FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

                For the quarterly period ended September 30, 2005

                                       OR

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

             For the transition period from          to
                                           ----------  -----------
                         Commission file number: 0-21494


                      WNC HOUSING TAX CREDIT FUND III, L.P.

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



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

                                 (714) 622-5565
                              ( Telephone Number )

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

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

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

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

<PAGE>

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

                               INDEX TO FORM 10-Q

                For the Quarterly Period Ended September 30, 2005


PART I. FINANCIAL INFORMATION

   Item 1. Financial Statements

           Balance Sheets
               September 30, 2005 and March 31, 2005...........................3

           Statements of Operations
               For the Three and Six Months Ended September 30, 2005 and 2004..4

           Statement of Partners' Deficit
               For the Six Months Ended September 30, 2005 ....................5

           Statements of Cash Flows
               For the Six Months Ended September 30, 2005 and 2004............6

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


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

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

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

PART II. OTHER INFORMATION

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

   Item 2. Changes in Securities and Use of Proceeds..........................16

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

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

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

   Item 6. Exhibits...........................................................16

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

                                       2
<PAGE>

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                     September 30, 2005            March 31, 2005
                                                                   -----------------------        ------------------
                                                                        (unaudited)                   (unaudited)
ASSETS
<S>                                                             <C>                            <C>
Cash and cash equivalents                                        $               180,560        $         212,588

Investments in limited partnerships, net (Note 2)                                 36,479                   57,307
                                                                   -----------------------        ------------------

                                                                 $               217,039        $         269,895
                                                                   =======================        ==================
LIABILITIES AND PARTNERS' DEFICIT

Liabilities:
   Accrued fees and expenses due to
     General Partner and affiliates (Note 3)                     $             3,068,845        $       2,948,938


Partners' deficit:
  General Partner                                                                (69,040)                 (67,312)
  Limited Partners (15,000 units authorized; 15,000 units
    issued and outstanding)                                                   (2,782,766)              (2,611,731)
                                                                   -----------------------        ------------------
      Total partners' deficit                                                 (2,851,806)              (2,679,043)
                                                                   -----------------------        ------------------

                                                                 $               217,039        $         269,895
                                                                   =======================        ==================
</TABLE>
                 See accompanying notes to financial statements

                                        3

<PAGE>


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

                            STATEMENTS OF OPERATIONS

         For the Three and Six Months Ended September 30, 2005 and 2004
                                   (unaudited)
<TABLE>
<CAPTION>
                                                          2005                                        2004
                                       -------------------------------------------    -------------------------------------
                                         Three Months              Six Months          Three Months          Six Months
                                       ------------------      -------------------    ----------------    -----------------
<S>                                 <C>                       <C>                     <C>                  <C>
Interest income                      $               229       $             468      $          135    $             340
Distribution income                               12,354                  17,782               7,049               13,894
                                       ------------------      -------------------    ----------------    -----------------

                                                  12,583                  18,250               7,184               14,234
                                       ------------------      -------------------    ----------------    -----------------

Operating expenses:
  Amortization (Note 2)                               85                     170               4,891               10,049
  Asset management fees (Note 3)                  74,866                 149,732              74,865              149,731
  Legal and accounting                            10,376                  15,851               7,475                9,000
  Other                                            1,750                   4,602                 325                4,221
                                       ------------------      -------------------    ----------------    -----------------

    Total operating expenses                      87,077                 170,355              87,556              173,001
                                       ------------------      -------------------    ----------------    -----------------

Loss from operations                             (74,494)               (152,105)            (80,372)            (158,767)

Equity in losses of
 limited partnerships (Note 2)                   (10,329)                (20,658)            (30,599)             (70,953)
                                       ------------------      -------------------    ----------------    -----------------

Net loss                             $           (84,823)      $        (172,763)     $     (110,971)   $        (229,720)
                                       ==================      ===================    ================    =================

Net loss allocated to:
  General Partner                    $             (848)       $          (1,728)     $       (1,110)   $          (2,297)
                                       ==================      ===================    ================    =================

  Limited Partners                   $          (83,975)       $        (171,035)     $     (109,861)   $        (227,423)
                                       ==================      ===================    ================    =================

