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 0-14352
                       -------

                         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 [   ]

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 has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise.  The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.  

The Registrant utilized the net offering proceeds to acquire five real property
investments and has since disposed of all of these investments. The Partnership
Agreement provides that the proceeds of any sale or refinancing of the
Registrant's properties will not be reinvested in new acquisitions.

The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate.  During 1996, the Registrant sold two properties. During 1997, the
Registrant sold its remaining three properties, the American Way Mall,
Providence Square Apartments and Storage USA of Norcross Self-Storage Facility.
The Registrant has retained a portion of the cash from the property sales to
satisfy obligations of the Registrant as well as establish a reserve for
contingencies. 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 and costs stemming from litigation involving the Registrant
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 being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Registrant for a longer period of time.

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 7. Liquidity and Capital
Resources" for additional information. 
  
The Registrant no longer has an ownership interest in any real estate
investment.  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.

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.

Item 2. Properties
------------------
As of December 31, 1997, the Registrant did not own any properties.

In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage.
<PAGE>
See Notes to Financial Statements for other information regarding former real
estate property investments.

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

Klein, et al. vs. Lehman Brothers, Inc., et al.
-----------------------------------------------

On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors, and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third 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 Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged actions; equitable relief, including
rescission, on certain counts; punitive damages; treble damages on certain
counts; recovery from the defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated 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 1997.
<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 distributions, see "Item 7. Management's Discussion and Analysis of
Financial Conditions 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 3,740.

Item 6. Selected Financial Data
-------------------------------
      
                                     Year ended December 31,                   
                ------------------------------------------------------------
                    1997         1996         1995         1994        1993   
                -----------  -----------  ------------  -----------  ----------

Total income    $1,447,815    $8,187,202  $10,007,275   $10,366,096 $10,016,645
Provision for
  investment
  property
  write-downs         None          None         None     6,700,000        None
Income (loss) before 
  gain on sales
  of properties
  and extraordinary
  item              440,994    (388,289)    (436,493)   (7,389,060) (1,075,433)
Net income
  (loss)         13,637,528    8,986,361    (975,964)   (7,389,060) (1,075,433)
Net income (loss)
  per Limited 
  Partnership 
  Interest - Basic   
  and Diluted        237.48       155.88      (16.93)      (128.17)     (18.65)
Total assets      1,814,948   22,779,071   52,642,536    50,448,385  57,538,005
Mortgage notes
  payable              None   16,803,395   33,824,504    29,854,081  29,560,964
Distributions per
  Limited Partner-
  ship Interest (A)  298.95       389.62        12.31          None        None

(A)  These amounts include distributions of original capital of $294.73 and
$367.81 per Limited Partnership Interest during 1997 and 1996, respectively.

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

Operations
----------
<PAGE>
Summary of Operations
---------------------

Balcor Current Income Fund - 85 A Real Estate Limited Partnership (the
"Partnership") sold two properties during 1996 and its remaining three
properties during 1997. The Partnership recognized significant gains in 1997
and 1996 in connection with the sales. As a result, the Partnership recognized
net income during 1997 and 1996 as compared to a net loss during 1995. Further
discussion of the Partnership's operations is summarized below.

1997 Compared to 1996
---------------------

During the first quarter of 1997, the Partnership sold the American Way Mall,
Providence Square Apartments and Storage USA of Norcross Self-Storage Facility
and recognized gains in connection with these sales of $13,452,026. During the
third quarter of 1996, the Partnership sold the El Dorado Hills Apartments and
the Willow Lawn Self-Storage Facility and recognized gains in connection with
these sales of $9,666,645. The sales of these properties resulted in decreases
in rental and service income, interest expense on mortgage notes payable,
depreciation, amortization of deferred expenses, property operating expense,
real estate taxes and property management fees during 1997 as compared to 1996.

