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

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

For the fiscal year ended           December 31, 1997
                          --------------------------------------------

[   ]  TRANSITION  REPORT  PURSUANT TO SECTION  13  OR  15(D)  OF  THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                   to
                               -----------------    ------------------

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

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

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

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

Registrant's telephone number, including area code  (215) 735-5001

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

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

                 UNITS OF LIMITED PARTNERSHIP INTEREST
----------------------------------------------------------------------
                           (Title of Class)

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

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

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

*  Securities  not  quoted  in  any  trading  market  to  Registrant's
knowledge.
<PAGE>
                                PART I

Item 1.        Business

               a.   General Development of Business

                Diversified Historic Investors III ("Registrant") is a
limited  partnership  formed in 1986 under  the  Pennsylvania  Uniform
Limited  Partnership  Act.  As of December 31,  1997,  Registrant  had
outstanding  13,981.5  units  of  limited  partnership  interest  (the
"Units").

                Registrant  is presently in its operating  stage.   It
originally  owned five properties or interests therein.  One  property
has  been  lost  through foreclosure.  See Item 2. Properties,  for  a
description  thereof.  It currently owns four properties or  interests
therein.   For  a discussion of the operations of the Registrant,  See
Part  II,  Item 7. Management's Discussion and Analysis  of  Financial
Conditions and Results of Operations.

               b.   Financial Information about Industry Segments

                    The Registrant operates in one industry segment.

               c.   Narrative Description of Business

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

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

                     As  of  December 31, 1997, Registrant owned  four
properties  (or  interests therein), located  in  Pennsylvania  (two),
Louisiana  (one),  and  North Carolina (one).   Three  properties  are
operating  as apartment buildings and one property is operating  as  a
commercial/office building.  In total, the four properties contain 133
apartment  units  and  62,076 square feet ("sf") of  commercial/retail
space.  As of December 31, 1997, 126 of the apartment units were under
lease  at  monthly  rental  rates ranging from  $375  to  $1,450.   In
addition, 62,076 sf of the commercial space was under lease at  annual
rates  ranging  from $6.00 per sf to $16.21 per  sf.   Rental  of  the
apartments  and commercial space is not expected to be seasonal.   For
further discussion of the properties, see Item 2. Properties.

                     The Registrant is affected by and subject to  the
general competitive conditions of the residential and commercial  real
estate  industries.  As a result of the overbuilding that occurred  in
the  1980's,  the  competition  for both  residential  and  commercial
tenants  in  the  local markets where the Registrant's properties  are
located is generally strong.  As a result, the Registrant is forced to
keep  its  rent levels competitively low in order to maintain moderate
to  high  occupancy  levels.   Two of the residential  properties  are
located  in Philadelphia, PA and the other is located in the Warehouse
District  of  New  Orleans,  LA.   The commercial/office  building  is
located  in Winston-Salem, NC.  One of the Philadelphia properties  is
located  very  close  to  the "city line", ie.  the  boundary  between
Philadelphia and a neighboring suburb.  Many potential residents would
prefer  to  live on the non-city side, to avoid paying the  city  wage
tax.  The Registrant attempts to keep its rents at a level that is low
enough   to  offset  the  difference.   In  all  the  locations,   the
competition  for  tenants remains stiff and several similar  buildings
exist.   The  apartment and commercial market remains stable  and  new
construction  remains virtually nonexistent although the  availability
of  favorable home financing has placed pressure on the rental  tenant
base.

                      Registrant   has  no  employees.    Registrant's
activities are overseen by Brandywine Construction & Management, Inc.,
("BCMI"), a real estate management firm.

                d.    Financial Information About Foreign and Domestic
Operations and Export Sales.

                    See Item 8. Financial Statements and Supplementary
Data.

Item 2.        Properties

        As  of  the date hereof, Registrant owned four properties,  or
interests  therein.  A summary description of each  property  held  at
December 31, 1997 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, (aggregate principal balance of $1,476,212 at
December 31, 1997) and a note payable of $10,000 (total balance due of
$10,000 at December 31, 1997).  The first mortgage loan bears interest
at  prime  plus 1.25% with a minimum of 9.5% and a maximum  of  14.5%.
The   rate  was  9.75%  and  9.5%  at  December  31,  1997  and  1996,
respectively.   The other mortgage loan bears interest at  prime  plus
1%.   The  rate  was  9.5% and 9.25% at December 31,  1997  and  1996,
respectively.   Such  mortgage is payable  interest  only  in  monthly
installments, and was due in 1994.  The note payable bears interest at
10%  payable interest only on a quarterly basis; the principal was due
in 1994.  All three mortgages are held by the same lender.  In 1988, a
$95,000  second  mortgage  loan  (principal  balance  of  $100,278  at
December  31,  1997) was obtained which bears interest at  prime  plus
1.25%.   The  rate was 9.75% and 9.5% at December 31, 1997  and  1996,
respectively and was due in 1994.  In 1991, an $100,000 third mortgage
loan  (principal balance of $107,120 at December 31,  1997)  was  made
which  bears interest at 11%, principal and interest payable  monthly,
and  was  due  in  1994.  Due to decreased cash flow,  the  Registrant
stopped  making scheduled debt service payments to the holder  of  the
first,  second  and third mortgages.  Notice of default  was  received
from  the  lender  on  November  29,  1993.   The  Registrant  pursued
settlement discussions with the lender; however, in December 1994  the
mortgage  notes were sold.  The Registrant entered into  an  agreement
with  the  new holder of the mortgages whereby the maturities  of  the
notes were extended to 1999 and monthly payments of interest are to be
made  to  the  new  note holder in an amount equal  to  net  operating
income.   In  June 1996, the Registrant refinanced $1,268,000  of  the
first mortgage (principal balance of $1,256,565 at December 31, 1997).
The  new  loan  bears  interest  at  9.125%,  is  payable  in  monthly
installments  of  principal and interest of  $10,317  and  is  due  in
September 2003.

