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


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

For the fiscal year ended         December 31, 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_

This  Form  10-K  contains "unaudited" financial  statements  for  the
period ended December 31, 2003 and 2002. Refer to the Explanatory Note
on  page 2.

<PAGE>


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

Diversified  Historic Investors III (the "Registrant") is  filing  the
following Annual Report on Form 10-K for the period ended December 31,
2003 containing "unaudited" 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. The audit fieldwork began  in  July
2005;  however, because of the time expected to be involved in  having
the  new  auditor  perform the audit and review  of  the  consolidated
financial statements, the Registrant cannot advise as to the  date  of
completion of the audit and the filing date of the amendment  to  this
quarterly  report. The Registrant will endeavor to proceed  with  this
audit as expeditiously as possible.

In  the  interim, the Registrant is filing the consolidated  financial
statements, for the period ended December 31, 2003 and 2002, contained
throughout  this annual report as "unaudited" and has  furnished  such
financial statements without a Certified Independent Auditor's Report.
The  Registrant  intends to make its report fully compliant  with  SEC
rules  and  promptly thereafter will file an amendment to this  report
with the SEC.

<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.


<PAGE>

                                PART II
                                -------


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

              a.     There is no established public trading market for
the  Units.   Registrant  does not anticipate  any  such  market  will
develop.    Trading  in  the  Units  occurs  solely  through   private
transactions.   The  Registrant is not aware of the  prices  at  which
trades  occur.  Registrant's records indicate that 82 Units of  record
were sold or exchanged in 2003.

              b.    As  of  December 31, 2003, there were  1,594
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
                  ----       ----       ----       ----       ----
              (unaudited) (unaudited)


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    6,024,542  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, 2002, 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, $907,192 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 $375,000 was incurred at
the Registrant's properties, compared to a loss of $99,000 in 2002 and
$1,140,000  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  $182,000  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 Diversified Historic Properties,  Inc.
("DHP"),  a  partner of the Registrant's general partner, assigned  to
Dover  Limited  (D,  LTD),  its parent, a  note  receivable  from  the
Registrant in the amount of $432,103 which bears interest at 10%  with
the  entire  principal  and accrued interest due  on  June  30,  1997.
Interest  accrued was $45,703 during both 2003 and 2002.  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, 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.


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, 2003-2002       11
(unaudited)

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

   Consolidated  Statements  of  Changes  in   Partners'       13
Equity  for  the Years Ended December  31,  2003-2002
(unaudited), and 2001

   Consolidated Statements of Cash Flows for  the  Years       14
Ended December 31, 2003-2002 (unaudited), and 2001

   Notes   to   consolidated  financial   statements   -     15-22
(Unaudited)


Financial statement schedules: - (Unaudited)

   Schedule   XI   -   Real   Estate   and   Accumulated       24
Depreciation (Unaudited)

   Notes to Schedule XI - (Unaudited)                          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
                              (Unaudited)

                                Assets
                                ------

                                          2003        2002
                                          ----        ----
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 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
                                        ----       ----        ----
                                    (Unaudited) (Unaudited)
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       258,186     299,952     495,581
  Bad debt                             20,637      66,876           0
  Impairment loss                           0           0   2,264,000
                                   ----------  ----------  ----------
          Total costs and expenses  1,058,720   2,266,867   4,395,576
                                   ----------  ----------  ----------
Net loss before minority interest
 and equity in affiliate             (457,029) (1,085,270) (3,462,025)
Minority interest                      24,930       2,124           0
Equity in income of affiliate               0      12,532      17,757
                                   ----------  ----------  ----------
Net loss before extraordinary item   (432,099) (1,070,614) (3,444,268)
Extraordinary gain on
 extinguishment of debt             6,665,959   1,423,902           0
                                   ----------  ----------  ----------
Net income (loss)                  $6,233,860  $  353,288 ($3,444,268)
                                   ==========  ==========  ==========

Net  income  (loss)  per  limited
 partnership unit:
Net loss before minority interest
 and equity in affiliate          ($    32.36)($    76.85)($   245.14)
Minority interest                        1.77         .15           0
Equity in income of affiliate               0         .89        1.26
                                   ----------   ---------  ----------
Net loss before extraordinary item     (30.59)     (75.81)    (243.88)
Extraordinary gain on
 extinguishment of debt                472.00      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 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 (1)    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)    (3,409,825)    (3,444,2667)
                                   --------    -----------    -----------
Balance at December 31, 2001       (221,426)   (10,617,214)   (10,838,638)
Net income                            3,533        349,755        353,288
                                   --------    -----------    -----------
Balance at December 31, 2002
 (Unaudited)                       (217,893)   (10,267,459)   (10,485,350)
Net income                           62,339      6,171,521      6,233,860
                                   --------    -----------    -----------
Balance at December 31, 2003
 (Unaudited)                      ($155,554)  ($ 4,095,938)  ($ 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 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
                                      ----        ----        ----
Cash flows from operating          (Unaudited) (Unaudited)
 activities:
 Net income (loss)                $6,233,860  $  353,288 ($3,444,268)
 Adjustments to reconcile net loss
 to net cash:
 Depreciation and amortization       258,186     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
 extinguishment of debt           (6,665,959) (1,423,902)          0
Minority interest                    (24,930)     (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                   $   122,964  $1,336,459  $  418,623
                                  ==========  ==========  ==========


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

<PAGE>


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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              ------------------------------------------
                              (Unaudited)

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

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


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

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

1.        Principles of Consolidation

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

2.        Depreciation

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

3.        Costs of Issuance

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

4.        Cash and Cash Equivalents

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

5.        Interest Payable

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

6.        Net Loss Per Limited Partnership Unit

The  net  loss  per limited partnership unit is based on the  weighted
average  number  of limited partnership units outstanding  during  the
period (13,981.5 in 2002, 2001, and 2000).

