UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
                          -----------------

                                      OR

[   ] 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 number 0-14352
                       -------

                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
             ---------------------------------------------------- 
            (Exact name of registrant as specified in its charter)

          Illinois                                      36-3344227
-------------------------------                    ------------------- 
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)

2355 Waukegan Road
Bannockburn, Illinois                                     60015
----------------------------------------           -------------------
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code (847) 267-1600
                                                   --------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----
Securities registered pursuant to Section 12(g) of the Act:

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

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

Balcor Current Income Fund-85 A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1985 under the laws of the
State of Illinois. The Registrant raised $57,074,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income producing real property, and all
financial information included in this report relates to this industry segment.

The Registrant utilized the net offering proceeds to acquire five real property
investments. The Registrant sold two properties during 1996 and the remaining
three properties described under "Item 2. Properties" were sold in 1997. The
Partnership Agreement generally provides that the proceeds of any sale or
refinancing will not be reinvested in new acquisitions, except that proceeds
may be used to purchase or finance improvements or additions to any of the
Registrant's properties.

Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction.  While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997.  However, values
could begin to level off as they approach replacement cost triggering new
construction and an increase in capitalization rates.

The investment market for apartments was excellent during 1996 due to a number
of factors.  Investor interest was strong, driven primarily by institutions, as
Real Estate Investment Trusts aggressively expanded their portfolios and
pension funds viewed apartments as an attractive asset class due to their
perceived  low volatility and the emergence of large professional  property
management companies.  Operationally, existing apartment properties registered
on a national basis occupancy in the mid 90's and rental rate increases of 3-4%
in 1996.  While above the rate of inflation, the rate of rental growth in 1996
was below that of the previous two years suggesting that the apartment cycle
may have plateaued, especially as the impact of new construction in many areas
is being felt.  While 1997 is projected to be another solid year, values should
begin to level off as capitalization rates move upward continuing a trend which
began during the second half of 1996.

The outlook for the retail sector of the investment real estate industry is
uncertain for 1997.  The retail industry is being simultaneously impacted by a
number of factors which are likely to affect values for quite some time.  As
retailers battle to gain market dominance, tenant bankruptcies have grown.
Consolidation among retailers has and is expected to continue to occur.  Unlike
other asset classes, new construction of power centers went unabated in the
early 1990's, creating an oversupply of space including "big box" anchor tenant
<PAGE>
space.  Regional malls, which are not the dominant center in the market, face
continued out-migration of retailers to the power centers. Finally shopping
patterns continue to shift due to the aging baby boomers, high consumer debt,
alternative distribution channels, and the greater emphasis on entertainment.
As a result, the capital requirements necessary to maintain a shopping center's
competitiveness are all significant, but with uncertain returns.  The
Registrant believes there is significant risk to holding retail assets for
future upside potential.

During August 1996, the Registrant sold the El Dorado Hills Apartments and the
Willow Lawn Self-Storage Facility for $29,350,000 and $5,603,470, respectively.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for additional
information. 

During January 1997, the Registrant sold the American Way Mall in an all cash
sale for $5,500,000. During February 1997, the Registrant sold the Providence
Square Apartments and the Storage USA of Norcross Self-Storage Facility for
$25,010,000 and $3,250,000, respectively. See Item 1. "Other Information" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources" for additional
information.

The Registrant sold its remaining properties during 1997. The timing of the
termination of the Registrant and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Registrant including, but not limited to, the lawsuits
discussed in Item 3. "Legal Proceedings". In the absence of any such
contingency, the reserves will be paid within twelve months of the last
property sale. In the event a contingency arises, reserves may be held by the
Registrant for a longer period of time.
  
The Registrant, by virtue of its ownership of real estate is subject to federal
and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware of
any potential liability due to environmental issues or conditions that would be
material to the Registrant.

The officers and employees of Balcor Current Income Partners-85, the General
Partner of the Registrant, and its affiliates perform services for the
Registrant. The Registrant currently has no employees engaged in its
operations.
<PAGE>
Other Information
-----------------

American Way Mall
-----------------

As previously reported, on June 7, 1996, the Registrant contracted to sell
American Way Mall, Fairfield, New Jersey, to an unaffiliated party, Robert
Heidenberg. The sale closed on January 21, 1997. The sale price was $5,500,000.
The purchaser assigned its rights under the agreement of sale and title to the
property was conveyed to three parties, Closter Fairfield Associates, L.L.C.,
Fairfield NJ Commercial Associates Limited Partnership and Albemarle Fairfield
LLC. From the proceeds of the sale, the Registrant paid $156,000 to an
unaffiliated party as a brokerage commission and $48,082 in closing costs. In
addition, the agreement of sale provided that, if the purchaser transfers any
portion of the property to a specified third party prior to February 25, 1997,
the Registrant is entitled to a specified portion of the net proceeds from the
transfer. The Registrant received $421,737 pursuant to this provision. The
Registrant received the remaining proceeds of approximately $5,296,000. 

Providence Square Apartments
----------------------------

As previously reported, on October 17, 1996, the Registrant contracted to sell
Providence Square Apartments, Charlotte, North Carolina, to an unaffiliated
party, Group One Investments, Inc., an Illinois corporation, for a sale price
of $20,510,000. The Registrant also executed an agreement to sell to the
purchaser the personal property located at the property for a net sale price of
$4,500,000. The purchaser assigned its rights under the agreement of sale and
the personal property sale agreement to three affiliates, The Corners Limited
Partnership, Indian Ridge Limited Partnership, and 101 East Oak, L.L.C. The
closing was extended and the sale closed on February 19, 1997. The purchaser
acquired the real property subject to the existing first mortgage loan which
had an outstanding principal balance of $16,789,620 at closing. From the
proceeds of the sale, the Registrant paid $167,896 in fees relating to the
assumption of the mortgage loan by the purchaser,  $312,938 to an unaffiliated
party as a brokerage commission, $191,325 to an affiliate of the third party
providing property management services for the property as a fee for services
rendered in connection with the sale of the property and $79,500 in closing
costs. The Registrant received the remaining proceeds of approximately
$7,469,000. Of such proceeds, $250,000 will not be available for use or
distribution by the Registrant until May 1997.

Storage USA of Norcross Self-Storage Facility
----------------------------------------------

As previously reported, on September 26, 1996, the Registrant contracted to
sell Storage USA of Norcross Self-Storage Facility, Norcross, Georgia, to an
unaffiliated party, Storage Trust Properties, L.P., a Delaware limited
partnership,  for a sale price of $3,300,000. The Registrant and the purchaser
agreed to reduce the sale price to $3,250,000. The Registrant and the purchaser
<PAGE>
also agreed to extend the closing date from December 10, 1996 and the sale
closed on February 26, 1997. From the proceeds of the sale, the Registrant
paid $24,803 in closing costs and received the remaining proceeds of
approximately $3,225,000.

Item 2. Properties
------------------

As of December 31, 1996, the Registrant owned the three properties described
below, all of which are owned in fee simple:

Location                     Description of Property
--------                      -----------------------

Fairfield, New Jersey      * American Way Mall: a neighborhood shopping center
                             containing approximately 140,210 square feet 
                             located on approximately 13 acres.

Charlotte, North Carolina  * Providence Square Apartments: a 473-unit 
                             apartment complex located on approximately 69 
                             acres.

