FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

                  For the quarterly period ended June 30, 2006

                                       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. Employer
               incorporation 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            No      X
   ------------  -------------

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

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer.  See definition of accelerated
filer and large  accelerated  filer in Rule 12b-2 of the  Exchange  Act.  (Check
one):

<PAGE>
Large accelerated filer     Accelerated filer     Non-accelerated filer  X
                       ----                  ----
Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes     No   X
                                    -----  ------
<PAGE>

                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                               INDEX TO FORM 10-Q

                  For the Quarterly Period Ended June 30, 2006

PART I. FINANCIAL INFORMATION

        Item 1. Financial Statements

        Balance Sheets
                As of June 30, 2006 and March 31, 2006.........................4

        Statements of Operations
                For the Three Months Ended June 30, 2006 and 2005..............5

        Statement of Partners' Equity (Deficit)
                For the Three Months Ended June 30, 2006.......................6

        Statements of Cash Flows
                For the Three Months Ended June 30, 2006 and 2005..............7

        Notes to Financial Statements..........................................8

        Item 2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations...........................15

        Item 3. Quantitative and Qualitative Disclosures about Market Risks...16

        Item 4. Controls and Procedures.......................................16

PART II. OTHER INFORMATION

        Item 1.  Legal Proceedings............................................17

        Item 2.  Unregistered Sales of Equity Securities and Use of Proceed...17

        Item 3.  Defaults Upon Senior Securities..............................17

        Item 4.  Submission of Matters to a Vote of Security Holders..........17

        Item 5.  Other Information............................................17

        Item 6.  Exhibits.....................................................17

        Signatures ...........................................................18

                                       3
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                                 BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                         June 30, 2006                March 31, 2006
                                                                                     --------------------           ----------------
ASSETS
<S>                                                                               <C>                            <C>
Cash and cash equivalents                                                          $              248,530         $         253,910
Investments in Local Limited Partnerships, net (Note 2)                                         1,881,340                 1,891,029
                                                                                     --------------------           ----------------
     Total Assets                                                                  $            2,129,870         $       2,144,939
                                                                                     ====================           ================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)

Liabilities:
 Accrued fees and expenses due to
  General Partner and affiliates (Note 3)                                          $            1,575,306         $       1,539,639

Partners' equity (deficit):
  General Partner                                                                                (164,585)                 (164,078)
  Limited Partners (30,000 Partnership Units
     authorized; 18,000 Partnership Units issued and
     outstanding)                                                                                 719,149                   769,378
                                                                                     --------------------           ----------------
     Total Partners' Equity (Deficit)                                                             554,564                   605,300
                                                                                     --------------------           ----------------
       Total Liabilities and Partners' Equity (Deficit)                            $            2,129,870         $       2,144,939
                                                                                     ====================           ================
</TABLE>
                 See accompanying notes to financial statements

                                       4
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                            STATEMENTS OF OPERATIONS

                For the Three Months Ended June 30, 2006 and 2005
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                   2006                              2005
                                                                               Three Months                      Three Months
                                                                        --------------------------        --------------------------
<S>                                                                  <C>                               <C>
Distribution income                                                   $                    1,884         $                        -
Reporting fee income                                                                       3,069                              5,366
                                                                        --------------------------        --------------------------
    Total operating income                                                                 4,953                              5,366
                                                                        --------------------------        --------------------------
Operating expenses:
  Amortization (Note 2)                                                                    2,129                              3,435
  Asset management fees (Note 3)                                                          45,346                             45,346
  Legal and accounting                                                                       234                              1,000
  Other                                                                                      712                              2,279
                                                                        --------------------------        --------------------------
   Total operating expenses                                                               48,421                             52,060
                                                                        --------------------------        --------------------------
Loss from operations                                                                     (43,468)                           (46,694)

Equity in losses of
 Local Limited Partnerships (Note 2)                                                      (7,560)                           (51,373)

Interest income                                                                              292                                369
                                                                        --------------------------        --------------------------
Net loss                                                              $                  (50,736)         $                 (97,698)
                                                                        ==========================        ==========================
Net loss allocated to:
  General Partner                                                     $                     (507)         $                    (977)
                                                                        ==========================        ==========================
  Limited Partners                                                    $                  (50,229)         $                 (96,721)
                                                                        ==========================        ==========================
Net loss per Partnership Unit                                         $                       (3)         $                      (5)
                                                                        ==========================        ==========================
Outstanding weighted Partnership Units                                                    18,000                             18,000
                                                                        ==========================        ==========================
</TABLE>
                 See accompanying notes to financial statements

