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, 1998

                                       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>

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

                               INDEX TO FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 Balance Sheets, September 30, 1998 and December 31, 1997...................3

 Statement of Operations
  For the three months and nine months ended September 30, 1998 and 1997....4

 Statement of Partners' Equity
  For the nine months ended September 30, 1998 and 1997.....................5

 Statement of Cash Flows
  For the nine months ended September 30, 1998 and 1997.....................6

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

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

Item 3:  Quantitative and Qualitative Disclosures Above Market Risks.......12

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K...................................12

Signatures.................................................................13


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

                                 BALANCE SHEETS
                    September 30, 1998 and December 31, 1997

                                            1998                    1997
                                            ----                    ----

                                     ASSETS

Cash and cash equivalents        $         332,818        $         333,368

 Investment in limited
  partnerships                           4,996,789                5,923,350

 Other assets                                    -                        -
                                         ---------                ---------

                                 $       5,329,607        $       6,256,718
                                         =========                =========


                        LIABILITIES AND PARTNERS' EQUITY

Liabilities:
Payable to limited partnerships    $        50,818        $          50,818
Accrued fees and expenses due to
 general partner and affiliates          1,147,337                  923,399
                                         ---------                ---------
                                         1,198,155                  974,217
                                         ---------                ---------
Partners' equity (deficit):
 General partner                               794                   12,304
 Limited partners (15,000 units
 issued and outstanding)                 4,130,658                5,270,197
                                         ---------                ---------

Total partners' equity              $    4,131,452                5,282,501
                                         ---------                ---------

                                         5,329,607         $      6,256,718
                                         =========                =========


                                    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, 1998 and 1997

                                          1998                    1997
                                          -----                   ----
                                 Three        Nine        Three        Nine
                                 Months       Months      Months       Months
                                 ------       ------      ------       ------

Interest income              $   4,161    $   10,375  $    2,841  $      8,994
                             ---------     ---------   ---------     --------- 
                                                          
Operating expenses:
Amortization                    11,812        35,436      11,812        35,436
Asset management fees           74,868       224,605      74,871       224,605
Legal and accounting                 -         5,250       1,339         8,314
                                                                             
Other                            5,416        19,633       3,826        11,437
                             ---------     ---------   ---------     --------- 
                                                                            
Total operating expenses        92,096       284,924      91,848       279,792
                             ---------     ---------   ---------     --------- 

Loss from operations           (87,935)     (274,549)    (89,007)     (270,798)

Equity in loss from
 limited partnerships         (304,600)     (876,500)   (287,000)     (982,000)
                             ---------     ---------   ---------     ---------

Net loss                  $   (392,535) $ (1,151,049) $ (376,007) $ (1,252,798)
                             =========     =========   =========     =========

Net loss allocated to:
  General partner         $     (3,925)      (11,510)     (3,760)      (12,528)
                             =========     =========   =========     ========= 
                                                       
                                                      
  Limited partners        $   (388,610)   (1,139,539)   (372,247)   (1,240,270)
                             =========     =========   =========     =========  

Net loss per limited
 partner units (15,000
 units issued and 
 outstanding)             $        (26)  $       (76) $      (25)  $       (83)
                             =========     =========   =========     =========
                                                                
                                    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, 1998 and 1997



For the Nine Months Ended September 30, 1998
--------------------------------------------

                                          General        Limited
                                          Partner        Partner        Total
                                          -------        -------        -----

Equity (deficit), December 31, 1997  $     12,304  $   5,270,197  $   5,282,501

Net loss for the nine months ended
  September 30, 1997                      (11,510)    (1,139,539)    (1,151,049)
                                        ---------      ---------      ---------

Equity (deficit), September 30, 1998 $        794  $   4,130,658  $   4,131,452
                                        =========      =========      =========
                                                        


For the Nine Months Ended September 30, 1997
--------------------------------------------

                                           General        Limited
                                           Partner        Partner       Total
                                           -------        -------       -----

Equity (deficit), December 31, 1995   $     28,170  $   6,841,000  $  6,869,170

Net loss for the nine months ended
  September 30, 1997                       (12,528)    (1,240,270)   (1,252,798)
                                         ---------      ---------     ---------

Equity (deficit), September 30, 1997  $     15,642  $   5,600,730  $  5,616,372
                                         =========      =========     =========




                                    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, 1998 and 1997

                                                    1998                1997
                                                    ----                ----
Cash flows used by operating activities:

Net loss                                     $ (1,151,049)       $  (1,252,798)
 Adjustments to reconcile net loss to net
  cash used in operating activities:
  Equity in loss of limited partnerships          876,500              982,000
  Amortization                                     35,436               35,436
  Accrued asset management fee                    224,605               99,606
  Decrease in other assets                                                 531
  Decrease in accrued  expense due to
        general partner and affiliates               (667)              (1,115)
                                                ---------            ---------

       Net cash used in operating activities      (15,175)            (136,340)
                                                ---------            ---------

Cash flows used by investing activities:
     Distribution from limited partnerships        14,625               19,031
                                                ---------            ---------
Cash flows provided by investing activities:       14,625               19,031
                                                ---------            --------- 


Net decrease in cash and cash equivalents            (550)            (117,309)

Cash and cash equivalents, beginning of period    333,368              448,311
                                                ---------            ---------  

Cash and cash equivalent, end of period       $   332,818        $     331,002
                                                =========            =========




                                    UNAUDITED
                 See Accompanying Notes to Financial Statements

                                        6



<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, 1997. 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,
1998 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.

