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


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

For the fiscal year ended         December 31, 2002
                         ---------------------------------------------

                                  or
[   ]  TRANSITION  REPORT  PURSUANT TO SECTION  13  OR  15(d)  OF  THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________

Commission file number                  0-15843
                       -----------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>


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

Diversified  Historic Investors III (the "Registrant") is  filing  the
following Annual Report on Form 10-K for the period ended December 31,
2002 containing "unaudited" consolidated financial statements.

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

The  Registrant recently engaged a new firm, Russell Bedford  Stefanou
Mirchandani,  LLP  to  audit and review the  Registrants'  outstanding
consolidated financial statements. The audit fieldwork began  in  July
2005;  however, because of the time expected to be involved in  having
the  new  auditor  perform the audit and review  of  the  consolidated
financial statements, the Registrant cannot advise as to the  date  of
completion of the audit and the filing date of the amendment  to  this
quarterly  report. The Registrant will endeavor to proceed  with  this
audit as expeditiously as possible.

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


<PAGE>


                                   PART I
                                   ------

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

             a.     General Development of Business

              Diversified Historic Investors III ("Registrant")  is  a
limited  partnership  formed in 1986 under Pennsylvania  Law.   As  of
December  31,  2002,  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.  Two properties
have been lost due to foreclosure and one property was sold.  See Item
2.  Properties,  for  a description thereof.  It  currently  owns  two
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 Condition and Results of Operations.

             b.     Financial Information about Industry Segments

               The Registrant operates in one industry segment.

             c.     Narrative Description of Business

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

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

                 As   of  December  31,  2002,  Registrant  owned  two
properties (or interests therein), located in Pennsylvania  and  North
Carolina.  One  property  is  an  apartment  building  and  one  is  a
commercial/office building.  In total, the two properties  contain  58
apartment  units and 62,146 rentable square feet ("sf") of  commercial
space. As of December 31, 2002, 55 apartment units were under lease at
monthly rental rates ranging from $475 to $1,800. In addition,  22,169
sf  of  the  commercial space was under lease at annual rates  ranging
from  $12.13  per sf to $15.00 per sf.  Rental of the  apartments  and
commercial  space  is  not seasonal.  For further  discussion  of  the
properties, see Item 2. Properties.

                The  Registrant  is  affected by and  subject  to  the
general competitive conditions of the residential and commercial  real
estate industries. 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. The residential property  is  located  in
Philadelphia, PA. The commercial/office building is located in Winston-
Salem, North Carolina. The Philadelphia property 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  both  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 two properties,
or  interests therein.  A summary description of each property held at
December 31, 2002 is given below.

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

              The  property  is managed by BCMI.  As of  December  31,
2002,  55  residential units (95%) were under lease at  monthly  rents
ranging  from  $475  to  $1,800.  All leases are  renewable,  one-year
leases.   The occupancy for the previous four years was 98% for  2001,
86%  for  2000,  88%  for 1999, and 88% for 1998. The  monthly  rental
ranges  for  the previous four years were $471 to $1,700  during  2001
$460  to $1,700 during 2000, $460 to $1,565 during 1999 and 1998.  For
tax  purposes, this property has a federal tax basis of $3,447,096 and
is  depreciated using the straight-line method with a useful  life  of
27.5  years.  The annual real estate taxes are $34,924 which is  based
on an assessed value of $426,880 taxed at a rate of $82.64 per $1,000.
No  one  tenant  occupies ten percent or more  of  the  building.  The
Registrant  believes  that  the  property  is  adequately  covered  by
insurance.

              b.      The  Loewy Building - consists of two  adjoining
buildings  located  at 505 West Fourth Street in Winston-Salem,  North
Carolina.   The buildings consist of 62,146 rentable sf of  commercial
space.  In November 1986, the Registrant acquired its interest in this
Property  by  purchasing  a 99% interest in Triad  Properties  General
Partnership ("Triad"), a Pennsylvania general partnership, for a  cash
contribution   of  $2,250,000.   Triad  contracted  to   acquire   and
rehabilitate  the Property for $5,690,000 ($88 per sf).  Additionally,
$560,000  of  working capital/marketing reserves were  provided.   The
total   cost  of  the  project  was  funded  by  Registrant's   equity
contribution, mortgage financing of $3,560,000 (principal  balance  of
$3,916,716  at December 31, 2002) and a $500,000 note payable  to  the
developer  (Cwood  Properties, Inc., Thomas  L.  Kummer  and  Gail  R.
Citron;  all  of  whom  are general partners  of  Triad).   The  first
mortgage  bears  interest at 11.5% and is due in  January  2012.   The
developers  note  was sold in September 1997.  The Registrant  entered
into  an  agreement  with the new holder of the note  whereby  monthly
payments  of  interest  are  to be made in  an  amount  equal  to  net
operating  income  with  a  minimum monthly payment  of  $27,500.  The
Registrant  advanced  an  additional  $1,098,000  and  Triad  obtained
$200,000  of  additional financing in 1987 (principal balance  due  of
$200,000  at  December 31, 2002) to fund cost overruns resulting  from
delays  and  changes  in  rehabilitation and construction  plans.  The
additional financing bears interest at the prime rate with  a  minimum
of  6%  and  a maximum of 8% adjusting annually on January  2  (6%  at
December 31, 2002 and 2001). The property is managed by BCMI.