                                       5
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                     STATEMENT OF PARTNERS' EQUITY (DEFICIT)

                    For the Three Months Ended June 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                 General           Limited
                                                                                 Partner           Partners              Total
                                                                          ------------------   -----------------    ----------------
<S>                                                                    <C>                     <C>               <C>
Partners' equity (deficit) at March 31, 2006                            $         (164,078)     $       769,378   $         605,300

Net loss                                                                              (507)             (50,229)            (50,736)
                                                                          ------------------   ------------------   ----------------
Partners' equity (deficit) at June 30, 2006
                                                                        $         (164,585)     $       719,149   $         554,564
                                                                          ==================   ==================   ================
</TABLE>

                 See accompanying notes to financial statements

                                       6
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                            STATEMENTS OF CASH FLOWS

                For the Three Months Ended June 30, 2006 and 2005
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                       2006               2005
                                                                                                -----------------   ----------------
<S>                                                                                          <C>                  <C>
Cash flows from operating activities:
  Net loss                                                                                    $          (50,736)  $        (97,698)
     Adjustments to reconcile net loss to
       cash used in operating activities:
       Amortization                                                                                        2,129              3,435
       Equity in losses of Local Limited Partnerships                                                      7,560             51,373
        Change in accrued fees and expenses due to
               General Partner and affiliates                                                             35,667             21,506
                                                                                                -----------------   ----------------
Net cash used in operating activities                                                                     (5,380)           (21,384)
                                                                                                -----------------   ----------------
Cash flows from investing activities:
    Distributions received from Local Limited Partnerships                                                     -             23,465
                                                                                                -----------------   ----------------
Net increase (decrease) in cash                                                                           (5,380)             2,081

Cash and cash equivalents, beginning of period                                                           253,910            293,367
                                                                                                -----------------   ----------------
Cash and cash equivalents, end of period                                                      $          248,530   $        295,448
                                                                                                =================   ================
SUPPLEMENTAL DISCLOSURE
  OF CASH FLOW INFORMATION:

  Taxes paid                                                                                  $                -   $            800
                                                                                                ================    ================
</TABLE>
                 See accompanying notes to financial statements

                                       7
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  For the Quarterly Period Ended June 30, 2006
                                   (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, 2006 are not  necessarily  indicative  of the results that may be
expected  for the fiscal year ending March 31,  2007.  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,
2006.

Organization
------------

WNC California  Housing Tax Credits III, L.P. a California  Limited  Partnership
(the  "Partnership"),  was formed on October 5, 1992 under the laws of the state
of California and began  operations on July 19, 1993. The Partnership was formed
to invest primarily in other limited partnership ("Local Limited  Partnerships")
which own  multi-family  housing  complexes  (the  "Housing  Complex")  that are
eligible for Federal Low Income  Housing Tax Credits  ("Low  Income  Housing Tax
Credits").

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
own substantially  all of the outstanding  stock of Associates.  The business of
the Partnership is conducted primarily through Associates as the General Partner
and the Partnership have no employees of their own.

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

The Partnership  Agreement  authorized the sale of up to 30,000 units of Limited
Partnership interest  ("Partnership  Units") at $1,000 per Partnership Unit. The
offering  of  Partnership  Units  concluded  in July 1994 at which  time  17,990
Partnership Units,  representing  subscriptions in the amount of $17,990,000 had
been accepted. During 1995, an additional $10,000 was collected on subscriptions
accepted   for  10   additional   Partnership   Units  and   previously   deemed
uncollectible.  The General  Partner has a 1% interest in operating  profits and
losses,  taxable  income and losses,  cash available for  distribution  from the
Partnership and Low Income Housing Tax Credits of the  Partnership.  The Limited
Partners  will be allocated  the  remaining  99% of these items in proportion to
their respective investments.

The  proceeds  from the  disposition  of any of the  Local  Limited  Partnership
properties  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  Partners 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 Partners.