Net loss per limited
  partner unit                       $               (5)       $             (11)     $           (7)   $             (15)
                                       ==================      ===================    ================    =================

Outstanding weighted limited
  partner units                                  15,000                   15,000              15,000               15,000
                                       ==================      ===================    ================    =================
</TABLE>

                 See accompanying notes to financial statements
                                        4
<PAGE>

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

                         STATEMENT OF PARTNERS' DEFICIT

                   For the Six Months Ended September 30, 2005
                                   (unaudited)
<TABLE>
<CAPTION>
                                                          General               Limited
                                                          Partner              Partners                 Total
                                                       ---------------      ----------------      ------------------
<S>                                                 <C>                  <C>                   <C>
Partners' deficit at March 31, 2005                  $       (67,312)     $     (2,611,731)       $       (2,679,043)

Net loss                                                      (1,728)             (171,035)                 (172,763)
                                                       ---------------      ----------------      ------------------

Partners' deficit at September 30, 2005              $       (69,040)     $     (2,782,766)       $       (2,851,806)
                                                       ===============      ================      ==================
</TABLE>

                 See accompanying notes to financial statements
                                       5
<PAGE>

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

                            STATEMENTS OF CASH FLOWS

              For the Six Months Ended September 30, 2005 and 2004
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                            2005                 2004
                                                                        --------------      ---------------
<S>                                                                  <C>                 <C>
Cash flows from operating activities:
  Net loss                                                            $     (172,763)     $      (229,720)
    Adjustments to reconcile net loss to net
      cash used in operating activities:
        Amortization                                                             170               10,049
        Equity in losses of limited partnerships                              20,658               70,953
        Change in accrued  fees and expenses due to
           General Partner and affiliates                                    119,907              134,091
                                                                        --------------      ---------------

Net cash used in operating activities                                        (32,028)             (14,626)
                                                                        --------------      ---------------

Cash flows from investing activities:
    Distributions received from limited partnerships                               -                2,291
                                                                        --------------      ---------------
Net decrease in cash                                                         (32,028)             (12,335)

Cash and cash equivalents, beginning of period                               212,588              226,870
                                                                        --------------      ---------------

Cash and cash equivalents, end of period                              $      180,560      $       214,535
                                                                        ==============      ===============

SUPPLEMENTAL DISCLOSURE
 OF CASH FLOW INFORMATION:
 Taxes paid                                                           $            -      $             -
                                                                        ==============      ===============
</TABLE>
                 See accompanying notes to financial statements
                                        6

<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS
                For the Quarterly Period Ended September 30, 2005
                                   (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, 2005 are not  necessarily  indicative  of the results that may be
expected  for the fiscal year ending March 31,  2006.  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,
2005.

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 or
membership interest in other limited partnerships or limited liability companies
("Local Limited  Partnerships") which own multi-family  apartment complexes that
are eligible for Federal  low-income  housing and, in certain cases,  California
Low Income Housing Tax Credits (the "Low Income Housing Credit").

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

Pursuant to a  registration  statement  filed with the  Securities  and Exchange
Commission on January 2, 1992, the  Partnership  commenced a public  offering of
15,000 Units of Limited Partnership  Interest ("Units") at a price of $1,000 per
Unit.  As of the close of the public  offering on September 30, 1993, a total of
15,000  Units  representing  $15,000,000  had been  sold.  Holders  of Units are
referred to herein as "Limited  Partners." The General Partner has a 1% interest
in operating profits and losses,  taxable income and losses,  cash available for
distribution  from the  Partnership  and tax  credits  of the  Partnership.  The
Limited  Partners  will  be  allocated  the  remaining  99% of  these  items  in
proportion to their respective investments.

After the Limited  Partners  have received  proceeds from a sale or  refinancing
equal to their capital  contributions and their return on investment (as defined
in the  Partnership  Agreement)  and the General  Partner has received  proceeds
equal to its capital  contribution  and a subordinated  disposition fee 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.


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

                                       7

<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Certain 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 properties, and neighborhood conditions, among others.

The  ability of Limited  Partners to claim tax losses  from the  Partnership  is
limited.  The IRS may audit the  Partnership or a Local Limited  Partnership and
challenge the tax treatment of tax items.  The amount of Low Income  Housing Tax
Credits and tax losses allocable to the 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.

