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, 1998

                                       OR

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

         For the transition period from ________________ to ______________

                           Commission file 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:

         TITLE OF EACH CLASS                           NAME OF EACH EXCHANGE ON
         -------------------                              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 and leasing commercial real estate within
the State of Florida.

The results of operations 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.

Sometime after the Partnership's formation, commercial real estate in the State
of Florida went through a period of overbuilding, creating an excess amount of
commercial rental space available. Failures of banks and other financial
institutions with subsequent takeovers by the Resolution Trust Corporation
("RTC") lead to foreclosures on a number of commercial properties. Subsequent
sales of foreclosed commercial real estate by the RTC resulted in below-market
prices in the Partnership's rental property market area of South and Central
Florida. Coupled with a general economic recession within the United States,
these factors caused a significant decline in the overall market value of
commercial real estate. As a result, for financial statement purposes the
Partnership was required to write-down the carrying value of several properties
in its investment portfolio.

In addition to the decline in property market values, the excess amount of
commercial rental space available within the Partnership's market area caused
the Partnership's lease rates to remain close to, or below, prior year levels.
During much of the Partnership's existence, there has been a "buyer's market"
with respect to commercial leasing, requiring rent incentives to attract and
retain tenants. Together, all of these factors have had a negative impact on the
cumulative results of operations and cash flows of the Partnership.

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
at various times after the initial offering. Between 1990 and 1997, seven of
those properties were either sold or deeded back to the lenders. The original
properties purchased that 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, 1998, 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 rental properties in
its portfolio until such time as the properties are sold. During 1998, the
Partnership began to actively market the two remaining properties. The
Partnership intends to continue in 1999 to seek qualified buyers for each of the
properties.

COMMERCIAL BOULEVARD CENTER

On June 26, 1985, the Partnership purchased approximately 58,000 square feet of
unimproved land located in the city of Lauderhill, Broward County, Florida.
Through December 31, 1998, the Partnership had invested $575,206 in the site,
including land, acquisition costs and subsequent site improvements such as
landscaping and drainage. There is no outstanding mortgage obligation on the
Center and no outside financing is 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. In February 1987, the tenant completed construction and opened its
restaurant at the Center.

In June 1998, the Partnership received notice that Long John Silver's Restaurant
filed for voluntary bankruptcy under Chapter 11 of the United States Bankruptcy
Code. As provided under the Code, the Bankruptcy Court allowed the tenant to
reject (terminate) the existing land lease with the Partnership. The original
term of the land lease was twenty years and was scheduled to end in February
2007. At the time of rejection, the annual rent from the tenant was
approximately $35,000 plus a pro-rata share of the parcel's real estate taxes
that approximated $8,500. The tenant paid rent through May 1998 as well as its
pro-rata share of 1997 real estate taxes.

As a result of the tenant's rejection of the Partnership's land lease agreement,
the building constructed by the tenant on the Partnership's land, became the
property of the Partnership at no cost or associated indebtedness.

                                       3

<PAGE>

During the third quarter of 1998, the Partnership reevaluated the recorded value
of the land and land development cost for Commercial Boulevard Center. Because
of the loss of the Center's tenant, the Partnership determined that the property
would be actively marketed for sale. Accordingly, the recorded value of the land
and land development cost was reduced by $84,839 to $468,000, its estimated net
realizable value. This reduction was predicated upon the estimated selling price
net of anticipated selling expenses. However, there is no guarantee that the
Partnership will be able to find a qualified buyer for the Center and there is
no guarantee that the estimated realizable value will be achieved when the
Center is ultimately sold.

The Partnership has no current plans to make any improvements to the building or
the adjacent vacant property. Until such time as a purchaser is found, the
Partnership will perform and pay for any routine maintenance and insurance
required for the property.

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.

The total cost of Northpark, including land, buildings, improvements and
acquisition costs was $5,546,524 at December 31, 1998. Terms of the present
mortgage obligation secured by the property include an annual 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, 1998, the mortgage obligation had an
outstanding balance of $4,381,508.

During 1992, the Partnership entered into an agreement with Northpark's mortgage
lender that called for the lender to pay delinquent real estate taxes and
provide a two-month moratorium on mortgage payments. The real estate taxes and
deferred interest were added to the outstanding principal balance of the loan.
Terms of the agreement also called for an increase in the Partnership's monthly
payments from $41,739 to $44,525 over the remaining amortization period.
Beginning in December 1992, the lender required a third-party escrow agent to
collect tenant rent payments and, in turn, pays the monthly mortgage payment
directly to the lender. From time to time, excess amounts held in escrow are
released into the Partnership's general funds and the timing of such releases
may vary over the course of each year.

