UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, DC.  20549
                               FORM 10-K/A
                             Amendment No. 1


(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, 2003
                         ---------------------------------------------
                                  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          No  X
                                                     -----       -----

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/A  for  the
period  ended  December  31,  2003  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
Registrants' outstanding consolidated financial  statements.
Accordingly, the Company is re-filing the Original Filing in
its  entirety with an updated Item 8 and 14 of the  Original
Filing.  The Company has not made any other changes  to  the
Original  Filing.  This  Amendment  No.  1  on  Form  10-K/A
continues  to  speak as of the date of the Original  Filing,
and  the  Company has not updated the disclosures  contained
therein to reflect any events that occurred at a later date.

<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, 2003, 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, 2003, 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, 2003, 47 apartment units
were  under lease at monthly rental rates ranging from  $495
to  $1,800.  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, 2003 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, 2003).
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,  2003,  47 residential units (81%) were under  lease  at
monthly  rents ranging from $495 to $1,800.  All leases  are
renewable, one-year leases.  The occupancy for the  previous
four years was 95% for 2002, 98% for 2001, 86% for 2000, and
88%  for  1999. The monthly rental ranges for  the  previous
four  years were $475 to $1,800 during 2002, $471 to  $1,700
during  2001, $460 to $1,700 during 2000 and $460 to  $1,565
during  1999. For tax purposes, this property has a  federal
tax  basis  of  $3,481,292 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
$38,452  which  is  based on an assessed value  of  $426,880
taxed  at  a  rate  of  $82.64 per $1,000.   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.



                           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  82 Units of  record  were  sold  or
exchanged in 2003.

             b.   As of December 31, 2003, there were 1,584
record  holders of Units.

             c.   Registrant did not declare any cash dividends
in 2003 or 2002.


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

              The following selected financial data are  for
the five years ended December 31, 2003.  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.



                    2003        2002       2001        2000         1999
                    ----        ----       ----        ----         ----
Rental income  $  600,842  $  907,392  $  931,137  $  936,392   $1,257,195
Interest income       849       2,629       2,414       4,397        3,866
Net income
 (loss)         6,233,860     353,288  (3,444,268) (2,006,951)  (1,070,903)
Net income (loss)
 per Unit          441.41       25.01     (243.88)    (142.11)      (75.83)
Total assets
 (net of
 depreciation
 and
 amortization)  2,085,830   2,309,559   3,348,854   6,024,042    7,307,432
Debt
 obligations    3,030,680   7,365,328   8,996,269   8,972,599    8,966,573

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, 2003, Registrant had cash of
approximately $22,932.  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, 2003,  Registrant  had
restricted  cash of $140,141 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 2003, Registrant recognized net income
of   $6,233,860  ($441.41  per  limited  partnership   unit)
compared  to  a net income of $353,288 ($25.01  per  limited
partnership  unit)  in  2002 and a net  loss  of  $3,444,268
($243.88 per limited partnership unit) in 2001. Included  in
net   income   for   2003  is  an  extraordinary   gain   on
extinguishment of debt of $6,665,959. 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 $600,842 in 2003, $907,392
in 2002, and $931,137 in 2001. 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.
The decrease in rental income from 2001 to 2002 is due to  a
decrease  at  Lincoln  Court due to a  decrease  in  average
occupancy (98% to 95%).

             Rental operations expense was $389,559 in 2003,
$635,660  in  2002, and $567,915 in 2001. 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
utilities  expense. The decrease in maintenance  expense  is
due  to a decrease in maintenance service, trash collections
and  plumbing  and  electrical  expenses.  The  increase  in
utilities expense is due to an increase in gas charges.  The
increase  from  2001  to  2002 is  due  to  an  increase  in
insurance expense and utilities expense at Lincoln Court and
the  Loewy  Building  and an increase  in  real  estate  tax
expense  at  the  Loewy  Building,  partially  offset  by  a
decrease  in  maintenance  expense  at  Lincoln  Court.  The
increase in insurance expense at Lincoln Court and the Loewy
Building is due to insurance market conditions. The increase
in  real estate tax expense at the Loewy Building is due  to
an  increase in the property's assessed value. The  decrease
in  maintenance expense is due to the decrease  in  plumbing
and electrical and alarm service expenses.

