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 December 31, 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 Circle
Irvine, CA 92614-6404(Address of principal executive offices)





(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 filerX Smaller reporting company___





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes ___NoX


WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 INDEX TO FORM 10-Q
 
 For the Quarterly Period Ended December 31, 2010




PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Balance SheetsAs of December 31, 2010 and March 31, 2010
3Condensed Statements of OperationsFor the Three and Nine Months Ended December 31, 2010 and 2009
4Condensed Statement of Partners' DeficitFor the Nine Months Ended December 31, 2010
5Condensed Statements of Cash FlowsFor the Nine Months Ended December 31, 2010 and 2009
6Notes to Condensed 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)
 
 CONDENSED BALANCE SHEETS
 (Unaudited)




December 31, 2010

March 31, 2010ASSETSCash
$
175,381
$
180,321Investments in Local Limited Partnerships, net (Note 2)

-

-Total Assets
$
175,381
$
180,321LIABILITIES AND PARTNERS' DEFICITLiabilities:Accrued fees and expenses due toGeneral Partner and affiliates (Note 3)
$
2,001,930
$
2,008,509Partners’ Deficit:General Partner

(188,398)

(188,414)Limited Partners (30,000 Partnership Unitsauthorized; 18,000 Partnership Units issued andoutstanding)

(1,638,151)

(1,639,774)Total Partners’ Deficit

(1,826,549)

(1,828,188)Total Liabilities and Partners’ Deficit
$
175,381
$
180,321


See accompanying notes to condensed financial statements
 3
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENTS OF OPERATIONS
 
 For the Three and Nine Months Ended December 31, 2010 and 2009
 (Unaudited)


2010

2009Three Months

Nine Months

Three Months

Nine MonthsDistribution income
$
-
$
41,690
$
-
$
15,996Reporting fees

6,087

34,492

-

-Total operating income

6,087

76,182

-

15,996Operating expenses:Asset management fees (Note 3)

32,317

98,717

40,335

121,005Legal and accounting fees

22

29,763

32,770

68,945Other

2,576

3,839

461

1,922Total operating expenses

34,915

132,319

73,566

191,872Loss from operations

(28,828)

(56,137)

(73,566)

(175,876)Gain on sale of investments in Local

Limited Partnerships

32,600

57,600

-

-Interest income

72

176

80

195Net income (loss)
$
3,844
$
1,639
$
(73,486)
$
(175,681)Net income (loss) allocated to:General Partner
$
38
$
16
$
(735)
$
(1,757)Limited Partners
$
3,806
$
1,623
$
(72,751)
$
(173,924)Net income (loss) per Partnership Unit
$
-
$
-
$
(4)
$
(10)Outstanding weighted Partnership

Units

18,000

18,000

18,000

18,000


See accompanying notes to condensed financial statements
 4
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENT OF PARTNERS’ DEFICIT
 
 For the Nine Months Ended December 31, 2010
 (Unaudited)





General

LimitedPartner

Partners

TotalPartners’ deficit at March 31, 2010
$
(188,414)
$
(1,639,774)
$
(1,828,188)Net income

16

1,623

1,639Partners’ deficit at December 31, 2010
$
(188,398)
$
(1,638,151)
$
(1,826,549)


See accompanying notes to condensed financial statements
 5
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 CONDENSED STATEMENTS OF CASH FLOWS
 
 For the Nine Months Ended December 31, 2010 and 2009
 (Unaudited)





2010

2009Cash flows from operating activities:Net income (loss)
$
1,639
$
(175,681)Adjustments to reconcile net income (loss) to

net cash used in operating activities:Gain on sale of investments in Local Limited Partnerships

(57,600)

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

(6,579)

109,605Net cash used in operating activities

(62,540)

(66,076)Cash flows from investing activities:Proceeds from sale of investments in Local Limited

Partnerships

57,600

-Net cash provided by investing activities

57,600

-Net decrease in cash

(4,940)

(66,076)Cash, beginning of period

180,321

234,631Cash, end of period
$
175,381
$
168,555SUPPLEMENTAL DISCLOSURE

OF CASH FLOW INFORMATION:Taxes paid
$
-
$
-


See accompanying notes to condensed financial statements
 6
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 
 For the Quarterly Period Ended December 31, 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 nine months ended December 31, 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 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”) is the general partner 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 CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 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. According, 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 their 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 CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 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 February 28, 2012.





Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates.  Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason.





Exit Strategy





The Compliance Period for a Housing Complex is generally 15 years following construction or rehabilitation completion. Associates was one of the first in the industry to offer syndicated investments in Low Income Housing Tax Credits.  The initial programs are completing their Compliance Periods.





Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits.  A sale prior to the end of the Compliance Period could result in recapture if certain conditions are not met.





With that in mind, the General Partner is continuing its review of the Housing Complexes. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes.


9
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 2010
 (Unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners’ return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of December 31, 2010.





On September 1, 2010, the Partnership sold its Local Limited Partnership Interest in Candleridge Apartments of Perry L.P. II (“Candleridge”) to the Local General Partner.  Candleridge was appraised at $259,000 and had a mortgage note balance of $655,000. The Local Limited Partnership Interest was sold for $25,000 which was paid to the Partnership.  The Partnership used the cash proceeds to pay $19,854 of accrued asset management fees, $1,146 of reimbursements of operating expenses to the General Partner and affiliates while the remaining $4,000 is being retained in reserves for future operating expenses.  The Partnership’s investment balance was zero at the time of the sale, therefore a gain of $25,000 was recorded for the quarterly period ended December 31, 2010.  No cash distribution will be made to the Limited Partners.  The compliance period has expired so there is no risk of recapture.





On December 1, 2010, the Partnership sold its Local Limited Partnership Interest in Nueva Sierra Vista Associates, L.P. (“Nueva Sierra”) to an affiliate of the Local General Partner.  Nueva Sierra was appraised at $445,000 and had an outstanding debt balance of $1,623,000 as of December 31, 2009. The Local Limited Partnership Interest was sold for $32,600 which was paid to the Partnership.  The Partnership used the cash proceeds to pay $28,600 of accrued asset management fees while the remaining $4,000 is being retained in reserves for future operating expenses.  The Partnership’s investment balance was zero at December 31, 2010, therefore a gain of $32,600 was recorded for the three months ended December 31, 2010.  No cash distribution will be made to the Limited Partners.  The compliance period has expired so there is no risk of recapture.





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 any estimated residual value to the Partnership.   If an investment is considered to be impaired, the Partnership reduces the carrying value of its investment in any such Local Limited Partnership.  The accounting policies of the Local Limited Partnerships, generally, are expected to be consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and were amortized over 27.5 years (see Note 2).  10
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 2010
 (Unaudited)


NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





“Equity in losses of Local Limited Partnerships” for the periods ended December 31, 2010 and 2009 have been recorded by the Partnership. Management’s estimate for the nine-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. 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.





Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations.   However, management does not consolidate the Partnership's interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships which are considered VIEs as assets 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 represents its maximum exposure to loss. The Partnership's exposure to loss in 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 to the investors in the Partnership.





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 December 31, 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.  11
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 2010
 (Unaudited)


NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





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 December 31, 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.





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 December 31, 2010 and March 31, 2010, the Partnership owns Local Limited Partnership interests in 11 and 13 Local Limited Partnerships, respectively.  As of December 31, 2010 and March 31, 2010, these Local Limited Partnerships each own one Housing Complex consisting of an aggregate of 425 and 484 apartment units, respectively. The Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a Limited Partner, is generally entitled to 99%, as specified in the Local Limited Partnership governing agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.


12
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 2010
 (Unaudited)


NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued





Selected financial information for the nine months ended December 31, 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
$
2,070,000
$
2,701,000Expenses:Operating expenses

1,494,000

1,959,000Interest expense

354,000

540,000Depreciation and amortization

570,000

777,000Total expenses

2,418,000

3,276,000Net loss

$
(348,000)
$
(575,000)Net loss allocable to the Partnership
$
(344,000)
$
(569,000)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.





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 items:





(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 $98,717 and $121,005 were incurred during the nine months ended December 31, 2010 and 2009, respectively.  The Partnership paid the General Partner and or its affiliates $108,645 and $45,000 of those fees during the nine months ended December 31, 2010 and 2009, 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, 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.


13
 WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
 (A California Limited Partnership)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
 
 For the Quarterly Period Ended December 31, 2010
 (Unaudited)


NOTE 3 - RELATED PARTY TRANSACTIONS- continued





(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 $30,252 and $37,268 during the nine months ended December 31, 2010 and 2009, respectively.





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





December 31, 2010

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

on behalf of the Partnership
$
3,368
$
18Asset management fee payable

1,998,562

2,008,491Total
$
2,001,930
$
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 future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the Low Income Housing Tax Credit property market and the economy in general, as well as legal proceedings.  Historical results are not necessarily indicative of the operating results for any future period.





Subsequent written and oral forward looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-Q and in other reports filed with the Securities and Exchange Commission.





The following discussion and analysis compares the results of operations for the three and nine months ended December 31, 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 December 31, 2010 consisted of $175,000 in cash.  Liabilities at December 31, 2010 consisted of $2,002,000 of accrued annual management fees and expenses due to the General Partner and affiliates.