                                       8
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

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  Credit 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
non-managing  member  of  each  Local  Limited  Partnership.   Accordingly,  the
Partnership  will have very  limited  rights with respect to  management  of the
Local  Limited  Partnerships.  The  Partnership  will rely  totally on the Local
General  Partners.  Neither  the  Partnership's  investments  in  Local  Limited
Partnerships,  nor  the  Local  Limited  Partnerships'  investments  in  Housing
Complexes,  are readily marketable.  To the extent the Housing Complexes receive
government financing or operating subsidies,  they may be subject to one or more
of the  following  risks:  difficulties  in  obtaining  tenants  for the Housing
Complexes;  difficulties  in  obtaining  rent  increases;  limitations  on  cash
distributions;  limitations  on  sales  or  refinancing  of  Housing  Complexes;
limitations on transfers of interests in Local Limited Partnerships; limitations
on removal of Local  General  Partners;  limitations  on subsidy  programs;  and
possible changes in applicable regulations. Uninsured casualties could result in
loss of property and Low Income  Housing Tax Credits and recapture of Low Income
Housing Tax  Credits  previously  taken.  The value of real estate is subject to
risks  from  fluctuating  economic   conditions,   including  employment  rates,
inflation,  tax, environmental,  land use and zoning policies, supply and demand
of similar properties, and neighborhood conditions, among others.

The  ability of Limited  Partners to claim tax losses  from the  Partnership  is
limited.  The IRS may audit the  Partnership or a Local Limited  Partnership and
challenge the tax treatment of tax items.  The amount of Low Income  Housing Tax
Credits and tax losses allocable to the limited partners could be reduced if the
IRS were  successful  in such a  challenge.  The  alternative  minimum tax could
reduce tax benefits from an investment in the  Partnership.  Changes in tax laws
could also impact the tax benefits from an investment in the Partnership  and/or
the value of the Housing Complexes.

Substantially  all of the Low  Income  Housing  Tax  Credits  anticipated  to be
realized from the Local Limited Partnerships have been realized. The Partnership
does not anticipate  being allocated a significant  amount of Low Income Housing
Tax Credits from the Local Limited  Partnerships in the future.  Until the Local
Limited  Partnerships  have  completed  the 15 year Low  Income  Housing  Credit
compliance  period  risks  exist for  potential  recapture  of prior Low  Income
Housing Tax Credits.
                                       9
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------------------------

No trading  market  for the 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  advices  sufficient
enough to fund the operations and the Partnership through September 30, 2008.

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 IRS compliance  period for Low Income Housing Tax Credits Housing  Complexes
is generally 15 years from occupancy  following  construction or  rehabilitation
completion.  WNC  was one of the  first  in the  industry  to  offer  syndicated
investments  using the Low Income Housing Tax Credits.  The initial programs are
completing their compliance periods.

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

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 at any time by
the General Partner in its discretion. As of June 30, 2006, no Housing Complexes
have been selected for  disposition.While  liquidation of the Housing  Complexes
that have met their compliance period continue to be evaluated,  the dissolution
of the Partnership was not imminent as of June 30, 2006.

On February 13, 2006 the Partnership filed a form 8-K explaining the liquidation
process  that is  beginning  as the  low-income  housing  tax credit  properties
complete the 15 years compliance period.

Method of Accounting For Investments in Limited Partnerships
------------------------------------------------------------

The Partnership  accounts for its investments in limited  partnerships using the
equity method of  accounting,  whereby the  Partnership  adjusts its  investment
balance for its share of the Local Limited  Partnerships'  results of operations
and for any  contributions  made and  distributions  received.  The  Partnership
reviews the  carrying  amount of an  individual  investment  in a Local  Limited
Partnership for possible  impairment whenever events or changes in circumstances
indicate that the carrying  amount of such  investment  may not be  recoverable.
Recoverability  of such investment is measured by the estimated value derived by
management,  generally  consisting of the sum of the remaining future Low Income
Housing  Tax  Credits  estimated  to be  allocated  to the  Partnership  and the
estimated  residual value to the Partnership.  If an investment is considered to
be impaired,  the impairment to be recognized is measured by the amount by which

                                       10
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------------------------

the  carrying  amount of the  investment  exceeds  fair  value.  The  accounting
policies of the Local Limited  Partnerships are generally  consistent with those
of  the  Partnership.  Costs  incurred  by  the  Partnership  in  acquiring  the
investments  are  capitalized  as part of the  investment  account and are being
amortized over 30 years (see Note 2).

