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, 2001
                          ---------------------------------------

[   ]  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, 2001, 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
Registrant  owns or in which it has interest are held for  rental
operations.  Registrant anticipates that all the properties  will
continue  to  be  held for this purpose. As real property  values
increase, the Registrant will re-evaluate its investment strategy
regarding the properties.

                As  of  December 31, 2001, Registrant owned  four
properties (or interests therein), located in Pennsylvania (two),
Louisiana  (one), and North Carolina (one). Three 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,  2001, 124 apartment units were under lease at monthly rental
rates ranging from $471 to $1,700. In addition, 22,354 sf of  the
commercial  space  was under lease at annual rates  ranging  from
$6.00  per  sf  to $14.28 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 "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, 2001 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, 2001).  The note payable bears interest at  10%.  It
is  payable interest only on a quarterly basis; the principal was
due  in  1994.   In  1988,  a $95,000 second  mortgage  loan  was
obtained.  In 1991, and $100,000 third mortgage loan was obtained
which was due in 1994. Due to decreased cash flow, the Registrant
stopped  making scheduled debt service payments to the holder  of
the  first,  second and third mortgages.  Notice of  default  was
received  from  the lender on November 29, 1993.  The  Registrant
pursued  settlement  discussions with  the  lender;  however,  in
December  1994  the  mortgage notes were  sold.   The  Registrant
entered  into  an agreement with the new holder of the  mortgages
whereby  the  maturities of the notes were extended to  1999  and
monthly  payments of interest were to be made  to  the  new  note
holder in an amount equal to net operating income.  In June 1996,
the  Registrant refinanced $1,268,000 of the first mortgage.   In
November  1998,  the Registrant restructured the mortgage  notes.
The  first  mortgage  was refinanced with a  $1,540,000  mortgage
($1,493,104  principal balance at December 31, 2001) 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,  2001
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,
2001,  57  residential units (98%) were under  lease  at  monthly
rents ranging from $471 to $1,700.  All leases are renewable, one-
year  leases.  The occupancy for the previous four years was  86%
for  2000,  88%  for 1999, 88% for 1998, and 87%  for  1997.  The
monthly  rental ranges for the previous four years were  $460  to
$1,700 during 2000, $460 to $1,565 during 1999 and 1998, and $375
to  $1,450  during 1997. For tax purposes, this  property  has  a
federal  tax  basis  of $3,336,188 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  an
assessed value of $365,760 taxed at a rate of $6.90 per $100.  No
one  tenant  occupies ten percent or more of  the  building.  The
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, 2001) 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, 2001, 18 apartments (100%) 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 94% for 2000, 83% for 1999, 94% for 1998,
and   94%   for  1997.   The  monthly  rental  range   has   been
approximately  the  same  since  1997.  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 $15,316, which  is  based  on
assessed value of $187,200 taxed at a rate of $8.18 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 $3,873,752
at  December  31,  2001)  and  a $500,000  note  payable  to  the
developer (Cwood Properties, Inc., Thomas L. Kummer and  Gail  R.
Citron;  all of whom are general partners of Triad).   The  first
mortgage bears interest at 11.5% and is due in January 2012.  The
developers  note  was  sold in September  1997.   The  Registrant
entered into an agreement with the new holder of the note whereby
monthly payments of interest are to be made in an amount equal to
net  operating income with a minimum monthly payment of  $27,500.
The  Registrant  advanced  an  additional  $1,098,000  and  Triad
obtained  $200,000  of additional financing  in  1987  (principal
balance  due  of  $200,000 at December 31,  2001)  to  fund  cost
overruns resulting from delays and changes in rehabilitation  and
construction  plans. The additional financing bears  interest  at
the prime rate with a minimum of 6% and a maximum of 8% adjusting
annually  on  January  2, (6% at December  31,  2001  and  8%  at
December 31, 2000). The property is managed by BCMI.

