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


                                    FORM 10-Q


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

                  For the quarterly period ended September 30, 1996

                         Commission file number 0-14438

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                        A CALIFORNIA LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)


        CALIFORNIA                                              13-3239107
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


                   411 West Putnam Avenue, Greenwich, CT 06830
                    (Address of principal executive offices)

                                 (203) 862-7000
              (Registrant's telephone number, including area code)

                                      None
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check 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   [   ]

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<PAGE>   
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                                      INDEX



Part I. Financial Information:

Balance Sheets--September 30, 1996 and December 31, 1995

Statements of Operations--Three Months Ended Setepmber 30, 1996
    and 1995 and Nine Months Ended September 30, 1996 and 1995

Statement of Partners' Equity--Nine Months Ended
    September 30, 1996

Statements of Cash Flows--Nine Months Ended
    September 30, 1996 and 1995

Notes to Financial Statements

Management's Discussion and Analysis of Financial
    Condition and Results of Operations

Part II. Other Information:

Legal Proceedings, Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                                 BALANCE SHEETS

                                                 September 30,     December 31,  
                                                     1996             1995
                                                 ------------      ------------
<S>                                              <C>               <C>
ASSETS

Real estate ................................     $ 32,128,206      $ 32,533,972
Cash and cash equivalents ..................        4,816,981         2,450,943
Other assets ...............................        2,229,322         2,121,920
Receivables ................................          273,571           202,762
                                                 ------------      ------------
                                                 $ 39,448,080      $ 37,309,597
                                                 ============      ============


LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses ......     $  1,868,954      $  1,016,797
Due to affiliates ..........................          283,630           352,633
Distributions payable ......................          252,638           252,638
                                                 ------------      ------------
                                                    2,405,222         1,622,068
                                                 ------------      ------------

Commitments and contingencies

PARTNERS' EQUITY:

  Limited partners' equity (400,010
    units issued and outstanding) ..........       40,189,889        38,902,326
  General partners' deficit ................       (3,147,031)       (3,214,797)
                                                 ------------      ------------
                                                   37,042,858        35,687,529
                                                 ------------      ------------
                                                 $ 39,448,080      $ 37,309,597
                                                 ============      ============


                        See notes to financial statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                                                   FORM 10-Q - September 30, 1996

                                                      STATEMENTS OF OPERATIONS


                                                                For the Three Months Ended            For the Nine Months Ended
                                                                        September 30,                        September 30,
                                                              -------------------------------       -------------------------------
                                                                   1996               1995               1996               1995
                                                              ------------       ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>                <C>
Rental Revenue ........................................       $  2,157,450       $  1,647,967       $  6,721,339       $  5,608,201
                                                              ------------       ------------       ------------       ------------

Costs and Expenses:

     Operating expenses ...............................            854,081            814,629          2,537,699          2,542,528
     Depreciation and amortization ....................            319,366            220,000            958,096            758,000
     Partnership management fee .......................            227,043            227,043            681,131            681,129
     Administrative expenses ..........................            128,253            113,295            375,995            355,512
     Property management fee ..........................             63,614             43,512            200,473            173,992
     Write-down for impairment ........................               --                 --                 --           20,469,050
                                                              ------------       ------------       ------------       ------------
                                                                 1,592,357          1,418,479          4,753,394         24,980,211
                                                              ------------       ------------       ------------       ------------
Income (loss) before interest
     and other income .................................            565,093            229,488          1,967,945        (19,372,010)

     Interest income ..................................             39,651             33,061             92,834            105,324

     Other income .....................................             22,654             15,740             52,464             42,390
                                                              ------------       ------------       ------------       ------------
Net income (loss) .....................................       $    627,398       $    278,289       $  2,113,243       $(19,224,296)
                                                              ============       ============       ============       ============

Net income (loss) attributable to:

     Limited partners .................................       $    596,028       $    264,375       $  2,007,581       $(18,263,081)

     General partners .................................             31,370             13,914            105,662           (961,215)
                                                              ------------       ------------       ------------       ------------
Net income (loss) .....................................       $    627,398       $    278,289       $  2,113,243       $(19,224,296)
                                                              ============       ============       ============       ============

Net income (loss) per unit of limited
     partnership interest (400,010 units
     outstanding) .....................................       $       1.49       $        .66       $       5.02       $     (45.66)
                                                              ============       ============       ============       ============

                                                  See notes to financial statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                    INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                               FORM 10-Q - September 30, 1996

                                STATEMENT OF PARTNERS' EQUITY


                                                   General         Limited
                                                  Partners'       Partners'
                                                  (Deficit)        Equity          Total
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>  
Balance, January 1, 1996 ...................   $ (3,214,797)   $ 38,902,326    $ 35,687,529

Net income for the nine
    months ended September 30, 1996 ........        105,662       2,007,581       2,113,243

