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 June 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 filerXSmaller
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 June 30, 2010





PART
      I. FINANCIAL INFORMATIONItem 1. Financial
      StatementsBalance
      SheetsAs
      of June 30, 2010 and March 31, 2010
              3Statements of
      OperationsFor
      the Three Months Ended June 30, 2010 and 2009
              4Statement
      of Partners' DeficitFor
      the Three Months Ended June 30, 2010
              5Statements of
      Cash FlowsFor
      the Three Months Ended June 30, 2010 and 2009
              6Notes to
      Financial Statements
              7Item 2. Management's Discussion
      and Analysis of FinancialCondition
      and Results of Operations
              15Item 3. Quantitative and
      Qualitative Disclosures about Market Risks
              17Item 4T. Controls and
      Procedures
              17PART
      II. OTHER INFORMATIONItem 1. Legal
      Proceedings
              18Item 2.  Unregistered
      Sales of Equity Securities and Use of Proceeds
              18Item 3.  Defaults Upon
      Senior Securities
              18Item 4.  (Removed and
      Reserved)
              18Item 5.  Other
      Information
              18Item
      6.  Exhibits
              18Signatures
              19





2
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 BALANCE
SHEETS
 (Unaudited)





June
      30, 2010
            
            
            March
      31, 2010ASSETSCash
            
            $
            32,804
            
            
            $
            110,204Investments
      in Local Limited Partnerships, net (Note 2)
            
            
            -
            
            
            
            -Other
      assets
            
            
            5,000
            
            
            
            -Total
      Assets
            
            $
            37,804
            
            
            $
            110,204LIABILITIES
      AND PARTNERS' DEFICITLiabilities:Accrued
      fees and expenses due toGeneral
      Partner and affiliates (Note 3)
            
            $
            4,400,395
            
            
            $
            4,405,978Due
      to Local Limited Partnership
            
            
            -
            
            
            
            1,0284,400,395
            
            
            
            4,407,006Partners’
      Deficit:General
      Partner
            
            
            (12,362
            )
            
            
            (11,704
            )Limited
      Partners (15,000 Partnership Units authorized;15,000
      Partnership Units issued and outstanding)
            
            
            (4,350,229
            )
            
            
            (4,285,098
            )Total
      Partners’ Deficit
            
            
            (4,362,591
            )
            
            
            (4,296,802
            )Total
      Liabilities and Partners’ Deficit
            
            $
            37,804
            
            
            $
            110,204


See
accompanying notes to financial statements
 3
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 STATEMENTS
OF OPERATIONS
 
 For
the Three Months Ended June 30, 2010 and 2009
 (Unaudited)


2010
            
            
            2009Three
      Months
            
            
            Three
      MonthsReporting
      fees
            
            $
            14,565
            
            
            $
            24,922Total
      operating income
            
            
            14,565
            
            
            
            24,922Operating
      expenses:Asset
      management fees (Note 3)
            
            
            71,604
            
            
            
            74,099Legal
      and accounting fees
            
            
            3,710
            
            
            
            290Write
      off of advances to Local
              Limited
      Partnerships (Note 4)
            
            
            8,950
            
            
            
            29,812Other
            
            
            1,509
            
            
            
            1,838Total
      operating expenses
            
            
            85,773
            
            
            
            106,039Loss
      from operations
            
            
            (71,208
            )
            
            
            (81,117
            )Gain
      on sale of Local LimitedPartnerships
      (Note 2)
            
            
            5,406
            
            
            -Interest
      income
            
            
            13
            
            
            
            3Net
      loss
            
            $
            (65,789
            )
            
            $
            (81,114
            )Net
      loss allocated to:General
      Partner
            
            $
            (658
            )
            
            $
            (811
            )Limited
      Partners
            
            $
            (65,131
            )
            
            $
            (80,303
            )Net
      loss per Partnership Unit
            
            $
            (4
            )
            
            $
            (5
            )Outstanding
      weighted Partnership Units
            
            
            15,000
            
            
            
            15,000











See
accompanying notes to financial statements
 4
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 STATEMENT
OF PARTNERS’ DEFICIT
 
 For
the Three Months Ended June 30, 2010
 (Unaudited)





General
            
            
            LimitedPartner
            
            
            Partners
            
            
            TotalPartners’
      deficit at March 31, 2010
            
            $
            (11,704
            )
            
            $
            (4,285,098
            )
            
            $
            (4,296,802
            )Net
      loss
            
            
            (658
            )
            
            
            (65,131
            )
            
            
            (65,789
            )Partners’
      deficit at June 30, 2010
            
            $
            (12,362
            )
            
