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

                                   FORM 10-K

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
                          -----------------
                                      OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from               to 
                               -------------    -------------            

Commission file number 0-14353
                       -------

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

           Illinois                                      36-3244978
-------------------------------                      ------------------- 
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)

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

Registrant's telephone number, including area code (847) 267-1600
                                                   ---------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----
Securities registered pursuant to Section 12(g) of the Act:

                         Limited Partnership Interests
                         -----------------------------
                               (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ]  No [   ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
                                    PART I

Item 1. Business
----------------

Balcor Realty Investors 85-Series I A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1983 under the laws of the
State of Illinois. The Registrant raised $82,697,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income-producing real property, and all
financial information included in this report relates to this industry segment.

The Registrant utilized the net offering proceeds to acquire ten real property
investments and minority joint venture interests in three additional
properties. The Registrant has disposed of nine of these properties and two of
the properties in which it held minority joint venture interests. As of
December 31, 1996, the Registrant owned the remaining property and a minority
joint venture interest in one additional property as described under Item 2.
"Property". In February 1997, the Templeton Park Apartments were sold. The
Partnership Agreement generally provides that the proceeds of any sale or
refinancing of the Registrant's properties will not be reinvested in new
acquisitions.

The Registrant's remaining property, Templeton Park Apartments, faces
various levels of competition for retention of its tenants from similar
types of properties in the vicinity in which it is located. The Registrant
has no plans to change the current use of or to renovate its remaining
property. See "Item 7. Liquidity and Capital Resources" for additional
information.

Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily
available capital, low interest rates, and decreased vacancy rates
resulting from steady demand and an acceptable level of new construction.
While 1996 proved to be an excellent year to sell real estate, projected
yields by buyers on new acquisitions have declined significantly due to
competition and rising prices.  Although there will be variances by asset
class and geographic area, the investment climate is expected to remain
strong for 1997.  However, values could begin to level off as they
approach replacement cost triggering new construction and an increase in
capitalization rates.

The investment market for apartments was excellent during 1996 due to a
number of factors.  Investor interest was strong, driven primarily by
institutions, as Real Estate Investment Trusts aggressively expanded their
portfolios and pension funds viewed apartments as an attractive asset
class due to their perceived  low volatility and the emergence of large
professional  property management companies.  Operationally, existing
apartment properties registered on a national basis occupancy in the mid
90's and rental rate increases of 3-4% in 1996.  While above the rate of
inflation, the rate of rental growth in 1996 was below that of the
previous two years suggesting that the apartment cycle may have plateaued,
especially as the impact of new construction in many areas is being felt.
<PAGE>
While 1997 is projected to be another solid year, values should begin to
level off as capitalization rates move upward continuing a trend which
began during the second half of 1996.

During 1996, the Registrant sold Seabrook Apartments, in which it held a
minority joint venture interest, and the Willowbend, Forest Ridge - Phase I,
Boulder Springs, Timberlake - Phase I, Forestwood and Heather Ridge apartment
complexes. During February 1997, the Registrant sold its remaining property,
the Templeton Park Apartments. Currently, the General Partner has entered into
a contract to sell its last remaining investment, the North Hill Apartments, in
which the Registrant holds a minority joint venture interest. The timing of the
termination of the Registrant and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Registrant including, but not limited to, the lawsuits
discussed in "Item 3. Legal Proceedings". In the absence of any such
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held by
the Registrant for a longer period of time.

The Seabrook Apartments, which was owned by a joint venture consisting of the
Registrant and two affiliates, was sold during February 1996 for $5,915,000.
See "Item 7. Liquidity and Capital Resources" for additional information.

During March 1996, the Registrant sold the Willowbend Apartments in an all cash
sale for $9,985,000. See "Item 7. Liquidity and Capital Resources" for
additional information.

During June 1996, the Registrant sold the Forest Ridge - Phase I Apartments in
an all cash sale for $11,600,000. See "Item 7. Liquidity and Capital Resources"
for additional information.

During September 1996, the Registrant sold the Boulder Springs and Timberlake -
Phase I apartment complexes in all cash sales for $14,831,000 and $18,134,077,
respectively. See "Item 7. Liquidity and Capital Resources" for additional
information.

During October 1996, the Registrant sold the Forestwood Apartments in an all
cash sale for $10,050,000. See "Item 7. Liquidity and Capital Resources" for
additional information.

During November 1996, the Registrant sold the Heather Ridge Apartments in an
all cash sale for $8,890,000. See "Item 7. Liquidity and Capital Resources" for
additional information.

Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
<PAGE>
The Registrant, by virtue of its ownership of real estate, is subject to
Federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental contamination as appropriate. The
General Partner is not aware of any potential liability due to environmental
issues or conditions that would be material to the Registrant.
 
The officers and employees of Balcor Partners-XVI, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.

Item 2. Properties
------------------

As of December 31, 1996, the Registrant owns the property described below,
which is owned in fee simple.

Location                     Description of Property
--------                     -----------------------

Colorado Springs, Colorado * Templeton Park Apartments: a 496-unit complex
                             located on approximately 21 acres.

* This property was sold during February 1997. See Note 14 of Notes to
Financial Statements.

The above property was held subject to a mortgage loan as described in more
detail in Note 5 of Notes to the Financial Statements.

The Registrant also holds a minority joint venture interest in North Hill
Apartments, DeKalb County, Georgia. See Note 7 of Notes to Financial Statements
for additional information.

The average occupancy rates and effective average rent per unit for each of the
last five years for the property owned by the Registrant at December 31,  1996,
are described below.

                        1996     1995      1994      1993      1992
                       ------   ------    ------    ------    ------
                     
Templeton Park
  Occupancy rate         93%      97%       96%       96%       98%
  Effective rent        $631     $616      $623      $559      $490

Apartment units in the  above property are  rented with leases  of one year  or
less, with no tenant occupying greater  than ten percent of the property.  Real
estate taxes incurred in 1996 for the above property totaled $92,754.

The Federal tax basis of the  Templeton Park Apartments  totaled $15,629,048 as
of December 31, 1996. For Federal income tax purpose, the acquisition costs  of
the property is depreciated over  its useful life of  15 years, using the  ACRS
method. Other  minor  assets are  depreciated  over their  applicable  recovery
periods.
<PAGE>
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment property.

See Notes to Financial Statements for other information regarding real property
investments.

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

Proposed class action
---------------------

On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships_), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.

The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.

Proposed class action
---------------------

On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the _Affiliated Partnerships_), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Registrant and the Affiliated
Partnerships, the "Defendant Partnerships_) and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. 
<PAGE>
The amended complaint seeks judgment for compensatory damages equal to the
amount invested in the Defendant Partnerships by the proposed class plus
interest; general damages for injuries arising from the defendants' alleged
actions; equitable relief, including rescission, on certain counts; punitive
damages; treble damages on certain counts; recovery from the defendants of all
profits received by them as a result of their alleged actions relating to the
Defendant Partnerships; attorneys' fees and other costs.

The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.

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

No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.

                                    PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------------------
Matters
-------

There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."

As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 7,074.

Item 6. Selected Financial Data
-------------------------------

                                     Year ended December 31,                   
                   ----------------------------------------------------------
                       1996       1995        1994        1993         1992    
                   ---------- ----------- -----------  ----------- -----------
 

Total income      $12,182,124  $16,503,016 $14,888,075  $15,484,410 $17,331,431
Income (loss) 
  before gain 
  on sales of
  properties and
  extraordinary 
  items             1,464,338    2,142,234     529,539    (465,069) (1,653,732)
Net income (loss)  33,263,250    2,142,234     663,204    7,210,490 (1,653,732)
<PAGE>
Net income (loss)
 per Limited 
 Partnership
 Interest              398.21        25.65       7.94       86.32       (19.80)
Total assets       26,713,606   54,596,297 59,911,923  58,158,518    75,012,096
Mortgage notes
  payable          11,495,334   56,466,198 57,381,930  55,919,126    79,230,302
Distributions per
  Limited Partner-
  ship Interest (A)    191.00        77.50       5.00        None          None

(A) These amounts include a distribution of original capital of $160 and $29
per Limited Partnership Interest for the years 1996 and 1995, respectively.

