--------------------------------------------------------------------------------
                          U. S. SECURITIES AND EXCHANGE
                        COMMISSION Washington, D.C. 20549


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



                                   FORM 10-QSB


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



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

                  For the quarterly period ended June 30, 2003


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



                         Commission file number 0-23766


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
             Organized pursuant to the Laws of the State of Maryland


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



        Internal Revenue Service - Employer Identification No. 52-1388957

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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





Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|





--------------------------------------------------------------------------------
<PAGE>



                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2003



                                                                        Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Balance Sheets
           - June 30, 2003 and December 31, 2002......................... 1

         Statements of Operations and Accumulated Losses
           - for the three and six months ended June 30, 2003 and 2002 .. 2

         Statements of Cash Flows
           - for the six months ended June 30, 2003 and 2002............. 3

         Notes to  Financial Statements
          - June 30, 2003 and 2002....................................... 4

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations..................................... 10

Item 3.  Controls and Procedures......................................... 12


Part II - OTHER INFORMATION

Item 3.  Defaults Upon Senior Securities................................. 12

Item 5.  Other Information............................................... 12

Item 6.  Exhibits and Reports on Form 8-K................................ 13

Signature................................................................ 14

Certifications of Quarterly Report Pursuant to 18 U.S.C. Section 1350.... 15






<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
        --------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>

                                                                                        June 30,      December 31,
                                                                                          2003           2002
                                                                                      ------------    -----------
                                                                                      (Unaudited)
<S>                                                                                   <C>             <C>
Investments in and advances to partnerships .......................................   $    862,125    $    816,821
Cash and cash equivalents .........................................................      3,725,157       3,913,467
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $108,234 and $105,111, respectively ..........         79,174          82,297
Property purchase costs,
  net of accumulated amortization of $93,969 and $91,285 respectively .............         67,121          69,806
Other assets ......................................................................             60             140
                                                                                      ------------    ------------

      Total assets ................................................................   $  4,733,637    $  4,882,531
                                                                                      ============    ============



                        LIABILITIES AND PARTNERS' CAPITAL


Due on investments in partnerships ................................................   $  1,047,600    $  1,047,600
Accrued interest payable ..........................................................      1,928,676       1,820,049
Accounts payable and accrued expenses .............................................        144,178         103,505
                                                                                      ------------    ------------

      Total liabilities ...........................................................      3,120,454       2,971,154
                                                                                      ------------    ------------

Commitments and contingencies

Partners' capital:

  Capital paid in:
    General Partners ..............................................................          2,000           2,000
    Limited Partners ..............................................................     21,202,500      21,202,500
                                                                                      ------------    ------------

                                                                                        21,204,500      21,204,500

  Less:
    Accumulated distributions to partners .........................................     (4,908,656)     (4,908,656)
    Offering costs ................................................................     (2,570,535)     (2,570,535)
    Accumulated losses ............................................................    (12,112,126)    (11,813,932)
                                                                                      ------------    ------------

      Total partners' capital .....................................................      1,613,183       1,911,377
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  4,733,637    $  4,882,531
                                                                                      ============    ============
</TABLE>


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

                                       -1-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
        --------------------


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      For the three months ended       For the six months ended
                                                               June 30,                         June 30,
                                                     -----------------------------   ----------------------------
                                                         2003            2002            2003            2002
                                                     ------------    -------------   ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
Share of income (loss) from partnerships .........   $    152,038    $    (18,943)   $     68,303    $    119,300
                                                     ------------    ------------    ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest .....................................         12,161          18,421          27,228          36,052
                                                     ------------    ------------    ------------    ------------

  Expenses:
    Interest .....................................         47,695          56,458         108,627         112,916
    General and administrative ...................         58,092          29,708         108,073          63,494
    Management fee ...............................         24,480          24,480          48,960          48,960
    Professional fees ............................         77,007          18,250         122,257          36,500
    Amortization of deferred costs ...............          2,904           3,668           5,808           7,335
                                                     ------------    ------------    ------------    ------------

                                                          210,178         132,564         393,725         269,205
                                                     ------------    ------------    ------------    ------------

      Total other revenue and expenses ...........       (198,017)       (114,143)       (366,497)       (233,153)
                                                     ------------    ------------    ------------    ------------

Net loss .........................................        (45,979)       (133,086)       (298,194)       (113,853)

Accumulated losses, beginning of period ..........    (12,066,147)    (11,274,927)    (11,813,932)    (11,294,160)
                                                     ------------    ------------    ------------    ------------