The Partnership recognized other income in connection with the sale of the
American Way Mall during 1997. The agreement of sale provided that, if the
purchaser transferred any portion of the property to a specified third party
prior to February 25, 1997, the Partnership would be entitled to a portion of
the net proceeds from such a transfer.  The purchaser transferred a portion of
the property and as a result, the Partnership received $421,774 in accordance
with the agreement of sale.  In addition, the Partnership received a real
estate tax refund of $136,938 for American Way Mall's 1995 real estate taxes
and a refund of prior years' insurance premiums of $20,592 relating to the
Partnership's properties. 

Administrative expenses decreased in 1997 as compared to 1996 primarily due to 
lower portfolio management and legal fees.

In connection with the February 1997 sale of Providence Square Apartments and
the August 1996 sale of the El Dorado Hills Apartments, the Partnership wrote
off the remaining unamortized deferred financing expenses in the amounts of
$255,492 and $291,995, respectively. These amounts were recognized as an
extraordinary item and classified as debt extinguishment expenses for financial
statement purposes during 1997 and 1996, respectively. 

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

Rental and service income, depreciation expense, amortization of deferred
expenses and property management fees 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. Rental and service income also decreased
due to 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. In September 1995, the Partnership
<PAGE>
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.  

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.

The Partnership incurred portfolio management, professional and legal fees in  
1995 relating to the unsuccessful sale negotiations for American Way Mall. As a
result, administrative expenses decreased in 1996 as compared to 1995.

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.

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

The cash position of the Partnership decreased by approximately $705,000 as of
December 31, 1997 when compared to December 31, 1996 primarily due to
distributions to Limited Partners which were partially offset by the net
proceeds received from the property sales. The Partnership generated cash
totaling approximately $253,000 from its operating activities which consisted
primarily of cash flow generated from property operations, interest income on
short-term investments and other income, which was partially offset by the
payment of administrative expenses and operating expenses on sold properties.
The Partnership received cash of approximately $15,990,000 from investing
activities consisting of net proceeds received from the sales of the American
Way Mall, Providence Square Apartments and Storage USA of Norcross Self-Storage
Facility. The Partnership used cash of approximately $16,948,000 to fund its
financing activities which consisted primarily of the payment of distributions
to the Limited Partners. In addition, in January 1998 the Partnership made a
distribution of $501,941 to Limited Partners from remaining available Net Cash
Proceeds.

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 two properties. During 1997, the
Partnership sold its remaining three properties, the American Way Mall,
Providence Square Apartments, and Storage USA of Norcross Self-Storage
Facility. The Partnership has retained a portion of the cash from the property
sales 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 exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation 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
<PAGE>
within twelve months of the last property sale. In the event a contingency
continues to exist or arises, reserves may be held by the Partnership for a
longer period of time.

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. In addition, the agreement of sale provided that if the
purchaser transferred any portion of the property to a specified third party
prior to February 25, 1997, the Partnership was entitled to a portion of the
net proceeds from the transfer. The purchaser transferred a portion of the
property and as a result, the Partnership received $421,774 in accordance with
the agreement of sale. The available proceeds were distributed to the Limited
Partners in April 1997. See Notes 10 and 12 of Notes to Financial Statements
for additional information.

In February 1997, the Partnership sold the Providence Square Apartments for a
sales price of $25,510,000 less a credit of $500,000 related to the personal
property for a net sales 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 $167,896 in
fees relating to the assumption of the mortgage loan by the purchaser and
$583,763 in other selling costs. Pursuant to the terms of the sale, $250,000 of
the proceeds was retained by the Partnership and was unavailable for
distribution until May 1997 at which time the funds were released in full. The
available proceeds were distributed to the Limited Partners in April 1997. See
Note 10 of Notes to 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 available proceeds were
distributed to the Limited Partners in April 1997. See Note 10 of Notes to
Financial Statements for additional information.

