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, 2000
                          ---------------------------------------

[   ]  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
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     (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
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(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
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                        (Title of Class)

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

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

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

*  Securities  not quoted in any trading market  to  Registrant's
knowledge.

<PAGE>

                             PART I

Item 1.   Business

          a. General Development of Business

           Diversified Historic Investors III ("Registrant") is a
limited partnership formed in 1986 under Pennsylvania Law.  As of
December  31, 2000, 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 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.  All four properties that the  Registrant
owns or in which has an 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, 2000, Registrant  owned  four
properties (or interests therein), located in Pennsylvania (two),
Louisiana  (one),  and  North  Carolina  (one).   Three  of   the
properties are apartment buildings and one is a commercial/office
building.   In  total, the four properties contain 133  apartment
units and 62,146 rentable square feet ("sf") of commercial space.
As  of December 31, 2000, 120 apartment units were under lease at
monthly  rental rates ranging from $460 to $1,700.  In  addition,
22,602  square  feet  ("sf") of the commercial  space  was  under
lease at annual rates ranging from $6.00 per sf to $13.41 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.  Two of  the
residential properties are located in Philadelphia,  PA  and  the
other  is  located  in  the Warehouse District  of  New  Orleans,
Louisiana.  The commercial/office building is located in Winston-
Salem,  North  Carolina.  One of the Philadelphia  properties  is
located  very  close to 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 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, 2000 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, 2000).  The note payable bears interest at 10%. It is payable
interest  only  on a quarterly basis; the principal  was  due  in
1994.  In 1988, a $95,000 second mortgage loan was obtained.   In
1991,  a $100,000 third mortgage loan was obtained which was  due
in  1994.   Due  to  decreased cash flow, the Registrant  stopped
making  scheduled  debt service payments to  the  holder  of  the
first,  second  and  third  mortgages.   Notice  of  default  was
received  from  the lender on November 29, 1993.  The  Registrant
pursued  settlement  discussions with  the  lender;  however,  in
December  1994  the  mortgage notes  were  sold.  The  Registrant
entered  into  an agreement with the new holder of the  mortgages
whereby  the  maturities of the notes were extended to  1999  and
monthly  payments of interest were to be made  to  the  new  note
holder in an amount equal to net operating income. In June  1996,
the  Registrant refinanced $1,268,000 of the first  mortgage.  In
November  1998,  the Registrant restructured the mortgage  notes.
The  first  mortgage  was refinanced with a  $1,540,000  mortgage
($1,509,922  principal balance at December 31, 2000) which  bears
interest  at  6.83%,  is  payable  in  monthly  installments   of
principal  and  interest of $10,070 and is due in November  2008.
The  portion  of the first mortgage that was not refinanced  plus
the  second and third mortgage notes were consolidated and a  new
note  (principal  balance  of $1,942,681  at  December  31,  2000
including  accrued  but  unpaid interest)  was  structured  which
extends the maturity date to December 2, 2008, bears interest  at
15%  with  monthly payments of interest to be made in  an  amount
equal to net operating income.

           The  property is managed by BCMI.  As of December  31,
2000,  50  residential units (86%) were under  lease  at  monthly
rents ranging from $460 to $1,700.  All leases are renewable, one-
year  leases.  The occupancy for the previous four years was  88%
for  1999,  88%  for 1998, 87% for 1997, and 84%  for  1996.  The
monthly  rental ranges for the previous four years were  $460  to
$1,565 during 1998 and 1999, $375 to $1,450 during 1997, and $435
to  $1,400  during 1996. For tax purposes, this  property  has  a
federal  tax  basis  of $3,762,682 and is depreciated  using  the
straight-line method with a useful life of 27.5 years. The annual
real estate taxes are $29,924 which is based on assessed value of
$365,760  taxed  at  a rate of $8.183 per $100.   No  one  tenant
occupies ten percent or more of the building. Registrant believes
that the property is adequately covered by insurance.

           b.  The  Green  Street Apartments  -  consists  of  18
apartment units in three adjoining buildings located at 1826-1828-
1830  Green Street in Philadelphia, Pennsylvania.  In July  1987,
Registrant acquired its interest in this property by purchasing a
99%  general  partnership  interest in 18th  &  Green  Associates
General  Partnership  ("18th & Green"),  a  Pennsylvania  general
partnership, for $800,000. 18th & Green contracted to acquire and
rehabilitate   the  Property  for  $1,600,000  ($100   per   sf).
Additionally, $100,000 of cash/marketing reserves were  provided.
The  total cost of the project was funded by Registrant's  equity
contribution  and  mortgage  financing  of  $900,000   (principal
balance  of $1,318,119 at December 31, 2000) 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 through July 2009 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, 2000, 17 apartments (94%) were under
lease at monthly rents ranging from $540 to $725.  All leases are
renewable, one-year leases.  The occupancy for the previous  four
years  was 83% for 1999, 94% for 1998, 94% for 1997, and 92%  for
1996.   The monthly rental range has been approximately the  same
since  1996.  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. Registrant believes  that  the
property is adequately covered by insurance.

