UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------

                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                      ------------------------------------

For the fiscal year ended December 31, 2001       Commission file number 1-11059


              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
              -----------------------------------------------------
             (Exact name of registrant as specified in it's charter)


         California                                              13-3257662
(State or other jurisdiction of                              (I.R.S. Employer
Incorporation or organization)                               Identification No.)

                              11200 Rockville Pike
                            Rockville, Maryland 20852
                                 (301) 816-2300
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

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

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

                                                        Name of each exchange on
    Title of each class                                      which registered
---------------------------                             ------------------------
Depositary Units of Limited                             American Stock Exchange
    Partnership Interest

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

                                      None
                      ------------------------------------

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (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 [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of February 19, 2002, 12,079,514 depositary units of limited partnership
interest were  outstanding and the aggregate  market value of such units held by
non-affiliates of the Registrant on such date was $87,426,721.

                       Documents incorporated by Reference

                                      None

<PAGE>2



              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                         2001 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
                                     PART I
<S>               <C>                                                                                    <C>
Item 1.           Business.........................................................................       3
Item 2.           Properties.......................................................................       4
Item 3.           Legal Proceedings................................................................       4
Item 4.           Submission of Matters to a Vote of Security Holders..............................       4



                                     PART II

Item 5.           Market for Registrant's Securities and Related Security Holder Matters...........       5
Item 6.           Selected Financial Data..........................................................       6
Item 7.           Management's Discussion and Analysis of Financial Condition and
                     Results of Operations.........................................................       7
Item 7A.          Qualitative and Quantitative Disclosures about Market Risk.......................      14
Item 8.           Financial Statements and Supplementary Data......................................      14
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                     Financial Disclosure..........................................................      14



                                    PART III

Item 10.          Directors and Executive Officers of the Registrant...............................      15
Item 11.          Executive Compensation...........................................................      17
Item 12.          Security Ownership of Certain Beneficial Owners and Management...................      17
Item 13.          Certain Relationships and Related Transactions...................................      18



                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K..................      19

Signatures        .................................................................................      21
</TABLE>

<PAGE>3
                                     PART I

ITEM 1.   BUSINESS

FORWARD-LOOKING  STATEMENTS.  When used in this Annual Report on Form 10-K,  the
words  "believes,"   "anticipates,"   "expects,"   "contemplates,"  and  similar
expressions  are  intended to identify  forward-looking  statements.  Statements
looking forward in time are included in this Annual Report on Form 10-K pursuant
to the "safe harbor" provision of the Private  Securities  Litigation Reform Act
of 1995. Such statements are subject to certain risks and  uncertainties,  which
could cause actual  results to differ  materially.  Accordingly,  the  following
information contains or may contain forward-looking  statements: (1) information
included  or  incorporated  by  reference  in this  Annual  Report on Form 10-K,
including,  without  limitation,  statements  made  under  Item 7,  Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,  (2)
information  included or  incorporated  by  reference  in future  filings by the
Partnership  with the  Securities  and Exchange  Commission  including,  without
limitation,  statements with respect to growth,  projected  revenues,  earnings,
returns and yields on its portfolio of mortgage  assets,  the impact of interest
rates, costs and business strategies and plans and (3) information  contained in
written  material,  releases and oral statements  issued by or on behalf of, the
Partnership,  including, without limitation,  statements with respect to growth,
projected  revenues,  earnings,  returns and yields on its portfolio of mortgage
assets, the impact of interest rates,  costs and business  strategies and plans.
Factors which may cause actual results to differ materially from those contained
in the forward-looking  statements identified above include, but are not limited
to (i) regulatory and litigation  matters,  (ii) interest rates, (iii) trends in
the economy,  (iv) prepayment of mortgages and (v) defaulted mortgages.  Readers
are cautioned not to place undue reliance on these  forward-looking  statements,
which speak only of the date hereof. The Partnership undertakes no obligation to
publicly   revise  these   forward-looking   statements  to  reflect  events  or
circumstances  occurring  after the date hereof or to reflect the  occurrence of
unanticipated events.

Development and Description of Business
---------------------------------------

     Information  concerning the business of American Insured Mortgage Investors
-  Series  85,  L.P.  (the  "Partnership")  is  contained  in Part  II,  Item 7,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations and in Notes 1, 5, 6, 7 and 8 of the Notes to Financial Statements of
the  Partnership  (filed  in  response  to  Item 8  hereof),  all of  which  are
incorporated by reference  herein.  See also Schedule  IV-Mortgage Loans on Real
Estate, for the table of the Partnership's  Insured Mortgages (as defined below)
as of December 31, 2001, which is hereby incorporated by reference herein.

Employees
---------

     The  Partnership  has no  employees.  The  business of the  Partnership  is
managed  by  CRIIMI,  Inc.  (the  "General  Partner"),  while its  portfolio  of
mortgages is managed by AIM Acquisition Partners,  L.P. (the "Advisor") pursuant
to an advisory  agreement (the "Advisory  Agreement").  The General Partner is a
wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE").

     The general  partner of the Advisor is AIM  Acquisition  Corporation  ("AIM
Acquisition")  and the  limited  partners  include,  but are not limited to, AIM
Acquisition,  The Goldman  Sachs  Group,  L.P.,  Sun America  Investments,  Inc.
(successor to Broad, Inc.) and CRI/AIM Investment,  L.P., an affiliate of CRIIMI
MAE. AIM  Acquisition is a Delaware  corporation  that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

<PAGE>4


     Under the  Advisory  Agreement,  the Advisor  will  render  services to the
Partnership,  including but not limited to, the management of the  Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages.  Such
services  will be subject to the review and  ultimate  authority  of the General
Partner.  However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant  actions,  including but not limited
to the  disposition of mortgages,  any transaction or agreement with the General
Partner or its  affiliates,  or any  material  change as to  policies  regarding
distributions  or  reserves of the  Partnership.  The  Advisor is  permitted  to
delegate the performance of services  pursuant to a sub-advisory  agreement (the
"Sub-Advisory Agreement").  The delegation of such services will not relieve the
Advisor of its obligation to perform such services.  CRIIMI MAE Services Limited
Partnership  ("CMSLP"),  an affiliate of CRIIMI MAE,  manages the  Partnership's
portfolio,  pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

Competition
-----------

     In disposing of mortgage investments, the Partnership competes with private
investors,  mortgage  banking  companies,  mortgage  brokers,  state  and  local
government agencies, lending institutions, trust funds, pension funds, and other
entities,  some with similar  objectives to those of the Partnership and some of
which are or may be  affiliates of the  Partnership,  its General  Partner,  the
Advisor, CMSLP or their respective  affiliates.  Some of these entities may have
substantially  greater capital  resources and experience in disposing of Federal
Housing Administration ("FHA") insured mortgages than the Partnership.

     CRIIMI MAE and its affiliates also may serve as general partners,  sponsors
or managers of real estate limited  partnerships,  Real Estate Investment Trusts
("REIT") or other entities in the future. The Partnership may attempt to dispose
of mortgages at or about the same time that CRIIMI MAE, one or more of the other
"AIM Funds" (defined as the Partnership,  American  Insured  Mortgage  Investors
("AIM 84"),  American Insured Mortgage Investors L.P. - Series 86 ("AIM 86") and
American Insured Mortgage  Investors L.P. - Series 88 ("AIM 88")),  and/or other
entities sponsored or managed by CRIIMI MAE or its affiliates, are attempting to
dispose  of  mortgages.  As a result  of  market  conditions  that  could  limit
dispositions, CMSLP and its affiliates could be faced with conflicts of interest
in determining  which mortgages would be disposed of. Both CMSLP and the General
Partner,  however,  are  subject to their  fiduciary  duties in  evaluating  the
appropriate action to be taken when faced with such conflicts.


ITEM 2.   PROPERTIES

     Although the  Partnership  does not own the  underlying  real  estate,  the
mortgages  underlying the  Partnership's  mortgage  investments are non-recourse
first liens on the respective multifamily residential developments or retirement
homes.


ITEM 3.   LEGAL PROCEEDINGS

     There are no  material  legal  proceedings  to which the  Partnership  is a
party.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2001.


<PAGE>5
                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
          HOLDER MATTERS

Principal Market and Market Price for Units and Distributions
-------------------------------------------------------------

     The Limited  Partnership  Units  ("Units") are traded on the American Stock
Exchange  ("AMEX")  under the  trading  symbol of "AII."  The high and low trade
prices for the Units as reported on AMEX and the  distributions,  as applicable,
for each quarterly period in 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                                                 Amount of
                                                    2001                       Distribution
   Quarter Ended                            High              Low                Per Unit
   -------------                            ----              ---                --------
   <S>                                   <C>               <C>                   <C>
   March 31                              $ 8.3125          $ 7.6500              $   0.68(1)
   June 30                                 7.9000            7.5000                  0.37(2)
   September 30                            7.9800            7.3500                  0.71(3)(4)(5)(6)
   December 31                             8.1000            7.5100                  0.15
                                                                                 --------
                                                                                 $   1.91
                                                                                 ========
</TABLE>
<TABLE>
<CAPTION>
                                                                                 Amount of
                                                    2000                       Distribution
   Quarter Ended                            High              Low                Per Unit
   -------------                            ----              ---                --------
   <S>                                   <C>               <C>                   <C>
   March 31                              $ 8.7500          $ 8.0000              $   0.47(7)(8)
   June 30                                 8.8750            7.8125                  0.46(9)(10)(11)
   September 30                            8.3750            7.8750                  0.18
   December 31                             8.4375            7.7500                  0.50(12)
                                                                                 --------
                                                                                 $   1.61
                                                                                 ========
</TABLE>

     The following disposition proceeds are included in the distributions listed
above:

                                               Date                       Net
                                             Proceeds      Type of      Proceeds
         Complex Name(s)                     Received    Disposition    Per Unit
         ---------------                     --------    -----------    --------
 (1) The Meadows of Livonia                  Jan 2001     Prepayment     $0.53
 (2) Gold Key Village Apartments             Mar 2001     Prepayment      0.22
 (3) Cedar Ridge Apartments                  Jun 2001     Prepayment      0.21
 (4) Carlisle Apartments                     Jun 2001     Prepayment      0.17
 (5) Afton Square Apartments                 Jul 2001     Prepayment      0.08
 (6) Berryhill Apartments                    Sep 2001     Prepayment      0.10
 (7) Northwood Apartments                    Dec 1999     Prepayment      0.13
 (8) Turtle Creek Apartments                 Jan 2000     Prepayment      0.13
 (9) Woodland Hills Apartments               Apr 2000     Prepayment      0.06
(10) New Castle Apartments                   May 2000     Prepayment      0.16
(11) Colony West Apartments                  May 2000     Prepayment      0.05
(12) Independence Park                       Oct 2000     Prepayment      0.32



     There are no material legal restrictions upon the Partnership's  present or
future ability to make  distributions  in accordance  with the provisions of the
Partnership Agreement.


                                               Approximate Number of Unitholders
      Title of Class                                as of December 31, 2001
      --------------                                -----------------------
Depositary Units of Limited
   Partnership Interest                                      9,700

<PAGE>6

ITEM 6.   SELECTED FINANCIAL DATA
           (Dollars in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                               2001          2000          1999         1998         1997
                                               ----          ----          ----         ----         ----
<S>                                          <C>           <C>           <C>          <C>          <C>
Income                                       $  8,526      $  9,979      $ 12,230     $ 14,744     $ 16,761

Net gains on mortgage
  dispositions/modifications                    1,785           428           857        1,403          908

Net earnings                                    8,969         8,866        11,225       13,893       15,137

Net earnings per Limited
  Partnership Unit - Basic (1)               $   0.71      $   0.71      $   0.89     $   1.11     $   1.20

Distributions per Limited
  Partnership Unit (1)(2)                    $   1.91      $   1.61      $   3.09     $   3.45     $   2.76
</TABLE>

<TABLE>
<CAPTION>
                                                                     As of December 31,
                                               2001          2000          1999         1998         1997
                                               ----          ----          ----         ----         ----
<S>                                          <C>           <C>           <C>          <C>          <C>
Total assets                                 $ 98,070      $118,621      $143,470     $170,970     $203,450

Partners' equity                               94,828       110,982       120,445      153,543      187,682
</TABLE>

(1)  Calculated based upon the weighted average number of Units outstanding.
(2)  Includes  distributions  due the Unitholders for the  Partnership's  fiscal
     years ended December 31, 2001,  2000,  1999, 1998 and 1997, which were paid
     subsequent  to year  end.  See  Notes  8 and 9 of the  Notes  to  Financial
     Statements.

     The selected  income  statement  data  presented  above for the years ended
December 31, 2001,  2000 and 1999,  and the  selected  balance  sheet data as of
December 31, 2001 and 2000, are derived from, and are qualified by, reference to
the Partnership's  financial  statements,  which are included  elsewhere in this
Form 10-K. The selected  income  statement data for the years ended December 31,
1998 and 1997, and the selected balance sheet data as of December 31, 1999, 1998
and 1997 are derived from audited  financial  statements not included as part of
this Annual Report on Form 10-K.  This data should be read in  conjunction  with
the financial statements and the notes thereto.

<PAGE>7

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

General
-------

     The  following  discussion  and analysis  contains  statements  that may be
considered  forward  looking.  These  statements  contain  a number of risks and
uncertainties  as  discussed  herein  and in Item 1 of this Form 10-K that could
cause actual results to differ materially.

