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, 1996
                          --------------------------------------------

[   ]  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                             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.)

       SUITE 500,  1521 LOCUST STREET, PHILADELPHIA, PA  19102
----------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code  (215) 735-5001
                                                   -------------------
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  the  Pennsylvania  Uniform
Limited  Partnership  Act.  As of December 31,  1996,  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.

                      The   following  is  a  summary  of  significant
transactions involving the Registrant's interests:

                     Due  to insufficient cash flow at Cathedral Court
General  Partnership  ("CCGP") from the property  owned  by  it,  CCGP
ceased  making debt service payments in 1989.  In January  1990,  CCGP
filed  a  reorganization petition pursuant to Chapter 11 of  the  U.S.
Bankruptcy Code.  Although a plan of reorganization was filed, it  was
not  approved.   Pursuant to a settlement agreement reached  with  the
first  mortgage holder on July 31, 1993 the bankruptcy was  dismissed.
The  terms of the settlement agreement called for payment to the first
mortgage  holder  by  CCGP of certain monies held,  and  for  CCGP  to
continue  to control the property.  CCGP anticipated that,  subsequent
to the bankruptcy's dismissal, the first mortgage holder would attempt
to  sell  the loan, but that the Registrant would be given a right  of
first  refusal.  In September 1994, due to the inability of the  first
mortgage  holder  and  CCGP  to reach an  agreement  regarding  CCGP's
purchase of the loan, the first mortgage holder petitioned the Circuit
Court  for  the  City  of  Baltimore in the matter  of  Harrington  v.
Cathedral  Court General Partnership, Case No. 89340045/CE 106281,  to
have a receiver appointed, and such petition was granted.  Pursuant to
the  appointment  of  the  receiver,  CCGP  was  directed  to  deliver
immediate possession of any and all property connected with  and  used
in  the  current  operation of the property to  the  receiver  and  on
January  22,  1996  the  lender  foreclosed  on  the  property.    The
Registrant  accounted  for  the foreclosure  of  the  property  as  of
December 31, 1995.

               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, 1996, 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  63,300 square feet ("sf") of  commercial/retail
space.  As of December 31, 1996, 122 of the apartment units were under
lease  at  monthly  rental  rates ranging from  $435  to  $1,540.   In
addition, 60,690 sf of the commercial space was under lease at  annual
rates  ranging  from $6.00 per sf to $14.16 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, 1996 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, (total balance due of $1,275,998 at  December
31, 1996 including $10,038 of accrued interest) and a note payable  of
$10,000  (total  balance due of $10,000 at December  31,  1996).   The
first  mortgage loan bears interest at prime plus 1.25% with a minimum
of  9.5%  and  a  maximum of 14.5%.  The rate was 9.5%  and  9.75%  at
December  31,  1996 and 1995, respectively.  The other  mortgage  loan
bears  interest  at  prime plus 1%.  The rate was 9.25%  and  9.5%  at
December  31, 1996 and 1995, respectively.  Such mortgage  is  payable
interest only in monthly installments, and was due in 1994.  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  (total balance due of $120,020 at  December  31,  1996
including  $19,742  of  accrued interest)  was  obtained  which  bears
interest at prime plus 1.25%.  The rate was 9.5% and 9.75% at December
31,  1996  and 1995, respectively and was due in 1994.   In  1991,  an
$100,000  third  mortgage  loan (total  balance  due  of  $131,668  at
December  31,  1996  including $24,548 of accrued interest)  was  made
which  bears interest at 11%, principal and interest payable  monthly,
and  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 (principal balance of $1,265,960 at December 31, 1996).
The  new  loan  bears  interest  at  9.125%,  is  payable  in  monthly
installments  of  principal and interest of  $10,317  and  is  due  in
September 2003.  The property is managed by BCMI.  As of December  31,
1996,  51  residential units were under lease (88%) at  monthly  rents
ranging from $435 to $1,400.

                 All  leases  are  renewable,  one-year  leases.   The
occupancy for the previous four years was 81% for 1995, 58% for  1994,
63%  for  1993  and 79% for 1992.  The monthly rental range  has  been
approximately  the same since 1992.  For tax purposes,  this  property
has  a  federal tax basis of $3,727,534 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
(total  balance  due  of  $1,512,676 at December  31,  1996  including
$202,524  of  accrued interest) 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, 1996, 16 apartments were  under
lease (89%) at monthly rents ranging from $490 to $705.

                 All  leases  are  renewable,  one-year  leases.   The
occupancy for the previous four years was 92% for 1995, 99% for  1994,
98%  for  1993  and 91% for 1992.  The monthly rental range  has  been
approximately  the same since 1992.  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 63,300 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 (total balance due of $4,325,754 at  December
31,  1996 including $540,854 of accrued interest) 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%.   Triad  obtained  $200,000   of
additional  financing  in  1987 to fund cost overruns  resulting  from
delays  and  changes in rehabilitation and construction plans,  (total
balance  due  of  $281,160 at December 31, 1996 including  $81,160  of
accrued  interest) 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, 1996 and 1995) and the Registrant advanced an additional
$1,098,000.   The  property is managed by BCMI.  As  of  December  31,
1996,  60,690 sf were rented (96%) at annual rates ranging from  $6.00
to $14.16 per sf.