The Partnership made distributions totaling $298.95, $389.62 and $12.31 per
Interest in 1997, 1996 and 1995, respectively.  See Statement of Partners'
Capital for additional information.  Distributions were comprised of $4.22 per
Interest of Net Cash Receipts and $294.73 per Interest of Net Cash Proceeds in
1997, $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 1998, the Partnership made a distribution of $501,941 ($8.79 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of remaining available Net Cash Proceeds. Including the January
1998 distribution, Limited Partners have received distributions of Net Cash
Receipts of $173.34 and Net Cash Proceeds of $686.33, totaling $859.67 per
$1,000 Interest. No distribution are anticipated to be made prior to the
termination of the Partnership. However, after paying final partnership
expenses, any remaining cash reserves will be distributed. Limited Partners
will not recover all of their original investment.

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

                         December 31, 1997         December 31, 1996    
                      -----------------------   -------------------------
                      Financial        Tax       Financial        Tax
                      Statements     Returns    Statements      Returns 
                      ----------    ---------   ----------     ---------

Total assets          $1,814,948    $8,658,858  $22,779,071  $14,575,700
Partners' capital
  accounts (deficit):
    General Partner     (69,931)      (62,304)    (153,527)    (125,316)
    Limited Partners   1,846,702     8,702,535    5,355,042   11,211,506
Net income (loss):
  General Partner        83,596        63,012       89,864     (159,259)

  Limited Partners    13,553,932    14,553,301    8,896,497   16,054,808

  Per Limited Part-
    nership Interest      237.48(A)    254.99        155.88(A)    281.30

(A) Amount represents basic and diluted net income (loss) per Limited   
Partnership Interest.

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 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                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 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.  

(d) There is no family relationship between any of the foregoing officers or
directors.
<PAGE>
(f) None of the foregoing officers, directors or employees are currently
involved in any material legal proceedings nor were any such proceedings
terminated during the fourth quarter of 1997.

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

The Registrant paid $2,708 in 1997 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 8 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%

Relatives of the officers and affiliates of the partners of the General Partner
own 40 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 8 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 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 Partnership'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
Partnership'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 Partnership'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 Partnership'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, previously filed as Exhibit (10)(b)(iv) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996, is incorporated
herein by reference.
<PAGE>
(v) Fourth Amendment to Agreement of Sale relating to the sale of American Way
Mall, previously filed as Exhibit (10)(b)(v) to the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1996, is incorporated herein by
reference.

(c)(i) Agreement of Sale and attachment thereto relating to the sale of
Providence Square Apartments previously filed as Exhibit (2)(a) to the
Partnership'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, previously
filed as Exhibit (2)(b) to the Partnership'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, previously filed as Exhibit (2)(c) to the Partnership'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,
previously filed as Exhibit (2)(d) to the Partnership'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, previously filed as Exhibit (10)(c)(v) to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.

(vi) Letter dated December 17, 1996 relating to the sale of Providence Square
Apartments, previously filed as Exhibit (10)(c)(vi) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996, is incorporated
herein by reference.

(vii) Amendment No. 3 to Agreement of Sale relating to the sale of Providence
Square Apartments, previously filed as Exhibit (10)(c)(vii) to the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1996,
is incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for 1997 is attached hereto.

(b) Reports on Form 8-K:  No reports were filed on Form 8-K during the quarter
ended December 31, 1997.
<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
                             Senior Managing Director and Chief
                             Financial Officer (Principal Accounting
                             Officer) of Balcor Current
                             Income Partners-85, the General Partner

Date: March 18, 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    
---------------------   -------------------------------      ------------

                         President and Chief Executive
                         Officer (Principal Executive
                         Officer) of Balcor Current Income
                         Partners-85, the General Partner
/s/Thomas E. Meador                                          March 18, 1998
--------------------                                        ---------------
   Thomas E. Meador

                         Senior Managing Director and Chief
                         Financial Officer (Principal
                         Accounting Officer) of Balcor
                         Current Income Partners-85, 
                         the General Partner
/s/Jayne A. Kosik                                            March 18, 1998
--------------------                                        ---------------
   Jayne A. Kosik
<PAGE>
                         INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants

Financial Statements:

Balance Sheets, December 31, 1997 and 1996

Statements of Partners' Capital, for the years ended December 31, 1997, 1996
and 1995

Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995

Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995

Notes to Financial Statements

Financial Statement Schedules 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 financial statements of Balcor Current Income Fund-85 A
Real Estate Limited Partnership (An Illinois Limited Partnership) as listed in
the Index of this Form 10-K. 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 Current Income Fund-85,
A Real Estate Limited Partnership at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. 

