SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


[ X ]    Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 for the Fiscal Year Ended December 31, 1997

                                       OR


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

                         Commission file 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) 862-7444

          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]
<PAGE>

                       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, 1998, 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 1997,  Southport and 568 Broadway  represented  31% and 27% of
gross revenues,  respectively;  1996, Southport and 568 Broadway represented 30%
and 25% of gross revenues,  respectively;  in 1995, revenue from Southport,  568
Broadway  and  Loch  Raven  represented  31%,  24%  and 17% of  gross  revenues,
respectively.

The Partnership owned the following properties as of March 15, 1998:

(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.

                  Westbrook  was 38% leased as of January 1, 1998,  compared  to
77% as of  January 1, 1997.  Occupancy,  however,  was only 14% as of January 1,
1998.  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. There are
no leases  that  represent  at least 10% of the  square  footage  of the  center
scheduled to expire in 1998.

                  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 100% occupied as of January 1,
1998 as compared to 95% on January 1, 1997.  There are no leases that  represent
at least 10% of the square  footage of the center  scheduled  to expire in 1998.
The roof on the East quadrant of the main center building was 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
the   Convention    Center.    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 90% occupied as of January 1, 1998,  compared
to 91% at January 1, 1997.  There are no leases which  represent at least 10% of
the square footage of the center scheduled to expire during 1998.
<PAGE>
                  A complete  renovation  of the  exterior of the center and the
parking lot was completed in 1997.  The entire project cost $1.1 million and was
completed during the fourth quarter of 1997. The renovation was 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 91% leased as of January  1, 1998  compared  to 74% at
January 1, 1997.  There are no leases that  represent at least 10% of the square
footage of the property scheduled to expire in 1998. Capital expenditures during
1997 included  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 sub-market. The primary competition continues to be
Metropolitan Office Park with 100,000 square feet of available space.

(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, 1998 and  January 1, 1997.  There are no leases  which  represent  at
least 10% of the square footage of the property scheduled to expire during 1998.

                  568 Broadway competes with several other buildings in the SoHo
area.
<PAGE>
(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, 1998 was 95% compared to 96% at
January 1, 1997.  There are no leases which represent at least 10% of the square
footage of the property scheduled to expire during 1998.

                  Roof replacement and exterior building facade projects,  which
were budgeted for 1997 in the aggregate amount of approximately  $630,000,  have
been postponed until 1998.

                  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

                  On-site  personnel perform services for the Partnership at the
properties.  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.
<PAGE>
                  The  Partnership  does  not  have  any  employees.   NorthStar
Presidio Management Company, LLC ("NorthStar") 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".

Forward-Looking Statements

                  Certain   statements   made  in  this  report  may  constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act").  Such  forward-looking
statements   include  statements   regarding  the  intent,   belief  or  current
expectations of the Partnership and its management and involve known and unknown
risks,  uncertainties  and other  factors  which may cause the  actual  results,
performance or achievements  of the Partnership to be materially  different from
any future  results,  performance or  achievements  expressed or implied by such
forward-looking  statements.  Such  factors  include,  among other  things,  the
following:  general  economic and business  conditions,  which will, among other
things,  affect the demand for retail space or retail  goods,  availability  and
creditworthiness  of  prospective  tenants,   lease  rents  and  the  terms  and
availability of financing, adverse changes in the real estate markets including,
among  other  things,  competition  with other  companies;  risks of real estate
development  and  acquisition;   governmental   actions  and  initiatives;   and
environment/safety requirements.

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
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  similar  claims  and  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
<PAGE>
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 High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, was advised of the existence of an action
(the  "California  Action') 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 behalf
of a class consisting of all of the purchasers of limited partnership  interests
in HEP-86, the Partnership and High Equity Partners L.P. - Series 88 ("HEP-88"),
another affiliated partnership.

                  On November 30, 1995, after the Court preliminarily approved a
settlement  of the  California  Action but  ultimately  declined  to grant final
approval  and after the Court  granted  motions to  intervene,  the original and
intervening   plaintiffs  filed  a  Consolidated  Class  and  Derivative  Action
Complaint (the "Consolidated Complaint") against the Managing General Partner of
the  Partnership and HEP-88 and the Investment  General  Partner of HEP-86;  the
Administrative General Partner of HEP-86 (the "General Partners");  a subsidiary
of the  indirect  corporate  parent of the General  Partners;  and the  indirect
corporate parent of the General  Partners.  The Consolidated  Complaint  alleged
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 alleged,  among other things,  that the General Partners
caused a waste of the HEP partnership's 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
HEP partnerships without trying to run the HEP partnerships for the purposes for
which they are intended;  that the General  Partners acted  improperly to enrich
themselves in their position of control over the HEP partnerships and that their
actions  prevented  non-affiliated  entities from making and  completing  tender
offers to purchase units in the HEP  partnerships;  that by refusing to seek the
sale of the HEP partnerships'  properties,  the General Partners  diminished the
value of the limited partners' equity in the HEP partnerships;  that the General
Partners took a heavily  overvalued  partnership  asset management fee; and that
limited  partnership  units were sold and marketed  through the use of false and
misleading statements.

                  The Court  entered an order on January 14, 1997  rejecting the
settlement and concluding  that there had not been an adequate  showing that the
settlement was fair and reasonable.  On February 24, 1997, the Court granted the
request of one plaintiffs' law firm to withdraw as class counsel. Thereafter, in
June 1997, the  plaintiffs  again amended their  complaint (the "Second  Amended
Complaint").  The Second Amended Complaint asserts substantially the same claims
as the  Consolidated  Complaint,  except  that it no longer  contains  causes of
action  for fraud,  for  negligent  misrepresentation,  or for  negligence.  The
defendants  served  answers  denying  the  allegations  and  asserting  numerous
affirmative  defenses.  In February 1998, the Court  certified  three  plaintiff
classes   consisting   of  current  unit  holders  in  each  of  the  three  HEP
Partnerships.  On March  11,  1998,  the  Court  stayed  the  California  Action
temporarily to permit the parties to engage in renewed settlement discussions.
<PAGE>
                  The General  Partners believe that each of the claims asserted
in the  Second  Amended  Complaint  are  meritless  and  intend to  continue  to
vigorously  defend  the  California  Action.  It is  impossible  at this time to
predict what the defense of the California  Action 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.

              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,  1997,  the General  Partners  had billed the
Partnership a total of $1,034,510 for these costs, $824,510 of which was paid in
February 1997.

                  On February  6,1998,  Everest  Investors  8, LLC  commenced an
action in the Superior  Court of the State of  California  for the County of Los
Angeles  (Case No. BC 185554),  against,  among  others,  the HEP  partnerships,
Resources Pension Shares 5 LP (an affiliated partnership),  the general partners
of each of the  partnerships,  and DCC Securities  Corp. In the action,  Everest
alleged,  among other things,  that the  partnerships,  and the general partners
breached the provisions of the applicable  partnership agreements by refusing to
recognize transfers to Everest of limited partnership units purportedly acquired
pursuant to tender  offers that had been made by Everest  (the  "Everest  Tender
Units").  Everest  sought  injunctive  relief (a) directing the  recognition  of
transfers to Everest of the Everest Tender Units and the admission of Everest as
a limited partner with respect to the Everest Tender Units and (b) enjoining the
transfer of the Everest Tender Units to any either party. Everest seeks damages,
including  punitive  damages,  for alleged  breach of contract,  defamation  and
intentional  interference  with  contractual  relations.  Everest's motion for a
temporary  restraining  order was  denied on  February  6,  1998.  A hearing  on
Everest's  application  for a  preliminary  injunction  had been  scheduled  for
February 26, however,  on February 20, 1998, Everest asked the Court to take its
application off calendar.  The defendants served answers denying the allegations
and asserting numerous affirmative defenses. Merits discovery has commenced. The
partnerships  and the general partners believe that Everest's claims are without
merit and intend to vigorously contest the action.

