UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, DC.  20549
                               FORM 10-K


(Mark One)
[X]  ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended         December 31, 2004
                         ---------------------------------------------
                                  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                0-15843
                       -----------------------------------------------

                     DIVERSIFIED HISTORIC INVESTORS III
----------------------------------------------------------------------
        (Exact name of registrant as specified in its charter)

     Pennsylvania                                        23-2391927
-------------------------------                    -------------------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                     Identification No.)

                1521 Locust Street, Philadelphia, PA  19102
----------------------------------------------------------------------
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code    (215) 557-9800
                                                    ------------------

Securities registered pursuant to Section 12(b) of the Act:   NONE
                                                            ----------

Securities registered pursuant to section 12(g) of the Act: 13,981.5 Units
                                                            ------------

                 Units of Limited Partnership Interest
----------------------------------------------------------------------
                           (Title of Class)

Indicate  by  check  mark whether the registrant  (1)  has  filed  all
reports  required to be filed by Section 13 or 15(d) of the Securities
Exchange  Act  of  1934 during the preceding 12 months  (or  for  such
shorter period that the registrant was required to file such reports),
and  (2) has been subject to such filing requirements for the past  90
days.                                            Yes   X       No
                                                     -----       -----

Indicate by check mark if disclosure of delinquent filers pursuant  to
Item  405 of Regulation S-K is not contained herein, and will  not  be
contained  to the best of registrant's knowledge, in definitive  proxy
or  information statements incorporated by reference in  Part  III  of
this Form 10-K or any amendment to this Form 10-K.  [X]

Aggregate  market  value  of  Units  held  by  non-affiliates  of  the
Registrant:                                           Not Applicable *
                                                      ----------------
*Securities not quoted in any trading market to Registrant's knowlege.

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).   Yes ___ No_X_


<PAGE>


                           EXPLANATORY NOTE
                           ----------------

Diversified Historic Investors III (the "Registrant") is filing the
following Annual Report on Form 10-K for the period ended December 31,
2004 containing consolidated financial statements.

On July 11th, 2005 the Securities and Exchange Commission ("SEC")
notified the Registrant of its non-compliance in meeting reporting
requirements under Section 13(a) or 15(d) of the Securities and
Exchange Act of 1934. The Registrant's inability to meet its reporting
requirements is due to the dissolution of its former auditor, Gross
Kreger & Passio, LLC. This event was discussed in Item 4.01 of the
Registrant's Form 8-K filed on June 27th, 2005.

The Registrant recently engaged a new firm, Russell Bedford Stefanou
Mirchandani, LLP to audit and review the Registrant's outstanding
consolidated financial statements.

<PAGE>

                                PART I
                                ------


Item 1.   Business
          --------


             a.     General Development of Business

              Diversified Historic Investors III ("Registrant")  is  a
limited  partnership  formed in 1986 under Pennsylvania  Law.   As  of
December  31,  2004,  Registrant  had outstanding  13,981.5  units  of
limited partnership interest (the "Units").

              Registrant  is  presently in  its  operating  stage.  It
originally   owned  five  properties  or  interest   therein.    Three
properties  have  been lost due to foreclosure and  one  property  was
sold.   See  Item  2.  Properties,  for  a  description  thereof.   It
currently  owns  one  property interest.   For  a  discussion  of  the
operations  of  the  Registrant, See Part  II,  Item  7.  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results   of
Operations.

             b.     Financial Information about Industry Segments

                    The Registrant operates in one industry segment.

             c.     Narrative Description of Business

                Registrant  is in the business of operating,  holding,
selling,  exchanging and otherwise dealing in and with real properties
containing improvements which are "Certified Historic Structures,"  as
such  term  is defined in the Internal Revenue Code (the "Code"),  for
use  as  apartments,  offices, hotels and commercial  spaces,  or  any
combination thereof, or low income housing eligible for the tax credit
provided  by  Section  42  of the Code, and such  other  uses  as  the
Registrant's general partner may deem appropriate.

                Since  the  Registrant's inception, all the properties
acquired  either by the Registrant, or the subsidiary partnerships  in
which  it  has  an interest, have been rehabilitated and certified  as
historic  structures  and  have received the  related  investment  tax
credit.  The property in which the Registrant has an interest is  held
for  rental operations. Registrant anticipates that the property  will
continue  to  be  held  for  this purpose.  As  real  property  values
increase,  the  Registrant will re-evaluate  its  investment  strategy
regarding the property.

                As  of December 31, 2004, Registrant owned an interest
in  one property located in Pennsylvania. The property is an apartment
building  which contains 58 apartment units. As of December 31,  2004,
40  apartment  units were under lease at monthly rental rates  ranging
from  $495  to $1,725. Rental of the apartments is not seasonal.   For
further discussion of the properties, see Item 2. Properties.

                The  Registrant  is  affected by and  subject  to  the
general   competitive  conditions  of  the  residential  real   estate
industries.  The  competition for residential  tenants  in  the  local
market where the Registrant's property is located is generally strong.
As  a  result,  the  Registrant is forced  to  keep  its  rent  levels
competitively  low  in order to maintain moderate  to  high  occupancy
levels.  The residential property is located in Philadelphia, PA  very
close to the "city line," ie. the boundary between Philadelphia and  a
neighboring suburb.  Many potential residents would prefer to live  on
the  non-city side, to avoid paying the city wage tax. The  Registrant
attempts to keep its rents at a level that is low enough to offset the
difference.   At  this location, the competition for  tenants  remains
stiff  and  several  similar  buildings exist.  The  apartment  market
remains  stable  and  new construction remains  virtually  nonexistent
although  the  availability  of favorable home  financing  has  placed
pressure on the rental tenant base.

                Registrant has no employees.  Registrant's  activities
are  overseen by Brandywine Construction & Management, Inc., ("BCMI"),
a real estate management firm.

                   d.   Financial Information About Foreign and
              Domestic Operations and  Export Sales

See Item 8.   Financial Statements and Supplementary Data.


Item 2.    Properties
           ----------

              As  of the date hereof, Registrant owned an interest  in
one  property.  A summary description of the property held at December
31, 2004 is given below.

              a.     Lincoln Court - consists of 58 apartment units in
three  buildings  located  at 5351 Overbrook Avenue  in  Philadelphia,
Pennsylvania. In March 1987, the Registrant acquired the buildings and
is  the  80%  equity owner of this property.  Registrant acquired  and
rehabilitated the property for $3,417,640 ($64 per sf) (such amount is
exclusive of $158,985 of capitalized fees incurred) which were  funded
by  Registrant's equity contributions, including mortgage financing of
$1,730,000 and a note payable of $10,000 (total balance due of $10,000
at  December 31, 2004).  The note payable bears interest at 10%. It is
payable interest only on a quarterly basis; the principal was  due  in
1994.  In 1988, a $95,000 second mortgage loan was obtained.  In 1991,
a $100,000 third mortgage loan was obtained which was due in 1994. Due
to  decreased cash flow, the Registrant stopped making scheduled  debt
service  payments  to  the  holder of  the  first,  second  and  third
mortgages.  Notice of default was received from the lender on November
29,  1993.   The  Registrant pursued settlement discussions  with  the
lender;  however, in December 1994 the mortgage notes were sold.   The
Registrant  entered  into an agreement with  the  new  holder  of  the
mortgages  whereby the maturities of the notes were extended  to  1999
and  monthly  payments of interest were to be made  to  the  new  note
holder in an amount equal to net operating income.  In June 1996,  the
Registrant  refinanced $1,268,000 of the first mortgage.  In  November
1998, the Registrant restructured the mortgage notes. On September 26,
2002, the Lincoln Court first mortgage was refinanced with a temporary
bridge  loan  and  the net proceeds were used to partially  repay  the
second  mortgage  on  the property. In exchange for  a  20%  ownership
interest  in  Lincoln  Court,  the second  mortgagee  contributed  the
balance of the second mortgage to capital and cancelled its loan.  The
permanent financing closed on January 31, 2003.

