<PAGE>1
                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

For the fiscal year ended     December 31, 1996
                              ------------------

Commission file number             1-11059
                              -----------------

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

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

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

                                 (301) 816-2300
-----------------------------------------------------------------
              (Registrant's telephone number, including area code)

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
-----------------------------------------------------------------
                                (Title of class)

     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
                                             ----      ----

<PAGE>2

     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 27, 1997, 12,079,389 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 $176,602,564.

<PAGE>3

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

                         1996 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                     PART I
                                     ------
                                                         Page
                                                         ----
Item 1.   Business  . . . . . . . . . . . . . . . . . .    4
Item 2.   Properties  . . . . . . . . . . . . . . . . .    5
Item 3.   Legal Proceedings . . . . . . . . . . . . . .    5
Item 4.   Submission of Matters to a Vote of
            Security Holders  . . . . . . . . . . . . .    5

                                     PART II
                                     -------
Item 5.   Market for Registrant's Securities and
            Related Security Holder Matters . . . . . .    6
Item 6.   Selected Financial Data . . . . . . . . . . .    8
Item 7.   Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations  . . . . . . . . . . . . . . . .    9
Item 8.   Financial Statements and Supplementary Data .   16
Item 9.   Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure  . .   17

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

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

Signatures  . . . . . . . . . . . . . . . . . . . . . .   22

<PAGE>4

                                     PART I
ITEM 1.   BUSINESS

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 and 7 of the notes to the financial statements
of the Partnership (filed in response to Item 8 hereof), which is incorporated
herein by reference.  Also see Schedule IV-Mortgage Loans on Real Estate, for
the table of the Insured Mortgages (as defined below) invested in by the
Partnership as of December 31, 1996.

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).  CRIIMI, Inc. is a wholly owned
subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).  CRIIMI MAE was formerly managed by
an affiliate of CRI, Inc. (CRI).

     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., Broad, Inc. and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement
(the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an
affiliate of CRI, managed the Partnership's portfolio.  In connection with the
transaction in which CRIIMI MAE became a self-administered real estate
investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory
Agreement.  As a result of this transaction, effective June 30, 1995, CRIIMI MAE
Services Limited Partnership, an affiliate of CRIIMI MAE, manages the
Partnership's portfolio.  These transactions had no effect on the Partnership's
financial statements.

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 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, REITs or other entities in the
future.  The Partnership may attempt to dispose of mortgages at or about the
same time that CRIIMI MAE, or one or more of the other AIM Partnerships and/or
other entities sponsored or managed by CRIIMI MAE, are attempting to dispose of
mortgages.  As a result of market conditions that could limit dispositions,
CRIIMI MAE Services Limited Partnership and its affiliates could be faced with
conflicts of interest in determining which mortgages would be disposed of.  Both
CRIIMI MAE Services Limited Partnership and CRIIMI, Inc., however, are subject
to their fiduciary duties in evaluating the appropriate action to be taken when
faced with such conflicts.

<PAGE>5


                                     PART I

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 the security holders to be voted on during the
fourth quarter of 1996.

<PAGE>6

                                     PART II

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

Principal Market and Market Price for Units and Distributions
-------------------------------------------------------------
     Since April 8, 1992, the Units have traded on the American Stock Exchange
(AMEX) with a trading symbol of "AII."

     The high and low bid prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1996 and 1995 were as
follows:

<TABLE>
<CAPTION>                                              Amount of
                                     1996            Distribution
      Quarter Ended            High       Low          Per Unit
 ---------------------        -------   -------      ------------
 <S>                          <C>       <C>          <C>
 March 31,                    $15       $14 3/8        $ 0.33
 June 30,                      14 5/8    13 3/4          0.64(1)
 September 30,                 14 1/2    13 7/8          0.43(2)
 December 31,                  14 7/8    14 1/8          0.85(3)
                                                       ------
                                                       $ 2.25
                                                       ======

                                                       Amount of
                                     1995            Distribution
      Quarter Ended            High       Low          Per Unit
 ---------------------        -------   -------      ------------
 <S>                          <C>       <C>          <C>
 March 31,                    $14 7/8   $13            $ 0.36
 June 30,                      14 7/8    13 3/4          0.33
 September 30,                 14 3/4    14              0.49 (4)
 December 31,                  14 3/4    14 1/4          0.36 (5)
                                                       ------
                                                       $ 1.54
                                                       ======
 </TABLE>

 (1) This amount includes approximately $0.31 per Unit representing net
     proceeds from the prepayment of the mortgages on Harbor View Estates, Bear
     Creek Apartments II, and Cambridge Arms Apartments.
 (2) This amount includes approximately $0.10 per Unit representing net
     proceeds from the assignment of the mortgage on Woodland Village
     Apartments.
 (3) This amount includes approximately $0.51 per Unit representing net
     proceeds from the prepayment of the mortgage on Westlake Village.  In
     addition, it includes approximately $0.01 per Unit representing net
     proceeds from the modification of mortgage on Oak Forest Apartments II and
     the partial prepayment of the mortgage on Cambridge Arms Apartments.
 (4) This amount includes approximately $0.16 per Unit representing net
     proceeds from the assignment of the mortgage on El Lago Apartments.
 (5) This amount includes approximately $0.02 per Unit representing additional
     proceeds from the assignment of the mortgage on El Lago Apartments.

     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.

<PAGE>7


                                     PART II

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

     The Partnership's Dividend Reinvestment Plan (the Plan) was amended
effective January 1, 1994 to exclude the amount of any special distributions
from reinvestment under the Plan.  A check will be issued to Plan Participants
for the amount of any special distributions.  The regular cash flow
distributions will continue to be automatically reinvested under the Plan in
additional Units as in the past.

                               Approximate Number of Unitholders
   Title of Class                   as of December 31, 1996
--------------------           ---------------------------------
Depositary Units of Limited
  Partnership Interest                          12,500

<PAGE>8


                                     PART II

ITEM 6.   SELECTED FINANCIAL DATA
          (Dollars in thousands, except per Unit amounts)

<TABLE><CAPTION>
                                                  For the Years Ended December 31,
                                           1996        1995      1994        1993      1992
                                         --------    --------  --------    --------  --------
<S>                                      <C>         <C>       <C>         <C>       <C>
Income                                   $ 17,943    $ 18,589  $ 19,167    $ 19,202  $ 18,694

Net gains (losses) on mortgage
  dispositions and loan losses                522          36      (151)      2,636      (652)

Net earnings                               15,789      15,903    16,155      19,058    15,313

Net earnings per Limited
  Partnership Unit (1)                       1.26        1.27      1.29        1.52      1.22

Distributions per Limited
  Partnership Unit (1)(2)                    2.25        1.54      1.96       1.775      1.13


                                                             As of December 31,
                                           1996        1995      1994        1993      1992
                                         --------    --------  --------    --------  --------
<S>                                      <C>         <C>       <C>         <C>       <C>
Total assets                             $215,951    $225,691  $214,823    $227,937  $229,616

Partners' equity                          204,687     220,681   209,557     221,504   224,758

(1)  Calculated based upon the weighted average number of Units outstanding.
(2)  Includes distributions due the Unitholders for the Partnership's fiscal quarters ended December 31, 1996, 1995, 1994, 1993
     and 1992, which were paid subsequent to year end.  See Notes 3 and 7 of the notes to the financial statements of the
     Partnership contained in Item 8, "Financial Statements and Supplementary Data."
</TABLE>

     The selected statements of operations data presented above for the years
ended December 31, 1996, 1995 and 1994, and the balance sheet data as of
December 31, 1996 and 1995, are derived from and are qualified by reference to
the Partnership's financial statements which have been included elsewhere in
this Form 10-K.  The statements of operations data for the years ended December
31, 1993 and 1992 and the balance sheet data as of December 31, 1994, 1993 and
1992 are derived from audited financial statements not included in this Form 10-
K.  This data should be read in conjunction with the financial statements and
the notes thereto.

<PAGE>9


                                     PART II

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

General
-------
     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%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general
partner is CRI, Inc. (CRI).  However, effective June 30, 1995, CRIIMI MAE became
a self-administered real estate investment trust (REIT) and, as a result, the
advisor no longer advises CRIIMI MAE.

     AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of 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., Broad, Inc. and CRIIMI MAE.
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 which affect the management and policies of
the Partnership.

     Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio.  In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement.  As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, manages the Partnership's portfolio.  These transactions had no
effect on the Partnership's financial statements.

     Prior to the expiration of the Partnership's reinvestment period on
December 31, 1993, and subject to the change in the Partnership's investment
policy, as discussed below, the Partnership was 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).  Effective September 19, 1991, the
General Partner changed, at the Advisor's recommendation, the investment
policies of the Partnership to invest only in Acquired Insured Mortgages which
are fully insured or guaranteed by the Federal National Mortgage Association,
the Government National Mortgage Association (GNMA), Federal Housing
Administration (FHA) or the Federal Home Loan Mortgage Corporation.  As of
December 31, 1996, the Partnership had invested in either Originated Insured
Mortgages which are insured or guaranteed, in whole or in part, by FHA or fully
insured Acquired Insured Mortgages.

     After the expiration of the Partnership's reinvestment period on December
31, 1993, the Partnership is required (subject to the conditions set forth in
the Partnership Agreement) to distribute such proceeds to its Unitholders.  The
Partnership Agreement states that the Partnership will terminate on December 31,
2009, unless previously terminated under the provisions of the Partnership
Agreement.