               Interest  expense  was  $390,338   in   2003,
$1,264,379 in 2002, and $1,068,080 in 2001. 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. The increase in interest expense from 2001 to 2002
is   due  to  the  prepayment  penalty  incurred  upon   the
refinancing of the Lincoln Court first mortgage.

              Depreciation and amortization was $258,186  in
2003,  $299,952 in 2002, and $495,581 in 2001. 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. The increase in depreciation expense  is  due
to  capital expenditures. The decrease from 2001 to 2002  is
due to the impairment loss incurred at the Loewy Building in
2001 and the foreclosure of Green Street in 2002.

               During   2001  the  Registrant  incurred   an
impairment loss of $2,264,000. The Loewy Building was deemed
to  be  impaired  and was written down to  its  fair  market
value. Fair value, which was determined by reference to  the
present value of the estimated future cash inflows, exceeded
the  carrying  value by $2,264,000, therefore an  impairment
loss of that amount was charged to operations in 2001.

              In  2003, a loss of approximately $457,000 was
incurred at the Registrant's properties, compared to a  loss
of  $1,085,000  in  2002 and $1,198,000  (exclusive  of  the
impairment  loss discussed above) in 2001. A  discussion  of
property operations/activities follows:

              During 2003, the Registrant incurred a loss of
$100,000 at Lincoln Court including $171,000 of depreciation
and  amortization  expense, compared to a loss  of  $624,000
including $223,000 of depreciation and amortization  expense
in  2002,  and  a  loss  of $269,000 including  $165,000  of
depreciation and amortization expense in 2001. 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  are  due   to
additional expenses incurred during the second half of  2002
due  to  the  loan  refinance. The increase in  depreciation
expense is due to capital expenditures. The increase in loss
from 2001 to 2002 is due to a decrease in rental income  and
an  increase  in utilities expense, insurance expense,  real
estate  tax  expense  and  depreciation  expense,  partially
offset by a decrease in maintenance expense. The decrease in
rental income is due to a decrease in average occupancy (98%
to  95%).  The increase in utilities expense is  due  to  an
increase  in electricity charges. The increase in  insurance
expense  is due to insurance market conditions. The increase
in  real  estate  tax expense is due to an increase  in  the
assessed value of the property. The increase in depreciation
expense  is  due  to capital expenditures. The  decrease  in
maintenance  expense is due to a decrease  in  plumbing  and
electrical and alarm service expenses.

              On  June  30, 1992 Dover Historic  Properties,
Inc.  ("DHP,  Inc."), a partner of the Registrant's  general
partner,  assigned to The Dover Group, Ltd. ("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  2003  and  2002.
Payments on the note are to be made from available cash flow
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, 2003 was $798,823.

                 In   2002   the  Green  Street   Apartments
recognized   income  of  $1,289,000  including  $42,000   in
depreciation  expense  compared  to  a  loss   of   $145,000
including  $59,000  of depreciation expense  in  2001.   The
property  was  foreclosed on October 1,  2002.  Included  in
income   for   2002  is  an  extraordinary   gain   on   the
extinguishment of debt of $1,423,902.

               In 2003, the Loewy Building recognized income
of  $6,320,000  including  $87,000 of  amortization  expense
compared  to  a  loss  of  $566,000  including  $21,000   of
depreciation and amortization expenses in 2002, and  a  loss
(exclusive  of  the  impairment loss) of $745,000  including
$290,000  of  depreciation and amortization  expense  during
2001.  The  property  was  foreclosed  on  April  29,  2003.
Included in income for 2003 is an extraordinary gain on  the
extinguishment of debt of $6,665,959.

           Summary of Minority Interests

              In  2002, the Registrant recognized income  of
$12,532  at Magazine Place compared to an income of  $18,000
in  2001.  This  investment is accounted for by  the  equity
method. The decrease in income from 2001 to 2002 is  due  to
the sale of the property during the second quarter of 2002.

