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 [FEE REQUIRED]

For the fiscal year ended             December 31, 1998
                          --------------------------------------------
[   ]  TRANSITION  REPORT  PURSUANT TO SECTION  13  OR  15(D)  OF  THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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.)

              1609 WALNUT STREET,  PHILADELPHIA,   PA       19103
----------------------------------------------------------------------
(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. [   ]

Aggregate  market  value  of  Units  held  by  non-affiliates  of  the
Registrant: Not Applicable*

*  Securities  not  quoted  in  any  trading  market  to  Registrant's
knowledge.
<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,  1998,  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 interests therein.  One  property
has  been  lost  through foreclosure.  See Item 2. Properties,  for  a
description  thereof.  It currently owns four properties or  interests
therein.   For  a discussion of the operations of the Registrant,  See
Part  II,  Item 7. Management's Discussion and Analysis  of  Financial
Conditions 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.   All four properties  are  held  for  rental
operations.   At  this time it is anticipated that all the  properties
will  continue  to  be held for this purpose.  At such  time  as  real
property values begin to increase, the Registrant will re-evaluate its
investment strategy regarding the properties.

                     As  of  December 31, 1998, Registrant owned  four
properties  (or  interests therein), located  in  Pennsylvania  (two),
Louisiana  (one),  and  North Carolina (one).   Three  properties  are
operating  as apartment buildings and one property is operating  as  a
commercial/office building.  In total, the four properties contain 133
apartment  units  and  62,091 square feet ("sf") of  commercial/retail
space.  As of December 31, 1998, 119 of the apartment units were under
lease  at  monthly  rental  rates ranging from  $460  to  $1,565.   In
addition, 60,671 sf of the commercial space was under lease at  annual
rates  ranging  from $6.00 per sf to $16.44 per  sf.   Rental  of  the
apartments  and commercial space is not expected to be 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 and commercial  real
estate  industries.  As a result of the overbuilding that occurred  in
the  1980's,  the  competition  for both  residential  and  commercial
tenants  in  the  local markets where the Registrant's properties  are
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.   Two of the residential  properties  are
located  in Philadelphia, PA and the other is located in the Warehouse
District  of  New  Orleans,  LA.   The commercial/office  building  is
located  in Winston-Salem, NC.  One of the Philadelphia properties  is
located  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.   In  all  the  locations,   the
competition  for  tenants remains stiff and several similar  buildings
exist.   The  apartment and commercial 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   four
properties,  or  interests  therein.  A summary  description  of  each
property held at December 31, 1998 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 100% 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, 1998).  The note payable bears interest
at  10% 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, an $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 are 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.   The  first
mortgage   was  refinanced  with  a  $1,540,000  mortgage  ($1,540,000
principal balance at December 31, 1998) which bears interest at 6.83%,
is  payable  in  monthly  installments of principal  and  interest  of
$10,070  and is due in November 2008.  The three mortgage  notes  were
consolidated  and  a  new  note (principal balance  of  $1,935,993  at
December   31,  1998  including  accrued  but  unpaid  interest)   was
structured which extends the maturity date to December 2, 2008,  bears
interest at 15% and monthly payments of interest are to be made in  an
amount equal to net operating income.

                The  property is managed by BCMI.  As of December  31,
1998,  51  residential units were under lease (88%) at  monthly  rents
ranging  from  $460  to  $1,565.  All leases are  renewable,  one-year
leases.   The occupancy for the previous four years was 87%  for  1997
84%  for 1996, 81% for 1995 and 58% for 1994  The monthly rental range
has  been  approximately the same since 1994.  For tax purposes,  this
property  has  a  federal tax basis of $3,739,913 and  is  depreciated
using the straight-line method with a useful life of 27.5 years.   The
annual real estate taxes are $30,226 which is based on assessed  value
of  $365,760  taxed  at  a rate of $8.264 per  $100.   No  one  tenant
occupies  ten percent or more of the building.  It is the  opinion  of
the  management  of  the  Registrant that the property  is  adequately
covered by insurance.

                b.    The  Green  Street Apartments - consists  of  18
apartment units in three adjoining buildings located at 1826-1828-1830
Green  Street in Philadelphia, Pennsylvania.  In July 1987, Registrant
acquired  its  interest in this property by purchasing a  99%  general
partnership  interest in 18th & Green Associates  General  Partnership
("18th  &  Green"), a Pennsylvania general partnership, for  $800,000.
18th  & Green contracted to acquire and rehabilitate the Property  for
$1,600,000  ($100  per sf).  Additionally, $100,000 of  cash/marketing
reserves  were provided.  The total cost of the project was funded  by
Registrant's  equity contribution and mortgage financing  of  $900,000
(principal  balance of $1,314,181 at December 31,  1998)  which  bears
interest  at  12%.  During 1990, Registrant defaulted on its  mortgage
loan and the lender obtained a confession of judgment pursuant to  the
loan  documents.  Registrant petitioned the court to open the judgment
and  negotiated a settlement with the lender.  The settlement required
the Registrant to make payments toward delinquent interest in December
1990  and April 1991.  Registrant did not make the April 1991 payment;
however, no notice of default was received from the lender.  In  1992,
the  Resolution  Trust Corporation ("RTC") took over  control  of  the
lender.  The Registrant received notice in 1993 that the RTC had  sold
the  loan.   The  purchaser of the note contacted the  Registrant  who
attempted  to negotiate a loan modification.  In September  1994,  the
mortgage  note  was  sold  again.   The  Registrant  entered  into  an
agreement  with  the  new  holder of the  mortgage  whereby  the  note
maturity was extended to 1999 with monthly payments of interest to  be
made  in  an  amount equal to net operating income, with a minimum  of
$5,750 per month.  The property is managed by BCMI.