<PAGE>10


                                     PART II

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


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

<TABLE>
<CAPTION>                                        December 31,
                                             1996            1995
                                         ------------    ------------
<S>                                      <C>             <C>
Fully Insured Acquired Insured:
  Number of
    GNMA Mortgage-Backed Securities                 9               9
    FHA-Insured Certificates                       62              66
  Amortized Cost                         $151,866,819    $157,656,694
  Face Value                              157,889,594     164,397,459
  Fair Value                              159,959,297     169,460,375


Fully Insured Originated Insured:
  Number of
    GNMA Mortgage-Backed Securities                 1               1
    FHA-Insured Certificates                        1              --
  Amortized Cost                         $ 17,126,685    $ 10,666,346
  Face Value                               16,770,069      10,760,496
  Fair Value                               16,646,943      10,925,754

</TABLE>

     In December 1992, the Partnership entered into a modification agreement
with the mortgagor of Waterford Green Apartments.  This agreement effectively
lowered the interest rate on the mortgage from 8.5% to 6.5% for a period
continuing through November 1995.  The mortgagor assumed an additional note for
the difference between the interest due under the principal mortgage and the
modified interest paid under the agreement.  On April 30, 1996, the mortgage on
Waterford Green was restated under the HUD 223(a)(7) program converting this
originated mortgage from a coinsured to fully insured status at a fixed rate of
7.25%.  As a result of converting a coinsured mortgage to a fully insured
mortgage, the Partnership recognized a loss of approximately $103,000 on the
modification.  Payments due under the new mortgage began June 1, 1996.  Prior to
this restatement, as part of the prior workout arrangements with the borrower, a
portion of the interest due under the original note had been deferred

<PAGE>11


                                     PART II

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


temporarily.  Concurrent with this HUD modification, the deferred interest is
now evidenced in the form of a cash surplus note in the amount of $356,600.  To
the extent available, surplus cash, as defined by HUD, will be split 50/50 in
repayment of this deferred interest and another note due the property manager
for deferred management fees.  Once deferred management fees have been repaid,
100% of surplus cash, if any, will be applied against the remaining deferred
interest obligation.  Upon repayment of both of these obligations, any surplus
cash will be distributed based upon the terms of the participation agreement.
As of December 31, 1996, the balance of this note is $356,600.

     In April 1996, the Partnership entered into a modification agreement with
the mortgagor of Oak Forest Apartments II.  This agreement lowered the interest
rate on the mortgage from 8.5% to 7.5% effective May 1, 1996, through the
maturity of the note.  The agreement also modified the restrictions on
prepayment of the note.  The modification agreement, on this originated insured
mortgage, resulted in a gain of approximately $148,000.

     In late March 1996, a retained yield holder in the Harbor View Estates
loan, exercised its right to purchase the participation interests with respect
to this acquired insured mortgage after a Notice of Default was filed with HUD.
The Partnership received net proceeds of approximately $693,000 from this
prepayment in late March 1996, resulting in a loss of approximately $1,100.  A
distribution of $0.08 per Unit related to this prepayment was declared in April
1996 and distributed to Unitholders in August 1996.

     In late May 1996, the mortgages on Cambridge Arms Apartments and Bear Creek
Apartments II were prepaid, resulting in net proceeds of approximately $2.9
million.  The Partnership recognized a gain of approximately $235,000 from the
prepayment of the mortgage on Cambridge Arms Apartments and a gain of
approximately $276,500 from the prepayment of the mortgage on Bear Creek
Apartments II.  A distribution of $0.23 per Unit related to the prepayment, on
these acquired insured mortgages, was declared in June 1996 and was distributed
to Unitholders in August 1996.

     In October 1995, the Partnership filed a Notice of Default and an Election
to Assign with the United States Department of Housing and Urban Development
(HUD) related to the acquired insured mortgage on Woodland Village Apartments.
On August 30, 1996, the Partnership received approximately $1.4 million,
representing approximately 90% of the assignment proceeds.  The remaining
proceeds of approximately $139,000 are included in receivables and other assets
on the accompanying balance sheet as of December 31, 1996.  The Partnership
recognized a loss of approximately $41,000 during year end 1996.  A distribution
of $0.10 per Unit related to this assignment was declared in September 1996 and
was paid to Unitholders in November 1996.

     As of March 1, 1997, all of the fully insured FHA-Insured Certificates and
GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest, except for the mortgage on Meadow Park Apartments I,
which was assigned in October 1996, as discussed below, and Country Club Terrace
Apartments and Pleasant View Nursing Home which are delinquent with respect to
the January 1997 payment of principal and interest.  The Partnership expects to
receive the payments on Country Club Terrace Apartments and Pleasant View
Nursing Home.  On October 11, 1996, the servicer of the acquired insured
mortgage on Meadow Park Apartments I filed a Notice of Default and Election to
Assign the mortgage with HUD.  On January 24, 1997, the Partnership received
approximately $628,000 representing approximately 90% of the assignment
proceeds.  The Partnership anticipates it will recognize a gain of approximately

<PAGE>12


                                     PART II

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


$139,000 in 1997.  A distribution of $0.05 per Unit related to this assignment
was declared in February 1997 and is expected to be paid to Unitholders in May
1997.

     In late February 1997, the acquired insured mortgage on Security Apartments
was prepaid.  The partnership received net proceeds of approximately $304,000,
and anticipates it will recognize a gain of approximately $66,000 in 1997.  A
distribution of approximately $0.02 per Unit related to this prepayment was
declared in March 1997 and is expected to be paid to Unitholders in May 1997.

     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 of the Insured Mortgage and the loss of
approximately 30 days accrued interest.

Coinsured FHA-Insured Certificates
----------------------------------

Coinsured by affiliate
----------------------
     As of December 31, 1996 and 1995, the Partnership had invested in zero and
two FHA-Insured Certificates secured by coinsured mortgages where the
coinsurance lender was Integrated Funding, Inc. (IFI).

     On April 30, 1996, Waterford Green Apartments, with an unpaid principal
balance of approximately $6.5 million, was converted from a coinsured mortgage
to a fully insured originated insured mortgage, as discussed above.  During
December 1996, the Partnership received net proceeds of approximately $6.5
million for the prepayment of the mortgage on Westlake Village.  The Partnership
recognized a gain of approximately $7,000 on this prepayment as of December 31,
1996.  A distribution of $0.51 per Unit related to this prepayment was declared
in December 1996 and distributed to Unitholders in February 1997.

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

<PAGE>13


                                     PART II

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


<TABLE>
<CAPTION>                                       December 31,
                                            1996           1995
                                        ------------   ------------
<S>                                     <C>            <C>
Fully Insured Acquired Insured:
  Number of Loans                                 12             12
  Amortized Cost                        $ 14,556,595   $ 14,684,828
  Face Value                              17,405,640     17,627,453
  Fair Value                              17,706,486     18,388,369

Fully Insured Originated Insured:
  Number of Loans                                  3              3
  Amortized Cost                        $ 13,030,131   $ 13,123,855
  Face Value                              12,681,532     12,766,486
  Fair Value                              12,969,589     13,160,443

</TABLE>

          As of March 1, 1997, all of the fully insured FHA-Insured Loans were
     current with respect to the 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, 1996, 1995 and
     1994, the Partnership received $42,417, $64,676 and $35,314, respectively,
     from the Participations.  These amounts are included in mortgage investment
     income on the accompanying statements of operations.

<PAGE>14


                                     PART II

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


Results of Operations
---------------------
1996 versus 1995
----------------
     Net earnings decreased slightly for 1996 as compared to 1995 primarily due
to a decrease in mortgage investment income.  Partially offsetting this decrease
was a decrease in asset management fees and an increase in net gains on mortgage
dispositions and modifications, as discussed below.

     Mortgage investment income decreased for 1996 as compared to 1995 primarily
due to the reduction in mortgage base due to the disposition of mortgages, as
discussed above.

     Interest and other income increased for 1996 as compared to 1995 primarily
due to the temporary investment of mortgage disposition proceeds prior to
distribution to Unitholders.

     Asset management fees to related parties decreased for 1996 as compared to
1995 as a result of the reduction in the mortgage base.

     Gains from dispositions and modifications increased as a result of a
modification agreement on the mortgage on Oakforest Apartments II and the
prepayment of mortgages on Cambridge Arms Apartments, Bear Creek Apartments II
and Westlake Village Apartments, as discussed previously.  Losses from
dispositions and modifications increased primarily due to a modification
agreement on the mortgage of Waterford Green Apartments and the assignment of
the mortgage on Woodland Village Apartments, as previously discussed.

1995 versus 1994
----------------
     Net earnings decreased for 1995 as compared to 1994 primarily due to a
decrease in mortgage investment income and interest and other income, as
discussed below.

     Mortgage investment income decreased for 1995 as compared to 1994 primarily
due to the assignment to HUD of the mortgage on El Lago Apartments in June 1995.
Also contributing to the decrease was the conversion of construction loans to
permanent loans at lower effective interest rates during 1995.

     Interest and other income decreased for 1995 as compared to 1994 primarily
due to a reduction in funds available for short- term investment during 1995.
During the first quarter of 1994, the Partnership had a greater amount of short-
term investments, resulting from the temporary investment of disposition
proceeds received in late 1993, prior to the distribution of these funds to
partners during the first quarter of 1994.  Additionally, during the second
quarter of 1994, the notes receivable from affiliates were paid off as a result
of the prepayment of the mortgage on Richardson Road Apartments and the proceeds
were invested in the short-term money market prior to the distribution of these
proceeds to partners during the third quarter of 1994.

     Asset management fee to related parties decreased for 1995 as compared to
1994 as a result of the reduction in the mortgage base during 1995 and 1994.

     General and administrative expenses decreased for 1995 as compared to 1994
primarily due to a decrease in investor services expenses and annual and
quarterly reporting expenses resulting from a reduction in the number of
registered holders.  Also contributing to the decrease in general and

<PAGE>15


                                     PART II

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


administrative expenses was a reduction in payroll and payroll-related expenses
as a result of the stabilization of the Partnership's mortgage portfolio as well
as a reduction in the mortgage base.  In addition mortgage servicing fees
decreased primarily due to a reduction in annual servicing fee rates upon the
completion of the construction periods for several mortgage investments during
1994.

     Net gains on mortgage dispositions increased for 1995 as compared to 1994.
Gains or losses on mortgage dispositions are based on the number, carrying
amounts and the proceeds of mortgage investments disposed of during the period.
During 1995, the Partnership recognized a gain of $52,730 as a result of the
final settlement of the disposition of the mortgage on Dearborne Place
Apartments, and recognized a loss of $16,665 as a result of the assignment to
HUD of the mortgage on El Lago Apartments.

Liquidity and Capital Resources
-------------------------------
     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, were sufficient during 1996 to meet operating
requirements.

     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 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 as reflected in the preceding table.