     American Insured Mortgage  Investors - Series 85, L.P. (the  "Partnership")
was formed under the Uniform Limited  Partnership Act of the State of California
on June 26, 1984. During the period from March 8, 1985 (the initial closing date
of the Partnership's  public offering) through January 27, 1986 (the termination
date of the  offering),  the  Partnership,  pursuant  to its public  offering of
12,079,389  Depository Units of limited partnership  interest ("Units") raised a
total of  $241,587,780  in gross  proceeds.  In  addition,  the initial  limited
partner  contributed  $2,500 to the capital of the  Partnership and received 125
units of limited partnership interest in exchange therefor.

     CRIIMI,  Inc. (the "General Partner") holds a partnership  interest of 3.9%
and is a  wholly-owned  subsidiary  of  CRIIMI  MAE  Inc.  ("CRIIMI  MAE").  AIM
Acquisition  Partners,  L.P.  (the  "Advisor")  serves  as  the  advisor  to the
Partnership pursuant to an advisory agreement (the "Advisory Agreement").

     The general  partner of the Advisor is AIM  Acquisition  Corporation  ("AIM
Acquisition")  and the  limited  partners  include,  but are not limited to, AIM
Acquisition,  The Goldman  Sachs  Group,  L.P.,  Sun America  Investments,  Inc.
(successor to Broad, Inc.) and CRI/AIM Investment,  L.P., an affiliate of CRIIMI
MAE. AIM  Acquisition is a Delaware  corporation  that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

     Under the  Advisory  Agreement,  the Advisor  will  render  services to the
Partnership,  including but not limited to, the management of the  Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages.  Such
services  will be subject to the review and  ultimate  authority  of the General
Partner.  However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant  actions,  including but not limited
to the  disposition of mortgages,  any transaction or agreement with the General
Partner or its  affiliates,  or any  material  change as to  policies  regarding
distributions  or  reserves of the  Partnership.  The  Advisor is  permitted  to
delegate the performance of services  pursuant to a sub-advisory  agreement (the
"Sub-Advisory Agreement").  The delegation of such services will not relieve the
Advisor of its obligation to perform such services.  CRIIMI MAE Services Limited
Partnership  ("CMSLP"),  an affiliate of CRIIMI MAE,  manages the  Partnership's
portfolio,  pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, a wholly-owned subsidiary of CRIIMI MAE.

<PAGE>8

Mortgage Investments
--------------------

     Prior  to  the  expiration  of the  Partnership's  reinvestment  period  in
December  1993,  the  Partnership  was engaged in the  business  of  originating
mortgage loans  ("Originated  Insured  Mortgages") and acquiring  mortgage loans
("Acquired  Insured  Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages").  In accordance with the terms of the
partnership  agreement,  the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently,  its primary objective is to manage
its  portfolio of mortgage  investments,  all of which are insured (as discussed
below) under  Section  221(d)(4)  or Section 231 of the National  Housing Act of
1937, as amended (the "National  Housing Act"). The Partnership is a liquidating
partnership  and as it  continues  to liquidate  its  mortgage  investments  and
investors  receive  distributions  of  return  of  capital  and  taxable  gains,
investors  should  expect a reduction in earnings and  distributions  due to the
decreasing mortgage base. The partnership  agreement states that the Partnership
will  terminate on December 31, 2009,  unless  previously  terminated  under the
provisions of the partnership agreement.

     As of  December  31,  2001,  the  Partnership  had  invested  in 40 Insured
Mortgages, with an aggregate amortized cost of approximately $82 million, a face
value  of  approximately  $85  million  and a fair  value of  approximately  $84
million, as discussed below.

Investment in Insured Mortgages
-------------------------------

     The   Partnership's   investment  in  Insured  Mortgages  is  comprised  of
participation  certificates  evidencing a 100% undivided  beneficial interest in
government insured multifamily mortgages issued or sold pursuant to FHA programs
("FHA-Insured  Certificates"),  mortgage-backed  securities  guaranteed  by  the
Government  National  Mortgage  Association   ("GNMA")  ("GNMA   Mortgage-Backed
Securities") and FHA-insured mortgage loans ("FHA-Insured Loans"). The mortgages
underlying the FHA-Insured  Certificates,  GNMA  Mortgage-Backed  Securities and
FHA-Insured  Loans  are  non-recourse  first  liens on  multifamily  residential
developments or retirement homes.

     The  following is a discussion of the types of the  Partnership's  mortgage
investments, along with the risks related to each type of investment:

Fully Insured GNMA Mortgage-Backed Securities and FHA-Insured Certificates
--------------------------------------------------------------------------

      Listed below is the Partnership's aggregate investment in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                             2001             2000
                                                             ----             ----
<S>                                                     <C>              <C>
Fully Insured Acquired Mortgages:
   Number of
      GNMA Mortgage-Backed Securities (3)(5)                       2                4
      FHA-Insured Certificates
       (1)(2)(4) and (6) through (14)                             26               35
Amortized Cost                                          $ 44,640,062     $ 68,440,285
Face Value                                                46,215,896       71,404,632
Fair Value                                                45,845,197       70,770,317
</TABLE>

<PAGE>9

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             2001             2000
                                                             ----             ----
<S>                                                     <C>              <C>
Fully Insured Originated Mortgages:
   Number of
      GNMA Mortgage-Backed Securities                              1                1
      FHA-Insured Certificates                                     1                1
Amortized Cost                                          $ 16,132,560     $ 16,311,904
Face Value                                                16,132,560       16,279,536
Fair Value                                                15,734,485       15,927,124
</TABLE>

     The footnotes  referred to in the table above  correspond to the numbers of
the items listed in the three tables that follow.

     Listed below is a summary of prepayments on fully Insured Mortgages:

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                                                   Date                                      Distribution
                                       Net       Proceeds             Dist./   Declaration      Payment
      Complex Name                   Proceeds    Received     Gain     Unit       Date           Date
      ------------                   --------    --------     ----     ----       ----           ----
  <S>                                 <C>        <C>          <C>     <C>       <C>            <C>
  (1) The Meadows of Livonia          $6,653     Jan 2001     $253    $0.53     Jan 2001       May 2001
  (2) Gold Key Village Apartments      2,827     Mar 2001        9     0.22     Apr 2001       Aug 2001
  (3) Carlisle Apartments              2,120     Jun 2001       47     0.17     Jul 2001       Nov 2001
  (4) Cedar Ridge Apartments           2,637     Jun 2001      346     0.21     Jul 2001       Nov 2001
  (5) Afton Square Apartments          1,061     Jul 2001       29     0.08     Jul 2001       Nov 2001
  (6) The Gatehouse Apartments         2,802     Dec 2001       48     0.22     Jan 2002       May 2002
</TABLE>

     The two lists below summarize  debentures issued for mortgages  assigned to
the United  States  Department  of Housing and Urban  Development  ("HUD") under
Section 221 of the National  Housing Act.  Interest is payable on the debentures
semi-annually on January 1 and July 1.

     The following list represents  debentures redeemed,  subsequent to December
31,  2001,  in January  2002.  These  debentures  were  issued to Firstar  Trust
Company,  the initial  mortgagee and  subsequently  transferred  to Midland Loan
Services,  Inc.  ("Midland"),  the servicer,  in 2001. The net proceed  amounts,
which were  received in January 2002,  listed below are included in  receivables
and other assets in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                               Debenture                            Date of                                          Dist.
                               Interest     Net      Application    Response     Gain    Dist./    Declaration      Payment
     Complex Name                Rate     Proceeds      Date        from HUD     2001     Unit        Date           Date
     ------------                ----     --------      ----        --------     ----     ----        ----           ----
 <S>                            <C>       <C>         <C>           <C>         <C>     <C>         <C>            <C>
  (7)Summit Square Manor        7.125%    $ 1,883     Jun 2000      May 2001    $ 235   $ 0.150     Feb 2002       May 2002
  (8)Park Place                 7.125%        746     Jun 2000      May 2001       94     0.060     Feb 2002       May 2002
  (9)Park Hill Apartments       7.500%      1,721     Sep 2000      Nov 2001      208     0.140     Feb 2002       May 2002
 (10)Fairfax House              7.500%      2,109     Sep 2000      Nov 2001      268     0.170     Feb 2002       May 2002
 (11)Woodland Villas            7.125%        300     Apr 2001      Nov 2001       56     0.025     Feb 2002       May 2002
                                          -------                                       -------
     Total included in receivables and
     other assets as  of  December 31,
     2001                                 $ 6,759                                       $ 0.545
                                          =======                                       =======
</TABLE>

<PAGE>10

     In addition, the Partnership received interest on debentures in 2002: (1) a
distribution  of  approximately  $0.02  per  unit  of  interest  related  to HUD
debentures issued in exchange for the mortgages on Park Hill Apartments, Fairfax
House and Woodland  Villas was declared in January 2002,  and (2) a distribution
of $0.02 per unit of interest  related to HUD debentures  issued in exchange for
the mortgages on Summit Square Manor, Park Place, Park Hill Apartments,  Fairfax
House and Woodland Villas was declared in February 2002. These distributions are
expected to be paid in May 2002.

     The following list represents  debentures  that were issued,  subsequent to
December  31, 2001,  in January  2002,  to Firstar  Trust  Company,  the initial
mortgagee,   and  transferred  to  Midland.  The  Partnership   anticipates  the
debentures  will be  redeemed  prior to maturity  date.  The fair value of these
FHA-Insured  Certificates are included in investment in FHA-Insured Certificates
in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                                  Debenture                               Date of     Approximate    Debenture
                                  Interest      Net       Application     Response       Gain        Maturity
      Complex Name                  Rate      Proceeds       Date         from HUD       2002          Date
      ------------                  ----      --------       ----         --------       ----          ----
 <S>                               <C>         <C>         <C>            <C>           <C>          <C>
 (12) Country Club Terrace
        Apts.                      7.500%      $ 1,425     Sep 2000       Jan 2002      $ 178        Sep 2010
 (13) Nevada Hills Apartments      7.500%        1,133     Dec 2000       Jan 2002        154        Dec 2010
 (14) Dunhaven Apartments          7.125%          872     Jan 2001       Jan 2002        165        Feb 2011
</TABLE>

     As of  March  1,  2002,  all  of the  fully  insured  GNMA  Mortgage-Backed
Securities and FHA-Insured  Certificates are current with respect to the payment
of principal and interest.  The Partnership no longer receives monthly principal
and interest from  mortgages  that are in the HUD  assignment  process under the
Section  221  program.  The  servicer  of the  mortgage  on Fairlawn II filed an
application for insurance benefits under section 221 in September 2000. The face
value  of  this  mortgage  was  approximately   $755,000  as  of  the  insurance
application  date. The Partnership has not received  approval for the assignment
of this mortgage as of March 1, 2002.

     Under Section 221 of the National Housing Act, a mortgagee has the right to
assign a mortgage  ("put") to FHA at the expiration of 20 years from the date of
final  endorsement if the mortgage is not in default at such time. Any mortgagee
electing  to assign an  FHA-insured  mortgage to FHA will  receive,  in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured  mortgage plus accrued interest to the date
of  assignment.  These HUD  debentures  will  mature  10 years  from the date of
assignment  and will bear interest at a rate announced  semi-annually  by HUD in
the  Federal  Register  ("going  Federal  rate") at such date.  This  assignment
procedure is applicable to an insured mortgage,  which had a firm or conditional
FHA commitment for insurance on or before  November 30, 1983.  Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable  mortgage.  The  Partnership  expects to receive HUD  debentures,  as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment  of the  mortgage  to the  date of  issuance  of the  debenture.  The
Partnership  will  recognize  a gain on these  assignments  upon  receipt of HUD
debentures or a loss when it becomes  probable that a loss will be incurred.  In
general, the Partnership plans to sell the debentures if not called prior to the
Partnership's  termination  date,  December  31,  2009.  At that time  debenture
proceeds will be distributed to Unitholders.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying development (referred to as "Participations").
During  the years  ended  December  31,  2001,  2000 and 1999,  the  Partnership
received $0, $0, and $0, respectively,  from the Participations.  These amounts,

<PAGE>11

if  any,  are  included  in  mortgage  investment  income  on  the  accompanying
statements of income and comprehensive income.

     In the case of fully  insured  Originated  Insured  Mortgages  and Acquired
Insured   Mortgages,   the  Partnership's   maximum  exposure  for  purposes  of
determining  loan  losses  would  generally  be  approximately  1% of the unpaid
principal  balance  of the  Originated  Insured  Mortgage  or  Acquired  Insured
Mortgage  (an  assignment  fee charged by FHA) at the date of default,  plus the
unamortized  balance  of  acquisition  fees and  closing  costs  of the  Insured
Mortgage and the loss of approximately 30 days accrued interest.

Fully Insured FHA-Insured Loans
-------------------------------

     Listed  below is the  Partnership's  aggregate  investment  in  FHA-Insured
Loans:
<TABLE>
<CAPTION>
                                                         December 31,
                                                2001                    2000
                                                ----                    ----
<S>                                         <C>                      <C>
Fully Insured Acquired Loans:
  Number of Loans (1)                                 7                        8
Amortized Cost                              $ 8,914,573              $10,041,697
Face Value                                   10,632,937               12,040,599
Fair Value                                   10,451,178               12,023,455

Fully Insured Originated Loans:
  Number of Loans (2)                                 3                        3
Amortized Cost                              $12,430,002              $12,570,037
Face Value                                   12,132,653               12,261,397
Fair Value                                   12,122,221               12,192,633
</TABLE>

(1)  In September  2001, the mortgage on Berryhill  Apartments was prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $1.2  million  and
     recognized a gain of approximately $190,000 for the year ended December 31,
     2001.  A  distribution  of  approximately  $0.10  per Unit  related  to the
     prepayment  of  this  mortgage  was  declared  in  September  and  paid  to
     Unitholders in November 2001.
(2)  In  January  2002,  the  mortgage  on  Longleaf  Lodge  was  prepaid.   The
     Partnership received net proceeds of approximately $3.7 million and expects
     to recognize a gain of  approximately  $672,000 in 2002. A distribution  of
     approximately $0.29 per Unit related to the prepayment of this mortgage was
     declared in January 2002 and is expected to be paid in May 2002.

