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August 14, 2006


Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC.  20549


Re:    Boston Financial Qualified Housing Tax Credits L.P. III
       Report on Form 10-QSB for the Quarter Ended June 30, 2006
       File Number 01-18462


Dear Sir/Madam:

Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, filed herewith is one copy of subject report.


Very truly yours,




/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller





QH3-Q1.DOC



<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB


(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 01-18462

            Boston Financial Qualified Housing Tax Credits L.P. III
         -----------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                   Delaware                              04-3032106
--------------------------------------------- -------------------------------
      (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)


   101 Arch Street, Boston, Massachusetts              02110-1106
--------------------------------------------   --------------------------
    (Address of principal executive offices)         (Zip Code)


Registrant's telephone number, including area code           (617) 439-3911
                                                           ------------------

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 .


<PAGE>


             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>


PART I - FINANCIAL INFORMATION                                                              Page No.
------------------------------                                                              --------

Item 1.  Financial Statements

<S>                                                                                           <C>
         Balance Sheet (Unaudited) - June 30, 2006                                            1

         Statements of Operations (Unaudited) - For the Three
           Months Ended June 30, 2006 and 2005                                                2

         Statement of Changes in Partners' Equity (Deficiency)
           (Unaudited) - For the Three Months Ended June 30, 2006                             3

         Statements of Cash Flows (Unaudited) - For the
           Three Months Ended June 30, 2006 and 2005                                          4

         Notes to the Financial Statements (Unaudited)                                        5

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                                7

PART II - OTHER INFORMATION

Items 1-6                                                                                    16

SIGNATURE                                                                                    17

CERTIFICATIONS                                                                               18

</TABLE>

<PAGE>


             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                                  BALANCE SHEET
                                  June 30, 2006
                                   (Unaudited)


<TABLE>
<CAPTION>



Assets

<S>                                                                                               <C>
Cash and cash equivalents                                                                         $    10,186,131
Investment securities, at fair value                                                                      496,875
Investment in Local Limited Partnerships (Note 1)                                                       1,349,039
Other assets                                                                                               39,056
                                                                                                  ---------------
   Total Assets                                                                                   $    12,071,101
                                                                                                  ===============

Liabilities and Partners' Equity

Due to affiliate                                                                                  $        91,904
Accrued expenses                                                                                          239,181
                                                                                                  ---------------
   Total Liabilities                                                                                      331,085
                                                                                                  ---------------

General, Initial and Investor Limited Partners' Equity                                                 11,743,141
Net unrealized losses on investment securities                                                             (3,125)
                                                                                                  ---------------
   Total Partners' Equity                                                                              11,740,016
                                                                                                  ---------------
   Total Liabilities and Partners' Equity                                                         $    12,071,101
                                                                                                  ===============
</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                            STATEMENTS OF OPERATIONS
                For the Three Months Ended June 30, 2006 and 2005
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                                                 2006                     2005
                                                                           ----------------         ----------
Revenue:
<S>                                                                        <C>                     <C>
   Investment                                                              $        143,067        $         15,634
   Other                                                                                  -                  16,778
                                                                           ----------------        ----------------
     Total Revenue                                                                  143,067                  32,412
                                                                           ----------------        ----------------

Expense:
   Asset management fees, affiliate                                                  27,541                  47,124
   General and administrative (includes reimbursements
     to an affiliate in the amount of $36,823 and
     $53,180 in 2006 and 2005, respectively)                                       (105,081)                131,423
   Amortization                                                                         539                   2,031
                                                                           ----------------        ----------------
     Total Expenses                                                                 (77,001)                180,578
                                                                           ----------------        ----------------

Income (loss) before equity in losses of Local Limited
   Partnerships and gain
   (loss) on disposal of investments
   in Local Limited Partnerships                                                    220,068                (148,166)

Equity in losses of Local Limited Partnerships (Note 1)                             (34,998)               (125,771)

Gain (loss) on disposal of investments in Local Limited
   Partnerships (Note 1)                                                          1,504,860                (441,078)
                                                                           ----------------        ----------------

Net Income (Loss)                                                          $      1,689,930        $       (715,015)
                                                                           ================        ================

Net Income (Loss) allocated:
   General Partners                                                        $         16,899        $         (7,150)
   Limited Partners                                                               1,673,031                (707,865)
                                                                           ----------------        ----------------
                                                                           $      1,689,930        $       (715,015)
                                                                           ================        ================
Net Income (Loss) per Limited Partner Unit
   (100,000 Units)                                                         $          16.73         $         (7.08)
                                                                           ================         ===============


The accompanying notes are an integral part of these financial statements.
</TABLE>





<PAGE>
            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


              STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
                    For the Three Months Ended June 30, 2006
                                   (Unaudited)



<TABLE>
<CAPTION>



                                                                     Initial           Investor              Net
                                                  General            Limited            Limited          Unrealized
                                                 Partners           Partners           Partners            Losses            Total

<S>                                            <C>               <C>                <C>                <C>              <C>
Balance at March 31, 2006                      $     100,491     $        5,000     $    9,947,720     $       (4,135)  $10,049,076
                                               -------------     --------------     --------------     =-------------   -----------