                The occupancy for the previous four years has been 95%
for  1995, 93% for 1994, 93% for 1993 and 79% for 1992.  The range for
annual rents has been $6.00 to $12.93 per sf for 1995, $6.95 to $14.08
per  sf  for 1994, $6.95 to $13.41 per sf for 1993 and $7.08 to $13.08
per  sf for 1992.  There are three tenants who each occupy ten percent
or more of the rentable square footage.  They operate principally as a
bank, a law firm and a retail store.

                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
                                                                                
 1997        2                 23,241           $ 212,246              31%
 1998        4                 26,149             334,152              48%
 1999        2                  8,100              99,695              14%
 2000        1                  3,200              45,312               7%

                There are two commercial leases which expire in  1997.
The  first  lease is for 15,546 sf and, although no negotiations  have
taken  place,  the Registrant expects the tenant to renew  at  current
market  rates.   The second lease is for 7,695 sf and  the  Registrant
expects  the tenant to exercise the renewal option in its lease.   For
tax  purposes of depreciation, this property has federal tax basis  of
$6,118,865  and is depreciated using the straight-line method  with  a
useful  life of 27.5 years.  The annual real estate taxes are  $21,825
which  is based on an assessed value of $1,657,900 taxed at a rate  of
$1.3164  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  $2,881,365 at December  31,  1996)  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, 1996, 55 residential units  were
under lease (96%) at monthly rents ranging from $610 to $1,240.

                 All  leases  are  renewable,  one-year  leases.   The
occupancy for the previous four years was 91% for 1995, 89% for  1994,
97%  for  1993  and 90% for 1992.  The monthly rental range  has  been
approximately  the same since 1992.  For tax purposes,  this  property
has  a  federal tax basis of $2,586,532 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

              a.      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 23 Units of  record
were sold or exchanged in 1996.

                b.    As of December 31, 1996, there were 1,577 record
holders of Units.

                c.   Registrant did not declare any cash dividends  in
1996 or 1995.

Item 6.        Selected Financial Data

                The following selected financial data are for the five
years ended December 31, 1996.  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.

                         1996       1995        1994        1993        1992
                                                                   
 Rental income        $1,254,573 $1,658,031 $ 2,016,023 $ 1,971,274 $ 1,991,600
 Interest income           1,229        840       1,005       3,365       6,131
 Net loss             (1,017,308)  (533,933) (1,756,104) (1,719,611) (1,221,214)
 Net loss per Unit        (72.03)    (37.80)    (124.35)    (121.76)     (86.54)
 Total assets (net of  8,711,971  8,887,472  18,771,092  19,662,834  20,848,362
 depreciation and
 amortization)
 Debt obligations      8,414,901  7,776,693  15,216,724  14,642,621  14,337,159

Note:  See Part II. Item 7.2 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
               Conditions and Results of Operations

               (1)  Liquidity

                     At  December  31, 1996, Registrant  had  cash  of
approximately  $20,862.  Such funds are expected to  be  used  to  pay
liabilities and general and administrative expenses of Registrant  and
to  fund  cash  deficits  of  the  properties.   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, 1996, Registrant had restricted
cash  of  $203,796  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,  with
the  exception  of the Magazine Place, where the Registrant  does  not
receive  any  of the distributable cash (see Item 2. Properties),  the
Registrant has feasible loan modifications in place.  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

                     Due  to the relatively recent rehabilitations  of
the   properties,  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
and  18th  and Green has agreed to fund capital expenditures at  terms
similar  to  the  first mortgage.  The mortgagee  funded  $87,609  and
$169,445 during 1996 and 1995, respectively, at Lincoln Court.

                      The  Registrant  will  seek  to  refinance   the
outstanding  mortgage  on the Loewy Building  which  is  scheduled  to
mature  in  November  1997.   There can be  no  assurances  that  such
financing will be available and, if not, the property will be marketed
for sale.

                    Results of Operations

                 During  1996,  Registrant  incurred  a  net  loss  of
$1,017,308 ($72.03 per limited partnership unit), compared  to  a  net
loss  of $533,993 ($37.80 per limited partnership unit) in 1995 and  a
net  loss  of  $1,756,104 ($124.35 per limited partnership  unit),  in
1994.   Included  in  the  1995  loss was  an  extraordinary  gain  of
$1,316,188 due to the foreclosure of Cathedral Court.

                    Rental income decreased from $2,016,023 in 1994 to
$1,658,031 in 1995 and to $1,254,573 in 1996.  The decrease from  1995
to  1996 is due mainly to the foreclosure of Cathedral Court partially
offset  by  an increase in rental income at Lincoln Court  due  to  an
increase in the average occupancy (81% to 96%) and an increase at  the
Loewy  Building due to an increase in the average rental  rates.   The
decrease  from  1994  to 1995 is due to a decrease  in  rental  income
recognized  by the Registrant at Magazine Place, due to the  reduction
in  the Registrant's ownership interest in MPP (See Item 2.d. Magazine
Place) partially offset by increases in rental income at Lincoln Court
and Loewy Building due to higher average occupancy rates.

                     Other income decreased from $81,870 in 1994 to $0
in  1995  and 1996.  The decrease from 1994 to 1995 and 1996  was  the
result  of the receipt in 1994 of insurance proceeds resulting from  a
claim for water damage to several units in 1994 at Cathedral Court.