     As of March 1,  2002,  all of the  fully  insured  FHA-Insured  Loans  were
current with respect to the payment of principal  and  interest,  except for the
mortgage  on  Westbrook  Apartments,  which is  delinquent  with  respect to the
February 2002 payment of principal and interest.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying development (referred to as "Participations").
During  the years  ended  December  31,  2001,  2000 and 1999,  the  Partnership
received $53,424, $21,566, and $45,164,  respectively,  from the Participations.
These  amounts,  if any,  are  included  in  mortgage  investment  income on the
accompanying statements of income and comprehensive income.

Investment in FHA Debenture
---------------------------

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
FHA debenture for the mortgage on Fox Run Apartments. The debenture, with a face
value and fair value, as of December 31, 2001, of $2,385,233,  was issued to the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run  Apartments was owned 50% by the  Partnership  and 50% by an
affiliate of the Partnership, American Insured Mortgage Investors ("AIM 84"). In
January  2002,  net proceeds of  approximately  $2.4 million were  received upon
redemption of this debenture. Since the mortgage on Fox Run Apartments was owned
50% by the  Partnership  and 50% by AIM 84,  approximately  $1.2  million of the
debenture proceeds was paid to AIM 84. A distribution of approximately $0.09 per

<PAGE>12

Unit related to the  redemption  of this  debenture was declared in January 2002
and is expected to be paid in May 2002.

Results of Operations
---------------------
2001 versus 2000
----------------

     Net earnings increased slightly for 2001 as compared to 2000, primarily due
an  increase  in net gains from  mortgage  dispositions,  partially  offset by a
decrease in mortgage  investment  income  primarily  due to the reduction in the
mortgage  base.  The  mortgage  base  decreased  as  a  result  of  17  mortgage
dispositions  with an aggregate  principal balance of approximately $34 million,
representing an approximate 28% decrease in the aggregate  principal  balance of
the total mortgage portfolio since March 2000.

     Interest and other income increased for 2001 as compared to 2000, primarily
due  to  the  timing  of  the  investment  of  mortgage  proceeds  prior  to the
distribution to Unitholders.

     Asset management fees decreased for 2001 as compared to 2000, primarily due
to the reduction in the mortgage base.

     Gains on mortgage dispositions  increased for 2001 as compared to 2000 as a
result of gains  recognized  on seven  mortgage  prepayments  and five  mortgage
assignments in 2001, as discussed  above,  compared to gains  recognized on four
mortgage  prepayments  and one assignment in 2000. No losses were  recognized in
2001 compared to loss recognized on one mortgage prepayment in 2000.

2000 versus 1999
----------------

     Net earnings  decreased  for 2000 as compared to 1999,  primarily  due to a
decrease in mortgage investment income and a decrease in net gains from mortgage
dispositions, as discussed below.

     Mortgage  investment  income  decreased  for  2000  as  compared  to  1999,
primarily due to the reduction in the mortgage base. The mortgage base decreased
as a result of 17 mortgage  dispositions with an aggregate  principal balance of
approximately  $37  million,  representing  an  approximate  24% decrease in the
aggregate principal balance of the total mortgage portfolio since March 1999.

     Asset management fees decreased for 2000 as compared to 1999, primarily due
to the reduction in the mortgage base.

     General and administration  expense decreased for 2000 as compared to 1999,
primarily  due to a decrease  in  temporary  employment  costs and a decrease in
mortgage service fees.

     Gains on mortgage dispositions  decreased for 2000 as compared to 1999 as a
result of gains  recognized on four mortgage  prepayments  and one assignment in
2000,  as  discussed  above,  compared  to gains  recognized  on seven  mortgage
prepayments in 1999. Losses were recognized on one mortgage  prepayment in 2000,
as discussed above,  compared to losses recognized on four mortgage  prepayments
in 1999.

Liquidity and Capital Resources
-------------------------------

     On October 5, 1998,  CRIIMI  MAE,  the parent of the General  Partner,  and
CRIIMI  MAE  Management,  Inc.,  an  affiliate  of CRIIMI  MAE and  provider  of
personnel  and  administrative  services  to the  Partnership,  filed  voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for

<PAGE>13

the  District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy  Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17,  2001,  CRIIMI  MAE and  CRIIMI  MAE  Management,  Inc.  emerged  from
bankruptcy.

     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on Insured  Mortgages plus cash receipts from interest on
short-term  investments,  are the Partnership's principal sources of cash flows,
and were sufficient for the years ended December 31, 2001, 2000 and 1999 to meet
operating expense requirements. The Partnership anticipates its cash flows to be
sufficient to meet operating expense requirements for 2002.

     The basis for paying  distributions  to  Unitholders  is net proceeds  from
mortgage  dispositions,  if any, and cash flow from  operations,  which includes
regular  interest  income and principal from Insured  Mortgages after paying all
expenses  of the  Partnership.  Although  the  Insured  Mortgages  yield a fixed
monthly  mortgage  payment once purchased,  the cash  distributions  paid to the
Unitholders  will vary during each quarter due to (1) the fluctuating  yields in
the  short-term  money market where the monthly  mortgage  payment  receipts are
temporarily  invested prior to the payment of quarterly  distributions,  (2) the
reduction in the asset base resulting from monthly  mortgage payment receipts or
mortgage  dispositions,  (3)  variations  in the cash flow  attributable  to the
delinquency  or  default  of  Insured   Mortgages  and  professional   fees  and
foreclosure  costs incurred in connection  with those Insured  Mortgages and (4)
variations in the Partnership's operating expenses.

     Since the  Partnership  is obligated to distribute the proceeds of mortgage
prepayments,  sales and  insurance  on  Insured  Mortgages  (as  defined  in the
partnership  agreement)  to its  Unitholders,  the  size  of  the  Partnership's
portfolio  will continue to decrease.  The magnitude of the decrease will depend
upon the size of the Insured  Mortgages which are prepaid,  sold or assigned for
insurance proceeds.

Cash flow - 2001 versus 2000
----------------------------

     Net cash  provided by operating  activities  decreased in 2001  compared to
2000, primarily due to the reduction in mortgage investment income, as discussed
above.

     Net cash  provided by investing  activities  increased in 2001  compared to
2000.  This increase is primarily  due to an increase in proceeds  received from
the disposition of mortgages.

     Net cash used in financing  activities  decreased in 2001  compared to 2000
due to a  reduction  in the amount of  distributions  paid to  partners  in 2001
compared to 2000.

Cash flow - 2000 versus 1999
----------------------------

     Net cash provided by operating  activities decreased in 2000 as compared to
1999, primarily due to the reduction in mortgage investment income, as discussed
above.

     Net cash provided by investing  activities decreased in 2000 as compared to
1999.  This decrease is primarily  due to a reduction in proceeds  received from
the disposition of mortgages, a decrease in net debenture proceeds, as discussed
previously,  and a decrease in the receipt of mortgage  principal from scheduled
payments.

     Net cash used in financing activities increased in 2000 as compared to 1999
due to an  increase  in the amount of  distributions  paid to  partners  in 2000
compared to 1999.

<PAGE>14

ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     The Partnership's  principal market risk is exposure to changes in interest
rates in the U.S.  Treasury  market,  which  coupled with the related  spread to
treasury investors required for the Partnership's Insured Mortgages,  will cause
fluctuations in the market value of the Partnership's assets.

     The  table  below  provides  information  about the  Partnership's  Insured
Mortgages,  all of which were entered into for purposes other than trading.  The
table  presents  anticipated  principal  and interest  cash flows based upon the
assumptions  used in  determining  the fair  value of these  securities  and the
related weighted average interest rates by expected maturity.

<TABLE>
<CAPTION>
                                                                                                           Fair
                               2002      2003      2004      2005      2006      Thereafter     Total      Value
                               ----      ----      ----      ----      ----      ----------     -----      -----
<S>                           <C>       <C>       <C>       <C>       <C>          <C>          <C>        <C>
Insured Mortgages
   (in millions)              $16.2     $14.5     $13.7     $12.4     $11.4        $62.0        $130.2     $84.2

Average Interest Rate          7.87%     7.87%     7.86%     7.82%     7.81%        7.99%         7.87%      --
</TABLE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this Item is set forth in this Annual Report on
Form 10-K commencing on page 22.


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

     None.

<PAGE>15


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a),(b),(c),(e)

     The Partnership has no officers or directors.  CRIIMI, Inc. holds a general
partnership  interest of 3.9%. The affairs of the Partnership are managed by the
General Partner, which is wholly-owned by CRIIMI MAE, a corporation whose shares
are listed on the New York Stock Exchange.

     The  general  partner of the  Advisor is AIM  Acquisition  and the  limited
partners  include,  but are not limited to, AIM  Acquisition,  The Goldman Sachs
Group,  L.P.,  Sun America  Investments,  Inc.  (successor  to Broad,  Inc.) and
CRI/AIM  Investment,  L.P.,  an affiliate of CRIIMI MAE.  AIM  Acquisition  is a
Delaware  corporation that is primarily owned by Sun America  Investments,  Inc.
and The Goldman Sachs Group, L.P. Pursuant to the terms of certain amendments to
the  partnership  agreement,  the  General  Partner is  required  to receive the
consent of the Advisor prior to taking certain  significant  actions,  including
but not limited to the  disposition of mortgages,  any  transaction or agreement
with the  General  Partner  or its  affiliates,  or any  material  change  as to
policies  regarding  distributions  or reserves of the  Partnership.  CMSLP,  an
affiliate of CRIIMI MAE, manages the  Partnership's  portfolio,  pursuant to the
Sub-Advisory  Agreement.  The  general  partner  of CMSLP  is  CMSLP  Management
Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

     The General  Partner is also the general  partner of AIM 84, AIM 86 and AIM
88, limited  partnerships  with  investment  objectives  similar to those of the
Partnership.

     The  following  table  sets  forth  information  concerning  the  executive
officers  and  directors  of CRIIMI  MAE,  the sole  shareholder  of the General
Partner, as of February 19, 2002:
<TABLE>
<CAPTION>

Name                                        Age                          Position
----                                        ---                          --------
<S>                                         <C>                  <C>
William B. Dockser                          64                   Chairman of the Board

H. William Willoughby                       55                   President, Secretary and Director

David B. Iannarone                          41                   Executive Vice President

Cynthia O. Azzara                           42                   Senior Vice President,
                                                                   Chief Financial Officer and
                                                                   Treasurer

Brian L. Hanson                             40                   Senior Vice President

John R. Cooper                              54                   Director

Alan M. Jacobs                              53                   Director

Robert J. Merrick                           56                   Director

Robert E. Woods                             54                   Director
</TABLE>

<PAGE>16

     William B.  Dockser  has  served as  Chairman  of the Board of the  General
Partner  since 1991.  Mr.  Dockser has been  Chairman of the Board of CRIIMI MAE
since 1989. Mr. Dockser is also the founder of C.R.I., Inc. ("CRI"),  serving as
its Chairman of the Board since 1974.

     H. William  Willoughby has served as President and Secretary of the General
Partner since 1991.  Mr.  Willoughby has been President of CRIIMI MAE since 1990
and a Director and Secretary of CRIIMI MAE since 1989. Mr. Willoughby has been a
director of CRI since 1974,  Secretary of CRI from 1974 to 1990 and President of
CRI since 1990.

     David B.  Iannarone has served as Executive  Vice  President of the General
Partner  since  December  2000.  Mr.  Iannarone  has  served as  Executive  Vice
President  CRIIMI MAE since  December 2000; as Senior Vice President and General
Counsel of CRIIMI MAE from March 1998 to December  2000;  and as Vice  President
and General Counsel of CRIIMI MAE from July 1996 to March 1998.

     Cynthia  O.  Azzara has served as Chief  Financial  Officer of the  General
Partner since 1994. Ms. Azzara has served as Chief  Financial  Officer of CRIIMI
MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since
1995 and Treasurer of CRIIMI MAE since 1997.

     Brian L. Hanson has served as Senior Vice President of the General  Partner
since March 1998.  Mr. Hanson has served as Senior Vice  President of CRIIMI MAE
since March 1998;  and as Group Vice  President of CRIIMI MAE from March 1996 to
March 1998.

     John R. Cooper has served as Director  of the General  Partner  since April
2001.  Mr.  Cooper has served as Director  of CRIIMI MAE since  April 2001.  Mr.
Cooper is Senior Vice President, Finance, of PG&E National Energy Group, Inc. He
has been with  PG&E  National  Energy  Group,  Inc.  and its  predecessor,  U.S.
Generating Company, since its inception in 1989.