Accumulated losses, end of period ................   $(12,112,126)   $(11,408,013)   $(12,112,126)   $(11,408,013)
                                                     ============    ============    ============    ============



Net loss allocated to General Partners (1.51%) ...   $       (694)   $     (2,010)   $     (4,503)   $     (1,719)
                                                     ============    ============    ============    ============

Net loss allocated to Initial
  and Special Limited Partners (2.49%) ...........   $     (1,145)   $     (3,314)   $     (7,425)   $     (2,835)
                                                     ============    ============    ============    ============


Net loss allocated to BAC Holders (96%) ..........   $    (44,140)   $   (127,762)   $   (286,266)   $   (109,299)
                                                     ============    ============    ============    ============


Net loss per BAC, based on 21,158 BACs outstanding   $      (2.09)   $      (6.04)   $     (13.53)   $      (5.17)
                                                     ============    ============    ============    ============
</TABLE>

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

                                       -2-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
        --------------------


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 For the six months ended
                                                                                          June 30,
                                                                                ---------------------------
                                                                                   2003            2002
                                                                                ------------   ------------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
  Net loss ..................................................................   $  (298,194)   $  (113,853)

  Adjustments to reconcile net loss to net cash used in operating activities:
    Share of income from partnerships .......................................       (68,303)      (119,300)
    Amortization of deferred costs ..........................................         5,808          7,335

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ...       (11,813)       (11,813)
      Decrease (increase) in other assets ...................................            80           (321)
      Increase in accrued interest payable ..................................       108,627        112,916
      Increase in accounts payable and accrued expenses .....................        40,673          5,509
                                                                                -----------    -----------

        Net cash used in operating activities ...............................      (223,122)      (119,527)
                                                                                -----------    -----------

Cash flows from investing activities:
  Receipt of distributions from partnerships ................................       134,812        275,236
  Advance to Local Partnership ..............................................      (100,000)            --
                                                                                -----------    -----------

        Net cash provided by investing activities ...........................        34,812        275,236
                                                                                -----------    -----------

Net (decrease) increase in cash and cash equivalents ........................      (188,310)       155,709

Cash and cash equivalents, beginning of period ..............................     3,913,467      3,774,659
                                                                                -----------    -----------

Cash and cash equivalents, end of period ....................................   $ 3,725,157    $ 3,930,368
                                                                                ===========    ===========
</TABLE>

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

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


1.   BASIS OF PRESENTATION

     In the opinion of C.R.I.,  Inc. (CRI), the Managing  General  Partner,  the
accompanying unaudited financial statements reflect all adjustments,  consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-85 Limited Partnership (the Partnership) as
of June 30, 2003, and the results of its operations for the three and six months
ended June 30, 2003 and 2002,  and its cash flows for the six months  ended June
30, 2003 and 2002.  The results of operations  for the interim period ended June
30, 2003, are not  necessarily  indicative of the results to be expected for the
full year.

     The  accompanying  unaudited  financial  statements  have been  prepared in
conformity with accounting principles generally accepted in the United States of
America  and with the  instructions  to Form  10-QSB.  Certain  information  and
accounting  policies and  footnote  disclosures  normally  included in financial
statements prepared in conformity with accounting  principles generally accepted
in the United States of America have been condensed or omitted  pursuant to such
instructions. These condensed financial statements should be read in conjunction
with the financial  statements and notes thereto  included in the  Partnership's
annual report on Form 10-KSB at December 31, 2002.

     In January  2003,  the  Financial  Accounting  Standards  Board issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46 clarifies the application of Accounting  Research  Bulletin 51,  Consolidated
Financial Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities  without  additional  subordinated
financial  support from other  parties or in which equity  investors do not have
the  characteristics  of a controlling  financial interest  ("variable  interest
entities").  Variable  interest  entities  within  the  scope  of FIN 46 will be
required  to  be  consolidated  by  their  primary   beneficiary.   The  primary
beneficiary  of a variable  interest  entity is  determined to be the party that
absorbs a majority of the entity's  expected losses,  receives a majority of its
expected  returns,  or both.  FIN 46 applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable  interest entities in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
The Managing  General Partner is in the process of determining  what impact,  if
any, the  adoption of the  provisions  of FIN 46 will have on the  Partnership's
financial  condition  and  results of  operations  related to the  Partnership's
investments in limited partnerships (Local Partnerships),  and has complied with
the disclosure requirements of FIN 46 in these financial statements.  As of June
30, 2003, the  Partnership's  maximum loss exposure related to its investment in
partnerships is limited to the remaining balance of $862,125.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a.   Due on investments in partnerships and accrued interest payable
     ---------------------------------------------------------------

