FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

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

         For the calendar year ended        DECEMBER 31, 1997

                                                     OR

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

         For the transition period from _________________ to ___________________

                           Commission file No. 2-93784

                                   KFP 85-LTD.
             (Exact name of registrant as specified in its charter)

       FLORIDA                                       59 - 2433930
(State of Organization)                   (I.R.S. Employer Identification No.)

           ONE SOUTHEAST THIRD AVENUE, 11TH FLOOR, MIAMI FLORIDA 33131
          (Address of Principal Executive Offices, Including Zip Code)

       Registrant's Telephone Number, Including Area Code (305) 371- 3592

                                 NOT APPLICABLE
      (Former name, address and fiscal year, if changed since last report)

         Securities registered pursuant to Section 12 (b) of the Act:

                                                    NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                           WHICH REGISTERED
         -------------------                        ------------------------
                None                                        None

         Securities registered pursuant to Section 12 (g) of the Act:

                                      None

         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 twelve 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
         ninety days.

                                              Yes [X] No [ ]

                                       1
<PAGE>


                                     PART I

ITEM 1.

GENERAL BUSINESS

KFP 85-Ltd. ("Partnership") is a limited partnership formed under Florida law in
June 1984. In November 1984, the Partnership registered its offering with the
Securities and Exchange Commission. This offering raised a total of $8,000,000
by selling 8,000 units of limited partnership interest to 676 unit owners. The
Partnership is engaged in operating a portfolio of commercial and industrial
rental real estate located within the State of Florida.

The results of operations and the long-term appreciation potential of the
Partnership are dependent on the merits of its real estate investments, the
yields earned on those investments, and other economic and market conditions
which may not be controllable by the Partnership.

After the formation of the Partnership, there was a general over-building of
commercial centers, failures of banks and other financial institutions, and
commercial property foreclosures (which lead to subsequent sales at below-market
prices) in the Partnership's rental property market area, which includes South
and Central Florida. These factors, along with the general economic recession
within the United States caused a significant decline in the overall market
values of commercial real estate during periods prior to 1993. As a result, the
Partnership was required to write-down the carrying value of its properties in
years prior to 1993.

In addition to the decline in market values, the excess amount of commercial
rental space available within the Partnership's market area caused the
Partnership's rental rates to remain close to, or below, prior year levels. Over
the past eight to ten years, there has been a "buyer's market" with respect to
commercial leasing, requiring rent incentives to attract and retain tenants. All
of these factors, when combined, have had a negative impact on the results of
operations and cash flows of the Partnership during the last several years.
There is some indication that the decline in rents and property values leveled
off in 1996 and continues to be level in 1997.

The Partnership has no administrative employees as all administrative functions
of the Partnership are provided by KPA, Inc. ("Managing Partner"), or by
affiliates of the Managing Partner, which receive fees for the services
performed.

                                       2
<PAGE>


ITEM 2.

PROPERTIES

The Partnership originally acquired nine properties for its investment
portfolio. Between 1990 and 1997, seven of those properties were either sold or
deeded back to the lenders. The original properties purchased which are no
longer in the Partnership's investment portfolio are as follows:

         Hideaway North Apartments  -  sold in 1990
         Firestone Plaza            -  sold in 1990
         Oakcrest Arms Apartments   -  deeded back in 1991
         Center West Plaza          -  deeded back in 1992
         Keyes Executive Center     -  deeded back in 1996
         Charlotte Commerce Center  -  sold in 1997
         LeJeune Industrial Park    -  condominium units sold from 1986 to 1997

As of December 31, 1997, two properties remain in the Partnership's investment
portfolio. Detailed information regarding the properties still owned by the
Partnership is contained in the respective property descriptions below. The
Partnership does not intend to acquire any additional properties for its
investment portfolio but intends to continue operating the remaining rental
properties in its portfolio. During 1998, the Partnership will actively market
and seek qualified buyers for its properties.

COMMERCIAL BOULEVARD CENTER

Approximately 58,000 square feet of unimproved land located in the city of
Lauderhill, Broward County, Florida was purchased by the Partnership on June 26,
1985. Through December 31, 1997, the Partnership had invested $575,206 in the
site, including land, acquisition costs and subsequent site improvements such as
landscaping and drainage. At present, there is no outstanding mortgage
obligation and no outside financing is presently planned for this property.

The Partnership entered into a land lease agreement with a major fast-food
restaurant (Long John Silver's) for one-half of the property, or 29,000 square
feet. The tenant had the responsibility for design and construction of the
restaurant which was completed in February 1987.

The remaining parcel is currently being marketed for sale as a build-to-suit or
vacant land.

NORTHPARK COMMERCE CENTER

The Partnership acquired Northpark Commerce Center ("Northpark") located in
Orlando, Orange County, Florida on November 25, 1985. Northpark, which was
designed for commercial multi-use, includes retail, showroom and warehouse
space. The site consists of approximately 9.77 acres including three separate
buildings with an aggregate of 148,800 square feet of leaseable space.

                                       3
<PAGE>

The total cost of Northpark, including land, buildings, prior improvements and
acquisition costs was $5,546,524 at December 31, 1997. Terms of the present
mortgage obligation secured by the property include an interest rate of 10.375%
with monthly payments of $44,525, representing principal and interest, payable
over a 28-year period with the entire unpaid balance due on May 1, 2017. The
lender may call the note at any time after April 1, 1999, upon six-months prior
notice. As of December 31, 1997, the mortgage obligation had an outstanding
balance of $4,456,922.

In years prior to 1993, cash flows at Northpark were not sufficient to pay all
of the property's expenses and debt service. The Partnership was unable to pay
the 1991 and 1992 real estate taxes on the property and perform necessary
repairs and/or improvements. During 1992, the Partnership entered into an
agreement with Northpark's mortgage lender for certain concessions to the terms
of its mortgage obligation. Terms of the agreement called for the lender to pay
the delinquent real estate taxes and provide a two-month moratorium on the
obligation's installment payments. The two-month payment moratorium enabled the
Partnership to perform much-needed improvements to Northpark.

The real estate taxes and deferred interest were added to the outstanding
principal balance of the loan. Additional terms of the agreement called for an
increase in the Partnership's monthly payments from $41,739 to $44,525 over the
remaining amortization period. As an additional requirement, beginning in
December 1992, tenant rent payments are collected by a third-party escrow agent
who pays the monthly mortgage payment directly to the lender. The escrow agent
also reimburses the Partnership each month for operating expenses related to
Northpark.

During 1997, occupancy levels at Northpark averaged 90% - 95%.

For 1998, repairs and improvements to paved areas are presently planned for
Northpark. The cost for making those improvements are expected to be
approximately $16,000 and will be paid out of the general funds of the
Partnership. Occasional tenant improvements may also be necessary in order to
lease vacant space. Costs for completing tenant improvements are not presently
ascertainable and will be dependent on the requirements of individual tenants.
Any costs required for tenant improvements will be paid for out of the general
funds of the Partnership.

