FORM 10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

For the Fiscal Year Ended                                Commission File Number
December 31, 2000                                                       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                               (IRS Employer
incorporation or organization)                            Identification Number)

5 Cambridge Center, 9th Floor, Cambridge, MA                      02142
--------------------------------------------                    ----------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:           (617) 234-3000
                                                              --------------

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

                                      NONE

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

                      UNITS OF LIMITED PARTNERSHIP INTEREST

     Indicate by check mark whether 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 and (2) has been subject to such filing
requirements for the past 90 days.

                           Yes   X                            No
                               -----                             -----

     There is no public market for the Limited Partnership Units. Accordingly,
information with respect to the aggregate market value of Limited Partnership
Units held by non-affiliates of Registrant has not been supplied.

     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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

                       Documents incorporated by reference

                                      None


                                       1
<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 three office
buildings and two shopping centers. See "Item 2. Properties" for a description
of the Partnership's 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, NorthStar Capital Investment Corp.,
a Maryland corporation, acquired control of Presidio. 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. See
"Employees" below.

     In 1986, the Partnership offered and sold 400,000 units of limited
partnership interest (the "Units"). Upon final admission of limited partners,
the Partnership had accepted subscriptions for 400,010 Units 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.

     The Partnership 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 two fiscal years: during 2000 Southport
Shopping Center and 568 Broadway represented 35% and 29% of gross revenues,
respectively; during 1999 Southport Shopping Center and 568 Broadway represented
34% and 28% of gross revenues, respectively. See "Item 2. Properties" for a
description of the Partnership's properties.

Settlement of Class Action Lawsuit

     In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the
Partnership. Under the terms of the settlement, the General Partners agreed to
take the actions described below subject to first obtaining the consent of
limited partners to amendments to the Agreement of Limited Partnership of the
Partnership summarized below. The settlement became effective in August 1999
following approval of the amendments. As amended, the Partnership Agreement (a)
provides for a Partnership Management Fee equal to 1.25% of the gross asset
value of the Partnership and a fixed 1999 Partnership Management Fee of $418,769
or $426,867 less than the amount that would have been paid for 1999 under the
prior formula and (b) fixes the amount that the General Partners will be liable
to pay to limited partners upon liquidation of the Partnership as repayment of
fees previously received (the "Fee Give-Back Amount"). As of January 31, 2001,
the Fee Give-Back Amount was approximately $7.74 per Unit which amount will be
reduced by approximately $.98 per Unit for each full calendar year after 2000 in
which a liquidation does not occur and pro rated for a liquidation prior to the
end of a year. As amended, the Partnership Agreement provides that, upon a
reorganization of the Partnership into a real estate investment trust or other
public entity, the General Partners will have no further liability to pay the
Fee Give-Back Amount. In accordance with the terms of the settlement, Presidio
guaranteed payment of the Fee Give-Back Amount.

                                       2

<PAGE>

     As required by the settlement, an affiliate of the General Partners,
Millennium Funding II, LLC, made a tender offer to limited partners to acquire
up to 26,936 Units (representing approximately 6.7% of the outstanding Units) at
a price of $114.60 per Unit. The offer closed in January 2000 and all 26,936
Units were acquired in the offer.

     The final requirement of the settlement obligated the General Partners to
use their best efforts to reorganize the Partnership into a real estate
investment trust or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February 11,
2000 with respect to the restructuring of the Partnership into a publicly-traded
real estate investment trust. On or about February 15, 2001, a
Prospectus/Consent Solicitation Statement was mailed to the limited partners of
the Partnership seeking their consent to the reorganization of the Partnership
into a real estate investment trust. See "Conversion of the Partnership" below.

Conversion of the Partnership

     The consent of limited partners is being sought to approve the conversion
of the Partnership into a publicly-traded real estate investment trust called
Shelbourne Properties I, Inc. ("Shelbourne"). If the conversion is approved,
each limited partner of the Partnership will receive three shares of common
stock of Shelbourne for each Unit which they own. The common stock of Shelbourne
will be listed on the American Stock Exchange. The consent solicitation period
expires on April 16, 2001 and the consent of holders of a majority of the Units
is required for the approval of the conversion.

     The conversion will be accomplished by merging the Partnership into a
newly-formed limited partnership called Shelbourne Properties I, LP ("Shelbourne
Properties"). Shelbourne Properties will function as the operating partnership
through which Shelbourne will conduct all of its business. Shelbourne will be a
limited partner of Shelbourne Properties and a wholly-owned subsidiary of
Shelbourne will be the general partner of Shelbourne Properties.

     Shelbourne's primary business objective will be to maximize the value of
its common stock. Shelbourne will seek to achieve this objective by making
capital improvements to and/or selling properties and by making additional real
estate-related investments. Shelbourne may invest in a variety of real
estate-related investments, including undervalued assets and value-enhancing
situations, in a broad range of property types and geographical locations.
Shelbourne may raise additional capital by mortgaging existing properties or by
selling equity or debt securities. Shelbourne may acquire its investments for
cash or by issuing equity securities, including limited partnership interests in
Shelbourne Properties.

     Shelbourne will have a Board of Directors consisting of nine directors,
three of whom will be independent directors. Shelbourne Management LLC
("Shelbourne Management"), an affiliate of the General Partners, will manage the
day-to-day affairs of Shelbourne under an advisory agreement. Shelbourne
Management intends to retain Kestrel Management L.P. ("Kestrel") to perform
property management services for Shelbourne. Kestrel, an affiliate of Shelbourne
Management and the General Partners, currently provides similar services for the
Partnership.

Competition

     The real estate business is highly competitive and, as discussed more
particularly in "Item 2. Properties" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Real Estate Market",
the properties acquired by the Partnership may have active competition from
similar properties in their vicinity. In addition, various limited partnerships
have been formed by the Managing General Partner and/or its affiliates and
agents 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

     The Partnership does not have any employees. Presidio previously retained
Wexford Management LLC ("Wexford") to provide consulting and administrative
services to Presidio and its affiliates, including the Managing General Partner
and the Partnership. The agreement with Wexford expired on May 3, 1998 at which
time Presidio

                                       3

<PAGE>

entered into a management agreement with NorthStar Presidio Management Company,
LLC ("NorthStar Presidio"). Under the terms of the management agreement,
NorthStar Presidio provided the day-to-day management of Presidio and its direct
and indirect subsidiaries and affiliates.

     Presidio determined that it would be more cost effective to retain AP-PCC
III, L.P. (the "Agent") to provide asset management and investor services for
the Partnership. Accordingly, on October 21, 1999 Presidio entered into a
Services Agreement with the Agent pursuant to which the Agent was retained to
provide asset management and investor relation services to the Partnership and
other entities affiliated with the Partnership.

     As a result of this agreement, the Agent has the duty to direct the day to
day affairs of the Partnership, including, without limitation, reviewing and
analyzing potential sale, financing or restructuring proposals regarding the
Partnership's assets, preparation of all reports, maintaining records and
maintaining bank accounts of the Partnership. The Agent is not permitted,
however, without the consent of Presidio, or as otherwise required under the
terms of the Limited Partnership Agreement to, among other things, cause the
Partnership to sell or acquire an asset or file for bankruptcy protection.

     In order to facilitate the Agent's provision of the asset management
services and the investor relation services, effective October 25, 1999, the
officers and directors of the General Partners resigned and nominees of the
Agent were elected as the officers and directors of the General Partners. See
Item 10, "Directors and Executive Officers of the Partnership". The Agent is an
affiliate of Winthrop Financial Associates, a Boston based company that provides
asset management services, investor relation services and property management
services to over 150 limited partnerships which own commercial property and
other assets. The General Partners do not believe this transaction will have a
material effect on the operations of Partnership.

