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, 1997
                                      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:  0-14340

                   Balcor/Colonial Storage Income Fund - 85	
            (Exact name of registrant as specified in its charter)

                Illinois                                  36-3338930	
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                   Identification No.)


     2355 Waukegan Road Suite A200 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		      

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/Colonial Storage Income Fund - 85 (the "Registrant") is a limited
partnership formed in September 1983 under the laws of the State of 
Illinois, which raised $69,229,500 from sales of Limited Partnership 
Interests.  From inception through December 1997, the Registrant's 
operations consisted exclusively of investment in and operation of income-
producing mini-warehouse facilities, and all financial information included 
in this report relates to that industry segment.
               
The principal purpose of the Registrant is to acquire, own, maintain, 
operate and lease for capital appreciation and current income, mini-
warehouse facilities offering storage space for business and personal use.  
The Registrant utilized the net offering proceeds to acquire from affiliates 
of one of the General Partners sixty-nine mini-warehouse facilities in 1985.  
Additionally, the Registrant acquired from non-affiliated entities four 
mini-warehouse facilities in 1986.  The Registrant sold one mini-warehouse 
facility each in 1989 and 1990, two facilities in 1993 and the remaining 69 
facilities in December 1997.   

The Partnership Agreement provides that the proceeds of any sale, financing, 
or refinancing of a facility will not be reinvested in new acquisitions, 
except that net proceeds may be used to purchase or finance improvements or 
additions to the Registrant's facilities.

The General Partners' current strategy is to liquidate the Registrant in the 
latter part of 1998.  In December, 1997 a majority of the Limited Partners 
approved an offer from Value Storage, Ltd. to purchase all 69 of the 
remaining mini-warehouse facilities for a purchase price of $59,000,000.  
The purchaser received a credit of $355,000 against the purchase price for 
certain repairs, environmental and title issues at some of the facilities.  
The closing occurred on December 22, 1997.  See "Item 7. Management's 
Discussion and Analysis of Financial Condition and Result of Operations- 
Liquidity and Capital Resources" for further information.

The officers, directors, and employees of Balcor Storage Partners-85 and 
Colonial Storage 85, Inc., the General Partners of the Registrant, and their 
affiliates perform certain services for the Registrant.  The Registrant 
currently has no part-time employees engaged in its operations.

The Registrant no longer has an ownership interest in any real estate.  The 
General Partner is not aware of any material potential liability relating to 
environmental issues or conditions affecting real estate formerly owned by 
the Registrant.

<PAGE>
Item 2.        Properties

As of December 31, 1997, the Registrant did not own any properties.

In the opinion of the General Partners, the Registrant has obtained 
adequate insurance coverage.

Item 3.    Legal Proceedings

The Registrant is not subject to any material pending legal proceedings,
nor were any such proceedings terminated during the fourth quarter of 1997.


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

In November 1997 the General Partners mailed to Limited Partners a consent 
solicitation relating to a special proposal from Value Storage, Ltd. for the 
sale of all of the remaining mini-warehouse facilities owned by the 
Registrant.  The consent solicitation was made pursuant to Regulation 14A 
under the Securities Exchange Act of 1934.  No meeting of the Limited 
Partners was held.  Ballots were to be tabulated on or about November 21, 
1997, subject to the right of the General Partners to extend such date.  The 
General Partners exercised such option to extend the date and ballots were 
tabulated on December 5, 1997.  The number of Limited Partnership Interests 
that voted in favor of the proposal was 141,100.4104 (50.953%) and the 
number of Limited Partner Interests that voted against the proposal was 
7,385.403 (2.667%).  Therefore, the proposal for the sale of the facilities 
was approved.
<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 the Statements of Partners' Capital, 
page F-5, and "Item 7. Management's Discussion and Analysis of Financial 
Condition and Results of Operations - Liquidity and Capital Resources."

As of December 31, 1997, the number of record holders of Limited
Partnership Interests of the Registrant was 6,571.

<PAGE>
Item 6.                       Selected Financial Data

                                        Year Ended December 31	                
                      1997        1996        1995        1994       1993	
Rental income   $  10,122,384  10,519,053  10,316,881  10,067,226  9,298,505
Interest income $     159,769     248,062     330,915     293,869    213,018
Net income      $  20,372,717   4,043,793   4,124,388   4,816,067  4,089,522

Net income per 
basic and 
diluted Limited
Partnership
Interest        $       74.43       14.46       14.74       17.22      14.62

Taxable income  $  21,148,471   4,015,081   4,693,882   4,893,600  3,930,321

Taxable income 
per Limited
Partnership
Interest        $       75.61       14.35       16.78       17.50      14.05

Cash and
cash
equivalents     $  57,910,106   4,187,645   3,643,915   4,014,486  2,834,883

Total mini-
warehouse
properties, net 
of accumulated
depreciation    $       -      41,655,334  43,428,692  44,809,932 46,050,709

Total assets    $  58,123,651  46,089,970  48,991,405  50,764,405 51,105,762

Distributions to 
Limited 
Partners        $   7,047,562   6,882,762   6,601,725   5,170,064  5,305,745