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


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>



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, 2003, and
2002                                                        11


   Consolidated Statements of Operations for  the  Years
Ended December 31, 2003, 2002, and 2001                     12

   Consolidated  Statements  of  Changes  in   Partners'
Equity  for the Years Ended December 31, 2003,  2002,       13
and 2001
   Consolidated Statements of Cash Flows for  the  Years
Ended December 31, 2003, 2002, and 2001                     14

   Notes to consolidated financial statements             15-22


Financial statement schedules:

   Schedule XI - Real Estate and Accumulated Depreciation   24

   Notes to Schedule XI                                     25



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, 2003 and 2002

                             Assets
                             ------

                                          2003        2002
                                          ----        ----
                                       (Restated)

Rental properties at cost:
 Land                                 $  123,794  $  274,690
 Buildings and improvements            4,008,630   7,654,091
 Furniture and fixtures                  158,958     124,762
                                      ----------  ----------
                                       4,291,382   8,053,543
 Less - accumulated depreciation      (2,496,860) (6,160,425)
                                      ----------  ----------
                                       1,794,522   1,893,118
Cash and cash equivalents                 22,932      24,207
Restricted cash                          140,141     118,080
Accounts receivable                       10,007      29,374
Other assets (net of accumulated
 amortization of $10,858 and $160,716)   118,228     244,780
                                      ----------  ----------
          Total                       $2,085,830  $2,309,559
                                      ==========  ==========

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

Liabilities:
 Debt obligations                     $3,030,680   $ 7,365,328
 Trade                                   908,952       974,166
 Related parties                         864,973       819,270
 Interest payable                         15,698     2,211,324
 Tenant security deposits                 39,797        43,588
 Advances                                200,584        13,657
 Other liabilities                        26,257        33,342
                                      ----------   -----------
          Total liabilities            5,086,941    11,460,675
Minority interest                      1,250,379     1,334,234
Partners' deficit                     (4,251,490)  (10,485,350)
                                      ----------   -----------
          Total                       $2,085,830   $ 2,309,559
                                      ==========   ===========

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, 2003, 2002 and 2001

                                      2003         2002         2001
                                      ----         ----         ----
                                   (Restated)

Revenues:
 Rental income                    $  600,842  $  907,392     $  931,137
 Interest income                         849       2,629          2,414
 Gain on sale of investment                0     271,576              0
                                  ----------  ----------     ----------
  Total revenues                     601,691   1,181,597        933,551
                                  ----------  ----------     ----------
Costs and expenses:
 Rental operations                   389,559     635,660        567,915
 Interest                            390,338   1,264,379      1,068,080
 Depreciation  and amortization      175,209     299,952        495,581
 Bad debt                             20,636      66,876              0
 Impairment loss                           0           0      2,264,000
                                  ----------  ----------     ----------
  Total costs and  expenses          975,742   2,266,867      4,395,576
                                  ----------  ----------     ----------
Net loss before minority interest
 and equity in affiliate            (374,051) (1,085,270)    (3,462,025)
Minority interest                     24,931       2,124              0
Equity in income of affiliate              0      12,532         17,757
                                  ----------  ----------     ----------
Net loss before extraordinary
 item                               (349,120) (1,070,614)    (3,444,268)
Extraordinary gain on
 extinguishment of debt            6,582,981   1,423,902              0
                                  ----------  ----------     ----------
Net income (loss)                 $6,233,861  $  353,288    ($3,444,268)
                                  ==========  ==========    ============


Net  income  (loss)  per  limited
 partnership unit:
 Net loss before minority interest
  and equity in affiliate           ($ 26.49)   ($ 76.85)      ($245.14)
 Minority interest
                                        1.77         .15              0
 Equity in income of affiliate
                                           0         .89           1.26
                                     -------     -------        -------
Net loss before extraordinary item    (24.72)     (75.81)       (243.88)
Extraordinary gain on
 extinguishment of debt               466.13      100.82              0
                                     -------     -------        -------
Net income (loss) per limited
 partnership unit                    $441.41     $ 25.01       ($243.88)
                                     =======     =======        =======

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, 2003, 2002 and 2001


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

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

Balance at December 31, 2000       ($186,983)  ($7,207,389)  ($7,394,372)
Net loss                             (34,443)   (3,409,823)   (3,444,266)
                                    --------   -----------   -----------
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     6,171,521     6,233,860
                                    --------   -----------   -----------
Balance at December 31, 2003       ($155,554)  ($4,095,936)  ($4,251,490)
                                    ========   ===========   ===========
 (1)      General Partner.

 (2) 13,981.5 limited partnership units outstanding at December 31,
     2003, 2002, and 2001.