     On-site personnel perform services for the Partnership at the properties.
Salaries for such on-site personnel are paid by the management company that
services the Partnership's properties. Effective October 2000, Kestrel, an
affiliate of the Agent and the General Partners, began providing such services.

ITEM 2. PROPERTIES

     The Partnership owned the following properties as of December 31, 2000 and
March 15, 2001:

     (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 built in
phases from 1968 to 1977 and expanded again and renovated in 1985. The site
provides parking for 563 cars. The roof on the West quadrant of the main center
building was replaced in 1998 and the center was repainted.

     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 and 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.

     (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
approximately 125,000 square feet of retail space, with parking for
approximately 655 vehicles.

     Towson Marketplace, which competes directly with the Loch Raven for
tenants, has been redeveloped and includes Michael's Crafts, Marshall's, Target,
Montgomery Ward and TOYS "R" US as tenants.

                                       4

<PAGE>

     (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 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.

     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, 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
300,000 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. 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.

     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 167,000 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, 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. There are approximately seventy
tenants occupying the building. Leasing efforts are focused on consolidating
space to create single floor tenants.

     In February 2001, the Seattle area was hit with an earthquake. While the
extent of the damage to Seattle Tower is still being assessed, it appears, at
present, to be minor. It is expected that insurance will cover the costs
associated with such damage.

                                       5

<PAGE>

     The Partnership believes that Seattle Tower's primary direct competition
comes from three office buildings of similar size or age in the immediate
vicinity of Seattle Tower, which buildings have current occupancy rates which
are comparable to Seattle Tower's.

Occupancy

     The following table lists the occupancy rates of the Partnership's
properties at the beginning of each of the last 2 years.

                                                       OCCUPANCY
                                              ----------------------------
               PROPERTY                       1/1/2001            1/1/2000
               --------                       --------            --------
    Southport Shopping Center                    95%                 98%
    Loch Raven Plaza                             87%                 92%
    Century Park I Office Complex               100%                100%
    568 Broadway Office Building                100%                100%
    Seattle Tower Office Building                95%                 98%


     The following table contains information for each tenant that occupies ten
percent or more of the rentable square footage of any of the Partnership's
properties.

<TABLE>
<CAPTION>

                                             Principal     Square Feet                     Lease
                                            Business of     Leased by                    Expiration       Renewal
  Property              Name of Tenant        Tenant         Tenant       Annual Rent       Date          Options
  --------              --------------      -----------    -----------    -----------    ----------       -------
<S>                     <C>                 <C>              <C>             <C>           <C>             <C>
Southport               Publix              Grocery          35,000          $100,129      3/31/05         3-5yr.
Shopping Center         Supermarket         retailer

Loch Raven Plaza        Greetings &         Retailer         42,166          $194,806      1/31/04         4-5yr.
                        Readings

                        Super Fresh         Grocery          26,648           $87,000      9/30/05         5-5yr.
                                            retailer

Century Park            San Diego Gas &     Utilities        75,969          $962,651     11/30/07         1-5yr.
                        Electric

                        Per-Se              Physician's      64,817          $813,334      7/31/05         2-5yr.
                        Technologies        billing
                                            service

                        CitiFinancial       Loan             25,988          $407,222     10/31/02         1-5yr.
                                            servicing

568 Broadway            Scholastic          Publishing       89,000        $1,412,228      4/30/08         1-5yr.

Seattle Tower           Electric            Telephone        23,475          $363,393      8/31/09           None
                        Lightwave           switching
                                            company
</TABLE>

                                       6
<PAGE>

Capital Improvements

     See "Item 7. Management's Discussion and Analysis and Results of
Operations."

ITEM 3. LEGAL PROCEEDINGS

     See "Item 1. Business-Settlement of Class Action Lawsuit" for information
relating to the settlement of the class action lawsuit in which the Partnership
was a defendant.

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. However, the consent of limited partners is presently
being solicited to convert the Partnership into a real estate investment trust.
See, "Item 1. Business-Conversion of the Partnership."


                                       7
<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") that 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 January 1, 2001, there were 8,735 holders of Units of the
Partnership, owning an aggregate of 400,010 Units.

     The Partnership distributed $.94 per Unit during the first and second
quarters of 1999. Commencing with the third quarter of 1999, distributions were
suspended while the requirements of the settlement agreement of the class action
and derivative litigation involving the Partnership were completed. The source
of distributions for the first two quarters of 1999 was cash flow from
operations. 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.

     Over the past few years, many companies have begun making "mini-tenders"
(offers to purchase an aggregate of less than 5% of the total outstanding Units)
for Units. Pursuant to the rules of the Securities and Exchange Commission, when
a tender offer is commenced for Units, the Registrant is required to provide
limited partners with a statement setting forth whether it believes limited
partners should tender or whether it is remaining neutral with respect to the
offer. Unfortunately, the rules of the Securities and Exchange Commission do not
require that the bidders in certain tender offers provide the Registrant with a
copy of their offer. As a result, the General Partners often do not become aware
of such offers until shortly before they are scheduled to expire or even after
they have expired. Accordingly, the General Partners do not have sufficient time
to advise limited partners of its position on the tender. In this regard, please
be advised that pursuant to the discretionary right granted to the General
Partners of the Partnership in the Partnership Agreement to reject any transfers
of Units, the General Partners will not permit the transfer of any Unit in
connection with a tender offer unless: (i) the Registrant is provided with a
copy of the bidder's offering materials, including amendments thereto,
simultaneously with their distribution to the limited partners; (ii) the offer
provides for withdrawal rights at any time prior to the expiration date of the
offer and, if payment is not made by the bidder within 60 days of the date of
the offer, after such 60 day period; and (iii) the offer must be open for at
least 20 business days and, if a material change is made to the offer, for at
least 10 business days following such change.

                                       8

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                   For the Years Ended December 31,
                                -----------------------------------------------------------------------------
                                    2000           1999            1998             1997             1996
                                -----------     -----------     -----------      -----------      -----------
<S>                             <C>             <C>             <C>              <C>              <C>
Total Revenue                   $10,952,443     $11,388,898     $ 9,798,441      $ 9,297,488      $ 9,139,351
Net Income                        3,847,300       4,847,538       2,931,223(1)     2,134,659        2,134,717
Net Income per Unit                    9.14           11.51            6.96             5.07             5.07
Distribution Per Unit(2)               --              1.88            3.76             3.57             2.40
Total Assets                     47,872,681      44,178,753      40,814,689       39,600,417       39,290,185
</TABLE>

(1)  Total revenue and net income for the year ended December 31, 1998 includes
     a $389,359 gain, or $0.92 per unit, from the sale of the Westbrook
     property.

(2)  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.

                                       9

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-K and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's liquidity, capital resources and results of
operations, including forward-looking statements pertaining to such matters,
does not take into account the effects of any changes to the Partnership's
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.

LIQUIDITY AND CAPITAL RESOURCES

     The Partnership's real estate properties are three office buildings and two
shopping centers, all of which were acquired for cash. The Partnership's public
offering of the Units commenced on February 4, 1985. As of May 30, 1986, the
date of the final admission of limited partners, 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 generates rental revenues from its commercial
properties and is responsible for each property's operating expenses as well as
its own administrative expenses.

     The Partnership uses working capital reserves and any undistributed cash
from operations as its primary source of liquidity. For the year ended December
31, 2000, all capital expenditures were funded from cash flow and working
capital reserves. As of December 31, 2000 the Partnership had total working
capital reserves of approximately $12,051,688. 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.

     The Partnership had $13,229,944 of cash and cash equivalents at December
31, 2000, as compared to $8,521,370 at December 31, 1999. During the year ended
December 31, 2000, cash and cash equivalents increased $4,708,574 as a result of
$4,864,132 of net cash provided by operating activities which was partially
offset by $155,558 of improvements to real estate (investing activities). The
Partnership's primary source of funds is cash flow from the operation of its
properties, principally rents received from tenants.

