<PAGE>
                                   FORM 10-QSB
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


                  For the quarterly period ended June 30, 2000
                                  -------------

                         Commission file number 0-23766
                                  -------------


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
   --------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



                               Maryland 52-1388957
         ------------------------------------ ------------------------
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)



                11200 Rockville Pike, Rockville, Maryland 20852
       ----------------------------------------- ------------------------
              (Address of principal executive offices) (Zip Code)



                                 (301) 468-9200
   --------------------------------------------------------------------------
                (Issuer's telephone number, including area code)


         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,  and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X]   No [ ]

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:


     Not applicable                                   Not applicable
--------------------------              ---------------------------------------
        (Class)                                (Outstanding at June 30, 2000)



<PAGE>



<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2000



                                                                 Page
                                                                 ----

PART I.  Financial Information

Item 1.  Financial Statements

         Consolidated Balance Sheets - June 30, 2000 and
           December 31, 1999.......................................1

         Consolidated Statements of Operations and Accumulated
           Losses - for the three and six months ended
           June 30, 2000 and 1999 .................................2

         Consolidated Statements of Cash Flows - for the
           six months ended June 30, 2000 and 1999.................3

         Notes to Consolidated Financial Statements -
           June 30, 2000 and 1999..................................4

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

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

Exhibit Index .....................................................15


<PAGE>
PART I.           FINANCIAL INFORMATION
                  ---------------------
ITEM 1.           FINANCIAL STATEMENTS
                  --------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                                   June 30,         December 31,
                                                                                                     2000              1999
                                                                                                 ------------       ------------
                                                                                                  (Unaudited)
<S>                                                                  <C>                <C>
Investments in and advances to partnerships                          $    571,298       $    585,343
Cash and cash equivalents                                               8,202,410          8,086,701
Acquisition fees, principally paid to related parties, net of
  accumulated amortization of $110,462 and $106,606, respectively         120,893            124,749
Property purchase costs, net of accumulated amortization of
  $100,901 and $97,422, respectively                                      107,860            111,339
Other assets                                                                1,445                 --
                                                                     ------------       ------------

      Total assets                                                   $  9,003,906       $  8,908,132
                                                                     ============       ============



                        LIABILITIES AND PARTNERS' DEFICIT


Due on investments in partnerships                                   $  2,522,600       $  2,522,600
Accrued interest payable                                                8,274,289          7,643,493
Accounts payable and accrued expenses                                      68,591            127,126
                                                                     ------------       ------------
      Total liabilities                                                10,865,480         10,293,219
                                                                     ------------       ------------

Commitments and contingencies

Partners' capital (deficit):

  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                                                (15,586,883)       (15,110,396)
                                                                     ------------       ------------
      Total partners' deficit                                          (1,861,574)        (1,385,087)
                                                                     ------------       ------------

      Total liabilities and partners' deficit                        $  9,003,906       $  8,908,132
                                                                     ============       ============
</TABLE>


                          Theaccompanying notes are an
                             integral part of these
                             consolidated financial
                                   statements.

                                      - 1 -

<PAGE>


<PAGE>
PART I.           FINANCIAL INFORMATION
                  ---------------------
ITEM 1.           FINANCIAL STATEMENTS
                  --------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                For the three months ended            For the six months ended
                                                                         June 30,           June 30,
                                                               ----------------------------         ----------------------------
                                                                   2000              1999               2000             1999
                                                               ------------      ------------       ------------     ------------
<S>                                                            <C>               <C>                <C>              <C>
Share of income from partnerships                              $     64,022      $    253,924       $     90,565     $    359,636
                                                               ------------      ------------       ------------     ------------

Other revenue and expenses:

  Revenue:
    Interest                                                        126,169           102,743            242,204          172,003
                                                               ------------      ------------       ------------     ------------

  Expenses:
    Interest                                                        324,284           286,445            648,567          572,890
    General and administrative                                       37,451            40,739             73,256           81,234
    Management fee                                                   24,483            24,483             48,965           48,965
    Professional fees                                                15,567            17,684             31,133           34,281
    Amortization of deferred costs                                    3,668             4,155              7,335            8,309
                                                               ------------      ------------       ------------     ------------
                                                                    405,453           373,506            809,256          745,679
                                                               ------------      ------------       ------------     ------------
      Total other revenue and expenses                             (279,284)         (270,763)          (567,052)        (573,676)
                                                               ------------      ------------       ------------     ------------