As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all 
its real estate interests. As of December 31, 1997, the Partnership has
disposed of all of its remaining real estate interests. Upon resolution of
the litigation described in Note 14 to the financial statements, the
Partnership intends to cease operations and dissolve.

                              COOPERS & LYBRAND L.L.P.



Chicago, Illinois
March 16, 1998
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                          December 31, 1997 and 1996

                                    ASSETS

                                                 1997             1996
                                             -------------   -------------
Cash and cash equivalents                    $  1,805,138    $  2,509,984
Escrow deposits                                                   416,773
Prepaid expenses                                                   54,726
Accounts and accrued interest receivable            9,810         102,578
Deferred expenses, net of accumulated
  amortization of $56,916 in 1996                                 261,816
                                             -------------   -------------
                                                1,814,948       3,345,877
                                             -------------   -------------
Investment in real estate:
  Land                                                          3,440,509
  Buildings and improvements                                   29,537,388
                                                             -------------
                                                               32,977,897
  Less accumulated depreciation                                13,544,703
                                                             -------------
Investment in real estate, net of
  accumulated depreciation                                     19,433,194
                                             -------------   -------------
                                             $  1,814,948    $ 22,779,071
                                             =============   =============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                             $     17,493    $    291,536
Due to affiliates                                  20,684          97,071
Other liabilities                                                 294,801
Security deposits                                                  90,753
Mortgage note payable                                          16,803,395
                                             -------------   -------------
    Total liabilities                              38,177      17,577,556      
                                             -------------   -------------

Commitments and contingencies

Limited Partners' capital (57,074
  Interests issued and outstanding)             1,846,702       5,355,042
General Partner's deficit                         (69,931)       (153,527)
                                             -------------   -------------
    Total partners' capital                     1,776,771       5,201,515
                                             -------------   -------------
                                             $  1,814,948    $ 22,779,071
                                             =============   =============

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, 1997, 1996 and 1995

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

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

Cash distributions (A)           (17,062,272)                 (17,062,272)
                                 
Net income for the year          
  ended December 31, 1997         13,637,528         83,596    13,553,932
                               -------------- -------------- -------------
Balance at December 31, 1997   $   1,776,771  $     (69,931) $  1,846,702
                               ============== ============== =============

(A) Summary of cash distributions paid per Limited Partnership Interest:

                                     1997           1996          1995
                                -------------  -------------  ------------
                 First Quarter $        4.22  $       47.31         None 
                Second Quarter        294.73          27.50         None 
                 Third Quarter         None            5.00         None 
                Fourth Quarter         None          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, 1997, 1996 and 1995

                                    1997           1996          1995
                               -------------- -------------- -------------
Income:
  Rental and service           $     603,951  $   7,937,839  $  9,774,233
  Interest on short-term
    investments                      264,560        249,363       233,042
  Other income                       579,304
                               -------------- -------------- -------------
    Total income                   1,447,815      8,187,202    10,007,275
                               -------------- -------------- -------------
Expenses:
  Interest on mortgage
    notes payable                    176,932      2,112,567     2,893,638
  Depreciation                       105,764      1,443,018     1,749,574
  Amortization of deferred                      
    expenses                           6,324         77,532       152,423
  Property operating                 411,807      3,406,567     3,715,619
  Real estate taxes                   48,500        700,127       931,134
  Property management fees            31,378        399,491       492,664
  Administrative                     226,116        436,189       508,716
                               -------------- -------------- -------------
    Total expenses                 1,006,821      8,575,491    10,443,768
                               -------------- -------------- -------------
Income (loss) before gain
  on sales of properties and
  extraordinary item                 440,994       (388,289)     (436,493)

