SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A 


[ X ]    Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 for the Fiscal Year Ended December 31, 1996

                                       OR


         Transition  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the Transition Period from _______to _______

                         Commission file number: 0-14438

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

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

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

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

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



        None                                          None
 (Title of each class)               (Name of each exchange on which registered)


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

              Units of Limited Partnership Interest, $250 Per Unit
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ]   No [   ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

Exhibit A to the  Prospectus of the  registrant  dated  February 4, 1985,  filed
pursuant  to Rule  424(b)  under the  Securities  Act of 1933,  as  amended,  is
incorporated by reference in Part IV of this Form 10-K.
<PAGE>
                                     PART I

Item 1.          Business

         Integrated  Resources  High Equity  Partners,  Series 85, a  California
Limited Partnership (the  "Partnership"),  was formed as of August 19, 1983. The
Partnership  is engaged in the business of operating and holding for  investment
previously acquired income-producing properties, consisting of office buildings,
shopping centers and other commercial and industrial properties.  Resources High
Equity, Inc., a Delaware  corporation and a wholly-owned  subsidiary of Presidio
Capital  Corp.,  a  British  Virgin  Islands  corporation  ("Presidio"),  is the
Partnership's  managing general partner (the "Managing General Partner").  Until
November 3, 1994,  Resources High Equity, Inc. was a wholly-owned  subsidiary of
Integrated  Resources,  Inc.  ("Integrated").  On  November  3, 1994  Integrated
consummated  its plan of  reorganization  under  Chapter 11 of the United States
Bankruptcy  Code at which  time,  pursuant to such plan of  reorganization,  the
newly-formed  Presidio  purchased  substantially  all  of  Integrated's  assets.
Presidio AGP Corp., which is a wholly-owned  subsidiary of Presidio,  became the
associate general partner (the "Associate General Partner") on February 28, 1995
replacing Z Square G Partners II which  withdrew as of that date.  The  Managing
General  Partner and the Associate  General Partner are referred to collectively
hereinafter as the "General  Partners."  Affiliates of the General  Partners are
also engaged in  businesses  related to the  acquisition  and  operation of real
estate.

         The Partnership offered 400,000 units of limited  partnership  interest
(the "Units")  pursuant to the Prospectus of the  Partnership  dated February 4,
1985, as supplemented  by Supplements  dated January 27, 1986 and April 11, 1986
(collectively,  the  "Prospectus"),  filed  pursuant to Rules  424(b) and 424(c)
under the Securities  Act of 1933, as amended.  The Prospectus was filed as part
of the Partnership's Registration Statement on Form S-11, Commission File No. 2-
92319  (the  "Registration  Statement"),   pursuant  to  which  the  Units  were
registered and offered.  The offering was terminated on May 30, 1986. Upon final
admission of limited  partners,  the Partnership had accepted  subscriptions for
400,010  Units  (including  the initial  limited  partner)  for an  aggregate of
$100,002,500 in gross  proceeds,  resulting in net proceeds from the offering of
$98,502,500 (gross proceeds of $100,002,500 less organization and offering costs
of $1,500,000).  All underwriting and sales  commissions were paid by Integrated
or its affiliates and not by the Partnership.

         As of March 15,  1997,  the  Partnership  had  invested  all of its net
proceeds in real estate.  Revenues from the following properties represented 15%
or more of the Partnership's gross revenues during each of the last three fiscal
years: in 1996,  Southport and 568 Broadway represented 30.2% and 25.0% of gross
revenues,  respectively;  in 1995, revenue from Southport, 568 Broadway and Loch
Raven represented  30.8%,  23.8% and 16.7% of gross revenues,  respectively;  in
1994,  revenue from Southport,  568 Broadway and Loch Raven  represented  32.7%,
18.3% and 15.6% of gross revenues, respectively.

         The Partnership owned the following properties as of March 15, 1997:

                      (1)      Westbrook Mall Shopping Center

         On July 10, 1985, the Partnership  purchased the fee simple interest in
the Westbrook Mall Shopping Center ("Westbrook"),  a partially enclosed shopping
center  located  next to a regional  mall in Brooklyn  Center,  Minnesota,  near
Minneapolis.  It comprises three buildings on approximately  9.87 acres,  with a
total of 79,242 square feet of gross leasable area and parking for approximately
460 cars. It was built in three phases from 1966 to 1977.
<PAGE>
         Westbrook  is located  directly  across the street  from the  1,000,000
square  foot  Brookdale  Regional  Shopping  Center.   Westbrook  is  in  direct
competition with two nearby shopping centers: Brookdale Square, which is located
one-quarter  mile east of Westbrook,  has 140,000  square feet of gross leasable
area; and Northbrook Center,  which is located one and one-quarter miles east of
Westbrook, contains 18 stores and has 76,000 square feet of gross leasable area.
In addition, there are two relatively new shopping centers in the vicinity: one,
anchored by a 105,000  square  foot Target  Discount  Store,  has an  additional
39,000 square feet of retail space; the other,  anchored by a 68,000 square foot
Designer Depot,  has an additional  32,000 square feet of retail space.  Overall
the Brookdale market comprises  approximately  1.6 million square feet of retail
space,  of which  approximately  165,000 square feet was vacant as of January 1,
1997.

         Westbrook  was 77% leased as of January 1, 1997,  compared to 83% as of
January  1, 1996.  Occupancy,  however,  was only 21% as of January 1, 1997.  In
August 1993, Best Buy closed its 22,695 square foot store at Westbrook. Best Buy
has continued to meet its financial  obligations  however,  its lease expires on
January  31,  1997.  Kids R' Us closed its 18,500  square  foot store in October
1994.  However, it remains obligated under its lease until it expires in January
2014.  Edison  Brothers,  which  has  operated  a  Repp  Big & Tall  store  on a
month-to-month  lease has given notice that it will vacate at the end of January
1997 and terminate its lease.  Additionally,  Codeco, a local, 3,000 square foot
tenant,  vacated and has been in default  since the fall of 1996,  and its lease
expires on January 31, 1997.  At that time,  the center will be 38% leased,  and
14% occupied.

         The  Partnership's  efforts  to lease  space in the  center  have  been
unsuccessful due primarily to the functional obsolescence of the structure,  and
secondarily to the weak retail climate in the immediate  market.  Therefore,  in
addition to  continuing  to search for tenants for the existing  vacancies,  the
Partnership is pursuing various alternatives.

                     (2)       Southport Shopping Center

         On April 15, 1986, the Partnership purchased the fee simple interest in
Southport Shopping Center  ("Southport"),  a regional shopping center located on
the 17th  Street  Causeway in Fort  Lauderdale,  Florida  near the  intercoastal
waterway and beach area.  The center's  three  buildings,  comprising a total of
143,089  square feet,  are situated on a 9.45 acre site.  Southport was built in
phases from 1968 to 1977 and  expanded  again and  renovated  in 1985.  The site
provides parking for 563 cars.  Southport was 95% occupied as of January 1, 1997
as compared to 96% on January 1, 1996.  There are no leases  that  represent  at
least 10% of the square  footage of the center  scheduled to expire in 1997. The
vacancy  represents one theater space located at the rear of the center.  During
1996, new and renewal  leases were completed on 21,660 square feet  representing
15 percent of the center's  leasable  space.  During  1996,  the roof tiles were
painted and the roof on the East  quadrant of the main center  building  will be
replaced in 1997.

         Southport is highly visible from S.E. 17th Street,  the major east/west
artery  in  the  commercially-oriented   area.  Developments  in  the  area  are
diversified and include hotels,  restaurants,  retail centers,  office buildings
and the 750,000 square foot Broward County  Convention  Center,  which opened in
1991, is within walking  distance.  In 1996,  the new 75,000 square foot,  three
story mixed-use  NorthPort  Marketplace  opened on county owned land adjacent to
<PAGE>
the  Convention  Center.  With  rental  rates of $40-$50  per square  feet,  the
development has attracted  national  restaurant/entertainment  chains and is not
considered competition for Southport's tenants. The center continues to maintain
a solid tenant base and anchor tenants,  Publix, Eckerd and McCrory's,  combined
square footage represents 39% of the center's leasable area.

                     (3)       Loch Raven Plaza

         On June 26, 1986, the Partnership  purchased the fee simple interest in
Loch Raven Plaza ("Loch  Raven"),  a  retail/office  complex  located in Towson,
Maryland.  It contains  approximately  25,000  square feet of office and storage
space and 125,000  square feet of retail space,  with parking for  approximately
655 vehicles.

         The property was 91% occupied as of January 1, 1997, compared to 88% at
January 1, 1996.  There are no leases which represent at least 10% of the square
footage of the center scheduled to expire during 1997.

         A complete renovation of the exterior of the center and the parking lot
is planned  for 1997.  The entire  project is budgeted  for $1.1  million and is
expected to be completed in the Fall of 1997. The renovation is deemed necessary
in order to retain  tenants as  neighboring  centers  have  recently  undertaken
renovation and re-tenanting programs.

                     (4)       Century Park I

         On November 7, 1986, a joint venture (the "Century Park Joint Venture")
comprised  of the  Partnership  and  High  Equity  Partners  L.P.  -  Series  86
("HEP-86"),  an affiliated public limited partnership,  purchased the fee simple
interest  in  Century  Park  I  ("Century  Park  I"),  an  office  complex.  The
Partnership  and  HEP-86  each have a 50%  interest  in the  Century  Park Joint
Venture.

         Century Park I, situated on approximately  8.6 acres, is located in the
center of San Diego  County in Kearny  Mesa,  California,  directly  adjacent to
Highway  163 at the  northeast  corner of Balboa  Avenue and Kearny  Villa Road.
Century Park I is part of an office park consisting of six office  buildings and
two parking  garages,  in which Century Park Joint Venture owns three buildings,
comprising  200,002 net rentable  square feet and one garage with  approximately
810 parking spaces.  One of the three buildings was completed in the latter half
of 1985,  and the other two  buildings  were  completed  in February  1986.  The
property  was 74%  leased as of January  1, 1997  compared  to 74% at January 1,
1996.  However,  the leasing of 14,705 rentable square feet to HealthSouth / IMC
Healthcare  Centers in January 1997  increased the occupancy  rate to 81%. There
are no leases  scheduled to expire in 1997.  Capital  expenditures  budgeted for
1997  include  replacing  the roof and the  installation  of an HVAC  monitoring
system in Building I.

         Century Park I competes with other office parks and office buildings in
the Kearny Mesa  submarket  where the  year-end  1996  vacancy rate was 15%. Net
absorption  in the area  was  209,397  square  feet  during  1996.  The  primary
competition continues to be Metropolitan Office Park with 100,000 square feet of
available  space.  
<PAGE>
                     (5)       568 Broadway

         On December 2, 1986, a joint  venture (the  "Broadway  Joint  Venture")
comprised  of the  Partnership  and HEP-86  acquired a fee  simple  interest  in
568-578 Broadway ("568 Broadway"),  a commercial  building in New York City, New
York. Until February 1, 1990, the Partnership and HEP-86 each had a 50% interest
in the Broadway Joint  Venture.  On February 1, 1990, the Broadway Joint Venture
admitted a third joint venture  partner,  High Equity  Partners L.P. - Series 88
("HEP-88"),  an affiliated public limited  partnership  sponsored by Integrated.
HEP-88 contributed  $10,000,000 for a 22.15% interest in the joint venture.  The
Partnership and HEP-86 each retain a 38.925% interest in the joint venture.

         568  Broadway  is  located in the SoHo  district  of  Manhattan  on the
northeast corner of Broadway and Prince Street.  568 Broadway is a 12-story plus
basement and sub-basement building constructed in 1898. It is situated on a site
of  approximately   23,600  square  feet,  has  a  rentable  square  footage  of
approximately  299,000  square  feet and a floor  size of  approximately  26,000
square feet. Formerly catering primarily to industrial light manufacturing,  the
building has been converted to an office  building and is currently being leased
to art  galleries,  photography  studios,  retail and office  tenants.  The last
manufacturing tenant vacated in January 1993. The building was 100% leased as of
January 1, 1997 compared to 95% as of January 1, 1996. There are no leases which
represent at least 10% of the square footage of the property scheduled to expire
during 1997.

         568 Broadway competes with several other buildings in the SoHo area.

                     (6)       Seattle Tower

         On December 16, 1986, a joint  venture  (the  "Seattle  Landmark  Joint
Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest
in Seattle  Tower,  a commercial  office  building  located in downtown  Seattle
("Seattle  Tower").  The  Partnership and HEP-86 each have a 50% interest in the
Seattle Landmark Joint Venture.

         Seattle Tower is located at Third Avenue and  University  Street on the
eastern  shore of Puget  Sound in the  financial  and retail core of the Seattle
central  business  district.  Seattle  Tower,  built  in  1928,  is  a  27-story
commercial  building  containing  approximately  141,000  rentable  square feet,
including  almost  10,000  square feet of retail space and  approximately  2,211
square  feet of storage  space.  The  building  also  contains a 55-car  garage.
Seattle Tower is connected to the Unigard  Financial Center and the Olympic Four
Seasons  Hotel by a skybridge  system.  Seattle  Tower,  formerly  Northern Life
Tower,  represented  the first  appearance in Seattle of a major building in the
Art Deco style. It was accepted into the National Register of Historic Places in
1975.  Seattle  Tower's  occupancy at January 1, 1997 was 96% compared to 92% at
January 1, 1996.  There are no leases which represent at least 10% of the square
footage of the property scheduled to expire during 1997.

         Roof  replacement  and  exterior  building  facade  projects  have been
budgeted in the aggregate  amount of  approximately  $630,000.  The projects are
expected to be completed during the third quarter of 1997.
<PAGE>
         The   Partnership   believes  that  Seattle   Tower's   primary  direct
competition  comes from three  office  buildings  of similar  size or age in the
immediate  vicinity of Seattle Tower,  which  buildings  have current  occupancy
rates which are comparable to Seattle Tower's.

Write-downs for Impairment

         See Note 4 to the financial statements and Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations  for a discussion of
write-downs for impairment.

Competition

         The real estate business is highly  competitive  and, as discussed more
particularly  above, the properties  acquired by the Partnership may have active
competition  from similar  properties  in the  vicinity.  In  addition,  various
limited partnerships have been formed by the Managing General Partner and/or its
affiliates  that  engage  in  businesses  that  may  be  competitive   with  the
Partnership.  The  Partnership  will also  experience  competition for potential
buyers at such time as it seeks to sell any of its properties.

Employees

         Services are performed for the Partnership at the properties by on-site
personnel. Salaries for such on-site personnel are paid by the Partnership or by
unaffiliated management companies that service the Partnership's properties from
monies received by them from the Partnership. Services are also performed by the
Managing  General  Partner  and  by  Resources   Supervisory   Management  Corp.
("Resources  Supervisory"),  each of which is an affiliate  of the  Partnership.
Resources  Supervisory  currently  provides  supervisory  management and leasing
services  for  all of the  Partnership's  properties  and  subcontracts  certain
management and leasing functions to unaffiliated third parties.

         The  Partnership  does not have any employees.  Wexford  Management LLC
("Wexford")  performs  accounting,   secretarial,  transfer  and  administrative
services for the Partnership.  See Item 10, "Directors and Executive Officers of
the  Registrant",  Item 11,  "Executive  Compensation",  and  Item 13,  "Certain
Relationships and Related Transactions".

Item 2.          Properties

         A description  of the  Partnership's  properties is contained in Item 1
above (see Schedule III to the financial  statements for additional  information
with respect to the properties).

