SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-Q
(Mark One)

  X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
     EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 1997
                               ------------------
                                      OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
     EXCHANGE ACT OF 1934.

For the transition period from              to             

                               ------------    ------------
Commission file number 0-14351
                       -------

                    BALCOR REALTY INVESTORS 85-SERIES II
                     A REAL ESTATE LIMITED PARTNERSHIP          
          -------------------------------------------------------
          (Exact name of registrant as specified in its charter)

          Illinois                                      36-3327917    
-------------------------------                     -------------------
(State or other jurisdiction of                      (I.R.S. Employer  
incorporation or organization)                      Identification No.)

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

Registrant's telephone number, including area code (847) 267-1600              
                                                   ---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X    No     
    -----     ----- 
<PAGE>
                    BALCOR REALTY INVESTORS - 85 SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                   September 30, 1997 and December 31, 1996
                                  (Unaudited)

                                    ASSETS

                                                  1997           1996
                                             -------------- --------------
Cash and cash equivalents                    $   2,428,017  $  12,457,760
Escrow deposits                                                    82,469
Accounts and accrued interest receivable            46,140        532,365
Prepaid expenses                                                   19,833
Deferred expenses, net of accumulated
  amortization of $113,839 in 1996                                140,314
                                             -------------- --------------
                                                 2,474,157     13,232,741
                                             -------------- --------------
Investment in real estate:
  Land                                                          1,436,769
  Buildings and improvements                                    7,276,630
                                                            --------------
                                                                8,713,399
  Less accumulated depreciation                                 3,438,330
                                                            --------------
Investment in real estate, net of
  accumulated depreciation                                      5,275,069
                                             -------------- --------------
                                             $   2,474,157  $  18,507,810
                                             ============== ==============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                             $      31,126  $     633,881
Due to affiliates                                   67,229        114,934
Security deposits                                                  30,759
Mortgage note payable                                           7,249,433
                                             -------------- --------------
     Total liabilities                              98,355      8,029,007

Commitments and contingencies

Limited Partners' capital (83,936
  Interests issued and outstanding)              2,375,802     11,121,829
General Partner's deficit                             None       (643,026)
                                             -------------- --------------
     Total partners' capital                     2,375,802     10,478,803
                                             -------------- --------------
                                             $   2,474,157  $  18,507,810
                                             ============== ==============

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

                       STATEMENTS OF INCOME AND EXPENSES
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                    
                                                  1997           1996
                                             -------------- --------------
Income:
  Rental and service                         $     441,199  $   9,369,736
  Interest on short-term investments               161,103         51,587
  Other income                                      15,243
  Participation in income of joint venture
    with an affiliate                                           3,070,292
                                             -------------- --------------
    Total income                                   617,545     12,491,615
                                             -------------- --------------
Expenses:
  Interest on mortgage notes payable               167,177      3,285,979
  Interest on short-term loans
    from affiliate                                                474,632
  Depreciation                                      51,564      1,320,657
  Amortization of deferred expenses                  7,943        146,018
  Property operating                               236,259      3,437,782
  Real estate taxes                                (19,829)       678,901
  Property management fees                          24,335        460,817
  Administrative                                   232,869        498,120
                                             -------------- --------------
    Total expenses                                 700,318     10,302,906
                                             -------------- --------------
(Loss) income before gain on sales and 
  extraordinary items                              (82,773)     2,188,709

Gain of sales of properties                      4,992,080     12,618,239
                                             -------------- --------------
Income before extraordinary items                4,909,307     14,806,948

Extraordinary items:
  Debt extinguishment expense                     (421,908)      (714,030)
  Gain on forgiveness of debt                                   1,864,919
  Participation in debt extinguishment expense
    from joint venture with an affiliate                          (20,945)
                                             -------------- --------------
    Total extraordinary items                     (421,908)     1,129,944
                                             -------------- --------------

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

                       STATEMENTS OF INCOME AND EXPENSES
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)
                                    
                                                  1997           1996
                                             -------------- --------------