           c.  The  Loewy  Building - consists of  two  adjoining
buildings  located  at 505 West Fourth Street  in  Winston-Salem,
North  Carolina.  The buildings consist of 62,146 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  $3,833,265  at
December  31, 2000) and a $500,000 note payable to the  developer
(Cwood Properties, Inc., Thomas L. Kummer and Gail R. Citron; all
of whom are general partners of Triad).  The first mortgage bears
interest at 11.5% and is due in January 2012.  The note was  sold
in September 1997.  The Registrant entered into an agreement with
the  new  holder of the note whereby monthly payments of interest
are to be made 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,  2000)   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,  (8%  at
December 31, 2000 and 1999). The property is managed by BCMI.

          As of December 31, 2000, 22,602 sf were rented (36%) at
annual  rates ranging from $6.00 to $13.41 per sf.  The occupancy
for  the previous four years has been 41% for 1999, 98% for 1998,
88% for 1997, and 88% for 1996. 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 $13.41 per  sq  for
1999, $6.00 to $16.44 per sf for 1998, $6.00 to $16.21 per sf for
1997, $6.00 to $14.16 per sf for 1996. 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
          Number of     Total sf of   rental covered    % of gross
 Years      leases        expiring     by expiring     annual rental
           expiring        leases        leases        from property
 2001         0                 0              0             0%
 2002         3            11,601       $144,092            41%
 2003         0                 0              0             0%
 2004         0                 0              0             0%
 2005         1             2,800        $35,000            10%

           Five  commercial  leases expired in 2000.  The  tenant
under  a  lease for 2,800 sf renewed the lease at current  market
rates.  The four other leases, for a total of 13,219 sf were  not
renewed.


              For  tax  purposes, this property has  a  basis  of
$5,416,779 and is depreciated using the straight-line method with
a  useful  life  of  39 years. The annual real estate  taxes  are
$19,686  which is based on an assessed value of $5,414,779  taxed
at  a  rate  of  $1.177 per $100. Registrant  believes  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  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   and  cash  contributions  by  limited  partners   of
$344,000.  The mortgage note bore interest at 10%, was payable in
monthly  installments of principal and interest of  $26,766,  and
was 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.  The mortgage
($2,798,832  principal at September 27, 1999) was  refinanced  in
1999  with a $2,870,000 mortgage  which bears interest at  7.91%,
is  payable in monthly installments of principal and interest  of
$20,879  and  is  due in September of 2009.  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 credits 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 a New  Orleans  property
management  firm  not affiliated with BCMI.  As of  December  31,
2000,  53  residential units (100%) were under lease  at  monthly
rents ranging from $634 to $1,485.  All leases are renewable, one-
year  leases.  The occupancy for the previous four years was  98%
for  1999,  89%  for 1998, 91% for 1997, and 96% for  1996.   The
monthly  rental ranges for the previous four years were  $620  to
$1,250  during  1999, $620 to $1,300 during 1998,  and   $610  to
$1,240 during 1997 and 1996.  For tax purposes, this property has
a  basis of $2,527,541 and is depreciated using the straight-line
method  with a useful life of 27.5 years.  The annual real estate
taxes  are  $62,440 which is based on assessed value of  $336,440
taxed  at a rate of $18.56 per $100.  No one tenant occupies  ten
percent  or  more of the building. Registrant believes  that  the
property is adequately covered by insurance.


Item 3.   Legal Proceedings

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

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

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

<PAGE>

                             PART II

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

           a.  There is no established public trading market  for
the  Units.  Registrant does not anticipate any such market  will
develop.   Trading  in  the Units occurs solely  through  private
transactions.  The Registrant is not aware of the prices at which
trades occur.  Registrant's records indicate that 122.5 Units  of
record were sold or exchanged in 2000.

           b.  As  of December 31, 2000, there were 1,583  record
holders of Units.

           c.  Registrant did not declare any cash  dividends  in
2000 or 1999.

Item 6.   Selected Financial Data

           The following selected financial data are for the five
years  ended  December  31, 2000.  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.