Distributions as a return of capital for the
    nine months ended September 30, 1996
    ($1.80 per limited partnership unit) ...        (37,896)       (720,018)       (757,914)
                                               ------------    ------------    ------------

Balance, September 30, 1996 ................   $ (3,147,031)   $ 40,189,889    $ 37,042,858
                                               ============    ============    ============



                              See notes to financial statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                            STATEMENTS OF CASH FLOWS

                                                     For The Nine Months Ended
                                                            September 30,
                                                   ----------------------------
                                                         1996           1995
                                                   ------------    ------------
<S>                                                <C>             <C>
Cash Flows From Operating Activities:

     Net income (loss) .........................   $  2,113,243    $(19,224,296)
     Adjustments to reconcile net income
     (loss) to net cash provided by
     operating activities:
           Write-down for impairment ...........           --        20,469,050
           Depreciation and amortization .......        958,096         758,000
           Straight-line adjustment for stepped
           lease rentals .......................        (31,268)        (28,749)
     Changes in assets and liabilities:
           Accounts payable and accrued expenses        852,157         809,150
           Receivables .........................        (70,809)        111,417
           Due to affiliates ...................        (69,003)        (33,166)
           Other assets ........................       (225,458)       (417,991)
                                                   ------------    ------------

     Net cash provided by
           operating activities ................      3,526,958       2,443,415
                                                   ------------    ------------

Cash Flows From Investing Activities:

     Improvements to real estate ...............       (403,006)     (1,418,623)
                                                   ------------    ------------


Cash Flows From Financing Activities:

     Distributions to partners .................       (757,914)       (757,914)
                                                   ------------    ------------

Increase In Cash And Cash Equivalents ..........      2,366,038         266,878

Cash And Cash Equivalents,
     Beginning of Year .........................      2,450,943       2,666,385
                                                   ------------    ------------

Cash And Cash Equivalents,
     End of Quarter ............................   $  4,816,981    $  2,933,263
                                                   ============    ============

                        See notes to financial statements

</TABLE>
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

l.       GENERAL

         The accompanying financial statements,  notes and discussions should be
         read in conjunction  with the financial  statements,  related notes and
         discussions  contained in the Partnership's  annual report on Form 10-K
         for the year ended  December 31,  1995.  The December 31, 1995 year end
         balance sheet data presented herein was derived from audited  financial
         statements,  but does not include all disclosures required by generally
         accepted accounting principles.

         The financial  information  contained herein is unaudited;  however, in
         the  opinion  of  management,  all  adjustments  necessary  for a  fair
         presentation of such financial  information  have been included.  Other
         than  the  write-down  for  impairment,   all  of  the   aforementioned
         adjustments  are of a normal  recurring  nature and there have not been
         any non-recurring  adjustments included in the results reported for the
         current period.

2.       SIGNIFICANT ACCOUNTING POLICIES

         Impairment of Assets

         In  March  1995,  the  Financial   Accounting  Standards  Board  issued
         Statement # 121,  "Accounting  for the Impairment of Long-Lived  Assets
         and for Long-Lived  Assets to Be Disposed of" ("SFAS # 121").  Although
         the  adoption of the  statement  was not  required  until  fiscal years
         beginning  after December 15, 1995, the  Partnership  implemented  SFAS
         #121 for the year ended December 31, 1995.

         Under SFAS #121 the initial test to determine if an  impairment  exists
         is to compute the recoverability of the asset based on anticipated cash
         flows (net realizable  value) compared to the net carrying value of the
         asset.  If  anticipated  cash  flows  on  an  undiscounted   basis  are
         insufficient  to  recover  the net  carrying  value  of the  asset,  an
         impairment loss should be recognized, and the asset written down to its
         estimated  fair  value.  The fair  value of the asset is the  amount by
         which  the  asset  could be  bought  or sold in a  current  transaction
         between willing parties, that is, other than in a forced or liquidation
         sale.  The net  realizable  value of an asset will generally be greater
         than its fair value because net realizable value does not discount cash
         flows  to  present  value  and   discounting  is  usually  one  of  the
         assumptions  used  in  determining  fair  value.  The  write-downs  for
         impairment  do  not  affect  the  tax  basis  of  the  assets  and  the
         write-downs are not included in the  determination of taxable income or
         loss.

         Because the  determination  of both net realizable value and fair value
         is based upon  projections of future  economic  events such as property
         occupancy  rates,  rental rates,  operating  cost  inflation and market
         capitalization  rates  which are  inherently  subjective,  the  amounts
         ultimately  realized at disposition may differ  materially from the net
         carrying  value as of the balance  sheet  date.  The cash flows used to
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

 2.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         determine fair value and net  realizable  value are based on good faith
         estimates  and   assumptions   developed  by  management.   Inevitably,
         unanticipated  events and  circumstances may occur and some assumptions
         may not  materialize;  therefore  actual  results  may  vary  from  our
         estimate and the variances may be material.