Norcross, Georgia          * Storage USA of Norcross Mini-Warehouse: a 
                             self-storage facility containing 586 units on 
                             approximately 4 acres.

* This property was sold during 1997. See Note 14 of Notes to the Financial
Statements for additional information.

Providence Square Apartments was held subject to a mortgage loan.

The average occupancy rates and effective average rent per unit for each of the
last five years for the residential property owned by the Registrant at
December 31,1996, are below. Apartment units in this property are rented with
leases of one year or less, with no tenant occupying greater than 10% of the
property.

                        1996     1995      1994      1993      1992
Providence Square
   Occupancy rate        94%      93%       96%       93%       82%
   Effective rent       $776     $777      $716      $663      $599

The average occupancy rates and the effective average rate per square foot for
each of the last five years for the two commercial properties owned by the
Registrant at December 31, 1996, are described below. No tenant occupies 10% or
more of the leasable square feet of any commercial property.

                        1996     1995      1994      1993      1992
American Way Mall
  Occupancy rate         31%      45%       63%       95%       88%
  Effective rate       $7.27    $8.54    $12.31     $9.40    $10.44
<PAGE>
Storage USA of Norcross
   Occupancy rate        78%      88%       96%       94%       89%
   Effective rate      $7.79    $8.18     $7.68     $7.35     $6.99

Real estate taxes incurred in 1996 for the above residential and commercial
properties totaled $482,652.

The Federal tax basis of the Registrant's properties totaled $30,044,161 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the properties are depreciated over useful lives ranging from 15 to 18 years,
using the ACRS method. Other minor assets are depreciated over their applicable
recovery periods.

In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.

See Notes to Financial Statements for other information regarding real property
investments.

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

On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by he predecessor of
Lehman Brothers, Inc. (together with the Registrant and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the actions. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended complaint
seeks judgment for compensatory damages equal to the amount invested in the
defendant Partnerships by the proposed class plus interest; general damages for
injuries arising from the defendants' alleged actions; equitable relief,
certain counts; recovery from the defendants of all profits received by them as
a result of their alleged actions relating to the Defendant Partnerships;
attorneys' fees and other costs.

The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.


Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
<PAGE>
                                    PART II

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

There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions see Financial Statements, Statements of
Partners' Capital, and Item 7. Liquidity and Capital Resources, below.

As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 3,735.

Item 6. Selected Financial Data
-------------------------------
      
                                     Year ended December 31,                   
                                                          
                ---------------------------------------------------------------
                    1996         1995         1994         1993        1992   
                -----------  -----------  ------------  -----------  ----------

Total income     $8,187,202  $10,007,275  $10,366,096   $10,016,645 $ 9,112,704
Provision for
  investment
  property
  write-downs          None         None    6,700,000          None   3,400,000
Loss before 
  gains on sales
  of properties
  and extraordinary
  item            (388,289)    (436,493)  (7,389,060)   (1,075,433) (5,549,632)
Net income                                                         
  (loss)          8,986,361    (975,964)  (7,389,060)   (1,075,433) (4,989,632)
Net income (loss)
  per Limited 
  Partnership 
  Interest           155.88      (16.93)     (128.17)       (18.65)     (86.55)
Total assets     22,779,071   52,642,536   50,448,385    57,538,005  59,087,119
Mortgage notes
  payable        16,803,395   33,824,504   29,854,081    29,560,964  29,657,223
Distributions per
  Limited Partner-
  ship Interest (A)  389.62        12.31         None          None        None

(A)  These amounts include a distribution of original capital of $367.81 per
Limited Partnership Interest for 1996.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------

Operations
----------

Summary of Operations
---------------------

During 1996, Balcor Current Income Fund-85 A Real Estate Limited Partnership
(the "Partnership") sold the El Dorado Hills Apartments and the Willow Lawn
Self-Storage Facility and recognized significant gains on these sales which
resulted in net income during 1996 as compared to a net loss during each of
1995 and 1994. During 1994, the Partnership determined that the asset value of
the American Way Mall had been impaired. Accordingly, the Partnership
recognized a provision for investment property write-down which contributed to
the net loss generated by the Partnership during 1994. Further discussion of
the Partnership's operations are summarized below.

1996 Compared to 1995
---------------------

Rental and service income decreased in 1996 as compared to 1995 primarily due
to the sales of El Dorado Hills Apartments and Willow Lawn Self-Storage
Facility in August 1996 and a decrease in occupancy at American Way Mall.

Interest expense on mortgage notes payable decreased in 1996 as compared to
1995 due to the sale of El Dorado Hills Apartments and due to lower interest
rates as a result of the 1995 refinancing described below. In September 1995,
the Partnership refinanced the mortgage loan secured by the Providence Square
Apartments, Storage USA of Norcross and Willow Lawn self-storage facilities.
The Partnership obtained a new mortgage loan secured by the Providence Square
Apartments, which carried a lower interest rate than the prior financing.  

Depreciation expense decreased in 1996 as compared to 1995 due to the sales of
El Dorado Hills Apartments and Willow Lawn Self-Storage Facility.

Amortization of deferred expenses decreased in 1996 as compared to 1995 due to
the sale of El Dorado Hills Apartments and due to the 1995 refinancing.

Real estate tax expense decreased during 1996 as compared to 1995 due to the
sales of El Dorado Hills Apartments and Willow Lawn Self-Storage Facility and
due to a reduction in the assessed value of American Way Mall received from the
taxing authority in the second quarter of 1996.

Property management fees decreased in 1996 as compared to 1995 due to the sales
of El Dorado Hills Apartments and Willow Lawn Self-Storage Facility.

Administrative expenses decreased in 1996 as compared to 1995 due to lower
portfolio management, professional and legal fees relating to the unsuccessful
sale negotiations for American Way Mall in 1995.
<PAGE>
The Partnership sold the El Dorado Hills Apartments and the Willow Lawn
Self-Storage Facility and recognized gains on the sales of these properties
totaling $9,666,645 in 1996. 
 
In connection with the sale of El Dorado Hills Apartments, the Partnership
wrote off the remaining unamortized deferred expenses in the amount of
$291,995. This amount was recognized as an extraordinary item and is classified
as debt extinguishment expense in 1996. During 1995, the first mortgages
collateralized by El Dorado Hills and Providence Square apartment complexes and
the Storage USA at Norcross and Willow Lawn self-storage facilities were
refinanced, and prepayment penalties of $490,747 were incurred. In conjunction
with the refinancing of the Partnership's mortgage loans, the remaining
unamortized deferred expenses of $48,724 relating to the previous loans were
written off. These amounts were recognized as an extraordinary item and
classified as debt extinguishment expenses in 1995.

1995 Compared to 1994
---------------------

Rental and service income decreased during 1995 as compared to 1994 primarily
as a result of a decrease in occupancy at American Way Mall. The lower
occupancy at American Way Mall resulted in overall decrease of approximately
$809,000 in rental income which was partially offset by an increase of
approximately $321,000 in rental income at Providence Square Apartments, due to
increased average rental rates and occupancy.

Increased cash available for short-term investment, primarily from the net
proceeds received in connection with the Partnership's mortgage loan
refinancings, and higher average interest rates were the primary reasons for an
increase in interest income on short-term investments during 1995 as compared
to 1994.