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

Operations
----------

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

During 1996, Balcor Realty Investors 85 - Series I A Real Estate Limited
Partnership (the "Partnership") recognized gains in connection with the 1996
sales of six of the Partnership's properties, which was the primary reason for
the increase in net income for 1996 as compared to 1995. The Pinebrook
Apartments, which was owned by a joint venture consisting of the Partnership
and an affiliate was sold in 1995. The Partnership recognized its share of the
gain on sale, which is the primary reason the Partnership generated higher net
income in 1995 as compared to 1994. Further discussion of the Partnership's
operations is summarized below.

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

The Partnership sold the Willowbend, Forest Ridge - Phase I, Boulder Springs,
Timberlake - Phase I, Forestwood and Heather Ridge apartment complexes in 1996.
As a result, the Partnership recognized gains totaling $33,803,968.  These
sales also resulted in a decrease in rental and service income during 1996 as
compared to 1995.

Due to higher average cash balances resulting from net proceeds received in
connection with the 1996 property sales, interest income on short-term
investments increased for 1996 as compared to 1995. 

Pinebrook Apartments, in which the Partnership held a minority joint venture
interest, was sold during February 1995. As a result of the $780,279 gain
recognized during 1995 in connection with the sale, the Partnership recognized
a decrease in participation in income from joint ventures with affiliates
during 1996 as compared to 1995. 
<PAGE>
The February 1996 sale of Seabrook Apartments, in which the Partnership also
held a minority joint venture interest, resulted in the recognition of a
$167,739 gain in 1996, which partially offset the above decrease. 

Interest expense on mortgage notes payable decreased during 1996 as compared to
1995 primarily due to the 1996 property sales.

Depreciation expense decreased during 1996 as compared to 1995 due to the 1996
property sales.

Amortization of deferred expenses decreased during 1996 as compared to 1995 due
to the 1996 property sales.

Property operating expense decreased by approximately $1,304,000 in 1996 as
compared to 1995 due to the 1996 property sales. This decrease was offset by an
increase in payroll, utilities and exterior repair and maintenance expenditures
at several of the Partnership's properties of approximately $388,000.

Real estate tax expense decreased during 1996 as compared to 1995 due to the
1996 property sales.

Property management fees decreased during 1996 as compared to 1995 due to the
1996 property sales.

In 1996, the Partnership recognized extraordinary debt extinguishment expense
comprised of prepayment penalties related to the Willowbend, Timberlake - Phase
I, Forestwood and Heather Ridge mortgage loans and the write off of the
remaining unamortized deferred expenses related to the repayment of the
mortgage loans in connection with the six property sales totaling $2,031,779. 

1995 Compared to 1994
---------------------

Increased rental rates during 1995 at most of the Partnership's properties
resulted in increased rental and service income during 1995 as compared to
1994.

Interest income on short-term investments increased in 1995 as compared to 1994
due to an increase in interest rates earned on short-term investments.

Pinebrook Apartments, in which the Partnership held a minority joint venture
interest, was sold during February 1995. As a result of the gain recognized in
connection with the sale, the Partnership recognized income from participation
in joint ventures with affiliates during 1995 as compared to a loss in 1994.

The Partnership incurred legal, consulting, printing and postage costs in
connection with a tender offer during the fourth quarter of 1995. As a result,
administrative expenses increased during 1995 as compared to 1994.

North Hill Apartments is owned by a joint venture consisting of the Partnership
and an affiliate. In connection with the December 1994 North Hill Apartments
refinancing, the joint venture received a refund relating to prior year
payments made to Mutual Benefit Life Insurance Company representing its 1%
guaranty fee on the original North Hill Apartments mortgage loan.
<PAGE>
As a result, the joint venture recognized a $534,659 extraordinary gain on
forgiveness of debt in 1994, of which $133,665 represents the Partnership's
share.

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

The cash position of the Partnership increased by approximately $14,003,000 as
of December 31, 1996 as compared to December 31, 1995, primarily due to Net
Cash Proceeds received from the 1996 property sales. The Partnership's cash
flow provided by operating activities of approximately $2,103,000, was
generated primarily from the operations of the Partnership's properties and was
partially offset by the payment of administrative expenses. The Partnership's
net cash provided by investing activities of approximately $71,839,000,
consisted primarily of the proceeds received from the 1996 property sales. Cash
was used in the Partnership's financing activities of approximately $59,939,000
primarily for the repayment of the mortgage loans in connection with the 1996
property sales which totaled approximately $43,686,000, principal payments on
mortgage notes payable of approximately $1,285,000 and distributions to Limited
Partners of approximately $15,795,000. In addition, in January 1997, the
Partnership made a special distribution of $12,818,035 to the Limited Partners
and in February 1997 received net proceeds of approximately $11,389,000 from
the sale of Templeton Park Apartments. 
       
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. The
Partnership defines cash flow generated from its properties as an amount equal
to the property's revenue receipts less property related expenditures, which
include debt service payments. During 1996 and 1995, the Templeton Park
Apartments generated positive cash flow. The Boulder Springs, Forest Ridge -
Phase I, Timberlake - Phase I, Forestwood, Heather Ridge and Willowbend
apartment complexes which were sold in 1996, also generated positive cash flow
in 1995 and prior to their sales in 1996. The remaining property in which the
Partnership holds a minority joint venture interest, North Hill Apartments,
generated positive cash flow during 1996 and 1995. Seabrook Apartments, in
which the Partnership held a minority joint venture interest, was sold in
February 1996 and generated  marginal cash flow deficits in 1995 and prior to
its sale in 1996. In addition, Pinebrook Apartments, in which the Partnership
held a minority joint venture interest, was sold in February 1995 and generated
a marginal cash flow deficit prior to its sale. As of December 31, 1996, the
occupancy rate at Templeton Park Apartments was 93%. 

Templeton Apartments is located in northeast Colorado Springs, Colorado which
is considered a good sub-market; however, it ranks behind the northwestern and
southwestern sections of the city. The entire multi-family market consists of
approximately 30,000 units which averaged 96% occupancy in 1996. Average
occupancy at the property in 1996 was 95%, while the sub-market occupancy for
similar product type averaged 97%. Due to higher density and lower curb appeal,
Templeton Apartments is considered only average for the sub-market and,
therefore, runs slightly behind the higher quality properties. As Colorado
Springs has continued its economic recovery, the housing market has seen some
construction of multi-family units with approximately 1,400 units built in 1996
and another 2,000 units currently being planned for 1997. The additional supply
in the market may cause a softening in the overall market.
<PAGE>
During 1996, the Partnership sold Seabrook Apartments, in which it held a
minority joint venture interest, and the Willowbend, Forest Ridge - Phase I,
Boulder Springs, Timberlake - Phase I, Forestwood and Heather Ridge apartment
complexes. During 1997, the Partnership sold its remaining property, the
Templeton Park Apartments, for a sale price of $23,300,000. Currently, the
General Partner has entered a contract to sell its remaining property, the
North Hill Apartments, in which the Partnership holds a minority joint venture
interest. A majority of the proceeds from the sale of the Templeton Park
Apartments will be distributed in 1997. The Partnership will retain 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 stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings". In the absence of any such contingency, the reserves will be paid
within twelve months of the last property being sold. In the event a
contingency exists, reserves may be held by the Partnership for a longer period
of time.

The Seabrook Apartments was owned by a joint venture consisting of the
Partnership and two affiliates. In February 1996, the joint venture sold the
property in an all cash sale for $5,915,000. From the proceeds of the sale, the
joint venture paid $5,081,898 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $190,517 in selling costs.
The net proceeds of the sale were $642,585, of which $103,770 was the
Partnership's share. Pursuant to the terms of the sale, $250,000 of the
proceeds were retained by the joint venture until August 1996 at which time the
proceeds were released by the joint venture. The proceeds received by the
Partnership were distributed as part of special distributions to the Limited
Partners in July and October 1996. See Note 7 of Notes to Financial Statements
for additional information.  