Comprehensive Income:
  Change in net unrealized
       losses on investment securities
       available for sale                                  -                  -                  -              1,010         1,010
  Net Income                                          16,899                  -          1,673,031                  -     1,689,930
                                               -------------     --------------     --------------     --------------   -----------
Comprehensive Income                                  16,899                  -          1,673,031              1,010     1,690,940
                                               -------------     --------------     --------------     --------------   -----------

Balance at June 30, 2006                       $     117,390     $        5,000     $   11,620,751     $       (3,125)  $11,740,016
                                               =============     ==============     ==============     ==============    ==========

The accompanying notes are an integral part of these financial statements.
</TABLE>

<PAGE>
            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


                            STATEMENTS OF CASH FLOWS
                For the Three Months Ended June 30, 2006 and 2005
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                                                  2006                 2005
                                                                              -------------       ---------

<S>                                                                           <C>                 <C>
Net cash provided by (used for) operating activities                          $      64,082       $    (246,135)

Net cash provided by investing activities                                         1,727,777           3,097,989
                                                                              -------------       -------------

Net increase in cash and cash equivalents                                         1,791,859           2,851,854

Cash and cash equivalents, beginning                                              8,394,272             890,729
                                                                              -------------       -------------

Cash and cash equivalents, ending                                             $  10,186,131       $   3,742,583
                                                                              =============       =============

</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                        NOTES TO THE FINANCIAL STATEMENTS
                                   (Unaudited)


The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These statements should be read in
conjunction with the financial statements and notes thereto included with the
Partnership's Form 10-KSB for the year ended March 31, 2006. In the opinion of
the Managing General Partner, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Partnership's financial position and results of operations.
The results of operations for the period may not be indicative of the results to
be expected for the year.

The Managing General Partner of the Partnership has elected to report results of
the Local Limited Partnerships in which the Partnership has a limited
partnership interest on a 90-day lag basis because the Local Limited
Partnerships report their results on a calendar year basis. Accordingly, the
financial information of the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 2006 and 2005.

1.   Investments in Local Limited Partnerships

The Partnership has limited partnership interests in eight Local Limited
Partnerships which were organized for the purpose of owning and operating
multi-family housing complexes, all of which are government-assisted. The
Partnership's ownership interest in each Local Limited Partnership is 99%. The
Partnership may have negotiated or may negotiate options with the local general
partners to purchase or sell the Partnership's interests in the Local Limited
Partnerships at the end of the Compliance Period at nominal prices. In the event
that Properties are sold to third parties, or upon dissolution of the Local
Limited Partnerships, proceeds will be distributed according to the terms of
each Local Limited Partnership agreement.

The following is a summary of investments in Local Limited Partnerships at June
30, 2006:
<TABLE>
<CAPTION>

Capital contributions paid to Local Limited Partnerships and purchase
<S>                                                                                                 <C>
   price paid to withdrawing partners of Local Limited Partnerships                                 $    13,490,092

Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
   unrecognized losses of $52,065,326)                                                                   (9,927,222)

Cumulative cash distributions received from Local Limited Partnerships                                   (1,171,715)
                                                                                                    ---------------

Investments in Local Limited Partnerships before adjustments                                              2,391,155

Excess investment costs over the underlying assets acquired:

   Acquisition fees and expenses                                                                            784,367

   Cumulative amortization of acquisition fees and expenses                                                (242,772)
                                                                                                    ---------------

Investments in Local Limited Partnerships before valuation allowance                                      2,932,750

Valuation allowance on investments in Local Limited Partnerships                                         (1,583,711)
                                                                                                    ---------------

Investments in Local Limited Partnerships                                                           $     1,349,039
                                                                                                    ===============
</TABLE>

The Partnership has recorded a valuation allowance for its investments in
certain Local Limited Partnerships in order to appropriately reflect the
estimated net realizable value of these investments.



<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                  NOTES TO THE FINANCIAL STATEMENTS (continued)
                                   (Unaudited)


1. Investments in Local Limited Partnerships (continued)

The Partnership's share of the net losses of the Local Limited Partnerships for
the three months ended June 30, 2006 is $1,033,452. For the three months ended
June 30, 2006, the Partnership has not recognized $998,454 of equity in losses
relating to certain Local Limited Partnerships in which cumulative equity in
losses and distributions exceeded its total investments in these Local Limited
Partnerships.

The Partnership's investments in three Local Limited Partnerships were sold
during the three months ended June 30, 2006, resulting in a gain of $1,504,860.

2.   Significant Subsidiaries

The following Local Limited Partnerships invested in by the Partnership
represent more than 20% of the Partnership's total assets or equity as of June
30, 2006 or 2005 or net losses for the three months ended either June 30, 2006
or 2005. The following financial information represents the performance of these
Local Limited Partnerships for the three months ended March 31, 2006 and/or
2005:
<TABLE>
<CAPTION>

Quartermill Associates, L.P.                                                         2006                     2005
----------------------------                                                    ---------------           --------

<S>                                                                                                       <C>
Revenue                                                                                     N/A           $     469,100
Net Loss                                                                                    N/A           $     (80,300)

Riverfront Apartments, L.P.