              As of December 31, 2002, 22,169 sf were rented (36%)  at
annual  rates ranging from $12.13 to $15.00 per sf.  The occupancy  at
year  end for the previous four years has been 36% for 2001 and  2000,
41%  for 1999, and 98% for 1998. The significant drop in occupancy  as
of  December  31,  1999  as compared to 1998  is  the  result  of  the
expiration of a tenant lease for 33,121 sf on December 31, 1999.   The
range for annual rents has been $6.00 to $14.28 per sf for 2001, $6.00
to  $13.41 per sf for 2000, $6.00 to $13.41 per sf for 1999 and  $6.00
to  $16.44 per sf for 1998. There are two tenants who each occupy  ten
percent  or more of the rentable square footage.  Both tenants operate
principally as law firms.

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

                                        Total
                                        annual      % of gross
                          Total sf      rental        annual
              Number of      of       covered by      rental
               leases     expiring     expiring       from
              expiring     leases       leases       property
              --------    --------    ----------    ----------
 2003            1         3,061       $ 46,000         14%
 2004            0             0              0          0%
 2005            1         2,800         37,000         13%
 2006            3        16,308        201,000         73%
 2007            0             0              0          0%

             One commercial lease expired during 2002.  The lease, for
a total of 200 sf, was not renewed.

             For tax purposes, this property has a basis of $5,721,638
and  is depreciated using the straight-line method with a useful  life
of  39  years. The annual real estate taxes are $22,849 which is based
on  an assessed value of $3,849,900 taxed at a rate of $1.68 per $100.
Registrant  believes  that  the  property  is  adequately  covered  by
insurance.

              Effective  as of April 23, 2003, the Loewy Building  was
foreclosed by the mortgage holder.


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

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


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

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


<PAGE>

                                PART II
                                -------

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

           a.  There is no established public trading market  for  the
Units.   Registrant does not anticipate any such market will  develop.
Trading in the Units occurs solely through private transactions.   The
Registrant  is  not  aware  of  the  prices  at  which  trades  occur.
Registrant's  records indicate that 73 Units of record  were  sold  or
exchanged in 2002.

            b.    As  of  December 31, 2002, there were  1,583
record holders of Units.

            c.   Registrant did not declare any cash dividends in 2002
or 2001.


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

              The  following selected financial data are for the  five
years ended December 31, 2002.  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.


                  2002       2001       2000       1999       1998
                  ----       ----       ----       ----       ----
              (Unaudited)

Rental income $  907,392 $  931,137 $  936,392 $1,257,195 $1,251,911
Interest
 income            2,629      2,414      4,397      3,866      2,113
Net income
 (loss)          353,288 (3,444,268)(2,006,951)(1,070,903)(1,297,537)
Net income
 (loss) per
 Unit              25.01    (243.88)   (142.11)    (75.83)    (91.88)
Total assets
 (net of
 depreciation
 and
 amortization) 2,309,559  3,348,854   6,024,542  7,307,432  7,758,588
Debt
 obligations   7,365,328  8,996,269   8,972,599  8,966,573  8,970,613


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


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

             (1)    Liquidity

                 At   December  31,  2002,  Registrant  had  cash   of
approximately $24,207.  Registrant uses cash generated from operations
primarily to fund operating expenses and debt service. In recent years
the   Registrant  has  realized  significant  losses,  including   the
foreclosure of one property. At the Loewy Building the mortgage  is  a
cash-flow  mortgage,  requiring all available cash  after  payment  of
operating   expenses  to  be  paid  to  the  first  mortgage   holder.
Therefore,  it  is  unlikely that any cash will be  available  to  the
Registrant  to  pay  its  general  and  administrative  expenses.  The
Registrant is not aware of any additional sources of liquidity.

               As of December 31, 2002, Registrant had restricted cash
of  $118,080 consisting primarily of funds held as security  deposits,
replacement reserves and escrows for taxes.  As a consequence of these
restrictions as to use, Registrant does not deem these funds to  be  a
source of liquidity.

                It  is the Registrant's intention to continue to  hold
the  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).

          (2)     Capital Resources

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

                 Results of Operations

               During 2002, Registrant realized net income of $353,288
($25.01  per  limited partnership unit), compared to  a  net  loss  of
$3,444,268 ($243.88 per limited partnership unit) in 2001, and  a  net
loss  of  $2,006,951 ($142.11 per limited partnership unit)  in  2000.
Included in net income for 2002 are a gain on sale of $271,576 and  an
extraordinary gain on extinguishment of debt of $1,423,902.

                Rental income was $907,192 in 2002, $931,137 in  2001,
and  $936,392 in 2000. The decrease in rental income at Lincoln  Court
from  2001 to 2002 is due to a decrease in average occupancy  (98%  to
95%).  The  decrease in rental income from 2000 to 2001 is  due  to  a
decrease  at  the  Loewy  Building and the  Green  Street  Apartments,
partially  offset  by an increase at Lincoln Court.  The  decrease  in
rental  income  at  the Loewy Building is due a  decrease  in  average
occupancy  (38%  to 36%) and a decrease in average rental  rates.  The
decrease  at  the  Green Street Apartments is due  to  a  decrease  in
average occupancy (98% to 86%). The increase at Lincoln Court  is  due
to an increase in average occupancy (86% to 95%).