     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

                                2000          1999             1998
                              --------     ----------      ----------
    Southport                 $118,287     $  272,628      $  502,081
    Loch Raven                  55,784         95,206         908,324
    Century Park I              23,328        173,239          89,729
    568 Broadway               151,361        154,616         293,021
    Seattle Tower               87,155        355,407         490,322
                              --------     ----------      ----------
    Totals                    $435,915     $1,051,096      $2,283,477
                              ========     ==========      ==========

     The Partnership has budgeted expenditures for capital improvements and
capitalized tenant procurement costs of $2,505,000 in 2001. These costs are
expected to be incurred in the normal course of business and are expected to be
funded from cash flow from operations and working capital reserves. 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 future 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 cash flow from

                                       10

<PAGE>

operations which would otherwise be available for distributions. Current working
capital is thought to be sufficient for any near term needs of the Partnership.
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

     In the markets in which the Partnership's properties are located, the
market values of existing properties continue to recover from the effects of the
substantial decline in the real estate market in the early 1990's. However, in
select markets, values have been slow to recover, and high vacancy rates
continue to exist in some areas. The geographic diversity of the Partnership's
properties decreases the risk of a significant partnership devaluation resulting
from an isolated market slump in a particular region. The overall economic
outlook for the specific markets in which the Partnership's properties are
located continues to be stable to improving.

     The outlook is particularly positive for 568 Broadway as office and retail
space in the Midtown South sub-market in which 568 Broadway is located is
becoming increasingly popular. Little new office and retail space inventory have
been introduced to offset demand in the area, resulting in a favorable operating
environment for the property. Rents are thus anticipated to continue to increase
at the property for the foreseeable future.

     Likewise, the outlook for Seattle Tower is positive as extraordinary
business development in the Puget Sound region and the demand for space in the
central business district of Seattle continue. Nonetheless, due to the age of
many of the leases at the building and the functional obsolescence of the
building for many potential tenants, much of the space at Seattle Tower is
currently leased at below market rental rates. The property thus has the
potential for substantially improved operations as current leases expire and the
capital needs of the property are addressed. In an effort to maximize rents over
the next four years, in excess of $2.5 million is budgeted for capital
improvements at Seattle Tower. This capital work will attempt to address the
extremely outdated mechanical systems and the lack of technological
infrastructure at the property, both of which are currently impeding the
property's realization of market rental rates. It is anticipated that these
improvements coupled with expected overall growth in the office market in
downtown Seattle would position the property for a substantial improvement in
operations in the future.

     The prospects for the Partnership's retail properties are also very good as
demand for retail space in the properties' sub-markets is very high and vacancy
low. Both Southport and Loch Raven are situated in well-established commercial
areas, and are extremely popular in their respective communities. The general
economies and demographic trends in both the Baltimore and Fort Lauderdale
sub-markets in which the properties operate suggest a sound outlook for the
properties.

     Demand for office and research and development space in the Kearny Mesa
office sub-market in which Century Park is located is very strong, contributing
to historically high occupancy levels in the area. New supply that is entering
the marketplace is, however, expected to slow the growth of rental rates and the
market has begun to soften slightly. Nonetheless, overall growth in the real
estate market is expected to continue and the property is believed to be well
situated and adequately configured to benefit from this anticipated improvement.
The extent to which Century Park will realize the benefit of any market
appreciation will, however, be subject to the terms of the existing leases at
the property, which are not scheduled to expire for several years.

     Technological changes are also occurring which may reduce the space needs
of many tenants and potential tenants and may alter the demand for amenities and
power supplies at the Partnership's properties. As a result of these changes and
the continued risk for overall market volatility, the Partnership's potential
for realizing the full value of its investment in the properties is at continued
risk.

IMPAIRMENT OF ASSETS

     The Partnership evaluates the recoverability of the net carrying value of
its real estate and related assets at least annually, and more often if
circumstances dictate as required by SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." If there is
an indication that the carrying amount of a

                                       11

<PAGE>

property may not be recoverable, the Partnership prepares an estimate of the
future undiscounted cash flows expected to result from the use of the 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 undiscounted cash flow 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 as
required by SFAS No. 121. 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 adjustments to reduce the carrying value of the real estate
assets 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.

     Management is not aware of any other current trends, events, or commitments
that will have a significant impact on the long-term value of the properties.
However, 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. Actual results may vary from the estimates and
the variances may be material.

     All of the Partnership's properties have experienced varying degrees of
operating difficulties and the Partnership recorded significant impairment
adjustments in prior years. Improvements in the real estate market and in
property operations resulted in no adjustments for impairment being needed from
1996 through December 31, 2000.

                                       12

<PAGE>

     The following table represents the historical cost less accumulated
depreciation, the December 31, 2000 carrying value and the impairment
adjustments recorded to date against the Partnership's properties held as of
December 31, 2000:

<TABLE>
<CAPTION>

                                                 HISTORICAL COST
                                                 LESS ACCUMULATED     ADJUSTMENT FOR         12/31/00
                                                   DEPRECIATION         IMPAIRMENT        CARRYING VALUE
                                                 ----------------     --------------      --------------

              DESCRIPTION
              -----------
<S>                                                <C>                   <C>               <C>
         Southport Shopping Center
         Fort Lauderdale, Florida                  $18,857,208           $4,900,000        $13,957,208

         Loch Raven Plaza
         Retail/Office Complex
         Towson, Maryland                           10,463,685            4,800,000          5,663,685

         Century Park I Office
         Complex Kearny Mesa,
         California (50% owned)                     15,875,637           11,700,000          4,175,637

         568 Broadway Office
         Building New York, New
         York (38.925% owned)                       15,652,567           10,821,150          4,831,417

         Seattle Tower Office
         Building Seattle, Washington
         (50% owned)                                 8,807,794            6,050,000          2,757,794
                                                   -----------          -----------        -----------
                  TOTAL                            $69,656,891          $38,271,150        $31,385,741
                                                   ===========          ===========        ===========
</TABLE>

APPRAISALS

     In connection with the proposed conversion of the Partnership into a real
estate investment trust, the General Partners obtained appraisals for each of
the Partnership's properties. The following table sets forth the June 30, 2000
appraised value of the properties. The adjusted appraised value column reflects
a 25% or 30% discount to the appraised values of properties held in joint
venture. The appraiser attributed these discounts to the illiquidity of the
Partnership's interest in the joint ventures. The appraiser determined the
discounts by taking into account the Partnership's lack of control over the
properties, the inability of the Partnership to sell its interest without the
consent of other venture partners, and the lack of a market in which to sell the
joint venture interests.

          PROPERTY                  APPRAISED VALUE     ADJUSTED APPRAISED VALUE
          --------                  ---------------     ------------------------
     Southport Shopping Center        $21,700,000             $ 21,700,000
     Loch Raven Plaza                   8,100,000                8,100,000
     Century Park I (1)                10,500,000                7,875,000
     568 Broadway (2)                  19,462,500               13,623,750
     Seattle Tower (1)                 11,350,000                8,512,500
                                      -----------             ------------
                                      $71,112,500             $ 59,811,250
                                      ===========             ============

---------------

(1)  The Partnership has a 50% interest in these properties and the amounts
     listed in the table represent 50% of the applicable value. The adjusted
     appraised value represents a 25% discount to the appraised value.

(2)  The Partnership has a 38.925% interest in this property and the amount
     listed in the table represents 38.925% of the applicable value. The
     adjusted appraised value represents a 30% discount to the appraised value.

                                       13

<PAGE>

RESULTS OF OPERATIONS

     2000 VS. 1999

     The Partnership experienced a decrease in net income of 20.63% for the year
ended December 31, 2000 to $3,847,300 compared to the prior year net income of
$4,847,538. This decrease was due to reductions in rental revenue and other
income and an increase in costs and expenses, partially offset by an increase in
interest income.