Revenue                                                                         $       432,591           $     427,200
Net Loss                                                                        $       (35,352)          $     (28,900)

Elver Park Limited Partnership  III

Revenue                                                                                     N/A           $      89,700
Net Loss                                                                                    N/A           $      (8,900)


</TABLE>

<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements and is including this statement
for purposes of complying with these safe harbor provisions. Although the
Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that its expectations will be
attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.

Critical Accounting Policies

The Partnership's accounting policies include those that relate to its
recognition of investments in Local Limited Partnerships using the equity method
of accounting. The Partnership's policy is as follows:

The Local Limited Partnerships in which the Partnership invests are Variable
Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a
non-controlling limited partner equity holder. Because the Partnership is not
the primary beneficiary of these VIEs, it accounts for its investments in the
Local Limited Partnerships using the equity method of accounting. As a result of
its involvement with the VIEs, the Partnership's exposure to economic and
financial statement losses is limited to its investments in the VIEs ($1,349,039
at June 30, 2006). The Partnership may be subject to additional losses to the
extent of any financial support that the Partnership voluntarily provides in the
future. Under the equity method, the investment is carried at cost, adjusted for
the Partnership's share of net income or loss and for cash distributions from
the Local Limited Partnerships; equity in income or loss of the Local Limited
Partnerships is included currently in the Partnership's operations. Under the
equity method, a Local Limited Partnership investment will not be carried below
zero. To the extent that equity in losses are incurred when the Partnership's
carrying value of the respective Local Limited Partnership has been reduced to a
zero balance, the losses will be suspended and offset against future income.
Income from Local Limited Partnerships, where cumulative equity in losses plus
cumulative distributions have exceeded the total investment in Local Limited
Partnerships, will not be recorded until all of the related unrecorded losses
have been offset. To the extent that a Local Limited Partnership with a carrying
value of zero distributes cash to the Partnership, that distribution is recorded
as income on the books of the Partnership and is included in "other revenue" in
the accompanying financial statements.

The Partnership has implemented policies and practices for assessing
other-than-temporary declines in values of its investments in Local Limited
Partnerships. Periodically, the carrying values of the investments are compared
to their respective fair values. If an other-than-temporary decline in carrying
value exists, a provision to reduce the asset to fair value, as calculated based
primarily on remaining tax benefits, will be recorded in the Partnership's
financial statements. Generally, the carrying value of most Local Limited
Partnerships will decline through losses and distributions in amounts sufficient
to prevent other-than-temporary impairments. However, the Partnership may record
similar impairment losses in the future if the expiration of tax credits
outpaces losses and distributions from any of the Local Limited Partnerships.

Liquidity and Capital Resources

At June 30, 2006, the Partnership has cash and cash equivalents of $10,186,131,
as compared with $8,394,272 at March 31, 2006. This increase is attributable to
proceeds received from sale of investments in Local Limited Partnerships and the
maturity of investment securities.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Liquidity and Capital Resources (continued)

The Managing General Partner initially designated 3.00% of the Gross Proceeds as
Reserves as defined in the Partnership Agreement. The Reserves were established
to be used for working capital of the Partnership and contingencies related to
the ownership of Local Limited Partnership interests. The Managing General
Partner may increase or decrease such Reserves from time to time, as it deems
appropriate. During the year ended March 31, 1993, the Managing General Partner
increased the Reserve level to 3.75%. At June 30, 2006, $10,683,006 of cash,
cash equivalents and investment securities have been designated as Reserves.

To date, professional fees relating to various Property issues totaling
approximately $2,365,000 have been paid from Reserves. To date, Reserve funds in
the amount of approximately $534,000 also have been used to make additional
capital contributions to four Local Limited Partnerships, and the Partnership
has paid approximately $452,000 (net of paydowns) to purchase the mortgage of
The Kyle Hotel. In the event a Local Limited Partnership encounters operating
difficulties requiring additional funds, the Managing General Partner might deem
it in its best interest to voluntarily provide such funds in order to protect
its investment. As of June 30, 2006, the Partnership has advanced approximately
$1,578,000 to Local Limited Partnerships to fund operating deficits.

The Managing General Partner believes that the investment income earned on the
Reserves, along with cash distributions received from Local Limited
Partnerships, to the extent available, will be sufficient to fund the
Partnership's ongoing operations. Reserves may be used to fund Partnership
operating deficits, if the Managing General Partner deems funding appropriate.
If Reserves are not adequate to cover the Partnership's operations, the
Partnership will seek other financing sources including, but not limited to, the
deferral of Asset Management Fees paid to an affiliate of the Managing General
Partner or working with Local Limited Partnerships to increase cash
distributions. To date, the Partnership has used approximately $11,862,000 of
operating funds and proceeds from sales of investments in Local Limited
Partnerships to replenish Reserves.

Since the Partnership invests as a limited partner, the Partnership has no
contractual duty to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, as of June 30, 2006, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for.