     Alan M. Jacobs has served as Director  of the General  Partner  since April
2001.  Mr.  Jacobs  has  served as  Director  of CRIIMI  MAE since  April  2001;
President of AMJ Advisors LLC, since  September  1999;  and founding  member and
Senior  Partner  of Ernst  and  Young  LLP's  restructuring  and  reorganization
practice  through  September  1999.  Mr.  Jacobs is the Plan  Administrator  and
Litigation Trust Trustee for T&W Financial  Corporation,  the Chapter 11 Trustee
for Apponline.com,  Inc., the Chapter 11 Trustee for Sharp International  Corp.,
the Chapter 7 Trustee for Edison  Brothers  Stores,  Inc.  and was  formerly the
co-chairman  and  co-chief   executive  officer  of  West  Coast   Entertainment
Corporation.  Mr. Jacobs serves as a director of The Singer Sewing Company.  Mr.
Jacobs was an executive officer of West Coast  Entertainment  Corporation at the
time such  corporation  filed a petition  under the federal  bankruptcy  laws in
March 2000.

     Robert J. Merrick has served as Director of the General Partner since 1997.
Mr.  Merrick  has served as  Director  of CRIIMI MAE since  1997;  Chief  Credit
Officer and Director of MCG Capital  Corporation since February 1998;  Executive
Vice President from 1985 and Chief Credit Officer of Signet Banking  Corporation
through 1997, also served as Chairman of the Credit Policy  Committee and member
of the Asset and Liability Committee and Management Committee.

     Robert E. Woods has served as Director of the General  Partner  since 1998.
Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing Director and
Head of Loan Syndications for the Americas at Societe  Generale,  New York since
1997; Managing Director, Head of Real Estate Capital Markets and Mortgage-Backed
Securities division, Citicorp from 1991 to 1997.

<PAGE>17


     (d)  There  is no  family  relationship  between  any of the  officers  and
          directors of the General Partner.

     (f)  Involvement in certain legal proceedings.

          None.

     (g)  Promoters and control persons.

          Not applicable.

     (h)  Section 16(a) Beneficial Ownership Reporting Compliance - Based solely
          on its review of Forms 3, 4 and 5 and amendments  thereto furnished to
          the Partnership,  and written  representations  from certain reporting
          persons  that  no  Form  5s  were  required  for  those  persons,  the
          Partnership believes that all reporting persons have filed on a timely
          basis Forms 3, 4 and 5 as  required in the fiscal year ended  December
          31, 2001.


ITEM 11.  EXECUTIVE COMPENSATION

      The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner received compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated by reference herein to Note 8 of the Notes to
Financial Statements of the Partnership.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)  As of February 19, 2002, no person was known by the  Partnership  to be the
     beneficial owner of more than five percent (5%) of the outstanding Units of
     the Partnership.

(b)  The following table sets forth certain information regarding the beneficial
     ownership  of the  Partnership's  Units  as of  February  19,  2002 by each
     director  of the  General  Partner,  each  named  executive  officer of the
     General  Partner,  and by affiliates of the  Partnership.  Unless otherwise
     indicated,  each  Unitholder  has sole  voting  and  investment  power with
     respect to the Units beneficially owned.

                             Amount and Nature
                                of Units                     Percentage of Units
Name                         Beneficially Owned                  Outstanding
----                         ------------------                  -----------
William B. Dockser                11,000 (1)                          *
CRIIMI MAE                         4,000                              *

     (1)  Includes 4,000 Units held by Mr. Dockser's wife

     *    Less than 1%

(c)  There are no arrangements known to the Partnership,  the operation of which
     may  at  any  subsequent  date  result  in  a  change  in  control  of  the
     Partnership.

<PAGE>18
                                    PART III

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a)  Transactions with management and others.

     Note 8 of the Notes to Financial  Statements of the Partnership  contains a
     discussion of the amounts,  fees and other  compensation paid or accrued by
     the  Partnership  to the directors  and  executive  officers of the General
     Partner  and their  affiliates,  and is hereby  incorporated  by  reference
     herein.

(b)  Certain business relationships.

     Other than as set forth in Item 11 of this Annual Report on Form 10-K which
     is hereby incorporated by reference herein, the Partnership has no business
     relationship  with  entities  of which the current  General  Partner of the
     Partnership are officers, directors or equity owners.

(c)  Indebtedness of management.

     None.

(d)  Transactions with promoters.

     Not applicable.

<PAGE>19
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K

         (a)(1)   Financial Statements:
<TABLE>
<CAPTION>
         <S>                                                                                           <C>
                                                                                                        Page
         Description                                                                                   Number
         -----------                                                                                   ------
         Balance Sheets as of December 31, 2001 and 2000.................................................24

         Statements of Income and Comprehensive Income for the years ended December 31, 2001,
            2000, and 1999 ..............................................................................25

         Statements of Changes in Partners' Equity for the years ended December 31, 2001, 2000
            and 1999.....................................................................................26

         Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...................27

         Notes to Financial Statements...................................................................28


         (a)(2)  Financial Statement Schedules:

                  IV - Mortgage Loans on Real Estate.....................................................39
</TABLE>

     All other schedules have been omitted because they are not applicable,  not
required,  or the  information is included in the Financial  Statements or Notes
thereto.

         (a)(3)  Exhibits:

     4.0  Amended  and  Restated   Certificates   of  Limited   Partnership  are
          incorporated  by  reference  to  Exhibit  4(a)  to  the   Registration
          Statement  on Form S-11 (No.  2-93294)  dated  January  28, 1985 (such
          Registration  Statement,  as  amended,  is  referred  to herein as the
          "Registration Statement").

     4.1  Second Amended and Restated  Partnership  Agreement is incorporated by
          reference to Exhibit 3 to the Registration Statement.

     4.2  Amendment  No.  1 to  the  Second  Amended  and  Restated  Partnership
          Agreement  is  incorporated  by  reference  to  Exhibit  4(a)  to  the
          Partnership's  Annual Report on Form 10-K for the year ended  December
          31, 1986.

     4.3  Amendment  No.  2 to  the  Second  Amended  and  Restated  Partnership
          Agreement  is  incorporated  by  reference  to  exhibit  4(b)  to  the
          Partnership's  Annual Report on Form 10-K for the year ended  December
          31, 1986.

     4.4  Amendment  No. 3 dated  February 12, 1990,  to the Second  Amended and
          Restated   Agreement  of  Limited   Partnership  of  the   Partnership
          incorporated by reference to Exhibit 4(c) to the Partnership's  Annual
          Report on Form 10-K for the year ended December 31, 1989.

    10.0  Escrow Agreement,  dated January 14, 1985, among the Partnership,  the
          Managing  General Partner and Integrated  Resources  Marketing,  Inc.,
          incorporated  by  reference  to  Exhibit  10(a)  to  the  Registration
          Statement.

<PAGE>20

    10.1  Amended and Restated  Origination and Acquisition  Services Agreement,
          dated  as of  January  8,  1985,  between  the  Partnership  and  IFI,
          incorporated  by  reference  to  Exhibit  10(b)  to  the  Registration
          Statement.

    10.2  Amended  and  Restated  Management  Services  Agreement,  dated  as of
          January 8, 1985,  between the  Partnership  and IFI,  incorporated  by
          reference to Exhibit 10(c) to the Registration Statement.

    10.3  Amended  and  Restated  Disposition  Services  Agreement,  dated as of
          January 8, 1985,  between the  Partnership  and IFI,  incorporated  by
          reference to Exhibit 10(d) to the Registration Statement.

    10.4  Agreement,  dated as of  January 8,  1985,  among the former  managing
          general partner,  the former associate  general partner and Integrated
          Resources,  Inc.,  incorporated  by reference to Exhibit  10(e) to the
          Registration Statement.

    10.5  Reinvestment  Plan,   incorporated  by  reference  to  the  Prospectus
          contained in the Registration Statement.

    10.6  Declaration of Trust and Pooling Servicing  Agreement dated as of July
          1, 1982 as to Pass-Through Certificates,  is incorporated by reference
          to Exhibit  10(h) to  Registrant's  Annual Report on Form 10-K for the
          fiscal year ended December 31, 1986.

    10.7  Pages  A-1  -  A-5  of  the   Partnership   Agreement  of  Registrant,
          incorporated  by reference to Exhibit 28 to the  Partnership's  Annual
          Report on Form 10-K for the year ended December 31, 1990.

    10.8  Purchase Agreement among AIM Acquisition,  the former managing general
          partner,  the former  corporate  general  partner,  IFI and Integrated
          dated  as  of  December  13,  1990,   as  amended   January  9,  1991,
          incorporated by reference  Exhibit 28(a) to the  Partnership's  Annual
          Report on Form 10-K for the year ended December 31, 1990.

    10.9  Purchase  Agreement among CRIIMI,  Inc., AIM  Acquisition,  the former
          managing general partner,  the former corporate  general partner,  IFI
          and Integrated  dated as of December 13, 1990 and executed as of March
          1,  1991,   incorporated   by  reference  to  Exhibit   28(b)  to  the
          Partnership's  Annual Report on Form 10-K for the year ended  December
          31, 1990.

    10.10 Amendment  to   Partnership   Agreement   dated   September  4,  1991,
          incorporated  by  reference  to Exhibit  28(c),  to the  Partnership's
          Annual Report on Form 10-K for the year ended December 31, 1991.

    10.11 Sub-Management  Agreement by and between AIM  Acquisition  and CRI/AIM
          Management, Inc., dated as of March 1, 1991, incorporated by reference
          to Exhibit 28(f) to the  Partnership's  Annual Report on Form 10-K for
          the year ended December 31, 1992.

    99.0  Letter to  Securities  and Exchange  Commission  from the  Partnership
          dated March 22,  2002  regarding  the  representations  received  from
          Arthur  Andersen LLP in performing  the audit of the December 31, 2001
          financial statements(filed herewith).

         (b)  Reports on Form 8-K filed  during the last  quarter of the fiscal
              year: None.

               All other items are not applicable.

<PAGE>21
                                     PART IV

                                   SIGNATURES

     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears  below  constitutes  and  appoints  William B.  Dockser  and H.  William
Willoughby, jointly and severally, his attorney-in-fact,  each with the power of
substitution  for him in any and all capacities,  to sign any amendments to this
Annual Report on Form 10-K and to file the same with exhibits  thereto and other
documents in connection therewith,  with the Securities and Exchange Commission,
hereby  ratifying and  confirming  all that each said  attorney-in-fact,  or his
substitute or substitutes, may do or cause to be done by virtue hereof.

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                               AMERICAN INSURED MORTGAGE
                                               INVESTORS - SERIES 85, L.P.
                                               (Registrant)

                                               By:  CRIIMI, Inc.
                                                    General Partner

March 12, 2002                                 /s/ William B. Dockser
--------------                                 ---------------------------------
DATE                                           William B. Dockser
                                               Chairman of the Board

March 12, 2002                                 /s/ H. William Willoughby
--------------                                 ---------------------------------
DATE                                           H. William Willoughby
                                               President, Secretary and Director

March 22, 2002                                 /s/ Cynthia O. Azzara
--------------                                 ---------------------------------
DATE                                           Cynthia O. Azzara
                                               Senior Vice President,
                                               Chief Financial Officer and
                                               Treasurer

March 12, 2002                                 /s/ John R. Cooper
--------------                                 ---------------------------------
DATE                                           John R. Cooper
                                               Director

March 12, 2002                                 /s/ Alan M. Jacobs
--------------                                 ---------------------------------
DATE                                           Alan M. Jacobs
                                               Director

March 14, 2002                                 /s/ Robert J. Merrick
--------------                                 ---------------------------------
DATE                                           Robert J. Merrick
                                               Director

March 11, 2002                                 /s/ Robert E. Woods
--------------                                 ---------------------------------
DATE                                           Robert E. Woods
                                               Director

<PAGE>22










              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.



                              Financial Statements

                        as of December 31, 2001 and 2000

                             and for the Years Ended

                        December 31, 2001, 2000, and 1999


<PAGE>23



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of American Insured Mortgage Investors - Series 85, L.P.:

     We have  audited  the  accompanying  balance  sheets  of  American  Insured
Mortgage Investors - Series 85, L.P. (the "Partnership") as of December 31, 2001
and 2000, and the related statements of income and comprehensive income, changes
in partners'  equity and cash flows for the years ended December 31, 2001,  2000
and 1999. These financial  statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position of the  Partnership  as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the  years  ended  December  31,  2001,  2000  and 1999 in  conformity  with
accounting principles generally accepted in the United States.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate
as of  December  31,  2001 is  presented  for  purposes  of  complying  with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic  financial  statements.  The  information in this schedule has
been  subjected  to the auditing  procedures  applied in our audits of the basic
financial  statements  and, in our  opinion,  is fairly  stated in all  material
respects in relation to the basic financial statements taken as a whole.