              Rental operations expense was $635,660 in 2002, $567,915
in  2001, and $552,505 in 2000. The increase from 2001 to 2002 is  due
to  an  increase in insurance expense and utilities expense at Lincoln
Court  and  the  Loewy Building and an increase  in  real  estate  tax
expense  at  the  Loewy Building, partially offset by  a  decrease  in
maintenance  expense  at  Lincoln Court.  The  increase  in  insurance
expense  at  Lincoln Court and the Loewy Building is due to  insurance
market  conditions.  The increase in real estate tax  expense  at  the
Loewy Building is due to an increase in the property's assessed value.
The decrease in maintenance expense is due to the decrease in plumbing
and  electrical and alarm service expenses. The increase from 2000  to
2001 is due to an increase in commission expense at Lincoln Court  and
the  Green Street Apartments, partially offset by a decrease in  legal
and  accounting  expense  at  the  Loewy  Building.  The  increase  in
commission expense at Lincoln Court and the Green Street Apartments is
due to an increase in the turnover of apartment units. The decrease in
legal  expenses  at  the  Loewy Building  is  due  to  a  decrease  in
professional services rendered during 2001.

              Interest  expense was $1,264,379 in 2002, $1,068,080  in
2001,  and  $1,068,425 in 2000. The increase in interest expense  from
2001  to  2002  is  due to the prepayment penalty  incurred  upon  the
refinancing of the Lincoln Court first mortgage.

              Depreciation  and  amortization was  $299,952  in  2002,
$495,581 in 2001 and $522,814 in 2000.  The decrease from 2001 to 2002
is  due to the impairment loss incurred at the Loewy Building in  2001
and the foreclosure of Green Street in 2002. The decrease from 2000 to
2001  is due to the impairment loss incurred at the Loewy Building  in
2000.

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

               During 2000, the Registrant incurred an impairment loss
of  $820,000.  The  Loewy Building was deemed to be impaired  and  was
written  down  to  its  fair  market  value.  Fair  value,  which  was
determined  by reference to the present value of the estimated  future
cash  inflows  exceeded the carrying value by $820,000,  therefore  an
impairment loss of that amount was charged to operations in 2000.

                In  2002, a loss of approximately $99,000 was incurred
at  the Registrant's three properties compared to a loss of $1,140,000
in  2001  and  a loss of $1,115,000 in 2000. A discussion of  property
operations/activities follows:

              During  2002, the Registrant incurred a loss of $624,000
at  Lincoln  Court including $182,000 of depreciation and amortization
expense  compared  to  a  loss  of  $269,000  including  $165,000   of
depreciation and amortization expense in 2001, compared to a  loss  of
$349,000  including  $163,000 of depreciation  expense  in  2000.  The
increase  in  loss  from 2001 to 2002 is due to a decrease  in  rental
income  and an increase in utilities expense, insurance expense,  real
estate  tax  expense and depreciation expense, partially offset  by  a
decrease in maintenance expense. The decrease in rental income is  due
to  a  decrease  in average occupancy (98% to 95%).  The  increase  in
utilities  expense is due to an increase in electricity  charges.  The
increase  in  insurance expense is due to insurance market conditions.
The  increase in real estate tax expense is due to an increase in  the
assessed  value of the property. The increase in depreciation  expense
is due to capital expenditures. The decrease in maintenance expense is
due  to  a  decrease  in  plumbing and electrical  and  alarm  service
expenses. The decrease in loss from 2000 to 2001 is due to an increase
in  rental  income  and a decrease in maintenance  expense,  partially
offset  by  an increase in commission expense. The increase in  rental
income  is  due to an increase in average occupancy (86% to 98%).  The
decrease  in  maintenance expense is due to a decrease in  maintenance
service  expense.  The increase in commission expense  is  due  to  an
increase in the turnover of apartment units.

              On  June 30, 1992 Diversified Historic Properties,  Inc.
("DHP"),  a  partner of the Registrant's general partner, assigned  to
Dover  Limited  (D,  LTD),  its parent, a  note  receivable  from  the
Registrant in the amount of $432,103 which bears interest at 10%  with
the  entire  principal  and accrued interest due  on  June  30,  1997.
Interest  accrued was $45,703 during both 2002 and 2001.  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, 2002 was $753,120.

                In  2002 the Green Street Apartments recognized income
of $1,289,000 including $42,000 in depreciation expense compared to  a
loss  of  $145,000 including $59,000 of depreciation expense in  2001,
and  a  loss of $132,000 including $59,000 of depreciation expense  in
2000.   The  property was foreclosed on October 1, 2002.  Included  in
income for 2002 is an extraordinary gain on the extinguishment of debt
of  $1,423,902. The increase in loss from 2000 to 2001  is  due  to  a
decrease  in rental income and an increase in commission expense.  The
decrease  in  rental income is due to a decrease in average  occupancy
(98% to 86%). The increase in commission expense is due to an increase
in the turnover of apartment units.