Substantially  all of the Low  Income  Housing  Tax  Credits  anticipated  to be
realized from the Local Limited Partnerships have been realized. The Partnership
does not anticipate  being allocated a significant  amount of Low Income Housing
Tax Credits from the Local Limited  Partnerships in the future.  Until the Local
Limited  Partnerships  have  completed the 15 year Low Income Housing Tax Credit
compliance  period,  risks  exist for  potential  recapture  of prior Low Income
Housing Tax Credits.

                                       8
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Certain Risks and Uncertainties, continued
------------------------------------------
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 the  existing  contractual  obligations  and the
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.

No trading  market  for the Units  exists or is  expected  to  develop.  Limited
Partners  may be unable to sell  their  Units  except at a  discount  and should
consider their 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.


Exit Strategy
-------------
The IRS  compliance  period for  Low Income  Housing  Tax Credit  properties  is
generally  15  years  following   construction  or  rehabilitation   completion.
Associates was one of the first in the industry to offer syndicated  investments
in Low Income  Housing Tax Credits.  The  initial  programs are completing their
compliance periods.

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

Upon identifying  those  properties with the highest  potential for a successful
sale,  refinancing  or  syndication,  the  Partnership  expects to proceed  with
efforts to liquidate those properties.  The objective is to maximize the limited
partners' return wherever possible and, ultimately, to wind down the Partnership
when it no longer  provides tax  benefits to limited  partners.  However,  Local
Limited  Partnership  interests may be disposed at any time by Associates in its
discretion.  To date no  properties  in the  Partnership  have been selected for
disposition.

Method of Accounting for Investments in Limited Partnerships
------------------------------------------------------------
The Partnership  accounts for its investments in 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  allocated  to the  Partnership  and the
estimated  residual value to the Partnership.  If an investment is considered to
be impaired,  the impairment to be recognized is measured by the amount by which
the  carrying  amount of the  investment  exceeds  fair  value.  The  accounting
policies of the Local Limited  Partnerships are generally  consistent with those
of  the  Partnership.  Costs  incurred  by  the  Partnership  in  acquiring  the
investments  are  capitalized  as part of the  investment  account and are being
amortized over 30 years (see Note 2).

                                       9

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Equity in losses of Limited  Partnerships  for the periods  ended  September 30,
2005 and 2004  have  been  recorded  by the Partnership  based on six  months of
reported  results  estimated  by  management  of the  Partnership.  Management's
estimate for the six-month  period is based on either actual  unaudited  results
reported  by  the  Local  Limited  Partnerships  or  historical  trends  in  the
operations of the Local Limited  Partnerships.  In subsequent  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 from
the Limited Partnerships  allocated to the Partnership are not recognized to the
extent that the investment  balance would be adjusted below zero. As soon as the
investment balance reaches zero,  amortization of the related costs of acquiring
the investment are  accelerated to the extent of losses  available (see Note 2).
If the Local  Limited  Partnerships  report  net  income in  future  years,  the
Partnership  will resume applying the equity method only after its share of such
net income  equals the share of net losses not  recognized  during the period(s)
the equity method was suspended.

Distributions  received by limited  partners are accounted for as a reduction of
the investment balance.  Distributions received after the investment has reached
zero are recognized as income.

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

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 an  original
maturity of three months or less when  purchased to be cash  equivalents.  As of
September 30, 2005 and March 31, 2005, the Partnership had no  cash equivalents.


Concentration of Credit Risk
----------------------------
At September 30, 2005,  the  Partnership  maintained  cash balances at a certain
financial institution in excess of the federally insured maximum.

Net Loss Per Limited Partner Unit
---------------------------------
Net loss per limited  partnership  unit is  calculated  pursuant to Statement of
Financial  Accounting  Standards No. 128,  Earnings Per Share. Net loss per unit
includes no dilution  and is computed  by  dividing  loss  available  to limited
partners by the weighted average number of units outstanding  during the period.
Calculation of diluted net loss per unit is not required.

