UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (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, 2010
 
 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. Employerincorporation or organization)
Identification No.)17782 Sky Park CircleIrvine, CA
92614-6404(Address of principal executive offices)
(Zip Code)
 
 (714) 662-5565
 (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 X No
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 Yes  No X
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
  Large accelerated filer___ Accelerated filer___  Non-accelerated filer___X__Smaller reporting company___
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes ___No _X__
 
  WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 INDEX TO FORM 10 – Q
 
 For the Quarterly Period Ended September 30, 2010
  
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Balance SheetsAs of September 30, 2010 and March 31, 2010
3Condensed Statements of OperationsFor the Three and Six Months Ended September 30, 2010 and 2009
4Condensed Statement of Partners' DeficitFor the Six Months Ended September 30, 2010
5Condensed Statements of Cash FlowsFor the Six Months Ended September 30, 2010 and 2009
6Notes to Condensed Financial Statements
7Item 2. Management's Discussion and Analysis of FinancialCondition and Results of Operations
18Item 3. Quantitative and Qualitative Disclosures about Market Risks
20Item 4T. Controls and Procedures
21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
22Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
22Item 3.  Defaults Upon Senior Securities
22Item 4.  (Removed and Reserved)
22Item 5.  Other Information
22Item 6.  Exhibits
22Signatures
23
 
 
  2
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 CONDENSED BALANCE SHEETS
 (Unaudited)
  
 September 30, 2010

March 31, 2010ASSETSCash
$
19,393
$
110,204Investments in Local Limited Partnerships, net (Note 2)

-

-Other assets

5,000

-Total Assets
$
24,393
$
110,204LIABILITIES AND PARTNERS' DEFICITLiabilities:Accrued fees and expenses due toGeneral Partner and affiliates (Note 3)
$
4,388,879
$
4,405,978Due to Local Limited Partnership

-

1,0284,388,879

4,407,006Partners’ Deficit:General Partner

(12,381)

(11,704)Limited Partners (15,000 Partnership Units authorized;15,000 Partnership Units issued and outstanding)

(4,352,105)

(4,285,098)Total Partners’ Deficit

(4,364,486)

(4,296,802)Total Liabilities and Partners’ Deficit
$
24,393
$
110,204
 
 
  See accompanying notes condensed to financial statements
 3
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENTS OF OPERATIONS
 
 For the Three and Six Months Ended September 30, 2010 and 2009
 (Unaudited)
  2010

2009Three Months

Six Months

Three Months

Six MonthsReporting fees
$
3,120
$
17,685
$
11,043
$
35,965Total operating income

3,120

17,685

11,043

35,965Operating expenses:Asset management fees (Note 3)

69,355

140,959

74,099

148,198Legal and accounting fees

44,026

47,736

49,477

49,767Write off of advances to Local

Limited Partnership (Note 4)

1,349

10,299

14,720

44,532Other

288

1,797

4,428

6,266Total operating expenses

115,018

200,791

142,724

248,763Loss from operations

(111,898)

(183,106)

(131,681)

(212,798)Gain on sale of Local Limited

Partnerships (Note 2)

110,000

115,406

-

-Interest income

3

16

1

4Net loss
$
(1,895)
$
(67,684)
$
(131,680)
$
(212,794)Net loss allocated to:General Partner
$
(19)
$
(677)
$
(1,317)
$
(2,128)Limited Partners
$
(1,876)
$
(67,007)
$
(130,363)
$
(210,666)Net loss per Partnership Unit
$
0
$
(4)
$
(9)
$
(14)Outstanding weighted

Partnership Units

15,000

15,000

15,000

15,000
 
 
  See accompanying notes condensed to financial statements
 4
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENT OF PARTNERS’ DEFICIT
  For the Six Months Ended September 30, 2010
 (Unaudited)
  
 General

LimitedPartner

Partners

TotalPartners’ deficit at March 31, 2010
$
(11,704)
$
(4,285,098)
$
(4,296,802)Net loss

(677)

(67,007)

(67,684)Partners’ deficit at September 30, 2010
$
(12,381)
$
(4,352,105)
$
(4,364,486)
 
 
 
  See accompanying notes condensed to financial statements
 5
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENTS OF CASH FLOWS
  For the Six Months Ended September 30, 2010 and 2009
 (Unaudited)
  