Cash flow - 1996 versus 1995
----------------------------
     Net cash provided by operating activities decreased slightly for 1996 as
compared to 1995.  This decrease was primarily due to a decrease in mortgage
investment income, as discussed above.  This decrease was offset by a reduction
in note payable and due to affiliate during 1995 resulting from the prepayment
of the mortgage on Richardson Road Apartments underlying the GNMA Mortgage-
Backed Security which had been transferred to IFI to meet IFI's minimum net
worth requirement which resulted in lower net cash provided by operations for
1995.  In addition, offsetting the decrease in net cash provided by operating
activities was an increase in Due from HUD as a result of the assignment of the
Woodland Village mortgage.  The balance represents the remaining proceeds, plus
interest due from HUD.

<PAGE>16


                                     PART II

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


     Net cash provided by investing activities increased in 1996 as compared to
1995 due to the increase in proceeds from mortgage dispositions, as discussed
previously.  In addition, receipt of mortgage principal from scheduled payments
increased for 1996 as compared to 1995 due to partial prepayment of the mortgage
on Cambridge Arms Apartments prior to disposition.

     Net cash used in financing activities increased for 1996 as compared to
1995, as a result of an increase in distributions paid to partners.
Distributions paid to partners in 1996 included special distributions resulting
from the disposition of the mortgages on Harbor View Estates, Cambridge Arms
Apartments, Bear Creek Apartments II and Woodland Village Apartments.

Cash flow - 1995 versus 1994
----------------------------
     Net cash provided by operating activities decreased for 1995 as compared to
1994.  This decrease was primarily due to a decrease in receivables and other
assets during 1994 resulting from the receipt in January 1994 of accrued, but
previously undistributed, interest related to Victoria Pointe Apartments - Phase
I.  Also contributing to this decrease were decreases in mortgage investment
income and other investment income, as previously discussed.

     Net cash provided by investing activities increased for 1995 as compared to
1994, principally due to a decrease in mortgage acquisitions and advances on
construction loans as a result of the expiration of the Partnership's
reinvestment period.   Also contributing to the increase was the receipt in 1995
of proceeds from the assignment to HUD of the mortgage on El Lago Apartments.
Partially offsetting the increase in net cash provided by investing activities
was the non-recurring payment of notes receivable from affiliates and dividends
from IFI, as a result of the prepayment of the mortgage on Richardson Road
Apartments during 1994.

     Net cash used in financing activities decreased for 1995 as compared to
1994, as a result of a decrease in distributions paid to partners.
Distributions paid to partners during 1994 included special distributions
resulting from the prepayment of the mortgage on Richardson Road Apartments, the
receipt of previously undistributed accrued interest and gain received in late
1993 from the disposition of the defaulted mortgages on Chapelgate Apartments,
Sugar Creek Trace, Cumberland Village, Diamond Ridge, and Victoria Pointe
Apartments-Phase I.  This compares to the distribution paid to partners during
1995 which included special distributions of net proceeds from the assignment of
the mortgage on El Lago Apartments.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is on pages 23 through 54.

<PAGE>17


                                     PART II

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

     The Partnership has no officers or directors.  CRIIMI, Inc. (the General
Partner) holds a partnership interest of 3.9%.  The affairs of the Partnership
are managed by the General Partner, which is wholly owned by CRIIMI MAE, a
company whose shares are listed on the New York Stock Exchange.  Prior to June
30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI.
However, effective June 30, 1995, CRIIMI MAE became a self-administered REIT
and, as a result, the advisor no longer advises CRIIMI MAE.

     AIM Acquisition Partners, L.P. (the Advisor) serves as the advisor of the
Partnership.  AIM Acquisition is the general partner of the Advisor and the
limited partners include, but are not limited to, AIM Acquisition, The Goldman
Sachs Group, L.P, Broad, Inc. and CRIIMI MAE.  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
which affect the management and policies of the Partnership.

     Effective September 6, 1991, and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio.  In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement.  As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.

     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.

          (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)  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, 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, 1996.


ITEM 11.  EXECUTIVE COMPENSATION

     The information required by Item 11 is incorporated herein by reference to
Note 3 of the notes to the financial statements of the Partnership.

<PAGE>18                            PART III

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

     As of December 31, 1996, 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.

     As of December 31, 1996, neither the officers and directors, as a group, of
the General Partner nor any individual director of the General Partner, are
known to own more than 1% of the outstanding Units of the Partnership.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a)  Transactions with management and others.

          Note 3 of the notes to the 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 incorporated
          herein by reference.

     (b)  Certain business relationships.

          Other than as set forth in Item 11 of this report which is
          incorporated herein by reference, 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:
                                                                       Page
     Description                                                       Number
     ----------------                                             --------------

     Balance Sheets as of December 31, 1996
       and 1995                                                             25

     Statements of Operations for the years ended
       December 31, 1996, 1995, and 1994                                    26

     Statements of Changes in Partners' Equity for
       the years ended December 31, 1996, 1995 and
       1994                                                                 27

     Statements of Cash Flows for the years ended
       December 31, 1996, 1995 and 1994                                     28

     Notes to Financial Statements                                          29


     (a)(2)  Financial Statement Schedules:

          IV - Mortgage Loans on Real Estate

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

     (a)(3)  Exhibits:

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

      4.(a)    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.(b)    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.(c)    Amendment to the Second Amended and Restated Agreement of Limited
               Partnership of the Partnership dated February 12, 1990,
               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.(a)    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                                      PART IV

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

     10.(b)    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.(c)    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.(d)    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.(e)    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.(f)    Reinvestment Plan, incorporated by reference to the Prospectus
               contained in the Registration Statement.

     10.(h)    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.(i)    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.(j)    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.(k)    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.(l)    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.(m)    Non-negotiable promissory note from American Insured Mortgage
               Investors L.P. - Series 86 in the amount of $1,737,722 dated
               December 31, 1991, incorporated by reference to Exhibit 28(d), to
               the Partnership's Annual Report on Form 10-K for the year ended
               December 31, 1991.

     10.(n)    Non-negotiable promissory note from American Insured Mortgage
               Investors L.P. - Series 88 in the amount of $1,784,688 dated
               December 31, 1991,  incorporated by reference to Exhibit 28(e),
               to the Partnership's Annual Report on Form 10-K for the year
               ended December 31, 1991.

<PAGE>21                                      PART IV

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

     10.(o)    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.

     10.(p)    Expense Reimbursement Agreement by and among Integrated Funding
               Inc. and the Partnership, American Insured Mortgage Investors
               L.P. - Series 86, and American Insured Mortgage Investors L.P. -
               Series 88, effective December 31, 1992, incorporated by reference
               to Exhibit 28(g) to the Partnership's Quarterly Report on Form
               10-Q for the quarter ended June 30, 1991.

     10.(q)    Non-negotiable promissory note to American Insured Mortgage
               Investors L.P. - Series 88 in the amount of $319,074.67 dated
               April 1, 1994, incorporated by reference to Exhibit 10(q) to the
               Partnership's Annual Report on Form 10-K for the year ended
               December 31, 1994.

     10.(r)    Amendment to Reimbursement Agreement by and among Integrated
               Funding Inc. and the Partnership, American Insured Mortgage
               Investors L.P. - Series 86, and American Insured Mortgage
               Investors L.P. - Series 88, effective April 1, 1994, incorporated
               by reference to Exhibit 10(r) to the Partnership's Annual Report
               on Form 10-K for the year ended December 31, 1994.

     27.       Financial Data Schedule (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>22

                                   SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

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

                               By:CRIIMI, Inc.
                              General Partner

March 26, 1997                /s/ William B. Dockser
---------------------------   -------------------------
DATE                          William B. Dockser
                              Chairman of the Board and
                                Principal Executive Officer


March 26, 1997                /s/ H. William Willoughby
---------------------------   -------------------------
DATE                          H. William Willoughby
                              President and Director


March 26, 1997                /S/ Cynthia O. Azzara
---------------------------   -------------------------
DATE                          Cynthia O. Azzara
                              Principal Financial and
                                Accounting Officer


March 26, 1996                /s/ Garrett G. Carlson, Sr.
---------------------------   --------------------------
DATE                          Garrett G. Carlson, Sr.
                              Director


March 26, 1997                /s/ Larry H. Dale
---------------------------   -------------------------
DATE                          Larry H. Dale
                              Director

March 26, 1997                G. Richard Dunnells
---------------------------   -------------------------
DATE                          G. Richard Dunnells
                              Director


March 26, 1997                /s/ Robert F. Tardio
---------------------------   -------------------------
DATE                          Robert F. Tardio
                              Director

<PAGE>23






























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

              Financial Statements as of December 31, 1996 and 1995

            and for the Years Ended December 31, 1996, 1995 and 1994

<PAGE>24

                    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, 1996
and 1995, and the related statements of operations, changes in partners' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994.  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 generally accepted auditing
standards.  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, 1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.

     As explained in Note 2 of the Notes to the Financial Statements, effective
January 1, 1994, the Partnership changed its method of accounting for its
investments in insured mortgages.

     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, 1996 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.