Item 3.          Legal Proceedings

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

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

         On or about May 11,  1993  HEP-86 was  advised of the  existence  of an
action (the "B&S  Litigation")  in which a complaint (the "HEP  Complaint")  was
filed in the Superior  Court for the State of  California  for the County of Los
Angeles (the  "Court") on behalf of a purported  class  consisting of all of the
purchasers  of limited  partnership  interests  in HEP-86.  On April 7, 1994 the
plaintiffs  were  granted  leave  to file an  amended  complaint  (the  "Amended
Complaint").

         On  November  30,  1995,  after  the  Court  preliminarily  approved  a
settlement of the B&S Litigation but ultimately declined to grant final approval
and after the Court granted motions to intervene by the original plaintiffs, the
original and intervening  plaintiffs  filed a Consolidated  Class and Derivative
Action Complaint ( the "Consolidated  Complaint") against the Administrative and
Investment  General  Partners of HEP-86,  the  managing  general  partner of the
Partnership,  the managing general partner of HEP-88 and the indirect  corporate
parent of the General Partners. The Consolidated Complaint alleges various state
law class and  derivative  claims,  including  claims  for  breach of  fiduciary
duties;  breach of contract;  unfair and  fraudulent  business  practices  under
California Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and
receivership; fraud; and negligent misrepresentation. The Consolidated Complaint
alleges,  among other things,  that the general  partners  caused a waste of HEP
Partnership assets by collecting  management fees in lieu of pursuing a strategy
to maximize the value of the investments owned by the limited partners; that the
general  partners  breached  their duty of loyalty  and due care to the  limited
partners by expropriating  management fees from the partnerships  without trying
to run the HEP Partnerships  for the purposes for which they are intended;  that
the  general  partners  are  acting  improperly  to enrich  themselves  in their
position of control over the HEP  Partnerships  and that their  actions  prevent
non-affiliated entities from making and completing tender offers to purchase HEP
Partnership  Units;  that by refusing to seek the sale of the HEP  Partnerships'
properties,  the  general  partners  have  diminished  the value of the  limited
partners' equity in the HEP Partnerships; that the general partners have taken a
heavily   overvalued   partnership   asset  management  fee;  and  that  limited
partnership units were sold and marketed through the use of false and misleading
statements.
<PAGE>
         In  January,  1996,  the  parties to the B&S  Litigation  agreed upon a
revised settlement (the "Revised  Settlement").  The core feature of the Revised
Settlement  was the surrender by the general  partners of certain fees that they
are  entitled to receive,  the  reorganization  of the  Partnership,  HEP-86 and
HEP-88 (collectively, the "HEP Partnerships") into a publicly traded real estate
investment trust ("REIT"),  and the issuance of stock in the REIT to the limited
partners (in  exchange  for their  limited  partnership  interests)  and General
Partners (in exchange for their existing  interest in the HEP  Partnerships  and
the fees being  given up).  The  General  Partners  believe  that the  principal
benefits   of  the  Revised   Settlement   were  (1)   substantially   increased
distributions to limited partners,  (2) market liquidity through a NASDAQ listed
security,  and (3) the opportunity for growth and  diversification  that was not
permitted under the Partnership structure.  There were also believed to be other
significant tax benefits,  corporate governance advantages and other benefits of
the Revised Settlement.

         On  July  18,  1996,  the  Court  preliminarily  approved  the  Revised
Settlement and made a preliminary  finding that the Revised Settlement was fair,
adequate and  reasonable to the class.  In August 1996,  the Court  approved the
form and method of notice  regarding  the Revised  Settlement  which was sent to
limited partners.

         Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the Revised  Settlement.  Despite  this,  following  the
submission  of additional  materials,  the Court entered an order on January 14,
1997 rejecting the Revised  Settlement and concluding that there had not been an
adequate  showing that the settlement was fair and reasonable.  Thereafter,  the
plaintiffs  filed a motion  seeking  to have the  Court  reconsider  its  order.
Subsequently, the defendants withdrew the revised settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also at the February
24,  1997  hearing,  the  Court  recused  itself  from  considering  a motion to
intervene and to file a new complaint in intervention by one of the objectors to
the  Revised  Settlement,  granted the  request of one  plaintiffs'  law firm to
withdraw as class counsel and scheduled future hearings on various matters.

         The Limited  Partnership  Agreement provides for indemnification of the
General Partners and their affiliates in certain circumstances.  The Partnership
has agreed to reimburse the General  Partners for their actual costs incurred in
defending  this  litigation  and the costs of  preparing  settlement  materials.
Through  December 31, 1996,  the General  Partners had billed the  Partnership a
total of $824,510 for these costs which was paid in February 1997.

         The  Partnerships  and the General  Partners  believe  that each of the
claims  asserted  in the  Consolidated  Complaint  are  meritless  and intend to
continue to vigorously defend the B&S Litigation.  It is impossible at this time
to predict what the defense of the B&S Litigation  will cost, the  Partnership's
financial exposure as a result of the indemnification agreement discussed above,
and whether the costs of defending could adversely  affect the Managing  General
Partner's ability to perform its obligations to the Partnership.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth   quarter  of  the  fiscal  year  covered  by  this  report  through  the
solicitation of proxies or otherwise.
<PAGE>
                                     PART II

Item 5.          Market for Registrant's Securities and
                 Related Security Holder Matters

         Units of the  Partnership  are not publicly  traded.  There are certain
restrictions  set  forth  in  the  Partnership's   amended  limited  partnership
agreement (the "Limited Partnership Agreement") which may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited  partner to liquidate  its  investment in the event of an emergency or
for any other reason.

         In 1987, the Internal  Revenue Service adopted certain rules concerning
publicly  traded  partnerships.  The  effect of being  classified  as a publicly
traded  partnership  would be that income produced by the  Partnership  would be
classified  as portfolio  income rather than passive  income.  In order to avoid
this effect,  the Limited  Partnership  Agreement  contains  limitations  on the
ability of a limited  partner to transfer Units in  circumstances  in which such
transfers could result in the Partnership  being classified as a publicly traded
partnership.  However,  due to the low volume of transfers  of Units,  it is not
anticipated that this will occur.

         As of  March  15,  1997,  there  were  10,648  holders  of Units of the
Partnership,  owning an aggregate of 400,010 Units  (including Units held by the
initial limited partner).

         Distributions  per Unit of the  Partnership for periods during 1995 and
1996 were as follows:
<TABLE>
<CAPTION>


Distributions for the                 Amount of Distribution
Quarter Ended                               Per Unit
-------------                               --------
<S>                                         <C>
March 31, 1995                              $  0.60
June 30, 1995                               $  0.60
September 30, 1995                          $  0.60
December 31, 1995                           $  0.60
March 31, 1996                              $  0.60
June 30, 1996                               $  0.60
September 30, 1996                          $  0.60
December 31, 1996                           $  0.60
</TABLE>
         The  source  of  distributions  in 1995 and 1996  was  cash  flow  from
operations.  All  distributions  are in excess of accumulated  undistributed net
income and, therefore, represent a return of capital to investors on a generally
accepted accounting  principles basis. In 1995, capital expenditures were funded
from cash flow and working capital  reserves and in 1996,  capital  expenditures
were funded from cash flow.  There are no material legal  restrictions set forth
in the Limited  Partnership  Agreement upon the Partnership's  present or future
ability to make distributions.
<PAGE>
See Item 7,  "Management's  Discussion  and Analysis of Financial  Condition and
Results  of  Operations",  for a  discussion  of  factors  which may  affect the
Partnership's ability to pay distributions.

Item 6.          Selected Financial Data

<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31,
                                     -----------------------------------------------------------------------------------------------
                                          1996                 1995                  1994             1993               1992
                                     ------------         --------------         -----------      -------------     ----------------
<S>                                  <C>                  <C>                    <C>              <C>              <C>
Revenues                             $  8,888,016         $  7,877,644           $ 7,994,126       $ 9,568,198      $  9,615,258
Net Income (Loss)                    $  2,134,717         $(18,624,934)(5)       $ 1,442,884(3)    $(7,160,418)(2)  $(11,975,981)(1)
Net Income (Loss) Per Unit           $       5.07         $     (44.23)(5)       $      3.43(3)    $    (17.01)(2)  $     (28.44)(1)
Distributions Per Unit(6)            $       2.40         $       2.40           $     14.39(4)    $      6.25      $       8.60
Total Assets                         $ 39,290,185         $ 37,309,597           $56,742,945       $63,040,600      $ 73,075,024
---------------

(1)    Net loss for the year ended  December 31, 1992 includes a write-down  for
       impairment  on  Century  Park  I,  Seattle  Tower  and  568  Broadway  of
       $14,601,450, or $34.68 per Unit.

(2)    Net loss for the year ended  December 31, 1993 includes a write-down  for
       impairment on Southern  National,  Century Park I and 568 Broadway in the
       aggregate amount of $10,050,650, or $23.87 per Unit.

(3)    Net income for the year ended December 31, 1994 includes a write-down for
       impairment on Southern National of $181,000, or $0.43 per Unit.

(4)    Distributions  for the year ended  December  31, 1994 include a $9.45 per
       Unit distribution from the proceeds of the sale of Southern National.

(5)    Net loss for the year ended  December 31, 1995 includes a write-down  for
       impairment on Century Park I, Seattle  Tower,  568 Broadway,  Loch Raven,
       Southport and Westbrook in the aggregate amount of $20,469,050, or $48.61
       per Unit.

(6)    All distributions  are in excess of accumulated  undistributed net income
       and, therefore  represent a return of capital to investors on a generally
       accepted accounting principles basis.
</TABLE>
<PAGE>
Item 7.          Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

Liquidity and Capital Resources
   
                  At December 31, 1996,  1995 and 1994, a total of 400,010 units
of limited partnership interest, including the initial limited partner, had been
issued for aggregate  capital  contributions of $100,002,500.  In addition,  the
General Partners contributed a total of $1,000 to the Partnership.  As discussed
in Note 3, the General  Partners hold a 5% equity  interest in the  Partnership.
However,  at the  inception of the  Partnership,  the General  Partners'  equity
account was credited with only the actual capital  contributed in cash,  $1,000.
Subsequent to the issuance of the 1996 financial  statements,  the Partnership's
management  determined that this accounting does not  appropriately  reflect the
Limited  Partners'  and  General  Partners'   relative   participations  in  the
Partnerships's  net assets,  since it does not reflect the General  Partners' 5%
interst in the  Partnership.  Thus,  the  Partnershp  has restated its financial
statements  to reallocate  $5,000,125  (5% of the gross  proceeds  raised at the
Partnership's formation) of the partners' equity to the General Partners' equity
account.  This  reallocation was made as of the inception of the Partnership and
all periods presented in the financial  statements have been restated to reflect
the reallocation.  The reallocation has no impact on the Partnership's financial
position,  results of operations,  cash flows, distributions to partners, or the
partners' tax basis capital accounts.
    
                  The Partnership's  real estate properties are office buildings
and shopping  centers,  all of which were acquired for cash. The public offering
of the Units  commenced on February 4, 1985 and was  terminated on May 30, 1986.
Upon termination,  the Partnership had accepted  subscriptions for 400,010 Units
for aggregate net proceeds of $98,502,500  (gross proceeds of $100,002,500  less
organization and offering expenses aggregating $1,500,000).
 
                  The Partnership uses working capital  reserves  remaining from
the net  proceeds  of its  public  offering  and  any  undistributed  cash  from
operations as its primary  source of liquidity.  For the year ended December 31,
1996, all capital  expenditures and distributions were funded from cash flow. As
of December 31, 1996,  the  Partnership  had total working  capital  reserves of
approximately $3,512,000. The Partnership intends to distribute less than all of
its future cash flow from operations in order to maintain  adequate reserves for
capital improvements and capitalized lease procurement costs. In March 1997, the
Managing  General  Partner  notified  the limited  partners of its  intention to
increase  the  annual  distribution  from  $2.40 per unit to $3.00 per unit as a
result  of  improved  operating  results.   If  real  estate  market  conditions
deteriorate in any areas where the Partnership's  properties are located,  there
is substantial risk that future cash flow distributions may be reduced.  Working
capital  reserves  are  temporarily  invested  in  short-term  instruments  and,
together  with  operating  cash flow,  are  expected  to be  sufficient  to fund
anticipated capital improvements to the Partnership's properties.
<PAGE>
                  During  the  year  ended  December  31,  1996,  cash  and cash
equivalents  increased  $2,419,574 as a result of cash provided by operations in
excess of capital expenditures and distributions to partners.  The Partnership's
primary  source  of funds is cash  flow from the  operation  of its  properties,
principally  rents  received from tenants,  which amounted to $4,075,413 for the
year ended  December  31,  1996.  The  Partnership  used  $645,287  for  capital
expenditures  related to capital and tenant  improvements  to the properties and
$1,010,552 for distributions to partners for the year ended December 31, 1996.
 
                  The  following  table sets  forth,  for each of the last three
fiscal  years,  the  amount  of the  Partnership's  expenditures  at each of its
properties for capital improvements and capitalized tenant procurement costs:
<TABLE>
<CAPTION>

          Capital Improvements and Capitalized Tenant Procurement Costs

                                       1996             1995             1994
                                    ----------       ----------       ----------
<S>                                 <C>              <C>              <C>
Seattle Tower ...............       $  352,522       $  227,677       $  152,115
Century Park I ..............           28,010        1,243,594           51,543
568 Broadway ................          233,376          742,972          784,078
Westbrook ...................                0           10,410            5,250
Loch Raven ..................          224,666          327,807          131,727
Southport ...................           58,571           86,233          207,993
Southern National(a) ........                0                0                0
                                    ----------       ----------       ----------
TOTALS ......................       $  897,145       $2,638,693       $1,332,706
                                    ==========       ==========       ==========
</TABLE>
(a)              Property sold in August 1994

                  The  Partnership  has  budgeted  approximately  $3  million in
expenditures for capital  improvements and capitalized  tenant procurement costs
in 1997 which is expected to be funded from cash flow from operations.  However,
such  expenditures  will  depend  upon the level of leasing  activity  and other
factors which cannot be predicted with certainty.
<PAGE>
                  The  Partnership  expects to  continue to utilize a portion of
its cash flow from operations to pay for various capital and tenant improvements
to the  properties  and  leasing  commissions  (the  amount  of which  cannot be
predicted with  certainty).  Capital and tenant  improvements  may in the future
exceed the Partnership's  current working capital  reserves.  In that event, the
Partnership would utilize the remaining  working capital reserves,  eliminate or
reduce distributions, or sell one or more properties. Except as discussed above,
management  is  not  aware  of  any  other  trends,   events,   commitments   or
uncertainties that will have a significant impact on liquidity.

Real Estate Market

                  The real estate market continues to suffer from the effects of
the  substantial  decline  in the  market  value of  existing  properties  which
occurred in the early 1990's. Market values have been slow to recover, and while
the pace of new construction has slowed, high vacancy rates continue to exist in
many areas. Technological changes are also occurring which may reduce the office
space needs of many users. These factors may continue to reduce rental rates. As
a result,  the  Partnership's  potential  for  realizing  the full  value of its
investment in its properties is at continued risk.

Impairment of Assets

                  The  Partnership  evaluates  the  recoverability  of  the  net
carrying value of its real estate and related assets at least annually, and more
often if circumstances dictate.