The Partnership anticipates that it will actively offer this property for sale
during 1998. At the present time, no decision has been made regarding the
offering price or the exact marketing plans or strategy although the Partnership
is presently conducting a study on the feasibility of marketing the property for
sale.

ITEM 3.

LEGAL PROCEEDINGS

None.

                                       4
<PAGE>

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for the units of limited
partnership interest in the Partnership. As of December 31, 1997, there were 676
limited partners.

ITEM 6.

SELECTED FINANCIAL DATA

The following table of selected financial data should be read in conjunction
with the Partnership's Financial Statements included in Item 8, Financial
Statements and Supplementary Data. The periods included below are for each of
the five years ended December 31 as indicated:

<TABLE>
<CAPTION>
                                               1997          1996          1995          1994           1993
                                               ----          ----          ----          ----           ----
<S>                                         <C>           <C>           <C>           <C>            <C>              
Total revenues                              $1,936,768    $1,384,061    $1,230,792    $1,354,312     $1,424,256

Net loss                                       (73,452)      (51,291)     (428,950)     (145,146)      (299,951)

Net loss per limited partnership unit            (9.07)        (6.33)       (52.94)       (17.91)        (37.02)

Total assets                                 4,882,029     5,800,642     7,095,483     7,616,792      7,813,810

Notes and mortgages payable                  4,456,922     5,283,168     6,490,769     6,517,399      6,543,964

Partners' equity                               225,074       298,526       349,817       778,767        923,913
</TABLE>

                                       5
<PAGE>

ITEM 7.

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

MATERIAL CHANGES IN FINANCIAL CONDITION

During 1997, the Partnership's cash and interest-bearing deposits increased by
$64,788 compared to an increase of $77,173 for the 1996 calendar year.

Cash used in operations was $40,348 in 1997 compared to $45,868 provided by
operations in 1996. The change in cash flows from operations which occurred from
1996 to 1997 was primarily attributable to a decrease in depreciation and
amortization of $78,891 and the transfer of tenant security deposits of $17,090
to the purchasers of Charlotte Commerce Center. Cash and interest-bearing
deposits and cash flows from operations are net of escrow deposit increases of
$17,356 and $60,760 in 1997 and 1996, respectively. These escrow deposits may be
utilized by the Partnership for future payments of real estate taxes and
property insurance.

There were no cash distributions to partners during 1997 or 1996.

During the first quarter of 1997, the Partnership sold Charlotte Commerce
Center, one of the commercial rental properties in its investment portfolio. The
net book value of the Center was $747,608, net of accumulated depreciation of
$328,306. During the third quarter of 1997, the Partnership sold its four
remaining condominium warehouse units located at LeJeune Industrial Park. The
net book value of the units was $129,567, net of accumulated depreciation of
$50,598. Upon the sale of the properties, these amounts were removed from the
Partnership's records resulting in a decrease in the carrying value of rental
properties from December 31, 1996 levels. During 1997, the Partnership
recognized gains of $79,369 and $12,371 from the sale of Charlotte Commerce
Center and LeJeune Industrial Park, respectively.

At the closing of the sale of Charlotte Commerce Center, the outstanding
purchase money mortgage obligation in the amount of $752,500 which was secured
by the Center, was paid from the sale proceeds.

At the closings of the sale in July 1997 of the four LeJeune Industrial Park
condominium warehouse units, the Partnership accepted four mortgage notes from
the purchasers. These notes, which earn interest at an annual rate of 8%,
totaled $124,000 and provide for monthly payments of $1,342 for five years,
including principal and interest, and balloon payments which are due in July
2002.

During 1997 and 1996, the Partnership collected principal payments of $86,468
and $79,778, respectively, on its mortgage notes receivable. For 1998, the
Partnership anticipates principal payment collections of approximately $88,500.
During 1998, the Partnership also anticipates that it will reacquire one
condominium warehouse unit located at LeJeune Industrial Park through foreclose
of a delinquent mortgage note. The Partnership believes that the reaquired unit
will be resold for an amount equal to or greater than the outstanding mortgage
note balance.

The Partnership made principal payments of $73,746 on its notes and mortgages
payable during 1997 compared to $48,473 in 1996. In 1998, the Partnership
anticipates making principal payments of approximately $75,400 against the
Northpark Commerce Center mortgage note obligation. These payments will be made
out of the general funds of the Partnership.

                                       6
<PAGE>

The Partnership does not intend to acquire any additional properties for its
investment portfolio. However, certain improvements may be necessary at
Northpark Commerce Center in order to retain or attract tenants to space that is
vacant. While it is not possible to predict what improvements may be necessary
at Northpark for individual tenant warehouse space, the Partnership does intend
to make needed repairs and improvements to the paved areas of the Center. It is
expected that those improvements and repairs will cost approximately $16,000
which will be paid from the general funds of the Partnership.

Other than those items discussed above, the Partnership does not anticipate any
material changes to its financial condition during 1998.

LIQUIDITY

At December 31, 1997, the Partnership's cash and interest-bearing deposits
totaled $210,373 which was sufficient to meet current obligations that totaled
$200,033. In addition, the Partnership had escrow deposits of $91,888 which were
being held to pay 1998 estimated real estate taxes and insurance premiums for
Northpark Commerce Center. Based upon projected occupancy rates for 1998, the
properties which remain in the investment portfolio at December 31, 1997 are
expected to generate sufficient cash from their operations to meet existing debt
service, anticipated property improvements and current levels of administrative
costs of the Partnership.

Other than those items discussed above, there are no other demands or
commitments known or foreseen which will have a material impact on the liquidity
of the Partnership.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Rental and other income, when combined, decreased during 1997 when compared to
1996 by approximately 33%. This decline is primarily attributable to the
disposal of several rental properties from the Partnership's investment
portfolio including Keyes Executive Center which occurred during the last
quarter of 1996, Charlotte Commerce Center which occurred during the first
quarter of 1997, and the remaining four condominium warehouse units located at
LeJeune Industrial Park which closed in the third quarter of 1997.

During 1997, the Partnership recognized a gain of $91,740 from the sale of
several rental properties. In 1996, the Partnership recognized a gain of $12,497
from the sale of rental properties. During 1998, the Partnership anticipates
actively marketing the properties remaining in its investment portfolio.
However, it cannot be predicted whether purchasers will be found for these
properties and whether they will be sold and closed during 1998.

Interest income increased slightly during 1997 from 1996 levels primarily due to
four new mortgage notes receivable accepted from purchasers of LeJeune
Industrial Park condominium warehouse units. Increased levels of cash available
for temporary investment also contributed to higher interest income. Interest
income is generated primarily from earnings on mortgage notes held by the
Partnership resulting from the sale of units at LeJeune Industrial Park. A small
amount of interest is also generated from investment of available cash. No
significant increase or decrease is expected in interest earnings during the
next twelve months.