 2010

2009Cash flows from operating activities:
$
(67,684)
$
(212,794)Net lossAdjustments to reconcile net loss to netCash used in operating activities:Gain on sale of Local Limited Partnerships

(115,406)

-Increase in other assets

(5,000)

-Increase (decrease) in accrued fees and expenses due toGeneral Partner and affiliates

(17,099)

212,702Decrease in due to Local Limited Partnerships

(1,028)

-Net cash used in operating activities

(206,217)

(92)Cash flows from investing activities:Proceeds from sale of Local Limited Partnerships

115,406

-Advances made to Local Limited Partnerships

(10,299)

(44,532)Write off of advances made to Local Limited Partnerships

10,299

44,532Nat cash provided by investing activities

115,406

-Net decrease in cash

(90,811)

(92)Cash, beginning of period

110,204

16,761Cash, end of period
$
19,393
$
16,669SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONTaxes Paid
$
-
$
-
 
 
 
  See accompanying notes condensed to financial statements
 6
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 
 For the Quarterly Period Ended September 30, 2010
 (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, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2011.  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, 2010.
 
 Organization
 
 WNC Housing Tax Credit Fund III, L.P. (the "Partnership") is a California Limited Partnership formed under the laws of the State of California on May 10, 1991.  The Partnership was formed to acquire limited partnership interests in other limited partnerships (“Local Limited Partnerships”) which own multi-family or senior housing complexes (“Housing Complexes”) that are eligible for Federal low income housing tax credits (“Low Income Housing Tax Credits”).  The local general partners (the “Local General Partners”) of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the “Local Limited Partnership Agreement”).
 
 The general partner of the Partnership is WNC Tax Credit Partners, L.P. (the “General Partner”).  WNC & Associates, Inc., a California corporation (“Associates”), and Wilfred N. Cooper, Sr., are general partners of the General Partner.  The chairman and president of Associates owns all of the outstanding stock of Associates.  The business of the Partnership is conducted primarily through Associates, as the Partnership has no employees of its 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 financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners.
 
 The Partnership Agreement authorized the sale of up to 15,000 units of limited partnership interests (“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 a 1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and Low Income Housing Tax Credits of the Partnership. The investors (the “Limited Partners”) will be allocated the remaining 99% of these items in proportion to their respective investments.
  7
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 The proceeds from the disposition of any of the Local Limited Partnership’s Housing Complexes 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 Partner would then be entitled to
 receive proceeds equal to its capital contributions from the remainder.  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.
 
 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 Credits 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 Limited Partners. 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 future 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 Housing Complexes, and neighborhood conditions, among others.
  8
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 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 Limited Partners 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.
 
 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 any 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 Tax Credit compliance period (“Compliance Period”), risks exist for potential recapture of prior Low Income Housing Tax Credits received.
 
 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.
 
 The Partnership currently has insufficient working capital to fund its operations.  Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through November 30, 2011.
 
 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 Compliance Period for a Housing Complex 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.
 
 Upon the sale of a Local Limited Partnership interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. A sale prior to the end of the Compliance Period could result in recapture if certain conditions are not met.
 
 With that in mind, the General Partner is continuing its review of the Housing Complexes.  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 Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes.
  9
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 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. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of September 30, 2010. As of September 30, 2010, one Local Limited Partnership, Whitted Forest, L.P. (“Whitted Forest”), has been identified for disposition. For a full explanation of the consideration of Whitted Forest, L.P. for disposition, see Note 2.  As of September 30, 2010, some of the Housing Complexes had completed their Compliance Period.
 
 Upon management of the Partnership identifying a Local Limited Partnership for disposition, costs incurred by the Partnership in preparation for the disposition are deferred. Upon the sale of the Local Limited Partnership interest, the Partnership nets the costs that had been deferred against the proceeds from the sale in determining the gain or loss on sale of the Local Limited Partnership. Deferred disposition costs are included in other assets on the condensed balance sheets.
 
 During the quarter ended June 30, 2010, the Partnership sold its limited partner interest in Heritage Colonial Homes, L.P. (“Heritage”). Heritage was appraised with a value of $320,000 and as of December 31, 2009, the outstanding mortgage debt was approximately $499,000. The Local Limited Partnership interest was sold on May 13, 2010 to the Local General Partner. The Compliance Period has been completed, therefore there will be no recapture of Low Income Housing Tax Credits. The outstanding debt was greater than the appraised value but the Partnership did receive $10,000 for its Local Limited Partnership interest. Additionally, the Partnership had incurred $4,594 in expenses related to the disposition which are netted against the proceeds from the sale in calculating the gain on sale of the Local Limited Partnership interest. The net proceeds will remain in the Partnership’s reserves and at a future date will be used to reimburse the General Partner or an affiliate for operating expenses it paid on behalf of the Partnership. As the investment balance was zero at the time of sale, the Partnership recorded a $5,406 gain on the sale of the Local Limited Partnership interest related to Heritage during the six months ended September 30, 2010.
 