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, 2003, 2002 and 2001


                                          2003      2002         2001
                                          ----      ----         ----
                                        (Restated)

Cash flows from operating activities:
 Net income (loss)                  $6,233,860   $  353,288 ($3,444,268)
 Adjustments to reconcile net loss
  to net cash:
  Depreciation and amortization        175,209      299,952     495,581
  Impairment loss                            0            0   2,264,000
  Gain on sale of investment                 0     (271,576)          0
  Equity in income of affiliate              0      (12,532)    (17,757)
  Extraordinary gain on extinguish-
   ment of debt                        (92,365)  (1,423,902)          0
   of debt
  Extraordinary gain on foreclosure
    of property                     (3,712,111)           0           0

  Extraordinary gain on foreclosure -
   impairment loss                  (2,778,505)           0           0

  Minority interest                    (24,931)      (2,124)          0
 Changes in assets and liabilities:
  (Increase) decrease in restricted
   cash                                (22,061)       7,624      55,852
  Decrease (increase) in accounts
   receivable                           19,367       74,401     (13,087)
  Increase in other assets             (28,519)     (29,067)    (64,530)
  (Decrease) increase in accounts
   payable - trade                     (12,953)    (234,651)     28,536
  Increase (decrease) in accounts
   payable - related parties            45,703      (54,297)     45,707
  (Decrease) increase in
   accounts payable - real estate            0      (21,174)     21,174
  Increase (decrease) in interest
   payable                             151,243     (126,734)    649,457
  Increase (decrease) in tenant
   security deposits                     1,209      (18,880)      4,584
  Increase in advances                 186,927       13,657           0
  (Decrease) increase in other
   liabilities                          (2,016)       2,669      (4,049)
                                    ----------   ----------  ----------
Net cash provided by (used in)
 operating activities                  140,057   (1,443,346)     21,200
                                    ----------   ----------  ----------
Cash flows from investing
 activities:
 Cash proceeds - sale of investment          0      465,111           0
 Capital expenditures                  (34,195)     (45,663)    (48,641)
                                    ----------   ----------  ----------
Net cash (used in) provided by
 investing activities                  (34,195)     419,448     (48,641)
                                    ----------   ----------  ----------
Cash flows from financing
 activities:
 Proceeds from debt obligations      3,061,632    3,135,464      40,487
 Payments of principal under debt
  obligations                       (3,109,843)  (2,105,427)    (16,816)
 Distributions                         (58,926)      (6,500)          0
                                    ----------   ----------  ----------
Net cash (used in) provided by
 financing activities                 (107,137)   1,023,537      23,671
                                    ----------   ----------  ----------
Decrease in cash and cash
 equivalents                            (1,275)        (361)     (3,770)
Cash and cash equivalents at
 beginning of year                      24,207       24,568      28,338
                                    ----------   ----------  ----------
Cash and cash equivalents at
 end of year                        $   22,932   $   24,207  $   24,568
                                    ==========   ==========  ==========


Cash paid during the year for
 interest                           $  175,784   $1,336,459  $  418,623


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  of  13,981.5 for the years ended  December  31,
2003, 2002 and 2001, respectively.

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
operating  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 mortgage, 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 - IMPAIRMENT LOSS
------------------------

During  2001, the Loewy Building was deemed to  be  impaired
and was written down to its fair value. The value, which was
determined  by  reference  to  the  present  value  of   the
estimated  future cash inflows, exceeded the carrying  value
by  $2,264,000. An impairment loss of that amount  has  been
charged to operations in 2001.


NOTE E - 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 F - 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 G - DEBT OBLIGATIONS
-------------------------

Debt obligations are as follows:                   December 31,
                                                 2003        2002
                                                 ----        ----
Mortgage loan, interest accrues at 11 1/2%,         0  $3,916,716
interest  only  payable  monthly  to  the
extent of net operating income; principal
due  January 2012; collateralized by  the
related rental property. (B)

Note,  interest payable monthly at prime,           0     200,000
with a minimum of 6% and a maximum of 8%,
adjusting annually on January  2  (6%  at
December 31, 2002 and 2001); due in 1997;
collateralized  by  the  related   rental
property (A) (B)

Allowed unsecured claims in the amount of          0      158,612
$268,042; non-interest bearing (B)

Note   payable,  interest  only  at  10%,     10,000       10,000
payable quarterly;  principal due in 1994
(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                     3,020,680   3,080,000
                                           ----------  ----------
                                           $3,030,680  $7,365,328
                                           ==========  ==========

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

(B)  The  Loewy  Building  was foreclosed  by  the  mortgage
     holder on April 29, 2003.