                The  property is managed by BCMI.  As of December  31,
1997,  57  residential units were under lease (98%) at  monthly  rents
ranging  from  $375  to  $1,450.  All leases are  renewable,  one-year
leases.   The occupancy for the previous four years was 84% for  1996,
81% for 1995, 58% for 1994 and 63% for 1993.  The monthly rental range
has  been  approximately the same since 1993.  For tax purposes,  this
property  has  a  federal tax basis of $3,736,630 and  is  depreciated
using the straight-line method with a useful life of 27.5 years.   The
annual real estate taxes are $30,226 which is based on assessed  value
of  $365,760  taxed  at  a rate of $8.264 per  $100.   No  one  tenant
occupies  ten percent or more of the building.  It is the  opinion  of
the  management  of  the  Registrant that the property  is  adequately
covered by insurance.

                b.    The  Green  Street Apartments - consists  of  18
apartment units in three adjoining buildings located at 1826-1828-1830
Green  Street in Philadelphia, Pennsylvania.  In July 1987, Registrant
acquired  its  interest in this property by purchasing a  99%  general
partnership  interest in 18th & Green Associates  General  Partnership
("18th  &  Green"), a Pennsylvania general partnership, for  $800,000.
18th  & Green contracted to acquire and rehabilitate the Property  for
$1,600,000  ($100  per sf).  Additionally, $100,000 of  cash/marketing
reserves  were provided.  The total cost of the project was funded  by
Registrant's  equity contribution and mortgage financing  of  $900,000
(principal  balance of $1,314,181 at December 31,  1997)  which  bears
interest  at  12%.  During 1990, Registrant defaulted on its  mortgage
loan and the lender obtained a confession of judgment pursuant to  the
loan  documents.  Registrant petitioned the court to open the judgment
and  negotiated a settlement with the lender.  The settlement required
the Registrant to make payments toward delinquent interest in December
1990  and April 1991.  Registrant did not make the April 1991 payment;
however, no notice of default was received from the lender.  In  1992,
the  Resolution  Trust Corporation ("RTC") took over  control  of  the
lender.  The Registrant received notice in 1993 that the RTC had  sold
the  loan.   The  purchaser of the note contacted the  Registrant  who
attempted  to negotiate a loan modification.  In September  1994,  the
mortgage  note  was  sold  again.   The  Registrant  entered  into  an
agreement  with  the  new  holder of the  mortgage  whereby  the  note
maturity was extended to 1999 with monthly payments of interest to  be
made  in  an  amount equal to net operating income, with a minimum  of
$5,750 per month.  The property is managed by BCMI.

               As of December 31, 1997, 17 apartments were under lease
(94%)  at  monthly rents ranging from $495 to $705.   All  leases  are
renewable, one-year leases.  The occupancy for the previous four years
was  92%  for 1996, 92% for 1995, 99% for 1994 and 98% for 1993.   The
monthly rental range has been approximately the same since 1993.   For
tax  purposes, this property has a federal tax basis of $1,480,897 and
is  depreciated using the straight-line  method with a useful life  of
27.5  years.  The annual real estate taxes are $15,470 which is  based
on  assessed value of $187,200 taxed at a rate of $8.264 per $100.  No
one  tenant occupies ten percent or more of the building.  It  is  the
opinion  of  the  management of the Registrant that  the  property  is
adequately covered by insurance.

                c.    The  Loewy Building - consists of two  adjoining
buildings  located  at 505 West Fourth Street in Winston-Salem,  North
Carolina.  The buildings consist of 62,076 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 $3,788,541 at  December
31,  1997)  and  a  $500,000  note payable  to  the  Developer  (Cwood
Properties, Inc., Thomas L. Kummer and Gail R. Citron; all of whom are
general  partners  of Triad).  The first mortgage  bears  interest  at
11.5%  and  is  due in January 2012.  The note was sold  in  September
1997.  The Registrant entered into an agreement with the new holder of
the  note whereby monthly payments of interest are to be made  to  the
new  note  holder in an amount equal to net operating  income  with  a
minimum  monthly  payment  of  $27,500.  Triad  obtained  $200,000  of
additional  financing  in  1987 to fund cost overruns  resulting  from
delays   and   changes  in  rehabilitation  and  construction   plans,
(principal balance due of $200,000 at December 31, 1997) and  interest
at  prime  with a minimum of 6% and a maximum of 8% adjusting annually
on  January 2, (the rate was 8% at December 31, 1997 and 1996) and the
Registrant advanced an additional $1,098,000.  The property is managed
by  BCMI.   As of December 31, 1997, 62,076 sf were rented  (100%)  at
annual rates ranging from $6.00 to $16.21 per sf.

                The occupancy for the previous four years has been 88%
for  1996, 95% for 1995, 93% for 1994 and 93% for 1993.  The range for
annual rents has been $6.00 to $14.16 per sf for 1996, $6.00 to $12.93
per  sf  for 1995, $6.95 to $14.08 per sf for 1994 and $6.95 to $13.41
per  sf for 1993.  There are three tenants who each occupy ten percent
or more of the rentable square footage.  They operate principally as a
bank, a law firm and a retail store.

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

                                               Total annual        % of gross
           Number of        Total sf of       rental covered     annual rental
Years   leases expiring   Expiring leases   by expiring leases   from property
                                                                                
 1998         5                38,423             432,345               59%
 1999         2                 8,100             102,494               14%
 2000         2                 7,858              99,658               14%
 2001         0                     0                   0                0%
 2002         1                 7,695              87,720               13%

                There are five commercial leases which expire in 1998.
The first lease is for 200 sf and, although no negotiations have taken
place,  the  Registrant expects the tenant to  renew  at  the  current
rental  rate.   The  second lease is for 2,800 sf and  the  Registrant
expects  the tenant to exercise the renewal option in its lease.   The
third  lease is for 2,302 sf and the Registrant expects the tenant  to
renew  at  current market rates.  The fourth and fifth leases  (33,121
sf)  are  with the same tenant and expire December 31, 1998.  At  this
time  no  discussions have taken place but the Registrant expects  the
tenant  to  renew  at  current  market rates.   For  tax  purposes  of
depreciation, this property has federal tax basis of $6,135,016 and is
depreciated using the straight-line method with a useful life of  27.5
years.  The annual real estate taxes are $19,776 which is based on  an
assessed value of $1,680,900 taxed at a rate of $1.1765 per $100.   It
is  of  the  opinion  of  the management of the  Registrant  that  the
property is adequately covered by insurance.