During the latter part of 1994, the Partnership determined that the value of
the American Way Mall had been impaired. As a result, the property was written
down to the Partnership's best estimate of the property's fair value, and a
$6,700,000 provision for investment property write-down was recognized in 1994.
Due to the property write-down recognized in 1994 on American Way Mall,
depreciation expense decreased in 1995 as compared to 1994.

The Partnership refinanced its mortgage loans during 1995 and the fees
associated with the refinancing are being amortized over the term of the new
mortgage loans. Since the terms of the new mortgage loans were longer than the
terms of the prior mortgage loans, amortization of deferred expenses decreased
during 1995 as compared to 1994.

Due to the completion of the repair and renovation program at the Providence
Square Apartments, property operating expense decreased in 1995 as compared to
1994.

Real estate tax expense increased during 1995 as compared to 1994 due to an
increase in the tax rates at the American Way Mall and refunds of 1992 and 1993
real estate taxes received in 1994 resulting from a reduction in the assessed
value of the El Dorado Hills apartment complex.
<PAGE>
Administrative expense increased during 1995 as compared to 1994 due to
increases in accounting fees and additionally, legal and professional fees
relating primarily to the potential sale of American Way Mall.

Liquidity and Capital Resources
-------------------------------

The cash position of the Partnership decreased by approximately $2,966,000 as
of December 31, 1996 when compared to December 31, 1995 primarily due to the
distribution of cash reserves and proceeds from the August 1996 property sales.
In 1996, the Partnership received cash totaling approximately $1,604,000 from
its operating activities which consisted primarily of cash flow generated from
property operations which was partially offset by the payment of administrative
expenses. The Partnership also received cash of approximately $17,452,000 from
investing activities consisting of proceeds received from the sales of the El
Dorado Hills Apartments and Willow Lawn Self-Storage Facility. The Partnership
used cash of approximately $22,021,000 to fund its financing activities which
consisted primarily of the payment of distributions of approximately
$22,237,000 to Limited Partners.  

The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments, unless otherwise indicated. A deficit
is considered significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments where applicable. Providence Square Apartments is the only property
that had underlying debt at December 31, 1996, and El Dorado Hills Apartments
had underlying debt prior to its sale in August 1996. During  1996 and 1995,
the Providence Square Apartments and the Storage USA at Norcross Self-Storage
Facility generated positive cash flow after applicable debt service payments.
The American Way Mall, which does not have underlying debt, generated a
significant cash flow deficit during 1996 as compared to a marginal cash flow
deficit during the same period in 1995 due to lower rental and service income
resulting from lower occupancy. The El Dorado Hills Apartments and the Willow
Lawn Self-Storage Facility, which were sold in August 1996, both generated
positive cash flow in 1995, and during 1996 prior to their sale. As of December
31, 1996, the occupancy rates at the Providence Square Apartments, Storage USA
of Norcross Self-Storage Facility and American Way Mall were 91%, 78% and 31%,
respectively. These properties were sold in 1997.  

As discussed below, during 1996, the Partnership sold the El Dorado Hills
Apartments and the Willow Lawn Self-Storage Facility and during 1997, sold its
remaining properties, the American Way Mall, Providence Square Apartments and
Storage USA of Norcross Self-Storage Facility. A majority of the proceeds from
the sales will be distributed to Limited Partners in 1997. The Partnership will
retain a portion of the cash to satisfy obligations of the Partnership as well
as establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exists or may arise. Such
contingencies may include legal and other fees stemming from litigation
<PAGE>
involving the Partnership including, but not limited to, the lawsuit discussed
in Item 3 "Legal Proceedings". In the absence of any such contingency, the
reserves will be paid within twelve months of the last property sale. In the
event a contingency arises, reserves may be held by the Partnership for a
longer period of time.

In August 1996, the Partnership sold the  El Dorado Hills Apartments for
$29,350,000. The purchaser of the El Dorado Hills Apartments took title subject
to the existing first mortgage loan in the amount of $16,771,749. From the
proceeds of the sale, the Partnership paid $707,859 in selling costs. The
remainder of the proceeds were distributed as a special distribution to the
Limited Partners in October 1996. See Note 10 of Notes to Financial Statements
for additional information.

In August 1996, the Partnership sold the Willow Lawn Storage Facility in an all
cash sale for $5,603,470. From the proceeds of the sale, the Partnership paid
$21,770 in selling costs. The remainder of the proceeds were distributed as a
special distribution to Limited Partners in October 1996. See Note 10 of Notes
to Financial Statements for additional information.

In January 1997, the Partnership sold the American Way Mall in an all cash sale
for $5,500,000. From the proceeds of the sale, the Partnership paid $204,082 in
selling costs. The remainder of the available proceeds will be distributed to
the Limited Partners in 1997. See Note 14 of Notes to the Financial Statements
for additional information.

In February 1997, the Partnership sold the Providence Square Apartments and the
personal property located thereon for a net price of $25,010,000. The purchaser
of the property took title subject to the existing first mortgage loan in the
amount of $16,789,620. From the proceeds of the sale, the Partnership paid
$751,659 in selling costs. Pursuant to the terms of the sale, $250,000 of the
proceeds will be retained by the Partnership until May 1997. A majority of the
remaining available proceeds will be distributed to the Limited Partners in
1997. See Note 14 of Notes to the Financial Statements for additional
information.

In February 1997, the Partnership sold the Storage USA of Norcross Self-Storage
Facility in an all cash sale for $3,250,000. From the proceeds of the sale, the
Partnership paid $24,803 in selling costs. The remainder of the available
proceeds will be distributed to the Limited Partners in 1997. See Note 14 of
Notes to the Financial Statements for additional information.

The Partnership made distributions totaling $389.62 and $12.31 per Interest in
1996 and 1995, respectively. See Statement of Partner's Capital for additional
information. Distributions were comprised of $21.81 per Interest of Net Cash
Receipts and $367.81 per Interest of Net Cash Proceeds in 1996 and, $12.31 per
Interest of Net Cash Receipts in 1995. 

In January 1997, the Partnership made a distribution of $240,650 ($4.22 per
Interest) to the holders of Limited Partnership Interests representing a
quarterly distribution of Net Cash Receipts. Including the January 1997
<PAGE>
distribution, Limited Partners have received distributions of Net Cash Receipts
of $173.34 and Net Cash Proceeds of $382.81, totaling $556.15 per $1,000
Interest. In light of results to date, the General Partner does not anticipate
that investors will recover all of their original investment.

Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.

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

See Index to Financial Statements and Schedule in this Form 10-K.

The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.

The net effect of the differences between the financial statements and the tax
returns is summarized as follows:


                         December 31, 1996         December 31, 1995    
                      -----------------------   -------------------------
                      Financial        Tax       Financial        Tax
                      Statements     Returns    Statements      Returns 
                      ----------    ---------   ----------     ---------

Total assets         $22,779,071   $14,575,700  $52,642,536  $51,594,818

Partners' capital
  accounts (deficit):
    General Partner     (153,527)     (125,316)    (243,391)      33,943
    Limited Partners   5,355,042    11,211,506   18,695,717   17,393,870

Net (loss) income:
  General Partner         89,864      (159,259)      (9,759)      91,956
  Limited Partners     8,896,497    16,054,808     (966,205)  (1,611,892)

  Per Limited Part-
    nership Interest       155.88       281.30       (16.93)       (28.24)

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

On September 14, 1995 the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995.  The General Partner
of the Registrant approved the change in auditors.
<PAGE>
The reports of Ernst & Young LLP on the Registrant's financial statements for
each of the two fiscal years ended December 31, 1994 did not contain an 
adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.

