FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarter ended                                        September 30, 2002
                                                             ------------------

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 Identification No.)
incorporation or organization)

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

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


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

     As  of  September  30,  2002,   12,079,514   depositary  units  of  limited
partnership interest were outstanding.

<PAGE>2





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

                               INDEX TO FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2002
<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>           <C>                                                                                  <C>
PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - September 30, 2002  (unaudited) and December 31, 2001                3

              Statements of Income and Comprehensive Income - for the three and
                 nine months ended September 30, 2002  and 2001  (unaudited)                        4

              Statement of Changes in Partners' Equity - for the nine months ended
                 September 30, 2002  (unaudited)                                                    5

              Statements of Cash Flows - for the nine months ended September 30, 2002
                 and 2001  (unaudited)                                                              6

              Notes to Financial Statements (unaudited)                                             7

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of
                 Operations                                                                        15

Item 3.       Qualitative and Quantitative Disclosures about Market Risk                           20

Item 4.       Controls and Procedures                                                              20

PART II.      Other Information

Item 5.       Other Information                                                                    21

Item 6.       Exhibits and Reports on Form 8-K                                                     21

Signature                                                                                          22

Certifications                                                                                     23
</TABLE>

<PAGE>3

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                           September 30,   December 31,
                                                               2002            2001
                                                           ------------    ------------
                                                           (Unaudited)
                        ASSETS

<S>                                                        <C>             <C>
Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                             $ 35,976,099    $ 45,845,197
    Originated insured mortgages                             16,029,862      15,734,485
                                                           ------------    ------------
                                                             52,005,961      61,579,682


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium
    Acquired insured mortgages                                8,813,521       8,914,573
    Originated insured mortgages                              9,340,553      12,430,002
                                                           ------------    ------------
                                                             18,154,074      21,344,575

Cash and cash equivalents                                    10,042,555       4,366,085

Receivables and other assets                                  1,402,897       8,394,392

Investment in FHA debenture                                           -       2,385,233
                                                           ------------    ------------
      Total assets                                         $ 81,605,487    $ 98,069,967
                                                           ============    ============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                      $  5,153,591    $  1,885,460

Accounts payable and accrued expenses                           129,713         121,659

Due to affiliate                                                      -       1,235,104
                                                           ------------    ------------
      Total liabilities                                       5,283,304       3,242,223
                                                           ------------    ------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                  81,456,062      99,801,805
  General partner's deficit                                  (6,525,641)     (5,781,121)
  Accumulated other comprehensive income                      1,391,762         807,060
                                                           ------------    ------------
      Total partners' equity                                 76,322,183      94,827,744
                                                           ------------    ------------
      Total liabilities and partners' equity               $ 81,605,487    $ 98,069,967
                                                           ============    ============
</TABLE>

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

<PAGE>4

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                         For the three months ended     For the nine months ended
                                                                September 30,                 September 30,
                                                             2002           2001           2002           2001
                                                         ------------   ------------   ------------   ------------
<S>                                                      <C>            <C>            <C>            <C>
Income:
  Mortgage investment income                             $  1,556,263   $  1,910,137   $  4,756,219   $  6,153,483
  Interest and other income                                    34,691        133,511        228,977        401,397
                                                         ------------   ------------   ------------   ------------
                                                            1,590,954      2,043,648      4,985,196      6,554,880
                                                         ------------   ------------   ------------   ------------

Expenses:
  Asset management fee to related parties                     189,662        228,466        571,168        734,961
  General and administrative                                   98,586         95,203        320,922        289,800
                                                         ------------   ------------   ------------   ------------
                                                              288,248        323,669        892,090      1,024,761
                                                         ------------   ------------   ------------   ------------
Net earnings before gains on
  mortgage dispositions                                     1,302,706      1,719,979      4,093,106      5,530,119

Net gains on mortgage dispositions                             86,839        219,547      1,264,766      1,204,665
                                                         ------------   ------------   ------------   ------------

Net earnings                                             $  1,389,545   $  1,939,526   $  5,357,872   $  6,734,784
                                                         ============   ============   ============   ============
Other comprehensive (loss) income  - adjustment to
  unrealized gains on investments in insured mortgages       (222,429)     2,255,338        584,702      1,154,974
                                                         ------------   ------------   ------------   ------------

Comprehensive income                                     $  1,167,116   $  4,194,864   $  5,942,574   $  7,889,758
                                                         ============   ============   ============   ============

Net earnings allocated to:
  Limited partners - 96.1%                               $  1,335,353   $  1,863,884   $  5,148,915   $  6,472,127
  General Partner -   3.9%                                     54,192         75,642        208,957        262,657
                                                         ------------   ------------   ------------   ------------
                                                         $  1,389,545   $  1,939,526   $  5,357,872   $  6,734,784
                                                         ============   ============   ============   ============

Net earnings per Unit of limited
  partnership interest - basic                           $       0.11   $       0.15   $       0.43   $       0.54
                                                         ============   ============   ============   ============
</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>5

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                    STATEMENT OF CHANGES IN PARTNERS' EQUITY

                  For the nine months ended September 30, 2002

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other
                                                         General          Limited       Comprehensive
                                                         Partner          Partners          Income           Total
                                                      -------------    -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>              <C>
Balance, December 31, 2001                            $  (5,781,121)   $  99,801,805    $     807,060    $  94,827,744

  Net earnings                                              208,957        5,148,915                -        5,357,872

  Adjustment to unrealized gains on
     investments in insured mortgages                             -                -          584,702          584,702

  Distributions paid or accrued of $1.945 per Unit,
     including return of capital of $1.515 per Unit        (953,477)     (23,494,658)               -      (24,448,135)
                                                      -------------    -------------    -------------    -------------

Balance, September 30, 2002                           $  (6,525,641)   $  81,456,062    $   1,391,762    $  76,322,183
                                                      =============    =============    =============    =============