                d.    Magazine  Place  -  is  a  four  story  building
consisting of 57 apartment units located at 730 Magazine Street in New
Orleans, Louisiana.  In October 1986, the Registrant was admitted with
a   60%   general  partnership  interest  in  Magazine  Place  Limited
Partnership  ("MPP"), a Louisiana partnership, for a cash contribution
of  $600,000.  Registrant believes that its acquisition of a  majority
general  partnership interest in MPP, though technically non-compliant
with the provisions of Registrant's partnership agreement disapproving
of investments in limited partnerships, will have no adverse impact on
Registrant's  limited  partners.   Registrant  subsequently  made   an
additional  equity  contribution of  $142,393  to  fund  certain  fees
incurred  by  MPP.   MPP acquired and rehabilitated the  property  for
$4,091,393  ($51 per sf), including mortgage financing  of  $3,050,000
(principal  balance  of  $2,846,753 at December  31,  1997)  and  cash
contributions  by  limited partners of $344,000.   The  mortgage  note
bears interest at 10%, is payable in monthly installments of principal
and interest of $26,766, and is due in 1999.  The excess proceeds from
equity  investments  and mortgage financing over the  acquisition  and
rehabilitation   costs  were  utilized  to  provide  working   capital
reserves.   In 1987, Registrant made an equity contribution of  $7,000
(MPP's  other  partners contributed cash in the amount of  $28,000  in
1987)  to fund operating deficits incurred during the lease-up period.
According  to  the  Amended  and Restated Partnership  Agreement,  the
Registrant's interest in MPP will be reduced from 60% to 40% as of the
First Conversion Date.  The First Conversion Date is the date on which
the  Registrant  will  have received a return of its  initial  capital
contribution.  For purposes of determining the First Conversion  Date,
the Registrant will be deemed to have received a return of its initial
capital  contribution  when the sum of the  following  amounts  equals
$600,000:  (i) cash distributions from MPP; (ii) investment tax credit
allocable to the Registrant; and (iii) 50% of the aggregate  of  MPP's
net losses and deductions allocable to the Registrant.  As of December
31,  1994, the Registrant had received a return of its initial capital
and  the  Registrant's interest in the MPP was reduced to 40%.   Since
that  date, the Registrant has accounted for its investment in MPP  on
the equity basis.

                The  property  is  managed by an independent  property
management  firm.  As of December 31, 1997, 52 residential units  were
under  lease (91%) at monthly rents ranging from $610 to $1,240.   All
leases are renewable, one-year leases.  The occupancy for the previous
four  years was 96% for 1996, 91% for 1995, 89% for 1994 and  97%  for
1993.   The monthly rental range has been approximately the same since
1993.   For  tax purposes, this property has a federal  tax  basis  of
$2,500,448 and is depreciated using the straight-line  method  with  a
useful  life of 27.5 years.  The annual real estate taxes are  $14,077
which is based on assessed value of $79,000 taxed at a rate of $17.819
per $100.  No one tenant occupies ten percent or more of the building.
It  is  the  opinion  of  the management of the  Registrant  that  the
property is adequately covered by insurance.

Item 3.        Legal Proceedings

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

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

               No matter was submitted during the fiscal years covered
by this report to a vote of security holders.
<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 132 Units of record
were sold or exchanged in 1997.

                b.    As of December 31, 1997, there were 1,582 record
holders of Units.

                c.   Registrant did not declare any cash dividends  in
1997 or 1996.

Item 6.        Selected Financial Data

                The following selected financial data are for the five
years ended December 31, 1997.  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.

                       1997        1996        1995        1994        1993
                 
 Rental income     $ 1,251,764 $ 1,254,573 $ 1,658,031 $ 2,016,023 $ 1,971,274
 Interest income           441       1,229         840       1,005       3,365
 Net loss           (1,017,497) (1,017,308)   (533,933) (1,756,104) (1,719,611)
 Net loss per Unit      (72.05)     (72.03)     (37.80)    (124.35)    (121.76)
 Total assets (net   8,196,299   8,711,971   8,887,472  18,771,092   19,662,834
 of depreciation 
 and amortization)
 Debt obligations    8,418,142   8,414,901   7,776,693  15,216,724   14,642,621

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

               (1)  Liquidity

                     At  December  31, 1997, Registrant  had  cash  of
approximately $308.  Cash generated from operations is used  primarily
to  fund operating expenses and debt service.  If cash flow proves  to
be  insufficient,  the Registrant will attempt to negotiate  with  the
various  lenders  in order to remain current on all obligations.   The
Registrant is not aware of any additional sources of liquidity.

                    As of December 31, 1997, Registrant had restricted
cash  of  $126,684  consisting primarily of  funds  held  as  security
deposits,   replacement  reserves  and  escrows  for  taxes.    As   a
consequence of these restrictions as to use, Registrant does not  deem
these funds to be a source of liquidity.

                     In  recent  years  the  Registrant  has  realized
significant losses, including the foreclosure of one property, due  to
the  properties'  inability to generate sufficient cash  flow  to  pay
their  operating  expenses  and debt service.   At  the  present  time
Registrant has feasible loan modifications in place at Lincoln  Court,
Green Street and the Loewy Building.  However, in all three cases, the
mortgages are basically "cash-flow" mortgages, requiring all available
cash  after  payment of operating expenses to be  paid  to  the  first
mortgage  holder.   Therefore, it is unlikely that any  cash  will  be
available  to  the  Registrant to pay its general  and  administrative
expenses.

                     It  is the Registrant's intention to continue  to
hold  the  properties until they can no longer meet the  debt  service
requirements and the properties are foreclosed, or the market value of
the  properties increases to a point where they can be sold at a price
which  is  sufficient to repay the underlying indebtedness  (principal
plus accrued interest).