Loss before gain on disposition
  of investment in partnership                                     (215,262)          (16,839)          (476,487)        (214,040)

Gain on disposition of investment in partnership                         --                --                 --        6,123,739
                                                               ------------      ------------       ------------     ------------

Net (loss) income                                                  (215,262)          (16,839)          (476,487)       5,909,699

Accumulated losses, beginning of period                         (15,371,621)      (18,523,294)       (15,110,396)     (24,449,832)
                                                               ------------      ------------       ------------     ------------

Accumulated losses, end of period                              $(15,586,883)     $(18,540,133)      $(15,586,883)    $(18,540,133)
                                                               ============      ============       ============     ============

Net (loss) income allocated to General
  Partners (1.51%)                                             $     (3,250)     $       (254)      $     (7,195)    $     89,236
                                                               ============      ============       ============     ============

Net (loss) income allocated to Initial and
  Special Limited Partners (2.49%)                             $     (5,360)     $       (419)      $    (11,865)    $    147,152
                                                               ============      ============       ============     ============

Net (loss) income allocated to BAC Holders (96%)               $   (206,652)     $    (16,166)      $   (457,427)    $  5,673,311
                                                               ============      ============       ============     ============

Net (loss) income per BAC based on 21,158 BACs
  outstanding at June 30, 2000 and 1999,
  respectively                                                 $      (9.77)     $      (0.76)      $     (21.62)    $     268.14
                                                               ============      ============       ============     ============

</TABLE>

                          Theaccompanying notes are an
                             integral part of these
                             consolidated financial
                                   statements.

                                      - 2 -

<PAGE>
PART I.           FINANCIAL INFORMATION
                  ---------------------
ITEM 1.           FINANCIAL STATEMENTS
                  --------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                     For the six months ended
                                                                                                             June 30,
                                                                                                   ----------------------------
                                                                                                       2000             1999
                                                                                                   ------------     ------------
<S>                                                                                                <C>              <C>
Cash flows from operating activities:
  Net (loss) income                                                                                $   (476,487)    $  5,909,699

  Adjustments to reconcile  net (loss)  income to net cash (used in) provided by
    operating activities:
    Share of income from partnerships                                                                   (90,565)        (359,636)
    Amortization of deferred costs                                                                        7,335            8,309
    Gain on disposition of investment in partnership                                                         --       (6,123,739)

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to
        partnerships                                                                                    (11,988)         (11,813)
      (Increase) decrease in other assets                                                                (1,445)          55,663
      Increase in accrued interest payable                                                              648,567          572,890
      Payment of purchase money note interest                                                           (17,771)              --
      (Decrease) increase in accounts payable and accrued expenses                                      (58,535)          50,975
                                                                                                   ------------     ------------
        Net cash (used in) provided by operating activities                                                (889)         102,348
                                                                                                   ------------     ------------

Cash flows from investing activities:
  Receipt of distributions from partnerships                                                            116,598          349,222
  Proceeds from disposition of investment in partnership                                                     --        6,370,090
                                                                                                   ------------     ------------
        Net cash provided by investing activities                                                       116,598        6,719,312
                                                                                                   ------------     ------------

Cash flow used in financing activities:
  Distribution to BAC Holders                                                                                --       (2,496,644)
                                                                                                   ------------     ------------

Net increase in cash and cash equivalents                                                               115,709        4,325,016

Cash and cash equivalents, beginning of period                                                        8,086,701        2,154,057
                                                                                                   ------------     ------------

Cash and cash equivalents, end of period                                                           $  8,202,410     $  6,479,073
                                                                                                   ============     ============


</TABLE>

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

                                      - 3 -

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)

1.       BASIS OF PRESENTATION

         In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying   unaudited   consolidated   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,  2000,  and the  results  of its
operations  for the three and six months  ended June 30, 2000 and 1999,  and its
cash  flows for the six  months  ended June 30,  2000 and 1999.  The  results of
operations  for the interim  periods  ended June 30, 2000,  are not  necessarily
indicative of the results to be expected for the full year.