For 1999, no major repairs and improvements are presently planned for Northpark.
During 1998, in anticipation of selling the property, significant repairs to the
paved areas and roof were performed at the property. The cost of those repairs
was approximately $41,000 and was paid out of the general funds of the
Partnership. On occasion, repairs or improvements to tenant space may be
necessary to lease vacant space or to entice tenants to renew expiring leases.
During 1998, the Partnership spent approximately $15,000 out of its general
funds for improvements that allowed vacant space to be leased. For 1999, 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.

                                       4

<PAGE>

Occupancy levels at Northpark averaged 92% during 1998.

During 1998, the Partnership began actively marketing this property for sale and
intends to continue looking for a purchaser during 1999. There is no guarantee
that the Partnership will be able to find a qualified purchaser for Northpark in
1999.



ITEM 3.

LEGAL PROCEEDINGS

None.



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, 1998, there were 642
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>


                                                 1998          1997          1996          1995          1994
                                                 ----          ----          ----          ----          ----
<S>                                             <C>         <C>           <C>           <C>           <C>       
Total revenues                                  $868,771    $1,936,768    $1,384,061    $1,230,792    $1,354,312

Net loss                                        (264,658)      (73,452)      (51,291)     (428,950)     (145,146)

Net loss per limited partnership unit             (32.67)       (9.07)         (6.33)       (52.94)       (17.91)

Total assets                                   4,526,072     4,882,029     5,800,642     7,095,483     7,616,792

Notes and mortgages payable                    4,381,508     4,456,922     5,283,168     6,490,769     6,517,399

Partners' equity (deficit)                       (39,584)      225,074       298,526       349,817       778,767
</TABLE>

                                       5

<PAGE>

ITEM 7.

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

MATERIAL CHANGES IN FINANCIAL CONDITION

During 1998, the Partnership's cash and interest-bearing deposits decreased by
$43,297 compared to an increase of $64,788 in 1997. The difference between 1997
and 1998 was primarily attributable to cash proceeds of $92,414 received from
the sale of real estate and higher collections from mortgage notes receivable in
1997. This difference was partially offset by an increase in escrow deposits and
refunds of tenant security deposits for those properties that were sold.

During 1998, cash used in operations was $6,611 compared to $40,348 used in
1997. The primary reason for the difference was the net transfer in 1998 of
funds from the escrow deposit account into the Partnership's operating account.
From time to time, excess escrow funds, which are held by a third-party escrow
agent appointed by the mortgage lender of Northpark Commerce Center are released
into the Partnership's general funds and the timing of such releases may vary
over the course of each year.

There were no cash distributions to partners during 1998 or 1997.

During the third quarter of 1998, the Partnership reevaluated the recorded value
of land and land development costs for Commercial Boulevard Center which is
located in the city of Lauderhill, Broward County, Florida. In June 1998, the
Partnership received notice that the tenant of the Center filed for voluntary
bankruptcy and the Bankruptcy Court allowed the tenant to terminate the existing
land lease. Because of the loss of the Center's tenant, the Partnership
determined that the Center would be actively marketed for sale. Accordingly, the
recorded value of the land and land development cost of the Center was reduced
by $84,839 to $468,000, its estimated net realizable value. This reduction was
based upon the estimated selling price net of anticipated selling expenses.
However, there is no guarantee that the Partnership will be able to find a
qualified buyer for the Center and there is no guarantee that the estimated
realizable value will be achieved when the Center is ultimately sold.

During 1998 and 1997, the Partnership collected principal payments of $38,728
and $86,468, respectively, on its mortgage notes receivable. For 1999, the
Partnership anticipates principal payment collections of approximately $157,000
as certain of the mortgage notes mature in 1999. In prior years, the Partnership
agreed to extensions on some mortgage notes as they matured. Under certain
conditions, the Partnership might agree to additional extensions during 1999 but
the amount of extensions, if any, are not presently ascertainable. Prior to the
end of 1999, the Partnership anticipates that it will reacquire a condominium
warehouse unit located at LeJeune Industrial Park through foreclosure of a
mortgage note receivable that the Partnership holds. The unpaid balance of the
mortgage note is approximately $36,000 and the Partnership anticipates that it
will be able to re-sell that unit for an amount equal to the unpaid mortgage
balance. However, there is no guarantee that the Partnership will be able to
sell the unit for that amount. At the present time, it is not known exactly when
the unit will be reacquired or how long the unit will have to be held before it
is re-sold.