     Rental revenues decreased during the year ended December 31, 2000 to
$10,335,197 from $10,941,322 for the same period in 1999 due to an increase in
base rent and escalations of $625,938 which was more than offset by decreases in
step lease rental adjustments recorded for accounting purposes (adjustments to
account for the recognition of rent on a straight-line basis) of $1,232,063.

     Costs and expenses increased by 8.6% during the year ended December 31,
2000 to $7,105,143 compared to $6,541,360 for the same period in 1999, primarily
due to increases in partnership management fee, operating expenses and
depreciation and amortization which more than offset a decrease in
administrative expenses. Partnership management fees increased to $926,084 in
2000 from $418,768 in 1999 due to the amendment to the partnership agreement
which significantly reduced the amount payable in 1999 and changed the method of
calculating such fee in subsequent years. Operating expense increased 6.34% to
$3,479,665 as compared to 1999 due to increases in real estate taxes and
utilities partially offset by savings in repairs and maintenance. Depreciation
and amortization increased $76,163 or 5.7% due to higher depreciation recorded
in 2000 on certain capitalized tenant improvements. Administrative expenses for
the year ended December 31, 2000 decreased $251,511 or 20.7% compared to 1999
due to lower professional fees associated with the settlement of the litigation
and reorganization of the Partnership.

     Interest income increased by 70% to $568,115 in 2000 due to higher interest
rates and higher invested cash balances during the current year compared to
1999. Other income decreased by $64,329 during the year ended December 31, 2000
to $49,131 compared to $113,460 in 1999 due to an decrease in fees from investor
servicing primarily related to a decrease in investor transfer.

     1999 VS. 1998

     The Partnership experienced an increase in net income of 65.4% for the year
ended December 31, 1999 to $4,847,538 compared to the prior year net income of
$2,931,223 due to higher rental revenues and lower costs and expenses. The
increases to net income also reflected higher interest and other income during
1999.

     Rental revenues increased by 19.1% during the year ended December 31, 1999
to $10,941,322 from $9,189,542 for the same period in 1998 primarily due to step
lease rental adjustments recorded for accounting purposes (adjustments to
account for the recognition of rent on a straight-line basis) in 1999 of
$1,209,354 as well as increases in base rent and escalations.

     Costs and expenses decreased by 4.7% during the year ended December 31,
1999 to $6,541,360 compared to $6,867,218 for the same period in 1998, primarily
due to decreases in partnership management and property management fees and
partially offset by an increase in administrative expenses. Administrative
expenses for the year ended December 31, 1999 increased $299,193 or 32.7%
compared to 1998 due to higher professional fees related to the settlement of
the litigation and reorganization of the Partnership. Depreciation and
amortization decreased $73,253 or 5.2% due to higher depreciation recorded in
1998 on certain capitalized tenant improvements. Partnership management fees
decreased $468,561 or 52.8% in 1999 due to an amendment to the partnership
agreement.

     Interest income increased by 80.3% to $334,116 in 1999 due to higher
interest rates and higher invested cash balances during the current year
compared to 1998. Other income increased by $79,210 during the year ended
December 31, 1999 to $113,460 compared to $34,250 in 1998 due to an increase in
fees from investor servicing primarily related to an increase in investor
transfers.

                                       14

<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     The Registrant has no loan payables. As such the Registrant does not have
any market risk of interest rate volatility. However, to the extent that
interest rates are lowered, interest income on the Registrant's cash reserves
will, accordingly, decrease. The Registrant does not believe that it has any
risks related to derivative financial instruments.

                                       15

<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, 2000, 1999 AND 1998

                                    I N D E X

<TABLE>
<CAPTION>

                                                                                  Page
                                                                                 Number
                                                                                 ------

<S>                                                                                 <C>
Independent Auditors' Report.........................................................17

Financial statements, years ended December 31, 2000, 1999 and 1998

         Balance Sheets..............................................................18

         Statements of Operations....................................................19

         Statements of Partners' Equity..............................................20

         Statements of Cash Flows....................................................21

         Notes to Financial Statements...............................................22
</TABLE>

                                       16

<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,
2000 and 1999, and the related statements of operations, partners' equity and
cash flows for each of the three years in the period ended December 31, 2000.
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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America. 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.

DELOITTE & TOUCHE LLP
March 16, 2001
Boston, MA

                                       17

<PAGE>


INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                                 BALANCE SHEETS

                                                             DECEMBER 31,
                                                     ---------------------------
                                                         2000            1999
                                                     -----------     -----------

ASSETS

Real estate, net                                     $31,385,741     $32,352,714
Cash and cash equivalents                             13,229,944       8,521,370
Other assets                                           3,040,423       3,095,251
Receivables, net of allowance of $170,309
   and $226,500, respectively                            216,573         209,418
                                                     -----------     -----------

TOTAL ASSETS                                         $47,872,681     $44,178,753
                                                     ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses                $   781,936     $ 1,224,373
Due to affiliates                                        396,320         107,255
                                                     -----------     -----------

     Total liabilities                                 1,178,256       1,331,628
                                                     -----------     -----------

COMMITMENTS AND CONTINGENCIES (Note 7)

PARTNERS' EQUITY:

  Limited partners' equity (400,010
    units issued and outstanding)                     44,358,754      40,703,819
  General partners' equity                             2,335,671       2,143,306

     Total partners' equity                           46,694,425      42,847,125
                                                     -----------     -----------

TOTAL LIABILITIES AND PARTNERS' EQUITY               $47,872,681     $44,178,753
                                                     ===========     ===========

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       18

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                     For the Year Ended December 31
                                             ---------------------------------------------
                                                 2000            1999             1998
                                             -----------      -----------      -----------
<S>                                          <C>              <C>              <C>
Rental Revenue                               $10,335,197      $10,941,322      $ 9,189,542
                                             -----------      -----------      -----------

Costs and Expenses:

   Operating expenses                          3,479,665        3,272,085        3,276,169
   Depreciation and amortization               1,419,420        1,343,257        1,416,510
   Partnership management fee                    926,084          418,768          887,329
   Administrative expenses                       963,748        1,215,259          916,066
   Property management fee                       316,226          291,991          371,144
                                             -----------      -----------      -----------
                                               7,105,143        6,541,360        6,867,218
                                             -----------      -----------      -----------

Income before gain on sale of property,
interest and other income                      3,230,054        4,399,962        2,322,324

         Gain on sale of property                   --               --            389,359
         Interest income                         568,115          334,116          185,290
         Other income                             49,131          113,460           34,250
                                             -----------      -----------      -----------

Net Income                                   $ 3,847,300      $ 4,847,538      $ 2,931,223
                                             ===========      ===========      ===========

Net income attributable to:

        Limited partners                     $ 3,654,935      $ 4,605,161      $ 2,784,662

        General partners                         192,365          242,377          146,561
                                             -----------      -----------      -----------

Net income                                   $ 3,847,300      $ 4,847,538      $ 2,931,223
                                             ===========      ===========      ===========

Net income per unit of limited partnership
  interest (400,010 units outstanding)       $      9.14      $     11.51      $      6.96
                                             ===========      ===========      ===========
</TABLE>

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       19

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                         STATEMENTS OF PARTNERS' EQUITY

<TABLE>
<CAPTION>

                                             General            Limited
                                            Partners'          Partners'
                                              Equity            Equity              Total
                                          ------------       ------------       ------------
<S>                                       <C>                <C>                <C>
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
($3.76 per limited partnership unit)           (79,160)        (1,504,036)        (1,583,196)
                                          ------------       ------------       ------------

BALANCE, DECEMBER 31, 1998                   1,940,510         36,850,676         38,791,186

Net Income                                     242,377          4,605,161          4,847,538

