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, 1998

                                       OR

 [    ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities 
           Exchange Act of 1934 for the


                    Transition Period from _______to _______

                         Commission file 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.



                                       2
<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"). Effective July 31, 1998, Presidio is indirectly controlled by
NorthStar Capital  Investment Corp., a Maryland  corporation.  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, 1999, 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 1998,  Southport and 568 Broadway  represented  33% and 28% of
gross  revenues,   respectively;   during  1997,   Southport  and  568  Broadway
represented 31% and 27% of gross revenues, respectively;  during 1996, Southport
and 568 Broadway represented 30% and 25% of gross revenues, respectively.

The Partnership owned the following properties as of March 15, 1999:

(1)               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

                                       3
<PAGE>
built in phases from 1968 to 1977 and expanded  again and renovated in 1985. The
site provides parking for 563 cars.  Southport was 99% occupied as of January 1,
1999 as compared to 100% on January 1, 1998.  There are no leases that represent
at least 10% of the square  footage of the center  scheduled  to expire in 1999.
The roof on the West  quadrant of the main center  building was replaced in 1998
and the center was  repainted.  There are no  significant  capital  expenditures
budgeted for 1999, however, unanticipated expenses to upgrade the common area to
meet  new  ADA  code  requirements  will  be  incurred  in an  amount  yet to be
determined.

                  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.

(2)               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 93% occupied as of January 1, 1999,  compared
to 90% at January 1, 1998.  There are no leases which  represent at least 10% of
the square footage of the center scheduled to expire during 1999, however, Super
Fresh (A&P)  grocery  will  vacate its 26,648  square foot store by year end and
relocate to a new superstore at Towson Marketplace  Shopping Center located less
than a mile from Loch Raven Plaza.  Towson  Marketplace is being redeveloped and
includes Michael's Crafts,  Marshall's,  Target, Montgomery Ward and TOYS "R" US
as tenants.  Super Fresh's lease does not have a continuous  operation clause or
radius  restriction  and is  negotiating a sublease with Jo-Ann  Fabrics for the
space.  Jo-Ann  currently  occupies  9,700  square feet at Loch Raven with lease
expiration 12/31/99.

                  Phase II of the exterior  renovation on the lower level of the
center was completed in 1998 at a cost of $400,000.  The  renovation  was deemed
necessary  in order to retain  tenants  as  neighboring  centers  have  recently
undertaken renovation and re-tenanting programs.

(3)               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

                                       4
<PAGE>
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 100%  leased as of January 1, 1999  compared to 91% at
January 1, 1998.  There are no leases that  represent at least 10% of the square
footage of the center scheduled to expire in 1999. Capital  expenditures  during
1998  included  an upgrade to the lobby of  Building  2 and  construction  costs
associated  with  leasing  the  remaining  vacant  space  will be paid in  1999.
Additional  capital  expenditures for 1999 include a refurbishment  allowance to
SDG&E as provided in tenant's original lease.

                  Century  Park I competes  with other  office  parks and office
buildings  in the Kearny Mesa  sub-market.  New  competition  in the  sub-market
includes the redevelopment of the adjacent property into the Cabrillo Technology
Center with 141,800 square feet available plus an additional 284,000 square feet
planned and  redevelopment  of the 234 acre former  General  Dynamics  site, now
known as New Century  Center.  Plans for New Century Center call for development
of the site with mixed use  commercial,  industrial,  retail  and  entertainment
areas.

(4)               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, 1999 and  January 1, 1998.  There are no leases  which  represent  at
least 10% of the square footage of the property scheduled to expire during 1999.

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

(5)               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.

                                       5
<PAGE>
                  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, 1999 was 96% as it was at
January 1, 1998. There are approximately seventy tenants occupying the building.
Leasing  efforts  are  focused on  consolidating  space to create  single  floor
tenants.  There are no leases which represent at least 10% of the square footage
of the property scheduled to expire during 1999.

                  Repairs to the exterior  building facade to include  pointing,
caulking  and  waterproofing  were  completed  in 1998 at a cost of $825,000 and
replacement of the penthouse roof was postponed until 1999 due to weather.

                  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
details 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  unaffiliated
management  companies that service the  Partnership's  properties.  Services are
also  performed by the  Managing  General  Partner and by Resources  Supervisory
Management Corp. ("Resources Supervisory"), each of which is an affiliate of the
Partnership. Resources Supervisory currently provides supervisory management and
leasing  services  for  all of the  Partnership's  properties  and  subcontracts
certain management and leasing functions to unaffiliated third parties.

                  The  Partnership  does  not  have  any  employees.   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".


                                       6
<PAGE>
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
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.

                  In May 1993,  limited  partners in High Equity Partners L.P. -
Series 86  ("HEP-86"),  an  affiliated  partnership,  commenced  an action  (the
"Action") 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 the
purchasers  of limited  partnership  interests  in HEP-86.  On April 7, 1994 the
plaintiffs were granted leave to file an amended  complaint on behalf of a class
consisting of all the purchasers of limited partnership interests in HEP-86, the
Partnership,  and High  Equity  Partners  L.P. - Series 88  ("HEP-88"),  another
affiliated partnership (collectively, the "HEP Partnerships").

                                       7
<PAGE>


                 In November  1995,  the original  plaintiffs  and  intervening
plaintiffs  filed a  consolidated  class and  derivative  action  complaint (the
"Consolidated  Complaint")  alleging  various  state law  class  and  derivative
claims,  including  claims for breach of  fiduciary  duty;  breach of  contract;
unfair and fraudulent  business  practices  under  California  Bus. & Prof. Code
Section 17200; negligence; dissolution,  accounting, receivership and removal of
general  partner;  fraud;  and  negligent  misrepresentation.  The  Consolidated
Complaint  alleges,  among other  things,  that the general  partners of the HEP
Partnerships  collectively,  "HEP  General  Partners"  caused a waste of the HEP
Partnerships'  assets  by  collecting  management  fees in lieu  of  pursuing  a
strategy to maximize the value of the investments  owned by the investors in the
HEP  Partnerships,  that the HEP General Partners breached their duty of loyalty
and due care to the  investors  by  expropriating  management  fees from the HEP
Partnerships  without  trying to run the HEP  Partnerships  for the purposes for
which they were intended;  that the HEP General Partners were acting  improperly
to entrench  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 of limited  partnership  interest in
the HEP Partnerships (collectively,  the "HEP Units"); that, by refusing to seek
the  sale  of  the  HEP  Partnerships'  properties,  the  HEP  General  Partners
diminished the value of the investors' equity in the HEP Partnerships;  that the
HEP General Partners took heavily overvalued asset management fees; and that HEP
Units were sold and marketed through the use of false and misleading statements.


                  In early 1996, the parties submitted a proposed  settlement to
the Court (the "Proposed  Settlement"),  which  contemplated a reorganization of
the three HEP Partnerships into a single real estate investment trust,  pursuant
to which  approximately  85% of the shares of the real estate  investment  trust
would have been allocated to investors in the three HEP  Partnerships  (assuming
each  of  the  HEP  Partnerships   participated  in  the  reorganization),   and
approximately  15% of the shares  would have been  allocated  to the HEP General
Partners.  As a consequence,  the Proposed Settlement would, among other things,
have approximately tripled the HEP General Partners' equity interests in the HEP
Partnerships.  In late 1996, the California  Department of Corporations informed
the Court of the conclusion  that the Proposed  Settlement  was unfair,  and, in
early  1997,  the  Court  declined  to  grant  final  approval  of the  Proposed
Settlement because the Court was not persuaded that the Proposed  Settlement was
fair, adequate or reasonable as to the proposed class.