                  The  Partnership  adopted  Statement of  Financial  Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived  Assets to be  Disposed  Of" (SFAS  #121) in 1995.  Under SFAS  #121,  the
Partnership  estimates the future cash flows  expected to result from the use of
each property and its eventual  disposition,  generally over a five-year holding
period.  In performing this review,  management takes into account,  among other
things, the existing  occupancy,  the expected leasing prospects of the property
and the economic situation in the region where the property is located.

                  If the sum of the expected future cash flows, undiscounted, is
less than the carrying  amount of the property,  the  Partnership  recognizes an
impairment  loss, and reduces the carrying  amount of the asset to its estimated
fair value.  Fair value is the amount at which the asset could be bought or sold
in a current  transaction  between  willing  parties,  that is,  other than in a
forced or liquidation  sale.  Management  estimates fair value using  discounted
cash  flows or  market  comparables,  as most  appropriate  for  each  property.
Independent  certified  appraisers  are  utilized  to  assist  management,  when
warranted.

                  Prior to the  adoption of SFAS #121,  real estate  investments
were  carried at the lower of  depreciated  cost or net  realizable  value.  Net
realizable  value was calculated by management  using  undiscounted  future cash
flows, in some cases with the assistance of independent certified appraisers.

                  Impairment  write-downs  recorded  by the  Partnership  do not
affect the tax basis of the assets and are not included in the  determination of
taxable income or loss.

                  Because the cash flows used to evaluate the  recoverability of
the assets and their fair values are based upon  projections of future  economic
events such as property occupancy rates, rental rates,  operating cost inflation
<PAGE>
and market  capitalization  rates which are inherently  subjective,  the amounts
ultimately  realized at disposition may differ  materially from the net carrying
values at the balance sheet dates. The cash flows and market comparables used in
this  process are based on good faith  estimates  and  assumptions  developed by
management.   Unanticipated   events  and   circumstances  may  occur  and  some
assumptions  may not  materialize;  therefore,  actual results may vary from the
estimates  and the  variances  may be  material.  The  Partnership  may  provide
additional  write-downs,  which could be material  in  subsequent  years if real
estate markets or local economic conditions change.

                  The following table  represents the write-downs for impairment
recorded on the Partnership's properties for the years set forth below:
<TABLE>
<CAPTION>
                                              During the Year ended December 31,
                         -----------------------------------------------------------------------
Property                     1996           1995            1994          1993           1992
--------                 -----------    -----------    -----------    -----------    -----------
<S>                      <C>            <C>            <C>            <C>            <C>
Seattle Tower .......    $         0    $ 3,550,000    $         0    $         0    $ 2,500,000
Century Park I ......              0      1,250,000              0      5,900,000      4,550,000
568 Broadway ........              0      2,569,050              0        700,650      7,551,450
Westbrook ...........              0      3,400,000              0              0              0
Loch Raven ..........              0      4,800,000              0              0              0
Southport ...........              0      4,900,000              0              0              0
Southern National (a)              0              0        181,000      3,450,000              0
                         -----------    -----------    -----------    -----------    -----------
                         $         0    $20,469,050    $   181,000    $10,050,650    $14,601,450
                         ===========    ===========    ===========    ===========    ===========
</TABLE>

(a) Property sold in August 1994

The details of each write-down are as follows:

Seattle Tower

                  Seattle  Tower's  occupancy  declined from 90% when originally
purchased to 80% as of December 31, 1991. While occupancy  recovered somewhat to
83% at December 31, 1992, the average base rent per square foot declined 8% from
$14.00  per  square  foot  at the  date of  acquisition  to an  average  rate of
approximately $12.87 per square foot at December 31, 1992.  Management concluded
that the property's  estimated net  realizable  value was below its net carrying
value.  The  net  realizable  value  was  based  on  the  property's   estimated
undiscounted  future cash flows over a 5- year period,  reflecting expected cash
flow from lower  rental  rates,  and an assumed  sale at the end of the  holding
period  using a 10%  capitalization  rate.  Management,  therefore,  recorded  a
write-down for impairment of $5,000,000 in 1992 of which the Partnership's share
was $2,500,000.

                  The Partnership  was not able to achieve leasing  expectations
at Seattle  Tower and  occupancy  remained at  approximately  80%. In  addition,
market rents remained lower than projected. As a result, actual income levels at
Seattle Tower have not met and are not expected to meet income levels  projected
during  management's  impairment review in 1994. In addition,  projected capital
expenditures  exceed  amounts  previously  anticipated  for  such  expenditures.
Because  the  estimate of  undiscounted  cash flows  prepared in 1995  yielded a
<PAGE>
result lower than the asset's net carrying value,  management determined that an
impairment existed.  Management  estimated the property's fair value in order to
determine  the  write-down  for  impairment.  Because the estimate of fair value
using expected cash flows discounted at 13% over 15 years and an assumed sale at
the end of the holding period using a 10%  capitalization  rate yielded a result
which in  management's  opinion,  was  lower  than the  property's  value in the
marketplace,  the property was valued using sales of comparable  buildings which
indicated a fair value of $25 per square foot. This fair value estimate resulted
in a $7,100,000  write-down  for  impairment in 1995 of which the  Partnership's
share was $3,550,000.

                  The  economic  outlook for Seattle has  improved  considerably
since the last write-  down at March 31,  1995.  Occupancy  has  increased  from
approximately 81% at the time of the write-down to approximately 96% at December
31, 1996, a 15% increase.

Century Park I

                  The former sole  tenant at Century  Park I,  General  Dynamics
Corp. vacated 52,740 square feet of space as of June 30, 1993 and the balance of
its space as of December 31, 1993 totaling  119,394  square feet pursuant to the
terms of its leases.  On July 1, 1993 a 51,242 square foot lease was signed with
San Diego Gas and  Electric  for a 13-year,  10 month  term with a  cancellation
option exercisable  between the fifth and sixth years. Due to the soft market in
the greater San Diego area,  management  concluded that the property's estimated
net realizable  value was below its net carrying value. The net realizable value
was based on the  property's  estimated  undiscounted  future  cash flows over a
5-year  period and an assumed sale at the end of the holding  period using a 10%
capitalization rate. Management, therefore, recorded a write-down for impairment
of  $9,100,000  in  1992  of  which  the  Partnership's  share  was  $4,550,000.
Subsequently,  management  engaged  the  services  of  a  certified  independent
appraiser to perform a written  appraisal  of the market value of the  property.
Based  on the  results  of the  appraisal,  management  recorded  an  additional
$11,800,000  write-down for impairment in 1993 of which the Partnership's  share
was $5,900,000.

                  Since  the  date  of the  above  mentioned  appraisal,  market
conditions  surrounding  Century Park I deteriorated  causing higher vacancy and
lower  rental  rates.   Leasing  expectations  were  not  achieved  and  capital
expenditures  exceeded  projections due to converting the building from a single
user to  multi-tenancy  capabilities.  In early  1995,  occupancy  was only 25%.
Because  the  estimate of  undiscounted  cash flows  prepared in 1995  yielded a
result lower than the asset's net carrying value,  management determined that an
impairment  existed.  Management  estimated  the  property's  fair  value  using
expected  cash flows  discounted at 13% over 15 years and an assumed sale at the
end of the holding period using a 10% capitalization rate, in order to determine
the write-down for impairment.  The fair value estimate resulted in a $2,500,000
write-down  for  impairment  in  1995  of  which  the  Partnership's  share  was
$1,250,000.

                  The economic  outlook for Century  Park has improved  markedly
since the last write- down at March 31, 1995.  The occupancy at the property has
increased from  approximately 25% at the time of the write-down to approximately
74% at December 31, 1996, and 81% at January 31, 1997, a 56% increase.
<PAGE>
568 Broadway

                  The recession  which occurred prior to 1992 had a particularly
devastating   effect  on  the  photography   studios  which  depend  heavily  on
advertising budgets and art galleries as a source of business, resulting in many
tenant failures.  Due to the poor market conditions in the Soho area of New York
City where 568 Broadway is located and the  accompanying  high vacancies and low
absorption rates which resulted in declining rental rates,  management concluded
that the property's  estimated net  realizable  value was below its net carrying
value. The net realizable value was based on sales of comparable buildings which
indicated a value of approximately $65 per square foot.  Management,  therefore,
recorded  a  write-down  for  impairment  of  $19,400,000  in 1992 of which  the
Partnership's  share  was  $7,551,450.  Subsequently,   management  engaged  the
services of a certified  independent appraiser to perform a written appraisal of
the  market  value of the  property.  Based  on the  results  of the  appraisal,
management recorded an additional  $1,800,000  write-down for impairment in 1993
of which the Partnership's share was $700,650.

                  Since the date of the above mentioned  independent  appraisal,
significantly  greater  capital  improvement  expenditures  than were previously
anticipated  have been required in order to render 568 Broadway more competitive
in the New York market. Because the estimate of undiscounted cash flows prepared
in 1995 yielded a result lower than the asset's net carrying  value,  management
determined that an impairment existed.  Management estimated the property's fair
value in order to determine the write-down for impairment.  Because the estimate
of fair value using  expected cash flows  discounted at 13% over 15 years and an
assumed sale at the end of the holding  period using a 10%  capitalization  rate
yielded a result which, in management's  opinion,  was lower than the property's
value in the  marketplace,  the property  was valued  using sales of  comparable
buildings  which  indicated a fair value of $45 per square foot. This fair value
estimate resulted in a $6,600,000 write-down for impairment in 1995 of which the
Partnership's share was $2,569,050.

                  The economic  outlook for 568  Broadway has improved  markedly
since the last write-  down at March 31,  1995.  Occupancy  has  increased  from
approximately  76% at the  time  of the  write-down  to  approximately  100%  at
December 31, 1996, a 24% increase.

Westbrook

                  Occupancy at Westbrook was 28% in early 1995. Two  significant
tenants are not operating  while  continuing to make rental  payments  under the
terms of their leases.  However,  their absence has adversely  impacted both the
lease-up of the remaining  space and rental rates,  and will require  additional
tenant procurement  costs. At a result,  income levels have not been met and are
not  expected  to meet  income  levels  projected  at the  date of  management's
impairment  review  in 1994.  As a  result,  expected  cash  flow is lower  than
previously  projected.  Because the estimate of undiscounted cash flows prepared
in 1995 yielded a result lower than the asset's net carrying  value,  management
determined that an impairment existed.  Management estimated the property's fair
value in order to determine the write-down for impairment.  Because the estimate
of fair value using  expected cash flows  discounted at 13% over 15 years and an
assumed sale at the end of the holding  period using a 10%  capitalization  rate
yielded a result which, in management's  opinion,  was lower than the property's
value in the  marketplace,  the property  was valued  using sales of  comparable
buildings  which  indicated a fair value of $25 per square foot. This fair value
estimate resulted in a $3,400,000 write-down for impairment in 1995.
<PAGE>
Loch Raven

                  Rental income at Loch Raven has not met and is not expected to
meet  previously  projected  levels  due to  lower  rental  market  rates  since
management's  impairment review in 1994.  Expenses have also decreased  slightly
but this decrease has been offset by significant capital expenditures which were
not  previously  anticipated.  Because the estimate of  undiscounted  cash flows
prepared in 1995  yielded a result  lower than the asset's net  carrying  value,
management  determined  that an  impairment  existed.  Management  estimated the
property's fair value using expected cash flows  discounted at 13% over 15 years
and an assumed sale at the end of the holding period using a 10%  capitalization
rate,  in order to determine  the  write-down  for  impairment.  This fair value
estimate resulted in $4,800,000 write-down for impairment in 1995.

Southport

                  Despite  an  occupancy  rate in excess of 90% in 1995,  actual
income levels at Southport have not met and are not expected to meet  previously
projected income levels due to lower rental market rates.  Expenses are slightly
higher than  anticipated and tenant  procurement cost estimates are greater than
amounts projected at the date of management's impairment review in 1994. Because
the estimate of undiscounted  cash flows prepared in 1995 yielded a result lower
than the asset's net carrying  value,  management  determined that an impairment
existed.  Management  estimated the property's  fair value in order to determine
the write-down for impairment. Because the estimate of fair value using expected
cash flows discounted at 13% over 15 years and an assumed sale at the end of the
holding  period  using a 10%  capitalization  rate  yielded a result  which,  in
management's  opinion,  was lower than the property's  value in the marketplace,
the property was valued using sales of comparable  buildings  which  indicated a
fair  value of $105 per square  foot.  This fair value  estimate  resulted  in a
$4,900,000 write-down for impairment in 1995.

Southern National

                  Southern  National  Corp.  acquired  First  Savings  Bank (the
original master lessee) in January 1994. Southern National had given notice that
it was not interested in remaining as a tenant after expiration of its lease but
was interested in acquiring the building.  Management  believed that substantial
renovations to the building would be required to adapt it to  multi-tenant  use.
Because the building  might require  substantial  renovations  and market rental
rates at that time were  substantially  below those which were payable under the
expiring  lease,  management  determined that a write-down for impairment on the
building of $3,450,000 was required in 1993 based on an assumed sale using a 10%
capitalization  rate. The building was sold to Southern  National for $5,500,000
on August 8,  1994.  Based on the  sales  price,  an  additional  write-down  of
$181,000 was recorded in 1994.

Results Of Operations

1996 vs. 1995

                  The  Partnership  experienced  net  income  for the year ended
December 31, 1996 compared to a net loss for the prior year due primarily to the
significant  write-downs  for  impairment  recorded  during  1995 as  previously
discussed.
<PAGE>
                  Rental revenue  increased for the year ended December 31, 1996
as compared  to the prior year.  Revenues  at 568  Broadway,  Seattle  Tower and
Century Park I increased during 1996 due to higher occupancy rates and increased
at Southport  due to higher  rental rates in 1996 as compared to the prior year.
These  increases,  however,  were  partially  offset by a decrease in revenue at
Westbrook as certain tenants vacated during 1996.

                  Costs and expenses  decreased  during 1996 as compared to 1995
due primarily to the significant  write-downs  for impairment  recorded in 1995.
Operating  expenses  decreased  slightly  during 1996 due to  decreases  in real
estate taxes and bad debt expenses at certain properties  partially offset by an
increase  in repairs  and  maintenance  and utility  costs.  Real  estate  taxes
decreased significantly at 568 Broadway due to the receipt of refunds related to
the 1992-1995 tax years of which the partnership's share was $353,500.  Bad debt
expenses decreased at Southport,  Westbrook,  and Loch Raven due to fewer tenant
write-offs and/or bankruptcies in 1996 compared to 1995. Repairs and maintenance
at  Century  Park I and  utility  expenses  at  568  Broadway  increased  due to
increased  occupancy  during the year ended December 31, 1996 as compared to the
prior year.  Depreciation  expense  for 1996  increased  due to the  significant
capital improvement and tenant procurement costs incurred and capitalized during
the year ended  December  31,  1995.  The  partnership  management  fee remained
relatively  consistent  in 1996 as compared  to the prior  year.  Administrative
expenses  increased  due  to the  Partnership's  reimbursement  of  the  General
Partner's litigation and settlement costs as previously discussed.  The property
management  fee  increase  was the  direct  result  of  higher  revenues  at the
aforementioned properties.

                  Interest income  increased due to higher cash balances in 1996
partially  offset by slightly  lower  interest  rates in 1996 as compared to the
prior year. For the year ended December 31, 1996,  other income,  which consists
of investor ownership transfer fees, increased compared to 1995 due to a greater
number of transfers during 1996.