Arthur Andersen LLP
Washington, D.C.
March 26, 1997

<PAGE>25

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

                                 BALANCE SHEETS

                                     ASSETS
<TABLE><CAPTION>
                                                 December 31,   December 31,
                                                     1996           1995
                                                 ------------   ------------
<S>                                              <C>            <C>
Investment in FHA-Insured Certificates
  and GNMA Mortgage-Backed Securities,
  at fair value:
  Acquired insured mortgages                     $159,959,297   $169,460,375
  Originated insured mortgages                     16,646,943     22,960,468
                                                 ------------   ------------
                                                  176,606,240    192,420,843
                                                 ------------   ------------
Investment in FHA-Insured Loans,
  at amortized cost, net of unamortized
  discount and premium:
  Acquired insured mortgages                       14,556,595     14,684,828
  Originated insured mortgages                     13,030,131     13,123,855
                                                 ------------   ------------
                                                   27,586,726     27,808,683

Cash and cash equivalents                           9,716,786      3,368,700

Receivables and other assets                        1,727,662      1,775,746

Investment in affiliate                               314,072        317,151
                                                 ------------   ------------
     Total assets                                $215,951,486   $225,691,123
                                                 ============   ============

                        LIABILITIES AND PARTNERS' EQUITY

Distributions payable                            $ 10,684,274   $  4,525,104

Accounts payable and accrued expenses                 198,964        163,737

Note payable and due to affiliate                     380,877        320,920
                                                 ------------   ------------
     Total liabilities                             11,264,115      5,009,761
                                                 ------------   ------------
Partners' equity:
  Limited partners' equity                        198,836,652    210,842,615
  General partner's deficit                        (1,762,017)    (1,274,782)
  Unrealized gain on investment
   in FHA-Insured Certificates
   and GNMA Mortgage-Backed
   Securities                                       8,715,942     12,159,559
  Unrealized loss on investment
   in FHA-Insured Certificates
   and GNMA Mortgage-Backed
   Securities                                      (1,103,206)    (1,046,030)
                                                 ------------   ------------
     Total partners' equity                       204,687,371    220,681,362
                                                 ------------   ------------
     Total liabilities and partners' equity      $215,951,486   $225,691,123
                                                 ============   ============

                   The accompanying notes are an integral part
                         of these financial statements.
</TABLE>

<PAGE>26

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

                            STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
                                            For the years ended December 31,
                                            1996         1995          1994
                                        ------------ ------------  ------------
     <S>                                <C>          <C>           <C>
     Income:
       Mortgage investment income       $ 17,731,547 $ 18,404,737  $ 18,640,699
       Interest and other income             211,779      183,846       526,002
                                        ------------ ------------  ------------
                                          17,943,326   18,588,583    19,166,701
                                        ------------ ------------  ------------
     Expenses:
       Asset management fee to related
         parties                           1,997,649    2,042,886     2,064,713
       General and administrative            655,426      655,831       778,666
       Interest expense to affiliate          23,132       23,133        17,350
                                        ------------ ------------  ------------
                                           2,676,207    2,721,850     2,860,729
                                        ------------ ------------  ------------
     Earnings before gains (losses)
       on mortgage dispositions/
        modifications                     15,267,119   15,866,733    16,305,972

     Mortgage dispositions/modifications:
       Gains                                 666,179       52,730            --
       Losses                               (144,595)     (16,665)     (151,354)
                                        ------------ ------------  ------------
     Net earnings                       $ 15,788,703 $ 15,902,798  $ 16,154,618
                                        ============ ============  ============

     Net earnings allocated to:
       Limited partners -96.1%          $ 15,172,944 $ 15,282,589  $ 15,524,588
       General partner - 3.9%                615,759      620,209       630,030
                                        ------------ ------------  ------------
                                        $ 15,788,703 $ 15,902,798  $ 16,154,618
                                        ============ ============  ============

     Net earnings per Limited
       Partnership Unit                 $       1.26 $       1.27  $       1.29
                                        ============ ============  ============

                   The accompanying notes are an integral part
                         of these financial statements.
</TABLE>

<PAGE>27

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

                       STATEMENTS OF CHANGES IN PARTNERS' EQUITY

                For the years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>


                                                                                  Unrealized         Unrealized
                                                                                    Gains              Losses
                                                                                on Investment      on Investment      Total
                                                General          Limited         in Insured         in Insured      Partners'
                                                Partner          Partners         Mortgages          Mortgages       Equity
                                             -------------     ------------  ----------------    ---------------  ------------
<S>                                          <C>               <C>           <C>                 <C>              <C>
Balance, January 1, 1994                     $    (809,253)    $222,313,737  $             --    $            --  $221,504,484

  Net earnings                                     630,030       15,524,588                --                 --    16,154,618

  Distributions paid or accrued of
    of $1.96 per Unit, including return
    of capital of $0.67 per Unit                  (960,830)     (23,675,847)               --                 --   (24,636,677)

  Unrealized gains (losses) on
    investments in insured mortgages                    --               --         5,177,224         (8,642,268)   (3,465,044)
                                             -------------     ------------  ----------------    ---------------  ------------
Balance, December 31, 1994                      (1,140,053)     214,162,478         5,177,224         (8,642,268)  209,557,381

  Net earnings                                     620,209       15,282,589                --                 --    15,902,798

  Distributions paid or accrued of
    of $1.54 per Unit, including return
    of capital of $0.27 per Unit                  (754,938)     (18,602,452)               --                 --   (19,357,390)

  Adjustment to unrealized gains
    (losses) on investment in
    insured mortgages                                   --               --         6,982,335          7,596,238    14,578,573
                                             -------------     ------------  ----------------    ---------------  ------------
Balance, December 31, 1995                      (1,274,782)     210,842,615        12,159,559         (1,046,030)  220,681,362

  Net earnings                                     615,759       15,172,944                --                 --    15,788,703

  Distributions paid or accrued of
    $2.25 per Unit, including return
    of capital of $0.99 per Unit                (1,102,994)     (27,178,907)               --                 --   (28,281,901)

  Adjustment to unrealized gains
    (losses) on investment in
    insured mortgages                                   --               --        (3,443,617)           (57,176)   (3,500,793)
                                             -------------     ------------  ----------------    ---------------  ------------
Balance, December 31, 1996                   $  (1,762,017)    $198,836,652  $      8,715,942    $    (1,103,206) $204,687,371
                                             =============     ============  ================    ===============  ============

Limited Partnership Units outstanding -
  December 31, 1996, 1995 and 1994                               12,079,514
                                                               ============
                                             The accompanying notes are an integral part
                                                   of these financial statements.
</TABLE>

<PAGE>28

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

                                STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               For the years ended December 31,
                                                                           1996            1995             1994
                                                                       ------------    ------------     ------------
<S>                                                                    <C>             <C>               <C>
Cash flows from operating activities:
  Net earnings                                                         $ 15,788,703    $ 15,902,798     $ 16,154,618
  Adjustments to reconcile net earnings
    to net cash provided by operating
    activities:
    Losses on mortgage dispositions/modification                            144,595          16,665          151,354
    Gains on mortgage dispositions/modification                            (666,179)        (52,730)              --
    Changes in assets and liabilities:
        Decrease in receivables and other assets                            186,942              51        1,375,525
     Decrease in investment in affiliate                                      3,079           1,924               --
        Increase (decrease) in accounts
          payable and accrued expenses                                       35,227        (137,195)          27,957
     Increase (decrease) in note payable and
          due to affiliate                                                   59,957        (118,513)         120,358
                                                                       ------------    ------------     ------------
        Net cash provided by operating
          activities                                                     15,552,324      15,613,000       17,829,812
                                                                       ------------    ------------     ------------
Cash flows from investing activities:
  Proceeds from disposition of mortgages                                 11,346,665       2,334,318               --
  Receipt of mortgage principal from
    scheduled payments                                                    1,571,828       1,315,947        1,302,622
  Investment in Insured Mortgages
    and advances on construction loans                                           --              --       (9,739,490)
  Payments made in connection with mortgage
    dispositions                                                                 --              --         (151,354)
  Principal payments on notes receivable
    from affiliates                                                              --              --        3,522,411
  Dividends from affiliate investee                                              --              --        1,097,118
                                                                       ------------    ------------     ------------
        Net cash provided by (used in)
          investing activities                                           12,918,493       3,650,265       (3,968,693)
                                                                       ------------    ------------     ------------
Cash flows from financing activities:
  Distributions paid to partners                                        (22,122,731)    (19,357,390)     (26,270,742)
                                                                       ------------    ------------     ------------
Net increase (decrease) in cash and cash equivalents                      6,348,086         (94,125)     (12,409,623)

Cash and cash equivalents, beginning of year                              3,368,700       3,462,825       15,872,448
                                                                       ------------    ------------     ------------
Cash and cash equivalents, end of year                                 $  9,716,786    $  3,368,700     $  3,462,825
                                                                       ============    ============     ============

                                             The accompanying notes are an integral part
                                                   of these financial statements.
</TABLE>

<PAGE>29

              AMERICAN INSURED 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%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).  From
inception through  June 30, 1995,  CRIIMI MAE  was managed by  an advisor  whose
general  partner was CRI, Inc. (CRI).   However, effective June 30, 1995, CRIIMI
MAE became  a self-administered real  estate investment trust  (REIT) and,  as a
result, the advisor no longer advises CRIIMI MAE.

     AIM Acquisition Partners, L.P.,  (the Advisor) serves as the advisor to the
Partnership.   AIM  Acquisition Corporation  (AIM  Acquisition) is  the  general
partner of  the Advisor, and the  limited partners include, but  are not limited
to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRIIMI MAE.
Pursuant  to the  terms of  certain amendments to  the Partnership  Agreement as
discussed  below, the General Partner is required  to receive the consent of the
Advisor  prior to taking certain significant actions which affect the management
and policies of the Partnership.

     Effective  September  6, 1991  and through  June  30, 1995,  a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI,  managed the Partnership's portfolio.   In connection  with
the  transaction in  which  CRIIMI  MAE  became  a  self-administered  REIT,  an
affiliate of CRIIMI MAE acquired  the Sub-advisory Agreement.  As a  consequence
of  this transaction,  effective  June 30,  1995,  CRIIMI MAE  Services  Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.

     Prior  to  the  expiration  of  the Partnership's  reinvestment  period  on
December 31, 1993,  and subject to  the change  in the Partnership's  investment
policy,  as discussed below, the Partnership  was 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).   As  of  December  31, 1996,  the
Partnership  had invested  in  either  Originated  Insured Mortgages  which  are
insured   or  guaranteed,  in   whole  or  in  part,   by  the  Federal  Housing
Administration (FHA) or Acquired  Insured Mortgages which are fully  insured (as
more fully described below).

     Since the expiration  of the Partnership's reinvestment period  on December
31,  1993,  the Partnership  is  required  to distribute  such  proceeds  to its
Unitholders.    The  Partnership  Agreement states  that  the  Partnership  will
terminate  on  December  31,  2009,  unless  previously   terminated  under  the
provisions of the Partnership Agreement.

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.   The preparation  of financial  statements in  conformity with
     generally  accepted  accounting  principles  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.

<PAGE>30

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

                          NOTES TO FINANCIAL STATEMENTS

2.   SIGNIFICANT ACCOUNTING POLICIES - Continued

     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.

          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.