                                       10

<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Reporting Comprehensive Income
------------------------------
The  Statement of Financial  Accounting  Standards  ("SFAS") No. 130,  Reporting
Comprehensive  Income  established  standards  for the  reporting and display of
comprehensive  income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all periods presented, as defined by SFAS No. 130.

New Accounting Pronouncements
-----------------------------
As of March 31,  2004,  the  Partnership  adopted FASB  Interpretation  No. 46 -
Revised,  Consolidation  of  Variable  Interest  Entities  ("FIN 46R"). FIN  46R
provides  guidance as to when a company should include the assets,  liabilities,
and  activities  of  a  variable   interest  entity  ("VIE")  in  its  financial
statements,   and  when  a  company  should  disclose   information   about  its
relationship  with a VIE. A VIE is a legal structure used to conduct  activities
or hold assets, and a VIE must be consolidated by a company if it is the primary
beneficiary  because a primary  beneficiary absorbs the majority of the entity's
expected losses, the majority of the expected residual returns, or both.

Under FIN 46R, the Local Limited  Partnerships in which the Partnership  invests
are VIEs. However,  management does not consolidate the Partnership's  interests
in these VIE's under FIN 46R, as the  Partnership  is not considered the primary
beneficiary.  Rather,  the  Partnership  currently  records  the  amount  of the
investment in the Local Limited  Partnerships  as an asset in the balance sheet,
and  recognizes  its share of Local  Limited  Partnership  income or loss in the
statement of operations.

The Partnership's balance in its investment in Local Limited Partnerships,  plus
the risk of recapture of tax credits previously recognized on these investments,
represent  its maximum exposure to loss. The  Partnership's  exposure to loss is
mitigated  by  the  condition  and  financial   performance  of  the  underlying
properties,  as well as the  strength of the Local  General  Partners  and their
guarantee against credit recapture.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154
(SFAS 154),  "Accounting Changes and Error Corrections" which  provides guidance
on the  accounting  for and  reporting of accounting  changes and  correction of
errors.  This  statement  changes the  requirements  for the  accounting for and
reporting  of a change in  accounting  principle  and  applies to all  voluntary
changes in  accounting  principle.  It also  applies to changes  required  by an
accounting pronouncement in the unusual instance that the pronouncement does not
include  specific  transition  provisions.   This  statement  is  effective  for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005. The  Partnership  does not anticipate a material effect
upon the adoption of this statement.

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
--------------------------------------------
As of the periods  presented,  the Partnership has acquired limited  partnership
interests  in 48 Local  Limited  Partnerships,  each of which  owns one  Housing
Complex, except one Local Limited Partnership that owns three Housing Complexes,
consisting of an aggregate of 1,685  apartment  units.  The  respective  General
Partners of the Local Limited  Partnerships manage the day-to-day  operations of
the entities.  Significant Local Limited Partnership  business decisions require
approval  from the  Partnership.  The  Partnership,  as a  limited  partner,  is
generally  entitled  to 99%,  as  specified  in the  Local  Limited  Partnership
agreements,  of the operating profits and losses,  taxable income and losses and
tax credits of the Local Limited Partnerships.

                                       11
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
-------------------------------------------------------
The following is a summary of the equity method  activity of the  investments in
Local Limited Partnerships for the periods presented below:
<TABLE>
<CAPTION>
                                                                   For the Six               For the Year
                                                                   Months Ended                  Ended
                                                                September 30, 2005          March 31, 2005
                                                              -----------------------      ------------------
<S>                                                          <C>                        <C>
     Investments per balance sheet, beginning of period       $              57,307      $          514,148
     Impairment loss                                                              -                (330,705)
     Equity in losses of limited partnerships                               (20,658)               (116,289)
     Distributions received from limited partnerships                             -                  (2,291)
     Amortization of capitalized acquisition fees and
     costs                                                                     (170)                 (7,556)
                                                                ---------------------      ------------------
     Investments per balance sheet, end of period             $              36,479      $           57,307
                                                                =====================      ==================
</TABLE>
Selected  financial  information for the Six months ended September 30, 2005 and
2004 from the unaudited combined condensed  financial  statements of the limited
partnerships in which the Partnership has invested as follows:


                                COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                       2005                      2004
                                                               ----------------------      ------------------
<S>                                                         <C>                         <C>
        Revenues                                             $             3,522,000     $         3,675,000
                                                               ----------------------      ------------------
        Expenses:
          Operating expenses                                               2,424,000               2,484,000
          Interest expense                                                   712,000                 867,000
          Depreciation and amortization                                      872,000                 944,000
                                                               ----------------------      ------------------
        Total expenses                                                     4,008,000               4,295,000
                                                               ----------------------      ------------------

        Net loss                                             $              (486,000)     $         (620,000)
                                                               ======================      ==================
                                                             $              (480,000)     $         (613,000)
        Net loss allocable to the Partnership
                                                               ======================      ==================
        Net loss recorded by the Partnership                 $               (21,000)     $          (71,000)
                                                               ======================      ==================
</TABLE>
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  and/or  the Local  General  Partners  may be
required  to sustain  the  operations  of such Local  Limited  Partnerships.  If
additional  capital  contributions  are not made  when  they are  required,  the
Partnership's  investment in certain of such Local Limited Partnerships could be
impaired, and the loss and recapture of the related  tax  credits  could  occur.

                                       12

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                For the Quarterly Period Ended September 30, 2005
                                   (unaudited)

NOTE 3 - RELATED PARTY TRANSACTIONS
-----------------------------------
Under the terms of the  Partnership  Agreement  the  Partnership  has paid or is
obligated to the General Partner or its affiliates for the following fees:

(a)  Annual asset  management fee. An annual asset  management fee equal to 0.5%
     of the invested assets of the Local Limited  Partnerships.  Invested Assets
     means the sum of the Partnership's  Investment in Local Limited Partnership
     Interests  and the  Partnership's  allocable  share  of the  amount  of the
     mortgage loans on and other debts related to, the Apartment Complexes owned
     by such Local  Limited  Partnerships.  Fees of $149,732 and  $149,731  were
     incurred during six months ended September 30, 2005 and 2004, respectively.
     The  Partnership  paid the General  Partner or its  affiliates  $20,625 and
     $22,500 of those fees  during the six months  ended September  30, 2005 and
     2004, respectively.

(b)  Subordinated  disposition fee. A subordinated  disposition fee is 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.

(c)  The  Partnership  reimburses  the  General  Partner or its  affiliates  for
     operating expenses incurred in behalf of the Partnership. Operating expense
     reimbursements were approximately  $29,652 and $6,360 during the six months
     ended September 30, 2005 and 2004, respectively.

The accrued fees and expenses due to General Partner and affiliates consisted of
the following at:
<TABLE>
<CAPTION>
                                                       September 30, 2005              March 31, 2005
<S>                                             <C>                            <C>
   Asset management fee payable                  $              3,057,914       $           2,928,807
   Reimbursement  for  expenses  paid by the
   General Partner and/or its affiliates                           10,931                      20,131
                                                    ----------------------         -------------------
                                                 $              3,068,845       $           2,948,938
                                                    ======================         ===================
</TABLE>

The General  Partner and/or its affiliates do not anticipate  that these accrued
fees will be paid in full until such time as capital  reserves  are in excess of
the future foreseeable working capital requirements of the Partnership.

                                       13
<PAGE>

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

Forward-Looking Statements

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

Risks and uncertainties inherent in forward-looking  statements include, but are
not  limited  to,  our  future  cash  flows and  ability  to  obtain  sufficient
financing, level of operating expenses, conditions in the Low Income Housing Tax
Credits  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 us or
persons  acting on our behalf  are  expressly  qualified  in their  entirety  by
cautionary  statements  in this Form 10-Q and in other reports we filed with the
Securities and Exchange  Commission.  The following discussion should be read in
conjunction  with the  Consolidated  Financial  Statements and the Notes thereto
included elsewhere in this filing.

The following discussion and analysis compares the results of operations for the
three and six months ended  September 30, 2005 and 2004, and  should be  read in
conjunction  with   the   condensed  consolidated   financial   statements   and
accompanying  notes included within this report.

Financial Condition

The Partnership's  assets at September 30, 2005 consisted  primarily of $181,000
in cash and aggregate  investments in the forty-eight Local Limited Partnerships
of $36,000.  Liabilities at September 30, 2005 primarily consisted of $3,069,000
of accrued annual asset management fees and  reimbursement  for expenses paid by
the General Partner and/or its affiliates.