Distributions as a return of capital
($1.88 per limited partnership unit)           (39,581)          (752,018)          (791,599)
                                          ------------       ------------       ------------

BALANCE, DECEMBER 31, 1999                   2,143,306         40,703,819         42,847,125

Net Income                                     192,365          3,654,935          3,847,300
                                          ------------       ------------       ------------

BALANCE, DECEMBER 31, 2000                $  2,335,671       $ 44,358,754       $ 46,694,425
                                          ============       ============       ============
</TABLE>

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       20

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                      For the Years Ended December 31,
                                                             --------------------------------------------------
                                                                 2000               1999              1998
                                                             ------------       ------------       ------------
<S>                                                          <C>                <C>                <C>
CASH FLOW FROM OPERATING ACTIVITIES:

Net Income                                                   $  3,847,300       $  4,847,538       $  2,931,223
Adjustments to reconcile net income to net
cash provided by operating activities:
    Gain on sale of property                                         --                 --             (389,359)
     Depreciation and amortization                              1,419,420          1,343,257          1,416,510
     Straight line adjustment for stepped lease rentals           (18,920)        (1,250,983)           (41,629)
Changes in operating assets and liabilities:
     Accounts payable and accrued expenses                       (442,437)           (40,891)            81,544
     Receivables                                                   (7,155)           (61,995)            35,145
     Due to affiliates                                            289,065           (255,185)          (215,299)
     Other assets                                                (223,141)          (418,340)          (243,951)
                                                             ------------       ------------       ------------
Net cash provided by operating activities                       4,864,132          4,163,401          3,574,184
                                                             ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Proceeds from sale of real estate                               --                 --            2,042,964
     Improvements to real estate                                 (155,558)          (756,274)        (2,083,198)
                                                             ------------       ------------       ------------
Net cash used in investing activities                            (155,558)          (756,274)           (40,234)
                                                             ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

     Distributions to partners                                       --           (1,187,398)        (1,583,196)
                                                             ------------       ------------       ------------

Increase in Cash and Cash Equivalents                           4,708,574          2,219,729          1,950,754

Cash and Cash Equivalents, Beginning of Year                    8,521,370          6,301,641          4,350,887
                                                             ------------       ------------       ------------

Cash and Cash Equivalents, End of Year                       $ 13,229,944       $  8,521,370       $  6,301,641
                                                             ============       ============       ============
</TABLE>

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       21

<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 currently invests in two shopping center and three office
     properties, none of which are encumbered by debt. See "Note 9."

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 accounting
     principles generally accepted in the United States of America 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.

     CASH AND CASH EQUIVALENTS

     The Partnership considers all short-term investments that have original
     maturities of three months or less from the date of issuance to be cash
     equivalents.

     REVENUE RECOGNITION

     Base rents are recognized on a straight line basis over the terms of the
     related leases. Percentage rents charged to retail tenants based on sales
     volume are recognized when earned pursuant to Staff Accounting Bulletin No
     101, "Revenue Recognition in Financial Statements," issued by the
     Securities and Exchange Commission in December 1999, and the Emerging
     Issues Task Force's consensus on Issue 98-9, "Accounting for Contingent
     Rent in Interim Financial Periods, "the Partnership defers recognition of
     contingent rental income (i.e., percentage/excess rent) in interim periods
     until the specified target (i.e., breakpoint) that triggers the contingent
     rental income is achieved. Recoveries from tenants for taxes, insurance and
     other operating expenses are recognized as revenue in the period the
     applicable costs are incurred.

     INVESTMENTS IN JOINT VENTURES

     Certain properties were purchased in joint venture ownership with
     affiliated partnerships that have the same, or affiliated, general partners
     as the Partnership. The Partnership owns an undivided interest and is
     severally liable for indebtedness it incurs in connection with its
     ownership interest in those properties. Therefore, the Partnership's
     financial statements present the assets, liabilities, revenues and expenses
     of the joint ventures on a pro rata basis in accordance with the
     Partnership's percentage of ownership.

     REAL ESTATE

     Real Estate is carried at cost, net of adjustments for impairment. Repairs
     and maintenance are charged to expense as incurred. Replacements and
     betterments are capitalized. 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. If there is an
     indication that the carrying amount of the property may not be recoverable,
     the Partnership prepares an estimate the future undiscounted cash flows
     expected to result from the use of the 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.

                                       22

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     If the sum of the expected undiscounted future cash flows 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.

     DEPRECIATION AND AMORTIZATION

     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 impairment adjustments. Tenant
     improvements and leasing costs are amortized over the applicable lease
     term.

     INCOME TAXES

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

     NET INCOME AND DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST

     Net income and distributions per unit of limited partnership interest are
     calculated based upon the number of limited partnership units outstanding
     (400,010) for each of the years ended December 31, 2000, 1999, and 1998. No
     distributions were paid in 2000.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2001, the Partnership adopted Statement of Financial
     Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
     and Hedging Activities." Because the Partnership does not currently utilize
     derivatives or engage in hedging activities, this standard did not have a
     material effect on the Partnership's financial statements.

                                       23

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

3.   CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

     The Managing General Partner of the Partnership, Resources High Equity
     Inc., is a wholly owned subsidiary of Presidio Capital Corp. ("Presidio").
     Presidio AGP Corp., which is also a wholly owned subsidiary of Presidio, is
     the Associate General Partner (together with the Managing General Partner,
     the "General Partners"). Affiliates of the General Partners are also
     engaged in businesses related to the acquisition and operation of real
     estate.

     Presidio is also the parent of other corporations that are or may in the
     future be engaged in business that may be in competition with the
     Partnership. Accordingly, conflicts of interest may arise between the
     Partnership and such other businesses. Subject to the rights of the Limited
     Partners under the Limited Partnership Agreement, Presidio controls the
     Partnership through its indirect ownership of all the shares of the General
     Partners. 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 years ended
     December 31, 2000, 1999 and 1998, reimbursable expenses incurred by
     NorthStar Presidio amounted to approximately $0, $57,739 and $102,007,
     respectively. Effective October 21, 1999, Presidio entered into a Services
     Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent
     was retained to provide asset management and investor relation services to
     Partnership and other entities affiliated with Partnership.

     As a result of this agreement, the Agent has the duty to direct the day to
     day affairs of Partnership, including, without limitation, reviewing and
     analyzing potential sale, financing or restructuring proposals regarding
     the Partnership's assets, preparation of all reports, maintaining records
     and maintaining bank accounts of Partnership. The Agent is not permitted,
     however, without the consent of Presidio, or as otherwise required under
     the terms of the Limited Partnership Agreement to, among other things,
     cause Partnership to sell or acquire an asset or file for bankruptcy
     protection.

     In order to facilitate the Agent's provision of the asset management
     services and the investor relation services, effective October 25, 1999,
     the officers and directors of the General Partners resigned and nominees of
     the Agent were elected as the officers and directors of the General
     Partners. The Agent is an affiliate of Winthrop Financial Associates, a
     Boston based company that provides asset management services, investor
     relation services and property management services to over 150 limited
     partnerships which own commercial property and other assets. The General
     Partners do not believe this transaction will have a material effect on the
     operations of Partnership.

     The Partnership had 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. Effective October 2000, Kestrel Management L.P. ("Kestrel"),
     and affiliate of the Agent began performing all property management
     services directly for the

     Partnership. For the years ended December 31, 2000, 1999, and 1998,
     Resources Supervisory was entitled to receive an aggregate of $221,642,
     $291,991 and $371,144 respectively, of which $137,022 was received by
     Kestrel in 2000 and $78,652, $220,011 and $212,371 was paid to unaffiliated
     management companies, respectively. From October 1, 2000 through December
     31, 2000 Kestrel received $94,584.

