<PAGE>1



                                    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, 2001
                                          ------------------

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,  2001,   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, 2001
<TABLE>
<CAPTION>

                                                                                                  Page
                                                                                                  ----
<S>                                                                                                <C>
PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - September 30, 2001  (unaudited) and December 31, 2000                3

              Statements of Income and Comprehensive Income - for the three and
                 nine months ended September 30, 2001  and 2000  (unaudited)                        4

              Statement of Changes in Partners' Equity - for the nine months ended
                 September 30, 2001  (unaudited)                                                    5

              Statements of Cash Flows - for the nine months ended September 30, 2001
                 and 2000  (unaudited)                                                              6

              Notes to Financial Statements (unaudited)                                             7

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of
                 Operations                                                                        13

Item 2A.      Qualitative and Quantitative Disclosures about Market Risk                           16

PART II.      Other Information

Item 6.       Exhibits and Reports on Form 8-K                                                     17

Signature                                                                                          18
</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,
                                                              2001               2000
                                                          -------------      -------------
                                                           (Unaudited)
<S>                                                       <C>                <C>
                        ASSETS

Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                            $  54,073,196      $  70,770,317
    Originated insured mortgages                             16,229,467         15,927,124
                                                          -------------      -------------
                                                             70,302,663         86,697,441


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium:
    Acquired insured mortgages                                8,946,627         10,041,697
    Originated insured mortgages                             12,466,072         12,570,037
                                                          -------------      -------------
                                                             21,412,699         22,611,734

Cash and cash equivalents                                     8,602,024          5,631,117

Receivables and other assets                                  4,299,883          1,319,714

Investment in FHA debenture                                   2,385,233          2,361,381
                                                          -------------      -------------
      Total assets                                        $ 107,002,502      $ 118,621,387
                                                          =============      =============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                     $   8,924,511      $   6,284,867

Accounts payable and accrued expenses                           115,555            112,864

Due to affiliate                                              1,213,860          1,242,107
                                                          -------------      -------------
      Total liabilities                                      10,253,926          7,639,838
                                                          -------------      -------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                  99,466,914        114,254,731
  General partners' deficit                                  (5,794,712)        (5,194,582)
  Accumulated other comprehensive income                      3,076,374          1,921,400
                                                          -------------      -------------
      Total Partners' equity                                 96,748,576        110,981,549
                                                          -------------      -------------
      Total liabilities and partners' equity              $ 107,002,502      $ 118,621,387
                                                          =============      =============
</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,
                                              -------------------------------         -------------------------------
                                                  2001               2000                 2001               2000
                                              ------------       ------------         ------------       ------------
<S>                                           <C>                <C>                  <C>                <C>
Income:
  Mortgage investment income                  $  1,910,137       $  2,284,389         $  6,153,483       $  7,256,145
  Interest and other income                        133,511             45,210              401,397            302,688
                                              ------------       ------------         ------------       ------------
                                                 2,043,648          2,329,599            6,554,880          7,558,833
                                              ------------       ------------         ------------       ------------

Expenses:
  Asset management fee to related parties          228,466            283,440              734,961            865,409
  General and administrative                        95,203             98,217              289,800            308,040
                                              ------------       ------------         ------------       ------------
                                                   323,669            381,657            1,024,761          1,173,449
                                              ------------       ------------         ------------       ------------
Net earnings before gains on
  mortgage dispositions                          1,719,979          1,947,942            5,530,119          6,385,384

Gains on mortgage dispositions                     219,547                  -            1,204,665            278,959
                                              ------------       ------------         ------------       ------------

Net earnings                                  $  1,939,526       $  1,947,942         $  6,734,784       $  6,664,343
                                              ============       ============         ============       ============

Other comprehensive income                       2,255,338          1,116,357            1,154,974            161,466
                                              ------------       ------------         ------------       ------------
Comprehensive income                          $  4,194,864       $  3,064,299         $  7,889,758       $  6,825,809
                                              ------------       ------------         ------------       ------------

Net earnings allocated to:
  Limited partners - 96.1%                    $  1,863,884       $  1,871,972         $  6,472,127       $  6,404,434
  General Partner -   3.9%                          75,642             75,970              262,657            259,909
                                              ------------       ------------         ------------       ------------
                                              $  1,939,526       $  1,947,942         $  6,734,784       $  6,664,343
                                              ============       ============         ============       ============