         The Partnership may provide  additional losses in subsequent periods if
         the real estate  market or local  economic  conditions  change and such
         write-downs could be material.

         Certain  reclassifications  were  made  to  the  prior  year  financial
         statements in order to conform them to the current period presentation.

 3.      CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

         The Managing General Partner of the Partnership, Resources High Equity,
         Inc.  was,  until  November  3,  1994,  a  wholly-owned  subsidiary  of
         Integrated  Resources,  Inc.  ("Integrated") at which time, pursuant to
         the consummation of the plan of  reorganization,  substantially  all of
         the assets of Integrated were sold to Presidio Capital Corp., a British
         Virgin  Islands  corporation  ("Presidio")  and  the  Managing  General
         Partner  became a wholly owned  subsidiary  of  Presidio.  Presidio AGP
         Corp.,  which is a  wholly-owned  subsidiary  of  Presidio,  became the
         Associate  General  Partner on February 28, 1995,  replacing Z Square G
         Partners II which  withdrew as of that date.  The General  Partners and
         affiliates  of the  General  Partners  are also  engaged in  businesses
         related to the  acquisition  and operation of real estate.  Presidio is
         also the parent of other  corporations that are or may in the future be
         engaged in businesses that may be in competition  with the Partnership.
         Accordingly,  conflicts of interest may arise  between the  Partnership
         and such other businesses.  Wexford Management LLC ("Wexford") has been
         engaged to perform  administrative  services to Presidio and its direct
         and indirect subsidiaries as well as the Partnership.  During the three
         months ended  September 30, 1996,  reimbursable  expenses to Wexford by
         the  Partnership  amounted  to  $23,650.  Wexford is engaged to perform
         similar  services for other similar entities that may be in competition
         with the Partnership.

         The  Partnership  has  entered  into  a  property  management  services
         agreement  with  Resources  Supervisory  Management  Corp.  ("Resources
         Supervisory"),  an affiliate of the General Partner, to perform certain
         functions   relating  to  the  management  of  the  properties  of  the
         Partnership.  A portion of the  property  management  fees were paid to
         unaffiliated  management companies which are engaged for the purpose of
         performing the  management  functions for certain  properties.  For the
         quarters ended September 30, 1996 and 1995,  Resources  Supervisory was
         entitled to receive $63,614 and $43,512, respectively, of which $44,527
         and   $30,853   was   paid  to   unaffiliated   management   companies,
         respectively. These fees were paid in the subsequent quarters.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

 3.      CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

         For the administration of the Partnership, the Managing General Partner
         is  entitled  to receive  reimbursement  of expenses up to a maximum of
         $150,000 per year  (exclusive  of the  administrative  expenses paid to
         Wexford ). For each of the quarters ended  September 30, 1996 and 1995,
         the Managing  General Partner was entitled to receive $37,500 which was
         paid in the subsequent quarters.

         For  managing  the affairs of the  Partnership,  the  Managing  General
         Partner is entitled  to receive an annual  partnership  management  fee
         equal  to  1.05% of the  amount  of  original  gross  proceeds  paid or
         allocable to the acquisition of property by the  Partnership.  For each
         of the quarters ended September 30, 1996 and 1995, the Managing General
         Partner  was  entitled  to  receive  $227,043  which  was  paid  in the
         subsequent quarters.

         The  general  partners  are  allocated  5% of  the  net  income  of the
         Partnership  which  amounted to $31,370  and  $13,914 for the  quarters
         ended September 30, 1996 and 1995, respectively. They are also entitled
         to receive 5% of  distributions  which  amounted to $12,632 for each of
         the quarters ended September 30, 1996 and 1995.

         During the liquidation  stage of the Partnership,  the Managing General
         Partner or an affiliate  may be entitled to receive  certain fees which
         are  subordinated  to the limited  partners  receiving  their  original
         invested  capital  and  certain  specified  minimum  returns  on  their
         investment.

         During July 1996 through  October 1996,  Millenium  Funding II Corp., a
         wholly owned indirect subsidiary of Presidio, purchased 14,121 units of
         the  Partnership  from  various  limited   partners.   These  purchases
         represent less than 4% of the outstanding  limited partnership units of
         the Partnership.