Limited Partnership Units outstanding - basic, as
  of September 30, 2002                                                   12,079,514
                                                                          ==========
</TABLE>

<PAGE>6


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                             STATEMENTS OF CASH FLOWS

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                          For the nine months ended
                                                                                                 September 30,
                                                                                             2002            2001
                                                                                         ------------    ------------
<S>                                                                                      <C>             <C>
Cash flows from operating activities:
   Net earnings                                                                          $  5,357,872    $  6,734,784
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gains on mortgage dispositions                                                   (1,264,766)     (1,204,665)
      Changes in assets and liabilities:
         Decrease (increase) in receivables and other assets                                  976,412        (311,036)
         Increase in accounts payable and accrued expenses                                      8,054           2,691
         Decrease in due to affiliate                                                         (42,487)        (28,247)
                                                                                         ------------    ------------

            Net cash provided by operating activities                                       5,035,085       5,193,527
                                                                                         ------------    ------------

Cash flows from investing activities:
   Proceeds received from mortgage prepayments                                              9,863,187      16,475,868
   Proceeds received from mortgage assignments                                             10,190,539               -
   Proceeds from redemption of debenture                                                    2,385,233               -
   Debenture proceeds paid to affiliate                                                    (1,192,617)              -
   Receipt of mortgage principal from scheduled payments                                      575,047         784,599
                                                                                         ------------    ------------

            Net cash provided by investing activities                                      21,821,389      17,260,467
                                                                                         ------------    ------------

Cash flows used in financing activities:
   Distributions paid to partners                                                         (21,180,004)    (19,483,087)
                                                                                         ------------    ------------


Net increase in cash and cash equivalents                                                   5,676,470       2,970,907

Cash and cash equivalents, beginning of period                                              4,366,085       5,631,117
                                                                                         ------------    ------------

Cash and cash equivalents, end of period                                                 $ 10,042,555    $  8,602,024
                                                                                         ============    ============

Non-cash investing activity:
   Portion of HUD debentures due from unrelated third party in exchange
      for the mortgages on Summit Square Manor and Park Place Apartments                 $          -    $  2,669,133
   Portion of HUD debenture due from unrelated third party in exchange
      for the mortgage on Fairlawn II                                                         744,159               -
</TABLE>

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

<PAGE>7
              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

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. The Partnership  Agreement  ("Partnership  Agreement")  states
that the  Partnership  will  terminate on December 31, 2009,  unless  terminated
earlier under the provisions of the Partnership Agreement.

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

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

     The  Partnership's   investment  in  mortgages  consists  of  participation
certificates  evidencing  a 100%  undivided  beneficial  interest in  government
insured  multifamily  mortgages  issued  or sold  pursuant  to  Federal  Housing
Administration  ("FHA") programs ("FHA-Insured  Certificates"),  mortgage-backed
securities  guaranteed by the Government National Mortgage  Association ("GNMA")
("GNMA Mortgage-Backed Securities") and FHA-insured mortgage loans ("FHA-Insured
Loans" and  together  with  FHA-Insured  Certificates  and GNMA  Mortgage-Backed
Securities referred to herein as "Insured Mortgages").  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.


2.   BASIS OF PRESENTATION

     In the opinion of the General Partner, the accompanying unaudited financial
statements  contain all adjustments of a normal  recurring  nature  necessary to
present  fairly the financial  position of the  Partnership  as of September 30,
2002 and December 31, 2001, the results of its operations for the three and nine
months ended September 30, 2002 and 2001, and its cash flows for the nine months
ended September 30, 2002 and 2001.
<PAGE>8

     These unaudited  financial  statements  have been prepared  pursuant to the
rules  and  regulations  of the  Securities  and  Exchange  Commission.  Certain
information  and  note  disclosures   normally   included  in  annual  financial
statements prepared in accordance with generally accepted accounting  principles
("GAAP") have been condensed or omitted. While the General Partner believes that
the  disclosures  presented are adequate to make the information not misleading,
these  financial  statements  should be read in  conjunction  with the financial
statements  and  the  notes  to  the  financial   statements   included  in  the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2001.


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

     Fully Insured Mortgage Investments
     ----------------------------------

     Listed below is the  Partnership's  aggregate  investment  in Fully Insured
Mortgages:
<TABLE>
<CAPTION>
                                                                September 30,            December 31,
                                                                   2002                     2001
                                                                -----------              -----------
<S>                                                             <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of:
    GNMA Mortgage-Backed Securities                                       2                        2
    FHA-Insured Certificates (1)(2)(3)(4)(5)                             20                       26
  Amortized Cost                                                $34,599,211              $44,640,062
  Face Value                                                     35,542,302               46,215,896
  Fair Value                                                     35,976,099               45,845,197

Fully Insured Originated Mortgages:
  Number of:
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                                $16,014,988              $16,132,560
  Face Value                                                     16,014,987               16,132,560
  Fair Value                                                     16,029,862               15,734,485
</TABLE>

(1)  In April 2002,  the mortgage on Garden Court  Apartments  was prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $1.2  million  and
     recognized  a gain of  approximately  $9,000  for  the  nine  months  ended
     September 30, 2002. A distribution of approximately  $0.09 per Unit related
     to the  prepayment  of this  mortgage  was  declared  in April  and paid to
     Unitholders in August 2002.
(2)  In January 2002,  three mortgages were approved for assignment to HUD under
     the Section 221 Program, as discussed below.
(3)  In July 2002,  one mortgage was  approved for  assignment  to HUD under the
     Section 221 Program, as discussed below.
(4)  In  September  2002,  the  mortgage  on  Franklin  Plaza was  prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $5.0  million  and
     recognized  a loss of  approximately  $8,000  for  the  nine  months  ended
     September 30, 2002. A distribution of approximately  $0.40 per Unit related
     to the  prepayment  of this  mortgage  was  declared in October 2002 and is
     expected to be paid to Unitholders in February 2003.
(5)  In October  2002,  the mortgage on Rock Glen  Apartments  was prepaid.  The
     Partnership received net proceeds of approximately $1.0 million and expects
     to recognize a gain of  approximately  $117,000  during the fourth  quarter
     2002. The Partnership  expects to declare a distribution  of  approximately
     $0.08 per Unit in November 2002.