              In 2002, the Loewy Building sustained a loss of $566,000
including  $21,000 of depreciation and amortization expenses  compared
to  a  loss  (exclusive of the impairment loss) of $745,000  including
$290,000  of depreciation and amortization expense during 2001  and  a
loss  of  $650,000 including $286,000 of depreciation and amortization
expense  in  2000.  Exclusive of the impairment loss, the decrease  in
loss  from 2001 to 2002 is due to a decrease in depreciation  expense,
partially  offset by an increase in insurance expense and real  estate
taxes.  Depreciation  expense decreased due to the  impairment  losses
incurred  during 2000 and 2001. The increase in insurance  expense  is
due  to  insurance market conditions. The increase in real estate  tax
expense  is  due to an increase in the property's assessed value.  The
increase in the loss from 2000 to 2001 is due to a decrease in  rental
income  and an increase in maintenance expense. The decrease in rental
income  is  due to a decrease in average occupancy (38% to  36%).  The
increase in maintenance expense is due to an increase in cleaning  and
maintenance service.

           Summary of Minority Interests

              In 2002, the Registrant recognized income of $12,532  at
Magazine Place compared to an income of $18,000 in 2001 and an  income
$16,000  in  2000.  This investment is accounted  for  by  the  equity
method. The decrease in income from 2001 to 2002 is due to the sale of
the  property during the second quarter of 2002. The increase  in  net
income  from 2000 to 2001 is due to a decrease in rental and operating
expenses.

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



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

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

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


<PAGE>


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


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


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

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


Consolidated financial statements:                            Page
                                                              ----

   Consolidated  Balance  Sheets at  December  31,  2002       13
   (unaudited) and 2001

   Consolidated Statements of Operations for  the  Years       14
   Ended December 31, 2002 (unaudited), 2001, and 2000

   Consolidated  Statements  of  Changes  in   Partners'       15
   Equity   for  the  Years  Ended  December  31,   2002
   (unaudited), 2001, and 2000

   Consolidated Statements of Cash Flows for  the  Years       16
   Ended December 31, 2002 (unaudited), 2001, and 2000

   Notes   to   consolidated  financial   statements   -     17-24
  (Unaudited)


Financial statement schedules:

   Schedule   XI   -   Real   Estate   and   Accumulated       26
   Depreciation (Unaudited)

   Notes to Schedule XI - (Unaudited)                          27











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, 2002 and 2001

                                Assets
                                ------
                                          2002           2001
                                          ----           ----
                                      (Unaudited)

Rental properties at cost:
 Land                                $   274,690    $   465,454
 Buildings and improvements            7,654,091      8,941,775
 Furniture and fixtures                  124,762        170,548
                                     -----------    -----------
                                       8,053,543      9,577,777
  Less - accumulated depreciation     (6,160,425)    (6,891,195)
                                     -----------    -----------
                                       1,893,118      2,686,582
Cash and cash equivalents                 24,207         24,568
Restricted cash                          118,080        125,703
Accounts receivable                       29,374        103,775
Investment in affiliate                        0        181,003
Other assets (net of accumulated
 amortization  of  $160,716  and
 $259,565)                               244,780        227,223
                                     -----------    -----------
          Total                      $ 2,309,559    $ 3,348,854
                                     ===========    ===========

                Liabilities and Partners' Equity
                --------------------------------
Liabilities:
 Debt obligations                    $ 7,365,328    $ 8,996,269
  Trade                                  974,166      1,208,816
  Related parties                        819,270        873,567
  Real estate tax                              0         21,174
 Interest payable                      2,211,324      2,994,518
 Tenant security deposits                 43,588         62,468
 Advances                                 13,657              0
 Other liabilities                        33,342         30,681
                                     -----------    -----------
          Total liabilities           11,460,675     14,187,493
Minority interest                      1,334,234              0
Partners' deficit                    (10,485,350)   (10,838,639)
                                     -----------    -----------
          Total                      $ 2,309,559    $ 3,348,854
                                     ===========    ===========

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, 2002, 2001 and 2000

                                      2002        2001        2000
                                      ----        ----        ----
                                   (Unaudited)
Revenues:
 Rental income                    $  907,392  $  931,137  $  936,392
 Interest income                       2,629       2,414       4,397
 Gain on sale of investment          271,576           0           0
                                  ----------  ----------  ----------
          Total revenues           1,181,597     933,551     940,789
                                  ----------  ----------  ----------
Costs and expenses:
 Rental operations                   635,660     567,915     552,505
 Interest                          1,264,379   1,068,080   1,068,425
 Depreciation and amortization       299,952     495,581     522,814
 Bad debt                             66,876           0           0
 Impairment loss                           0   2,264,000     820,000
                                  ----------  ----------  ----------
         Total costs and expenses  2,266,867   4,395,576   2,963,744
                                  ----------  ----------  ----------
Net loss before minority interest
 and equity in affiliate          (1,085,270) (3,462,025)  2,022,955)
Minority interest                      2,124           0           0
Equity in income of affiliate         12,532      17,757      16,004
                                  ----------  ----------  ----------
Net loss before extraordinary
 item                             (1,070,614) (3,444,268) (2,006,951)
Extraordinary gain on
 extinguishment of debt            1,423,902           0           0
                                  ----------  ----------  ----------
Net income (loss)                 $  353,288 ($3,444,268)($2,006,951)
                                  ==========  ==========  ==========