                    2000       1999       1998       1997       1996
                    ----       ----       ----       ----       ----
 Rental income $  936,392 $1,257,195 $1,251,911 $1,251,764 $1,658,031
 Interest
  income            4,397      3,866      2,113        441        840
 Net loss      (2,006,951)(1,070,903)(1,297,537)(1,017,497)  (533,933)
 Net loss per
  unit            (142.11)    (75.83)    (91.88)    (72.05)    (37.80)
 Total assets
  (net of
  depreciation
  and
  amortization) 6,024,542  7,307,432  7,758,588  8,196,299  8,887,472
 Debt
  obligations   8,972,599  8,966,573  8,970,613  8,418,142  7,776,693

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

          (1)  Liquidity

              At  December  31,  2000,  Registrant  had  cash  of
approximately  $28,338.   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 threatened foreclosure of one property, due to  the
properties'  inability to generate sufficient cash  flow  to  pay
their  operating expenses and debt service. At the  present  time
Registrant  has feasible loan modifications in place  at  Lincoln
Court and Green Street.  However, at Lincoln Court, Green Street,
and  the  Loewy Building, the mortgages are 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. The Registrant  is  not
aware of any additional sources of liquidity.


              As  of December 31, 2000, Registrant had restricted
cash  of  $181,556 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).

              Since  the  lenders have agreed  to  forebear  from
taking  any foreclosure action as long as cash flow payments  are
made,  the  Registrant  believes it is  appropriate  to  continue
presenting the financial statements on a going concern basis.

          (2)  Capital Resources

               Any  capital  expenditures  needed  are  generally
replacement  items and are funded out of cash from operations  or
replacement reserves, if any.  The Registrant is not aware of any
factors  which would cause historical capital 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 first mortgage
holder  for Lincoln Court, Loewy Building and 18th and Green  has
agreed to fund capital expenditures at terms similar to the first
mortgages.

             Results of Operations

              During  2000,  Registrant incurred a  net  loss  of
$2,006,951 ($142.11 per limited partnership unit), compared to  a
net  loss of $1,070,903 ($75.83 per limited partnership unit)  in
1999 and a net loss of $1,297,537 ($91.88 per limited partnership
unit) in 1998.

              Rental  income was $936,392 in 2000, $1,257,195  in
1999  and $1,251,911 in 1998. The decrease in rental income  from
1999 to 2000 is due to a decrease at the Loewy Building partially
offset by increases at Lincoln Court and Green Street Apartments.
The decrease in rental income at the Loewy Building is due to the
decrease  in average occupancy (78% to 38%), as discussed  below.
The increase in rental income at the Lincoln Court  Apartments is
due  to  an increase in average rental rates from, $460 to $1,565
during  1999 to $460 to $1,700 during 2000. The increase  at  the
Green  Street  Apartments  is  due  to  an  increase  in  average
occupancy (83% to 94%).

              Rental  operations expense was  $552,505  in  2000,
$585,564 in 1999, and $627,719 in 1998. The decrease from 1999 to
2000  was due to a decrease in maintenance expense at the Lincoln
Court  Apartments  and  a  decrease in  maintenance  expense  and
management fee expense at the Loewy Building. Maintenance expense
decreased  at  Lincoln  Court  due to  a  decrease  in  apartment
preparation  expenses and maintenance services. The  decrease  in
maintenance expense at the Loewy Building is due to a decrease in
average occupancy (78% to 38%) and the decrease in management fee
expense is due to a decrease in rental income. The decrease  from
1998  to 1999 is due to a decrease in maintenance expense at  the
Loewy Building combined with a decrease in commissions expense at
the  Green Street Apartments, partially offset by an increase  in
maintenance  expense  at the Lincoln Court.  Maintenance  expense
decreased  at the Loewy Building due to repairs made to  the  air
conditioning  system in 1998 which did not recur  in  1999.   The
decrease in commissions expense at the Green Street Apartments is
due   to  the  decrease  in  the  turnover  of  apartment  units.
Maintenance expense at Lincoln Court increased due to recarpeting
and painting of apartment units.

              General and administrative expense was $0 in  2000,
$126,000  in  1999  and $198,000 in 1998. The  Registrant  ceased
accruing  partnership administration fees in 2000. The cash  flow
and  debt of the Registrant make it unlikely that these fees will
be paid.

              Interest expense was $1,068,425 in 2000, $1,066,780
in 1999, and $1,162,024 in 1998. The increase in interest expense
from 1999 to 2000 is due to an increase at the Loewy Building due
an  increase  in  principal  balance as  a  result  of  principal
additions made during the year. The decrease from 1998 to 1999 is
due  to a decrease in interest expense at Lincoln Court due to  a
prepayment  penalty incurred in the refinancing of  the  mortgage
notes  in  1998  partially offset by an  increase  at  the  Loewy
Building due to an adjustment made in 1997 in the calculation  of
the interest accruing on the mortgage loan.