 On August 26, 2010, the Partnership sold its limited partner interest in Meadow Run Associates Limited Partnership (“Meadow Run”) to the Local General Partner.  Meadow Run was appraised at $1,090,000 and had a mortgage note balance of $1,441,130 as of March 31, 2010.  The Partnership’s limited partner interest was sold for $30,000.  The Partnership used the cash proceeds to pay $10,063 in accrued asset management fees and $19,937 in accrued fees and expenses due to General Partner and affiliates.  The Partnership’s investment balance in this Local Limited Partnership was zero at September 30, 2010, therefore a gain of $30,000 was recorded during the three months ended September 30, 2010.  No cash distribution will be made to the Limited Partners as a result of this sale.  The Compliance Period has expired so there is no risk of tax credit recapture.
 
 On August 26, 2010, the Partnership sold its limited partner interest in Windermere Associates Limited Partnership (“Windermere”) to the Local General Partner.  Windermere was appraised at $1,120,000 and had a mortgage note balance of $1,433,759 as of March 31, 2010.  The Partnership’s limited partner interest was sold for $30,000.  The Partnership used the cash proceeds to pay $10,063 in accrued asset management fees and $19,937 in accrued fees and expenses due to General Partner and affiliates.  The Partnership’s investment balance was zero at September 30, 2010, therefore a gain of $30,000 was recorded during the three months ended September 30, 2010.  No cash distribution will be made to the Limited Partners as a result of this sale.  The Compliance Period has expired so there is no risk of tax credit recapture.
  10
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 On September 13, 2010, the Partnership sold its limited partner interest in Candleridge Apartments of Bondurant L.P. (“Candleridge-Bondurant”) to the Local General Partner.  Candleridge-Bondurant was appraised at $413,000 and had a mortgage note balance of $550,140 at March 31, 2010.  The Partnership’s limited partner interest was sold for $25,000.  The Partnership used the cash proceeds to pay $21,000 of accrued fees and expenses due to General Partner and affiliates and is retaining the remaining $4,000 in reserves for future operating expenses of the Partnership.  The Partnership’s investment balance was zero at September 30, 2010, therefore a gain of $25,000 was recorded during the three months ended September 30, 2010.  No cash distribution will be made to the Limited Partners as a result of this sale.  The Compliance Period has expired so there is no risk of tax credit recapture.
 
 On September 13, 2010, the Partnership sold its limited partner interest in Candleridge Apartments of Waukee L.P. (“Candleridge-Waukee”) to the Local General Partner.  Candleridge-Waukee was appraised at $589,000 and had a mortgage note balance of $606,189 at March 31, 2010.  The Partnership’s limited partner interest was sold for $25,000.  The Partnership used the cash proceeds to pay $21,000 of accrued fees and expenses due to General Partner and affiliates and is retaining the remaining $4,000 in reserves for future operating expenses.  The Partnership’s investment balance was zero at September 30, 2010, therefore a gain of $25,000 was recorded during the three months ended September 30, 2010.  No cash distribution will be made to the Limited Partners as a result of this sale.  The Compliance Period has expired so there is no risk of tax credit recapture.
 
 Method of Accounting for Investments in Local 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 and 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 Tax 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 were being amortized over 27.5 years (see Note 2).
 
 “Equity in losses of Local Limited Partnerships” for the periods ended September 30, 2010 and 2009 are recorded by the Partnership. Management’s estimate for the three-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 annual 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 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, the related costs of acquiring the investment are impaired. If the Local Limited Partnerships reports 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).
  11
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.
 
 Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE. However, management does not consolidate the Partnership's interests in these VIEs, as it is not considered to be the primary beneficiary. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership's balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership's exposure to loss on these Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners and their guarantee against credit recapture.
 
 Distributions received by the Partnership are accounted for as a reduction of the investment balance.  Distributions received after the investment has reached zero are recognized as income.  As of September 30, 2010, all of the investment balances had reached zero.
 