                                       7
<PAGE>

Interest and financing costs declined in 1997 as the Partnership continued to
amortize the mortgage obligation secured by Northpark Commerce Center. The sale
of properties, late in 1996 and early 1997, which were secured by mortgage
notes, also contributed to the overall decline of interest and financing costs.

Property expenses, excluding cost of real estate sold, decreased 30% in 1997
when compared to 1996. This decrease was primarily due to the disposal of Keyes
Executive Center during the last quarter of 1996 and Charlotte Commerce Center
during the first quarter of 1997.

The Partnership anticipates that rental income and expenses will continue to be
lower in 1998 due to the reduction in the number of rental properties remaining
in its investment portfolio.

Other than those items discussed above, there are no known or expected demands,
commitments or uncertainties, which will cause the Partnership's income and
expenses to change materially from the levels achieved in previous years.

Inflation effects and changing prices, while at minimal levels of increase, may
have a slight impact on the results of operations for the Partnership in the
future. While some of the commercial leases entered into with the tenants at the
Partnership's properties contain escalation clauses based on consumer price
changes, these escalation's are generally on an annual basis on the lease
anniversary date. Many of the commercial leases also contain expense
pass-through provisions which protect the Partnership against rising prices for
some properties. Increases in commercial rental income, however, may lag
slightly behind any increases that may occur in expenses. This temporary lag is
not expected to be material.

PARTNERSHIP'S PLAN

The Partnership will evaluate and closely monitor budgets and cash flow
projections over the next twelve months. The Partnership will continue intensive
leasing programs designed to maintain current high-level occupancy rates at its
Northpark Commerce Center and to obtain the highest possible rental rates that
the market will allow. While not allowing a decline in the property maintenance
or appearance, the Partnership plans to continue searching for lower costs and
cost savings methods.

During 1998, the Partnership intends to begin actively marketing the sale of the
properties remaining in its investment portfolio. It is not known if, or when,
prospective purchasers might be obtained for any or all of its properties. Until
such time as purchasers are located, the properties will continue to be leased
and operated by the Partnership.

ITEM 8.  (See Page 12) {Financial statements index}

ITEM 9.

DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                       8
<PAGE>

                                    PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

(A) and (B) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

         The Partnership, as an entity, does not have any directors or officers.
         The Individual General Partner of the Partnership is Timothy D. Pappas.
         The Corporate General Partner, KPA, Inc. (a Florida corporation) is the
         Managing General Partner of the Partnership ("Managing Partner"). The
         executive officers and directors of the Managing Partner as of December
         31, 1997 were as follows: Fred Stanton Smith, President and Director of
         the Managing Partner and member of its Investment Committee; Timothy D.
         Pappas, Secretary and Treasurer of the Managing Partner and member of
         its Investment Committee; and Theodore J. Pappas, member of its
         Investment Committee.

         There are no arrangements or understandings between any of the General
         Partners and any other persons pursuant to which such person was
         selected as a General Partner.

         See Item 10 (E), Business Experience for additional information.

(C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES

         Not applicable.

(D) FAMILY RELATIONSHIPS

         Mr. Timothy D. Pappas, Individual General Partner, Secretary and
         Treasurer and member of the Investment Committee of the Managing
         Partner, is the son of Mr. Theodore J. Pappas, who is a member of the
         Investment Committee of the Managing Partner, and is Chairman of the
         Board of The Keyes Company, an affiliate of the Managing Partner. Mr.
         Timothy D. Pappas is also the brother of Mr. Michael I. Pappas, who is
         President of The Keyes Company.

(E) BUSINESS EXPERIENCE

         The Directors and Executive Officers of the Managing Partner and their
         principal occupations and affiliations during the last five years or
         more, as of December 31, 1997, are as follows:

         FRED STANTON SMITH (age 72), President and Director of Managing Partner
         and member of its Investment Committee. Mr. Smith was the President and
         Director of The Keyes Company from 1974 until 1991. He received a
         B.B.A. from the University of Miami in 1950. He is a registered real
         estate broker licensed by the State of Florida, and is a Director of
         Avatar Holdings Inc. and Central Realty Investors, Inc. Mr. Smith has
         been actively involved in all phases of the real estate industry since
         1950. Mr. Smith is also an officer of other subsidiaries of The Keyes
         Company.

                                       9
<PAGE>

         TIMOTHY D. PAPPAS (age 42), Secretary and Treasurer of the Managing
         Partner, member of its Investment Committee and Individual General
         Partner. He received a Bachelor of Science degree from Florida State
         University in 1979 and, prior to his association with The Keyes
         Company, was a certified public accountant with Fox & Company, Ft.
         Lauderdale, Florida. Mr. Pappas is also a Vice-president and Director
         of The Keyes Company and serves as an officer and director of other
         subsidiaries of The Keyes Company.

         THEODORE J. PAPPAS (age 72), member of its Investment Committee. Mr.
         Pappas is Chairman of the Board of The Keyes Company. He joined The
         Keyes Company in 1962 as a branch sales manager and became Chairman of
         the Board on July 1, 1969. Under his direction, The Keyes Company grew
         from less than 100 sales associates to a sale force that exceeds 2,000
         in 35 offices from Orlando to Miami. Mr. Pappas served on the board of
         directors of SunTrust Bank, N.A. until December 1995. He also
         previously served as director and president of numerous professional
         and charitable organizations, both locally and nationally.

         The above officers, directors and investment committee members of the
         Managing Partner are also officers, directors and investment committee
         members of KPA, Inc., the Managing Partner of KFP 85-Ltd., which is a
         limited partnership subject to the requirements of Section 15 (d) of
         the Securities Exchange Act of 1934. In addition, Fred Stanton Smith is
         a Director of Avatar Holdings Inc. and Central Realty Investors, Inc.,
         while Theodore J. Pappas served as a director of SunTrust Bank, N.A.
         until December 12, 1995.

(F) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

         Not applicable.

ITEM 11.

EXECUTIVE COMPENSATION

(A) CASH COMPENSATION

         No direct remuneration was paid or payable by the Partnership to
         directors or officers (since it has no directors or officers) for the
         calendar year ended December 31, 1997, nor was any director's
         remuneration paid or payable by the Partnership to directors or
         officers of KPA, Inc., the Managing Partner and sponsor for the
         calendar year ended December 31, 1997. See: Item 8 - Financial
         Statements and Supplementary Data - Note 7 to the Financial Statements.

(B) COMPENSATION PURSUANT TO PLANS

         Not applicable.

(C) OTHER COMPENSATION

         Not applicable.