             The property is managed by BCMI. As of December 31, 2004,
40  residential units (69%) were under lease at monthly rents  ranging
from $495 to $1,725.  All leases are renewable, one-year leases.   The
occupancy  for the previous four years was 81% for 2003 95% for  2002,
98%  for  2001,  and 86% for 2000. The monthly rental ranges  for  the
previous  four years were $495 to $1,800 during 2003, $475  to  $1,800
during  2002,  $471 to $1,700 during 2001, and $460 to  $1,700  during
2000.  For  tax  purposes, this property has a federal  tax  basis  of
$3,499,609 and the building and improvements are depreciated using the
straight-line  method with a useful life of 27.5  years.   The  annual
real  estate taxes are $34,924. No one tenant occupies ten percent  or
more  of  the  building. The Registrant believes that the property  is
adequately covered by insurance.


Item 3.   Legal Proceedings
          -----------------

                To  the best of its knowledge, Registrant is not party
to,  nor  is  any of its property the subject of any pending  material
legal proceedings.


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

             No matter was submitted during the fiscal year covered by
this report to a vote of security holders.

<PAGE>

                                PART II
                                -------

Item   5.     Market  for  Registrant's  Common  Equity  and   Related
              Stockholder Matters
              --------------------------------------------------------

              a.     There is no established public trading market for
the  Units.   Registrant  does not anticipate  any  such  market  will
develop.    Trading  in  the  Units  occurs  solely  through   private
transactions.   The  Registrant is not aware of the  prices  at  which
trades  occur.  Registrant's records indicate that 10 Units of  record
were transferred in 2004.

              b.    As  of  December 31, 2004, there were  1,594
                    Unit holders

             c.   Registrant did not declare any cash dividends in 2004 or 2003.


Item 6.   Selected Financial Data
          -----------------------

              The  following selected financial data are for the  five
years ended December 31, 2004.  The data should be read in conjunction
with  the consolidated financial statements included elsewhere herein.
This data is not covered by the independent auditors' report.


                     2004       2003         2002       2001       2000
                     ----       ----         ----       ----       ----

Rental income    $  420,181  $  600,842  $  907,392  $  931,137  $  936,392
Interest income         798         849       2,629       2,414       4,397
Net income (loss)  (249,006)  6,233,861     353,288  (3,444,261) (2,006,951)
Net income (loss)
 per Unit             17.63      441.41       25.01     (243.88)    (142.11)
Total assets
 (net of
 depreciation
 and
 amortization)    1,905,796  2,085,831    2,309,559   3,348,854   6,024,042
 Debt
 obligations      2,994,760  3,030,680    7,365,328   8,996,269   8,972,599

Note: See Part II, Item 7(3) Results of Operations for a discussion of
factors  which materially affect the comparability of the  information
reflected in the above table.


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

          (1)       Liquidity

                 At   December  31,  2004,  Registrant  had  cash   of
approximately $9,978.  Registrant uses cash generated from  operations
primarily to fund operating expenses and debt service. In recent years
the   Registrant  has  realized  significant  losses,  including   the
foreclosure  of three properties. Therefore, it is unlikely  that  any
cash  will  be  available to the Registrant to  pay  its  general  and
administrative expenses. The Registrant is not aware of any additional
sources of liquidity.

               As of December 31, 2004, Registrant had restricted cash
of  $132,315 consisting primarily of funds held as security  deposits,
replacement reserves and escrows for taxes.  As a consequence of these
restrictions as to use, Registrant does not deem these funds to  be  a
source of liquidity.

                It  is the Registrant's intention to continue to  hold
the  remaining property until it can no longer meet the  debt  service
requirements  and the property is foreclosed, or the market  value  of
the  property  increases to a point where it can be sold  at  a  price
which  is  sufficient to repay the underlying indebtedness  (principal
plus accrued interest).

          (2)          Capital Resources

                 Any   capital   expenditures  needed  are   generally
replacement  items  and  are funded out of  cash  from  operations  or
replacement  reserves, if any. The Registrant  is  not  aware  of  any
factors which would cause historical capital expenditure levels not to
be  indicative  of capital requirements in the future and  accordingly
does  not  believe that it will have to commit material  resources  to
capital investment in the foreseeable future.  If the need for capital
expenditures does arise, the 20% minority owner of Lincoln  Court  has
agreed to fund capital expenditures.

          (3)       Results of Operations

               During 2004, Registrant incurred a net loss of $249,006
($17.63  per  limited partnership unit) compared to a  net  income  of
$6,233,861 ($441.41 per limited partnership unit) in 2003  and  a  net
income  of  $353,288 ($25.01 per limited partnership  unit)  in  2002.
Included  in  net  income  for  2003  is  an  extraordinary  gain   on
extinguishment of debt of $6,582,981. Included in net income for  2002
are  a  gain  on  sale  of  $271,576  and  an  extraordinary  gain  on
extinguishment of debt of $1,423,902.

                Rental income was $420,181 in 2004, $600,842 in  2003,
and  $907,392 in 2002. The decrease in rental income from 2003 to 2004
is  due the foreclosure of the Loewy Building combined with a decrease
in  average  occupancy at Lincoln Court (87% to 69%). The decrease  in
rental  income  from 2002 to 2003 is due to the foreclosure  of  Green
Street  Apartments and the Loewy Building. This decrease is  partially
offset  by  an increase in rental income at Lincoln Court  due  to  an
increase in average monthly rental rates.

              Rental operations expense was $308,042 in 2004, $389,559
in  2003,  and  $635,660 in 2002. The decrease  in  rental  operations
expense  from  2003  to 2004 is due to the foreclosure  of  the  Loewy
Building  during the second quarter of 2003 and a decrease in  leasing
commissions  at  Lincoln Court, partially offset  by  an  increase  in
maintenance expense and utility expense at Lincoln Court. The decrease
in  leasing commissions is due to a decrease in average occupancy (87%
to  69%).  The  increase in maintenance expense is  due  to  apartment
preparations  due  to the increase in the number of  vacant  units  in
2004. The increase in utility expense is due to an increase in gas and
sewer  rates. The decrease from 2002 to 2003 is due to the foreclosure
of  the  Green Street Apartments and the Loewy Building and a decrease
in  rental  operations expense at Lincoln Court due to a  decrease  in
maintenance  expense,  partially offset  by  an  increase  in  utility
expense.  The decrease in maintenance expense is due to a decrease  in
maintenance  service,  trash collections and plumbing  and  electrical
expenses. The increase in utility expense is due to an increase in gas
charges.

              Interest expense was $229,856 in 2004, $390,338 in 2003,
and $1,264,379 in 2002. The decrease in interest expense from 2003  to
2004 is due to the foreclosure of the Loewy Building during the second
quarter of 2003. The decrease in interest expense from 2002 to 2003 is
due  to  the foreclosure of the Green Street Apartments and the  Loewy
Building. The decrease in interest expense at Lincoln Court is due  to
the  conversion  of  debt  to equity and the refinance  of  the  first
mortgage.