                  On March 27, 1998,  Everest  commenced an action in the United
States  District  Court for the Central  District of California  against,  among
others,  the general partners of the HEP  partnerships.  In the action,  Everest
alleged,  among other  things,  various  violations  of the Williams Act Section
14(d) of the  Securities  Exchange  Act of 1934 in  connection  with the general
partners' refusal to recognize transfers to Everest of limited partnership units
purportedly  acquired pursuant to the Everest tender offers and the letters sent
by the general  partners to the limited  partners  advising  them of the general
partners'  determination  that the Everest  tender  offers  violated  applicable
securities  laws. The general partners believe that Everest's claims are without
merit and intend to vigorously contest the action.


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,  1998,  there were 10,266  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
1996 and 1997 were as follows:

Distributions for the                          Amount of Distribution
Quarter Ended                                         Per Unit
-------------                                         --------

March 31, 1996                                       $  0.60
June 30, 1996                                        $  0.60
September 30, 1996                                   $  0.60
December 31, 1996                                    $  0.60
March 31, 1997                                       $  0.75
June 30, 1997                                        $  0.94
September 30, 1997                                   $  0.94
December 31, 1997                                    $  0.94

                  The  source  of  distributions  in 1996 and 1997 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 1996, capital  expenditures
were funded from cash flow and working  capital  reserves  and in 1997,  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.

                  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.
<PAGE>
         Pursuant  to an  agreement  dated as of March 6,  1998  among  Presidio
Capital Corp., American Real Estate Holding L.P. and Olympia Investors L.P. (the
"Purchaser"),  on March 12,  1998,  the  Purchaser  commenced a tender  offer to
purchase up to 40% of the outstanding units of limited partnership interest at a
purchase price of $95.00 per unit.

         The agreement  provides,  among other things,  for: (i) the Purchaser's
tender  offers for up to 40% of the  outstanding  units of  limited  partnership
interest of the  Partnership  and of High Equity  Partners  L.P. - Series 86 and
High Equity Partners L.P. -Series 88 (collectively,  the "Partnerships") and the
cooperation  of the general  partners  of the  Partnerships  (collectively,  the
"General  Partners")  to  facilitate  such  offers  (including   furnishing  the
Purchaser  with  limited  partner  lists for use in  connection  with the tender
offers and taking a neutral  stance with  respect to the tender  offers) and the
transfer of tendered  units to the  Purchaser  without  transfer  fees;  (ii) an
agreement by the Purchaser  and its  affiliates  to limit their  acquisition  of
units to those  acquired in the tender offers and to limit their  acquisition of
assets or  properties  of the  Partnerships  to properties or assets the General
Partners or their affiliates have publicly  announced their intention to sell or
in  respect  of which  they  have  hired a  broker;  (iii) an  agreement  by the
Purchaser and its affiliates not to (A) seek the removal of the General Partners
or call any  meeting  of  limited  partners  of the  Partnerships;  (B) make any
proposal to or seek proxies from limited  partners of the  Partnerships;  or (C)
act, either alone or in concert with others,  to seek to control the management,
policies or affairs of the Partnerships or to effect any business combination or
other extraordianry  transactions with the Partnerships or the General Partners;
(iv) an agreement by the Purchaser and its affiliates to vote all units owned by
them in favor of a  proposal,  if any,  by the  General  Partners  resulting  in
limited partners receiving  securities listed on NASDAQ or a national securities
exchange;  (v) the Purchaser's  grant to an affiliate of the General Partners of
an option to purchase  50% of the units  acquired in the offers at a price equal
to the lesser of the price paid by the Purchaser or $95.00 per unit (except that
this  limitation does not apply, if the purchase price in the offer is increased
to  more  than  $110.68  in  response  to a  competing  bid),  plus  50%  of the
Purchaser's  costs  associated  with  the  offer;  (vi) the  grant to that  same
affiliate  of the General  Partners of a similar  option to purchase  50% of the
units in the other  Partnerships  acquired  pursuant to the tender  offers;  and
(vii) an  agreement  pursuant  to which  either  party  can  initiate  so-called
"buy/sell"  procedures by notifying the other of a specified price per unit (not
to exceed the then current net asset value of the units) and the other terms and
conditions  on which the  non-initiating  party  would then be requried to elect
(subject to certain  exceptions)  either to buy the units acquired in connection
with the  tender  offer  from the  initiating  party or to sell the units to the
initiating  party. The agreements of the Purchaser and its affiliates  described
in clauses (ii),  (iii),  and (iv) above expire on March 6, 2001, but may expire
earlier under certain circumstances.

         On March 25, 1998, the Partnership  advised its limited partners of its
neutral stance on the offer.
<PAGE>

Item 6.  Selected Financial Data
<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                      --------------------------------------------------------------------------------- 
                                          1997              1996              1995            1994              1993
                                      -----------     -------------    -------------    -------------      ------------
<S>                                   <C>             <C>              <C>              <C>                <C>
Revenue                               $ 9,021,378     $   8,888,016    $    7,877,644   $   7,995,126      $  9,568,198
Net Income (Loss)                       2,134,659         2,134,717       (18,624,934)4     1,442,884 2      (7,160,418)
Net Income (Loss) per Unit                   5.07              5.07            (44.23)4          3.43 2          (17.01) 1 
Distribution Per Unit 5                       3.57              2.40              2.40           14.39 3            6.25
Total Assets                           39,600,417        39,290,185        37,309,597      56,742,945        63,040,600
</TABLE>


(1)  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.

(2)  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.

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

(4)  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.

(5)  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.




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

Liquidity and Capital Resources

                  The Partnership's  real estate properties are office buildings
and shopping  centers,  all of which were acquired for cash. The public offering
of the Units  commenced on February 4, 1985 and was  terminated on May 30, 1986.
Upon termination,  the Partnership had accepted  subscriptions for 400,010 Units
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,
1997, all capital  expenditures and distributions were funded from cash flow. As
of December 31, 1997,  the  Partnership  had total working  capital  reserves of
approximately $2,850,000. The Partnership intends to distribute less than all of
its future cash flow from operations in order to maintain  adequate reserves for
<PAGE>
capital  improvements and capitalized  lease  procurement  costs. 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.

                  During  the  year  ended  December  31,  1997,  cash  and cash
equivalents   decreased  $519,630  as  a  result  of  capital  expenditures  and
distributions  to  partners  in  excess  of cash  provided  by  operations.  The
Partnership's  primary  source of funds is cash flow from the  operation  of its
properties,   principally  rents  received  from  tenants,   which  amounted  to
$2,808,029 for the year ended December 31, 1997. The Partnership used $1,967,626
for  capital  expenditures  related to capital  and tenant  improvements  to the
properties  and  $1,360,033  for  distributions  to partners  for the year ended
December 31, 1997.

                  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

                                        1997               1996               1995
                                    ----------           --------          ----------- 
<S>                                 <C>                  <C>               <C>
           Seattle Tower            $   78,754           $352,522          $  227,677
           Century Park I              506,704             28,010           1,243,594
           568 Broadway                 84,805            233,376             742,972
           Westbrook                         0                  0              10,410
           Loch Raven                  990,911            224,666             327,807
           Southport                   520,032             58,571              86,233
                                    ==========           ========          ========== 
           Totals                   $2,181,206           $897,145          $2,638,693
                                    ==========          =========          ========== 
</TABLE>

                  The   Partnership  has  budgeted   expenditures   for  capital
improvements and capitalized  tenant procurement costs in 1998 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.

                  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 has begun to recover  from the effects
of the  substantial  decline in the market  value of existing  properties  which
<PAGE>
occurred in the early 1990's.  However, market values have been slow to recover,
and high vacancy rates  continue to exist in some 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 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.