     As of November 1, 2002, all of the fully insured  FHA-Insured  Certificates
and GNMA  Mortgage-Backed  Securities are current with respect to the payment of
principal and interest.

     The Section 221 Program
     -----------------------

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended  (the  "Section  221  Program"),  a mortgagee  has the right to assign a
mortgage  ("put")  to  the  United  States   Department  of  Housing  and  Urban

<PAGE>9

Development  ("HUD")  at the  expiration  of 20  years  from  the  date of final
endorsement ("Anniversary Date") if the mortgage is not in default at such time.
The  mortgagee  may  exercise  its  option to put the  mortgage  to HUD one year
subsequent to the Anniversary  Date. This assignment  procedure is applicable to
an  Insured  Mortgage,  which  had a firm  or  conditional  commitment  for  HUD
insurance  benefits on or before  November 30, 1983.  Any mortgagee  electing to
assign an Insured Mortgage to HUD receives, in exchange therefor, HUD debentures
having a total face value equal to (i) the then outstanding principal balance of
the Insured  Mortgage (ii) plus accrued  interest on the mortgage to the date of
assignment ("Debenture Issuance Date"). These HUD debentures generally mature 10
years  from  the  date of  assignment  and  bear  interest  at a rate  announced
semi-annually  by HUD in the Federal  Register  ("going  Federal  rate") at such
date. Generally,  the Partnership is not the named mortgagee for the FHA-Insured
Certificates.  In this  case,  the HUD  debentures  are  generally  issued to an
unrelated  third  party  that  is  the  named  mortgagee.  The  servicer  of the
applicable  mortgage is responsible  for delivering to the  Partnership  all HUD
insurance claim proceeds.  The debenture  interest is paid to the Partnership in
the month it is received by the servicer. The debenture proceeds are paid to the
Partnership  in the  month  the  debenture  is  redeemed  by HUD or  sold by the
servicer.

     Once the  servicer of a mortgage  has filed an  application  for  insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly  principal and interest on the  applicable  mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date);  however,  the  debentures  are not  transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General  Partner's  experience,  HUD's  assignment  process is generally  six to
eighteen  months.  After HUD  completes its  assignment  process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued  interest on the debentures at the going Federal rate
from the  Debenture  Issuance  Date to the most current  interest  payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest  payment  dates of January 1 and July 1. The going Federal rate for HUD
debentures  issued  under the  Section  221  Program for the period July 1, 2002
through  December 31, 2002 is 6.625%.  The Partnership will recognize a gain, if
any,  on  these  assignments  at the  time it  receives  notification  that  the
assignment  has  been  approved.  This  is  generally  when  HUD  transfers  the
debentures to the mortgagee  and/or when the  Partnership  receives cash for the
accrued  interest  on the  debentures.  A loss is  recognized  when  it  becomes
probable that a loss will be incurred.  The gain or loss recognized is generally
equal to proceeds received, less the amortized cost of the Insured Mortgage.

     a. Redemption of HUD Debentures
        ----------------------------

     The following list  represents  HUD  debentures  redeemed in July 2002. The
aggregate gain of $497,000 was recognized in the first quarter of 2002, when the
Partnership  received  approximately  $286,000 of accrued interest,  in cash, on
these  HUD  debentures.  A  distribution,  related  to  this  accrued  debenture
interest, of approximately $0.02 per Unit was declared in March 2002 and paid in
May 2002. Net proceeds  represent (i) the Partnership's  beneficial  interest in
the face  value of the HUD  debenture,  plus  (ii)  interest  earned  on the HUD
debenture during the HUD assignment process,  less (iii) net mortgage investment
income due on the applicable mortgage during the HUD assignment process.
<PAGE>10
<TABLE>
<CAPTION>

(Dollars in thousands, except per unit amounts)

                                Debenture                 Face                     Gain                              Dist.
                                Interest      Net       Value of      HUD put    1st Qtr.    Dist/   Declaration    Payment
Complex Name                      Rate      Proceeds    Debenture      Date        2002      Unit        Date        Date
------------                      ----      --------    ---------      ----        ----      ----        ----        ----
<S>                              <C>         <C>         <C>         <C>          <C>       <C>        <C>         <C>
Country Club Terrace Apts.       7.500%      $ 1,425     $ 1,444     Sep 2000     $ 178     $0.12      Aug 2002    Nov 2002
Nevada Hills Apartments          7.500%        1,134       1,147     Dec 2000       154      0.09      Aug 2002    Nov 2002
Dunhaven Apartments              7.125%          872         890     Jan 2001       165      0.07      Aug 2002    Nov 2002
                                             -------     -------                  -----     -----
                                             $ 3,431     $ 3,481                  $ 497     $0.28
                                             =======     =======                  =====     =====
</TABLE>

     b. Issuance of HUD Debenture
        -------------------------

     In July 2002, HUD  transferred  assignment  proceeds to an unrelated  third
party in the form of a 7.5%  debenture  for the  mortgage  on  Fairlawn  II. The
debenture pays interest semi-annually on January 1 and July 1 and is callable on
or after January 1, 2003. In July 2002, the Partnership  received  approximately
$100,000  in cash of accrued  interest  on this HUD  debenture.  A  distribution
related to this  accrued  debenture  interest of $0.01 per Unit was  declared in
August 2002 and paid in November  2002.  The  Partnership  recognized  a gain of
approximately  $95,000 for the three and nine months ended  September  30, 2002.
The original  maturity date for this  debenture was September  2010,  however in
September  2002, HUD issued a call notice for all FHA  debentures  with a coupon
rate of 6.25% or above,  that are outstanding as of September 30, 2002, for call
on January 1, 2003. A  distribution  is expected to be declared  upon receipt of
the debenture  proceeds.  The servicer of this mortgage filed an application for
insurance  benefits  under the Section 221 Program in September  2000.  The face
value  of the  Partnership's  beneficial  interest  in this  HUD  debenture,  of
approximately  $758,000,  is included  in  receivables  and other  assets on the
Partnership's balance sheet as of September 30, 2002.