                      Rental   operations  expenses   decreased   from
$1,335,727 in 1994 to $1,088,752 in 1995 and to $661,589 in 1996.  The
decrease from 1995 to 1996 is mainly the result of the foreclosure  of
Cathedral Court partially offset by an increase in maintenance expense
due  to  improvements  made  at  Lincoln  Court  and  an  increase  in
management fees and commissions expense at the Loewy Building due to a
higher  average occupancy.  The decrease from 1994 to 1995 is  due  to
change in accounting method as a result of the change in ownership  at
Magazine  Place, partially offset by the overall increase in operating
expenses  such as utilities, maintenance, management fees, commissions
and  advertising,  at  Lincoln Court and Loewy Building,  due  to  the
higher occupancy.

                    Interest expense decreased from $1,478,380 in 1994
to  $1,447,420 in 1995 to $983,145 in 1996.  The decrease from 1995 to
1996  is  mainly  the  result of the foreclosure  of  Cathedral  Court
partially  offset  by an increase at Lincoln Court  due  to  a  higher
average  principal  balance  of  the  mortgage  due  to  advances  for
improvements made by the mortgage holder.  The decrease from  1994  to
1995  is  the result an increase at Lincoln Court and Cathedral  Court
partially  offset by a decrease at 18th and Green,  and  a  change  in
accounting  method as a result of the change in ownership at  Magazine
Place.  Interest expense increased at Lincoln Court due to an increase
in  the principal balance upon which interest is accrued along with an
increase  in  the  interest rate.  Cathedral  Court  interest  expense
increased due to an increase in the interest rate from 6% to  12%  due
to  the expiration of a loan modification.  Interest expense decreased
at  18th  and Green due to the accrual of interest in 1994 on  amounts
owed  to  an affiliate of the Registrant upon which interest  had  not
been accrued in prior years.

                      Depreciation  and  amortization  decreased  from
$927,774  in  1994  to  $829,265 in 1995 to  $478,758  in  1996.   The
decrease  from  1995  to  1996 is the result  of  the  foreclosure  of
Cathedral  Court  partially  offset by  an  increase  in  amortization
expense  at  Lincoln  Court  due to the  amortization  of  loan  costs
incurred in the refinancing of the first mortgage.  The decrease  from
1994 to 1995 is due to the change in the accounting method as a result
of the change in ownership at Magazine Place.

                     In  1996, a loss of $812,000 was incurred at  the
Registrant's  five properties compared to a loss of $149,000  in  1995
and   a  loss  of  $1,590,000  in  1994.   A  discussion  of  property
operations/activities follows:

                In  1996,  Registrant sustained a loss of $366,000  at
Lincoln  Court  including  $144,000 of depreciation  and  amortization
expense  compared  to  a  loss  of  $300,000  including  $137,000   of
depreciation expense in 1995 and a loss of $285,000 including $137,000
of  depreciation expense in 1994.  The increase in the loss from  1995
to  1996  is  the result of an increase in maintenance, interest,  and
amortization expense partially offset by an increase in rental income.
Maintenance expense increased due to improvements made at the property
in order to attract more tenants and interest expense increased due to
a higher average principal balance of the mortgage due to advances for
improvements  made  by  the  mortgage  holder.   Amortization  expense
increased  due  to  the  amortization of loan costs  incurred  in  the
refinancing of the first mortgage.  Rental income increased due to  an
increase in the average occupancy (81% to 96%).  The increase  in  the
loss  from  1994  to  1995 is the result of an increase  in  operating
expenses such as management fees, commissions and advertising  and  an
increase in interest expense partially offset by an increase in rental
income.   Operating  expenses and rental income increased  due  to  an
increase  in  average  occupancy (58%  to  91%)  and  a  corresponding
increase in operating expenses.  Interest expense increased due to  an
increase in the principal balance upon which interest is accrued along
with an increase in the interest rate.

                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  1995  and
1996.   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, 1996 was $578,903.

                In  1996, the Green Street Apartments sustained a loss
of  $146,000 including $59,000 of depreciation expense compared  to  a
loss of $153,000 in 1995 including $59,000 of depreciation expense and
a  loss of $281,000 in 1994 including $59,000 of depreciation expense.
The decrease in the loss from 1995 to 1996 is the result of an overall
decrease   in  operating  expenses  due  to  operational  efficiencies
achieved  at  the property.  The decrease from 1994  to  1995  is  due
primarily  to the additional accrual of interest on the modified  loan
(See  Part  I.  Item  2.c.) combined with the  accrual  of  additional
interest  in 1994 of interest that should have been accrued  in  prior
years.

                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  1995 and 1996.  Payments on the judgment are to be  made  from
available cash flow from 18th and Green.  The balance of the  note  at
December 31, 1996 was $45,070.