             As of December 31, 2001, 22,369 sf were rented (36%)
at  annual  rates  ranging from $6.00  to  $14.28  per  sf.   The
occupancy  at year end for the previous four years has  been  36%
for  2000,  41%  for 1999, 98% for 1998, and 88%  for  1997.  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 sf for 2000, $6.00 to $13.41 per sf  for
1999, $6.00 to $16.44 per sf for 1998, and $6.00 to $16.21 per sf
for  1997.  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
 2002         1            3,261         $ 47,000         17%
 2003         0                0                0          0%
 2004         0                0                0          0%
 2005         1            2,800         $ 35,000         13%
 2006         3           16,308         $197,000         70%

              No  commercial leases expired during 2001. For  tax
purposes,  this  property  has  a  basis  of  $5,457,427  and  is
depreciated using the straight-line method with a useful life  of
39 years. The annual real estate taxes are $21,174 which is based
on  an  assessed value of $5,414,779 taxed at a rate of $.39  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,
2001,  49  residential units were under lease  (86%)  at  monthly
rents ranging from $634 to $1,485.  All leases are renewable, one-
year  leases.  The occupancy for the previous four years was 100%
for  2000,  98%  for  1999, 89% for 1998 and 91%  for  1997.  The
monthly  rental ranges for the previous four years were  $634  to
$1,485  during 2000, $620 to $1,250 during 1999, $620  to  $1,300
during  1998, and $610 to $1,240 during 1997.  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 $52,063, which is based on assessed
value  of  $280,000 taxed at a rate of $18.59 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.

                             PART II

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

           a.  There is no established public trading market  for
the  Units.  Registrant does not anticipate any such market  will
develop.   Trading  in  the Units occurs solely  through  private
transactions.  The Registrant is not aware of the prices at which
trades  occur.  Registrant's records indicate that  73  Units  of
record were sold or exchanged in 2001.

            b.  As  of  December 31, 2001, there were 1,583 record
holders of Units.

            c.  Registrant did not declare any cash dividends
in 2001 or 2000.

Item 6.   Selected Financial Data

              The  following selected financial data are for  the
five  years ended December 31, 2001.  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.

                    2001       2000       1999       1998       1997
                    ----       ----       ----       ----       ----
Rental income  $  931,137  $  936,392 $1,257,195 $1,251,911 $1,251,764
Interest
 income             2,414       4,397      3,866      2,113        441
Net loss       (3,444,268) (2,006,951)(1,070,903)(1,297,537)(1,017,497)
Net loss per
 Unit             (243.88)    (142.11)    (75.83)    (91.88)    (72.05)
Total assets
 (net of                             depreciation
 and
 amortization)  3,348,854   6,024,542  7,307,432  7,758,588  8,196,299
Debt
 obligations    8,996,269   8,972,599  8,966,573  8,970,613  8,418,142

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

             (1)    Liquidity

                At  December  31, 2001, Registrant  had  cash  of
approximately  $24,568.   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.  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, 2001, Registrant had restricted
cash  of  $125,704 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  2001, Registrant incurred a net  loss  of
$3,444,268 ($243.88 per limited partnership unit), compared to  a
net loss of $2,006,951 ($142.11 per limited partnership unit)  in
2000,   and  a  net  loss  of  $1,070,903  ($75.83  per   limited
partnership unit) in 1999.

                Rental  income was $931,137 in 2001, $936,392  in
2000, and $1,257,195 in 1999. The decrease in rental income  from
2000  to 2001 is due to a decrease at the Loewy Building and  the
Green  Street  Apartments, partially offset  by  an  increase  at
Lincoln  Court.  The  decrease in  rental  income  at  the  Loewy
Building is due a decrease in average occupancy (38% to 36%). The
decrease  at the Green Street Apartments is due to a decrease  in
average occupancy (98% to 86%). The increase at the Lincoln Court
is  due  to  an increase in average occupancy (86% to  95%).  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 occupancy  at
the  Loewy  Building is due to the decrease in average  occupancy
(78%  to 38%). 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  $567,914  in  2001,
$552,505 in 2000, and $585,564 in 1999. The increase from 2000 to
2001 is due to an increase in commission expense at Lincoln Court
and  the  Green Street Apartments, partially offset by a decrease
in  legal  and  accounting  expense at the  Loewy  Building.  The
increase  in  commission expense at Lincoln Court and  the  Green
Street  Apartments  is  due to an increase  in  the  turnover  of
apartment  units.  The decrease in legal expenses  at  the  Loewy
Building  is due to a decrease in professional services  rendered
during 2001. The decrease from 1999 to 2000 was due to a decrease
in   maintenance   expense  at  the  Lincoln  Court   Apartments.
Maintenance expense decreased at Lincoln Court due to a  decrease
in apartment preparation expenses and maintenance services.