Net earnings per Unit of limited
  partnership interest - basic                $       0.15       $       0.15         $       0.54       $       0.53
                                              ============       ============         ============       ============
</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, 2001

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                            Accumulated
                                                                                              Other
                                                         General           Limited         Comprehensive
                                                         Partner           Partner            Income            Total
                                                      -------------     -------------      -------------      -------------
<S>                                                   <C>               <C>               <C>               <C>
Balance, December 31, 2000                            $  (5,194,582)    $ 114,254,731      $   1,921,400     $ 110,981,549

  Net Earnings                                              262,657         6,472,127                  -         6,734,784

  Adjustment to unrealized gains on
     investments in insured mortgages                             -                 -          1,154,974         1,154,974

  Distributions paid or accrued of $1.76 per Unit,
     including return of capital of $1.22 per Unit         (862,787)      (21,259,944)                 -       (22,122,731)
                                                      -------------     -------------      -------------     -------------

Balance, September 30, 2001                           $  (5,794,712)    $  99,466,914      $   3,076,374     $  96,748,576
                                                      =============     =============      =============     =============

Limited Partnership Units outstanding - basic, as
  of September 30, 2001                                                    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,
                                                                                              2001             2000
                                                                                           -----------      -----------
<S>                                                                                        <C>              <C>
Cash flows from operating activities:
   Net earnings                                                                            $ 6,734,784      $ 6,664,343
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gain on mortgage dispositions                                                     (1,204,665)        (278,959)
      Changes in assets and liabilities:
         (Increase) decrease in receivables and other assets                                  (311,036)          90,864
         Increase (decrease) in accounts payable and accrued expenses                            2,691          (28,446)
         Decrease in due to affiliate                                                          (28,247)               -
                                                                                           -----------      -----------

            Net cash provided by operating activities                                        5,193,527        6,447,802
                                                                                           -----------      -----------

Cash flows from investing activities:
   Proceeds from disposition of mortgages                                                   16,475,868        5,310,995
   Receipt of mortgage principal from scheduled payments                                       784,599          898,307
                                                                                           -----------      -----------

            Net cash provided by investing activities                                       17,260,467        6,209,302
                                                                                           -----------      -----------

Cash flows used in financing activities:
   Distributions paid to partners                                                          (19,483,087)     (34,566,767)
                                                                                           -----------      -----------


Net increase (decrease) in cash and cash equivalents                                         2,970,907      (21,909,663)

Cash and cash equivalents, beginning of period                                               5,631,117       23,723,644
                                                                                           -----------      -----------

Cash and cash equivalents, end of period                                                   $ 8,602,024      $ 1,813,981
                                                                                           ===========      ===========

Non-cash investing activity:
   Portion of HUD debentures due from Midland in exchange for the Mortgages
   on Summit Square Manor and Park Place Apartments                                        $ 2,669,133      $        -
</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  previously
terminated under the provisions of the Partnership Agreement.

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

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

     On October 5, 1998,  CRIIMI  MAE,  the parent of the General  Partner,  and
CRIIMI  MAE  Management,  Inc.,  an  affiliate  of CRIIMI  MAE and  provider  of
personnel  and  administrative  services  to the  Partnership,  filed  voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for
the  District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy  Court")
confirmed  CRIIMI MAE's and CRIIMI MAE  Management,  Inc.'s Third  Amended Joint
Plan of Reorganization  (as amended and supplemented by praecipes filed with the
Bankruptcy  Court on July 13, 14 and 21, and  November 22,  2000).  On April 17,
2001,  CRIIMI MAE and CRIIMI MAE  Management,  Inc.  announced the completion of
their confirmed joint plan of reorganization  and emerged from bankruptcy.  This
marks the conclusion of CRIIMI MAE's and CRIIMI MAE Management, Inc.'s financial
reorganization.


<PAGE>8


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,
2001 and December 31, 2000 and the results of its  operations  for the three and
nine months  ended  September  30, 2001 and 2000 and its cash flows for the nine
months ended September 30, 2001 and 2000.