Net income                                   $   4,487,399  $  15,936,892
                                             ============== ==============
Income before extraordinary items
  allocated to General Partner               $     703,170  $     148,070
                                             ============== ==============
Income before extraordinary items
  allocated to Limited Partners              $   4,206,137  $  14,658,878
                                             ============== ==============
Income before extraordinary items
  per Limited Partnership Interest (83,936
  Interests issued and outstanding)          $       50.11  $      174.64
                                             ============== ==============
Extraordinary items allocated to
  General Partner                            $     (60,144) $      11,299
                                             ============== ==============
Extraordinary items allocated to
  Limited Partners                           $    (361,764) $   1,118,645
                                             ============== ==============
Extraordinary items per Limited Partnership
  Interest (83,936 Interests issued 
  and outstanding)                           $       (4.31) $       13.33
                                             ============== ==============
Net income allocated to General Partner      $     643,026  $     159,369
                                             ============== ==============
Net income allocated to Limited Partners     $   3,844,373  $  15,777,523
                                             ============== ==============
Net income per Limited Partnership
  Interest (83,936 Interests issued 
  and outstanding)                           $       45.80  $      187.97
                                             ============== ==============
Distributions to Limited Partners            $  12,590,400           None
                                             ============== ==============
Distributions per Limited Partnership Interest
  (83,936 Interests issued and outstanding)  $      150.00           None
                                             ============== ==============

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

                       STATEMENTS OF INCOME AND EXPENSES
              for the quarters ended September 30, 1997 and 1996
                                  (Unaudited)
                                   
                                                  1997           1996
                                             -------------- --------------
Income:
                                                            $   2,736,641
  Interest on short-term investments         $      37,464         22,174
  Other income                                      15,243
                                             -------------- --------------
    Total income                                    52,707      2,758,815
                                             -------------- --------------
Expenses:
  Interest on mortgage notes payable                              975,041
  Interest on short-term loans
    from affiliate                                                111,114
  Depreciation                                                    397,526
  Amortization of deferred expenses                                44,393
  Property operating                                            1,156,366
  Real estate taxes                                               217,904
  Property management fees                                        133,068
  Administrative                                    67,153        143,574
                                             -------------- --------------
    Total expenses                                  67,153      3,178,986
                                             -------------- --------------
Loss before gain on sales and
  extraordinary items                              (14,446)      (420,171)

Gain on sales of properties                                     9,562,435
                                             -------------- --------------
(Loss) income before extraordinary items           (14,446)     9,142,264
                                             -------------- --------------
Extraordinary items:
  Debt extinguishment expense                                    (552,783)
  Gain on forgiveness of debt                                   1,864,919
                                                            --------------
    Total extraordinary items                                   1,312,136
                                             -------------- --------------
Net (loss) income                            $     (14,446) $  10,454,400
                                             ============== ==============
Income before extraordinary items
  allocated to General Partner                       None   $      91,423
                                             ============== ==============
(Loss) income before extraordinary items
  allocated to Limited Partners              $     (14,446) $   9,050,841
                                             ============== ==============

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

                       STATEMENTS OF INCOME AND EXPENSES
              for the quarters ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)
                                   
                                                  1997           1996
                                             -------------- --------------
(Loss) income before extraordinary items
  per Limited Partnership Interest (83,936
  Interests issued and outstanding)          $       (0.17) $      107.83
                                             ============== ==============
Extraordinary items allocated to
  General Partner                                    None   $      13,121
                                             ============== ==============
Extraordinary items allocated to
  Limited Partners                                   None   $   1,299,015
                                             ============== ==============
Extraordinary items per Limited Partnership
  Interest (83,936 Interests issued 
  and outstanding)                                   None   $       15.48
                                             ============== ==============
Net income allocated to General Partner              None   $     104,544
                                             ============== ==============
Net (loss) income allocated to Limited 
  Partners                                   $     (14,446) $  10,349,856
                                             ============== ==============
Net (loss) income per Limited Partnership
  Interest (83,936 Interests issued 
  and outstanding)                           $       (0.17) $      123.31
                                             ============== ==============

Distribution to Limited Partners             $   2,182,336           None
                                             ============== ==============
Distribution per Limited Partnership Interest
  (83,936 Interests issued and outstanding)  $       26.00           None
                                             ============== ==============