          Prior to January 1, 1994, the Partnership accounted for its investment
     in  mortgages at amortized cost  in accordance with  Statement of Financial
     Accounting  Standards  No.  65  "Accounting for  Certain  Mortgage  Banking
     Activities"  (SFAS 65) since  it had the  ability and intent  to hold these
     assets for the foreseeable future.  The difference between the cost and the
     unpaid principal balance, at the time of purchase, is carried as a discount
     or  premium  and  amortized over  the  remaining  contractual  life of  the
     mortgage  using  the effective  interest  method.   The  effective interest
     method provides a  constant yield of income over the  term of the mortgage.
     Mortgage investment  income is  comprised of  amortization of  the discount
     plus  the  stated  mortgage interest  payments  received  or accrued,  less
     amortization of the premium.

          In May 1993, the Financial Accounting Standards Board issued Statement
     of  Financial   Accounting  Standards  No.  115   "Accounting  for  Certain
     Investments in Debt and Equity Securities" (SFAS 115), effective for fiscal
     years  beginning after  December 15,  1993.   The Partnership  adopted this
     statement as of January 1, 1994.  This  statement requires that investments
     in debt  and equity  securities  be classified  into one  of the  following
     investment  categories  based  upon  the  circumstances  under  which  such
     securities  might be  sold:   Held  to Maturity,  Available  for Sale,  and
     Trading.   Generally, certain debt  securities for which  an enterprise has
     both the ability  and intent to  hold to maturity  should be accounted  for
     using  the amortized cost method and  all other securities must be recorded
     at their fair values.

          As of December 31,  1996, the weighted average  remaining term of  the
     Partnership's  investments in  GNMA  Mortgage-Backed  Securities  and  FHA-
     Insured Certificates is approximately  31 years.  However,  the Partnership
     Agreement states  that the Partnership  will terminate in  approximately 13
     years, on  December  31,  2009,  unless  previously  terminated  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, 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

<PAGE>31

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

                          NOTES TO FINANCIAL STATEMENTS

2.   SIGNIFICANT ACCOUNTING POLICIES - Continued

     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.

          In  connection with this classification,  as of December  31, 1996 and
     1995,  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 or losses on these assets  reported 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.   The amortized  cost of  the
     investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates
     in this category  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.

     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.

     Reclassification
     ----------------
          Certain  amounts  in  the  financial statements  for  the  year  ended
     December 31,  1994 have been reclassified to conform with the 1996 and 1995
     presentation.

     Income Taxes
     ------------
          No provision has been made for Federal, state or local income taxes in
     the accompanying  statements  of operations  since  they are  the  personal
     responsibility of the Unitholders.

     Statements of Cash Flows
     ------------------------
          No cash payments were made for interest expense during the years ended
     December  31, 1996, 1995 and 1994.  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 operating  activities that affect

<PAGE>32

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

                          NOTES TO FINANCIAL STATEMENTS

2.   SIGNIFICANT ACCOUNTING POLICIES - Continued

     recognized assets and liabilities  while not resulting in cash  receipts or
     cash payments.

          The following  non-cash operating activities were  recorded during the
     year ended December 31, 1996:

     Investment in mortgages                 $(138,858)
                                             =========
     Receivables and other assets            $ 138,858
                                             =========

3.   TRANSACTIONS WITH RELATED PARTIES

     In  addition to the  related party  transactions described  in Note  8, the
General Partner and certain affiliated entities, during the years ended December
31, 1996,  1995  and  1994, earned  or  received compensation  or  payments  for
services from the Partnership as follows:

<PAGE>33

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

                          NOTES TO FINANCIAL STATEMENTS

3.   TRANSACTIONS WITH RELATED PARTIES - Continued

<TABLE>
<CAPTION>
                                           COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
                                           -----------------------------------------------

                                 Capacity in Which                  For the years ended December 31,
Name of Recipient                   Served/Item                  1996          1995          1994
                           ----------------------------       ----------    ----------    ----------
<S>                        <C>                                <C>           <C>           <C>
CRIIMI, Inc.(1)            General Partner/Distribution       $1,102,994    $  754,938    $  960,830

AIM Acquisition            Advisor/Asset Management Fee        1,997,649     2,042,886     2,064,713
  Partners, L.P.(2)

CRI(3)                     Affiliate of General Partner/              --        71,129       140,960
                             Expense Reimbursement

CRIIMI MAE                 Affiliate of General Partner/          68,328        28,087            --
Management, Inc.(3)          Expense Reimbursement


(1)  The General Partner, pursuant to amendments to the  Partnership Agreement, effective September 6, 1991, 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, pursuant to the Partnership Agreement, effective October 1, 1991, is entitled to an Asset Management Fee equal to
     .95% of Total Invested Assets (as defined in the Partnership Agreement).  The sub-advisor to  the Partnership (the Sub-advisor)
     is entitled to  a fee equal to 0.28% of Total Invested Assets.  CRI/AIM  Management, Inc., which through June 30, 1995 acted as
     the Sub-advisor,  earned a fee equal to $302,682  and $608,580, for the six  months ended June 30, 1995 and  for the year ended
     December 31, 1994,  respectively.  As discussed in Note 1, effective June 30, 1995, CRIIMI MAE Services Limited Partnership now
     serves as the  Sub-advisor.  Of the amounts paid to the Advisor, CRIIMI MAE  Services Limited Partnership earned a fee equal to
     $590,353 and $299,460 for the year ended December 31,  1996, and the six months ended December 31, 1995, respectively.  No fees
     were earned by CRIIMI MAE Services Limited Partnership for the year ended December 31, 1994.

(3)  Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred prior to
     June 30, 1995 on behalf of  the General Partner and the Partnership.   As discussed in Note 1, the transaction in  which CRIIMI
     MAE became a self-administered REIT has  no impact on the payments required to be made by the  Partnership, other than that the
     expense reimbursement, previously  paid by the  Partnership to CRI  in connection with  the provision of  services by the  Sub-
     advisor are, effective June 30, 1995, paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.  The amounts
     paid to CRI during the year ended December 31, 1995 represent reimbursement of expenses incurred prior to June 30, 1995.

</TABLE>

<PAGE>34

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

                          NOTES TO FINANCIAL STATEMENTS

4.   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.

<PAGE>35

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

                          NOTES TO FINANCIAL STATEMENTS


4.   FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

<TABLE>
<CAPTION>
                                                      As of December 31, 1996        As of December 31, 1995
                                                   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                    $151,866,819     $159,959,297      $157,656,694    $169,460,375
  Originated insured mortgages                    17,126,685       16,646,943        23,650,620      22,960,468
                                                ------------     ------------      ------------    ------------
                                                $168,993,504     $176,606,240      $181,307,314    $192,420,843
                                                ============     ============      ============    ============
Investment in FHA-Insured Loans:
  Acquired insured mortgages                    $ 14,556,595     $ 17,706,486      $ 14,684,828    $ 18,388,369
  Originated insured mortgages                    13,030,131       12,969,589        13,123,855      13,160,443
                                                ------------     ------------      ------------    ------------
                                                $ 27,586,726     $ 30,676,075      $ 27,808,683    $ 31,548,812
                                                ============     ============      ============    ============

Cash and cash equivalents                       $  9,716,786     $  9,716,786      $  3,368,700    $  3,368,700
                                                ============     ============      ============    ============
Accrued interest receivable                     $  1,426,113     $  1,426,113      $  1,567,816    $  1,567,816
                                                ============     ============      ============    ============
</TABLE>

<PAGE>36

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

                          NOTES TO FINANCIAL STATEMENTS


4.   FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

     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 and FHA-Insured Loans
     ------------------------------------------------------------
          The fair  value of the FHA-Insured  Certificates, GNMA Mortgage-Backed
     Securities and  FHA-Insured Loans is  based on quoted  market prices.    In
     order  to   determine  the   fair  value   of  the   coinsured  FHA-Insured
     Certificates, the Partnership valued the coinsured FHA-Insured Certificates
     as though  they were fully insured  (in the same manner  fully insured FHA-
     Insured Certificates  were  valued).   From  this amount,  the  Partnership
     deducted  a discount  factor from  the face  value of  the mortgage.   This
     discount  factor is based on  the Partnership's historical  analysis of the
     difference  in fair  value between  coinsured FHA-Insured  Certificates and
     fully insured FHA-Insured Certificates.

     Cash and cash equivalents and accrued interest receivable
     ---------------------------------------------------------
          The  carrying amount  approximates  fair value  because  of the  short
     maturity of these instruments.

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

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

<TABLE>
<CAPTION>                                        December 31,
                                             1996            1995
                                         ------------    ------------
<S>                                      <C>             <C>

Fully Insured Acquired Insured:
  Number of
    GNMA Mortgage-Backed Securities                 9               9
    FHA-Insured Certificates                       62              66
  Amortized Cost                         $151,866,819    $157,656,694
  Face Value                              157,889,594     164,397,459
  Fair Value                              159,959,297     169,460,375


Fully Insured Originated Insured:
  Number of
    GNMA Mortgage-Backed Securities                 1               1
    FHA-Insured Certificates                        1              --
  Amortized Cost                         $ 17,126,685    $ 10,666,346
  Face Value                               16,770,069      10,760,496
  Fair Value                               16,646,943      10,925,754

</TABLE>

<PAGE>37

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

                          NOTES TO FINANCIAL STATEMENTS

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

     In December 1992,  the Partnership  entered into  a modification  agreement
with  the mortgagor of Waterford  Green Apartments.   This agreement effectively
lowered  the  interest rate  on  the mortgage  from 8.5%  to  6.5% for  a period
continuing  through November 1995.  The mortgagor assumed an additional note for
the difference  between the  interest due under  the principal mortgage  and the
modified interest paid under the  agreement.  On April 30, 1996, the mortgage on
Waterford Green was  restated under  the HUD 223(a)(7)  program converting  this
originated mortgage  from a coinsured to fully insured status at a fixed rate of
7.25%.   As  a result  of converting  a coinsured  mortgage to  a fully  insured
mortgage, the Partnership  recognized a  loss of approximately  $103,000 on  the
modification.  Payments due under the new mortgage began June 1, 1996.  Prior to
this restatement, as part of the prior workout arrangements with the borrower, a
portion  of  the  interest  due  under  the  original  note  had  been  deferred
temporarily.   Concurrent with this  HUD modification, the  deferred interest is
now evidenced in the form of a cash  surplus note in the amount of $356,600.  To
the extent available,  surplus cash, as defined  by HUD, will be split  50/50 in
repayment of  this deferred interest and  another note due the  property manager
for deferred management fees.   Once deferred management fees have  been repaid,
100% of surplus  cash, if any,  will be applied  against the remaining  deferred
interest obligation.   Upon repayment of both of  these obligations, any surplus
cash will  be distributed based upon  the terms of  the participation agreement.
As of December 31, 1996, the balance of this note is $356,600.