     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
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 filed on Form 10-K for the year ended December 31, 2000.

Comprehensive Income
--------------------

     Comprehensive income is the change in Partners' equity during a period from
transactions  from  nonowner  sources.  This  includes  net income as  currently
reported by the Partnership  adjusted for unrealized gains and losses related to
the  Partnership's  mortgages  accounted for as available  for sale.  Unrealized
gains and losses are  reported  in the equity  section of the  Balance  Sheet as
Accumulated Other Comprehensive Income.


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,
                                                                    2001                     2000
                                                                ------------             ------------
<S>                                                             <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of
    GNMA Mortgage-Backed Securities (5)(7)                                 2                        4
    FHA-Insured Certificates (1)(2)(3)(4)(6)                              30                       35
  Amortized Cost                                                $ 51,055,962             $ 68,440,285
  Face Value                                                      53,198,007               71,404,632
  Fair Value                                                      54,073,196               70,770,317

Fully Insured Originated Mortgages:
  Number of
    GNMA Mortgage-Backed Securities                                        1                        1
    FHA-Insured Certificates                                               1                        1
  Amortized Cost                                                $ 16,170,328             $ 16,311,904
  Face Value                                                      16,170,327               16,279,536
  Fair Value                                                      16,229,467               15,927,124
</TABLE>

<PAGE>9

     Listed below is a summary of prepayments on fully Insured Mortgages as of
November 1, 2001:

<TABLE>
<CAPTION>
                                                      Date                                          Distribution
                                         Net        Proceeds                 Dist./   Declaration     Payment
       Complex name                   Proceeds      Received       Gain       Unit       Date          Date
       ------------                  -----------    ---------    ---------   ------    ---------     ---------
   <S>                               <C>            <C>          <C>         <C>       <C>           <C>
   (1) The Meadows of Livonia        $ 6,653,000    Jan. 2001    $ 253,434   $ 0.53    Jan. 2001     May  2001
   (2) Gold Key Village Apartments     2,827,000    Mar. 2001        8,852     0.22    Apr. 2001     Aug. 2001
   (3) Summit Square Manor             1,883,000    May  2001      235,496        *
   (4) Park Place Apartments             746,000    May  2001       94,435        *
   (5) Carlisle Apartments             2,120,000    Jun. 2001       46,704     0.17    Jul. 2001     Nov. 2001
   (6) Cedar Ridge Apartments          2,637,000    Jun. 2001      346,198     0.21    Jul. 2001     Nov. 2001
   (7) Afton Square Apartments         1,061,000    Jul. 2001       29,341     0.08    Jul. 2001     Nov. 2001
</TABLE>

*    In May 2001,  HUD  issued  assignment  proceeds  in the form of two  7.125%
     debentures  for the  mortgages  on  Summit  Square  Manor  and  Park  Place
     Apartments. The debentures,  with face values of $2,715,930 and $1,075,951,
     for the  mortgages  on  Summit  Square  Manor  and Park  Place  Apartments,
     respectively,  were issued to Firstar Trust Company,  with interest payable
     semi-annually  on January 1 and July 1. Firstar Trust Company,  the initial
     mortgagee,  signed the  debentures  over to  Midland  Loan  Services,  Inc.
     ("Midland"), the third party servicer. Midland will sell the debentures and
     distribute  the  proceeds  as soon as  practical.  A  distribution  will be
     declared at that time.  The mortgages on Summit Square Manor and Park Place
     Apartments were owned approximately 70% by the Partnership. The Partnership
     expects to receive net proceeds of approximately  $1.9 million and $746,000
     for the  mortgages  on  Summit  Square  Manor  and Park  Place  Apartments,
     respectively.  The net  proceeds  due the  Partnership  are included on the
     balance  sheet in  Receivables  and other  assets.  The  servicer  of these
     mortgages filed an application for insurance benefits under the Section 221
     program of the National Housing Act of 1937 in June 2000.

     As of November 1, 2001, all of the fully insured  FHA-Insured  Certificates
and GNMA  Mortgage-Backed  Securities are current with respect to the payment of
principal and interest. In addition,  the Partnership no longer receives monthly
principal and interest from the mortgages that are in the HUD assignment process
under Section 221, as discussed below.