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

                           STATEMENTS OF CASH FLOWS
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                   
                                                  1997           1996
                                             -------------- --------------
Operating activities:
  Net income                                 $   4,487,399  $  15,936,892
  Adjustments to reconcile net income 
    to net cash used in operating 
    activities:
      Gain on sales of properties               (4,992,080)   (12,618,239)
      Debt extinguishment expense                  132,371        441,740
      Gain on forgiveness of debt                              (1,864,919)
      Participation in debt extinguishment
        expense from joint venture with an
        affiliate                                                  20,945
      Participation in income of joint
        venture with an affiliate                              (3,070,292)
      Depreciation of properties                    51,564      1,320,657
      Amortization of deferred expenses              7,943        146,018
      Net change in:
        Escrow deposits                             82,469          8,462
        Accounts and accrued
          interest receivable                      486,225         (4,643)
        Prepaid expenses                            19,833        (12,890)
        Accounts payable                          (602,755)        78,426
        Due to affiliates                          (47,705)      (652,804)
        Accrued liabilities                                      (119,171)
        Security deposits                          (30,759)      (106,722)
                                             -------------- --------------
  Net cash used in operating activities           (405,495)      (496,540)
                                             -------------- --------------
Investing activities:
  Proceeds from sales of properties             10,400,000     28,016,507
  Payment of selling costs                        (184,415)      (743,360)
  Distributions from joint venture with
    an affiliate                                                1,805,678
  Contribution to joint venture with
    an affiliate                                                 (155,300)
                                             -------------- --------------
  Net cash provided by investing activities     10,215,585     28,923,525
                                             -------------- --------------

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

                           STATEMENTS OF CASH FLOWS
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)
                                   
                                                  1997           1996
                                             -------------- --------------
Financing activities:
  Repayment of loans payable - affiliate                       (7,864,000)
  Proceeds from issuance of mortgage note
    payable - affiliate                                           135,928
  Distributions to Limited Partners            (12,590,400)
  Repayment of mortgage note payable            (7,238,418)   (16,040,829)
  Principal payments on mortgage notes
   payable                                         (11,015)      (297,387)
  Releases from escrows                                           842,943
                                             -------------- --------------
  Net cash used in financing activities        (19,839,833)   (23,223,345)
                                             -------------- --------------
Net change in cash and cash equivalents        (10,029,743)     5,203,640
Cash and cash equivalents at beginning
  of period                                     12,457,760      1,125,457
                                             -------------- --------------
Cash and cash equivalents at end of period   $   2,428,017  $   6,329,097
                                             ============== ==============

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

                         NOTES TO FINANCIAL STATEMENTS

1. Accounting Policies:

(a) 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, the income (loss) allocations between the partners
have been adjusted for financial statement purposes during 1997.

(b) Several reclassifications have been made to the previously reported 1996
financial statements. These reclassifications have not changed the 1996
results.

(c) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1997, and all such adjustments are of a normal
and recurring nature.

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 seven properties and its
minority joint venture interest in one additional property. The available
proceeds from the 1996 property sales were distributed to Limited Partners in
January and April 1997. During March 1997, the Partnership sold its remaining
property, the Steeplechase Apartments. The available proceeds were distributed
to Limited Partners in July 1997. The Partnership has retained a portion of the
cash to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which 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 lawsuits discussed in Note 7 of Notes to
Financial Statements. 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
Partnership for a longer period of time.

3. Interest Expense:

During the nine months ended September 30, 1997 and 1996, the Partnership
incurred and paid interest expense on non-affiliated mortgage notes payable of
$167,177 and $3,156,874, respectively. 

4. Transactions with Affiliates:
<PAGE>
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1997 are:

                                           Paid
                                    ----------------------
                                    Nine Months    Quarter      Payable
                                    ------------  ---------    ----------
   Reimbursement of expenses to
     the General Partner, at cost    $90,531      $12,257      $67,229

The Partnership had a junior loan outstanding from The Balcor Company, an
affiliate of the General Partner, relating to the Chestnut Ridge - Phase I
Apartments. The loan of $1,816,035 along with accrued interest of $48,884 was
forgiven in connection with the sale of the property in September 1996. During
the nine months ended September 30, 1996, the Partnership incurred interest
expense on the mortgage note payable-affiliate of $129,105 and paid interest
expense of $141,197.

During 1996, the Partnership repaid the General Partner loan with proceeds
received from the sales of properties. During the nine months ended September
30, 1996, the Partnership incurred interest expense of $474,632 and paid
interest expense of $1,178,632 on this loan. Interest expense on the General
Partner loan was computed at the American Express Company cost of funds rate
plus a spread to cover administrative costs. As of September 30, 1996, this
rate was 5.931%.
               
5. Property Sale:

In March 1997, the Partnership sold the Steeplechase Apartments in an all cash
sale for $10,400,000. From the proceeds of the sale, the Partnership paid
$7,238,418 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $184,415 in selling costs and $289,537 in prepayment
penalties. The basis of the property was $5,223,505, which is net of
accumulated depreciation of $3,489,894. For financial statements purposes, the
Partnership recognized a gain of $4,992,080 from the sale of this property.