              Depreciation  and  amortization was  $171,405  in  2004,
$175,209  in  2003, and $299,952 in 2002. The decrease in depreciation
and  amortization expense from 2003 to 2004 is due to the  foreclosure
of  the Loewy Building during the second quarter of 2003. The decrease
from  2002  to  2003  is due to the foreclosure of  the  Green  Street
Apartments  and  the  Loewy  Building and a decrease  in  amortization
expense  at  Lincoln  Court,  partially  offset  by  an  increase   in
depreciation expense. The decrease in amortization expense is  due  to
the  additional expenses incurred during 2002 due to the refinance  of
the first mortgage loan.

                In 2004, a loss of approximately $190,000 was incurred
at  the Registrant's remaining property compared to a loss of $375,000
at  the  Registrant's  two  properties in 2003,  and  $99,000  at  the
Registrants  three  properties  in  2002.  A  discussion  of  property
operations/activities follows:

              During  2004, the Registrant incurred a loss of $190,000
at  Lincoln  Court including $171,000 of depreciation and amortization
expense,  compared  to  a  loss  of  $100,000  including  $171,000  of
depreciation and amortization expense in 2003, and a loss of  $624,000
including $223,000 of depreciation and amortization expense  in  2002.
The increase in loss from 2003 to 2004 is due to an increase in rental
operations expense and a decrease in rental income partially offset by
a  decrease  in  bad  debt expense. The increase in rental  operations
expense is due to an increase in apartment preparation expense, due to
an  increase  in  the number of vacant units. The decrease  in  rental
income  is  due to a decrease in average occupancy (89% to  69%).  The
decrease  in  bad  debt expense is due to a decrease in  uncollectible
tenant balances. The decrease in loss from 2002 to 2003 is due  to  an
increase  in  rental  income  and decreases  in  maintenance  expense,
interest  expense  and amortization expense, partially  offset  by  an
increase in depreciation expense. The increase in rental income is due
to  an  increase  in  average monthly rental rates.  The  decrease  in
maintenance expense is due to a decrease in maintenance service, trash
collection  services,  and  plumbing  and  electrical  expenses.   The
decrease  in  interest  expense and amortization  expense  is  due  to
additional expenses incurred during the second half of 2002 due to the
loan refinance.

             On June 30, 1992 Dover Historic Properties, Inc. ("DHP"),
a  partner  of  the  Registrant's general partner, assigned  to  Dover
Limited (D, LTD), its parent, a note receivable from the Registrant in
the  amount  of $432,103 which bears interest at 10% with  the  entire
principal and accrued interest due on June 30, 1997.  Interest accrued
was $45,703 during both 20034and 2003. Payments on the note are to  be
made  from available cash flow and before any distribution can be made
to  the  Registrant's  limited  partners.  The  balance  of  the  note
(including  accrued  but unpaid interest) at  December  31,  2004  was
$844,525.

Item 7A.  Quantitative and Qualitative Disclosures
          About Market Risk
          ----------------------------------------

             All of our assets and liabilities are denominated in U.S.
dollars, and as a result, we do not have exposure to currency exchange
risks.

              We  do not engage in any interest rate, foreign currency
exchange  rate  or  commodity price-hedging  transactions,  and  as  a
result, we do not have exposure to derivatives risk.


<PAGE>
                     Independent Auditor's Report

To the Partners of
Diversified Historic Investors III

We  have  audited  the  accompanying  consolidated  balance  sheet  of
Diversified   Historic   Investors   III   (a   Pennsylvania   Limited
Partnership) and subsidiaries as of December 31, 2004 and 2003 and the
related statements  of operations, changes in partners'equity and cash
flows   for  the  years  ended  December  31, 2004  and  2003.   These
consolidated  financial  statements  are  the  responsibility  of  the
Partnership's management.  Our responsibility is to express an opinion
on  these consolidated financial statements based on our audit.

We  conducted  our audit in accordance with standards  of  the  Public
Company Accounting Oversight Board (United States of America).   Those
standards  require  that  we  plan and perform  the  audit  to  obtain
reasonable   assurance   about  whether  the  consolidated   financial
statements  are  free  of material misstatement.   An  audit  includes
examining,  on  a  test  basis, evidence supporting  the  amounts  and
disclosures in the consolidated financials statements. An  audit  also
includes  assessing  the accounting principles  used  and  significant
estimates  made  by  management, as well  as  evaluating  the  overall
financial statement presentation.  We believe that our audit  provides
a reasonable basis for our opinion.

In  our  opinion,  the consolidated financial statements  referred  to
above present fairly, in all material respects, the financial position
of Diversified Historic Investors III as of December 31, 2004 and 2003
and  the  results  of  operations  and  cash  flows for the year ended
December  31, 2004 and 2003  in  conformity with accounting principles
generally accepted  in the United States.

Our  audits  were made for the purpose of forming an  opinion  on  the
basic  financial  statements taken as a whole.  The Schedule  of  Real
Estate  and Accumulated Depreciation on Page 27 is presented  for  the
purposes  of  additional analysis and is not a required  part  of  the
basic  financial statements.  Such information has been  subjected  to
the  auditing  procedures applied in the audit of the basic  financial
statements  and,  in  our opinion, is fairly stated  in  all  material
respects  in  relation to the basic financial statements  taken  as  a
whole.

The accompanying financial statements have been prepared assuming that
the partnership will continue as a going concern. In recent years, the
partnership  has  incurred significant losses from  operations,  which
raise  substantial  doubt about its ability to  continue  as  a  going
concern, which is detailed in NOTE C. The financial statements do  not
include  any  adjustments that might result from the outcome  of  this
uncertainty.

/s/ Russell Bedford Stefanou Mirchandani, LLP
    -----------------------------------------
Russell Bedford Stefanou Mirchandani, LLP
Certified Public Accounts
New York, New York
November 16, 2006

<PAGE>


Item 8.   Financial Statements and Supplementary Data
          -------------------------------------------


                  DIVERSIFIED HISTORIC INVESTORS III
                  ----------------------------------
                        (A limited partnership)

              INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
              ------------------------------------------

                   AND FINANCIAL STATEMENT SCHEDULES
                   ---------------------------------


Consolidated financial statements:                          Page
                                                            ----


   Consolidated Balance Sheets at December 31, 2004  and
2003                                                         10

   Consolidated Statements of Operations for  the  Years
Ended December 31, 2004, 2003 and 2002                       11

   Consolidated  Statements  of  Changes  in   Partners'
Equity  for  the Years Ended December 31, 2004,  2003
and 2002                                                     12

   Consolidated Statements of Cash Flows for  the  Years
Ended December 31, 2004, 2003 and 2002                       13

   Notes to consolidated financial statements              14-20


Financial statement schedules:

   Schedule XI - Real Estate and Accumulated Depreciation   22

   Notes to Schedule XI                                     23





All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.