                General and administrative expense was $0 in both
2000  and  2001,  and   $126,000 in 1999. 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 $1,068,080 in 2001, $1,068,425
in  2000,  and   $1,066,780  in 1999. The  increase  in  interest
expense  from  1999 to 2000 is due to an increase  at  the  Loewy
Building  due to an increase in principal balance as a result  of
principal additions made during the year.

              Depreciation and amortization was $495,581 in 2001,
$522,814 in 2000 and $519,656 in 1999.  The decrease from 2000 to
2001  is  due to a decrease in depreciation expense at the  Loewy
Building  due  to  the impairment loss taken  during  the  fourth
quarter  of  2001 which decreased the depreciable  basis  of  the
building.  The  increase  from 1999  to  2000  is  due  to  asset
additions at Lincoln Court and the Loewy Building.

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

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

              In  2001,  a  loss of approximately $1,140,000  was
incurred at the Registrant's four properties compared to  a  loss
of  $1,115,000  in  2000  and  a loss  of  $873,000  in  1999.  A
discussion of property operations/activities follows:

              During  2001, the Registrant sustained  a  loss  of
$269,000 at Lincoln Court including $165,000 of depreciation  and
amortization  expense. In 2000, Registrant sustained  a  loss  of
$349,000  including  $163,000  of depreciation  and  amortization
expense  compared  to  a loss of $375,000 including  $161,000  of
depreciation expense in 1999. The decrease in loss from  2000  to
2001  is  due  to an increase in rental income and a decrease  in
maintenance   expense,  partially  offset  by  an   increase   in
commission expense. The increase in rental income is  due  to  an
increase  in  average  occupancy (86% to 95%).  The  decrease  in
maintenance  expense is due to a decrease in maintenance  service
expense. The increase in commission expense is due to an increase
in  the  turnover of apartment units. The decrease in  loss  from
1999  to  2000  is  due  to an increase in rental  income  and  a
decrease  in  maintenance  expense. The decrease  in  maintenance
expense is due to a decrease in apartment preparation expense and
maintenance service expense.

              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 2001  and  2000.
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, 2001 was $807,417.

                In  2001 Green Street apartments sustained a loss
of $145,000 including $59,000 in depreciation expense compared to
a  loss of $132,000 including $59,000 of depreciation expense  in
2000,  and  a  loss  of  $147,000 in 1999  including  $59,000  of
depreciation expense. The increase in loss from 2000 to  2001  is
due  to a decrease in rental income and an increase in commission
expense.  The decrease in rental income is due to a  decrease  in
average  occupancy  (98%  to  86%). The  increase  in  commission
expense is due to an increase in the turnover of apartment units.
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%).

                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 2000 and 2001.   Payments  on
the  judgment are to be made from available cash flow  from  18th
and  Green.   The balance of the note at December  31,  2001  was
$70,343.

                In  2001,  the  Loewy Building sustained  a  loss
(exclusive of the impairment loss) of $745,000 including $290,000
of  depreciation and amortization expenses compared to a loss  of
$650,000  including  $286,000  of depreciation  and  amortization
expense  during 2000 and to a loss of $317,000 including $285,000
of depreciation and amortization expense in 1999. The decrease in
loss from 2000 to 2001 is due to a decrease in rental income  and
an increase in maintenance expense. The decrease in rental income
at  the  Loewy Building is due to a decrease in average occupancy
(38%  to 36%). The increase in maintenance expense is due  to  an
increase  in  cleaning and maintenance service. The  increase  in
loss from 1999 to 2000 is due to a decrease in rental income  due
to a decrease in average occupancy (78% to 38%).




           Summary of Minority Interests

              In  2001,  the Registrant recognized net income  of
$18,000  at  Magazine Place compared to an income of  $16,000  in
2000 and a loss $34,000 in 1999. This investment is accounted for
by  the  equity method. The increase in net income from  2000  to
2001  is due to a decrease in rental operating expenses. The  net
income  in  2000  versus a loss in 1999 is  due  to  an  increase
average  rental rates from a range of $620 to $1,300 during  1999
to a range of $634 to $1,485 during 2000.