                  In July 1997, the plaintiffs filed an amended complaint, which
generally  asserts  the same claims as the earlier  Consolidated  Complaint  but
contains more detailed  factual  assertions and eliminates  some claims they had
previously  asserted.  The HEP General Partners challenged the amended complaint
on legal grounds and filed  demurrers  and a motion to strike.  In October 1997,
the Court granted substantial portions of the HEP General Partners' motions.
Thereafter,  the HEP General Partners served answers denying the allegations and
asserting numerous defenses.

                                       8
<PAGE>

                  In February 1998, the Court certified three separate plaintiff
classes  consisting of the current  owners of record of HEP Units (but excluding
all  defendants or entities  related to such  defendants),  and appointed  class
counsel and liaison counsel.

                  In  mid-1998,  the parties  actively  engaged in  negotiations
concerning a possible  settlement of the Action.  In September 1998, the parties
reached an agreement in principle,  and, during the following months, negotiated
a more formal settlement stipulation (the "Settlement Stipulation"),  which they
executed in December 1998. The Settlement Stipulation was submitted to the Court
for preliminary approval in early January 1999. In February 1999, the Court gave
preliminary  approval to the Settlement  Stipulation and directed that notice of
the proposed settlement be sent to the previously  certified class. The proposed
settlement  contemplates (I) amendments to the Partnership  Agreement that would
modify the  existing  fee  structure;  (II) a tender  offer  whereby the General
Partners would purchase up to 6.7% of the units from limited partners; and (III)
that the General Partners will use their best efforts to effect a reorganization
of the HEP Partnerships into REITs or other publicly traded entities.  A hearing
to consider  whether  the Court  should  give final  approval to the  Settlement
Stipulation  is scheduled  for April 14, 1999.  The  settlement  is subject to a
number of  conditions.  There can be no assurance that such  conditions  will be
fulfilled.

                  The General  Partners believe that each of the claims asserted
in the Action are meritless and, if for any reason a final  settlement  pursuant
to the  Settlement  Stipulation  is  not  consummated,  intend  to  continue  to
vigorously defend the Action.



              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, 1998, the Partnership paid the General Partners
a total of $1,034,510 for these costs.


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.

                                       9
<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, 1999, there were 9,176 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
1997 and 1998 were as follows:

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

March 31, 1997                              $  0.75
June 30, 1997                               $  0.94
September 30, 1997                          $  0.94
December 31, 1997                           $  0.94
March 31, 1998                              $  0.94
June 30, 1998                               $  0.94
September 30, 1998                          $  0.94
December 31, 1998                           $  0.94

         The  source  of  distributions  in 1997 and 1998  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 1997 and 1998,  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.


                                       10
<PAGE>
         From July 1996 through March 12, 1998,  Millennium  Funding II Corp., a
wholly owned  indirect  subsidiary  of Presidio,  purchased  39,123 units of the
Partnership from various limited partners.
 
         In  connection  with a tender offer for units of the  Partnership  made
March 12, 1998 (the  "Offer") by Olympia  Investors,  L.P.,  a Delaware  limited
partnership  controlled by Carl Ichan ("Olympia"),  Olympia and Presidio entered
into an  agreement  dated  March 6, 1998 (the  "Agreement").  Subsequent  to the
expiration  of the offer,  Olympia  announced  that it had  accepted for payment
31,132 units properly tendered pursuant to the Offer. Pursuant to the Agreement,
Presidio  purchased  50% of the units owned by Olympia as a result of the Offer,
or 15,566 units,  for $101.81 per unit.  Presidio may be deemed to  beneficially
own the remaining units owned by Olympia as a consequence of the Agreement.

         Subsequent  to the  expiration  of the tender  offer  described  above,
Millennium  Funding II Corp.  purchased  12,451 limited  partnership  units from
August 1998 through  February 1999.  The total of these  purchases and the units
purchased from Olympia (as described above)  represents  approximately  16.8% of
the outstanding limited partnership units of the Partnership.

Item 6.  Selected Financial Data
         ----------------------- 
<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                ------------------------------------------------------------------------------------------
                                     1998                1997             1996                1995                 1994
                                -----------         -----------    -------------        ------------         ------------- 
<S>                             <C>          <C>    <C>            <C>                  <C>                  <C>          
Revenue                         $ 9,189,542  (4)    $ 9,021,378    $   8,888,016        $          -         $   7,995,126
                                                                                           7,877,644
Net Income (Loss)                 2,931,223  (4)      2,134,659        2,134,717         (18,624,934) (3)        1,442,884  (1)
Net Income (Loss) per Unit             6.96                5.07             5.07              (44.23) (3)             3.43  (1)
Distribution Per Unit(5)               3.76                3.57             2.40                 2.40                14.39  (2)
Total Assets                     40,814,689          39,600,417       39,290,185           37,309,597           56,742,945

</TABLE>

(1)      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.

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

(3)      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.

(4)      Revenues and Net Income for the year ended  December 31, 1998 include a
         $389,359  gain,  or $0.92  per  unit,  from  the sale of the  Westbrook
         property.

(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.

                                       11
<PAGE>
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,
1998, all capital  expenditures and distributions were funded from cash flow. As
of December 31, 1998,  the  Partnership  had total working  capital  reserves of
approximately $2,603,000. The Partnership intends to distribute less than all of
its future cash flow from operations in order to maintain  adequate reserves for
capital  improvements and capitalized  lease  procurement  costs. 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,  1998,  cash  and cash
equivalents  increased  $1,950,754 as a result of cash provided by operations in
excess of capital expenditures and distributions to partners.  The Partnership's
primary  source  of funds is cash  flow from the  operation  of its  properties,
principally  rents  received from tenants,  which amounted to $3,574,184 for the
year ended December 31, 1998. In addition,  the Partnership  received $2,042,964
from the sale of the Westbrook  property.  The  Partnership  used $2,083,198 for
capital   expenditures  related  to  capital  and  tenant  improvements  to  the
properties  and  $1,583,196  for  distributions  to partners  for the year ended
December 31, 1998.

                                       12
<PAGE>
                  The  following  table sets  forth,  for each of the last three
fiscal years,  the  Partnership's  expenditures  at each of its  properties  for
capital improvements and capitalized tenant procurement costs:


          Capital Improvements and Capitalized Tenant Procurement Costs

<TABLE>
<CAPTION>
                                      1998              1997              1996
                                   ----------        ----------        ----------
<S>                               <C>               <C>               <C>       
Seattle Tower ............        $  490,322        $   78,754        $  352,522
Century Park I ...........            89,729           506,704            28,010
568 Broadway .............           293,021            84,805           233,376
Westbrook(a) .............                 0                 0                 0
Loch Raven ...............           908,324           990,911           224,666
Southport ................           502,081           520,032            58,571
                                  ----------        ----------        ----------
Totals ...................        $2,283,477        $2,181,206        $  897,145
                                  ==========        ==========        ==========
</TABLE>

(a)       Property sold in 1998.