<PAGE>

                  DIVERSIFIED HISTORIC INVESTORS III
                  ----------------------------------
                        (a limited partnership)

                      CONSOLIDATED BALANCE SHEETS
                      ---------------------------
                      December 31, 2004 and 2003

                                Assets
                                ------

                                          2004        2003
                                          ----        ----
                                                   (Restated)
Rental properties at cost:
 Land                                 $  123,794  $  123,794
 Buildings and improvements            4,016,630   4,008,630
 Furniture and fixtures                  169,275     158,958
                                      ---------- -----------
                                       4,309,699   4,291,382
  Less - accumulated depreciation     (2,657,408) (2,496,860)
                                      ---------- -----------
                                       1,652,291   1,794,522
Cash and cash equivalents                  9,978      22,933
Restricted cash                          132,315     140,141
Accounts receivable                        5,376      10,007
Other assets (net of accumulated
 amortization of $21,715 and
 $10,858)                                105,836     118,228
                                      ----------  ----------
          Total                       $1,905,796  $2,085,831
                                      ==========  ==========

                Liabilities and Partners' Equity
                --------------------------------

Liabilities:
 Debt obligations                     $2,994,760  $3,030,680
  Trade                                1,033,932     908,952
  Related parties                        910,676     864,973
 Interest payable                         15,511      15,698
 Tenant security deposits                 33,565      39,797
 Advances                                205,084     200,584
 Other liabilities                         9,980      26,257
                                      ----------  ----------
          Total liabilities            5,203,508   5,086,941
Minority interest                      1,202,783   1,250,379
Partners' deficit                     (4,500,495) (4,251,489)
                                      ----------  ----------
          Total                       $1,905,796  $2,085,831
                                      ==========  ==========

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

<PAGE>




                  DIVERSIFIED HISTORIC INVESTORS III
                  ----------------------------------
                        (a limited partnership)

                 CONSOLIDATED STATEMENTS OF OPERATIONS
                 -------------------------------------

         For the years ended December 31, 2004, 2003 and 2002



                                      2004         2003         2002
                                      ----         ----         ----
                                                (Restated)
Revenues:
 Rental income                      $420,181  $  600,842     $  907,392
 Interest income                         798         849          2,629
 Gain on sale of investment                0           0        271,576
                                    --------  ----------     ----------
          Total revenues             420,979     601,691      1,181,597
                                    --------  ----------     ----------
Costs and expenses:
 Rental operations                   308,042     389,559        635,660
 Interest                            229,856     390,338      1,264,379
 Depreciation and amortization       171,405     175,209        299,952
 Bad debt                              8,277      20,636         66,876
                                    --------  ----------     ----------
 Total costs and expenses            717,580     975,742      2,266,867
                                    --------  ----------     ----------
Net loss before minority interest
and equity in affiliate             (296,601)   (374,051)    (1,085,270)
Minority interest                     47,595      24,931          2,124
Equity in income of affiliate              0           0         12,532
                                    --------  ----------     ----------
Net loss before extraordinary item  (249,006)   (349,120)    (1,070,614)
Extraordinary gain on
 extinguishment of debt                    0   6,582,981      1,423,902
                                    --------  ----------     ----------
Net (loss) income                  ($249,006) $6,233,861     $  353,288
                                    ========  ==========     ==========

Net  (loss)  income  per  limited
partnership unit:
 Net loss before minority interest ($  21.00)($    26.49)   ($    76.85)
 Minority interest                      3.37        1.77            .15
 Equity in income of affiliate             0           0            .89
                                    --------  ----------     ----------
 Net loss  before  extraordinary
  item                                (17.63)     (24.72)        (75.81)
 Extraordinary gain on
  extinguishment of debt                   0      466.13         100.82
                                    --------  ----------     ----------
Net (loss) income per limited
 partnership unit                  ($  17.63) $   441.41     $    25.01
                                    ========  ==========     ==========


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

<PAGE>



               DIVERSIFIED HISTORIC INVESTORS III
               ----------------------------------
                     (a limited partnership)


     CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
     ------------------------------------------------------

      For the years ended December 31, 2004, 2003 and 2002


                                      Dover
                                    Historic
                                    Advisors     Limited
                                     II (I)    Partners (2)    Total
                                    --------   ------------    -----

Percentage participation in
 profit or loss                       1%           99%          100%
                                      ==           ===          ====

Balance at December 31, 2001        (221,426)  (10,617,212)  (10,838,638)
Net income                             3,533       349,755       353,288
                                    --------   -----------   -----------
Balance at December 31, 2002        (217,893)  (10,267,457)  (10,485,350)
Net income                            62,339     6,171,522     6,233,861
                                    --------   -----------   -----------
Balance at December 31, 2003       ($155,554)  ($4,095,935)  ($4,251,489)
Net loss                              (2,490)     (246,516)     (249,006)
                                    --------   -----------   -----------
Balance at December 31, 2004       ($158,044)  ($4,342,451)  ($4,500,495)
                                    ========   ===========   ===========

 (1)      General Partner.

 (2) 13,981.5  limited partnership units outstanding at  December  31,
     2004, 2003, and 2002.


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

<PAGE>



               DIVERSIFIED HISTORIC INVESTORS III
               ----------------------------------
                     (a limited partnership)

              CONSOLIDATED STATEMENTS OF CASH FLOWS
              -------------------------------------

      For the years ended December 31, 2004, 2003 and 2002

                                         2004        2003         2002
                                         ----        ----         ----
                                                  (Restated)
Cash flows from operating activities:
 Net (loss) income                    ($249,006) $6,233,861   $  353,288
 Adjustments to reconcile net loss
  to net cash:
  Depreciation and amortization         171,405     175,209      299,952
  Gain on sale of investment                  0           0     (271,576)
  Equity in income of affiliate               0           0      (12,532)
  Extraordinary gain on extinguishment
   of debt                                    0     (92,365)  (1,423,902)
  Extraordinary gain on foreclosure
   of property                                0  (3,712,111)           0
  Extraordinary gain on foreclosure -
   impairment loss                            0  (2,778,505)           0
  Minority interest                     (47,595)    (24,931)      (2,124)
Changes in assets and liabilities:
 Decrease (increase) in restricted
  cash                                    7,826     (22,061)       7,624
 Decrease in accounts receivable          4,631      19,367       74,401
 Decrease (increase) in other assets      1,534     (28,519)     (29,067)
 Increase (decrease) in accounts
  payable - trade                       124,980     (12,953)    (234,651)
  Increase (decrease) in accounts
   payable - related parties             45,703      45,703      (54,297)
  Decrease in accounts payable -
   real estate                                0           0      (21,174)
  (Decrease) increase in interest
   payable                                 (187)    151,243     (126,734)
  (Decrease) increase in tenant
   security deposits                     (6,232)      1,209      (18,880)
  Increase in advances                    4,500     186,927       13,657
  Increase (decrease) in other
   liabilities                          (16,277)     (2,016)       2,669
                                       --------  ----------   ----------
  Net cash provided by (used in)
   operating activities                  41,282     140,058   (1,443,346)
                                       --------  ----------   ----------
Cash flows from investing
 activities:
 Cash proceeds - sale of investment           0           0      465,111
 Capital expenditures                   (18,317)    (34,195)     (45,663)
                                       --------  ----------   ----------
  Net cash (used in) provided by
   investing activities                 (18,317)    (34,195)     419,448
                                       --------  ----------   ----------
Cash flows from financing
 activities:
 Proceeds from debt obligations               0   3,061,632    3,135,464
 Payments of principal under debt
  obligations                           (35,920) (3,109,843)  (2,105,427)
 Distributions                                0     (58,926)      (6,500)
                                       --------  ----------   ----------
  Net cash used in financing
   activities                           (35,920)   (107,137)   1,023,537
                                       --------  ----------   ----------
Decrease in cash and cash
 equivalents                            (12,955)     (1,274)        (361)
Cash and cash equivalents at
 beginning of year                       22,933      24,207       24,568
                                       --------  ----------   ----------
Cash and cash equivalents at end of
 year                                  $  9,978  $   22,933   $   24,207
                                       ========  ==========   ==========


  Cash paid during the year for
   interest                            $184,340  $  175,784   $1,336,459


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

<PAGE>

                  DIVERSIFIED HISTORIC INVESTORS III
                  ----------------------------------
                        (a limited partnership)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              ------------------------------------------


NOTE A - ORGANIZATION
---------------------

Diversified Historic Investors III (the "Partnership") was  formed  in
February 1986 under the laws of the Commonwealth of Pennsylvania.  The
Partnership  was  formed  to acquire, rehabilitate,  and  manage  real
properties which were certified historic structures as defined in  the
Internal Revenue Code of 1986 (the "Code"), or which were eligible for
designation as such, utilizing mortgage financing and the net proceeds
from  the  sale  of  limited partnership units.   Any  rehabilitations
undertaken  by  the  Partnership were done with a  view  to  obtaining
certification  of expenditures therefore as "qualified rehabilitations
expenditures" as defined in the Code.