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

               (2)  Capital Resources

                     Due  to the relatively recent rehabilitations  of
the   properties,  any  capital  expenditures  needed  are   generally
replacement  items  and  are funded out of  cash  from  operations  or
replacement  reserves, if any.  The Registrant is  not  aware  of  any
factors  which would cause historical capital expenditures levels  not
to be indicative of capital requirements in the future and accordingly
does  not  believe that it will have to commit material  resources  to
capital investment in the foreseeable future.  If the need for capital
expenditures  does arise, the first mortgage holder for Lincoln  Court
and  18th  and Green has agreed to fund capital expenditures at  terms
similar  to  the first mortgage.  The mortgagee funded $0 and  $87,609
during 1997 and 1996, respectively, at Lincoln Court.

                    Results of Operations

                     During  1997, Registrant incurred a net  loss  of
$1,017,497 ($72.05 per limited partnership unit), compared  to  a  net
loss of $1,017,308 ($72.03 per limited partnership unit) in 1996 and a
net  loss  of $533,993 ($37.80 per limited partnership unit) in  1995.
Included in the 1995 loss was an extraordinary gain of $1,316,188  due
to the foreclosure of Cathedral Court.

                    Rental income decreased from $1,658,031 in 1995 to
$1,254,573 in 1996 and to $1,251,764 in 1997.  The decrease from  1996
to 1997 is the result of a decrease in rental income at Loewy Building
due  to a decrease in the average rental rates partially offset by  an
increase in rental income at Lincoln Court due to an increase  in  the
average rental rates.  The decrease from 1995 to 1996 is due mainly to
the foreclosure of Cathedral Court partially offset by an increase  in
rental  income  at  Lincoln Court due to an increase  in  the  average
occupancy (81% to 96%) and an increase at the Loewy Building due to an
increase in the average rental rates.

                      Rental   operations  expenses   decreased   from
$1,088,752 in 1995 to $661,589 in 1996 and to $614,679 in  1997.   The
decrease  from  1996 to 1997 is mainly the result  of  a  decrease  in
maintenance expense at Lincoln Court due to improvements made  at  the
property  in 1996 and a decrease in management fees expense  at  Loewy
Building due to the decrease in rental income.  The decrease from 1995
to  1996  is  mainly the result of the foreclosure of Cathedral  Court
partially  offset  by  an  increase  in  maintenance  expense  due  to
improvements made at Lincoln Court and an increase in management  fees
and  commissions expense at the Loewy Building due to a higher average
occupancy.

                    Interest expense decreased from $1,447,420 in 1995
to  $983,145 in 1996 and to $968,397 in 1997.  The decrease from  1995
to  1996  is  mainly the result of the foreclosure of Cathedral  Court
partially  offset  by an increase at Lincoln Court  due  to  a  higher
average  principal  balance  of  the  mortgage  due  to  advances  for
improvements made by the mortgage holder.

                      Depreciation  and  amortization  decreased  from
$829,265  in  1995 to $478,758 in 1996 and increased  to  $531,057  in
1997.  The increase from 1996 to 1997 is the result of an increase  at
Lincoln Court due to the depreciation of the capital improvements made
at the property in 1996 and an increase in amortization expense at the
Loewy  Building  due to the amortization of leasing fees  incurred  in
1996.  The decrease from 1995 to 1996 is the result of the foreclosure
of  Cathedral  Court partially offset by an increase  in  amortization
expense  at  Lincoln  Court  due to the  amortization  of  loan  costs
incurred in the refinancing of the first mortgage.

                     In  1997, a loss of $792,000 was incurred at  the
Registrant's four properties or interests therein compared to  a  loss
of  $812,000 in 1996 and a loss of $149,000 in 1995.  A discussion  of
property operations/activities follows:

                     In  1997, Registrant sustained a loss of $288,000
at  Lincoln  Court including $167,000 of depreciation and amortization
expense  compared  to  a  loss  of  $366,000  including  $144,000   of
depreciation expense in 1996 and a loss of $300,000 including $137,000
of  depreciation expense in 1995.  The decrease in the loss from  1996
to  1997  is  the  result of an increase in rental income  due  to  an
increase  in  the average rental rates and a decrease  in  maintenance
expense  partially  offset  by an increase  in  depreciation  expense.
Maintenance expense decreased due to improvements made at the property
in  1996 and depreciation expense increased due to the depreciation of
the  capital improvements made at the property in 1996.  The  increase
in  the  loss  from  1995  to 1996 is the result  of  an  increase  in
maintenance, interest, and amortization expense partially offset by an
increase  in  rental  income.  Maintenance expense  increased  due  to
improvements made at the property in order to attract more tenants and
interest  expense increased due to a higher average principal  balance
of  the mortgage due to advances for improvements made by the mortgage
holder.   Amortization expense increased due to  the  amortization  of
loan  costs incurred in the refinancing of the first mortgage.  Rental
income  increased due to an increase in the average occupancy (81%  to
96%).

                     On  June 30, 1992 DHP, Inc. assigned to D, LTD  a
note  receivable from the Registrant in the amount of  $432,103  which
bears  interest at 10% with the entire principal and accrued  interest
due  on June 30, 1997.  Interest accrued was $45,703 during both  1996
and  1997.   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, 1997 was $624,606.

                     In 1997, the Green Street Apartments sustained  a
loss of $146,000 including $59,000 of depreciation expense compared to
a  loss  of $146,000 in 1996 including $59,000 of depreciation expense
and  a  loss  of  $153,000 in 1995 including $59,000  of  depreciation
expense.  The decrease in the loss from 1995 to 1996 is the result  of
an   overall   decrease  in  operating  expenses  due  to  operational
efficiencies achieved at the property.

                     On  June 30, 1992 DHP, Inc. assigned to D, LTD  a
note  receivable, from 18th and Green to the Registrant, that had been
assigned to it, in the amount of $63,493 which bears interest  at  10%
with  the entire principal and accrued interest due on June 30,  1997.
On  December  6,  1993 D, LTD obtained a judgment  in  the  amount  of
$78,171  on  this note in Common Pleas Court for Philadelphia  County.
The  judgment  accrues interest at 15%.  Interest accrued  was  $5,055
during  1996 and 1997.  Payments on the judgment are to be  made  from
available cash flow from 18th and Green.  The balance of the  note  at
December 31, 1997 was $50,124.