                                       6

<PAGE>

The Partnership made principal payments of $75,414 on its note and mortgage
payable during 1998 compared to $73,746 in 1997. In 1999, the Partnership
anticipates making principal payments of $83,621 against the Northpark Commerce
Center mortgage note obligation. These payments will be made monthly out of the
general funds of the Partnership. At any time after April 1, 1999, the Northpark
Commerce Center lender may call the mortgage note upon six months prior notice.
At the present time, the Partnership does not anticipate that the lender will
call the obligation, but there is no guarantee that it will not occur.

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. For 1999, 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 out of 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 1999.

LIQUIDITY

At December 31, 1998, the Partnership's cash and interest-bearing deposits
totaled $167,076 which was insufficient to meet accounts payable, accrued
liabilities and tenant security deposits that totaled $184,148. However, the
Partnership had $85,983 in escrow deposits that were being held to pay 1999
estimated real estate taxes and insurance premiums for Northpark Commerce
Center. Based upon projected occupancy rates for 1999, Northpark is expected to
generate sufficient cash from its operations to meet existing debt service and
the present level 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 by approximately 2% during
1998 when compared to 1997. The decline was primarily attributable the loss of
lease revenue for eight months from the tenant at Commercial Boulevard Center.
As discussed above under Material Changes in Financial Condition, the tenant
filed for voluntary bankruptcy and rejected the land lease effective in May
1998.

During 1997, the Partnership recognized a gain of $91,740 from the sale of
several rental properties. No properties were sold in 1998. While the
Partnership anticipates actively marketing both properties remaining in its
investment portfolio, it is presently not ascertainable whether qualified
purchasers will be found for these properties and if they will be sold and
closed during 1999.

Interest income decreased slightly in 1998 from 1997 levels primarily due to the
amortization of the principal balances on the mortgage notes receivable from
purchasers of LeJeune Industrial Park condominium warehouse units. A small
amount of interest is also generated from investment of available cash. For
future periods, interest income will continue to decline as mortgage principal
payments are received.

                                       7

<PAGE>

Interest and financing costs declined in 1998 as the Partnership continued to
amortize the mortgage obligation secured by Northpark Commerce Center.

Property expenses, excluding cost of real estate sold, increased 15% in 1998
when compared to 1997. This increase was primarily due to planned repairs to the
roof, paved areas and interior improvements at Northpark Commerce Center. Those
repairs totaled approximately $56,000. For 1999, no significant repairs are
planned for either Northpark Commerce Center or Commercial Boulevard Center.

Selling, administration and other expenses increased in 1998 by approximately
11% as the Partnership included a provision of approximately $23,000 for bad
debts.

For 1999, the Partnership anticipates that rental income and expense will
continue at levels approximately equal to those attained in 1998.

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 insignificant levels of
increase, should not have any material impact on the results of operations in
the future for the Partnership. Some of the commercial leases entered into with
the tenants at the Partnership's properties contain escalation clauses based on
consumer price changes and these escalations are generally on an annual basis on
the lease anniversary date. Some of the commercial leases also contain expense
pass-through provisions that protect the Partnership against rising prices for
its properties. Increases in commercial rental income 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 1999, the Partnership intends to continue 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, operated and maintained by the Partnership.

YEAR 2000

The Partnership performed a study of the accounting software and hardware that
the Partnership uses and believes that the present information system complies
with the Year 2000 requirements. Further, the Partnership believes that the
information systems of its major vendors and tenants, insofar as they relate to
the Partnership's business, comply with the Year 2000 requirements. However,
there can be no assurance that the Year 2000 issue will not affect the
information systems of the Partnership's major vendors and tenants as they
relate to the Partnership's business, or that any such impact of a major

                                       8

<PAGE>

vendor's or tenant's information system would not have a material effect on the
Partnership.

OTHER

Certain items discussed in the annual report may constitute forward-looking
statements and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Partnership to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this annual report. The
Partnership expressly disclaims any obligation or undertaking to release
publicly updates or revisions to any forward-looking statements contained herein
to reflect any change in the Partnership's expectations with regard thereto or
any change in events, conditions or circumstances on which any such statement is
based.


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



ITEM 9.

DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.



                                    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, 1998 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.

                                       9

<PAGE>


(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, 1998, are as follows:

         FRED STANTON SMITH (age 73), 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.

         TIMOTHY D. PAPPAS (age 43), 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 73), 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.