                              Purchase money notes
                              --------------------

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the  form  of  nonrecourse  purchase  money  notes  having  an
aggregate  principal  balance of $873,000  plus  aggregate  accrued  interest of
$1,853,276  as of June 30,  2003,  are payable in full upon the earliest of: (i)
sale or refinancing of the respective Local Partnership's rental property;  (ii)
payment in full of the respective Local  Partnership's  permanent loan; or (iii)
maturity.  The purchase money note related to Mesa Partners Limited  Partnership
(The Pointe),  in the principal  amount of $643,000,  matured June 30, 2003. The
remaining purchase money note matures in 2008.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


     The purchase money notes,  which are  nonrecourse to the  Partnership,  are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the  respective  Local  Partnership.  In the event  that a  purchase  money note
remains unpaid upon maturity,  the noteholder may have the right to foreclose on
the Partnership's interest in the related Local Partnership.

     The  Partnership's  inability to pay certain  purchase money note principal
and accrued interest balances when due, and the resulting  uncertainty regarding
the   Partnership's   continued   ownership   interest  in  the  related   Local
Partnerships,  does not adversely impact the Partnership's  financial  condition
because the  purchase  money  notes are  nonrecourse  and secured  solely by the
Partnership's interest in the related Local Partnerships.  Therefore, should the
investment in any of the Local  Partnerships  with matured or maturing  purchase
money notes not produce  sufficient  value to satisfy the related purchase money
notes, the  Partnership's  exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the matured or maturing purchase money notes
exceeds the carrying  amount of the  investment in, and advances to, each of the
related Local  Partnerships.  Thus,  even a complete  loss of the  Partnership's
interest in one of these Local  Partnerships  would not have a material  adverse
impact  on the  financial  condition  of the  Partnership.  In  the  event  of a
foreclosure, the excess of the nonrecourse indebtedness over the carrying amount
of the Partnership's investment in the related Local Partnership would be deemed
cancellation of indebtedness  income, which would be taxable to Limited Partners
at a  federal  tax  rate  of  up to  35.0%.  Additionally,  in  the  event  of a
foreclosure,  the Partnership would lose its investment in the Local Partnership
and,  likewise,  its  share of any  future  cash flow  distributed  by the Local
Partnership from rental operations,  mortgage debt refinancings,  or the sale of
the real estate.

     Interest  expense on the  Partnership's  purchase money notes for the three
and  six  month  periods  ended  June  30,  2003,   was  $47,695  and  $108,627,
respectively,  and $56,458 and  $112,916 for the three and six months ended June
30, 2002, respectively. The accrued interest payable on the purchase money notes
of  $1,853,276  and  $1,744,649  as of June 30,  2003,  and  December  31, 2002,
respectively,  is due on the  respective  maturity  dates of the purchase  money
notes or earlier, in some instances, if (and to the extent of a portion thereof)
the related Local Partnership has distributable net cash flow, as defined in the
relevant Local Partnership agreement.

                               Paradise Foothills
                               ------------------

     The  Partnership  defaulted on its purchase money note relating to Paradise
Associates  Limited  Partnership  (Paradise  Foothills) when the note matured on
January 30, 1996, and was not paid. The default  amount  included  principal and
accrued interest of $230,000 and $371,464,  respectively.  As of March 31, 2003,
principal  and  accrued  interest  of  $230,000  and   approximately   $961,000,
respectively,  were due.  Effective March 31, 2003, the Managing General Partner
successfully negotiated an agreement to extend the maturity date of the purchase
money note to March 31, 2008, and to reduce the interest  rate. The  Partnership
did not receive any distributions  from Paradise  Foothills during the six month
periods ended June 30, 2003 and 2002. An  impairment  loss of $39,973,  reducing
the  Partnership's  investment in Paradise  Foothills to zero, was recognized on
December 31, 2002.

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     The  amount  due to a  local  general  partner  of  Paradise  Foothills  of
$174,600,  plus accrued  interest of $75,400 at June 30, 2003, will be paid upon
the  occurrence  of  specified  events,  as  outlined  in the  respective  Local
Partnership's partnership agreement.