               As of December 31, 1998, 17 apartments were under lease
(94%)  at  monthly rents ranging from $495 to $725.   All  leases  are
renewable, one-year leases.  The occupancy for the previous four years
was  94%  for 1997, 92% for 1996, 92% for 1995 and 99% for 1994.   The
monthly rental range has been approximately the same since 1994.   For
tax  purposes, this property has a federal tax basis of $1,480,897 and
is  depreciated using the straight-line  method with a useful life  of
27.5  years.  The annual real estate taxes are $15,470 which is  based
on  assessed value of $187,200 taxed at a rate of $8.264 per $100.  No
one  tenant occupies ten percent or more of the building.  It  is  the
opinion  of  the  management of the Registrant that  the  property  is
adequately covered by insurance.

                c.    The  Loewy Building - consists of two  adjoining
buildings  located  at 505 West Fourth Street in Winston-Salem,  North
Carolina.  The buildings consist of 62,091 sf of commercial space.  In
November  1986, the Registrant acquired its interest in this  Property
by  purchasing a 99% interest in Triad Properties General  Partnership
("Triad"), a Pennsylvania general partnership, for a cash contribution
of  $2,250,000.   Triad  contracted to acquire  and  rehabilitate  the
Property  for  $5,690,000  ($88 per sf).   Additionally,  $560,000  of
working  capital/marketing reserves were provided.  The total cost  of
the  project was funded by Registrant's equity contribution,  mortgage
financing  of $3,560,000 (principal balance of $3,811,828 at  December
31,  1998)  and  a  $500,000  note payable  to  the  Developer  (Cwood
Properties, Inc., Thomas L. Kummer and Gail R. Citron; all of whom are
general  partners  of Triad).  The first mortgage  bears  interest  at
11.5%  and  is  due in January 2012.  The note was sold  in  September
1997.  The Registrant entered into an agreement with the new holder of
the  note whereby monthly payments of interest are to be made  to  the
new  note  holder in an amount equal to net operating  income  with  a
minimum  monthly  payment  of  $27,500.  Triad  obtained  $200,000  of
additional  financing  in  1987 to fund cost overruns  resulting  from
delays   and   changes  in  rehabilitation  and  construction   plans,
(principal balance due of $200,000 at December 31, 1998) and  interest
at  prime  with a minimum of 6% and a maximum of 8% adjusting annually
on  January 2, (the rate was 8% at December 31, 1998 and 1997) and the
Registrant advanced an additional $1,098,000.  The property is managed
by  BCMI.   As  of December 31, 1998, 60,671 sf were rented  (98%)  at
annual rates ranging from $6.00 to $16.44 per sf.

                The occupancy for the previous four years has been 88%
for  1997, 88% for 1996, 95% for 1995 and 93% for 1994.  The range for
annual rents has been $6.00 to $16.21 per sf for 1997, $6.00 to $14.16
per  sf for 1996, $6.00 to $12.93 per sf for 1995, $6.95 to $14.08 per
sf  for  1994.  There are two tenants who each occupy ten  percent  or
more  of the rentable square footage.  They operate principally  as  a
bank and a law firm.

                The  following  is  a table showing  commercial  lease
expirations at Loewy Building for the next five years.

                                                  Total annual        % of gross
             Number of       Total sf of       rental covered      annual rental
 Years    leases expiring  expiring leases   by expiring leases   from property
                                                                                
 1999           6              42,303            $486,196               66%
 2000           4              10,673             137,652               19%
 2001           0                   0                   0                0%
 2002           1               7,695              87,723               12%
 2003           0                   0                   0                0%

                There  are 6 commercial leases which expire  in  1999.
The first lease is for 200 sf and, although no negotiations have taken
place,  the  Registrant expects the tenant to  renew  at  the  current
rental  rate.   The  second lease is for 3,061 sf and  the  Registrant
expects  the tenant to exercise the renewal option in its lease.   The
third  lease is for 2,302 sf and the Registrant expects the tenant  to
renew  at  current market rates.  The fourth and fifth leases  (33,121
sf)  are  with  the same tenant and expired December  31,  1998.   The
Registrant  is  in  the process of negotiating a lease  extension  and
expects the tenant to renew at current market rates.  The sixth  lease
is  for  5,039 sf and the Registrant expects the tenant  to  renew  at
current market rates.  For tax purposes of depreciation, this property
has  federal  tax  basis  of $6,155,916 and is depreciated  using  the
straight-line  method with a useful life of 27.5  years.   The  annual
real  estate taxes are $19,776 which is based on an assessed value  of
$1,680,900 taxed at a rate of $1.1765 per $100.  It is of the  opinion
of  the  management of the Registrant that the property is  adequately
covered by insurance.