     For the administration of the Partnership the Managing General Partner is
     entitled to receive non-accountable reimbursement of expenses of a maximum
     of $150,000 per year for each of the years ended December 31, 2000, 1999
     and 1998.

                                       24

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

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

     During 1998, for managing the affairs of the Partnership, the Managing
     General Partner was entitled to receive an annual 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, as adjusted
     for the properties sold. Pursuant to the amendment to the Partnership
     Agreement, which became effective on August 20, 1999, the annual
     partnership management fee for 1999 was reduced to $418,769. Further, the
     Partnership Agreement has been amended (for the year 2000 and beyond) so
     that the partnership management fee will be calculated equal to 1.25% of
     the Gross Asset Value of the Partnership. For the years ended December 31,
     2000, 1999, and 1998 the Managing General Partner earned $926,084, $418,769
     and $887,329, respectively.

     The General Partners are allocated 5% of the net income of the Partnership
     which amounted to $192,365, $242,377 and $146,561 in 2000, 1999 and 1998,
     respectively. The General Partners are also entitled to receive 5% of
     distributions which amounted to $39,581, and $79,160 in 1999 and 1998,
     respectively. No distributions were paid in 2000.

     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 18,042 limited partnership units from
     August 1998 through July 1999. The total of these purchases and the units
     purchased from Olympia (as described above) represents approximately 18.2%
     of the outstanding limited partnership units of the Partnership.

     As required by the settlement (see Note 7), an affiliate of the General
     Partners, Millennium Funding II, LLC, made a tender offer to limited
     partners to acquire up to 26,936 Units (representing approximately 6.7% of
     the outstanding Units) at a price of $114.60 per Unit. The offer closed in
     January 2000 and all 26,936 Units were acquired in the offer. As a result
     of these purchases as well as other purchases of units by affiliates of the
     General Partner, affiliates of the General Partners own 118,903 units
     representing 29.725% of the total outstanding units.

                                       25

<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 1998, 1999 or 2000. The following table
     summarizes write-downs recorded on the properties held by the Partnership
     at December 31, 2000:

             Property
             --------
             Seattle Tower                     $ 6,050,000
             Century Park I                     11,700,000
             568 Broadway                       10,821,150
             Loch Raven                          4,800,000
             Southport                           4,900,000
                                               -----------
                                               $38,271,150
                                               ===========

     The following table is a summary of the Partnership's real estate as of:

                                                          December 31,
                                                -------------------------------
                                                     2000             1999
                                                ------------      -------------
     Land                                       $ 10,370,965      $ 10,370,965

     Buildings and improvements                   37,871,636        37,716,078
                                                ------------      ------------
                                                  48,242,601        48,087,043

     Less:  Accumulated depreciation             (16,856,860)      (15,734,329)
                                                ------------      ------------

                                                $ 31,385,741      $ 32,352,714
                                                ============      ============

     During 2000 and 1999, revenues from the Southport and 568 Broadway
     properties represented 35%, 29% and 34%, 28% of gross revenues,
     respectively. No single tenant accounted for more than 10% of the
     Partnership's rental revenues.

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

<TABLE>
<CAPTION>

                          2001           2002         2003         2004         2005      Thereafter      Total
                       ----------     ----------   ----------   ----------   ----------   ----------   -----------
<S>                    <C>            <C>          <C>          <C>          <C>          <C>          <C>
          Total:       $7,665,820     $6,528,688   $5,643,500   $4,755,781   $3,590,156   $6,671,274   $34,855,219
                       ==========     ==========   ==========   ==========   ==========   ==========   ===========
</TABLE>

                                       26

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

5.   DUE TO AFFILIATES

                                                             December 31,
                                                      ------------------------
                                                          2000         1999
                                                      -----------    ---------

     Partnership management fee                         $358,820      $    --
     Property management fee                                  --       32,255
     Non-accountable expense reimbursement                37,500       75,000
                                                        ========     ========
                                                        $396,320     $107,255
                                                        ========     ========

     Such amounts were paid in the subsequent quarter.

6.   FEDERAL INCOME TAX CONSIDERATIONS

     Federal income taxes are not provided because the taxable income or loss of
     the Partnership is required to be reported by the individual partners on
     their respective tax returns. If the Partnership is converted to a real
     estate investment trust ("REIT") and qualifies under the provisions of the
     Internal Revenue Code, the shareholders of the REIT would be required to
     include their proportionate share of any distribution of taxable income in
     their tax returns. REITs are required to distribute at least 95% of their
     ordinary taxable income to their shareholders and meet certain income
     source and investment restriction requirements.

          Taxable income differs from net income for financial reporting
     purposes principally because of differences in the timing of recognition of
     rental income and depreciation. As a result of these differences, and the
     impairment of long-lived assets and the initial write off of organization
     costs for book purposes, the tax basis of the Partnership's net assets
     exceeds its book value by $24,141,207 and $25,515,665 at December 31, 2000
     and 1999, respectively.

7.   SETTLEMENT OF LAWSUIT

     In April 1999, the California Superior Court approved the terms of the
     settlement of a class action and derivative litigation involving the
     Partnership. Under the terms of the settlement, the General Partners agreed
     to take the actions described below subject to first obtaining the consent
     of limited partners to amendments to the Agreement of Limited Partnership
     of the Partnership summarized below. The settlement became effective in
     August 1999 following approval of the amendments. As amended, the
     Partnership Agreement (a) provides for a Partnership Management Fee equal
     to 1.25% of the gross asset value of the Partnership and a fixed 1999
     Partnership Management Fee of $418,769 or $426,867 less than the amount
     that would have been paid for 1999 under the prior formula and (b) fixes
     the amount that the General Partners will be liable to pay to limited
     partners upon liquidation of the Partnership as repayment of fees
     previously received (the "Fee Give-Back Amount"). As of December 31, 2000,
     the Fee Give-Back Amount was approximately $7.82 per Unit which amount will
     be reduced by approximately $.98 per Unit for each full calendar year after
     1999 in which a liquidation does not occur. As amended, the Partnership
     Agreement provides that, upon a reorganization of the Partnership into a
     real estate investment trust or other public entity, the General Partners
     will have no further liability to pay the Fee Give-Back Amount. In
     accordance with the terms of the settlement, Presidio Capital Corp., an
     affiliate of the General Partners, guaranteed payment of the Fee Give-Back
     Amount.

     As required by the settlement, an affiliate of the General Partners,
     Millennium Funding II, LLC, made a tender offer to limited partners to
     acquire up to 26,936 Units (representing approximately 6.7% of the
     outstanding Units) at a price of $114.60 per Unit. The offer closed in
     January 2000 and all 26,936 Units were acquired in the offer.

                                       27

<PAGE>

              INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

7.   SETTLEMENT OF LAWSUIT (CONTINUED)

     The final requirement of the settlement obligated the General Partners to
     use their best efforts to reorganize the Partnership into a real estate
     investment trust or other entity whose shares were listed on a national
     securities exchange or on the NASDAQ National Market System. A Registration
     Statement was filed with the Securities and Exchange Commission on February
     11, 2000 with respect to the restructuring of the Partnership into a
     publicly-traded real estate investment trust. On or about February 15,
     2001, a prospectus/consent solicitation statement was mailed to the limited
     partners of the Partnership seeking their consent to the reorganization of
     the Partnership into a real estate investment trust.

     The consent of limited partners is being sought to approve the conversion
     of the Partnership into a publicly-traded real estate investment trust
     called Shelbourne Properties I, Inc. ("Shelbourne"). If the conversion is
     approved, each limited partner of the Partnership will receive three shares
     of common stock of Shelbourne for each Unit which they own.

     The common stock of Shelbourne will be listed on the American Stock
     Exchange. The consent solicitation period expires on April 16, 2001 and the
     consent of holders of a majority of the Units is required for the approval
     of the conversion.