4.       REAL ESTATE

         Management recorded  write-downs for impairment totaling $20,469,050 in
         the  first  quarter  of 1995  pursuant  to  adoption  of  SFAS  #121 as
         discussed in Note 2. No  write-downs  were recorded for the nine months
         ended September 30, 1996.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

4.       REAL ESTATE (CONTINUED)

         The following table represents the write-downs for impairment  recorded
         on the Partnership's properties:
<TABLE>
<CAPTION>
                                                 Nine Months Ended September 30,
                                               --------------------------------- 
                Property                            1996                  1995
                --------                            ----                  ---- 
<S>                                            <C>                   <C>
Seattle Tower ......................           $      --             $ 3,550,000
Century Park I .....................                  --               1,250,000
568 Broadway .......................                  --               2,569,050
Westbrook ..........................                  --               3,400,000
Loch Raven .........................                  --               4,800,000
Southport ..........................                  --               4,900,000
                                               -----------           -----------
                                               $      --             $20,469,050
                                               ===========           ===========
</TABLE>
         The following  table is a summary of the  Partnership's  real estate as
         of:
<TABLE>
<CAPTION>
                                               September 30,        December 31,
                                                    1996                1995
                                               -------------        ------------
<S>                                            <C>                 <C>
Land ...................................       $ 11,056,966        $ 11,056,966
Building and improvements ..............         34,574,799          34,171,794
                                               ------------        ------------
                                                 45,631,765          45,228,760
Less: Accumulated depreciation .........        (13,503,559)        (12,694,788)
                                               ------------        ------------
                                               $ 32,128,206        $ 32,533,972
                                               ============        ============
</TABLE>
5.       DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
                                                  September 30,    December 31,
                                                      1996             1995
                                                  -------------    ------------
<S>                                                <C>              <C>
Limited partners ($.60  per unit) ..............   $ 240,006        $ 240,006
General partners ...............................      12,632           12,632
                                                   ---------        ---------
                                                   $ 252,638        $ 252,638
                                                   =========        =========
</TABLE>
         Such  distributions  were paid in the quarters  subsequent to September
         30, 1996 and December 31, 1995, respectively.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

6.       DUE TO AFFILIATES
<TABLE>
<CAPTION>
                                                    September 30,   December 31,
                                                        1996            1995
                                                    ------------    ------------
<S>                                                   <C>             <C>
Partnership management fee .......................    $227,043        $227,044
Property management fee ..........................      19,087          88,089
Non-accountable expense reimbursement ............      37,500          37,500
                                                      --------        --------
                                                      $283,630        $352,633
                                                      ========        ========
</TABLE>
         Such amounts were paid in the quarters subsequent to September 30, 1996
         and December 31, 1995, respectively.

7.       COMMITMENTS AND CONTINGENCIES

a)       568 Broadway Joint Venture is currently  involved in litigation  with a
         number of present or former  tenants  who are in default on their lease
         obligations. Several of these tenants have asserted claims or counter
         claims seeking monetary damages.  The plaintiffs'  allegations  include
         but are not  limited  to claims  for  breach of  contract,  failure  to
         provide certain services,  overcharging of expenses and loss of profits
         and  income.  These  suits seek total  damages in excess of $20 million
         plus additional  damages of an indeterminate  amount.  The 568 Broadway
         Joint Ventures action for rent against Solo Press was tried in 1992 and
         resulted in a judgement in favor of the 568 Broadway  Joint Venture for
         rent owed.  The  Partnership  believes this will result in dismissal of
         the  action  brought  by Solo  Press  against  the 568  Broadway  Joint
         Venture.  Since the facts of the other actions  which involve  material
         claims or counterclaims are substantially  similar, the 568 Partnership
         believes  that the 568  Broadway  Joint  Venture  will prevail in those
         actions as well.

b)       A former  retail  tenant  of 568  Broadway  (Galix  Shops,  Inc.) and a
         related  corporation which is a retail tenant of a building adjacent to
         568 Broadway  filed a lawsuit in the Supreme  Court of the state of New
         York, County of New York, against the Broadway Joint Venture which owns
         568 Broadway.  The action was filed on April 13, 1994.  The  plaintiffs
         allege that by erecting a sidewalk shed in 1991, 568 Broadway  deprived
         plaintiffs  of  light,  air and  visibility  to  their  customers.  The
         sidewalk shed was erected, as required by local law, in connection with
         the inspection and  restoration  of the 568 Broadway  building  facade,
         which is also required by local law. Plaintiffs further allege that the
         erection of the sidewalk shed for a continuous period of over two years
         is unreasonable and unjustified and that such conduct by defendants has
         deprived  plaintiffs  of the use and  enjoyment of  property.  The suit
         seeks a judgement requiring removal of the sidewalk shed,  compensatory
         damages  of $20  million,  and  punitive  damages of $10  million.  The
         Partnership  believes  that  this  suit is  meritless  and  intends  to
         vigorously defend it.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)


c)       On or about  May 11,  1993  High  Equity  Partners  L.P.  -  Series  86
         ("HEP-86"), an affiliated partnership,  was advised of the existence of
         an  action  (the  "B&S  Litigation')  in which a  complaint  (the  "HEP
         Complaint") was filed in the Superior Court for the State of California
         for the County of Los  Angeles  (the  "Court") on behalf of a purported
         class  consisting  of all  of the  purchasers  of  limited  partnership
         interests in HEP-86.

