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 June 30, 1998
                               --------------
                                      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 0-14352
                       -------

                         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
                                                   --------------
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 CURRENT INCOME FUND-85
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                      June 30, 1998 and December 31, 1997
                                  (UNAUDITED)

                                    ASSETS

                                                 1998            1997
                                            --------------- --------------
Cash and cash equivalents                   $    1,262,148  $   1,805,138
Accounts and accrued interest receivable             5,456          9,810
                                            --------------- --------------
                                            $    1,267,604  $   1,814,948
                                            =============== ==============


                      LIABILITIES AND PARTNERS' CAPITAL 

Accounts payable                            $       21,760  $      17,493
Due to affiliates                                   29,320         20,684
                                            --------------- --------------
     Total liabilities                              51,080         38,177
                                            --------------- --------------
Commitments and contingencies

Limited Partners' capital (57,074
  Interests issued and outstanding)              1,286,455      1,846,702
General Partner's deficit                          (69,931)       (69,931)
                                            --------------- --------------
     Total partners' capital                     1,216,524      1,776,771
                                            --------------- --------------
                                            $    1,267,604  $   1,814,948
                                            =============== ==============

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 six months ended June 30, 1998 and 1997
                                  (UNAUDITED)


                                                 1998            1997
                                            --------------- --------------
Income:
  Rental and service                                        $     603,951
  Interest on short-term investments        $       34,689        213,603
  Other income                                      34,037        558,712
                                            --------------- --------------
    Total income                                    68,726      1,376,266
                                            --------------- --------------
Expenses:
  Interest on mortgage notes payable                              176,932
  Depreciation                                                    105,764
  Amortization of deferred expenses                                 6,324
  Property operating                                21,298        400,835
  Real estate taxes                                                48,500
  Property management fees                                         31,378
  Administrative                                   105,734        141,208
                                            --------------- --------------
    Total expenses                                 127,032        910,941
                                            --------------- --------------
(Loss)income before gain on sale of 
  properties and extraordinary item                (58,306)       465,325

Gain on sales of properties                                    13,452,026
                                            --------------- --------------
(Loss)income before extraordinary item             (58,306)    13,917,351

Extraordinary item:
  Debt extinguishment expense                                    (255,492)
                                            --------------- --------------
Net(loss)income                             $      (58,306) $  13,661,859
                                            =============== ==============
Income before extraordinary item
  allocated to General Partner                        NONE  $      85,222
                                            =============== ==============
(Loss)income before extraordinary item
  allocated to Limited Partners             $      (58,306) $  13,832,129
                                            =============== ==============

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 six months ended June 30, 1998 and 1997
                                  (UNAUDITED)
                                  (continued)

                                                 1998           1997
                                            --------------- --------------
(Loss)income before extraordinary item
  Limited Partnership Interest (57,074 
  issued and outstanding)
  - Basic and Diluted                       $        (1.02) $      242.36
                                            =============== ==============
Extraordinary item allocated to General 
  Partner                                             NONE  $      (1,626)
                                            =============== ==============
Extraordinary item allocated to Limited 
  Partners                                            NONE  $    (253,866)
                                            =============== ==============
Extraordinary item per Limited Partnership
  Interest (57,074 issued and outstanding)
  - Basic and Diluted                                 NONE  $       (4.45)
                                            =============== ==============
Net income allocated to General Partner               NONE  $      83,596
                                            =============== ==============
Net (loss) income allocated to Limited
  Partners                                  $      (58,306) $  13,578,263
                                            =============== ==============
Net (loss) income per Limited Partnership
  Interest (57,074 issued and outstanding)
  - Basic and Diluted                       $        (1.02) $      237.91
                                            =============== ==============
Distributions to Limited Partners           $      501,941  $  17,062,272
                                            =============== ==============
Distributions per Limited Partnership
  Interest(57,074 issued and outstanding)   $         8.79  $      298.95
                                            =============== ==============

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 quarters ended June 30, 1998 and 1997
                                  (UNAUDITED)

