FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

For the quarterly period ended               SEPTEMBER 30, 1999
                              --------------------------------------------------

                                       OR

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

For the transition period from___________to____________________________________

                         Commission file number 2-93874

                                   KFP 85-LTD.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        FLORIDA                                               59-2433930
-----------------------                     ------------------------------------
(State of organization)                     (I.R.S. employer identification no.)

          One Southeast Third Avenue, 11th Floor, Miami, Florida 33131
--------------------------------------------------------------------------------
                    (Address of principal executive offices,
                               including zip code)

Registrant's telephone number, including area code   (305) 371-3592

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.

                                            Yes [X]   No [   ]

                                       1

<PAGE>

                                   KFP 85-LTD.

                                      INDEX

PART I - FINANCIAL INFORMATION                                          PAGE NO.
                                                                        --------

    Item 1 - Financial statements (unaudited):
        Balance Sheets

           September 30, 1999 and December 31, 1998............................3

        Statements of Operations

           For the three and nine months ended September 30, 1999 and 1998.....4

        Statement of Partners' Equity (Deficit)

           For the nine months ended September 30, 1999........................5

        Statements of Cash Flows

           For the nine months ended September 30, 1999 and 1998...............6

        Notes to Financial Statements..........................................8

    Item 2 - Management's Discussion and Analysis of Financial

        Condition and Results of Operations...................................13

PART II - OTHER INFORMATION

             Items 1 through 6 ...............................................17

             Signatures.......................................................18

                                       2

<PAGE>

                                   KFP 85-LTD.
                                 BALANCE SHEETS
                    SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
                                  (UNAUDITED)

                                                 SEPTEMBER 30,      DECEMBER 31,
ASSETS                                               1999              1998
------                                            -----------          ----
Cash and interest-bearing deposits                $    19,980      $   167,076
Escrow deposits                                       173,025           85,983
Accounts receivable, net of allowance
   for doubtful accounts of $26,088
   and $50,642 in 1999 and 1998,
   respectively                                        24,224           13,085
Mortgage notes receivable, net of
   allowance for uncollectible amounts
   of $14,000 in 1999 and 1998                        305,973          353,122
Rental properties, at lower of cost or
   market, less accumulated depreciation            3,303,845        3,303,529
Land and land development, at
   lower of cost or market, less
   accumulated depreciation                           468,000          468,000
Other assets                                          175,016          135,277
                                                  -----------      -----------
             Total assets                         $ 4,470,063      $ 4,526,072
                                                  ===========      ===========

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
LIABILITIES:

   Accounts payable                               $    18,818      $    15,176
   Accrued liabilities                                197,734          132,665
   Tenant security deposits                            37,039           36,307
   Mortgage payable                                 4,319,610        4,381,508
                                                  -----------      -----------
             Total liabilities                      4,573,201        4,565,656
                                                  -----------      -----------

CONTINGENCIES (Note 5)

PARTNERS' EQUITY (DEFICIT):
   General partners                                  (127,314)        (126,043)
   Limited partners; 8,000 limited
      partnership units authorized;
      7,940 units issued and outstanding               24,176           86,459
                                                  -----------      -----------
             Total partners' equity (deficit)        (103,138)         (39,584)
                                                  -----------      -----------
             Total liabilities and
                partners' equity (deficit)        $ 4,470,063      $ 4,526,072
                                                  ===========      ===========

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

                                       3

<PAGE>

                                   KFP 85-LTD.
                            STATEMENTS OF OPERATIONS
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                 THREE MONTHS                 NINE MONTHS
                                                 ------------                 -----------
                                             1999          1998           1999           1998
                                          ---------     ---------      ---------      ---------
<S>                                       <C>           <C>            <C>            <C>
REVENUES:
   Rental income                          $ 206,013     $ 197,542      $ 630,583      $ 620,753
   Interest income                            6,077         8,097         19,105         24,657
   Other income                               1,217            90          4,015          9,285
                                          ---------     ---------      ---------      ---------
     Total revenues                         213,307       205,729        653,703        654,695
                                          ---------     ---------      ---------      ---------
EXPENSES:
   Interest and financing costs             112,922       115,018        340,386        346,514
   Property expenses                         58,240        67,982        182,347        200,080
   Selling, administration
     and other                               24,549        26,584         88,355         97,060
   Depreciation and
     amortization                            14,352        43,055        100,464        129,167
   Provision for losses on
     rental properties                           --            --          5,705             --
   Provision for losses on land
     and land development costs                  --        84,839             --         84,839
                                          ---------     ---------      ---------      ---------
       Total expenses                       210,063       337,478        717,257        857,660
                                          ---------     ---------      ---------      ---------
      Net income (loss)                   $   3,244     $(131,749)     $ (63,554)     $(202,965)
                                          =========     =========      =========      =========