In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
<PAGE>
                                   PART III

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

(a) Neither the Registrant nor Balcor Current Income Partners-85, its General
Partner, has a Board of Directors.

(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:


     TITLE                         OFFICERS

Chairman, President and Chief
   Executive Officer               Thomas E. Meador
Senior Vice President              Alexander J. Darragh
Senior Vice President              James E. Mendelson
Senior Vice President              John K. Powell, Jr.
Managing Director, Chief           Jayne A. Kosik
   Financial Officer, Treasurer
   and Assistant Secretary


Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman, President
and Chief Executive Officer and has responsibility for all ongoing day-to-day
activities at Balcor. He is a Director of The Balcor Company. He is also Senior
Vice President of American Express Company and is responsible for its real
estate operations worldwide. Prior to joining Balcor, Mr. Meador was employed
at the Harris Trust and Savings Bank in the commercial real estate division
where he was involved in various lending activities. Mr. Meador received his
M.B.A. degree from the Indiana University Graduate School of Business.

Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.

James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for
Balcor's property sales activities. He also has supervisory responsibility for
Balcor's accounting, financial, treasury, investor services and investment
administration functions. From 1989 to 1995, Mr. Mendelson was Vice President -
Transaction Management and Vice President - Senior Transaction Manager and had
responsibility for various asset management matters relating to real estate
investments made by Balcor, including negotiations for the restructuring of
mortgage loan investments. Mr. Mendelson received his M.B.A. degree from the
University of Chicago.
<PAGE>
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He received a Master of Planning degree from the University of
Virginia. Mr. Powell has been designated a Certified Real Estate Financier by
the National Society for Real Estate Finance and is a full member of the Urban
Land Institute.

Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Managing Director of The Balcor
Company. Ms. Kosik is a Certified Public Accountant.
 
(d) There is no family relationship between any of the foregoing officers.

(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.

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

The Registrant paid $1,390 in 1996 with respect to one of the executive
officers and directors of Balcor Current Income Partners-85, the General
Partner. The Registrant has not paid and does not propose to pay any
remuneration to the remaining executive officers and directors of the General
Partner. Certain of the remaining officers receive compensation from The Balcor
Company (but not from the Registrant) for services performed for various
affiliated entities, which may include services performed for the Registrant.
However, the General Partner believes that any such compensation attributable
to services performed for the Registrant is immaterial to the Registrant. See
Note 9 of Notes to Financial Statements for the information relating to
transactions with affiliates.

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

(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.

(b) Balcor Current Income Partners-85 and its officers and partners own as a
group the following Limited Partnership Interests of the Registrant:

                                  Amount
                               Beneficially
         Title of Class            Owned       Percent of Class
         --------------        -------------   ----------------
         Limited Partnership
          Interests            158 Interests     Less than 1%
<PAGE>
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.

(c) The Registrant is not aware of any arrangements, the operation of which
may result in a change of control of the Registrant.


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

(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.

See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.

(c) No management person is indebted to the Registrant.

(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
                                    PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
-------------------------------------------------------------------------

(a)
(1 & 2) See Index to Financial Statements and Schedule in this Form 10-K.

(3) Exhibits:

(3) Amended and Restated Agreement and Certificate of Limited Partnership,
previously filed as Exhibit 3 to Amendment No. 5 to the Registrant's
Registration Statement on Form S-11 dated August 16, 1985 (Registration No.
2-95910), is hereby incorporated herein by reference.

(4) Amended and Restated Form of Subscription Agreement set forth as
Exhibit 4.1 to Amendment No. 5 to the Registrant's Registration Statement on
Form S-11 dated August 16, 1985 (Registration No. 2-95910), and Form of
Confirmation regarding Interests in the Partnership set forth as Exhibit 4.2 to
the Registrant's Report on Form 10-Q for the quarter ended September 30, 1992  
are incorporated herein by reference.

(10)(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
El Dorado Hills Apartments previously filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated June 7, 1996 is incorporated herein by
reference.

(ii) First Amendment to Agreement of Sale relating to the sale of El Dorado
Hills Apartments previously filed as Exhibit (10)(a)(ii) to the Partnership's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated herein by reference.

(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of El Dorado Hills Apartments previously filed as Exhibit (10)(a)(iii)
to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, is incorporated herein by reference.

(b)(i) Agreement of Sale and attachment thereto relating to the sale of the
American Way Mall previously filed as Exhibit 2(b) to the Registrant's Current
Report on Form 8-K dated June 7, 1996, is incorporated herein by reference.

(ii) First Amendment to Agreement of Sale relating to the sale of the American
Way Mall previously filed as Exhibit (10)(b)(ii) to the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, is incorporated herein
by reference.

(iii) Second Amendment to Agreement of Sale relating to the sale of the
American Way Mall previously filed as Exhibit (99)(b) to the Registrant's
Current Report on Form 8-K dated September 26, 1996, is incorporated herein by
reference.

(iv) Third Amendment to Agreement of Sale relating to the sale of American Way
Mall, Fairfield, New Jersey, is attached hereto.
<PAGE>
(v) Fourth Amendment to Agreement of Sale relating to the sale of American Way
Mall, Fairfield, New Jersey, is attached hereto.

(c)(i) Agreement of Sale and attachment thereto relating to the sale of
Providence Square Apartments previously filed as Exhibit (2)(a) to the
Registrant's Current Report on Form 8-K dated September 26, 1996 is
incorporated herein by reference.

(ii) Agreement relating to the sale of Providence Square Apartments, Charlotte,
North Carolina, previously filed as Exhibit (2)(b) to the Registrant's Current
Report on Form 8-K dated September 26, 1996 is incorporated herein by
reference.

(iii) Amendment No. 1 to Agreement of Sale relating to the sale of Providence
Square Apartments, Charlotte, North Carolina, previously filed as Exhibit (2)  
to the Registrant's Current Report on Form 8-K dated September 26, 1996 is
incorporated herein by reference.

(iv) Letter Agreement relating to the sale of Providence Square Apartments,
Charlotte, North Carolina, previously filed as Exhibit (2)(d) to the
Registrant's Current Report on Form 8-K dated September 26, 1996 is
incorporated herein by reference.

(v) Amendment No. 2 to Agreement of Sale relating to the sale of Providence
Square Apartments, Charlotte, North Carolina, is attached hereto.

(vi) Letter dated December 17, 1996 relating to the sale of Providence Square
Apartments, Charlotte, North Carolina, is attached hereto.

(vii) Amendment No. 3 to Agreement of Sale relating to the sale of Providence
Square Apartments, Charlotte, North Carolina, is attached hereto.

(16) Letter from Ernst & Young L.L.P. dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit to
the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission File
No. 0-14352) is hereby incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.