                  The   Partnership  has  budgeted   expenditures   for  capital
improvements and capitalized tenant procurement costs in 1999 which are 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  (for  selected
markets and property types) from the effects of the  substantial  decline in the
market value of existing properties which 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. As a result,  the Partnership's  potential for
realizing  the full value of its  investment  in its  properties is at continued
risk.

                                       13
<PAGE>
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, 1997 or 1998.

                                       14
<PAGE>
                  The following table  represents the write-downs for impairment
recorded on the Partnership's properties:


Property


 Seattle Tower                                      $ 6,050,000
 Century Park I                                      11,700,000
 568 Broadway                                        10,821,150
 Westbrook(b)                                         3,400,000
 Loch Raven                                           4,800,000
 Southport                                            4,900,000
 Southern National(a)                                 3,631,000
                                                    -----------
                                                    $45,302,150
                                                    ===========


 (a)   Property sold in August 1994
 (b)   Property sold in August 1998


Results Of Operations

1998 vs. 1997
-------------

         The  Partnership  experienced  an  increase  in net income for the year
ended  December 31, 1998  compared to the prior year due to the gain on the sale
of the Westbrook property,  higher rental revenues and lower costs and expenses.
These increases to net income were partially  offset by lower interest and other
income during 1998.

         Rental revenues increased at Century Park and Southport during the year
ended December 31, 1998 compared to 1997,  primarily due to higher occupancy and
rental rates,  respectively.  These  increases  were  partially  offset by lower
rental  revenues at Westbrook  during the second half of 1998 as a result of the
sale of the property in August 1998, as previously discussed.

         Costs and expenses  decreased  during the year ended  December 31, 1998
compared to the same period in 1997,  primarily  due to  decreases  in operating
expenses,  partnership  management fees and administrative  expenses.  Operating
expenses decreased during 1998 due to the sale of Westbrook in August 1998 and a
decrease in insurance  expenses at all of the  properties  due to the payment of
lower premiums while coverage remained the same. Administrative expenses for the
year ended December 31, 1998  decreased  compared to 1997 due to lower legal and
accounting fees related to the ongoing litigation and possible reorganization of
the  Partnership.   Depreciation  and  amortization   increased  due  to  higher
depreciation  recorded  in  1998 on  certain  capitalized  tenant  improvements.
Property  management  fees  were  higher  in 1998  due to  higher  revenues,  as
previously discussed.

Interest income decreased in 1998 due to lower interest rates and lower invested
cash balances during the current year compared to 1997.  Other income  decreased
during the year ended  December 31, 1998 compared to 1997 due to fewer  investor
transfers.

                                       15
<PAGE>
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.

                  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 Item 3
and Note 7 to the Partnership's financial statements for a description thereof.



                                       16
<PAGE>
Year 2000 Compliance
--------------------

                  The Year 2000  compliance  issue  concerns  the  inability  of
computerized information systems and equipment to accurately calculate, store or
use a date after  December 31,  1999,  as a result of the year being stored as a
two digit  number.  This could  result in a system  failure  or  miscalculations
causing  disruptions of operations.  The Partnership and its Manager  (NorthStar
Presidio  Management  Co., LLC)  recognize  the  importance of ensuring that its
business  operations are not disrupted as a result of Year 2000 related computer
system and software issues.
 
The manager is in the process of  assessing  its internal  computer  information
systems and is now taking the further steps necessary to remediate these systems
so that they will be Year 2000 compliant.  In connection therewith,  the manager
is currently in the process of installing a new fully  compliant  accounting and
reporting  system.  The Manager is also  currently  reviewing its other internal
systems and programs,  along with those of its unaffiliated  third party service
providers, in order to insure compliance.

Further,  the Manager and these service  providers are currently  evaluating and
assessing those computer  systems not related to information  technology.  These
systems,  that  generally  operate in a building  include,  without  limitation,
telecommunication  systems,  security  systems  (such as  card-access  door lock
systems),  energy management  systems and elevator  systems.  As a result of the
technology  used in this type of equipment,  it is possible that this  equipment
may not be repairable, and accordingly may require complete replacement. Because
this assessment is ongoing, the total cost of bringing all systems and equipment
into Year 2000  compliance has not been fully  quantified.  Based upon available
information,  the Manager does not believe that these costs will have a material
adverse effect on the Partnership's  business,  financial  condition or results.
However,  it is  possible  that  there  could  be  adverse  consequences  to the
Partnership  as a result of Year 2000 issues that are outside the  Partnership's
control. The Manager is in the preliminary stages of evaluating these issues and
will be developing contingency plans.

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.

                                       17
<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, 1998, 1997 and 1996

                                    I N D E X

                                                                         Page
                                                                        Number
                                                                        ------

Independent Auditors' Report.......................................       19

Financial statements, years ended
         December 31, 1998, 1997 and 1996

         Balance Sheets............................................       20

         Statements of Operations..................................       21

         Statements of Partners' Equity............................       22

         Statements of Cash Flows..................................       23

         Notes to Financial Statements.............................       24







                                       18
<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,
1998 and 1997, and the related  statements of operations,  partners'  equity and
cash flows for each of the three years in the period  ended  December  31, 1998.
Our audits 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, 1998 and 1997,  and the results of its  operations and
its cash flows for each of the three years in the period ended December 31, 1998
in  conformity  with  generally  accepted  accounting  principles.  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 17, 1999
New York, NY



                                       19
<PAGE>
<TABLE>
<CAPTION>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                 BALANCE SHEETS


                                                            December 31,
                                                   -----------------------------
                                                       1998              1997
                                                   -----------       -----------
<S>                                                <C>               <C>        
ASSETS

Real estate ................................       $32,518,352       $33,033,710
Cash and cash equivalents ..................         6,301,641         4,350,887
Other assets ...............................         1,847,273         2,033,252
Receivables ................................           147,423           182,568
                                                   -----------       -----------

TOTAL ASSETS ...............................       $40,814,689       $39,600,417
                                                   ===========       ===========

LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses ......       $ 1,265,264       $ 1,183,720
Due to affiliates ..........................           362,440           577,739
Distributions payable ......................           395,799           395,799
                                                   -----------       -----------

     Total liabilities .....................         2,023,503         2,157,258
                                                   -----------       -----------

COMMITMENTS AND CONTINGENCIES

PARTNERS' EQUITY:

  Limited partners' equity (400,010
    units issued and outstanding) ..........        36,850,676        35,570,050
  General partners' equity .................         1,940,510         1,873,109
                                                   -----------       -----------

     Total partners' equity ................        38,791,186        37,443,159
                                                   -----------       -----------

TOTAL LIABILITIES AND PARTNERS' EQUITY .....       $40,814,689       $39,600,417
                                                   ===========       ===========

</TABLE>

                        See notes to financial statements

                                       20
<PAGE>
<TABLE>
<CAPTION>
                          INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                        STATEMENTS OF OPERATIONS