                d.    Magazine  Place  -  is  a  four  story  building
consisting of 57 apartment units located at 730 Magazine Street in New
Orleans, Louisiana.  In October 1986, the Registrant was admitted with
a   60%   general  partnership  interest  in  Magazine  Place  Limited
Partnership  ("MPP"), a Louisiana partnership, for a cash contribution
of  $600,000.  Registrant believes that its acquisition of a  majority
general  partnership interest in MPP, though technically non-compliant
with the provisions of Registrant's partnership agreement disapproving
of investments in limited partnerships, will have no adverse impact on
Registrant's  limited  partners.   Registrant  subsequently  made   an
additional  equity  contribution of  $142,393  to  fund  certain  fees
incurred  by  MPP.   MPP acquired and rehabilitated the  property  for
$4,091,393  ($51 per sf), including mortgage financing  of  $3,050,000
(principal  balance  of  $2,808,515 at December  31,  1998)  and  cash
contributions  by  limited partners of $344,000.   The  mortgage  note
bears interest at 10%, is payable in monthly installments of principal
and interest of $26,766, and is due in 1999.  The excess proceeds from
equity  investments  and mortgage financing over the  acquisition  and
rehabilitation   costs  were  utilized  to  provide  working   capital
reserves.   In 1987, Registrant made an equity contribution of  $7,000
(MPP's  other  partners contributed cash in the amount of  $28,000  in
1987)  to fund operating deficits incurred during the lease-up period.
According  to  the  Amended  and Restated Partnership  Agreement,  the
Registrant's interest in MPP will be reduced from 60% to 40% as of the
First Conversion Date.  The First Conversion Date is the date on which
the  Registrant  will  have received a return of its  initial  capital
contribution.  For purposes of determining the First Conversion  Date,
the Registrant will be deemed to have received a return of its initial
capital  contribution  when the sum of the  following  amounts  equals
$600,000:  (i) cash distributions from MPP; (ii) investment tax credit
allocable to the Registrant; and (iii) 50% of the aggregate  of  MPP's
net losses and deductions allocable to the Registrant.  As of December
31,  1994, the Registrant had received a return of its initial capital
and  the  Registrant's interest in the MPP was reduced to 40%.   Since
that  date, the Registrant has accounted for its investment in MPP  on
the equity basis.

                The  property  is  managed by an independent  property
management  firm.  As of December 31, 1998, 51 residential units  were
under  lease (89%) at monthly rents ranging from $620 to $1,300.   All
leases are renewable, one-year leases.  The occupancy for the previous
four  years was 91% for 1997, 96% for 1996, 91% for 1995 and  89%  for
1994.   The monthly rental range has been approximately the same since
1994.   For  tax purposes, this property has a federal  tax  basis  of
$2,500,448 and is depreciated using the straight-line  method  with  a
useful  life of 27.5 years.  The annual real estate taxes are  $14,077
which is based on assessed value of $79,000 taxed at a rate of $17.819
per $100.  No one tenant occupies ten percent or more of the building.
It  is  the  opinion  of  the management of the  Registrant  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 years 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 61 Units of  record
were sold or exchanged in 1998.

                b.    As of December 31, 1998, there were 1,581 record
holders of Units.

                c.   Registrant did not declare any cash dividends  in
1998 or 1997.

Item 6.        Selected Financial Data

                The following selected financial data are for the five
years ended December 31, 1998.  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.

                        1998         1997        1996        1995        1994
                                                                        
 Rental income      $1,251,911   $1,251,764  $1,254,573  $1,658,031  $2,016,023
 Interest income         2,113          441       1,229         840       1,005
 Net loss           (1,297,537)  (1,017,497) (1,017,308)   (533,933) (1,756,104)
 Net loss per Unit      (91.88)      (72.05)     (72.03      (37.80)    (124.35)
 Total assets (net of7,758,588    8,196,299   8,711,971   8,887,472  18,771,092
 depreciation and         
 amortization)
 Debt obligations    8,970,613    8,418,142   8,414,901   7,776,693  15,216,724

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

               (1)  Liquidity

                     At  December  31, 1998, Registrant  had  cash  of
approximately  $31,981.   Cash  generated  from  operations  is   used
primarily  to fund operating expenses and debt service.  If cash  flow
proves  to  be insufficient, the Registrant will attempt to  negotiate
with   the  various  lenders  in  order  to  remain  current  on   all
obligations.  The Registrant is not aware of any additional sources of
liquidity.

                    As of December 31, 1998, Registrant had restricted
cash  of  $168,344  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.

                     In  recent  years  the  Registrant  has  realized
significant losses, including the foreclosure of one property, due  to
the  properties'  inability to generate sufficient cash  flow  to  pay
their  operating  expenses  and debt service.   At  the  present  time
Registrant has feasible loan modifications in place at Lincoln  Court,
Green Street and the Loewy Building.  However, in all three cases, the
mortgages are basically "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  Registrant to pay its general  and  administrative
expenses.

                     It  is the Registrant's intention to continue  to
hold  the  properties until they can no longer meet the  debt  service
requirements and the properties are foreclosed, or the market value of
the  properties increases to a point where they 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  Registrant believes it is appropriate to continue presenting  the
financial statements on a going concern basis.

               (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 expenditures 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 first mortgage holder for Lincoln  Court,
Loewy  Building  and  18th  and  Green  has  agreed  to  fund  capital
expenditures at terms similar to the first mortgage.

                    Results of Operations

                     During  1998, Registrant incurred a net  loss  of
$1,297,537 ($91.88 per limited partnership unit), compared  to  a  net
loss of $1,017,497 ($72.05 per limited partnership unit) in 1997 and a
net loss of $1,017,308 ($72.03 per limited partnership unit) in 1996.