         On April 7, 1994 the  plaintiffs  were granted leave to file an amended
         complaint (the "Amended  Complaint").  The Amended  Complaint  asserted
         claims  against the General  Partners of the  Partnership,  the general
         partners of HEP-86,  the managing general partner of HEP-88 and certain
         officers of the Managing  General Partner,  among others.  The Managing
         General  Partner of the Partnership is also a general partner of HEP-86
         and HEP-88.

         On July 19, 1995, the Court preliminarily  approved a settlement of the
         B&S  Litigation  and  approved  the  form of a  notice  (the  "Notice")
         concerning  such  proposed  settlement.  In  response  to  the  Notice,
         approximately   1.1%  of  the   limited   partners  of  the  three  HEP
         partnerships  (representing  approximately  4%  of  outstanding  units)
         requested exclusion and 15 limited partners filed written objections to
         the settlement.  The California  Department of Corporations also sent a
         letter to the Court opposing the  settlement.  Five  objecting  limited
         partners,  represented by two law firms, also made motions to intervene
         so they could  participate more directly in the action.  The motions to
         intervene were granted by the Court on September 14, 1995.

         In  October  and  November  1995,  the  attorneys  for the  plaintiffs-
         intervenors conducted extensive discovery. At the same time, there were
         continuing  negotiations  concerning possible revisions to the proposed
         settlement.

         On November  30,  1995,  the original  plaintiffs  and the  intervening
         plaintiffs filed a Consolidated  Class and Derivative  Action Complaint
         ("Consolidated Complaint") against the Managing General Partner, two of
         the general partners of HEP-86,  the managing general partner of HEP-88
         and the indirect  corporate  parent of the General  Partners,  alleging
         various state law class and  derivative  claims,  including  claims for
         breach of fiduciary duties;  breach of contract;  unfair and fraudulent
         business  practices  under  California Bus. & Prof. Code Section 17200;
         negligence;  dissolution,  accounting,  receivership,  and  removal  of
         general   partner;   fraud;   and  negligent   misrepresentation.   The
         Consolidated  Complaint alleges,  among other things,  that the general
         partners  caused  a  waste  of HEP  Partnership  assets  by  collecting
         management fees in lieu of pursuing a strategy to maximize the value of
         the  investments  owned  by the  limited  partners;  that  the  general
         partners  breached  their duty of loyalty  and due care to the  limited
         partners by expropriating management fees from the Partnerships without
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)


         trying to run the HEP  Partnerships for the purposes for which they are
         intended;  that the general  partners are acting  improperly  to enrich
         themselves in their position of control over the HEP  Partnerships  and
         that their  actions  prevent  non-affiliated  entities  from making the
         completing  tender offers to purchase HEP  Partnership  Units;  that by
         refusing  to seek the  sale of the HEP  Partnerships'  properties,  the
         general  partners have  diminished  the value of the limited  partners'
         equity in the HEP Partnerships;  that the general partners have taken a
         heavily  overvalued  partnership asset management fee; that the limited
         partnership  units were sold and marketed  through the use of false and
         misleading statements.

         On or about  January  31,  1996,  the  parties to the B & S  Litigation
         agreed upon a revised  settlement,  which would be  significantly  more
         favorable to limited partners than the previously proposed  settlement,
         The revised settlement proposal,  like the previous proposal,  involves
         the  reorganization  of (i) the  Partnership,  (ii) HEP-86  and,  (iii)
         HEP-88 (collectively, the "HEP Partnerships"), through an exchange (the
         "Exchange") in which limited partners (the  "Participating  Investors")
         of the partnerships  participating in the Exchange (the  "Participating
         Partnerships")  would receive,  in exchange for the partnership  units,
         shares  of  common  stock  ("Shares")  of a  newly-formed  corporation,
         Millennium Properties Inc. ("Millennium") which intends to qualify as a
         real  estate  investment  trust.  Such  reorganization  would  only  be
         effected  with  respect  to a  particular  partnership  if holders of a
         majority of the outstanding  units of that partnership  consent to such
         reorganization  pursuant  to  a  Consent  Solicitation  Statement  (the
         "Consent  Solicitation  Statement")  which would be sent to all limited
         partners after the  settlement is approved by the Court.  In connection
         with the Exchange,  Participating  Investors  would  receive  Shares of
         Millennium in exchange for their limited  partnership units.  84.65% of
         the  Shares  would  be  allocated  to  Participating  Investors  in the
         aggregate  (assuming  each  of  the  Partnerships  participate  in  the
         Exchange)  and 15.35% of the Shares  would be  allocated to the general
         partners in consideration of the general partner's  existing  interests
         in the Participating Partnerships,  their relinquishment of entitlement
         to receive  fees and  expense  reimbursements,  and the  payment by the
         general partners or an affiliate of certain amounts for legal fees.