 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.
 
 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, 2010 and March 31, 2010, the Partnership had no cash equivalents.
 
 Reporting Comprehensive Income
 
 The Partnership had no items of other comprehensive income for all periods presented.
  12
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 Income Taxes
 
 The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure.
 
 Net Loss Per Partnership Unit
 
 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.
 
 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.
  13
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
 
 As of September 30, 2010 and March 31, 2010, the Partnership owns Local Limited Partnership interests in 41 and 46 Local Limited Partnerships, respectively. Each of these Local Limited Partnership’s own one Housing Complex consisting of an aggregate of 1,475 and 1,622 apartment units, respectively. The Local 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 governing agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.
 
 Selected financial information for the six months ended September 30, 2010 and 2009 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows:
 
 COMBINED CONDENSED STATEMENTS OF OPERATIONS2010

2009Revenues
$
3,677,000
$
4,145,000ExpensesInterest expense

495,000

655,000Depreciation and amortization

812,000

948,000Operating expenses

2,868,000

3,108,000Total expenses

4,175,000

4,711,000Net loss

$
(498,000)
$
(566,000)Net loss allocable to the Partnership
$
(492,000)
$
(560,000)Net loss recorded by the Partnership
$
-
$
-
 
 Certain Local Limited Partnerships have incurred significant 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 may be required to sustain operations of such Local Limited Partnerships.
  14
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued
 
 Troubled Housing Complexes
 
 One Local Limited Partnership, Whitted Forest, has been experiencing operational issues.  Whitted Forest has consistently had occupancy below acceptable levels, negative cash flow and a low debt coverage ratio. In 2005, the Partnership received its final allocation of Low Income Housing Tax Credits from this Housing Complex.  The Compliance Period expired on December 31, 2009, therefore there is no risk of recapture.
 
 Whitted Forest has been unable to make its mortgage payments since September 2009.  The Partnership has been working with the lender, SunTrust, for several months to reach an agreement for a forbearance plan that would provide debt relief until a qualified buyer is found.  In April 2010, Whitted Forest entered into a temporary forbearance agreement with SunTrust.  The forbearance was for 60 days, which was to expire on June 24, 2010.  On June 23, 2010, the Partnership received a 30-day extension of the forbearance agreement.  There have not been any additional formal extensions granted.  The communications between the Partnership and SunTrust are ongoing and the two parties are continuing to work together to agree on a future plan for Whitted Forest.  Although, the Partnership had an appraisal prepared for Whitted Forest, SunTrust is currently getting an appraisal done on the property.  SunTrust is considering one of two options: sell the property through a sealed bid process or Suntrust will buy it at a discounted price.  The appraisal needs to be completed before SunTrust will make a decision on how they would like to proceed.  Whitted Forest has an extended use compliance agreement that expires on December 31, 2014.  It is an agreement with the state allocating agency.  If Whitted Forest fell out of compliance before the agreement expires there would not be any risk of recapture but the Housing Complex would not be in good standing with the state agency.
 
 The Housing Complex will continue to be monitored until it is sold or the operational issues are resolved.
  15
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (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 the following fees:
 
 (a)
An annual asset management fee equal to 0.5% of the invested assets of the Partnership, as defined.  “Invested Assets” means the sum of the Partnership’s investment in Local Limited Partnership interests and the Partnership’s Allocable share of mortgage loans on and other debts related to the Housing Complexes owned by such Local Limited Partnerships.  Fees of $140,959 and $148,198 were incurred during the six months ended September 30, 2010 and 2009, respectively.  The Partnership paid the General Partner and or its affiliates $64,126 and $5,000 of those fees during the six months ended September 30, 2010 and 2009, respectively.
 
 (b)
The Partnership reimburses the General Partner or its affiliates for operating expenses incurred by the Partnership and paid for by the General Partner or its affiliates on behalf of the Partnership. Operating expense reimbursements were $154,060 and $5,000 during the six months ended September 30, 2010 and 2009, respectively.
 
 (c)
A subordinated disposition fee 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 fee was incurred during the six months ended September 30, 2010 or September 30, 2009.
 