PER UNIT AMOUNTS TO LIMITED PARTNERS:
      Net income (loss) after
        allocations to General
        Partners of $65,
        $(2,635), $(1,271) and
        $(4,059), respectively            $    0.40     $  (16.26)     $   (7.84)     $  (25.05)
                                          =========     =========      =========      =========
      Weighted average units
        outstanding                           7,940         7,940          7,940          7,940
                                          =========     =========      =========      =========
</TABLE>

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

                                       4

<PAGE>

                                   KFP 85-LTD.
                     STATEMENT OF PARTNERS' EQUITY (DEFICIT)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                                   (UNAUDITED)

                                GENERAL        LIMITED
PARTNERS' EQUITY (DEFICIT)      PARTNERS       PARTNERS        TOTAL
--------------------------     ---------      ---------      ---------

December 31, 1998              $(126,043)     $  86,459      $ (39,584)

Net loss                          (1,271)       (62,283)       (63,554)
                               ---------      ---------      ---------
September 30, 1999             $(127,314)     $  24,176      $(103,138)
                               =========      =========      =========


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

                                       5
<PAGE>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                   (UNAUDITED)

                                                        1999            1998
                                                      ---------      ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                         $ (63,554)     $(202,965)
     Adjustments to reconcile net loss
     to net cash provided by (used in)
     operating activities-
        Depreciation and amortization                   100,464        129,167
        Provision for losses on rental properties         5,705             --
        Provision for losses on land and
           land development costs                            --         84,839
        Provision for doubtful accounts                   7,547         17,531
        Changes in assets and liabilities:
           Increase in escrow deposits                  (87,042)       (43,675)
           Increase in accounts receivable              (18,688)        (6,213)
           (Increase) decrease in other assets          (39,739)         1,469
           Increase in accounts payable                   3,642         11,203
           Increase in accrued liabilities               65,069         46,215
           Increase (decrease) in tenant
               security deposits                            732        (10,153)
                                                      ---------      ---------
                 Net cash provided by (used in)
                    operating activities                (25,864)        27,418
                                                      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Payments received on mortgage notes                 10,806          9,399
     Capital expenditures                               (70,140)            --
                                                      ---------      ---------
                 Net cash provided by (used in)
                    investing activities                (59,334)         9,399
                                                      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of mortgage payable                      (61,898)       (55,824)
                                                      ---------      ---------

NET DECREASE IN CASH AND
     INTEREST-BEARING DEPOSITS                         (147,096)       (19,007)

CASH AND INTEREST-BEARING DEPOSITS,
     BEGINNING OF THE PERIOD                            167,076        210,373
                                                      ---------      ---------
CASH AND INTEREST-BEARING DEPOSITS,
     END OF THE PERIOD                                $  19,980      $ 191,366
                                                      =========      =========

                                   (Continued)

                                       6
<PAGE>

                                   KFP 85-LTD.
                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                   (UNAUDITED)
                                   (Continued)

                                                        1999         1998
                                                      --------     --------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:

   Cash paid for interest                             $338,826     $344,901
                                                      ========     ========

SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:

     Rental property acquired through foreclosure
        of mortgage note receivable                   $ 36,343     $     --
                                                      ========     ========


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

                                       7

<PAGE>

                                   KFP 85-LTD.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (UNAUDITED)

(1) BASIS OF PRESENTATION:

The balance sheet as of December 31, 1998, which has been derived from audited
statements, and the unaudited interim financial statements included herein, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and regulations,
although KFP 85-Ltd. (the "Partnership") believes that the disclosures made are
adequate to make the information presented not misleading. It is suggested that
these financial statements be read in conjunction with the financial statements
and the notes thereto included in the Partnership's annual report on Form 10-K
as of December 31, 1998.

In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Partnership
as of September 30, 1999 and December 31, 1998, the results of operations for
the three-month and nine-month periods ended September 30, 1999 and 1998,
partners' equity (deficit) for the nine-month period ended September 30, 1999,
and cash flows for the nine-month periods ended September 30, 1999 and 1998.