     As of November 1, 2001, the Partnership has received  notification from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:

                                      Date last principal       Outstanding
                                         and interest            Principal
Property Name                          payment received           Balance
-------------                          ----------------         -----------
Park Hill Apartments                      Sept. 2000            $ 1,737,000
Fairfax House                             Sept. 2000              2,128,000
Country Club Terrace Apts.                Sept. 2000              1,439,000
Fairlawn II                               Sept. 2000                755,000
Nevada Hills Apts.                        Dec.  2000              1,146,000
Dunhaven Apartments, Section I            Jan.  2001                884,000
Woodland Villas                           April 2001                303,000

     Under  the  Section  221  program,  a  mortgagee  has the right to assign a
mortgage  ("put")  to FHA at the  expiration  of 20 years from the date of final
endorsement  if the  mortgage  is not in  default at such  time.  Any  mortgagee
electing  to assign an  FHA-insured  mortgage to FHA will  receive,  in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured  mortgage plus accrued interest to the date
of  assignment.  These HUD  debentures  will  mature  10 years  from the date of
assignment  and will bear interest at a rate announced  semi-annually  by HUD in
the  Federal  Register  ("going  Federal  rate") at such date.  This  assignment

<PAGE>10

procedure is applicable to an insured mortgage,  which had a firm or conditional
FHA commitment for insurance on or before  November 30, 1983.  Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable  mortgage.  The  Partnership  expects to receive HUD  debentures,  as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment  of the  mortgage  to the  date of  issuance  of the  debenture.  The
Partnership  will  recognize  a gain on these  assignments  upon  receipt of HUD
debentures or a loss when it becomes  probable that a loss will be incurred.  In
general,  the Partnership  plans to hold the debentures  until called or date of
maturity,  whichever  comes  first.  At that  time  debenture  proceeds  will be
distributed to Unitholders.


4.   INVESTMENT IN FHA-INSURED LOANS

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

     Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
<TABLE>
<CAPTION>
                                                                September 30,          December 31,
                                                                    2001                    2000
                                                                ------------           ------------
<S>                                                             <C>                    <C>
  Fully Insured Acquired Loans:
    Number of Loans (1)                                                    7                      8
    Amortized Cost                                              $  8,946,627           $ 10,041,697
    Face Value                                                    10,686,599             12,040,599
    Fair Value                                                    10,913,704             12,023,455

  Fully Insured Originated Loans:
    Number of Loans                                                        3                      3
    Amortized Cost                                              $ 12,466,072           $ 12,570,037
    Face Value                                                    12,165,849             12,261,397
    Fair Value                                                    12,509,638             12,192,633
</TABLE>

(1)  In September  2001, the mortgage on Berryhill  Apartments was prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $1.2  million  and
     recognized  a gain of  approximately  $190,000  for the nine  months  ended
     September 30, 2001. A distribution of approximately  $0.10 per Unit related
     to the  prepayment  of this  mortgage was declared in September and paid to
     Unitholders in November 2001.

     As of  November  1,  2001,  all of  the  Partnership's  FHA-Insured  Loans,
recorded  at  amortized  cost,  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 October 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 three and nine months  ended  September  30,  2001,  the  Partnership
received  additional  interest  of  $0  and  $53,423,  respectively,   from  the
Participations.  During the three and nine months ended  September 30, 2000, the
Partnership received additional interest of $0 and $21,566,  respectively,  from
the  Participations.  These amounts, if any, are included in mortgage investment
income on the accompanying Statements of Income and Comprehensive Income.

<PAGE>11

5.   INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a face
value of  $2,385,233  was  issued  to the  Partnership,  with  interest  payable
semi-annually  on January 1 and July 1. The mortgage on Fox Run  Apartments  was
owned  50% by  the  Partnership  and  50% by an  affiliate  of the  Partnership,
American  Insured  Mortgage  Investors  ("AIM  84").  Upon  disposition  of  the
debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects
to receive net proceeds of approximately $1.2 million.  The net proceeds due AIM
84 are included on the balance  sheet in due to affiliate.  In August 2001,  HUD
issued a call notice for  redemption  of this  debenture,  at par,  plus accrued
interest,  on January 1, 2002. A distribution will be declared at that time. The
servicer of this mortgage filed an application for insurance  benefits under the
Section 221 program of the National Housing Act of 1937 in May 2000.