Distributions 
per Limited
Partnership
Interest        $       25.45       24.85       23.84       18.67      19.16

Properties
owned on
December 31                 -          69          69          69         69

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

Operations

Summary of Operations

The net income of Balcor/Colonial Storage Income Fund-85 (the "Partnership") 
increased significantly from 1996 to 1997 primarily due to the recognition 
of the gain on the sale of the remaining mini-warehouse facilities.  All of 
the Partnership's 69 remaining mini-warehouse facilities were sold in 
December 1997.  Net income remained relatively unchanged from 1996 as 
compared to 1995.  Except for the aforementioned sale of the facilities, no 
other material events occurred during these periods which significantly 
impacted the net income of the Partnership.  Further discussion of the 
Partnership's operations is summarized below.


1997 Compared to 1996

Due to an overall decrease in occupancy at the Partnership's mini-warehouse 
facilities as well as the sale of the facilities on December 22, 1997, 
rental income and property management fees decreased during 1997 as compared 
to 1996.  Rental income increased slightly in the West Texas region, 
decreased in the Carolina, Dallas/Fort Worth and Georgia regions and 
remained relatively unchanged in the East Texas region.

Interest income on short-term investments increased in 1997 as compared to 
1996 due to an increase in amounts available for investment primarily due to 
proceeds received in connection with the December 1997 sale of the remaining 
mini-warehouse facilities.

Interest from mortgage notes receivable ceased in 1996 due to the receipt of 
the repayment of the remaining mortgage note balances in that year.

Incentive management fees decreased for 1997 when compared to 1996 due to 
Balcor Storage Partners-85's election to forego receipt of their portion of 
incentive management fees earned during 1997.

General and administrative expenses increased for 1997 when compared to 1996 
due an increase in the allowance for uncollected receivables.  The 
Partnership is entitled to its portion of unpaid rents collected in the 
first 90 days after the sale date.  Uncollected receivables after the ninety 
day period were charged to bad debts.

1996 Compared to 1995

Due to an overall increase in rental rates at the Partnership's mini-
warehouse facilities, rental income increased during 1996 as compared to 
1995. Rental income increased slightly in the Dallas/Fort Worth, Georgia and 
Carolina regions and decreased slightly in the West Texas region.

Interest income from short term investments decreased during 1996 as 
compared to 1995 as a result of a decrease in amounts available for 
investment primarily due to the payment of the additional 3% property 
management fee and incentive management fees during the first quarter of 
1996.

Interest income from mortgage notes receivable decreased during 1996 as 
compared to 1995 due to the repayment of the outstanding mortgage notes 
during 1996.

The Limited Partners received distributions equal to 10% of Adjusted 
Original Capital for the periods April 1995 through March 1996 and April 
1996 through March 1997.  In accordance with the Partnership Agreement, the 
full 6% management fee was recognized for the twelve months ended March 31, 
1997 and 1996.  The recognition of the additional management fee was the 
primary reason property management fees increased for 1996 as compared to 
1995.

Higher payroll and supply expenses as well as professional fees and printing 
and postage costs incurred in connection with the tender offers during 1996 
resulted in an increase in general and administrative expenses for 1996 as 
compared to 1995. 


Liquidity and Capital Resources

The cash position of the Partnership increased by approximately $53,722,000 
from December 31, 1996 to December 31, 1997 primarily from cash generated 
from the sale of the Partnership's remaining mini-warehouse facilities.  The 
Partnership's cash flow provided from operating activities in 1997 of 
approximately $4,671,000 was generated primarily by the operations of the 
mini-warehouse properties and interest income earned on the Partnership's 
short-term investments, which was partially offset by administrative 
expenses. The Partnership received cash of approximately $56,168,000 from 
its investing activities consisting of the net proceeds received from the 
sale of the remaining 69 mini-warehouse facilities, which was partially 
offset by capital improvements made to the properties, which included 
painting, roofing and paving expenditures of approximately $496,000. 
Financing activities consisted of the payment of distributions to the 
Limited and General Partners totaling approximately $7,116,000. 

Accounts receivable net of the related allowance for doubtful accounts 
increased from December 31, 1996 to December 31, 1997 due primarily to the 
level and timing of collection efforts.  The timing of collection efforts 
are determined by individual state law.  There have been no changes in the 
credit terms extended to the Partnership's customers nor in the method used 
to allow for doubtful accounts.

The Partnership sold all 69 of its remaining mini-warehouse facilities on 
December 22, 1997 in an all cash sale for $59,000,000.  The purchaser 
received a credit of $355,000 against the purchase price for certain 
repairs, environmental and title issues at some of the facilities.  From the 
proceeds of the sale the Partnership paid selling costs of $1,981,364.