                    Rental income decreased from $1,254,573 in 1996 to
$1,251,764 in 1997 and increased to $1,251,911 in 1998.  The  increase
from 1997 to 1998 is due to an increase at the Green Street Apartmants
due  to  an increase in the average occupancy and an increase  in  the
average  rental rates partially offset by a decrease at Lincoln  Court
due to a decrease in the average occupancy.  The decrease from 1996 to
1997  is  the result of a decrease in rental income at Loewy  Building
due  to a decrease in the average rental rates partially offset by  an
increase in rental income at Lincoln Court due to an increase  in  the
average rental rates.

                    Rental operations expenses decreased from $661,589
in  1996  to $614,679 in 1997 and increased to $627,719 in 1998.   The
increase  from  1997  to  1998 is due to an  increase  in  maintenance
expense at the Loewy Building due to extraordinary repairs made to the
heating  system.  The decrease from 1996 to 1997 is mainly the  result
of  a  decrease  in  maintenance  expense  at  Lincoln  Court  due  to
improvements made at the property in 1996 and a decrease in management
fees expense at Loewy Building due to the decrease in rental income.

                     Interest expense decreased from $983,145 in  1996
to $968,397 in 1997 and increased to $1,162,024 in 1998.  The increase
from 1997 to 1998 is due to an increase in interest expense at Lincoln
Court due to a prepayment penalty incurred for the refinancing of  the
mortgage notes partially offset by a decrease at the Loewy Building.

                      Depreciation  and  amortization  increased  from
$478,758  in  1996 to $531,057 in 1997 and to $581,834 in  1998.   The
increase from 1997 to 1998 is due to an increase at Lincoln Court  due
to  the  amortization  of loan costs from the  refinanced  loan.   The
increase  from  1996 to 1997 is the result of an increase  at  Lincoln
Court due to the depreciation of the capital improvements made at  the
property in 1996 and an increase in amortization expense at the  Loewy
Building due to the amortization of leasing fees incurred in 1996.

                     In 1998, a loss of $1,046,000 was incurred at the
Registrant's four properties or interests therein compared to  a  loss
of  $792,000 in 1997 and a loss of $812,000 in 1996.  A discussion  of
property operations/activities follows:

                     In  1997, Registrant sustained a loss of $562,000
at  Lincoln  Court including $220,000 of depreciation and amortization
expense  compared  to  a  loss  of  $288,000  including  $167,000   of
depreciation expense in 1997 and a loss of $366,000 including $144,000
of  depreciation expense in 1996.  The increase in the loss from  1997
to  1998  is  mainly the result of the refinancing  of  the  mortgages
combined  with a decrease in rental income.  The refinancing  resulted
in  an  increase  in  interest expense due  to  a  prepayment  penalty
incurred  in  connection  with  the refinancing  and  an  increase  in
amortization  expense due to the amortization of the loan  costs  from
the refinanced loan.  Rental income decreased due to a decrease in the
average occupancy (87% to 85%).  The decrease in the loss from 1996 to
1997  is the result of an increase in rental income due to an increase
in  the  average  rental rates and a decrease in  maintenance  expense
partially  offset by an increase in depreciation expense.  Maintenance
expense decreased due to improvements made at the property in 1996 and
depreciation expense increased due to the depreciation of the  capital
improvements made at the property in 1996.

                     On  June 30, 1992 DHP, Inc. assigned to D, LTD  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  1997
and  1998.   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, 1998 was $670,308.

                     In 1998, the Green Street Apartments sustained  a
loss of $141,000 including $59,000 of depreciation expense compared to
a  loss  of $146,000 in 1997 including $59,000 of depreciation expense
and  a  loss  of  $146,000 in 1996 including $59,000  of  depreciation
expense.   The  decrease in the loss from 1997 to 1998 is  due  to  an
increase  in  rental  increase  due to  an  increase  in  the  average
occupancy (94% to 95%) and an increase in the average rental rates.

                     On June 30, 1992, DHP, Inc. assigned to D, LTD  a
note  receivable from 18th and Green to the Registrant, that had  been
assigned to it, in the amount of $63,493 which bears interest  at  10%
with  the entire principal and accrued interest due on June 30,  1997.
On  December  6,  1993 D, LTD obtained a judgment  in  the  amount  of
$78,171  on  this note in Common Pleas Court for Philadelphia  County.
The  judgment  accrues interest at 15%.  Interest accrued  was  $5,055
during  1997 and 1998.  Payments on the judgment are to be  made  from
available cash flow from 18th and Green.  The balance of the  note  at
December 31, 1998 was $55,179.

                     In  1998, the Loewy Building sustained a loss  of
$343,000  including $288,000 of depreciation and amortization  expense
compared  to  a  loss of $358,000 including $290,000  of  depreciation
expense  in  1997  and  a  loss  of  $300,000  including  $260,000  of
depreciation expense in 1996.  The decrease in the loss from  1997  to
1998  is due to a decrease in interest expense partially offset by  an
increase in maintenance expense due to extraordinary repairs  made  to
the  heating system..  The increase in the loss from 1996 to  1997  is
due  to  a  decrease  in rental income combined with  an  increase  in
interest  and amortization expense partially offset by a  decrease  in
management fees expense.  The decrease in rental income is  due  to  a
decrease  in  the average rental rates and interest expense  increased
due to default interest accrued on the loan as a result of non-payment
of the minimum monthly payment.  Amortization expense increased due to
the  amortization  of leasing fees incurred in 1996  while  management
fees decreased due to the decrease in rental income.