                                       10
<PAGE>

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Not applicable.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Managing Partner of the Partnership, or its affiliated companies,
         are entitled, under the Partnership Agreement, to certain commissions,
         concessions and incentives relating to the selling of partnership
         units, as well as additional fees for the management, acquisition and
         leasing of rental properties for the Partnership's investment
         portfolio. During 1995, 1996 and 1997, some of those fees were paid or
         were payable to the Managing Partner or its affiliates. See Item 8,
         Financial Statements and Supplementary Data - Note 7 to the Financial
         Statements, for further information regarding related party
         transactions.

                                     PART IV

ITEM 14.

EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K

(A)  (1) and (2): List of Financial Statements and Financial Statement
     Schedules.

     The response to this item and the list of financial statements and
     financial statement schedules is included in Item 8, Financial Statements
     and Supplementary Data, and incorporated herein by reference.

         (3)      EXHIBITS

                  27      Financial Data Schedule

(B)      REPORTS ON FORM 8-K

         None.

(C)      EXHIBITS

         (4) Partnership Agreement - included as Appendix to Prospectus
         submitted with Registration Statement, Statement on Form S-11 filed
         October 19, 1984 and incorporated herein by reference.

         (10) Material Contract - included herein by reference are the Exhibits
         to Forms 8-K listed in response to Item 14 (B) above.

(D)      FINANCIAL STATEMENT SCHEDULES

         See Index to Financial Statements in Item 8, on page 12 herein.


                                       11
<PAGE>

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Financial Statements of the Partnership are included:

                                                                           PAGE
                                                                           ----

         Report of Independent Certified Public Accountants ............... 13

         Balance Sheets as of December 31, 1997 and 1996................... 14

         Statements of Operations - for the years ended
            December 31, 1997, 1996 and 1995............................... 15

         Statements of Partners' Equity - for the years
            ended December 31, 1997, 1996 and 1995.................     ... 16

         Statements of Cash Flows - for the years ended
            December 31, 1997, 1996 and 1995............................... 17

         Notes to Financial Statements - December 31, 1997, 1996 and 1995.. 19

         Schedule II - Valuation and Qualifying Accounts................... 27

         Schedule III - Real Estate and Accumulated Depreciation........... 28

         Schedule IV - Mortgage Loans on Real Estate....................... 29

        



                                       12
<PAGE>


                  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Partners of KFP 85-Ltd.:

We have audited the accompanying balance sheets of KFP 85-Ltd. (a Florida
limited partnership) as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 KFP 85-Ltd. as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 8 to the
financial statements, the Partnership has suffered recurring losses and has
minimal working capital. These factors raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 8. The financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the partnership be unable to continue as a going concern.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Supplemental Schedules II, III and IV are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                                Arthur Andersen LLP

Miami, Florida,
    March 13, 1998.

                                       13
<PAGE>
<TABLE>
<CAPTION>
                                   KFP 85-LTD.
                                 BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

ASSETS                                                                     1997                     1996
------                                                                     ----                     ----
<S>                                                                     <C>                      <C>       
Cash and interest-bearing deposits                                      $  210,373               $  145,585
Escrow deposits                                                             91,888                   74,532
Accounts receivable, net of allowance for
   doubtful accounts of $27,199 and $12,918
      in 1997 and 1996, respectively                                        26,644                   39,700
Mortgage notes receivable, net of allowance for
   uncollectible amounts of $14,000 and $43,673
   in 1997 and 1996, respectively                                          391,850                  324,645
Rental properties, at lower of cost or market, less
   accumulated depreciation                                              3,475,752                4,528,412
Land and land development costs, at cost less
   accumulated depreciation                                                552,839                  552,839
Prepaid expenses                                                            14,505                    7,670
Other assets, net                                                          118,178                  127,259
                                                                        ----------               ----------

         Total assets                                                   $4,882,029               $5,800,642
                                                                        ==========               ==========

LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

   Accounts payable                                                     $    6,895               $   25,503
   Accrued liabilities                                                     150,326                  133,543
   Tenant security deposits and other liabilities                           42,812                   59,902
   Notes and mortgages payable                                           4,456,922                5,283,168
                                                                        ----------               ----------
         Total liabilities                                               4,656,955                5,502,116
                                                                        ----------               ----------

CONTINGENCIES (Note 8)

PARTNERS' EQUITY:

   General partners                                                       (120,750)                (119,281)
   Limited partners; 8,000 limited partnership units
      authorized; 7,940 units issued and outstanding                       345,824                  417,807
                                                                        ----------               ----------
         Total partners' equity                                            225,074                  298,526
                                                                        ----------               ----------

         Total liabilities and partners' equity                         $4,882,029               $5,800,642
                                                                        ==========               ==========
</TABLE>


               The accompanying notes to financial statements are
                    an integral part of these balance sheets.



                                       14
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                                               1997                1996               1995
                                                               ----                ----               ----
<S>                                                        <C>                  <C>                 <C>
REVENUES:
   Rental income                                           $    803,444         $  1,105,849        $ 1,068,766
   Real estate sales                                          1,047,250               81,458             87,000
   Interest income                                               31,895               29,761             30,150
   Other income                                                  54,179              166,993             44,876
                                                           ------------         ------------        -----------
            Total revenues                                    1,936,768            1,384,061          1,230,792
                                                           ------------         ------------        -----------

EXPENSES:
   Interest and financing costs                                 513,926              609,128            669,502
   Property expenses                                            256,474              368,218            401,332
   Cost of real estate sold                                     955,510               68,961             68,082
   Selling, administration and other                            108,375              200,754            245,869
   Depreciation and amortization                                175,935              254,826            274,957
                                                           ------------         ------------        -----------
            Total expenses                                    2,010,220            1,501,887          1,659,742
                                                           ------------         ------------        -----------

            Loss before extraordinary gain                      (73,452)            (117,826)          (428,950)

            Extraordinary gain                                        -               66,535                  -
                                                           ------------         ------------        -----------

            Net loss                                       $    (73,452)        $    (51,291)       $  (428,950)
                                                           ============         ============        =========== 

PER UNIT AMOUNTS TO LIMITED
PARTNERS:
   Loss before extraordinary gain after
   allocations to General Partners of
   $(1,469), $(2,357) and $(8,579) in
   1997, 1996 and 1995, respectively                       $      (9.07)        $     (14.54)      $     (52.94)

   Extraordinary gain after allocations to
   General Partners of $0, $1,331 and $0
   in 1997, 1996 and 1995, respectively                               -                 8.21                  -
                                                           ------------         -------------       ------------
                                                                                                             

   Net loss after allocations to General 
   Partners of $(1,469), $(1,026) and
   $(8,579) in 1997, 1996 and 1995
   respectively                                            $      (9.07)        $      (6.33)      $     (52.94)
                                                           ============         =============      ============ 

   Weighted average units outstanding                             7,940                7,940              7,940
                                                           ============         =============      ============ 
</TABLE>


               The accompanying notes to financial statements are
                      an integral part of these statements.