                                                                     For the Year Ended December 31
                                                               ---------------------------------------- 
                                                                   1998            1997         1996
                                                               ----------     ----------     ---------- 
<S>                                                            <C>            <C>            <C>       
Rental Revenue ...........................................     $9,189,542     $9,021,378     $8,888,016
                                                               ----------     ----------     ----------
Costs and Expenses:
            Operating expenses ...........................      3,276,169      3,426,267      3,139,504

            Depreciation and amortization ................      1,416,510      1,360,929      1,270,172

            Partnership management fee ...................        887,329        908,172        908,172

            Administrative expenses ......................        916,066      1,116,971      1,359,027

            Property management fee ......................        371,144        350,490        327,759
                                                               ----------     ----------     ----------
                                                                6,867,218      7,162,829      7,004,634
                                                               ----------     ----------     ----------

Income before gain on sale of property, interest and other      2,322,324      1,858,549      1,883,382
income
         Gain on sale of property ........................        389,359           --             --

         Interest income .................................        185,290        207,420        141,939

         Other income ....................................         34,250         68,690        109,396
                                                               ----------     ----------     ----------

Net Income ...............................................     $2,931,223     $2,134,659     $2,134,717
                                                               ==========     ==========     ==========
Net income attributable to:

        Limited partners .................................     $2,784,662     $2,027,926     $2,027,981

         General partners ................................        146,561        106,733        106,736
                                                               ----------     ----------     ----------

Net income ...............................................     $2,931,223     $2,134,659     $2,134,717
                                                               ==========     ==========     ==========

Net income per unit of limited partnership
     Interest (400,010 units outstanding) ................     $     6.96     $     5.07     $     5.07
                                                               ==========     ==========     ==========

</TABLE>
                        See notes to financial statements

                                       21
<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, 1996 ...........     $  1,785,328      $ 33,902,201      $ 35,687,529

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

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


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 .          (75,160)       (1,428,034)       (1,503,194)
($3.57 per limited partnership unit)     ------------      ------------      ------------


Balance, December 31, 1997 .........        1,873,109        35,570,050        37,443,159

Net Income .........................          146,561         2,784,662         2,931,223

Distributions as a return of capital          (79,160)       (1,504,036)       (1,583,196)
($3.76 per limited partnership unit)     ------------      ------------      ------------


Balance, December 31, 1998              $  1,940,510      $ 36,850,676      $ 38,791,186
                                         ============      ============      ============
</TABLE>

                            See notes to financial statements

                                       22
<PAGE>
<TABLE>
<CAPTION>
                            INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                          STATEMENTS OF CASH FLOWS



                                                                    For the Years Ended December 31,
                                                             --------------------------------------------- 
                                                                1998              1997             1996
                                                             -----------      -----------      ----------- 
<S>                                                          <C>              <C>              <C>        
CASH FLOW FROM OPERATING ACTIVITIES:

Net Income ...............................................   $ 2,931,223      $ 2,134,659      $ 2,134,717
Adjustments to reconcile net income to net
cash provided by operating activities:
    Gain on sale of property .............................      (389,359)            --                 --
                                                                                             
     Depreciation and amortization .......................     1,416,510        1,360,929        1,270,172
     Straight line adjustment for stepped lease rentals ..       (41,629)           3,999          (52,915)
Changes in operating assets and liabilities:
     Accounts payable and accrued expenses ...............        81,544          121,988           44,935
     Receivables .........................................        35,145          (24,364)          44,558
     Due to affiliates ...................................      (215,299)        (586,382)         811,488
     Other assets
                                                                (243,951)        (202,800)        (177,542)
                                                             -----------      -----------      -----------
Net cash provided by operating activities ................     3,574,184        2,808,029        4,075,413
                                                             -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Proceeds from sale of real estate ...................     2,042,964             --                 --
     Improvements to real estate .........................    (2,083,198)      (1,967,626)        (645,287)
                                                             -----------      -----------      -----------
Net cash used in investing activities ....................       (40,234)      (1,967,626)        (654,287)
                                                             -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Distributions to partners ...........................    (1,583,196)      (1,360,033)     (1,010,552)
                                                             -----------      -----------      -----------

Increase (Decrease) in Cash and Cash Equivalents .........     1,950,754         (519,630)       2,419,574

Cash and Cash Equivalents, Beginning of Year .............     4,350,887        4,870,517        2,450,943
                                                             -----------      -----------      -----------

Cash and Cash Equivalents, End of Year ...................   $  6,301,64      $ 4,350,887      $ 4,870,517
                                                             ===========      ===========      ===========
</TABLE>
                        See notes to financial statements

                                       23
<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 (one of which was sold in 1998) 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 balance  sheets and  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.

                                       24

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

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Depreciation
         ------------

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

         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,


                                       25

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

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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 income taxes for  federal,  state,  and
         local income taxes since they are the  personal  responsibility  of the
         partners.

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

         Net income  (loss) and  distributions  per unit of limited  partnership
         interest  is  calculated  based  upon the  number of units  outstanding
         (400,010)  for each of the years ended  December  31, 1998,  1997,  and
         1996.

         Comprehensive Income
         --------------------

         Because the Partnership has no items of other comprehensive income, the
         Partnership's  net income and comprehensive net income are the same for
         all periods presented.

         In June of  1998,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting  Standards No. 133,  "Accounting for
         Derivative   Instruments  and  Hedging   Activities."   This  statement
         establishes   accounting   and  reporting   standards  for   derivative
         instruments and for hedging  activities,  and will be effective for the
         Partnership  in  January  of 2000.  Because  the  Partnership  does not
         currently  utilize   derivatives  or  engage  in  hedging   activities,
         management does not believe that  implementation  of this standard will
         have a material effect on the Partnership's financial statements.

         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.

                                       26
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

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

         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.  Effective July 31, 1998,  Presidio is
         indirectly controlled by NorthStar Capital Investment Corp., a Maryland
         Corporation.

         Effective  as of August 28, 1997,  Presidio has a management  agreement
         with NorthStar Presidio Management Company LLC ("NorthStar  Presidio"),
         an affiliate of NorthStar Capital  Investment Corp.,  pursuant to which
         NorthStar  Presidio will provide the day-to-day  management of Presidio
         and its direct and indirect  subsidiaries and affiliates.  For the year
         ended December 31, 1998,  reimbursable  expenses  incurred by NorthStar
         Presidio amounted to approximately $102,007.

         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, 1998, 1997, and 1996,  Resources  Supervisory was entitled
         to  receive  an   aggregate  of   $371,144,   $350,490  and   $327,759,
         respectively,  of which  $212,371,  $196,300  and  $191,956 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, 1998,  1997
         and 1996.

         For  managing  the affairs of the  Partnership,  the  Managing  General
         Partner is entitled to receive a  Partnership  management  fee equal to
         1.05% of the amount of original gross proceeds paid or allocable to the
         acquisition  of  property  by the  Partnership.  For  the  years  ended
         December 31, 1998,  1997, and 1996 the Managing  General Partner earned
         $887,329, $908,172 and $908,172, respectively.

         The  General  Partners  are  allocated  5% of  the  net  income  of the
         Partnership which amounted to $146,561,  $106,733 and $106,736 in 1998,
         1997 and 1996, respectively.  The General Partners are also entitled to
         receive 5% of  distributions  which  amounted to  $79,160,  $75,160 and
         $50,528 in 1998, 1997 and 1996, respectively.