                                   The Pointe
                                   ----------

     The  Partnership  defaulted  on its  purchase  money note  relating to Mesa
Partners  Limited  Partnership  (The  Pointe)  when the note matured on June 30,
2003,  and was not paid.  The  default  amount  included  principal  and accrued
interest of $643,000 and $877,602,  respectively. As of July 29, 2003, principal
and accrued  interest of $643,000  and  $887,468,  respectively,  were due.  The
Managing  General Partner is exploring  various options to pay off, pay down, or
extend the maturity date of, the purchase money note.  There can be no assurance
about which  course of action  will be chosen by the  noteholder.  However,  the
Partnership desires to retain its interest in the related Local Partnership.

b.   Advances to Local Partnerships
     ------------------------------

                               Paradise Foothills
                               ------------------

     In connection with the refinancing of the mortgage loan secured by Paradise
Foothills  in  March  2003,  the  Partnership  advanced  $100,000  to the  Local
Partnership  for closing costs and to  facilitate  the repayment of the existing
mortgage loan. The partners modified the Local Partnership agreement to give the
new loan priority in repayment from sale or refinancing  proceeds over all other
partner loans. For financial reporting  purposes,  this loan has been reduced to
zero by the  Partnership  as a result  of  previously  suspended  losses  at the
related Local Partnership level.

                                   The Pointe
                                   ----------

     Mesa  Partners  Limited  Partnership  (The Pointe),  which owns  apartments
located in El Paso,  Texas,  modified its mortgage  loan in 1987.  In connection
with the mortgage loan  modification,  the Partnership  advanced $262,500 to the
Local  Partnership in 1987.  Repayment of this loan,  with simple interest at 9%
per annum,  was  expected  to occur upon sale or  refinancing  of the  property.
However,  in July 2003, when the first mortgage was  refinanced,  there were not
enough proceeds to repay the loan. Therefore,  repayment of the loan is expected
to occur upon sale of the  property.  As of June 30, 2003 and December 31, 2002,
accrued  interest  was  $375,751  and  $363,938,   respectively.  For  financial
reporting  purposes,  this loan has been reduced to zero by the Partnership as a
result of previously suspended losses at the related Local Partnership level.

                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

c.   Property Matters
     ----------------

                                   The Pointe
                                   ----------

     On  July  9,  2003,  the  local  managing  general  partner  of The  Pointe
successfully refinanced the first mortgage loan related to the property owned by
the Pointe. The new first mortgage loan has a balloon maturity in July 2004, and
bears interest at 3.37% for six months,  and then at LIBOR plus 225 basis points
to maturity.

d.   Summarized financial information
     --------------------------------

     Combined  statements of operations for the four Local Partnerships in which
the Partnership was invested as of June 30, 2003 and 2002,  follow. The combined
statements have been compiled from information supplied by the management agents
of the projects and are unaudited.  The  information  for each of the periods is
presented  separately for those Local  Partnerships  which have investment basis
(equity method),  and for those Local  Partnerships for which the  Partnership's
carrying  value is zero (equity method  suspended).  Appended after the combined
statements is  information  concerning  the  Partnership's  share of income from
partnerships  related to cash  distributions  recorded as income, and related to
the Partnership's share of income from Local Partnerships.


                        COMBINED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                For the three months ended
                                                                          June 30,
                                                ------------------------------------------------------------
                                                           2003                              2002
                                                --------------------------        --------------------------
                                                  Equity                            Equity
                                                  Method         Suspended          Method         Suspended
                                                --------------------------        --------------------------
         <S>                                    <C>             <C>               <C>              <C>
         Revenue:
           Rental                               $  733,186       $  754,337       $  692,624       $  769,256
           Other                                    60,725           34,975           21,716           26,119
                                                ----------       ----------       ----------       ----------

             Total revenue                         793,911          789,312          714,340          795,375
                                                ----------       ----------       ----------       ----------

         Expenses:
           Operating                               333,217          388,686          427,296          383,345
           Interest                                168,131          327,903          169,041          326,481
           Depreciation and amortization           134,285          152,981          131,163          150,429
                                                ----------       ----------       ----------       ----------

             Total expenses                        635,633          869,570          727,500          860,255
                                                ----------       ----------       ----------       ----------

         Net income (loss)                      $  158,278       $  (80,258)      $  (13,160)      $  (64,880)
                                                ==========       ==========       ==========       ==========

         Cash distributions                     $  134,812       $       --       $  142,560       $       --
                                                ==========       ==========       ==========       ==========

         Partnership's share of Local
           Partnership net income (loss)        $  156,695       $       --       $  (13,036)      $       --