            $
            (4,350,229
            )
            
            $
            (4,362,591
            )


See
accompanying notes to financial statements
 5
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 STATEMENTS
OF CASH FLOWS
 
 For
the Three Months Ended June 30, 2010 and 2009
 (Unaudited)


2010
            
            
            2009Cash
      flows from operating activities:Net
      loss
            
            $
            (65,789
            )
            
            $
            (81,114
            )Adjustments
      to reconcile net loss to netcash
      provided by (used in) operating activities:Change
      in other assets
            
            
            (5,000
            )
            
            
            -Change
      in accrued fees and expenses due toGeneral
      Partner and affiliates
            
            
            (5,583
            )
            
            
            89,741Change
      in due to Local Limited Partnership
            
            
            (1,028
            )
            
            
            -Gain
      on sale of Local Limited Partnerships
            
            
            (5,406
            )
            
            
            -Net
      cash provided by (used in) operating activities
            
            
            (82,806
            )
            
            
            8,627Cash
      flows from investing activities:Proceeds
      from sale of Local Limited Partnerships
            
            
            5,406
            
            
            
            -Advances
      made to Local Limited Partnership
            
            
            (8,950
            )
            
            
            (29,812
            )Write
      off of advances made to Local Limited
              Partnership
            
            
            8,950
            
            
            
            29,812Net
      cash provided by investing activates
            
            
            5,406
            
            
            
            -Net
      increase (decrease) in cash
            
            
            (77,400
            )
            
            
            8,627Cash,
      beginning of period
            
            
            110,204
            
            
            
            16,761Cash,
      end of period
            
            $
            32,804
            
            
            $
            25,388SUPPLEMENTAL
      DISCLOSURE OF
              CASH
      FLOW INFORMATIONTaxes
      paid
            
            $
            -
            
            
            $
            -








See
accompanying notes to financial statements
 6
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS
 
 For
the Quarterly Period Ended June 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 three months
ended June 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 in September 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.





The
proceeds from the disposition of any of the Local Limited Partnerships 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,  7
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 30, 2010
 (Unaudited)


NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, continued




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 FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 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, 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
August 31, 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 have completed 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 FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 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 re-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 as Low
Income Housing Tax Credits
are no longer available. 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 June 30, 2010. As of June 30, 2010, not all 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 balance sheets.





During
the quarter ended June 30, 2010, the Partnership sold its Limited Partnership
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 Local Limited Partnership. 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
for the quarter ended June 30, 2010.





The
Partnership has identified two Local Limited Partnerships for potential
disposition, Meadow Run, L.P. and Windemere Associates. The Partnership has
executed agreements allowing the Local General Partner to transfer their
interest to a third party. Currently, the Partnership is awaiting for the
appraisal reports and once those reports are received and reviewed, negotiations
will begin with the new Local General Partner to buy the Partnership’s Limited
Partnership interest.





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 amortized over 27.5 years
(see Note 2).





“Equity
in losses of Local Limited Partnerships” for the periods ended June 30, 2010 and
2009 have been 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


10
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 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 June 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 June 30, 2010
and March 31, 2010, the Partnership had no cash equivalents.





11
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 30, 2010
 (Unaudited)


NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, continued


Reporting Comprehensive
Income
 
 The
Partnership had no items of other comprehensive income for all periods
presented.


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.





NOTE 2 - INVESTMENTS IN
LOCAL LIMITED PARTNERSHIPS





As of the
June 30, 2010 and March 31, 2010, the Partnership owns Local Limited Partnership
interests in 45 and 46 Local Limited Partnerships, respectively. All of these
Local Limited Partnership’s own one Housing Complex consisting of an aggregate
of 1,602 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.


12
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 30, 2010
 (Unaudited)


NOTE 2 - INVESTMENTS IN
LOCAL LIMITED PARTNERSHIPS, continued





Selected
financial information for the three months ended June 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
            
            $
            2,021,000
            
            
            $
            2,072,000ExpensesInterest
      expense
            
            
            284,000
            
            
            
            327,000Depreciation
      and amortization
            
            
            446,000
            
            
            
            474,000Operating
      expenses
            
            
            1,553,000
            
            
            
            1,554,000Total
      expenses
            
            
            2,283,000
            
            
            
            2,355,000Net
      loss
            
            $
            (262,000
            )
            
            $
            (283,000
            )Net
      loss allocable to the Partnership
            
            $
            (259,000
            )
            
            $
            (280,000
            )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.