                                       27
<PAGE>
              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

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

         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  returns on their  investments.
         All fees  received  by the  General  Partners  are  subject  to certain
         limitations as set forth in the Partnership Agreement.

         From July 1996 through March 12, 1998,  Millennium  Funding II Corp., a
         wholly owned indirect subsidiary of Presidio, purchased 39,123 units of
         the Partnership from various limited partners.

         In  connection  with a tender offer for units of the  Partnership  made
         March 12, 1998 (the  "Offer") by Olympia  Investors,  L.P.,  a Delaware
         limited partnership  controlled by Carl Ichan ("Olympia"),  Olympia and
         Presidio   entered  into  an   agreement   dated  March  6,  1998  (the
         "Agreement").  Subsequent  to  the  expiration  of the  offer,  Olympia
         announced  that it had  accepted  for  payment  31,132  units  properly
         tendered  pursuant to the Offer.  Pursuant to the  Agreement,  Presidio
         purchased  50% of the units  owned by Olympia as a result of the Offer,
         or  15,566  units,  for  $101.81  per unit.  Presidio  may be deemed to
         beneficially  own the remaining units owned by Olympia as a consequence
         of the Agreement

         Subsequent  to the  expiration  of the tender  offer  described  above,
         Millennium Funding II Corp.  purchased 12,451 limited partnership units
         from August 1998 through  February 1999.  The total of these  purchases
         and the units  purchased from Olympia (as described  above)  represents
         approximately 16.8% of the outstanding limited partnership units of the
         Partnership.


                                       28
<PAGE>
             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

4.       REAL ESTATE
         -----------

         The  Partnership  recorded  substantial  write-downs  prior to 1996. No
         write-downs  were required for 1996,  1997 or 1998. The following table
         summarizes write-downs recorded on the properties:

                    Property                   
                    --------                   
                                                     
                    Seattle Tower                              $ 6,050,000   
                    Century Park I                              11,700,000   
                    568 Broadway                                10,821,150   
                    Westbrook(b)                                 3,400,000   
                    Loch Raven                                   4,800,000   
                    Southport                                    4,900,000   
                    Southern National(a)                         3,631,000
                                                               -----------   
                                                               $45,302,150   
                                                               ===========   
                   
 (a)   Property sold in August 1994.
 (b)   Property sold in August 1998.
 

         The following  table is a summary of the  Partnership's  real estate as
         of:
<TABLE>
<CAPTION>
                                                          December 31,
                                               ---------------------------------
                                                    1998                1997
                                               ------------        ------------- 

<S>                                            <C>                 <C>         
Land ...................................       $ 10,370,965        $ 11,056,966

Buildings and improvements .............         36,790,720          36,784,708
                                               ------------        ------------
                                                 47,161,685          47,841,674

Less:  Accumulated depreciation ........        (14,643,333)        (14,807,964)
                                               ------------        ------------

                                               $ 32,518,352        $ 33,033,710
                                               ============        ============
</TABLE>
<PAGE>
             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

4.       REAL ESTATE  (continued)
         -----------

         During 1998,  revenues from the Southport  and 568 Broadway  properties
         represented  33% and 28% of gross  revenues,  respectively.  No  single
         tenant accounted for more than 10% of the Partnerships' rental revenues
         in 1998.

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

<TABLE>
<CAPTION>
                              1999         2000         2001        2002         2003    Thereafter        Total
                           ---------   ----------   ----------   ----------   ----------  -----------    -----------
<S>                       <C>          <C>          <C>          <C>          <C>         <C>            <C>        
           Total:         $6,436,000   $5,977,000   $5,082,000   $4,421,000   $3,868,000  $6,093,000     $31,877,000
                          ==========   ==========   ==========   ==========   ==========  ===========    ===========
</TABLE>

                                       29
<PAGE>
             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

 5.       DISTRIBUTIONS PAYABLE
          ---------------------
<TABLE>
<CAPTION>
                                                                      December 31,
                                                      --------------------------------------- 
                                                           1998                     1997
                                                      ----------------       ---------------- 
<S>                                                   <C>                    <C>             
            Limited Partners ($.94 per unit)          $        376,009       $        376,009
            General Partners                                    19,790                 19,790
                                                      ----------------       ---------------- 
                                                      $        395,799       $        395,799
                                                      ================       ================ 
</TABLE>
            Such distributions were paid in the subsequent quarters.

6.       DUE TO AFFILIATES
         -----------------
<TABLE>
<CAPTION>
                                                                   December 31,
                                                              --------------------- 
                                                                1998          1997
                                                              --------     -------- 
<S>                                                           <C>          <C>     
Partnership management fee ..............................     $211,409     $227,044
Reorganization and litigation cost reimbursement (Note 7)           --      210,000
Property management fee .................................      113,531      103,195
Non-accountable expense reimbursement ...................       37,500       37,500
                                                              ========     ========
                                                              $362,440     $577,739
                                                              ========     ========
</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 indeterminable amount. The Broadway Joint
         Venture's  action  for rent  against  Solo  Press was tried in 1992 and
<PAGE>
             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)
         -----------------------------------------

         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.

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.



                                       30
<PAGE>
             INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
             ----------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)
         -----------------------------------------

                 In May 1993,  limited  partners in High Equity Partners L.P. -
Series 86  ("HEP-86"),  an  affiliated  partnership,  commenced  an action  (the
"Action") 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 the
purchasers  of limited  partnership  interests  in HEP-86.  On April 7, 1994 the
plaintiffs were granted leave to file an amended  complaint on behalf of a class
consisting of all the purchasers of limited partnership interests in HEP-86, the
Partnership,  and High  Equity  Partners  L.P. - Series 88  ("HEP-88"),  another
affiliated partnership (collectively, the "HEP Partnerships").

                  In November  1995,  the original  plaintiffs  and  intervening
plaintiffs  filed a  consolidated  class and  derivative  action  complaint (the
"Consolidated  Complaint")  alleging  various  state law  class  and  derivative
claims,  including  claims for breach of  fiduciary  duty;  breach of  contract;
unfair and fraudulent  business  practices  under  California  Bus. & Prof. Code
Section 17200; negligence; dissolution,  accounting, receivership and removal of
general  partner;  fraud;  and  negligent  misrepresentation.  The  Consolidated
Complaint  alleges,  among other  things,  that the general  partners of the HEP
Partnerships  collectively,  "HEP  General  Partners"  caused a waste of the HEP
Partnerships'  assets  by  collecting  management  fees in lieu  of  pursuing  a
strategy to maximize the value of the investments  owned by the investors in the
HEP  Partnerships,  that the HEP General Partners breached their duty of loyalty
and due care to the  investors  by  expropriating  management  fees from the HEP
Partnerships  without  trying to run the HEP  Partnerships  for the purposes for
which they were intended;  that the HEP General Partners were acting  improperly
to entrench  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 of limited  partnership  interest in
the HEP Partnerships (collectively,  the "HEP Units"); that, by refusing to seek
the  sale  of  the  HEP  Partnerships'  properties,  the  HEP  General  Partners
diminished the value of the investors' equity in the HEP Partnerships;  that the
HEP General Partners took heavily overvalued asset management fees; and that HEP
Units were sold and marketed through the use of false and misleading statements.