                                                 1998            1997
                                            --------------- --------------
Income:
  Interest on short-term investments        $       16,515  $      63,248
  Other income                                      34,037
                                            --------------- --------------
    Total income                                    50,552         63,248
                                            --------------- --------------
Expenses:
  Property operating                                   353         82,785
  Administrative                                    42,862         63,713
                                            --------------- --------------
    Total expenses                                  43,215        146,498
                                            --------------- --------------
Net income (loss)                           $        7,337  $     (83,250)
                                            =============== ==============
Net (loss) allocated to General
  Partner                                             NONE  $      (3,896)
                                            =============== ==============
Net income (loss) allocated to Limited
  Partners                                  $        7,337  $     (79,354)
                                            =============== ==============
Net income (loss) per Limited Partnership
  Interest (57,074 issued and outstanding)
  - Basic and Diluted                       $         0.12  $       (1.39)
                                            =============== ==============

Distributions to Limited Partners                     NONE  $  16,821,420
                                            =============== ==============
Distributions per Limited Partnership
  Interest(57,074 issued and outstanding)             NONE  $      294.73
                                            =============== ==============

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 six months ended June 30, 1998 and 1997
                                  (UNAUDITED)

                                                  1998           1997
                                            --------------- --------------
Operating activities:
  Net (loss) income                         $      (58,306) $  13,661,859
  Adjustments to reconcile net
    (loss) income to net cash (used in)
    or provided by operating activities:
      Extraordinary item:
        Debt extinguishment expense                               255,492
      Gain on sales of properties                             (13,452,026)
      Depreciation of properties                                  105,764
      Amortization of deferred expenses                             6,324
      Net change in:
        Escrow deposits                                           288,785
        Accounts receivable                          4,354         76,680
        Prepaid expenses                                           54,726
        Accounts payable                             4,267       (264,658)
        Due to affiliates                            8,636        (21,221)
        Accrued liabilities                                      (294,801)
        Security deposits                                         (90,753)
                                            --------------- --------------
  Net cash (used in) or provided by
    operating activities                           (41,049)       326,171
                                            --------------- --------------
Investing activities:
  Proceeds from sales of properties                            16,970,380
  Payment of selling costs                                       (980,544)
                                                            --------------
  Net cash provided by investing activities                    15,989,836
                                                            --------------
Financing activities:
  Distribution to Limited Partners                (501,941)   (17,062,272)
  Principal payments on mortgage notes                            (13,775)
  Release of improvement escrows                                  127,988
                                            --------------- --------------
  Net cash used in financing activities           (501,941)   (16,948,059)
                                            --------------- --------------
Net change in cash and cash equivalents           (542,990)      (632,052)
Cash and cash equivalents at beginning
  of period                                      1,805,138      2,509,984
                                            --------------- --------------

Cash and cash equivalents at end of period  $    1,262,148  $   1,877,932
                                            =============== ==============

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. Accounting Policies:

(a) The loss allocation between the Limited Partners and the General Partner
has been adjusted for financial statement purposes in order that the capital
account balances more accurately reflect their remaining economic interests as
provided for in the Partnership Agreement.

(b) A reclassification has been made to the previously reported 1997 statements
in order to provide comparability with the 1998 statements. This
reclassification has not changed the 1997 results. In the opinion of
management, all adjustments necessary for a fair presentation have been made to
the accompanying statements for the six months and quarter ended June 30, 1998,
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 1997, the Partnership sold its remaining three properties.
The Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as to 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 6 of Notes to the
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.

3. Interest Expense:

During the six months ended June 30, 1997, the Partnership incurred and paid
interest expense on mortgage notes payable of $176,932.

4. Transactions with Affiliates:

Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1998 are:

                                               
                                           Paid
                                   -------------------------
                                     Six Months     Quarter    Payable
                                    ------------   ---------  ---------
<PAGE>
   Reimbursement of expenses to
     the General Partner, at cost   $ 9,002        $ 3,133    $ 29,320


5. Other Income:

Other income was recognized in 1997 in connection with the sale of the American
Way Mall. 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 pursuant to the agreement of sale. In
addition, the Partnership received real estate tax refunds of $136,938 in 1997
and $34,037 in 1998 related to 1995 real estate taxes for American Way Mall.