Net  loss per limited partnership
 unit:
 Net loss before minority interest
  and equity in affiliate        ($    76.85) ($  245.14)($   143.24)
 Minority interest                       .15           0           0
 Equity in income of affiliate           .89        1.26        1.13
                                  ----------  ----------  ----------
Net loss before extraordinary
 item                                 (75.81)    (243.88)    (142.11)
Extraordinary gain  on
 extinguishment of debt               100.82           0           0
                                  ----------  ----------  ----------
Net income (loss) per limited
 partnership unit                 $    25.01 ($   243.88)($   142.11)
                                  ==========  ==========  ==========


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, 2002, 2001 and 2000



                                     Dover
                                    Historic
                                    Advisors     Limited
                                     II (1)    Partners (2)    Total
                                    --------   ------------    -----

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

Balance at December 31, 1999      ($166,913)  ($ 5,220,508)  ($ 5,387,421)
Net loss                            (20,070)    (1,986,881)    (2,006,951)
                                   --------    -----------    -----------
Balance at December 31, 2000       (186,983)    (7,207,389)    (7,394,372)
Net loss                            (34,443)    (3,409,823)    (3,444,267)
                                   --------    -----------    -----------
Balance at December 31, 2001       (221,426)   (10,617,212)   (10,838,638)
Net income                            3,533        349,755        353,288
                                   --------    -----------    -----------
Balance at December 31, 2002
 (Unaudited)                      ($217,893)  ($10,267,457)  ($10,485,350)
                                   ========    ===========    ===========

 (1) General Partner.

 (2) 13,981.5  limited partnership units outstanding at  December  31,
     2002, 2001, and 2000.


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, 2002, 2001 and 2000

                                       2002        2001        2000
                                       ----        ----        ----
                                   (Unaudited)
Cash flows from operating
 activities:
 Net income (loss)                $  353,288 ($3,444,268) ($2,006,951)
 Adjustments to reconcile net loss
 to net cash:
 Depreciation and amortization       299,952     495,581      522,814
 Impairment loss                           0   2,264,000      820,000
 Gain on sale of investment         (271,576)          0            0
 Equity in income of affiliate       (12,532)    (17,757)     (16,004)
 Extraordinary gain on
  extinguishment of debt          (1,423,902)          0            0
 Minority interest                    (2,124)          0            0
Changes in assets and liabilities:
 Decrease (increase) in
  restricted cash
                                       7,624      55,852       (9,546)
 Decrease (increase) in accounts
  receivable
                                      74,401     (13,087)     (28,449)
 Increase in other assets            (29,067)    (64,530)      (8,585)
 (Decrease) increase in accounts
  payable - trade                   (234,651)     28,536       18,658
 (Decrease) increase in accounts
  payable - related parties          (54,297)     45,707       45,703

 (Decrease) increase in
  accounts payable - real estate     (21,174)     21,174            0
 (Decrease) increase in interest
  payable                           (126,734)    649,457      662,100
 (Decrease) increase in tenant
  security deposits                  (18,880)      4,584        2,001
 Increase in advances                 13,657           0            0
 Increase (decrease) in other
  liabilities                          2,669      (4,049)     (10,927)
                                  ----------  ----------   ----------
  Net cash (used in) provided by
   operating activities           (1,443,346)     21,200       (9,186)
                                  ----------  ----------   ----------
Cash flows from investing
 activities:
 Cash proceeds - sale of
  investment                         465,111           0            0
 Capital expenditures                (45,663)    (48,641)     (22,744)
                                  ----------  ----------   ----------
  Net cash provided by (used in)
   investing activities              419,448     (48,641)     (22,744)
                                  ----------  ----------   ----------
Cash flows from financing
 activities:
 Proceeds from debt obligations    3,135,464      40,487       21,437
 Payments of principal under
  debt obligations                (2,105,427)    (16,816)     (15,411)
 Distributions                        (6,500)          0            0
                                  ----------  ----------   ----------
  Net cash (used in) provided by
   financing activities            1,023,537      23,671        6,026
                                  ----------  ----------   ----------
Decrease in cash and cash
 equivalents                            (361)     (3,770)     (25,904)
Cash and cash equivalents at
 beginning of year                    24,568      28,338       54,242
                                  ----------  ----------   ----------
Cash and cash equivalents at
 end of year                      $   24,207  $   24,568   $   28,338
                                  ==========  ==========   ==========

Supplemental Disclosure of Cash
 Flow:
 Cash paid during the year
  for interest                    $1,336,459  $  418,623   $  406,325


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

<PAGE>


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

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


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

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


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

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

1.        Principles of Consolidation

The  accompanying financial statements of the Partnership include  the
accounts  of three subsidiary partnerships (the "Ventures"), in  which
the   Partnership   has  a  controlling  interest   with   appropriate
elimination  of  inter-partnership  transactions  and  balances.    In
addition,  the  Partnership 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 (13,981.5 in 2002, 2001, and 2000).