The accompanying financial statements have been prepared on a going-concern
basis, which contemplates continuity of operations, realization of assets and
liquidation of liabilities through the ordinary course of business. The
Partnership has sustained significant recurring losses and has experienced
liquidity difficulties. Should the Partnership be unable to meet its debt
service requirements, the Partnership may be unable to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Partnership be unable
to continue as a going concern.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes criteria
for determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. SOP 98-1
is effective for all transactions entered into in fiscal years beginning after
December 15, 1998. The Partnership adopted SOP 98-1 prospectively effective
January 1, 1999. The adoption of SOP 98-1 did not have a material effect on the
Partnership's financial position or results of operations.

                                       8

<PAGE>

In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that
all non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organizational activities, as those costs are
incurred. The Partnership adopted SOP 98-5 effective January 1, 1999. The
adoption of SOP 98-5 did not have a material effect on the Partnership's
financial position or results of operations.

The Partnership is required to adopt Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," amends
the effective date of SFAS No. 133 to all fiscal quarters beginning after June
15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity shall
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. As the Partnership does not enter
into derivative type arrangements, the adoption of SFAS No. 133 will not have a
material impact on the Partnership's financial statements.

(2) RELATED PARTY TRANSACTIONS:

Property management fees paid to Keyes Asset Management, Inc. ("KAMI") for
management of various rental properties totaled $7,500 and $7,750 for the three
months ended September 30, 1999 and 1998, respectively, and $22,500 and $24,250
for the nine months ended September 30, 1999 and 1998, respectively, and are
included in property expenses in the accompanying statements of operations.

During the three months ended September 30, 1999 and 1998, $18,886 and $1,957,
respectively, and during the nine months ended September 30, 1999 and 1998,
$59,470 and $11,388, respectively, was paid to KAMI in connection with the
securing of tenants for certain leases. The unamortized portions of leasing
commissions to KAMI are included in other assets in the accompanying balance
sheets and are being amortized on a straight-line basis over the lives of the
respective leases.

(3) MORTGAGE PAYABLE:

                                               September 30,  December 31,
                                                   1999          1998
                                                ==========     ==========
Mortgage loan secured by Northpark Commerce
Center, bearing interest at 10.375%,
payable in monthly installments
of $44,525 representing principal and
interest, final payment due May 1, 2017

                                                $4,319,610     $4,381,508
                                                ==========     ==========

                                       9
<PAGE>

4) IMPAIRMENT OF LONG-LIVED ASSETS:

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired. SFAS No. 121 also
requires that certain long-lived assets and certain identifiable intangibles to
be disposed of be reported at the lower of their carrying amount or fair value
less cost to sell.

During the nine months ended September 30, 1999, the recorded value of a
condominium warehouse unit located at LeJeune Industrial Park ("LeJeune"),
located in Miami-Dade County, Florida, and included as part of rental
properties, was reduced by $5,705 to its estimated realizable value of $35,000.

As described in Note 5, the Partnership has entered into an agreement for the
sale of Northpark Commerce Center ("Northpark"). SFAS No. 121 states that assets
that are held for disposal shall not be depreciated while they are held for
disposal. Therefore, no depreciation was recorded for Northpark after July 28,
1999, the effective date of the contract.

During the third quarter of 1998, the carrying value of land and land
development costs of Commercial Boulevard Center ("Commercial"), located in the
city of Lauderhill, Broward County, Florida, was reduced by $84,839 to its
estimated net realizable value of $468,000. The provision was recorded to
reflect the net book value of the property at its estimated selling price, net
of anticipated selling expenses. There is no guarantee that the estimated
realizable value will be achieved when Commercial is ultimately sold.

(5) CONTINGENCIES:

The Partnership sustained significant losses in each of the last three calendar
years. The Partnership consumed net cash of $25,864 for operating activities
during the nine months ended September 30, 1999. As of September 30, 1999, cash
and interest-bearing deposits were insufficient to pay the Partnership's current
accounts payable, accrued liabilities and current portion of the mortgage loan
payable. However, the Partnership had an escrow balance of $173,025 available to
pay future real estate taxes that were included as part of accrued liabilities.

During 1998, the Partnership began actively marketing for sale Northpark and
Commercial, the two rental properties remaining in its investment portfolio. As
disclosed in the following paragraph, the Partnership has entered into an
agreement to sell Northpark. During the remainder of 1999, the Partnership
intends to continue seeking a qualified buyer for Commercial but there is no
guarantee that the Partnership will be able to find a buyer before the end of
1999. There is also no guarantee that the estimated realizable value will be
achieved when the property is ultimately sold.

