate  that these accrued
fees will be paid in full until such time as capital  reserves  are in excess of
the future foreseeable working capital requirements of the Partnership.

                                       13
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Forward-Looking Statements

With the exception of the  discussion  regarding  historical  information,  this
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and other  discussions  elsewhere in this Form 10-Q contain forward
looking statements. Such statements are based on current expectations subject to
uncertainties  and other  factors which may involve known and unknown risks that
could  cause  actual  results  of  operations  to differ  materially  from those
projected or implied. Further, certain forward-looking statements are based upon
assumptions about future events which may not prove to be accurate.

Risks and uncertainties  inherent in forward looking statements include, but are
not  limited  to,  our  future  cash  flows and  ability  to  obtain  sufficient
financing, level of operating expenses, conditions in the Low Income Housing Tax
Credit property market and the economy in general, as well as legal proceedings.
Historical  results are not necessarily  indicative of the operating results for
any future period.

Subsequent  written and oral  forward  looking  statements  attributable  to the
Partnership  or persons  acting on its behalf are  expressly  qualified in their
entirety by  cautionary  statements in this Form 10-Q and in other reports filed
with the Securities and Exchange Commission.  The following discussion should be
read in conjunction with the Financial Statements and the Notes thereto included
elsewhere in this filing.

The following discussion and analysis compares the results of operations for the
three and six months ended  September  30, 2006 and 2005,  and should be read in
conjunction   with  the  condensed   consolidated   financial   statements   and
accompanying notes included within this report.

Financial Condition

The Partnership's  assets at September 30, 2006 consisted  primarily of $158,000
in cash and aggregate  investments in the forty-eight Local Limited Partnerships
of $23,000.  Liabilities at September 30, 2006 primarily consisted of $3,349,000
of accrued annual asset management fees and  reimbursement  for expenses paid by
the General Partner and/or its affiliates.

Results of Operations

Three Months Ended  September 30, 2006 Compared to Three Months Ended  September
30, 2005. The  Partnership's  net loss for the three months ended  September 30,
2006 was $(87,000),  reflecting a increase of $(2,000) from the net loss for the
three months ended September 30, 2005 of $(85,000).  This increase was primarily
due to a increase of $(12,000) in loss from  operations  offset by a decrease of
$10,000 in equity in losses of Local Limited  Partnerships  for the three months
ended  September  30, 2006.  This decrease was a result of the  Partnership  not
recognizing certain losses of the Local Limited Partnerships, as the investments
in such Local Limited  Partnerships  had reached $0 at September 30, 2006. Since
the Partnership's  liability with respect to its investments is limited,  losses
in  excess  of  investments  are not  recognized.  The  increase  in  loss  from
operations  was primarily  caused by $(6,000)  increase in legal and  accounting
fees along with the decrease of $(6,000) in distribution income.

Six Months Ended  September 30, 2006 Compared to Six Months Ended  September 30,
2005. The Partnership's net loss for the six months ended September 30, 2006 was
$(149,000),  reflecting  a  decrease  of  $24,000  from the net loss for the six
months ended  September 30, 2005 of $(173,000).  This decrease was primarily due
to equity in losses of Local Limited  Partnerships,  which  decreased by $20,000
for the six months ended  September 30, 2006.  This decrease was a result of the
Partnership not recognizing certain losses of the Local Limited Partnerships, as
the investments in such Local Limited  Partnerships  had reached $0 at September
30, 2006. Since the  Partnership's  liability with respect to its investments is
limited,  losses in excess of  investments  are not  recognized.  Along with the
decrease  in  equity  in losses  of Local  Limited  Partnerships,  the loss from
operations  decreased  by  $4,000,  from  $(152,000)  for the six  months  ended
September  30, 2005 to $(148,000)  for the six months ended  September 30, 2006,
due to a  $1,000  decrease  in  operating  expenses  and a  $3,000  increase  in
distribution  income.  The decrease in operating expenses was primarily due to a
$2,000  decrease in other  expenses  which was offset by a $(1,000)  increase in
legal and accounting expenses.
                                       14
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations, continued

Liquidity and Capital

Six Months Ended  September 30, 2006 Compared to Six Months Ended  September 30,
2005.  Net cash  provided  during the six months  ended  September  30, 2006 was
$2,000,  compared to net cash used in the six months ended September 30, 2005 of
$(32,000),  reflecting  an increase of $34,000 in net cash provided in operating
activities.

During the six months ended  September 30, 2006 , accrued asset  management fees
payable and advances  due to the General  Partner  increased  by  $150,000.  The
General  Partner does not anticipate  that the accrued fees and advances will be
paid until such time as capital  reserves are in excess of  foreseeable  working
capital requirements of the partnership.

The Partnership  expects its future cash flows,  together with its net available
assets at September 30, 2006, to be sufficient to meet all currently foreseeable
future cash  requirements.  This  excludes  amounts  owed to  Associates  by the
Partnership.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

         NOT APPLICABLE

Item 4.  Controls and Procedures

         As of the end of the period covered by this report,  the  Partnership's
         General Partner,  under the supervision and with  the  participation of
         the Chief Executive  Officer and Chief Financial  Officer of Associates
         carried  out  an  evaluation  of  the   effectiveness   of  the  Fund's
         "disclosure controls and procedures" as defined  in Securities Exchange
         Act of 1934 Rule  13a-15 and  15d-15.  Based on  that  evaluation,  the
         Chief  Executive  Officer and Chief  Financial   Officer have concluded
         that  as of  the  end  of the  period  covered   by  this  report,  the
         Partnership's  disclosure  controls and   procedures  were adequate and
         effective in timely alerting them to material  information  relating to
         the Partnership required to be included in the Partnership's   periodic
         SEC filings.

         Changes   in   internal   controls.   There  were  no  changes  in  the
         Partnership's  internal control over  financial reporting that occurred
         during the quarter ended September 30, 2006  that materially  affected,
         or are  reasonably  likely  to  materially  affect,  the  Partnership's
         internal control over financial reporting.

                                       15
<PAGE>
PART II. Other Information

Item 1.  Legal Proceedings

         NONE

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

         NONE

Item 3.  Defaults Upon Senior Securities

         NONE

Item 4.  Submission of Matters to a Vote of Security Holders

         NONE

Item 5.  Other Information

         NONE

Item 6.  Exhibits and Reports on Form 8-K

(a)      Reports on Form 8-K.

         NONE

(b)      Exhibits.

31.1     Certification   of the  Principal  Executive  Officer  pursuant to Rule
         13a-15(e)  and  15d-15(e),  as  adopted  pursuant to section 302 of the
         Sarbanes-Oxley Act of 2002. (filed herewith)

31.2     Certification  of  the  Principal  Financial  Officer  pursuant to Rule
         13a-15(e)  and  15d-15(e),  as  adopted  pursuant to section 302 of the
         Sarbanes-Oxley Act of 2002. (filed herewith)

32.1     Section  1350  Certification  of  the  Chief  Executive Officer. (filed
         herewith)

32.2     Section  1350  Certification  of  the  Chief Financial Officer.  (filed
         herewith)

                                       16
<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 CREDITS III, L.P.

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


By:  WNC & ASSOCIATES, INC.         General Partner




By: /s/ Wilfred N. Cooper, Jr.
    --------------------------
Wilfred N. Cooper, Jr.
Chairman and Chief Executive Officer of WNC & Associates, Inc.

Date:  March 6, 2007



By:  /s/ Thomas J. Riha
-----------------------
Thomas J. Riha
Senior Vice-President - Chief Financial Officer of WNC & Associates, Inc.

Date:  March 6, 2007

                                       17