UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 S  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: 0-23908
 
 WNC
CALIFORNIA HOUSING TAX CREDITS III, L.P.
 
 California
              33-0531301(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
CALIFORNIA HOUSING TAX CREDITS 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
CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A
California Limited Partnership)
 
 BALANCE
SHEETS
 (Unaudited)
  
 June
      30, 2010
              
              
              March
      31, 2010ASSETSCash
              
              $
              184,538
              
              
              $
              180,321Investments
      in Local Limited Partnerships, net (Note 2)
              
              
              -
              
              
              
              -Total
      Assets
              
              $
              184,538
              
              
              $
              180,321LIABILITIES
      AND PARTNERS' DEFICITLiabilities:Accrued
      fees and expenses due toGeneral
      Partner and affiliates (Note 3)
              
              $
              1,993,014
              
              
              $
              2,008,509Partners’
      Deficit:General
      Partner
              
              
              (188,217
              )
              
              
              (188,414
              )Limited
      Partners (30,000 Partnership Unitsauthorized;
      18,000 Partnership Units issued andoutstanding)
              
              
              (1,620,259
              )
              
              
              (1,639,774
              )Total
      Partners’ Deficit
              
              
              (1,808,476
              )
              
              
              (1,828,188
              )Total
      Liabilities and Partners’ Deficit
              
              $
              184,538
              
              
              $
              180,321
  See
accompanying notes to financial statements
 3
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
      MonthsDistribution
      income
              
              $
              41,690
              
              
              $
              -Reporting
      fees
              
              
              14,508
              
              
              
              6,885Total
      operating income
              
              
              56,198
              
              
              
              6,885Operating
      expenses:Asset
      management fees (Note 3)
              
              
              33,377
              
              
              
              40,335Legal
      and accounting fees
              
              
              1,939
              
              
              
              803Other
              
              
              1,235
              
              
              
              1,378Total
      operating expenses
              
              
              36,551
              
              
              
              42,516Income
      (loss) from operations
              
              
              19,647
              
              
              
              (35,631
              )Interest
      income
              
              
              65
              
              
              
              72Net
      income (loss)
              
              $
              19,712
              
              
              $
              (35,559
              )Net
      income (loss) allocated to:General
      Partner
              
              $
              197
              
              
              $
              (356
              )Limited
      Partners
              
              $
              19,515
              
              
              $
              (35,203
              )Net
      income (loss) per Partnership Unit
              
              $
              1
              
              
              $
              (2
              )Outstanding
      weighted Partnership Units
              
              
              18,000
              
              
              
              18,000
  See
accompanying notes to financial statements
 4
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
              
              $
              (188,414
              )
              
              $
              (1,639,774
              )
              
              $
              (1,828,188
              )Net
      income
              
              
              197
              
              
              
              19,515
              
              
              
              19,712Partners’
      deficit at June 30, 2010
              
              $
              (188,217
              )
              
              $
              (1,620,259
              )
              
              $
              (1,808,476
              )
  See
accompanying notes to financial statements
 5
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
      income (loss)
              
              $
              19,712
              
              
              $
              (35,559
              )Adjustments
      to reconcile net income (loss) to net
                cash
      provided by (used in) operating activities:Change
      in accrued fees and expenses due toGeneral
      Partner and affiliates
              
              
              (15,495
              )
              
              
              (2,483
              )Net
      cash provided by (used in) operating
                activities
              
              
              4,217
              
              
              
              (38,042
              )Net
      increase (decrease) in cash
              
              
              4,217
              
              
              
              (38,042
              )Cash,
      beginning of period
              
              
              180,321
              
              
              
              234,631Cash,
      end of period
              
              $
              184,538
              
              
              $
              196,589SUPPLEMENTAL
      DISCLOSURE
                OF
      CASH FLOW INFORMATION:Taxes
      paid
              
              $
              -
              
              
              $
              -
  See
accompanying notes to financial statements
 6
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
California Housing Tax Credits III, L.P., (the "Partnership"), is a California
Limited Partnership formed under the laws of the State of California on October
5, 1992 and began operations on July 19, 1993.  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 III, 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 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.
 