                     In  1997, the Loewy Building sustained a loss  of
$358,000  including $290,000 of depreciation and amortization  expense
compared  to  a  loss of $300,000 including $260,000  of  depreciation
expense  in  1996  and  a  loss  of  $332,000  including  $260,000  of
depreciation expense in 1995.  The increase in the loss from  1996  to
1997  is  due to a decrease in rental income combined with an increase
in interest and amortization expense partially offset by a decrease in
management fees expense.  The decrease in rental income is  due  to  a
decrease  in  the average rental rates and interest expense  increased
due to default interest accrued on the loan as a result of non-payment
of the minimum monthly payment.  Amortization expense increased due to
the  amortization  of leasing fees incurred in 1996  while  management
fees  decreased due to the decrease in rental income.   The  decreased
loss  from 1995 to 1996 is mainly due to an increase in rental  income
due to higher average rental rates partially offset by an increase  in
commissions  and  management  fee expense.   Management  fees  expense
increased  due  to  the higher rental income and  commissions  expense
increased due to a lease extension with the tenant who leases  34%  of
the building.

                     In  1997  and  1996, Cathedral  Court  recognized
income  of  $0  compared to income of $636,000 including  $337,000  of
depreciation expense in 1995.  The 1995 loss without the effect of the
foreclosure  would  have been $850,000.  Included in  operations  from
1995 is an extraordinary gain of $1,316,188 representing the excess of
the  liabilities satisfied over the fair market value of the Cathedral
Court property.

                    Summary of Minority Interests

                     In  1997, the Registrant incurred a net  loss  of
$30,000  at  Magazine  Place compared to a loss  of  $11,000  in  1996
compared to $19,000 in 1995.  This investment is accounted for by  the
equity  method.  The increase from 1996 to 1997 is due  mainly  to  an
increase in real estate tax expense due to the expiration of  the  tax
abatement period.

Item 8.             Financial Statements and Supplementary Data

                      Registrant  is  not  required  to  furnish   the
supplementary  financial  information  referred  to  in  Item  302  of
Regulations  S-K.
<PAGE>
                     Independent Auditor's Report

To the Partners of
Diversified Historic Investors III

We  have  audited  the  accompanying consolidated  balance  sheets  of
Diversified   Historic   Investors   III   (a   Pennsylvania   Limited
Partnership) and its subsidiaries as of December 31, 1997 and 1996 and
the   related  consolidated  statements  of  operations,  changes   in
partners' equity and cash flows for the years ended December 31, 1997,
1996  and  1995.  These consolidated statements are the responsibility
of  the Partnership's management.  Our responsibility is to express an
opinion  on  these  consolidated financial  statements  based  on  our
audits.

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

In  our opinion, the consolidated financial statements referred to  in
the  first  paragraph presents fairly, in all material  respects,  the
financial   position  of  Diversified  Historic  Investors   III   and
subsidiaries  as  of December 31, 1997 and 1996, and  the  results  of
their operations and their cash flows for the years ended December 31,
1997,  1996 and 1995, in conformity with generally accepted accounting
principles.

Our  audits  were made for the purpose of forming an  opinion  on  the
basic  financial  statements taken as a whole.  The Schedule  of  Real
Estate  and Accumulated Depreciation on page 27 is presented  for  the
purposes  of  additional analysis and is not a required  part  of  the
basic  financial statements and, in our opinion, is fairly  stated  in
all  material  respects in relation to the basic financial  statements
taken as a whole.

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

Gross, Kreger & Passio, L.L.C.
Philadelphia, Pennsylvania
February 24, 1998
<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, 1997 and 1996        14
                                                                 
     Consolidated  Statements of Operations for the Years Ended
       December 31, 1997, 1996, and 1995                              15
                                                                  
     Consolidated  Statements  of Changes in Partners' Equity 
       for the Years Ended December 31, 1997, 1996, and 1995          16
                                                              
     Consolidated  Statements of Cash Flows for the Years Ended
       December 31, 1997, 1996, and 1995                              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, 1997 and 1996

                                Assets

                                                 1997                 1996    
Rental properties at cost:               
   Land                                     $   465,454           $   465,454 
   Buildings and improvements                11,985,674            11,969,523
   Furniture and fixtures                        95,447                86,351 
                                             ----------            ----------
                                             12,546,575            12,521,328 
   Less - accumulated depreciation           (4,956,401)           (4,461,992)
                                             ----------            ----------
                                              7,590,174             8,059,336 
                                                                           
Cash and cash equivalents                           308                20,862 
Restricted cash                                 126,684               203,796
Accounts receivable                              16,666                 8,058
Investment in affiliate                         235,190               264,762 
Other assets (net of accumulated                                        
   amortization of $114,337 and $77,689)        227,277               155,157
                                             ----------            ----------
               Total                        $ 8,196,299           $ 8,711,971 
                                             ==========            ==========
                        
                       Liabilities and Partners' Equity
                        
Liabilities:                     
   Debt obligations                         $ 8,418,142           $ 8,414,901 
   Accounts payable:                        
        Trade                                   874,012               752,257 
        Related parties                         624,606               578,903 
   Interest payable                           1,239,576               888,864  
   Tenant security deposits                      51,029                52,506 
   Other liabilities                              7,915                26,024  
                                             ----------            ----------
               Total liabilities             11,215,280            10,713,455
                                             ----------            ----------
Partners' equity                             (3,018,981)           (2,001,484)
                                             ----------            ----------
               Total                        $ 8,196,299           $ 8,711,971 
                                             ==========            ==========