                  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.  All of the  Partnership's
properties have  experienced  varying degrees of operating  difficulties and the
Partnership recorded significant impairment write-downs in 1995 and prior years.
Improvements in the real estate market and in the properties operations resulted
in no write-downs for impairment being needed in 1996 or 1997.
<PAGE>
                  The following table  represents the write-downs for impairment
recorded on the Partnership's properties:
<TABLE>
<CAPTION>


    Property
                                        1995             Prior
                                    -----------       -----------
<S>                                 <C>               <C>
   Seattle Tower                    $ 3,550,000       $ 2,500,000
   Century Park I                     1,250,000        10,450,000
   568 Broadway                       2,569,050         8,252,100
   Westbrook                          3,400,000                 0
   Loch Raven                         4,800,000                 0
   Southport                          4,900,000                 0
   Southern National(a)                       0         3,631,000
                                    -----------       -----------
                                    $20,469,050       $24,833,100
                                    ===========       ===========

</TABLE>


 (a) Property sold in August 1994

The details of each 1995 write-down are as follows:

Seattle Tower

                  The Partnership  was not able to achieve leasing  expectations
at Seattle  Tower and  occupancy  in 1995  remained  at  approximately  80%.  In
addition,  market rents remained lower than  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  $7,100,000
write-down  for  impairment  in  1995  of  which  the  Partnership's  share  was
$3,550,000.

Century Park I

                  During  1995  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.
<PAGE>
568 Broadway

         During 1995 significantly greater capital improvement expenditures than
were previously  anticipated  were 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.

Westbrook

                  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.  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.

Loch Raven

                  Rental  income at Loch  Raven in 1995 did not meet  previously
projected  levels due to lower rental  market  rates.  Expenses  also  decreased
slightly but this decrease was offset by significant capital  expenditures which
were not 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 did not meet previously  projected  income levels due
to lower rental market rates. Expenses were slightly higher than anticipated and
tenant  procurement cost estimates are greater than amounts  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
<PAGE>
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.

Results Of Operations

1997 vs. 1996

The  Partnership's  net income for the year ended  December  31,  1997  remained
consistent  compared to the prior year as higher  rental  revenues  and interest
income were offset by higher costs and  expenses  and lower other income  during
1997.

Rental  revenues  increased at Southport and 568 Broadway  during the year ended
December 31, 1997  compared to 1996,  primarily due to higher  percentage  rents
collected  during 1997 at Southport and lease  renewals at 568 Broadway at rates
higher than those in 1996. These increases were partially offset by lower rental
revenues at Westbrook primarily due to lower occupancy rates in 1997 as compared
to 1996.

Costs and expenses increased during the year ended December 31, 1997 compared to
the same periods in 1996,  primarily  due to  increases  in operating  expenses,
depreciation and amortization,  and property management fees. Operating expenses
increased  during  1997 due to higher  real  estate  taxes and  higher  bad debt
expenses  partially offset by lower insurance  expense.  Overall real estate tax
expense  was  higher  at 568  Broadway  in 1997 due to the  significant  refunds
received  in 1996  which  offset  the  annual  tax  payments.  Bad debt  expense
increased at Westbrook as certain  tenants'  accounts  were  written-off  as the
tenants vacated.  Insurance expenses decreased during 1997 due to the payment of
lower  premiums  while  coverage  remained the same.  Depreciation  and property
management fees were higher in 1997 due to significant capital additions in 1996
and higher  revenues,  respectively.  These  increases were partially  offset by
lower administrative  expenses,  as legal and accounting fees related to ongoing
litigation and the HEP reorganization were higher in 1996.

Interest  income  increased  in 1997 due to higher  interest  rates  and  higher
invested cash balances  compared to the 1996.  Other income decreased during the
year ended December 31, 1997 compared to 1996 due to fewer investor transfers.

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.

                  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.
<PAGE>
                  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.

                  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.

Year 2000 Compliance

                  The  Partnership's  accounting,  administrative  and  property
management  services are provided by affiliates of the General  Partners.  Those
affiliates have and will continue to make certain  investments in their software
systems  and  applications  to ensure  that they are year  2000  compliant.  The
Partnership's  management  believes that the financial impact to the Partnership
of ensuring its year 2000  compliance has not been and is not  anticipated to be
material to the Partnership's financial position or results of operations.
<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, 1997, 1996 and 1995

                                    I N D E X

                                       
                                                                                

Independent Auditors' report....................................................

Financial statements, years ended
         December 31, 1997, 1996 and 1995

         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,
1997 and 1996, and the related  statements of operations,  partners'  equity and
cash flows for each of the three years in the period  ended  December  31, 1997.
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  and the financial  statement
schedule based on our audits.

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

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of Integrated  Resources High Equity Partners,
Series 85 at December 31, 1997 and 1996,  and the results of its  operations and
its cash flows for each of the three years in the period ended December 31, 1997
in  conformity  with  generally  accepted  accounting  principles.  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.




/s/DELOITTE & TOUCHE LLP
------------------------
DELOITTE & TOUCHE LLP
March 27, 1998
New York, NY
<PAGE>
<TABLE>
<CAPTION>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                 BALANCE SHEETS


                                                           December 31,
                                                   -----------------------------
                                                       1997              1996
                                                   -----------       -----------
<S>                                                <C>               <C>
ASSETS

Real estate ................................       $33,033,710       $32,154,253
Cash and cash equivalents ..................         4,350,887         4,870,517
Other assets ...............................         2,033,252         2,107,211
Receivables ................................           182,568           158,204
                                                   -----------       -----------

TOTAL ASSETS ...............................       $39,600,417       $39,290,185
                                                   ===========       ===========

LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses ......       $ 1,183,720       $ 1,061,732
Due to affiliates ..........................           577,739         1,164,121
Distributions payable ......................           395,799           252,638
                                                   -----------       -----------

     Total liabilities .....................         2,157,258         2,478,491
                                                   -----------       -----------

COMMITMENTS AND CONTINGENCIES

PARTNERS' EQUITY:

  Limited partners' equity (400,010
    units issued and outstanding) ..........        35,570,050        34,970,158
  General partners' equity .................         1,873,109         1,841,536
                                                   -----------       -----------

     Total partners' equity ................        37,443,159        36,811,694
                                                   -----------       -----------

TOTAL LIABILITIES AND PARTNERS' EQUITY .....       $39,600,417       $39,290,185
                                                   ===========       ===========


</TABLE>
                        See notes to financial statements

<PAGE>
<TABLE>
<CAPTION>
                          INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                       STATEMENTS OF OPERATIONS


                                                               For the Years Ended December 31,
                                                      ---------------------------------------------- 
                                                           1997             1996             1995
                                                      ------------     ------------     ------------ 
<S>                                                   <C>              <C>              <C>
Rental Revenue ..................................     $  9,021,378     $  8,888,016     $  7,877,644
                                                      ------------     ------------     ------------
Costs and Expenses:
            Operating expenses ..................        3,426,267        3,139,504        3,397,690
            Depreciation and  amortization ......        1,360,929        1,270,172        1,161,328
            Partnership management fee ..........          908,172          908,172          908,172
            Administrative  expenses ............        1,116,971        1,359,027          447,270
            Property management fee .............          350,490          327,759          303,936
            Write-down for impairment ...........               --               --       20,469,050
                                                      ------------     ------------     ------------
                                                         7,162,829        7,004,634       26,687,446
                                                      ------------     ------------     ------------

Income (loss) before interest and other income ..        1,858,549        1,883,382      (18,809,802)
         Interest income ........................          207,420          141,939          130,173
         Other income ...........................           68,690          109,396           54,695
                                                      ------------     ------------     ------------
Net Income (loss) ...............................     $  2,134,659     $  2,134,717     $(18,624,934)
                                                      ============     ============     ============

Net income (loss) attributable to:

        Limited partners ........................     $  2,027,926     $  2,027,981     $(17,693,687)