 Pursuant
to a registration statement filed with the Securities and Exchange Commission,
on February 17, 1993, the Partnership commenced a public offering of 30,000
units of limited partnership interest ("Partnership Units") at a price of $1,000
per Partnership Unit.  As of the close of the public offering on July
22, 1994, a total of 17,990 Partnership Units representing $17,990,000 had been
sold.  During 1995, an additional 10 Partnership Units amounting to
$10,000 was collected on subscriptions accepted and previously deemed
uncollectible.  The General Partner has a 1% interest in operating
profits and losses, taxable income and losses, in cash available for
distribution from the Partnership and Low Income Housing Tax Credits of the
Partnership.  The investors in the Partnership (“Limited Partners”)
will be allocated the remaining 99% of these items in proportion to their
respective investments.
  7
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
proceeds from the disposition of any of the Local Limited Partnership Housing
Complexes will be used first to pay debts and other obligations per the
respective Local Limited Partnership Agreement. Any remaining proceeds will then
be paid to the Partnership. The sale of a Housing Complex may be subject to
other restrictions and obligations.  Accordingly, there can be no
assurance that a Local Limited Partnership will be able to sell its Housing
Complex.  Even if it does so, there can be no assurance that any
significant amounts of cash will be distributed to the Partnership. Should such
distributions occur, the Limited Partners will be entitled to receive
distributions equal to their capital contributions and their return on
investment (as defined in the Partnership Agreement) and the General Partner
would then be entitled to receive proceeds equal to its capital contributions
from the remainder. Any additional sale or refinancing proceeds will be
distributed 90% to the Limited Partners (in proportion to their respective
investments) and 10% to the General Partner.
 
 Risks and
Uncertainties
 
 An
investment in the Partnership and the Partnership’s investments in Local Limited
Partnerships and their Housing Complexes are subject to risks. These risks may
impact the tax benefits of an investment in the Partnership, and the amount of
proceeds available for distribution to the Limited Partners, if any, on
liquidation of the Partnership’s investments. Some of those risks include the
following:
 
 The Low
Income Housing Tax Credits rules are extremely complicated. Noncompliance with
these rules results in the loss of future Low Income Housing Tax Credits and the
fractional recapture of Low Income Housing Tax Credits already taken. In most
cases the annual amount of Low Income Housing Tax Credits that an individual can
use is limited to the tax liability due on the person’s last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a price which would result in the Partnership realizing cash
distributions or proceeds from the transaction. Accordingly, the Partnership may
be unable to distribute any cash to its Limited Partners. Low Income Housing Tax
Credits may be the only benefit from an investment in the
Partnership.
 
 The
Partnership has invested in a limited number of Local Limited Partnerships. Such
limited diversity means that the results of operation of each single Housing
Complex will have a greater impact on the Partnership. With limited diversity,
poor performance of one Housing Complex could impair the Partnership’s ability
to satisfy its investment objectives. Each Housing Complex is subject to
mortgage indebtedness. If a Local Limited Partnership failed to pay its
mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were
to occur during the first 15 years, the loss of any remaining future Low Income
Housing Tax Credits, a fractional recapture of prior Low Income Housing Tax
Credits, and a loss of the Partnership’s investment in the Housing Complex would
occur. The Partnership is a limited partner or a non-managing member of each
Local Limited Partnership. Accordingly, the Partnership will have very limited
rights with respect to management of the Local Limited Partnerships. The
Partnership will rely totally on the Local General Partners. Neither the
Partnership’s investments in Local Limited Partnerships, nor the Local Limited
Partnerships’ investments in Housing Complexes, are readily marketable. To the
extent the Housing Complexes receive government financing or operating
subsidies, they may be subject to one or more of the following risks:
difficulties in obtaining tenants for the Housing Complexes; difficulties in
obtaining rent increases; limitations on cash distributions; limitations on
sales or refinancing of Housing Complexes; limitations on transfers of interests
in Local Limited Partnerships; limitations on removal of Local General Partners;
limitations on subsidy programs; and possible changes in applicable regulations.
Uninsured casualties could result in loss of property and Low Income Housing Tax
Credits and recapture of Low Income Housing Tax Credits previously taken. The
value of real estate is subject to risks from fluctuating economic conditions,
including employment rates, inflation, tax, environmental, land use and zoning
policies, supply and demand of similar Housing Complexes, and neighborhood
conditions, among others.
 8
 WNC
CALIFORNIA HOUSING TAX CREDITS 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 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.
 
 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 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.  9
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
 
 As of
March 31, 2010, the Partnership sold its Limited Partnership interest in
Rosewood Apartments L.P., Venus Retirement Village, Ltd, Winters Investment
Group, Parlier Garden Apartments, L.P. and Tahoe Pines Apartments,
L.P.
 
 Method of Accounting for
Investments in Local Limited Partnerships
 
 The
Partnership accounts for its investments in Local Limited Partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships’ results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the sum of the remaining future Low Income
Housing Tax Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be consistent with those of the
Partnership. Costs incurred by the Partnership in acquiring the investments are
capitalized as part of the investment account and were being amortized over 27.5
years (see Note 2).
 
 “Equity
in losses of Local Limited Partnerships” for the periods ended 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 financial statements, upon receiving
the actual annual results reported by the Local Limited Partnerships, management
reverses its prior estimate and records the actual results reported by the Local
Limited Partnerships. Equity in losses of Local Limited Partnerships allocated
to the Partnership are not recognized to the extent that the investment balance
would be adjusted below zero. As soon as the investment balance reaches zero,
the related costs of acquiring the investment is impaired. If the Local Limited
Partnerships reported net income in future years, the Partnership will resume
applying the equity method only after its share of such net income equals the
share of net losses not recognized during the period(s) the equity method was
suspended (see Note 2).
 