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, 2001  and  2000
and  the  related statements of operations, changes in  partners'
equity and cash flows for the years ended December 31, 2001, 2000
and  1999.   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, 2001 and 2000, and the results of operations
and  cash  flows for the years ended December 31, 2001, 2000  and
1999, in conformity with accounting principles generally accepted
in the United States of America.

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  had 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
March 20, 2002

<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, 2001  and
2000                                                        14

   Consolidated Statements of Operations for  the  Years
Ended December 31, 2001, 2000, and 1999                     15

   Consolidated  Statements  of  Changes  in   Partners'
Equity  for the Years Ended December 31, 2001, 2000,
and 1999                                                    16

   Consolidated Statements of Cash Flows for  the  Years
Ended December 31, 2001, 2000, and 1999                     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, 2001 and 2000
                             Assets

                                           2001            2000
Rental properties at cost:                 ----            ----
 Land                                $   465,454      $   465,454
 Buildings and improvements            8,941,775       11,170,423
 Furniture and fixtures                  170,548          157,259
                                     -----------      -----------
                                       9,577,777       11,793,136
  Less - accumulated depreciation     (6,891,195)      (6,424,759)
                                     -----------      -----------
                                       2,686,582        5,368,377

Cash and cash equivalents                 24,568           28,338
Restricted cash                          125,703          181,556
Accounts receivable                      103,775           90,688
Investment in affiliate                  181,003          163,246
Other assets (net of accumulated
 amortization of $259,565 and
 $230,421)                               227,223          191,837
                                     -----------      -----------
          Total                      $ 3,348,854      $ 6,024,042
                                     ===========      ===========

                 Liabilities and Partners' Equity

Liabilities:
 Debt obligations                    $ 8,996,269      $ 8,972,599
 Accounts payable:
  Trade                                1,208,816        1,180,280
  Related parties                        873,567          827,860
  Real Estate Taxes                       21,174
  Interest payable                     2,994,518        2,345,061
  Tenant security deposits                62,468           57,885
  Other liabilities                       30,681           34,729
                                     -----------      -----------
          Total liabilities           14,187,493       13,418,414
Partners' deficit                    (10,838,639)      (7,394,372)
                                     -----------      -----------
          Total                      $ 3,348,854      $ 6,024,042
                                     ===========      ===========

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, 2001, 2000 and 1999


                                       2001        2000         1999
                                       ----        ----         ----
Revenues:
 Rental income                    $  931,137   $  936,392   $1,257,195
 Interest income                       2,414        4,397        3,866
                                  ----------   ----------   ----------
     Total revenues                  933,551      940,789    1,261,061
                                  ----------   ----------   ----------
Costs and expenses:
 Rental operations                   567,915      552,505     585,564
 General and administrative                0            0      126,000
 Interest                          1,068,080    1,068,425    1,066,780
 Depreciation and amortization       495,581      522,814      519,656
 Impairment loss                   2,264,000      820,000            0
                                  ----------   ----------   ----------
      Total costs and expenses     4,395,576    2,963,744    2,298,000
                                  ----------   ----------   ----------
Loss before equity in affiliate   (3,462,025)  (2,022,955)  (1,036,939)
Equity in net income (loss)  of
 affiliate                            17,757       16,004      (33,964)
                                  ----------   ----------   ----------
      Net loss                   ($3,444,268) ($2,006,951) ($1,070,903)
                                  ==========   ==========   ==========

Net loss per limited partnership
 unit:
 Loss before equity in affiliate ($   245.14) ($   143.24) ($    73.42)
 Equity  in  net income (loss)
  of affiliate                          1.26         1.13        (2.41)

                                  ----------   ----------   ----------
                                 ($   243.88) ($   142.11) ($    75.83)
                                  ==========   ==========   ==========

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, 2001, 2000 and 1999

                                      Dover
                                    Historic     Limited
                                    Advisors     Partners
                                     II(1)         (2)         Total
                                    --------     --------      -----
Percentage participation in
 profit or loss                       1%           99%          100%
                                      ==           ===          ====
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)
Net loss                            (34,443)   (3,409,825)    (3,444,267)
                                   --------    ----------    -----------
Balance at December 31, 2001      ($221,426)  ($10,617,214) ($10,838,639)
                                   ========    ===========   ===========


 (1)      General Partner.