              Depreciation and amortization was $522,814 in  2000
$519,656  in 1999, and $581,834 in 1998.  The increase from  1999
to 2000 is due to  asset additions at Lincoln Court and the Loewy
Building.  The decrease from 1998 to 1999 due to the amortization
of  loan costs in connection with the refinancing in 1998 of  the
mortgages at Lincoln Court.

              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.

              In  2000,  a  loss of approximately $1,115,000  was
incurred at the Registrant's four properties compared to  a  loss
of  $873,000  in  1999  and  a loss  of  $1,046,000  in  1998.  A
discussion of property operations/activities follows:

              During  2000, the Registrant sustained  a  loss  of
$349,000 at Lincoln Court including $163,000 of depreciation  and
amortization  expense. In 1999, Registrant sustained  a  loss  of
$375,000  including  $161,000  of depreciation  and  amortization
expense  compared  to  a loss of $562,000 including  $220,000  of
depreciation expense in 1998. The decrease in loss from  1999  to
2000  is  due  to an increase in rental income and a decrease  in
maintenance expense.  The increase in rental income is due to  an
increase in rental rates. The decrease in maintenance expense  is
due   to   a  decrease  in  apartment  preparation  expense   and
maintenance service expense. The decrease in the loss  from  1998
to  1999 is due to the increase in rental income combined with  a
decrease in interest and amortization expense partially offset by
an  increase  in  maintenance expense.  The  increase  in  rental
income  is due to the increase in the average occupancy  (87%  to
88%)  and  the average rental rates.  Interest expense  decreased
due to the prepayment penalty incurred in 1998 in connection with
the refinancing of the mortgages and the decrease in amortization
expense is due to the amortization in 1998 of the loan costs from
the  refinanced loan.  Maintenance expense increased due to  both
the recarpeting and painting of apartment units as a result of an
increased turnover of apartment units.

              On  June  30, 1992 Diversified Historic Properties,
Inc.  ("DHP"),  a  partner of the Registrant's  general  partner,
assigned  to  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 2000  and  1999.
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, 2000 was $761,714.

             In 2000 Green Street apartments sustained  a loss of
$132,000 including $59,000 in depreciation expense. In 1999 Green
Street  sustained  a  loss  of  $147,000  including  $59,000   of
depreciation  expense  compared to a loss  of  $141,000  in  1998
including $59,000 of depreciation expense.  The decrease  in  the
loss from 1999 to 2000 is due to an increase in rental income due
to an increase in average occupancy (83% to 94%). The increase in
the  loss  from  1998  to 1999 is due to the decrease  in  rental
income  partially  offset by a decrease in  commissions  expense.
The  decrease in rental income is due to a decrease in  occupancy
(95%  to  88%).  Commissions expense decreased as a result  of  a
decrease in the turnover of apartment units.

              On  June 30, 1992, DHP. 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 1999 and 2000.   Payments  on
the  judgment are to be made from available cash flow  from  18th
and  Green.   The balance of the note at December  31,  2000  was
$65,288.

              In  2000,  the  Loewy  Building  sustained  a  loss
(exclusive   of  the  impairment  loss)  of  $650,000   including
depreciation and amortization expense of $286,000 compared  to  a
loss   of   $317,000  including  $285,000  of  depreciation   and
amortization  expense  during 1999 and  to  a  loss  of  $343,000
including $288,000 of depreciation expense in 1998. The  increase
in  loss from 1999 to 2000 is due to a decrease in rental income,
partially  offset  by  a  decrease  in  maintenance  expense  and
management  fee  expense.  The  decrease  in  rental  income  and
maintenance  expense  is due to a decrease in  average  occupancy
(78%  to 38%). The significant drop in average occupancy  is  the
result  of  the  expiration of a tenant lease for 31,121  sf.  On
December 31, 1999. The decrease in management fee expense is  due
to  the decrease in rental income. The decrease in the loss  from
1998  to  1999  is due to a decrease in maintenance  and  utility
expense partially offset by an increase in interest expense.  The
decrease in maintenance expense is due to repairs made to the air
conditioning systems in the second quarter of 1998, which did not
recur  in 1999.  Utilities expense decreased as a result  of  the
decrease  in  average occupancy (98% to 78%).   The  increase  in
interest  expense is due to an adjustment made in the calculation
of the interest accruing on the mortgage loan in 1997.