         Miscellaneous                                  --          (4,657)               --          (5,907)
                                                --------------------------        --------------------------

         Share of income (loss) from
             partnerships                                $  152,0                           $(18,943)
                                                         ========                            ========
</TABLE>


                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                                                For the six months ended
                                                                          June 30,
                                                -------------------------------------------------------------
                                                           2003                              2002
                                                --------------------------        ---------------------------
                                                  Equity                            Equity
                                                  Method         Suspended          Method         Suspended
                                                ---------------------------       ---------------------------
         <S>                                    <C>              <C>              <C>              <C>
         Revenue:
           Rental                               $1,493,252       $1,508,674       $1,495,594       $1,538,513
           Other                                   114,750           69,949          103,150           52,238
                                                ----------       ----------       ----------       ----------

             Total revenue                       1,608,002        1,578,623        1,598,744        1,590,751
                                                ----------       ----------       ----------       ----------

         Expenses:
           Operating                               821,231          777,373          862,558          766,689
           Interest                                336,261          655,808          339,051          652,962
           Depreciation and amortization           268,570          305,960          264,687          300,859
                                                ----------       ----------       ----------       ----------

             Total expenses                      1,426,062        1,739,141        1,466,296        1,720,510
                                                ----------       ----------       ----------       ----------

         Net income (loss)                      $  181,940       $ (160,518)      $  132,448       $ (129,759)
                                                ==========       ==========       ==========       ==========

         Cash distributions                     $  134,812       $       --       $  275,236       $       --
                                                ==========       ==========       ==========       ==========

         Partnership's share of Local
           Partnership net income               $  180,116       $       --       $  131,113       $       --

         Advance to Local Partnership                   --         (100,000)              --               --

         Miscellaneous                                  --         (11,813)               --         (11,813)
                                                --------------------------        --------------------------


         Share of income from partnerships               $ 68,303                           $119,300
                                                         ========                           ========
</TABLE>


     As of June 30, 2003 and 2002, the Partnership's  share of cumulative losses
to  date  for  two  of  the  Local  Partnerships  exceeded  the  amount  of  the
Partnership's  investments  in and  advances  to  those  Local  Partnerships  by
$7,129,172  and  $6,904,553,  respectively.  As the  Partnership  has no further
obligation  to advance funds or provide  financing to these Local  Partnerships,
the  excess  losses  have  not  been  reflected  in the  accompanying  financial
statements.


3.   RELATED PARTY TRANSACTIONS

         In accordance with the terms of the Partnership Agreement, the
Partnership is obligated to reimburse the Managing General Partner for its
direct expenses in connection with managing the Partnership. The Partnership
paid $49,320 and $92,157 for the three and six month periods ended June 30,
2003, respectively, and $19,114 and $44,850 for the three and six month periods
ended June 30, 2002, respectively, to the Managing General Partner as direct
reimbursement of expenses incurred on behalf of the Partnership. Such expenses
are included in the accompanying statements of operations as general and
administrative expenses.

                                       -8-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2003 and 2002

                                   (Unaudited)


3.   RELATED PARTY TRANSACTIONS - Continued

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to pay the Managing General Partner an annual incentive  management
fee  (Management  Fee) after all other expenses of the Partnership are paid. The
Partnership  paid the Managing  General  Partner a Management Fee of $24,480 for
each of the three month  periods  ended June 30, 2003 and 2002,  and $48,960 for
each of the six month periods ended June 30, 2003 and 2002.

     CRI,  William B. Dockser and H. William  Willoughby are General Partners of
Capital Realty Investors-85 Limited Partnership ("CRI-85"). In connection with a
proxy seeking the  liquidation of CRI-85,  in January 2003, one Limited  Partner
filed a  purported  class  action and  derivative  lawsuit  against  these three
General  Partners   alleging  certain   deficiencies  in  the  Definitive  Proxy
Statement.  The defendants  filed a Motion to Dismiss,  which was granted by the
Court.  The  plaintiffs,  however,  continue  to  press  the  case.  The  CRI-85
Partnership Agreement contains provisions pursuant to which the General Partners
may seek  indemnification  for their costs,  including the requirement that they
obtain  an  opinion  of  independent  counsel  that the  matter  is  subject  to
indemnification.  The General Partners intend to pursue  reimbursement  when the
litigation is resolved. An accrual of $76,000 for such reimbursement is included
in the  accompanying  statement of operations at June 30, 2003, as  professional
fees.