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, 1997, 1996 and 1995


                                               1997        1996         1995
                                                 
Revenues:                                    
   Rental income                            $1,251,764  $1,254,573  $1,658,031
   Interest income                                 441       1,229         840
                                             ---------   ---------   ---------
               Total revenues                1,252,205   1,255,802   1,658,871
                                             ---------   ---------   ---------
Costs and expenses:                                                   
   Rental operations                           614,679     661,589   1,088,752
   General and administrative                  126,000     138,200     140,800
   Interest                                    968,397     983,145   1,447,420
   Depreciation and amortization               531,057     478,758     829,265
                                             ---------   ---------   ---------
               Total costs and expenses      2,240,133   2,261,692   3,506,237
                                             ---------   ---------   ---------
Loss before minority interests and            (987,928) (1,005,890) (1,847,366)
   equity in affiliate
Minority interests' portion of loss                  0           0      16,365
Equity in net loss of affiliate                (29,569)    (11,418)    (19,120)
                                             ---------   ---------   ---------
Loss before extraordinary item              (1,017,497) (1,017,308) (1,850,121)
Extraordinary gain                                   0           0   1,316,188
                                             ---------   ---------   --------- 
Net loss                                   ($1,017,497)($1,017,308)($  533,933)
                                             =========   =========   =========
Net loss per limited partnership unit:    
Loss before minority interests and         ($    69.96)($    71.22)($   130.81)
   equity in affiliate
Minority interests' portion of loss                  0           0        1.16
Equity in net loss of affiliate                  (2.09)       (.81)      (1.35)
                                              --------   ---------   ---------
Loss before extraordinary item                  (72.05)     (72.03)    (131.00)
Extraordinary gain                                   0           0       93.20
                                              --------   ---------   ---------
                                            ($   72.05)($    72.03)($    37.80)
                                              ========   =========   =========

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, 1997, 1996 and 1995


                                               Dover                           
                                             Historic      Limited       
                                          Advisors II(1) Partners (2)   Total
                                                    
Percentage participation in profit or loss      1%          99%          100%
                                              
Balance at December 31, 1994               ($117,542) ($  332,701) ($  450,243)
Net loss                                      (5,339)    (528,594)    (533,933)
                                             -------    ---------    ---------
Balance at December 31, 1995                (122,881)    (861,295)    (984,176)
Net loss                                     (10,173)  (1,007,135)  (1,017,308)
                                             -------    ---------    ---------
Balance at December 31, 1996                (133,054)  (1,868,430)  (2,001,484)
Net loss                                     (10,175)  (1,007,322)  (1,017,497)
                                             -------    ---------    ---------
Balance at December 31, 1997               ($143,229) ($2,875,752) ($3,018,981)
                                             =======    =========    =========


 (1)   General Partner.

 (2)   13,981.5 limited partnership units outstanding at December  31,
       1997, 1996, and 1995.

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, 1997, 1996 and 1995

                                              1997         1996         1995
                                        
Cash flows from operating activities:           
   Net loss                               ($1,017,497) ($1,017,308) ($  533,933)
   Adjustments to reconcile net loss to
     net cash provided by (used in)
     operating activities:
Depreciation and amortization                 531,057      478,748      829,265
Extraordinary gain                                  0            0   (1,316,188)
Minority interests                                  0            0      (16,365)
Equity in loss of affiliate                    29,569       11,418       19,120
Changes in assets and liabilities:                              
   Decrease (increase) in restricted cash      77,112      (95,508)     (45,897)
   (Increase) decrease in accounts receivable  (8,608)        (673)       7,450
   (Increase) decrease in other assets       (108,765)     (96,087)       1,604
   Increase in accounts payable - trade       121,755      172,594      204,853
   Increase in accounts payable - related
     parties                                   45,703       45,703       33,479
   (Decrease) increase in accounts payable
     - taxes                                        0     (155,907)      59,277
   Increase in interest payable               350,712      132,998      903,426
   Decrease in tenant security deposits        (1,477)      (2,413)     (31,928)
   (Decrease) increase in other liabilities   (18,109)      10,625        1,942
                                            ---------    ---------   ----------
      Net cash provided by (used in)                   
            operating activities:               1,452     (515,810)     116,105
                                            ---------    ---------   ----------
Cash flows from investing activities:      
   Capital expenditures                       (25,247)    (112,221)    (302,989)
                                            ---------    ---------   ----------
      Net cash used in investing activities:  (25,247)    (112,221)    (302,989)
                                            ---------    ---------   ----------
Cash flows from financing activities:         
   Proceeds from debt obligations                   0      638,208      196,445
   Payments of principal under debt obligations 3,241            0      (30,313)
                                            ---------    ---------   ----------
      Net cash provided by financing 
        activities:                             3,241      638,208      166,132
                                            ---------    ---------   ----------
(Decrease) increase in cash and cash 
   equivalents                                (20,554)      10,177      (20,752)
Cash and cash equivalents at beginning of year 20,862       10,685       31,437
                                            ---------    ---------   ----------
Cash and cash equivalents at end of year   $      308   $   20,862  $    10,685
                                            =========    =========   ==========
Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for interest  $  617,685   $  558,411  $   491,008
    
The accompanying notes are an integral part of these financial statements.
<PAGE>
                  DIVERSIFIED HISTORIC INVESTORS III
                        (a limited partnership)
                                   
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

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

1.     Principles of Consolidation

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

2.     Depreciation

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

3.     Costs of Issuance

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

4.     Cash and Cash Equivalents

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

5.     Interest Payable

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

6.     Net Loss Per Limited Partnership Unit

The  net  loss  per limited partnership unit is based on the  weighted
average  number  of limited partnership units outstanding  during  the
period (13,891.5 in 1997, 1996, and 1995).

7.     Income Taxes

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

8.     Restricted Cash

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

9.     Revenue Recognition

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

10.    Rental Properties

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

NOTE C - GOING CONCERN

In  recent  years  the  Partnership has realized  significant  losses,
including  the  foreclosure of one property, due  to  the  properties'
inability  to  generate sufficient cash flow to  pay  their  operating
expenses  and debt service.  At the present time, the Partnership  has
feasible  loan modifications in place at Lincoln Court,  Green  Street
and  Loewy  Building.  However, in all three cases, the mortgages  are
basically  "cash-flow" mortgages, requiring all available  cash  after
payment of operating expenses to be paid to the first mortgage holder.
Therefore,  it  is  unlikely that any cash will be  available  to  the
Partnership to pay its general and administrative expenses.