             Summary of Minority Interests

              In  2000,  the Registrant recognized net income  of
$16,000  at Magazine Place compared to a loss of $34,000 in  1999
and  a loss of $58,000 in 1998.  This investment is accounted for
by  the  equity method. The net income in 2000 versus a  loss  in
1999  is due to an increase in average rental rates from a  range
of $620 to $1,300 during 1999 to a range of $634 to $1,485 during
2000.  The  decrease in the loss from 1998 to 1999 is due  to  an
increase  in  rental  income due to an increase  in  the  average
occupancy  (89%  to  97%) and an increase in the  average  rental
rates, partially offset by an increase in maintenance expense  as
a result of an increase in the preparation of apartment units due
to the increase in the average occupancy.

Item7A.   Quantitative and Qualitative Disclosures about Market
          Risk

          Not applicable.

Item 8.   Financial Statements and Supplementary Data

          Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulations   S-
K.

<PAGE>
                  Independent Auditor's Report

To the Partners of
Diversified Historic Investors III

We  have  audited the accompanying consolidated balance sheet  of
Diversified  Historic  Investors  III  (a  Pennsylvania   Limited
Partnership)  and subsidiaries as of December 31, 2000  and  1999
and  the  related statements of operations, changes in  partners'
equity and cash flows for the years ended December 31, 2000, 1999
and  1998.   These consolidated statements are the responsibility
of  the  Partnership's  management.   Our  responsibility  is  to
express  an  opinion  on these consolidated financial  statements
based on our audits.

We  conducted  our  audit in accordance with  auditing  standards
generally  accepted  in  the United  States  of  America.   Those
standards  require that we plan and perform the audit  to  obtain
reasonable  assurance  about whether the  consolidated  financial
statements are free of material misstatement.  An audit  includes
examining,  on a test basis, evidence supporting the amounts  and
disclosures in the consolidated financial statements.   An  audit
also  includes  assessing  the  accounting  principles  used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above  presents fairly, in all material respects,  the  financial
position  of  Diversified Historic Investors III and subsidiaries
as  of  December 31, 2000 and 1999, and the results of operations
and  cash  flows for the years ended December 31, 2000, 1999  and
1998,  in  conformity  with  U.S. 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 26 is presented
for  the  purposes of additional analysis and is not  a  required
part  of  the  basic financial statements.  Such information  has
been subjected to the auditing procedures applied in the audit of
the  basic  financial statements and, in our opinion,  is  fairly
stated  in  all  material  respects  in  relation  to  the  basic
financial statements taken as a whole.

The accompanying financial statements have been prepared assuming
that  the partnership will continue as a going concern. In recent
years,  the  partnership  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
June 28, 2001

<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, 2000 and 1999       14

   Consolidated Statements of Operations for  the  Years
Ended December 31, 2000, 1999, and 1998                            15

   Consolidated  Statements  of  Changes  in   Partners'
Equity for the Years Ended December 31, 2000, 1999, and 1998       16

   Consolidated Statements of Cash Flows for  the  Years
Ended December 31, 2000, 1999, and 1998                            17

   Notes to consolidated financial statements                    18-24


Financial statement schedules:

   Schedule XI - Real Estate and Accumulated  Depreciation        26

   Notes to Schedule XI                                           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, 2000 and 1999

                             Assets

                                            2000           1999
                                            ----           ----
Rental properties at cost:
 Land                                  $   465,454   $   465,454
 Buildings and improvements             11,170,423    11,990,423
 Furniture and fixtures                    157,259       134,514
                                       -----------   -----------
                                        11,793,136    12,590,391
  Less - accumulated depreciation       (6,424,759)   (5,931,577)
                                       -----------   -----------
                                         5,368,377     6,658,814

Cash and cash equivalents                   28,338        54,242
Restricted cash                            181,556       172,010
Accounts receivable                         90,688        62,239
Investment in affiliate                    163,246       147,242
Other assets (net of accumulated
 amortization of $230,421 and
 $240,649)                                 191,837       212,885
                                       -----------   -----------
          Total                        $ 6,024,042   $ 7,307,432
                                       ===========   ===========

                 Liabilities and Partners' Equity
Liabilities:
 Debt obligations                      $ 8,972,599   $ 8,966,573
 Accounts payable:
  Trade                                  1,180,280     1,161,622
  Related parties                          827,860       782,157
  Interest payable                       2,345,061     1,682,961
  Tenant security deposits                  57,885        55,884
  Other liabilities                         34,729        45,656
                                       -----------   -----------
           Total liabilities            13,418,414    12,694,853
                                       -----------   -----------
Partners' deficit                       (7,394,372)   (5,387,421)
                                       -----------   -----------
Total                                  $ 6,024,042   $ 7,307,432
                                       ===========   ===========