/s/Arthur Andersen LLP
Vienna, Virginia
March 4, 2002

<PAGE>24

              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                            December 31,      December 31,
                                                                2001              2000
                                                            ------------      ------------
<S>                                                         <C>               <C>
                        ASSETS

Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value:
    Acquired insured mortgages                              $ 45,845,197      $ 70,770,317
    Originated insured mortgages                              15,734,485        15,927,124
                                                            ------------      ------------

                                                              61,579,682        86,697,441

Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium:
    Acquired insured mortgages                                 8,914,573        10,041,697
    Originated insured mortgages                              12,430,002        12,570,037
                                                            ------------      ------------
                                                              21,344,575        22,611,734

Cash and cash equivalents                                      4,366,085         5,631,117

Receivables and other assets                                   8,394,392         1,319,714

Investment in FHA debenture                                    2,385,233         2,361,381
                                                            ------------      ------------

      Total assets                                          $ 98,069,967      $118,621,387
                                                            ============      ============


           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                       $  1,885,460      $  6,284,867

Accounts payable and accrued expenses                            121,659           112,864

Due to affiliate                                               1,235,104         1,242,107
                                                            ------------      ------------

      Total liabilities                                        3,242,223         7,639,838
                                                            ------------      ------------

Partners' equity:
  Limited partners' equity, 15,000,000 Units
      authorized, 12,079,514 Units issued and outstanding     99,801,805       114,254,731
  General partner's deficit                                   (5,781,121)       (5,194,582)
  Accumulated other comprehensive income                         807,060         1,921,400
                                                            ------------      ------------

      Total partners' equity                                  94,827,744       110,981,549
                                                            ------------      ------------

      Total liabilities and partners' equity                $ 98,069,967      $118,621,387
                                                            ============      ============
</TABLE>


                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>25

              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                                   For the years ended December 31,
                                                2001             2000            1999
                                            ------------     ------------     ------------
<S>                                         <C>              <C>              <C>
Income:
  Mortgage investment income                $  7,983,600     $  9,597,605     $ 11,846,964
  Interest and other income                      541,979          380,932          382,860
                                            ------------     ------------     ------------

                                               8,525,579        9,978,537       12,229,824


Expenses:
  Asset management fee to related parties        959,934        1,142,121        1,382,904
  General and administrative                     382,296          397,713          479,113
                                            ------------     ------------     ------------

                                               1,342,230        1,539,834        1,862,017
                                            ------------     ------------     ------------

Earnings before gains (losses)
  on mortgage dispositions                     7,183,349        8,438,703       10,367,807

Mortgage dispositions
  Gains                                        1,785,376          467,414          956,150
  Losses                                               -          (39,819)         (99,399)
                                            ------------     ------------     ------------

Net earnings                                $  8,968,725     $  8,866,298     $ 11,224,558
                                            ============     ============     ============

Other comprehensive (loss) income             (1,114,340)       1,907,406       (5,482,391)
                                            ------------     ------------     ------------

Comprehensive income                        $  7,854,385     $ 10,773,704     $  5,742,167
                                            ============     ============     ============


Net earnings allocated to:
  Limited partners - 96.1%                  $  8,618,945     $  8,520,512     $ 10,786,800
  General partner -   3.9%                       349,780          345,786          437,758
                                            ------------     ------------     ------------

                                            $  8,968,725     $  8,866,298     $ 11,224,558
                                            ============     ============     ============

Net earnings per Limited
  Partnership Unit - Basic                  $       0.71     $       0.71     $       0.89
                                            ============     ============     ============
</TABLE>

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

<PAGE>26

              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                    STATEMENTS OF CHANGES IN PARTNERS' EQUITY

                For the years ended December 31, 2001, 2000, 1999

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                           Other
                                                        General          Limited        Comprehensive
                                                        Partner          Partners          Income           Total
                                                      ------------     ------------     ------------     ------------
<S>                                                   <C>              <C>              <C>              <C>
Balance, January 1, 1999                              $ (3,674,093)    $151,721,136     $  5,496,385     $153,543,428

  Net Earnings                                             437,758       10,786,800                -       11,224,558
  Adjustment to unrealized gains (losses) on
    investments in insured mortgages                             -                -       (5,482,391)      (5,482,391)
  Distributions paid or accrued of $3.09 per Unit,
    including return of capital of $2.20 per Unit       (1,514,779)     (37,325,699)               -      (38,840,478)
                                                      ------------     ------------     ------------     ------------

Balance, December 31, 1999                              (4,751,114)     125,182,237           13,994      120,445,117

  Net Earnings                                             345,786        8,520,512                -        8,866,298
  Adjustment to unrealized gains (losses) on
    investments in insured mortgages                             -                -        1,907,406        1,907,406
  Distributions paid or accrued of $1.61 per Unit,
    including return of capital of $0.90 per Unit         (789,254)     (19,448,018)               -      (20,237,272)
                                                      ------------     ------------     ------------     ------------

Balance, December 31, 2000                              (5,194,582)     114,254,731        1,921,400      110,981,549

  Net Earnings                                             349,780        8,618,945                -        8,968,725
  Adjustment to unrealized gains (losses) on
    investments in insured mortgages                             -                -       (1,114,340)      (1,114,340)
  Distributions paid or accrued of $1.91 per Unit,
    including return of capital of $1.20 per Unit         (936,319)     (23,071,871)               -      (24,008,190)
                                                      ------------     ------------     ------------     ------------

Balance, December 31, 2001                            $ (5,781,121)    $ 99,801,805     $    807,060     $ 94,827,744
                                                      ============     ============     ============     ============



Limited Partnership Units outstanding - Basic, as of
   December 31, 2001, 2000 and 1999                                      12,079,514
                                                                         ==========
</TABLE>

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


<PAGE>27

               AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                      STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                           For the years ended December 31,
                                                                                       2001              2000              1999
                                                                                   ------------      ------------      ------------
<S>                                                                                <C>               <C>               <C>
Cash flows from operating activities:
   Net earnings                                                                    $  8,968,725      $  8,866,298      $ 11,224,558
   Adjustments to reconcile net earnings to net cash
      provided by operating activities:
      Losses on mortgage dispositions                                                         -            39,819            99,399
      Gains on mortgage dispositions                                                 (1,785,376)         (467,414)         (956,150)
      Changes in assets and liabilities:
         (Increase) decrease in receivables and other assets                           (315,436)         (196,242)          329,820
         Increase (decrease) in accounts payable and accrued expenses                     8,795           (34,609)          (36,763)
         Decrease in due to affiliate                                                    (7,003)                -          (131,129)
                                                                                   ------------      ------------      ------------

            Net cash provided by operating activities                                 6,869,705         8,207,852        10,529,735
                                                                                   ------------      ------------      ------------

Cash flows from investing activities:
   Proceeds from disposition of mortgages                                            19,316,901         9,346,682        26,870,388
   Receipt of mortgage principal from scheduled payments                                955,959         1,182,259         1,308,678
   Proceeds from redemption of debenture                                                      -                 -         2,296,098
   Debenture proceeds due to affiliate                                                        -                 -        (1,148,049)
                                                                                   ------------      ------------      ------------

            Net cash provided by investing activities                                20,272,860        10,528,941        29,327,115
                                                                                   ------------      ------------      ------------

Cash flows from financing activities:
   Distributions paid to partners                                                   (28,407,597)      (36,829,320)      (31,927,125)
                                                                                   ------------      ------------      ------------

Net (decrease) increase in cash and cash equivalents                                 (1,265,032)      (18,092,527)        7,929,725

Cash and cash equivalents, beginning of year                                          5,631,117        23,723,644        15,793,919
                                                                                   ------------      ------------      ------------

Cash and cash equivalents, end of year                                             $  4,366,085      $  5,631,117      $ 23,723,644
                                                                                   ============      ============      ============

Non-cash investing activity:

   7.125% debenture received from HUD in exchange for
      the mortgage on Fox Run Apartments                                                      -      $  2,385,233                 -
   Portion of debenture due to affiliate, AIM 84                                              -        (1,242,107)                -
   Portion of HUD debentures due from Midland in exchange
      for the mortgages on Summit Square Manor, Park Place,
      Park Hill Apartments, Fairfax House, and Woodland Villas                     $  6,759,242                 -                 -
</TABLE>

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


<PAGE>28
                  AMERICAN MORTGAGE INVESTORS - SERIES 85, L.P.

                          NOTES TO FINANCIAL STATEMENTS

1.   ORGANIZATION

     American Insured Mortgage  Investors - Series 85, L.P. (the  "Partnership")
was formed under the Uniform Limited  Partnership Act of the state of California
on June 26, 1984.

     CRIIMI,  Inc. (the "General Partner") holds a partnership  interest of 3.9%
and is a  wholly-owned  subsidiary  of  CRIIMI  MAE  Inc.  ("CRIIMI  MAE").  AIM
Acquisition  Partners  L.P.  (the  "Advisor")  serves  as  the  advisor  to  the
Partnership.  The general partner of the Advisor is AIM Acquisition  Corporation
("AIM  Acquisition") and the limited partners  include,  but are not limited to,
AIM Acquisition,  The Goldman Sachs Group, L.P., Sun America  Investments,  Inc.
(successor to Broad, Inc.) and CRI/AIM Investment,  L.P., an affiliate of CRIIMI
MAE. AIM  Acquisition is a Delaware  corporation  that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

     Under the  Advisory  Agreement,  the Advisor  will  render  services to the
Partnership,  including but not limited to, the management of the  Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages.  Such
services  will be subject to the review and  ultimate  authority  of the General
Partner.  However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant  actions,  including but not limited
to the  disposition of mortgages,  any transaction or agreement with the General
Partner or its  affiliates,  or any  material  change as to  policies  regarding
distributions  or  reserves of the  Partnership.  The  Advisor is  permitted  to
delegate the performance of services  pursuant to a sub-advisory  agreement (the
"Sub-Advisory Agreement").  The delegation of such services will not relieve the
Advisor of its obligation to perform such services.  CRIIMI MAE Services Limited
Partnership  ("CMSLP"),  an affiliate of CRIIMI MAE,  manages the  Partnership's
portfolio,  pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, a wholly-owned subsidiary of CRIIMI MAE.

     Prior  to  the  expiration  of the  Partnership's  reinvestment  period  in
December  1993,  the  Partnership  was engaged in the  business  of  originating
mortgage loans  ("Originated  Insured  Mortgages") and acquiring  mortgage loans
("Acquired  Insured  Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages").  In accordance with the terms of the
partnership  agreement,  the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently,  its primary objective is to manage
its  portfolio of mortgage  investments,  all of which are insured under Section
221(d)(4)  or Section 231 of the National  Housing Act of 1937,  as amended (the
"National  Housing Act"). The partnership  agreement states that the Partnership
will  terminate on December 31, 2009,  unless  previously  terminated  under the
provisions of the partnership agreement.

     On October 5, 1998,  CRIIMI  MAE,  the parent of the General  Partner,  and
CRIIMI  MAE  Management,  Inc.,  an  affiliate  of CRIIMI  MAE and  provider  of
personnel  and  administrative  services  to the  Partnership,  filed  voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for
the  District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy  Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17,  2001,  CRIIMI  MAE and  CRIIMI  MAE  Management,  Inc.  emerged  from
bankruptcy.

<PAGE>29

2.   SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------

     The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").
The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial  statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

Investment in Insured Mortgages
-------------------------------

     The   Partnership's   investment  in  Insured  Mortgages  is  comprised  of
participation  certificates  evidencing a 100% undivided  beneficial interest in
government  insured  multifamily  mortgages  issued or sold  pursuant to Federal
Housing   Administration   ("FHA")   programs   ("FHA-Insured    Certificates"),
mortgage-backed  securities  guaranteed  by  the  Government  National  Mortgage
Association  ("GNMA")  ("GNMA   Mortgage-Backed   Securities")  and  FHA-insured
mortgage loans ("FHA-Insured  Loans").  The mortgages underlying the FHA-Insured
Certificates,   GNMA  Mortgage-Backed   Securities  and  FHA-Insured  Loans  are
non-recourse first liens on multifamily  residential  developments or retirement
homes.

     Payments  of  principal  and  interest  on  FHA-Insured   Certificates  and
FHA-Insured  Loans are insured by the United  States  Department  of Housing and
Urban  Development  ("HUD")  pursuant to Title 2 of the  National  Housing  Act.
Payments of  principal  and  interest  on GNMA  Mortgage-Backed  Securities  are
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

     As of  December  31,  2001,  the  weighted  average  remaining  term of the
Partnership's  investments in GNMA  Mortgage-Backed  Securities and  FHA-Insured
Certificates is  approximately  26 years.  However,  the  partnership  agreement
states that the Partnership  will terminate in approximately 8 years on December
31, 2009,  unless  terminated  earlier under the  provisions of the  partnership
agreement.  As the Partnership is anticipated to terminate prior to the weighted
average remaining term of its investments in GNMA Mortgage-Backed Securities and
FHA-Insured  Certificates,  the Partnership does not have the ability or intent,
at this time, to hold these investments to maturity.  Consequently,  the General
Partner  believes that the  Partnership's  investments  in GNMA  Mortgage-Backed
Securities and FHA-Insured  Certificates should be included in the available for
sale category.  Although the Partnership's  investments in GNMA  Mortgage-Backed
Securities and FHA-Insured Certificates are classified as available for sale for
financial statement purposes, the General Partner does not intend to voluntarily
sell these assets other than those which may be sold as a result of a default or
those which are eligible to be put to FHA at the expiration of 20 years from the
date of the final endorsement under Section 221 of the National Housing Act (the
"Section 221 program"), as discussed in Note 5.

     In connection with this  classification,  as of December 31, 2001 and 2000,
all of the  Partnership's  investments  in GNMA  Mortgage-Backed  Securities and
FHA-Insured  Certificates  are recorded at fair value,  with the net  unrealized
gains and losses on these assets reported as other comprehensive income and as a
separate component of partners' equity. Subsequent increases or decreases in the
fair value of GNMA  Mortgage-Backed  Securities  and  FHA-Insured  Certificates,
classified  as available for sale,  will be included as a separate  component of
partners' equity.  Realized gains and losses on GNMA Mortgage-Backed  Securities
and FHA-Insured Certificates, classified as available for sale, will continue to
be reported in earnings.

<PAGE>30

     As of  December  31,  2001 and 2000,  Investment  in  FHA-Insured  Loans is
recorded at amortized cost.

     The amortized cost of the investments in GNMA  Mortgage-Backed  Securities,
FHA-Insured  Certificates and FHA-Insured  Loans is adjusted for amortization of
discounts and premiums to maturity.  Such  amortization  is included in mortgage
investment income.