Pursuant to the Partnership Agreement, the General Partners are entitled to 
8% of Net Cash Receipts available for distribution, which is subordinated to 
the receipt by Limited Partners of specified distribution levels (see Note 
1(c) of Notes to Financial Statements for additional information).  Colonial 
Storage-85, Inc., a General Partner, received $227,110 in January, 1998 
($198,721 as its incentive management fee and $28,389 as its distributive 
share of Net Cash Receipts).  Balcor Storage Partners-85 elected to forego 
its share of the January 1998 distribution (a total of $227,110 of which 
$198,721 was incentive management fees and $28,389 was their distributive 
share of Net Cash Receipts).  The General Partners received $549,026 in 
January, 1997 ($480,398 as their incentive management fee and $68,628 as 
their distributive share of Net Cash Receipts). From  inception of the 
offering through December 31, 1997, the General Partners' share of Net Cash 
Receipts, which had not been deferred, totaled approximately $1,321,000 of 
which $227,110 was paid in 1998.  The General Partners are not entitled to 
receive any further amounts pursuant to the Partnership Agreement.

In January 1998, the Partnership paid $56,768,190 ($205 per Interest) to the 
Limited Partners representing the quarterly Net Cash Receipts distribution 
for the fourth quarter of 1997 and available Net Cash Proceeds from the sale 
of the mini-warehouse facilities. Limited Partners received distributions 
equal to 10% of Adjusted Original Capital for 1997 (distributions paid in 
April, July and October 1997 and January 1998).  Including the January 1998 
distribution, the Partnership has distributed to Limited Partners $437.57 
per Interest, of which $231.75 represents Net Cash Receipts and $205.82 
represents Net Cash Proceeds. 

The General Partners' current strategy is to liquidate the Partnership in 
the latter part of 1998. No further distributions are anticipated to be made 
prior to the termination of the Partnership.  After paying final partnership 
expenses, any remaining cash reserves will be distributed to Limited 
Partners. 
<PAGE>
Item 8.     Financial Statements and Supplementary Data

See Index to Financial Statements on Page F-1 of 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 information is summarized as follows:

                                December 31, 1997       December 31, 1996	
                              Financial      Tax      Financial      Tax
                              Statements    Return    Statements    Return	

Total assets                $ 58,123,651  65,836,901  46,089,970  52,569,595
Partners' capital accounts:
    General Partners        $     28,389     658,322     334,503     390,166
    Limited Partners        $ 57,680,699  64,786,877  44,118,058  51,022,418
Net (loss) income:
    General Partners        $   (237,486)    211,485      40,438      41,511
    Limited Partners        $ 20,610,203  20,936,986   4,003,355   4,109,570
    Per Limited Partnership
      Interest              $      74.43       75.61       14.46       14.84



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

There have been no changes in or disagreements with accountants on any 
matter of accounting principles, practices or financial statement 
disclosure.        
<PAGE>
                                   PART III

Item 10.    Directors and Executive Officers of the Registrant

(a)    Neither the Registrant nor Balcor Storage Partners-85, one of the
       General Partners, has a Board of Directors.

       The other General Partner, Colonial Storage 85, Inc., has a Board of
       Directors.  The sole member is James R. Pruett (see b, c, e, and f 
       below) who has been a director since the formation of Colonial 
       Storage 85, Inc.

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


       Balcor Storage Partners-85

	            TITLE                            OFFICERS	

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


	Thomas E. Meador (age 50) 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 member of the board 
       of directors 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 43) joined Balcor in September 1988 and is 
       responsible for due diligence analysis and real estate advisory 
       services for Balcor and American Express Company. Mr. Darragh received 
       masters' degrees in Urban Geography from Queen's University and in 
       Urban Planning from Northwestern University.

	
	John K. Powell Jr. (age 47) 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 is a member of the board of 
        directors of The Balcor Company.  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 40) 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 Senior Managing Director of The Balcor Company.  Ms. 
        Kosik is a Certified Public Accountant.  



       Colonial Storage 85, Inc.

            Name                                   Title	

       James R. Pruett                 President, Vice President,
                                       Secretary, Treasurer, Director



       James R. Pruett (55) received his Bachelor of Science 
       degree from McMurry College in Abilene, Texas, in 1965.  Mr. Pruett 
       developed the first Atlanta, Georgia, Colonial Self Storage 
       mini-warehouse facility in 1972.  Since that time, he has handled 
       substantially all business aspects of mini-warehouse development, 
       construction, operation, and management.  Mr. Pruett has directed 
       the site selection and development or acquisition of numerous 
       locations for mini-warehouses and office warehouses.  Mr. Pruett is 
       President and a Director of Colonial Storage Management 85, Inc.
       ("CSM-85") which manage the properties of the Registrant. 
        

       The sole director of Colonial Storage 85, Inc. is not a director in
       any company, or a director of any corporation which acts as a General
       Partner of a limited partnership with a class of securities
       Registered pursuant to Section 12 of the Securities Exchange Act of
       1934 ("the Act") or subject to the requirements of Section 15 (b) of
       the Act or any company registered as an investment company under the
       Investment Company Act of 1940 ("the Investment Act").

(d)    There is no family relationship between any of the foregoing
       officers or director.