         The accompanying  unaudited consolidated financial statements have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United States 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  have  been  condensed  or  omitted   pursuant  to  such
instructions.  These condensed  consolidated financial statements should be read
in  conjunction  with the  consolidated  financial  statements and notes thereto
included in the Partnership's annual report on Form 10-KSB at December 31, 1999.


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 purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate  accrued  interest of $8,198,889 as of June
30, 2000,  are payable in full upon the earliest of: (1) sale or  refinancing of
the respective Local Partnership's  rental property;  (2) payment in full of the
respective Local Partnership's permanent loan; or (3) maturity. A purchase money
note in the principal amount of $230,000 matured on January 30, 1996 but has not
been paid or extended,  as discussed below.  The remaining  purchase money notes
mature in 2001 and 2003.

         Interest  expense on the  Partnership's  purchase  money  notes for the
three and six month  periods  ended June 30,  2000 was  $324,284  and  $648,567,
respectively,  and $286,445  and  $572,890  for the three and six month  periods
ended June 30, 1999, respectively.  The accrued interest payable on the purchase
money notes of  $8,198,889  and  $7,568,093 as of June 30, 2000 and December 31,
1999,  respectively,  is due on the  respective  maturity  dates of the purchase
money notes or earlier, in some instances,

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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.

         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  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 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 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.  See further discussion of
certain purchase money notes, below.

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

         The  Partnership  defaulted  on its  purchase  money note  relating  to
Paradise Associates,  L.P. (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 August 4, 2000, principal
and accrued interest totaling $230,000 and $695,209, respectively, were due. The
Managing  General  Partner  proposed an  extension  of the  purchase  money note
maturity date until May 31, 2003, coterminous with the expiration of the related
Local Partnership's  provisional workout agreement related to its mortgage loan.
As of August 4, 2000, the Managing  General  Partner is awaiting a response from
the purchase money  noteholder.  There is no assurance that the Managing General
Partner  will reach an  agreement  of any kind with the  noteholder.  Should the
noteholder begin foreclosure  proceedings on the  Partnership's  interest in the
Local  Partnership,  the Managing General Partner intends to vigorously  contest
such action.  Due to a possible  foreclosure by the noteholder,  there can be no
assurance that the Partnership  will be able to retain its interest in the Local
Partnership. The uncertainty regarding

                                       -5-


<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

the  continued  ownership  of the  Partnership's  interest in the related  Local
Partnership does not adversely impact the Partnership's  financial condition, as
discussed  above.  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 39.6%.
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.  The  Partnership did not receive
any  distributions  from Paradise  Foothills  during the six month periods ended
June 30,  2000 and  1999,  and its  aggregate  share of income  from this  Local
Partnership  was $0 for the three and six month  periods  ended  June 30,  2000,
respectively,  and $0 for the three and six month  periods  ended June 30, 1999,
respectively.

         The amount due to a local  general  partner of  Paradise  Foothills  of
$174,600,  plus accrued  interest of $75,400 at June 30, 2000, will be paid upon
the  occurrence  of  specified  events,  as  outlined  in the  respective  Local
Partnership's partnership agreement.

b.       Advances to Local Partnership
         -----------------------------

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

         Mesa Partners  Limited  Partnership  (The Pointe),  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, is expected
to occur  upon sale or  refinancing  of the  property.  As of June 30,  2000 and
December 31, 1999, accrued interest was $304,876 and $293,063, respectively.

c.       Property matters
         ----------------

                           Devonshire and Springfield
                           --------------------------

         In June  1998,  the  local  managing  general  partners  of  Devonshire
Development Limited Partnership  (Devonshire) and Springfield Properties Limited
Partnership  (Springfield)  received  offers from third  parties to purchase the
respective  properties.  The local managing  general  partners of Devonshire and
Springfield  entered into contracts to sell the respective  properties to a real
estate  investment  trust  (REIT)  (in the case of  Springfield)  and the REIT's
affiliate (in the case of Devonshire)

                                       -6-


<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

on or before January 15, 1999. In September 1998, prior to the expiration of the
due diligence  period,  the purchaser,  in accordance  with its rights under the
sale contract, terminated the sale contract for Devonshire.