                                       15
<PAGE>

                                   KFP 85-LTD.
                         STATEMENTS OF PARTNERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                             GENERAL             LIMITED
                                                             PARTNERS            PARTNERS            TOTAL
                                                             --------            --------            -----

<S>                                                        <C>                  <C>                 <C>        
Partners' equity (deficit) December 31, 1994               $   (109,676)        $    888,443        $   778,767

Net loss - 1995                                                  (8,579)            (420,371)          (428,950)
                                                           -------------        -------------       ------------

Partners' equity (deficit) December 31, 1995                   (118,255)             468,072            349,817

Net loss - 1996                                                  (1,026)             (50,265)           (51,291)
                                                          --------------       --------------      -------------

Partners' equity (deficit) December 31, 1996                   (119,281)             417,807            298,526

Net loss - 1997                                                  (1,469)             (71,983)           (73,452)
                                                          --------------       --------------      -------------

Partners' equity (deficit) December 31, 1997              $    (120,750)       $     345,824       $    225,074
                                                          ==============       ==============      =============
</TABLE>


               The accompanying notes to financial statements are
                      an integral part of these statements.


                                       16
<PAGE>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                1997                 1996                1995
                                                                ----                 ----                ----
CASH FLOWS FROM OPERATING
ACTIVITIES:

<S>                                                         <C>                  <C>                <C>         
Net loss                                                    $   (73,452)         $   (51,291)       $  (428,950)

Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities -
   Depreciation and amortization                                175,935              254,826            274,957
   Provision (credit) for doubtful accounts                     (15,392)                   -             43,673
   Extraordinary gain                                                 -              (66,535)                 -
   Gain on sale of real estate                                  (91,740)             (12,497)           (18,918)
   Interest accreted to principal on notes
      and mortgages payable                                           -                    -             30,000
   Changes in assets and liabilities -
      (Increase) decrease in escrow deposits                    (17,356)             (60,760)            59,045
      Increase in accounts receivable                            (1,225)             (10,454)                 -
      (Increase) decrease in prepaid expenses                    (6,835)              14,893              2,335
      (Increase) decrease in other assets                         8,632               (1,020)            40,134
      Decrease in accounts payable                              (18,608)             (24,155)            (5,272)
      Increase (decrease) in accrued liabilities                 16,783               (6,355)           (49,111)
      Increase (decrease) in tenant security
         deposits and other liabilities                         (17,090)               9,216            (11,346)
                                                            ------------        ------------        ------------
               Net cash provided by (used in)
                  operating activities                          (40,348)              45,868            (63,453)
                                                            ------------        ------------        ------------

CASH FLOWS FROM INVESTING
ACTIVITIES:

   Payments received on mortgage notes                           86,468               79,778             13,067
   Capital expenditures                                               -                    -            (18,606)
   Proceeds from sale of real estate,
      net of closing costs                                       92,414                    -              8,256
                                                           ------------         ------------      -------------
               Net cash provided by
                  investing activities                          178,882               79,778              2,717
                                                            -----------         ------------       ------------
</TABLE>



                                   (continued)

                                       17
<PAGE>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                   (Continued)

<TABLE>
<CAPTION>
                                                                 1997                1996               1995
                                                                 ----                ----               ----
<S>                                                           <C>                <C>               <C>         
CASH FLOWS FROM FINANCING
ACTIVITIES:

   Repayment of notes and mortgages payable                   $  (73,746)        $   (48,473)      $   (56,630)
                                                              -----------        ------------      ------------

NET INCREASE (DECREASE) IN CASH
AND INTEREST-BEARING DEPOSITS                                     64,788              77,173          (117,366)

CASH AND INTEREST-BEARING
DEPOSITS, BEGINNING OF YEAR                                      145,585              68,412           185,778
                                                              ----------         -----------       -----------

CASH AND INTEREST-BEARING
DEPOSITS, END OF YEAR                                         $  210,373         $   145,585       $    68,412
                                                              ==========         ===========       ===========


SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:

   Cash paid for interest                                     $  478,241         $   596,264       $   636,709
                                                              ==========         ===========       ===========

SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:

   Mortgage notes receivable accepted
      on sale of property                                     $  124,000         $    71,000       $    69,000
                                                              ==========         ===========       ===========

   Purchase money mortgage loan payable
      satisfied at closing                                    $  752,500         $         -       $          -
                                                              ==========         ===========       ============
</TABLE>



               The accompanying notes to financial statements are
                      an integral part of these statements.


                                       18
<PAGE>

                                   KFP 85-LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (a) ORGANIZATION -

     KFP 85-Ltd. (the "Partnership") was formed on June 27, 1984, by the filing
     of a Certificate and Agreement of Limited Partnership ("Partnership
     Agreement") with the Florida Department of State and commenced its offering
     of partnership units on November 21, 1984, the effective date of a
     Registration Statement filed with the Securities and Exchange Commission.
     The Partnership Agreement authorized the sale of 8,000 units to the public.
     On March 31, 1986, the Managing Partner closed the offering. The
     Partnership was formed to acquire, invest in, develop, operate and sell
     real estate and perform all other activities related or incidental thereto.
     The Managing General Partner of the Partnership is KPA, Inc.

     (b) ALLOCATION OF NET INCOME (LOSS) AND DISTRIBUTIONS -

     In accordance with the Partnership Agreement, operating net income or loss
     is generally allocated 98% to the limited partners as a class and 2% to the
     general partners as a class. Gain from the sale or refinancing of
     partnership property will be allocated: (a) first to the partners with
     negative balances in their capital accounts, pro-rata, to the extent of the
     negative balances; (b) second, up to 2% to the general partners depending
     on the aggregate amount of their capital accounts; and (c) third, the
     balance, if any, to the limited partners.

     Under the terms of the Partnership Agreement, cash distributions are made
     in amounts determined at the sole discretion of the Managing General
     Partner. Cash distributable from operations is generally allocated to the
     general and limited partners as follows: (a) first, 98% to the limited
     partners as a class and 2% to the general partners as a class, until each
     limited partner has received cash distributions equal to 100% of his
     adjusted capital contribution plus the "preferred return," defined as 10%
     per annum of the limited partners' adjusted capital contribution on a
     cumulative basis; (b) next, to the general partners in an amount equal to
     10% of the preferred return paid to the limited partners on a cumulative
     basis, such amount representing a management fee; and (c) thereafter, 100%
     to the limited partners as a class.