It  is  the Partnership's intention to continue to hold the properties
until  they can no longer meet the debt service requirements  and  the
properties  are  foreclosed, or the market  value  of  the  properties
increases  to  a  point where they can be sold at  a  price  which  is
sufficient  to  repay  the  underlying  indebtedness  (principal  plus
accrued interest).

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

NOTE D - PARTNERSHIP AGREEMENT

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

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

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

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

NOTE E - ACQUISITIONS

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

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

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

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

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

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

NOTE F- DEBT OBLIGATIONS

Debt obligations are as follows:                                    
                                                              December 31,
                                                            1997        1996
                                                           ------      ------
Mortgage loan, interest accrues at 11 1/2%, interest   $ 3,788,541 $ 3,784,900
only payable monthly to the extent of net operating
income; principal due January 2012; collateralized by
the related rental property;

Note, interest payable monthly at prime, with a minimum    200,000     200,000
of 6% and a maximum of 8%, adjusting annually on January
2 (8% at December 31, 1997 and 1996); due in 1997; 
collateralized by the related rental property (A)

Allowed unsecured claims in the amount of $268,042;        165,246     167,812
non-interest bearing

Note payable, interest only at 10%, payable quarterly;      10,000      10,000
principal due in 1994 (A)
                                                      
Mortgage loan, interest at 9.125%, payable in monthly    1,256,565   1,265,960
principal and interest installments of $10,317; 
principal due in September 2003; collateralized by the 
related rental property

Mortgage loan, interest at prime plus 1 1/4% with a      1,476,212   1,468,679
minimum of 9.5% and a maximum of 14 1/2%, 9.75% and
9.5% at December 31, 1997 and 1996, respectively,
principal due in 1999; collateralized by the related
rental property (B)

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

Note, interest at prime plus 1 1/4% (9.75% and 9.5% after  100,278     100,278
December 31, 1997 and 1996, respectively); principal
due in 1999; collateralized by the related rental
property (B)

Mortgage loan, interest at 12%; payable interest only
to the extent of net operating income with a minimum
monthly payment of  $5,750; principal due in 1999;
collateralized by the related rental property           1,314,180    1,310,152
                                                        ---------    ---------
                                                      $ 8,418,142  $ 8,414,901
                                                        =========    =========

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

(B)    Monthly payments of interest are to be made, on all three loans
       combined, in an amount equal to net operating income.

Approximate  maturities of the mortgage loan obligations  at  December
31, 1997, for each of the succeeding five years are as follows:

                                                    
                          1998                   $  375,246
                          1999                    2,997,790
                          2000                            0
                          2001                            0
                          2002                            0
                          Thereafter              5,045,106
                                                  ---------  
                                                 $8,418,142
                                                  =========


NOTE G - COMMITMENTS AND CONTINGENCIES

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

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

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

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

NOTE H - EXTRAORDINARY GAINS

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

NOTE I - TRANSACTIONS WITH RELATED PARTIES

Included in debt obligations for 1997, 1996 and 1995 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 1996 and 1997.  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, 1997 was $624,606.

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 1996
and 1997.  Payments on the judgment are to be made from available cash
flow  from  18th and Green.  The balance of the note at  December  31,
1997 was $50,124.

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,

                                         1997           1996            1995
                                        ------         ------          ------
Net loss - book                      ($1,017,497)   ($1,019,509)   ($   550,993)
Excess of tax over book depreciation     108,515         89,414         166,823
Interest                                       0              0         793,672
Gain on foreclosure                            0              0         216,411
Other timing differences                    (207)        23,940          (2,746)
Minority interest                         (5,094)       (21,859)        (19,675)
                                       ---------      ---------      ----------
Net loss - tax                       ($  914,283)   ($  928,014)    $  603,492
                              
Partners' equity - book              ($3,018,981)   ($2,001,484)   ($  984,176)
1987 distribution of interest on         (39,576)       (39,576)       (39,576)
escrow deposits to limited partners
Costs of issuance                      1,697,342      1,697,342      1,697,342
Cumulative tax over (under) book loss    351,443        248,230        158,936
                                       ---------      ---------      ---------
Partners' equity - tax               ($1,009,772)   ($   95,488)    $  832,526
                                       =========      =========      =========
<PAGE>

                       SUPPLEMENTAL INFORMATION
<PAGE>
                                   
                         DIVERSIFIED HISTORIC INVESTORS III
                               (a limited partnership)
                                                    
                SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                  DECEMBER 31, 1997

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

                                      Buildings           
                                         and                   Date of  Date
Description (a)   Encumbrances  Land Improvements Improvements Constr. Acquired
                      (f)                                       (a)   
                                      
64,000 square feet                   
of commercial                          
space in                                          
Winston-Salem, NC $4,153,787 $308,624  $6,290,125 $476,976  1986-1988  11/14/86
                     
58 apartment
units in
Philadelphia, PA   2,950,175   86,187   3,490,437      -    1986-1987    9/9/86
                                                        
18 apartment units    
in Philadelphia,                                                        
PA                 1,314,180   70,643   1,559,017      -       1987
                   ---------  -------  ----------  -------
TOTAL             $8,418,142 $465,454 $11,339,579 $476,976
                   =========  =======  ==========  =======


                     Gross Amount at which Carried at                        
                     December 31, 1997
                                   Buildings                             
                                      and                        Accumulated
Description            Land       Improvements  Total (c)(d)    Depreciation
                                                                   (d)(e)
64,000 square feet                                                    
of commercial space                                                         
in Winston-Salem, NC  $308,624    $6,786,062    $7,094,686       $2,730,751

58 apartment units                                                    
in Philadelphia, PA     86,187     3,736,042     3,822,229        1,571,066
                                                                      
18 apartment units                                                    
in Philadelphia, PA     70,643     1,559,017     1,629,660          654,584
                       -------     ---------     ---------        --------- 
TOTAL                 $465,454   $12,081,121   $12,546,575       $4,956,401
                       =======    ==========    ==========        =========
<PAGE>
                  DIVERSIFIED HISTORIC INVESTORS III
                                   
                        (a limited partnership)
                                   
                         NOTES TO SCHEDULE XI
                                   
                           December 31, 1997

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

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

(C)    The  aggregate cost of real estate owned at December 31,  1997,
       for  Federal  income tax purposes is approximately $11,352,543.
       However, the depreciable basis of buildings and improvements is
       reduced  for Federal income tax purposes by the investment  tax
       credit and the historic rehabilitation credit obtained.