Approximate  maturities of the mortgage loan obligations  at
December 31, 2003, for each of the succeeding five years are
as follows:
                 2004                $  36,106
                 2005                   38,385
                 2006                   40,807
                 2007                   43,383
                 2008                   46,121
                 Thereafter          2,825,878
                                    ----------
                                    $3,030,680
                                    ==========

NOTE H - 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 I - 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 2002 and 2003.  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,  2003  was
$798,823.  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 J - 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,

                                      2003          2002          2001
                                      ----          ----          ----
Net income (loss) - book          $6,233,860      $353,288   ($3,444,268)
Minority interest - affiliate              0         2,124             0
Minority interest - Magazine Place         0       (12,532)            0
Excess of tax over book - gain on
 sale of investment                        0       466,470             0
Excess of book over tax -
 extraordinary gain on
 extinguishment of debt           (3,473,922)     (737,736)            0
Excess of book over tax (tax over
 book) depreciation                  337,989      (183,976)       67,753
Other                                 50,000             0             0
Minority interest - tax             (120,284)       10,658         7,047
Impairment loss adjustment                 0             0     2,264,000
                                  ----------      --------    ----------
Net loss - tax                    $3,027,643     ($101,704)  ($1,105,468)
                                  ==========      ========    ==========

Partners' equity - book          ($4,251,490) ($10,485,350)  ($10,838,639)
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         1,423     3,316,623      3,771,616
Magazine Place adjustment                  0      (108,983)             0
                                  ----------   -----------    -----------
Partners' equity - tax           ($2,592,301) ($ 5,619,944)  ($ 5,409,257)
                                  ==========   ===========    ===========

NOTE K - 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 L - 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 M - 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 N - 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,
                    ---------------------------------------------------
                                              2003
                    ---------------------------------------------------
Revenues:
 Rental income         $122,888      $119,802   $  152,609     $205,543
 Interest income            111           292          166          280
                       --------      --------   ----------     --------
Total revenues          122,999       120,094      152,775      205,823
                       --------      --------   ----------     --------
Costs and expenses:
 Rental operations       38,616        53,480       89,214      208,249
 Interest                73,295        58,232      108,005      150,806
 Bad debt                15,400             0        5,236            0
 Depreciation and
  amortization           46,886        41,287       41,284       45,752
                       --------      --------   ----------     --------
Total costs and
 expenses               174,197       152,999      243,739      404,807
                       --------      --------   ----------     --------
Loss before minority
 interest and equity
 in affiliate           (51,198)      (32,905)     (90,964)    (198,984)
Minority interest         7,320         3,732        1,024       12,855
                       --------      --------   ----------     --------
Net loss before
 extraordinary item     (43,878)      (29,173)     (89,940)    (186,129)
Extraordinary gain on
 extinguishment of debt       0             0    6,582,981            0
                       --------      --------   ----------     --------
Net (loss) income      ($43,878)    ($ 29,173)  $6,493,041    ($186,129)
                        =======      ========   ==========     ========

Net (loss) income per
 limited partnership
 unit:
Loss before minority
 interest and equity
 in affiliate         ($   3.63)    ($   2.33)  ($    6.44)   ($  14.09)

Minority interest           .52           .26          .07          .91
Extraordinary gain            0             0       466.13            0
                       --------      --------    ---------     --------
Net (loss) income     ($  3.11)     ($   2.07)  ($  459.76    ($  13.18)
                       =======       ========    =========     ========

<PAGE>





                  SUPPLEMENTAL INFORMATION

<PAGE>



<PAGE>

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



          SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 2003
          ------------------------------------------------------

                                                      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 $3,030,680   $123,794  $3,524,715 $642,873 1986-1987  9/9/86


                             Gross Amount at which Carried at
                                    December 31, 2003
                             --------------------------------


                               Buildings                Accumu-
                                  and                    lated
                                Improv-      Total       Depr.
Description           Land       ments      (d) (e)     (e) (f)
-----------           ----     ---------    -------    --------
58 apartment
units in
Philadelphia,PA   $123,794   $4,167,588  $4,291,382  $2,496,860