                                       31
<PAGE>
            INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)
         -----------------------------------------

                  In early 1996, the parties submitted a proposed  settlement to
the Court (the "Proposed  Settlement"),  which  contemplated a reorganization of
the three HEP Partnerships into a single real estate investment trust,  pursuant
to which  approximately  85% of the shares of the real estate  investment  trust
would have been allocated to investors in the three HEP  Partnerships  (assuming
each  of  the  HEP  Partnerships   participated  in  the  reorganization),   and
approximately  15% of the shares  would have been  allocated  to the HEP General
Partners.  As a consequence,  the Proposed Settlement would, among other things,
have approximately tripled the HEP General Partners' equity interests in the HEP
Partnerships.  In late 1996, the California  Department of Corporations informed
the Court of the conclusion  that the Proposed  Settlement  was unfair,  and, in
early  1997,  the  Court  declined  to  grant  final  approval  of the  Proposed
Settlement because the Court was not persuaded that the Proposed  Settlement was
fair, adequate or reasonable as to the proposed class.
                  
                  In July 1997, the plaintiffs filed an amended complaint, which
generally  asserts  the same claims as the earlier  Consolidated  Complaint  but
contains more detailed  factual  assertions and eliminates  some claims they had
previously  asserted.  The HEP General Partners challenged the amended complaint
on legal grounds and filed  demurrers  and a motion to strike.  In October 1997,
the Court granted substantial portions of the HEP General Partners' motions.
Thereafter,  the HEP General Partners served answers denying the allegations and
asserting numerous defenses.

                  In February 1998, the Court certified three separate plaintiff
classes  consisting of the current  owners of record of HEP Units (but excluding
all  defendants or entities  related to such  defendants),  and appointed  class
counsel and liaison counsel.

                  In  mid-1998,  the parties  actively  engaged in  negotiations
concerning a possible  settlement of the Action.  In September 1998, the parties
reached an agreement in principle,  and, during the following months, negotiated
a more formal settlement stipulation (the "Settlement Stipulation"),  which they
executed in December 1998. The Settlement Stipulation was submitted to the Court
for preliminary approval in early January 1999. In February 1999, the Court gave
preliminary  approval to the Settlement  Stipulation and directed that notice of
the proposed settlement be sent to the previously  certified class. The proposed
settlement  contemplates (I) amendments to the Partnership  Agreement that would
modify the  existing  fee  structure;  (II) a tender  offer  whereby the General
Partners would purchase up to 6.7% of the units from limited partners; and (III)
that the General Partners will use their best efforts to effect a reorganization
of the HEP Partnerships into REITs or other publicly traded entitites. A hearing
to consider  whether  the Court  should  give final  approval to the  Settlement
Stipulation  is scheduled  for April 14, 1999.  The  settlement  is subject to a
number of  conditions.  There can be no assurance that such  conditions  will be
fulfilled.

                  The General  Partners believe that each of the claims asserted
in the Action are meritless and, if for any reason a final  settlement  pursuant
to the  Settlement  Stipulation  is  not  consummated,  intend  to  continue  to
vigorously defend the Action.

                                       32

<PAGE>
           INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

7.       COMMITMENTS AND CONTINGENCIES (CONTINUED)
         -----------------------------------------

              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, 1998, the Partnership paid the General Partners
a total of $1,034,510 for these costs.


8.       RECONCILIATION OF NET INCOME 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 per the financial statements to the net taxable income.
<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                       --------------------------------------------------- 
                                                                           1998                1997               1996
                                                                       ------------       ------------        ------------ 
<S>                                                                    <C>                <C>                  <C>        
           Net income per financial statements                         $  2,931,223       $ 2,134,659          $ 2,134,717
           Difference in gain/loss on sale of Westbrook                  (2,357,221)               --                   --
           Tax depreciation in excess of financial statement
           depreciation                                                  (1,499,402)        (1,524,130)         (1,553,354)
                                                                       ------------       ------------        ------------ 

           Net taxable income (loss)                                   $   (925,400)       $   610,529        $    581,363
                                                                       ============        ===========        ============ 
</TABLE>
         The differences  between the  Partnership's  assets and liabilities for
         tax purposes and financial reporting purposes are as follows:
<TABLE>
<CAPTION>
                                                                                December 31,
                                                                                   1998
                                                                               ------------ 
<S>                                                                            <C>         
Net assets per financial statements ......................................     $ 38,791,186
Write-down for impairment ................................................       38,271,150
Tax depreciation in excess of financial statement depreciation ...........      (15,018,589)
Gain on admission of joint venture partner not recognized for tax purposes         (307,093)
Organization costs not charged to partners' equity for tax purposes ......        1,500,000
                                                                               ------------

Net assets per tax reporting .............................................     $ 63,236,654
                                                                               ============
</TABLE>
                                       33
<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.

                                       34
<PAGE>
         As of March 1, 1999 the  names  and ages of,  as well as the  positions
held by, the officers  and  directors  of the  Managing  and  Associate  General
Partners were as follows:
<TABLE>
<CAPTION>
         Name                  Age     Position Held                                    Has served as a 
                                                                                        Director and/or  
                                                                                        Officer of the     
                                                                                       Managing General 
                                                                                         Partner since
-------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>                                               <C>                           
W. Edward Scheetz             34       Director                                          November 1997                 
David Hamamoto                39       Director                                          November 1997                 
Dallas E. Lucas               36       Director                                          August 1998                   
David King                    36       Executive Vice President and Assistant            November 1997                 
                                       Treasurer, Director                                                             
Lawrence R. Schachter         42       Senior Vice President and Chief                   January 1998                  
                                       Financial Officer                                                               
J. Peter Paganelli            40       Senior Vice President, Secretary and              March 1998                    
                                       Treasurer                                                                       
Allan B. Rothschild           37       President, Director                               December 1997                 
Marc Gordon                   34       Vice President                                    November 1997                 
Charles Humber                25       Vice President                                    November 1997                 
Adam Anhang                   25       Vice President                                    November 1997                 
Gregory Peck                  24       Assistant Secretary                               November 1997                 
</TABLE>                                    

         There are no family relationships between or among any of the directors
and/or executive officers of the General Partner.

         W. Edward Scheetz co-founded  NorthStar Capital Partners LLC with David
Hamamoto in July 1997,  From 1993  through  1997,  Mr.  Scheetz was a partner at
Apollo Real Estate  Advisors L.P. From 1989 to 1993, Mr. Scheetz was a principal
with Trammell Crow Ventures.

         David Hamamoto co-founded NorthStar Capital Partners LLC with W. Edward
Scheetz in July 1997. From 1988 to 1997, Mr Hamamoto was a partner and a co-head
of the real estate principal investment area at Goldman, Sachs & Co.

         Dallas E. Lucas joined  Northstar  Capital Partners LLC in August 1998.
From 1994 until then he was the Chief Financial  Officer of Crescent Real Estate
Equities Company.  Prior to that he was a financial consulting and audit manager
in the real estate services group of Arthur Anderson LLP.


                                       35
<PAGE>
         David King joined NorthStar Capital Partners LLC in November 1997. From
1990 to 1997, Mr. King was associated  with Olympia & York Companies (USA) where
he held the position of Senior Vice President of Finance. Prior to that Mr. King
was employed with Bankers Trust in its real estate finance group.