     Gains from  dispositions  of mortgage  investments  are recognized upon the
receipt of cash or HUD debentures.

     Losses on  dispositions  of mortgage  investments  are  recognized  when it
becomes  probable that a mortgage  will be disposed of and that the  disposition
will result in a loss.  In the case of Insured  Mortgages  fully insured by HUD,
the  Partnership's  maximum exposure for purposes of determining the loan losses
would generally be an assignment fee charged by HUD  representing  approximately
1% of the  unpaid  principal  balance  of the  Insured  Mortgage  at the date of
default, plus the unamortized balance of acquisition fees and closing costs paid
in  connection  with the  acquisition  of the Insured  Mortgage  and the loss of
approximately 30 days accrued interest.

Investment in FHA Debenture
---------------------------

     From time to time, the Partnership  assigns defaulted loans to HUD in order
to  collect  the amount of  delinquent  principal  and  interest.  In  addition,
mortgages  are  assigned to HUD under the Section 221  program,  as discussed in
Note 5. HUD  determines  if the claim will be settled in cash or by the issuance
of debentures.  Debentures are  obligations of the mortgage  insurance funds and
are unconditionally  guaranteed by the United States. The term of the debentures
are usually  more than 9 years and the rate is set based upon the rate in effect
at the commitment date to provide  insurance or at the final  endorsement  date,
whichever is greater. The Partnership classifies its Investment in FHA Debenture
as an available for sale debt security with changes in fair value recorded as an
adjustment to equity and other comprehensive income.

Cash and Cash Equivalents
-------------------------

     Cash and cash  equivalents  consist of money market funds,  time and demand
deposits, commercial paper and repurchase agreements with original maturities of
three months or less.

Income Taxes
------------

     No provision has been made for Federal,  state or local income taxes in the
accompanying  statements of income and  comprehensive  income since they are the
responsibility of the Unitholders.

Statements of Cash Flows
------------------------

     No cash  payments  were made for  interest  expense  during the years ended
December  31,  2001,  2000 and 1999.  Since  the  statements  of cash  flows are
intended to reflect only cash receipt and cash payment activity,  the statements
of cash flows do not reflect all  operating  activities  that affect  recognized
assets and liabilities while not resulting in cash receipts or cash payments.

<PAGE>31


3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  following  estimated  fair  values  of  the  Partnership's   financial
instruments  are  presented in accordance  with  generally  accepted  accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties,  other than
in a forced or liquidation  sale. These estimated fair values,  however,  do not
represent the liquidation value or the market value of the Partnership.

<TABLE>
<CAPTION>
                                              As of December 31, 2001            As of December 31, 2000
                                            Amortized          Fair            Amortized          Fair
                                              Cost             Value             Cost             Value
                                          -------------    --------------    -------------    --------------
<S>                                       <C>              <C>               <C>              <C>
Investment in FHA-Insured Certificates
   and GNMA Mortgage-Backed
   Securities:
   Acquired insured mortgages             $  44,640,062    $   45,845,197    $  68,440,285    $   70,770,317
   Originated insured mortgages              16,132,560        15,734,485       16,311,904        15,927,124
                                          -------------    --------------    -------------    --------------

                                          $  60,772,622    $   61,579,682    $  84,752,189    $   86,697,441
                                          =============    ==============    =============    ==============

Investment in FHA-Insured Loans:
  Acquired insured mortgages              $   8,914,573    $   10,451,178    $  10,041,697    $   12,023,455
  Originated insured mortgages               12,430,002        12,122,221       12,570,037        12,192,633
                                          -------------    --------------    -------------    --------------

                                          $  21,344,575    $   22,573,399    $  22,611,734    $   24,216,088
                                          =============    ==============    =============    ==============

Cash and cash equivalents                 $   4,366,085    $    4,366,085    $   5,631,117    $    5,631,117
                                          =============    ==============    =============    ==============

Investment in FHA Debenture               $   2,385,233    $    2,385,233    $   2,385,233    $    2,361,381
                                          =============    ==============    =============    ==============
</TABLE>

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Investment in FHA-Insured Certificates,
GNMA Mortgage-Backed Securities, FHA-Insured Loans and FHA Debenture
--------------------------------------------------------------------

     The  fair  value  of the  FHA-Insured  Certificates,  GNMA  Mortgage-Backed
Securities and FHA-Insured  Loans is priced  internally.  The Partnership used a
discounted cash flow methodology to estimate the fair value; the cash flows were
discounted  using  a  discount  rate  that,  in  the  Partnership's   view,  was
commensurate  with the market's  perception of risk and value.  The  Partnership
used a variety  of  sources  to  determine  its  discount  rate  including:  (i)
institutionally-available research reports, and (ii) communications with dealers
and active  insured  mortgage  security  investors  regarding  the  valuation of
comparable  securities.  The fair value of the FHA  Debenture  is based upon the
prices of other comparable  securities that trade in the market.  The fair value
is equal to its face value upon redemption of the debenture.

Cash and cash equivalents
-------------------------

     The carrying amount  approximates  fair value because of the short maturity
of these instruments.

<PAGE>32

4.   COMPREHENSIVE INCOME

     Comprehensive  income  includes net  earnings as currently  reported by the
Partnership adjusted for other comprehensive  income. Other comprehensive income
for the Partnership  consists of changes in unrealized  gains and losses related
to the  Partnership's  mortgages  and  debenture  accounted for as available for
sale.  The table  below  breaks out other  comprehensive  income for the periods
presented into the following two categories:  (1) the change to unrealized gains
and losses that  relate to  mortgages  which were  disposed of during the period
with  the   resulting   realized   gain  or  loss   reflected  in  net  earnings
(reclassification  adjustments)  and (2) the change in the  unrealized  gains or
losses related to those investments that were not disposed of during the period.

<TABLE>
<CAPTION>
                                                                2001           2000           1999
                                                                ----           ----           ----
<S>                                                         <C>            <C>            <C>
Reclassification adjustment for (gains) losses
   included in net income                                   $ (1,149,729)  $    114,365   $ (1,213,550)
Unrealized holding gains (losses) arising during
   the period                                                     35,389      1,793,041     (4,268,841)
                                                            ------------   ------------   ------------

Net adjustment to unrealized (losses) gains                 $ (1,114,340)  $  1,907,406   $ (5,482,391)
                                                            ============   ============   ============
</TABLE>

5.   INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
     SECURITIES

Fully Insured GNMA Mortgage-Backed Securities and FHA-Insured Certificates
--------------------------------------------------------------------------

     Listed   below  is  the   Partnership's   aggregate   investment   in  GNMA
Mortgage-Backed Securities and FHA-Insured Certificates:

                                                            December 31,
                                                       2001             2000
                                                       ----             ----
Fully Insured Acquired Mortgages:
   Number of
      GNMA Mortgage-Backed Securities (3)(5)                  2                4
      FHA-Insured Certificates
       (1)(2)(4) and (6) through (14)                        26               35
Amortized Cost                                     $ 44,640,062     $ 68,440,285
Face Value                                           46,215,896       71,404,632
Fair Value                                           45,845,197       70,770,317

Fully Insured Originated Mortgages:
   Number of
      GNMA Mortgage-Backed Securities                         1                1
      FHA-Insured Certificates                                1                1
Amortized Cost                                     $ 16,132,560     $ 16,311,904
Face Value                                           16,132,560       16,279,536
Fair Value                                           15,734,485       15,927,124

     The footnotes  referred to in the table above  correspond to the numbers of
the items listed in the three tables that follow.

Listed below is a summary of prepayments on fully Insured Mortgages:

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                                                   Date                                      Distribution
                                       Net       Proceeds             Dist./   Declaration      Payment
      Complex Name                   Proceeds    Received     Gain     Unit       Date           Date
      ------------                   --------    --------     ----     ----       ----           ----
  <S>                                 <C>        <C>          <C>     <C>       <C>            <C>
  (1) The Meadows of Livonia          $6,653     Jan 2001     $253    $0.53     Jan 2001       May 2001
  (2) Gold Key Village Apartments      2,827     Mar 2001        9     0.22     Apr 2001       Aug 2001
  (3) Carlisle Apartments              2,120     Jun 2001       47     0.17     Jul 2001       Nov 2001
  (4) Cedar Ridge Apartments           2,637     Jun 2001      346     0.21     Jul 2001       Nov 2001
  (5) Afton Square Apartments          1,061     Jul 2001       29     0.08     Jul 2001       Nov 2001
  (6) The Gatehouse Apartments         2,802     Dec 2001       48     0.22     Jan 2002       May 2002
</TABLE>

<PAGE> 33

     The two lists below summarize  debentures issued for mortgages  assigned to
HUD under the  Section  221  program.  Interest  is  payable  on the  debentures
semi-annually on January 1 and July 1.

     The following list represents  debentures redeemed,  subsequent to December
31,  2001,  in January  2002.  These  debentures  were  issued to Firstar  Trust
Company,  the initial  mortgagee and  subsequently  transferred  to Midland Loan
Services,  Inc.  ("Midland"),  the servicer,  in 2001. The net proceed  amounts,
which were  received in January 2002,  listed below are included in  receivables
and other assets in the Partnership's balance sheet as of December 31, 2001.


(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                              Debenture                             Date of                                          Dist.
                               Interest     Net      Application    Response     Gain    Dist./    Declaration     Payment
     Complex Name                Rate     Proceeds      Date        from HUD     2001     Unit        Date           Date
     ------------                ----     --------      ----        --------     ----     ----        ----           ----
 <S>                            <C>       <C>         <C>           <C>         <C>     <C>         <C>            <C>
  (7)Summit Square Manor        7.125%    $ 1,883     Jun 2000      May 2001    $ 235   $ 0.150     Feb 2002       May 2002
  (8)Park Place                 7.125%        746     Jun 2000      May 2001       94     0.060     Feb 2002       May 2002
  (9)Park Hill Apartments       7.500%      1,721     Sep 2000      Nov 2001      208     0.140     Feb 2002       May 2002
 (10)Fairfax House              7.500%      2,109     Sep 2000      Nov 2001      268     0.170     Feb 2002       May 2002
 (11)Woodland Villas            7.125%        300     Apr 2001      Nov 2001       56     0.025     Feb 2002       May 2002
                                          -------                                       -------
     Total included in receivables and
     other assets as  of  December 31,
     2001                                 $ 6,759                                       $ 0.545
                                          =======                                       =======
</TABLE>

     In addition, the Partnership received interest on debentures in 2002: (1) a
distribution  of  approximately  $0.02  per  unit  of  interest  related  to HUD
debentures issued in exchange for the mortgages on Park Hill Apartments, Fairfax
House and Woodland  Villas was declared in January 2002,  and (2) a distribution
of $0.02 per unit of interest  related to HUD debentures  issued in exchange for
the mortgages on Summit Square Manor, Park Place, Park Hill Apartments,  Fairfax
House and Woodland Villas was declared in February 2002. These distributions are
expected to be paid in May 2002.

     The following list represents  debentures  that were issued,  subsequent to
December  31, 2001,  in January  2002,  to Firstar  Trust  Company,  the initial
mortgagee,   and  transferred  to  Midland.  The  Partnership   anticipates  the
debentures  will be  redeemed  prior to maturity  date.  The fair value of these
FHA-Insured  Certificates are included in investment in FHA-Insured Certificates
in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                                  Debenture                               Date of    Approximate    Debenture
                                  Interest      Net       Application     Response      Gain        Maturity
      Complex Name                  Rate      Proceeds       Date         from HUD      2002          Date
      ------------                  ----      --------       ----         --------      ----          ----
 <S>                               <C>         <C>         <C>            <C>           <C>         <C>
 (12) Country Club Terrace
      Apts.                        7.500%      $ 1,425     Sep 2000       Jan 2002      $ 178       Sep 2010
 (13) Nevada Hills Apartments      7.500%        1,133     Dec 2000       Jan 2002        154       Dec 2010
 (14) Dunhaven Apartments          7.125%          872     Jan 2001       Jan 2002        165       Feb 2011
</TABLE>

     As of  March  1,  2002,  all  of the  fully  insured  GNMA  Mortgage-Backed
Securities and FHA-Insured  Certificates are current with respect to the payment
of principal and interest.  The Partnership no longer receives monthly principal
and interest from  mortgages  that are in the HUD  assignment  process under the
Section  221  program.  The  servicer  of the  mortgage  on Fairlawn II filed an
application for insurance benefits under section 221 in September 2000. The face
value  of  this  mortgage  was  approximately   $755,000  as  of  the  insurance
application  date. The Partnership has not received  approval for the assignment
of this mortgage as of March 1, 2002.

<PAGE>34

     Under  the  Section  221  program,  a  mortgagee  has the right to assign a
mortgage  ("put")  to FHA at the  expiration  of 20 years from the date of final
endorsement  if the  mortgage  is not in  default at such  time.  Any  mortgagee
electing  to assign an  FHA-insured  mortgage to FHA will  receive,  in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured  mortgage plus accrued interest to the date
of  assignment.  These HUD  debentures  will  mature  10 years  from the date of
assignment  and will bear interest at a rate announced  semi-annually  by HUD in
the  Federal  Register  ("going  Federal  rate") at such date.  This  assignment
procedure is applicable to an insured mortgage,  which had a firm or conditional
FHA commitment for insurance on or before  November 30, 1983.  Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable  mortgage.  The  Partnership  expects to receive HUD  debentures,  as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment  of the  mortgage  to the  date of  issuance  of the  debenture.  The
Partnership  will  recognize  a gain on these  assignments  upon  receipt of HUD
debentures or a loss when it becomes  probable that a loss will be incurred.  In
general, the Partnership plans to sell the debentures if not called prior to the
Partnerships   termination  date.  At  that  time  debenture  proceeds  will  be
distributed to Unitholders.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying development (referred to as "Participations").
During  the years  ended  December  31,  2001,  2000 and 1999,  the  Partnership
received $0, $0, and $0, respectively,  from the Participations.  These amounts,
if  any,  are  included  in  mortgage  investment  income  on  the  accompanying
statements of income and comprehensive income.