     c. Mortgages in the HUD assignment process
        ---------------------------------------

     The  mortgage on The  Executive  House was put to HUD under the Section 221
Program by the  servicer  in April  2002.  The face value of this  mortgage  was
approximately  $805,000  as of the HUD  put  date.  The  Partnership  no  longer
receives monthly principal and interest from mortgages that are put to HUD under
the Section 221 Program. HUD receives the monthly principal and interest and the
Partnership  will earn  semi-annual  interest  on  debentures  issued by HUD, as
discussed  above.  As of  November 1, 2002,  the  Partnership  has not  received
notification  that this  assignment  has been approved by HUD. The fair value of
this  mortgage is included in Investment in  FHA-Insured  Certificates  and GNMA
Mortgage-Backed  Securities,  acquired  insured  mortgages in the  Partnership's
balance sheet as of September 30, 2002.

     d. Remaining mortgages eligible for assignment
        -------------------------------------------

     The Partnership's mortgage portfolio includes six FHA-Insured  Certificates
issued under the Section 221 Program with an Anniversary  Date of April 2002. At
this time,  the  Partnership  does not expect  these  mortgages to be put to HUD
since it owns  less  than 34% of these  FHA-Insured  Certificates  and the other
certificate  holders  have not yet elected to put these  mortgages  to HUD.  The
Partnership   does  not  own  any  other   FHA-Insured   Certificates   or  GNMA
Mortgage-Backed Securities eligible to be put to HUD.

     Please refer to the  Partnership's  Annual Report on Form 10-K for the year
ended December 31, 2001, for more information on the  Partnership's  FHA-Insured
Certificates and GNMA Mortgage-Backed Securities.
<PAGE>11

4.   INVESTMENT IN FHA-INSURED LOANS

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

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

                                           September 30,            December 31,
                                              2002                      2001
                                           ------------             ------------
  Fully Insured Acquired Loans:
    Number of Loans                                  7                         7
    Amortized Cost                        $  8,813,521              $  8,914,573
    Face Value                              10,465,802                10,632,937
    Fair Value                              10,476,833                10,451,178

  Fully Insured Originated Loans:
    Number of Loans (1)                              2                         3
    Amortized Cost                        $  9,340,553              $ 12,430,002
    Face Value                               9,085,702                12,132,653
    Fair Value                               9,290,492                12,122,221

(1)  In  January  2002,  the  mortgage  on  Longleaf  Lodge  was  prepaid.   The
     Partnership  received  net  proceeds  of  approximately  $3.7  million  and
     recognized  a gain of  approximately  $672,000  for the nine  months  ended
     September 30, 2002. A distribution of approximately  $0.29 per Unit related
     to the  prepayment  of this  mortgage  was  declared in January and paid to
     Unitholders in May 2002.

     As of November 1, 2002,  all of the  Partnership's  FHA-Insured  Loans were
current with respect to the payment of principal  and  interest,  except for the
mortgage  on  Westbrook  Apartments,  which is  delinquent  with  respect to the
September  and October 2002  payments of  principal  and  interest.  The General
Partner  has  instructed  the  servicer  of this  mortgage  to file a Notice  of
Election to Assign if payment is not received by mid November. The face value of
this  mortgage  was  approximately  $1.7  million as of the last payment date in
August 2002. If assigned,  the Partnership expects to receive 99% of this amount
plus accrued  interest at the debenture  interest rate in effect at the time the
mortgage was originally insured and/or endorsed by HUD, whichever is higher.

     In  addition  to  interest   payments  from  the  FHA-Insured   Loans,  the
Partnership is entitled to additional interest on three of the FHA-Insured Loans
based on a percentage of the net cash flow from the operation of the  underlying
property development (referred to as Participations).  During the three and nine
months ended September 30, 2002, the Partnership received additional interest of
$0 and $8,396, respectively, from such Participations. During the three and nine
months ended September 30, 2001, the Partnership received additional interest of
$0 and  $53,423,  respectively,  from  the  Participations.  These  amounts  are
included in mortgage investment income on the accompanying  Statements of Income
and Comprehensive Income.

     The Section 221 Program
     -----------------------
     a. Mortgages in the HUD assignment process
        ---------------------------------------

     The  mortgage on  Baypoint  Shoreline  Apartments  was put to HUD under the
Section  221  Program  by the  servicer  in June  2002.  The face  value of this
mortgage was  approximately  $902,000 as of the HUD put date. The Partnership no
longer  receives  monthly  principal and interest from mortgages that are put to
HUD under the Section 221  Program.  HUD  receives  the  monthly  principal  and
interest and the Partnership will earn semi-annual interest on debentures issued
by HUD, as discussed  above.  As of November 1, 2002,  the  Partnership  has not
received  notification  that  this  assignment  has been  approved  by HUD.  The

<PAGE>12

amortized cost of this mortgage is included in Investment in FHA-Insured  Loans,
acquired insured  mortgages in the  Partnership's  balance sheet as of September
30, 2002.

     b. Remaining mortgages eligible for assignment
        -------------------------------------------

     The Partnership's mortgage portfolio includes five FHA-Insured Loans issued
under the Section 221 Program  with  Anniversary  Dates from March 2002  through
December 2002. The Partnership  expects these mortgages to be put to HUD, if not
otherwise disposed, by the respective servicers.