Cash Distributions

No cash distributions were made to Limited Partners during the three months
ended June 30, 2006. The Partnership is currently working on disposing of its
interest in certain Local Limited Partnerships during the next twelve months.
These dispositions may result in cash available for distribution, but due to the
uncertainty of the sales, no guarantees can be made as to the extent of their
outcome on distributions to Limited Partners. Based on the results of 2005
Property operations, the Local Limited Partnerships are not expected to
distribute significant amounts of cash to the Partnership because such amounts
will be needed to fund Property operating costs. In addition, many of the
Properties benefit from some type of federal or state subsidy and, as a
consequence, are subject to restrictions on cash distributions.

Results of Operations

For the three months ended June 30, 2006, the Partnership's operations resulted
in a net income of $1,689,930 as compared to a net loss of $715,015 for the same
period in 2005. The increase in net income is primarily due to an increase in
gain on sale of investments in Local Limited Partnerships, an increase in
investment income, a decrease in equity in losses of Local Limited Partnerships
and a decrease in general and administrative expenses. The increase in gain on
sale of investments in Local Limited Partnerships is due to the transfer of
three Local Limited Partnerships with large proceeds during the current quarter.
The decrease in equity in losses of Local Limited Partnerships is primarily due
to the Partnership recognizing losses in the quarter ended June 30, 2005,
relating to Local Limited Partnerships which were disposed of after June 30,
2005. The decrease in general and administrative expenses is due to a reversal
of an accrual for monitoring fees in the current period. The increase in
investment income is primarily attributable to an increase in investment
securities arising from sale proceeds and the Partnership investing in more
lucrative securities.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Portfolio Update

The Partnership was formed on August 9, 1988 under the laws of the State of
Delaware for the primary purpose of investing, as a limited partner, in Local
Limited Partnerships, which own and operate apartment complexes, most of which
benefit from some form of federal, state or local assistance program and each of
which qualify for low-income housing tax credits. The Partnership's objectives
are to: (i) provide current tax benefits in the form of tax credits which
qualified investors may use to offset their federal income tax liability; ii)
preserve and protect the Partnership's capital; iii) provide limited cash
distributions which are not expected to constitute taxable income during
Partnership operations; and iv) provide cash distributions from sale or
refinancing transactions. The General Partners of the Partnership are Arch
Street III, Inc., which serves as the Managing General Partner, and Arch Street
III L.P., which also serves as the Initial Limited Partner. Both of the General
Partners are affiliates of MMA Financial, Inc. The fiscal year of the
Partnership ends on March 31.

As of June 30, 2006, the Partnership's investment portfolio consisted of limited
partnership interests in eight Local Limited Partnerships, each of which owns
and operates a multi-family apartment complex and each of which has generated
Tax Credits. Since inception, the Partnership generated Tax Credits, net of
recapture, of approximately $1,342 per Limited Partner Unit. The aggregate
amount of Tax Credits generated by the Partnership was consistent with the
objective specified in the Partnership's prospectus.

Properties that receive low income housing Tax Credits must remain in compliance
with rent restriction and set-aside requirements for at least 15 calendar years
from the date the Property is placed in service. Failure to do so would result
in recapture of a portion of the Property's Tax Credits. The Compliance Period
of the eight Properties in which the Partnership has an interest expired by
December 31, 2004. The Managing General Partner has negotiated agreements that
will ultimately allow the Partnership to dispose of its interest in three Local
Limited Partnerships. It is unlikely that the disposition of any of these Local
Limited Partnership interests will generate any material cash distributions to
the Partnership. Three of the Local Limited Partnerships in which the
Partnership had an interest were disposed of during the three months ended June
30, 2006.

The Managing General Partner will continue to pursue the disposition of the
Partnership's remaining Local Limited Partnership interests. The Partnership
shall dissolve and its affairs shall be wound up upon the disposition of the
final Local Limited Partnership interest and other assets of the Partnership.
Investors will continue to be Limited Partners, receiving K-1s and quarterly and
annual reports, until the Partnership is dissolved.

On or about July 13, 2004, Park G.P., Inc. ("Park") commenced litigation against
Boston Financial Qualified Housing Tax Credits L.P. IV ("QH IV") and its
purported general partners (collectively, the "Defendants") in Clay County,
Missouri, claiming that the Defendants breached QH IV's partnership agreement
and their fiduciary duties owed to Park by, among other things, failing to
permit inspection of certain alleged "books and records" of QH IV. On or about
October 7, 2004, Park sought leave of the court to amend its Petition to include
claims for inspection of the alleged "books and records" against the
Partnership, Boston Financial Qualified Housing Limited Partnership, Boston
Financial Qualified Housing Tax Credits L.P. II, Boston Financial Qualified
Housing Tax Credits L.P. V, Boston Financial Tax Credit Fund Plus, A Limited
Partnership, Boston Financial Tax Credit Fund VII, A Limited Partnership, and
their purported general partners (collectively, the "New Defendants"). On or
about October 8, 2004, Park moved the court for entry of a temporary restraining
order compelling the Defendants and the New Defendants to turn over the alleged
"books and records" in conjunction with a transaction Park was proposing
entering into. On October 12, 2004, the court denied Park's request for a
temporary restraining order, and on November 15, 2004 it granted the request to
amend the Petition.