                                        7

<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,  1998,  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, 1998.

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.  Equity in losses
of limited  partnerships  is recognized in the  financial  statements  until the
related investment  account is reduced to a zero balance.  Losses incurred after
the  investment  account is reduced to zero are not  recognized.  If the 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.  At  September  30, 1998 four of the limited  partnership  investment
accounts have reached a zero balance and losses for those  partnerships  are not
recognized.

Following is a summary of the  components  of the  Partnership's  investment  in
limited partnerships as of September 30, 1998 and December 31, 1997:

                                                    1998                 1997
                                                    ----                 ----

 Investment balance, beginning of period     $      5,923,350  $     7,221,643
 Increase in acquisition fees and costs
 Equity in loss of limited partnership               (876,500)      (1,230,014)
 Distributions                                        (14,625)         (21,031)
 Amortization of capitalized acquisition 
   costs                                              (35,436)         (47,248)
                                                   ----------       ----------

 Investment balance, end of period            $     4,996,789  $     5,923,350
                                                   ==========       ==========
                                                    
Selected  operating  information from the combined  financial  statements of the
limited  partnerships  for the nine months ended September 30, 1998 and 1997 are
as follows:

                                             1998                   1997
                                             ----                   ----

  Total revenue                  $         4,812,300    $         4,702,600
                                          ----------             ----------

  Interest expense                         1,390,600              1,427,400
  Depreciation                             1,478,700              1,480,100
  Operating expenses                       2,981,500              2,848,200
                                          ----------             ----------
  Total expenses                           5,850,800              5,755,700
                                          ----------             ----------
  Net loss                       $        (1,038,500)   $        (1,053,100)
                                          ==========             ==========
  Net loss allocable to the
    Partnership                  $        (1,028,200)   $        (1,042,600)
                                          ==========             ==========
  Net loss recognized by the
    Partnership                  $          (875,600)   $          (982,000)
                                          ==========             ==========

                                        8

<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 $224,605 were incurred for each nine months ended
September 30, 1998 and 1997.

Accrued fees and advances due to  affiliates of General  Partner  consist of the
following at September 30, 1998 and December 31, 1997:


                                                 1998           1997
                                                 ----           ----

  Advances from general partner          $            -  $         668
  Accrued asset management fees               1,147,337        922,731
                                              ---------        -------
                                         $    1,147,337  $     923,399
                                              =========        =======



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.











                                       9




<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, 1998, 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  $600 for the nine months
ended  September 30, 1998.  This decrease in cash was  attributable  to the cash
used by the Partnership's operating activities of approximately $15,200 and cash
provided by investing activities of approximately  $14,600. The cash provided by
investing  activities  consisted  entirely  of the  distributions  from  limited
partnerships.  The cash provided by operating  activities consisted primarily of
interest  received on cash  deposits  and cash used  consisted  of payments  for
operating fees and expenses. No cash was provided by financing activities during
the nine months ended  September 30, 1998. All funds due from investors had been
received as of September 30, 1998. The major  components of all these activities
are discussed in greater detail below.

Overall,  as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash  equivalents  of  approximately  $117,000 for the nine
months ended September 30, 1997.  This decrease in cash was  attributable to the
cash  used in the  Partnership's  operating  activities  and  cash  provided  by
investing activities of approximately $(136,000) and $19,000,  respectively. The
cash provided by investing  activities  consisted  entirely of the distributions
from  limited  partnerships.  The cash used by  operating  activities  consisted
primarily of interest  received on cash deposits and payments for operating fees
and expenses,  including  $125,000 of accrued asset management fees. No cash was
provided by  financing  activities  during the nine months ended  September  30,
1997.  All funds due from  investors had been received as of September 30, 1997.
The major  components of all these  activities  are discussed in greater  detail
below.

 As of September 30, 1998, the  Partnership  had made capital  contributions  to
local limited partnerships in the amount of approximately $10,858,000.

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.  The Partnership  will establish  working
capital  reserves of at least 3% of capital  contributions,  an amount  which is
anticipated   to  be  sufficient  to  satisfy   general   working   capital  and
administrative  expense requirements of the Partnership including 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

                                       10

<PAGE>

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.

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

As of September  30, 1998 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 losses of
approximately  $1,151,000 and $1,253,000 for the nine months ended September 30,
1998 and 1997,  respectively.  The  components  items of revenue and expense are
discussed below.


                                       11

<PAGE>



Revenue -  Partnership  revenues  consisted of interest  earned 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.

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 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.


Item 3:  Quantitative and Qualitative Disclosures Above Market Risks

None.


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, 1998.






                                       12

<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, 1998

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

Date: November 12, 1998











                                       13