                In  1996,  the  Loewy  Building sustained  a  loss  of
$300,000  including $261,000 of depreciation and amortization  expense
compared  to  a  loss of $332,000 including $260,000  of  depreciation
expense  in  1995  and  a  loss  of  $379,000  including  $260,000  of
depreciation expense in 1994.  The decreased loss from 1995 to 1996 is
mainly  due  to  an  increase in rental income due to  higher  average
rental  rates  partially  offset by an  increase  in  commissions  and
management fee expense.  Management fees expense increased due to  the
higher rental income and commissions expense increased due to a  lease
extension  with  the  tenant who leases  34%  of  the  building.   The
decrease in the loss from 1994 to 1995 is the result of an increase in
rental  income partially offset by an increase in operating  expenses.
Rental  income increased due to an increase in average occupancy  from
93% to 95% along with higher rental rates.  Operating expenses such as
utilities,  maintenance  and management  fees  increased  due  to  the
increase in occupancy and (with respect to management fees) the higher
average rental rates.

                In  1996,  Cathedral  Court recognized  income  of  $0
compared  to  income  of $636,000 including $337,000  of  depreciation
expense  in  1995  and  a  loss  of  $576,000  including  $334,000  of
depreciation expense in 1994.  The 1995 loss without the effect of the
foreclosure would have been $850,000.  The increase in the  loss  from
1994  to 1995 is the result of an increase in interest expense due  to
an  increase in the interest rate from 6% to 12% due to the expiration
of a loan modification partially offset by a decrease in other income.
Other  income  decreased due to the receipt of insurance  proceeds  in
1994  resulting  from  a  claim for water  damage  in  several  units.
Included  in  operations  from  1995  is  an  extraordinary  gain   of
$1,316,188  representing the excess of the liabilities satisfied  over
the fair market value of the Cathedral Court property.

               Summary of Minority Interests

                In 1996, the Registrant incurred a net loss of $11,000
at  Magazine  Place compared to a loss of $19,000 in 1995 compared  to
$69,000 including $102,000 of depreciation expense in 1994.  Prior  to
1995,  Magazine  Place  was  treated  as  a  consolidated  subsidiary.
Pursuant  to  the  Partnership  Agreement  as  discussed  in  Item  2.
Properties, the Registrant's ownership interest was reduced to 40%  as
of December 31, 1994.  From January 1, 1995 forward, the investment is
accounted for by the equity method.

                Effective January 1, 1995, the Registrant adopted  the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
121,  "Accounting for the Impairment of Long - Lived  Assets  and  for
Long  -  Lived  Assets to be Disposed Of."  There  was  no  cumulative
effect of the adoption of SFAS No. 121.

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  sheets  of
Diversified   Historic   Investors   III   (a   Pennsylvania   Limited
Partnership) and its subsidiaries as of December 31, 1996 and 1995 and
the   related  consolidated  statements  of  operations,  changes   in
partners' equity and cash flows for the years ended December 31, 1996,
1995  and  1994.  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 audits in accordance with generally accepted auditing
standards.   Those  standards require that we  plan  and  perform  the
audits  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 audits  provide
a reasonable basis for our opinion.

In  our opinion, the consolidated financial statements referred to  in
the  first  paragraph presents fairly, in all material  respects,  the
financial   position  of  Diversified  Historic  Investors   III   and
subsidiaries  as  of December 31, 1996 and 1995, and  the  results  of
their operations and their cash flows for the years ended December 31,
1996,  1995 and 1994, 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 29 is presented  for  the
purposes  of  additional analysis and is not a required  part  of  the
basic  financial statements and, in our opinion, is fairly  stated  in
all  material  respects in relation to the basic financial  statements
taken as a whole.

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


Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 11, 1997
<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, 1996 and 1995       15
                                                                          
     Consolidated  Statements of Operations for the Years Ended 
       December  31,  1996, 1995 and 1994                            16
                                                                               
     Consolidated  Statements  of Changes in Partners' Equity 
       for  the  Years  Ended December 31, 1996, 1995, and 1994      17
                                                                          
     Consolidated  Statements of Cash Flows for the Years Ended
       December  31,  1996, 1995 and 1994                            18
                                                                           
     Notes to consolidated financial statements                     19-27

Financial statement schedules:            

     Schedule XI - Real Estate and Accumulated Depreciation          29

     Notes to Schedule XI                                            30




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, 1996 and 1995

                                Assets

                                           1996                   1995         
Rental properties at cost:                                               
   Land                               $   465,454           $   465,454        
   Buildings and improvements          11,969,523            11,857,302         
   Furniture and fixtures                  86,351                86,351      
                                       ----------            ----------    
                                       12,521,328            12,409,107         
   Less - accumulated depreciation     (4,461,992)           (3,991,148)       
                                       ----------            ----------
                                        8,059,336             8,417,959
                                                                       
Cash and cash equivalents                  20,862                10,685        
Restricted cash                           203,796               108,288     
Accounts receivable                         8,058                 7,385      
Investment in affiliate                   264,762               276,180
Other assets (net of accumulated                                              
   amortization of $77,689 and $69,775)   155,157                66,975
                                       ----------            ----------  
               Total                  $ 8,711,971           $ 8,887,472        
                                       ==========            ==========        

                                 Liabilities and Partners' Equity
                                                                          
Liabilities:                                                       
   Debt obligations                   $ 8,414,901           $ 7,776,693        
   Accounts payable:                                                      
        Trade                             752,257               579,664       
        Related parties                   578,903               533,200       
        Taxes                                   0               155,907
   Interest payable                       888,864               755,866
   Tenant security deposits                52,506                54,919    
   Other liabilities                       26,024                15,399       
                                       ----------             ---------    
               Total liabilities       10,713,455             9,871,648         
                                       ----------             ---------
Partners' equity                       (2,001,484)             (984,176)       
                                       ----------             ---------
               Total                  $ 8,711,971           $ 8,887,472  
                                       ===========            =========
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, 1996, 1995 and 1994