     Distributable cash from a sale or refinancing of partnership property will
     be allocated: (a) first, to limited partners in an amount equal to the
     preferred return less prior distributions, (b) second, to the limited
     partners in the amount of their adjusted capital contributions, (c) third,
     to the general partners until they have received an amount (from all
     sources of distributable cash) equal to the management fee; and (d) fourth,
     and remainder, 85% to the limited partners as a class and 15% to the
     general partners as a class. Amounts distributed to the limited partners as
     a class are allocated to the individual limited partners on a pro-rata
     basis. Amounts distributed to the general partners as a class are allocated
     pursuant to a separate agreement between the general partners.


                                       19
<PAGE>

     (c) INCOME TAXES-

     In a partnership, taxable income or loss is reflected in the tax returns of
     the partners. Accordingly, the Partnership does not record income tax
     credits or provisions. The tax returns, the qualification of the
     Partnership as such for tax purposes and the amount of Partnership income
     or loss are subject to examination by the Internal Revenue Service. If an
     examination results in changes with respect to the Partnership
     qualification or Partnership income or loss, the tax liability of the
     partners could be changed accordingly.

     For tax purposes, the timing of certain expense deductions, consisting
     mainly of depreciation, interest and financing costs, differ from that used
     for financial reporting purposes.

     (d) DEPRECIATION -

     The Partnership depreciates rental properties and land development costs by
     using the straight-line method over their estimated useful lives, which are
     generally thirty years for buildings and five years for land development
     costs. For income tax purposes, such property is depreciated on an
     accelerated basis. Repairs, maintenance and minor improvements are included
     in property expenses when incurred while major improvements are
     capitalized.

     (e) DEFERRED FINANCING COSTS -

     As of December 31, 1997, and 1996, deferred financing costs of $52,253 and
     $55,046, respectively, are included in other assets in the accompanying
     balance sheets. The Partnership amortizes these costs on the straight-line
     method over the life of the related obligation. Amortization under the
     straight line method does not materially differ from the amount that would
     have been computed using the effective rate method.

     (f) REVENUE RECOGNITION -

     The Partnership recognizes income from the sale of real estate in
     accordance with Statement of Financial Accounting Standards ("SFAS") No.
     66, "Accounting for Sales of Real Estate".

     (g) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -

     In 1992, the Financial Accounting Standards Board issued SFAS No. 107
     "Disclosure About Fair Value of Financial Instruments" for implementation
     by the fiscal year ended December 31, 1995, which requires disclosures of
     the fair value (and of the methods and assumptions to estimate fair value)
     of financial instruments, both assets and liabilities recognized and not
     recognized in the balance sheet, for which it is practicable to estimate
     fair value. For the Partnership, the financial assets consist of mortgage
     notes receivable collateralized by warehouse units. The interest rate on
     these mortgages approximates market rates for such commercial mortgages
     with the percentage of equity held by the mortgagors. Management of the
     Partnership is of the opinion that these mortgage notes receivables have a
     fair value equivalent to book value.


                                       20
<PAGE>

     (h) USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management 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 differ from those
     estimates.

     (i) IMPAIRMENT OF LONG-LIVED ASSETS

     SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
     Long-Lived Assets to be Disposed of," is effective for fiscal years
     beginning after December 15, 1995. SFAS No. 121 requires that long-lived
     assets and certain identifiable intangibles to be held and used by an
     entity be reviewed for impairment whenever events or changes in
     circumstances indicate that the carrying amount of an asset may not be
     recoverable. SFAS No. 121 also requires that certain long-lived assets and
     certain identifiable intangibles to be disposed of be reported at the lower
     of their carrying amount or fair value less cost to sell. Management does
     not believe that the adoption of SFAS No. 121 has had a material impact on
     the Partnership's financial statements.

     (j) RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1997, the FASB issued Statements of Financial Accounting Standards
     Number 130, Comprehensive Income ("SFAS 130"), and Number 131, Disclosures
     about Segments of an Enterprise ("SFAS 131"). The Partnership is required
     to adopt these statements in 1998. SFAS 130 establishes standards for
     reporting comprehensive income and SFAS 131 establishes standards for
     reporting information about operating segments. Management does not believe
     that the adoption of SFAS 130 and 131 will have a significant impact on the
     Partnership's financial statements or related disclosures.

     (k) THE YEAR 2000 ISSUE (UNAUDITED)

     The Partnership does not believe that it has material exposure to the Year
     2000 issue with respect to its own information systems since its existing
     systems correctly define the year 2000. Although the Partnership believes
     that the information systems of its major vendors (insofar as they relate
     to the Partnership's business) comply with Year 2000 requirements, there
     can be no assurance that the Year 2000 issue will not affect the
     information systems of the Partnership's major vendors as they relate to
     the Partnership's business, or that any such impact of a major vendor's
     information system would not have a material adverse effect on the
     Partnership.


                                       21
<PAGE>

(2) CASH AND INTEREST-BEARING DEPOSITS:

     Keyes Asset Management, Inc. an affiliate of the Managing General Partner
     and the management agent for the Partnership's properties, maintains
     certain bank accounts on behalf of the Partnership. These amounts are
     included in cash and interest-bearing deposits in the accompanying balance
     sheets. At December 31, 1997 and 1996, $179,417 and $114,731, respectively,
     was held in such accounts and $30,705 and $30,104, respectively, was held
     in interest-bearing accounts.

(3) MORTGAGE NOTES RECEIVABLE:

     Mortgage notes receivable, arising from the sale of real estate inventory,
     have stated interest rates ranging from 7.9% to 10%.

     In 1997, four mortgages totaling $124,000 were accepted in exchange for a
     portion of the sales price of four units. These mortgages are due in 2002.

     At December 31, 1997, annual maturities of mortgage notes receivable are as
     follows:

                  YEAR ENDING DECEMBER 31                           AMOUNT
                  -----------------------                           ------

                  1998                                             $125,020
                  1999                                               46,330
                  2000                                               70,329
                  2001                                               72,817
                  2002                                               91,354
                                                                   --------
                                                                    405,850

                  Less allowance for uncollectible amounts          (14,000)
                                                                   --------
                                                                   $391,850
                                                                   ========

(4) RENTAL PROPERTIES, LAND AND LAND DEVELOPMENT:

     Rental properties, land and land development are as follows as of December
     31, 1997 and 1996:

          RENTAL PROPERTIES                       1997                 1996
          -----------------                       -----                ----
          Northpark Commerce Center             $ 5,546,524         $ 5,546,524
          Charlotte Commerce Center                       -           1,075,913
          LeJeune Industrial Park                         -             179,715
                                                -----------         -----------
                                                  5,546,524           6,802,152
          Less accumulated depreciation          (2,070,772)         (2,273,740)
                                                -----------         -----------

                                                $ 3,475,752         $ 4,528,412
                                                ===========         ===========


                                       22
<PAGE>



                                                   1997               1996
                                                   ----               ----

          LAND AND LAND DEVELOPMENT
  
          Commercial Boulevard Center          $    575,206        $    575,206
          Less accumulated depreciation             (22,367)            (22,367)
                                               ------------        ------------

                                               $    552,839        $    552,839
                                               ============        ============


     The LeJeune Industrial Park rental property was originally built by the
     Partnership as nineteen condominium units for sale. Fifteen of those units
     were sold in prior years. During 1997, the remaining four units were sold.