                                      # # #

                                       -9-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
        ------------------------------------
          of Financial Condition and Results of Operations
          ------------------------------------------------


     Capital  Realty  Investors-85   Limited   Partnership's  (the  Partnership)
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  section  is  based  on  the  financial   statements,   and  contains
information  that  may  be  considered  forward  looking,  including  statements
regarding  the effect of  governmental  regulations.  Actual  results may differ
materially from those  described in the forward  looking  statements and will be
affected  by  a  variety  of  factors  including  national  and  local  economic
conditions,  the  general  level of  interest  rates,  governmental  regulations
affecting  the  Partnership  and  interpretations  of  those  regulations,   the
competitive  environment in which the Partnership operates, and the availability
of working capital.

                          Financial Condition/Liquidity
                          -----------------------------

     The Partnership's liquidity, with unrestricted cash resources of $3,725,157
as of June 30, 2003, along with anticipated future cash distributions from Local
Partnerships,  is expected  to be  adequate to meet its current and  anticipated
operating cash needs.  As of July 29, 2003,  there were no material  commitments
for capital expenditures.

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the  form  of  nonrecourse  purchase  money  notes  having  an
aggregate  principal  balance of $873,000,  plus aggregate  accrued  interest of
$1,853,276  as of June 30,  2003,  are payable in full upon the earliest of: (i)
sale or refinancing of the respective Local Partnership's rental property;  (ii)
payment in full of the respective Local  Partnership's  permanent loan; or (iii)
maturity.  The purchase money note related to Mesa Partners Limited  Partnership
(The Pointe),  in the principal  amount of $643,000,  matured June 30, 2003. The
remaining  purchase  money  note  matures  in 2008.  See the notes to  financial
statements for additional information concerning purchase money notes.

     The purchase money notes,  which are  nonrecourse to the  Partnership,  are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the  respective  Local  Partnership.  In the event  that a  purchase  money note
remains unpaid upon maturity,  the noteholder may have the right to foreclose on
the Partnership's interest in the related Local Partnership.

     The  Partnership's  inability  to pay  certain of the  purchase  money note
principal and accrued interest balances when due, and the resulting  uncertainty
regarding the Partnership's  continued  ownership  interest in the related Local
Partnerships,  does not adversely impact the Partnership's  financial  condition
because the  purchase  money  notes are  nonrecourse  and secured  solely by the
Partnership's interest in the related Local Partnerships.  Therefore, should the
investment in any of the Local  Partnerships  with matured or maturing  purchase
money notes not produce  sufficient  value to satisfy the related purchase money
notes, the  Partnership's  exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the matured or maturing purchase money notes
exceeds the carrying  amount of the  investment in, and advances to, each of the
related Local  Partnerships.  Thus,  even a complete  loss of the  Partnership's
interest in one of these Local  Partnerships  would not have a material  adverse
impact  on the  financial  condition  of the  Partnership.  In  the  event  of a
foreclosure, the excess of the nonrecourse indebtedness over the carrying amount
of the Partnership's investment in the related Local Partnership would be deemed
cancellation of indebtedness  income, which would be taxable to Limited Partners
at a  federal  tax  rate  of  up to  35.0%.  Additionally,  in  the  event  of a
foreclosure,  the Partnership would lose its investment in the Local Partnership
and,  likewise,  its  share of any  future  cash flow  distributed  by the Local
Partnership from rental operations,  mortgage debt refinancings,  or the sale of
the real estate.

                                      -10-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
        ------------------------------------
          of Financial Condition and Results of Operations - Continued
          ------------------------------------------------


     Included in due on investments in  partnerships  is $174,600 due to a local
general  partner  related  to  Paradise  Foothills  at both June 30,  2003,  and
December 31, 2002; accrued interest payable thereon was $75,400 at both June 30,
2003,  and December 31, 2002.  These amounts will be paid upon the occurrence of
certain  specified  events,  as outlined in the respective  Local  Partnership's
partnership agreement.