                                           1996          1995          1994
                                                                      
Revenues:                                                                     
   Rental income                       $ 1,254,573   $ 1,658,031  $  2,016,023
   Other income                                  0             0        81,870
   Interest income                           1,229           840         1,005
                                         ---------     ---------     ---------
     Total revenues                      1,255,802     1,658,871     2,098,898
                                         ---------     ---------     ---------
Costs and expenses:                                            
   Rental operations                       661,589     1,088,752     1,335,727
   General and administrative              138,200       140,800       141,181
   Interest                                983,145     1,447,420     1,478,380
   Depreciation and amortization           478,758       829,265       927,774
                                         ---------     ---------     ---------
     Total costs and expenses            2,261,692     3,506,237     3,883,062
                                         ---------     ---------     ---------
Loss before minority interests and      (1,005,890)   (1,847,366)   (1,784,164)
   equity in affiliate
Minority interests' portion of loss              0        16,365        28,060
Equity in net loss of affiliate            (11,418)      (19,120)            0
                                         ---------     ---------     ---------
Loss before extraordinary item          (1,017,308)   (1,850,121)    1,756,104
Extraordinary gain                               0     1,316,188             0
                                         ---------     ---------     --------- 
Net loss                               ($1,017,308)  ($  533,993) ($ 1,756,104)
                                         =========     =========     ========= 
Net loss per limited partnership unit:   
Loss before minority interests and          (71.22)      (130.80)      (126.33)
   equity in affiliate
Minority interests' portion of loss              0          1.15          1.99
Equity in net loss of affiliate               (.81)        (1.35)            0
                                            ------       -------       -------
Loss before extraordinary item              (72.03)      (131.00)      (124.35)
Extraordinary gain                               0         93.20             0
                                            ------       -------       -------
                                          ($ 72.03)    ($  37.80)    ($ 124.35)
                                            ======        ======       =======

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, 1996, 1995 and 1994


                                      Dover                             
                                     Historic          Limited         
                                  Advisors II(1)     Partners (2)      Total
                                                    
Percentage participation in 
  profit or loss                          1%            99%              100%
                                                                          
Balance at December 31, 1993           (99,981)      1,405,842       1,305,861
Net loss                               (17,561)     (1,738,543)     (1,756,104)
                                       -------       ---------       ---------
Balance at December 31, 1994          (117,542)       (332,701)       (450,243)
Net loss                                (5,339)       (528,594)       (533,933)
                                       -------       ---------       ---------
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)
                                       =======       =========       =========



 (1)   General Partner.

 (2)   13,981.5 limited partnership units outstanding at December  31,
       1996, 1995, and 1994.

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, 1996, 1995 and 1994

                                              1996          1995       1994
                                                                       
Cash flows from operating activities:                                     
   Net loss                               ($1,017,308) ($  533,993) ($1,756,104)
   Adjustments to reconcile net loss to net cash                    
     (used in) provided by operating activities:                          
Depreciation and amortization                 478,748      829,265      927,774
Extraordinary gain                                  0   (1,316,188)           0
Minority interests                                  0      (16,365)     (28,060)
Equity in loss of affiliate                    11,418       19,120            0
Changes in assets and liabilities:                                        
   Increase in restricted cash                (95,508)     (45,897)      (7,552)
   (Increase) decrease in accounts receivable    (673)       7,450       (1,754)
   (Increase) decrease in other assets        (96,087)       1,604          380
   Increase in accounts payable - trade       172,594      204,853      331,553
   Increase (decrease) in accounts payable-
     related parties                           45,703       33,479     (206,364)
   (Decrease) increase in accounts payable-
     taxes                                   (155,907)      59,277       41,342
   Increase in interest payable               132,998      903,426      125,380
   (Decrease) increase in tenant security
      deposits                                 (2,413)     (31,928)      18,070
   Increase in other liabilities               10,625        1,942        8,338
      Net cash (used in) provided by          -------      -------      -------
              operating activities:          (515,810)     116,105     (546,997)
                                              -------      -------      -------
Cash flows from investing activities:                                     
   Capital expenditures                      (112,221)    (302,989)     (18,609)
                                              -------      -------      -------
     Net cash used in investing activities:  (112,221)    (302,989)     (18,609)
                                              -------      -------      -------
Cash flows from financing activities:                             
   Proceeds from debt obligations             638,208       196,445     635,956
   Payments of principal under debt
     obligations                                    0       (30,313)    (61,853)
      Net cash provided by financing          -------       -------     -------
        activities:                           638,208       166,132     574,103
                                              -------       -------     -------
Increase (decrease) in cash and cash
  equivalents                                  10,177       (20,752)      8,497
Cash and cash equivalents at beginning of year 10,685        31,437      22,940
                                              -------       -------     -------
Cash and cash equivalents at end of year    $  20,862     $  10,685   $  31,437
                                              =======       =======     =======
Supplemental Disclosure of Cash Flow Information:   
   Cash paid during the year for interest   $ 558,411     $ 491,008   $ 299,696

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 are done with  a  view  to  obtaining
certification  of expenditures therefore as "qualified rehabilitations
expenditures" as defined in the Code.