                    Summary of Minority Interests

                     In  1998, the Registrant incurred a net  loss  of
$54,000  at  Magazine  Place compared to a loss  of  $30,000  in  1997
compared to $11,000 in 1996.  This investment is accounted for by  the
equity method.  The decrease from 1997 to 1998 is due to a decrease in
rental income due to a decrease in the average occupancy (91% to  89%)
and  a  decrease in the average rental rates and an increase in  legal
fees  due  to  legal  fees  incurred in  connection  with  a  proposed
refinancing  of the first mortgage debt.  The increase  from  1996  to
1997  is due mainly to an increase in real estate tax expense  due  to
the expiration of the tax abatement period.

Item7A.        Quantitative and Qualitative Disclosures about  Market
               Risk

               Not applicable.

Item 8.        Financial Statements and Supplementary Data

                      Registrant  is  not  required  to  furnish   the
supplementary  financial  information  referred  to  in  Item  302  of
Regulations  S-K.
<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, 1998 and 1997 and the
related statements of operations, changes in partners' equity and cash
flows  for  the years ended December 31, 1998, 1997 and  1996.   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 generally accepted auditing
standards.  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,  1998 and 1997, and the results of operations  and  cash
flows  for  the  years  ended December 31, 1998,  1997  and  1996,  in
conformity with generally accepted accounting principles.

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 25 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.


Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 10, 1999
<PAGE>
                  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, 1998 and 1997        13
                                                                   
     Consolidated  Statements of Operations for the Years Ended  
     December  31,  1998, 1997, and 1996                              14
                                                                     
     Consolidated  Statements  of Changes in Partners' Equity  for
     the  Years  Ended December 31, 1998, 1997, and 1996              15
                                                                  
     Consolidated  Statements of Cash Flows for the Years Ended  
     December  31,  1998,  1997, and 1996                             16
                                                                 
     Notes to consolidated financial statements                      17-23

Financial statement schedules:                                   

     Schedule XI - Real Estate and Accumulated Depreciation            25

     Notes to Schedule XI                                              26
                                                                           



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, 1998 and 1997

                                Assets

                                                1998                  1997    
Rental properties at cost:                   
   Land                                     $   465,454           $   465,454 
   Buildings and improvements                12,006,574            11,985,674 
   Furniture and fixtures                        98,729                95,447 
                                             ----------            ---------- 
                                             12,570,757            12,546,575 
   Less - accumulated depreciation           (5,442,634)           (4,956,401) 
                                             ----------            ----------
                                              7,128,123             7,590,174  

Cash and cash equivalents                        31,981                   308 
Restricted cash                                 168,344               126,684 
Accounts receivable                              25,307                16,666 
Investment in affiliate                         181,206               235,190 
Other assets (net of accumulated                                            
   amortization of $209,937 and $114,337)       223,627               227,277
                                             ----------            ---------- 
               Total                        $ 7,758,588           $ 8,196,299 
                                             ==========            ==========  
                                 Liabilities and Partners' Equity
                                                                          
Liabilities:                                                                 
   Debt obligations                         $ 8,970,613           $ 8,418,142 
   Accounts payable:                                                         
        Trade                                   996,758               874,012 
        Related parties                         736,458               624,606 
   Interest payable                           1,290,951             1,239,576
   Tenant security deposits                      45,773                51,029
   Other liabilities                             34,553                 7,915 
                                             ----------            ----------
               Total liabilities             12,075,106            11,215,280 
                                             ----------            ----------
Partners' equity                             (4,316,518)           (3,018,981) 
                                             ----------            ----------
               Total                        $ 7,758,588           $ 8,196,299 
                                             ==========            ========== 

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

                  DIVERSIFIED HISTORIC INVESTORS III
                        (a limited partnership)
                                   
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                   
         For the Years Ended December 31, 1998, 1997 and 1996


                                            1998         1997           1996
                                                                            
Revenues:                                                                   
   Rental income                       $ 1,251,911   $ 1,251,764   $ 1,254,573
   Interest income                           2,113           441         1,229
                                         ---------     ---------     ---------
               Total revenues            1,254,024     1,252,205     1,255,802
                                         ---------     ---------     ---------
Costs and expenses:                                                   
   Rental operations                       627,719       614,679       661,589
   General and administrative              126,000       126,000       138,200
   Interest                              1,162,024       968,397       983,145
   Depreciation and amortization           581,834       531,057       478,758
                                         ---------     ---------     ---------
               Total costs and expenses  2,497,577     2,240,133     2,261,692
                                         ---------     ---------     ---------
Loss before equity in affiliate         (1,243,553)     (987,928)   (1,005,890)
                                                                        
Equity in net loss of affiliate            (53,984)      (29,569)      (11,418)
                                         ---------     ---------     ---------
Net loss                               ($1,297,537)  ($1,017,497)  ($1,017,308)
                                         =========     =========     ========= 
Net loss per limited partnership unit:                                     
Loss before equity in affiliate        ($    88.06)  ($    69.96)  ($    71.22)
                                                                         
Equity in net loss of affiliate              (3.82)        (2.09)         (.81)
                                         ---------     ---------     ---------
                                       ($    91.88)  ($    72.05)  ($    72.03)
                                         =========     =========     =========