     Please refer to the  Partnership's  Annual Report on Form 10-K for the year
ended December 31, 2001 for more  information on the  Partnership's  FHA-Insured
Loans.


5.   INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE

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

<PAGE>13

6.   DISTRIBUTIONS TO UNITHOLDERS

     The  distributions  paid or accrued to  Unitholders on a per Unit basis for
the nine months ended September 30, 2002 and 2001 are as follows:

                                            2002           2001
                                           ------         ------
     Quarter ended March 31                $1.325(1)      $0.680(4)
     Quarter ended June 30                  0.210(2)       0.370(5)
     Quarter ended September 30             0.410(3)       0.710(6)
                                           ------         ------
                                           $1.945         $1.760
                                           ======         ======

     The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
                                                                         Date                       Net
                                                                       Proceeds       Type of     Proceeds
           Complex Name(s)                                             Received     Disposition   Per Unit
           ---------------                                             --------     -----------   --------
      <S>                                                              <C>          <C>            <C>
      (1) Quarter ended March 31, 2002:
           The Gate House Apartments                                   Dec 2001     Prepayment     $0.220
           Longleaf Lodge                                              Jan 2002     Prepayment      0.290
           Fox Run Apartments                                          Jan 2002     Assignment      0.090
           Interest on debentures related to mortgages on Summit
              Square Manor, Park Place, Park Hill Apts, Fairfax
              House, Woodland Villas, Country Club Terrace Apts,       Jan - Feb
              Dunhaven Apts and Nevada Hills Apts                        2002       Assignment      0.060
           Summit Square Manor                                         Jan 2002     Assignment      0.150
           Park Place                                                  Jan 2002     Assignment      0.060
           Park Hill Apartments                                        Jan 2002     Assignment      0.140
           Fairfax House                                               Jan 2002     Assignment      0.170
           Woodland Villas                                             Jan 2002     Assignment      0.025
      (2) Quarter ended June 30, 2002:
           Garden Court Apartments                                     Apr 2002     Prepayment      0.090
      (3) Quarter ended September 30, 2002:
           Interest on debenture related to mortgage on Fairlawn II    Jul 2002     Assignment      0.010
           Country Club Terrace Apartments                             Jul 2002     Assignment      0.120
           Nevada Hills Apartments                                     Jul 2002     Assignment      0.090
           Dunhaven Apartments                                         Jul 2002     Assignment      0.070
      (4) Quarter ended March 31, 2001:
           The Meadows of Livonia                                      Jan 2001     Prepayment      0.530
      (5) Quarter ended June 30, 2001:
           Gold Key Village Apartments                                 Mar 2001     Prepayment      0.220
      (6) Quarter ended September 30, 2001:
           Cedar Ridge Apartments                                      Jun 2001     Prepayment      0.210
           Carlisle Apartments                                         Jun 2001     Prepayment      0.170
           Afton Square Apartments                                     Jul 2001     Prepayment      0.080
           Berryhill Apartments                                        Sep 2001     Prepayment      0.100
</TABLE>

     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 pay a fixed monthly mortgage payment,  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
<PAGE>14

receipts   are   temporarily   invested   prior  to  the  payment  of  quarterly
distributions, (2) the reduction in the asset base and monthly mortgage payments
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,   the  timing  of  receipt  of  HUD
debentures,  the interest rate on HUD debentures,  debenture redemptions and (4)
variations in the Partnership's operating expenses. As the Partnership continues
to liquidate its mortgage  investments and Unitholders receive  distributions of
return of capital and taxable  gains,  Unitholders  should expect a reduction in
earnings and distributions due to the decreasing mortgage base.


7.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated entities have earned or received
compensation for services or received  distributions from the Partnership during
the three and nine months ended September 30, 2002 and 2001 as follows:
<TABLE>
<CAPTION>
                                                                                        For the                  For the
                                                                                   three months ended       nine months ended
                                                                                      September 30,            September 30,

Name of Recipient                    Capacity in Which Served/Item                  2002        2001         2002        2001
-----------------                    -----------------------------                  ----        ----         ----        ----
<S>                                  <C>                                         <C>         <C>          <C>         <C>
CRIIMI, Inc. (1)                     General Partner/Distribution                $ 200,990   $ 348,056    $ 953,477   $ 862,787

AIM Acquisition Partners, L.P.(2)    Advisor/Asset Management Fee                  189,662     228,466      571,168     734,961

CRIIMI MAE Management, Inc.          Affiliate of General Partner/                   9,763      10,118       39,697      33,793
                                        Expense Reimbursement
</TABLE>

(1)  The General Partner,  pursuant to the Partnership Agreement, 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  (as
     defined in the Partnership Agreement).

(2)  The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
     Management Fee equal to 0.95% of Total  Invested  Assets (as defined in the
     Partnership  Agreement).  CMSLP,  the  sub-advisor to the  Partnership,  is
     entitled  to a fee of 0.28% of Total  Invested  Assets  from the  Advisor's
     Asset  Management  Fee. Of the amounts paid to the Advisor,  CMSLP earned a
     fee equal to  $55,896  and  $168,344  for the three and nine  months  ended
     September  30, 2002,  respectively,  and $67,340 and $216,634 for the three
     and nine months ended September 30, 2001, respectively. The general partner
     and limited  partner of CMSLP are wholly owned  subsidiaries of CRIIMI MAE.

<PAGE>15

PART I.   FINANCIAL INFORMATION
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

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

General
-------

     As of  September  30,  2002,  the  Partnership  had  invested in 33 Insured
Mortgages with an aggregate  amortized cost of approximately  $68.8 million,  an
aggregate face value of approximately  $71.1 million and an aggregate fair value
of approximately $71.8 million.