(f)    To the best of the Registrant's knowledge, there have been no events
       under any bankruptcy act, no criminal proceedings, and no judgments
       or injunctions material to the evaluation of the ability and 
       integrity of any current director or executive officer of Colonial 
       Storage 85, Inc., Colonial Storage Management 85, Inc., or any 
       current executive officer of Balcor Storage Partners-85 during the 
       past five years.
     


<PAGE>
Item 11.    Executive Compensation

(a,b,c,
d&e)	The Registrant paid $2,591 in 1997 with respect to one of the 
        executive officers and directors of The Balcor Company.  Certain of 
        the remaining officers receive compensation from The Balcor Company 
        and Colonial Storage-85, Inc., (but not from the Registrant) for 
        services performed for various affiliated entities, which may include 
        services performed for the Registrant.  The Registrant has not paid 
        and does not propose to pay any remuneration to the remaining 
        executive officers and directors of the General Partners. However, 
        the General Partners believe that any such compensation attributable 
        to services performed for the Registrant is immaterial to the 
        Registrant.  See Note 3 of Notes to Financial Statements for the 
        information relating to transactions with affiliates.

Item 12.    Security Ownership of Certain Beneficial Owners and Management


(a)	The following entity is the sole Limited Partner which owns 
        beneficially more than 5% of the outstanding Limited Partnership 
        Interests of the Registrant.

                               Name and         Amount and
                              Address of        Nature of       Percent
                              Beneficial        Beneficial        of
       Title of Class           Owner           Ownership        Class
       Limited                 Public           30,317.28        10.95%
       Partnership             Storage, Inc.    Limited 
       Interests               Glendale,        Partnership
                               California       Interests


(b)    Balcor Storage Partners-85 and Colonial Storage 85, Inc. and its
       officers and director own as a group the following Limited 
       Partnership Interests in the Registrant:

              Title of Class         Beneficially Owned     Percent of Class
         
       Limited Partnership Interests        400                 less than 1%


       Relatives and affiliates of the officers or director of the General
       Partners do not own any additional Interests in the Registrant.

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

<PAGE>
Item 13.    Certain Relationships and Related Transactions

(a &
b)     See Note 1 of Notes to Financial Statements for information relating
       to the Partnership Agreement and the allocation of distributions and
       profits and losses.

       See Note 3 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 Schedules, and Reports on Form 8-K

(a)  (1&2)  See Index to Financial Statements on page F-1 of this Form 10-K.

     (3)    Exhibits:

            (3)    The Amended and Restated Agreement and Certificate of
                   Limited Partnership set forth as Exhibit 3 to Amendment 
                   No. 1 to the Registrant's Registration Statement Form S-11
                   dated May 14, 1985 and to Registrant's Registration
                   Statements dated September 23, 1985, and January 29, 1986 
                   (Registration No. 2-95752, No. 33-357, and No. 33-2977, 
                   respectively) are incorporated herein by reference.

            (4)    Form of Subscription Agreement previously filed as
                   Exhibit 4.1 to Amendment No. 1 to the Registrant's
                   Registration Statement on Form S-11 dated May 14, 1985 
                   and to Registrant's Registration Statement on Form S-11 
                   dated January 29, 1986 (Registration No. 2-95752, and No. 
                   33-2977, respectively) and Form of Confirmation regarding 
                   Interests in the Registrant set forth as Exhibit 4.2 to 
                   the Registrant's Report on Form 10-Q for the quarter 
                   ended June 30, 1992 (Commission File No. 0-14340) are 
                   incorporated herein by reference.

            (10)        (a)     Agreement of sale by and between Value Storage,
                                Ltd., and Balcor/Colonial Storage Income
                                Fund-85, dated as of September 4, 1997, and
                                First Amendment to Agreement of Sale dated as
                                of September 17, 1997, previously filed as
                                Exhibits 2.1 and 2.2 respectively to the
                                Registrant's Form 8-K dated September 4, 1997
                                (Commission File No. 0-14340) are incorporated
                                herein by reference.

                        (b)     Second Amendment to Agreement of Sale by and 
                                between Value Storage, Ltd. and Balcor/colonial
                                Storage Income Fund-85, dated as of October 28,
                                1997, previously filed as Exhibit 3 to
                                Registrant's Report on Form 10-Q for the quarter
                                ended September 30, 1997 (Commission File No. 0-
                                14340) is incorporated herein by reference.

                        (c)     Third Amendment to Agreement of Sale by and 
                                between Value Storage, Ltd. and Balcor/Colonial
                                Storage Income Fund-85, dated as of December 5,
                                1997 is attached hereto.

     (22)   Letter to Limited Partners dated December 10, 1997 is attached
            hereto.

     (27)   Financial Data Schedule of the Registrant for the year ended
            December 31, 1997 is attached hereto.


(b)  Reports on Form 8-K.

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


(c)  Exhibits:  See Item 14 (a)(3) above.


(d)  Financial Statement Schedules:  See Index to Financial Statements on 
     Page F-1 of this Form 10-K.