                                       10
<PAGE>

Effective July 28, 1999, the Partnership entered into a Reinstatement and Fourth
Amendment to an Agreement for Sale and Purchase ("Reinstatement") of Northpark
located in Orlando, Orange County, Florida. The Reinstatement relates to an
Agreement for Sale and Purchase originally entered into on August 20, 1998 and
subsequently terminated by the Purchaser on November 2, 1998.

The terms of the Reinstatement call for the Partnership to sell its interest in
land, buildings and tangible personal property to an unrelated purchaser for a
selling price of $5,652,500. The Reinstatement provided the purchaser with a
30-day inspection period during which it had the right to perform certain
inspections and investigations of the property and the Partnership's records.
During its inspection, the Purchaser obtained a survey of the Northpark property
from an independent licensed surveyor. The Purchaser's survey indicated that one
fence owned by Northpark encroached upon an adjacent property while the
Partnership's independent survey indicated that the fence was correctly located
on the Northpark property. The Partnership is working to resolve this issue and,
until the discrepancy between the two surveys is resolved, the closing on the
sale of Northpark will be delayed. It is not presently known when the closing
will take place. If the Partnership is unable to resolve this discrepancy in a
reasonable amount of time, the Purchaser would be allowed to terminate the
Reinstatement without any penalty or obligation to proceed with the purchase.

As of September 30, 1999, the carrying value of the land, buildings,
improvements and tangible personal property at Northpark was $3,268,845. As of
September 30, 1999, the Partnership also had deferred leasing commissions and
deferred loan costs related to Northpark of approximately $86,650 and $47,360,
respectively. These costs would offset any gain that would result from the sale
of Northpark. At the time of closing, the Partnership will be obligated to pay
its pro-rata share of usual and customary closing costs and other expenses of
sale out of the proceeds. It is anticipated that those costs could total
approximately $450,000 including a real estate brokerage commission of $339,150,
part of which would be paid to KAMI. The property was pledged as collateral
against the mortgage loan described in Note 3.

At the present time, no closing date has been established for the sale of
Northpark and there is no guarantee that the purchaser will proceed with the
closing. Should the purchaser terminate the Reinstatement in accordance with the
terms contained in the Reinstatement, the Partnership will continue seeking a
qualified buyer for Northpark.

In April 1999, through foreclosure on a mortgage note receivable, the
Partnership obtained title to a condominium warehouse unit at LeJeune. The
Partnership is actively seeking a purchaser for this warehouse unit. It is
presently not known how long the unit will have to be held before a qualified
buyer is found and there is no guarantee that the Partnership will be able to
sell the unit at or above its carrying value of $35,000.

Prior to the end of 1999, the Partnership anticipates that it will reacquire two
additional condominium warehouse units located at LeJeune through foreclosure of
mortgage notes receivable that the Partnership holds. The unpaid balance of the
mortgage notes is approximately $63,000. The Partnership anticipates that it
will be able to re-sell those units

                                       11
<PAGE>

for an amount equal to or higher than the unpaid mortgage balances. However,
there is no guarantee that the Partnership will be able to sell the units for
such amount. At the present time, it is not known exactly when the units will be
reacquired or how long the units will have to be held before they are re-sold.

(6) COMPREHENSIVE INCOME:

The objective of reporting comprehensive income is to disclose all changes in
equity of an enterprise that result from transactions and other economic events
in a period other than transactions with owners. The comprehensive income of the
Partnership was equal to net income for all periods presented.

                                       12
<PAGE>

                                   KFP 85-LTD.

Item 2.

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

The following discussion and analysis of the Partnership's results of operations
and financial condition should be read in conjunction with the unaudited interim
financial statements and the related notes included herein and the financial
statements for the year ended December 31, 1998 appearing in the Partnership's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.

MATERIAL CHANGES IN FINANCIAL CONDITION

Cash and interest-bearing deposits decreased by $147,096 during the nine months
ended September 30, 1999, compared to a decrease of $19,007 during the same
period of 1998. The larger decrease in cash and interest-bearing deposits for
the nine months of 1999 was primarily attributable to expenditures for tenant
improvements of $70,140 at Northpark Commerce Center ("Northpark") and an
increase of $43,367 over 1998 amounts in funds added to the Partnership's escrow
deposits.

During the nine months ended September 30, 1999, cash of $25,864 was used in
operations compared to cash of $27,418 provided by operations during the nine
months ended September 30, 1998. For the three months ended September 30, 1999
cash of $21,281 was used in operations compared to cash of $12,538 provided by
operations during the same time period of 1998. Several factors accounted for
the difference in cash from operations during the nine months of 1999 to 1998.
An increase of $18,688 in accounts receivable, payments totaling $59,740 for
deferred leasing commissions, which are included in other assets, and an
increase of $87,042 of funds held as escrow deposits were the primary reasons
for the decrease in cash from operations during the nine months of 1999.

