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           June 30,2000
                                ------------

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 June 30, 2000,  12,079,514  depositary  units of limited  partnership
interest were outstanding.
<PAGE>



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

                               INDEX TO FORM 10-Q

                       FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>           <C>                                                                                  <C>
PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - June 30, 2000 (unaudited) and December 31, 1999                      4

              Statements of Income and Comprehensive Income - for the three and
                 six months ended June 30, 2000 and 1999 (unaudited)                                5

              Statement of Changes in Partners' Equity - for the six months ended
                 June 30, 2000 (unaudited)                                                          6

              Statements of Cash Flows - for the six months ended June 30, 2000
                 and 1999 (unaudited)                                                               7

              Notes to Financial Statements (unaudited)                                             8

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>

PART I.           FINANCIAL INFORMATION
ITEM 1.           FINANCIAL STATEMENTS

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                  June 30,        December 31,
                                                                   2000              1999
                                                               -------------     -------------

<S>                                                            <C>               <C>
                                                                (Unaudited)
                        ASSETS

Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                                 $  73,090,226     $  79,052,484
    Originated insured mortgages                                  15,540,211        15,703,179
                                                               -------------     -------------
                                                                  88,630,437        94,755,663


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium:
    Acquired insured mortgages                                    11,097,147        11,167,461
    Originated insured mortgages                                  12,635,948        12,699,265
                                                               -------------     -------------
                                                                  23,733,095        23,866,726

Cash and cash equivalents                                          5,130,952        23,723,644

Receivables and other assets                                         928,489         1,123,472
                                                               -------------     -------------
      Total assets                                             $ 118,422,973     $ 143,469,505
                                                               =============     =============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                          $   5,782,077     $  22,876,915

Accounts payable and accrued expenses                                124,121           147,473
                                                               -------------     -------------
      Total liabilities                                            5,906,198        23,024,388
                                                               -------------     -------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                      118,480,751       125,182,237
  General partners' deficit                                       (5,023,079)       (4,751,114)
  Accumulated other comprehensive income                            (940,897)           13,994
                                                               -------------     -------------
      Total Partners' equity                                     112,516,775       120,445,117
                                                               -------------     -------------
      Total liabilities and partners' equity                   $ 118,422,973     $ 143,469,505
                                                               =============     =============
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>



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 six months ended
                                                           June 30,                         June 30,
                                                 ---------------------------      ---------------------------
                                                    2000            1999             2000           1999
                                                 -----------     -----------      -----------     -----------
<S>                                              <C>             <C>              <C>             <C>
Income:
  Mortgage investment income                     $ 2,451,412     $ 3,084,695      $ 4,971,756     $ 6,202,234
  Interest and other income                          101,784          37,689          257,478          86,083
                                                 -----------     -----------      -----------     -----------
                                                   2,553,196       3,122,384        5,229,234       6,288,317
                                                 -----------     -----------      -----------     -----------

Expenses:
  Asset management fee to related parties            288,452         353,668          581,969         715,575
  General and administrative                         103,770         127,101          209,823         266,327
                                                 -----------     -----------      -----------     -----------
                                                     392,222         480,769          791,792         981,902
                                                 -----------     -----------      -----------     -----------
Net earnings before gains on
  mortgage dispositions                            2,160,974       2,641,615        4,437,442       5,306,415

Net gains on mortgage dispositions                   234,936         650,781          278,959         650,781
                                                 -----------     -----------      -----------     -----------

Net earnings                                     $ 2,395,910     $ 3,292,396      $ 4,716,401     $ 5,957,196
                                                 ===========     ===========      ===========     ===========

Other comprehensive income (loss)                 (1,002,564)     (2,356,502)        (954,891)     (3,480,714)
                                                 -----------     -----------      -- --------     -----------
Comprehensive income                             $ 1,393,346     $   935,894      $ 3,761,510     $ 2,476,482
                                                 -----------     -----------      -----------     -----------

Net earnings allocated to:
  Limited partners - 96.1%                       $ 2,302,470     $ 3,163,993      $ 4,532,461     $ 5,724,865
  General Partner -   3.9%                            93,440         128,403          183,940         232,331
                                                 -----------     -----------      -----------     -----------
                                                 $ 2,395,910     $ 3,292,396      $ 4,716,401     $ 5,957,196
                                                 ===========     ===========      ===========     ===========

Net earnings per Unit of limited
  partnership interest - basic                   $      0.19     $      0.26      $      0.38     $      0.47
                                                 ===========     ===========      ===========     ===========

</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>
PART I.           FINANCIAL INFORMATION
ITEM 1.           FINANCIAL STATEMENTS