     As of November 1, 2002, all of the fully insured FHA-Insured  Certificates,
GNMA  Mortgage-Backed  Securities and FHA-Insured Loans are current with respect
to the payment of principal  and  interest  except for the mortgage on Westbrook
Apartments,  which is delinquent  with respect to the September and October 2002
payments of principal  and  interest.  The General  Partner has  instructed  the
servicer  of this  mortgage to file a Notice of Election to Assign if payment is
not received by mid November.  The face value of this mortgage was approximately
$1.7  million as of the last  payment  date in August  2002.  If  assigned,  the
Partnership  expects to receive 99% of this amount plus accrued  interest at the
debenture  interest  rate in  effect  at the time the  mortgage  was  originally
insured and/or endorsed by HUD, whichever is higher.

     In October  2002,  the mortgage on Rock Glen  Apartments  was prepaid.  The
Partnership  received net proceeds of approximately  $1.0 million and expects to
recognize a gain of  approximately  $117,000 during the fourth quarter 2002. The
Partnership expects to declare a distribution of approximately $0.08 per Unit in
November 2002.
<PAGE>16

     The Section 221 Program
     -----------------------

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended  (the  "Section  221  Program"),  a mortgagee  has the right to assign a
mortgage  ("put")  to HUD at the  expiration  of 20 years from the date of final
endorsement ("Anniversary Date") if the mortgage is not in default at such time.
The  mortgagee  may  exercise  its  option to put the  mortgage  to HUD one year
subsequent to the Anniversary  Date. This assignment  procedure is applicable to
an  Insured  Mortgage,  which  had a firm  or  conditional  commitment  for  HUD
insurance  benefits on or before  November 30, 1983.  Any mortgagee  electing to
assign an Insured Mortgage to HUD receives, in exchange therefor, HUD debentures
having a total face value equal to (i) the then outstanding principal balance of
the Insured  Mortgage (ii) plus accrued  interest on the mortgage to the date of
assignment ("Debenture Issuance Date"). These HUD debentures generally mature 10
years  from  the  date of  assignment  and  bear  interest  at a rate  announced
semi-annually  by HUD in the Federal  Register  ("going  Federal  rate") at such
date. Generally,  the Partnership is not the named mortgagee for the FHA-Insured
Certificates.  In this  case,  the HUD  debentures  are  generally  issued to an
unrelated  third  party  that  is  the  named  mortgagee.  The  servicer  of the
applicable  mortgage is responsible  for delivering to the  Partnership  all HUD
insurance claim proceeds.  The debenture  interest is paid to the Partnership in
the month it is received by the servicer. The debenture proceeds are paid to the
Partnership  in the  month  the  debenture  is  redeemed  by HUD or  sold by the
servicer.

     Once the  servicer of a mortgage  has filed an  application  for  insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly  principal and interest on the  applicable  mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date);  however,  the  debentures  are not  transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General  Partner's  experience,  HUD's  assignment  process is generally  six to
eighteen  months.  After HUD  completes its  assignment  process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued  interest on the debentures at the going Federal rate
from the  Debenture  Issuance  Date to the most current  interest  payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest  payment  dates of January 1 and July 1. The going Federal rate for HUD
debentures  issued  under the  Section  221  Program for the period July 1, 2002
through  December 31, 2002 is 6.625%.  The Partnership will recognize a gain, if
any,  on  these  assignments  at the  time it  receives  notification  that  the
assignment  has  been  approved.  This  is  generally  when  HUD  transfers  the
debentures to the mortgagee  and/or when the  Partnership  receives cash for the
accrued  interest  on the  debentures.  A loss is  recognized  when  it  becomes
probable that a loss will be incurred.  The gain or loss recognized is generally
equal to proceeds received, less the amortized cost of the Insured Mortgage.

     a. Issuance of HUD Debenture
        -------------------------

     In July 2002, HUD  transferred  assignment  proceeds to an unrelated  third
party in the form of a 7.5%  debenture  for the  mortgage  on  Fairlawn  II. The
debenture pays interest semi-annually on January 1 and July 1 and is callable on
or after January 1, 2003. In July 2002, the Partnership  received  approximately
$100,000  in cash of accrued  interest  on this HUD  debenture.  A  distribution
related to this  accrued  debenture  interest of $0.01 per Unit was  declared in
August 2002 and paid in November  2002.  The  Partnership  recognized  a gain of
approximately  $95,000 for the three and nine months ended  September  30, 2002.
The original  maturity date for this  debenture was September  2010,  however in
September  2002, HUD issued a call notice for all FHA  debentures  with a coupon
rate of 6.25% or above,  that are outstanding as of September 30, 2002, for call
on January 1, 2003. A  distribution  is expected to be declared  upon receipt of
<PAGE>17

the debenture  proceeds.  The servicer of this mortgage filed an application for
insurance  benefits  under the Section 221 Program in September  2000.  The face
value  of the  Partnership's  beneficial  interest  in this  HUD  debenture,  of
approximately  $758,000,  is included  in  receivables  and other  assets on the
Partnership's balance sheet as of September 30, 2002.

     b. Mortgages in the HUD assignment process
        ---------------------------------------

     The mortgages on The Executive House and Baypoint Shoreline Apartments were
put to HUD under the Section 221 Program by the  respective  servicers  in April
2002 and June 2002,  respectively.  The aggregate face value of these  mortgages
was  approximately  $1.7  million as of the HUD put dates.  The  Partnership  no
longer  receives  monthly  principal and interest from mortgages that are put to
HUD under the Section 221 Program.  HUD receives monthly  principal and interest
and the Partnership will earn semi-annual  interest on debentures issued by HUD,
as discussed  above.  As of November 1, 2002, the  Partnership  has not received
notification that these assignments have been approved by HUD.