NOTE B - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------

A  summary  of  the  significant accounting policies  applied  in  the
preparation  of  the  accompanying consolidated  financial  statements
follows:

1.        Principles of Consolidation

The  accompanying financial statements of the Partnership include  the
accounts  of three subsidiary partnerships (the "Ventures"), in  which
the   Partnership   has  a  controlling  interest   with   appropriate
elimination  of  inter-partnership  transactions  and  balances.    In
addition,  the  Partnership owned a minority interest of  40%  in  one
partnership  which  it  accounts for  on  the  equity  method.   These
financial  statements  reflect  all adjustments  (consisting  only  of
normal   recurring  adjustments)  which,  in  the   opinion   of   the
Partnership's General Partner, are necessary for a fair  statement  of
the results for those years.

2.        Depreciation

Depreciation  is  computed  using the straight-line  method  over  the
estimated useful lives of the assets.  Buildings and improvements  are
depreciated over 25 years and furniture and fixtures over five years.

3.        Costs of Issuance

Costs  incurred  in connection with the offering and sale  of  limited
partnership units were charged against partners' equity as incurred.

4.        Cash and Cash Equivalents

The Partnership considers all highly liquid instruments purchased with
a maturity of less than three months to be cash equivalents.


5.        Interest Payable

Interest payable includes all accrued and unpaid interest on the  debt
obligations, as well as interest in arrears.

6.        Net Loss Per Limited Partnership Unit

The  net  loss  per limited partnership unit is based on the  weighted
average  number  of limited partnership units outstanding  during  the
period (13,981.5 in 2004, 2003, and 2002).

7.        Income Taxes

Federal and state income taxes are payable by the individual partners;
accordingly,  no provision or liability for income taxes is  reflected
in the financial statements.

8.        Restricted Cash

Restricted  cash  includes amounts held for tenant security  deposits,
real estate tax reserves and other cash restricted as to use.

9.        Revenue Recognition

Revenues  are recognized when rental payments are due on  a  straight-
line  basis.   Rental payments received in advance are deferred  until
earned.

10.       Rental Properties

Rental  properties are stated at cost.  A provision for impairment  of
value  is recorded when a decline in value of a property is determined
to  be  other  than  temporary as a result  of  one  or  more  of  the
following:  (1)  a property is offered for sale at a price  below  its
current  carrying  value,  (2)  a mortgage  loan  on  a  property  has
significant  balloon payments due within the foreseeable future  which
the  Partnership does not have the resources to meet, and  anticipates
it will be unable to obtain replacement financing or debt modification
sufficient  to  allow  it  to continue to hold  the  property  over  a
reasonable period of time, (3) a property has been, and is expected to
continue,   generating   significant  operating   deficits   and   the
Partnership is unable or unwilling to sustain such deficits,  and  has
been  unable,  or  anticipates  it will  be  unable,  to  obtain  debt
modification,  financing  or refinancing sufficient  to  allow  it  to
continue to hold the property for a reasonable period of time or (4) a
property's value has declined based on management's expectations  with
respect  to  projected  future operational cash flows  and  prevailing
economic  conditions.   An  impairment  loss  is  indicated  when  the
undiscounted  sum  of  estimated future  cash  flows  from  an  asset,
including  estimated sales proceeds, and assuming a reasonable  period
of  ownership up to 5 years, is less than the carrying amount  of  the
asset.  The impairment loss is measured as the difference between  the
estimated  fair  value and the carrying amount of the  asset.  In  the
absence  of  the above circumstances, properties and improvements  are
stated at cost.  An analysis is done on an annual basis at December 31
of each year.

11.  Use of Estimates

The  preparation  of  the  financial  statements  in  conformity  with
generally accepted accounting principles requires management  to  make
estimates  and  assumptions that affect the amounts  reported  in  the
financial  statements  and accompanying notes.  Actual  results  could
differ from those estimates.


NOTE C - GOING CONCERN
----------------------

In  recent  years  the  Partnership has realized  significant  losses,
including  the foreclosure of three properties, due to the properties'
inability  to  generate sufficient cash flow to  pay  their  operating
expenses  and  debt service. At the present time, the Partnership  has
feasible  loan modifications in place at Lincoln Court.  However,  the
mortgage is a cash-flow mortgages, requiring all available cash  after
payment of operating expenses to be paid to the first mortgage holder.
Therefore,  it  is  unlikely that any cash will be  available  to  the
Partnership to pay its general and administrative expenses.

It  is  the  Partnership's intention to continue to hold the  property
until  it  can  no longer meet the debt service requirements  and  the
property  is foreclosed, or the market value of the property increases
to  the  point where it can be sold at a price which is sufficient  to
repay the underlying indebtedness (principal plus accrued interest).

Since  the lenders have agreed to forebear from taking any foreclosure
action  as  long  as  cash  flow payments are  made,  the  Partnership
believes  it  is  appropriate  to continue  presenting  the  financial
statements on a going concern basis.


NOTE D - PARTNERSHIP AGREEMENT
------------------------------

The significant terms of the Agreement of Limited Partnership, as they
relate to the financial statements, follow:

All distributable cash from operations (as defined in the Agreement of
Limited  Partnership) will be distributed 90% to the limited  partners
and 10% to the General Partner.

All distributable cash from sales or dispositions (as defined) will be
distributed  to  the  limited partners up to their  adjusted  invested
capital (as defined) plus an amount equal to the sum of the greater of
a  6%  cumulative, noncompounded annual return on the  average  after-
credit  invested  capital,  less amounts  previously  distributed  (as
defined);  thereafter,  after receipt by the General  Partner  or  its
affiliates   of   any  accrued  but  unpaid  real   estate   brokerage
commissions,  the  balance  will be distributed  15%  to  the  General
Partner and 85% to the limited partners.

Net income or loss from operations of the Partnership is allocated  1%
to the General Partner and 99% to the limited partners.


NOTE E - ACQUISITIONS
---------------------

The  Partnership  acquired  five controlling  or  limited  partnership
interests in Ventures during the period October 1986 to July 1987,  as
discussed below.

In  October  1986, the Partnership was admitted, with  a  60%  general
partnership interest, to a Louisiana limited partnership which owned a
building located in Louisiana consisting of 57 residential units,  for
a  cash capital contribution of $600,000.  Pursuant to the Amended and
Restated Partnership Agreement, the Partnership's interest was reduced
to 40% effective January 1, 1995. This investment was sold on June 26,
2002.

In  November  1986, the Partnership was admitted, with a  99%  general
partnership  interest,  to  a Pennsylvania general  partnership  which
owned a building located in North Carolina consisting of 64,000 square
feet  of commercial space, for a cash contribution of $2,450,000.  The
lender on the property foreclosed in April 2003.

In  December  1986, the Partnership was admitted, with a  99%  general
partnership interest, to a Maryland general partnership which owned  a
property  located in Maryland consisting of 55 residential  units  and
14,800  square  feet of commercial space, for a cash  contribution  of
$3,508,700.  The lender on the property foreclosed in January 1996.