6.   DISTRIBUTIONS TO UNITHOLDERS

      The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2001 and 2000 are as follows:

                                                 2001              2000
                                                ------            ------
          Quarter ended March 31,               $ 0.68(1)         $ 0.47(6)(7)
          Quarter ended June 30,                  0.37(2)           0.46(8)(9)
          Quarter ended September 30,             0.71(3)(4)(5)     0.18
                                                ------            ------
                                                $ 1.76            $ 1.11
                                                ======            ======

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

<TABLE>
<CAPTION>
                                                                                         Net
                                                       Declaration        Type of      Proceeds
                Complex Name(s)                           Date          Disposition    Per Unit
                ---------------                         ---------       -----------    --------
      <S>                                               <C>              <C>            <C>
      (1) The Meadows of Livonia                        Jan. 2001        Prepayment     $ 0.53
      (2) Gold Key Village Apartments                   Apr. 2001        Prepayment       0.22
      (3) Cedar Ridge Apartments and
            Carlisle Apartments                         July 2001        Prepayment       0.38
      (4) Afton Square Apartments                       July 2001        Prepayment       0.08
      (5) Berryhill Apartments                          Sept.2001        Prepayment       0.10
      (6) Northwood Apartments                          Jan. 2000        Prepayment       0.13
      (7) Turtle Creek Apartments                       Jan. 2000        Prepayment       0.13
      (8) Woodland Hills Apartments and New
            Castle Apartments                           May  2000        Prepayment       0.22
      (9) Colony West Apartments                        Jun. 2000        Prepayment       0.05
</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 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  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 and (4)  variations in the
Partnership's  operating expenses. As the Partnership continues to liquidate its

<PAGE>12


mortgage  investments and investors  receive  distributions of return of capital
and  taxable  gains,  investors  should  expect  a  reduction  in  earnings  and
distributions due to the decreasing mortgage base.


7.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated  entities,  during the three and
nine months ended September 30, 2001 and 2000,  earned or received  compensation
or payments for services from the Partnership as follows:

<TABLE>
<CAPTION>
                 COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
                 -----------------------------------------------
                                                                                        For the                     For the
                                                                                   three months ended           nine months ended
                                                                                      September 30,               September 30,
                                                                                ------------------------    ------------------------
     Name of Recipient               Capacity in Which Served/Item                 2001          2000          2001          2000
     -----------------               -----------------------------              ----------    ----------    ----------    ----------
<S>                                  <C>                                        <C>           <C>           <C>           <C>
CRIIMI, Inc. (1)                     General Partner/Distribution               $  348,056    $   88,240    $  862,787    $  544,144

AIM Acquisition Partners, L.P.(2)    Advisor/Asset Management Fee                  228,466       283,440       734,961       865,409

CRIIMI MAE Management, Inc.          Affiliate of General Partner/Expense
                                        Reimbursement                               10,118         9,424        33,793        35,140

American Insured Mortgage            Affiliate of Partnership/ Share of
    Investors (3)                       FHA Debenture and interest                  21,243             -        63,730             -
</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 (both
     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  $67,340  and  $216,634  for the three and nine  months  ended
     September  30, 2001,  respectively,  and $83,544 and $255,003 for the three
     and nine months ended September 30, 2000, respectively. The limited partner
     of CMSLP is a wholly owned subsidiary of CRIIMI MAE Inc.

(3)  In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
     debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a
     face value of  $2,385,233,  was issued to the  Partnership,  with  interest
     payable  semi-annually  on  January 1 and July 1. The  mortgage  on Fox Run
     Apartments was owned 50% by the  Partnership and 50% by an affiliate of the
     Partnership,   American  Insured   Mortgage   Investors  ("AIM  84").  Upon
     disposition of the debenture 50% of the proceeds will be payable to AIM 84.