6. Extraordinary Item:

In connection with the sale of the Steeplechase Apartments in March 1997, the
Partnership paid $289,537 in prepayment penalties and wrote off the remaining
unamortized deferred expenses related to the property of $132,371. These
amounts were recognized as an extraordinary item and classified as debt
extinguishment expense.

7. Contingencies:

The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain federal securities law violations with regard
to the adequacy and accuracy of disclosures of information concerning, as well
as marketing efforts related to the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
<PAGE>
these actions. A plaintiff class has not been certified in either action and,
no determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either 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.
<PAGE>
                     BALCOR REALTY INVESTORS 85-SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property. Prior to 1996, the Partnership
disposed of five` of these properties. During 1996, the Partnership sold seven
properties and the property in which it held a minority joint venture interest.
The Partnership sold its remaining property, the Steeplechase Apartments, in
March 1997.

Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1996 for a more complete understanding of
the Partnership's financial position.

Operations
----------

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

During the nine months ended September 30, 1996, the Partnership recognized
gains from the sales of the Forest Ridge - Phase II, Country Oaks, Chestnut
Ridge - Phase I and Hunters Glen apartment complexes and recognized its share
of the gain from the sale of the Rosehill Pointe apartment complex, which was
owned by a joint venture consisting of the Partnership and an affiliate. During
March 1997, the Partnership recognized a gain in connection with the sale of
the Steeplechase apartment complex.  These events resulted in a decrease in net
income during the nine months ended September 30, 1997 as compared to the same
period in 1996 and a net loss during the quarter ended September 30, 1997 as
compared to net income during the same period in 1996.  Further discussion of
the Partnership's operations is summarized below. 

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

Unless otherwise noted, discussions of fluctuations between 1997 and 1996 refer
to both the nine months and quarters ended September 30, 1997 and 1996.

During 1997 and 1996, the Partnership sold eight properties. As a result,
rental and service income, interest expense on mortgage notes payable,
depreciation, amortization of deferred expenses, property operating expenses,
real estate taxes and property management fees decreased significantly during
1997 as compared to 1996.
<PAGE>
Due to higher average cash balances resulting from the investment of net
proceeds received in connection with the sales of the Partnership's properties
during the latter part of 1996 and in early 1997 prior to distribution to
Limited Partners, interest income on short-term investments increased during
1997 as compared to 1996.

The Partnership recognized other income during 1997 in connection with a refund
of a prior year insurance premium relating to the Partnership's properties.

Rosehill Pointe Apartments, in which the Partnership held a minority joint
venture interest, was sold during June 1996. As a result, income from
participation in joint venture with an affiliate ceased during 1996. The
Partnership's share of the gain on the sale is included in participation in
joint venture with an affiliate for 1996. In connection with the sale, the
Partnership also recognized its share of debt extinguishment expense of
$20,945, which was classified as an extraordinary item.

During 1996, the Partnership repaid its General Partner loans. As a result,
interest expense on short-term loans from affiliate ceased during 1996.

As a result of the sales of the Partnership's properties, real estate tax
expense decreased in 1997. In addition, the estimate of 1996 real estate taxes
at the Steeplechase Apartments was higher than the actual expense, resulting in
the Partnership recognizing income during the nine months ended September 30,
1997 as compared to expense during the same period in 1996.

The Partnership incurred higher professional fees in 1996 in connection with
the valuation of the Partnership's assets, which was the primary reason for the
decrease in administrative expenses during 1997 as compared to 1996. The
Partnership also incurred higher legal and portfolio management fees during
1996 which contributed to the decrease.

During the nine months ended September 30, 1996, the Partnership sold the
Forest Ridge - Phase II, Country Oaks, Chestnut Ridge - Phase I and Hunters
Glen apartment complexes and recognized gains totaling $12,618,239. During
March 1997, the Partnership sold the Steeplechase apartment complex and
recognized a gain of $4,992,080.

In connection with the 1996 sale of Chestnut Ridge - Phase I Apartments, the
Partnership recognized an extraordinary gain on forgiveness of debt of
$1,864,919.                                                                    
           
In connection with the March 1997 sale of the Steeplechase Apartments, the
Partnership paid $289,537 in prepayment penalties and wrote off the remaining
unamortized deferred expenses related to the property of $132,371.  In
connection with the 1996 property sales, the Partnership wrote-off the
remaining unamortized deferred expenses in the amount of $441,740. In addition,
in connection with the 1996 sales of Chestnut Ridge - Phase I and Hunters Glen
apartment complexes, the Partnership paid $272,290 in prepayment penalties.
These amounts were recognized as extraordinary items and classified as debt
extinguishment expense.
<PAGE>
Liquidity and Capital Resources
-------------------------------