1995 vs. 1994

                  The  Partnership  experienced  a net loss  for the year  ended
December 31, 1995 compared to net income for the prior year due primarily to the
significant  write-downs  for  impairment  recorded  during  1995 as  previously
discussed.

                  Rental revenue decreased  slightly for the year ended December
31,  1995 as  compared  to the prior  year.  The most  significant  decrease  in
revenues  during 1995 occurred due to the sale of Southern  National.  Since the
Partnership sold its interest in Southern  National on August 8, 1994, no rental
revenue  was billed or  received  from  Southern  National  in 1995  compared to
$460,000 in revenues  during  1994.  Revenues at 568 Broadway and Century Park I
increased during 1995 due to higher occupancy rates.  These increases,  however,
were offset by a decrease in revenue at Southport  as rental  rates  declined as
compared to 1994.

                  Costs and expenses  increased  during 1995 as compared to 1994
due  primarily to the  write-down  for  impairment  recorded in 1995.  Operating
expenses  decreased  slightly  during 1995 due to decreases in real estate taxes
and  repairs  and  maintenance  at  certain  properties  partially  offset by an
increase in utility  costs.  Real estate  taxes  decreased  at 568  Broadway and
Century Park I as a result of reductions in the assessed value of the properties
for the 1995 tax period and years prior.  Repairs and  maintenance  decreased at
<PAGE>
Southport and Seattle  Tower as certain  projects  were  completed.  The cost of
utilities  in 1995  increased at 568  Broadway  due to the  increased  occupancy
there.  Depreciation  expense for 1995  decreased  due to lower  asset  carrying
values as a result of the write-down  recorded during the first quarter of 1995.
The Partnership management fee decreased slightly during 1995 due to the sale of
Southern National in August 1994.

                  Interest  income  increased  slightly  due to higher  interest
rates in 1995 compared to the prior year.  For the year ended December 31, 1995,
other income,  which consists of investor  ownership  transfer  fees,  increased
compared to 1994 due to a greater number of transfers during 1995.

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

Legal Proceedings

                  The Partnership is a party to certain  litigation.  See Note 8
to the Partnership's financial statements for a description thereof.
<PAGE>
Item 8.          Financial Statements and Supplementary Data

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
                        A CALIFORNIA LIMITED PARTNERSHIP

                              FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

                                    I N D E X


     Independent Auditors' report

     Financial statements, years ended
                  December 31, 1996, 1995 and 1994

     Balance Sheets

                  Statements of Operations

                  Statements of Partners' Equity

                  Statements of Cash Flows

                  Notes to Financial Statements

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Partners of Integrated Resources High Equity Partners, Series 85

We have audited the  accompanying  balance  sheets of Integrated  Resources High
Equity Partners, Series 85 (a California limited partnership) as of December 31,
1996 and 1995, and the related  statements of operations,  partners'  equity and
cash flows for each of the three years in the period  ended  December  31, 1996.
Our audit also included the financial  statement schedule listed in the Index at
Item 14(a)2. These financial statements and the financial statement schedule are
the  responsibility of the Partnership's  management.  Our  responsibility is to
express an opinion on these financial statements 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,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of Integrated  Resources High Equity Partners,
Series 85 at December 31, 1996 and 1995,  and the results of its  operations and
its cash flows for the three  years in the period  ended  December  31,  1996 in
conformity with generally accepted accounting principles.  Also, in our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
financial  statements  taken  as a  whole,  presents  fairly,  in  all  material
respects, the information set forth therein.

As discussed in Note 2, in 1995 the Partnership  changed its method of recording
write-downs  for  impairment of its  investments  in real estate to conform with
Statement of Financial Accounting Standards No. 121.
   
As discussed in Note 7, the accompanying financial statements have been restated
to reflect a reallocation of partners' equity.
 

DELOITTE & TOUCHE LLP
March 14, 1997 
(April 30, 1997 as to Note 7)
New York, NY
    
<PAGE>
<TABLE>
<CAPTION>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                 BALANCE SHEETS

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

Real estate ................................     $ 32,154,253      $ 32,533,972
Cash and cash equivalents ..................        4,870,517         2,450,943
Other assets ...............................        2,107,211         2,121,920
Receivables ................................          158,204           202,762
                                                 ------------      ------------

TOTAL ASSETS ...............................     $ 39,290,185      $ 37,309,597
                                                 ============      ============

LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses ......     $  1,061,732      $  1,016,797
Due to affiliates ..........................        1,164,121           352,633
Distributions payable ......................          252,638           252,638
                                                 ------------      ------------

     Total liabilities .....................        2,478,491         1,622,068
                                                 ------------      ------------

COMMITMENTS AND CONTINGENCIES
   
PARTNERS' EQUITY:

  Limited partners' equity (as restated) 
   (400,010 units issued and outstanding) ..       34,970,158        33,902,201
  General partners' equity (as restated)....        1,841,536         1,785,328 
                                                 ------------      ------------
    
     Total partners' equity ................       36,811,694        35,687,529
                                                 ------------      ------------


TOTAL LIABILITIES AND PARTNERS' EQUITY .....     $ 39,290,185      $ 37,309,597
                                                 ============      ============


See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                     INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                   STATEMENTS OF OPERATIONS

                                                     For the Years Ended December 31,
                                                ---------------------------------------------
                                                    1996            1995            1994
                                                ------------    ------------     ------------
<S>                                             <C>             <C>              <C>
Rental Revenue .............................    $  8,888,016    $  7,877,644     $  7,994,126
                                                ------------    ------------     ------------

Costs and Expenses:

         Operating expenses ................       3,139,504       3,397,690        3,483,983

         Depreciation and amortization .....       1,270,172       1,161,328        1,328,043

         Partnership management fee ........         908,172         908,172          984,589

         Administrative expenses ...........       1,359,027         447,270          447,500

         Property management fee ...........         327,759         303,936          277,844

         Write-down for impairment .........            --        20,469,050          181,000
                                                ------------    ------------     ------------

                                                   7,004,634      26,687,446        6,702,959
                                                ------------    ------------     ------------
Income (loss) before interest
         and other income ..................       1,883,382     (18,809,802)       1,291,167

         Interest income ...................         141,939         130,173          116,580

         Other income ......................         109,396          54,695           35,137
                                                ------------    ------------     ------------

Net income (loss) ..........................    $  2,134,717    $(18,624,934)    $  1,442,884
                                                ============    ============     ============

Net income (loss) attributable to:

         Limited partners ..................    $  2,027,981    $(17,693,687)    $  1,370,740

         General partners ..................         106,736        (931,247)          72,144
                                                ------------    ------------     ------------

Net income (loss) ..........................    $  2,134,717    $(18,624,934)    $  1,442,884
                                                ============    ============     ============

Net income (loss) per unit of limited
         partnership interest (400,010 units
         outstanding) ......................    $       5.07    $     (44.23)    $       3.43
                                                ============    ============     ============

                               See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
   
                            INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                       STATEMENT OF PARTNERS' EQUITY


                                                                 General        Limited
                                                                Partners'       Partners'
                                                                 Equity         Equity           Total
                                                             ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>
Balance, January 1, 1994 (as previously reported).........   $ (2,002,211)   $ 61,941,441    $ 59,939,230

Reallocation of partners' equity..........................      5,000,125      (5,000,125)           ---

Balance, January 1, 1994 (as restated)....................      2,997,914      56,941,316      59,939,230

Net income ...............................................         72,144       1,370,740       1,442,884

Distributions as a return of capital
      ($4.94 per limited partnership unit) ...............       (104,003)     (1,976,050)     (2,080,053)

Distributions as a return of capital from sale of property
      ($9.45 per limited partnership unit) ...............       (198,952)     (3,780,094)     (3,979,046)
                                                             ------------    ------------    ------------

Balance, December 31, 1994 (as restated)..................      2,767,103      52,555,912      55,323,015

Net loss .................................................       (931,247)    (17,693,687)    (18,624,934)

Distributions as a return of capital
       ($2.40 per limited partnership unit) ..............        (50,528)       (960,024)     (1,010,552)
                                                             ------------    ------------    ------------

Balance, December 31, 1995 (as restated) .................      1,785,328      33,902,201      35,687,529

Net income ...............................................        106,736       2,027,981       2,134,717

Distributions as a return of capital
       ($2.40 per limited partnership unit) ..............        (50,528)       (960,024)     (1,010,552)
                                                             ------------    ------------    ------------

Balance, December 31, 1996 (as restated)..................   $  1,841,536    $ 34,970,158    $ 36,811,694
                                                             ============    ============    ============

                                     See notes to financial statements
    
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                               STATEMENTS OF CASH FLOWS


                                                                             For the Years Ended  December 31,
                                                                        --------------------------------------------
                                                                             1996             1995            1994
                                                                        ------------    ------------    ------------
<S>                                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

         Net income (loss) ..........................................   $  2,134,717    $(18,624,934)   $  1,442,884

         Adjustments  to  reconcile  net income
         (loss) to net cash  provided by
         operating activities:
                   Write-down for impairment ........................           --        20,469,050         181,000
                   Depreciation and amortization ....................      1,270,172       1,161,328       1,328,043
                   Straight-line adjustment for stepped lease rentals        (52,915)        (43,550)        304,337

         Changes in assets and liabilities:
                   Accounts payable and accrued expenses ............         44,935         159,873         (84,713)
                   Receivables ......................................         44,558         211,547         (14,899)
                   Due to affiliates ................................        811,488          42,265      (1,188,296)
                   Other assets .....................................       (177,542)       (504,798)       (275,658)
                                                                        ------------    ------------    ------------

         Net cash provided by operating activities ..................      4,075,413       2,870,781       1,692,698
                                                                        ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

         Proceeds from sale of real estate ..........................           --              --         5,474,722
         Improvements to real estate ................................       (645,287)     (2,075,671)     (1,058,855)
                                                                        ------------    ------------    ------------

Net cash (used in) provided by investing activities .................       (645,287)     (2,075,671)      4,415,867
                                                                        ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

         Distributions to partners ..................................     (1,010,552)     (1,010,552)     (6,467,530)
                                                                        ------------    ------------    ------------

Increase (Decrease) In Cash And Cash Equivalents ....................      2,419,574        (215,442)       (358,965)

Cash And Cash Equivalents, Beginning of Year ........................      2,450,943       2,666,385       3,025,350
                                                                        ------------    ------------    ------------

Cash And Cash Equivalents, End of Year ..............................   $  4,870,517    $  2,450,943    $  2,666,385
                                                                        ============    ============    ============

                                          See notes to financial statements
</TABLE>
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

1.                ORGANIZATION

                  Integrated  Resources  High  Equity  Partners,  Series  85,  A
                  California  Limited  Partnership  (the  "Partnership"),  is  a
                  limited  partnership,  organized  under  the  Uniform  Limited
                  Partnership  Laws of  California  on August  19,  1983 for the
                  purpose   of    investing    in,    holding   and    operating
                  income-producing  real estate.  The Partnership will terminate
                  on December 31, 2008 or sooner,  in  accordance  with terms of
                  the Agreement of Limited Partnership.

2.                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Financial statements

                  The financial  statements are prepared on the accrual basis of
                  accounting.   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.

                  Reclassifications

                  Certain  reclassifications  have  been  made to the  financial
                  statements  for the  prior  years in order to  conform  to the
                  current year's classifications.

                  Cash and cash equivalents

                  For purposes of the statements of cash flows,  the Partnership
                  considers  all  short-term  investments  which  have  original
                  maturities  of three  months or less from the date of issuance
                  to be cash equivalents.


                  Organization costs

                  Organization  costs were charged against partners' equity upon
                  the  closing  of  the  public   offering  in  accordance  with
                  prevalent industry practice.

                  Leases

                  The  Partnership  accounts for its leases under the  operating
                  method.  Under this method,  revenue is  recognized as rentals
                  become due,  except for stepped  leases where the revenue from
                  the lease is averaged over the life of the lease.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

2.                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  Depreciation

                  Depreciation is computed using the  straight-line  method over
                  the useful life of the  property,  which is estimated to be 40
                  years.  The cost of properties  represents the initial cost of
                  the properties to the Partnership plus acquisition and closing
                  costs less write-downs, if any.

                  Investments in joint ventures

                  For  properties  purchased  in joint  venture  ownership  with
                  affiliated partnerships,  the financial statements present the
                  assets,  liabilities,  and expenses of the joint  venture on a
                  pro rata basis in accordance with the Partnership's percentage
                  of ownership.

                  Impairment of Assets

                  The  Partnership  evaluates  the  recoverability  of  the  net
                  carrying  value of its real estate and related assets at least
                  annually, and more often if circumstances dictate.

                  The  Partnership  adopted  Statement of  Financial  Accounting
                  Standards No. 121,  "Accounting  for  Impairment of Long-Lived
                  Assets and for Long-  Lived  Assets to be  Disposed  Of" (SFAS
                  #121) in 1995. Under SFAS #121, the Partnership  estimates the
                  future  cash  flows  expected  to result  from the use of each
                  property  and  its  eventual  disposition,  generally  over  a
                  five-year   holding   period.   In  performing   this  review,
                  management  takes  into  account,   among  other  things,  the
                  existing  occupancy,  the  expected  leasing  prospects of the
                  property  and the  economic  situation in the region where the
                  property is located.

                  If the sum of the expected future cash flows, undiscounted, is
                  less than the carrying amount of the property, the Partnership
                  recognizes an impairment loss, and reduces the carrying amount
                  of the asset to its  estimated  fair value.  Fair value is the
                  amount at which the asset could be bought or sold in a current
                  transaction between willing parties,  that is, other than in a
                  forced or liquidation  sale.  Management  estimates fair value
                  using  discounted  cash flows or market  comparables,  as most
                  appropriate   for   each   property.   Independent   certified
                  appraisers are utilized to assist management, when warranted.

                  Prior to the  adoption of SFAS #121,  real estate  investments
                  were  carried  at  the  lower  of  depreciated   cost  or  net
                  realizable  value.  Net  realizable  value was  calculated  by
                  management using undiscounted future cash flows, in some cases
                  with the assistance of independent certified appraisers.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

2.                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  Impairment of Assets (continued)


                  Impairment  write-downs  recorded  by the  Partnership  do not
                  affect the tax basis of the assets and are not included in the
                  determination of taxable income or loss.

                  Because the cash flows used to evaluate the  recoverability of
                  the assets and their fair values are based upon projections of
                  future  economic  events  such as  property  occupancy  rates,
                  rental   rates,    operating   cost   inflation   and   market
                  capitalization  rates  which are  inherently  subjective,  the
                  amounts   ultimately   realized  at  disposition   may  differ
                  materially  from the net carrying  values at the balance sheet
                  dates.  The cash  flows and  market  comparables  used in this
                  process  are based on good  faith  estimates  and  assumptions
                  developed   by    management.    Unanticipated    events   and
                  circumstances   may  occur  and  some   assumptions   may  not
                  materialize;  therefore,  actual  results  may  vary  from the
                  estimates and the variances may be material.  The  Partnership
                  may provide additional write-downs, which could be material in
                  subsequent  years if real  estate  markets  or local  economic
                  conditions change.

                  Income taxes

                  No provision has been made for federal, state and local income
                  taxes  since  they  are  the  personal  responsibility  of the
                  partners.

                  Net  income  (loss)  and  distributions  per  unit of  limited
                  partnership interest

                  Net  income  (loss)  and  distributions  per  unit of  limited
                  partnership  interest is  calculated  based upon the number of
                  units  outstanding  (400,010),  for  each of the  years  ended
                  December 31, 1996, 1995 and 1994.