Gain on sales of properties       13,452,026      9,666,645
                               -------------- -------------- -------------
Income (loss) before 
  extraordinary item              13,893,020      9,278,356      (436,493)

Extraordinary item:
  Debt extinguishment expenses      (255,492)      (291,995)     (539,471)
                               -------------- -------------- -------------
Net income (loss)              $  13,637,528  $   8,986,361  $   (975,964)
                               ============== ============== =============
Income (loss) before
  extraordinary item
  allocated to General Partner $      85,162  $      92,784  $     (4,365)
                               ============== ============== =============
Income (loss) before
  extraordinary item allocated
  to Limited Partners          $  13,807,858  $   9,185,572  $   (432,128)
                               ============== ============== =============

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, 1997, 1996 and 1995
                                  (Continued)

                                       1997           1996          1995
                                 -------------- -------------- -------------
Income (loss) before 
  extraordinary item 
  per Limited Partnership
  Interest (57,074  issued
  and outstanding) - Basic
  and Diluted                  $      241.93  $      160.94  $      (7.57)
                               ============== ============== =============
Extraordinary item allocated
  to General Partner           $      (1,566) $      (2,920) $     (5,394)
                               ============== ============== =============
Extraordinary item allocated
  to Limited Partners          $    (253,926) $    (289,075) $   (534,077)
                               ============== ============== =============
Extraordinary item per Limited 
  Partnership Interest (57,074
  issued and outstanding)
  - Basic and Diluted          $       (4.45) $       (5.06) $      (9.36)
                               ============== ============== =============
Net income (loss) allocated 
  to General Partner           $      83,596  $      89,864  $     (9,759)
                               ============== ============== =============
Net income (loss) allocated 
  to Limited Partners          $  13,553,932  $   8,896,497  $   (966,205)
                               ==============  ============= =============
Net income (loss) per Limited
  Partnership Interest (57,074
  issued and outstanding) 
  - Basic and Diluted          $      237.48  $      155.88  $     (16.93)
                               ============== ============== =============

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, 1997, 1996 and 1995


                                    1997           1996           1995
                               -------------- -------------- -------------
Operating activities:
  Net income (loss)            $  13,637,528  $   8,986,361  $   (975,964)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by operating 
    activities:
      Extraordinary item:
        Debt extinguishment 
          expenses                   255,492        291,995        48,724
      Gain on sales
        of properties            (13,452,026)    (9,666,645)
      Depreciation 
        of properties                105,764      1,443,018     1,749,574
      Amortization of deferred
        expenses                       6,324         77,532       152,423
      Net change in:
        Escrow deposits              288,785         27,480      (265,498)
        Accounts and accrued
          interest receivable         92,768         54,912        57,628
        Prepaid expenses              54,726        (19,263)      (35,463)
        Accounts payable            (274,043)       230,184       (26,645)
        Due to affiliates            (76,387)        73,855       (49,106)
        Other liabilities           (294,801)       271,487        23,314
        Security deposits            (90,753)      (167,071)      (45,290)
                               -------------- -------------- -------------
  Net cash provided by
    operating activities             253,377      1,603,845       633,697
                               -------------- -------------- -------------
Investing activities:
  Proceeds from sales of
    properties                    16,970,380     18,181,721
  Payment of selling costs          (980,544)      (729,629)
                               -------------- --------------
  Net cash provided by
    investing activities          15,989,836     17,452,092
                               -------------- --------------

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, 1997, 1996 and 1995
                                  (Continued)