In  March  1987,  the Partnership purchased a property  consisting  of
three  buildings (58 residential units) located in Pennsylvania for  a
cash  capital contribution of $500,000. The Partnership's interest  in
the  property was reduced to 80% in September of 2002 when the  second
mortgage  lender exchanged its debt for a 20% equity interest  in  the
property.

In  July  1987,  the  Partnership was admitted,  with  a  99%  general
partnership  interest,  to  a Pennsylvania general  partnership  which
owned  a building located in Pennsylvania consisting of 18 residential
units, for a cash capital contribution of $800,000. The lender on  the
property foreclosed in October 2002.


NOTE F - DEBT OBLIGATIONS
-------------------------

Debt obligations are as follows:                        December 31,
                                                    2004           2003
                                                    ----           ----
Note   payable,  interest  only  at  10%,
payable quarterly;  principal due in 1994     $        0     $   10,000
(A)

Mortgage   loan,  interest   at   6.035%,
payable in monthly principal and interest
installments  of $18,355;  principal  due
February  2013;  collateralized  by   the
related rental property                        2,994,760      3,020,680
                                              ----------     ----------
                                              $2,994,760     $3,030,680
                                              ==========     ==========

(A)  Although  this obligation has matured, the lenders have not  made
     any demand for payment.


Approximate  maturities of the mortgage loan obligations  at  December
31, 2004, for each of the succeeding five years are as follows:


                 2005              $    38,385
                 2006                   40,807
                 2007                   43,383
                 2008                   46,121
                 2009                   49,520
                 Thereafter          2,776,544
                                    ----------
                                    $2,994,760
                                    ==========

NOTE G - COMMITMENTS AND CONTINGENCIES
--------------------------------------

Pursuant  to certain agreements, the developers of the properties  and
limited  partners  in  the  Ventures are  entitled  to  share  in  the
following:

          a.    15%  to 50% of net cash flow from operations  above
                certain specified amounts (two properties)

          b.   30% of the net proceeds, as defined, from the sale or
               refinancing of one property.  The Partnership is entitled
               to a priority distribution of such proceeds prior to any
               payment to the developer.


NOTE H - TRANSACTIONS WITH RELATED PARTIES
------------------------------------------

On  June 30, 1992 DHP, Inc. assigned to D, LTD a note receivable  from
the  Partnership in the amount of $432,103 which bears interest at 10%
with  the entire principal and accrued interest due on June 30,  1997.
Interest  accrued was $45,703 during both 2003 and 2004.  Payments  on
the  note  are  to  be made from available cash flow  and  before  any
distribution  can be made to the Partnership's limited  partners.  The
balance  of the note at December 31, 2004 was $844,525. Although  this
obligation has matured, the lender has made no demand for payment.

In  June 1998, the General Partner advanced the Partnership $66,150 to
pay  certain outstanding liabilities of the Partnership.  The  advance
is non-interest bearing and will be paid out of available cash flow.
NOTE I - INCOME TAX BASIS RECONCILIATION

Certain  items  enter  into  the  determination  of  the  results   of
operations in different time periods for financial reporting  ("book")
purposes and for income tax ("tax") purposes.  Reconciliations of  net
loss and partners' equity follow:


                                        For the years ended December 31,
                                        2004          2003          2002
                                        ----          ----          ----
Net (loss) income- book            ($  249,006)   $6,233,861  $    353,288
Minority interest - affiliate                0             0         2,124
Minority interest - Magazine Place           0             0       (12,532)
Excess of tax over book - gain on
 sale of investment                          0             0       466,470
Excess of book over tax -
 extraordinary gain on
 extinguishment of debt                      0    (3,473,922)     (737,736)
Excess of book over tax (tax over
 book) depreciation                      8,044       337,989      (183,976)
 Other                                       0        50,000             0
 Minority interest - tax                     0      (120,285)       10,658
                                    ----------    ----------   -----------
Net (loss) income - tax            ($  240,962)   $3,027,643  ($   101,704)
                                    ==========    ==========   ===========

Partners' equity - book            ($4,500,495)  ($4,251,489) ($10,485,350)
1987 distribution of interest on
 escrow deposits to
 limited partners                      (39,576)      (39,576)      (39,576)
Costs of issuance                    1,697,342     1,697,342     1,697,342
Cumulative tax under book loss           9,466         1,422     3,316,623
Magazine Place adjustment                    0             0      (108,983)
                                    ----------    ----------   -----------
Partners' equity - tax             ($2,833,263)  ($2,592,301) ($ 5,619,944)
                                    ==========    ==========   ===========

NOTE J - GAIN ON SALE
---------------------

On  June 26, 2002 Magazine Place was sold. As a result, the Registrant
recognized a gain on sale in the amount of $271,576. The net  proceeds
from the sale were used to pay accrued expenses of the Registrant.


NOTE K - EXTRAORDINARY GAIN
---------------------------

On  April  29, 2003 the Loewy Building was foreclosed by the  mortgage
holder.  As a result, the Registrant recognized an extraordinary  gain
on  foreclosure in the amount of $6,665,959 which is the excess of the
debt on the property over the net book value of the assets.

On  October 1, 2002 the Green Street Apartments were foreclosed by the
mortgage   holder.   As  a  result,  the  Registrant   recognized   an
extraordinary gain on foreclosure in the amount of $1,423,902 which is
the  excess of the debt on the property over the net book value of the
assets.


NOTE L - MINORITY INTEREST IN LINCOLN COURT
-------------------------------------------

On September 26, 2002, the Lincoln Court first mortgage was refinanced
with  a  temporary  bridge  loan and the net  proceeds  were  used  to
partially repay the second mortgage on the property. In exchange for a
20%   ownership  interest  in  Lincoln  Court,  the  second  mortgagee
contributed  the  balance  of  the  second  mortgage  to  capital  and
cancelled its loan. The permanent financing closed January 31, 2003.


NOTE M - QUARTERLY FINANCIAL DATA
---------------------------------

The  following represents summarized quarterly financial data  of  the
Registrant   which,  in  the  opinion  of  management,  reflects   all
adjustments,   consisting  only  of  normal   recurring   adjustments,
necessary  for  a  fair  presentation of the Registrant's  results  of
operations:


                                 For The Three Months Ended
                    ---------------------------------------------------
                    December 31,   September 30,   June 30,   March 31,
                    ---------------------------------------------------
                                              2004
                    ---------------------------------------------------
Revenues:
 Rental income         $100,453      $100,727     $102,886    $116,115
 Interest income             76            94          225         403
                       --------      --------     --------    --------
Total revenues          100,529       100,821      103,111     116,518
                       --------      --------     --------    --------
Costs and expenses:
 Rental operations       79,816        85,166       74,536      68,524
 Interest                57,507        57,648       57,281      57,420
 Bad debt                 8,277             0            0           0
 Depreciation and
 amortization            55,686        38,573       38,573      38,573
                       --------      --------     --------    --------
Total costs and
 expenses               201,286       181,387      170,390     164,517
                       --------      --------     --------    --------
Loss before minority
 interest              (100,757)      (80,566)     (67,279)    (47,999)
Minority interest        12,148        16,352       11,790       7,305
                       --------      --------     --------    --------
Net loss              ($ 88,609)    ($ 64,214)   ($ 55,489)  ($ 40,694)
                       ========      ========     ========    ========