7.        Income Taxes

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

8.        Restricted Cash

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

9.        Revenue Recognition

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

10.       Rental Properties

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

11.  Use of Estimates

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


NOTE C - IMPAIRMENT LOSS
------------------------

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

During  2000, the Registrant incurred an impairment loss of  $820,000.
The  Loewy Building was deemed to be impaired and was written down  to
its  fair  market value. Fair value, which was determined by reference
to  the  present value of the estimated future cash inflows,  exceeded
the  carrying value by $820,000. An impairment loss of that amount has
been charged to operations in 2000.


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

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

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

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

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


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

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

In  October  1986, the Partnership was admitted, with  a  60%  general
partnership interest, to a Louisiana limited partnership which 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. This investment was sold on June 26,
2002.

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

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

In  March  1987,  the Partnership purchased a property  consisting  of
three  buildings (58 residential units) located in Pennsylvania for  a
cash capital contribution of $500,000.

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


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

Debt obligations are as follows:                      December 31,
                                                   2002          2001
                                                   ----          ----
                                               (Unaudited)
Mortgage loan, interest accrues at 11 1/2%,   $3,916,716    $ 3,873,752
interest  only  payable  monthly  to  the
extent of net operating income; principal
due  January 2012; collateralized by  the
related rental property

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

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

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

Mortgage loan, interest at 6.83%, payable      3,080,000     1,493,105
in   monthly   principal   and   interest
installments  of $10,070;  principal  due
November  2008;  collateralized  by   the
related rental property

Mortgage loan, interest accrues  at  15%,              0     1,942,681
interest  only  payable  monthly  to  the
extent of net operating income; principal
due  December 2008; collateralized by the
related rental property (B)

Mortgage  loan, interest at 12%; interest
only   payable  to  the  extent  of   net
operating  income with a minimum  monthly
payment of $5,750; principal due in  July
2009;   collateralized  by  the   related
rental property (B)                                    0    1,318,119
                                              ----------   ----------
                                              $7,365,328   $8,996,269
                                              ==========   ==========

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

(B)  The Green Street Apartments was foreclosed by the mortgage holder
     on October 1, 2002.

Approximate  maturities of the mortgage loan obligations  at  December
31, 2002, (for each of the succeeding five years are as follows:

                                   (Unaudited)
                 2003              $  368,612
                 2004                  20,408
                 2005                  22,159
                 2006                  23,743
                 2007                  25,440
                 Thereafter         6,904,966
                                   ----------
                                   $7,365,328
                                   ==========


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

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

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

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


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

On  June 30, 1992 DHP, Inc. assigned to D, LTD a note receivable  from
the  Partnership in the amount of $432,103 which bears interest at 10%
with  the entire principal and accrued interest due on June 30,  1997.
Interest  accrued was $45,703 during both 2001 and 2002.  Payments  on
the  note  are  to  be made from available cash flow  and  before  any
distribution  can be made to the Partnership's limited  partners.  The
balance  of the note at December 31, 2002 was $753,120. Although  this
obligation has matured, the lender has made no demand for payment.

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


NOTE I - INCOME TAX BASIS RECONCILIATION
----------------------------------------

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

                                      For the years ended December 31,
                                     2002           2001          2000
                                     ----           ----          ----
                                  (Unaudited)
Net income (loss) - book         $   353,288 ($ 3,444,268) ($ 2,006,951)
Minority interest - affiliate          2,124            0             0
Minority interest -
 Magazine Place                      (12,532)           0             0
Excess of tax over book - gain on
 sale of investment                  466,470            0             0
Excess of book over tax -
 extraordinary gain on
 extinguishment of debt             (737,736)           0             0
Excess of book over tax
 depreciation                       (183,976)      67,753        98,882
Minority interest - tax               10,658        7,047         6,078
Impairment loss adjustment                 0    2,264,000       820,000
                                 -----------  -----------   -----------
Net loss - tax                  ($   101,704)($ 1,105,468) ($ 1,081,991)
                                 ===========  ===========   ===========


Partners' equity - book         ($10,485,350)($10,838,639) ($ 7,394,371)
1987 distribution of interest
 on escrow deposits
 to limited partners                 (39,576)     (39,576)      (39,576)
Costs of issuance                  1,697,342    1,697,342     1,697,342
Cumulative tax under book loss     3,316,623    3,771,616     1,432,816
Magazine Place adjustment           (108,983)           0             0
                                 -----------  -----------   -----------
Partners' equity - tax          ($ 5,619,944)($ 5,409,257) ($ 4,303,789)
                                 ===========  ===========   ===========