         As part of the Exchange, Shares issued to Participating Investors would
         be accompanied by options  granting such Investors the right to require
         an affiliate of the general  partners to purchase  Shares at a price of
         $11.50 per Share,  exercisable during the three month period commencing
         nine months after the effective date of the Exchange.  A maximum of 1.5
         million Shares  (representing  approximately  17.7% of the total Shares
         issued to investors if all partnerships  participate) would be required
         to be purchased if all partnerships  participate in the Exchange.  Also
         as part of the Exchange,  the indirect  parent of the General  Partners
         would agree that in the event that  dividends  paid with respect to the
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)


         Shares do not  aggregate  at least  $1.10 per Share for the first  four
         complete fiscal quarters  following the Effective Date, it would make a
         supplemental  payment to  holders of such  Shares in the amount of such
         difference.  The general partners or an affiliate would also provide an
         amount,  not to exceed $2,232,500 in the aggregate,  for the payment of
         attorneys' fees and reimbursable expenses of class counsel, as approved
         by the Court,  and the costs of providing notice to the class (assuming
         that all three Partnerships  participate in the Exchange). In the event
         that fewer than all of the  Partnerships  participate  in the Exchange,
         such amount would be reduced. The general partners would advance to the
         Partnerships  the amounts  necessary to cover such fees and expenses of
         the Exchange (but not their  litigation  costs and expenses,  which the
         general  partners would bear).  Upon the  effectuation of the Exchange,
         the B & S Litigation would be dismissed with prejudice.

         On  February  8, 1996,  at a hearing  on  preliminary  approval  of the
         revised  settlement,  the  Court  determined  that in light of  renewed
         objections  to  the   settlement  by  the   California   Department  of
         Corporations, the Court would appoint a securities litigation expert to
         evaluate  the  settlement.  The Court  stated that it would rule on the
         issue of  preliminary  approval of the settlement  after  receiving the
         expert's report.  On May 6, 1996, the expert submitted a report stating
         that he was unable to conclude that the revised  settlement as proposed
         is fair,  reasonable and adequate,  and  recommending  that the revised
         settlement  be  restructured  so as to  allocate  Shares to the general
         partners based solely on the value of their 5% equity  interests in the
         Partnerships,  that the  allocation  of Shares be based on  independent
         appraisals   of  all  of  the   Partnerships'   properties,   and  that
         Participating Investors be provided with dissenters' rights. On May 28,
         1996, at a hearing in connection  with the expert's  report,  the Court
         ordered the parties to brief certain  valuation  issues,  the requisite
         consents required from limited partners to approve the Exchange and the
         applicability  of  exemptions  from  the  California   securities  law.
         Thereafter, in response to the expert's report, the proposed settlement
         was  further  revised  to  require  independent  appraisals  of all the
         Partnerships'  properties and to provide  Participating  Investors with
         dissenters'  rights,  which would entitle  Participating  Investors who
         elected dissenters' rights to receive, as compensation for their Units,
         unsecured notes issued by Millennium, the face amount of which would be
         based on the independent appraisals.

         A hearing on the issues the Court had  ordered the parties to brief was
         held  on July 9,  1996.  On July  18,  1996,  the  Court  preliminarily
         approved the proposed,  revised settlement of the B & S Litigation, and
         made a  preliminary  finding that the proposed,  revised  settlement is
         fair, adequate and reasonable to the class, and that a settlement class
         should be conditionally certified.  After a hearing on August 19, 1996,
         the Court  approved  the form and method of notice to limited  partners
         regarding  the  proposed,  revised  settlement,  which has been sent to
         limited partners.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)

         At a hearing on October 23,  1996,  the Court  stated that it wished to
         consider  late-filed  briefs from certain objectors which were filed up
         to and  including  the date of the  hearing.  The Court also  invited a
         further  response from the  plaintiffs  to such briefs.  On November 4,
         1996, the Court issued an order seeking comment on the final version of
         the  settlement  from the  California  Department of  Corporations  and
         additional  information  from the  plaintiffs.  The Court  requested  a
         response  within  17 days of its  order.  Upon  final  approval  of the
         settlement by the Court, the Consent Solicitation  Statement concerning
         the Exchange would be sent to all limited  partners.  There would be at
         least  a 60  day  solicitation  period  and  a  reorganization  of  the
         Partnership  cannot be  consummated  unless a majority  of the  limited
         partners in the Partnership affirmatively vote to approve it.

8.       RESULTS OF OPERATIONS

         Results of operations for the nine months ended  September 30, 1996 are
         not necessarily indicative of the results to be expected for the entire
         year.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The  Partnership's  real estate  properties  are office  buildings  and shopping
centers,  all of which were acquired for cash. The public  offering of the Units
commenced  on  February  4,  1985  and  was  terminated  on May 30,  1986.  Upon
termination,  the  Partnership  had  accepted  subscriptions  for 400,010  Units
(including Units held by the initial limited partner) for aggregate net proceeds
of $98,502,500  (gross proceeds of $100,002,500  less  organization and offering
expenses aggregating $1,500,000).