The  General Partner of the Partnership is Dover Historic Advisors  II
(a  general  partnership), whose partners are Mr. Gerald  Katzoff  and
DHP, Inc.

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

A  summary of the significant accounting policies consistently 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 1996, 1995, and 1994).

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.    Other income

Other  income consists of insurance proceeds received at  one  of  the
properties resulting from a claim for water damage to several  of  the
units.

11.    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  a
continued hold of 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 a continued hold of  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.

12.    New Accounting Pronouncement

Effective  January 1, 1995, the Partnership adopted the provisions  of
Statement  of  Financial  Accounting  Standards  ("SFAS")   No.   121,
"Accounting for the Impairment of Long - Lived Assets and for  Long  -
Lived  Assets to be Disposed Of."  There was no cumulative  effect  of
the adoption of SFAS No. 121.

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, with the exception of
the  Magazine Place, where the Partnership does not receive any of the
distributable  cash (see Note G), the Partnership  has  feasible  loan
modifications  in place.  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  owns  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
<TABLE>
Debt obligations are as follows:                                    
                                                                      December 31,
                                                                   1996          1995
<S>                                                            <C>           <C>
Mortgage  loan, interest at 11 1/2%, principal  and  interest  $ 3,784,900   $ 3,784,900
payable  monthly in installments with a minimum  of  $25,000,
plus  70%  of  the gross revenues from the rental  of  10,330
square  feet  on the first and second floors of  the  related
rental  property;  due November 1997; collateralized  by  the
related   rental  property;  accrued  interest  of   $540,955
relating to this loan is included in interest payable on  the
balance sheet

Note, interest payable monthly at prime, with a minimum of 6%      200,000       200,000
and  a maximum of 8%, adjusting annually on January 2 (8%  at
December  31, 1996 and 1995); due in 1997; collateralized  by
the  related  rental  property; accrued interest  of  $81,160
relating to this loan is included in interest payable on  the
balance sheet

Allowed  unsecured  claims in the amount  of  $268,042;  non-      167,812       199,058
interest bearing

Priority  tax  claims  in  the  amount  of  $80,705   payable            0        36,638
commencing  February 1993 in equal quarterly installments  of
$5,056.   The  note  bears interest  at  9%  and  matured  in
November 1996

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

Mortgage  loan,  interest only at  prime  plus  1%  (9.5%  at           0         80,000
December 31, 1995, respectively); payable annually; principal
and  accrued  interest  due in 1994;  collateralized  by  the
related rental property (B)

Mortgage  loan,  interest  at  9.125%,  payable  in   monthly   1,265,960              0
principal and interest installments of $10,317; principal due
in  September  2003;  collateralized by  the  related  rental
property

Mortgage  loan, interest at prime plus 1 1/4% with a  minimum   1,468,679      1,948,897
of  9.5%  and a maximum of 14.5%; 9.5% and 9.75% at  December
31,  1996  and  1995, respectively, principal  due  in  1999;
collateralized  by  the  related  rental  property;   accrued
interest  of  $10,038 relating to this loan  is  included  in
interest payable on the balance sheet (C)

Mortgage  loan, interest at 11% per annum; principal  due  in     107,120        107,120
1999;  collateralized by the related rental property; accrued
interest  of  $24,548 relating to this loan  is  included  in
interest payable on the balance sheet (C)

Note,  interest  at  prime plus 1 1/4%  (9.5%  and  9.75%  at     100,278        100,278
December 31, 1996 and 1995, respectively); principal  due  in
1999;  collateralized by the related rental property; accrued
interest  of  $19,742 relating to this loan  is  included  in
interest payable on the balance sheet (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;  accrued  interest  of   $202,524
relating to this loan is included in interest payable on  the 
balance sheet (D)                                                1,310,152     1,309,802
                                                                ----------    ----------
                                                               $ 8,414,901   $ 7,776,693
                                                                ==========    ==========
</TABLE>
(A)    Although this obligation has matured, the lenders have not made
       any demand for payment.

(B)    This  loan  was  purchased in June 1996 by the  first  mortgage
       holder and is included in the first mortgage balance.

(C)    In  June  1996,  the Partnership refinanced $1,268,000  of  the
       first  mortgage.  Monthly payments of interest are to be  made,
       on  all  three  loans  combined, in  an  amount  equal  to  net
       operating income.

       On  December  2, 1994, the terms of this loan were modified  to
       those  described  above.   In  accordance  with  Statement   of
       Financial Accounting Standards No. 15, "Accounting for  Debtors
       and Creditors for Troubled Debt Restructurings" the effects  of
       the  modification have been and will continue to  be  accounted
       for  prospectively from the date of the restructuring  with  no
       gain recognized at that time.

(D)    On  September 2, 1994, the terms of this loan were modified  to
       those  described  above.   In  accordance  with  Statement   of
       Financial Accounting Standards No. 15, "Accounting for  Debtors
       and Creditors for Troubled Debt Restructurings" the effects  of
       the  modification have been and will continue to  be  accounted
       for  prospectively from the date of the restructuring  with  no
       gain recognized at that time.