         Lawrence R. Schachter  joined  NorthStar  Presidio in January 1998 From
1996 to 1998, Mr. Schachter was Controller at CB Commercial/Hampshire  LLC. From
1995 to 1996, Mr. Schachter was Controller at Goodrich Associates.  From 1992 to
1995, Mr. Schachter was Controller at Greenthal/Harlan Realty Services Co.
 
         J. Peter Paganelli joined NorthStar Presido in March 1998. From 1997 to
1998, Mr.  Paganelli was Director of Asset  Management at Argent Ventures LLC, a
private  real  estate  aompany.  From  1994 to 1997,  Mr.  Paganelli  was a Vice
President at Starwood  Capital Group, LLC in its Asset  Management  Group.  From
1986 to 1994,  Mr.  Paganelli was an Associate  Director at Cushman & Wakefield,
Inc. in its Financial Services and Asset Services Groups.

         Allan B.  Rothschild  joined  NorthStar  Presidio in December 1997 From
1995 to 1997, Mr.  Rothschild  was Senior Vice President and General  Counsel of
Newkirk Limited  Partnership.  From 1987 to 1995, Mr.  Rothschild was associated
with the law firm of Proskauer, Rose LLP in its real estate group.

         Marc Gordon joined NorthStar  Capital Partners LLC in October 1997 From
1993 to 1997,  Mr.  Gordon  was Vice  President  in the real  estate  investment
banking group at Merrill Lynch.  Prior to That,  Mr. Gordon was associated  with
the law firm of Irell & Manella in its real estate and banking group.

         Charles Humber joined NorthStar Capital Partners LLC in September 1997.
From 1996 to 1997,  Mr Humber was employed with Merrill Lynch in its real estate
investment  banking  group.  Prior to that,  Mr.  Humber  was a student at Brown
University.

         Adam Anhang joined NorthStar Capital Partners LLC in August 1997. From
1996 to 1997,  Mr. Anhang was employed by The Athena Group as part of its Russia
and former  Soviet  Union  development  team.  Prior to that,  Mr.  Anhang was a
student at the Wharton School of the University of Pennsylvania.

         Gregory Peck joined  NorthStar  Capital Partners LLC in July 1997. From
1996 to 1997,  Mr. Peck was employed by Morgan Stanley as part of Morgan Stanley
Realty Real Estate Funds  (MSREF) and Morgan  Stanley's  Real Estate  Investment
Banking Group. From 1994 to 1996, Mr. Peck worked for Lazard Freres & Co. LLC in
the Real Estate Investment Banking Group.

         Many of the  above  officers  and  directors  of the  Managing  General
Partner and Associate  General Partner are also officers and/or directors of the
general  partners of other public  partnerships  affiliated  with Presidio or of
various subsidiaries of Presidio.


                                       36
<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
renumeration  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."


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

                  As of March 1, 1999,  an  affiliate  of the  General  Partners
owned  approximately  16.8% 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 15,  1999  (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  share-holders  has sole voting and investment power as to the shares shown
unless otherwise noted.

                                       37
<PAGE>
         All  outstanding  shares  of  Presidio  are owned by  Presidio  Capital
Investment  Company,  LLC ("PCIC"),  a Delaware limited liability  company.  The
interests in PCIC (and beneficial ownership in Presidio) are held as follows:



                                               Percentage Ownership in PCIC and
                                              Percentage Beneficial Ownership
    Name of Beneficial Owner                             in Presidio
    ------------------------                  ---------------------------------
    
    Five Percent Holders:
    NorthStar Presidio Capital Holding Corp. (1)            71.93%
    AG Presidio Investors, LLC (2)                          14.12%
    DK Presidio Investors, LLC (3)                           8.45%
    Stonehill Partners, L.P. (4)                             5.50%

   The  holdings of the  directors  and  executive  officers of Presidio  are as
   follows:




                                              Percentage Ownership in PCIC and
                                              Percentage Beneficial Ownership
    Name of Beneficial Owner                             in Presidio
    ------------------------                  ---------------------------------
    Name of Beneficial Owner

    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%
    Dallas Lucas (5)                                         0%
    Allan Rothschild (5)                                     0%
    J. Peter Paganelli (5)                                   0%
    Lawrence Schachter (5)                                   0%
    W. Edward Scheetz (5)                                  71.93%

    Directors and Officers as a group:                     71.93%
    ----------------------------------


                                       38
<PAGE>
(1)      NorthStar  Presidio Capital Holding Corp. ("NS Presidio") is a Delaware
         corporation  whose address is c/o NorthStar  Capital  Investment Corp.,
         527 Madison Avenue,  16th Floor, New York, New York, 10022. NS Presidio
         has three  shareholders:  (1)  NorthStar  Partnership  L.P., a Delaware
         limited  partnership whose address is c/o NorthStar Capital  Investment
         Corp., 527 Madison Avenue, 16th Floor, New York, New York, 10022, holds
         99% of the common stock  (non-voting);(II) David T. Hamamoto holds 0.5&
         of the common stock (voting); and (III) W. Edward Scheetz holds 0.5% of
         the common stock (voting).





(2)      Each of Angelo,  Gordon & Co.,  L.P.,  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 & Co., L.P., may be
         deemed to  beneficially  own for purposes of Rule 13d-3 of the Exchange
         Act the securities  beneficially owned by AG Presidio  Investors,  LLC.
         Each of John M. Angelo and Michael L. Gordon  disclaims such beneficial
         ownership.  The business address for such persons is c/o Angelo, Gordon
         & Co., L.P., 245 Park Avenue, 26th Floor, New York, New York 10167.

                                       39
<PAGE>
(3)      M.H. Davidson & Company, 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  persons is c/o M.H.
         Davidson & Company, 885 Third Avenue, New York, New York 10022.

(4)      Includes  shares  of PCIC  beneficially  owned  by  Stonehill  Offshore
         Partners  Limited and  Stonehill  Partners,  L.P. John A. Motulsky is a
         managing general partner of Stonehill Partners, L.P., a managing member
         of the investment  advisor to Stonehill Offshore Partners Limited and a
         general  partner  of  Stonehill  Institutional  Partners  L.P.  John A.
         Motulsky  disclaims  beneficial  ownership  of the shares held by these
         entities.  The  business  address  for such  persons  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.

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

               The General Partners and certain affiliated entities have, during
the year ended December 31, 1998,  earned or received  compensation  or payments
for services or reimbursements from the Partnership or Presidio  subsidiaries as
follows:
<TABLE>
<CAPTION>
                                                                                    Compensation from
Name of Recipient                            Capacity in Which Served                the Partnership
-----------------                            ------------------------                ---------------
<S>                                          <C>                                       <C>          
Resources High Equity Inc.                   Managing General Partner                  $1,114,905(1)

Presidio AGP Corp.                           Associate General Partner                      1,584(2)

Resources Supervisory Management Corp.       Affiliated Property Managers                 158,774(3)
</TABLE>
----------- 

1        Of this amount $77,576  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  and  $887,329  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, 1998,  $42,773 of  the  Partnership's  taxable income was
         allocated to the Managing General Partner.