                                       10
<PAGE>

(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, 1998, 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, 1998. 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.



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 1996, 1997 and 1998, 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.

                                       11
<PAGE>

                                     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 13 herein.

                                       12
<PAGE>

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Financial Statements of the Partnership are included:
<TABLE>
<CAPTION>



                                                                                                PAGE
         <S>                                                                                     <C>
         Report of Independent Certified Public Accountants ................................     14

         Balance Sheets as of December 31, 1998 and 1997....................................     15

         Statements of Operations for the years ended
           December  31,  1998,  1997 and 1996..............................................     16

         Statements of Partners' Equity (Deficit) for the years
           ended  December  31, 1998, 1997 and 1996.........................................     17

         Statements of Cash Flows for the years ended
           December  31,  1998,  1997 and 1996..............................................     18

         Notes to Financial Statements for the years ended
           December  31,  1998,  1997 and 1996..............................................     20

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

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

         Schedule IV - Mortgage Loans on Real Estate........................................     29
</TABLE>

                                       13
<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, the "Partnership"), as of December 31, 1998 and 1997, and
the related statements of operations, partners' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1998. 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,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, 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 from
operations and has a net capital deficiency. 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 to the
financial statements. 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. 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 8, 1999.

                                       14
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997

ASSETS                                                                       1998                    1997
------                                                                       ----                    ----
<S>                                                                     <C>                     <C>         
Cash and interest-bearing deposits                                      $    167,076            $    210,373
Escrow deposits                                                               85,983                  91,888
Accounts receivable, net of allowance for
   doubtful accounts of $50,642 and $27,199
   in 1998 and 1997, respectively                                             13,085                  26,644
Mortgage notes receivable, net of allowance for
   uncollectible amounts of $14,000
   in 1998 and 1997                                                          353,122                 391,850
Rental properties, at lower of cost or market, less
   accumulated depreciation                                                3,303,529               3,475,752
Land and land development costs, at lower of
   cost or market, less accumulated depreciation                             468,000                 552,839
Other assets                                                                 135,277                 132,683
                                                                        ------------            ------------

         Total assets                                                     $4,526,072              $4,882,029
                                                                          ==========              ==========

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
LIABILITIES:
   Accounts payable                                                   $       15,176            $      6,895
   Accrued liabilities                                                       132,665                 150,326
   Tenant security deposits                                                   36,307                  42,812
   Mortgage payable                                                        4,381,508               4,456,922
                                                                         -----------              ----------
         Total liabilities                                                 4,565,656               4,656,955
                                                                         -----------              ----------

CONTINGENCIES (Note 8)

PARTNERS' EQUITY (DEFICIT):
   General partners                                                         (126,043)               (120,750)
   Limited partners; 8,000 limited partnership units
      authorized; 7,940 units issued and outstanding                          86,459                 345,824
                                                                       -------------            ------------
         Total partners' equity (deficit)                                    (39,584)                225,074
                                                                       --------------           ------------

         Total liabilities and
            Partners' equity (deficit)                                    $4,526,072              $4,882,029
                                                                          ==========              ==========
</TABLE>
               The accompanying notes to financial statements are
                    an integral part of these balance sheets.

                                       15
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                                                1998                1997               1996
                                                                ----                ----               ----
<S>                                                          <C>                <C>                  <C>
REVENUES:
   Rental income                                             $    828,921       $    803,444         $ 1,105,849
   Real estate sales                                                    -          1,047,250              81,458
   Interest income                                                 29,281             31,895              29,761
   Other income                                                    10,569             54,179             166,993
                                                             ------------       ------------         -----------
            Total revenues                                        868,771          1,936,768           1,384,061
                                                             ------------        -----------         -----------

EXPENSES:
   Interest and financing costs                                   461,028            513,926             609,128
   Property expenses                                              295,302            256,474             368,218
   Cost of real estate sold                                             -            955,510              68,961
   Selling, administration and other                              120,037            108,375             200,754
   Depreciation and amortization                                  172,223            175,935             254,826
   Provision for losses on land and
      land development costs                                       84,839                  -   
                                                             ------------        -----------         -----------
                                                                                                               -
            Total expenses                                      1,133,429          2,010,220           1,501,887
                                                             ------------        -----------         -----------

            Loss before extraordinary gain                       (264,658)           (73,452)           (117,826)

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

            Net loss                                         $   (264,658)      $    (73,452)       $    (51,291)
                                                             =============      =============       =============