<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/COLONIAL STORAGE INCOME FUND -85

                                     By:  /s/ James R. Pruett     
                                              James R. Pruett
                                              Secretary/Treasurer (Principal 
Financial and Accounting 
Officer) of Colonial Storage 
85,Inc., a General Partner
Date:     April 15, 1998     


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		


/s/ Thomas E. Meador  President and Chief Executive Officer
Thomas E. Meador      (Principal Executive Officer) of Balcor
                      Storage Partners-85, a General Partner  April 15, 1998


/s/ Jayne A. Kosik    Senior Managing Director and Chief 
Jayne A. Kosik        Accounting and Financial Officer 
                      (Principal Accounting Officer) of 
                      Balcor Storage Partners-85, a General
                      Partner                                 April 15, 1998


/s/ James R. Pruett   President, Secretary/Treasurer and 
James R. Pruett       Director of Colonial Storage 85 Inc., 
                      a General Partner                       April 15, 1998

<PAGE>
Index to Financial Statements


                                                                       Pages

Independent Auditors' Report                                             F-2

Financial Statements:

Balance Sheets as of December 31, 1997 and 1996                          F-3

Statements of Income, years ended December 31, 1997, 1996 and 1995       F-4
               
Statements of Partners' Capital, years ended December 31, 1997, 1996 
and 1995                                                                 F-5

Statements of Cash Flows, years ended December 31, 1997, 1996 
and 1995                                                                 F-6
               
Notes to Financial Statements                                    F-7 to F-12


Schedules are omitted for the reason that they are inapplicable or
equivalent information has been included elsewhere herein.

Financial Statements and Supplementary Data

<PAGE>
                         INDEPENDENT AUDITORS' REPORT


The Partners
Balcor/Colonial Storage Income Fund - 85:

We have audited the financial statements of Balcor/Colonial Storage Income
Fund - 85 (an Illinois Limited Partnership) as listed in the accompanying
index.  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 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/Colonial Storage
Income Fund - 85 as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.  



                                              KPMG Peat Marwick LLP


Fort Worth, Texas
April 3, 1998
     
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                         (An Illinois Limited Partnership)

                                  Balance Sheets

                            December 31, 1997 and 1996

                                                1997 (note 4)       1996	
Assets
Cash and cash equivalents                        $ 57,910,106    4,187,645
Accounts receivable, net of allowance 
  for doubtful accounts of $142,219 
  and $19,068 in 1997 and 1996, respectively          145,351      122,698
Other                                                  68,194      124,293
                                                   58,123,651    4,434,636
Mini-warehouse facilities:         
  Land                                                  -       14,193,743
  Buildings                                             -       47,634,567
  Furniture, fixtures and equipment                     -        1,127,156
                                                        -       62,955,466
  Less accumulated depreciation                         -       21,300,132
    Mini-warehouse facilities, net of 
    accumulated depreciation                            -       41,655,334
                                                 $ 58,123,651   46,089,970
Liabilities and Partners' Capital
Accounts payable                                 $     99,880        -
Due to affiliates, net (note 3)                       314,683      902,658
Accrued real estate taxes                               -          302,408
Other accrued liabilities                               -           48,932
Security deposits                                       -           43,333
Deferred income                                         -          340,078
  Total liabilities                                   414,563    1,637,409
Partners' capital (276,918 Limited 
  Partnership Interests issued and 
  outstanding) (note 5)                            57,709,088   44,452,561
                                                 $ 58,123,651   46,089,970












See accompanying notes to financial statements.
<PAGE>

                     Balcor/Colonial Storage Income Fund - 85
                         (An Illinois Limited Partnership)

                               Statements of Income

                   Years ended December 31, 1997, 1996 and 1995

                                          1997         1996         1995	
Income:
   Rental                            $ 10,122,384   10,519,053   10,316,881
   Interest on short-term 
      investments                         159,769      132,236      172,464
   Interest from mortgage notes 
      receivable                            -          115,826      158,451
                                       10,282,153   10,767,115   10,647,796
Expenses:
   Property operating                   2,723,157    2,832,574    2,929,624
   Depreciation                         2,006,297    2,028,882    2,003,642
   Property management 
      fees (note 3)                       601,950      623,983      532,242
   Incentive management 
      fees (note 3)                       198,721      480,398      477,021
   General and 
      administrative (note 3)             897,921      757,485      580,879
                                        6,428,046    6,723,322    6,523,408
         Net operating income           3,854,107    4,043,793    4,124,388

Gain on sale of mini-warehouse
   facilities (note 4)                 16,518,610        -            -	

         Net income                  $ 20,372,717    4,043,793    4,124,388

Limited Partners' share of net income
($74.43, $14.46 and $14.74 per basic
 and diluted Interest for 1997, 1996 
 and 1995, respectively)             $ 20,610,203    4,003,355    4,083,144
General Partners' share of 
 net (loss) income                       (237,486)      40,438       41,244
                                     $ 20,372,717    4,043,793    4,124,388











See accompanying notes to financial statements.
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                         (An Illinois Limited Partnership)

                          Statements of Partners' Capital

                   Years ended December 31, 1997, 1996 and 1995

                                         Limited     General   
                                         Partners    Partners      Total	