                                       40
<PAGE>
2        This  amount  represents  the  Associate  General  Partner's  share  of
         distributions of cash from operations.  In addition, for the year ended
         December  31,  1998,  $873  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   payable  to   Resources
         Supervisory  was $371,144,  of which $212,371 was paid to  unaffiliated
         management companies.


                                       41
<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). 

                                       42
<PAGE>
(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).

                  (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.

                                       43
<PAGE>
                  (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.
 
                  (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.


                                       44
<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, 1998 1997 AND 1996
                   -------------------------------------------

                                      INDEX
                                      -----

                                                                           Page
                                                                          Number
                                                                          ------

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

    Schedules -  December  31, 1998, 1997 and 1996 
       and years  then  ended,  as  required:
     

         Schedule III      - Real estate and accumulated depreciation       S-1

                           - Notes to Schedule III - Real estate and        S-2
                                    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.



                                       45
<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 29, 1999               By:     /s/ Allan Rothschild
                                            ---------------------
                                            Allan Rothschild
                                            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 29, 1999     By:  /s/ Allan Rothschild
                               ---------------------
                               Allan Rothschild
                               President and Director
                               (Principal Executive Officer)



Dated: March 29, 1999     By:  /s/ Lawrence Schachter
                                -----------------------
                               Lawrence Schachter
                               Senior Vice President and Chief Financial Officer
                               (Principal Financial and Accounting Officer)



Dated: March 29, 1999     By:  /s/ Dallas Lucas
                               -----------------
                               Dallas Lucas
                               Director


Dated: March 29, 1999     By:  /s/ David King
                               ---------------
                               David King
                               Director

                                       46
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
    A California Limited Partnership

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

                                                                                              Costs                 Reductions
                                                                                           Capitalized               Recorded
                                                                                          Subsequent to             Subsequent to   
                                                          Initial Cost                      Acquisition             Acquisition     
                                              -------------------------------      -----------------------------    -----------
         Description                                              Buildings                                                       
        -----------                                                  And                                                           
                                 Encumbrances       Land         Improvements      Improvements   Carrying Costs    Write Downs     
                                 ------------       ----         ------------      ------------   --------------    -----------     
 <S>                              <C>          <C>                  <C>              <C>             <C>            <C>
RETAIL:

The Southport    Ft.             $    --      $   6,961,667        $13,723,333      $ 1,833,613     $ 1,866,962    $(4,900,000)     
Shopping Center  Lauderdale, FL                                                

The Loch Raven   Towson, MD           --          2,469,871          6,860,748        2,839,104         953,837     (4,800,000)     
Shopping Center                 ----------   -------------        -----------      -----------     -----------    -----------      
                                      --          9,431,538         20,584,081        4,672,717       2,820,799     (9,700,000) 
                                 ----------   -------------        -----------      -----------      ----------    -----------      
 
OFFICE:

Century Park     Kearny Mesa,         --          3,122,064         12,717,936        1,952,221       1,363,130    (11,700,000)     
Office Complex   CA

568 Broadway     New York,  NY        --          2,318,801          9,821,517        5,108,031       1,556,212    (10,821,150)     
Office Building

Seattle Tower    Seattle, WA          --          2,163,253          5,030,803        2,160,343         609,392     (6,050,000)     
Office Building                  ----------    ------------        -----------      -----------      ----------   ------------      
                                      --          7,604,118         27,570,256        9,220,595       3,528,734    (28,571,150) 
                                 ----------    ------------        -----------      -----------      ----------   ------------      

                                 $    --       $ 17,035,656        $48,154,337      $13,893,312      $6,349,533   $(38,271,150)     
                                 ==========    ============        ===========      ===========      ==========   ============     
</TABLE>
<PAGE>
<TABLE> 
<CAPTION>
                                                        Gross Amount at Which                                         
                                                      Carried at Close of Period   
                                         ---------------------------------------------------
                                                                 Buildings                                                       
                                                                    And                         Accumulated      Date   
                                              Land             Improvements         Total       Depreciation   Acquired 
                                         --------------         -----------      -----------    -----------    -------- 
<S>                                      <C>                   <C>              <C>            <C>              <C>     
RETAIL:                         
                                
The Southport    Ft.            
Shopping Center  Lauderdale, FL          $    5,998,194         $13,487,381      $19,485,575    $ 4,957,302      1986   
                                                                                                           
The Loch Raven   Towson, MD                                                                             
Shopping Center                               1,507,227           6,816,330        8,323,557      2,329,632      1986   
                                         --------------         -----------      -----------    -----------             
                                              7,505,421          20,303,711       27,809,132      7,286,934             
OFFICE:                                  --------------         -----------      -----------    -----------                      
                                                                                                           
Century Park     Kearny Mesa,                 1,123,811           6,331,540        7,455,351      3,048,080      1986  
Office Complex   CA                                                                                        
                                                                                                           
568 Broadway     New York,  NY                  977,120           7,006,291        7,983,411      2,873,194      1986          
Office Building                                             
                                                                                                           
Seattle Tower    Seattle, WA                                                                               
Office Building                                 764,613           3,149,178        3,913,791      1,435,125      1986   
                                         --------------         -----------      -----------    -----------             
                                                                                                           
                                              2,865,544          16,487,009       19,352,553      7,356,399    
                                         --------------         -----------      -----------    -----------             
                                                                                                          
                                         $   10,370,965         $36,790,720      $47,161,685    $14,643,333            
                                         ==============         ===========      ===========    ===========             
</TABLE>
 

                                      S-1
Note:    The aggregate cost for  Federal income  tax purposes  is $85,432,835 at
         December 31, 1998.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
   A California Limited Partnership

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998

(A)    RECONCILIATION OF REAL ESTATE OWNED:

<TABLE>
<CAPTION>
                                               For the Years Ended December 31,
                                     -----------------------------------------------
                                          1998             1997             1996
                                     ------------     -------------    ------------- 
<S>                                  <C>              <C>              <C>         
BALANCE AT BEGINNING OF YEAR ...     $ 47,841,674     $ 45,874,047     $ 45,228,760

ADDITIONS DURING THE YEAR
     Improvements to Real Estate        2,083,198        1,967,627          645,287

SUBTRACTIONS DURING THE YEAR
      Sales - Net
                                       (2,763,187)              --               --
                                     ------------     ------------     ------------

BALANCE AT END OF YEAR (1) .....     $ 47,161,685     $ 47,841,674     $ 45,874,047
                                     ============     ============     ============
</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,
                                  ----------------------------------------------- 
                                      1998              1997             1996
                                 ------------      ------------     ------------
<S>                              <C>               <C>              <C>         
BALANCE AT BEGINNING OF YEAR     $ 14,807,964      $ 13,719,794     $ 12,694,788

ADDITIONS DURING THE YEAR
     Depreciation Expense(1)        1,164,109         1,088,170        1,025,006

SUBTRACTIONS DURING THE YEAR
     Sales .................       (1,328,740)               --               --
                                 ------------      ------------     ------------

BALANCE AT END OF YEAR .....     $ 14,643,333      $ 14,807,964     $ 13,719,794
                                 ============      ============     ============

</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 AND ON
     TENANT IMPROVEMENTS OVER THE ESTIMATED TERM OF THE RELATED LEASE.

                                      S-2