PER UNIT AMOUNTS TO LIMITED
PARTNERS:
   Loss before extraordinary gain after
   allocations to General Partners of
   $(5,293), $(1,469) and $(2,357) in
   1998, 1997 and 1996, respectively                         $     (32.67)      $      (9.07)       $     (14.54)

   Extraordinary gain after allocations to
   General Partners of $0, $0 and $1,331
   in 1998, 1997 and 1996, respectively                                 -                  -                8.21
                                                             ------------        -----------         -----------

   Net loss after allocations to General
   Partners of $(5,293), $(1,469) and
   $(1,026) in 1998, 1997 and 1996,
   respectively                                              $     (32.67)      $      (9.07)       $      (6.33)
                                                             =============      =============       =============

   Weighted average units outstanding                               7,940              7,940               7,940
                                                             =============      =============       =============
</TABLE>
               The accompanying notes to financial statements are
                      an integral part of these statements.


                                       16
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                    STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                                                 GENERAL            LIMITED
                                                                PARTNERS            PARTNERS             TOTAL
                                                                --------            --------             -----
<S>                                                           <C>                 <C>                <C>        
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

Net loss - 1998                                                    (5,293)           (259,365)          (264,658)
                                                              ------------        ------------        -----------

Partners' equity (deficit) December 31, 1998                  $  (126,043)        $    86,459         $  (39,584)
                                                              ============        ============         ===========
</TABLE>
               The accompanying notes to financial statements are
                      an integral part of these statements.


                                       17
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                                                1998                1997               1996
                                                                ----                ----               ----
<S>                                                          <C>                  <C>                <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:

Net loss                                                     $   (264,658)        $   (73,452)       $   (51,291)

Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities -
   Depreciation and amortization                                  172,223             175,935            254,826
   Provision (credit) for doubtful accounts                        23,443             (15,392)                 -
   Provision for losses on land and
      land development costs                                       84,839                   -                  -
   Extraordinary gain                                                   -                   -            (66,535)
   Gain on sale of real estate                                          -             (91,740)           (12,497)
   Changes in assets and liabilities -
      (Increase) decrease in escrow deposits                        5,905             (17,356)           (60,760)
      Increase in accounts receivable                              (9,884)             (1,225)           (10,454)
      (Increase) decrease in other assets                          (2,594)              1,797             13,873
      (Increase) decrease in accounts payable                       8,281             (18,608)           (24,155)
      Increase (decrease) in accrued liabilities                  (17,661)             16,783             (6,355)
      Increase (decrease) in tenant security
         deposits                                                  (6,505)            (17,090)             9,216
                                                             -------------        ------------       -----------
               Net cash provided by (used in)
                  operating activities                             (6,611)            (40,348)            45,868
                                                             -------------        ------------       -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:

   Payments received on mortgage notes                             38,728              86,468             79,778
   Proceeds from sale of real estate,
      net of closing costs                                              -              92,414                  -
                                                             -------------        ------------       -----------
               Net cash provided by
                  investing activities                             38,728             178,882             79,778
                                                             -------------        ------------       -----------
</TABLE>
                                   (Continued)


                                       18
<PAGE>
<TABLE>
<CAPTION>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                   (Continued)

                                                                 1998               1997               1996
                                                                 ----               ----               ----
<S>                                                             <C>               <C>                <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:

   Repayment of mortgage payable                                $  (75,414)       $   (73,746)       $   (48,473)
                                                                -----------       ------------       ------------

NET INCREASE (DECREASE) IN CASH
AND INTEREST-BEARING DEPOSITS                                      (43,297)            64,788             77,173

CASH AND INTEREST-BEARING
DEPOSITS, BEGINNING OF YEAR                                        210,373            145,585             68,412
                                                                -----------       ------------       ------------

CASH AND INTEREST-BEARING
DEPOSITS, END OF YEAR                                           $  167,076        $   210,373        $   145,585
                                                                ===========       ============       ============


SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:

   Cash paid for interest                                       $  458,886        $   478,241        $   596,264
                                                                ===========       ============       ============

SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:

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

   Purchase money mortgage loan payable
      satisfied at closing                                      $        -        $   752,000        $         -
                                                                ===========       ============       ============
</TABLE>

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


                                       19
<PAGE>

                                   KFP 85-LTD.
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

(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 (the "Offering") 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 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.

                                       20
<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 rental properties 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, 1998, and 1997, deferred financing costs of $49,459
        and $52,253, 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. Amortization expense in each of the three years ended December
        31, 1998, amounted to $2,794 and is included as part of interest and
        financing costs in the accompanying statements of operations.