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

                  DIVERSIFIED HISTORIC INVESTORS III
                        (a limited partnership)
                                   
        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
                                   
         For the Years Ended December 31, 1998, 1997 and 1996


                                              Dover                           
                                             Historic      Limited       
                                          Advisors II(1) Partners (2)    Total
                                                    
Percentage participation in profit or loss    1%            99%           100%
                                              
Balance at December 31, 1995              ($122,881)  ($  861,295)  ($  984,176)
Net loss                                    (10,173)   (1,007,135)   (1,017,308)
                                            -------     ---------     ---------
Balance at December 31, 1996               (133,054)   (1,868,430)   (2,001,484)
Net loss                                    (10,175)   (1,007,322)   (1,017,497)
                                            -------     ---------     ---------
Balance at December 31, 1997               (143,229)   (2,875,752)   (3,018,981)
Net loss                                    (12,975)   (1,284,562)   (1,297,537)
                                            -------     ---------     ---------
Balance at December 31, 1998              ($156,204)  ($4,160,314)  ($4,316,518)
                                            =======     =========     =========


 (1)   General Partner.

 (2)   13,981.5 limited partnership units outstanding at December  31,
       1998, 1997, and 1996.

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

                  DIVERSIFIED HISTORIC INVESTORS III
                        (a limited partnership)
                                   
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   
         For the Years Ended December 31, 1998, 1997 and 1996

                                              1998         1997          1996
                                                                  
Cash flows from operating activities:                          
   Net loss                              ($1,297,537) ($1,017,497) ($1,017,308)
   Adjustments to reconcile net loss to 
     net cash (used in) provided by
     operating activities:
Depreciation and amortization                581,834      531,057      478,748
Equity in loss of affiliate                   53,984       29,569       11,418
Changes in assets and liabilities:         
   (Increase) decrease in restricted cash    (41,660)      77,112      (95,508)
   Increase in accounts receivable            (8,641)      (8,608)        (673)
   Increase in other assets                  (91,951)    (108,765)     (96,087)
   Increase in accounts payable - trade      122,746      121,755      172,594
   Increase in accounts payable - related
     parties                                 111,852       45,703       45,703
   Decrease in accounts payable - taxes            0            0     (155,907)
   Increase in interest payable               51,375      350,712      132,998
   Decrease in tenant security deposits       (5,256)      (1,477)      (2,413)
   Increase (decrease) in other liabilities   26,638      (18,109)      10,625
      Net cash used in provided by operating--------      -------      ------- 
        activities:                         (496,616)       1,452     (515,810)
                                           ---------      -------      ------- 
Cash flows from investing activities:      
   Capital expenditures                      (24,182)     (25,247)    (112,221)
                                           ---------      -------      -------
      Net cash used in investing activities: (24,182)     (25,247)    (112,221)
                                           ---------      -------      -------
Cash flows from financing activities:               
   Proceeds from debt obligations          1,540,000            0      638,208
   Payments of principal under debt 
     obligations                            (987,529)       3,241            0
                                           ---------      -------      -------
      Net cash provided by financing
        activities:                          552,471        3,241      638,208
                                           ---------      -------      ------- 
Increase (decrease) in cash and cash
   equivalents                                31,673      (20,554)      10,177
Cash and cash equivalents at beginning of year   308       20,862       10,685
                                           ---------      -------      -------
Cash and cash equivalents at end of year  $   31,981     $    308     $ 20,862
                                           =========      =======      =======
Supplemental Disclosure of Cash Flow Information:                       
   Cash paid during the year for interest $1,221,356     $617,685     $558,411


The accompanying notes are an integral part of these 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 owns 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 (13,891.5 in 1998, 1997, and 1996).

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 annual 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 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 property has significant balloon  payments  due
within the foreseeable future for 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 deficit results of operations, and has been unable to, 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 one property, 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,  Green  Street
and  Loewy  Building.  However, in all three cases, the mortgages  are
basically  "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 properties
until  they can no longer meet the debt service requirements  and  the
properties  are  foreclosed, or the market  value  of  the  properties
increases  to  a  point where they 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  (the
"Agreement"), 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 owns  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.

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

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.

In  July  1987,  the  Partnership was admitted,  with  a  99%  general
partnership interest, to a Pennsylvania general partnership which owns
a building located in Pennsylvania consisting of 18 residential units,
for a cash capital contribution of $800,000.

NOTE F- DEBT OBLIGATIONS

Debt obligations are as follows:                                    
                                                             December 31,
                                                           1998        1997
                                                          ------      ------
Mortgage loan, interest accrues at 11 1/2%, interest    $3,811,828  $3,788,541
only payable monthly to the extent of net operating
income; principal due January 2012; collateralized by
the related rental property

Note, interest payable monthly at prime, with a minimum    200,000     200,000
6% and a maximum of 8%, adjusting annually on January 2
(8% at December 31, 1998 and 1997); due in 1997;
collateralized by the related rental property (A)

Allowed  unsecured  claims in the amount  of  $268,042;    158,612     165,246
non-interest bearing

Note payable, interest only at 10%, payable quarterly;      10,000      10,000
principal due in 1994 (A)

Mortgage loan, interest at 6.83%, payable in monthly     1,540,000           0
principal and interest installments of $10,071; 
principal due in November 2008; collateralized by the
related rental property (B)