(99)(a)(i)Third Amendment to Agreement of Sale relating to the sale of Storage
USA of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(ii) Fourth Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(iii) Fifth Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(iv) Sixth Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(v) Seventh Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.
<PAGE>
(vi) Eighth Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(vii) Ninth Amendment to Agreement of Sale relating to the sale of Storage USA
of Norcross Self-Storage Facility, Norcross, Georgia, is attached hereto.

(b) Reports on Form 8-K: A Current Report on Form 8-K dated September 26, 1996
was filed reporting the execution of contracts for the sale of Providence
Square Apartments, Charlotte, North Carolina, and Storage USA of Norcross
Self-Storage Facility, Norcross, Georgia, and the extension of the closing date
of the sale of American Way Mall, Fairfield, New Jersey.
<PAGE>
SIGNATURES


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

                         BALCOR CURRENT INCOME FUND-85
                         A REAL ESTATE LIMITED PARTNERSHIP


                         By:  /s/ Jayne A. Kosik
                             -----------------------------------
                             Jayne A. Kosik
                             Managing Director and Chief
                             Financial Officer (Principal Accounting
                             Officer) of Balcor Current
                             Income Partners-85, the General Partner

Date: March 26, 1997
      --------------


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

       Signature                     Title                       Date    
---------------------   -------------------------------      ------------

                         President and Chief Executive
                         Officer (Principal Executive
                         Officer) of Balcor Current Income
/s/ Thomas E. Meador     Partners-85, the General Partner    March 26, 1997
--------------------                                        ---------------
  Thomas E. Meador

                         Managing Director and Chief
                         Financial Officer (Principal
                         Accounting Officer) of Balcor
                         Current Income Partners-85, 
/s/ Jayne A. Kosik       the General Partner                 March 26, 1997
--------------------                                       ---------------
   Jayne A. Kosik
<PAGE>
        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE



Report of Independent Accountants

Report of Independent Auditors

Financial Statements:

Balance Sheets, December 31, 1996 and 1995

Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994

Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994

Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994

Notes to Financial Statements

Schedule:

III - Real Estate and Accumulated Depreciation, as of December 31, 1996

Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Balcor Current Income Fund-85
A Real Estate Limited Partnership:

We have audited the accompanying balance sheets of Balcor Current Income
Fund-85 A Real Estate Limited Partnership (An Illinois Limited Partnership) as
of December 31, 1996 and 1995 and the related statements of partners' capital,
income and expenses, and cash flows for each of the two years in the period
ended December 31, 1996. We have also audited the accompanying financial
statement schedule. These financial statements and the financial statement
schedule are the responsibility of the Partnership's management.  Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Current Income Fund-85
A Real Estate Limited Partnership at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon disposition of all its
interests in real estate. On February 26, 1997, the Partnership disposed of its
remaining real estate asset. Upon resolution of the litigation described in
Note 13 to the financial statements, the Partnership intends to cease
operations and dissolve.

                              COOPERS & LYBRAND L.L.P.



Chicago, Illinois
March 20, 1997
<PAGE>
                        REPORT OF INDEPENDENT AUDITORS

To the Partners of
Balcor Current Income Fund-85
A Real Estate Limited Partnership:

We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Current Income Fund-85 A Real Estate Limited
Partnership (An Illinois Limited Partnership) for the year ended December 31,
1994. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Balcor
Current Income Fund-85 A Real Estate Limited Partnership for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.






                                        ERNST & YOUNG LLP




Chicago, Illinois
March 1, 1995
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                          December 31, 1996 and 1995

                                    ASSETS

                                                  1996            1995
                                             -------------   -------------
Cash and cash equivalents                    $  2,509,984    $  5,475,539
Escrow deposits                                   416,773         909,293
Prepaid expenses                                   54,726          35,463
Accounts and accrued interest receivable          102,578         157,490
Deferred expenses, net of accumulated
  amortization of $56,916 in 1996 and
  $23,383 in 1995                                 261,816         631,343
                                             -------------   -------------
                                                3,345,877       7,209,128
                                             -------------   -------------
Investment in real estate:
  Land                                          3,440,509      10,567,930
  Buildings and improvements                   29,537,388      58,506,072
                                             -------------   -------------
                                               32,977,897      69,074,002
  Less accumulated depreciation                13,544,703      23,640,594
                                             -------------   -------------
Investment in real estate, net of
  accumulated depreciation                     19,433,194      45,433,408
                                             -------------   -------------
                                             $ 22,779,071    $ 52,642,536
                                             =============   =============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                             $    291,536    $     61,352
Due to affiliates                                  97,071          23,216
Other liabilities                                 294,801          23,314
Security deposits                                  90,753         257,824
Mortgage notes payable                         16,803,395      33,824,504
                                             -------------   -------------
    Total liabilities                          17,577,556      34,190,210
                                             -------------   -------------
Commitments and contingencies

Limited Partners' capital (57,074
  Interests issued and outstanding)             5,355,042      18,695,717
General Partner's deficit                        (153,527)       (243,391)
                                             -------------   -------------
    Total partners' capital                     5,201,515      18,452,326
                                             -------------   -------------
                                             $ 22,779,071    $ 52,642,536
                                             =============   =============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                        STATEMENTS OF PARTNERS' CAPITAL
             for the years ended December 31, 1996, 1995 and 1994


                                    Partners' Capital (Deficit) Accounts
                                 ------------- ------------- -------------
                                                  General       Limited
                                     Total        Partner       Partners
                                 ------------- ------------- -------------

Balance at December 31, 1993     $ 27,519,931  $   (159,741) $ 27,679,672

Net loss for the year
  ended December 31, 1994          (7,389,060)      (73,891)   (7,315,169)
                                 ------------- ------------- -------------
Balance at December 31, 1994       20,130,871      (233,632)   20,364,503

Cash distribution (A)                (702,581)                   (702,581)

Net loss for the year
  ended December 31, 1995            (975,964)       (9,759)     (966,205)
                                 ------------- ------------- -------------
Balance at December 31, 1995       18,452,326      (243,391)   18,695,717

Cash distributions (A)            (22,237,172)                (22,237,172)

Net income for the year
  ended December 31, 1996           8,986,361        89,864     8,896,497

                                 ------------- ------------- -------------
Balance at December 31, 1996     $  5,201,515  $   (153,527) $  5,355,042
                                 ============= ============= =============



(A) Summary of cash distributions paid per Interest:

                                       1996          1995
                                  ------------  ------------
                   First Quarter       $47.31          None
                  Second Quarter        27.50          None
                   Third Quarter         5.00          None
                  Fourth Quarter       309.81        $12.31


The accompanying notes are an integral part of the financial statements.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
             for the years ended December 31, 1996, 1995 and 1994


                                      1996          1995          1994
                                 ------------- ------------- -------------
Income:
  Rental and service             $  7,937,839  $  9,774,233  $ 10,261,850
  Interest on short-term
    investments                       249,363       233,042       104,246
                                 ------------- ------------- -------------
    Total income                    8,187,202    10,007,275    10,366,096
                                 ------------- ------------- -------------

Expenses:
  Interest on mortgage
    notes payable                   2,112,567     2,893,638     3,018,612
  Depreciation                      1,443,018     1,749,574     2,015,073
  Amortization of deferred
    expenses                           77,532       152,423       182,173
  Property operating                3,406,567     3,715,619     4,231,189
  Real estate taxes                   700,127       931,134       690,010
  Property management fees            399,491       492,664       533,154
  Administrative                      436,189       508,716       384,945
  Provision for investment
    property writedown                                          6,700,000
                                 ------------- ------------- -------------
    Total expenses                  8,575,491    10,443,768    17,755,156
                                 ------------- ------------- -------------
Loss before gains on sales of 
  properties and extraordinary
  item                               (388,289)     (436,493)   (7,389,060)