In October, 2005, Park again sought leave of the court in the Missouri action to
amend its Petition, claiming that the Defendants were in violation of the
Partnership Agreement by disposing of interests in Local Limited Partnerships
following expiration of the Compliance Period(s) without first obtaining Limited
Partner consent. On or about


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Portfolio Update (continued)

October 11, 2005, Park moved the court for a temporary restraining order
prohibiting the Defendants from entering into any agreement to sell, transfer,
or otherwise convey any interest in Local Limited Partnerships. On October 14,
2005, the court denied Park's request for a temporary restraining order. In
December 2005, the court granted Park's request to amend its Petition to include
the alleged claim regarding disposition of Local Limited Partnership interests.
The Defendants and New Defendants have filed a motion to dismiss the second
amended Petition. That motion is pending. If the motion is denied, it currently
appears as if the "books and records" component of the case will proceed to a
final hearing before the judge on August 29, 2006 and that trial on the
remaining issues will be held on October 16, 2006.

The Defendants and the New Defendants maintain that Park is not entitled to
review the materials requested and/or use the materials in secondary market
transactions because, among other things: (i) they are not "books and records"
of the partnerships; (ii) Park does not seek to review them for a proper
purpose; and (iii) selective disclosure of the information to Park would give it
an unfair informational advantage in secondary market transactions and may
violate federal and/or state securities laws. The Defendants and New Defendants
accordingly intend on defending against the claims vigorously. The Defendants
and New Defendants have not formed an opinion that an unfavorable outcome is
either probable or remote, and their counsel refrains from expressing an opinion
as to the likely outcome of the case or the range of any loss.

On August 24, 2004, the Partnership, Boston Financial Qualified Housing Limited
Partnership, Boston Financial Qualified Housing Tax Credits L.P. II, Boston
Financial Qualified Housing Tax Credits L.P. IV, Boston Financial Qualified
Housing Tax Credits L.P. V, Boston Financial Tax Credit Fund Plus, A Limited
Partnership, Boston Financial Tax Credit Fund VII, A Limited Partnership, and
Boston Financial Tax Credit Fund VIII, A Limited Partnership (collectively, the
"Partnerships"), and their general partners commenced litigation against Everest
Housing Investors 2, LLC ("Everest 2") and several other Everest-related
entities (collectively, the "Everest Entities") in Massachusetts state court,
seeking a declaratory judgment that certain materials the Everest Entities
sought to inspect are not "books and records" of the Partnerships and that the
Everest Entities are in any case not entitled to inspect said information under
applicable partnership agreements, partnership law or otherwise. On October 7,
2004, the Everest Entities filed an answer and counterclaim against the
Partnerships and their purported general partners, claiming that they breached
applicable partnership agreements, partnership law and their fiduciary duties to
the Everest Entities by failing to make the purported "books and records"
available. On January 12, 2005, the Partnerships and the general partners moved
to amend their complaint to, among other things, add a claim based on Everest
2's breach of a November 24, 2003 letter agreement which compelled Everest 2 to
keep confidential certain information contemporaneously disseminated by four of
the Partnerships to Everest 2. The Court granted this Motion. Discovery in the
matter is ongoing.

The Partnerships and their general partners maintain that the Everest Entities
are not entitled to review the materials requested and/or use the materials in
secondary market transactions because, among other things: (i) they are not
"books and records" of the Partnerships; (ii) the Everest Entities do not seek
to review them for a proper purpose; and (iii) selective disclosure of the
information to the Everest Entities would give them an unfair informational
advantage in secondary market transactions and may violate federal and/or state
securities laws. The Partnerships and their general partners have not formed an
opinion that an unfavorable outcome is either probable or remote, and their
counsel refrains from expressing an opinion as to the likely outcome of the case
or the range of any loss.



<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Property Discussions

Several Properties in which the Partnership has an interest have stabilized
operations and operated above break-even as of March 31, 2006. Several
Properties generate cash flow deficits that the Local General Partner funds
through project expense loans, subordinated loans or operating escrows. However,
some Properties have had persistent operating difficulties that could either: i)
have an adverse impact on the Partnership's liquidity; ii) result in their
foreclosure; or iii) result in the Managing General Partner deeming it
appropriate for the Partnership to dispose of its interest in the Local Limited
Partnership. Also, the Managing General Partner, in the normal course of the
Partnership's business, may arrange for the future disposition of its interest
in certain Local Limited Partnerships. The following Property discussions focus
only on such Properties

As previously reported, by January 2006, the Managing General Partner negotiated
an agreement in the form of a Contingent Note with an unaffiliated entity in
exchange for the Partnership's interest in five Local Limited Partnerships:
Lexington, Fulton, Eaglewood, Kirkendall Heights and Briarwood II. The put
option agreements that were exercised on the five Properties affecting the
transfer of the Partnership's interests resulted in the Partnership acquiring a
contingent note which provided for 50% of all future net cash receipts from such
Local Limited Partnership interests. On September 15, 2005 the Partnership
received $10,415 in exchange for the sale of the Contingent Notes, as the
Managing General Partner deemed the potential value of 50% of all future net
cash receipts to be immaterial. This transaction resulted in 2005 taxable income
of $745,534 or $7.46 per Unit. The Managing General Partner, in accordance with
and as permitted by the Partnership Agreement, retained the entire amount of net
proceeds in Reserves. The Partnership no longer has an interest in these five
Local Limited Partnerships.