(5) NOTES AND MORTGAGES PAYABLE:

     Notes and mortgages payable at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                               1997              1996
                                                                               -----             ----
<S>                                                                         <C>               <C>       
         Mortgage loan secured by Northpark Commerce 
         Center, bearing interest at 10.375%, payable in
         monthly installments of $44,525 representing
         principal and interest, due May 1, 2017.                           $4,456,922        $4,524,933

         Purchase money mortgage secured by Charlotte 
         Commerce Center, bearing interest at 9%, payable
         in monthly installments of $5,644 representing
         interest only, paid January 31, 1997.                                       -           752,500

         Obligation under capital lease due in monthly 
         installments of $538 representing principal and
         interest at 18%.                                                            -             5,735
                                                                            ----------        ----------

                                                                            $4,456,922        $5,283,168
                                                                            ==========        ==========
</TABLE>

     During 1993, the Partnership entered into a loan modification agreement
     with the mortgage lender for Charlotte Commerce Center. The agreement
     extended the maturity of the loan to June 30, 1996. A further modification
     was made which extended the maturity date to January 1, 1997, and then to
     March 31, 1997. During 1997, the Charlotte Commerce Center was sold and the
     purchase money mortgage obligation was paid at closing.

     Upon six months prior notice, the Northpark Commerce Center lender may call
     the mortgage note at any time after April 1, 1999.


                                       23
<PAGE>

     At December 31, 1997, annual maturities of notes and mortgages payable are
     as follows:

                  YEAR ENDING DECEMBER 31                               AMOUNT
                  -----------------------                               ------

                  1998                                            $     75,414
                  1999                                                  83,621
                  2000                                                  92,721
                  2001                                                 102,812
                  2002                                                 114,000
                  Thereafter                                         3,988,354
                                                                  ------------

                                                                   $ 4,456,922
                                                                   ===========

 (6) DISPOSITIONS:

     During 1997, the Partnership sold four condominium warehouse units located
     at LeJeune Industrial Park for a total of $155,000. The net book value of
     the units was $129,567, selling expenses were $13,062 and the resulting
     gain was $12,371. The Partnership accepted four purchase money mortgage
     notes in the amount of $124,000. These notes are secured by the units and
     bear interest at an annual rate of 8%.

     The Partnership also sold Charlotte Commerce Center in 1997 for a selling
     price of $892,250. The net book value of the Center was $747,608, selling
     expenses were $65,273 and the resulting gain was $79,369.

     The cash remaining from these closings, after payment of normal and
     customary closing costs, expenses of sale, outstanding purchase money
     mortgage balance, accrued interest and other pro-rata items, was retained
     by the Partnership in its general funds and was used for operating expenses
     and other current obligations.

(7) RELATED PARTY TRANSACTIONS:

     During 1997, 1996 and 1995, leasing commissions of $24,752, $68,556 and
     $41,887, respectively, were paid to Keyes Asset Management, Inc. in
     connection with the securing of tenants for various of the respective
     leases. The unamortized portions of leasing commissions to Keyes Asset
     Management, Inc. ($44,900 in 1997 and $51,577 in 1996) are included in
     other assets in the accompanying balance sheets and are being amortized on
     a straight-line basis over the life of the related lease.

     Property management fees paid to Keyes Asset Management, Inc. for
     management of certain Partnership properties totaled $35,490, $54,657 and
     $57,338 for the years ended December 31, 1997, 1996 and 1995, respectively,
     and are included in property expenses in the accompanying statements of
     operations.


                                       24
<PAGE>

     On January 31, 1997, the Partnership paid a selling commission of $26,767
     to Keyes Asset Management, Inc. in conjunction with the sale of Charlotte
     Commerce Center. On July 11, 1997, the Partnership paid a selling
     commission of $9,300 to Keyes Asset Management, Inc. in conjunction with
     the sale of four condominium units at LeJeune Industrial Park. These
     amounts are included in the cost of real estate sold in the accompanying
     statements of operations.

     At December 31, 1997 and 1996, companies affiliated with the Managing
     General Partner were due $58,457 for office and equipment rental. Amounts
     due are non-interest bearing and are included in accrued liabilities in the
     accompanying balance sheets.

     At December 31, 1997 and 1996, The Keyes Company was due $342 and $3,522,
     respectively, for various transactions, which are included in accounts
     payable in the accompanying balance sheets.

(8) GOING CONCERN ISSUES AND LIQUIDITY:

     As shown in the accompanying financial statements, the Partnership has
     sustained significant losses in each of the last three fiscal years. Cash
     was used in the operations of the Partnership amounting to $40,348 in 1997.
     Cash and interest-bearing deposits on hand at December 31, 1997 is
     estimated to be sufficient to pay the Partnership's current accounts
     payable and accrued liabilities and the Partnership has escrow balances of
     $91,888 available to pay future real estate taxes and property insurance.
     The Partnership projects a net loss from operations for 1998. The
     Partnership's plan for addressing its cash flow and recurring losses
     includes continuing to closely evaluate each property's budget and cash
     flow projections over the next twelve months and evaluating the
     marketability of the properties.

(9) EXTRAORDINARY GAIN:

     During 1996, the purchase money mortgage secured by Keyes Executive Center
     was foreclosed by the lender. At the time of foreclosure, escrow deposits
     and the net book value of the property totaled $1,107,248, while the
     purchase money mortgage and other outstanding obligations totaled
     $1,173,783. As a result of the foreclosure, the Partnership realized an
     extraordinary gain of $66,535.


                                       25
<PAGE>

(10) ALLOCATIONS OF TAXABLE INCOME:

     Under terms of the Partnership Agreement, gains from the sale or
     disposition of partnership property are to be allocated: (a) first to those
     partners with negative balances in their capital accounts, pro-rata, to the
     extent of the negative balances; (b) second, up to 2% to the general
     partners depending on the aggregate amount of their capital accounts; and
     (c) third, the balance, if any, to the limited partners. In each of the
     previous years which ended through December 31, 1997, the General Partners
     elected to waive their right to receive the allocated share of gains which
     would have eliminated the negative balances in their capital accounts.
     Instead, the General Partners have elected to receive allocations of gains,
     if any, from the future sale of the properties which remain in the
     Partnership's investment portfolio at December 31, 1997.