Approximate  maturities of the mortgage loan obligations  at  December
31, 1996, for each of the succeeding five years are as follows:

                                                    
                          1997                    $ 4,162,712
                          1998                              0
                          1999                      2,986,229
                          2000                              0
                          2001                              0
                          Thereafter                1,265,960
                                                   ----------
                                                  $ 8,414,901
                                                   ==========
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.

The  sellers  of  two of the properties (who have maintained  minority
interests  in  the Ventures) have agreed to reimburse the  Partnership
for  cash flow deficits, as defined, of these properties for  a  five-
year  period  (one property) and an eight-year period (one  property).
No   reimbursements  were  made  by  the  sellers  pursuant  to  these
agreements.

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 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.

NOTE H - EXTRAORDINARY GAINS

Cathedral  Court  General  Partnership  ("CCGP")  ceased  making  debt
service   payments   in  1989.   In  January  1990,   CCGP   filed   a
reorganization petition pursuant to Chapter 11 of the U.S.  Bankruptcy
Code.   Although  a  plan  of reorganization was  filed,  it  was  not
approved.   Pursuant to a settlement agreement reached with the  first
mortgage  holder on July 31, 1993 the bankruptcy was  dismissed.   The
terms  of  the  settlement agreement called for payment to  the  first
mortgage  holder  by  CCGP of certain monies held,  and  for  CCGP  to
continue  to  control the property.  In September  1994,  due  to  the
inability  of the first mortgage holder and CCGP to reach an agreement
regarding  CCGP's  purchase  of the loan, the  first  mortgage  holder
petitioned  the Circuit Court for the City of Baltimore in the  matter
of  Harrington  v.  Cathedral  Court  General  Partnership,  Case  No.
89340045/CE  106281, to have a receiver appointed, and  such  petition
was  granted.  Pursuant to the appointment of the receiver,  CCGP  was
directed  to  deliver  immediate possession of any  and  all  property
connected  with and used in the current operation of the  property  to
the  receiver  and  on January 22, 1996 the lender foreclosed  on  the
property.   The  Partnership  accounted for  the  foreclosure  of  the
property  as of December 31, 1995.  The Partnership has recognized  an
extraordinary gain of $1,316,188 for the difference between  the  book
value  of  the  property  (which  approximates  fair  value)  and  the
extinguished debt.

NOTE I - TRANSACTIONS WITH RELATED PARTIES

Included in debt obligations for 1996, 1995 and 1994 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  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 1995 and 1996.  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 at December 31, 1996 was $578,903.

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 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 1995
and 1996.  Payments on the judgment are to be made from available cash
flow  from  18th and Green.  The balance of the note at  December  31,
1996 was $45,070.

NOTE J - INCOME TAX BASIS RECONCILIATION

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

                                           For the Years Ended December 31,
                                           1996           1995          1994
Net loss - book                        ($1,019,509)   ($ 550,993)   ($1,739,044)
Excess of tax over book depreciation        89,414       166,823        115,217
Interest                                         0       793,672        461,176
Gain on foreclosure                              0       216,411              0
Other timing differences                    23,940        (2,746)        (8,695)
Minority interest                          (21,859)      (19,675)        22,087
                                         ---------      --------     ---------- 
Net loss - tax                         ($  928,014)    $ 603,492   ($ 1,149,259)
                                         =========      ========     ==========

Partners' equity - book                ($2,001,484)   ($ 995,617)  ($   441,878)
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      248,230       170,377       (986,854)
                                         ---------     ---------      ---------
Partners' equity - tax                 ($   95,488)    $ 832,526    $   229,034
                                         =========     =========      =========
<PAGE>
                       SUPPLEMENTAL INFORMATION
<PAGE>
                                   
                           DIVERSIFIED HISTORIC INVESTORS III
                                 (a limited partnership)
                                                    
                   SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                     DECEMBER 31, 1996

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

                                          Buildings                           
                                             and                 Date of  Date
Description (a)     Encumbrances  Land    Imprvmnts   Imprvmnts  Constr.  Acq.
                        (f)                                        (a)    
                                               
64,000 square feet                                   
of commercial space 
in WInston-Salem,NC  $4,152,712  $308,624  $6,290,125  $476,976  1986-1988  1986

58 apartment units                                                        
in Philadelphia, PA   2,952,037    86,187   3,490,437       -    1986-1987  1986
                   
18 apartment units    
in Philadelphia, 
PA                    1,310,152    70,643   1,559,017         0     1987
                      ---------   -------  ----------   -------
TOTAL                $8,414,901  $465,454 $11,339,579  $476,976
                      =========   =======  ==========   =======


                     Gross Amount at which Carried at                        
                     December 31, 1996
                                    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     $6,769,911     $7,078,535     $2,451,299

58 apartment units                                                    
in Philadelphia, PA      86,187      3,726,946      3,813,133      1,416,577
                                                                      
18 apartment units                                                    
in Philadelphia, PA      70,643      1,559,017      1,629,660        593,116
                        -------     ----------     ----------      ---------
TOTAL                  $465,454    $12,055,874    $12,521,328     $4,461,992 
                        =======     ==========     ==========      =========
<PAGE>
                  DIVERSIFIED HISTORIC INVESTORS III
                                   
                        (a limited partnership)
                                   
                         NOTES TO SCHEDULE XI
                                   
                           December 31, 1996

(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 are rehabilitated.