In March 1996, the Partnership sold the Willowbend Apartments in an all cash
sale for $9,985,000. From the proceeds of the sale, the Partnership paid
$5,790,869 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $240,515 in selling costs and paid $243,712 of prepayment
penalties. The remainder of the proceeds were distributed as part of a special
distribution to the Limited Partners in July 1996. See Note 10 of Notes to
Financial Statements for additional information.

In June 1996, the Partnership sold the Forest Ridge - Phase I Apartments in an
all cash sale for $11,600,000. From the proceeds of the sale, the Partnership
paid $7,589,194 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $131,000 in selling costs. Pursuant to the terms
of the sale, $500,000 of the proceeds were retained by the Partnership until
October 1996 at which time the proceeds were released by the Partnership. The
proceeds were distributed as part of special distributions to the Limited
Partners in July 1996 and October 1996. See Note 10 of Notes to Financial
Statements for additional information.

In September 1996, the Partnership sold the Boulder Springs Apartments in an
all cash sale for $14,831,000. From the proceeds of the sale, the Partnership
paid $8,046,954 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $449,784 in selling costs. 
<PAGE>
Pursuant to the terms of the sale, $500,000 of the proceeds will be retained by
the Partnership until June 1997. The remainder of the proceeds were distributed
as part of a special distribution to the Limited Partners in October 1996. See
Note 10 of Notes to Financial Statements for additional information.

In September 1996, the Partnership sold the Timberlake Apartments - Phase I in
an all cash sale for $18,134,077. From the proceeds of the sale, the
Partnership paid $11,387,150 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $424,282 in selling costs and
paid $530,383 of prepayment penalties. Pursuant to the terms of the sale,
$250,000 of the proceeds were retained by the Partnership until December 1996
at which time the proceeds were released by the Partnership. The proceeds were
distributed as part of a special distribution to the Limited Partners in
January 1997. See Note 10 of Notes to Financial Statements for additional
information.

In October 1996, the Partnership sold the Forestwood Apartments in an all cash
sale for $10,050,000. From the proceeds of the sale, the Partnership paid
$5,754,000 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $336,012 in selling costs and paid $230,160 of prepayment
penalties. Pursuant to the terms of the sale, $250,000 of the proceeds were
retained by the Partnership until February 1997, at which time the proceeds
were released by the Partnership. A portion of the proceeds was distributed as
a special distribution to the Limited Partners in January 1997 and the
remainder of the proceeds will be distributed as a special distribution to the
Limited Partners in 1997. See Note 10 of Notes to Financial Statements for
additional information.

In November 1996, the Partnership sold the Heather Ridge Apartments in an all
cash sale for $8,890,000. From the proceeds of the sale, the Partnership paid
$5,117,987 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $271,760 in selling costs and paid $115,175 of prepayment
penalties. The proceeds were distributed as a special distribution to the
Limited Partners in January 1997. See Note 10 of Notes to Financial Statements
for additional information.

In February 1997, the Partnership sold the Templeton Park Apartments in an all
cash sale for $23,300,000. From the proceeds of the sale, the Partnership paid
$11,458,759 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $451,499 in selling costs and paid $1,025,000 to the
lender as a percentage of proceeds in excess of the outstanding mortgage debt.
Available proceeds will be distributed as a special distribution to the Limited
Partners in 1997. See Note 14 of Notes to Financial Statements for additional
information.

The Partnership made four distributions in 1996 and 1995 and one distribution
in 1994 totaling $191.00, $77.50 and $5.00 per Interest, respectively. See
Statement of Partner's Capital for additional information. Distributions were
comprised of $31.00 per Interest of Net Cash Receipts and $160.00 per Interest
of Net Cash Proceeds in 1996, $48.50 per Interest of Net Cash Receipts and
$29.00 per Interest of Net Cash Proceeds in 1995, and $5.00 per Interest of Net
Cash Receipts in 1994. 
<PAGE>
Distributions increased in 1996 as compared to 1995 primarily due to property
sales. Distributions increased in 1995 as compared to 1994 since the
Partnership commenced distributions in the fourth quarter of 1994 as a result
of improved property operations at the Partnership's properties.

In January 1997, the Partnership made a distribution of $13,479,611 ($163.00
per Interest) to the holders of Limited Partnership Interests representing a
distribution of Net Cash Receipts of $8.00 per Interest for the fourth quarter
of 1996 and a special distribution of $155.00 per Interest representing Net
Cash Proceeds received from sales of the Timberlake - Phase I, Forestwood and
Heather Ridge apartment complexes. Including the January 1997 distribution,
Limited Partners have received cumulative cash distributions of $436.50 per
$1,000 Interest as well as certain tax benefits. Of this amount, $92.50 has
been from Net Cash Receipts and $344.00 has been from Net Cash Proceeds. A
majority of the proceeds from the sale of Templeton Park Apartments will be
distributed in 1997. In light of results to date investors will not recover all
of their original investment. 

Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.

The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.

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


                        December 31, 1996          December 31, 1995    
                    -------------------------    -------------------------
                      Financial        Tax        Financial        Tax 
                      Statements     Returns     Statements      Returns 
                    -------------   ---------    -----------  ------------
Total assets          $26,713,606 $20,349,243    $54,596,297   $42,014,617
Partners' capital
  (deficit) accounts:
    General Partner     (362,126)   (789,769)      (694,758)   (1,493,089)
    Limited Partners   14,675,847  16,803,622    (2,459,643)  (16,080,496)
Net income:
  General Partner         332,632     703,320         21,422        87,276
  Limited Partners     32,930,618  48,679,246      2,120,812     1,782,797
Per Limited Part-
  nership Interest         398.21      588.65          25.65         21.56
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------

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

                                   PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

(a) Neither the Registrant nor Balcor Partners-XVI, its General Partner, has
either a Board of Directors or a Board of Advisors.

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

                   TITLE                          OFFICERS
                  -------                        ---------- 
                  
         Chairman, President and Chief         Thomas E. Meador
            Executive Officer
         Senior Vice President                 Alexander J. Darragh
         Senior Vice President                 James E. Mendelson
         Senior Vice President                 John K. Powell, Jr.
         Managing Director, Chief              Jayne A. Kosik
            Financial Officer, Treasurer
            and Assistant Secretary                            
           
      Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman,
      President and Chief Executive Officer and has responsibility for all
      ongoing day-to-day activities at Balcor. He is a Director of The
      Balcor Company. He is also Senior Vice President of American Express
      Company and is responsible for its real estate operations worldwide.
      Prior to joining Balcor, Mr. Meador was employed at the Harris Trust
      and Savings Bank in the commercial real estate division where he was
      involved in various lending activities. Mr. Meador received his M.B.A.
      degree from the Indiana University Graduate School of Business.

       Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
       responsible for due diligence analysis and real estate advisory
       services for Balcor and American Express Company. He also has
       supervisory responsibility for Balcor's environmental matters. Mr.
       Darragh received masters' degrees in Urban Geography from Queen's
       University and in Urban Planning from Northwestern University.

       James E. Mendelson (age 34) joined Balcor in July 1984 and is
       responsible for Balcor's property sales activities. He also has
       supervisory responsibility for Balcor's accounting, financial,
       treasury, investor services and investment administration functions.
<PAGE>
       From 1989 to 1995, Mr. Mendelson was Vice President - Transaction
       Management and Vice President - Senior Transaction Manager and had
       responsibility for various asset management matters relating to real
       estate investments made by Balcor, including negotiations for the
       restructuring of mortgage loan investments. Mr. Mendelson received his
       M.B.A. degree from the University of Chicago. 

       John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is
       responsible for portfolio and asset management matters relating to
       Balcor's partnerships. Mr. Powell also has supervisory responsibility
       for Balcor's risk management function. He received a Master of
       Planning degree from the University of Virginia. Mr. Powell has been
       designated a Certified Real Estate Financier by the National Society
       for Real Estate Finance and is a full member of the Urban Land
       Institute.

       Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief
       Financial Officer, is responsible for Balcor's financial, human
       resources and treasury functions. From June 1989 until October 1996,
       Ms. Kosik had supervisory responsibility for accounting functions
       relating to Balcor's public and private partnerships. She is also
       Treasurer and a Managing Director of The Balcor Company. Ms. Kosik is
       a Certified Public Accountant.  

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

(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.

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

The Registrant paid $2,445 in 1996 with respect to one of the executive
officers and directors of the General Partner. The Registrant has not paid and
does not propose to pay any remuneration to the remaining executive officers
and directors of the General Partner. Certain of the remaining officers receive
compensation from The Balcor Company (but not from the Registrant) for services
performed for various affiliated entities, which may include services performed
for the Registrant. However, the General Partner believes that any such
compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 8 of Notes to Financial Statements for
the information relating to transactions with affiliates.

Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

(a) The following entities are the sole Limited Partners which own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
<PAGE>
                    Name and            Amount and
                    Address of          Nature of      Percent 
                    Beneficial          Beneficial     of
Title of Class      Owner               Ownership      Class
------------------------------------------------------------------------------
Limited             WIG 85              3,131.13       3.75%
Partnership         Partners            Limited 
Interests           Chicago,            Partnership
                    Illinois            Interests

Limited             Metropolitan        2,654.15       3.18%
Partnership         Acquisition VII     Limited 
Interests           Greenville,         Partnership
                    South Carolina      Interests

While WIG 85-I Partners and Metropolitan Acquisition VII individually own less
than 5% of the Interests, for purposes of this Item 12, WIG 85-I Partners is an
affiliate of Metropolitan Acquisition VII and, collectively, they own 6.93% of
the Interests. 

(b) Balcor Partners-XVI and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:

                                Amount
                                Beneficially
Title of Class                  Owned                 Percent of Class         
-------------------------------------------------------------------------------
Limited Partnership 
Interest                        880 Interests            Less than 1%          
   

Relatives and affiliates of the officers and partners of the General Partner
own fifteen additional Interests.

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

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.

See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.

(c) No management person is indebted to the Registrant.

(d) The Registrant has no outstanding agreements with any promoters.<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
------------------------------------------------------------------------

(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.

(3) Exhibits:

(3) The Amended and Restated Agreement and Certificate of Limited Partnership
is set forth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-11 dated November 29, 1984 (Registration No. 2-92777), and
said Agreement and Certificate is incorporated herein by reference.

(4) The Subscription Agreement as set forth as Exhibit 4.1 to Amendment No. 1
to Registrant's Registration Statement on Form S-11 dated November 29, 1984
(Registration No. 2-92777) and Form of Confirmation regarding Interests in the
Partnership as set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1995 are incorporated herein by reference.

(10)(a)(i) Agreement of Sale and attachments thereto relating to the sale of
Forestwood Apartments, East Baton Rouge Parish, Louisiana, previously filed as
Exhibit (2) to the Partnership's Current Report on Form 8-K dated October 14,
1996, is incorporated herein by reference.

(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Forestwood Apartments, East Baton Rouge, Louisiana previously filed as
Exhibit (10)(a)(ii) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.

(iii) Second Amendment to Agreement of Sale relating to the sale of Forestwood 
Apartments, East Baton Rouge, Louisiana previously filed as Exhibit
(10)(a)(iii) to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.

(b)(i) Agreement of Sale and attachments thereto relating to Forest Ridge
Apartments, Phase I, Arlington, Texas previously filed as Exhibit (2) to the
Partnership's Current Report on Form 8-K dated April 23, 1996 is incorporated
herein by reference.

(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Forest Ridge Apartments, Phase I, Dallas, Texas previously filed as Exhibit
(99)(a) to the Partnership's Current Report on Form 8-K dated June 28, 1996 is
incorporated herein by reference.

(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Forest Ridge Apartments, Phase I, Dallas, Texas previously filed as Exhibit
(99)(b) to the Partnership's Current Report on Form 8-K dated June 28, 1996 is
incorporated herein by reference.
<PAGE>
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Boulder
Springs Apartments, Chesterfield County, Virginia, previously filed as Exhibit
(2)(a)(i) to the Partnership's Current Report on Form 8-K dated August 8, 1996,
is incorporated herein by reference.

(ii) Letter dated August 19, 1996 relating to the sale of Boulder Springs
Apartments, Chesterfield County, Virginia, previously filed as Exhibit
(2)(a)(ii) to the Partnership's Current Report on Form 8-K dated August 8,
1996, is incorporated herein by reference.

(iii) Amendment to Agreement of Sale relating to the sale of Boulder Springs
Apartments, Chesterfield County, Virginia, previously filed as Exhibit
(99)(b)(i) to the Partnership's Current Report on Form 8-K dated October 14,
1996, is incorporated herein by reference.

(iv) Second Amendment of Agreement of Sale relating to the sale of Boulder
Springs Apartments, Chesterfield County, Virginia, previously filed as Exhibit
(99)(b)(ii) to the Partnership's Current Report on Form 8-K dated October 14,
1996, is incorporated herein by reference.

(d)(i) Agreement of Sale and attachment thereto relating to the sale of
Timberlake Apartments, Phase I, Altamonte Springs, Florida, previously filed as
Exhibit (2)(b) to the Partnership's Current Report on Form 8-K dated August 8,
1996, is incorporated herein by reference.

(ii) Letter Agreement relating to the sale of Timberlake Apartments, Phase I,
Altamonte Springs, Florida, previously filed as Exhibit (99)(c) to the
Partnership's Current Report on Form 8-K dated October 14, 1996, is
incorporated herein by reference.

(e)(i) Agreement of Sale and Attachments thereto relating to the sale of
Templeton Park Apartments, Colorado Springs, Colorado, previously filed as
Exhibit (2) to the Partnership's Current Report on Form 8-K dated August 26,
1996, is incorporated herein by reference.

(ii) Letter agreements relating to the sale of the Templeton Park Apartments,
Colorado Springs, Colorado, previously filed as Exhibit (99)(a) to the
Partnership's Current Report on Form 8-K dated October 14, 1996, is
incorporated herein by reference.

(iii) Letter agreement and Notice of Disapproval dated October 25, 1996,
regarding the sale of Templeton Park Apartments, Colorado Springs, Colorado
previously filed as Exhibit (10)(e)(iii) to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996, is incorporated herein by
reference.

(iv) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Templeton Park Apartments, Colorado Springs, Colorado previously filed
as Exhibit (10)(e)(iv) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
<PAGE>
(v)  Letter Agreements dated November 21, 1996, December 6, 1996, December 11,
1996, December 13, 1996, December 20, 1996, and January 20, 1997, relating to
the sale of the Templeton Park Apartments, Colorado Springs, Colorado, 
previously filed as Exhibit (99)(i) to the Registrant's Current Report on Form
8-K dated February 21, 1997 is incorporated herein by reference.

(vi) Second Amendment to Agreement of Sale and Escrow Agreement dated January
3, 1997, relating to the sale of the Templeton Park Apartments, Colorado
Springs, Colorado, previously filed as Exhibit (99)(ii) to the Registrant's
Current Report on Form 8-K dated February 21, 1997 is incorporated herein by
reference.

(f)(i) Agreement of Sale and attachment thereto relating to the sale of North
Hill Apartments, Atlanta, Georgia, previously filed as Exhibit (2)(a)(i) to the
Registrant's Current Report on Form 8-K dated February 21, 1997, is
incorporated herein by reference.

(ii) Termination Notice relating to the sale of North Hill Apartments, Atlanta,
Georgia, previously filed as Exhibit (2)(a)(ii) to the Registrant's Current
Report on Form 8-K dated February 21, 1997, is incorporated herein by
reference.

(iii) Reinstatement of, and First Amendment to the Agreement of Sale and Escrow
Agreement relating to the sale of North Hill Apartments, Atlanta, Georgia,
previously filed as Exhibit (2)(a)(iii) to the Registrant's Current Report on
Form 8-K dated February 21, 1997, is incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1996 is attached hereto.