         General partners .......................          106,733          106,736         (931,247)
                                                      ------------     ------------     ------------

Net income (loss) ...............................     $  2,134,659     $  2,134,717     $(18,624,934)
                                                      ============     ============     ============
Net income (loss) per unit of limited partnership
     Interest (400,010 units outstanding) .......     $       5.07     $       5.07     $     (44.23)
                                                      ============     ============     ============


</TABLE>
                                  See notes to financial statements

<PAGE>
<TABLE>
<CAPTION>
                   INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                               STATEMENTS OF PARTNERS' EQUITY



                                             General          Limited
                                             Partners'        Partners'
                                             Equity           Equity             Total
                                         ------------      ------------      ------------
<S>                                      <C>               <C>               <C>

Balance, January 1, 1995 ...........     $  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 .........        1,785,328        33,902,201        35,687,529

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

Distributions as return of capital                                                  
($2.40 per limited partnership unit)          (50,528)         (960,024)       (1,010,552)
                                          -----------      ------------      ------------ 
Balance, December 31, 1996 .........        1,841,536        34,970,158        36,811,694

Net Income .........................          106,733         2,027,926         2,134,659

Distributions as return of capital                                                  
($3.57 per limited partnership unit)          (75,160)       (1,428,034)       (1,503,194) 
                                         ------------      ------------      ------------ 
                                          
Balance, December 31, 1997 .........     $  1,873,109      $ 35,570,050      $ 37,443,159
                                         ============      ============      ============
</TABLE>
                             See notes to financial statements

<PAGE>
<TABLE>
<CAPTION>
                             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                           STATEMENTS OF CASH FLOWS



                                                                      For the Years Ended December 31,
                                                            ------------------------------------------------
                                                                1997              1996              1995
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>
CASH FLOW FROM OPERATING ACTIVITIES:

Net Income (loss) .....................................     $  2,134,659      $  2,134,717      $(18,624,934)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
     Write-down for impairment ........................               --                --        20,469,050
     Depreciation and amortization ....................        1,360,929         1,270,172         1,161,328
     Straight line adjustment for stepped lease rentals            3,999           (52,915)          (43,550)

Changes in asset and liabilities:
     Accounts payable and accrued expenses ............          121,988            44,935           159,873 
     Receivables ......................................          (24,364)           44,558           211,547
     Due to affiliates ................................         (586,382)          811,488            42,265
     Other assets......................................         (202,800)         (177,542)         (504,798)
                                                            ------------      ------------      ------------
Net cash provided by operating activities .............        2,808,029         4,075,413         2,870,781
                                                            ------------      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Improvements to real estate.......................       (1,967,626)         (645,287)       (2,075,671)  
                                                            ------------      ------------      ------------   

CASH FLOWS FROM FINANCING ACTIVITIES:

     Distributions to partners.........................       (1,360,033)       (1,010,552)       (1,010,552) 
                                                            ------------      ------------      ------------  
                                                            
(Decrease) Increase  in Cash and Cash Equivalents .....         (519,630)        2,419,574          (215,442)

Cash and Cash Equivalents, Beginning of Year ..........        4,870,517         2,450,943         2,666,385
                                                            ------------      ------------      ------------

Cash and Cash Equivalents, End of Year ................     $  4,350,887      $  4,870,517      $  2,450,943
                                                            ============      ============      ============


</TABLE>
                                      See notes to financial statements

<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.  The  Partnership  invested in three  shopping
         centers  and four  office  properties  (one of which was sold in 1994),
         none of which are encumbered by debt.

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.

         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.

         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. Tenant improvements are amortized over the applicable lease term.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


         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  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.

         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.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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,  1997,  1996 and
         1995.

         Recently issued accounting pronouncements

         The Financial  Accounting  Standards Board ("FASB") has recently issued
         several new accounting  pronouncements.  Statement No. 130,  "Reporting
         Comprehensive  Income" establishes  standards for reporting and display
         of  comprehensive  income  and  its  components.   Statement  No.  131,
         "Disclosures  about Segments of an Enterprise and Related  Information:
         establishes  standards  for the way that  public  business  enterprises
         report   information  about  operating  segments  in  annual  financial
         statements  and  requires  that  those   enterprises   report  selected
         information  about  operating  segments  in interim  financial  reports
         issued to  shareholders.  It also  establishes  standards  for  related
         disclosure  about products and services,  geographic  areas,  and major
         customers. These two standards are effective for the Partnership's 1998
         financial  statements,  but the Partnership  does not believe that they
         will have any effect on the  Partnership's  computation or presentation
         of net income or other disclosures.
 
         The  implementation  in 1997 of FASB  Statement  No. 128  "Earnings per
         Share" and Statement No. 129  "Disclosure of Information  about Capital
         Structure"  did not  have  any  impact  on the  Partnerships  financial
         statements.

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  also  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.  Subject to the rights of the  Limited  Partners  under the
         Limited  Partnership  Agreement,   Presidio  controls  the  Partnership
         through  its  indirect  ownership  of all  the  shares  of the  General
         Partners. On August 28,1997, an affiliate of NorthStar Capital Partners
         acquired all of the Class B shares of Presidio. This acquisition,  when
         aggregated which other acquisitions,  caused NorthStar Capital Partners
         to acquire indirect control of the General Partners.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

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

         On November 2, 1997 the Administrative  Services Agreement with Wexford
         Management LLC ("Wexford"),  the  administrator  for Presidio,  expired
         pursuant  to  its  terms.  Pursuant  to  that  agreement,  Wexford  had
         authority to designate directors of the General Partners. Presidio also
         entered into a management  agreement with NorthStar Presidio Management
         Company, LLC ("NorthStar Presidio").  Under the terms of the management
         agreement, NorthStar Presidio will provide the day-to-day management of
         Presidio,  and its direct and  indirect  subsidiaries  and  affiliates.
         Effective  November  3, 1997,  Wexford  and  Presidio  entered  into an
         Administrative  Services  Agreement  dated as of  November 3, 1997 (the
         "ASA").  The  ASA  provides  that  Wexford  will  continue  to  provide
         consulting and  administrative  services to Presidio and its affiliates
         for a term of six months.  During the years ended December 31, 1997 and
         1996, reimbursable expenses paid to Wexford by the Partnership amounted
         to $41,994 and $80,895, respectively.

         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.
         Portions  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, 1997, 1996, and 1995,  Resources  Supervisory was entitled
         to receive an aggregate of $350,490,  $327,759,  and $303,936, of which
         $196,300,  $191,956,  and $161,137 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, 1997,  1996
         and 1995.

         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 each of the years ended
         December 31, 1997,  1996, and 1995 the Managing  General Partner earned
         $908,172.

         The General  Partners are allocated 5% of the net income or (losses) of
         the Partnership which amounted to $106,733, $106,736, and ($931,247) in
         1997,  1996 and  1995,  respectively.  The  General  Partners  are also
         entitled  to receive 5% of  distributions  which  amounted  to $75,160,
         $50,528, and $50,528 in 1997, 1996 and 1995, respectively.

         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.  All fees received by the General  Partners are subject to
         certain limitations as set forth in the Partnership Agreement.
<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  March 1998,  Millennium  Funding II Corp.,  a
         wholly owned  indirect  subsidiary of Presidio,  contracted to purchase
         39,123 units of the Partnership  from various limited  partners,  which
         represents  approximately 9.8% of the outstanding  limited  partnership
         units of the Partnership.  During 1997,  distributions in the amount of
         $26,697 were  received by  Millennium  Funding II Corp related to these
         units.

         Pursuant  to an  agreement  dated as of March 6, 1998  among  Presidio,
         American  Real Estate  Holding L.P.  and Olympia  Investors  L.P.  (the
         "Purchaser"), on March 12, 1998, the Purchaser commenced a tender offer
         to purchase up to 40% of the outstanding  units of limited  partnership
         interest at a purchase price of $95.00 per unit.