(D)    Reconciliation of real estate:

                                       1997            1996            1995
                                      ------          ------          ------
Balance at beginning of year:      $12,521,328     $12,409,107     $25,570,608
Additions during the year:     
   Improvements                         25,247         112,221         297,731
                                    ----------      ----------      ----------
                                    12,546,575      12,521,328      25,868,339
Deductions during the year:        
   Retirements                               0               0      (9,253,739)
   Deconsolidated subsidiary                 0               0      (4,205,493)
                                    ----------      ----------      ----------
                                     
Balance at end of year             $12,546,575     $12,521,328     $12,409,107
                                    ==========      ==========      ========== 
Reconciliation of accumulated depreciation:
                                       1997            1996            1995
                                      ------          ------          ------
Balance at beginning of year        $4,461,992      $3,991,148      $7,035,889
Depreciation expense for the year      494,409         470,844         829,265
Retirements                                  0               0      (2,833,686)
Deconsolidated subsidiary                    0               0      (1,040,320)
                                     ---------       ---------       ---------
Balance at end of year              $4,956,401      $4,461,992      $3,991,148
                                     =========       =========       =========

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

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

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

               None.

                               PART III

Item 10.       Directors and Executive Officers of Registrant

                a.    Identification of Directors - Registrant has  no
directors.

               b.   Identification of Executive Officers

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

Name                  Age   Position             Term of Office  Period Served
                                                         
Gerald Katzoff         49   Partner in DoHA-II   No fixed term   February 1986 -
                                                                 May 1997
                                                            
DHP, Inc.              --   Partner in DoHA-II   No fixed term   February 1986 -
("Formerly Dover                                                 May 1997
Historic Properties, Inc.")
                                                       
SWDHA, Inc.            --   Partner in DoHA-II   No fixed term   Since May 1997
                  
EPK, Inc.              --   Partner in DoHA-II   No fixed term   Since May 1997

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

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

                 d.     Family  Relationships.   There  is  no  family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.

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

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

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

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

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

                Donna M. Zanghi (age 40) was appointed on May 13, 1997
as  Vice  President and Secretary of EPK, Inc.  Ms. Zanghi  previously
served  as Secretary and Treasurer of DHP, Inc.  since June  14,  1993
and  as  a  Director  and Secretary/Treasurer  of  D,  LTD.   She  was
associated with DHP, Inc. and its affiliates since 1984 except for the
period from December 1986 to June 1989 and the period from November 1,
1992 to June 14, 1993.

               Michele F. Rudoi (age 32) 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 1997, Registrant  has
paid  no  cash  compensation to DoHA-II, any partner  therein  or  any
person named in paragraph c. of Item 10.  Certain fees have been  paid
to DHP, Inc. by Registrant.

               b.   Compensation Pursuant to Plans - Registrant has no
plan  pursuant  to  which compensation was paid or distributed  during
1996, or is proposed to be paid or distributed in the future, to DoHA-
II,  any partner therein, or any person named in paragraph c. of  Item
10 of this report.

                c.   Other Compensation - No compensation not referred
to  in  paragraph  a.  or  paragraph b.  of  this  Item  was  paid  or
distributed during 1997 to DoHA-II, any partner therein, or any person
named in paragraph c. of Item 10.

                d.    Compensation  of Directors - Registrant  has  no
directors.

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

Item  12.        Security Ownership of Certain Beneficial  Owners  and
Management

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

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

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

Item 13.       Certain Relationships and Related Transactions

               Pursuant to Registrant's Amended and Restated Agreement
of  Limited  Partnership, DoHA-II is entitled to 10%  of  Registrant's
distributable cash from operations in each year.  There  was  no  such
share allocable to DoHA-II for fiscal years 1996 through 1997.

               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, 1997
                        and 1996.

                    b.  Consolidated Statements of Operations for the Years
                        Ended December 31, 1997, 1996 and 1995.

                    c.  Consolidated Statements  of  Changes in Partners' 
                        Equity for the Years Ended December 31, 1997, 1996
                        and 1995.

                    d.  Consolidated Statements of Cash Flows for the Years
                        Ended December 31, 1997, 1996 and 1995.

                    e.  Notes to consolidated financial statements.

               2.   Financial statement schedules:

                    a.  Schedule XI - Real Estate and Accumulated Depreciation.

                    b.  Notes to Schedule XI.

               3.   Exhibits:

                    (a)  Exhibit      Document
                         Number

                            3         Registrant's   Amended   and    Restated
                                      Certificate  of Limited Partnership  and
                                      Agreement    of   Limited   Partnership,
                                      previously  filed as part  of  Amendment
                                      No.   2   of  Registrant's  Registration
                                      Statement    on    Form    S-11,     are
                                      incorporated herein by reference.
                                                       
                           21         Subsidiaries   of  the  Registrant   are
                                      listed  in  Item 2. Properties  of  this
                                      Form 10-K.

                     (b)  Reports on Form 8-K:

                          No reports were filed on Form 8-K during the
                          quarter ended December 31, 1997.

                     (c)  Exhibits:

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

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

                               DIVERSIFIED HISTORIC INVESTORS III
                                             
Date:  April 15, 1998          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                              April 15, 1998
         -----------------------                             --------------
         SPENCER WERTHEIMER
         President and Treasurer

    By:  /s/ Michele F. Rudoi                                April 15, 1998
         ------------------------                            --------------
         MICHELE F. RUDOI,
         Assistant Secretary