(99)(b) Reports on Form 8-K:

(i) A Current Report on Form 8-K dated October 14, 1996, was filed reporting
the execution of a contract for the sale of the Forestwood Apartments, East
Baton Rouge Parish, Louisiana, a letter agreement relating to the sale of
Templeton Park Apartments, Colorado Springs, Colorado, Amendments to the
Agreement of Sale relating to Boulder Springs Apartments, Chesterfield County,
Virginia, a Letter Agreement relating to the sale of Timberlake Apartments,
Phase I, Altamonte Springs, Florida, and an Amendment to Agreement of Sale
relating to Heather Ridge Apartments, Oklahoma City, Oklahoma.

(ii) A Current Report on Form 8-K dated February 21, 1997, was filed reporting
the closing of the Templeton Park Apartments sale, and the execution of a
contract for the sale of the North Hill Apartments, Atlanta, Georgia.

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

(d) Financial Statement Schedules: See Index for Financial Statements and
Financial Statement Schedule in the Form 10-K.
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                         BALCOR REALTY INVESTORS 85-SERIES I
                         A REAL ESTATE LIMITED PARTNERSHIP


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

Date: March 27, 1997              
      --------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

       Signature                   Title                        Date    
----------------------   ------------------------------   ---------------

                         President and Chief Executive
                         Officer (Principal Executive
                         Officer) of Balcor Partners-
/s/Thomas E. Meador      XVI, the General Partner           March 27, 1997
--------------------                                        ---------------
  Thomas E. Meador

                         Managing Director and
                         Chief Financial Officer 
                         (Principal Accounting
                         Officer) of
                         Balcor Partners-XVI, the
                         General Partner
/s/Jayne A. Kosik                                           March 27, 1997
--------------------                                        ---------------
   Jayne A. Kosik
<PAGE>
        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Report of Independent Accountants

Financial Statements:

Balance Sheets, December 31, 1996 and 1995

Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994

Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994

Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994

Notes to Financial Statements

Financial Statement Schedule:

III - Real Estate and Accumulated Depreciation, as of December 31, 1996

Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Balcor Realty Investors 85-Series I
A Real Estate Limited Partnership:

We have audited the financial statements and financial statement schedule of
Balcor Realty Investors 85 - Series I A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Realty Investors
85-Series I A Real Estate Limited Partnership at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects
the information required to be included therein.

As described in Note 2 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon disposition of all its
real estate interests. The Partnership is presently marketing for sale its
remaining real estate asset.  Upon disposition of its remaining real estate
asset and resoulution of the litigation described in Note 13 to the financial
statements, the Partnership intends to cease operations and dissolve.


                                      /s/Coopers & Lybrand, L.L.P.
                                      COOPERS & LYBRAND L.L.P.



Chicago, Illinois
March 24, 1997
<PAGE>

                      BALCOR REALTY INVESTORS 85-SERIES I
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                 BALANCE SHEETS
                            December 31, 1996 and 1995


                                    ASSETS

                                                   1996            1995
                                               -----------     -----------
Cash and cash equivalents                    $ 16,372,728    $  2,369,231
Accounts and accrued interest receivable          168,416          19,630
Escrow deposits                                                 1,652,919
Prepaid expenses                                   29,911         158,090
Deferred expenses, net of accumulated
  amortization of $302,544 in 1995                              1,027,098
                                             -------------   -------------
                                               16,571,055       5,226,968
                                             -------------   -------------
Investment in real estate:
  Land                                          1,958,223      12,380,326
  Buildings and improvements                   15,033,831      65,940,832
                                             -------------   -------------
                                               16,992,054      78,321,158
  Less accumulated depreciation                 6,849,503      28,951,829
                                             -------------   -------------
Investment in real estate, net of
  accumulated depreciation                     10,142,551      49,369,329
                                             -------------   -------------
                                             $ 26,713,606    $ 54,596,297
                                             =============   =============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Accounts payable                             $    120,413    $    218,237
Due to affiliates                                 130,331          24,501
Accrued liabilities, principally 
  real estate taxes                                91,810         330,103
Security deposits                                  62,326         262,183
Losses in excess of investments in joint
   ventures with affiliates                       499,671         449,476
Mortgage notes payable                         11,495,334      56,466,198
                                             -------------   -------------
     Total liabilities                         12,399,885      57,750,698
                                             -------------   -------------

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

                                 BALANCE SHEETS
                            December 31, 1996 and 1995
                                   (Continued)


Commitments and contingencies

Limited Partners' capital (deficit) 
  (82,697 Interests issued and outstanding)    14,675,847      (2,459,643)

General Partner's deficit                        (362,126)       (694,758)
                                             -------------   -------------
     Total partners' capital (deficit)         14,313,721      (3,154,401)
                                             -------------   -------------
                                             $ 26,713,606    $ 54,596,297
                                             =============   =============


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

                   STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
             for the years ended December 31, 1996, 1995 and 1994


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

Balance at December 31, 1993 $      862,664  $    (722,812) $    1,585,476

Cash distributions (A)             (413,485)                      (413,485)

Net income for the year 
   ended December 31, 1994          663,204          6,632         656,572
                             --------------- -------------- ---------------
Balance at December 31, 1994      1,112,383       (716,180)      1,828,563

Cash distributions (A)           (6,409,018)                    (6,409,018)

Net income for the year 
   ended December 31, 1995        2,142,234         21,422       2,120,812
                             --------------- -------------- ---------------
Balance at December 31, 1995     (3,154,401)      (694,758)     (2,459,643)

Cash distributions (A)          (15,795,128)                   (15,795,128)

Net income for the year 
   ended December 31, 1996       33,263,250        332,632      32,930,618
                             --------------- -------------- ---------------
Balance at December 31, 1996 $   14,313,721  $    (362,126) $   14,675,847
                             =============== ============== ===============


(A) Summary of cash distributions per Interest:

                                   1996           1995           1994
                             --------------- -------------- ---------------
              First Quarter  $         7.50  $        5.00           None 
              Second Quarter           7.50           5.00           None 
              Third Quarter           98.00          45.00           None 
              Fourth Quarter          78.00          22.50  $        5.00



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

                       STATEMENTS OF INCOME AND EXPENSES
             for the years ended December 31, 1996, 1995 and 1994


                                   1996            1995           1994
                             ---------------   ------------   -------------
Income:
  Rental and service         $   11,631,972  $  15,525,153  $   14,972,425
  Interest on short-term 
    investments                     397,985        325,145         233,282
  Participation in income 
    (losses) of joint 
    ventures with affiliates        152,167        652,718        (317,632)
                             --------------- -------------- ---------------
    Total income                 12,182,124     16,503,016      14,888,075
                             --------------- -------------- ---------------

Expenses:
  Interest on mortgage 
    notes payable                 3,095,977      4,768,731       4,969,653
  Depreciation                    1,394,022      1,924,801       1,925,074
  Amortization of deferred 
    expenses                        114,749        156,022         154,912
  Property operating              4,262,946      5,179,036       4,985,291
  Real estate taxes                 650,872        923,313         991,624
  Property management fees          588,558        765,223         747,795
  Administrative                    583,939        643,656         584,187
                             --------------- -------------- ---------------
    Total expenses               10,691,063     14,360,782      14,358,536
                             --------------- -------------- ---------------
Income before gain on 
  sales of properties and 
  extraordinary items             1,491,061      2,142,234         529,539

Gain on sales of properties      33,803,968
                             --------------- -------------- ---------------
Income before
  extraordinary items            35,295,029      2,142,234         529,539

Extraordinary items:
  Debt extinguishment expense    (2,031,779)
  Participation in gain on
    forgiveness of debt from 
    joint venture with 
    an affiliate                                                   133,665
                             --------------- -------------- ---------------
Net income                   $   33,263,250  $   2,142,234  $      663,204
                             =============== ============== ===============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
             for the years ended December 31, 1996, 1995 and 1994
                                  (Continued)