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, 2000, 1999 and 1998


                                      2000        1999        1998
                                      ----        ----        ----
Revenues:
 Rental income                    $  936,392  $1,257,195  $1,251,911
 Interest income                       4,397       3,866       2,113
                                  ----------  ----------  ----------
         Total revenues              940,789   1,261,061   1,254,024

Costs and expenses:
  Rental operations                  552,504     585,564     627,719
  General and administrative               0     126,000     126,000
  Interest                         1,068,426   1,066,780   1,162,024
  Depreciation and amortization      522,814     519,656     581,834
  Impairment Loss                    820,000           0           0
                                  ----------  ----------  ----------
         Total costs and expenses  2,963,744   2,298,000   2,497,577
                                  ----------  ----------  ----------
Loss before equity in affiliate   (2,022,955) (1,036,939) (1,243,553)
Equity in net income (loss) of
 affiliate                            16,004     (33,964)    (53,984)
                                  ----------  ----------  ----------
Net loss                         ($2,006,951)($1,070,903)($1,297,537)
                                  ==========  ==========  ==========
Net loss per limited partnership
 unit:
 Loss before equity in affiliate ($   143.24)($    73.42)($    88.06)
 Equity in net income (loss) of
  affiliate                             1.13       (2.41)      (3.82)
                                  ----------  ----------  ----------
                                 ($   142.11)($    75.83)($    91.88)
                                  ==========  ==========  ==========

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

<PAGE>

               DIVERSIFIED HISTORIC INVESTORS III
                     (a limited partnership)

     CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
     ------------------------------------------------------
      For the Years Ended December 31, 2000, 1999 and 1998


                                      Dover
                                    Historic     Limited
                                    Advisors     Partners
                                     II(1)         (2)         Total
                                    --------     --------      -----
Percentage participation in
 profit or loss                       1%           99%          100%
                                      ==           ===          ====
Balance at December 31, 1997      ($143,229)  ($2,875,752)  ($3,018,981)
Net loss                            (12,975)   (1,284,562)   (1,297,537)
                                   --------    ----------    ----------
Balance at December 31, 1998       (156,204)   (4,160,314)   (4,316,518)
Net loss                            (10,709)   (1,060,194)   (1,070,903)
                                   --------    ----------    ----------
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)
                                   ========    ==========    ==========

 (1) General Partner.

 (2) 13,981.5  limited partnership units outstanding at  December
     31, 2000, 1999, and 1998.


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, 2000, 1999 and 1998

                                      2000          1999         1998
                                      ----          ----         ----
Cash flows from operating
 activities:
 Net loss                         ($2,006,951) ($1,070,903) ($1,297,537)

 Adjustments to reconcile net loss
  to net cash provided by (used in)
  operating activities:
  Depreciation and amortization       522,814      519,656      581,834
  Impairment Loss                     820,000            0            0
  Equity in (income)loss of affiliate (16,004)      33,964       53,984
 Changes in assets and liabilities:
  Increase in restricted cash          (9,546)      (3,666)     (41,660)
  Increase in accounts receivable     (28,449)     (36,932)      (8,641)
  Decrease (increase) in other assets  (8,585)     (19,971)     (91,951)
  Increase in accounts payable
   trade                               18,658      164,864      122,746
  Increase in accounts payable -
   related parties                     45,703       45,699      111,852
  Increase in interest payable        662,100      392,010       51,375
  Increase (decrease) in tenant
   security deposits                    2,001       10,111       (5,256)
  (Decrease) increase in other
   liabilities                        (10,927)      11,103       26,638
                                   ----------   ----------   ----------
    Net cash (used in) provided by
     operating activities:             (9,186)      45,935     (496,616)
                                   ----------   ----------   ----------
Cash flows from investing
 activities:
 Capital expenditures                 (22,744)     (19,634)     (24,182)
                                   ----------   ----------   ----------
    Net cash used in investing
     activities:                      (22,744)     (19,634)     (24,182)
                                   ----------   ----------   ----------
Cash flows from financing
 activities:
 Proceeds from debt obligations        21,437       10,627    1,540,000
 Payments of principal under debt
  obligations                         (15,411)     (14,667)    (987,529)
                                   ----------   ----------   ----------
    Net cash provided by (used in)
     financing activities:              6,026       (4,040)     552,471
                                   ----------   ----------   ----------
(Decrease) increase in cash and
 cash equivalents                     (25,904)      22,261       31,673
Cash and cash equivalents at
beginning of year                      54,242       31,981          308
                                   ----------   ----------   ----------
Cash and cash equivalents at end
 of  year                          $   28,338   $   54,242   $   31,981
                                   ==========   ==========   ==========

Supplemental Disclosure of Cash Flow
 Information:
 Cash paid during the year for
  interest                         $  406,325   $  674,770   $1,221,356


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

<PAGE>


               DIVERSIFIED HISTORIC INVESTORS III
                     (a limited partnership)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

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

1.   Principles of Consolidation

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

2.   Depreciation

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

3.   Costs of Issuance

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

4.   Cash and Cash Equivalents

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


5.   Interest Payable

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

6.   Net Loss Per Limited Partnership Unit

The  net  loss  per  limited partnership unit  is  based  on  the
weighted  average number of limited partnership units outstanding
during the period (13,891.5 in 2000, 1999, and 1998).