 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.
 10
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
 
 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.
 
 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.
 
  11
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
 
 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
periods presented, the Partnership owns Local Limited Partnership interests in
thirteen Local Limited Partnerships. All of these Local Limited Partnership’s
own one Housing Complex consisting of an aggregate of 484 apartment units. 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
CALIFORNIA HOUSING TAX CREDITS 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
              
              
              2009Revenue
              
              $
              777,000
              
              
              $
              900,000Expenses:Operating
      expenses
              
              
              566,000
              
              
              
              653,000Interest
      expense
              
              
              148,000
              
              
              
              180,000Depreciation
      and amortization
              
              
              218,000
              
              
              
              259,000Total
      expenses
              
              
              932,000
              
              
              
              1,092,000Net
      loss
              
              $
              (155,000
              )
              
              $
              (192,000
              )Net
      loss allocable to the Partnership
              
              $
              (153,000
              )
              
              $
              (190,000
              )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.  If additional capital contributions are
not made when they are required, the Partnership's investments in certain of
such Local Limited Partnerships could be impaired, and the loss and recapture of
the related Low Income Housing Tax Credits could occur.
  13
 WNC
CALIFORNIA HOUSING TAX CREDITS 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
      $33,377 and $40,335 were incurred during the three months ended June 30,
      2010 and 2009, respectively. The Partnership paid the General Partners
      and/or its affiliates $50,000 and $45,000 of those fees during the three
      months ended June 30, 2010 and 2009,
  respectively.
 
 (b)
              Subordinated
      Disposition Fee. 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, 2003 and 6% thereafter (as defined in the Partnership
      Agreement) and is payable only if the General Partner or its affiliates
      render services in the sales effort.  No such fees were earned
      during the periods presented.
 
 (c)
              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 $2,046 and $0 during the three months ended June 30,
      2010 and 2009.
 
 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
              
              $
              1,146
              
              
              $
              18Asset
      management fees payable
              
              
              1,991,868
              
              
              
              2,008,491Total
              
              $
              1,993,014
              
              
              $
              2,008,509
 
 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.
  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 $185,000 in cash. Liabilities
at June 30, 2010, consisted of $1,993,000 of 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 income for the three months ended June 30, 2010 was $20,000,
reflecting an increase of $56,000 from the $(36,000) net loss for the three
months ended June 30, 2009.The increase in net income
was primarily due to a $42,000 increase in distribution income and a $8,000
increase in reporting fees.  Those fees can vary depending on when the
Local Limited Partnership’s cash flow will allow for payment. The increase in
net income is also due to a $7,000 decrease in 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
incurred by the Partnership.
 
 Liquidity
and Capital Resources
 
 Three Months Ended June 30, 2010
Compared to Three Months Ended June 30, 2009.Net cash provided in the
three months ended June 30, 2010 was $4,000 compared to net cash used during the
three months ended June 30, 2009 of $(38,000). The change of $42,000 was
primarily due to the fact that during the three months ended June 30, 2010the Partnership received
$15,000 in reporting fees compared to only $7,000 received during the three
month ended June 30, 2009, resulting in a $8,000 increase in cash. Additionally,
distribution income increased by $42,000 resulting in a total increase of
$49,000 in operating income. As explained above in the results of operations the
reporting fees and distribution income are paid if the cash flow of the
underlying Housing Complexes will allow for it.  During the three
months ended June 30, 2010 the Partnership paid $(50,000) and $(2,000) to the
General Partner or an affiliate for accrued asset management fees and
reimbursement of operating expenses paid on behalf of the Partnership,
respectively, compared to $(45,000) and $0 cash paid for accrued asset
management fees and reimbursements due to the General Partner or affiliate for
the three months ended June 30, 2009, respectively. Each quarter,
management evaluates the cash position of the Partnership and determines if
payments will be made to the General Partner and/or
affiliates.
  15
  Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
 
 During
the three months ended June 30, 2010 accrued payables, which consist primarily
of related party asset management fees due to the General Partner or affiliates,
decreased by $15,000. The General Partner does not anticipate that these accrued
fees will be paid in full until such time as capital reserves are in excess of
future foreseeable working capital requirements of the partnership.
 
 The
Partnership expects its future cash flows, together with its net available
assets at June 30, 2010, to be insufficient to meet all currently foreseeable
future cash requirements. However, 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
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.
  16
  Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
 
 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.
 
 (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.
  17
  
 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.  (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
CALIFORNIA HOUSING TAX CREDITS III, L.P.
 
 By:  WNC
Tax Credit Partners
III                                                                           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