                                   1996            1995           1994
                             --------------- -------------- ---------------
Income before extraordinary 
  items allocated to General
  Partner                    $      352,950  $      21,422  $        5,295
                             =============== ============== ===============
Income before extraordinary 
  items allocated to Limited
  Partners                   $   34,942,079  $   2,120,812  $      524,244
                             =============== ============== ===============
Income before extraordinary 
  items per Limited 
  Partnership Interest 
  (82,697 issued and 
  outstanding)               $       422.53  $       25.65  $         6.34
                             =============== ============== ===============
Extraordinary items
  allocated to General
  Partner                    $      (20,318)          None  $        1,337
                             =============== ============== ===============
Extraordinary items
  allocated to Limited
  Partners                   $   (2,011,461)          None  $      132,328
                             =============== ============== ===============
Extraordinary items per 
  Limited Partnership 
  Interest(82,697 issued and
  outstanding)               $       (24.32)          None  $         1.60
                             =============== ============== ===============
Net income allocated to 
  General Partner            $      332,632  $      21,422  $        6,632
                             =============== ============== ===============
Net income allocated to 
  Limited Partners           $   32,930,618  $   2,120,812  $      656,572
                             =============== ============== ===============
Net income per Limited 
  Partnership Interest 
  (82,697 issued and 
  outstanding)               $       398.21  $       25.65  $         7.94
                             =============== ============== ===============




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

                            STATEMENTS OF CASH FLOWS
             for the years ended December 31, 1996, 1995 and 1994


                                   1996            1995           1994
                             --------------- -------------- ---------------
Operating activities:
  Net income                 $   33,263,250  $   2,142,234  $      663,204
  Adjustments to reconcile 
    net income to net cash 
    provided by operating
    activities:
      Gain on sales of 
        properties              (33,803,968)
      Debt extinguishment
        expense                     912,349
      Participation in income
        of joint ventures 
        with affiliates            (152,167)      (652,718)        317,632
      Participation in gain  
        on forgiveness of 
        debt from joint 
        venture with an
        affiliate                                                 (133,665)
      Depreciation of 
        properties                1,394,022      1,924,801       1,925,074
      Amortization of 
        deferred expenses           114,749        156,022         154,912
      Net change in:
      Accounts and accrued 
        interest receivable        (148,786)         9,197         426,996
      Escrow deposits               825,837       (233,177)         29,178
      Prepaid expenses              128,179       (158,090)
      Accounts payable              (97,824)        84,494          29,230
      Due to affiliates             105,830        (50,912)         (4,149)
      Accrued liabilities          (238,293)       (36,525)         (2,758)
      Security deposits            (199,857)       (25,901)        (11,015)
                             --------------- -------------- ---------------
  Net cash provided by
    operating activities          2,103,321      3,159,425       3,394,639
                             --------------- -------------- ---------------

Investing activities:
  Capital contributions to 
    joint ventures with
    affiliates                      (14,532)       (42,706)       (280,003)
  Distributions from joint 
    ventures with affiliates        216,894        591,158         125,610
  Proceeds from sale of
    real estate                  73,490,077
  Payment of selling costs       (1,853,353)
                             --------------- -------------- ---------------
<PAGE>
                      BALCOR REALTY INVESTORS 85-SERIES I
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                           STATEMENTS OF CASH FLOWS
             for the years ended December 31, 1996, 1995 and 1994
                                  (Continued)


                                  1996            1995           1994
                            --------------- -------------- ---------------

 Net cash provided by or 
    used in investing 
    activities                   71,839,086        548,452        (154,393)
                             --------------- -------------- ---------------
Financing activities:
  Distributions to
    Limited Partners         $  (15,795,128) $  (6,409,018) $     (413,485)
  Repayment of mortgage 
    notes payable               (43,686,154)    (7,786,649)    (10,563,000)
  Proceeds from issuance of 
    mortgage note payable                        8,140,000      12,890,000
  Principal payments on 
    mortgage notes payable       (1,284,710)    (1,269,083)       (864,196)
  Disbursements from 
    improvement escrows             827,082         89,678
  Payment of deferred
    expenses                                      (209,967)       (396,203)
  Funding of improvement
    escrows                                       (369,000)       (547,760)
                             --------------- -------------- ---------------
  Net cash used in or 
    provided by financing
    activities                  (59,938,910)    (7,814,039)        105,356
                             --------------- -------------- ---------------

Net change in cash and 
  cash equivalents               14,003,497     (4,106,162)      3,345,602
Cash and cash equivalents at 
  beginning of period             2,369,231      6,475,393       3,129,791
                             --------------- -------------- ---------------
Cash and cash equivalents
  at end of period           $   16,372,728  $   2,369,231  $    6,475,393
                             =============== ============== ===============



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

                         NOTES TO FINANCIAL STATEMENTS

1.       Nature of the Partnership's Business:

Balcor Realty Investors 85-Series I A Real Estate Limited Partnership is
engaged principally in the operation of the Templeton Park Apartments located
in Colorado Springs, Colorado.

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 Seabrook Apartments, in which it
held a minority joint venture interest, and the Willowbend, Forest Ridge -
Phase I, Boulder Springs, Timberlake - Phase I, Forestwood and Heather Ridge
apartment complexes. During 1997, the Partnership sold the Templeton Park
Apartments. Currently, the General Partner has entered a contract to sell its
remaining investment, the North Hill Apartments, in which the Partnership holds
a minority joint venture interest. A majority of the proceeds from the sale of
the Templeton Park Apartments will be distributed in 1997. The Partnership will
retain 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 stemming from litigation
involving the Partnership including, but not limited to, the lawsuits discussed
in Note 13 of Notes to the Financial Statements. In the absence of any such
contingency, the reserves will be paid within twelve months of the last property
being sold. In the event a contingency exists, reservesmay be held by the
Partnership for a longer period of time.

3. Accounting Policies:

(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could vary from those estimates.

(b) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
                                                    Years
                                                    -----
               Buildings and improvements             30
               Furniture and fixtures                 5
<PAGE>
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.

Interest incurred while properties were under construction was capitalized.

When properties are sold, the related costs and accumulated depreciation are
removed from the respective accounts. Any gain or loss on disposition is
recognized in accordance with generally accepted accounting principles. 

(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership records its investments in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties based on the current sales price
less estimated closing costs. The General Partner considers  the method
referred to above to result in a reasonable measurement of a property's fair
value, unless other factors affecting the property's value indicate otherwise.

(d) Investment in joint ventures-affiliates represents the Partnership's 25%
interest in the North Hill Apartments at December 31, 1996 and also included a
15.4% interest in Seabrook Apartments at December 31, 1995, all of which are
recorded under the equity method of accounting. Under the equity method of
accounting, the Partnership records its initial investment at cost and adjusts
its investment account for additional capital contributions, distributions and
its share of joint venture income or loss. Depreciation recognized in
connection with the ownership of real estate by the joint ventures has resulted
in the Partnership's share of cumulative losses exceeding the net amounts
invested in the joint ventures. This has resulted in the classification of the
investment as "Losses in excess of investments in joint ventures with
affiliates" in the accompanying financial statements.

(e) Deferred expenses consist of loan modification and financing fees which are
amortized over the terms of the respective agreements and are fully amortized
when a property is sold. Upon sale, any remaining balance is recognized as debt
extinguishment expense and classified as an extraordinary item.

(f) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.

(g) The Financial Accounting Standard Board's Statement No. 107, _Disclosures
About Fair Value of Financial Instruments_, requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
<PAGE>
(h) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.

(i) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore no provision for income taxes is made in the financial
statements of the Partnership.

4. Partnership Agreement:

The Partnership was organized on August 1, 1983. The Partnership Agreement
provides for Balcor Partners-XVI to be the General Partner and for the
admission of Limited Partners through the sale of up to 100,000 Limited
Partnership Interests at $1,000 per Interest, 82,697 of which were sold through
April 30, 1985, the termination date of the offering.