As previously reported, the Managing General Partner negotiated an agreement
with an unaffiliated entity to have the ability to transfer the Partnership's
interest in Poplar Village, located in Cumberland, Kentucky, to the unaffiliated
entity or its designee. The Managing General Partner had the right to put its
interest in the Local Limited Partnership at any time in exchange for a
Contingent Note that granted the Partnership 50% of all future net cash receipts
from such Local Limited Partnership interest. However, on September 15, 2005,
the Partnership renegotiated the put option entered into with the previously
mentioned unaffiliated third party instead. Effective January 1, 2006, the
Partnership put its interest in Poplar Village to an unaffiliated entity for
approximately $2,100 in lieu of the Partnership carrying a Contingent Note
interest. This transfer is projected to result in 2006 taxable income of
approximately $341,000 or $3 per Unit. Based on the operating performance of the
Property, the Managing General Partner determined that there was very little
value above debt in the Property. The Managing General Partner, in accordance
with and as permitted by the Partnership Agreement, retained the entire amount
of net proceeds in Reserves. The Partnership no longer has an interest in this
Local Limited Partnership.

As previously reported, Waterfront and Shoreline, both located in Buffalo, New
York, continue to have operating deficits as a result of a soft rental market,
low occupancy and deferred maintenance, which impacts the marketability of the
developments. The mortgage loans on both Properties are payable only out of
available cash flow, and neither Property has made mortgage payments in several
years. The Managing General Partner and the Local General Partner commenced
discussions regarding the options available to improve operations at, or dispose
of, the Properties. An agreement was reached whereby the Managing General
Partner would allow the Local General Partner to transfer its Local General
Partner interest to a developer that will re-syndicate the Properties. In
return, the Partnership obtained both a put option allowing the Partnership to
transfer its interest in the Local Limited Partnerships for a nominal sum and a
pledge by the incoming Local General Partner to pay any Tax Credit recapture
incurred due to the transfer of the Local Limited Partnerships prior to the end
of the Compliance Period. These transfers of the Local General Partner interests
occurred during April 2005. The transfer of the Partnership's interest is
currently expected to occur in the years ended March 31, 2007 and 2008 for
Shoreline and Waterfront, respectively.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Property Discussions (continued)

Willow Lake, located in Kansas City, had experienced operating difficulties for
many years. The original Local General Partner was replaced shortly after
construction completion with an affiliate of the Managing General Partner and
the Property's first mortgage was modified several times to avoid foreclosure.
The Partnership had advanced approximately $695,000 from Partnership Reserves.
Since the Compliance Period ended on December 31, 2004, and to eliminate any
future risk to the Partnership, the Managing General Partner commenced attempts
to sell the Property. On January 10, 2005, a sale of the Property to a third
party was consummated. After payment on Property debts, expenses and closing
costs, the Partnership received approximately $1,467,000 or $14.67 per Unit in
net sales proceeds. This sale resulted in 2005 taxable income of $1,037,563, or
$10.38 per Unit. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire amount of net
proceeds in Reserves.

As previously reported, increased competition for Georgetown II, located in
Georgetown, Delaware, has negatively impacted the Property's operations.
Although the Property maintains a high level of occupancy, the Property's below
breakeven status as of March 31, 2005 is attributable to stagnant rental rates
and high maintenance expenses. In an effort to reduce fixed expenses to improve
cash flow, the Local General Partner refinanced the Property's first mortgage
during the first quarter of 2004, reducing the interest rate from 8% to 6%,
which significantly improved the Property's financial performance. Due to higher
maintenance costs, the Property operated below breakeven during 2005. The
Property no longer generates Tax Credits and the Compliance Period expired on
December 31, 2004. In 2003, the non-profit affiliate of the state housing
finance agency that holds the Property's long-term ground lease offered to
transfer the land at little cost to the Partnership. The Managing General
Partner gave its consent to the transfer and, in order to reduce potential risk
to the Partnership and provide an exit strategy, concurrently executed a put
agreement for the Partnership's interest in the Local Limited Partnership with
the Local General Partner. The put agreement gives the Partnership the right to
transfer its interest to the Local General Partner for a nominal price.

As previously reported, operations at Westwood Manor, located in Flint,
Michigan, have suffered in recent quarters. Poor site management caused deferred
maintenance and curb appeal issues. The Partnership also advanced $50,000 from
Reserves to address the deferred maintenance issues at the Property during 2001.
The advance was to be repaid through operations, if available, with the Local
General Partner obligated to pay back 50% of the remaining balance should the
entire amount of the advance not be repaid by December 31, 2001. The Property
did not generate sufficient cash from operations to repay any of the
Partnership's advances. The Partnership has not yet made a demand from the Local
General Partner to meet his obligation to repay 50% of the advance. However, the
Managing General Partner and the Local General Partner have reached agreement on
an exit strategy on this Local Limited Partnership. The Local General Partner
received approval for a refinancing of the Property from the U.S. Department of
Housing and Urban Development ("HUD") and the refinanced mortgage was closed on
July 31, 2003. The Managing General Partner, in providing its approval of the
refinancing, received agreement from the Local General Partner to a put option
whereby the Partnership can dispose of its interest in the Local Limited
Partnership any time after December 31, 2003, when the Property's Compliance
Period expired. The Partnership executed its put option, effectively disposing
of its interest on November 4, 2005. This disposition resulted in 2005 taxable
income of $967,498, or $9.67 per Unit. Part of the agreement includes repayment
of the Partnership's $50,000 loan, the repayment of which would be waived by the
Managing General Partner if the Local General Partner were successful in
obtaining HUD approval of the Transfer of Physical Asset application.