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

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


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

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


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

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


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

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



                      For The Three Months Ended - (Unaudited)
                  December 31, September 30,  June 30,   March 31,
                  ------------ -------------  --------   ---------
                                           2002
                  ------------------------------------------------
Revenues:
 Rental income    $  217,784   $216,268       $239,383   $233,957
 Interest income       1,320        667            352        290
 Gain on sale of
  investment               0          0        271,576          0
                  ----------   --------       --------   --------
  Total revenues     219,104    216,935        511,311    234,247
                  ----------   --------       --------   --------
Costs and expenses:
 Rental
 operations          120,728    207,190        131,861    175,881
 Bad debt              1,838          0              0     65,038
 Interest            172,625    557,461        269,093    265,200
 Depreciation and
  amortization
                      46,624    124,772         64,282     64,275
                  ----------   --------       --------   --------
   Total costs
    and expenses     341,815    889,423        465,236    570,394
                  ----------   --------       --------   --------
Net (loss) income
 before equity in
 affiliate/minority
 int.               (122,711)  (672,488)        46,075   (336,147)
Minority Interest       (199)     2,323              0     11,491
Equity in income
 of  affiliate             0          0          1,041          0
Extraordinary
 gain on
 extinguishment of
 debt              1,423,902          0              0          0
                  ----------   --------       --------   --------
Net income (loss) $1,300,992  ($670,165)      $ 47,116  ($324,656)
                  ==========   ========       ========   ========

Net income (loss)
 per limited
 partnership
 unit:            $    92.11  ($  47.45)      $   3.34  ($  22.99)
                  ==========   ========       ========   ========



NOTE N - SUBSEQUENT EVENT
-------------------------

Effective  as of April 23, 2003, the Loewy Building was foreclosed  by
the mortgage holder.


<PAGE>





                       SUPPLEMENTAL INFORMATION


<PAGE>




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

        SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
        ------------------------------------------------------
                          DECEMBER 31, 2002
                             (Unaudited)




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


                                         Buildings
                                            and               Date of
                 Encumbrances            Improve-  Improve-   Constr.   Date
Description (a)      (c)         Land     ments      ments      (a)   Acquired
---------------  ------------    ----    --------- --------   ------- --------
64,000
square feet
of
commercial
space in
Winston                                                         1986-
Salem, NC          $4,275,328  $188,503 $3,951,731  $270,093    1988  11/14/86
Impairment
loss

58 apartment
units in                                                        1986-
Philadelphia,PA     3,090,000    86,187  3,524,715    32,314    1987   9/9/86
                   ----------  -------- ----------  --------
TOTAL              $7,365,328  $274,690 $7,476,446  $302,407
                   ==========  ======== ==========  ========



                             Gross Amount at which Carried at
                                    December 31, 2002
                             --------------------------------
                                     (Unaudited)



                               Buildings
                                  and                   Accumulated
                                Improv-      Total      Depreciation
Description           Land       ments      (d) (e)       (e) (f)
------------          ----     ---------    -------     -----------
64,000
square feet
of
commercial
space
in Winston-
Salem, NC          $188,503   $3,984,045  $4,172,548   $3,823,456

58 apartment
units in
Philadelphia, PA     86,187    3,794,808   3,880,995    2,336,969
                   --------   ----------  ----------   ----------
TOTAL              $274,690   $7,778,853  $8,053,543   $6,160,425
                   ========   ==========  ==========   ==========

<PAGE>


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

                         NOTES TO SCHEDULE XI
                         --------------------

                           December 31, 2002

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

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

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

(D)  The aggregate cost of real estate owned at December 31, 2002, for
     federal  income  tax  purposes is approximately  $9,168,734.  The
     depreciable  basis of buildings and improvements is  reduced  for
     Federal income tax purposes by the investment tax credit and  the
     historic rehabilitation credit obtained.

(E)  Reconciliation of real estate:

                                    2002           2001           2000
                                    ----           ----           ----
                                (Unaudited)
Balance at beginning of year:  $12,661,777    $12,613,136    $12,590,391
Additions during the year:
 Improvements                       45,663         48,641         22,745
Subtractions during the year:
 Foreclosure of Green Street    (1,569,896)             0              0
                               -----------    -----------    -----------
Balance at end of year         $11,137,544    $12,661,777    $12,613,136
                               ===========    ===========    ===========

Reconciliation of accumulated depreciation:
                                    2002           2001           2000
                                    ----           ----           ----
Balance at beginning of year   $ 6,891,196    $ 6,424,759    $ 5,931,577
Depreciation expense for
 the year                          211,765        466,437        493,182
Foreclosure of Green Street       (942,536)             0              0
                               -----------    -----------    -----------
Balance at end of year         $ 6,160,425    $ 6,891,196    $ 6,424,759
                               ===========    ===========    ===========

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


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

          None.


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

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

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

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

<PAGE>

                               PART III
                               --------


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

             a.      Identification of Directors - Registrant has  no
directors.

             b.     Identification of Executive Officers

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


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

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

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

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

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

             d.     Family Relationships.  None.

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

             f.   Involvement in certain legal proceedings. - None.

             g.   Promoters and control persons.  - Not Applicable.

             h.     Audit committee financial expert. - None.


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

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

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

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

                Donna M. Zanghi (age 45) was appointed on May 13, 1997
as  Vice  President  and  Secretary  of  EPK,  Inc.   Ms.  Zanghi  had
previously served as Secretary and Treasurer of DHP, Inc.  since  June
14, 1993 and as a Director and Secretary/Treasurer of D, LTD.  She was
associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1,
1992 to June 14, 1993.