Balance at December 31, 1994         $ 49,516,046     320,967    49,837,013

Net income                              4,083,144      41,244     4,124,388

Cash distributions ($23.84 per
   Limited Partner Interest)           (6,601,725)      -        (6,601,725)

Balance at December 31, 1995           46,997,465     362,211    47,359,676

Net income                              4,003,355      40,438     4,043,793

Cash distributions ($24.85 per
   Limited Partner Interest)           (6,882,762)      -        (6,882,762)

Cash distributions to 
   General Partners                         -         (68,146)      (68,146)

Balance at December 31, 1996           44,118,058     334,503    44,452,561

Net income (loss) (note 1(b))          20,610,203    (237,486)   20,372,717

Cash distributions ($25.45 per
   Limited Partner Interest)           (7,047,562)      -        (7,047,562)

Cash distributions to 
   General Partners                         -         (68,628)      (68,628)

Balance at December 31, 1997         $ 57,680,699      28,389    57,709,088












See accompanying notes to financial statements.                                
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                         (An Illinois Limited Partnership)
                             Statements of Cash Flows

                   Years ended December 31, 1997, 1996 and 1995

                                           1997        1996        1995	
Operating activities:
   Net income                         $ 20,372,717   4,043,793   4,124,388
   Adjustments to reconcile net 
     income to net cash provided 
     by operating activities:
     Depreciation                        2,006,297   2,028,882   2,003,642
     Gain on sale of mini-warehouse
        facilities (note 4)            (16,518,610)      -           -
     Net change in:
        Net accounts receivable            (22,653)     25,602     (37,310)
        Other assets                        56,099      (3,748)     32,367
        Accounts payable                    99,880      (1,503)     (2,534)
        Due to affiliates                 (587,975)     77,458     634,342 
        Accrued real estate taxes         (302,408)    (70,119)     70,519 
        Other accrued liabilities          (48,932)    (32,358)     27,096 
        Security deposits                  (43,333)    (11,408)    (21,746)
        Deferred income                   (340,078)     43,610      (3,340)
     Net cash provided by
        operating activities             4,671,004   6,100,209   6,827,424 
Investing activities:
   Proceeds from sale of mini-
      warehouse facilities (note 4)     58,645,000       -           -
   Closing costs related to sale of
      mini-warehouse 
      facilities (note 4)               (1,981,364)      -           -     
   Additions to mini-warehouse
      facilities, net                     (495,989)   (255,524)   (622,402)
   Collection of principal payments 
      on mortgage notes 
      receivable (note 2)                    -       1,649,953      26,132 
      Net cash provided by (used in)
       investing activities             56,167,647   1,394,429    (596,270)
Financing activities:
   Distributions to Limited Partners    (7,047,562) (6,882,762) (6,601,725)
   Distribution to General Partners        (68,628)    (68,146)      -	
      Net cash used in financing
       activities                       (7,116,190) (6,950,908) (6,601,725)
Net change in cash and cash 
   equivalents                          53,722,461     543,730    (370,571)
Cash and cash equivalents at
   beginning of year                     4,187,645   3,643,915   4,014,486 
Cash and cash equivalents at 
   end of year                        $ 57,910,106   4,187,645   3,643,915 
See accompanying notes to financial statements.
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                         (An Illinois Limited Partnership)

                          Notes to Financial Statements

                        December 31, 1997, 1996 and 1995

(1)     Summary of Significant Accounting Policies

        (a)	Description of Partnership

                Balcor/Colonial Storage Income Fund - 85 (the "Partnership") is
                a limited partnership formed in September 1983.  The 
                Partnership Agreement provides that Balcor Storage Partners-85 
                (an Illinois general partnership) and Colonial Storage 85, Inc. 
                (a Texas corporation) are the General Partners of the 
                Partnership and provides for the admission of Limited Partners 
                through the sale of up to 320,000 Limited Partnership Interests 
                at $250 per Interest, of which 276,918 ($69,229,500) Limited 
                Partnership Interests were sold prior to the termination of the 
                offering.

                The principal purpose of the Partnership is to acquire, own, 
                maintain, operate, lease, and hold for capital appreciation and 
                current income, existing mini-warehouse facilities offering 
                storage space for business and personal use.  The Partnership 
                acquired sixty-nine mini-warehouse facilities from affiliates 
                in 1985 and four mini-warehouse facilities from non-affiliated 
                entities in 1986.  The Partnership sold four mini-warehouse 
                facilities prior to 1997.  The remaining 69 properties were 
                sold on December 22, 1997 (note 4).

        (b)	Allocation of Net Income and Profits

                The Partnership Agreement provides that net income (after a 
                deduction for any incentive management fees) from operations 
                shall be allocated 99% and 1% to the Limited Partners and 
                General Partners, respectively.

                Additionally, when a property is sold or otherwise disposed of,
                the General Partners will be allocated profits equal to the 
                greater of 1% of total profits or the amount of Net Cash 
                Proceeds distributable to the General Partners from the sale 
                (in excess of subordinated Net Cash Receipts, note 1(c)).  The 
                balance of the profits will be allocated to the Limited 
                Partners.