Net (loss) income per
 limited partnership
 unit:
 Loss before minority
  interest             ($ 7.13)     ($   5.71)   ($   4.76)  ($   3.40)
 Minority interest        0.86           1.16         0.83        0.52
                       --------      --------     --------    --------
Net loss               ($ 6.27)     ($   4.55)   ($   3.93)  ($   2.88)
                        ======       ========     ========    ========


<PAGE>






                       SUPPLEMENTAL INFORMATION





<PAGE>


                  DIVERSIFIED HISTORIC INVESTORS III
                  ----------------------------------
                        (a limited partnership)



          SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 2004
          ------------------------------------------------------

                                                      Costs
                                                   Capitalized
                                                   Subsequent
                            Initial Cost to            to
                            Partnership (b)        Acquisition
                            ---------------        -----------


                                         Buildings
                                            and              Date of
                 Encumbrances            Improve-  Improve-   Contr.   Date
Description (a)      (c)         Land     ments      ments     (a)   Acquired
---------------  ------------    ----    --------- --------  ------- --------
58 apartment
units in
Philadelphia,PA $2,994,760   $123,794  $3,524,715 $661,190 1986-1987  9/9/86


                             Gross Amount at which Carried at
                                    December 31, 2004
                             --------------------------------


                               Buildings                Accumu-
                                  and                    lated
                                Improv-      Total       Depr.
Description           Land       ments      (d) (e)     (e) (f)
-----------           ----     ---------    -------    --------
58 apartment
units in
Philadelphia,PA   $123,794   $4,185,905  $4,309,699  $2,657,408


<PAGE>

               DIVERSIFIED HISTORIC INVESTORS III
               ----------------------------------
                     (a limited partnership)

                      NOTES TO SCHEDULE XI
                      --------------------
                       December 31, 2004

(A)  All  properties are certified historic structures as  defined  in
     the  Internal Revenue Code. The "date of construction" refers  to
     the period in which such properties were rehabilitated.

(B)  Includes  development/rehabilitation costs incurred  pursuant  to
     turnkey  development agreements entered into when the  properties
     were acquired.

(C)  See Note E to the financial statements for further information

(D)  The aggregate cost of real estate owned at December 31, 2004, for
     federal  income  tax  purposes is approximately  $3,847,908.  The
     depreciable  basis of buildings and improvements is  reduced  for
     Federal income tax purposes by the investment tax credit and  the
     historic rehabilitation credit obtained.

(E)  Reconciliation of real estate:
                                         2004        2003         2002
                                         ----        ----         ----
Balance at beginning of year:       $4,291,382   $8,053,544   $9,577,777
Additions during the year:
 Improvements                           18,317       34,196       45,663
Subtractions during the year:
 Foreclosure of Green Street                 0            0   (1,569,896)
 Foreclosure of Loewy Building               0   (3,796,358)           0
                                    ----------   ----------   ----------
Balance at end of year              $4,309,699   $4,291,382   $8,053,544
                                    ==========   ==========   ==========

Reconciliation of accumulated depreciation:
                                         2004        2003         2002
                                         ----        ----         ----
Balance at beginning of year        $2,496,860   $6,160,425   $6,891,196
Depreciation expense for the year      160,548      258,186      211,765
Foreclosure of Green Street                  0            0     (942,536)
Foreclosure of Loewy Building                0   (3,921,751)           0
                                    ----------   ----------   ----------
Balance at end of year              $2,657,408   $2,496,860   $6,160,425
                                    ==========   ==========   ==========


(F)  See  Note  B to the financial statements for depreciation  method
     and lives.



Item  9.   Changes in and Disagreements with Accountants on Accounting
           and  Financial Disclosure
           -----------------------------------------------------------

          None.


Item 9A.   Controls and Procedures
           -----------------------

           We  maintain  disclosure controls and procedures  that  are
designed to    ensure that information required to be disclosed in our
Securities Exchange Act of 1934    reports is recorded, processed, and
that  such  information  is accumulated and      communicated  to  our
management, including our managing partner's principal       executive
officer  and  principal  financial officer, as appropriate,  to  allow
timely  decisions    regarding required disclosure.  In designing  and
evaluating  the  disclosure controls and  procedures,  our  management
recognized that any controls and procedures, no matter       how  well
designed  and  operated,  can  provide only  reasonable  assurance  of
achieving       the  desired control objectives,  and  our  management
necessarily was required to apply  its judgment in evaluating the cost-
benefit relationship of possible controls and     procedures.

           Under  the supervision of our managing partner's  principal
executive  officer and    principal financial officer we have  carried
out  an  evaluation of the effectiveness of our     adopted disclosure
controls  and procedures as of the end of the period covered  by  this
report.   Based upon that evaluation, our managing partner's president
and  treasurer  concluded that our disclosure controls and  procedures
are effective.

           There  have  been no significant changes  in  our  internal
controls over financial  reporting that has materially affected, or is
reasonably  likely  to materially affect, our  internal  control  over
financial reporting during our most recent fiscal quarter.

<PAGE>


                               PART III
                               --------

Item 10.  Directors and Executive Officers of the Registrant
          --------------------------------------------------

             a.      Identification of Directors - Registrant has  no
directors.

             b.     Identification of Executive Officers

The  General  Partner of the Registrant is Dover Historic Advisors  II
(DoHA-II), a Pennsylvania general partnership.  The partners of  DoHA-
II are as follows:


                                  Term of
Name            Age  Position     Office      Period Served
----            ---  --------     -------     -------------

SWDHA, Inc.      --  Partner in   No fixed     Since May 1997
                     DoHA-II      term

EPK, Inc.        --  Partner in   No fixed     Since May 1997
                     DoHA-II      term


              For further description of DoHA-II, see paragraph e.  of
this  Item.   There is no arrangement or understanding between  either
person  named above and any other person pursuant to which any  person
was or is to be selected as an officer.

              c.      Identification of Certain Significant Employees.
Registrant has no                       employees.  Its administrative
and  operational functions are carried                       out by  a
property    management    and    partnership    administration    firm
engaged by the Registrant.

             d.     Family Relationships.  None.

             e          Business  Experience.  DoHA-II  is  a  general
             partnership  formed in              February  1986.   The
             partners     of    DoHA-II    are    EPK,    Inc.     and
             SWDHA,  Inc.  The General Partner is responsible for  the
             management  and control of the Registrant's  affairs  and
             has  general          responsibility  and  authority   in
             conducting its operations.

             f.   Involvement in certain legal proceedings. - None.

             g.   Promoters and control persons.  - Not Applicable.

             h.     Audit committee financial expert. - None.



                On  May  13, 1997, SWDHA, Inc. replaced Gerald Katzoff
and  EPK,  Inc.  replaced DHP, Inc. as partners of  DoHA-II.   Spencer
Wertheimer,  the  President  of  SWDHA,  Inc.,  is  an  attorney  with
extensive experience in real estate activities and ventures.

                EPK,  Inc.  is a Delaware corporation formed  for  the
purpose of managing properties or interests therein.  EPK, Inc.  is  a
wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act  as
the   holding  company  for  various  corporations  engaged   in   the
development  and management of historically certified  properties  and
conventional  real  estate as well as a provider  of  financial  (non-
banking) services.

                The  officers and directors of EPK, Inc. are described
below.

                Spencer  Wertheimer was appointed on May 13,  1997  as
President, Treasurer and Sole Director of EPK, Inc.  Mr. Wertheimer is
an  attorney  with extensive experience in real estate activities  and
ventures.