6. 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 has 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, of the
Partnership. The Partnership believes that it has meritorious defenses to
contest the claims.
<PAGE>
                       BALCOR CURRENT INCOME FUND-85
                     A REAL ESTATE LIMITED PARTNERSHIP
                     (An Illinois Limited Partnership)

                   MANAGEMENT'S DISCUSSION AND ANALYSIS

Balcor Current Income Fund-85 A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1985 to invest in and
operate income-producing real property. The Partnership raised $57,074,000
through the sale of Limited Partnership Interests and utilized these
proceeds to acquire five real property investments. As of June 30, 1998,
the Partnership had no properties remaining in its portfolio.

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
1997 for a more complete understanding of the Partnership's financial
position.

Operations
----------

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

Administrative expenses and expenditures incurred related to one of the
properties sold during 1997 were higher than interest income earned on
short-term investments during the six months ended June 30, 1998 and the
quarter ended June 30, 1997. This was the primary reason the Partnership
recognized net losses during these periods. The Partnership received a real
estate tax refund for one of its properties sold during 1997 during the
quarter ended June 30, 1998, which resulted in net income for this period.
During January and February 1997, the Partnership sold three properties and
recognized significant gains in connection with these sales which resulted
in the Partnership generating net income during the six months ended June
30, 1997. Further discussion of the Partnership's operations are summarized
below.

1998 Compared to 1997
---------------------

Unless otherwise noted, discussions of fluctuations between 1998 and 1997
refer to both the six months and quarters ended June 30, 1998 and 1997.

The Partnership sold the American Way Mall, Providence Square Apartments
and Storage USA of Norcross Self-Storage Facility during the quarter ended
March 31, 1997. As a result, the Partnership recognized gains totaling
$13,452,026 during the six months ended June 30, 1997. As a result of these
sales, rental and service income, interest expense on mortgage notes
payable, depreciation, amortization, real estate taxes and property
management fees ceased during 1997.
<PAGE>
Due to higher cash balances during 1997 as a result of the investment of
proceeds received in connection with the property sales prior to
distribution to Limited Partners, interest income on short-term investments
decreased during 1998 as compared to 1997.    

Other income was recognized in 1997 in connection with the sale of the
American Way Mall. 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 pursuant to the
agreement of sale. In addition, the Partnership received real estate tax
refunds of $136,938 in 1997 and $ 34,037 in 1998 for the American Way Mall.

Property operating expense decreased as of June 30, 1998 as compared to
1997 due to the sales of the Partnership's three remaining properties in
1997. The Partnership paid additional expenditures during 1998 related to
one of the properties sold during 1997.

Due to lower accounting, professional and portfolio management fees as a
result of the prior year's property sales, administrative expense decreased
during 1998 as compared to 1997. 
      
In connection with the February 1997 sale of Providence Square Apartments,
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 for financial statement
purposes during 1997. 

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

The cash position of the Partnership decreased by approximately $543,000 as
of June 30, 1998 when compared to December 31, 1997 primarily due to the
January 1998 distribution to Limited Partners of remaining available Net
Cash Proceeds. The Partnership used cash of approximately $41,000 in its
operating activities to pay administrative expenses and operating expenses
related to a sold property which was partially offset by interest income
earned on short-term investments and the receipt of a real estate tax
refund related to American Way Mall. The Partnership used cash of
approximately $502,000 in its financing activities to fund the distribution
to the Limited Partners in January 1998. 

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 1997, the Partnership sold its remaining
three properties. The Partnership has retained a portion of the cash from
the property sales to satisfy obligations of the Partnership as well as to
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
<PAGE>
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 5 of Notes to the Financial Statements. Due to
this litigation, the Partnership will not be dissolved and reserves will be
held by the Partnership until the conclusion of all contingencies. There
can be no assurances as to the time frame for conclusion of these
contingencies.

To date, 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 additional distributions 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.
<PAGE>
                         BALCOR CURRENT INCOME FUND-85
                       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) 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 June 30, 1992 are
incorporated herein by reference.

(10) Material Contracts:

(a)(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.
<PAGE>
(27) Financial Data Schedule of the Registrant for the six months ending June
30, 1998 is attached hereto.

(b) Reports on Form 8-K:  No reports were filed on Form 8-K during the quarter
ended June 30, 1998.
<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 CURRENT INCOME FUND-85
                              A REAL ESTATE LIMITED PARTNERSHIP


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


                              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: August 7, 1998
      --------------------
<PAGE>