        (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". Rental income is recognized
        during the period in which the rent is earned.


        (G) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -

        SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," as
        amended by SFAS No.119, "Disclosure about Derivative Financial
        Instruments and Fair Value of Financial Instruments," requires
        disclosure of fair value information about financial instruments,
        whether or not recognized in the balance sheet, for which it is
        practicable to estimate fair value. Fair value is defined in SFAS No.
        107 as the amount at which the instruments could be exchanged in a
        current transaction between willing parties, other than in forced or
        liquidation sales. For the Partnership, financial assets consist of cash
        and interest-bearing deposits, escrow deposits, accounts receivable,
        mortgage notes receivable collateralized by warehouse units, accounts
        payable, tenant security deposits payable, and mortgage payable
        collateralized by rental property. The interest rates on the mortgage
        notes receivable and mortgage payable approximate market rates for
        commercial mortgages based on the percentage of equity held by the
        mortgagors. Management of the Partnership is of the opinion that its
        financial instruments have a fair value that approximates carrying
        amounts.

                                       21
<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) RECLASSIFICATIONS

        Certain amounts included in the 1997 financial statements have been
        reclassified to conform with the 1998 financial statement presentation.

        (J) IMPAIRMENT OF LONG-LIVED ASSETS

        In accordance with SFAS No. 121, "Accounting for the Impairment of
        Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
        Partnership records impairment losses on long-lived assets used in
        operations when events and circumstances indicate that the assets might
        be impaired. 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.
        During 1998, the recorded value of the land and land development costs
        of Commercial Boulevard Center (the "Center"), located in the City of
        Lauderhill, Broward County, Florida, was reduced by $84,839 to its
        estimated net realizable value of $468,000. The provision was recorded
        to reflect the net book value of the property at its estimated selling
        price, net of anticipated selling expenses. There is no guarantee that
        the estimated realizable value will be achieved when the Center is
        ultimately sold.

        (K) COMPREHENSIVE INCOME

        During 1998, the Partnership adopted SFAS No. 130, "Reporting
        Comprehensive Income." The provisions of SFAS No. 130 are not relevant
        to the Partnership as its comprehensive income is equal to the net
        income or loss reported in the accompanying statements of operations.

(2) CASH AND INTEREST-BEARING DEPOSITS:

        Keyes Asset Management, Inc. ("KAMI") 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, 1998 and
        1997, $135,669 and $179,417, respectively, was held in such accounts and
        $31,722 and $30,705, respectively, was held in interest-bearing
        accounts.

                                       22
<PAGE>

(3) MORTGAGE NOTES RECEIVABLE:

        Mortgage notes receivable, arising from the sale of real estate 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. Those mortgages mature in
        2002.

        At December 31, 1998, annual maturities of mortgage notes receivable are
        as follows:

                  YEAR ENDING DECEMBER 31,                             AMOUNT
                  ------------------------                             ------
                  1999                                                $157,125
                  2000                                                  68,357
                  2001                                                  70,914
                  2002                                                  70,726
                                                                      --------
                                                                       367,122

                  Less allowance for uncollectible amounts             (14,000)
                                                                      --------
                                                                      $353,122
                                                                      ========

(4) RENTAL PROPERTIES AND LAND AND LAND DEVELOPMENT COSTS:

        Rental properties and land and land development costs are as follows as
        of December 31:

         RENTAL PROPERTIES                       1998              1997
         -----------------                       -----             ----
         Northpark Commerce Center             $ 5,546,524        $ 5,546,524
         Less accumulated depreciation          (2,242,995)        (2,070,772)
                                               ------------       ------------

                                               $ 3,303,529        $ 3,475,752
                                               ============       ============


         LAND AND LAND DEVELOPMENT COSTS
         -------------------------------
         Commercial Boulevard Center           $   490,367        $   575,206
         Less accumulated depreciation             (22,367)           (22,367)
                                               ------------       ------------

                                               $   468,000        $   552,839
                                               ============       ============

                                       23
<PAGE>

(5) MORTGAGE PAYABLE:

         Mortgage payable is as follows at December 31:
<TABLE>
<CAPTION>
                                                                               1998               1997
                                                                               -----              ----
        <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, final payment due May 1,
         2017.                                                              $4,381,508         $4,456,922
                                                                            ==========         ==========
</TABLE>


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

         At December 31, 1998, annual maturities of the mortgage payable are as
         follows:

                  YEAR ENDING DECEMBER 31,                     AMOUNT

                  1999                                        $   83,621
                  2000                                            92,721
                  2001                                           102,812
                  2002                                           114,000
                  2003                                           126,407
                  Thereafter                                   3,861,947
                                                              ----------
                                                              $4,381,508
                                                              ==========

 (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.