 (2) 13,981.5  limited partnership units outstanding at  December
     31, 2001, 2000, and 1999.


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, 2001, 2000 and 1999
                                        2001        2000       1999
                                        ----        ----       ----
Cash flows from operating
 activities:
 Net loss                         ($3,444,268)($2,006,951)($1,070,903)
 Adjustments to reconcile net loss
  to net cash provided by (used in)
  operating activities:
  Depreciation and amortization       495,581     522,814     519,656
  Impairment loss                   2,264,000     820,000           0
  Equity in (income) loss of
   affiliate                          (17,757)    (16,004)     33,964
 Changes in assets and liabilities:
  Decrease (increase) in restricted
   cash                                55,852      (9,546)     (3,666)
  Increase in accounts receivable     (13,087)    (28,449)    (36,932)
  Increase in other assets            (64,530)     (8,585)    (19,971)
  Increase in accounts payable -
   trade                               28,536      18,658     164,864
  Increase in accounts payable -
   related parties                     45,707      45,703      45,699
  Increase in accounts payable -
   real estate                         21,174           0           0
  Increase in interest payable        649,457     662,100     392,010
  Increase in tenant security
   deposits                             4,584       2,001      10,111
  (Decrease) increase in other
   liabilities                         (4,049)    (10,927)     11,103
                                   ----------  ----------  ----------
Net cash provided by (used in)
operating activities                   21,200      (9,186)     45,935
                                   ----------  ----------  ----------
Cash flows from investing
 activities:
 Capital expenditures                 (48,641)    (22,744)    (19,634)
                                   ----------  ----------  ----------
 Net cash used in investing
  activities                          (48,641)    (22,744)    (19,634)
                                   ----------  ----------  ----------

Cash flows from financing
 activities:
  Proceeds from debt obligations       40,487      21,437      10,627
  Payments of principal under debt
   obligations                        (16,816)    (15,411)    (14,667)
                                   ----------  ----------  ----------
 Net cash provided by (used in)
  financing activities                 23,671       6,026      (4,040)
                                   ----------  ----------  ----------
(Decrease) increase in cash and
 cash equivalents                      (3,770)    (25,904)     22,261
Cash and cash equivalents at
 beginning of year                     28,338      54,242      31,981
                                   ----------  ----------  ----------
Cash and cash equivalents at
 end of year                       $   24,568  $   28,338  $   54,242
                                   ==========  ==========  ==========

Supplemental Disclosure of Cash
 Flow Information:
 Cash paid during the year for
  interest                         $  418,623  $  406,325  $  674,770



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 (13,981.5 in 2001, 2000, and 1999).

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

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


NOTE 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,
                                                   2001       2000
                                                   ----       ----
Mortgage loan, interest accrues at 11 1/2%,   $3,873,752  $3,833,265
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      1,493,105   1,509,922
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
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                                1,318,119   1,318,119
                                              ----------  ----------
                                              $8,996,269  $8,972,599
                                              ==========  ==========

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


Approximate  maturities  of  the  mortgage  loan  obligations  at
December 31, 2001, for each of the succeeding five years  are  as
follows:

                 2002          $  368,612
                 2003              19,319
                 2004              20,408
                 2005              22,159
                 2006              23,743
                 Thereafter     8,542,028
                               ----------
                               $8,996,269
                               ==========

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 2001, 2000 and 1999 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
2000  and  2001.   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,  2001  was $807,417. 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 2001.  Payments
on the judgment are to be made from available cash flow from 18th
and  Green.  The balance of the judgment at December 31, 2001 was
$70,343.