The Partnership has escrow deposits that are held by a third-party escrow agent
appointed by the mortgage lender of Northpark. Rents collected from tenants at
Northpark are deposited with the escrow agent and are held primarily for payment
of monthly mortgage installment payments and future real estate taxes. From time
to time, excess funds are released into the Partnership's general funds and the
timing of such releases may vary over the course of each year. In August 1999,
the escrow agent released $60,000 of funds into the Partnership's general
account that was used to pay the Partnership's normal operating expenses as well
as certain leasing commissions.

There were no cash distributions to partners during the nine months ended
September 30, 1999 or 1998.

                                       13
<PAGE>

Principal payments on the Northpark Commerce Center mortgage totaled $21,168 and
$61,898 during the three and nine months ended September 30, 1999, respectively,
During the same periods of 1998, principal payments on the mortgage totaled
$19,091 and $55,824, respectively. During the remainder of 1999, subject to the
outcome of the pending sale of Northpark, the Partnership anticipates that it
will make principal payments of $21,722 on the mortgage loan. At any time after
May 1, 1999, the Northpark lender may call the mortgage note upon six months
prior notice. At the present time, the Partnership does not anticipate that the
lender will call the obligation, but there is no guarantee that it will not
occur.

The Partnership does not intend to acquire any additional properties for its
investment portfolio. However, as long as the Partnership still owns Northpark,
it may be required to provide certain tenant space improvements to retain or
attract tenants. During the second quarter of 1999, the Partnership agreed to
make tenant space improvements of $65,779 as an inducement for a major tenant to
remain at Northpark and lease additional warehouse space. While the cost of
future tenant improvements, if any, is not known, the Partnership does not
anticipate that the required costs will be material.

Effective July 28, 1999, the Partnership entered into a Reinstatement and Fourth
Amendment to an Agreement for Sale and Purchase ("Reinstatement") of Northpark
located in Orlando, Orange County, Florida. The Reinstatement relates to an
Agreement for Sale and Purchase originally entered into on August 20, 1998 and
subsequently terminated by the Purchaser on November 2, 1998.

The terms of the Reinstatement call for the Partnership to sell its interest in
land, buildings and tangible personal property to an unrelated purchaser for a
selling price of $5,652,500. The Reinstatement provided the purchaser with a
30-day inspection period during which it had the right to perform certain
inspections and investigations of the property and the Partnership's records.
During its inspection, the Purchaser obtained a survey of the Northpark property
from an independent licensed surveyor. The Purchaser's survey indicated that one
fence owned by Northpark encroached upon an adjacent property while the
Partnership's independent survey indicated that the fence was correctly located
on the Northpark property. The Partnership is working to resolve this issue and,
until the discrepancy between the two surveys is resolved, the closing on the
sale of Northpark will be delayed. It is not presently known when the closing
will take place. If the Partnership is unable to resolve this discrepancy in a
reasonable amount of time, the Purchaser would be allowed to terminate the
Reinstatement without any penalty or obligation to proceed with the purchase.

As of September 30, 1999, the carrying value of the land, buildings,
improvements and tangible personal property at Northpark was $3,268,845. As of
September 30, 1999, the Partnership also had deferred leasing commissions and
deferred loan costs related to Northpark of approximately $86,650 and $47,360,
respectively. These costs would offset any gain that would result from the sale
of Northpark. At the time of closing, the Partnership will be obligated to pay
its pro-rata share of usual and customary closing costs and other expenses of
sale out of the proceeds. It is anticipated that those costs could total
approximately $450,000 including a real estate brokerage commission of $339,150,
part of which would be paid to KAMI. The property was pledged as collateral
against the mortgage loan with an outstanding principal balance of $4,319,610 as
of September 30, 1999.

                                       14
<PAGE>

In April 1999, through foreclosure on a mortgage note receivable, the
Partnership obtained title to a condominium warehouse unit at LeJeune Industrial
Park ("LeJeune") located in Miami-Dade County, Florida. The Partnership is
actively seeking a purchaser for this warehouse unit. It is presently not known
how long the unit will have to be held before a qualified buyer is found and
there is no guarantee that the Partnership will be able to sell the unit at or
above its carrying value of $35,000.