<PAGE>
            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Property Discussions (continued)

As previously reported, during 1995 Kyle Hotel, located in Temple, Texas,
defaulted on its mortgage and the lender placed the Local Limited Partnership in
bankruptcy. Under the subsequent reorganization, the Local General Partner was
replaced by an affiliate of the Managing General Partner, and the Partnership
purchased the outstanding debt on the Property. The Property makes mortgage
payments in the amount of available cash flow to the Partnership. The Property
has consistently enjoyed high occupancy over the past several months. However,
commercial rental revenue has been eliminated by the inability to lease the
commercial space due to its odd configuration. On December 30, 2004, the
Managing General Partner transferred the Local General Partner interest in the
Local Limited Partnership from an affiliate of the Managing General Partner to
an affiliate of the Temple Housing Authority, and the Partnership received net
proceeds of $208,000 for this Local General Partner interest. At that time, a
put option agreement was entered into between the Partnership and the Temple
Housing Authority that could be exercised any time subsequent to the end of the
Property's Compliance Period, which ended on December 31, 2005. The Partnership
exercised its put option, transferring its interest in the Local Limited
Partnership on January 1, 2006. The Partnership received approximately $206,000
for this interest in January 2006. The Managing General Partner, in accordance
with and as permitted by the Partnership Agreement, retained the entire amount
of net proceeds in Reserves. This transfer is projected to result in a 2006
taxable loss of approximately $649,000 or $6 per Unit. The Partnership no longer
has an interest in this Local Limited Partnership.

As previously reported, due to operating deficits in 2002 and 2003 at Tucson
Trails I and Tucson Trails II, located in Madison, Wisconsin, the Local General
Partner proposed a refinancing of the Properties. At the same time, the same
Local General Partner proposed a refinancing of the first mortgages of two other
Properties, Elver Park II and Elver Park III, also located in Madison,
Wisconsin, in which the Partnership had an interest but had enjoyed stable
operations. The Managing General Partner agreed to the refinancing of all four
Properties, and all four Properties closed on their new first mortgages in
November 2003 with the Partnership receiving a total of $954,098 in cash from
refinancing proceeds. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire amount of net
proceeds in Reserves. The Managing General Partner and the Local General Partner
also entered into call and put options whereby the Local General Partner
received call options at the end of the Compliance Period for the Local Limited
Partnerships for a nominal amount. If the calls were not exercised within a
six-month period, the Partnership had the option to put its interests to the
Local General Partner. The expiration of the Compliance Periods was no later
than December 31, 2004 for any of the four Properties. Effective May 31, 2005,
the Partnership's interests in all four Local Limited Partnerships were
transferred to the Local General Partner. The Partnership no longer has an
interest in these four Local Limited Partnerships. These sales resulted in 2005
taxable income of $834,815, or $8.35 per Unit.

As previously reported, Fox Run Housing, located in Victoria, Texas, experienced
operating deficits in 2003 and the first half of 2004 due to decreased revenues
and increased expenses. The Property also suffered from deferred maintenance and
failed two consecutive HUD physical inspections in February and July 2004. In
addition, the Property defaulted on its HUD-insured mortgage loan in December
2003. Since the Property generated its last Tax Credits in 1999 and in order to
minimize risk to the Partnership, the Managing General Partner decided in late
August 2004 to transfer the Partnership's interest to an unaffiliated third
party in exchange for a Contingent Note that granted the Partnership 50% of all
future net cash receipts from such Local Limited Partnership interest. On
September 15, 2005, the Partnership, in exchange for the sale of the Contingent
Note, received $2,083 from the previously mentioned unaffiliated third party.
The Managing General Partner, in accordance with and as permitted by the
Partnership Agreement, will retained the entire amount of net proceeds from this
sale in Reserves. The Partnership no longer has an interest in this Local
Limited Partnership, as HUD approved the transfer effective July 15, 2005. This
sale resulted in 2005 taxable income of $810,644, or $8.11 per Unit.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Property Discussions (continued)

As previously reported, in 2003 the Local General Partner of El Jardin, located
in Davie, Florida, expressed its desire to sell the Property to a third party
buyer. In April 2003, a realtor was hired to appraise the Property. In September
2004, the Local General Partner received an offer from a third party buyer that
was higher than the 2003 appraisal as a result of an updated market valuation.
On March 8, 2005, the Property was sold, and the Partnership received
approximately $2,900,000 in sales proceeds during the six months ended September
30, 2005. This sale resulted in 2005 taxable income of $4,135,820, or $41.36 per
Unit. The Managing General Partner, in accordance with and as permitted by the
Partnership Agreement, retained the entire amount of net proceeds in Reserves.
The Partnership no longer has an interest in this Local Limited Partnership.