     In the case of fully  insured  Originated  Insured  Mortgages  and Acquired
Insured   Mortgages,   the  Partnership's   maximum  exposure  for  purposes  of
determining  loan  losses  would  generally  be  approximately  1% of the unpaid
principal  balance  of the  Originated  Insured  Mortgage  or  Acquired  Insured
Mortgage  (an  assignment  fee charged by FHA) at the date of default,  plus the
unamortized  balance  of  acquisition  fees and  closing  costs  of the  Insured
Mortgage and the loss of approximately 30 days accrued interest.

<PAGE>35

6.   INVESTMENT IN FHA-INSURED LOANS

Fully Insured FHA-Insured Loans
-------------------------------

     Listed  below is the  Partnership's  aggregate  investment  in  FHA-Insured
Loans:

                                                        December 31,
                                               2001                     2000
                                               ----                     ----
Fully Insured Acquired Loans:
  Number of Loans (1)                                 7                        8
Amortized Cost                              $ 8,914,573              $10,041,697
Face Value                                   10,632,937               12,040,599
Fair Value                                   10,451,178               12,023,455

Fully Insured Originated Loans:
  Number of Loans (2)                                 3                        3
Amortized Cost                              $12,430,002              $12,570,037
Face Value                                   12,132,653               12,261,397
Fair Value                                   12,122,221               12,192,633

(1)  In September  2001, the mortgage on Berryhill  Apartments was prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $1.2  million  and
     recognized a gain of approximately $190,000 for the year ended December 31,
     2001.  A  distribution  of  approximately  $0.10  per Unit  related  to the
     prepayment  of  this  mortgage  was  declared  in  September  and  paid  to
     Unitholders in November 2001.
(2)  In  January  2002,  the  mortgage  on  Longleaf  Lodge  was  prepaid.   The
     Partnership received net proceeds of approximately $3.7 million and expects
     to recognize a gain of  approximately  $672,000 in 2002. A distribution  of
     approximately $0.29 per Unit related to the prepayment of this mortgage was
     declared in January 2002 and is expected to be paid in May 2002.

     As of March 1,  2002,  all of the  fully  insured  FHA-Insured  Loans  were
current with respect to the payment of principal  and  interest,  except for the
mortgage  on  Westbrook  Apartments,  which is  delinquent  with  respect to the
February 2002 payment of principal and interest.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying development (referred to as "Participations").
During  the years  ended  December  31,  2001,  2000 and 1999,  the  Partnership
received $53,424, $21,566, and $45,164,  respectively,  from the Participations.
These  amounts,  if any,  are  included  in  mortgage  investment  income on the
accompanying statements of income and comprehensive income.


<PAGE>36


7.   INVESTMENT IN FHA DEBENTURE

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
FHA debenture for the mortgage on Fox Run Apartments. The debenture, with a face
value and fair value, as of December 31, 2001, of $2,385,233,  was issued to the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run  Apartments was owned 50% by the  Partnership  and 50% by an
affiliate of the Partnership, American Insured Mortgage Investors ("AIM 84"). In
January  2002,  net proceeds of  approximately  $2.4 million were  received upon
redemption of this debenture. Since the mortgage on Fox Run Apartments was owned
50% by the  Partnership  and 50% by AIM 84,  approximately  $1.2  million of the
debenture proceeds was paid to AIM 84. A distribution of approximately $0.09 per
Unit related to the  redemption  of this  debenture was declared in January 2002
and is expected to be paid in May 2002.


8.   TRANSACTIONS WITH RELATED PARTIES

     The principal  officers of the General Partner for the years ended December
31,  2001,  2000 and 1999 did not  receive  fees for  serving as officers of the
General  Partner,  nor are any fees  expected to be paid to the  officers in the
future.

      The General Partner, CMSLP and certain affiliated entities have, during
the years ended December 31, 2001, 2000 and 1999, earned or received
compensation or payments for services from the Partnership as follows:

                 COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
<TABLE>
<CAPTION>
                                                                     For the year ended December 31,
Name of Recipient               Capacity in Which Served/Item        2001         2000         1999
-----------------               -----------------------------        ----         ----         ----
<S>                             <C>                               <C>          <C>          <C>
CRIIMI, Inc.(1)                 General Partner/Distribution      $  936,319   $  789,254   $1,514,779

AIM Acquisition Partners,
  L.P.(2)                       Advisor/Asset Management Fee         959,934    1,142,121    1,382,904


CRIIMI MAE Management, Inc.     Affiliate of General
                                  Partner/Expense                     44,951       42,074       43,624
</TABLE>

(1)  The  General  Partner  is  entitled  to receive  3.9% of the  Partnership's
     income, loss, capital and distributions, including, without limitation, the
     Partnership's  adjusted  cash from  operations  and  proceeds  of  mortgage
     prepayments,  sales  or  insurance  (both  as  defined  in the  partnership
     agreement).

(2)  The Advisor is entitled to an asset  management fee equal to 0.95% of total
     invested  assets  (as  defined  in the  partnership  agreement).  CMSLP  is
     entitled  to a fee  equal  to  0.28%  of  total  invested  assets  from the
     Advisor's asset  management fee. Of the amounts paid to the Advisor,  CMSLP
     earned a fee equal to $282,943,  $336,565, and $407,699 for the years ended
     December 31, 2001,  2000, and 1999,  respectively.  The general partner and
     limited partner of CMSLP are wholly-owned subsidiaries of CRIIMI MAE.

<PAGE>37

9.   DISTRIBUTIONS TO UNITHOLDERS

     The  distributions  paid or accrued to  Unitholders on a per Unit basis for
the years ended December 31, 2001, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
                                                        2001                 2000                  1999
                                                        ----                 ----                  ----
<S>                                                  <C>                   <C>                  <C>
Quarter ended March 31,                              $   0.68(1)           $  0.47(7)(8)        $   0.40(13)(14)
Quarter ended June 30,                                   0.37(2)              0.46(9)(10)(11)       0.65(15)(16)
Quarter ended September 30,                              0.71(3)(4)(5)(6)     0.18                  0.22
Quarter ended December 31,                               0.15                 0.50(12)              1.82(17)(18)(19)
                                                     --------              -------              --------
                                                     $   1.91              $  1.61              $   3.09
                                                     ========              =======              ========
</TABLE>

     The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
                                                                     Date                       Net
                                                                   Proceeds       Type of     Proceeds
         Complex Name(s)                                           Received     Disposition   Per Unit
         ---------------                                           --------     -----------   --------
  <S>                                                              <C>           <C>           <C>
 (1) The Meadows of Livonia                                        Jan 2001      Prepayment    $0.53
 (2) Gold Key Village Apartments                                   Mar 2001      Prepayment     0.22
 (3) Cedar Ridge Apartments                                        Jun 2001      Prepayment     0.21
 (4) Carlisle Apartments                                           Jun 2001      Prepayment     0.17
 (5) Afton Square Apartments                                       Jul 2001      Prepayment     0.08
 (6) Berryhill Apartments                                          Sep 2001      Prepayment     0.10
 (7) Northwood Apartments                                          Dec 1999      Prepayment     0.13
 (8) Turtle Creek Apartments                                       Jan 2000      Prepayment     0.13
 (9) Woodland Hills Apartments                                     Apr 2000      Prepayment     0.06
(10) New Castle Apartments                                         May 2000      Prepayment     0.16
(11) Colony West Apartments                                        May 2000      Prepayment     0.05
(12) Independence Park                                             Oct 2000      Prepayment     0.32
(13) Gamel & Gamel Apartments                                      Dec 1998      Prepayment     0.06
(14) Debenture from Portervillage I Apartments *                   Jan 1999      Assignment     0.10
(15) Nassau Apartments, Walnut Apartments and
       Kings Villa/Discovery Commons                               Apr 1999      Prepayment     0.37
(16) Quail Creek Apartments                                        May 1999      Prepayment     0.04
(17) Huntington Apartments                                         Sep 1999      Prepayment     0.24
(18) Bowling Brook, Section 1                                      Oct 1999      Prepayment     0.94
(19) Lincoln Green, Ridgecrest Timbers, Holden Court
       Apartments, and Lakeside Apartments                         Nov 1999      Prepayment     0.42
</TABLE>

*    During the first quarter of 1998, the  assignment  proceeds of the mortgage
     on  Portervillage  I  Apartments  were  received  in  the  form  of a  9.5%
     debenture.  The debenture,  with a face value of $2,296,098,  was issued to
     the Partnership,  with interest payable semi-annually on January 1 and July
     1. In January  1999,  net  proceeds  of  approximately  $2.3  million  were
     received  upon  redemption  of these  debentures.  Since  the  mortgage  on
     Portervillage  I Apartments was owned 50% by the Partnership and 50% by AIM
     84,  approximately  $1.1 million of the debenture  proceeds was paid to AIM
     84.

     The basis for paying  distributions  to  Unitholders  is net proceeds  from
mortgage  dispositions,  if any, and cash flow from  operations,  which includes
regular  interest  income and  principal  from Insured  Mortgages.  Although the
Insured  Mortgages yield a fixed monthly  mortgage  payment once purchased,  the
cash  distributions paid to the Unitholders will vary during each quarter due to
(1) the  fluctuating  yields in the  short-term  money  market where the monthly
mortgage  payment  receipts  are  temporarily  invested  prior to the payment of
quarterly  distributions,  (2) the  reduction in the asset base  resulting  from
monthly mortgage payments received or mortgage  dispositions,  (3) variations in
the cash flow  attributable to the  delinquency or default of Insured  Mortgages
and  professional  fees and foreclosure  costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.

<PAGE>38

10.  PARTNERS' EQUITY

     Depositary  Units  representing  economic  rights  in  limited  partnership
interests  ("Units") were issued at a stated value of $20. A total of 12,079,389
Units were issued for an aggregate  capital  contribution  of  $241,587,780.  In
addition,  the initial limited partner  contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.


11.  SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 2001, 2000 and 1999.

(In Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
                                                              2001
                                                          Quarter ended
                                      March 31       June 30       September 30    December 31
                                      --------       -------       ------------    -----------
<S>                                 <C>            <C>             <C>             <C>
Income                              $    2,295     $     2,216     $     2,044     $     1,971
Net gains from
   mortgage dispositions                   262             723             219             581
Net earnings                             2,196           2,599           1,940           2,234
Net earnings per Limited
   Partnership Unit - Basic               0.17            0.21            0.15            0.18

                                                              2000
                                                          Quarter ended
                                      March 31       June 30       September 30    December 31
                                      --------       -------       ------------    -----------

Income                              $    2,676     $     2,553     $     2,330     $     2,420
Net gains from
   mortgage dispositions                    44             235              --             149
Net earnings                             2,320           2,396           1,948           2,202
Net earnings per Limited
   Partnership Unit - Basic               0.18            0.19            0.15            0.19


                                                              1999
                                                          Quarter ended
                                      March 31       June 30       September 30    December 31
                                      --------       -------       ------------    -----------

Income                              $    3,166     $     3,122     $     3,047     $     2,895
Net gains from
   mortgage dispositions                    --             651             134              72
Net earnings                             2,665           3,292           2,715           2,553
Net earnings per Limited
   Partnership Unit - Basic               0.21            0.26            0.22            0.20
</TABLE>

<PAGE>39
              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                   SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                December 31, 2001
<TABLE>
<CAPTION>
                                                                           Interest                                  Annual Payment
                                                                           Rate on      Face              Net        (Principal and
                                                     Maturity    Put       Mortgage    Value of    Carrying Value       Interest)
Development Name/Location                              Date    Date (1)    (7)(11)   Mortgage (5)    (5)(11)(14)        (11)(12)
-------------------------                              ----    --------   --------   ------------   --------------   --------------