4.       REAL ESTATE

         Management recorded  write-downs for impairment totaling $20,469,050 in
         1995. No  write-downs  were  required for the years ended  December 31,
         1996 or  1997.  The  details  of  write-downs  recorded  in 1995 are as
         follows:

         During 1995,  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.

         The Partnership was not able to achieve leasing expectations at Seattle
         Tower and occupancy in 1995 remained at approximately 80%. In addition,
         market  rents  were lower  than  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
         $7,100,000 write-down for impairment in 1995 of which the Partnership's
         share was $3,550,000.

         During 1995,  significantly  greater capital  improvement  expenditures
         than were previously  anticipated  were 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 net  carrying  value,  management  determined  that  an  impairment
         existed.  Management  estimated the  property's  fair value in order to
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.       REAL ESTATE (CONTINUED)

         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.   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 in 1995 did not meet  previously  projected
         levels  due to lower  rental  market  rates.  Expenses  also  decreased
         slightly  but  this   decrease  was  offset  by   significant   capital
         expenditures  which  were not  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 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.  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
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

4.       REAL ESTATE (CONTINUED)

         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.

         The following  table is a summary of the  Partnership's  real estate as
         of:
<TABLE>
<CAPTION>


                                                          December 31,
                                               --------------------------------
                                                    1997                1996
                                               ------------        ------------
<S>                                            <C>                 <C>
Land ...................................       $ 11,056,966        $ 11,056,966

Buildings and improvements .............         36,784,708          34,817,081
                                               ------------        ------------
                                                 47,841,674          45,874,047

Less:  Accumulated depreciation ........        (14,807,964)        (13,719,794)
                                               ------------        ------------

                                               $ 33,033,710        $ 32,154,253 
                                               ============        ============

</TABLE>
         The following is a summary of the  Partnership's  share of  anticipated
         future receipts under noncancellable leases:

<TABLE>
<CAPTION>
                                                         YEARS ENDING DECEMBER 31,
                          ------------------------------------------------------------------------------------------
                              1998         1999         2000         2001         2002      Thereafter      Total
                          ----------   ----------   ----------   ----------   ----------  -----------    -----------
<S>                       <C>         <C>           <C>          <C>          <C>         <C>            <C>
                          $6,446,000   $5,951,000   $5,342,000   $4,343,000   $4,101,000  $12,176,000    $38,359,000
                          ==========   ==========   ==========   ==========   ==========  ===========    ===========

</TABLE>
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

 5.       DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
                                                                 December 31,
                                                             ----------------------              
                                                               1997          1996
                                                             --------     ---------
<S>                                                          <C>          <C>
Limited Partners ($.94 and $.60 per unit) ..............     $376,009     $240,006
General Partners .......................................       19,790       12,632
                                                             --------     --------
                                                             $395,799     $252,638
                                                             ========     ========
</TABLE>
Such distributions were  paid in the subsequent quarters


 6.       DUE TO AFFILIATES
<TABLE>
<CAPTION>
                                                                     December 31,
                                                              --------------------------
                                                                 1997           1996
                                                              ----------     -----------
<S>                                                           <C>            <C> 
Partnership asset management fee ........................     $  227,044     $  227,044
Reorganization and litigation cost reimbursement (Note 7)        210,000        824,510
Property management fee .................................        103,195         75,067
Non-accountable expense reimbursement ...................         37,500         37,500
                                                              ==========     ==========
                                                              $  577,739     $1,164,121
                                                              ==========     ==========
</TABLE>

Such amounts were  paid in the subsequent quarters

7.       COMMITMENTS AND CONTINGENCIES

a)       568 Broadway Joint Venture is currently  involved in litigation  with a
         number of present or former  tenants  who are in default on their lease
         obligations.  Several of these tenants have asserted  claims or counter
         claims seeking monetary damages.  The plaintiffs'  allegations  include
         but are not  limited  to claims  for  breach of  contract,  failure  to
         provide certain services,  overcharging of expenses and loss of profits
         and  income.  These  suits seek total  damages in excess of $20 million
         plus additional damages of an indeterminate  amount. The 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

7.       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 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  of $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  "California  Action")  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 the  Partnership.  On April 7, 1994 the  plaintiffs  were
         granted leave to file an amended complaint (the "Amended Complaint") on
         behalf  of a  class  consisting  of all of the  purchasers  of  limited
         partnership  interests  in  HEP-86,  the  Partnership  and High  Equity
         Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership.

         On  November  30,  1995,  after  the  Court  preliminarily  approved  a
         settlement of the California  Action but  ultimately  declined to grant
         final  approval and after the Court granted  motions to intervene,  the
         original and  intervening  plaintiffs  filed a  Consolidated  Class and
         Derivative Action Complaint (the "Consolidated  Complaint") against the
         Managing  General  Partner  of  the  Partnership  and  HEP-88  and  the
         Investment  General  Partner  of  HEP-86;  the  Administrative  General
         Partner  of  HEP-86  (the  "General  Partners");  a  subsidiary  of the
         indirect  corporate  parent of the General  Partners;  and the indirect
         corporate parent of the General  Partners.  The Consolidated  Complaint
         alleged 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 alleged, among
         other  things,  that  the  General  Partners  caused a waste of the HEP
         partnership's 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 HEP partnerships without trying to run the HEP
         partnerships  for the  purposes for which they are  intended;  that the
         General  Partners  acted  improperly  to  enrich  themselves  in  their
         position of control over the HEP  partnerships  and that their  actions
         prevented  non-affiliated  entities from making and  completing  tender
         offers to purchase units in the HEP  partnerships;  that by refusing to
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)

         seek the sale of the HEP partnerships' properties, the General Partners
         diminished  the  value  of the  limited  partners'  equity  in the  HEP
         partnerships;  that the  General  Partners  took a  heavily  overvalued
         partnership  asset management fee; and that limited  partnership  units
         were  sold  and  marketed  through  the  use of  false  and  misleading
         statements.

         The Court entered an order on January 14, 1997 rejecting the settlement
         and  concluding  that there had not been an adequate  showing  that the
         settlement  was fair and  reasonable.  On February 24, 1997,  the Court
         granted  the request of one  plaintiffs'  law firm to withdraw as class
         counsel.  Thereafter,  in June 1997, the plaintiffs again amended their
         complaint  (the  "Second  Amended  Complaint").  The  Seconded  Amended
         Complaint  asserts  substantially  the same claims as the  Consolidated
         Complaint,  except  that it no longer  contains  causes  of action  for
         fraud,  for  negligent   misrepresentation,   or  for  negligence.  The
         defendants   served  answers  denying  the  allegations  and  asserting
         numerous  affirmative  defenses.  In February 1998, the Court certified
         three plaintiff  classes  consisting of current unit holders in each of
         the three HEP  partnerships.  On March 11,  1998,  the Court stayed the
         California  Action  temporarily  to  permit  the  parties  to engage in
         renewed settlement discussions.

         The General  Partners  believe that each of the claims  asserted in the
         Second  Amended  Complaint  are  meritless  and intend to  continue  to
         vigorously defend the California  Action. It is impossible at this time
         to predict  what the defense of the  California  Action 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.