Results of Operations





Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009.The Partnership’s net income for the three months ended December 31, 2010 was $4,000, reflecting a change of $77,000 from the $(73,000) net loss for the three months ended December 31, 2009. The increase in net income was primarily due to the $33,000 gain on sale of investments in Local Limited Partnerships for the three months ended December 31, 2010.  The Partnership is in the disposition phase but the number of dispositions and gains recorded will vary from period to period depending on the economic conditions and the market for the properties in the specific locations.   There was also a $33,000 decrease in legal and accounting fees due to the timing of the accounting work being performed.  Additionally, there was an $8,000 decrease in asset management fees. These fees are calculated based on the invested assets, which decreased with the dispositions of Local Limited Partnerships in the prior year.  As Local Limited Partnerships are sold the invested assets decrease, thereby decreasing the asset management fees incurred.  The reporting fees increased by $6,000 due to the fact that Local Limited Partnerships pay reporting fees to the Partnership when the Local Limited Partnerships’ cash flow will allow for the payment.





Nine Months Ended December 31, 2010 Compared to Nine Months Ended December 31, 2009.The Partnership’s net income for the nine months ended December 31, 2010 was $2,000, reflecting a change of $178,000 from the $(176,000) net loss for the nine months ended December 31, 2009. The decrease in net loss was partially due to the $58,000 gain on sale of investments in Local Limited Partnerships during the nine months ended December 31, 2010.  The Partnership is in the disposition phase but the number of dispositions and gains recorded will vary from period to period depending on the economic conditions and the market for the properties in the specific locations.  There was also a $22,000 decrease in asset management fees. These fees are calculated based on the invested assets, which decreased with the dispositions of Local Limited Partnerships in the prior year.  As Local Limited Partnerships are sold the invested assets decrease, thereby decreasing the asset management fees incurred.  The distribution income and reporting fees increased by $26,000 and $34,000, respectively, for the nine months ended December 31, 2010 due to the fact that Local Limited Partnerships pay distribution income and reporting fees to the Partnership when the Local Limited Partnerships’ cash flow will allow for the payment. There was also a $39,000 decrease in legal and accounting fees due to the timing of the accounting work being performed.  15


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





Liquidity and Capital Resources





Nine Months Ended December 31, 2010 Compared to Nine Months Ended December 31, 2009.The net cash used during the nine months ended December 31, 2010 was $(5,000) compared to net cash used during the nine months ended December 31, 2009 of $(66,000). The change was due to the Partnership receiving $58,000 in proceeds related to the sales of investments in Local limited Partnerships during the nine months ended December 31, 2010 compared to no cash received for dispositions during the nine months ended December 31, 2009. Distribution income and reporting fees increased by $26,000 and $34,000 as described above. There was also an increase of $(64,000) in cash paid for accrued asset management fees and a decrease of $7,000 in cash paid to the General Partner or an affiliate for reimbursements of operating expenses which were paid on behalf of the Partnership.





During the nine months ended December 31, 2010 accrued payables, which consist primarily of asset management fees to the General Partner or affiliates, decreased by $7,000.  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 December 31, 2010, to be insufficient to meet all currently foreseeable future cash requirements. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through February 28, 2012.





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.  16
 Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations, continued





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 as of and for the interim period ended June 30, 2009 and has no impact on the Partnership’s financial condition or results of operations.





In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Partnership for the quarter ended June 30, 2009. The adoption did not have a significant impact on the subsequent events that the Partnership reports, either through recognition or disclosure, in the financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and therefore the Partnership did not include the disclosure in this Form 10-Q.





In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The Codification is intended to reorganize, rather than change, existing GAAP. Accordingly, all references to currently existing GAAP have been removed and have been replaced with plain English explanations of the Partnership’s accounting policies. The adoption of the Codification did not have a material impact on the Partnership’s financial position or results of operations.





Item 3. Quantitative and Qualitative Disclosures About Market Risks





NOT APPLICABLE





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.


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Item 4T. Controls and Procedures, continued





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 December 31, 2010 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.


Part II.
Other InformationItem 1.
Legal ProceedingsNONEItem 2.
Unregistered Sales of Equity Securities and Use of ProceedsNONEItem 3.
Defaults Upon Senior SecuritiesNONEItem 4.
(Removed and Reserved)Item 5.
Other InformationNONEItem 6.
Exhibits


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





31.2
Certification of the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.  (filed herewith)





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





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





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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 California 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:  February 9, 2011














By:  /s/ Melanie R. Wenk





Melanie R. Wenk


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





Date: February 9, 2011











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