         On January 22, 1999,  pursuant to the  Springfield  sale contract,  the
Local Partnership sold Springfield Apartments,  located in Redmond,  Washington,
to ASN-Washington Holdings (1) Incorporated,  an affiliate of the REIT. The sale
resulted  in a  financial  statement  gain of  approximately  $6.1  million,  an
estimated federal tax gain of approximately $10.2 million, and net cash proceeds
of approximately $6.4 million to the Partnership. As a result of the sale, CRICO
of Springfield,  Inc., the managing general partner of the Local Partnership and
an affiliate of the Managing General Partner,  received an additional management
fee of $636,789,  pursuant to the Local Partnership Agreement,  all of which was
paid in 1999.

         Following the termination of the sales contract for Devonshire, on June
28,  1999,  the Local  Partnership  entered  into a  contract  with a  different
unrelated third party to sell the property.  On September 30, 1999,  pursuant to
the Devonshire sale contract,  the Local Partnership sold Devonshire Apartments,
located in Kirkland, Washington, to Kirkland Rrestoration LLC. The sale resulted
in a financial  statement  gain of  approximately  $3.5  million,  an  estimated
federal  tax  gain of  approximately  $6  million,  and  net  cash  proceeds  of
approximately  $3.5 million to the  Partnership,  which net cash  proceeds  were
received by the  Partnership on October 1, 1999. As a result of the sale,  CRICO
of Devonshire,  Inc., the managing general partner of the Local  Partnership and
an affiliate of the Managing General Partner,  received an additional management
fee of  $300,086,  of which  $269,485  was paid in 1999 and  $30,601 was paid in
January 2000, pursuant to the Local Partnership Agreement.

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

         Combined   statements  of  operations  for  the  four  and  five  Local
Partnerships in which the Partnership was invested as of June 30, 2000 and 1999,
respectively,   follow.   The  combined   statements  have  been  compiled  from
information supplied by the management agents of the projects and are unaudited.
The combined  statements of  operations  for the three and six months ended June
30, 1999, include information for Springfield through the date of sale.

                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                        COMBINED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                      For the three months ended            For the six months ended
                                               June 30,           June 30,
                                     -----------------------------        -----------------------------
                                         2000              1999               2000             1999
                                     ------------      ------------       ------------     ------------
<S>                                  <C>               <C>                <C>              <C>
Revenue:
  Rental                             $  1,468,849      $  1,731,448       $  2,920,727     $  3,546,523
  Other                                   101,975            91,370            202,904          190,070
                                     ------------      ------------       ------------     ------------
    Total revenue                       1,570,824         1,822,818          3,123,631        3,736,593
                                     ------------      ------------       ------------     ------------

Expenses:
  Operating                               731,938           893,994          1,483,537        1,840,009
  Interest                                513,075           628,083          1,026,149        1,307,576
  Depreciation and amortization           271,231           266,684            542,462          548,871
                                     ------------      ------------       ------------     ------------
    Total expenses                      1,516,244         1,788,761          3,052,148        3,696,456
                                     ------------      ------------       ------------     ------------
Net income                           $     54,580      $     34,057       $     71,483     $     40,137
                                     ============      ============       ============     ============

</TABLE>

         As of June 30, 2000 and 1999,  the  Partnership's  share of  cumulative
losses  to date for  three and  four,  respectively,  of the Local  Partnerships
exceeded the amount of the  Partnership's  investments  in and advances to those
Local   Partnerships  by  $6,687,901  and  $7,184,160,   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 consolidated 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 managing the  Partnership.  The Partnership  paid $22,184 and
$46,755 for the three and six month periods  ended June 30, 2000,  respectively,
and $29,290 and $58,834 for the three and six month periods ended June 30, 1999,
respectively,  as direct  reimbursement  of  expenses  incurred on behalf of the
Partnership.  Such  expenses  are  included  in  the  accompanying  consolidated
statements of operations as general and administrative expenses.