         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, 1997, the General
         Partners had billed the  Partnership  a total of  $1,034,510  for these
         costs, of which $824,510 was paid in February 1997.

d)       On February 6,1998,  Everest Investors 8,  LLC("Everest")  commenced an
         action in the Superior  Court of the State of California for the County
         of Los Angeles (Case No. BC 185554),  against,  among  others,  the HEP
         partnerships,   Resources   Pension   Shares   5  LP   (an   affiliated
         partnership), the general partners of each of the partnerships, and DCC
         Securities Corp. In the action,  Everest  alleged,  among other things,
         that the partnerships and the general partners  breached the provisions
         of the  applicable  partnership  agreements  by refusing  to  recognize
         transfers to Everest of limited partnership units purportedly  acquired
         pursuant to tender  offers that had been made by Everest (the  "Everest
         Tender  Units").  Everest  sought  injunctive  relief (a) directing the
         recognition of transfers to Everest of the Everest Tender Units and the
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (continued)

         admission  of Everest as a limited  partner with respect to the Everest
         Tender Units and (b) enjoining the transfer of the Everest Tender Units
         to any either party. Everest seeks damages, including punitive damages,
         for alleged breach of contract, defamation and intentional interference
         with   contractual   relations.   Everest's   motion  for  a  temporary
         restraining  order was  denied  on  February  6,  1998.  A  hearing  on
         Everest's  application for a preliminary  injunction had been scheduled
         for February 26, however, on February 20, 1998, Everest asked the Court
         to take its  application  off calendar.  The defendants  served answers
         denying the allegations and asserting  numerous  affirmative  defenses.
         Merits  discovery  has  commenced.  The  partnerships  and the  general
         partners  believe that Everest's claims are without merit and intend to
         vigorously contest the action.

         On March 27, 1998,  Everest  commenced  an action in the United  States
         District Court for the Central  District of California  against,  among
         others,  the general partners of the HEP  partnerships.  In the action,
         Everest alleged, among other things, various violations of the Williams
         Act Section 14(d) of the Securities  Exchange Act of 1934 in connection
         with the general partners' refusal to recognize transfers to Everest of
         limited partnership units purportedly  acquired pursuant to the Everest
         tender  offers and the  letters  sent by the  general  partners  to the
         limited partners advising them of the general  partners'  determination
         that the Everest tender offers violated applicable securities laws. The
         general  partners  believe that Everest's  claims are without merit and
         intend to vigorously contest the action.

<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS


8.       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).
<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                      ------------------------------------------------
                                                           1997              1996              1995
                                                      ------------      ------------      ------------ 
<S>                                                   <C>               <C>               <C>
Net income (loss) per financial statements ......     $  2,134,659      $  2,134,717      $(18,624,934)

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

Tax depreciation in excess of financial statement
depreciation ....................................       (1,524,130)       (1,553,354)       (1,564,609)
                                                      ------------      ------------      ------------

Net taxable income ..............................     $    610,529      $    581,363      $    279,507
                                                      ============      ============      ============

</TABLE>
         The differences  between the  Partnership's  assets and liabilities for
         tax purposes and financial reporting purposes are as follows:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                                   1997
                                                                              ------------- 
<S>                                                                           <C>

Net assets per financial statements .....................................     $ 37,443,159

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

Tax depreciation in excess of financial statement depreciation ..........      (13,519,187)

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

Organization costs not charged to partners' equity for tax purposes .....        1,500,000
                                                                              ------------

Net assets per tax reporting ............................................     $ 66,788,029
                                                                              ============

</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, 1998, the names and ages of, and the positions
held by, the officers and  directors  of the  Managing  General  Partner and 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>
W. Edward Scheetz         33                        Director                                 November 1997
David Hamamoto            38                        Director                                 November 1997
Richard Sabella           42                   President, Director                           November 1997
David King                35     Executive VP, Director and Assistant Treasurer              November 1997
Larry Schacter            41                     Senior VP, CFO                              January 1998
Kevin Reardon             39           VP, Secretary, Treasurer & Director                   November 1997
Allan B. Rothschild       36                Executive Vice President                         December 1997
Marc Gordon               33                     Vice President                              November 1997
Charles Humber            24                     Vice President                              November 1997
Adam Anhang               24                     Vice President                              November 1997
Gregory Peck              23                   Assistant Secretary                           November 1997
</TABLE>


                  W. Edward Scheetz co-founded  NorthStar with David Hamamoto in
July 1997 having  previously  been a partner at Apollo Real Estate Advisors L.P.
since 1993.  From 1989 to 1993,  Mr.  Scheetz was a principal with Trammell Crow
Ventures.
<PAGE>
                  David Hamamoto co-founded  NorthStar with W. Edward Scheetz in
July 1997,  having  previously  been a partner  and  co-head of the Real  Estate
Principal Investment Area at Goldman, Sachs & Co., where he initiated the effort
to build a real estate principal  investment business in 1988 under the auspices
of the Whitehall Funds.

                  Richard  Sabella  joined  NorthStar in November  1997,  having
previously been the head of real estate and a partner at the law firm of Cahill,
Gordon & Reindel since 1989. Mr. Sabella has also been  associated  with the law
firms of Milgrim, Thomajian, Jacobs & Lee, P.C. and Cravath, Swaine & Moore.

                  David  King  joined   NorthStar  in  November   1997,   having
previously  been a Senior Vice  President of Finance at Olympia & York Companies
(USA).  Prior to joining  Olympia & York in 1990.  Mr.  King  worked for Bankers
Trust in its real estate finance group.

                  Larry  Schachter  joined  NorthStar  Presidio in January 1998,
having  previously held the position as Controller at CB  Commercial/Hampshhire,
LLC from 1996 to 1997.  Prior to joining CB, Mr.  Schachter held the position of
Controller  at  Goodrich  Associates  in 1996,  and at  Greenthal/Harlan  Realty
Services Co. from 1992 to 1995. Mr. Schachter,  who holds a CPA,  graduated from
Miami University (Ohio).

                  Kevin  Reardon  joined  NorthStar  in  October  1997,   having
previously  held the  position  of  Controller  at  Lazard  Freres  Real  Estate
Investors from 1996 to 1997.  Prior to joing Lazard Freres,  MR. Reardon was the
Director  of Finance in charge of  European  expansion  at the law firm of Dewey
Ballantine  from  1993 to 1996.  Prior to 1993,  Mr.  Reardon  held a  financial
position at Hearst-ABC-Viacom  Entertainment  Services. Mr. Reardon, who holds a
CPA, graduated from Fordham University with a B.S. in accounting.

                  Allan B. Rothschild  joined NorthStar in December 1997, having
previously been the Senior Vice President and General Counsel of Newkirk Limited
Partnership wehre he managed a large portfolio of net-leased real estate assets.
Prior to joining  Newkirk,  Mr.  Rothschild was associated  with the law firm of
Proskauer,  Rose LLP in its real  estate  group.

                  Marc  Gordon  joined   NorthStar  in  October   1997,   having
previously been a Vice President in the Real Estate Investment  Banking Group at
Merrill Lynch where he executed corporate finance and strategic transactions for
public and private real estate ownership companies, including REITs, real estate
service companies, and real estate intensive operating companies. Prior to joing
Merrill  Lynch,  in 1993, Mr. Gordon was in the Real Estate and Banking Group at
the law firm of Irell & Manella.  Mr. Gordon  graduated from  Dartmouth  College
with an A.B. in economics and also holds a J.D. from the UCLA School of Law.

                  Charles  Humber  joined  NorthStar in September  1997,  having
previously worked for Merrill Lynche's Real Estate Investment Banking group from
1996 to  1997.  Mr.  Humber  graduated  from  Brown  University  with a B.A.  in
international relations and organizational behavior and management.

                  Adam Anhang joined NorthStar in August 1997, having previously
worked for the Athena  Group's Russia and Former Soviet Union  development  team
from  1996 to  1997.  Mr.  Anhang  graduated  from  the  Wharton  School  of the
University  of  Pennsylvania  with a B.S. in economics  with  concentrations  in
finance and real estate.

                  Gregory Peck joined NorthStar in July 1997,  having previously
worked for the Morgan  Stanley  Realty  Real  Estate  Funds  (MSREF)  and Morgan
Stanley's  Real  Estate  Investment  Banking  group from 1996 to 1997.  Prior to
joining Morgan Stanley,  Mr. Peck worked for Lazard Freres & Co. LLC in the Real
Estate  Investment  Banking  group from 1994 to 1996.  Mr. Peck  graduated  from
Columbia College with a A.B. in mathematics and a A.B. in economics.
<PAGE>
                  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.
                  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, 1998,  an  affiliate  of the General  Partners
owned approximately 9.8% of the Units. No directors, officers or partners of the
Managing General Partner presently own any Units.

