--------------------------------------------------------------------------------
                          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 September 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 SEPTEMBER 30, 2003



                                                                          Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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

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

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

         Notes to  Financial Statements
           - September 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...................................  13

Item 5.  Other Information.................................................  13

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

Signature..................................................................  15


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


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>

                                                                                      September 30,   December 31,
                                                                                          2003           2002
                                                                                      -------------   ------------
                                                                                       (Unaudited)
<S>                                                                                   <C>             <C>
Investments in and advances to partnerships .......................................   $    844,976    $    816,821
Cash and cash equivalents .........................................................      3,749,470       3,913,467
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $109,796 and $105,111, respectively ..........         77,612          82,297
Property purchase costs,
  net of accumulated amortization of $95,312 and $91,285 respectively .............         65,778          69,806
Other assets ......................................................................             54             140
                                                                                      ------------    ------------

      Total assets ................................................................   $  4,737,890    $  4,882,531
                                                                                      ============    ============



                        LIABILITIES AND PARTNERS' CAPITAL


Due on investments in partnerships ................................................   $  1,047,600    $  1,047,600
Accrued interest payable ..........................................................      1,976,371       1,820,049
Accounts payable and accrued expenses .............................................        198,116         103,505
                                                                                      ------------    ------------

      Total liabilities ...........................................................      3,222,087       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 ............................................................    (12,209,506)    (11,813,932)
                                                                                      ------------    ------------

      Total partners' capital .....................................................      1,515,803       1,911,377
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  4,737,890    $  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 nine months ended
                                                            September 30,                   September 30,
                                                    ----------------------------    -----------------------------
                                                        2003            2002           2003             2002
                                                    ------------    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>
Share of income from partnerships ...............   $     66,043    $    239,692    $    134,346    $    358,991
                                                    ------------    ------------    ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest ....................................         11,088          18,558          38,316          54,610
                                                    ------------    ------------    ------------    ------------

  Expenses:
    Interest ....................................         47,695          56,459         156,322         169,375
    General and administrative ..................         41,213          33,688         149,286          97,181
    Management fee ..............................         24,480          24,480          73,440          73,440
    Professional fees ...........................         58,219          18,250         180,476          54,750
    Amortization of deferred costs ..............          2,904           3,668           8,712          11,003
                                                    ------------    ------------    ------------    ------------

                                                         174,511         136,545         568,236         405,749
                                                    ------------    ------------    ------------    ------------

      Total other revenue and expenses ..........       (163,423)       (117,987)       (529,920)       (351,139)
                                                    ------------    ------------    ------------    ------------

Net (loss) income ...............................        (97,380)        121,705        (395,574)          7,852

Accumulated losses, beginning of period .........    (12,112,126)    (11,408,013)    (11,813,932)    (11,294,160)
                                                    ------------    ------------    ------------    ------------

Accumulated losses, end of period ...............   $(12,209,506)   $(11,286,308)   $(12,209,506)   $(11,286,308)
                                                    ============    ============    ============    ============



Net (loss) income allocated
  to General Partners (1.51%) ...................   $     (1,470)   $      1,838    $     (5,973)   $        119
                                                    ============    ============    ============    ============

Net (loss) income allocated
  to Initial and Special Limited Partners (2.49%)   $     (2,425)          3,030    $     (9,850)   $        195
                                                    ============    ============    ============    ============


Net (loss) income allocated to BAC Holders (96%)    $    (93,485)   $    116,837    $   (379,751)   $      7,538
                                                    ============    ============    ============    ============


Net (loss) income per BAC,
   based on 21,158 BACs outstanding .............   $      (4.42)   $       5.52    $     (17.95)   $       0.36
                                                    ============    ============    ============    ============

</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 nine months ended
                                                                                    September 30,
                                                                             ---------------------------
                                                                                 2003           2002
                                                                             ------------   ------------
<S>                                                                          <C>            <C>
Cash flows from operating activities:
  Net (loss) income ......................................................   $  (395,574)   $     7,852

  Adjustments to reconcile net (loss) income to net cash used in operating
    activities:
    Share of income from partnerships ....................................      (134,346)      (358,991)
    Amortization of deferred costs .......................................         8,712         11,003

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships        (17,719)       (17,719)
      Decrease (increase) in other assets ................................            86            (26)
      Increase in accrued interest payable ...............................       156,322        169,375
      Increase in accounts payable and accrued expenses ..................        94,611         14,604
                                                                             -----------    -----------

        Net cash used in operating activities ............................      (287,908)      (173,902)
                                                                             -----------    -----------

Cash flows from investing activities:
  Receipt of distributions from partnerships .............................       223,911        275,235
  Advance to Local Partnership ...........................................      (100,000)            --
                                                                             -----------    -----------