                For financial statement purposes, in previous years partners 
                were allocated income and loss in accordance with the profit 
                and loss percentages in the Partnership Agreement.  In order 
                for the capital accounts of the General Partners and Limited 
                Partners to appropriately reflect their respective remaining 
                economic interests as provided for in the Partnership 
                Agreement, the Limited Partners were allocated additional 
                income in 1997 for financial statement purposes.

        (c)	Cash Distributions

                Net Cash Receipts available for distribution from operations 
                shall be distributed 92% to the Limited Partners and 8% to the 
                General Partners, 7% as their partnership incentive  management 
                fee and 1% as their distributable share from operations.  
                Distributions from  operations to the General Partners are  
                subordinated to receipt by the Limited Partners of a return 
                equal to 10% on Adjusted Original Capital.

                Pursuant to the Partnership Agreement, Net Cash Proceeds from 
                sales or refinancings were to be distributed first to the 
                Limited Partners until they had received any deficiencies in 
                the aforementioned minimum cash distributions from operations.  
                Distributions to the Limited Partners were then to be made in 
                an amount equal to total Original Capital plus any deficiency 
                in a cumulative distribution of 12% of Adjusted Original 
                Capital for the period commencing approximately one year 
                following the termination of the offering.  If the receipt of 
                any portion of the General Partners' 8% share of Net Cash 
                Receipts from operations or the property management fee (note 
                3) had been deferred as a result of subordination, thereafter, 
                available Net Cash Proceeds would be distributed to the General
                Partners to the extent of such deferred amounts.  Thereafter, 
                remaining Net Cash Proceeds were to be distributed 85% to the 
                Limited Partners and 15% to the General Partners.  None of the 
                General Partners' 8% share of Net Cash Receipts which has been 
                deferred ($3.748 million as of December 31, 1997) will be paid.

        (d)	Cash and Cash Equivalents

                The Partnership considers all highly liquid investments with 
                maturities at the date of purchase of three months or less to 
                be cash equivalents.


        (e)	Mini-Warehouse Facilities

         	Costs associated with the appraisal and acquisition of mini-
                warehouse facilities were capitalized.

                The buildings, furniture, fixtures, and equipment were 
                depreciated using the straight-line method over their estimated 
                useful lives ranging from 7 to 25 years.

                Maintenance and repairs were charged to expense when incurred.  
                Expenditures for improvements were charged to the related asset 
                account.  

                The Partnership adopted the provisions of SFAS No. 121, 
                "Accounting for the Impairment of Long-Lived Assets and for 
                Long-Lived Assets to Be Disposed Of", on January 1, 1996. 
                Adoption of this Statement had no impact on the Partnership's 
                financial position, results of operations, or liquidity.

            	When properties were disposed of, the related costs and 
                accumulated depreciation were removed from the respective 
                accounts, and the gain on disposition was recognized in 
                accordance with generally accepted accounting principles.


        (f)     Income Taxes

           	Taxable income or loss of the Partnership is includable in the 
                income tax returns of the individual partners; therefore, no 
                provision for income taxes has been made in the accompanying 
                financial statements.

          	The tax bases of the Partnership's assets exceeded the amounts 
                recorded in the Financial Statements at December 31, 1997 and 
                1996, by $7,713,250 and $6,479,625, respectively.

        (g)	Use of Estimates

           	Management of the Partnership has made a number of estimates 
                and assumptions relating to the reporting of assets and 
                liabilities to prepare these financial statements in conformity
                with generally accepted accounting principles.  Actual results 
                could differ from those estimates.

       (h)     Fair Value of Financial Instruments
    
               In accordance with the reporting requirements of Statement on 
               Financial Accounting Standards No. 107, "Disclosures about Fair 
               Value of Financial Instruments", the Partnership calculates the 
               fair value of its financial instruments and includes this 
               additional information in the notes to the financial statements 
               when the fair value is different than the carrying value of 
               those financial instruments.  When the fair value reasonably 
               approximates the carrying value, no additional disclosure is 
               made.
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                        (An Illinois Limited Partnership)

                          Notes to Financial Statements


       (i)     Earnings Per Share 

               In February 1997, the Financial Accounting Standards Board 
               issued Statement of Financial Accounting Standards (SFAS) 128 
               "Earnings per Share", which was required to be adopted for 
               financial statements issued for annual or interim periods after 
               December, 15, 1997.  The Partnership adopted this standard 
               which requires a change in the presentation of basic and 
               diluted earnings per share "EPS" and to restate EPS for all 
               periods presented.  Because there are no dilutive Partnership 
               Interests, basic and dilutive Parnership Interests are the 
               same.  Therefore, adoption of SFAS 128 did not have an impact 
               on the Partnership's financial statements.