                                       24
<PAGE>

(7) RELATED PARTY TRANSACTIONS:

         During 1998, 1997 and 1996, leasing commissions of $30,930, $24,752 and
         $68,556, respectively, were paid to KAMI in connection with the
         securing of tenants for certain leases. The unamortized portions of
         leasing commissions to KAMI ($48,915 in 1998 and $44,900 in 1997) are
         included in other assets in the accompanying balance sheets and are
         being amortized on a straight-line basis over the lives of the related
         leases.

         Property management fees paid to KAMI for management of certain
         Partnership properties totaled $31,750, $35,490 and $54,657 for the
         years ended December 31, 1998, 1997 and 1996, respectively, and are
         included in property expenses in the accompanying statements of
         operations.

         On January 31, 1997, the Partnership paid a selling commission of
         $26,767 to KAMI in conjunction with the sale of Charlotte Commerce
         Center. On July 11, 1997, the Partnership paid a selling commission of
         $9,300 to KAMI 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, 1998 and 1997, companies affiliated with the Managing
         General Partner were due $48,457 and $58,457, respectively, 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, The Keyes Company was due $342 for various
         transactions, which is included in accounts payable in the accompanying
         balance sheets.

(8) CONTINGENCIES:

         (A) GOING CONCERN ISSUES AND LIQUIDITY:

         As shown in the accompanying financial statements, the Partnership has
         suffered recurring losses from operations in each of the last three
         calendar years and has a net capital deficiency. Operations of the
         Partnership used cash of $6,611 during the year ended December 31,
         1998. Cash and interest-bearing deposits on hand at December 31, 1998
         are insufficient to pay the Partnership's current accounts payable,
         accrued liabilities and current portion of the mortgage note payable.
         However, as of December 31, 1998, the Partnership had an escrow balance
         of $85,983 available to pay future real estate taxes and property
         insurance. The Partnership projects a net loss from operations for
         1999. 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.

                                       25
<PAGE>

         (B) CONTINGENCIES

         The accompanying 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 going concern.

         During 1998, the Partnership began actively marketing for sale
         Northpark Commerce Center and Commercial Boulevard Center, the two
         rental properties remaining in its investment portfolio. The
         Partnership intends to continue looking for qualified purchasers during
         1999 but there is no guarantee that the Partnership will be able to
         find buyers for its properties by the end of 1999. There is also no
         guarantee that the estimated realizable values will be achieved when
         the properties are ultimately sold.

         Prior to the end of 1999, the Partnership anticipates that it will
         reacquire a condominium warehouse unit located at LeJeune Industrial
         Park through foreclosure of a mortgage note receivable that the
         Partnership holds. The unpaid balance of the mortgage note is
         approximately $36,000 and the Partnership anticipates that it will be
         able to re-sell that unit for an amount equal to the unpaid mortgage
         balance. However, there is no guarantee that the Partnership will be
         able to sell the unit for that amount. At the present time, it is not
         known exactly when the unit will be reacquired or how long the unit
         will have to be held before it is re-sold.

         The results of operations 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.

(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.

(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 that ended through December 31,
         1997, the General Partners elected to waive their right to receive the
         allocated share of gains that 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, 1998.

                                       26
<PAGE>
<TABLE>
<CAPTION>
                                                                     SCHEDULE II

                                   KFP 85-LTD.
                        VALUATION AND QUALIFYING ACCOUNTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                                             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, 1998

Deducted from the balance
sheet caption "Accounts
Receivable" - allowance for
uncollectible accounts                       $27,199         $  23,443       $         0            $50,642

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

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>
<TABLE>
<CAPTION>
                                                                    SCHEDULE III

                                   KFP 85-LTD.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1998

                                                                     COST CAPITALIZED
                                                                        SUBSEQUENT              GROSS AMOUNT AT WHICH CARRIED
                                  INITIAL COST TO PARTNERSHIP         TO ACQUISITION                  AT CLOSE OF PERIOD
                                 -----------------------------   ------------------------  --------------------------------------
                                                   BUILDINGS      BUILDINGS                    LAND         BUILDINGS
                                                      AND          AND LAND     CARRYING     AND LAND         AND
DESCRIPTION         ENCUMBRANCES       LAND       IMPROVEMENTS   IMPROVEMENTS     COSTS    IMPROVEMENTS   IMPROVEMENTS   TOTAL
-----------         ------------   ------------   ------------   ------------   ---------  ------------   ------------  --------
<S>                 <C>             <C>           <C>            <C>            <C>        <C>            <C>           <C>
Northpark Commerce
Center
Orlando, Florida    $  4,381,508    $   534,786   $  4,826,868   $   184,870    $     -    $   534,786    $  5,011,738  $5,546,424