The cash position of the Partnership decreased by approximately $10,030,000 as
of September 30, 1997 when compared to December 31, 1996 primarily due to the  
payments of special distributions to Limited Partners in 1997 with proceeds
from the sales of the Partnership's properties during 1997 and the latter part
of 1996. Cash of approximately $405,000 was used in operating activities which
consisted of the payment of administrative expenses and operating expenses
related to sold properties, which were partially offset by cash flow from
operations of the Steeplechase Apartments prior to its sale and interest income
on short-term investments. Cash provided by investing activities of
approximately $10,216,000 consisted of net proceeds received in connection with
the sale of the Steeplechase Apartments.  Cash used in financing activities of
approximately $19,840,000 consisted primarily of the payment of distributions
to Limited Partners of approximately $12,590,000 and the repayment of a
mortgage note payable of approximately $7,238,000 with proceeds from the
Steeplechase Apartments sale.

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 seven properties and its
minority joint venture interest in one additional property. The available
proceeds from the 1996 property sales were distributed to Limited Partners in
January and April 1997. During March 1997, the Partnership sold its remaining
property, the Steeplechase Apartments. The available proceeds were distributed
to Limited Partners in July 1997. The Partnership has retained a portion of the
cash to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which 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 lawsuits discussed in Note 7 of Notes to
Financial Statements. 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
Partnership for a longer period of time.

In March 1997, the Partnership sold the Steeplechase Apartments in an all cash
sale for $10,400,000. From the proceeds of the sale, the Partnership paid 
$7,238,418 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $184,415 in selling costs and $289,537 in prepayment
penalties. Available proceeds were distributed to the Limited Partners in July
1997. See Note 5 of Notes to Financial Statements for additional information.

Pursuant to the sale agreement for the Hunters Glen Apartments, $500,000 of the
sale proceeds was retained by the Partnership and was unavailable for
distribution until January 1997, at which time the funds were released in full.

Pursuant to the sale agreement for the Marbrisa Apartments, $500,000 of the
sale proceeds was retained by the Partnership and was unavailable for
distribution until February 1997, at which time the funds were released in
full. 
<PAGE>
Pursuant to the sale agreement for the Willow Bend Lake Apartments, $250,000 of
the sale proceeds was retained by the Partnership and was unavailable for
distribution until February 1997, at which time the funds were released in
full.
 
Since all of the Partnership's properties have been sold, no additional  
distributions are expected. To date, Limited Partners have received cash
distributions of Net Cash Proceeds of $150 per $1,000 Interest, as well as
certain tax benefits. Investors will not recover a substantial portion of their
original investment.
<PAGE>
                    BALCOR REALTY INVESTORS 85 - SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                          PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

(a) Exhibits:

(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) 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 are incorporated herein by reference.

(10) Material Contracts:

(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
Forest Ridge - Phase II apartment complex, Arlington, Texas previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated April 23, 1996 is
incorporated herein by reference.

(ii) Master Amendment and Agreement relating to the sales of the Forest Ridge -
Phase II, apartment complex, Arlington, Texas and Rosehill Pointe apartment
complex, Lenexa, Kansas previously filed as Exhibit 2(b)(i) to the Registrant's
Report on Form 8-K dated May 31, 1996 is incorporated herein by reference.

(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the
sales of the Forest Ridge - Phase II, apartment complex, Arlington, Texas and
Rosehill Pointe apartment complex, Lenexa, Kansas previously filed as Exhibit
2(b)(ii) to the Registrant's Report on Form 8-K dated May 31, 1996 is
incorporated herein by reference.

(b)(i) Agreement of Sale relating to the sale of the Hunter's Glen Apartments,
St. Louis County, Missouri previously filed as Exhibit 2(a) to the Registrant's
Report on Form 8-K dated June 28, 1996 is incorporated herein by reference.

(ii) Letter Agreement dated June 28, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri, previously filed as Exhibit
99 to the Registrant's Report on Form 8-K dated July 15, 1996 is incorporated
herein by reference.

(iii) Letter Agreement dated August 2, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri previously filed as Exhibit
10(b)(iii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.

(iv)  Letter Agreement dated August 16, 1996 relating to the sale of Hunter's  
Glen Apartments previously filed as Exhibit (99)(d) to the Registrant's Report
on Form 8-K dated August 16, 1996 is incorporated herein by reference.
<PAGE>
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Willow
Bend Lake Apartments, East Baton Rouge Parish, Louisiana previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated September 30, 1996 is
incorporated herein by reference.      