3.                CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

                  The Managing  General  Partner of the  Partnership,  Resources
                  High Equity Inc.,  is a  wholly-owned  subsidiary  of Presidio
                  Capital  Corp.  ("Presidio").  Presidio AGP Corp.,  which is a
                  wholly-owned  subsidiary of Presidio, is the Associate General
                  Partner  (together  with  the  Managing  General  Partner  the
                  "General  Partners").  Affiliates of the General  Partners are
                  also  engaged in  businesses  related to the  acquisition  and
                  operation of real estate. Presidio is also the parent of other
                  corporations  that  are or may in the  future  be  engaged  in
                  business  that may be in  competition  with  the  Partnership.
                  Accordingly,  conflicts  of  interest  may arise  between  the
                  Partnership and such other businesses.  Wexford Management LLC
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

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

                  ("Wexford")   has  been  engaged  to  perform   administrative
                  services to Presidio and its direct and indirect  subsidiaries
                  as well as the  Partnership.  Wexford  is  engaged  to perform
                  similar  services for other  similar  entities  that may be in
                  competition with the Partnership.

                  The Partnership has a property  management  services agreement
                  with  Resources  Supervisory   Management  Corp.   ("Resources
                  Supervisory"),  an affiliate of the Managing  General Partner,
                  to perform certain functions relating to the management of the
                  properties  of the  Partnership.  A  portion  of the  property
                  management fees were paid to unaffiliated management companies
                  which are engaged for the purpose of performing the management
                  functions for certain properties. For the years ended December
                  31, 1996, 1995, and 1994,  Resources  Supervisory was entitled
                  to receive an aggregate of $327,759, $303,936, and $277,844 of
                  which   $191,956,   $161,137,   and   $153,732   was  paid  to
                  unaffiliated management companies, respectively.

                  For the administration of the Partnership the Managing General
                  Partner is entitled to receive  reimbursement of expenses of a
                  maximum  of  $150,000  per year for  each of the  years  ended
                  December 31, 1996, 1995 and 1994.

                  For  managing  the affairs of the  Partnership,  the  Managing
                  General   Partner  is  entitled   to  receive  a   Partnership
                  management  fee equal to 1.05% of the amount of original gross
                  proceeds paid or allocable to the  acquisition  of property by
                  the Partnership.  For the years ended December 31, 1996, 1995,
                  and  1994  the  Managing   General  Partner  earned  $908,172,
                  $908,172 and $984,589, respectively.

                  The General  Partners  are  allocated  5% of the net income or
                  (losses)  of  the  Partnership  which  amounted  to  $106,736,
                  $(931,247),  and $72,144 in 1996, 1995 and 1994, respectively.
                  The  General  Partners  are also  entitled  to  receive  5% of
                  distributions which amounted to $50,528, $50,528, and $302,955
                  in 1996, 1995 and 1994, respectively. During the third quarter
                  1994 the Partnership paid the balance of deferred fees payable
                  to  the  Managing   General  Partner  and  its  affiliates  of
                  $1,416,042  from the  proceeds of the Southern  National  sale
                  (Note 4).

                  During the liquidation stage of the Partnership,  the Managing
                  General  Partner or an  affiliate  may be  entitled to receive
                  certain fees which are  subordinated  to the limited  partners
                  receiving   their  original   invested   capital  and  certain
                  specified minimum returns on their investments.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

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

                  During July 1996 through February 1997,  Millennium Funding II
                  Corp.,  a  wholly  owned  indirect   subsidiary  of  Presidio,
                  contracted to purchase  18,114 units of the  Partnership  from
                  various limited partners, which represents less than 5% of the
                  outstanding limited partnership units of the Partnership. 1996
                  distributions in the amount of $947 were received by Millenium
                  Funding II Corp. related to these units.

4.                REAL ESTATE

                  Management  recorded  write-downs  for  impairment,   totaling
                  $14,601,450,  $10,050,650,  $181,000 and  $20,469,050 in 1992,
                  1993,  1994  and  1995,  respectively.   No  write-downs  were
                  required for the year ended  December 31, 1996. The details of
                  write-downs recorded are as follows:

                  The former sole tenant at Century Park, General Dynamics Corp.
                  vacated  52,740  square  feet of space as of June 30, 1993 and
                  the  balance of its space as of  December  31,  1993  totaling
                  119,394  square feet  pursuant to the terms of its leases.  On
                  July 1, 1993 a 51,242  square  foot lease was signed  with San
                  Diego Gas and  Electric  for a  thirteen-year,  ten month term
                  with a cancellation  option exercisable  between the fifth and
                  sixth  years.  Due to the soft market in the greater San Diego
                  area,  management  concluded that the property's estimated net
                  realizable  value was below its net  carrying  value.  The net
                  realizable  value  was  based  on  the  property's   estimated
                  undiscounted  future  cash flows  over a 5 year  period and an
                  assumed  sale at the  end of the  holding  period  using a 10%
                  capitalization  rate.   Management,   therefore,   recorded  a
                  write-down  for  impairment of $9,100,000 in 1992 of which the
                  Partnership's share was $4,550,000.  Subsequently,  management
                  engaged the services of a certified  independent  appraiser to
                  perform  a  written  appraisal  of  the  market  value  of the
                  property.  Based on the results of the  appraisal,  management
                  recorded an additional  $11,800,000  write-down for impairment
                  in 1993 of which the Partnership's share was $5,900,000.

                  Since  the  date  of the  above  mentioned  appraisal,  market
                  conditions   surrounding  Century  Park  deteriorated  causing
                  higher  vacancy and lower rental rates.  Leasing  expectations
                  were  not   achieved   and   capital   expenditures   exceeded
                  projections  due to converting the building from a single user
                  to multi-tenancy  capabilities.  In early 1995,  occupancy was
                  only 25%.  Because  the  estimate of  undiscounted  cash flows
                  prepared in 1995  yielded a result  lower that the asset's net
                  carrying  value,  management  determined  that  an  impairment
                  existed.  Management estimated the property's fair value using
                  expected  cash  flows  discounted  at 13% over 15 years and an
                  assumed  sale at the  end of the  holding  period  using a 10%
                  capitalization  rate in order to determine the  write-down for
                  impairment.  This fair value estimate resulted in a $2,500,000
                  write-down for  impairment in 1995 of which the  Partnership's
                  share was $1,250,000.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.                REAL ESTATE (CONTINUED)

                  Seattle  Tower's  occupancy  declined from 90% when originally
                  purchased  to 80% as of December  31,  1991.  While  occupancy
                  recovered  somewhat to 83% at December 31,  1992,  the average
                  base rent per square  foot  declined 8% from $14.00 per square
                  foot  at  the  date  of  acquisition  to an  average  rate  of
                  approximately  $12.87 per square  foot at December  31,  1992.
                  Management   concluded  that  the  property's   estimated  net
                  realizable  value was below its net  carrying  value.  The net
                  realizable  value  was  based  on  the  property's   estimated
                  undiscounted   future  cash  flows  over  a  5  year   period,
                  reflecting  expected cash flow from lower rental rates, and an
                  assumed  sale at the  end of the  holding  period  using a 10%
                  capitalization  rate.   Management,   therefore,   recorded  a
                  write-down  for  impairment of $5,000,000 in 1992 of which the
                  Partnership's share was $2,500,000.

                  The Partnership  was not able to achieve leasing  expectations
                  at Seattle Tower and occupancy  remained at approximately 80%.
                  In  addition,  market  rents were lower than  projected.  As a
                  result, actual income levels at Seattle Tower did not meet and
                  were not  expected  to meet  income  levels  projected  during
                  management's impairment review in 1994. In addition, projected
                  capital expenditures  exceeded amounts previously  anticipated
                  for such  expenditures.  Because the estimate of  undiscounted
                  cash flows  prepared in 1995  yielded a result  lower than the
                  asset's net  carrying  value,  management  determined  that an
                  impairment existed.  Management  estimated the property's fair
                  value in order to determine  the  write-down  for  impairment.
                  Because the estimate of fair value using  expected  cash flows
                  discounted at 13% over 15 years and an assumed sale at the end
                  of the holding period using a 10% capitalization  rate yielded
                  a result which,  in management's  opinion,  was lower than the
                  property's value in the  marketplace,  the property was valued
                  using sales of  comparable  buildings  which  indicated a fair
                  value  of $25  per  square  foot.  This  fair  value  estimate
                  resulted in a $7,100,000  write-down for impairment in 1995 of
                  which the Partnership's share was $3,550,000.

                  The recession  which occurred prior to 1992 had a particularly
                  devastating  effect on the  photography  studios  which depend
                  heavily on  advertising  budgets and art galleries as a source
                  of  business,  resulting in many tenant  failures.  Due to the
                  poor market conditions in the SoHo area of New York City where
                  568 Broadway is located and the  accompanying  high  vacancies
                  and low absorption  rates which  resulted in declining  rental
                  rates,  management concluded that the property's estimated net
                  realizable  value was below its net  carrying  value.  The net
                  realizable  value was based on sales of  comparable  buildings
                  which indicated a value of approximately  $65 per square foot.
                  Management, therefore, recorded a write-down for impairment of
                  $19,400,000  in 1992 of  which  the  Partnership's  share  was
                  $7,551,450. Subsequently, management engaged the services of a
                  certified independent appraiser to perform a written appraisal
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.                REAL ESTATE (CONTINUED)

                  of the market value of the  property.  Based on the results of
                  the appraisal,  management  recorded an additional  $1,800,000
                  write-down for  impairment in 1993 of which the  Partnership's
                  share was $700,650.

                  Since the date of the above mentioned appraisal, significantly
                  greater capital improvement  expenditures than were previously
                  anticipated were required in order to render 568 Broadway more
                  competitive  in the New York market.  In  addition,  occupancy
                  levels remained low. Because the estimate of undiscounted cash
                  flows  prepared  in 1995  yielded a result  lower than the net
                  carrying  value,  management  determined  that  an  impairment
                  existed.  Management  estimated the  property's  fair value in
                  order to determine the write-down for impairment.  Because the
                  estimate of fair value using expected cash flows discounted at
                  13%  over  15  years  and an  assumed  sale  at the end of the
                  holding  period  using a 10%  capitalization  rate  yielded  a
                  result  which,  in  management's  opinion,  was lower than the
                  property's value in the  marketplace,  the property was valued
                  using sales of  comparable  buildings  which  indicated a fair
                  value  of $45  per  square  foot.  This  fair  value  estimate
                  resulted in a $6,600,000  write-down for impairment in 1995 of
                  which the Partnership's share was $2,569,050.

                  Occupancy at Westbrook was 28% in early 1995. Two  significant
                  tenants were not  operating  while  continuing  to make rental
                  payments  under  the  terms of their  leases.  However,  their
                  absence adversely  impacted both the lease-up of the remaining
                  space  and  rental  rates,  and  required   additional  tenant
                  procurement costs. As a result, income levels did not meet and
                  were not expected to meet income levels  projected at the date
                  of  management's  impairment  review  in  1994.  As a  result,
                  expected cash flow is lower than previously projected. Because
                  the  estimate  of  undiscounted  cash flows  prepared  in 1995
                  yielded a result  lower than the asset's net  carrying  value,
                  management  determined that an impairment existed.  Management
                  estimated the property's  fair value in order to determine the
                  write-down for impairment.  Because the estimate of fair value
                  using expected cash flows  discounted at 13% over 15 years and
                  an assumed  sale at the end of the holding  period using a 10%
                  capitalization  rate yielded a result which,  in  management's
                  opinion,   was  lower  than  the   property's   value  in  the
                  marketplace, the property was valued using sales of comparable
                  buildings which indicated a fair value of $20 per square foot.
                  This fair value estimate  resulted in a $3,400,000  write-down
                  for impairment in 1995.

                  Rental  income at Loch Raven did not meet and was not expected
                  to meet previously projected levels due to lower rental market
                  rates since management's  impairment review in 1994.  Expenses
                  also  decreased  slightly  but this  decrease  was  offset  by
                  significant  capital  expenditures  which were not  previously
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.                REAL ESTATE (CONTINUED)

                  anticipated.  Because the estimate of undiscounted  cash flows
                  prepared in 1995  yielded a result  lower than the asset's net
                  carrying  value,  management  determined  that  an  impairment
                  existed. Management estimated the property's fair value, using
                  expected  cash  flows  discounted  at 13% over 15 years and an
                  assumed  sale at the  end of the  holding  period  using a 10%
                  capitalization  rate, in order to determine the write-down for
                  impairment.  This fair value estimate resulted in a $4,800,000
                  write-down for impairment in 1995.

                  Despite  an  occupancy  rate in excess of 90% in 1995,  actual
                  income  levels at Southport did not meet and were not expected
                  to meet previously projected income levels due to lower rental
                  market rates.  Expenses were slightly higher than  anticipated
                  and  tenant  procurement  cost  estimates  were  greater  than
                  amounts  projected  at the  date  of  management's  impairment
                  review in 1994.  Because  the  estimate of  undiscounted  cash
                  flows prepared in 1995 yielded a result lower than the asset's
                  net carrying value,  management  determined that an impairment
                  existed.  Management  estimated the  property's  fair value in
                  order to determine the write-down for impairment.  Because the
                  estimate of fair value using expected cash flows discounted at
                  13%  over  15  years  and an  assumed  sale  at the end of the
                  holding  period  using a 10%  capitalization  rate  yielded  a
                  result  which,  in  management's  opinion,  was lower than the
                  property's value in the  marketplace,  the property was valued
                  using sales of  comparable  buildings  which  indicated a fair
                  value of $105 per  square  foot.  This  fair  value  estimated
                  resulted in a $4,900,000 write-down for impairment in 1995.

                  Southern  National  Corp.  acquired  First  Savings  Bank (the
                  original master lessee) in January 1994. Southern National had
                  given  notice that it was not  interested  in  remaining  as a
                  tenant after  expiration  of its lease but was  interested  in
                  acquiring the building.  Management  believed that substantial
                  renovations  to the building  would be required to adapt it to
                  multi-tenant   use.   Because  the  building   might   require
                  substantial  renovations  and market rental rates at that time
                  were  substantially  below those which were payable  under the
                  expiring  lease,  management  determined that a write-down for
                  impairment on the building of $3,450,000  was required in 1993
                  based on an assumed sale using a 10% capitalization  rate. The
                  building  was sold to  Southern  National  for  $5,500,000  on
                  August  8,  1994.  Based on the  sales  price,  an  additional
                  write-down of $181,000 was recorded in 1994.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.                REAL ESTATE (CONTINUED)

                  The  following  table is a summary of the  Partnership's  real
                  estate as of:
<TABLE>
<CAPTION>
                                                          December 31,
                                               --------------------------------
                                                    1996                1995
                                               ------------        ------------
<S>                                            <C>                 <C>
Land ...................................       $ 11,056,966        $ 11,056,966

Buildings and improvments ..............         34,817,081          34,171,794
                                               ------------        ------------

                                                 45,874,047          45,228,760

Less: Accumulated depreciation .........        (13,719,794)        (12,694,788)
                                               ------------        ------------

                                               $ 32,154,253        $ 32,533,972
                                               ============        ============
</TABLE>
                  The  following  is a  summary  of the  Partnership's  share of
                  anticipated future receipts under noncancellable leases:
<TABLE>
<CAPTION>


                                                   YEARS ENDING DECEMBER 31,
                     1997          1998          1999          2000          2001      Thereafter       Total
                -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>             <C>           <C>           <C>           <C>           <C>           <C>           <C>
Westbrook ...   $   299,000   $   285,000   $   285,000   $   285,000   $   176,000   $ 2,761,000   $ 4,091,000
Southport ...     1,743,000     1,661,000     1,524,000     1,271,000     1,003,000     1,271,000     8,473,000
Loch Raven ..       861,000       804,000       739,000       512,000       361,000       639,000     3,916,000
Century Park        837,000       852,000       873,000       862,000       862,000     3,841,000     8,127,000
568 Broadway      2,115,000     1,891,000     1,736,000     1,679,000     1,459,000     4,734,000    13,614,000
Seattle Tower       613,000       436,000       298,000       231,000       143,000       235,000     1,956,000
                -----------   -----------   -----------   -----------   -----------   -----------   -----------
                $ 6,468,000   $ 5,929,000   $ 5,455,000   $ 4,840,000   $ 4,004,000   $13,481,000   $40,177,000
                ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS


5.                DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
                                                               December 31,
                                                        ------------------------
                                                          1996            1995
                                                        --------        --------
<S>                                                     <C>             <C>
Limited partners ($.60 per unit) ...............        $240,006        $240,006

General partners ...............................          12,632          12,632
                                                        --------        --------

                                                        $252,638        $252,638
                                                        ========        ========
</TABLE>
                  Such distributions were paid in the subsequent quarters.