        Net cash provided by investing activities ........................       123,911        275,235
                                                                             -----------    -----------

Net (decrease) increase in cash and cash equivalents .....................      (163,997)       101,333

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

Cash and cash equivalents, end of period .................................   $ 3,749,470    $ 3,875,992
                                                                             ===========    ===========

</TABLE>


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

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 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 September 30, 2003,  and the results of its operations for the three and nine
months ended September 30, 2003 and 2002, and its cash flows for the nine months
ended  September 30, 2003 and 2002.  The results of  operations  for the interim
periods ended September 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.  Application of the provisions of FIN 46 to interests
held in a variable  interest  entity or potential  variable  interest entity has
been  deferred  until the end of the first interim or annual period ending after
December 15, 2003, for variable interest entities or potential 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 September 30, 2003, the  Partnership's  maximum loss exposure
related to its investment in partnerships is limited to the remaining balance of
$844,976.


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
$1,900,971 as of September  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  Residential  Partners
Limited Partnership  (formerly Mesa Partners Limited  Partnership) (The Pointe),
in the principal  amount of $643,000,  matured  September 30, 2003, as extended.
The  Managing  General  Partner and the  noteholder  have begun  discussions  to
further  extend the  purchase  money note.  The  remaining  purchase  money note
matures in 2008.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 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 or other transfer of the Partnership's  interest,  the excess of the
nonrecourse   indebtedness   over  the  carrying  amount  of  the  Partnership's
investment in the related Local  Partnership will result in a taxable gain. This
gain will be taxable to Limited  Partners  at a federal tax rate of up to 25.0%,
as it will reflect recapture of depreciation  deductions claimed in prior years.
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 nine month  periods  ended  September  30, 2003,  was $47,695 and  $156,322,
respectively,  and $56,459  and  $169,375  for the three and nine  months  ended
September 30, 2002,  respectively.  The accrued interest payable on the purchase
money notes of $1,900,971  and $1,744,649 as of September 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.


                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                               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 nine month
periods  ended  September  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.

     The  amount  due to a  local  general  partner  of  Paradise  Foothills  of
$174,600,  plus accrued  interest of $75,400 at September 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
Residential  Partners Limited  Partnership (The Pointe) when the note matured on
September 30, 2003, as extended,  and was not paid. The default amount  included
principal  and accrued  interest of $643,000 and $877,602,  respectively.  As of
October 28,  2003,  principal  and accrued  interest of $643,000  and  $920,118,
respectively,  were due. The Managing  General  Partner and the noteholder  have
begun  discussions  to further  extend the maturity  date of the purchase  money
note. There can be no assurance that the maturity date will be extended.

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 Residential 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 September 30, 2003, and
December 31, 2002, accrued interest was $381,657 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

                           September 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 the first 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 September  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
                                                                         September 30,
                                                  -----------------------------------------------------------
                                                             2003                              2002
                                                  -------------------------        --------------------------
                                                   Equity                           Equity
                                                   Method         Suspended         Method         Suspended
                                                  --------        ---------        --------        ---------
         <S>                                      <C>             <C>              <C>             <C>
         Number of Local Partnerships                2                2               2                2
                                                     =                =               =                =

         Revenue:
           Rental                                 $735,676         $754,336         $733,085         $769,257
           Other                                    64,254           34,971          100,483           26,119
                                                  --------         --------         --------         --------

             Total revenue                         799,930          789,307          833,568          795,376
                                                  --------         --------         --------         --------

         Expenses:
           Operating                               424,837          388,687          278,621          383,343
           Interest                                168,129          327,905          170,979          326,479
           Depreciation and amortization           134,285          152,979          135,886          150,429
                                                  --------         --------         --------         --------

             Total expenses                        727,251          869,571          585,486          860,251
                                                  --------         --------         --------         --------

         Net income (loss)                        $ 72,679         $(80,264)        $248,082         $(64,875)
                                                  ========         ========         ========         ========

         Cash distributions                       $ 89,099         $     --         $     --         $     --
                                                  ========         ========         ========         ========

         Partnership's share of Local
           Partnership net income (loss)          $ 71,949         $     --         $245,598         $     --

         Interest receivable -- The Pointe              --          (5,906)               --          (5,906)
                                                  ------------------------          ------------------------

         Share of income from partnerships                 $66,043                           $239,692
                                                           =======                           ========
</TABLE>

                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2003 and 2002

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>

                                                                For the nine months ended
                                                                       September 30,
                                                -------------------------------------------------------------
                                                           2003                              2002
                                                --------------------------        ---------------------------
                                                  Equity                            Equity
                                                  Method         Suspended          Method        Suspended
                                                ----------      ----------        ----------      ----------
         <S>                                    <C>             <C>               <C>              <C>
         Number of Local Partnerships               2                2                2                2
                                                    =                =                =                =