     c. Remaining mortgages eligible for assignment
        -------------------------------------------

     The Partnership's mortgage portfolio includes six FHA-Insured  Certificates
issued under the Section 221 Program with an Anniversary  Date of April 2002. At
this time,  the  Partnership  does not expect  these  mortgages to be put to HUD
since it owns  less  than 34% of these  FHA-Insured  Certificates  and the other
certificate  holders  have not yet elected to put these  mortgages  to HUD.  The
Partnership   does  not  own  any  other   FHA-Insured   Certificates   or  GNMA
Mortgage-Backed  Securities  eligible  to  be  put  to  HUD.  In  addition,  the
Partnership's  mortgage  portfolio  includes five FHA-Insured Loans issued under
the Section 221 Program with Anniversary  Dates from March 2002 through December
2002. The Partnership expects these mortgages to be put to HUD, if not otherwise
disposed, by the respective servicers.

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

     Net earnings  decreased by approximately  $550,000 and $1.4 million for the
three and nine months ended September 30, 2002, respectively, as compared to the
corresponding  periods  in 2001.  The  decrease  for the three  month  period is
primarily  due to decreases in mortgage  investment  income,  interest and other
income and net gains on mortgage  dispositions,  as  discussed  below.  The nine
month  period  decrease is primarily  due to  decreases  in mortgage  investment
income and interest and other  income,  partially  offset by a decrease in asset
management fee to related parties, as discussed below.

     Mortgage  investment  income decreased by  approximately  $354,000 and $1.4
million for the three and nine months ended September 30, 2002, respectively, as
compared to the corresponding  periods in 2001,  primarily due to a reduction in
the mortgage  base.  The mortgage base decreased for the three month period as a
result of twelve mortgage  dispositions  with an aggregate  principal balance of
approximately  $17.4 million,  representing  an approximate  18% decrease in the
aggregate  principal balance of the Partnership's total mortgage portfolio since
June 2001.  The mortgage base decreased for the nine month period as a result of
seventeen  mortgage   dispositions  with  an  aggregate   principal  balance  of
approximately  $27.6 million,  representing  an approximate  26% decrease in the
aggregate  principal balance of the Partnership's total mortgage portfolio since
March 2001.

     Interest and other income decreased by  approximately  $99,000 and $172,000
for the three  and nine  months  ended  September  30,  2002,  respectively,  as
compared to the  corresponding  periods in 2001,  primarily due to the timing of
temporary investment of mortgage disposition proceeds prior to distribution.
<PAGE>18

     Asset management fees decreased by  approximately  $39,000 and $164,000 for
the three and nine months ended September 30, 2002, respectively, as compared to
the  corresponding  periods  in  2001,  primarily  due to the  reduction  in the
mortgage asset base.

     General and administrative  expenses increased by approximately  $3,000 and
$31,000 for the three and nine months ended September 30, 2002, respectively, as
compared  to the  corresponding  periods  in  2001,  primarily  due to the  cost
structure of certain expenses.

     Net gains on mortgage dispositions  decreased by approximately $133,000 for
the three  months  ended  September  30, 2002,  and  increased by  approximately
$60,000  for the nine  months  ended  September  30,  2002,  as  compared to the
corresponding periods in 2001. During the three months ended September 30, 2002,
the Partnership recognized a gain of approximately $95,000 for the assignment of
one  mortgage,  which was  partially  offset by a loss of  approximately  $8,000
recognized on the  prepayment  of one  mortgage.  During the first six months of
2002,  the  Partnership  recognized  gains of  approximately  $681,000  from the
prepayment  of two  mortgages  and  gains  of  approximately  $497,000  from the
assignment of three mortgages.  During the three months ended September 30, 2001
the Partnership  recognized gains of approximately  $220,000 from the prepayment
of two  mortgages.  During  the  first  six  months  of  2001,  the  Partnership
recognized gains of approximately $655,000 from the prepayment of four mortgages
and gains of approximately $330,000 from the assignment of two mortgages.

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 the nine months ended September
30, 2002 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  received
from Insured  Mortgages.  Although  the Insured  Mortgages  pay a fixed  monthly
mortgage  payment,  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  payments  received are temporarily  invested
prior to the payment of quarterly distributions,  (2) the reduction in the asset
base and monthly mortgage  payments due to 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,  the
timing of receipt of HUD debentures,  the interest rate on HUD  debentures,  and
debenture  redemptions,  and  (4)  variations  in  the  Partnership's  operating
expenses. As the Partnership continues to liquidate its mortgage investments and
Unitholders  receive  distributions  of return of  capital  and  taxable  gains,
Unitholders  should expect a reduction in earnings and  distributions due to the
decreasing mortgage base.

     Net cash  provided  by  operating  activities  decreased  by  approximately
$158,000  for the nine  months  ended  September  30,  2002,  as compared to the
corresponding  period in 2001, primarily due to lower mortgage investment income
resulting from a reduction in the mortgage base,  partially offset by a decrease
in receivables and other assets. The decrease in receivables and other assets is
primarily due to the receipt of principal and interest previously accrued on the
mortgages  awaiting  assignment  from HUD under the Section  221 Program  during
2002, as previously discussed.

     Net cash provided by investing  activities  increased by approximately $4.6
million  for the nine  months  ended  September  30,  2002,  as  compared to the
corresponding  period in 2001.  This  increase is primarily  due to increases in

<PAGE>19

proceeds  received  from  mortgage  assignments  and the net  proceeds  from the
debenture,  as  discussed  below,  partially  offset by a decrease  in  proceeds
received from the prepayment of mortgages.