Commercial Blvd.
Center
Lauderhill, Florida        -            422,542          -           146,853        5,811      575,206           -         575,206
                    ------------    -----------   ------------   -----------    ---------  -----------    ------------  ----------
                    $  4,381,508    $   957,328   $  4,826,868   $   331,723    $   5,811  $ 1,109,992    $  5,011,738  $6,121,730 
                    ============    ===========   ============   ===========    =========  ===========    ============  ==========


<CAPTION>
                                                                              LIFE ON WHICH
                                  PROVISION FOR                               DEPRECIATION
                                  LOSSES ON LAND                            IN LATEST INCOME
                    ACCUMULATED      AND LAND       DATE OF        DATE       STATEMENT IS
DESCRIPTION         DEPRECIATION   DEVELOPMENT    CONSTRUCTION   ACQUIRED       COMPUTED
-----------         ------------   ------------   ------------   --------    ------------
<S>                 <C>             <C>              <C>         <C>            <C>
Northpark Commerce
Center
Orlando, Florida    $  2,242,995    $     -           1983       Nov 1985        30 years

Commercial Blvd.
Center
Lauderhill, Florida       22,367         84,839        N/A       Jun 1985         5 years
                    ------------    -----------
                    $  2,265,362    $    84,839
                    ============    ===========
</TABLE>

(1) A reconciliation of the total amount at 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                                       $6,121,730
Acquisition and improvements                                               -
Provision for losses on land and land development charged to expense    (84,839)
                                                                     -----------
Balance at end of period                                             $6,036,891
                                                                     ===========

(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                                       $2,093,139
Depreciation charged to expense                                         172,223
                                                                     -----------
Balance at end of period                                             $2,265,362
                                                                     ===========

(3) A reconciliation of provision for losses on land and land development from
    the beginning of the period to the end of the period is as follows:

Balance at beginning of period                                       $    -
Provision for losses on land and land development charged to expense    84,839
                                                                     -----------
Balance at end of period                                             $  84,839
                                                                     ===========

                                       28
<PAGE>
<TABLE>
<CAPTION>
 
                                                                     SCHEDULE IV

                                   KFP 85-LTD.
                          MORTGAGE LOANS ON REAL ESTATE
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                                                                                    PRINCIPAL
                                                                                                    AMOUNT OF
                                                                                                      LOANS
                                                                    ORIGINAL                        SUBJECT TO
                                                    FINAL             FACE          CARRYING        DELINQUENT
                                                   MATURITY         AMOUNT OF       AMOUNT OF       PRINCIPAL/
DESCRIPTION AND INTEREST RATE                        DATE           MORTGAGES       MORTGAGES        INTEREST
-----------------------------                        ----           ---------       ---------        --------
<S>                                               <C>               <C>             <C>             <C>
First mortgage notes issued in                    Mortgages
connection with sales of LeJeune                  mature
Industrial Park warehouse units,                  beginning in
with interest rates ranging from                  1999 through
7.9% to 10%                                       2002              $ 623,225       $ 353,122        $ 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:



                                                      1998            1997
                                                      -----           ----
Balance at beginning of period                      $ 391,850       $ 324,645
Additions during period - new mortgage loans                -         124,000
Allowance for uncollectible amounts                         -          29,673
Collections of principal                              (38,728)        (86,468)
                                                    ---------       ---------
Balance at end of period                            $ 353,122       $ 391,850
                                                    =========       =========

                                       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: March 29, 1999                 By:      /S/ FRED STANTON SMITH       
                                              -----------------------------
                                              Fred Stanton Smith,
                                              President and Principal
                                              Executive Officer


Date: March 29, 1999                 By:      /S/ TIMOTHY D. PAPPAS
                                              -----------------------------
                                              Timothy D. Pappas,
                                              Secretary and Treasurer and
                                              Principal Accounting Officer


Date: March 29, 1999                 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: March 29, 1999                 By:      /S/ FRED STANTON SMITH    
                                              ------------------------------
                                              Fred Stanton Smith,
                                              Director of the Managing
                                              General Partner

                                       30
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT            DESCRIPTION
-------            -----------
  27         Financial Data Schedule