6.                DUE TO AFFILIATES
<TABLE>
<CAPTION>
                                                                December 31,
                                                         -----------------------
                                                             1996         1995
                                                         ----------   ----------
<S>                                                      <C>          <C>
Partnership management fee ...........................   $  227,044   $  227,044

Settlement and litigation cost reimbursement (Note 8)       824,510         --

Non-accountable expense reimbursement ................       37,500       37,500

Property management fees .............................       75,067       88,089
                                                         ----------   ----------

                                                         $1,164,121   $  352,633
                                                         ==========   ==========
</TABLE>
                  Such amounts were paid in the subsequent quarters.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS 
   
7.                PARTNERS' EQUITY

                  At December 31, 1996,  1995 and 1994 a total of 400,010  units
                  of limited partnership interest, including the initial limited
                  partner,  had been issued for aggregate capital  contributions
                  of $100,002,500. In addition, the General Partners contributed
                  a total of $1,000 to the Partnership.  As discussed in Note 3,
                  the  General  Partners  hold  a  5%  equity  interest  in  the
                  Partnership. However, at the inception of the Partnership, the
                  General  Partners'  equity  account was credited with only the
                  actual capital contributed in cash, $1,000.  Subsequent to the
                  issuance of the 1996 financial  statements,  the Partnership's
                  management   determined   that   this   accounting   does  not
                  appropriately   reflect  the  Limited  Partners'  and  General
                  Partners'  relative  participations in the  Partnerships's net
                  assets,  since it does not reflect the  General  Partners'  5%
                  interst in the Partnership.  Thus, the Partnershp has restated
                  its financial  statements to reallocate  $5,000,125 (5% of the
                  gross proceeds raised at the  Partnership's  formation) of the
                  partners' equity to the General Partners' equity account. This
                  reallocation  was made as of the inception of the  Partnership
                  and all periods  presented in the  financial  statements  have
                  been restated to reflect the  reallocation.  The  reallocation
                  has no impact on the Partnership's financial position, results
                  of operations,  cash flows,  distributions to partners, or the
                  partners' tax basis capital accounts.
    
8.                COMMITMENTS AND CONTINGENCIES

a)                568 Broadway Joint Venture is currently involved in litigation
                  with a number of present or former  tenants who are in default
                  on their  lease  obligations.  Several of these  tenants  have
                  asserted  claims or counter claims seeking  monetary  damages.
                  The  plaintiffs'  allegations  include  but are not limited to
                  claims for  breach of  contract,  failure  to provide  certain
                  services,  overcharging  of  expenses  and loss of profits and
                  income.  These  suits  seek  total  damages  in  excess of $20
                  million plus additional  damages of an  indeterminate  amount.
                  The  Broadway  Joint  Venture's  action for rent  against Solo
                  Press was tried in 1992 and  resulted in a judgement  in favor
                  of the Broadway Joint Venture for rent owed.  The  Partnership
                  believes  this will result in dismissal of the action  brought
                  by Solo Press against the Broadway  Joint  Venture.  Since the
                  facts of the other actions which  involve  material  claims or
                  counterclaims  are  substantially   similar,  the  Partnership
                  believes that the Broadway Joint Venture will prevail in those
                  actions as well.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

8.                COMMITMENTS AND CONTINGENCIES (CONTINUED)


b)                A former retail tenant of 568 Broadway (Galix Shops, Inc.) and
                  a related  corporation  which is a retail tenant of a building
                  adjacent to 568 Broadway  filed a lawsuit in the Supreme Court
                  of The State of New York,  County  of New  York,  against  the
                  Broadway Joint Venture which owns 568 Broadway. The action was
                  filed  on  April  13,  1994.  The  Plaintiffs  allege  that by
                  erecting  a  sidewalk  shed in  1991,  568  Broadway  deprived
                  plaintiffs of light,  air and  visibility to their  customers.
                  The sidewalk  shed was  erected,  as required by local law, in
                  connection  with the  inspection  and  restoration  of the 568
                  Broadway building facade, which is also required by local law.
                  Plaintiffs  further  allege that the  erection of the sidewalk
                  shed for a continuous period of over two years is unreasonable
                  and  unjustified  and that  such  conduct  by  defendants  has
                  deprived   plaintiffs  of  the  use  and  enjoyment  of  their
                  property.  The suit seeks a judgement requiring removal of the
                  sidewalk shed,  compensatory damages $20 million, and punitive
                  damages of $10 million.  The  Partnership  believes  that this
                  suit is without merit and intends to vigorously defend it.

c)                On or about May 11, 1993 High Equity Partners L.P. - Series 86
                  ("HEP-86"),  an  affiliated  partnership,  was  advised of the
                  existence  of an  action  (the  "B&S  Litigation')  in which a
                  complaint  (the "HEP  Complaint")  was  filed in the  Superior
                  Court  for the  State  of  California  for the  County  of Los
                  Angeles  (the   "Court")  on  behalf  of  a  purported   class
                  consisting  of all of the  purchasers  of limited  partnership
                  interests  in  HEP-86.  On April 7, 1994 the  plaintiffs  were
                  granted  leave  to file an  amended  complaint  (the  "Amended
                  Complaint").

                  On November 30, 1995, after the Court preliminarily approved a
                  settlement of the B&S Litigation  but  ultimately  declined to
                  grant final  approval and after the Court  granted  motions to
                  intervene  by  the  original  plaintiffs,   the  original  and
                  intervening   plaintiffs   filed  a  Consolidated   Class  and
                  Derivative  Action Complaint ( the  "Consolidated  Complaint")
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

8.                COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  against the  Administrative and Investment General Partners of
                  HEP-86,  the managing general partner of the Partnership,  the
                  managing general partner of HEP-88 and the indirect  corporate
                  parent of the General  Partners.  The  Consolidated  Complaint
                  alleges  various  state  law  class  and  derivative   claims,
                  including  claims for breach of  fiduciary  duties;  breach of
                  contract;  unfair  and  fraudulent  business  practices  under
                  California  Bus.  &  Prof.   Code  Sec.   17200;   negligence;
                  dissolution, accounting and receivership; fraud; and negligent
                  misrepresentation.  The Consolidated  Complaint alleges, among
                  other things,  that the general partners caused a waste of HEP
                  Partnership  assets by collecting  management  fees in lieu of
                  pursuing a strategy to maximize  the value of the  investments
                  owned  by the  limited  partners;  that the  general  partners
                  breached  their  duty of loyalty  and due care to the  limited
                  partners   by   expropriating   management   fees   from   the
                  partnerships  without trying to run the HEP  Partnerships  for
                  the  purposes  for which they are  intended;  that the general
                  partners are acting  improperly to enrich  themselves in their
                  position of control over the HEP  Partnerships  and that their
                  actions  prevent  non-affiliated   entities  from  making  and
                  completing  tender offers to purchase HEP  Partnership  Units;
                  that by  refusing  to seek the  sale of the HEP  Partnerships'
                  properties,  the general partners have diminished the value of
                  the limited partners' equity in the HEP Partnerships; that the
                  general partners have taken a heavily  overvalued  partnership
                  asset management fee; and that limited  partnership units were
                  sold and  marketed  through  the use of false  and  misleading
                  statements.

                  In January,  1996,  the parties to the B&S  Litigation  agreed
                  upon a revised settlement (the "Revised Settlement"). The core
                  feature of the Revised  Settlement  was the  surrender  by the
                  general  partners  of certain  fees that they are  entitled to
                  receive,  the  reorganization  of the Partnership,  HEP-86 and
                  HEP- 88 (collectively, the "HEP Partnerships") into a publicly
                  traded real estate investment trust ("REIT"), and the issuance
                  of stock in the REIT to the limited  partners (in exchange for
                  their limited partnership  interests) and General Partners (in
                  exchange for their existing  interest in the HEP  Partnerships
                  and the fees being  given up).  The General  Partners  believe
                  that the principal benefits of the Revised Settlement were (1)
                  substantially increased distributions to limited partners, (2)
                  market liquidity through a NASDAQ listed security, and (3) the
                  opportunity  for  growth  and  diversification  that  was  not
                  permitted  under the  Partnership  structure.  There were also
                  believed  to be  other  significant  tax  benefits,  corporate
                  governance  advantages  and  other  benefits  of  the  Revised
                  Settlement.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

8.                COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  On July 18, 1996, the Court preliminarily approved the Revised
                  Settlement  and made a  preliminary  finding  that the Revised
                  Settlement was fair,  adequate and reasonable to the class. In
                  August 1996,  the Court approved the form and method of notice
                  regarding  the  Revised  Settlement  which was sent to limited
                  partners.

                  Only  approximately  2.5% of the  limited  partners of the HEP
                  Partnerships  elected to "opt out" of the Revised  Settlement.
                  Despite   this,   following   the   submission  of  additional
                  materials,  the Court  entered  an order on January  14,  1997
                  rejecting the Revised Settlement and concluding that there had
                  not been an adequate  showing that the settlement was fair and
                  reasonable.  Thereafter, the plaintiffs filed a motion seeking
                  to have the Court  reconsider  its  order.  Subsequently,  the
                  defendants withdrew the revised settlement and at a hearing on
                  February 24, 1997,  the Court denied the  plaintiffs'  motion.
                  Also at the  February  24,  1997  hearing,  the Court  recused
                  itself from  considering  a motion to intervene  and to file a
                  new complaint in  intervention  by one of the objectors to the
                  Revised Settlement, granted the request of one plaintiffs' law
                  firm  to  withdraw  as  class  counsel  and  scheduled  future
                  hearings on various matters.

                  The Limited Partnership Agreement provides for indemnification
                  of the  General  Partners  and  their  affiliates  in  certain
                  circumstances.  The  Partnership  has agreed to reimburse  the
                  General  Partners for their actual costs incurred in defending
                  this   litigation  and  the  costs  of  preparing   settlement
                  materials. Through December 31, 1996, the General Partners had
                  billed the  Partnership  a total of  $824,510  for these costs
                  which was paid in February 1997.

                  The Partnerships and the General Partners believe that each of
                  the  claims  asserted  in  the   Consolidated   Complaint  are
                  meritless and intend to continue to vigorously  defend the B&S
                  Litigation.  It is impossible at this time to predict what the
                  defense of the B&S  Litigation  will cost,  the  Partnership's
                  financial   exposure  as  a  result  of  the   indemnification
                  agreement  discussed above, and whether the costs of defending
                  could adversely affect the Managing General  Partner's ability
                  to perform its obligations to the Partnership.

9.                RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER
                  FINANCIAL STATEMENTS TO TAX REPORTING  

                  The Partnership  files its tax returns on an accrual basis and
                  has  computed   depreciation   for  tax  purposes   using  the
                  accelerated cost recovery systems,  which is not in accordance
                  with generally accepted accounting  principles.  The following
                  is a reconciliation of the net income (loss) per the financial
                  statements to the net taxable income (loss).
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

9.                RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER
                  FINANCIAL STATEMENTS TO TAX REPORTING (CONTINUED)
<TABLE>
<CAPTION>

                                                       Years Ended December 31,
                                             --------------------------------------------
                                                  1996            1995            1994
                                             ------------    ------------    ------------
<S>                                          <C>             <C>             <C>
Net income (loss) per financial statements   $  2,134,717    $(18,624,934)   $  1,442,884

Write-down for impairment ................           --        20,469,050         181,000

Tax loss from sale of Southern National ..           --              --        (2,383,290)

Tax depreciation in excess of financial
statement depreciation ...................     (1,553,354)     (1,564,609)     (1,588,134)
                                             ------------    ------------    ------------


Net taxable income (loss) ................   $    581,363    $    279,507    $ (2,347,540)
                                             ============    ============    ============

</TABLE>
                  The   differences   between  the   Partnership's   assets  and
                  liabilities for tax purposes and financial  reporting purposes
                  are as follows:
<TABLE>
<CAPTION>
                                                                    December 31,
                                                                        1996
                                                                   -------------
<S>                                                                <C>
Net assets per financial statements ........................       $ 36,811,694

Write-down for impairment ..................................         41,671,150

Tax depreciation in excess of financial
       statement depreciation ..............................        (11,995,057)

Gain on admission of joint venture
       partner not recognized for tax purposes .............           (307,093)

Organization costs not charged to partners'
       equity for tax purposes .............................          1,500,000
                                                                   ------------
Net assets per tax reporting ...............................       $ 67,680,694
                                                                   ============

</TABLE>
<PAGE>
Item 9.          Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure

                 None.
                                    PART III

Item 10.         Directors and Executive Officers of the Registrant

                  The  Partnership  has no officers or  directors.  The Managing
General  Partner  manages and controls  substantially  all of the  Partnership's
affairs and has general  responsibility  and  ultimate  authority in all matters
affecting  its business.  The Managing  General  Partner is also the  investment
general  partner  of HEP-86 and the  managing  general  partner of HEP-88,  both
limited  partnerships  with  investment  objectives  similar  to  those  of  the
Partnership.  The Associate  General  Partner is also a general partner in other
partnerships  affiliated  with  Presidio  and whose  investment  objectives  are
similar to those of the  Partnership.  The  Associate  General  Partner,  in its
capacity as such,  does not devote any material  amount of its business time and
attention to the Partnership's affairs.

                  Based on a  review  of  Forms 3 and 4 and  amendments  thereto
furnished to the  Partnership  pursuant to Rule 16a-3(e)  during its most recent
fiscal year and Form 5 and amendments  thereto furnished to the Partnership with
respect to its most recent fiscal year, and written representations  pursuant to
Item 405(b)(2)(i) of Regulation S-K, none of the General Partners,  directors or
officers of the Managing  General Partner or beneficial  owners of more than 10%
of the Units failed to file on a timely basis reports  required by Section 16(a)
of the  Securities  Exchange  Act of 1934 (the  "Exchange  Act") during the most
recent fiscal or prior fiscal years.  No written  representations  were received
from the partners of the Associate General Partner.