<PAGE>13

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
future filings by the  Partnership  with the Securities and Exchange  Commission
including,  without  limitation,  statements  with respect to growth,  projected
revenues,  earnings, returns and yields on its portfolio of mortgage assets, the
impact of  interest  rates,  costs  and  business  strategies  and plans and (3)
information  contained in written material,  releases and oral statements issued
by or on behalf of, the Partnership,  including, without limitation,  statements
with respect to growth, projected revenues,  earnings, returns and yields on its
portfolio of mortgage assets,  the impact of interest rates,  costs and business
strategies  and  plans.  Factors  which  may  cause  actual  results  to  differ
materially from those  contained in the  forward-looking  statements  identified
above include,  but are not limited to (i)  regulatory  and litigation  matters,
(ii) interest rates,  (iii) trends in the economy,  (iv) prepayment of mortgages
and (v) defaulted  mortgages.  Readers are cautioned not to place undue reliance
on these  forward-looking  statements,  which speak only of the date hereof. The
Partnership  undertakes no obligation to publicly  revise these  forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.

General
-------

     As of  September  30,  2001,  the  Partnership  had  invested in 44 Insured
Mortgages with an aggregate  amortized  cost of  approximately  $89 million,  an
aggregate face value of approximately $92 million and an aggregate fair value of
approximately $94 million, as discussed below.

     As of November 1, 2001, 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 Westbrook Apartments,  which
is delinquent with respect to the October payment of principal and interest.  In
addition, the Partnership no longer receives monthly principal and interest from
the  mortgages  that are in the HUD  assignment  process  under  Section 221, as
discussed below.

     As of November 1, 2001, the Partnership has received  notification from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:

                                      Date last principal        Outstanding
                                         and interest            Principal
Property Name                          payment received           Balance
-------------                          ----------------         -----------
Park Hill Apartments                      Sept. 2000            $ 1,737,000
Fairfax House                             Sept. 2000              2,128,000
Country Club Terrace Apts.                Sept. 2000              1,439,000
Fairlawn II                               Sept. 2000                755,000
Nevada Hills Apts.                        Dec.  2000              1,146,000
Dunhaven Apartments, Section I            Jan.  2001                884,000
Woodland Villas                           April 2001                303,000


<PAGE>14

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

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a face
value of  $2,385,233  was  issued  to the  Partnership,  with  interest  payable
semi-annually  on January 1 and July 1. The mortgage on Fox Run  Apartments  was
owned  50% by  the  Partnership  and  50% by an  affiliate  of the  Partnership,
American  Insured  Mortgage  Investors  ("AIM  84").  Upon  disposition  of  the
debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects
to receive net proceeds of approximately $1.2 million.  The net proceeds due AIM
84 are included on the balance  sheet in due to affiliate.  In August 2001,  HUD
issued a call notice for  redemption  of this  debenture,  at par,  plus accrued
interest,  on January 1, 2002. A distribution will be declared at that time. The
servicer of this mortgage filed an application for insurance  benefits under the
Section 221 program of the National Housing Act of 1937 in May 2000.

     In May 2001,  HUD  issued  assignment  proceeds  in the form of two  7.125%
debentures  for the mortgages on Summit Square Manor and Park Place  Apartments.
The debentures, with face values of $2,715,930 and $1,075,951, for the mortgages
on Summit Square Manor and Park Place Apartments,  respectively,  were issued to
Firstar Trust Company, with interest payable semi-annually on January 1 and July
1. Firstar Trust Company,  the initial mortgagee,  signed the debentures over to
Midland Loan Services, Inc. ("Midland"),  the third party servicer. Midland will
sell  the  debentures  and  distribute  the  proceeds  as soon as  practical.  A
distribution will be declared at that time. The mortgages on Summit Square Manor
and Park Place Apartments were owned  approximately 70% by the Partnership.  The
Partnership  expects to receive net proceeds of  approximately  $1.9 million and
$746,000  for the  mortgages on Summit  Square Manor and Park Place  Apartments,
respectively.  The net proceeds due the  Partnership are included on the balance
sheet in Receivables and other assets.

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

     Net  earnings  did not change  significantly  for the three and nine months
ended September 30, 2001, as compared to the corresponding periods in 2000.

     Mortgage  investment  income  decreased for the three and nine months ended
September 30, 2001, as compared to the corresponding  periods in 2000, primarily
due to a reduction in the mortgage base. The mortgage base decreased as a result
of  eleven  mortgage   dispositions  with  an  aggregate  principal  balance  of
approximately  $23  million,  representing  an  approximate  19% decrease in the
aggregate principal balance of the total mortgage portfolio since March 2000.