 The accrued fees and expenses due to the General Partner and affiliates consist of the following at:
 
 September 30, 2010

March 31, 2010Expenses paid by the General Partner or affiliates

on behalf of the Partnership
$
-
$
93,061Asset management fee payable

4,388,879

4,312,917Total
$
4,388,879
$
4,405,978
 
 The General Partner and/or its affiliates do not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership.
  16
 WNC HOUSING TAX CREDIT FUND III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED
 
 For the Quarterly Period Ended September 30, 2010
 (Unaudited)
  NOTE 4 – ADVANCES TO LOCAL LIMITED PARTNERSHIPS
 
 During the six months ended September 30, 2010 and 2009, the Partnership voluntarily advanced $10,299 and $44,532, respectively, to one Local Limited Partnership in which the Partnership is a limited partner as a result of the Local Limited Partnership experiencing operational issues. As of September 30, 2010 and March 31, 2010, total advances made to this Local Limited Partnership were $198,987 and $188,688, respectively, all of which has been reserved.  The Partnership determined the recoverability of these advances to be improbable and, accordingly, a reserve was recorded.
  17
  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, the Partnership 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 and analysis compares the results of operations for the three and six months ended September 30, 2010 and 2009, and should be read in conjunction with the condensed unaudited financial statements and accompanying notes included within this report.
 
 Financial Condition
 
 The Partnership’s assets at September 30, 2010 consisted of $19,000 in cash and $5,000 of other assets.  Liabilities at September 30, 2010 consisted of $4,389,000 of accrued fees and expenses due to the General Partner and affiliates.
 
 Results of Operations
 
 Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009.   The Partnership’s net loss for the three months ended September 30, 2010 was $(2,000), reflecting a decrease of approximately $130,000 from the $(132,000) net loss experienced during the three months ended September 30, 2009. The decrease in net loss is largely due to the $110,000 gain on sale of Local Limited Partnerships during the three months ended September 30, 2010, compared to no gain on sale of Local Limited Partnerships during the three months ended September 30, 2009. The Partnership is in the disposition phase but the number of dispositions will vary from year to year depending on the economic conditions.  The gain recorded by the Partnership can vary depending on the sales prices of the Housing Complexes that are being sold. There was also a decrease of $13,000 in write off of advances to Local Limited Partnership. During the three months ended September 30, 2010, there were advances of $(1,000) made to one Local Limited Partnership which were fully reserved as of September 30, 2010, compared to $(15,000) of advances made and reserved during the three months ended September 30, 2009.  The advances made to the troubled Local Limited Partnerships can vary each year depending on the operations of the individual Local Limited Partnerships.  There was also a $5,000 decrease in legal and accounting fees due to the timing of the accounting work performed for the Partnership.  The asset management fees decreased by $5,000.  The fees are calculated based on the invested assets of the Partnership, which decreased due to the sales of Local Limited Partnerships.  Total operating income decreased by $(8,000).  Reporting fees can fluctuate from year to year due to the fact that Local Limited Partnerships pay those fees to the Partnership when the Local Limited Partnership’s cash flow will allow for the payment.
 
  18
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
 
 Six Months Ended September 30, 2010 Compared to the Six Months Ended September 30, 2009.   The Partnership’s net loss for the six months ended September 30, 2010 was $(68,000), reflecting a decrease of approximately $145,000 from the $(213,000) net loss experienced during the six months ended September 30, 2009. The decrease in net loss is largely due to the $115,000 gain on sale of a Local Limited Partnerships during the six months ended September 30, 2010, compared to no gain on sale of Local Limited Partnerships during the six months ended September 30, 2009. The Partnership is in the disposition phase but the number of dispositions will vary from year to year depending on the economic conditions.  The gain recorded by the Partnership can vary depending on the sales prices of the Housing Complexes that are being sold. The decrease in net loss was also attributable to a decrease of $34,000 in write off of advances to Local Limited Partnership. The advances made to the troubled Local Limited Partnerships can vary each year depending on the operations of the individual Local Limited Partnerships.  Additionally, asset management fees decreased by $7,000.  The fees are calculated based on the invested assets of the Partnership, which decreased due to the sales of Local Limited Partnerships.  There was also a $2,000 decrease in legal and accounting fees due to the timing of the accounting work performed for the Partnership.  Total operating income decreaesd by $(18,000) for the six months ended September 30, 2010.  The reporting fees fluctuate from year to year due to the fact that Local Limited Partnerships pay those fees to the Partnership when the Local Limited Partnership’s cash flow will allow for the payment.
 