ACQUIRED INSURED MORTGAGES
FHA-Insured Certificates (carried at fair value)
------------------------------------------------
<S>                                                    <C>       <C>       <C>       <C>            <C>                <C>
The Executive House, Dayton, OH                        8/21      12/01       7.5%    $    808,247   $    794,570       $  78,855(6)
Fairlawn II, Waterbury, CT (2)                         6/20       5/00       7.5%         731,333        725,538          73,364(6)
Willow Dayton, Chicago, IL                             8/19        N/A       7.5%         970,244        954,218          99,489(6)
Country Club Terrace Apts., Holidaysburg, PA           8/19       6/00       7.5%       1,390,067      1,393,237         142,537(6)
Nevada Hills Apts., Reno, NV                           2/21       8/00       7.5%       1,118,050      1,120,244         110,345(6)
Dunhaven Apts., Section I, Baltimore County, MD        1/20      12/99       7.5%         862,253        864,138          87,429(8)
Steeplechase Apts., Aiken, SC                          9/18        N/A       7.5%         481,226        473,406          50,921(8)
Walnut Hills Apts., Plainfield, IN                     9/19        N/A       7.5%         466,177        458,468          47,692(8)
Ashley Oaks Apts., Carrollton, GA                      3/22       4/02       7.5%         542,861        533,620          52,292(9)
Highland Oaks Apts., Phase III, Wichita Falls, TX      2/21       4/02       7.5%         909,283        893,980          89,741(9)
Magnolia Place Apts., Franklin, TN                     5/20       4/02       7.5%         306,425        301,314          30,804(9)
Rainbow Terrace Apts., Milwaukee, WI                   7/22       4/02       7.5%         309,233        303,953          29,581(9)
Rock Glen Apts., Baltimore, MD                         1/22       4/02       7.5%       1,027,968      1,010,499          99,375(9)
Stonebridge Apts., Phase I, Montgomery, AL             4/20       4/02       7.5%         983,961        967,565          99,125(9)
Village Knoll Apts., Harrisburg, PA                    4/20       4/02       7.5%       1,021,586      1,004,563         102,914(9)
Executive Tower, Toledo, OH                            3/27        N/A      8.75%       2,792,870      2,788,849         275,283
Sangnok Villa, Los Angeles, CA                         1/30        N/A     10.25%         890,415        895,190          96,825
Eaglewood Villa Apts., Springfield, OH                 2/27        N/A     8.875%       2,658,011      2,654,134         264,707
Stafford Towers, Baltimore, MD                         8/16        N/A      9.50%         332,087        336,044          42,613
Garden Court Apts., Lexington, KY                      8/27        N/A      8.60%       1,143,141      1,141,464         110,583
Northwood Place, Meridian, MS                          6/34        N/A      8.75%       4,436,462      4,428,041         412,635
Cheswick Apts., Indianapolis, IN                       9/27        N/A      8.75%       3,019,197      3,014,698         295,736
Bradley Road Nursing, Bay Village, OH                  5/34        N/A     8.875%       2,482,378      2,477,643         233,708
Franklin Plaza, Cleveland, OH                          5/23        N/A     8.175%       5,080,054      4,983,771         503,183
Heritage Heights Apts., Harrison, AZ                   4/32        N/A      9.50%         410,031        413,973          41,313
Pleasant View Nursing Home, Union, NJ                  6/29        N/A      7.75%       7,302,391      7,160,019         643,311
                                                                                     ------------   ------------

   Total FHA-Insured Certificates -
      Acquired Insured Mortgages, carried at fair value                              $ 42,475,951   $ 42,093,139
                                                                                     ------------   ------------
</TABLE>

<PAGE>40

<TABLE>
<CAPTION>
                                                                           Interest                                  Annual Payment
                                                                           Rate on      Face              Net        (Principal and
                                                     Maturity    Put       Mortgage    Value of    Carrying Value       Interest)
Development Name/Location                              Date    Date (1)    (7)(11)   Mortgage (5)    (5)(11)(14)        (11)(12)
-------------------------                              ----    --------   --------   ------------   --------------   --------------

GNMA Mortgage-Backed Securities (carried at fair value)
-------------------------------------------------------
<S>                                                   <C>        <C>        <C>      <C>            <C>                <C>
Pine Tree Lodge, Pasadena, TX                         12/33        N/A      9.50%    $  1,995,736   $  2,055,323       $ 194,399
Stone Hedge Village Apts., Farmington, NY             11/27        N/A      7.00%       1,744,209      1,696,735         143,481
                                                                                     ------------   ------------

   Total GNMA Mortgage-Backed Securities -
      Acquired Insured Mortgages, carried at fair value                              $  3,739,945   $  3,752,058
                                                                                     ------------   ------------


Total investment in Acquired Insured Mortgages, carried at fair value                $ 46,215,896   $ 45,845,197
                                                                                     ------------   ------------



ORIGINATED INSURED MORTGAGES
GNMA Mortgage-Backed Security (carried at fair value)
----------------------------------------------------

Oak Forest Apts. II, Ocoee, FL                        12/31      11/09(3)   8.25%    $ 10,316,699   $ 10,032,150         840,860

FHA-Insured Certificate (carried at fair value)
-----------------------------------------------

Waterford Green Apts., South St. Paul, MN (11)        11/30      12/04(3)   7.25%       5,815,861      5,702,335         481,564
                                                                                     ------------   ------------

Total investment in Originated Insured Mortgages, carried at fair value              $ 16,132,560   $ 15,734,485
                                                                                     ------------   ------------


   Total investment in FHA-Insured Certificates and
       GNMA Mortgage-Backed Securities, carried at fair value                        $ 62,348,456   $ 61,579,682
                                                                                     ------------   ------------
</TABLE>

<PAGE>41

<TABLE>
<CAPTION>
                                                                           Interest                                  Annual Payment
                                                                           Rate on      Face              Net        (Principal and
                                                     Maturity    Put       Mortgage    Value of    Carrying Value       Interest)
Development Name/Location                              Date    Date (1)    (7)(11)   Mortgage (5)    (5)(11)(14)        (11)(12)
-------------------------                              ----    --------   --------   ------------   --------------   --------------

ACQUIRED INSURED MORTGAGES
FHA-Insured Loans (carried at amortized cost) (4)
-------------------------------------------------
<S>                                                   <C>        <C>        <C>      <C>            <C>                <C>
Bay Pointe Apts., Lafayette, IN                        2/23      10/02       7.5%    $  1,930,145   $  1,626,867       $ 185,272(10)
Baypoint Shoreline Apts., Duluth, MN                   1/22      10/01       7.5%         909,960        763,287          87,967(10)
Brougham Estates II, Kansas City, KS                  11/22       3/02       7.5%       2,429,784      2,031,069         230,860(10)
College Green Apts., Wilmington, NC                    3/23      12/02       7.5%       1,307,892      1,092,182         123,455(10)
Kaynorth Apts., Lansing, MI                            4/23       9/02       7.5%       1,775,422      1,481,993         167,318(10)
Town Park Apts., Rockingham, NC                       10/22      10/02       7.5%         595,874        498,707          56,755(10)
Westbrook Apts., Kokomo, IN                           11/22       9/02       7.5%       1,683,860      1,420,468         163,177(10)
                                                                                     ------------   ------------

   Total investment in Acquired Insured Mortgages,
      FHA-Insured Loans, carried at amortized cost                                   $ 10,632,937   $  8,914,573
                                                                                     ------------   ------------


ORIGINATED INSURED MORTGAGES
FHA-Insured Loans (carried at amortized cost) (4)
-------------------------------------------------

Cobblestone Apts., Fayetteville, NC (11)               3/28      12/02(3)   8.50%    $  4,850,163   $  4,981,180         462,703
Longleaf Lodge, Hoover, AL (11)                        7/26         --      8.25%       2,972,222      3,006,873         282,958
The Plantation, Greenville, NC (11)                    4/28       4/03(3)   8.25%       4,310,268      4,441,949         402,046
                                                                                     ------------   ------------

   Total investment in Originated Insured Mortgages,
      FHA-Insured Loans, carried at amortized cost                                   $ 12,132,653   $ 12,430,002
                                                                                     ------------   ------------

Total investment in FHA-Insured Loans                                                $ 22,765,590   $ 21,344,575
                                                                                     ------------   ------------

TOTAL INVESTMENT IN INSURED MORTGAGES                                                $ 85,114,046   $ 82,924,257
                                                                                     ============   ============
</TABLE>

<PAGE>43
              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

              NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                DECEMBER 31, 2001

(1)  Under the  Section  221 program of the  National  Housing  Act of 1937,  as
     amended (the "Section 221 program"), a mortgagee has the right to assign an
     insured mortgage ("put") to FHA at the expiration of 20 years from the date
     of final  endorsement,  if the  insured  mortgage is not in default at such
     time. Any mortgagee electing to assign an FHA-insured  mortgage to FHA will
     receive,  in exchange  therefore,  HUD debentures having a total face value
     equal to the then outstanding principal balance of the FHA-insured mortgage
     plus accrued interest to the date of assignment.  These HUD debentures will
     mature 10 years from the date of  assignment  and will bear interest at the
     "going Federal rate" at such date. This assignment  procedure is applicable
     to an insured  mortgage which had a firm or conditional  FHA commitment for
     insurance  on or before  November  30,  1983 and, in the case of a mortgage
     sold in a GNMA  auction,  was sold in an auction  prior to  February  1984.
     Certain  of the  Partnership's  Insured  Mortgages  may have  the  right of
     assignment under this program. The Partnership has initiated its request to
     put these mortgages to FHA as they become due.

(2)  Applications for insurance benefits under the Section 221 program have been
     filed for this mortgage.  The  Partnership is currently  awaiting  approval
     from HUD for this application.

(3)  Certain mortgages that do not qualify under the Section 221 program possess
     a special assignment option, in certain Insured Mortgage  documents,  which
     allow the  Partnership,  anytime  after  this  date,  the option to require
     payment by the  borrower  of the unpaid  principal  balance of the  Insured
     Mortgages.   At  such  time,   the  borrowers  must  make  payment  to  the
     Partnership,  or the  Partnership,  at  its  option,  may  cancel  the  FHA
     insurance and institute foreclosure proceedings.

(4)  Inclusive of closing costs and acquisition fees.

(5)  The mortgages  underlying  the  Partnership's  investments  in  FHA-Insured
     Certificates,  GNMA  Mortgage-Backed  Securities and FHA-Insured  Loans are
     non-recourse  first  liens  on  multifamily  residential  developments  and
     retirement homes. Prepayment of these Insured Mortgages would be based upon
     the unpaid principal balance at the time of prepayment.

(6)  In April and July  1985,  and  February  1986,  the  Partnership  purchased
     pass-through  certificates  representing  undivided fractional interests of
     157/537,  69/537 and  259/537,  respectively,  in a pool of 19  FHA-insured
     mortgages.  In July 1986 and October 1987, the  Partnership  sold undivided
     fractional  interests  of 67/537 and  40/537,  respectively,  in this pool.
     Accordingly,  the  Partnership  now owns an undivided  fractional  interest
     aggregating  378/537, or approximately 70.4%, in this pool. For purposes of
     illustration   only,  the  amounts  shown  in  this  table   represent  the
     Partnership's  current share of these items as if an undivided  interest in
     each mortgage was acquired.

(7)  In addition,  the  servicer or the  sub-servicer  of the Insured  Mortgage,
     primarily  unaffiliated third parties, is entitled to receive  compensation
     for certain services rendered.

(8)  In June 1985 and February  1986,  the  Partnership  purchased  pass-through
     certificates  representing  undivided  fractional  interests of 317/392 and
     11/392, respectively, in a pool of 13 FHA-insured mortgages. In January and
     February  1988, the  Partnership  sold  undivided  fractional  interests of
     100/392  and  104/392,   respectively,   in  this  pool.  Accordingly,  the
     Partnership now owns an undivided  fractional interest aggregating 124/392,
     or  approximately  31.6%, in this pool. For purposes of illustration  only,
     the amounts shown in this table represent the Partnership's  share of these
     items as if an undivided interest in each mortgage was acquired.

<PAGE>42

(9)  In June 1985 and February  1986,  the  Partnership  purchased  pass-through
     certificates  representing  undivided  fractional  interests of 200/341 and
     101/341,  respectively,  in a pool of 12 FHA-insured mortgages.  In October
     1987, the  Partnership  sold undivided  fractional  interests of 200/341 in
     this pool.  Accordingly,  the Partnership now owns an undivided  fractional
     interest  aggregating  101/341,  or approximately  29.6%, in this pool. For
     purposes of  illustration  only, the amounts shown in this table  represent
     the Partnership's  share of these items as if an undivided interest in each
     mortgage was acquired.

(10) These amounts  represent the Partnership's 50% interest in these mortgages.
     The  remaining  50%  interest  was  acquired by American  Insured  Mortgage
     Investors, an affiliate of the Partnership.

(11) This  represents the base interest rate during the permanent phase of these
     Insured Mortgages.  Additional  interest (referred to as  "Participations")
     measured as a percentage of the net cash flow from the  development and the
     net  proceeds  from  the  sale,  refinancing  or other  disposition  of the
     underlying development (as defined in the Participation  Agreements),  will
     also be due.  During the years ended December 31, 2001,  2000 and 1999, the
     Partnership received additional interest of $53,424,  $21,566, and $45,164,
     respectively, from the Participations.

(12) Principal  and interest  are payable at level  amounts over the life of the
     mortgages.

(13) A reconciliation  of the carrying value of Insured  Mortgages for the years
     ended December 31, 2001 and 2000, is as follows:
<TABLE>
<CAPTION>
                                                                       2001              2000
                                                                       ----              ----
<S>                                                               <C>               <C>
Beginning balance                                                 $109,309,175      $118,622,389

   Principal receipts on mortgages                                    (955,959)       (1,182,259)

   Proceeds from disposition of Mortgages                          (19,316,901)      (10,489,808)(a)

   Net gains on mortgage dispositions                                1,785,376           427,595

   Portion of HUD debentures due from Midland in exchange
      for the Mortgages on Summit Square Manor, Park Place,
      Park Hill Apartments, Fairfax House, and Woodland Villas      (6,759,242)                -

   Increase (decrease) to unrealized gains on
      Investments in Insured Mortgages                              (1,138,192)        1,931,258
                                                                  ------------      ------------

Ending balance                                                    $ 82,924,257      $109,309,175
                                                                  ============      ============
</TABLE>

     (a)  This amount  represents  cash proceeds of $9,346,682  and net non-cash
          proceeds of $1,143,126 (as reflected in the Statements of Cash Flows).


(14) As of December  31, 2001 and 2000,  the tax basis of the Insured  Mortgages
     was approximately $80.7 million and $105.4 million, respectively.