         Revenue:
           Rental                               $2,228,928       $2,263,010       $2,228,679       $2,307,770
           Other                                   179,004          104,920          203,633           78,357
                                                ----------       ----------       ----------       ----------

             Total revenue                       2,407,932        2,367,930        2,432,312        2,386,127
                                                ----------       ----------       ----------       ----------

         Expenses:
           Operating                             1,246,068        1,166,060        1,141,179        1,150,032
           Interest                                504,390          983,713          510,030          979,441
           Depreciation and amortization           402,855          458,939          400,573          451,288
                                                ----------       ----------       ----------       ----------

             Total expenses                      2,153,313        2,608,712        2,051,782        2,580,761
                                                ----------       ----------       ----------       ----------

         Net income (loss)                      $  254,619       $ (240,782)      $  380,530       $ (194,634)
                                                ==========       ==========       ==========       ==========

         Cash distributions                     $  223,911       $       --       $  275,235       $       --
                                                ==========       ==========       ==========       ==========

         Partnership's share of Local
           Partnership net income (loss)        $  252,065       $       --       $  376,710       $       --

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

         Interest receivable -- The Pointe              --         (17,719)               --         (17,719)
                                                --------------------------        --------------------------


         Share of income from partnerships               $134,346                            $358,991
                                                         ========                            ========
</TABLE>


     As of September 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
$7,208,627  and  $6,968,772,  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 $31,341 and
$123,498  for the  three  and nine  month  periods  ended  September  30,  2003,
respectively, and $25,773 and $70,623 for the three and nine month periods ended
September  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

                           September 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  September 30, 2003 and 2002,  and $73,440
for each of the nine month periods ended September 30, 2003 and 2002.

     CRI,  William B. Dockser and H. William  Willoughby are General Partners of
the  Partnership.  In  connection  with a proxy seeking the  liquidation  of the
Partnership, 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 lawsuit alleged 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.  However,  when the defendants filed a motion to
have the Court  specify its findings in accordance  with the Private  Securities
Litigation  Reform Act, the plaintiff filed an opposing motion.  No decision has
been  rendered  to date on the  cross  motions.  The  Partnership's  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 of their related costs when
the  litigation  is resolved.  A total  accrual of $130,844 for such expenses is
included in the  accompanying  statement of operations for the nine months ended
September 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.

                          Critical Accounting Policies
                          ----------------------------

     The  Partnership has disclosed its selection and application of significant
accounting  policies in Note 1 of the notes to financial  statements included in
the  Partnership's  annual  report on Form  10-KSB at  December  31,  2002.  The
Partnership accounts for its investments in partnerships (Local Partnerships) by
the equity  method  because the  Partnership  is a limited  partner in the Local
Partnerships.  As such the  Partnership  has no control over the  selection  and
application  of  accounting  policies,  or the use of  estimates,  by the  Local
Partnerships.

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

     The Partnership's liquidity, with unrestricted cash resources of $3,749,470
as of September 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 October 28, 2003, there were no material
commitments for capital expenditures.  The Managing General Partner has approved
distributions  totaling  $213,717 to be paid in November 2003 (see Item 5, below
for additional information concerning these distributions).

     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
$1,900,971 as of September  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  Residential  Partners
Limited Partnership  (formerly Mesa Partners Limited  Partnership) (The Pointe),
in the principal  amount of $643,000,  matured  September 30, 2003, as extended.
The  Managing  General  Partner and the  noteholder  have begun  discussions  to
further  extend the  purchase  money note . 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.


                                      -10-

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


     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  valueto 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 or other transfer of the Partnership's  interest,  the excess of the
nonrecourse   indebtedness   over  the  carrying  amount  of  the  Partnership's
investment in the related Local  Partnership will result in a taxable gain. This
gain will be taxable to Limited  Partners  at a federal tax rate of up to 25.0%,
as it will reflect recapture of depreciation  deductions claimed in prior years.
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.

     Included in due on investments in  partnerships  is $174,600 due to a local
general  partner  related to Paradise  Foothills at both September 30, 2003, and
December  31,  2002;  accrued  interest  payable  thereon  was  $75,400  at both
September 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.  Implementation  of the  liquidation  has been  delayed  by a
lawsuit,  which  has  been  dismissed.  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 nine month  period  ended  September  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 nine
month period ended September 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.

     After the  distributions  to be made in November 2003, the Managing General
Partner 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.