     In April 1996, the  Partnership entered into a modification  agreement with
the mortgagor of Oak Forest Apartments II.  This agreement  lowered the interest
rate  on the  mortgage from  8.5% to  7.5%  effective May  1, 1996,  through the
maturity  of  the note.    The  agreement  also  modified  the  restrictions  on
prepayment of the note.  The  modification agreement, on this originated insured
mortgage, resulted in a gain of approximately $148,000.

     In  late March  1996, a retained  yield holder  in the  Harbor View Estates
loan, exercised its right  to purchase the participation interests  with respect
to this acquired insured mortgage after a Notice of Default  was filed with HUD.
The  Partnership received  net  proceeds  of  approximately $693,000  from  this
prepayment in late March  1996, resulting in a loss of  approximately $1,100.  A
distribution of  $0.08 per Unit related to this prepayment was declared in April
1996 and distributed to Unitholders in August 1996.

     In late May 1996, the mortgages on Cambridge Arms Apartments and Bear Creek
Apartments  II were  prepaid, resulting  in net  proceeds of  approximately $2.9
million.   The Partnership recognized a  gain of approximately $235,000 from the
prepayment  of  the  mortgage  on  Cambridge  Arms  Apartments  and  a  gain  of
approximately  $276,500  from  the prepayment  of  the  mortgage  on Bear  Creek
Apartments II.   A distribution of $0.23 per Unit related  to the prepayment, on
these acquired insured mortgages, was declared  in June 1996 and was distributed
to Unitholders in August 1996.

     In October  1995, the Partnership filed a Notice of Default and an Election
to Assign  with the  United States Department  of Housing and  Urban Development
(HUD) related to the  acquired insured mortgage on Woodland  Village Apartments.
On  August  30,  1996,  the  Partnership  received approximately  $1.4  million,
representing  approximately 90%  of  the  assignment  proceeds.   The  remaining
proceeds  of approximately $139,000 are included in receivables and other assets
on the  accompanying balance sheet  as of  December 31, 1996.   The  Partnership
recognized a loss of approximately $41,000 during year end 1996.  A distribution
of $0.10 per Unit related to this assignment  was declared in September 1996 and
was paid to Unitholders in November 1996.

<PAGE>38

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

                          NOTES TO FINANCIAL STATEMENTS

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

     As of March 1, 1997, all of the fully insured  FHA-Insured Certificates and
GNMA  Mortgage-Backed  Securities are  current with  respect  to the  payment of
principal and interest,  except for the  mortgage on Meadow  Park Apartments  I,
which was assigned in October 1996, as discussed below, and Country Club Terrace
Apartments and Pleasant View Nursing Home  which are delinquent with respect  to
the January  1997 payment of principal and interest.  The Partnership expects to
receive  the payments  on  Country Club  Terrace  Apartments and  Pleasant  View
Nursing  Home.   On  October 11,  1996,  the servicer  of  the acquired  insured
mortgage on Meadow Park  Apartments I filed a Notice of  Default and Election to
Assign the mortgage  with HUD.   On January 24,  1997, the Partnership  received
approximately   $628,000  representing  approximately   90%  of  the  assignment
proceeds.  The Partnership anticipates it will recognize a gain of approximately
$139,000 in 1997.   A distribution of $0.05 per Unit related  to this assignment
was declared in February  1997 and is expected to be paid  to Unitholders in May
1997.

     In late February 1997, the acquired insured mortgage on Security Apartments
was prepaid.  The  partnership received net proceeds of  approximately $304,000,
and  anticipates it will recognize  a gain of approximately  $66,000 in 1997.  A
distribution  of approximately  $0.02 per  Unit related  to this  prepayment was
declared in March 1997 and is expected to be paid to Unitholders in May 1997.

     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 of  the Insured  Mortgage and  the loss  of
approximately 30 days accrued interest.

Coinsured FHA-Insured Certificates
----------------------------------

Coinsured by affiliate
----------------------
     As of December 31, 1996 and 1995, the Partnership had invested in  zero and
two FHA-Insured Certificates, respectively, secured by coinsured mortgages where
the coinsurance lender was Integrated Funding, Inc. (IFI).

     On April 30,  1996, Waterford  Green Apartments, with  an unpaid  principal
balance of approximately $6.5  million, was converted from a  coinsured mortgage
to a  fully insured  originated insured mortgage,  as discussed  above.   During
December  1996,  the Partnership  received  net proceeds  of  approximately $6.5
million for the prepayment of the mortgage on Westlake Village.  The Partnership
recognized a  gain of approximately $7,000 on this prepayment as of December 31,
1996.  A distribution of $0.51 per Unit related to  this prepayment was declared
in December 1996 and distributed to Unitholders in February 1997.
<PAGE>
<PAGE>39

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

                          NOTES TO FINANCIAL STATEMENTS

6.   INVESTMENT IN FHA-INSURED LOANS

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

<TABLE>
<CAPTION>                                           December 31,
                                                1996           1995
                                            ------------   ------------
<S>                                         <C>            <C>
Fully Insured Acquired Insured:
  Number of Loans                                     12             12
  Amortized Cost                            $ 14,556,595   $ 14,684,828
  Face Value                                  17,405,640     17,627,453
  Fair Value                                  17,706,486     18,388,369

Fully Insured Originated Insured:
  Number of Loans                                      3              3
  Amortized Cost                            $ 13,030,131   $ 13,123,855
  Face Value                                  12,681,532     12,766,486
  Fair Value                                  12,969,589     13,160,443

</TABLE>

          As of March 1, 1997,  all of the fully insured FHA-Insured  Loans were
     current with respect to the 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, 1996, 1995 and
     1994, the Partnership received  $42,417, $64,676 and $35,314, respectively,
     from the Participations.  These amounts are included in mortgage investment
     income on the accompanying statements of operations.

7.   DISTRIBUTIONS TO UNITHOLDERS

     The distributions  paid or accrued to  Unitholders on a per  Unit basis for
the years ended December 31, 1996, 1995 and 1994 are as follows:

                                    1996      1995      1994
                                   ------    ------    ------
     Quarter ended March 31,       $0.33     $0.36     $0.39 (6)
     Quarter ended June 30,         0.64 (1)  0.33      0.73 (7)
     Quarter ended September 30,    0.43 (2)  0.49(4)   0.48 (8)
     Quarter ended December 31,     0.85 (3)  0.36(5)   0.36
                                   -----     -----     -----
                                   $2.25     $1.54     $1.96
                                   =====     =====     =====


(1)  This amount includes approximately $0.31 per Unit representing net proceeds
     from the  prepayment of the  mortgages on Harbor  View Estates,  Bear Creek
     Apartments II, and Cambridge Arms Apartments.
(2)  This amount includes approximately $0.10 per Unit representing net proceeds
     from the assignment of the mortgage on Woodland Village Apartments.
(3)  This amount includes approximately $0.51 per Unit representing net proceeds
     from  the prepayment of  the mortgage  on Westlake  Village.   In addition,

<PAGE>40

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

                          NOTES TO FINANCIAL STATEMENTS

7.   DISTRIBUTIONS TO UNITHOLDERS - Continued

     includes approximately  $0.01 per Unit  representing net proceeds  from the
     modification of  the mortgage on Oak  Forest Apartments II and  the partial
     prepayment of the mortgage on Cambridge Arms Apartments.
(4)  This amount includes approximately $0.16 per Unit representing net proceeds
     from the assignment of the mortgage on El Lago Apartments.
(5)  This amount  includes approximately $0.02 per  Unit representing additional
     net proceeds from the assignment of the mortgage on El Lago Apartments.
(6)  This amount  includes approximately $0.05 per  Unit representing previously
     undistributed  accrued interest  and  gain  from  the  disposition  of  the
     mortgage on Victoria Pointe Apartments-Phase I.
(7)  This  amount  includes  approximately   $0.37  per  Unit  representing  net
     principal proceeds from the  prepayment of the mortgage on  Richardson Road
     Apartments.
(8)  This  amount includes approximately $0.11  per Unit representing a one-time
     distribution  of  funds  that  had   previously  been  set  aside,  pending
     resolution  of  the  Partnership's  troubled  loans.     Also  included  is
     approximately  $0.01 per  Unit  representing a  return  of capital  from  a
     partial prepayment of the mortgage on Garden Court Apartments.

     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>41

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

                          NOTES TO FINANCIAL STATEMENTS

8.   INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES,
       NOTE PAYABLE TO AFFILIATE AND DUE TO AFFILIATES

     Effective December 31, 1991,  the Partnership transferred a  GNMA Mortgage-
Backed Security underlying its  investment in Richardson Road Apartments  with a
carrying value of approximately $4.7  million to IFI in order to  capitalize IFI
with  sufficient net  worth under  HUD regulations.   American  Insured Mortgage
Investors L.P. - Series 86 (AIM 86) and American Insured Mortgage Investors L.P.
- Series  88 (AIM 88), affiliates of the  Partnership, each issued a demand note
payable  to  the  Partnership and  recorded  an  investment  in  IFI through  an
affiliate  (AIM  Mortgage, Inc.)  at an  amount  proportionate to  each entity's
coinsured mortgages for which IFI was the mortgagee of record as of December 31,
1991.   AIM  Mortgage,  Inc.  is  jointly  owned  by AIM  86,  AIM  88  and  the
Partnership.   The  Partnership accounts  for its  investment in  IFI  under the
equity method of accounting.

     In  1992,  IFI entered  into an  expense  reimbursement agreement  with the
Partnership, AIM  86  and  AIM 88  (collectively,  the AIM  Funds)  whereby  IFI
reimburses the AIM  Funds for  general and administrative  expenses incurred  on
behalf of IFI.  The expense reimbursement is allocated to the AIM Funds based on
an  amount proportionate to each  entity's IFI coinsured  mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net  income or loss, substantially equalled  the mortgage principal and
interest on the GNMA Mortgage-Backed Security transferred to IFI.