                  As of March 15, 1997, the names and ages of, and the positions
held by, the officers  and  directors  of the  Managing  General  Partner are as
follows:
<TABLE>
<CAPTION>
                                                                                   Has Served as an
                                                                                    Officer and/or
   Name                       Age                  Position                         Director Since
   ----                       ---                  --------                         --------------
<S>                           <C>            <C>                                     <C>
Joseph M. Jacobs              44             Director and President                  November 1994
Jay L. Maymudes               36             Director, Vice President,               November 1994
                                             Secretary and Treasurer
Robert Holtz                  29             Vice President                          November 1994
Arthur H. Amron               40             Vice President and Assistant            November 1994
                                             Secretary
Frederick Simon               42             Vice President                          February 1996
</TABLE>

                  All of the  current  executive  officers  and  directors  were
elected following the consummation of Integrated's plan of reorganization  under
which the Managing General Partner became  indirectly  wholly-owned by Presidio.
Biographies for the executive officers and directors follow:

                  Joseph M.  Jacobs has been a  director  and the  President  of
Presidio  since its  formation  in August 1994 and a director,  Chief  Executive
Officer,  President  and  Treasurer  of  Resurgence  Properties  Inc., a company
engaged  in  diversified  real  estate  activities  ("Resurgence"),   since  its
<PAGE>
formation in March 1994. Since January 1, 1996, Mr. Jacobs has been a member and
the  President of Wexford.  From May 1994 to December  1995,  Mr. Jacobs was the
President of Wexford Management Corp. From 1982 through May 1994, Mr. Jacobs was
employed  by, and since 1988 was the  President  of,  Bear  Stearns  Real Estate
Group,  Inc.,  a firm  engaged  in all  aspects  of real  estate,  where  he was
responsible  for  the  management  of  all  activities,   including  maintaining
worldwide relationships with institutional and individual real estate investors,
lenders, owners and developers.

                  Jay L. Maymudes has been the Chief Financial  Officer,  a Vice
President and  Treasurer of Presidio  since its formation in August 1994 and the
Chief  Financial  Officer and a Vice  President of  Resurgence  since July 1994,
Secretary of Resurgence  since January 1995 and  Assistant  Secretary  from July
1994 to January  1995.  Since January 1, 1996,  Mr.  Maymudes has been the Chief
Financial  Officer  and a Senior  Vice  President  of Wexford  and was the Chief
Financial  Officer and a Vice President of Wexford  Management  Corp.  from July
1994 to December 1995.  From December 1988 through June 1994,  Mr.  Maymudes was
the Secretary and Treasurer, and since February 1990 was a Senior Vice President
of Dusco, Inc., a real estate investment advisor.

                  Robert  Holtz  has  been a Vice  President  and  Secretary  of
Presidio  since its formation in August 1994 and a Vice  President and Assistant
Secretary of  Resurgence  since its  formation in March 1994.  Since  January 1,
1996, Mr. Holtz has been a Senior Vice President and member of Wexford and was a
Vice President of Wexford  Management Corp. from May 1994 to December 1995. From
1989  through May 1994,  Mr.  Holtz was  employed  by, and since 1993 was a Vice
President of, Bear Stearns Real Estate Group, Inc., where he was responsible for
analysis,  acquisitions  and management of the assets owned by Bear Stearns Real
Estate and its clients.

                  Arthur  H.  Amron  has  been  a  Vice   President  of  certain
subsidiaries of Presidio since November 1994.  Since January 1996, Mr. Amron has
been the general  counsel and a Senior Vice  President  of Wexford.  Also,  from
November  1994 to December  1995,  Mr. Amron was the general  counsel and,  from
March 1995 to December 1995, a Vice President,  of Wexford Management Corp. From
1992  through  November  1994 Mr.  Amron  was an  attorney  with the law firm of
Schulte, Roth and Zabel.

                  Frederick  Simon  was  a  Senior  Vice  President  of  Wexford
Management  Corp.  from November 1995 to December 1995.  Since January 1996, Mr.
Simon has been a Senior Vice  President of Wexford.  He is also a Vice President
of Resurgence.  Prior to joining Wexford, Mr. Simon was Executive Vice President
and a Partner of Greycoat Real Estate Corporation, the U.S. arm of Greycoat PLC,
a London stock exchange real estate investment and development company.

                  All of the directors  will hold office,  subject to the bylaws
of the Managing General  Partner,  until the next annual meeting of stockholders
of the  Managing  General  Partner  and until their  successors  are elected and
qualified.

                  There  are  no  family  relationships  between  any  executive
officer and any other  executive  officer or director  of the  Managing  General
Partner.
<PAGE>
                  As of March  15,  1997,  the names and ages of, as well as the
position held by, the officers and directors of the  Associate  General  Partner
are as follows:
<TABLE>
<CAPTION>
                                                                                 Has Served as an
                                                                                 Officer and/or
Name                           Age             Position                          Director Since  
----                           ---             --------                          --------------  
<S>                            <C>           <C>                                     <C>
Robert Holtz                   29            Director and President                  March 1995
Mark Plaumann                  41            Director and Vice President             March 1995
Jay L. Maymudes                36            Vice President, Secretary               March 1995
                                             and Treasurer
Arthur H. Amron                40            Vice President and                      March 1995
                                             Assistant Secretary
</TABLE>

                  See the  biographies of the above named officers and directors
in the preceding section except as noted below.

                  Mark  Plaumann  has been a Senior  Vice  President  of Wexford
since  January 1996.  Mr.  Plaumann was a Vice  President of Wexford  Management
Corp.  from February 1995 to December 1995.  Mr.  Plaumann is also a director of
Wahlco Environmental Systems, Inc. (a NYSE registrant engaged in the sale of air
pollution  control and specially  engineered  products and is  majority-owned by
investment  funds  managed  by  Wexford)  since  June  1996  and a  director  of
Technology  Service Group, Inc (a NASDAQ registrant engaged in the sale of smart
pay phones and is  majority-owned  by investment funds managed by Wexford) since
March 1997. Mr. Plaumann was employed by Alvarez & Marsal,  Inc., a workout firm
as Managing  Director  from  February  1990 to January  1995.  Mr.  Plaumann was
employed by American Healthcare  Management,  Inc. a hospital management company
from  February  1985 to January  1990 and by Ernst & Young from  January 1973 to
February 1985.

                  Affiliates  of  the  General  Partners  are  also  engaged  in
business related to the acquisition and operation of real estate.

                  Many of the  officers,  directors and partners of the Managing
General  Partner and the  Associate  General  Partner are also  officers  and/or
directors of the general  partners of other public  partnerships  controlled  by
Presidio and various subsidiaries of Presidio.

Item 11.         Executive Compensation

                  The   Partnership   is  not   required  to  and  did  not  pay
remuneration  to the officers and directors of the Managing  General  Partner or
the partners of the Associate General Partner. Certain officers and directors of
the Managing  General Partner  receive  compensation  from the Managing  General
Partner  and/or  its  affiliates  (but not from the  Partnership)  for  services
performed for various affiliated entities,  which may include services performed
for the  Partnership;  however,  the Managing  General Partner believes that any
compensation   attributable  to  services   performed  for  the  Partnership  is
immaterial. See also "Item 13. Certain Relationships and Related Transactions."
<PAGE>
Item 12.         Security Ownership of Certain Beneficial
                 Owners and Management

                  As of March 15, 1997,  no person was known by the  Partnership
to be the beneficial owner of more than 5% of the Units.

                  No  directors,  officers or partners of the  Managing  General
Partner  presently own any Units.  An affiliate of the Managing  General Partner
contracted  to  purchase  18,114  Units from  various  limited  partners.  These
purchases represent less than 5% of the outstanding Units.
 
                  As  of  March  1,  1997,   there  were  8,797,255   shares  of
outstanding  common stock of Presidio  (the "Class A Shares").  As of that date,
neither the individual  directors nor the officers and directors of the Managing
General  Partner as a group were known by the Partnership to own more than 1% of
the Class A Shares.

                  The following  table sets forth certain  information  known to
Presidio with respect to beneficial  ownership of the Class A Shares as of March
1, 1997 (based on  8,797,255  Class A Shares  outstanding  on such date) by: (i)
each  person who  beneficially  owns 5% or more of the Class A Shares,  (ii) the
executive officers of Presidio, (iii) each of Presidio's directors, and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
                                                 Beneficial Ownership
                                           -------------------------------
                                             Number of         Percentage
         Name of Beneficial Owner             Shares           Outstanding
         ------------------------             ------           -----------
<S>                                        <C>                    <C>
         Thomas F. Steyer                  4,553,560(1)           51.8%
         Fleur A. Fairman

         John M. Angelo
         Michael L. Gordon                 1,231,762(2)           14.0%

         Intermarket Corp.                 1,000,918(3)           11.4%

         M. H. Davidson & Co.                474,205(4)            5.4%

         Michael Steinhardt                       --(5)              --

         Joseph M. Jacobs                         --(5)              --

         Robert Holtz                             --                 --

         Jay L. Maymudes                          --                 --

         Charles E. Davidson                      --(5)              --

         Martin L. Edelman                     4,550(6)               *

         Dean J. Takahashi                     4,550(6)               *

         Paul T. Walker                        4,550(6)               *

         Directors and executive 
         officers as a group (7 persons)      13,650                  *
         -----------------------

*      Less than 1% of the outstanding Common Stock.
<PAGE>
(1)    As the  managing  partners of each of  Farallon  Capital  Partners,  L.P.
       ("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
       Capital Institutional  Partners II, L.P. ("FCIP II") and Tinicum Partners
       L.P. ("Tinicum"),  (collectively, the "Farallon Partnerships"),  may each
       be deemed to own  beneficially for purposes of Rule 13d-3 of the Exchange
       Act  the   1,397,318,   1,610,730,   607,980  and  241,671  shares  held,
       respectively,  by each of such Farallon  Partnerships.  Farallon  Capital
       Management,   LLC   ("FCMLLC"),   the   investment   advisor  to  certain
       discretionary accounts which collectively hold 695,861 shares and Enrique
       H. Boilini,  David I. Cohen,  Joseph F. Downes,  Jason M. Fish, Andrew B.
 
       Fremder,  William F.  Mellin,  Stephen L.  Millham,  Meridee A. Moore and
       Thomas F.  Steyer,  as a  managing  member of  FCMLLC  (collectively  the
       "Managing  Members") may be deemed to be the  beneficial  owner of all of
       the shares owned by such discretionary accounts. FCMLLC and each Managing
       Member disclaims any beneficial ownership of such shares.

       Farallon Partners,  LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP
       II and Tinicum),  and each of Fleur A. Fairman,  Mr. Boilini,  Mr. Cohen,
       Mr. Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and
       Mr. Steyer, each as managing member of FPLLC (collectively, the "Managing
       Members"),  may be deemed to be the beneficial owner of all of the shares
       owned by FCP, FCIP,  FCIP II and Tinicum.  FPLLC and each Managing Member
       disclaims any beneficial ownership of such shares.

(2)    John  M.  Angelo  and  Michael  L.  Gordon,   the  general  partners  and
       controlling persons of AG Partners, L.P., which is the general partner of
       Angelo,  Gordon & Co., L.P., may be deemed to have  beneficial  ownership
       under  Section 13(d) of the Exchange Act of the  securities  beneficially
       owned by Angelo, Gordon & Co., L.P. and its affiliates.  Angelo, Gordon &
       Co., L.P., a registered investment advisor,  serves as general partner of
       various  limited  partnerships  and as investment  advisor of third party
       accounts with power to vote and direct the  disposition of Class A Shares
       owned by such limited partnerships and third party accounts.

(3)    Intermarket   Corp.   serves  as  General  Partner  for  certain  limited
       partnerships  and as  investment  advisor  to  certain  corporations  and
       foundations. As a result of such relationships,  Intermarket Corp. may be
       deemed  to have the  power to vote and the  power to  dispose  of Class A
       shares held by such partnerships, corporations and foundations.

(4)    Marvin H.  Davidson,  Thomas L. Kemper Jr.,  Stephen M. Dowicz,  Scott E.
       Davidson  and  Michael J.  Leffell,  the  general  partners,  members and
       stockholders of certain  entities that are general partners or investment
       advisors of Davidson Kempner Endowment  Partners,  L.P., Davidson Kempner
       Partners  L.P.,  Davidson  Kempner  Institutional  Partners,  L.P., M. H.
       Davidson and Co., and Davidson Kempner International Ltd.  (collectively,
       the "Investment  Funds") may be deemed to be the beneficial  owners under
       Section 13(d) of the Exchange Act of the securities beneficially owned by
       the Investment Funds and their affiliates.

       In  addition,   Mr.  Kempner  owns  800  shares  and  may  be  deemed  to
       beneficially  own  certain  securities  held by certain  foundations  and
       trusts. Mr. Kempner disclaims beneficial ownership of such shares.
<PAGE>
(5)    Excludes  1,200,000  Class B Shares  owned by IR  Partners.  Such Class B
       Shares are  convertible in certain  circumstances  into 1,200,000 Class A
       Shares;  however, such shares are not convertible at present. IR Partners
       is  a  general   partnership   whose  general   partners  are  Steinhardt
       Management,  certain of its  affiliates  and  accounts  managed by it and
       Roundhill Associates. Roundhill Associates is a limited partnership whose
       general  partner  is Charles  E.  Davidson,  the  principal  of  Presidio
       Management,  the  Chairman  of the  Board of  Presidio  and a  Member  of
       Wexford.  Joseph M. Jacobs,  the Chief Executive Officer and President of
       Presidio  and a  Member  and the  President  of  Wexford,  has a  limited
       partner's interest in Roundhill Associates.  Pursuant to Rule 13d-3 under
       the Exchange Act, each of Michael H. Steinhardt,  the controlling  person
       of Steinhardt  Management  and its affiliates and Charles E. Davidson may
       be deemed to be beneficial owners of such 1,200,000 shares.

(6)    Shares held by each Class A Director of Presidio were issued  pursuant to
       a Memorandum of Understanding Regarding Compensation of Class A Directors
       of Presidio. See "Executive Compensation -- Compensation of Directors."
</TABLE>
                  The  address  of Thomas F.  Steyer  and the other  individuals
mentioned  in  footnote 1 above  (other than Fleur A.  Fairman) is c/o  Farallon
Capital Partners, L.P., One Maritime Plaza, San Francisco,  California 94111 and
the address of Fleur A. Fairman is c/o Farallon  Capital  Management,  Inc., 800
Third  Avenue,  40th Floor,  New York,  New York  10022.  The address of Angelo,
Gordon & Co., L.P. and its affiliates is 245 Park Avenue,  26th Floor, New York,
New York 10167.  The address for Intermarket  Corp. is 667 Madison  Avenue,  New
York, New York 10021.  The address for M. H. Davidson & Co. is 885 Third Avenue,
New York, New York 10022.
<PAGE>
Item 13.         Certain Relationships and Related Transactions

                  The General  Partners and certain  affiliated  entities  have,
during the year ended  December 31,  1996,  earned or received  compensation  or
payments  for  services  or  reimbursements  from the  Partnership  or  Presidio
subsidiaries as follows:
<TABLE>
<CAPTION>
                                              Capacity in                                  Compensation from
Name of Recipient                             Which Served                                   the Parntership
-----------------                             ------------                                   ---------------
<S>                                      <C>                                                 <C>
Resources High Equity Inc.               Managing General Partner                            $1,703,408(1)

Presidio AGP Corp.                       Associate General Partner                           $    1,011(2)

Resources Supervisory                    Affiliated Property Managers                        $  135,803(3)
Management Corp.