     The conversion will be accomplished by merging the Partnership into a
     newly-formed limited partnership called Shelbourne Properties I LP
     ("Shelbourne Properties"). Shelbourne Properties will function as the
     operating partnership through which Shelbourne will conduct all of its
     business. Shelbourne will be a limited partner of Shelbourne Properties and
     a wholly-owned subsidiary of Shelbourne will be the general partner of
     Shelbourne Properties.

     Shelbourne' s primary business objective will be to maximize the value of
     its common stock. Shelbourne will seek to achieve this objective by making
     capital improvements to and/or selling properties and by making additional
     real estate-related investments. Shelbourne may invest in a variety of real
     estate-related investments, including undervalued assets and
     value-enhancing situations, in a broad range of property types and
     geographical locations. Shelbourne may raise additional capital by
     mortgaging existing properties or by selling equity or debt securities.
     Shelbourne may acquire its investments for cash or by issuing equity
     securities, including limited partnership interests in Shelbourne
     Properties.

     Shelbourne will have a Board of Directors consisting of nine directors,
     three of whom will be independent directors. Shelbourne Management LLC
     ("Shelbourne Management"), an affiliate of the General Partner, will manage
     the day-to-day affairs of Shelbourne under an advisory agreement.
     Shelbourne Management intends to retain Kestrel Management L.P. ("Kestrel")
     to perform property management services for Shelbourne. Kestrel, an
     affiliate of Shelbourne Management and the General Partners, currently
     provides similar services for the Partnership.

                                       28

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None

                                       29

<PAGE>


                                    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 names and positions held by the officers and directors of the
Managing General Partner are described below.

<TABLE>
<CAPTION>

                          Position Held with the               Has Served as a Director
Name                      Managing General Partner                 or Officer Since
----                      ------------------------             ------------------------
<S>                     <C>                                             <C>
Michael L. Ashner       President and Director                          10-99

David G. King, Jr.      Vice President                                  11-97

Peter Braverman         Executive Vice President                        10-99

Lara K. Sweeney         Vice President and Secretary                    10-99

Carolyn Tiffany         Vice President and Treasurer                    10-99
</TABLE>

     Michael L. Ashner, age 48, has been the Chief Executive Officer of Winthrop
Financial Associates, A Limited Partnership ("WFA") since January 15, 1996 and
the Chief Executive Officer of the Newkirk Group since November 1997. From June
1994 until January 1996, Mr. Ashner was a Director, President and Co-chairman of
National Property Investors, Inc., a real estate investment company ("NPI"). Mr.
Ashner was also a Director and executive officer of NPI Property Management
Corporation ("NPI Management") from April 1984 until January 1996. In addition,
since 1981 Mr. Ashner has been President of Exeter Capital Corporation, a firm
which has organized and administered real estate limited partnerships. Mr.
Ashner also currently serves as a Director of Interstate Hotel Corporation,
Nexthealth Corp., Great Bay Hotel and Casino Inc., Burnham Pacific Properties,
Inc. and NBTY, Inc.

     David G. King, Jr., 38, has been a Vice President and Assistant Treasurer
of NorthStar Capital Investment Corp. since November 1997. For more than the
previous five years he was a Senior Vice President of Finance at Olympia & York
Companies (USA).

     Peter Braverman, age 49, has been a Vice President of WFA since January
1996. Mr. Braverman has also served as the Executive Vice President of the
Newkirk Group since November 1997. From June 1995 until January 1996, Mr.
Braverman was a Vice President of NPI and NPI Management. From June 1991 until
March 1994, Mr. Braverman was President of the Braverman Group, a firm
specializing in management consulting for the real estate and construction
industries. From 1988 to 1991, Mr. Braverman was a Vice President and Assistant
Secretary of Fischbach Corporation, a publicly traded, international real estate
and construction firm.

     Lara K. Sweeney, age 28, has been a Senior Vice President of WFA since
January 1996. Prior to joining WFA, Ms. Sweeney was an officer of NPI and NPI
Management in the asset management and investor relations departments.

     Carolyn Tiffany, age 34, has been employed with WFA since January 1993.
From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in
WFA's accounting and asset management departments. Ms. Tiffany was a Vice
President in the asset management and investor relations departments of WFA
until December 1997, at which time she became the Chief Operating Officer of
WFA.

     Each director and officer of the Managing General Partner will hold office
until the next annual meeting of stockholders of the Managing General Partner
and until his successor is elected and qualified.

     One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of a number of limited
partnerships which either have a class of securities registered pursuant to
Section

                                       30

<PAGE>

12(g) of the Securities and Exchange Act of 1934, or are subject to the
reporting requirements of Section 15(d) of such Act.

     There are no family relationships among the officers and directors of the
Managing General Partner.

ITEM 11. EXECUTIVE COMPENSATION

     The Partnership is not required to and did not pay remuneration to the
officers and directors of the Managing General Partner or the 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. See also "Item 13. Certain Relationships and
Related Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a) Security Ownership of Certain Beneficial Owners.

     Except as set forth below, no person or group is known by the Partnership
to be the beneficial owner of more than 5% of the outstanding Units at March 1,
2001:

       Name of Beneficial Owner (1)      Number of Units owned       % of Class
       ----------------------------      ---------------------       ----------
       Millennium Funding II Corp.              73,033                 18.26%
       Millennium Funding II LLC                42,519                 10.63%
       Millennium Funding I LLC                  3,351                  .84%

(1)  The principal business address of the listed entities, each of which is an
     affiliate of the General Partners, is 527 Madison Avenue, New York, New
     York 10022.

     (b) Security Ownership of Management.

     At March 1, 2001 Presidio, the General Partners and their affiliates,
officers and directors owned as a group own 118,903 Units representing
approximately 29.73% of the total number of Units outstanding.

     (c) Changes in Control.

     There exists no arrangement known to the Partnership the operation of which
may at a subsequent date result in a change in control of the Partnership.

                                       31

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The General Partners and certain affiliated entities have, during the year
ended December 31, 2000, 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             $1,076,084(1)

Presidio AGP Corp.                           Associate General Partner                    --(2)

Resources Supervisory Management Corp.       Affiliated Property Managers           $221,642(3)

Kestrel Management, L.P.                     Affiliated Property Managers           $231,606(3)
</TABLE>

(1)  $150,000 represents payment for non-accountable expenses of the Managing
     General Partner and $926,084 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, 2000, $121,169 of the
     Partnership's taxable income was allocated to the Managing General Partner.

(2)  For the year ended December 31, 2000, $2,473 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 $221,642, of
     which $78,652 was paid to unaffiliated management companies and $137,022
     was paid to Kestrel. As of October 1, 2000 all property management services
     for the Partnership were being performed directly by Kestrel and Resources
     Supervisory was no longer performing any property management services. From
     October 1, 2000 through December 31, 2000, Kestrel received $94,584.

     As required by the settlement of the class action and derivative litigation
involving the Partnership, an affiliate of the General Partners, Millennium
Funding II, LLC, made a tender offer to limited partners to acquire up to 26,936
units (representing approximately 6.7% of the outstanding Units) at a price of
$114.60 per Unit. The offer closed in January 2000 and all 26,936 Units were
acquired in the offer.

                                       32

<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.

(e)       Amendment to the Amended and Restated Agreement of Limited Partnership
          dated August 20, 1999, incorporated by reference to the Partnership's
          Quarterly Report on Form 10-Q for the three months ended September 30,
          1999.

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

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

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

(d)       Lease Agreement dated June 12, 1985, between the Partnership and First
          Federal Savings and Loan Association of South Carolina for the First
          Federal Office Building, incorporated by reference to Exhibit 10(g) to
          the Partnership's Post-Effective Amendment No. 1 to Registration
          Statement on Form S-11 (Reg. No. 2-92319).

(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.