Gains on sales of properties        9,666,645
                                 ------------- ------------- -------------
Income (loss) before extraordinary
  item                              9,278,356      (436,493)   (7,389,060)

Extraordinary item:
  Debt extinguishment expenses       (291,995)     (539,471)
                                 ------------- ------------- -------------
Net income (loss)                $  8,986,361  $   (975,964) $ (7,389,060)
                                 ============= ============= =============
Income (loss) before extraordinary
  item allocated to General 
  Partner                        $     92,784  $     (4,365) $    (73,891)
                                 ============= ============= =============
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
             for the years ended December 31, 1996, 1995 and 1994
                                  (Continued)


Income (loss) before extraordinary
  item allocated to Limited
  Partners                       $  9,185,572  $   (432,128) $ (7,315,169)
                                 ============= ============= =============
Income (loss) before extraordinary
  item per Limited Partnership
  Interest (57,074 issued
  and outstanding)               $     160.94  $      (7.57) $    (128.17)
                                 ============= ============= =============

Extraordinary item allocated
  to General Partner             $     (2,920) $     (5,394)         NONE
                                 ============= ============= =============
Extraordinary item allocated
  to Limited Partners            $   (289,075) $   (534,077)         NONE
                                 ============= ============= =============
Extraordinary item per Limited
  Partnership Interest (57,074
  issued and outstanding)        $      (5.06) $      (9.36)         NONE
                                 ============= ============= =============
Net income (loss) allocated to 
  General Partner                $     89,864  $     (9,759) $    (73,891)
                                 ============= ============= =============
Net income (loss) allocated to 
  Limited Partners               $  8,896,497  $   (966,205) $ (7,315,169)
                                 ============= ============= =============
Net income (loss) per Limited
  Partnership Interest (57,074
  issued and outstanding)        $     155.88  $     (16.93) $    (128.17)
                                 ============= ============= =============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                           STATEMENTS OF CASH FLOWS
             for the years ended December 31, 1996, 1995 and 1994


                                      1996          1995          1994
                                 ------------- ------------- -------------
Operating activities:
  Net income (loss)              $  8,986,361  $   (975,964) $ (7,389,060)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by operating 
    activities:
      Extraordinary item:
        Debt extinguishment 
          expenses                    291,995        48,724
      Gains on sales of properties (9,666,645)
      Depreciation of properties    1,443,018     1,749,574     2,015,073
      Amortization of deferred
        expenses                       77,532       152,423       182,173
      Provision for investment
        property writedown                                      6,700,000
      Net change in:
        Escrow deposits                27,480      (265,498)
        Accounts and accrued
          interest receivable          54,912        57,628       (56,505)
        Prepaid expenses              (19,263)      (35,463)
        Accounts payable              230,184       (26,645)      (11,211)
        Due to affiliates              73,855       (49,106)       19,037
        Other liabilities             271,487        23,314
        Security deposits            (167,071)      (45,290)       (1,503)
                                 ------------- ------------- -------------
  Net cash provided by
    operating activities            1,603,845       633,697     1,458,004
                                 ------------- ------------- -------------
Investing activities:
  Proceeds from sales of
    properties                     18,181,721
  Payment of selling costs           (729,629)
                                 -------------
  Net cash provided by investing
    activities                     17,452,092
                                 -------------
Financing activities:
  Distributions to
    Limited Partners              (22,237,172)     (702,581)
  Repayment of mortgage notes
    payable                                     (29,427,232)
  Principal payments on
    mortgage notes payable           (249,360)     (502,345)     (600,028)
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                           STATEMENTS OF CASH FLOWS
             for the years ended December 31, 1996, 1995 and 1994
                                  (Continued)

  Proceeds from issuance of
    mortgage notes payable                       33,900,000       893,145
  Payment of deferred expenses                     (654,726)
  Release of improvement escrows      465,040
  Funding of improvement escrows                   (643,795)
                                 ------------- ------------- -------------
  Net cash provided by or used
    in financing activities       (22,021,492)    1,969,321       293,117
                                 ------------- ------------- -------------
Net change in cash and cash
  equivalents                      (2,965,555)    2,603,018     1,751,121
Cash and cash equivalents at
  beginning of year                 5,475,539     2,872,521     1,121,400
                                 ------------- ------------- -------------
Cash and cash equivalents at
  end of year                    $  2,509,984  $  5,475,539  $  2,872,521
                                 ============= ============= =============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                         NOTES TO FINANCIAL STATEMENTS

1. Nature of the Partnership's Business:

Balcor Current Income Fund-85 A Real Estate Limited Partnership (the
"Partnership") was engaged in the operation of residential, retail and
mini-storage real estate located in various markets within the United States.
The Partnership sold its last property in February 1997.

2. Partnership Termination:

The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold the El Dorado Hills Apartments
and the Willow Lawn Self-Storage Facility and during 1997, sold its remaining
properties, the American Way Mall, Providence Square Apartments, and Storage
USA of Norcross Self-Storage Facility. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exists or may arise. Such
contingencies may include legal and other fees stemming from litigation
involving the Partnership including, but not limited to, the lawsuit discussed
in Note 13 of Notes to the Financial Statements. In the absence of any such
contingency, the reserves will be paid within twelve months of the last
property sale. In the event a contingency arises, reserves may be held by the
Partnership for a longer period of time.

3. Accounting Policies:

(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could vary from those estimates.

(b) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
                                                  Years
                                                  -----

               Buildings and improvements        27 to 30
               Furniture and fixtures               5

Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
(c) Effective January 1, 1995 the partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." Under SFAS 121, the
Partnership records its investments in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties based on the current sales price
less estimated closing costs. In the event the General Partner determines an
impairment in value has occurred, and the carrying amount of the real estate
asset will not be recovered, a provision is recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considers the method referred to above to result in a reasonable measurement of
a property's fair value, unless other factors affecting the property's value
indicate otherwise.

(d) Deferred expenses consist of mortgage loan refinancing fees which are
amortized over the terms of the respective agreements. Upon sale, any remaining
balance is recognized as debt extinguishment expense and classified as an
extraordinary item.

(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value.  Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques.  These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows.  In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, may not
be realized in immediate settlement of the instrument.  Statement No. 107 does
not apply to all balance sheet items and excludes certain financial instruments
and all non-financial instruments such as real estate from its disclosure
requirements.

(f) Cash equivalents include all highly liquid investments with an original
maturity of three months or less when purchased. 

(g) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.

(h) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and is
recognized as revenue in the period the applicable costs are incurred.

(i) A reclassification has been made to the previously reported 1994 financial
statements to conform with the classification used in 1995 and 1996. This
reclassification has not changed the 1994 results.
<PAGE>
4. Partnership Agreement:

The Partnership was organized in February 1985. The Partnership Agreement
provides for Balcor Current Income Partners-85 to be the General Partner and
for the admission of Limited Partners through the sale of up to 125,000 Limited
Partnership Interests at $1,000 per Interest, 57,074 of which were sold on or
prior to August 19, 1986, the termination date of the offering.