     The Managing  General  Partner has received  consent from a majority of BAC
Holders for the  liquidation  of the  Partnership.  It is  anticipated  that the
Partnership's obligations, discussed above, would be retired in conjunction with
such Liquidation.  However, the Liquidation is the subject of a pending lawsuit.
The lawsuit  alleges a violation of SEC Rule  14a-4(b)(1) in connection with the
Consent Solicitation under the December 30, 2002 Definitive Proxy Statement (the
Statement)  and a failure to provide  sufficient  information  in the  Statement
concerning  refinancing  the properties  instead of selling them. The defendants
filed a Motion to  Dismiss,  which was  granted  by the Court.  The  plaintiffs,
however,  continue to press the case. The Managing  General Partner may not take
any external  action to further the Plan of Liquidation  until the litigation is
resolved.  There can be no  assurance  that the  Liquidation  will be  completed
pursuant to the Plan of Liquidation and Dissolution.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the six month  period ended June 30,  2003,  net cash  provided by investing
activities and existing cash  resources were adequate to support  operating cash
requirements.  Cash and cash  equivalents  decreased during the six month period
ended June 30, 2003, primarily due to operating expenses paid in cash, and to an
advance made to Paradise  Associates  Limited  Partnership,  as discussed in the
notes to the financial statements.

     The  Managing  General  Partner  currently  intends  to  retain  all of the
Partnership's   remaining   undistributed  cash  for  the  possible   repayment,
prepayment or retirement of the Partnership's  outstanding  purchase money notes
related to the Local Partnerships and its Plan of Liquidation, and for operating
cash reserves.  No distributions were declared or paid by the Partnership during
the six month period ended June 30, 2003.

                              Results of Operations
                              ---------------------

     The  Partnership's net loss for the three month period ended June 30, 2003,
decreased $87,000 decreased from the corresponding period in 2002, primarily due
to an increase in share of income from  partnerships  as a result of an increase
in revenue and a decrease in operating expenses at one property,  and a decrease
in interest  expense due to a lower  purchase  money note  balance in 2003.  The
revenue increase was the result of improved  occupancy and a nominal increase in
rental  rates and is  expected  to be  maintained.  The  decrease  in  operating
expenses was due to additional  repairs and  maintenance  performed in 2002, but
not in 2003;  operating  expenses  are  expected  to remain at the 2003  levels.
Partially  offsetting  the  decrease  in net loss was an increase in general and
administrative  expenses related to higher reimbursed payroll costs, an increase
in  professional  fees  related  to  the  preparation  of the  Definitive  Proxy
Statement and to the accrual of expenses reimbursable to the General Partners as
discussed  in the notes to  financial  statements,  and a decrease  in  interest
revenue due to declining interest rates.

     The  Partnership's  net loss for the six month  period ended June 30, 2003,
increased  $184,000 from the corresponding  period in 2002,  primarily due to an
increase in  professional  fees as discussed  above,  an increase in general and
administrative  expenses related to higher reimbursed  payroll costs, a decrease
in share of income from  partnerships  primarily due to a $100,000  advance to a
Local  Partnership that was reduced to zero as a result of previously  suspended
losses  at the  Local  Partnership  level  partially  offset  by a  decrease  in
operating expenses as discussed above, and a decrease in interest revenue due to
declining  interest  rates.  Partially  offsetting the increase in net loss were
nominal decreases in interest expense and amortization of deferred costs.

                                      -11-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
        ------------------------------------
          of Financial Condition and Results of Operations - Continued
          ------------------------------------------------


     For financial reporting purposes, the Partnership,  as a limited partner in
the Local  Partnerships,  does not record losses from the Local  Partnerships in
excess of its  investment  to the  extent  that the  Partnership  has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result,  the  Partnership's  share of income from partnerships for the three and
six month  periods  ended June 30, 2003,  did not include  losses of $38,628 and
$58,896,  respectively,  compared to excluded losses of $64,225 and $128,449 for
the three and six month periods ended June 30, 2002, respectively.

     No other  significant  changes in the  Partnership's  operations have taken
place during the six month period ended June 30, 2003.


Item 3. Controls and Procedures
        -----------------------

     In July  2003,  representatives  of the  Managing  General  Partner  of the
Partnership  carried out an  evaluation of the  effectiveness  of the design and
operation of the Partnership's  disclosure controls and procedures,  pursuant to
Exchange Act Rules 13a-14 and 15d-14.  Based on that  evaluation,  the Principal
Executive   Officer  and  Principal   Financial   Officer   concluded  that  the
Partnership's  disclosure controls and procedures are effective to alert them in
a timely manner to any material  information  relating to the  Partnership  that
must be included in the Partnership's  periodic SEC filings. In addition,  there
have been no significant  changes in the  Partnership's  internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of the most recent evaluation.


Part II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
        -------------------------------

     See Note 2.a. of the notes to  financial  statements  contained  in Part I,
Item 1, hereof, for information  concerning the Partnership's default on certain
purchase money notes.