(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana,
previously filed as Exhibit (10)(c)(ii) to the Registrant's Report on Form 10-K
for the year ended December 31, 1996 is incorporated herein by reference.

(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana,
previously filed as Exhibit (10)(c)(iii) to the Registrant's Report on Form
10-K for the year ended December 31, 1996 is incorporated herein by reference.

(d)(i) Agreement of Sale and letter agreements thereto relating to the sale of
Marbrisa apartment complex, Hillsborough County, Florida previously filed as
Exhibit 2(a) to the Registrant's Report on Form 8-K dated July 15, 1996 is
incorporated herein by reference.

(ii) First Amendment to Agreement of Sale dated August 16, 1996 relating to the
sale of Marbrisa Apartments, Hillsborough County, Florida, previously filed as
Exhibit (99)(a)(i) to the Registrant's Report on Form 8-K dated August 16, 1996
is incorporated herein by reference.

(iii) Letter Agreement dated August 20, 1996 relating to the sale of Marbrisa
Apartments, Hillsborough County, Florida, previously filed as Exhibit
(99)(a)(ii) to the Registrant's Report on Form 8-K dated August 16, 1996 is
incorporated herein by reference.

(iv) Letter Agreements relating to the sale of Marbrisa Apartments,
Hillsborough County, Florida, previously filed as Exhibit (99)(b) to the
Registrant's Report on Form 8-K dated September 30, 1996 is incorporated herein
by reference.
                                        
(e)(i) Agreement of Sale dated September 3, 1996 relating to the sale of
Chestnut Ridge - Phase I Apartments, Fort Worth, Texas previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated August 16, 1996 is
incorporated herein by reference.

(ii) Letter Agreement relating to the sale of Chestnut Ridge - Phase I
Apartments, Fort Worth, Texas, previously filed as Exhibit (99)(a) to the
Registrant's Report on Form 8-K dated September 30, 1996 is incorporated herein
by reference. 
 
(f)(i) Agreement of Sale and attachment thereto relating to the sale of Park
Crossing Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(a)
to the Registrant's Report on Form 8-K dated September 16, 1996 is incorporated
herein by reference.                                                           

(ii) First Amendment to Agreement of Sale relating to the Sale of Park Crossing
Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(b) to the
Registrant's Report on Form 8-K dated September 16, 1996 is incorporated herein
by reference.                                                           
<PAGE>
(iii) Letter relating to the sale of Park Crossing Apartments, Gwinnett County,
Georgia previously filed as Exhibit 2(c) to the Registrant's Report on Form 8-K
dated September 16, 1996 is incorporated herein by reference.

(g)(i) Agreement of Sale and attachment hereto relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky previously filed as
Exhibit (2)(i) to the Registrant's Report on Form 8-K dated December 20, 1996,
is incorporated herein by reference.

(ii) Due Diligence Termination Notice relating to the sale of Steeplechase
Apartments, Lexington-Fayette, Kentucky previously filed as Exhibit (2)(ii) to
the Registrant's Report on Form 8-K dated December 20, 1996, is incorporated
herein by reference.

(iii) Reinstatement of, and First Amendment to, Agreement of Sale, relating to
the sale of Steeplechase Apartments, Lexington-Fayette, Kentucky previously
filed as Exhibit (2)(iii) to the Registrant's Report on Form 8-K dated December
20, 1996, is incorporated herein by reference.

(iv) Letter Agreement dated December 20, 1996, relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky, previously filed as
Exhibit (2)(iv) to the Registrant's Report on Form 8-K dated December 20, 1996,
is incorporated herein by reference.

(v) Letter Agreement dated January 22, 1997, relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky, previously filed as
Exhibit (10)(g)(v) to the Registrant's 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 the nine months ending
September 30, 1997 is attached hereto.

(b) Reports on Form 8-K:  No Reports were filed on Form 8-K during the quarter
ended September 30, 1997.
<PAGE>
SIGNATURES

Pursuant to the requirements 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 REALTY INVESTORS 85-SERIES II
                         A REAL ESTATE LIMITED PARTNERSHIP

                         By:  /s/Thomas E. Meador                            
                              ---------------------------------
                              Thomas E. Meador
                              President and Chief Executive Officer (Principal
                              Executive Officer) of Balcor Partners - XVII, 
                              the General Partner

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


Date:  November 12, 1997                   
       -------------------------
<PAGE>