Results of Operations

Three Months Ended  September 30, 2005 Compared to Three Months Ended  September
30, 2004. The  Partnership's  net loss for the three months ended  September 30,
2005 was  $(85,000),  reflecting a decrease of $26,000 from the net loss for the
three months ended September 30, 2004 of $(111,000). This decrease was primarily
due to equity in losses of limited  partnerships,  which decreased by $20,000 to
$(10,000),  for the three months ended  September 30, 2005 compared to $(30,000)
for the three months ended September 30, 2004. This decrease was a result of the
Partnership  not recognizing  certain losses of the Local Limited  Partnerships.
The investments in such Local Limited  Partnerships  had reached $0 at September
30, 2005. Since the  Partnership's  liability with respect to its investments is
limited,  losses in excess of  investments  are not  recognized.  Along with the
decrease in equity in losses of limited  partnerships,  the loss from operations
decreased by $6,000,  from  $(80,000)  for the three months ended  September 30,
2004 to $(74,000) for the three months ended September 30, 2005, due to a $1,000
decrease in operating expenses and a $5,000  increase  in  distribution  income.

Six Months Ended  September 30, 2005 Compared to Six Months Ended  September 30,
2004. The Partnership's net loss for the six months ended September 30, 2005 was
$(173,000),  reflecting  a decrease of  $57,000  from the net loss  for  the six
months ended  September 30, 2004 of $(230,000).  This decrease was primarily due
to equity in losses of limited  partnerships,  which  decreased  by $(50,000) to
$(21,000), for the six months ended September 30, 2005 compared to $(71,000) for
the  six  months ended  September  30,  2004. This decrease was a  result of the
Partnership  not recognizing  certain losses of the Local Limited  Partnerships.
The investments in such Local Limited  Partnerships  had reached $0 at September
30, 2005. Since the  Partnership's  liability with respect to its investments is
limited,  losses in excess of  investments  are not  recognized.  Along with the
decrease in equity in losses of limited  partnerships,  the loss from operations
decreased by $7,000, from $(159,000) for the six months ended September 30, 2004
to  $(152,000)  for the six months ended  September  30,  2005,  due to a $3,000
decrease in operating expenses and a $4,000 increase in distribution income. The
decrease  in  operating  expenses  was  primarily  due to a $10,000  decrease in
amortization expense  which  was  offset  by a $(7,000)  increase  in  legal and
accounting expenses.

Cash Flows

Six Months Ended  September 30, 2005 Compared to Six Months Ended  September 30,
2004.  Net  cash  used  during  the six  months  ended  September  30,  2005 was
$(32,000),  compared to net cash used in the six months ended September 30, 2004
of $(12,000),  reflecting an increase of $(20,000). The change was primarily due
to a decrease of $14,000 in accrued fees and expenses due to General Partner and
affiliates.

                                       14

<PAGE>

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

During the six months ended  September 30, 2005,  accrued asset  management fees
payable and advances  due to the General  Partner  increased  by  $120,000.  The
General  Partner does not anticipate  that the accrued fees and advances will be
paid until such time as capital  reserves are in excess of  foreseeable  working
capital requirements of the partnership.

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 the  existing  contractual  obligations  and the
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.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

         NOT APPLICABLE

Item 4.  Procedures and Controls

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

         Changes  in   internal   controls.   There  were  no   changes  in  the
         Partnership's  internal control over financial reporting  that occurred
         during the quarter ended September 30, 2005 that  materially  affected,
         or are  reasonably  likely to  materially  affect,  the   Partnership's
         internal control over financial reporting.

                                       15

<PAGE>

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         NONE

Item 2.  Changes in Securities and Use of Proceeds

         NONE

Item 3.  Defaults Upon Senior Securities

         NONE

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

         NONE

Item 5.  Other Information

         NONE

Item 6.  Exhibits

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

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

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

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

                                       16
<PAGE>

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

WNC HOUSING TAX CREDITS III, L.P.

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


By:  WNC & ASSOCIATES, INC.         General Partner





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

Date: December 29, 2005





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

Date:  December 29, 2005


                                       17