                                       33

<PAGE>

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

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

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

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

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

(l)       Form of Termination of Supervisory Management Agreement (separate
          agreement entered into with respect to each individual property) and
          Form of Supervisory Management Agreement between the Partnership and
          Resources Supervisory (separate agreement entered into with respect to
          each property), incorporated by reference to Exhibit 10(s) to the
          Partnership's Annual Report on Form 10-K for the year ended December
          31, 1991.

(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.

(p)       Guarantee by Presidio Capital Corp. dated August 20, 1999,
          incorporated by reference to the Partnership's Quarterly Report on
          Form 10-Q for the three months ended September 30, 1999.

(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.

                                       34

<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, 2000, 1999 AND 1998

                                      INDEX

<TABLE>
<CAPTION>

                                                                               Page
                                                                               Number
                                                                               ------
<S>                                                                              <C>
     Additional financial information furnished
     pursuant to the requirements of Form 10-K:

     Schedules - December 31, 2000, 1999 and 1998
     and years then ended, as required:

          Schedule III - Real estate and accumulated depreciation                S-1

          Notes to Schedule III - Real estate and accumulated depreciation       S-2
</TABLE>

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

                                       35

<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 30, 2001                  By:  /s/ MICHAEL L. ASHNER
                                            -------------------------
                                                 Michael L. Ashner
                                                 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 30, 2001                  By:  /s/ MICHAEL L. ASHNER
                                            -------------------------
                                                 Michael L. Ashner
                                                 President and Director
                                                 (Principal Executive Officer)

 Dated: March 30, 2001                  By:  /s/ CAROLYN TIFFANY
                                            ---------------------
                                                 Carolyn Tiffany
                                                 Vice President and Treasurer
                                                 (Principal Financial and
                                                 Accounting Officer)

                                       36
<PAGE>


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

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
================================================================================

<TABLE>
<CAPTION>
                                                                                      Initial Cost
                                                                            -------------------------------
                                                                                                 Buildings
                                                                                                  And
                                     Description        Encumbrances            Land           Improvements
                                     -----------        ------------        ------------       ------------
<S>                               <C>                   <C>                 <C>                <C>
RETAIL:

The Southport Shopping Center     Ft. Lauderdale, FL    $       --          $  6,961,667       $ 13,723,333

The Loch Raven Shopping Center    Towson, MD                    --             2,469,871          6,860,748
                                                        ------------        ------------       ------------
                                                                --             9,431,538         20,584,081
                                                        ------------        ------------       ------------

OFFICE:

Century Park Office Complex       Kearny Mesa, CA               --             3,122,064         12,717,936

568 Broadway Office Building      New York, NY                  --             2,318,801          9,821,517

Seattle Tower Office Building     Seattle, WA                   --             2,163,253          5,030,803
                                                        ------------        ------------       ------------
                                                                --             7,604,118         27,570,256
                                                        ------------        ------------       ------------

                                                        $       --          $ 17,035,656       $ 48,154,337
                                                        ============        ============       ============


<CAPTION>
                                                                      Costs                  Reductions
                                                                   Capitalized                Recorded
                                                                  Subsequent to             Subsequent to
                                                                   Acquisition               Acquisition
                                                        ------------------------------      -------------
                                     Description        Improvement      Carrying Costs      Write Downs
                                     -----------        -----------      --------------      ------------
<S>                               <C>                   <C>              <C>                 <C>
RETAIL:

The Southport Shopping Center     Ft. Lauderdale, FL    $  2,091,409      $  1,866,962       $ (4,900,000)

The Loch Raven Shopping Center    Towson, MD               2,909,091           953,837         (4,800,000)
                                                        ------------      ------------       ------------
                                                           5,000,500         2,820,799         (9,700,000)
                                                        ------------      ------------       ------------

OFFICE:

Century Park Office Complex       Kearny Mesa, CA          2,124,576         1,353,130        (11,700,000)

568 Broadway Office Building      New York, NY             5,205,812         1,556,212        (10,821,150)

Seattle Tower Office Building     Seattle, WA              2,653,337           609,392         (6,050,000)
                                                        ------------      ------------       ------------
                                                           9,983,725         3,518,734        (28,571,150)
                                                        ------------      ------------       ------------

                                                        $ 14,984,227      $  6,339,533       $(38,271,150)
                                                        ============      ============       ============


<CAPTION>
                                                                     Gross Amount at Which
                                                                   Carried at Close of Period
                                                        ------------------------------------------------------
                                                                               Buildings
                                                                                  And
                                     Description            Land              Improvements           Total
                                     -----------        -------------         ------------        ------------
<S>                               <C>                   <C>                   <C>                 <C>
RETAIL:

The Southport Shopping Center     Ft. Lauderdale, FL     $  5,998,194         $ 13,745,177        $ 19,743,371

The Loch Raven Shopping Center    Towson, MD                1,507,227            6,886,320           8,393,547
                                                         ------------         ------------        ------------
                                                            7,505,421           20,631,497          28,136,918
                                                         ------------         ------------        ------------

OFFICE:

Century Park Office Complex       Kearny Mesa, CA           1,123,811            6,493,895           7,617,706

568 Broadway Office Building      New York, NY                977,120            7,104,072           8,081,192

Seattle Tower Office Building     Seattle, WA                 764,613            3,642,172           4,406,785
                                                         ------------         ------------        ------------
                                                            2,865,544           17,240,139          20,105,683
                                                         ------------         ------------        ------------

                                                         $ 10,370,965         $ 37,871,636        $ 48,242,601
                                                         ============         ============        ============


<CAPTION>
                                                              Accumulated
                                     Description              Depreciation   Date Acquired
                                     -----------              ------------   -------------
<S>                               <C>                         <S>                <C>
RETAIL:

The Southport Shopping Center     Ft. Lauderdale, FL          $ 5,786,162        1986

The Loch Raven Shopping Center    Towson, MD                    2,729,862        1986
                                                              -----------
                                                                8,516,024
                                                              -----------

OFFICE:

Century Park Office Complex       Kearny Mesa, CA               3,442,069        1986

568 Broadway Office Building      New York, NY                  3,249,776        1986

Seattle Tower Office Building     Seattle, WA                   1,648,991        1986
                                                              -----------
                                                                8,340,836
                                                              -----------

                                                              $16,856,860
                                                              ===========
</TABLE>

Note: The aggregate cost for Federal income tax purposes is $86,513,751 December
      31, 2000.


                                         S-1
<PAGE>


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

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999

================================================================================

(A) RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>
                                                 For the Years Ended December 31,
                                        -----------------------------------------------------
                                            2000                1999                 1998
                                        ------------        ------------         ------------
<S>                                     <C>                 <C>                  <C>
BALANCE AT BEGINNING OF YEAR            $ 48,087,043        $ 47,330,768         $ 48,010,757

ADDITIONS DURING THE YEAR
     Improvements to Real Estate             155,558             756,275            2,083,198

SUBTRACTIONS DURING THE YEAR
      Sales - Net

                                                --                  --             (2,763,187)
                                        ------------        ------------         ------------

BALANCE AT END OF YEAR (1)              $ 48,242,601        $ 48,087,043         $ 47,330,768
                                        ============        ============         ============
</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,
                                        -----------------------------------------------------
                                            2000                1999                 1998
                                        ------------        ------------         ------------
<S>                                     <C>                 <C>                  <C>
BALANCE AT BEGINNING OF YEAR            $ 15,734,329        $ 14,643,333         $ 14,807,964

ADDITIONS DURING THE YEAR
     Depreciation Expense(1)               1,122,531           1,090,996            1,164,109

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

BALANCE AT END OF YEAR                  $ 16,856,860        $ 15,734,329         $ 14,643,333
                                        ============        ============         ============
</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 AN ON
     TENANT IMPROVEMENTS OVER THE ESTIMATED TERM OF THE RELATED LEASE.


                                      S-2