The Partnership Agreement generally provides that the General Partner will be
allocated 1% of the profits and losses. One hundred percent of Net Cash
Receipts available for distribution shall be distributed to the holders of
Interests in proportion to their participating percentages as of the record
date for such distributions. However, there shall be accrued for the benefit of
the General Partner as its distributive share from operations, an amount
equivalent to approximately 1% of the total Net Cash Receipts being
distributed, which will be paid only out of distributed Net Cash Proceeds in
excess of total Adjusted Original Capital plus a 6% Cumulative Distribution.
Under certain circumstances, the General Partner may participate in the Net
Cash Proceeds of the sale or refinancing of Partnership properties. The General
Partner's participation is limited to 15% of excess Net Cash Proceeds after the
return of Original Capital plus a Cumulative Distribution of 6% to the holders
of Interests, as defined in the Partnership Agreement.

5. Mortgage Notes Payable:

Mortgage notes payable at December 31, 1996 and 1995 consisted of the
following:
                      Carrying           Carrying    
Property              Amount of          Amount of
Pledged as            Notes at            Notes at
Collateral            12/31/96            12/31/95
--------------        ----------        ---------- 
Apartment Complexes:
Boulder Springs(A)         None         $ 8,097,672       
Forest Ridge
 Phase I (B)               None           7,613,575       
Forestwood (C)             None           5,790,811      
Heather Ridge (D)          None           5,174,909      
Templeton Park(E)   $11,495,334          12,512,165   
Timberlake 
 Phase I (F)               None          11,467,036      
Willow Bend (G)            None           5,810,030      
                     ----------          ---------- 
Total               $11,495,334         $56,466,198    
                    ===========          ==========
<PAGE>
(A) In May 1995, this loan was refinanced. The interest rate decreased 
from 12.875% to 7.59%, the maturity date was extended from June 1995 to June
2002, and the monthly payment decreased from $90,457 to $57,419. In September
1996, this property was sold. See Note 10 of Notes to Financial Statements for
additional information.

(B) In June 1996, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.

(C) In October 1996, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.

(D) In November 1996, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.

(E) In accordance with the 1989 loan modification, the interest rate will be
adjusted on certain "adjustment dates". The next adjustment date is June 1,
1998 with subsequent adjustments every five years thereafter. In addition, 50%
of property cash flow must be paid annually and will be applied against the
outstanding principal on the loan. Upon the sale or refinancing of the
property, the lender will participate in a percentage of the proceeds in excess
of the outstanding mortgage debt. In February 1997, this property was sold. The
Partnership was making monthly payments of principal and interest prior to the
sale of this property.  See Note 14 of Notes to Financial Statements for
additional information.

(F) In September 1996, this property was sold. See Note 10 of Notes to
Financial Statements for additional information.

(G) In March 1996, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.

During 1996, 1995 and 1994, the Partnership incurred and paid interest expense
on mortgage notes payable to unaffiliated parties of $3,122,700, $4,768,731 and
$4,969,653, respectively.

Real estate held for sale with an aggregate carrying value of $10,142,551 at
December 31, 1996 was pledged as collateral for repayment of the mortgage loan.

6. Management Agreements:

As of December 31, 1996, the remaining property owned by the Partnership was
managed by a third-party management company. This management agreement provided
for annual fees of 5% of gross operating receipts.

7. Investment in Joint Ventures with Affiliates:

The Partnership owned a 48.4% and a 15.4% joint venture interests in Pinebrook
and Seabrook apartment complexes, which were sold in February 1995 and 1996,
respectively.  As of December 31, 1996, the Partnership owns a 25% joint
venture interest in North Hill Apartments. The joint venture partner is an
affiliate of the Partnership with investment objectives similar to those of the
Partnership.
<PAGE>
During 1996 and 1995, the Partnership received net distributions of $202,362
and $548,452, respectively and during 1994, the Partnership made net
contributions of $154,393, all of which were related to the three joint venture
interests held by the Partnership.

Seabrook Apartments was owned by a joint venture (the "Joint Venture")
consisting of the Partnership and two affiliates. The Partnership and the
affiliates held participating percentages in the Joint Venture of 15.43% and
84.57%, respectively. In February 1996, the Joint Venture sold the property in
an all cash sale for $5,915,000. From the proceeds of the sale, the Joint
Venture paid $5,081,898 to the third party mortgage holder in full satisfaction
of the first mortgage loan, and paid $190,517 in selling costs. The Joint
Venture recognized a gain of $1,363,431 form the sale of this property, of
which $167,739 is the Partnership's share.

Pinebrook Apartments was owned by a joint venture (the "Joint Venture")
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the Joint Venture of 48.43% and
51.57%, respectively. In February 1995, the Joint Venture sold the property in
an all cash sale for $6,140,000. From the proceeds of the sale, the Joint
Venture paid $5,058,226 to the third party mortgage holders in full
satisfaction of the first, second and fourth mortgage loans, as well as a
brokerage commission and other closing costs. Additionally, the Joint Venture
paid approximately $716,729 to Pinebrook Limited Partnership in full
satisfaction of the outstanding amount of its loan. The Joint Venture
recognized a gain of $1,814,970 in 1995 of which $780,279 is the Partnership's
share. 

North Hill Apartments is owned by a joint venture ("Joint Venture") in which
the Partnership and an affiliate have participating percentages of 25% and 75%,
respectively. In December 1994, the $18,700,000 tax-exempt bond issue which
funded the first mortgage financing collateralized by the property was
refinanced. The interest rate increased from 6.75% to 8.09% and the maturity
date was extended from December 1994 to December 2024. As a condition of the
new agreement, on January 1, 2005, at the discretion of both the Joint Venture
and the lender, the bonds will either be repaid or remarketed. Under the terms
of the new loan, monthly payments increased from $105,188 to $124,920. The
Joint Venture repaid the existing mortgage loan of $18,700,000 with proceeds
from the new mortgage loan of $16,795,600, which was net of a discount of
$84,400, proceeds of a $1,350,000 note to an unaffiliated party, and Joint
Venture cash reserves, which included amounts previously held in escrow by the
trustee which were refunded to the Joint Venture in conjunction with the
refinancing. See Note 11 of Notes to Financial Statements.

The $1,350,000 note to an unaffiliated party is non-interest bearing, is not
collateralized by the property, and will be repaid only to the extent net sales
proceeds exceed a certain predetermined level.

8. Tax Accounting:

The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof.
<PAGE>
The accompanying financial statements, which are prepared in accordance with
generally accepted accounting principles, will differ from the tax return due
to the different treatment of various items as specified in the Internal
Revenue Code. The net effect of these accounting differences is that the net
income for 1995 in the financial statements is $16,119,316 less than the tax
income of the Partnership for the same period.

9. Transactions with Affiliates:

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

                            Year Ended       Year Ended       Year Ended
                             12/31/96         12/31/95         12/31/94
                          --------------   --------------   --------------
                           Paid  Payable    Paid  Payable    Paid  Payable
                          ------ -------   ------ -------   ------ -------

Property management fees    None    None     None    None $738,965    None
Reimbursement of
  expenses to General
  Partner at cost:
   Accounting            $18,983 $20,819  $43,360  $2,930   61,640 $25,026
   Data processing         6,614   3,367   30,442   3,365   53,294  10,763
   Investor
     communications         None    None    6,695    None   20,271   8,230
   Legal                  13,987  15,339   21,029   2,121   12,118   4,920
   Other                   9,265   7,691    9,920     167   15,653   6,355
   Portfolio management   75,787  83,115  118,040  15,918   49,554  20,119


The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program, however, the General Partner is reimbursed
for expenses. The Partnership paid premiums to the deductible insurance program
of $18,404, $105,794 and $146,555 in 1996, 1995 and 1994, respectively.

Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
seven of the Partnership's properties until the affiliate was sold to a third
party in November 1994.

10. Property Sales:

In March 1996, the Partnership sold the Willowbend Apartments in an all cash
sale for $9,985,000. From the proceeds of the sale, the Partnership paid
$5,790,869 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $240,515 in selling costs and paid $243,712 of prepayment
penalties. The basis of the property was $5,117,354, which is net of
accumulated depreciation of $2,613,770. For financial statement purposes, the
Partnership recognized a gain of $4,627,131 from the sale of this property.
<PAGE>
In June 1996, the Partnership sold the Forest Ridge - Phase I Apartments in an
all cash sale for $11,600,000. From the proceeds of the sale, the Partnership
paid $7,589,194 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $131,000 in selling costs. The basis of the
property was $7,943,421, which is net of accumulated depreciation of
$4,357,296. For financial statement purposes, the Partnership recognized a gain
of $3,525,579 from the sale of this property.