7.   Income Taxes

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

8.   Restricted Cash

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

9.   Revenue Recognition

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

10.  Rental Properties

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

11.  Use of Estimates

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


NOTE C - GOING CONCERN

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

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


NOTE E - PARTNERSHIP AGREEMENT

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

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

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

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


NOTE F - ACQUISITIONS

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

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

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

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

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

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


NOTE G- DEBT OBLIGATIONS

Debt obligations are as follows:
                                                      December 31,
                                                   2000         1999
                                                   ----         ----
Mortgage loan, interest accrues at 11 1/2%,    $3,833,265   $3,811,828
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  (8%  at
December 31, 2000 and 1999); 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       1,509,922     1,525,333
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%,       1,942,681     1,942,681
interest  only  payable  monthly  to  the
extent of net operating income; principal
due  December 2008; collateralized by the
related rental property

Mortgage  loan, interest at 12%; interest       1,318,119     1,318,119
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
                                               $8,972,599    $8,966,573
                                               ==========    ==========

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

<PAGE>

Approximate  maturities  of  the  mortgage  loan  obligations  at
December 31, 2000, for each of the succeeding five years  are  as
follows:


                 2001           $  368,612
                 2002               18,030
                 2003               19,319
                 2004               20,408
                 2005               22,159
                 Thereafter      8,524,071
                                ----------
                                $8,972,599
                                ==========

NOTE H - COMMITMENTS AND CONTINGENCIES

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

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

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

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


NOTE I - TRANSACTIONS WITH RELATED PARTIES

Included  in debt obligations for 2000, 1999 and 1998 is $140,000
owed  to  an  affiliate  of the General Partner  by  one  of  the
Partnership's  Ventures  for  additional  amounts  advanced   for
working capital needs.

On  June  30, 1992 DHP, Inc. assigned to D, LTD a note receivable
from  the  Partnership  in  the amount of  $432,103  which  bears
interest  at  10% with the entire principal and accrued  interest
due  on June 30, 1997.  Interest accrued was $45,703 during  both
1999  and  2000.   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,  2000  was $761,710. Although this  obligation  has
matured, the lender has made no demand for payment.

On  June 30, 1992 DHP, Inc. assigned to D, LTD a note receivable,
from 18th and Green to the Partnership, that had been assigned to
it, in the amount of $63,493 which bears interest at 10% with the
entire  principal and accrued interest 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 2000 and 1999.  Payments
on the judgment are to be made from available cash flow from 18th
and  Green.  The balance of the judgment at December 31, 2000 was
$65,288.

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

NOTE J - INCOME TAX BASIS RECONCILIATION

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

                                       For the Years Ended December 31,
                                        2000         1999         1998
                                        ----         ----         ----
Net loss - book                    ($2,006,951) ($1,070,903) ($1,297,537)
Excess of book over tax
 depreciation                           98,882      153,257      138,784
Other timing differences                     0            0            0
Minority interest                        6,078      (51,133)     (84,494)
Impairment Loss                        820,000            0            0
Net loss - tax                      ----------   ----------   ----------
                                   ($1,081,991) ($  968,779) ($1,243,247)
                                    ==========   ==========   ==========

Partners' equity - book            ($7,394,371) ($5,387,421) ($4,316,518)
1987 distribution of interest on
 escrow deposits
 to limited partners                   (39,576)     (39,576)     (39,576)
Costs of issuance                    1,697,341    1,697,342    1,697,342
Cumulative tax under book loss       1,432,817      507,857      405,733
                                    ----------   ----------   ----------
Partners' equity - tax             ($4,303,789) ($3,221,798) ($2,253,019)
                                    ==========   ==========   ==========

<PAGE>




                    SUPPLEMENTAL INFORMATION



<PAGE>




                  DIVERSIFIED HISTORIC INVESTORS III
                       (a limited partnership)

        SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                          DECEMBER 31, 2000