Prior to the end of 1999, the Partnership anticipates that it will reacquire two
additional condominium warehouse units located at LeJeune through foreclosure of
mortgage notes receivable that the Partnership holds. The unpaid balance of the
mortgage notes is approximately $63,000. The Partnership anticipates that it
will be able to re-sell those units for an amount equal to or higher than the
unpaid mortgage balances. However, there is no guarantee that the Partnership
will be able to sell the units for such amount. At the present time, it is not
known exactly when the units will be reacquired or how long the units will have
to be held before they are re-sold.

Other than those items discussed above, the Partnership does not anticipate any
material changes to its financial condition during the remainder of 1999.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Rental and other income, when combined, increased slightly in the three months
and nine months ended September 30, 1999 when compared to the same periods of
1998. This increase was primarily attributable to slightly higher rental rates
achieved at Northpark and the temporary rental of the reacquired warehouse at
LeJeune.

Interest income declined in 1999 when compared to 1998. This decline was due
primarily to a decrease in mortgage notes receivable balances. In prior years,
mortgage notes were accepted when the Partnership sold LeJeune condominium units
and interest earned on the mortgage balances declines as principal payments and
mortgage payoffs are received by the Partnership.

Partnership expenses, excluding the provision for losses on rental properties
and land and land development, decreased in the nine months ended September 30,
1999 from 1998 levels. In 1998, the Partnership incurred costs of $28,000 for
planned improvements and repairs to paving and interior space at Northpark.
There were no similar repair expenses required in 1999. During 1998, the
Partnership's expenses also included an increased provision for doubtful
accounts and increased professional fees. These expenses were not required in
1999.

Depreciation expense for the three months and nine months ended September 30,
1999 was lower than that incurred during the same periods of 1998. This was due
primarily to the fact that no depreciation was recorded for Northpark after July
28, 1999, the effective date of the Reinstatement. This treatment is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" which states that assets that are held for disposal shall not be depreciated
while they are held for disposal.

                                       15
<PAGE>

During the third quarter of 1998, the carrying value of land and land
development costs of Commercial was reduced by $84,839 to its estimated net
realizable value of $468,000. The provision was recorded to reflect the net book
value of the property at its estimated selling price, net of anticipated selling
expenses. There is no guarantee that the estimated realizable value will be
achieved when Commercial is ultimately sold. During the second quarter of 1999,
the Partnership reduced the recorded value of a condominium warehouse unit
located at LeJeune by $5,705 to its estimated realizable value of $35,000.

Subject to the sale of any or all of the properties remaining in the
Partnership's portfolio, revenues and expenses for the remaining three months of
1999 are expected to remain at approximately the same levels as those achieved
during the first nine months of 1999.

FORWARD LOOKING STATEMENTS

Certain items discussed in this report may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended and, as such, may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Partnership to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such forward-looking
statements speak only as of the date of this quarterly report. The Partnership
expressly disclaims any obligation or undertaking to publicly release updates or
revisions to any forward-looking statements contained herein, to reflect any
change in the Partnership's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

YEAR 2000

The Partnership has performed an assessment of the impact of the "Year 2000
issue" on its reporting systems and operations. The "Year 2000 issue" exists
because many computer systems and applications currently use two-digit fields to
designate a year. As the century date occurs, date sensitive systems will
recognize the year 2000 as 1900, or not at all. Based on the Partnership's
assessment, it believes that its critical operational systems substantially
avoid the "Year 2000 issue," thereby enabling it to properly process vital
financial and operational information. The total cost to the Partnership of its
Year 2000 compliance activities has not been and is not presently anticipated to
be material to the Partnership's business, results of operations, or financial
condition.

                                       16
<PAGE>

                                   KFP 85-LTD.

                                     PART II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         None

ITEM 2.  CHANGES IN SECURITIES.

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None

ITEM 5.  OTHER INFORMATION.

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  27 Financial Data Schedule

         (b)  None

                                       17
<PAGE>

                                   KFP 85-LTD.

                                   SIGNATURES

Pursuant to the requirements 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.

                                           KFP 85-Ltd.
                                           (Registrant)

                                           By:   KPA, Inc.
                                                 Managing General Partner

Date:          NOVEMBER 3, 1999            By:  /S/ TIMOTHY D. PAPPAS
      ----------------------------------        -----------------------
                                                Timothy D. Pappas,
                                                Vice President, Treasurer and
                                                Principal Accounting Officer

                                       18
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT                          DESCRIPTION
-------                          -----------

   27                            Financial Data Schedule