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,
                                     2001        2000        1999
                                     ----        ----        ----

Net loss - book                ($ 3,444,268)($2,006,951)($1,070,903)
Excess of book over tax
 depreciation                        67,753      98,882     153,257
Minority interest                     7,047       6,078     (51,133)
Impairment Loss                   2,264,000     820,000           0
                                -----------  ----------  ----------
Net loss - tax                 ($ 1,105,468)($1,081,991)($  968,779)
                                ===========  ==========  ==========

Partners' equity - book        ($10,838,639)($7,394,371)($5,387,421)
1987 distribution of interest
 on escrow deposits to
 limited partners                   (39,576)    (39,576)    (39,576)
Costs of issuance                 1,697,342   1,697,342   1,697,342
Cumulative tax under book loss    3,771,616   1,432,816     507,857
                                -----------  ----------  ----------
Partners' equity - tax         ($ 5,409,257)($4,303,789)($3,221,798)
                                ===========  ==========  ==========

NOTE K - SUBSEQUENT EVENTS

Green  Street  Apartments was foreclosed by  the  first  mortgage
lender  on October 1, 2002. Magazine Place was sold on  June  26,
2002.  The net proceeds received by the partnership were used  to
pay outstanding debts.

<PAGE>






                    SUPPLEMENTAL INFORMATION





<PAGE>

                  DIVERSIFIED HISTORIC INVESTORS III
                       (a limited partnership)

        SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
                          DECEMBER 31, 2001

                                           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   $4,232,365 $308,624  $6,290,125 ($415,244) 1988  11/14/86
Impairment
Loss                             (2,668,756) (415,244)

58 apartment
units in
Philadelphia,                                          1986-
PA           3,445,785   86,187   3,490,437   392,511   1987   9/9/86

18 apartment
units
in
Philadelphia,
PA           1,318,119   70,643   1,559,017    48,989   1987  2/27/87
            ---------- --------  ----------  --------
TOTAL       $8,996,269 $465,454  $8,670,823  $441,500
            ========== ========  ==========  ========


           Gross Amount at which Carried
               at December 31, 2001


                       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 $3,847,092 $4,155,716  $3,810,535

58 apartment
units in
Philadelphia,
PA            86,187  3,770,086  3,856,273   2,220,855

18 apartment
units
in
Philadelphia,
PA            70,643  1,495,145  1,565,788     859,798
            -------- ---------- ----------  ----------
TOTAL       $465,454 $9,112,323 $9,577,777  $6,891,188
            ======== ========== ==========  ==========


               DIVERSIFIED HISTORIC INVESTORS III

                     (a limited partnership)

                      NOTES TO SCHEDULE XI

                        December 31, 2001

(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,
     2001,  for  federal  income  tax purposes  is  approximately
     $10,274,512.   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:
                                       2001         2000         1999
                                       ----         ----         ----

Balance at beginning of year:     $12,613,136  $12,590,391  $12,570,757
Additions during the year:
 Improvements                          48,641       22,745       19,634
                                  -----------  -----------  -----------
Balance at end of year            $12,661,777  $12,613,136  $12,590,391
                                  ===========  ===========  ===========

Reconciliation of accumulated depreciation:
                                       2001         2000          1999
                                       ----         ----          ----

Balance at beginning of year      $ 6,424,759  $ 5,931,577   $ 5,442,634
Depreciation expense for the year     466,437      493,182       488,943
                                  -----------  -----------   -----------
Balance at end of year            $ 6,891,196  $ 6,424,759   $ 5,931,577
                                  ===========  ===========   ===========

(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 44) 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 36) 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 2001, Registrant paid
no cash compensation to DoHA-II, any partner therein or any person
named in paragraph c. of Item 10.

              b.      Compensation Pursuant to Plans - Registrant
has   no  plan  pursuant  to  which  compensation  was  paid   or
distributed  during 2001 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 2001 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
1999 through 2001.

              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, 2001 and 2000.

                             b.     Consolidated  Statements   of
                 Operations  for  the  Years Ended  December  31,
                 2001, 2000 and 1999.

                             c.     Consolidated  Statements   of
                 Changes in Partners' Equity for the Years  Ended
                 December 31, 2001, 2000 and 1999.

                            d.    Consolidated Statements of Cash
                 Flows  for  the Years Ended December  31,  2001,
                 2000 and 1999.

                            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, 2001.

                 (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:  May 28, 2003           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                      May 28, 2003
       ----------------------                      ------------
       SPENCER WERTHEIMER
       President and Treasurer

   By: /s/ Michele F. Rudoi                        May 28, 2003
       ----------------------                      ------------
      MICHELE F. RUDOI,
      Assistant Secretary


<PAGE>