                                    1997             1996          1995
                                 -------------- -------------- -------------
Financing activities:
  Distributions to
    Limited Partners             (17,062,272)   (22,237,172)     (702,581)
  Repayment of mortgage notes
    payable                                                   (29,427,232)
  Principal payments on
    mortgage notes payable           (13,775)      (249,360)     (502,345)
  Proceeds from issuance of
    mortgage notes payable                                     33,900,000
  Payment of deferred expenses                                   (654,726)
  Release of improvement
    escrows                          127,988        465,040
  Funding of improvement 
    escrows                                                      (643,795)
                               -------------- -------------- -------------
  Net cash used in or provided
    by financing activities      (16,948,059)   (22,021,492)    1,969,321
                               -------------- -------------- -------------
Net change in cash and cash
  equivalents                       (704,846)    (2,965,555)    2,603,018
Cash and cash equivalents at
  beginning of year                2,509,984      5,475,539     2,872,521
                               -------------- -------------- -------------
Cash and cash equivalents at
  end of year                  $   1,805,138  $   2,509,984  $  5,475,539
                               ============== ============== =============

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") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise.  The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.  

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 two properties. During 1997, the
Partnership sold its remaining three properties, the American Way Mall,
Providence Square Apartments, and Storage USA of Norcross Self-Storage
Facility. The Partnership has retained a portion of the cash from the property
sales 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 exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 14 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 continues to exist or 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 was computed using the straight-line method. Rates
used in the determination of depreciation were based upon the following
estimated useful lives:

               Buildings and improvements        27 to 30 years
               Furniture and fixtures               5 years

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

As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
<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 recorded its investments in real estate at the lower of cost or
fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. Under SFAS 121, the General Partner determined
that no impairment in value had occurred prior to the sales of the properties.
The General Partner considered 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 indicated otherwise.

(d) Deferred expenses consisted of mortgage loan refinancing fees which were
amortized over the terms of the respective agreements. Upon sale, any remaining
balance was 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) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their remaining economic interests as provided for in
the Partnership Agreement, income allocations between the partners have been
adjusted for financial statement purposes in 1997.

(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested primarily in one financial institution.

(h) 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.

(i) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was 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
was recognized as revenue in the period the applicable costs were incurred.
<PAGE>
(j)  Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership for the year-ended December 31, 1997 and has
been applied to all prior earnings periods presented in the financial
statements.  Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income (loss) per Limited Partnership
Interest.

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 the General Partner will be allocated
1% of the profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. For financial statement purposes, in previous years
partners were allocated income and loss in accordance with the provisions in
the Partnership Agreement. In order for the capital accounts of the General
Partner and Limited Partners to appropriately reflect their remaining economic
interests as provided for in the Partnership Agreement, income allocations
between the partners have been adjusted for financial statement purposes in
1997.

To the extent that Net Cash Receipts were available, distributions were to 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 was 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
was 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 was
deferred and was eligible to be paid only from Net Cash Proceeds as described
below. The General Partner will not receive any distributions of Net Cash
Receipts in accordance with this provision.

When the Partnership sold or refinanced its properties, the Net Cash Proceeds
resulting therefrom which were available for distribution were to be
distributed only to holders of Interests until such time as holders of
Interests 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 had been deferred as a result of
the subordination to the Cumulative Distribution, available Net Cash Proceeds
were to be distributed to the General Partner to the extent of the deferred
amount. Any remaining Net Cash Proceeds available for distribution were to be
distributed 85% to the Limited Partners and 15% to the General Partner. The
General Partners will not receive any distributions of Net Cash Proceeds in
accordance with this provision.
<PAGE>
5. Mortgage Note Payable:

As of December 31, 1996, the Partnership had a mortgage note payable
outstanding of $16,803,395 related to the Providence Square Apartments. This
mortgage note was assumed by the purchaser in connection with the sale of this
property during 1997 as furthered described in Note 10 of Notes to the
Financial Statements. 

During 1997, 1996 and 1995, the Partnership incurred and paid interest expense
on mortgage notes payable of $176,932, $2,112,567 and $2,893,638. 

6. Management Agreements:

The Partnership's properties were under management agreements with third party
management companies prior to the sales of the properties. These management
agreements provided for annual fees of 3% to 6% of gross operating receipts. 

7. 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 1997 in the financial statements is $978,785 less than the
taxable income of the Partnership for the same period.