     In April 1994, IFI received net proceeds of approximately $4.7 million from
the  prepayment of the GNMA  Mortgage-Backed Security, which  IFI distributed to
the AIM Funds, in proportion to each entity's coinsured mortgage investments for
which IFI was the mortgagee of record as of December 31, 1991. On June 30, 1994,
AIM 86  and AIM  88 repaid the  Partnership for the  outstanding balance  on the
notes receivable.  Interest income on the notes receivable, based on an interest
rate of 8%  per annum, which represented the interest rate on the GNMA Mortgage-
Backed Security, was $70,449 for the year ended December 31, 1994.

     As a result  of the prepayment, in  April 1994, AIM  88 transferred a  GNMA
Mortgage-Backed  Security in the amount of approximately  $2.0 million to IFI in
order to recapitalize IFI with sufficient net worth under HUD  regulations.  The
Partnership and AIM 86 each issued a  demand note payable to AIM 88 and recorded
an investment in IFI through  AIM Mortgage, Inc. in proportion to  each entity's
coinsured mortgages  for which IFI was  the mortgagee of  record as of  April 1,
1994.  Interest expense on  the note payable is based on an annual interest rate
of 7.25%.

     The  note payable was executed in  the amount of $319,075, which represents
the outstanding balance as of December  31, 1996 and 1995.  Additionally, as  of
December 31, 1996 and 1995, the Partnership owed  a total of $61,802 and $1,845,
respectively, to AIM 84.

     In connection with these  transactions, the expense reimbursement agreement
was amended,  as of  April 1,  1994, to  adjust  the allocation  of the  expense
reimbursement  agreement to  the AIM  Funds to an  amount proportionate  to each
entity's  coinsured  mortgage investments  for which  IFI  was the  mortgagee of
record  as of April 1, 1994.   The expense reimbursement, as amended, along with
the Partnership's equity  interest in  IFI's net income  or loss,  substantially
equals the Partnership's interest expense on the note payable.

9.   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

<PAGE>42

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

                          NOTES TO FINANCIAL STATEMENTS

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 therefore.

<PAGE>43

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

                          NOTES TO FINANCIAL STATEMENTS

10.  SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
          (In Thousands, Except Per Unit Data)

     The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1996, 1995 and 1994.

<TABLE><CAPTION>
                                                                  1996
                                                             Quarter ended
                                            March 31      June 30      September 30    December 31
                                          -----------    ---------    --------------  -------------
<S>                                       <C>            <C>          <C>             <C>
Income                                    $     4,612    $   4,529    $        4,447  $       4,355
Net gains (losses) from
  mortgage dispositions                            (1)         556               (40)             7
Net earnings                                    3,928        4,417             3,790          3,654
Net earnings per Limited
  Partnership Unit                               0.31         0.35              0.30           0.30

</TABLE>

<TABLE><CAPTION>
                                                                  1995
                                                             Quarter ended
                                            March 31      June 30      September 30    December 31
                                          -----------    ---------    --------------  -------------
<S>                                       <C>            <C>          <C>             <C>
Income                                    $     4,640    $   4,717    $        4,626  $       4,606
Net gains (losses) from
  mortgage dispositions                            53          (36)               --             19
Net earnings                                    3,980        4,017             3,944          3,962
Net earnings per Limited
  Partnership Unit                               0.32         0.32              0.31           0.32

</TABLE>
<TABLE><CAPTION>
                                                                  1994
                                                             Quarter ended
                                            March 31      June 30      September 30    December 31
                                           ----------    ---------    --------------  -------------
<S>                                        <C>           <C>          <C>             <C>
Income                                     $    4,825    $   4,806    $        4,899  $       4,637
Net losses from mortgage
  dispositions                                     --           --                --           (151)
Net earnings                                    4,061        4,086             4,202          3,806
Net earnings per Limited
  Partnership Unit                               0.32         0.33              0.33           0.31

</TABLE>

<PAGE>44
                         AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                               SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                             DECEMBER 31, 1996

<TABLE>
<CAPTION>

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------
FHA-Insured Certificates

  (carried at fair value)
The Executive House
 Dayton, Ohio                               8/21         12/01           7.5%    $    884,090     $     898,848    $       78,855(4)
Walnut Apartments
  La Puente, California                     3/20         11/01           7.5%       2,716,299         2,762,199           248,862(4)
Woodland Hills Apartments
  Auburn, Alabama                          10/19          6/99           7.5%         736,406           748,898            68,044(4)
Fairlawn II
  Waterbury, Connecticut                    6/20          5/00           7.5%         808,327           821,927            73,364(4)
Willow Dayton
  Chicago, Illinois                         8/19         12/00           7.5%       1,081,371         1,099,678            99,489(4)
Cedar Ridge Apartments
  Richton Park, Illinois                    4/20          2/01           7.5%       2,886,818         2,935,448           262,699(4)
Park Hill Apartments
  Lexington, Kentucky                       3/19          3/00           7.5%       1,876,007         1,907,873           173,845(4)
Fairfax House
  Buffalo, New York                        11/19          5/00           7.5%       2,287,854         2,326,513           209,608(4)
Country Club Terrace Apt.
  Holidaysburg, Pennsylvania                8/19          6/00           7.5%       1,549,273         1,575,502           142,537(4)
Silverwood Village Apts.
  Gallatin, Tennessee                       9/20          2/00           7.5%       1,376,214         1,399,329           124,420(4)
Fleetwood Village Apts.
  Cookeville, Tennessee                     6/20          2/00           7.5%       1,541,191         1,567,123           139,879(4)
Summit Square Manor
  Rochester, Minnesota                      8/19          5/99           7.5%       2,037,623         2,072,121           187,467(4)
Park Place
 Rochester, Minnesota                       3/20         10/99           7.5%         806,366           820,000            73,980(4)


<PAGE>45

                   AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                        SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                          DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------
FHA-Insured Certificates
  (carried at fair value) - Continued

Nevada Hills Apartments
  Reno, Nevada                              2/21          8/00           7.5%       1,228,223         1,248,794           110,345(4)
Bentgrass Hills Apartments
  Milwaukee, Wisconsin                      7/21          5/01           7.5%         244,027           248,105            21,817(6)
Colony West Apartments
  Chico, California                         7/20         12/00           7.5%         688,050           699,620            62,365(6)
Dunhaven Apartments Section I
  Baltimore County, Maryland                1/20         12/99           7.5%         956,908           973,057            87,429(6)
Emerald Green Apartments
  Indianapolis, Indiana                     1/20         12/99           7.5%       1,098,584         1,117,124           100,374(6)
Isle of Pines Village
  Apartments
  Baltimore County, Maryland               12/20          4/00           7.5%       1,299,404         1,321,191           117,030(6)
Kings Villa/Discovery Commons
  Sacramento, California                    7/19         11/99           7.5%       1,155,012         1,174,579           106,414(6)
Meadow Park Apartments I
  Anniston, Alabama                         9/20          8/00           7.5%         673,876           667,989            60,923(6)
Stoney Brook Apartments
  North Providence
  Rhode Island                              9/20         10/00           7.5%       1,529,503         1,555,192           138,278(6)
Security Apartments
  Mankato, Minnesota                        7/19          6/99           7.5%         303,694           308,839            27,980(6)
Steeplechase Apartments
  Aiken, South Carolina                     9/18          8/98           7.5%         542,899           552,172            50,921(6)
Walnut Hills Apartments
  Plainfield, Indiana                       9/19          3/00           7.5%         519,114           527,898            47,692(6)
Woodland Villas
  Jasper, Alabama                           8/19          3/00           7.5%         331,168           336,774            30,468(6)
Ashley Oaks Apartments
  Carrollton, Georgia                       3/22          4/02           7.5%         591,008           600,839            52,292(7)
Highland Oaks Apartments,
  Phase III
  Wichita Falls, Texas                      2/21          4/02           7.5%         998,882         1,015,611            89,741(7)

<PAGE>46

                        AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                               SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                            DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------
FHA-Insured Certificates
  (carried at fair value) - Continued

Holden Court Apartments
  Seattle, Washington                      12/21          4/02           7.5%         230,442           234,279            20,435(7)
Magnolia Place Apartments
  Franklin, Tennessee                       5/20          4/02           7.5%         338,956           344,662            30,804(7)
Quail Creek Apartments
  Howell, Michigan                          5/20          4/02           7.5%         567,474           577,027            51,572(7)
Rainbow Terrace Apartments
  Milwaukee, Wisconsin                      7/22          4/02           7.5%         335,801           341,376            29,581(7)
Rock Glen Apartments
  Baltimore, Maryland                       1/22          4/02           7.5%       1,120,614         1,139,273            99,375(7)
Stonebridge Apartments, Phase I
  Montgomery, Alabama                       4/20          4/02           7.5%       1,089,293         1,107,642            99,125(7)
Village Knoll Apartments
  Harrisburg, Pennsylvania                  4/20          4/02           7.5%       1,130,942         1,149,993           102,914(7)
Bowling Brook, Section 1
  Towson, Maryland                          5/30           N/A          8.50%      12,058,813        12,331,086         1,090,128
Cedar Bluff
  Eagan, Minnesota                          3/27           N/A          8.50%       4,463,701         4,565,149           411,371
Executive Tower
  Toledo, Ohio                              3/27           N/A          8.75%       2,917,672         2,983,906           275,283
New Castle Apartments
  Austin, Texas                             3/18           N/A          8.75%       2,108,859         2,158,439           219,143
Lincoln Green
  Burrillville, Rhode Island                6/33           N/A         10.25%       3,141,821         3,236,752           330,066
Turtle Creek Apartments
  San Antonio, Texas                        4/16           N/A          8.95%       1,725,732         1,766,795           188,596
Sangnok Villa
  Los Angeles, California                   1/30           N/A         10.25%         912,084           939,729            96,825
The Meadows of Livonia
  Livonia, Michigan                         9/34           N/A         10.00%       6,482,766         6,661,573           627,836

<PAGE>47

                         AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                                SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                             DECEMBER 31, 1996