The Partnership uses working capital reserves remaining from the net proceeds of
its public  offering and any  undistributed  cash from operations as its primary
source of  liquidity.  For the nine months ended  September  30,  1996,  100% of
distributions  and capital  expenditures  were  funded  from cash  flows.  As of
September  30, 1996,  the  Partnership  had total  working  capital  reserves of
approximately $2,787,000. The Partnership intends to distribute less than all of
its future cash flow from operations to maintain  adequate  reserves for capital
improvements  and capitalized  lease  procurement  costs.  In addition,  if real
estate  market  conditions  deteriorate  in any areas  where  the  Partnership's
properties  are  located,  there is  substantial  risk that this  would  have an
adverse effect on future cash flow  distributions.  Working capital reserves are
temporarily invested in short-term instruments and, together with cash flow from
operations, are expected to be sufficient to fund future capital improvements to
the Partnership's properties.

During the nine months  ended  September  30,  1996,  cash and cash  equivalents
increased  $2,366,038  as a result of cash  provided by  operations in excess of
capital  expenditures and distributions to partners.  The Partnership's  primary
source of funds is cash flow from the operation of its  properties,  principally
rents  received from tenants,  which  amounted to $3,526,958 for the nine months
ended September 30, 1996. The Partnership used $403,006 for capital expenditures
related to capital and tenant  improvements  to the  properties and $757,914 for
distributions to partners for the nine months ended September 30, 1996.

The  Partnership  expects to continue to utilize a portion of its cash flow from
operations to pay for various capital and tenant  improvements to the properties
and  leasing   commissions  (the  amount  of  which  cannot  be  predicted  with
certainty).  Capital and tenant improvements and leasing commisssions may in the
future exceed the Partnership's  cash flow from operations which would otherwise
be available for distributions. In that event, the Partnership would utilize the
remaining  working capital reserves or sell one or more properties,  which would
have an  adverse  effect on future  distributions.  Except as  discussed  above,
management  is  not  aware  of  any  other  trends,   events,   commitments   or
uncertainties that will have a significant impact on liquidity.

REAL ESTATE MARKET

The real estate  market  continues  to suffer from the effects of the  recession
which included a substantial decline in the market value of existing properties.
Market values have been slow to recover,  and while the pace of new construction
has slowed,  high vacancy rates  continue to exist in many areas.  Technological
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

changes  are also  occurring  which may reduce the  office  space  needs of many
users.  These  factors may continue to reduce  rental  rates.  As a result,  the
Partnership's  potential for  realizing the full value of its  investment in its
properties is at increased risk.

IMPAIRMENT OF ASSETS

In March 1995, the Financial  Accounting Standards Board issued Statement # 121,
"Accounting for The Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of" ("SFAS # 121").  Although the adoption of the  statement was not
required until fiscal years  beginning  after December 15, 1995, the Partnership
implemented SFAS #121 for the year ended December 31, 1995.

Under SFAS #121 the initial  test to  determine  if an  impairment  exists is to
compute the  recoverability  of the asset based on  anticipated  cash flows (net
realizable  value)  compared  to  the  net  carrying  value  of  the  asset.  If
anticipated cash flows on an undiscounted  basis are insufficient to recover the
net carrying value of the asset,  an impairment  loss should be recognized,  and
the asset written down to its estimated fair value.  The fair value of the asset
is the  amount  by  which  the  asset  could  be  bought  or sold  in a  current
transaction  between  willing  parties,  that  is,  other  than in a  forced  or
liquidation sale. The net realizable value of an asset will generally be greater
than its fair value because net realizable value does not discount cash flows to
present  value  and  discounting  is  usually  one of the  assumptions  used  in
determining  fair value.  The  write-downs  for impairment do not affect the tax
basis of the assets and the write-downs are not included in the determination of
taxable income or loss.

Because the  determination  of both net realizable value and fair value is based
upon  projections of future  economic events such as property  occupancy  rates,
rental rates, operating cost inflation and market capitalization rates which are
inherently subjective, the amounts ultimately realized at disposition may differ
materially  from the net carrying  values as of the balance sheet date. The cash
flows used to determine  fair value and net  realizable  value are based on good
faith   estimates  and   assumptions   developed  by   management.   Inevitably,
unanticipated  events and  circumstances  may occur and some assumptions may not
materialize;  therefore  actual  results  may  vary  from our  estimate  and the
variances may be material.  The  Partnership  may provide  additional  losses in
subsequent periods if the real estate market or local economic conditions change
and such write-downs could be material.