Equity in losses of limited partnerships for the periods ended June 30, 2006 and
2005 have been  recorded by the  Partnership  based on three  months of reported
results  estimated by management of 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  from  the  Limited
Partnerships  allocated to the Partnership are not recognized to the extent that
the  investment  balance would be adjusted below zero. As soon as the investment
balance reaches zero, the related costs of acquiring the investment are impaired
(see Note 2). If the Local  Limited  Partnerships  report  net  income in future
years,  the  Partnership  will resume  applying the equity method only after its
share of such net income  equals the share of net losses not  recognized  during
the period(s) the equity method was suspended.

The  Partnership  does not  consolidate the accounts and activities of the Local
Limited  Partnerships,  which are considered  Variable  Interest  Entities under
Financial    Accounting   Standards   Board   Interpretation   No.   46-Revised,
"Consolidation  of Variable Interest  Entities",  because the Partnership is not
considered the primary beneficiary.  The Partnership's balance in investments in
Local Limited Partnerships, plus the risk of recapture of tax credits previously
recognized  on such  investments,  represents  the  maximum  exposure to loss in
connection  with such  investments.  The  Partnership's  exposure to loss on the
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 guarantees against credit recapture.

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

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements,  and the  reported  amounts of revenues and expenses
during the reporting  period.  Actual results could materially differ from those
estimates.

Cash and Cash Equivalents
-------------------------

The  Partnership  considers  all  highly  liquid  investments  with an  original
maturity of three months or less when  purchased to be cash  equivalents.  As of
June 30, 2006 and March 31, 2006, the Partnership had no cash equivalents.

                                       11
<PAGE>

                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-------------------------------------------------------------

Income Taxes
------------

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

Concentration of Credit Risk
----------------------------

At June 30,  2006,  the  Partnership  maintained  a cash  balance  at a  certain
financial institution in excess of the maximum federally insured amounts.

Net Loss Per Partnership Unit
-----------------------------

Net loss per Partnership  Unit is calculated  pursuant to Statement of Financial
Accounting  Standards No. 128, Earnings per Share. 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.

Reclassifications
-----------------

Certain   reclassifications  have  been  made  to  the  prior  period  financial
statements to be consistent with the current period presentation.

Amoritization
-------------

Acquisition  fees  and  costs  are  being  amortized  over 30  years  using  the
straight-lined method.  Amoritization expense for the three months ended
June 30, 2006 and 2005 was $2,129 and $3,435, respectively.

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
--------------------------------------------------

As of the periods  presented,  the Partnership had acquired limited  partnership
interests in eighteen Local Limited Partnerships, each of which owns one Housing
Complex  consisting  of an  aggregate of 635  apartment  units.  The  respective
general  partners  of the  Local  Limited  Partnerships  manage  the  day-to-day
operations of the entities.  Significant  Local Limited  Partnership's  business
decisions require approval from the Partnership.  The Partnership,  as a limited
partner,  is  generally  entitled  to 99%,  as  specified  in the Local  Limited
Partnership agreements,  of the operating profits and losses, taxable income and
losses and tax credits of the Limited Partnerships.

                                       12
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued
-------------------------------------------------------------

The following is a summary of the equity method  activity of the  investments in
Local Limited Partnerships for the periods presented below:
<TABLE>
<CAPTION>
                                                                                          For the Three               For the Year
                                                                                           Months Ended             Ended  March 31,
                                                                                          June 30, 2006                   2006
                                                                                      ----------------------        ----------------
<S>                                                                                  <C>                          <C>
  Investments per balance sheet, beginning of period                                  $            1,891,029       $      2,173,564
  Equity in losses of Local Limited Partnerships                                                      (7,560)              (132,114)
  Distributions received from Local Limited Partnerships                                                   -                (37,757)
  Impairment loss                                                                                          -               (101,658)
  Amortization of capitalized acquisition fees and costs                                              (2,129)               (11,006)
                                                                                      -----------------------       ----------------
  Investments per balance sheet, end of period                                        $             1,881,340      $      1,891,029
                                                                                      =======================       ================
</TABLE>
<TABLE>
<CAPTION>
                                                                                        For the Three                For the Year
                                                                                         Months Ended               Ended March 31,
                                                                                         June 30, 2006                   2006
                                                                                      -----------------------    -------------------
<S>                                                                                  <C>                       <C>
Investments in Local Limited Partnerships, net                                        $             1,738,676   $          1,746,236
Acquisition fees and costs, net of accumulated
amortization of $1,671,355 and $1,669,226
                                                                                                      142,664                144,793
                                                                                      -----------------------    -------------------
Investments per balance sheet, end of period                                          $             1,881,340   $          1,891,029
                                                                                      =======================    ===================
</TABLE>
Selected financial information for the three months ended June 30, 2006 and 2005
from the unaudited combined condensed financial  statements of the Local Limited
Partnerships in which the Partnership has invested as follows:

                   COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                    2006                              2005
                                                                        -----------------------------      -------------------------
<S>                                                                  <C>                                <C>
  Revenue                                                             $                     960,000      $                  922,000
                                                                        -----------------------------      -------------------------
  Expenses:
     Operating expenses                                                                     682,000                         619,000
     Interest expense                                                                       196,000                         217,000
     Depreciation and amortization                                                          280,000                         280,000
                                                                        -----------------------------      -------------------------
  Total expenses                                                                          1,158,000                       1,116,000
                                                                        -----------------------------      -------------------------
  Net loss                                                            $                    (198,000)                       (194,000)
                                                                        =============================      =========================
  Net loss allocable to the Partnership                               $                    (167,000)     $                 (183,000)
                                                                        =============================      =========================
  Net loss recorded by the Partnership                                $                      (8,000)     $                  (51,000)
                                                                        =============================      =========================
</TABLE>
Certain Local Limited  Partnerships have incurred  significant  operating losses
and/or have  working  capital  deficiencies.  In the event  these Local  Limited
Partnerships continue to incur significant operating losses,  additional capital
contributions  by the  Partnership  and/or  the  Local  General  Partner  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
investment in certain of such Local Limited Partnerships could be impaired,  and
the loss and recapture of the related tax credits could occur.

                                       13
<PAGE>
                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  For the Quarterly Period Ended June 30, 2006
                                   (Unaudited)

NOTE 3 - RELATED PARTY TRANSACTIONS
-----------------------------------

Under the terms of the  Partnership  Agreement,  the  Partnership has paid or is
obligated to the General Partner or its affiliates for the following items:

(a)  Acquisition  fees  of up to 9% of the  gross  proceeds  from  the  sale  of
     Partnership  Units as compensation for services rendered in connection with
     the  acquisition of Local Limited  Partnerships.  At the end of all periods
     presented,   the  Partnership  incurred  acquisition  fees  of  $1,620,000.
     Accumulated  amortization  of these  capitalized  costs was  $1,477,336 and
     $1,475,207 as of June 30, 2006 and March 31, 2006, respectively.

(b)  Reimbursement  of costs incurred by the General  Partner or an affiliate in
     connection  with the  acquisition  of  Local  Limited  Partnerships.  These
     reimbursements have not exceeded 1.5% of the gross proceeds.  As of the end
     of all periods  presented,  the Partnership  incurred  acquisition costs of
     $194,019,  which  have  been  included  in  investments  in  Local  Limited
     Partnerships. Accumulated amortization was $194,019 as of June 30, 2006 and
     March 31, 2006.

(c)  Annual Asset  Management  Fee. An annual asset  management fee in an amount
     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 the
     amount of the  mortgage  loans on and other  debts  related to, the Housing
     Complexes  owned by such Local Limited  Partnerships.  Fees of $45,346 were
     incurred  during each of the three months ended June 30, 2006 and 2005. The
     Partnership paid the General Partner or its affiliates  $10,625 and $21,250
     of those  fees  during  the  three  months  ended  June 30,  2006 and 2005,
     respectively.

(d)  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.


(e)  The  Partnership  reimburses  the  General  Partner or its  affiliates  for
     operating expenses incurred in behalf of the Partnership. Operating expense
     reimbursements  are $0 and $5,870  during the three  months  ended June 30,
     2006 and 2005, respectively.


The accrued  fees and  expenses  due to General  Partner  and/or its  affiliates
consist of the following:
<TABLE>
<CAPTION>
                                                                                         June 30, 2006             March 31, 2006
                                                                                      -------------------      --------------------
<S>                                                                               <C>                       <C>
Reimbursement for expenses paid by the General
  Partner and/or its affiliate                                                     $              5,122      $                 4,175
Accrued asset management fees                                                                 1,570,184                    1,535,464
                                                                                      -------------------        -------------------
                                                                                   $          1,575,306      $             1,539,639
                                                                                      ===================       ====================
</TABLE>
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.