                  To the knowledge of the  Registrant,  the following sets forth
certain information  regarding ownership of the Class A shares of Presidio as of
March 11, 1998 (except as otherwise noted) by (i) each person or entity who owns
of record or beneficially five percent or more of the Class A shares,  (ii) each
director  and  executive  officer  of  Presidio,  and  (iii) all  directors  and
executive officers of Presidio as a group. To the knowledge of Presidio, each of
such  shareholders  has sole voting and investment  power as to the shares shown
unless otherwise noted.

                  All  outstanding  shares of  Presidio  are  owned by  Presidio
Capital Investment Company,  LLC ("PCIC"), a Delaware limited liability company.
The interest in PCIC (and beneficial ownership in Presidio) are held as follows:
<TABLE>
<CAPTION>
                                            Percentage Ownership in PCIC and                                      
                                             Percentage Beneficial Ownership                                      
 Name of Beneficial Owner                            in Presidio
 ------------------------                   --------------------------------
<S>                                                  <C>
Five Percent Holders:
Presidio Holding Company, LLC(1)                     71.93%
AG Presidio Investors, LLC(2)                        14.12%
DK Presidio Investors, LLC(3)                         8.45%
Stonehill Partners, LP(4)                             5.50%
</TABLE>
 
The holdings of the directors and executive officers of Presidio are as follows:
<TABLE>
<CAPTION>
<S>                                                  <C>                                              
Directors and Officers:                                    
Adam Anhang(5)                                           0%
Marc Gordon(5)                                           0%
David Hamamoto(5)                                    71.93%
Charles Humber(5)                                        0%
David King(5)                                            0%
Gregory Peck(5)                                          0%
Kevin Reardon(5)                                         0%
Allan Rothschild(5)                                      0%
Richard J. Sabella(5)                                    0%
Lawrence Schachter(5)                                    0%
W. Edward Scheetz(5)                                 71.93%
                                                           
Directors and Officers as a group:                   71.93%
</TABLE>                                             
(1)               Presidio Holding Company,  LLC is a New York limited liability
                  company whose address is 527 Madison Avenue,  16th Floor,  New
                  York, New York 10022. PHC has two members,  Polaris  Operating
                  LLC  ("Polaris")  which  holds a 1%  interest,  and  Northstar
                  Operating,  LLC  ("Northstar")  which  holds  a 99%  interest.
                  Polaris is a Delaware limited  liability company whose address
                  is 527 Madison Avenue,  16th Floor,  New York, New York 10022.
<PAGE>
                  Polaris has two members,  Sextant Operating Corp. ("Sextant"),
                  which holds a 1% interest,  and  Northstar,  which holds a 99%
                  interest.  Sextant is a Delaware  corporation whose address is
                  527 Madison Avenue,  16th Floor,  New York, New York 10022 and
                  whose sole  shareholder is Northstar.  Northstar is a Delaware
                  limited  liability company whose address is527 Madison Avenue,
                  16th  Floor,  New  York,  New York  10022.  Northstar  has two
                  members, Northstar Capital Partners ("NCP"), which holds a 99%
                  interest,  and  Northstar  Capital  Holdings I, LLC  ("NCHI"),
                  which  holds a 1%  interest.  Both NCP and  NCHI are  Delaware
                  limited  liability  companies,  whose business  address is 527
                  Madison Avenue,  16th Floor, New York, New York 10022. NCP has
                  two  members,   NCHI,  which  holds  a  74.75%  interest,  and
                  Northstar  Capital  Holdings II LLC  ("NCHII"),  which holds a
                  25.25%  interest.  The business  address for NCHII, a Delaware
                  limited liability  company is 527 Madison Avenue,  16th Floor,
                  New York, New York 10022. NCHII has three members, NCHI, which
                  holds  a 99%  interest,  Edward  Scheetz,  who  holds  a  0.5%
                  interest and David  Hamamoto,  who holds a 0.5% interest.  Mr.
                  Scheetz,  a U.S. citizen whose business address is 527 Madison
                  Avenue,  16th Floor,  New York, New York 10022,  is a founding
                  member of NCP. Mr.  Hamamoto,  a U.S.  citizen whose  business
                  address is 527 Madison Avenue,  16th Floor, New York, New York
                  10022, is a founding member of NCP. NCHI has two members,  Mr.
                  Scheetz and Mr. Hamamoto, each of whom holds a 50% interest.

                  Pursuant  to that  certain  Amended  and  Restated  Pledge and
                  Security  Agreement  (the "Pledge  Agreement")  dated March 5,
                  1998  made by PHC in  favor  of  Credit  Suisse  First  Boston
                  Mortgage  Capital  LLC  ("CSFB"),   PHC  pledged  all  of  its
                  membership  interest  in PCIC to CSFB as  security  for  loans
                  issued under the Loan Agreement  dated as of February 20, 1998
                  by and  among  PHC and CSFB and the  First  Amendment  thereon
                  dated  March 5, 1998  (together,  the "Loan  Agreement").  The
                  Pledge  Agreement and Loan Agreement  contain standard default
                  and event of default provisions which may at a subsequent date
                  result in a change of  control  of PCIC  and,  therefore,  the
                  Registrant.

(2)               Each of Angelo,  Gordon & Company,  LP, as sole  manager of AG
                  Presidio  Investors,  LLC,  and John M.  Angelo and Michael L.
                  Gordon,  as general partners of the general partner of Angelo,
                  Gordon &  Company,  LP may be deemed to  beneficially  own for
                  purposes of rule 13 d-3 of the Exchange  Act,  the  securities
                  beneficially owned by AG Presidio Investors, LLC. Each of John
                  M.  Angelo and  Michael L.  Gordon  disclaim  such  beneficial
                  ownership.  The  business  address  for  such  persons  is c/o
                  Angelo, Gordon & Company, LP, 345 Park Avenue, 26th Floor, New
                  York, New York 10167.

(3)               M.H. Davidson & Company,  Inc., as sole manager of DK Presidio
                  Investors,  LLC may be deemed to beneficially own for purposes
                  of Rule 13d-3 of the Exchange Act, the securities beneficially
                  owned by DK Presidio Investors,  LLC. The business address for
                  such person is c/o M.H. Davidson & Company,  885 Third Avenue,
                  New York, New York 10022.
<PAGE>
(4)               Includes  shares  of  PCIC  beneficially  owned  by  Stonehill
                  Offshore   Partners   Limited  and   Stonehill   Institutional
                  Partners,  LP. John A. Motulsky is a managing  general partner
                  of Stonehill Partners, LP, a managing member of the investment
                  advisor  to  Stonehill  Offshore  Partners  Limited  and  is a
                  general partner of Stonehill  Institutional Partners, LP. John
                  A. Motulsky disclaims  beneficial ownership of the shares held
                  by these entities. The business address for such person is c/o
                  Stonehill  Investment  Corporation,  110 East 59th Street, New
                  York, New York 10022.

(5)               The  business  address for such person is 527 Madison  Avenue,
                  16th Floor, 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, 1997,  earned or received  compensation  or payments
for services or reimbursements from the Partnership or Presidio  subsidiaries as
follows:
<TABLE>
<CAPTION>
   Name of Recipient                          Capacity in Which Served                      Compensation from the Partnership
   -----------------                          ------------------------                      ---------------------------------
<S>                                           <C>                                                      <C>
Resources High Equity Inc.                    Managing General Partner                                 $1,271,859(1)
Presidio AGP Corp.                            Associate General Partner                                     1,473(2)
Resources Supervisory Management Corp.        Affiliated Property Managers                                154,190(3)
Resources Capital  Corp.                      Affiliate                                                    70,000(4)
</TABLE>

1        Of this amount $73,687  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, $140,000 represents reimbursement of costs in
         connection  with the  California  Action,  and  $908,172  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, 1997,  $30,643 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,  1997,  $625  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 $350,490,  of which  $196,300 was paid to  unaffiliated  management
         companies.