<PAGE>15

     Interest  and other  income  increased  for the three and nine months ended
September 30, 2001, as compared to the corresponding  periods in 2000, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution and due to the timing of the receipt of interest on debentures.

     Asset  management fee to related  parties  decreased for the three and nine
months ended  September  30, 2001, as compared to the  corresponding  periods in
2000,  primarily due to the reduction in the mortgage  asset base, as previously
discussed.

     General and administrative expenses decreased for the three and nine months
ended  September  30, 2001,  as compared to the  corresponding  periods in 2000,
primarily  due to a  decrease  in  mortgage  service  fees  as a  result  of the
decreased mortgage base, as previously discussed.

     Gains on  mortgage  dispositions  increased  for the three and nine  months
ended  September  30, 2001,  as compared to the  corresponding  periods in 2000.
During the nine months ended  September  30, 2001,  the  Partnership  recognized
gains of  approximately  $875,000  from the  prepayment  of the mortgages on The
Meadows of Livonia,  Gold Key Village  Apartments,  Carlisle  Apartments,  Cedar
Ridge Apartments, Afton Square Apartments and Berryhill Apartments. In addition,
during  the first  nine  months of 2001,  the  Partnership  recognized  gains of
approximately  $330,000  from the  assignment  of the mortgages on Summit Square
Manor and Park Place  Apartments.  During the nine months  ended  September  30,
2000,  the  Partnership  recognized  gains of  approximately  $279,000  from the
prepayment  of  the  mortgages  on  Turtle  Creek  Apartments,   Woodland  Hills
Apartments, New Castle Apartments and Colony West 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 the first nine months of 2001 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 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 and (4)  variations in the
Partnership's  operating expenses. As the Partnership continues to liquidate its
mortgage  investments and investors  receive  distributions of return of capital
and  taxable  gains,  investors  should  expect  a  reduction  in  earnings  and
distributions due to the decreasing mortgage base.

     Net cash  provided by operating  activities  decreased  for the nine months
ended  September  30,  2001,  as compared to the  corresponding  period in 2000,
primarily due to the reduction in the mortgage base, as previously discussed and
due to an increase in the change in receivables  and other assets.  The increase
in receivables and other assets is primarily due to the accrual of principal and
interest  on the  mortgages  awaiting  assignment  proceeds  from HUD  under the
section 221 program, as previously discussed.

     Net cash  provided by investing  activities  increased  for the nine months
ended September 30, 2001, as compared to the corresponding  period in 2000. This
increase  is  primarily  due  to an  increase  in  proceeds  received  from  the
disposition of mortgages.

<PAGE>16


     Net cash used in financing  activities  decreased for the nine months ended
September 30, 2001, as compared to the  corresponding  period in 2000,  due to a
decrease  in the  amount of  distributions  paid to  partners  in the first nine
months of 2001 versus the same period in 2000.


ITEM 2A. 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 changes in the  interest  rates of
U.S.  Treasury  bonds as well as increases in the spread  between U.S.  Treasury
bonds and the  Partnership's  Insured  Mortgages.  As of September 30, 2001, the
average  treasury  rate used to price the  Partnership's  Insured  Mortgages had
decreased by approximately 57 basis points compared to December 31, 2000.

     Management has determined  that there has not been a material  change as of
September  30,  2001,  in market risk from  December 31, 2000 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 2000.


<PAGE>17

PART II.  OTHER INFORMATION
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     No  reports  on Form  8-K  were  filed  with the  Securities  and  Exchange
Commission during the quarter ended September 30, 2001.



<PAGE>18

PART II.  OTHER INFORMATION

SIGNATURE

     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 L.P. - SERIES 85
                                                    (Registrant)

                                                     By: CRIIMI, Inc.
                                                         General Partner


November 9, 2001                                     /s/ Cynthia O. Azzara
-----------------                                    ---------------------------
DATE                                                 Cynthia O. Azzara
                                                     Senior Vice President,
                                                     Chief Financial Officer and
                                                     Treasurer