                Donna M. Zanghi was appointed on May 13, 1997 as  Vice
President  and  Secretary  of EPK, Inc.   Ms.  Zanghi  has  served  as
Secretary  and  Treasurer of DHP, Inc. since June 14, 1993  and  as  a
Director  and Secretary/Treasurer of D, LTD.  She was associated  with
DHP,  Inc.  and its affiliates since 1984 except for the  period  from
December  1986 to June 1989 and the period from November  1,  1992  to
June 14, 1993.

                Michele  F.  Rudoi was appointed on May  13,  1997  as
Assistant  Secretary of EPK, Inc.  Ms. Rudoi has served  as  Assistant
Secretary and Director of both D, LTD and DHP, Inc. since January  27,
1993.


Item 11.  Executive Compensation
          ----------------------

           a.   Cash Compensation - During 2004, Registrant paid no cash
             compensation
to DoHA-II, any partner therein or any person named in paragraph c. of
Item 10.

           b.  Compensation Pursuant to Plans - Registrant has no plan
pursuant to which compensation was paid or distributed during 2004  or
is  proposed to be paid or distributed in the future, to DoHA-II,  any
partner  therein, or any person named in paragraph c. of  Item  10  of
this report.

          c. Other Compensation - No compensation not referred to  in
paragraph  a.  or  paragraph b. of this Item was paid  or  distributed
during  2004 to DoHA-II, any partner therein, or any person  named  in
paragraph c. of Item 10.

          d. Compensation of Directors - Registrant has no directors.

          e.   Termination  of  Employment  and  Change  of  Control
Arrangement - Registrant has no compensatory plan or arrangement, with
respect  to  any  individual, which results or will  result  from  the
resignation  or  retirement of any individual, or any  termination  of
such  individual's  employment with Registrant or  from  a  change  in
control   of   Registrant   or   a   change   in   such   individual's
responsibilities following such a change in control.


Item  12.   Security  Ownership  of  Certain  Beneficial  Owners   and
            Management
            ----------------------------------------------------------

           a.  Security Ownership of Certain Beneficial  Owners  -  No
person is known to Registrant to be the beneficial owner of more  than
five percent of the issued and outstanding Units.

           b.  Security Ownership of Management - No equity securities
of  Registrant are beneficially owned by any person named in paragraph
c. of Item 10.

           c.  Changes  in Control - Registrant does not know  of  any
arrangement, the operation of which may at a subsequent date result in
a change in control of Registrant.


Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

              Pursuant  to Registrant's Amended and Restated Agreement
of  Limited  Partnership, DoHA-II is entitled to 10%  of  Registrant's
distributable cash from operations in each year.  There  was  no  such
share allocable to DoHA-II for fiscal years 2002 through 2004.

           a.  Certain  Business Relationships  -  Registrant  has  no
directors.

           b.  Indebtedness  of Management - No executive  officer  or
significant  employee of Registrant, Registrant's general partner  (or
any  employee thereof), or any affiliate of any such person, is or has
at any time been indebted to Registrant.



Item 14.  Principal Accountant Fees and Services
          --------------------------------------

           The following table presents the aggregate fees billed  for
each  of  the services listed below for each of the Registrant's  last
two fiscal years.

                                             2004        2003
                                             ----        ----


Audit Fees (1) .........................   $ 6,250     $ 6,250
Audit - Related Fees (2) ...............      -           -
Tax Fees (3) ...........................    11,000      11,000
All Other Fees (4) .....................      -           -
                                           -------     -------
Total...................................   $17,250     $17,250
                                           =======     =======



       1.  Audit  Fees - Audit fees for the years ended  December  31,
       2004  and  2003,  respectively, were accrued  for  professional
       services   to  be  performed  by  Russell  Bedford  Mirchandani
       Stefanou,  LLP  for  the  audits of the consolidated  financial
       statements  of the Registrant, statutory audits and  subsidiary
       audits,  issuance  of  comfort  letters  related  to  financing
       transactions, and with review of documents filed with the SEC.

       2.  Audit-Related Fees - Audit-related fees  as  of  the  years
       ended  December 31, 2004 and 2003, respectively, would  consist
       of   the  aggregate  fees  billed  for  assurance  and  related
       services that are reasonably related to the performance of  the
       audit   or  review  of  the  unaudited  consolidated  financial
       services  and  are  not  disclosed under  "Audit  Fees"  above;
       however,  no  such assurance or services were provided  in  the
       relevant periods.

       3.  Tax Fees - Tax fees as of the years ended December 31, 2004
       and  2003,  respectively,  were for  services  related  to  tax
       compliance, rendered by Brandywine Construction and  Management
       Inc.  including  preparation  of tax  returns  and  claims  for
       refund, tax planning and tax advice, including assistance  with
       and representation in tax audits.

       4.  All  Other  Fees  - All other fees as of  the  years  ended
       December 31, 2004 and 2003, respectively, would consist of  the
       aggregate  fees  billed  for products  and  services  described
       under  audit fees, audit - related fees and tax fees;  however,
       no  such  products and services were provided in  the  relevant
       periods.

<PAGE>

                                PART IV
                                -------

Item 15.  Exhibits, Financial Statement Schedules and Reports
          ---------------------------------------------------

          1. Financial Statements:

             a.   Consolidated Balance Sheets at December 31, 2004 and 2003

             b.    Consolidated Statements of Operations for
                 the Years Ended December 31, 2004, 2003 and 2002.

             c.    Consolidated  Statements  of  Changes  in
                 Partners'  Equity  for the Years Ended  December  31,
                 2004, 2003 and 2002.

             d.    Consolidated Statements of Cash Flows for
                 the Years Ended December 31, 2004, 2003 and 2002.

             d.   Notes to consolidated financial statements


          2.   Financial statement schedules

              a.    Schedule XI- Real Estate and  Accumulated
                 Depreciation.

              b.   Notes to Schedule XI.


3.           Exhibits:

      (a)       Exhibit Number      Document
                --------------      --------

                    3               Registrant's  Amended   and
                                    Restated   Certificate   of
                                    Limited   Partnership   and
                                    Agreement    of     Limited
                                    Partnership,     previously
                                    filed  as part of Amendment
                                    No.   2   of   Registrant's
                                    Registration  Statement  on
                                    Form       S-11,        are
                                    incorporated   herein    by
                                    reference.

                  21                Subsidiaries     of     the
                                    Registrant  are  listed  in
                                    Item  2. Properties of this
                                    Form 10-K.

                  31                General Partners Opinion
                                    Certification

                  32                Certification  Pursuant  to
                                    18  U.S.C. Section 1350, As
                                    Adopted     Pursuant     to
                                    Section    906    of    the
                                    Sarbanes-Oxley Act of 2002

          (c)  Exhibits:  See Item 15(A)(3) above.

<PAGE>


                              SIGNATURES
                              ----------

           Pursuant to the requirements of Section 13 or 15(d) 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.

Date:  June 19, 2007       DIVERSIFIED HISTORIC INVESTORS III
       -------------
                           By: Dover Historic Advisors II, its
                               general partner

                               By: EPK, Inc., managing partner

                                   By: /s/ Spencer Wertheimer
                                       ----------------------
                                       SPENCER WERTHEIMER
                                       President
                                       (principal executive officer,
                                        principal financial officer)

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


                         DIVERSIFIED HISTORIC INVESTORS III

                           By: Dover Historic Advisors II, its
                               general partner

                                By: EPK, Inc., managing partner

Date:  June 19, 2007                By: /s/ Spencer Wertheimer
       -------------                    ----------------------
                                        SPENCER WERTHEIMER
                                        President
                                        (principal executive officer,
                                         principal financial officer)

<PAGE>