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

(C)    The  aggregate cost of real estate owned at December 31,  1996,
       for  Federal  income tax purposes is approximately $11,327,296.
       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:

                                        1996            1995            1994
Balance at beginning of year:        $12,409,107     $25,570,608     $25,551,999
Additions during the year:   
   Improvements                          112,221         297,731          18,609
                                      ----------      ----------      ----------
Deductions during the year:       
   Retirements                                 0      (9,253,739)              0
   Deconsolidated subsidiary                   0      (4,205,493)              0
                                      ----------      ----------      ----------
Balance at end of year               $12,521,328     $12,409,107     $25,570,608
                                      ==========      ==========      ==========
Reconciliation of accumulated depreciation:
                                        1996            1995             1994
Balance at beginning of year         $ 3,991,148     $ 7,035,889     $ 6,108,115
Depreciation expense for the year        470,844         829,265         927,774
Retirements                                    0      (2,830,686)              0
Deconsolidated subsidiary                      0      (1,040,320)              0
                                      ----------      ----------      ----------
Balance at end of year               $ 4,461,992     $ 3,991,148     $ 7,035,889
                                      ==========      ==========      ==========
(E)    See  Note B to the financial statements for depreciation method
       and lives.

(F)    See Note E to the financial statements for further information.
<PAGE>
Item  9.         Changes  in  and Disagreements  with  Accountants  on
                 Accounting and Financial Disclosure

                 None.

                               PART III

Item 10.       Directors and Executive Officers of 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
Gerald Katzoff             49    Partner in   No fixed term    Since February
                                 DoHA-II                       1986
                                                              
DHP, Inc.                  --    Partner in   No fixed term    Since February
("Formerly Dover                 DoHA-II                       1986
Historic Properties, Inc.")

                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 DHP,
Inc.  and Gerald Katzoff.  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.

                Gerald  Katzoff (age 49) has been involved in  various
aspects  of the real estate industry since 1974.  Mr. Katzoff  is  the
owner of Katzoff Resorts, which controls various hotel and spa resorts
in  the United States.  Mr. Katzoff is a principal in an entity  which
is  the  owner of a property in Avalon, New Jersey which has  filed  a
petition  pursuant  to  Chapter 11 of the U.S. Bankruptcy  Code.   Mr.
Katzoff  is a former President and director of D, LTD., (formerly  The
Dover Group, Ltd., the corporate parent of DHP, Inc.).

                Dover  Historic  Properties, Inc. was incorporated  in
Pennsylvania   in  December  1984  for  the  purpose   of   sponsoring
investments in, rehabilitating, developing and managing historic  (and
other) properties. In February 1992, Dover Historic Properties, Inc.'s
name  was changed to DHP, Inc.  DHP, Inc. is a subsidiary of The Dover
Group,  Ltd.,  an entity formed in 1985 to act as the holding  company
for  DHP, Inc. and certain other companies involved in the development
and operation of both historic properties and conventional real estate
as  well  as  in financial (non-banking) services.  In February  1992,
Dover Group's name was changed to D, LTD.

               The executive officers, directors, and key employees of
DHP, Inc. are described below.

                Michael J. Tuszka (age 50) was appointed Chairman  and
Director of both D, LTD and DHP, Inc. on January 27, 1993.  Mr. Tuszka
resigned as Chairman and Director of both D, LTD and DHP, Inc. on June
30, 1996.

                  Donna    M.    Zanghi   (age   40)   was   appointed
Secretary/Treasurer  of  DHP, Inc. on June 15,1993.   She  is  also  a
Director  and Secretary/Treasurer of D, LTD.  She has been  associated
with D, LTD, 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 32) was appointed on January 27,
1993 as Assistant Secretary and Director of both D. LTD and DHP, Inc.

Item 11.       Executive Compensation

                a.    Cash Compensation - During 1996, 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
1996, 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 1996 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 1994 through 1996.

               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.


                                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, 1996 and 1995.

                                              b.          Consolidated
                          Statements of Operations for the Years Ended
                          December 31, 1996, 1995 and 1994.

                                              c.          Consolidated
                          Statements  of  Changes in Partners'  Equity
                          for  the Years Ended December 31, 1996, 1995
                          and 1994.

                                              d.          Consolidated
                          Statements of Cash Flows for the Years Ended
                          December 31, 1996, 1995 and 1994.

                                         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   Document
                               Number
                    
                                 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, 1996.

                           (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.

                              DIVERSIFIED HISTORIC INVESTORS III
                                             
Date:  April 4, 1997          By: Dover Historic Advisors II, General Partner
                                             
                                  By: DHP, Inc., Partner
                                                 
                                      By: /s/ Donna M. Zanghi
                                          DONNA M. ZANGHI,
                                          Secretary 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:  DHP, Inc., Partner

    By:  /s/ Donna M. Zanghi                                    April 4, 1997
         DONNA M. ZANGHI,
         Secretary and Treasurer

    By:  /s/ Michele F. Rudoi                                   April 4, 1997
         MICHELE F. RUDOI,
         Assistant Secretary