Millennium Funding Corp.                 Affiliate                                           $  228,794(4)
------------

(1)    Of this amount $49,517 represents the Managing General Partner's share of
       distributions of cash from operations,  $150,000  represents  payment for
       non-accountable  expenses of the Managing  General Partner based upon the
       number  of Units  sold,  $595,717  represents  reimbursement  of costs in
       connection with the B&S Litigation, and $908,174 represents a Partnership
       Management Fee for managing the affairs of the Partnership.  Furthermore,
       under  the  Partnership's  Limited  Partnership  Agreement,   5%  of  the
       Partnership's  net  income  and net  loss  is  allocated  to the  General
       Partners (0.1% to the Associate  General Partner and 4.9% to the Managing
       General Partner). Pursuant thereto, for the year ended December 31, 1996,
       $21,532 of the Partnership's taxable income was allocated to the Managing
       General Partner.

(2)    This  amount   represents  the  Associate   General  Partner's  share  of
       distributions  of cash from operations.  In addition,  for the year ended
       December 31, 1996, $439 of the Partnership's taxable income was allocated
       to the Associate General Partner.

(3)    This amount was earned pursuant to a management  agreement with Resources
       Supervisory,  a wholly-owned  subsidiary of Presidio,  for performance of
       certain  functions  relating  to  the  management  of  the  Partnership's
       properties.  The total fee paid to Resources Supervisory was $327,759, of
       which $191,956 was paid to unaffiliated management companies.

(4)    This  amount  represents  reimbursements  of  actual  costs  incurred  in
       defending  the B&S  Litigation  and  the  cost  of  preparing  settlement
       materials.
</TABLE>
<PAGE>
                                     PART IV

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

(a) (1)           Financial Statements: see Index to Financial Statements in 
                  Item 8.

(a) (2)           Financial Statement Schedule:

                  III.   Real Estate and Accumulated Depreciation

(a) (3)           Exhibits:

3,4.              (a) Amended and Restated Partnership  Agreement  ("Partnership
                  Agreement") of the  Partnership,  incorporated by reference to
                  Exhibit A to the Prospectus of the Partnership  dated February
                  4, 1985, included in the Partnership's  Registration Statement
                  on Form S-11 (Reg. No. 2-92319).

                  (b)  Amendment  dated  April  1,  1985  to  the  Partnership's
                  Partnership  Agreement,   incorporated  by  reference  to  the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1985.

                  (c)  Restatement  of Amendment  dated  December 1, 1986 to the
                  Partnership's Partnership Agreement, incorporated by reference
                  to the Partnership's Current Report on Form 8-K dated December
                  8, 1986.

                  (d) Amendment  dated as of April 1, 1988 to the  Partnership's
                  Partnership  Agreement,   incorporated  by  reference  to  the
                  Partnership's  Annual  Report on Form 10- K for the year ended
                  December 31, 1988.

10.               (a) Agent's  Agreement  between the  Partnership and Resources
                  Property  Man agement  Corp.,  incorporated  by  reference  to
                  Exhibit 10(b) to the Partnership's  Regi stration Statement on
                  Form S-11 (Reg. No. 2-92319).

                  (b) Acquisition and Disposition  Services  Agreement among the
                  Partnership   and  Realty   Resources   Inc.,   and  Resources
                  Acquisitions, Inc., incorporated by reference to Exhibit 10(c)
                  to the Partnership's Registration Statement on Form S-11 (Reg.
                  No. 2- 92319).

                  (c) Agreement  among Resources High Equity,  Inc.,  Integrated
                  Resources,  Inc. and Z Square G Partners II,  incorporated  by
                  reference to Exhibit 10(d) to the  Partnership's  Registration
                  Statement on Form S-11 (Reg. No. 2-92319).

                  (d)  Lease  Agreement   dated  June  12,  1985,   between  the
                  Partnership and First Federal Savings and Loan  Association of
                  South  Carolina  for  the  First  Federal   Office   Building,
                  incorporated   by   reference   to   Exhibit   10(g)   to  the
                  Partnership's  Post-Effective  Amendment No. 1 to Registration
                  Statement on Form S-11 (Reg. No. 2-92319).
<PAGE>
                  (e) Joint Venture Agreement dated November 2, 1986 between the
                  Partnership  and High  Equity  Partners,  L.P.  - Series 86, A
                  California Limited  Partnership,  with respect to Century Park
                  I,   incorporated   by  reference  to  Exhibit  10(b)  to  the
                  Partnership's  Current  Report on Form 8-K dated  November  7,
                  1986.

                  (f) Joint Venture Agreement dated October 27, 1986 between the
                  Partnership and High Equity  Partners,  L.P. - Series 86, with
                  respect to 568 Broadway,  incorporated by reference to Exhibit
                  10(b) to the  Partnership's  Current  Report on Form 8-K dated
                  November 19, 1986.

                  (g) Joint Venture  Agreement  dated  November 24, 1986 between
                  the  Partnership and High Equity  Partners,  L.P. - Series 86,
                  with respect to Seattle  Tower,  incorporated  by reference to
                  Exhibit 10(b) to the Partnership's  Current Report on Form 8-K
                  dated December 8, 1986.

                  (h)  Amended  and  Restated  Joint  Venture   Agreement  dated
                  February 1, 1990 among the Partnership,  High Equity Partners,
                  L.P. - Series 86 and High Equity  Partners,  L.P. - Series 88,
                  with  respect to 568  Broadway,  incorporated  by reference to
                  Exhibit 10(a) to the Partnership's  Current Report on Form 8-K
                  dated February 1, 1990.

                  (i) First  Amendment  to Amended and  Restated  Joint  Venture
                  Agreement of 568 Broadway Joint Venture,  dated as of February
                  1, 1990, among the Partnership,  High Equity Partners,  L.P. -
                  Series  86  and  High  Equity  Partners,  L.P.  -  Series  88,
                  incorporated   by   reference   to   Exhibit   10(p)   to  the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1990.

                  (j)  Agreement,   dated  as  of  March  23,  1990,  among  the
                  Partnership, Resources High Equity Inc. and Resources Property
                  Management  Corp.,  with  respect to the  payment of  deferred
                  fees,  incorporated  by  reference  to  Exhibit  10(q)  to the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1990.

                  (k) Amending  Agreement,  dated as of December  31,  1991,  to
                  Agreement dated as of March 23, 1990,  among the  Partnership,
                  Resources High Equity Inc. and Resources  Property  Management
                  Corp.,   with  respect  to  the  payment  of  deferred   fees,
                  incorporated   by   reference   to   Exhibit   10(r)   to  the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1991.

                  (l) Form of Termination of  Supervisory  Management  Agreement
                  (separate   agreement   entered  into  with  respect  to  each
                  individual  property)  and  Form  of  Supervisory   Management
                  Agreement  between the Partnership  and Resources  Supervisory
                  (separate   agreement   entered  into  with  respect  to  each
                  property),  incorporated  by reference to Exhibit 10(s) to the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1991.
<PAGE>
                  (m) Amending  Agreement,  dated as of December  30,  1992,  to
                  Agreement dated as of March 23, 1990,  among the  Partnership,
                  Resources High Equity,  Inc. and Resources Property Management
                  Corp.,   with  respect  to  the  payment  of  deferred   fees,
                  incorporated   by   reference   to   Exhibit   10(m)   to  the
                  Partnership's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1992.

                  (n) Amending  Agreement,  dated as of December  29,  1993,  to
                  Agreement dated as of March 23, 1990,  among the  Partnership,
                  Resources High Equity,  Inc. and Resources Property Management
                  Corp.,  incorporated  by reference with respect to the payment
                  of deferred fees.

(b) Reports on Form 8-K:

                  The Partnership filed the following reports on Form 8-K during
                  the last quarter of the fiscal year:

                  None.
<PAGE>
                 Financial Statement Schedule Filed Pursuant to
                                  Item 14(a)(2)


              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
                        A CALIFORNIA LIMITED PARTNERSHIP

                             ADDITIONAL INFORMATION

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                      INDEX




         Additional financial information furnished pursuant to the requirements
            of Form 10-K:

         Schedules - December 31, 1996,  1995 and 1994 and years then ended,  as
            required:

                  Schedule III   - Real estate and accumulated depreciation

                                 - Notes to Schedule III - Real estate and    
                                         accumulated depreciation


                  All  other  schedules  have  been  omitted  because  they  are
inapplicable,  not  required,  or the  information  is included in the financial
statements or notes thereto.
<PAGE>


   
                                   SIGNATURES

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

                                            INTEGRATED RESOURCES HIGH EQUITY
                                            PARTNERS, SERIES 85, A CALIFORNIA
                                            LIMITED PARTNERSHIP

                                            By:  RESOURCES HIGH EQUITY, INC.
                                                 Managing General Partner



Dated: May 7, 1997                          By:  /s/ Joseph M. Jacobs
                                                 --------------------
                                                 Joseph M. Jacobs
                                                 President
                                                 (Principal Executive Officer)


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



Dated: May 7, 1997                          By:  /s/ Joseph M. Jacobs
                                                 --------------------
                                                 Joseph M. Jacobs
                                                 President and Director
                                                 (Principal Executive Officer)


Dated: May 7, 1997                          By:  /s/ Jay L. Maymudes
                                                 -------------------
                                                 Jay L. Maymudes
                                                 Vice President, Secretary,
                                                 Treasurer and Director
                                                 (Principal Financial and 
                                                 Accounting Officer)
    
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
        A California Limited Partnership

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996


                                                                                                    Costs               Reductions 
                                                                                                 Capitalized             Recorded 
                                                                                                Subsequent to          Subsequent to
                                                                            Initial Costs         Acquisition           Acquistion 
                                                                   ------------------------ ------------------------   -------------
                                                                              Buildings
                                                          Encum-                and                        Carrying  
   Description                                           brances       Land   Improvements  Improvements    Costs       Write-downs 
   -----------                                           -------   -----------  -----------  -----------   ---------   -------------
<S>                                  <C>                 <C>       <C>          <C>          <C>           <C>         <C> 
RETAIL:

 The Westbrook Mall Shopping Center  Brooklyn Center  MN $   ---   $ 1,424,800  $ 3,648,837  $   714,579   $  374,968  $ (3,400,000)

 The Southport Shopping Center       Ft. Lauderdale  FL      ---     6,961,667   13,723,333      886,569    1,866,962    (4,900,000)

 The Loch Raven Shopping Center      Towson MD               ---     2,469,871    6,860,748      973,428      953,837    (4,800,000)
                                                         -------   -----------  -----------  -----------   ----------  ------------ 
                                                             ---    10,856,338   24,232,918    2,574,576    3,195,767   (13,100,000)
                                                         -------   -----------  -----------  -----------   ----------  ------------ 

OFFICE:

 Century Park I Office Complex       Kearny Mesa CA          ---     3,122,064   12,717,936    1,452,515    1,363,130   (11,700,000)

 568 Broadway Office Building        New York  NY            ---     2,318,801    9,821,517    4,872,883    1,556,212   (10,821,150)

 Seattle Tower Office Building       Seattle  WA             ---     2,163,253    5,030,803    1,657,092      609,392    (6,050,000)
                                                         -------   -----------  -----------  -----------   ----------  ------------ 
                                                             ---     7,604,118   27,570,256    7,982,490    3,528,734   (28,571,150)
                                                         -------   -----------  -----------  -----------   ----------  ------------ 
                                                         $   ---   $18,460,456  $51,803,174  $10,557,066   $6,724,501  $(41,671,150)
                                                         =======   ===========  ===========  ===========   ==========  ============ 
<PAGE>
<CAPTION>
                                                                           Gross Amount at Which
                                                                        Carried at Close of Period
                                                              ------------------------------------------
                                                                               Buildings       
                                                                                  and                      Accumulated        Date
   Description                                                   Land         Improvements       Total      Depreciation   Acquuired
   -----------                                                   ----         ------------       -----      ------------   ---------
<S>                                   <C>                     <C>            <C>              <C>           <C>            <C>      
RETAIL:                                                                                                     
                                                         
 The Westbrook Mall Shopping Center   Brooklyn Center MN      $  686,001     $  2,077,183    $ 2,763,184   $ 1,236,191     1985     
                                                                                                                                    
 The Southport Shopping Center        Ft. Lauderdale FL        5,998,194       12,540,337      18,538,531     4,143,083     1986    
                                                                                                                                    
 The Loch Raven Shopping Center       Towson MD                1,507,227        4,950,657       6,457,884     1,952,549     1986    
                                                             -----------     ------------     -----------   -----------             
                                                               8,191,422       19,568,177      27,759,599     7,331,823             
                                                             -----------     ------------     -----------   -----------             
                                                                                                                                    
OFFICE:                                                                                                                             
                                                                                                                                    
 Century Park I Office Complex        Kearny Mesa CA           1,123,811        5,831,834       6,955,645     2,651,358     1986    
                                                                                                                                    
 568 Broadway Office Building         New York  NY               977,120        6,771,143       7,748,263     2,502,477     1986    
                                                                                                                                    
 Seattle Tower Office Building        Seattle  WA                764,613        2,645,927       3,410,540     1,234,136     1986    
                                                             -----------     ------------     -----------   -----------             
                                                               2,865,544       15,248,904      18,114,448     6,387,971             
                                                             -----------     ------------     -----------   -----------             
                                                             $11,056,966     $ 34,817,081     $45,874,047   $13,719,794             
                                                             ===========     ============     ===========   ===========             
                                       

Note:  The  aggregate  cost for Federal  income tax purposes is  $87,545,196  at
December 31, 1996.
</TABLE>
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
     A California Limited Partnership

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996


(A)    RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>
                                             For the Years Ended December 31,
                                       -------------------------------------------
                                            1996           1995           1994
                                       ------------   ------------    ------------
<S>                                    <C>            <C>             <C>
BALANCE AT BEGINNING OF YEAR .......   $ 45,228,760   $ 63,622,139    $ 70,637,066

ADDITIONS DURING THE YEAR
         Improvements to Real Estate        645,287      2,075,671       1,058,855

OTHER CHANGES
         Write-down for Impairment .           --      (20,469,050)       (181,000)
         Sales - net ...............           --             --        (7,892,782)
                                       ------------   ------------    ------------

BALANCE AT END OF YEAR (1) .........   $ 45,874,047   $ 45,228,760    $ 63,622,139
                                       ============   ============    ============



(1) INCLUDES THE INITIAL COST OF THE  PROPERTIES  PLUS  ACQUISITION  AND CLOSING
COSTS.

</TABLE>

(B)    RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>

                                             For the Years Ended December 31,
                                     -------------------------------------------- 
                                          1996            1995            1994
                                     ------------    ------------    ------------ 
<S>                                  <C>             <C>             <C>
BALANCE AT BEGINNING OF YEAR ....    $ 12,694,788    $ 11,714,459    $ 12,982,723

ADDITIONS DURING THE YEAR
         Depreciation Expense (1)       1,025,006         980,329       1,149,796

SUBTRACTIONS DURING THE YEAR
         Sales ..................            --              --        (2,418,060)
                                     ------------    ------------    ------------

BALANCE AT END OF YEAR ..........    $ 13,719,794    $ 12,694,788    $ 11,714,459
                                     ============    ============    ============



(1)  DEPRECIATION IS PROVIDED ON BUILDINGS USING THE  STRAIGHT-LINE  METHOD OVER
THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS.
</TABLE>