               Michele F. Rudoi (age 37) was appointed on May 13, 1997
as  Assistant Secretary of EPK, Inc.  Ms. Rudoi previously  served  as
Assistant  Secretary and Director of both D, LTD and DHP,  Inc.  since
January 27, 1993.


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

          a.   Cash Compensation - During 2002, Registrant paid no cash
compensation  to DoHA-II, any partner therein or any person  named  in
paragraph c. of Item 10.

          b.   Compensation Pursuant to Plans - Registrant has no plan
pursuant to which compensation was paid or distributed during 2002  or
is  proposed to be paid or distributed in the future, to DoHA-II,  any
partner  therein, or any person named in paragraph c. of  Item  10  of
this report.

          c.   Other Compensation - No compensation not referred to in
paragraph  a.  or  paragraph b. of this Item was paid  or  distributed
during  2002 to DoHA-II, any partner therein, or any person  named  in
paragraph c. of Item 10.

          d.    Compensation  of  Directors  -  Registrant  has   no
directors.

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


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

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

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

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


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

              Pursuant  to Registrant's Amended and Restated Agreement
of  Limited  Partnership, DoHA-II is entitled to 10%  of  Registrant's
distributable cash from operations in each year.  There  was  no  such
share allocable to DoHA-II for fiscal years 2000 through 2002.

           a.  Certain  Business Relationships  -  Registrant  has  no
directors.

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


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

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


                                             2002        2001
                                             ----        ----
                                          (Unaudited)

Audit Fees (1).........................        -         $5,000
Audit - Related Fees (2)...............        -           -
Tax Fees (3)...........................        -         11,000
All Other Fees (4).....................        -           -
                                              --        -------
Total..................................       $-        $16,000
                                                        =======

  1. Audit Fees - Audit fees for the years ended December 31, 2001,
     respectively, were for professional services rendered by Gross Kreger
     & Passio, L.L.C. for the audits of the consolidated financial
     statements of the Registrant, statutory audits and subsidiary audits,
     issuance of comfort letters related to financing transactions, and
     with review of documents filed with the SEC.

  2. Audit-Related Fees - Audit-related fees as of the years ended
     December 31, 2001, respectively, would consist of the aggregate fees
     billed for assurance and related services that are reasonably related
     to  the  performance of the audit or review of the unaudited
     consolidated financial services and are not disclosed under "Audit
     Fees" above, however, no such assurance or services were provided in
     the relevant periods.

  3. Tax Fees - Tax fees as of the years ended December 31, 2001,
     respectively, were for services related to tax compliance, rendered by
     Brandywine Construction and Management Inc. including preparation of
     tax returns and claims for refund, tax planning and tax advice,
     including assistance with and representation in tax audits.

  4. All Other Fees -  All other fees as of the years ended December
     31, 2001, respectively, would consist of the aggregate fees billed for
     products and services described under audit fees, audit - related fees
     and tax fees, however, no such products and services were provided in
     the relevant periods.


<PAGE>

                                PART IV
                                -------


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

          1. Financial Statements:

             a.  Consolidated Balance Sheets at December 31, 2002 (unaudited)
                 and 2001.

             b.  Consolidated Statements of Operations for
                 the  Years Ended December 31, 2002 (unaudited),  2001
                 and 2000.

             c.  Consolidated  Statements  of  Changes  in
                 Partners'  Equity  for the Years Ended  December  31,
                 2002 (unaudited), 2001 and 2000.

             d.  Consolidated Statements of Cash Flows for
                 the  Years Ended December 31, 2002 (unaudited),  2001
                 and 2000.

             e.  Notes to consolidated financial statements. (unaudited)


          2. Financial statement schedules (unaudited):

             a. Schedule XI- Real Estate and Accumulated Depreciation.
                (Unaudited)

             b. Notes to Schedule XI. (Unaudited)


          3.Exhibits:

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

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

                  31 (Not attached) General Partners Opinion
                                    Certification
                                    (To be filed with amended
                                    10-K/A)

                  32 (Not attached) Certification  Pursuant  to
                                    18  U.S.C. Section 1350, As
                                    Adopted     Pursuant     to
                                    Section    906    of    the
                                    Sarbanes-Oxley Act of 2002
                                    (To  be  filed with amended
                                    10-K/A)


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

<PAGE>

                              SIGNATURES
                              ----------

           Pursuant to the requirements of Section 13 or 15(d) of  the
Securities  Exchange Act of 1934 the registrant has duly  caused  this
report  to be signed on its behalf by the undersigned, thereunto  duly
authorized.

Date:  September 1, 2005   DIVERSIFIED HISTORIC INVESTORS III
       -----------------
                            By: Dover Historic Advisors II, its
                                general partner

                                By: EPK, Inc., managing partner

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


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


                            DIVERSIFIED HISTORIC INVESTORS III

                            By: Dover Historic Advisors II, its
                                general partner

                                By: EPK, Inc., managing partner

Date:  September 1, 2005            By: /s/ Spencer Wertheimer
       -----------------                ----------------------
                                        SPENCER WERTHEIMER
                                        President
                                         (principal executive
                                         officer, principal
                                         financial officer)

<PAGE>