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

Forward-Looking Statements

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

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

The following discussion and analysis compares the results of operations for the
three  months  ended June 30, 2006 and 2005,  and should be read in  conjunction
with the condensed  financial  statements and accompanying notes included within
this report.

Financial Condition

The  Partnership's  assets at June 30, 2006  consisted  primarily of $249,000 in
cash and aggregate  investments  in the eighteen Local Limited  Partnerships  of
$1,881,000.  Liabilities at June 30, 2006  primarily  consisted of $1,575,000 of
accrued  annual  management  fees and  reimbursement  for  expenses  paid by the
General Partner and/or its affiliates.

Results of Operations

Three Months  Ended June 30, 2006  Compared to Three Months Ended June 30, 2005.
The  Partnership's  net loss  for the  three  months  ended  June  30,  2006 was
$(51,000),  reflecting a decrease of $47,000 from the $(98,000) net loss for the
three months ended June 30, 2005.  The decrease in net loss is primarily  due to
equity in losses of Local  Limited  Partnerships  which  decreased by $44,000 to
$(7,000) for the three months ended June 30, 2006 from  $(51,000)  for the three
months  ended June 30, 2005.  The decrease in equity in losses of Local  Limited
Partnerships is due to the  Partnership  not  recognizing  certain losses of the
Local Limited  Partnerships.  The investments in such Local Limited Partnerships
had reached $0 at June 30, 2006. Since the Partnership's  liability with respect
to  its  investments  is  limited,  losses  in  excess  of  investment  are  not
recognized.  Along  with the  decrease  in equity  in  losses  of Local  Limited
Partnerships,  the loss from  operations  decreased by  approximately  $3,000 to
$(43,000) for the three months ended June 30, 2006 from  $(46,000) for the three
months  ended June 30,  2005,  which was  contributed  by a $1,000  decrease  in
amortization  along with a $1,000  decrease in  accounting  and legal fees,  and
$2,000 decrease in other operating  expenses,  offsetting by a $(1,000) decrease
in  distribution  income and reporting  fees for the three months ended June 30,
2006.
                                       15
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations, continued

Liquidity and Capital Resources

Three Months  Ended June 30, 2006  Compared to Three Months Ended June 30, 2005.
Net cash used during the three months ended June 30, 2006 was $(5,000)  compared
to net cash  provided in the three  months  ended June 30,  2005 of $2,000.  The
$(7,000) net cash  decrease was primarily due to a decrease of $(23,000) in cash
flows provided by investing  activities,  offset by a decrease of $16,000 in net
cash used by  operating  activities  which were  primarily  due to a decrease of
$11,000 in asset  management fees payable,  a decrease of $4,000 in accrued fees
and expense due to the General Partner and affiliates.

During the three  months  ended June 30, 2006, accrued  payables, which  consist
primarily  of  asset  management  fees to the  General  Partner  or  affiliates,
increased by $14,000. 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   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 September 30, 2008.

Item 3.  Quantitative and Qualitative Disclosures About Market Risks

         NOT APPLICABLE

Item 4.  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 Fund's "disclosure  controls and procedures" as defined
in  Securities  Exchange  Act of 1934  Rule  13a-15  and  15d-15.  Based on that
evaluation,  the Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that  as of  the  end of the  period  covered  by  this  report,  the
Partnership's  disclosure controls and procedures were adequate and effective in
timely  alerting  them  to  material  information  relating  to the  Partnership
required to be included in the Partnership's periodic SEC filings.

Changes  in  internal  controls.  There  were no  changes  in the  Partnership's
internal control over financial reporting that occurred during the quarter ended
June 30, 2006 that materially  affected,  or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.

                                       16
<PAGE>
Part II. OTHER INFORMATION

Item 1.  Legal Proceedings

         NONE

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds

         NONE

Item 3.  Defaults Upon Senior Securities

         NONE

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

         NONE

Item 5.  Other Information

         NONE

Item 6.  Exhibits

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

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

                                       17
<PAGE>
Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

By:  WNC California Tax Credit Partners III General Partner

By:  WNC & Associates, Inc.         General Partner




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

Date:  October 26, 2007




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

Date:  October 26, 2007


                                       18