(2)    Mortgage Notes Receivable

       The Partnership had three notes resulting from the sale of mini-
       warehouse facilities in 1993, 1990 and 1989.  Two notes bore interest 
       rates of 10% per annum with monthly principal and interest payments 
       based on a 25-year amortization schedule and final balloon payments 
       in 1996 and 1998, respectively.  The other note bore an interest rate 
       of 8.5% per annum with monthly principal and interest payments based 
       on a 25-year amortization schedule and a final balloon payment in 
       1998.  In September, 1996 the notes were repaid in full in the amount 
       of $1,628,650.

(3)    Transactions With Affiliates

       The Partnership had an agreement with Colonial Storage Management 85, 
       Inc., an affiliate of Colonial Storage 85, Inc., a General Partner, 
       to supervise and direct the business and affairs associated with the 
       mini-warehouse facilities for a fee of 6% of the gross revenues of 
       the facilities.  One-half of this property management fee was 
       subordinated to receipt by the Limited Partners of a Special 
       Distribution of 8% during the first twelve month period after 
       termination of the offering, 9% during the second twelve month period 
       and 10% during each twelve month period thereafter.  None of the 
       deferred property management fees ($1,991,890 as of December 31, 
       1997) will be paid.   

       The Limited Partners received distributions equal to 10% of Adjusted 
       Original Capital for the period April 1995 through March 1996, the 
       period April 1996 through March 1997 and the period April 1997 
       through March 1998.  Consequently, in January 1998,January 1997 and 
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                        (An Illinois Limited Partnership)

                          Notes to Financial Statements

       February 1996 the Partnership paid Colonial Storage Management 85, 
       Inc. $223,530, $234,057 and $228,837, respectively, representing the 
       amount necessary to meet the 6% property management fee.  Colonial 
       Storage-85, Inc., a General Partner, received $227,110 ($198,721 as 
       incentive management fees and $28,389 as its distributive share of 
       Net Cash Receipts)in January 1998. Balcor Storage Partners-85, a 
       General Partner, has elected to forego its share of the January 1998 
       distribution (a total of $227,110 of which $198,721 was incentive 
       management fees and $28,389 was their distributive share of Net Cash 
       Receipts ).  The General Partners received $549,026 ($480,398 as 
       incentive management fees and $68,628 as their distributive share of 
       Net Cash Receipts) in January 1997, and $545,167 ($477,021 as 
       incentive management fees and $68,146 as their distributive share of 
       Net Cash Receipts) in February 1996. Incentive management fees have 
       been accrued at December 31, 1997 and 1996, while the General 
       Partners' distributive share of Net Cash Receipts was deducted from 
       Partners' Capital when paid.  The General Partners will not receive 
       any further distributions in accordance with the Partnership 
       Agreement.

       The Partnership charged real estate commissions due to affiliates of 
       the General Partners against the gain on sale of mini-warehouse 
       facilities in 1989, 1990 and 1993, respectively.  The Partnership 
       Agreement requires that Limited Partners receive their Original 
       Capital plus a 6% average annual return on Original Capital in order 
       for affiliates to receive commissions from the sale of the 
       Partnership's properties.  The sale of the remaining properties on 
       December 22, 1997 did not meet the requirements of the Partnership 
       Agreement.  Consequently, previously accrued real estate commissions 
       were credited against closing costs relating to the aforementioned 
       sale.  This resulted in an increase in the gain on sale of mini-
       warehouse facilities of $73,910.


       Certain general and administrative expenses are reimbursed to 
       affiliates of the General Partners to cover administrative 
       requirements of the Partnership.
<PAGE>
                     Balcor/Colonial Storage Income Fund - 85
                        (An Illinois Limited Partnership)

                          Notes to Financial Statements


       Commissions, fees, and expenses paid and payable by the Partnership 
       to affiliates for the years ended December 31, 1997, 1996 and 1995, 
       are:

                       1997                  1996                  1995	   

                  Paid     Payable      Paid     Payable      Paid   Payable

Property
 management
 fees          $ 616,881   245,024     615,969   259,955     354,727 251,941
General and
 administrative
 expenses (net)$ 608,639  (129,062)    419,375    88,395     392,417  22,328
Real estate
 commissions   $   -         -           -        73,910       -      73,910
Incentive 
 management
 fees          $ 480,398   198,721     477,021   480,398       -     477,021
 
(4)    Sale of Mini-Warehouse Facilities

       The Partnership sold all 69 of its remaining mini-warehouse 
       facilities on December 22, 1997 in an all cash sale for $59,000,000.  
       The purchaser received a credit of $355,000 against the purchase 
       price for certain repairs, environmental and title issues at some of 
       the facilities.  From the proceeds of the sale the Partnership paid 
       selling costs of $1,981,364. The Partnership's basis in 
       the properties was $40,145,026 net of accumulated depreciation of 
       $23,306,429 which resulted in a gain of $16,518,610.

(5)    Subsequent Event

       In January 1998, the Partnership paid $56,768,190 ($205.00 per 
       Interest) to the Limited Partners representing the quarterly 
       distribution of Net Cash Receipts and available Net Cash Proceeds 
       from the sale of the mini-warehouse facilities in December 1997.  
       After paying final Partnership expenses, any remaining cash will be 
       distributed to the Limited Partners.