Item 5. Other Information

     There is no  established  market for the  purchase  and sale of  Beneficial
Assignee  Certificates  (BACs),   although  various  informal  secondary  market
services exist. Due to the limited markets, however,  investors may be unable to
sell or otherwise dispose of their BACs.

                                  Tender offers
                                  -------------

     On January 10, 2003,  Equity  Resource  Arlington Fund Limited  Partnership
(Arlington)  initiated an unregistered tender offer to purchase up to 369 of the
outstanding  BAC units at a price of $350 per unit;  the offer expired  February
10, 2003. Arlington is unaffiliated with the Partnership or the Managing General
Partner.  The price offered was determined solely at the discretion of Arlington
and does not necessarily represent the fair market value of each BAC.

                                      -12-

<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information - Continued
        -----------------


     On  January  21,  2003,   Peachtree  Partners   (Peachtree)   initiated  an
unregistered  tender offer to purchase an  unspecified  number of BAC units at a
price of $375  per  unit;  the  offer  expired  March  12,  2003.  Peachtree  is
unaffiliated  with the Partnership or the Managing  General  Partner.  The price
offered  was  determined  solely at the  discretion  of  Peachtree  and does not
necessarily represent the fair market value of each BAC.


Item 6. Exhibits and Reports on Form 8-K
        ---------------------------------

     a.   Exhibits

          Exhibit No.               Description
          -----------               ------------

              99          Certification of Periodic Financial Report
                          Pursuant to 18 U.S.C. Section 1350

     b.   No reports of on Form 8-K were  filed with the  Commission  during the
          quarter ended June 30, 2003.

All other Items are not applicable.

                                      -13-

<PAGE>
                                    SIGNATURE


     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                  CAPITAL REALTY INVESTORS-85 LIMITED
                                    PARTNERSHIP
                                  ----------------------------------------------
                                  (Registrant)

                                  by:  C.R.I., Inc.
                                       -----------------------------------------
                                       Managing General Partner




July 29, 2003                         by:  /s/ Michael J. Tuszka
------------------                         -------------------------------------
DATE                                       Michael J. Tuszka
                                             Vice President
                                             and Chief Accounting Officer
                                             (Principal Financial Officer
                                             and Principal Accounting Officer)

                                      -14-

<PAGE>

                        CERTIFICATION OF QUARTERLY REPORT
  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002


         I, Michael J. Tuszka, certify that:

         1.       I have reviewed this quarterly report on Form 10-QSB of
                  CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP;

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the periods presented in this
                  quarterly report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         c)       presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of the
                  registrant's board of directors (or persons performing the
                  equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and


                                      -15-

<PAGE>



         6.       The registrant's other certifying officer and I have indicated
                  in this quarterly report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


                                    CAPITAL REALTY INVESTORS-85
                                      LIMITED PARTNERSHIP
                                    --------------------------------------------
                                    (Issuer)

                                    by:  C.R.I., Inc.
                                         ---------------------------------------
                                         Managing General Partner



July 29, 2003                            by:  /s/Michael J. Tuszka
-------------                                 ----------------------------------
DATE                                          Michael J. Tuszka,
                                                Vice President
                                                and Chief Accounting Officer
                                                (Principal Financial Officer)


     This  certification  is made solely for purpose of 18 U.S.C.  Section 1350,
subject  to the  knowledge  standard  contained  therein,  and not for any other
purpose.

                                      -16-

<PAGE>
                        CERTIFICATION OF QUARTERLY REPORT
  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002


         I, William B. Dockser, certify that:

         1.       I have reviewed this quarterly report on Form 10-QSB of
                  CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP;

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the periods presented in this
                  quarterly report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which the periodic reports are being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         c)       presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of the
                  registrant's board of directors (or persons performing the
                  equivalent functions):


         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and


                                      -17-

<PAGE>


         6.       The registrant's other certifying officer and I have indicated
                  in this quarterly report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


                                    CAPITAL REALTY INVESTORS-85
                                      LIMITED PARTNERSHIP
                                    --------------------------------------------
                                    (Issuer)

                                    by:  C.R.I., Inc.
                                         ---------------------------------------
                                         Managing General Partner



July 29, 2003                            by:  /s/William B. Dockser
-------------                                 ----------------------------------
DATE                                          William B. Dockser,
                                                Director, Chairman of the Board,
                                                and Treasurer
                                                (Principal Executive Officer)



     This  certification  is made solely for purpose of 18 U.S.C.  Section 1350,
subject  to the  knowledge  standard  contained  therein,  and not for any other
purpose.

                                      -18-