The Partnership Agreement provides that profits and losses will be allocated 1%
to the General Partner and 99% to the Limited Partners.

To the extent that Net Cash Receipts are available, distributions will be made
90% to the Limited Partners and 10% to the General Partner, 9% as its
Partnership management fee and 1% as its distributive share. The General
Partner's share of distributed Net Cash Receipts is subordinated to receipt by
the Limited Partners of a Cumulative Distribution of 6% through March 1988,
6.5% thereafter through March 1989 and 7% thereafter through March 1990. No
subordination of the General Partner's share of distributed Net Cash Receipts
is required after March 1990. Since Cumulative Distribution levels to the
Limited Partners specified in the Partnership Agreement were not attained, the
General Partner was required to subordinate its receipt of its share of Net
Cash Receipts of approximately $650,000 through March 1990. This amount has
been deferred and will be paid only from Net Cash Proceeds as described below.

When and as the Partnership sells or refinances its properties, the Net Cash
Proceeds resulting therefrom which are available for distribution will be
distributed only to holders of Interests until such time as holders of
Interests have received an amount equal to their Original Capital plus a 7% per
annum non-compounded Cumulative Distribution. Thereafter, if any portion of the
General Partner's share of Net Cash Receipts has been deferred as a result of
the subordination to the Cumulative Distribution, available Net Cash Proceeds
shall be distributed to the General Partner to the extent of the deferred
amount. Any remaining Net Cash Proceeds available for distribution will be
distributed 85% to the Limited Partners and 15% to the General Partner.

5. Mortgage Notes Payable:

Mortgage notes payable at December 31, 1996 and 1995 consisted of the
following:
                   Carrying     Carrying  Current Final
Property           Amount of   Amount of   Inter- Matur-  Current   Estimated
Pledged as         Notes at     Notes at    est    ity    Monthly    Balloon
Collateral         12/31/96     12/31/95    Rate   Date   Payment    Payment
------------      -----------  ----------- -------------- --------- -----------

El Dorado Hills
Apartments (A)(B)        None  $16,862,363   (B)    (B)         (B)         (B)

Providence     
Square Apart-
ments  (A)(C)     $16,803,395   16,962,141   7.53%  2002  $119,216 $15,639,631
                  -----------  -----------

  Total           $16,803,395  $33,824,504
                  ===========  ===========
<PAGE>
(A)  In September 1995, the Partnership refinanced the mortgage loan
collateralized by the El Dorado Hills Apartments and the mortgage loan
collateralized by Providence Square Apartments, Storage USA of Norcross and
Willow Lawn Self-Storage Facilities. The Partnership obtained two new mortgage
loans of $16,900,000 and $17,000,000 which are collateralized by El Dorado
Hills and Providence Square Apartments, respectively. The interest rates
decreased from 10.02% to 7.53%, the maturity dates were extended from December
1995 to October 2002 and the total monthly payments decreased from $311,038 to
$237,731. A portion of the proceeds from the new El Dorado Hills and Providence
Square loans was used to repay the existing mortgage loans of $16,039,332 and
$13,387,900, as well as prepayment penalties of $490,747.

(B) This property was sold in August 1996. See Note 10 of Notes to the
Financial Statements for additional information.

(C) This property was sold in February 1997. See Note 14 of Notes to the
Financial Statements for additional information.

The Partnership's loans described above required current monthly payments of
principal and interest.

Real estate with an aggregate carrying value of $13,708,677 at December 31,
1996 was pledged as collateral for repayment of mortgage loans.

During 1996, 1995 and 1994, the Partnership incurred and paid interest expense
on mortgage notes payable of $2,112,567, $2,893,638 and $3,018,612. 

6. Management Agreements:

The El Dorado Hills and Providence Square apartment complexes were managed by a
third-party management company. These management agreements provide for annual
fees of 5% of gross operating revenues.

American Way Mall was also managed by a third-party management company for fees
that ranged from 3% to 6% of adjusted gross operating revenues.

Willow Lawn Self-Storage Facility was managed by a third-party management
company for annual fees equal to the greater of 5% of gross operating revenues
or $12,000.

The Storage USA of Norcross Self-Storage Facility was managed by a third-party
management company for annual fees of 6% of gross operating revenues.

7. Provision for Investment Property Writedown:

The northern New Jersey retail market where the American Way Mall is located is
very competitive. During 1994 the Partnership determined that the property
needed to be reconfigured and retenanted with strong anchor tenants to compete
in the local retail market. The property was written down to the Partnership's
best estimate of the property's fair value, and a $6,700,000 provision for
investment property writedown was recognized in 1994.
<PAGE>
8. Tax Accounting:

The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1996 in the financial statements is $6,909,188 less than the
tax income of the Partnership for the same period.

9. Transactions with Affiliates:

Fees and expenses paid and payable by the Partnership to affiliates are:


                            Year Ended       Year Ended       Year Ended
                             12/31/96         12/31/95         12/31/94
                         ---------------  ---------------- ----------------
                           Paid  Payable    Paid  Payable    Paid  Payable
                         -------- ------- -------- ------- -------- -------

Property management fees     None    None     None    None $535,138    None

Reimbursement of expenses
  to the General Partner,
  at cost:
    Accounting            $15,706 $14,891  $39,422  $2,844   71,533 $28,892
    Data processing           911    None   14,844     429   30,877   8,303
    Investment processing   1,950   1,849   12,424     849    7,275   2,939
    Investor communication   None    None    7,062    None   12,205   4,929
    Legal                   9,219   8,742   17,181   1,605    8,179   3,303
    Portfolio management   76,789  71,589  147,085  17,489   59,347  23,956


The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $11,764, $55,606 and $86,566 for 1996, 1995 and 1994, respectively.

Allegiance Realty Group, Inc., an affiliate of the General Partner, managed
three of the Partnership's properties until the affiliate was sold to a third
party in November 1994.
<PAGE>
10.  Property Sales:

(a) In August 1996, the Partnership sold the  El Dorado Hills Apartments for
$29,350,000. The purchaser of the El Dorado Hills Apartments took title subject
to the existing first mortgage loan in the amount of $16,771,749. From the
proceeds of the sale, the Partnership paid $707,859 in selling costs. The basis
of the property was $22,380,642, which is net of accumulated depreciation of
$10,703,315. For financial statement purposes, the Partnership recognized a
gain of $6,261,499 from the sale of this property.

(b) In August 1996, the Partnership sold the Willow Lawn Self-Storage Facility
in an all cash sale for $5,603,470. From the proceeds of the sale, the
Partnership paid $21,770 in selling costs. The basis of the property was
$2,176,554, which is net of accumulated depreciation of $835,594. For financial
statement purposes, the Partnership recognized a gain of $3,405,146 from the
sale of this property.

11. Extraordinary Item:

(a) In August 1996, the Partnership sold the El Dorado Hills Apartments. In
connection with the sale, the Partnership wrote off the remaining unamortized
deferred financing fees in the amount of $291,995. This amount was recognized
as an extraordinary item and classified as debt extinguishment expense.