In September 1996, the Partnership sold the Boulder Springs Apartments in an
all cash sale for $14,831,000. From the proceeds of the sale, the Partnership
paid $8,046,954 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $449,784 in selling costs. The basis of the
property was $5,802,792, which is net of accumulated depreciation of
$4,137,891. For financial statement purposes, the Partnership recognized a gain
of $8,578,424 from the sale of this property.

In September 1996, the Partnership sold the Timberlake - Phase I Apartments in
an all cash sale for $18,134,077. From the proceeds of the sale, the
Partnership paid $11,387,150 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $424,282 in selling costs, and
paid $530,383 of prepayment penalties. The basis of the property was
$9,775,943, which is net of accumulated depreciation of $5,445,035. For
financial statement purposes, the Partnership recognized a gain of $7,933,852
from the sale of this property.

In October 1996, the Partnership sold the Forestwood Apartments in an all cash
sale for $10,050,000. From the proceeds of the sale, the Partnership paid
$5,754,000 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $336,012 in selling costs and paid $230,160 of prepayment
penalties. The basis of the property was $5,648,699, which is net of
accumulated depreciation of $3,297,975. For financial statement purposes, the
Partnership recognized a gain of $4,065,289 from the sale of this property.

In November 1996, the Partnership sold the Heather Ridge Apartments in an all
cash sale for $8,890,000. From the proceeds of the sale, the Partnership paid
$5,117,987 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $271,760 in selling costs and paid $115,175 of prepayment
penalties. The basis of the property was $3,544,547, which is net of
accumulated depreciation of $3,644,381. For financial statement purposes, the
Partnership recognized a gain of $5,073,693 from the sale of this property.

11. Extraordinary Items:

(a) In connection with the sales of the Partnership's properties during 1996,
the Partnership paid prepayment penalties of $243,712, $530,383, $230,160 and
$115,175 relating to the Willowbend, Timberlake - Phase I, Forestwood and
Heather Ridge mortgage loans, respectively. In addition, the Partnership wrote
off the remaining unamortized deferred expenses relating to six of the
properties sold during 1996 totaling $912,349. These amounts were recognized as
extraordinary items and classified as debt extinguishment expense.
<PAGE>
(b) North Hill Apartments is owned by a joint venture consisting of the
Partnership and an affiliate. In connection with the December 1994 refinancing
of the property, the joint venture received a refund of the escrow account held
by the trustee representing the amount which would have been paid to Mutual
Benefit Life Insurance Company as its 1% guaranty fee on the original mortgage
loan. As a result, the joint venture recognized a $534,659 extraordinary gain
on forgiveness of debt in 1994, of which $133,665 represents the Partnership's
share.

12. Fair Values of Financial Instruments:

The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:

The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.

Based on borrowing rates available to the Partnership at the end of 1996 and
1995 for mortgage loans with similar terms and maturities, the fair value of
the mortgage notes payable approximates the carrying value.

13. 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
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 it has meritorious defenses to
contest the claims.

14. Subsequent Events: 

(a) In January 1997, the Partnership made a distribution of $13,479,611
($163.00 per Interest) to the holders of Limited Partnership Interests
representing a regular quarterly distribution of Net Cash Receipts of $8.00 per
Interest for the fourth quarter of 1996 and a special distribution of $155.00
per Interest representing Net Cash Proceeds received from sales of the
Timberlake - Phase I, Forestwood, and the Heather Ridge apartment complexes.

(b) In February 1997, the Partnership sold the Templeton Park Apartments in an
all cash sale for $23,300,000. From the proceeds of the sale, the Partnership
paid $11,458,759 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $451,499 in selling costs and $1,025,000 to the
lender as a percentage of proceeds in excess of the outstanding mortgage debt.
For financial statement purposes, the Partnership will recognize a gain of
approximately $12,769,000 from the sale of this property during the first
quarter of 1997.
<PAGE>
                      BALCOR REALTY INVESTORS 85-SERIES I
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)
                            as of December 31, 1996

<TABLE>
            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

<CAPTION>
        Col. A                 Col. B           Col. C                       Col. D         
--------------------         ----------   ------------------   ---------------------------------
                                             Initial Cost               Cost Adjustments                               
                                            to Partnership         Subsequent to Acquisition    
                                        --------------------   ---------------------------------
                                                  Buildings              Carrying     Reduction
                               Encum-              and Im-     Improve-   Costs        of Basis
     Description              brances     Land    provements    ments       (a)           (b)   
---------------------         -------   -------- ------------ ---------   ---------   ---------
<S>                             <C>  <C>          <C>          <C>        <C>         <C>         
Templeton Park Apts.,
  496 units in
  Colorado Springs, CO          (e)   $2,001,000  $13,658,000      None   $1,677,310  $ (344,256)
                                      ----------   ----------  --------   ----------  ------------
    Total                             $2,001,000  $13,658,000      None   $1,677,310  $ (344,256)
                                     ===========  ===========  ========   ==========  ============
</TABLE>
See notes (a) through (f) 
<PAGE>

                      BALCOR REALTY INVESTORS 85-SERIES I
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)
                            as of December 31, 1996

<TABLE>
        SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Cont.)
<CAPTION>
       Col. A                          Col. E                 Col. F    Col. G        Col. H      Col. I    
 ------------------       --------------------------------   --------  --------       ------  --------------
                               Gross Amounts at Which                                            Life Upon
                             Carried at Close of Period                                        Which Depre-
                              -------------------------------                                   ciation in
                                    Buildings               Accumulated    Date       Date     Latest Income
                                     and Im-       Total     Deprecia-    of Con-     Acq-       Statement
    Description             Land  provements       (c)(d)      tion(d)    struction   uired    is Computed 
-------------------         ----- -------------   ---------  ---------    ----------  -----    -------------
<S>                    <C>         <C>         <C>          <C>            <C>        <C>           <C>
Templeton Park Apts.,
  496 units in
  Colorado Springs, CO  $1,958,223 $15,033,831  $16,992,054  $6,849,503    1984        1/84         (f)                    
                      ------------ ----------- ------------ -----------
    Total               $1,958,223 $15,033,831 $ 16,992,054  $6,849,503
                       =========== =========== ============ ===========
</TABLE>
See notes (a) through (f)
<PAGE>
                      BALCOR REALTY INVESTORS 85-SERIES I
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             NOTES TO SCHEDULE III

(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction period interest.

(b) Guaranteed income that was earned under the terms of certain management and
guarantee agreements was recorded by the Partnership as a reduction of the
basis of the property to which the guaranteed income related.

(c) The aggregate cost of land for Federal income tax purposes is $1,997,178
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $13,631,870. The total of these is $15,629,048.

(d)                     Reconciliation of Real Estate
                        -----------------------------
                                       1996         1995         1994   
                                    ----------  -----------   ----------

Balance at beginning of year       $78,321,158  $78,321,158  $78,321,158

Deductions during year:
    Cost of real estate sold       (61,329,104)        None         None
                                   ----------- ------------ ------------
    Balance at end of year         $16,992,054  $78,321,158 $ 78,321,158
                                  ============ ============ ============

                  Reconciliation of Accumulated Depreciation
                  ------------------------------------------
                                       1996         1995         1994   
                                    ----------  -----------   ----------
Balance at beginning of year       $28,951,829   27,027,028  $25,101,954

Depreciation expense for the  
  year                                1,394,022    1,924,801   1,925,074
Accumulated depreciation of
  real estate sold                 (23,496,348)        None         None
                                  ------------ ------------ ------------
Balance at end of year              $6,849,503  $28,951,829  $27,027,028
                                  ============ ============ ============

(e) See description of the mortgage note payable in Note 5 of Notes to
Financial Statements.

(f) Depreciation expense is computed based upon the estimated useful lives of
30 years for buildings and improvements and five years for furniture and
fixtures.
<PAGE>