                                       26
<PAGE>



                                                                     SCHEDULE II

                                               KFP 85-LTD.
                                    VALUATION AND QUALIFYING ACCOUNTS

                              FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                           UNCOLLECTIBLE
                                                            CHARGED           AMOUNTS
                                         BALANCE AT       (CREDITED)          CHARGED         BALANCE AT
                                         BEGINNING       TO COSTS AND         AGAINST             END
DESCRIPTION                              OF PERIOD         EXPENSES          ALLOWANCE         OF PERIOD
-----------                              ---------         --------          ---------         ---------
<S>                                         <C>             <C>            <C>                    <C>    
YEAR ENDED DECEMBER 31, 1997
----------------------------

Deducted from the balance
sheet caption "Accounts
receivable" - allowance for
uncollectible accounts                      $12,918         $  14,281      $         0            $27,199

Deducted from the balance
sheet caption "Mortgage
notes receivable" -
allowance for uncollectible
amounts                                     $43,673         $ (29,673)     $         0            $14,000

YEAR ENDED DECEMBER 31, 1996
----------------------------

Deducted from the balance
sheet caption "Accounts
receivable" - allowance for
uncollectible accounts                      $12,918         $       0      $         0            $12,918

Deducted from the balance
sheet caption "Mortgage
notes receivable" -
allowance for uncollectible
amounts                                     $43,673         $       0      $         0            $43,673
</TABLE>



                                       27
<PAGE>

                                                                    SCHEDULE III

                                   KFP 85-LTD.
                    
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                        
                                                                                COST CAPITALIZED SUBSEQUENT        
                                            INITIAL COST TO PARTNERSHIP                TO ACQUISITION              
                                        ---------------------------------------------------------------------------
                                                               BUILDINGS                                           
                                                                  AND                                CARRYING      
DESCRIPTION                 ENCUMBRANCES       LAND           IMPROVEMENTS       IMPROVEMENTS          COSTS       
-------------------------------------------------------------------------------------------------------------------
<S>                         <C>               <C>              <C>                  <C>           <C>              
Northpark Commerce
Center
Orlando, Florida            $4,456,922         $534,786        $4,826,868           $184,870      $         -      


Commercial Blvd.
Center
Lauderhill, Florida         -                   422,542        -                     146,853            5,811      
                    -----------------------------------------------------------------------------------------------
                            $4,456,922         $957,328        $4,862,868           $331,723           $5,811    
                       ===============     =============    ===============     ===============    =============   
</TABLE>




<TABLE>
<CAPTION>
                           GROSS AMOUNT AT WHICH CARRIED                                                                            
                                AT CLOSE OF PERIOD                                                                   LIFE ON WHICH  
                   ---------------------------------------------                                                      DEPRECIATION  
                                         BUILDINGS                                                                  IN LATEST INCOME
                                            AND                     ACCUMULATED        DATE OF         DATE          STATEMENT IS   
DESCRIPTION              LAND          IMPROVEMENTS     TOTAL       DEPRECIATION    CONSTRUCTION     ACQUIRED         COMPUTED      
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>              <C>           <C>            <C>               <C>           <C>               <C>          
                                                                                                                                    
Northpark Commerce                                                                                                                  
Center                                                                                                                              
Orlando, Florida       $534,786         $5,011,738    $5,546,524     $2,070,772        1983          Nov. 1985         30 Years     
                                                                                                                                    
                                                                                                                                    
Commercial Blvd.                                                                                                                    
Center                                                                                                                              
Lauderhill, Florida     552,839             22,367       575,206         22,367         N/A          June 1985          5 Years     
                    -----------------------------------------------------------
                     $1,087,625         $5,034,105    $6,121,730     $2,093,139                                                
                    ===========    ===============    ==========  =============                                                
</TABLE>

(1) A reconciliation of the total amount which real estate was carried at the
beginning of the period to the total amount at the end of the period is as
follows:

Balance at beginning of period                                $7,377,358
Acquisitions and improvements                                          -
Cost of real estate sold                                      (1,255,628)
                                                         ---------------
Balance at end of period                                      $6,121,730
                                                         ===============

(2) A reconciliation of accumulated depreciation from the beginning of the
period to the end of the period is as follows:

Balance at beginning of period                                $2,296,107
Depreciation charged to expense                                  175,935
Depreciation from sales                                         (378,903)
                                                         ---------------
Balance at end of period                                      $2,093,139
                                                         ===============


                                       28
<PAGE>



                                                                     SCHEDULE IV

                                   KFP 85-LTD.
                          MORTGAGE LOANS ON REAL ESTATE
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                                   PRINCIPAL
                                                                                                AMOUNT OF LOANS
                                                                                                   SUBJECT TO
                                                                                                   DELINQUENT
                                                                  ORIGINAL                         PRINCIPAL/
                                                   FINAL            FACE           CARRYING         INTEREST
                                                 MATURITY         AMOUNT OF       AMOUNT OF         --------
DESCRIPTION AND INTEREST RATE                      DATE           MORTGAGES       MORTGAGES
-----------------------------                      ----           ---------       ---------
<S>                                             <C>             <C>                <C>                <C>      
First mortgage notes issued in                  Mortgages
connection with sales of LeJeune                mature 
June Industrial Park warehouse                  beginning in 
units, with interest rates                      1993 through
ranging from 7.9% to 10%                        2002            $ 623,225          $ 391,850          $  36,500
</TABLE>


A reconciliation of the carrying amount of mortgage loans from the beginning of
the period to the end of the period is as follows:

                                                       1997              1996
                                                       ----              ----
Balance at beginning of period                       $ 324,645       $ 333,223

Additions during period -- New 
mortgage loans                                         124,000          71,200

Allowance for uncollectible 
amounts                                                 29,673               0

Collections of principal                               (86,468)        (79,778)
                                                     ---------       ---------
Balance at the end of period                         $ 391,850       $ 324,645
                                                     =========       =========

                                       29
<PAGE>




                                   SIGNATURES
                                   ----------

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        KFP 85-LTD.
                                        (Registrant)
  
                                         By:      KPA, Inc.

                                                  Managing General Partner

Date: May 19, 1998                       By:      /S/ FRED STANTON SMITH
                                                  ----------------------
                                                  Fred Stanton Smith,
                                                  President and Principal
                                                  Executive Officer


Date: May 19, 1998                       By:      /S/ TIMOTHY D. PAPPAS
                                                  ----------------------
                                                  Timothy D. Pappas,
                                                  Secretary and Treasurer and
                                                  Principal Accounting Officer

Date: May 19, 1998                       By:      /S/ TIMOTHY D. PAPPAS
                                                  ----------------------
                                                  Timothy D. Pappas,
                                                  General Partner


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.

Date: May 19, 1998                       By:      /S/ FRED STANTON SMITH
                                                  ----------------------
                                                  Fred Stanton Smith,
                                                  Director of the Managing
                                                  General Partner


                                       30
<PAGE>

                                 EXHIBIT INDEX


EXHIBIT                               DESCRIPTION
-------                               -----------

27                         Financial Data Schedule