(b) As discussed in Note 5 of Notes to the Financial Statements, during
September 1995 the mortgages collateralized by El Dorado Hills and Providence
Square apartment complexes and Storage USA at Norcross and Willow Lawn
Self-Storage facilities were refinanced and prepayment penalties of $490,747
were incurred. In conjunction with the refinancing of the mortgage loans, the
remaining unamortized deferred expenses of $48,724 relating to the previous
loans were written off. These amounts were recognized as extraordinary items
and classified as debt extinguishment expenses.

12. Fair Value of Financial Instruments:

The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:

The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.

Based on borrowing rates available to the Partnership at the end of 1996 and
1995 for mortgage loans with similar terms and maturities, the fair value of
the mortgage notes payable approximates the carrying value.
<PAGE>
13. Contingency:

The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning, as well as the marketing efforts related
to the offering of the Limited Partnership Interests of the Partnership. The
defendants continue to vigorously contest this action. A plaintiff class has
not yet been certified, and no determination of the merits have been made. It
is not determinable at this time whether or not an unfavorable decision in this
action would have a material adverse impact on the financial position,
operations and liquidity of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.

14. Subsequent Events:

(a) In January 1997, the Partnership made a distribution of $240,650 ($4.22 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of Net Cash Receipts of $4.22 per Interest for the fourth quarter
of 1996. 

(b) In January 1997, the Partnership sold the American Way Mall in an all cash
sale for $5,500,000. From the proceeds of the sale, the Partnership paid
$204,082 in selling costs. For financial statement purposes, the Partnership
will recognize a gain of approximately $1,600,000 from the sale of this
property during the first quarter 1997.

(c) In February 1997, the Partnership sold the Providence Square Apartments for
$25,010,000. The purchaser of the Providence Square Apartments took title
subject to the existing first mortgage loan in the amount of $16,789,620. From
the proceeds of the sale, the Partnership paid $751,659 in selling costs. For
financial statement purposes, the Partnership will recognize a gain of
approximately $10,600,000 from the sale of this property during the first
quarter 1997.

(d) In February 1997, the Partnership sold the Storage USA of Norcross
Self-Storage Facility in an all cash sale for $3,250,000. From the proceeds of
the sale, the Partnership paid $24,803 in selling costs. For financial
statement purposes, the Partnership will recognize a gain of approximately
$1,200,000 from the sale of this property during the first quarter 1997.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

<TABLE>                SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                            as of December 31, 1996
<CAPTION>
        Col. A             Col. B          Col. C                     Col. D             
------------------------   ------- ---------------------- ---------------------------------
                                        Initial Cost              Cost Adjustments
                                       to Partnership          Subsequent to Acquisition    
                                   ---------------------- ---------------------------------
                                               Buildings              Carrying  Reduction
                           Encum-               and Im-     Improve-    Costs    of Basis
     Description           brances    Land    provements     ments      (a)       (b)   
------------------------   ------- ---------- ----------- ---------- --------- ------------
<S>                        <C>     <C>        <C>         <C>        <C>       <C>         
Providence Square
  Apts., 473 units in
  Charlotte, NC              (e)   $2,000,000 $20,026,060               $47,979
Storage USA of Norcross,
  a 586 unit self-
  storage facility in
  Norcross, GA               (e)      430,000   2,571,410                10,401  $  (187,984)
American Way Mall  
  a 140,210 sq.
  ft. shopping center
  in Fairfield, NJ           (e)    2,200,000  14,000,000  1,016,424    963,607  (10,100,000)
                                    --------- ----------- ---------- ---------- -------------
Total                              $4,630,000 $36,597,470 $1,016,424 $1,021,987 $(10,287,984)
                                   ========== =========== ========== ========== =============
</TABLE>
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

<TABLE>                  SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                         as of December 31, 1996
                                               (Continued)
<CAPTION>
       Col. A                          Col. E                     Col. F      Col. G    Col. H      Col. I    
-----------------------  ------------------------------------  ------------  ---------  ------  --------------
                               Gross Amounts at Which                                            Life Upon
                             Carried at Close of Period                                         Which Depre-
                         ------------------------------------                                    ciation in
                                      Buildings                 Accumulated    Date     Date    Latest Income
                                       and Im-       Total       Deprecia-    of Con-    Acq-     Statement
    Description             Land      provements     (c)(d)       tion(d)    struction  uired    is Computed  
-----------------------  -----------  ----------  ------------  -----------  ---------  ------  --------------
<S>                      <C>          <C>         <C>           <C>          <C>        <C>     <C>
Providence Square
  Apts., 473 units in
  Charlotte, NC (j)       $2,000,000  $20,074,039  $22,074,039   $8,365,362     (g)      11/85       (f)
Storage USA of Norcross,
  a 586 unit self-
  storage facility in
  Norcross, GA  (j)          404,549    2,419,278    2,823,827      826,251     (h)      12/86       (f)
American Way Outlet
  Mall, a 140,210 sq.
  ft. shopping center
  in Fairfield, NJ (i)     1,035,960    7,044,071    8,080,031    4,353,090    1982      12/86       (f)
                         -----------  -----------  -----------  -----------
      Total               $3,440,509  $29,537,388  $32,977,897  $13,544,703
                         ===========  ===========  ===========  ===========
</TABLE>
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             NOTES TO SCHEDULE III

(a) Consists of legal fees, appraisal fees, title costs and other related
professional fees.

(b) The carrying basis of the American Way Mall was reduced during each of 1994
and 1992 due to a permanent impairment in the value of the property. In
addition, guaranteed income earned on properties under the terms of certain
management and guarantee agreements was recorded by the Partnership as a
reduction of the basis of the property to which the guaranteed income relates.

(c) The aggregate cost of land for Federal income tax purposes is $4,762,347
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $25,281,814. The total of these is $30,044,161.

(d)                        Reconciliation of Real Estate
                           ------------------------------

                                       1996         1995         1994   
                                    ----------   ----------   ----------

Balance at beginning of year       $69,074,002  $69,074,002  $75,774,002

Deduction during the year:
  Investment property write-down                              (6,700,000)
  Cost of properties sold          (36,096,105)
                                   -----------  -----------  -----------
Balance at end of year             $32,977,897  $69,074,002  $69,074,002
                                   ===========  ===========  ===========


                  Reconciliation of Accumulated Depreciation
                  -------------------------------------------

                                       1996         1995         1994   
                                    ----------   ----------   ----------

Balance at beginning of year       $23,640,594  $21,891,020  $19,875,947

Depreciation expense for the year    1,443,018    1,749,574    2,015,073
Accumulated depreciation of  
     properties sold               (11,538,909)
                                   -----------  -----------  -----------
Balance at end of year             $13,544,703  $23,640,594  $21,891,020
                                   ===========  ===========  ===========

(e) See description of Mortgage Notes Payable in Note 5 of Notes to Financial
Statements.
<PAGE>
(f) Depreciation expense is computed based upon the following estimated useful
lives:

                                                   Years
                                                   -----

               Buildings and improvements        27 to 30
               Furniture and fixtures               5

(g) This apartment complex was completed in three phases from 1971 to 1972.

(h) Phase I was completed in November 1983 and Phase II was completed in April
1987.

(i) In January 1997, this property was sold. See Note 14 of Notes to the
Financial Statements for additional information.

(j) In February 1997, this property was sold. See Note 14 of Notes to the
Financial Statements for additional information.
<PAGE>