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 - 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.

During  2000, the Registrant incurred an impairment loss of  $820,000.
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 $820,000. An impairment loss of that amount has
been charged to operations in 2000.



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

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

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

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

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


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

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

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

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

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

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

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


NOTE F - DEBT OBLIGATIONS - (Unaudited)
---------------------------------------

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:

                                   (Unaudited)

                 2004             $    36,106
                 2005                  38,385
                 2006                  40,807
                 2007                  43,383
                 2008                  46,121
                 Thereafter         2,825,878
                                   ----------
                                   $3,030,680
                                   ==========


NOTE G - 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 H - 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
                                      ----          ----          ----
                                    (Unaudited) (Unaudited)

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
Minority 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 I - 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 J - 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 K - 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 L - 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 - (Unaudited)
                  December 31, September 30,  June 30,   March 31,
                  ------------ -------------  --------   ---------
                                           2003
                  ------------------------------------------------
Revenues:
 Rental income      $122,888   $119,802     $  152,609   $205,543
 Interest income         111        292            166        280
                    --------   --------     ----------   --------
  Total revenues     122,999    120,094        152,775    205,823
                    --------   --------     ----------   --------
Costs and expenses:
 Rental operations    38,616     53,480         89,214    208,249
 Interest             73,295     58,232        108,005    150,806
 Bad debt             15,400          0          5,236          0
 Depreciation and
  amortization        55,028     38,573        121,548     43,038
                    --------   --------     ----------   --------
Total costs and
  expenses           182,339    150,285        324,003    402,093
                    --------   --------     ----------   --------
Loss before minority
 interest and equity
 inaffiliate         (59,340)   (30,191)      (171,228)  (196,270)
Minority interest      7,320      3,732          1,024          0
Equity in income of
 affiliate                 0          0              0     12,855
                    --------   --------     ----------   --------
Net loss before
 extraordinary
 item                (52,020)   (26,459)      (170,204)  (183,415)
Extraordinary gain
 on extinguishment
 of debt                   0          0      6,665,959          0
                    --------   --------     ----------   --------
Net (loss) income  ($ 52,020) ($ 26,459)   ($6,495,755) ($183,415)
                    ========   ========     ==========   ========

Net (loss) income per
 limited partnership
 unit:
 Loss before minority
  interest and equity
  in affiliate     ($   4.20) ($  47.61)   ($    12.12) ($  13.90)
Minority interest        .52        .16            .07        .91


Extraordinary gain         0          0         472.00          0
                    --------   --------     ----------   --------
Net (loss) income  ($   3.68) ($  47.45)    $   459.95  ($  12.99)
                    ========   ========     ==========   ========


<PAGE>




                       SUPPLEMENTAL INFORMATION



<PAGE>


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

        SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
        ------------------------------------------------------

                          DECEMBER 31, 2003
                          -----------------
                             (Unaudited)


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


                                         Buildings
                                            and               Date of
                 Encumbrances            Improve-  Improve-   Constr.   Date
Description (a)      (c)         Land     ments      ments      (a)   Acquired
---------------  ------------    ----    --------- --------   ------- --------
58 apartment
units in                                                        1986-
Philadelphia,PA    $3,030,680  $123,794 $3,524,715  $642,873    1987   9/9/86



                             Gross Amount at which Carried at
                                    December 31, 2003
                             --------------------------------
                                     (Unaudited)



                               Buildings
                                  and                   Accumulated
                                Improv-      Total      Depreciation
Description           Land       ments      (d) (e)       (e) (f)
------------          ----     ---------    -------     -----------
58 apartment
units in
Philadelphia, PA    $124,794  $4,167,588  $4,292,382   $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
                                       ----        ----         ----
                                    (unaudited) (unaudited)

Balance at beginning of year:    $11,137,544   $12,661,777  $12,613,136
Additions during the year:
 Improvements                         34,196        45,663       48,641
Subtractions during the year:
 Foreclosure of Green Street               0    (1,569,896)           0
 Foreclosure of Loewy Building    (6,880,358)            0            0
                                 -----------   -----------  -----------
Balance at end of year           $ 4,291,382   $11,137,544  $12,661,777
                                 ===========   ===========  ===========

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.


<PAGE>


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 2002, 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 2002  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  2002 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 2002.

           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
                                             ----        ----
                                          (Unaudited)(Unaudited)

Audit Fees (1).........................        -           -
Audit - Related Fees (2)...............        -           -
Tax Fees (3)...........................        -           -
All Other Fees (4).....................        -           -
                                              --          --
Total..................................       $-          $-


       1.   Audit Fees

       2.   Audit-Related Fees

       3.   Tax Fees

       4.   All Other Fees


<PAGE>

                                PART IV
                                -------


Item 15. (A) Exhibits, Financial Statement Schedules and Reports
         -------------------------------------------------------

          1. Financial Statements:

                       a.   Consolidated Balance Sheets at December 31,
                 2003-2002 (unaudited)

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

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

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

                       e.   Notes to consolidated financial
                 statements - (unaudited.)


                 2.   Financial statement schedules - (unaudited )
                       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 (Not attached) General Partners Opinion
                                    Certification
                                    (To be filed with amended
                                    10-K/A)

                  32 (Not attached) 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: September 2, 2005    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: September 2, 2005             By: /s/ Spencer Wertheimer
      -----------------                 ----------------------
                                        SPENCER WERTHEIMER
                                        President
                                        (principal executive
                                         officer, principal
                                         financial officer)

<PAGE>