     In  January  2002,  HUD  issued  assignment  proceeds  in the  form  of HUD
debentures  in exchange for  mortgages put to HUD under the Section 221 Program.
The  debentures  were  transferred to the mortgagee for each of the mortgages on
Country  Club  Terrace   Apartments,   Nevada  Hills   Apartments  and  Dunhaven
Apartments.  In July 2002, the  Partnership  received  aggregate net proceeds of
approximately  $3.4 million for the redemption of the HUD  debentures  that were
previously issued by HUD. A distribution of approximately $0.28 per Unit related
to the  redemption  of these  debentures  was  declared  in  August  and paid to
Unitholders in November 2002.

     During 2001, HUD issued  assignment  proceeds in the form of HUD debentures
in  exchange  for  mortgages  put to HUD  under the  Section  221  Program.  The
debentures were transferred to the mortgagee for each of the mortgages on Summit
Square  Manor,  Park Place,  Park Hill  Apartments,  Fairfax  House and Woodland
Villas.  In January 2002,  the  Partnership  received  aggregate net proceeds of
approximately  $6.8 million for the redemption of the HUD  debentures  that were
previously  issued by HUD.  A  distribution  of  approximately  $0.545  per Unit
related to the redemption of these  debentures was declared in February and paid
to Unitholders in May 2002.

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

     Net cash used in  financing  activities  increased  by  approximately  $1.7
million  for the nine  months  ended  September  30,  2002,  as  compared to the
corresponding  period in 2001, due to an increase in the amount of distributions
paid to partners in the first nine months of 2002 compared to the same period in
2001.

<PAGE>20

PART I.   FINANCIAL INFORMATION
ITEM 3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     The Partnership's  principal market risk is exposure to changes in interest
rates in the U.S. Treasury market. The Partnership will experience  fluctuations
in the market value of its assets  related to (i) changes in the interest  rates
of U.S.  Treasury  securities,  (ii) changes in the spread  between the interest
rates on U.S.  Treasury  securities and the interest rates on the  Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages,  determined by reviewing the  attributes of the Insured  Mortgages in
relation to the current market interest rates.  The weighted average life of the
Insured  Mortgages  decreased as of September  30, 2002 compared to December 31,
2001, due to the lower market interest rates,  which may imply faster prepayment
rates, and other attributes of the Partnership's Insured Mortgages.

     The  General  Partner  has  determined  that  there has not been a material
change as of  September  30,  2002,  in market  risk from  December  31, 2001 as
reported in the  Partnership's  Annual  Report on Form 10-K as of  December  31,
2001.


ITEM 4.   CONTROLS AND PROCEDURES

     Within 90 days prior to the date of filing  this  Quarterly  Report on form
10-Q, the General Partner  carried out an evaluation,  under the supervision and
with the  participation  of the  General  Partner's  management,  including  the
General  Partner's  Chairman of the Board (CEO) and the Chief Financial  Officer
(CFO),  of the  effectiveness  of the design  and  operation  of its  disclosure
controls and  procedures  pursuant to Securities  Exchange Act Rule 13a-14 under
the Securities  Exchange Act of 1934, as amended (the "Exchange Act").  Based on
that evaluation, the General Partner's CEO and CFO concluded that its disclosure
controls and  procedures  are  effective and timely in alerting them to material
information  relating  to  the  Partnership  required  to  be  included  in  the
Partnership's  periodic SEC filings.  There were no  significant  changes in the
General Partner's internal controls or in other factors that could significantly
affect  these  internal  controls  subsequent  to the  date of our  most  recent
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.

<PAGE>21

PART II.  OTHER INFORMATION
ITEM 5.   OTHER INFORMATION

     Section  10(A)(i)(2)  of the  Securities  Exchange Act of 1934, as amended,
requires issuers to disclose the approval by an audit committee of the issuer of
a non-audit  service to be performed by the auditor of the issuer. On August 14,
2002,  the Audit  Committee of the Board of  Directors of the General  Partner's
parent,  CRIIMI MAE Inc., subject to any rules that may be adopted by the Public
Accounting  Oversight  Board,  approved the engagement of Ernst & Young LLP, the
Partnership's  auditor,  to provide tax services to the  Partnership  during the
fiscal year ending December 31, 2002.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          Exhibit No.                              Purpose
          ----------                               -------

             99.1                   Certification Pursuant to the Section 906 of
                                    the Sarbanes-Oxley Act of 2002.

             99.2                   Certification Pursuant to the Section 906 of
                                    the Sarbanes-Oxley Act of 2002.



<PAGE>22

PART II.  OTHER INFORMATION

                                    SIGNATURE

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  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


November 14, 2002                    /s/ Cynthia O. Azzara
-----------------                    -------------------------------------------
DATE                                 Cynthia O. Azzara
                                     Senior Vice President, Principal Accounting
                                     Officer and Chief Financial Officer

<PAGE>23

                                  CERTIFICATION

I,   William B. Dockser, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of American  Insured
     Mortgage Investors - Series 85, L.P.;

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

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

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

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

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

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

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

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

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

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                                       AMERICAN INSURED MORTGAGE
                                       INVESTORS - SERIES 85, L.P.
                                       (Registrant)
                                       By: CRIIMI, Inc.
                                           General Partner


Date: November 14, 2002                /s/ William B. Dockser
      -----------------                -----------------------------------------
                                       William B. Dockser
                                       Chairman of the Board and Chief Executive
                                          Officer
<PAGE>24
                                 CERTIFICATION

I,   Cynthia O. Azzara, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of American  Insured
     Mortgage Investors - Series 85, L.P.;

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

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

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

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

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

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

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

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

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

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                                     AMERICAN INSURED MORTGAGE
                                     INVESTORS - SERIES 85, L.P.
                                     (Registrant)
                                     By: CRIIMI, Inc.
                                         General Partner


Date: November 14, 2002              /s/ Cynthia O. Azzara
      -----------------              -------------------------------------------
                                     Cynthia O. Azzara
                                     Senior Vice President, Principal Accounting
                                       Officer and Chief Financial Officer