Management recorded write-downs for impairment totaling $20,469,050 in the first
quarter of 1995  pursuant to the  adoption of SFAS #121 as discussed  above.  No
write-downs were recorded for the nine months ended September 30,1996.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

The following table  represents the  write-downs for impairment  recorded on the
Partnership's properties:
<TABLE>
<CAPTION>
                                                 Nine Months Ended September 30,
                                               --------------------------------- 
                Property                            1996                  1995
                --------                            ----                  ---- 
<S>                                            <C>                   <C>
Seattle Tower ......................           $      --             $ 3,550,000
Century Park I .....................                  --               1,250,000
568 Broadway .......................                  --               2,569,050
Westbrook ..........................                  --               3,400,000
Loch Raven .........................                  --               4,800,000
Southport ..........................                  --               4,900,000
                                               -----------           -----------
                                               $      --             $20,469,050
                                               ===========           ===========
</TABLE>
RESULTS OF OPERATIONS

The  Partnership  experienced net income for the nine months ended September 30,
1996  compared to a net loss for the nine months  ended  September  30, 1995 due
primarily to the  significant  write-down for  impairment  recorded in 1995. The
Partnership  experienced  an increase in net income for the three  months  ended
September  30, 1996  compared to the same period in the prior year due primarily
to higher revenues at certain properties in 1996.

Rental  revenue  increased for the nine months and three months ended  September
30,  1996  compared to the same  periods in the prior year.  Revenues at Century
Park I, 568 Broadway,  and Seattle Tower  increased  during both periods in 1996
due to higher  occupancy  rates as new leases were  executed in late 1995 and in
1996.  Revenues at Southport  increased for the nine months ended  September 30,
1996 as higher percentage rent and real estate tax reimbursements were collected
from certain tenants during 1996 compared to 1995.

Costs and expenses  decreased  during the nine months ended  September  30, 1996
compared  to the  same  period  in 1995  due  primarily  to the  write-down  for
impairment  recorded in 1995 while costs and expenses increased slightly for the
three months ended  September  30, 1996 compared to the same period in the prior
year.  Operating expenses remained  relatively  consistent for both the nine and
three month periods ended September 30, 1996 compared to 1995.  Decreases in bad
debt  expenses  and lower real  estate  taxes were  offset by higher  repair and
maintenance costs and utility expenses. Bad debt expenses decreased at Southport
and Westbrook during 1996 compared to 1995 and real estate taxes at 568 Broadway
were reduced as a result of appeals of current and prior year's assessed values.
Repairs  and  maintenance  expenses  increased  at  Century  Park due to  higher
occupancy  and at Loch  Raven due to costs  related to severe  weather.  Utility
costs  were  higher  at 568  Broadway  during  the nine and three  months  ended
September  30,  1996  due  to  higher   occupancy  in  1996  compared  to  1995.
Depreciation  and  amortization  increased  for both the  nine and  three  month
periods in 1996 due to significant  capital and tenant improvement work in 1995.
The  partnership  management fees and  administrative  expenses for the nine and
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

three months ended September 30, 1996 were  relatively  consistent with the same
periods in the prior year.  Property  management fees increased  during the nine
and three months ended September 30, 1996 as compared to the prior period due to
the increases in rental revenue at certain properties as previously discussed.

Interest income  decreased due to lower interest rates for the nine months ended
September 30, 1996 as compared to the same periods in 1995. Higher cash balances
during the three months ended  September 30, 1996 compared to the same period in
1995 resulted in an increase in interest  income for the quarter.  Other income,
which consists of investor  ownership  transfer fees,  increased during the nine
and three month periods ended September 30, 1996 compared to the same periods in
1995 due to a greater number of ownership  transfers during the second and third
quarters of 1996.

Inflation  is not  expected  to  have a  material  impact  on the  Partnership's
operations or financial position.

Legal Proceedings

The  Partnership is a party to certain  litigation.  See Note 7 to the financial
statements for a description thereof.
<PAGE>


              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996



                          Part II. - Other Information

Item 1 -          Legal Proceedings

(a)               See   Management's   Discussion   and  Analysis  of  Financial
                  Condition  and Results of  Operations  and Notes to  Financial
                  Statements - Note 7 which is herein incorporated by reference.

Item 6 -          Exhibits and Reports on Form 8-K

(a)               Exhibits: There were no exhibits filed.

(b)               Reports on Form 8-K: There were no reports filed.

<PAGE>


              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                         FORM 10-Q - September 30, 1996

                                   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.



                                                Integrated Resources High Equity
                                                Partners, Series 85,
                                                A California Limited Partnership




                                           By:      Resources High Equity, Inc.,
                                                    Managing General Partner




Dated:   November 14, 1996                 By:      /S/ Joseph M. Jacobs
                                                    --------------------
                                                    Joseph M. Jacobs
                                                    President
                                                    (Duly Authorized Officer)




Dated:   November 14, 1996                 By:      /S/ Jay L. Maymudes
                                                    -------------------
                                                    Jay L. Maymudes
                                                    Vice President, Secretary
                                                    and Treasurer
                                                    (Principal Financial and
                                                    Accounting Officer)