Mortgage loan, interest at 9.125%, payable in monthly            0   1,256,565
principal and interest installments of $10,317; 
principal due in September 2003; collateralized by the 
related rental property (B)

Mortgage loan, interest accrues at 15%, interest only    1,935,993           0
payable monthly to the extent of net operating income;
principal due December 2008; collateralized by the
related rental property (C)

Mortgage loan, interest at prime plus 1 1/4% with a              0   1,476,212
minimum of 9.5% and a maximum of 14 1/2%, (9.75% at
December 31, 1997), respectively, principal due in
1999; collateralized by the related rental property (C)

Mortgage loan, interest at 11% per annum; principal              0     107,120
due in 1999; collateralized by the related rental 
property (C)

Note, interest at prime plus 1 1/4% (9.75% at December           0     100,278
31, 1997);  principal due in 1999; collateralized by 
the related rental property (C)

Mortgage loan, interest at 12%; payable interest only
to the extent of net operating income with a minimum 
monthly payment of $5,750; principal due in 1999; 
collateralized by the related rental property            1,314,180   1,314,180
                                                         ---------   ---------
                                                        $8,970,613  $8,418,142
                                                         =========   =========
(A)    Although this obligation has matured, the lenders have not made
       any demand for payment.

(B)    In  November 1998, the first mortgage loan at Lincoln Court was
       refinanced.

(C)    In November 1998, the three loans were combined and restated.

Approximate  maturities of the mortgage loan obligations  at  December
31, 1998, for each of the succeeding five years are as follows:

                                                    
                          1999                  $1,701,158
                          2000                      18,705
                          2001                      20,042
                          2002                      21,475
                          2003                      23,010
                          Thereafter             7,186,223
                                                 ---------
                                                $8,970,613
                                                 =========
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 (three      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.

According  to  the  Amended  and Restated Partnership  Agreement,  the
Partnership's  interest in Magazine Place Limited Partnership  ("MPP")
was  reduced  from  60% to 40% as of the First Conversion  Date.   The
First Conversion Date was the date on which the Partnership received a
return  of  its  initial capital contribution as referred  to  in  the
Partnership  Agreement.   For  purposes  of  determining   the   First
Conversion Date, the Partnership was deemed to have received a  return
of  its  initial  capital contribution when the sum of  the  following
amounts  equalled $600,000:  (i) cash distributions to the Partnership
from MPP; (ii) investment tax credit allocable to the Partnership; and
(iii)  50%  of  the  aggregate  of MPP's  net  losses  and  deductions
allocable   to  the  Partnership.   As  of  December  31,  1994,   the
Partnership  had  received a return of its  initial  capital  and  the
Partnership's  interest in the MPP was reduced  to  40%.   Since  that
date,  the Partnership has accounted for its investment in MPP on  the
equity basis.

NOTE H - TRANSACTIONS WITH RELATED PARTIES

Included in debt obligations for 1998, 1997 and 1996 is $140,000  owed
to  an  affiliate  of the General Partner by one of the  Partnership's
Ventures for additional amounts advanced for working capital needs.

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 which was due on  June
30,  1997.   Interest accrued was $45,703 during both 1997  and  1998.
Payments  on the judgment 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 judgment at  December  31,  1998  was
$670,308.

On  June 30, 1992 DHP, Inc. assigned to D, LTD a note receivable, from
18th  and Green to the Partnership, that had been assigned to  it,  in
the  amount  of  $63,493 which bears interest at 10% with  the  entire
principal  and accrued interest which was due on June  30,  1997.   On
December  6, 1993 D, LTD confessed judgment in the amount  of  $78,171
against  18th and Green in Common Pleas Court for Philadelphia County.
The  judgment  accrues interest at 15%.  Interest accrued  was  $5,055
during  both 1997 and 1998.  Payments on the judgment are to  be  made
from  available  cash flow from 18th and Green.  The  balance  of  the
judgment at December 31, 1998 was $55,179.

In  Juen 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,
                                           1998          1997          1996
                                          ------        ------        ------
Net loss - book                        ($1,297,537)  ($1,017,497)  ($1,017,308)
Excess of tax over book depreciation       138,784       108,515        89,414
Other timing differences                         0          (207)       21,739
Minority interest                          (84,494)       (5,094)      (21,859)
                                         ---------     ---------     ---------
Net loss - tax                         ($1,243,247)  ($  914,283)  ($  928,014)
                                         =========     =========     ========= 

Partners' equity - book                ($4,316,518)  ($3,018,981)  ($2,001,484)
1987 distribution of interest on escrow    (39,576)      (39,576)      (39,576)
deposits to limited partners
Costs of issuance                        1,697,342     1,697,342     1,697,342
Cumulative tax over (under) book loss      405,733       351,443       248,230
                                         ---------     ---------     ---------
Partners' equity - tax                 ($2,253,019)  ($1,009,772)  ($   95,488)
                                         =========     =========     =========


<PAGE>
                       SUPPLEMENTAL INFORMATION
<PAGE>

                     DIVERSIFIED HISTORIC INVESTORS III
                          (a limited partnership)
                                                    
             SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             DECEMBER 31, 1998

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

                                          Buildings                        
                                             and                Date of  Date
Description (a)    Encumbrances   Land   Improvements Imprmnts  Constr. Acquired
                       (f)                                        (a)
                                                                     