<PAGE>

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

                      NOTES TO SCHEDULE XI
                      --------------------
                      December 31, 2003

(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,
     2003,  for federal income tax purposes is approximately
     $3,481,292.  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:
                                     2003        2002        2001
                                     ----        ----        ----

Balance at beginning of year:     $8,053,544  $9,577,777  $11,793,136
 Additions during the year:
  Improvements                        34,196      45,663       48,641
 Subtractions during the year:
  Foreclosure of Green Street              0  (1,569,896)           0
  Impairment Loss - Loewy Building         0           0   (2,264,000)
  Foreclosure of Loewy Building   (3,796,358)          0            0
                                  ----------  ----------  -----------
Balance at end of year            $4,291,382  $8,053,544  $ 9,577,777
                                  ==========  ==========  ===========

Reconciliation of accumulated depreciation:
                                     2003        2002        2001
                                     ----        ----        ----
Balance at beginning of year      $6,160,425  $6,891,196   $6,424,759
Depreciation expense for the year    258,186     211,765      466,437
Foreclosure of Green Street                0    (942,536)           0
Foreclosure of Loewy Building     (3,921,751)          0            0
                                  ----------  ----------   ----------
Balance at end of year            $2,496,860  $6,160,425   $6,891,196
                                  ==========  ==========   ==========

(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 (age 46) was appointed on May
13,  1997 as Vice President and Secretary of EPK, Inc.   Ms.
Zanghi  had previously 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 (age 38) was appointed  on
May  13, 1997 as Assistant Secretary of EPK, Inc.  Ms. Rudoi
previously  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 2003, 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  2003  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 2003 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 2000 through 2003.

          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.

                                             2003        2002
                                             ----        ----


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 year ended December  31,
2003  and  2002 were for professional services  rendered  by
RBSM,  LLP.  The  fees represent 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,  2003  and  2002,  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, 2003
and  2002,  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, 2003 and 2002, 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.


Item 15.  2001 Report of Prior Auditors
          -----------------------------

                  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, 2001  and  2000
and  the  related statements of operations, changes in  partners'
equity and cash flows for the years ended December 31, 2001, 2000
and  1999.   These consolidated statements are the responsibility
of  the  Partnership's  management.   Our  responsibility  is  to
express  an  opinion  on these consolidated financial  statements
based on our audits.

We  conducted  our  audit in accordance with  auditing  standards
generally  accepted  in  the 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 financial 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  presents fairly, in all material respects,  the  financial
position  of  Diversified Historic Investors III and subsidiaries
as  of  December 31, 2001 and 2000, and the results of operations
and  cash  flows for the years ended December 31, 2001, 2000  and
1999, in conformity with accounting principles generally accepted
in the United States of America.

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 26 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  had incurred  significant  losses  from
operations,  which raise substantial doubt about its  ability  to
continue  as  a  going concern. The financial statements  do  not
include  any  adjustments that might result from the  outcome  of
this uncertainty.




Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
March 20, 2002

<PAGE>



                             PART IV
                             -------

Item 16. (A) Exhibits, Financial Statement Schedules and Reports
         -------------------------------------------------------

          1. Financial Statements:

              a.  Consolidated Balance Sheets at December 31, 2003
                  and 2002.

              b.  Consolidated Statements of Operations for  the
                  Years Ended December 31,  2003, 2002, and 2001.

              c.  Consolidated Statements of Changes in Partners'
                  Equity for the Years  Ended December 31, 2003,
                  2002, and 2001.

              d.  Consolidated Statements of Cash Flows for the
                  Years Ended December 31, 2003, 2002, and 2001.

              c.   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
                                    (To be filed with amended
                                    10-K/A)

                  32                Certification  Pursuant  to
                                    18  U.S.C. Section 1350, As
                                    Adopted     Pursuant     to
                                    Section    906    of    the
                                    Sarbanes-Oxley Act of 2002
                                    (To  be  filed with amended
                                    10-K/A)

             (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:  May 3, 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: May 3, 2007                By:    /s/ Spencer Wertheimer
      --------------                    ----------------------
                                        SPENCER WERTHEIMER
                                        President (principal
                                         executive officer,
                                         principal
                                         financial officer)
<PAGE>