                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------

FHA-Insured Certificates
  (carried at fair value) - Continued

Gamel & Gamel Apartments
  Benton, Kentucky                          4/27           N/A          8.75%   $     685,584    $      701,141      $     64,612
Wayland Health Center
  Providence, Rhode Island                 10/33           N/A          9.75%       6,928,064         7,119,266           696,610
Peachtree Place North
  Doraville, Georgia                        4/22           N/A          9.00%       6,490,533         6,639,797           651,339
Eaglewood Villa Apartments
  Springfield, Ohio                         2/27           N/A         8.875%       2,773,999         2,836,931           264,707
Gold Key Village Apartments
  Englewood, Ohio                           6/27           N/A          9.00%       2,928,742         2,995,090           282,030
Stafford Towers
  Baltimore, Maryland                       8/16           N/A          9.50%         375,990           386,855            42,613
Garden Court Apartments
  Lexington, Kentucky                       8/27           N/A          8.60%       1,192,871         1,219,936           110,583
Northdale Commons
  Coon Rapids, Minnesota                    9/27           N/A          9.00%         698,276           714,089            67,173
Northwood Place
  Meridian, Mississippi                     6/34           N/A          8.75%       4,535,169         4,636,832           412,635
Amador Residential
  Jackson, California                       1/34           N/A          9.00%       1,351,117         1,381,393           126,173
Cheswick Apartments
  Indianapolis, Indiana                     9/27           N/A          8.75%       3,146,623         3,217,958           295,736
Nassau Apartments
  New Orleans, Louisiana                   11/27           N/A          8.63%         885,046           905,116            82,139
The Gate House Apartments
  Lexington, Kentucky                       2/28           N/A          8.55%       2,870,172         2,935,247           264,092
Bradley Road Nursing
  Bay Village, Ohio                         5/34           N/A         8.875%       2,536,318         2,593,154           233,708


<PAGE>48

                        AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                              SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                             DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------

FHA-Insured Certificates
  (carried at fair value) - Continued

Franklin Plaza
  Cleveland, Ohio                           5/23           N/A         8.175%       5,439,777         5,439,243           503,183
Ashford Place Apartments
  Mobile, Alabama                          10/24           N/A         7.125%       3,418,654         3,418,533           282,875
Heritage Heights Apartments
  Harrison, Arizona                         4/32           N/A          9.50%         419,396           430,988            41,313
Pleasant View Nursing Home
  Union, New Jersey                         6/29           N/A          7.75%       7,622,278         7,619,105           643,312
Pine Tree Lodge
  Pasadena, Texas                          12/33           N/A          9.50%       2,145,244         2,209,601           222,323(9)
                                                                                -------------    --------------
  Total FHA-Insured Certificates -
    Acquired Insured Mortgages,
    carried at fair value                                                         127,817,014       130,221,199
                                                                                -------------    --------------
GNMA Mortgage-Backed Securities
  (carried at fair value)

Maryland Meadows
  Glendale, Arizona                        10/27           N/A          8.35%       5,023,655         4,967,475           436,957
Spanish Trace Apartments
  Md. Heights, Missouri                     9/28           N/A          7.35%       9,757,159         9,648,849           771,094
Stone Hedge Village Apts.
  Farmington, New York                     11/27           N/A          7.00%       1,843,227         1,822,912           143,222
Afton Square Apartments
  Portsmouth, Virginia                     12/28           N/A          7.25%       1,078,281         1,066,312            81,383
Carlisle Apartments
  Houston, Texas                           12/28           N/A         7.125%       2,155,307         2,131,422           165,877
Independence Park
  Largo, Florida                            9/29           N/A          7.75%       4,046,782         4,001,445           330,715
Ridgecrest Timbers
  Portland, Oregon                         12/28           N/A          7.25%       1,569,726         1,552,302           120,849

<PAGE>49

                        AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                              SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                             DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------

FHA-Insured Certificates
  (carried at fair value) - Continued

Huntington Apartments
  Concord, North Carolina                  12/29           N/A          7.25%       2,990,667         2,957,458           233,099
Northwood Apartments
  Mockville, North Carolina                12/29           N/A          7.25%       1,607,776         1,589,923           125,313
                                                                                 ------------    --------------

    Total GNMA Mortgage-Backed
      Securities                                                                   30,072,580        29,738,098
                                                                                 ------------    --------------
    Total investment in Acquired
      Insured Mortgages, carried
      at fair value                                                               157,889,594       159,959,297
                                                                                 ------------    --------------


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

Oak Forest Apartments II
  Ocoee, Florida                           12/31         11/09          8.25%      10,703,555        10,582,963           898,012
FHA-Insured Certificate
  (carried at fair value)

Waterford Green Apartments
  South St. Paul, Minnesota (11)           11/30         12/04          8.50%       6,066,514         6,063,980           610,218
                                                                                ------------    --------------
    Total investment in Originated Insured
      Mortgages, carried at fair value                                             16,770,069        16,646,943
                                                                                 ------------    --------------
    Total investment in FHA-Insured Certificates
      and GNMA Mortgage-Backed Securities                                         174,659,663       176,606,240
                                                                                 ------------    --------------

<PAGE>50

                       AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                             SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                         DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(13)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>
ACQUIRED INSURED MORTGAGES
--------------------------

FHA-Insured Loans
  (carried at amortized cost)(2)
Bay Pointe Apartments
  Lafayette, Indiana                        2/23         11/00           7.5%       2,098,622         1,720,728           185,268(8)
Baypoint Shoreline Apartments
  Duluth, Minnesota                         1/22          8/00           7.5%         991,971           811,102            87,967(8)
Berryhill Apartments
  Grass Valley, California                  1/21          8/99           7.5%       1,288,451         1,055,933           115,899(8)
Brougham Estates II
  Kansas City, Kansas                      11/22          8/00           7.5%       2,632,011         2,147,084           230,860(8)
College Green Apartments
  Wilmington, North Carolina                3/23          6/01           7.5%       1,413,373         1,152,372           123,455(8)
Fox Run Apartments
  Dothan, Alabama                          10/19         12/97           7.5%       1,265,562         1,040,891           116,242(8)
Kaynorth Apartments
  Lansing, Michigan                         4/23          3/01           7.5%       1,917,493         1,562,914           167,318(8)
Lakeside Apartments
  Bennettsville, South Carolina             1/22          3/01           7.5%         398,098           325,836            35,303(8)
Portervillage I Apartments
  Portervillage, California                 8/21          5/00           7.5%       1,161,634           951,052           103,733(8)
Town Park Apartments
  Rockingham, North Carolina               10/22          6/01           7.5%         646,046           527,648            56,755(8)
Westbrook Apartments
  Kokomo, Indiana                          11/22         12/00           7.5%       1,837,983         1,504,863           163,177(8)
Continental Village
  New Hope, Minnesota                       1/22           N/A          8.95%       1,754,396         1,756,172           175,954
                                                                                 ------------    --------------
    Total investment in Acquired
      Insured Mortgages, carried
        at amortized cost                                                          17,405,640        14,556,595
                                                                                 ------------    --------------


<PAGE>51

                      AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
                           SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
                                          DECEMBER 31, 1996

                                                                    Interest
                                                                    Rate on          Face             Net           Annual Payment
                                        Maturity        Put         Mortgage       Value of      Carrying Value     (Principal and
Development Name/Location                 Date        Date (1)      (5)(10)        Mortgage        (3)(12)(14)     Interest)(10)(11)
-------------------------               --------      --------    -----------    ------------    --------------    -----------------
<S>                                    <C>            <C>         <C>            <C>             <C>               <C>

ORIGINATED INSURED MORTGAGES
----------------------------
Fully Insured Mortgages
-----------------------
FHA-Insured Loans

  (carried at amortized cost)(2)
Cobblestone Apartments
  Fayetteville, North Carolina              3/28         12/02           8.50       5,055,033         5,212,122           462,703
Longleaf Lodge
  Hoover, Alabama                           7/26            --          8.25%       3,126,455         3,166,895           282,958
The Plantation
  Greenville, North Carolina                4/28          4/03          8.25%       4,500,044         4,651,114           402,046
                                                                                 ------------      ------------

  Total investment in Originated
    Insured Mortgages, carried at amortized
    cost                                                                           12,681,532        13,030,131
                                                                                 ------------      ------------

  Total investment in FHA-Insured Loans                                            30,087,172        27,586,726
                                                                                 ------------      ------------
  TOTAL INVESTMENT IN INSURED MORTGAGES                                         $ 204,746,835     $ 204,192,966
                                                                                 ============      ============

</TABLE>

<PAGE>52

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

              NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                DECEMBER 31, 1996


(1)  Under the Section 221 program of the National Housing Act of 1937, as
     amended, 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 a 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 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 to November 30, 1983 and, in the case of mortgages
     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.  Certain mortgages that do not qualify under
     this 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.

(2)  Inclusive of closing costs and acquisition fees.

(3)  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.

(4)  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.

(5)  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.

(6)  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.

(7)  In June 1985 and February 1986, the Partnership purchased pass-through
     certificates representing undivided fractional interests of 200/341 and

<PAGE>53

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

              NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                DECEMBER 31, 1996


     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.

(8)  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.

(9)  This information is based upon the estimated amount of the Insured Mortgage
     upon completion of construction.

(10) 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, 1996, 1995 and 1994, the
     Partnership received additional interest of $42,417, $64,676 and $35,314,
     respectively, from the Participations.

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

(12) A reconciliation of the carrying value of Insured Mortgages for the years
     ended December 31, 1996 and 1995, is as follows:

                                                   1996              1995
                                               ------------      ------------

     Beginning balance                         $220,229,526      $209,265,153

       Principal receipts on mortgages           (1,571,828)       (1,315,947)

       Due from HUD                                (138,858)               --

       Proceeds from disposition of
         Mortgages                              (11,346,665)       (2,334,318)

       Net gains on mortgage
          dispositions/modifications                521,584            36,065

       (Increase) decrease in unrealized
         losses on investment in
         Insured Mortgages                          (57,176)        7,596,238

       (Decrease) increase in unrealized
         gains on investment in
         Insured Mortgages                       (3,443,617)        6,982,335
                                               ------------      ------------
     Ending balance                            $204,192,966      $220,229,526
                                               ============      ============

<PAGE>54

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

              NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                DECEMBER 31, 1996


(13) As of December 31, 1996 and 1995, the tax basis of the Insured Mortgages
     was approximately $194.1 million and $207.5 million, respectively.