         In  accordance  with  the  terms  of  the  Partnership  Agreement,  the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (the Management Fee) after all other expenses of

                                       -8-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2000 and 1999

                                   (Unaudited)

3.       RELATED PARTY TRANSACTIONS - Continued

the Partnership are paid. The  Partnership  paid the Managing  General Partner a
Management  Fee of  $24,483  and  $48,965  for each of the  three  and six month
periods ended June 30, 2000 and 1999, respectively.

         On January 22, 1999, Springfield Properties Limited Partnership, one of
the Local  Partnerships in which the Partnership has invested,  sold Springfield
Apartments. As a result of the successful sale, CRICO of Springfield,  Inc., the
local managing  general  partner of the Local  Partnership  (an affiliate of the
Managing  General  Partner),  earned an additional  management  fee of $636,789,
pursuant to the Local Partnership Agreement, all of which was paid in 1999.

         On September 30, 1999, Devonshire Development Limited Partnership,  one
of the Local Partnerships in which the Partnership has invested, sold Devonshire
Apartments.  As a result of the successful sale, CRICO of Devonshire,  Inc., the
local managing  general  partner of the Local  Partnership  (an affiliate of the
Managing  General  Partner),  earned an additional  management  fee of $300,086,
pursuant to the Local Partnership Agreement;  $269,485 was paid during 1999, and
the remainder was paid in 2000.

                                       -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 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
$8,202,410 as of June 30, 2000, 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 August 4, 2000,  there are no material
commitments for capital expenditures.

         The Partnership's  obligations with respect to its investments in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate  accrued  interest of $8,198,889 as of June
30, 2000,  are payable in full upon the earliest of: (1) sale or  refinancing of
the respective Local Partnership's  rental property;  (2) payment in full of the
respective Local Partnership's permanent loan; or (3) maturity. A purchase money
note in the principal amount of $230,000 matured on January 30, 1996 and has not
been paid or extended.  The  remaining  purchase  money notes mature in 2001 and
2003.  See the notes to the  consolidated  financial  statements  for additional
information concerning these 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  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 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 maturing  purchase money
notes

                                      -10-

<PAGE>
PART I.           FINANCIAL INFORMATION
                  ---------------------
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  -------------------------------------------------
                       CONDITION AND RESULTS OF OPERATIONS - Continued
                       -----------------------------------

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.

         The Managing  General  Partner is  continuing to  investigate  possible
alternatives to reduce the Partnership's  debt obligations.  These  alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note  requirements,  paying off certain purchase money notes at a
discounted  price,  extending the due dates of certain  purchase money notes, or
refinancing   the  respective   properties'   underlying   debt  and  using  the
Partnership's  share of the  proceeds  to pay off or pay down  certain  purchase
money note obligations.

         Included in due on  investments  in  partnerships  is $174,600 due to a
local general partner related to Paradise Associates,  L.P. (Paradise Foothills)
at both June 30, 2000, and December 31, 1999;  accrued  interest payable thereon
was $75,400 at both June 30, 2000, and December 31, 1999.  These amounts will be
paid upon the  occurrence  of  certain  specified  events,  as  outlined  in the
respective Local Partnership's partnership agreement.

         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  periods  ended  June 30,  2000 and  1999,  the
receipt of distributions  from  partnerships  was adequate to support  operating
cash  requirements.  Cash and cash  equivalents  increased during the six months
ended  June  30,  2000,  primarily  due to the  receipt  of  distributions  from
partnerships, which exceeded net cash used in operating activities.

         During the periods covered by this report, on May 3, 1999, the Managing
General  Partner  distributed   $2,496,644  (or  $118  per  Beneficial  Assignee
Certificate  (BAC)) from the  proceeds  generated  from the sale of  Springfield
Properties Limited Partnership (Springfield), to the BAC holders of record as of
January 22, 1999. 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.