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

                               Buildings
                                 and                  Date    Date
              Encum-           Improve-   Improve-     of    Acquir-
Description   brances   Land    ments      ments     Constr.   ed
-----------   -------   ----   ---------  --------   ------  -------
  (a)           (c)                                   (a)

64,000
square feet
of
commercial
space in
Winston                                               1986-
Salem, NC   $4,191,877 $308,624 $ 6,290,125 ($290,637) 1988   11/14/86

58 apartment
units in
Philadelphia,                                         1986-
PA           3,462,603   86,187   3,490,437   271,656  1987    9/9/86

18 apartment
units in
Philadelphia,
PA           1,318,119   70,643   1,559,017    7,083   1987   2/27/87
            ---------- -------- -----------  -------
TOTAL       $8,972,599 $465,454 $11,339,579 ($11,898)
            ========== ======== ===========  =======



            Gross Amount at which Carried
               at December 31, 2000


                       Buildings
                         and
                       Improve-             Accumulated
Description   Land       ments     Total    Depreciation
-----------   ----     ---------   -----    ------------
                                   (d)(e)      (e)(f)
64,000
square feet
of
commercial
space
in Winston-
Salem, NC   $308,624 $ 5,999,489 $ 6,308,113  $3,561,002

58 apartment
units in
Philadelphia,
PA            86,187   3,762,092   3,848,279   2,024,774

18 apartment
units
in
Philadelphia,
PA            70,643   1,566,100   1,636,743     838,983
            -------- ----------- -----------  ----------
TOTAL       $465,454 $11,327,681 $11,793,135  $6,424,759
            ======== =========== ===========  ==========

<PAGE>
               DIVERSIFIED HISTORIC INVESTORS III

                     (a limited partnership)

                      NOTES TO SCHEDULE XI

                        December 31, 2000

(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,
     2000,  for  federal  income  tax purposes  is  approximately
     $10,656,358.   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:

                                       2000         1999        1998
                                       ----         ----        ----
Balance at beginning of year:     $12,590,391  $12,570,757 $12,546,575
Additions during the year:
 Improvements                          22,744       19,634      24,182
Deductions during the year
 Impairment Loss                     (820,000)           0           0
                                  -----------  ----------- -----------
Balance at end of year            $11,793,135  $12,590,391 $12,570,757
                                  ===========  =========== ===========

Reconciliation of accumulated depreciation:
                                       2000        1999        1998
                                       ----        ----        ----
Balance at beginning of year      $ 5,931,577  $ 5,442,634 $ 4,956,401
Depreciation expense for the year     493,182      488,943     486,233
                                  -----------  ----------- -----------
Balance at end of year            $ 6,424,759  $ 5,931,577 $ 5,442,634
                                  ===========  =========== ===========

(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.


                            PART III



Item 10.  Directors and Executive Officers of the Registrant

           a.  Identification of Directors -  Registrant  has  no
directors.

          b. Identification of Executive Officers

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

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

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

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

          For further description of 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.

           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 43) 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 35) 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 2000, Registrant paid
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  2000  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 2000 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
1998 through 2000.

           a. Certain Business Relationships - Registrant has  no
directors.

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


<PAGE>
                             PART IV

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

          1. Financial Statements:

             a.  Consolidated Balance Sheets at December 31, 2000 and 1999.

             b.  Consolidated  Statements   of Operations  for  the  Years
                Ended  December  31, 2000, 1999 and 1998.

             c.  Consolidated  Statements  of  Changes in Partners' Equity
                for the Years  Ended December 31, 2000, 1999 and 1998.

             d.  Consolidated Statements of Cash Flows for the Years Ended
                December  31,  2000, 1999 and 1998.

             e.  Notes to consolidated financial statements.

          2.  Financial statement schedules:

             a.  Schedule  XI- Real  Estate  and Accumulated Depreciation.

             b.  Notes to Schedule XI.

          3. Exhibits:

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

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

              (b)  Reports on Form 8-K:

                                                No  reports  were
                 filed  on  Form  8-K  during the  quarter  ended
                 December 31, 2000.

              (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:  October 28, 2002       By: Dover Historic Advisors II,
       ----------------           General Partner

                                  By: EPK, Inc., Partner

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

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

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

        Signature               Capacity             Date

DOVER HISTORIC ADVISORS II    General Partner

By:  EPK, Inc., Partner

     By: /s/ Spencer Wertheimer                   October 28, 2002
         ----------------------                   ----------------
         SPENCER WERTHEIMER
         President and Treasurer

   By:   /s/ Michele F. Rudoi                     October 28, 2002
         --------------------                     ----------------
         MICHELE F. RUDOI,
         Assistant Secretary


<PAGE>