13
 
 WNC
HOUSING TAX CREDIT FUND III, L.P.
 (A
California Limited Partnership)
 
 NOTES
TO FINANCIAL STATEMENTS - CONTINUED
 
 For
the Quarterly Period Ended June 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
      $71,604 and $74,099 were incurred during the three months ended June 30,
      2010 and 2009, respectively. The Partnership paid the General Partner and
      or its affiliates $44,000 and $5,000 of those fees during the three months
      ended June 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 $49,000 and $0 during the three months ended June 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 three months ended June 30,
      2010.





The
accrued fees and expenses due to the General Partner and affiliates consist of
the following at:





June
      30, 2010
            
            
            March
      31, 2010Expenses
      paid by the General Partner or affiliates
              on
      behalf of the Partnership
            
            $
            59,874
            
            
            $
            93,061Asset
      management fee payable
            
            
            4,340,521
            
            
            
            4,312,917Total
            
            $
            4,400,395
            
            
            $
            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.





NOTE 4 – ADVANCES TO LOCAL
LIMITED PARTNERSHIPS





During
the three months ended June 30, 2010 and 2009, the Partnership voluntarily
advanced $8,950 and $29,812, 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 June 30, 2010 and March 31,
2010, total advances made to this Local Limited Partnership were $197,638 and
$188,688, respectively, all of which was reserved.  The Partnership
determined the recoverability of these advances to be remote and,
accordingly, a reserve was recorded.


14
  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’s 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 months ended June 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 June 30, 2010 consisted of $33,000 in cash and $5,000 of
other assets. Liabilities at June 30, 2010 consisted of $4,400,000 in accrued
fees and expenses due to the General Partner and affiliates.





Results
of Operations


Three Months Ended June 30, 2010
Compared to Three Months Ended June 30, 2009.The Partnership’s net loss
for the three months ended June 30, 2010 was $(66,000), reflecting a decrease of
$15,000 from the $(81,000) net loss for the three months ended June 30, 2009.
The decrease in net loss was largely due to a decrease of $21,000 in write off
of advances to Local Limited Partnerships. The Partnership advanced funds for
operating expenses incurred by a Local Limited Partnership, and the Partnership
does not anticipate the advances will be repaid by the Local Limited
Partnership. The decrease in net loss was also attributable to a $2,000 decrease
of asset management fees. These fees are calculated based on the invested
assets. As Local Limited Partnerships are sold, the invested assets decrease
thereby decreasing the asset management fees. The decrease in operating expenses
was offset by an increase of $(3,000) in legal and accounting fees. There was
also a $5,000 gain on sale of a Local Limited Partnership during the three
months ended June 30, 2010 compared to no gain on sale of Local Limited
Partnerships for the three months ended June 30, 2009. The disposition of Local
Limited Partnerships will vary from period to period, depending on the Housing
Complexes that have been identified for disposition and the closing dates of
such transactions. The decrease in operating expenses was offset by a decrease
of $(10,000) in reporting fees. 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.


15


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





Liquidity
and Capital Resources





Three Months Ended June 30, 2010
Compared to Three Months Ended June 30, 2009. The net decrease in cash
during the three months ended June 30, 2010 was $(77,000) compared to a net
increase in cash during the three months ended June 30, 2009 of $9,000. The
change of $(86,000) is due primarily to the fact that during the three months
ended June 30, 2010 the Partnership paid $(44,000) and $(49,000) to the General
Partner or an affiliate for accrued asset management fees and reimbursement of
operating expenses, respectively, compared to $(5,000) and $0 for the three
months ended June 30, 2009. Each quarter, the Partnership evaluates its cash
position and determines if payments are going to be made to the General Partner
and/or affiliates.





During
the three months ended June 30, 2010, accrued payables, which consist primarily
of related party asset management fees and advances due to the General Partner
and/or its affiliates, decreased by $6,000. The General Partner does not
anticipate that these 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 June 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 August 31, 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.





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 16


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





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





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.





17





Item
4T. Controls and Procedures, continued





(b)           Changes in internal
controls





There
were no changes in the Partnership’s internal control over financial reporting
that occurred during the quarter ended June 30, 2010 that materially affected,
or are reasonably likely to materially affect, the Partnership’s internal
control over financial reporting.





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.                      (Removed
and Reserved)





NONE





Item
5.                      Other
Information





NONE





Item
6.  Exhibits





31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14 or
15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
(filed herewith)





31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14 or 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)





18


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:  August
6, 2010




















By:  /s/ Melanie R.
Wenk





Melanie
R, Wenk


Vice-President
- Chief Financial Officer of WNC & Associates, Inc.





Date:  August
6, 2010