As previously reported, Elmwood Delmar, located in Aurora, Colorado, has a first
mortgage with a prohibition of prepayment prior to December 2008. Given this
major impediment to sale and the Partnership's desire to transfer its interest
in the Local Limited Partnership since the Property's Compliance Period ended on
December 31, 2003, the Managing General Partner entered into a put option
agreement with an unaffiliated entity that would allow for the transfer of the
Partnership's interest in the Local Limited Partnership to the unaffiliated
entity for a nominal amount. On September 15, 2005, the Partnership effectively
disposed of its interest in Elmwood Delmar when the fund received $2,083 in
exchange for the sale of a Contingent Note that was created in conjunction with
the put option entered into with the unaffiliated third party. Based on the
operating performance of the Property, the Managing General Partner determined
that there was very little value above debt in the Property. The Managing
General Partner, in accordance with and as permitted by the Partnership
Agreement, retained the entire amount of net proceeds from this transfer in
Reserves. HUD's June 6, 2006 approval to a Transfer of Physical Assets
application completed the transfer of the Partnership's interest in this Local
Limited Partnership to the third party. This transfer of Partnership interest
will result in 2006 taxable income projected to be approximately $930,000, or $9
per Unit. The Partnership no longer has an interest in this Local Limited
Partnership.

As previously reported, the Managing General Partner had reached an agreement
with the Local General Partner of West Dade and West Dade II, located in Miami,
Florida, to sell the Partnership's interests in both Local Limited Partnerships,
pending HUD's approval to a Modified Transfer of Physical Assets application.
Upon further review, HUD's approval was not required. In June 2006, the
Partnership received $1,502,777, or $15 per Unit, in exchange for the
Partnership's interest in these Local Limited Partnerships. The proceeds from
this transfer have initially been retained in Reserves in accordance with and as
permitted by the Partnership Agreement. This transfer of interest will result in
2006 taxable income currently projected to be approximately $3,500,000, or $35
per Unit. The Partnership no longer has an interest in these two Local Limited
Partnerships.

As previously reported, effective January 1, 2006, the Partnership put its
interest to an unaffiliated party in Altheimer, located in Altheimer, Arizona
and Heather Oaks, located in Oak Grove, Missouri, for approximately $2,100 each.
The Managing General Partner determined that these Properties had no residual
value in excess of the Properties' debt and putting the Partnership's interests
in the Local Limited Partnerships for $2,100 per property was in the best
interest of the Partnership. These transfers are expected to result in 2006
taxable income projected to be approximately $193,000 and $151,000 for Altheimer
and Heather Oaks, respectively, or a combined $3 per Unit. The Managing General
Partner, in accordance with and as permitted by the Partnership Agreement,
retained the entire amount of net proceeds in Reserves. The Partnership no
longer has an interest in these two Local Limited Partnerships.


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Property Discussions (continued)

As previously reported, an agreement had been reached, between the Managing
General Partner and the Local General Partner of Diversey Square, located in
Chicago, Illinois on the disposition of the Partnership's interest during the
first half of 2006. This disposition occurred on February 15, 2006 upon receipt
of HUD's approval of the Transfer of Physical Asset application. The Partnership
received approximately $300,000 or $3 per Unit, for its interest in this Local
Limited Partnership. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire amount of net
proceeds in Reserves. This transfer of Partnership interest will result in 2006
taxable income projected to be approximately $1,300,000, or $13 per Unit. The
Partnership no longer has an interest in this Local Limited Partnership.

As previously reported, Quartermill, located in Richmond, Virginia, was sold in
January 2006, resulting in net sales proceeds to the Partnership of
approximately $7,291,000 or approximately $73 per Unit. This sale is expected to
result in 2006 taxable income projected to be approximately $7,700,000 or $77
per Unit. The Managing General Partner, in accordance with and as permitted by
the Partnership Agreement, retained the entire amount of net proceeds in
Reserves. The Partnership no longer has an interest in this Local Limited
Partnership.

As previously reported, the Managing General Partner and Local General Partner
of Wood Creek, located in Calcium, New York, are currently exploring an exit
strategy that would allow for a 2006 disposal of the Partnership's interest in
the Local Limited Partnership.


<PAGE>


            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)




PART II       OTHER INFORMATION

Items 1-5     Not applicable

Item 6        Exhibits and reports on Form 8-K

(a)      Exhibits

31.1     Certification of Principal Executive Officer and Principal Financial
         Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1     Certification of Principal Executive Officer and Principal Financial
         Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

              (b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 2006


<PAGE>

            BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


                                    SIGNATURE




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.


DATED: August 14, 2006               BOSTON FINANCIAL QUALIFIED HOUSING TAX
                                     CREDITS L.P. III

                                     By:  Arch Street III, Inc.,
                                     its Managing General Partner




                                      /s/Jenny Netzer
                                      Jenny Netzer
                                      Executive Vice President
                                      MMA Financial, Inc.