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

         The  Partnership's  net loss for the three month  period ended June 30,
2000 increased from the corresponding period in 1999 primarily due to a decrease
in share of  income  from  partnerships  as a result  of the sale of  Devonshire
Development  Limited  Partnership  (Devonshire)  in the second half of 1999, and
also due to the  exclusion  of another  property's  income in 2000  because that
property had cumulative  unallowable  losses which were in excess of the income.
Contributing  to the net loss was an increase  in  interest  expense on purchase
money notes due to the  compounding of interest.  Offsetting the increase in the
Partnership's net loss were an

                                      -11-

<PAGE>
PART I.           FINANCIAL INFORMATION
                  ---------------------
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  -------------------------------------------------
                       CONDITION AND RESULTS OF OPERATIONS - Continued
                       -----------------------------------

increase in interest income due to higher cash and cash equivalents balances and
generally  higher rates, and a decrease in general and  administrative  expenses
due to lower reimbursed payroll costs.


         The  Partnership  recognized  a net loss for the six month period ended
June 30, 2000 as opposed to net income during the  corresponding  period in 1999
primarily due to gain on disposition of investment in partnership related to the
sale of the Partnership's interest in Springfield in January 1999.  Contributing
to the net loss was an increase in interest  expense on purchase money notes due
to  the  compounding  of  interest  and a  decrease  in  share  of  income  from
partnerships  as a result of the sales of Springfield  and Devonshire in January
and September  1999,  respectively.  Offsetting the net loss were an increase in
interest income due to higher cash and cash  equivalents  balances and generally
higher rates, and a decrease in general and administrative expenses due to lower
reimbursed payroll costs.

         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,  2000 did not  include  losses of $80,799 and
$161,595, respectively,  compared to excluded losses of $99,900 and $199,796 for
the three and six month periods ended June 30, 1999, respectively.

         No other significant changes in the Partnership's operations have taken
place during this period.


PART II.          OTHER INFORMATION
                  -----------------
ITEM 3.           DEFAULTS UPON SENIOR SECURITIES
                  -------------------------------

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


ITEM 5.           OTHER INFORMATION
                  -----------------

         On April 5, 2000, Peachtree Partners (Peachtree) mailed an offer letter
to Beneficial Assignee  Certificate (BAC) holders of the Partnership.  The offer
letter indicated that Peachtree was willing to offer to purchase outstanding BAC
units at a price of $90 per unit.  Peachtree is  unaffiliated  with 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.
There is no  established  market  for the  purchase  and sale of BACs,  although
various

                                      -12-

<PAGE>
PART II.          OTHER INFORMATION
                  -----------------
ITEM 5.           OTHER INFORMATION - Continued
                  -----------------

informal  secondary  market  services  exist in addition to the tender  offer by
Peachtree. Due to limited markets,  however,  investors may be unable to sell or
otherwise dispose of their BACs.

         If more than 5% of the total  outstanding  BAC units are transferred in
any one calendar year (not counting certain exempt  transfers),  the Partnership
could be taxed as a "publicly traded  partnership,"  with potentially severe tax
implications   for  the  Partnership  and  its  investors.   Specifically,   the
Partnership  would be taxed as a corporation  and the income and losses from the
Partnership  would no longer be considered a passive  activity.  From January 1,
2000 through April 28, 2000,  approximately  4.9% of outstanding  BAC units were
sold. Accordingly,  to remain within the 5% safe harbor,  effective May 5, 2000,
the General Partner of the Partnership  halted recognition of any transfers that
would exceed the safe harbor  limit  through  December  31,  2000.  As a result,
transfers of BAC units due to sales  transactions  will not be recognized by the
Partnership between May 5 and December 31, 2000.


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

         a.       None

         b.       No reports on Form 8-K were filed with the Commission during
                  the quarter ended June 30, 2000.

         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



August 4, 2000                  by: /s/ Michael J. Tuszka
-----------------                   ---------------------------------------
DATE                                Michael J. Tuszka
                                      Vice President
                                      and Chief Accounting Officer
                                      (Principal Financial Officer
                                      and Principal Accounting Officer)


                                      -14-

<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit                                                    Method of Filing
-------                                            -----------------------------

27               Financial Data Schedule           Filed herewith electronically





















                                      -15-