 Liquidity and Capital Resources
 
 Six Months Ended September 30, 2010 Compared to Six Months Ended September 30, 2009.  The net decrease in cash during the six months ended September 30, 2010 was $(91,000) compared to a no change in cash during the six months ended September 30, 2009.    The change is largely due to an increase of $208,000 in the payment of the reimbursements for the accrued fees and expenses due to the General Partner and affiliates. During the six months ended September 30, 2010 the Partnership paid the General Partner or an affiliate $(218,000) of accrued asset management fees and reimbursements for operating expenses compared to $(10,000) paid during the six months ended September 30, 2009. The Partnership received $18,000 less for reporting fees during the six months ended September 30, 2010 as compared to the six months ended September 30, 2009. During the six months ended September 30, 2010, the Partnership made advances of $(10,000) to a Local Limited Partnership that was experiencing operational issues compared to $(45,000) advanced during the six months ended September 30, 2009.
 
 During the six months ended September 30, 2010, accrued payables, which consist primarily of related party asset management fees and advances due to the General Partner and affiliates, decreased by $17,000. The General Partner does not anticipate that the balance of 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 as of September 30, 2010, to be insufficient to meet all currently foreseeable future cash requirements. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through November 30, 2011.
 
 Recent Accounting Changes
 
 In September 2006, the Financial Accounting Standards Board (the "FASB") issued accounting guidance for Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007 and shall be applied prospectively except for very limited transactions. In February 2008, the FASB delayed for one year implementation of the guidance as it pertains to certain non-financial assets and liabilities. The Partnership adopted U.S. generally accepted accounting principles ("GAAP") for Fair Value Measurements effective April 1, 2008, except as it applies to those non-financial assets and liabilities, for which the effective date was April 1, 2009. The Partnership has determined that adoption of this guidance has no material impact on the Partnership’s financial statements.
 
 
  19
  
 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
 
 In November 2008, the FASB issued accounting guidance on Equity Method Investment Accounting Considerations that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. This guidance is effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Partnership adopted the guidance for the interim quarterly period beginning April 1, 2009. The impact of adopting it does not have a material impact on the Partnership’s financial condition or results of operations.
 
 In April 2009, the FASB issued accounting guidance for Interim Disclosures about Fair Value of Financial Instruments. This requires disclosure about the method and significant assumptions used to establish the fair value of financial instruments for interim reporting periods as well as annual statements. It became effective for as of and for the interim period ended June 30, 2009 and has no impact on the Partnership’s financial condition or results of operations.
 
 In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Partnership for the quarter ended June 30, 2009. The adoption did not have a significant impact on the subsequent events that the Partnership reports, either through recognition or disclosure, in the financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and therefore the Partnership did not include the disclosure in this Form 10-Q.
 
 In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The Codification is intended to reorganize, rather than change, existing GAAP. Accordingly, all references to currently existing GAAP have been removed and have been replaced with plain English explanations of the Partnership’s accounting policies. The adoption of the Codification did not have a material impact on the Partnership’s financial position or results of operations.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risks
 
 NOT APPLICABLE
  20
  
 Item 4T. Controls and Procedures
 
 (a)           Disclosure 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 Partnership’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 not effective to ensure that material information required to be disclosed in the Partnership’s periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, consistent with the definition of “disclosure controls and procedures” under the Securities Exchange Act of 1934.
 
 The Partnership must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership’s periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership’s inability to file its periodic reports in a timely manner.
 
 Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer of Associates believe that the material information required to be disclosed in the Partnership’s periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership’s periodic reports.
 
 (b)           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, 2010 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
  21
  Part II.
Other InformationItem 1.
Legal ProceedingsNONEItem 2.
Unregistered Sales of Equity Securities and Use of ProceedsNONEItem 3
Defaults Upon Senior SecuritiesNONEItem 4.
(Removed and Reserved)Item 5
Other InformationNONE
 
 Item 6.  Exhibits
 
 31.1
Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14, 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-14 and 15d-14, 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)
  22
  
 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: /s/  Wilfred N. Cooper, Jr.
 
 Wilfred N. Cooper, Jr.
 President and Chief Executive Officer of WNC & Associates, Inc.
 
 Date: November 05, 2010
 
 
 
 
 
 
 By:  /s/ Melanie R. Wenk
 
 Melanie R. Wenk
 Vice-President - Chief Financial Officer of WNC & Associates, Inc.
 
 Date: November 05, 2010
 
 
 
  23