8. Transactions with Affiliates:

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

                            Year Ended       Year Ended       Year Ended
                             12/31/97         12/31/96         12/31/95
                         ---------------  ---------------- ----------------
                           Paid  Payable    Paid  Payable    Paid  Payable
                         -------- ------- -------- ------- -------- -------
Reimbursement of expenses
  to the General Partner,
  at cost:
    Accounting            $28,408  $3,502  $15,706 $14,891  $39,422  $2,844
    Data processing         3,655    None      911    None   14,844     429
    Investment processing   8,180   3,323    1,950   1,849   12,424     849
    Investor communication   None    None     None    None    7,062    None
    Legal                  15,366   4,174    9,219   8,742   17,181   1,605
    Portfolio management   63,306   9,685   76,789  71,589  147,085  17,489

The Partnership participated in an insurance deductible program with other
affiliated partnerships in which the program paid claims up to the amount of
the deductible under the master insurance policies for its properties. The
program was administered by an affiliate of the General Partner who received no
fee for administering the program; however, the General Partner was reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program $11,764 and $55,606 for 1996 and 1995, respectively.
<PAGE>
10.  Property Sales:

(a) 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 basis of the property was $3,718,717, which is
net of accumulated depreciation of $4,361,314. For financial statement
purposes, the Partnership recognized a gain of $1,577,201 from the sale of this
property. 

(b) In February 1997, the Partnership sold the Providence Square Apartments for
a sales price of $25,510,000 less a credit of $500,000 related to the personal
property for a net sales 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, which represents a noncash transaction to the Partnership.
Accordingly, the noncash aspect of this transaction is not presented in the
Partnership's Statements of Cash Flows. From the proceeds of the sale, the
Partnership paid $167,896 in fees relating to the assumption of the mortgage
loan by the purchaser and $583,763 in other selling costs. The basis of the
property was $13,623,514, which is net of accumulated depreciation of
$8,450,525. For financial statement purposes, the Partnership recognized a gain
of $10,634,827 from the sale of this property.

(c) 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 basis of the
property was $1,985,199, which is net of accumulated depreciation of $838,628.
For financial statement purposes, the Partnership recognized a gain of
$1,239,998 from the sale of this property.

(d) In August 1996, the Partnership sold the  El Dorado Hills Apartments for
$29,350,000. The purchaser of the property took title subject to the existing
first mortgage loan in the amount of $16,771,749, which represents a noncash
transaction to the Partnership. Accordingly, the noncash aspect of this
transaction is not presented in the Partnership's Statements of Cash Flows.
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.

(e) 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 1997, the Partnership sold the Providence Square Apartments. In
connection with the sale, the Partnership wrote off the remaining unamortized
deferred financing fees in the amount of $255,492. This amount was recognized
as an extraordinary item and classified as debt extinguishment expense.
<PAGE>
(b) In 1997, 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.

(c) During 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 financing 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.

12. Other Income:

The Partnership recognized other income in connection with the sale of the
American Way Mall during 1997. The agreement of sale provided that, if the
purchaser transferred any portion of the property to a specified third party
prior to February 25, 1997, the Partnership would be entitled to a portion of
the net proceeds from such a transfer. The purchaser transferred a portion of
the property and as a result, the Partnership received $421,774 in accordance
with the agreement of sale. In addition, the Partnership received a real estate
tax refund of $136,938 for American Way Mall's 1995 real estate taxes and a
refund of prior years' insurance premium of $20,592 relating to the
Partnership's properties.

13. Fair Value of Financial Instruments:

The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 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 for
mortgage loans with similar terms and maturities, the fair value of the
mortgage note payable approximated the carrying value.

14. Contingency:

The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain state
securities and common law violations with regard to the property acquisition
process of the Partnership, and 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.

15. Subsequent Event:
<PAGE>
In January 1998, the Partnership made a distribution of $501,941 ($8.79 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of remaining available Net Cash Proceeds. 
<PAGE>