4        This  amount  represents  reimbursements  of actual  costs  incurred in
         defending the  California  Action and the cost of preparing  settlement
         materials.


<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  Management  Corp.,   incorporated  by  reference  to
                  Exhibit 10(b) to the Partnership's  Registration  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, 1997 1996 AND 1995

                                      INDEX

                                                                                
                                                                                

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

         Schedules- December  31, 1997,  1996 and 1995 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: March 27, 1998                       By:  /s/ Richard Sabella
                                                 --------------------
                                                 Richard Sabella
                                                 President and Director
                                                 (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: March 27, 1998                  By:  /s/ Richard Sabella
                                            --------------------
                                            Richard Sabella
                                            President and Director
                                            (Principal Executive Officer)



Dated: March 27, 1998                  By:  /s/ Lawrence Schachter
                                             ----------------------
                                            Lawrence Schachter
                                            Senior Vice President and
                                            Chief Financial Officer 
                                            (Principal Financial and 
                                             Accounting Officer)



Dated: March 27, 1998                  By:  /s/ Kevin Reardon
                                            ------------------
                                            Kevin Reardon
                                            Director, Vice President,
                                            Treasurer and Secretary


Dated: March 27, 1998                  By:  /s/ David King
                                            ---------------
                                            David King
                                            Director and
                                            Executive Vice President


<PAGE>
<TABLE>
<CAPTION>
                                   INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                                             A California Limited Partnership

                                 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                    December 31, 1997

                                                                                          Costs                Reductions
                                                                                       Capitalized              Recorded
                                                                                      Subsequent to          Subsequent to     
                                                               Initial Cost             Acquisition            Acquisition        
                                                         -----------------------   -----------------------     -----------         
                                                                     Buildings                                               
                                                                        And                      Carrying                     
        Description                Encumbrances           Land      Improvements   Improvement     Costs        Write Downs    
        -----------                ------------           ----      ------------   -----------     -----        -----------    
<S>              <C>                  <C>               <C>           <C>            <C>          <C>           <C>     
RETAIL:                                                                                                                   
                                                                                                                          
The Westbrook    Brooklyn             $     --          $1,424,800    $ 3,648,837    $  714,579   $  374,968    $ (3,400,000)  
Mall Shopping    Center, MN                                                                                                    
Center                                                                                                                         
                                                                                                                               
The Southport    Ft.                        --           6,961,667     13,723,333     1,347,160    1,866,962      (4,900,000) 
Shopping Center  Lauderdale, FL                                                                                                
                                                                                                                               
The Loch Raven   Towson, MD                 --           2,469,871      6,860,748     1,945,911      953,837      (4,800,000) 
Shopping Center                       --------         -----------    -----------    ----------   ----------    ------------  
                                            --          10,856,338     24,232,918     4,007,650    3,195,767     (13,100,000) 
                                      --------         -----------    -----------    ----------   ----------    ------------  
OFFICE:                                                                                                                        
                                                                                                                               
Century Park     Kearny Mesa,               --           3,122,064     12,717,936     1,885,955    1,353,130     (11,700,000) 
Office Complex   CA                                                                                                            
                                                                                                                               
568 Broadway     New York,  NY              --           2,318,801      9,821,517     4,916,105    1,556,212     (10,821,150) 
Office Building                                                                                                                
                                                                                                                               
Seattle Tower    Seattle, WA                --           2,163,253      5,030,803     1,714,983      609,392      (6,050,000) 
Office Building                       ---------        -----------    -----------    ----------   ----------    ------------  
                                                                                                                               
                                                                                                                               
                                            --           7,604,118     27,570,256     8,517,043    3,528,734     (28,571,150) 
                                      ---------        -----------    -----------   -----------   ----------    ------------ 
                                      $                $18,460,456    $51,803,174   $12,524,693   $6,724,501    $(41,671,150)
                                      =========        ===========    ===========   ===========   ==========    ============ 
                                                       

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                                             A California Limited Partnership

                                 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                    December 31, 1997
                                                       (continued)


                                                    Gross Amount at Which                                        
                                                 Carried at Close of Period                                     
                                           ------------------------------------                                     
                                                                                                             
                                                       Buildings                                             
                                                         And                        Accumulated      Date    
       Description                          Land     Improvements         Total    Depreciation    Acquired  
       -----------                          ----     ------------         -----    ------------    --------  
<S>              <C>                   <C>           <C>            <C>            <C>               <C>  
RETAIL:                        
                               
The Westbrook    Brooklyn              $  686,001    $ 2,077,183    $  2,763,184   $  1,297,890      1985  
Mall Shopping    Center, MN                                                                                
Center                                                                                                     
                                                                                                           
The Southport    Ft.                    5,998,194     13,000,928      18,999,122      4,535,166      1986  
Shopping Center  Lauderdale, FL                                                                            
                                                                                                           
The Loch Raven   Towson, MD             1,507,227      5,923,140       7,430,367      2,113,329      1986  
Shopping Center                        ----------    -----------    ------------   ------------        
                                        8,191,422     21,001,251      29,192,673      7,946,385            
                                       ----------    -----------    ------------   ------------        
                                                                                                           
OFFICE:                                                                                                    
                                                                                                           
Century Park     Kearny Mesa,           1,123,811      6,265,274       7,389,085      2,829,950      1986  
Office Complex   CA                                                                                        
                                                                                                           
568 Broadway     New York,  NY            977,120      6,814,365       7,791,485      2,684,159      1986  
Office Building                                                                                            
                                                                                                           
Seattle Tower    Seattle, WA              764,613      2,703,818       3,468,431      1,347,470      1986  

Office Building                        ----------    -----------    ------------   ------------       
                                                                                                          
                                        2,865,544     15,783,457      18,649,001      6,861,579            
                                      -----------    -----------    ------------   ------------ 
                                      $11,056,966    $36,784,708     $47,841,674    $14,807,964            
                                      ===========    ===========     ===========    ===========            
                                                                                                           
</TABLE>

         Note: The aggregate cost for Federal income tax purposes is $89,512,824
at December 31, 1997.
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
                        A California Limited Partnership

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                               December 31, 1997

(A)    RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>

                                                For the Years Ended December 31,
                                     ------------      ------------     -------------
                                          1997              1996             1995
                                     ------------      ------------     -------------
<S>                                  <C>               <C>              <C>
BALANCE AT BEGINNING OF YEAR ...     $ 45,874,047      $ 45,228,760     $ 63,622,139

ADDITIONS DURING THE YEAR ......        1,967,627           645,287        2,075,671
     Improvements to Real Estate

OTHER CHANGES
      Write-down for impairment                --                --      (20,469,050)        
                                     ============      ============     ============
BALANCE AT END OF YEAR (1) .....     $ 47,841,674      $ 45,874,047     $ 45,228,760
                                     ============      ============     ============
</TABLE>

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

(B)    RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
                                            For the Years Ended December 31,
                                     ------------    ------------   ------------ 
                                         1997            1996            1995
                                     ------------    ------------   ------------ 
<S>                                  <C>             <C>             <C>
BALANCE AT BEGINNING OF YEAR ...     $13,719,794     $12,694,788     $11,714,459

ADDITIONS DURING THE YEAR
     Depreciation Expense(1) ...       1,088,170       1,025,006         980,329
                                     -----------     -----------     -----------

BALANCE AT END OF YEAR .........     $14,807,964     $13,719,794     $12,694,788
                                     ===========     ===========     ===========
</TABLE>


           (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.