64,000 square feet
of commmercial space                                             1986-
in Winston-Salem, NC $4,170,440  $308,624  $6,290,125  $476,976  1988  11/14/86
                                                                           
58 apartment                                                             
units in                                                          1986-
Philadelphia, PA      3,485,993    86,187   3,490,437     -       1987  9/9/86
                                                                       
18 apartment units                                                        
in Philadelphia,                                                            
PA                    1,314,180    70,643   1,559,017     -       1987    
                      ---------   -------  ----------   -------
TOTAL                $8,970,613  $465,454 $11,339,579  $476,976
                      =========   =======  ==========   =======


                     Gross Amount at which Carried at                        
                     December 31, 1998

                                  Buildings                             
                                     and                      Accumulated
Description            Land      Improvements  Total (c)(d)  Depreciation
                                                               (d) (e)
64,000 square feet                                                    
of commercial                                                         
space in 
Winston-Salem, NC     $308,624    $6,799,879    $7,108,503   $3,006,569
                                                                      
58 apartment 
units in
Philadelphia, PA        86,187     3,739,324     3,825,511    1,720,015
                                                                      
18 apartment units                                                    
in Philadelphia,                                                      
PA                      70,643     1,566,100     1,636,743      716,050
                       -------    ----------    ----------    ---------   
TOTAL                 $465,454   $12,105,303   $12,570,757   $5,442,634
                       =======    ==========    ==========    =========
<PAGE>


                  DIVERSIFIED HISTORIC INVESTORS III
                                   
                        (a limited partnership)
                                   
                         NOTES TO SCHEDULE XI
                                   
                           December 31, 1998

(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)    The  aggregate cost of real estate owned at December 31,  1998,
       for  Federal  income tax purposes is approximately $13,877,174.
       However, 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.

(D)    Reconciliation of real estate:

                                         1998           1997           1996
                                        ------         ------         ------
Balance at beginning of year:        $12,546,575    $12,521,328    $12,409,107
Additions during the year:                                                
   Improvements                           24,182         25,247        112,221
                                      ----------     ----------     ---------- 
Balance at end of year               $12,570,757    $12,546,575    $12,521,328 
                                      ==========     ==========     ========== 
                                                                         
Reconciliation of accumulated depreciation:
                                         1998           1997           1996
                                        ------         ------         ------
Balance at beginning of year          $4,956,401     $4,461,992     $3,991,148
Depreciation expense for the year        486,233        494,409        470,844
                                       ---------      ---------      --------- 
Balance at end of year                $5,442,634     $4,956,401     $4,461,992
                                       =========      =========      =========

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

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


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

               None.
<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:

Name              Age    Position             Term of Office     Period Served
                                                                             
SWDHA, Inc.       --     Partner in DoHA-II   No fixed term      Since May 1997
                                                                             
EPK, Inc.         --     Partner in DoHA-II   No fixed term      Since May 1997

                For further description of DHP, Inc., 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.   There  is  no  family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.

                 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.

                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 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.  EPK, Inc. is an affiliate of DoHA-II.

                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
ventures.

                Donna M. Zanghi (age 41) was appointed on May 13, 1997
as  Vice  President and Secretary of EPK, Inc.  Ms. Zanghi  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 33) 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 1998, Registrant  has
paid  no  cash  compensation to DoHA-II, any partner  therein  or  any
person named in paragraph c. of Item 10.  Certain fees have been  paid
to DHP, Inc. by Registrant.

               b.   Compensation Pursuant to Plans - Registrant has no
plan  pursuant  to  which compensation was paid or distributed  during
1998, 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 1998 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
security  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 1996 through 1998.

               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.
<PAGE>

                                PART IV

Item 14. (A)   Exhibits, Financial Statement Schedules and Reports  on
Form 8-K.

               1.   Financial Statements:

                    a. Consolidated Balance Sheets at December 31, 1998
                       and 1997.
                    
                    b. Consolidated Statements of Operations for the Years Ended
                       December 31, 1998, 1997 and 1996.

                    c. Consolidated Statements  of  Changes in Partners'  Equity
                       for  the Years Ended December 31, 1998, 1997 and 1996.

                    d. Consolidated Statements of Cash Flows for the Years Ended
                       December 31, 1998, 1997 and 1996.

                    e. 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.

                    (b)  Reports on Form 8-K:

                         No reports were filed on Form 8-K during the
                         quarter ended December 31, 1998.

                    (c)  Exhibits:

                         See Item 14(A)(3) above.
<PAGE>

                              SIGNATURES

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

Date:  April 26, 1999          DIVERSIFIED HISTORIC INVESTORS III
       --------------                                      
                               By: Dover Historic Advisors II, General Partner
                                             
                                   By: EPK, Inc., Partner
                                                 
                                       By: /s/ Spencer Wertheimer
                                           ----------------------
                                           SPENCER WERTHEIMER
                                           President and Treasurer
                                                      
                                       By: /s/ Michele F. Rudoi
                                           -----------------------
                                           MICHELE F. RUDOI,
                                           Assistant Secretary

             Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the dates
indicated.

      Signature                       Capacity                   Date

DOVER HISTORIC ADVISORS II            General Partner

By:  EPK, Inc., Partner

     By: /s/ Spencer Wertheimer
         ----------------------
         SPENCER WERTHEIMER
         President and Treasurer

    By:  /s/ Michele F. Rudoi
         ----------------------
         MICHELE F. RUDOI,
         Assistant Secretary