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

     The  Partnership  recognized net loss of $97,380 for the three month period
ended  September  30,  2003,   compared  to  net  income  of  $121,705  for  the
corresponding  period in 2002,  primarily  due to a decrease  in share of income
from  partnerships,  and also to an increase in professional fees related to the
accrual of expenses  reimbursable  to the General  Partners as  discussed in the
notes to the  financial  statements,  a  decrease  in  interest  revenue  due to
declining interest rates, and an increase in general and administrative expenses
related to higher reimbursed  payroll costs.  Partially  offsetting the net loss
were a  decrease  in  interest  expense  due to a reduced  interest  rate on the
purchase  money note related to Paradise  Foothills,  and a nominal  decrease in
amortization  of  deferred   costs.   The  decrease  in  share  of  income  from
partnerships  was primarily due to an increase in payroll and maintenance  costs
at the property  related to one Local  Partnership,  and a moderate  decrease in
interest income at the same Local Partnership.

                                      -11-

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


     The  Partnership  recognized net loss of $395,574 for the nine month period
ended September 30, 2003, compared to net income of $7,852 for the corresponding
period in 2002, primarily due to a decrease in share of income from partnerships
as a result of increases in payroll costs,  maintenance costs, real estate taxes
and  property  insurance  premiums  at the two  properties  related to the Local
Partnerships  accounted for under the equity method, and 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.  Contributing  to the net loss was an
increase in accrued  professional  fees, as discussed  above, and an increase in
general and administrative  expenses and a decrease in interest revenue, both as
discussed above.  Partially  offsetting the net loss were a decrease in interest
expense,  as discussed above, and a nominal decrease in amortization of deferred
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
nine month periods ended  September 30, 2003,  did not include losses of $79,455
and $138,351, respectively,  compared to excluded losses of $64,220 and $192,668
for the three and nine month periods ended September 30, 2002, respectively.

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


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

     In October 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-15 and 15d-15.  The  Managing  General  Partner does not
expect that the  Partnership's  disclosure  controls and procedures will prevent
all error and all fraud.  A control  system,  no matter how well  conceived  and
operated,  can provide only  reasonable  assurance  that the  objectives  of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because  of simple  error or  mistake.  The  design of any  system of
controls also is based in part upon certain  assumptions about the likelihood of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated goals under all  potential  future  conditions.  Over time,
controls may become inadequate  because of changes in conditions,  or the degree
of compliance  with the policies or procedures may  deteriorate.  Because of the
inherent  limitations in a cost-effective  control system,  misstatements due to
error or  fraud  may  occur  and not be  detected.  Based  on the  October  2003
evaluation,  and subject to the foregoing,  the Principal  Executive Officer and
Principal Financial Officer concluded that the Partnership's disclosure controls
and  procedures are effective as of the end of the period covered by this report
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, and
particularly  during  the  period in which  this  report is being  prepared.  In
addition,  there have been no significant changes in the Partnership's  internal
control over financial  reporting that occurred  during the  Partnership's  most
recent fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect, the Partnership's internal control over financial reporting.

                                      -12-

<PAGE>
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 defaults 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.

                           Unregistered tender offers
                           --------------------------

     On September 15, 2003, Equity Resource  Arlington Fund Limited  Partnership
(Arlington)  initiated an unregistered tender offer to purchase up to 215 of the
outstanding BAC units at a price of $350 per unit; the offer expired October 15,
2003. On January 10, 2003,  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 prices offered were determined  solely at
the  discretion  of Arlington and do not  necessarily  represent the fair market
value of each BAC.

     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.

     The  Managing  General  Partner did not  express  any opinion and  remained
neutral  toward  the  unregistered  tender  offers  for the  purchase  of  Units
described above.

                                Cash Distribution
                                -----------------

     The Managing  General Partner has approved a cash  distribution of $211,580
($10 per BAC unit) to  holders  of record as of  November  1,  2003,  and a cash
distribution of $2,137 to the Special Limited  Partner.  The  distributions  are
from cash resources  accumulated  from operations and  distributions  from Local
Partnerships, and will be paid in November 2003.


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

     a.   Exhibits

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

              31.1      Certification of Principal Executive Officer, pursuant
                        to 18 U.S.C. Section 1350, as adopted pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.

              31.2      Certification of Principal Financial Officer, pursuant
                        to 18 U.S.C. Section 1350, as adopted pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.

              32        Certification of Principal Executive Officer and
                        Principal Financial Officer, pursuant to 18 U.S.C.
                        Section 1350, as adopted pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002.

                                      -13-

<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K - Continued
        --------------------------------

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

All other Items are not applicable.

                                      -14-

<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




October 28, 2003                       by:  /s/ Michael J. Tuszka
-----------------                           ------------------------------------
DATE                                        Michael J. Tuszka
                                              Vice President
                                              and Chief Accounting Officer
                                              (Principal Financial Officer
                                              and Principal Accounting Officer)

                                      -15-