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

                    STATEMENT OF CHANGES IN PARTNERS' EQUITY

                     For the six months ended June 30, 2000

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                                                             Other
                                                       General            Limited         Comprehensive
                                                       Partner            Partner            Income              Total
                                                    -------------      -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>                <C>
Balance, December 31, 1999                          $  (4,751,114)     $ 125,182,237      $      13,994      $ 120,445,117

  Net Earnings                                            183,940          4,532,461                  -          4,716,401

  Adjustment to unrealized gains on
     investments in insured mortgages                           -                  -           (954,891)          (954,891)

  Distributions paid or accrued of $0.93 per Unit,
     including return of capital of $0.55 per Unit       (455,905)       (11,233,947)                 -        (11,689,852)
                                                    -------------      -------------      -------------      -------------

Balance, June 30, 2000                              $  (5,023,079)     $ 118,480,751      $    (940,897)     $ 112,516,775
                                                    =============      =============      =============      =============

Limited Partnership Units outstanding - basic, as
  of June 30, 2000                                                     12,079,514
                                                                       ==========
</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>
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 six months ended
                                                                                                     June 30,
                                                                                             2000               1999
                                                                                         ------------       ------------
<S>                                                                                      <C>                <C>
Cash flows from operating activities:
   Net earnings                                                                          $  4,716,401       $  5,957,196
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gain on mortgage dispositions                                                      (278,959)          (650,781)
      Changes in assets and liabilities:
         Decrease in receivables and other assets                                             194,983            315,641
         Decrease in accounts payable and accrued expenses                                    (23,352)          (139,270)
                                                                                         ------------       ------------

            Net cash provided by operating activities                                       4,609,073          5,482,786
                                                                                         ------------       ------------

Cash flows from investing activities:
   Receipt of mortgage principal from scheduled payments                                      596,163            671,065
   Proceeds from mortgage dispositions                                                      4,986,762          5,129,812
   Proceeds from redemption of debenture                                                            -          2,296,098
   Debenture proceeds due to affiliate                                                              -         (1,148,049)
                                                                                         ------------       ------------

            Net cash provided by investing activities                                       5,582,925          6,948,926
                                                                                         ------------       ------------

Cash flows from financing activities:
   Distributions paid to partners                                                         (28,784,690)       (20,991,457)
                                                                                         ------------       ------------

            Net cash used in financing activities                                         (28,784,690)       (20,991,457)
                                                                                         ------------       ------------

Net decrease in cash and cash equivalents                                                 (18,592,692)        (8,559,745)

Cash and cash equivalents, beginning of period                                             23,723,644         15,793,919
                                                                                         ------------       ------------

Cash and cash equivalents, end of period                                                 $  5,130,952       $  7,234,174
                                                                                         ============       ============
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

<PAGE>
              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 CRIIMI MAE Services, 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").  Such  bankruptcy  filings could result in certain  adverse
effects to the Partnership.  For example, as a debtor-in-possession,  CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential  capital resource could adversely affect the General
Partner  and the  Partnership,  CRIIMI MAE has not  historically  represented  a
significant  source of capital for the General Partner or the Partnership.  Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management,  Inc. as a provider of personnel and administrative  services to the
Partnership.

     On April 25, 2000,  CRIIMI MAE and CRIIMI MAE Management,  Inc. filed their
Third  Amended  Joint Plan of  Reorganization  (as amended and  supplemented  by
praecipes  filed  with the  Bankruptcy  Court on July 13, 14 and 21,  2000,  the
"Plan")  and  proposed  Second  Amended  Disclosure  Statement  (as  amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed  Disclosure  Statement")  with the United States  Bankruptcy
Court for the District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy
Court").  The Plan and Proposed Disclosure Statement were filed with the support
of the Official  Committee of Equity Security  Holders in the CRIIMI MAE Chapter
11 case,  which is a  co-proponent  of the Plan.  Subject to the  completion  of
mutually  satisfactory  unsecured  debt  documentation,  the  Plan  also has the
support of the Official  Committee of Unsecured  Creditors of CRIIMI MAE,  which
was previously  pursuing its own plan of reorganization.  CRIIMI MAE, CRIIMI MAE
Management,  Inc., the Official  Committee of Equity Security  Holders,  and the
Official Committee of Unsecured  Creditors are now all proceeding jointly toward
confirmation of the Plan.

     Beginning  on April 25,  2000,  the  Bankruptcy  Court  held a  hearing  on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities,  Inc. and Citicorp
Real Estate, Inc. (together  "Citigroup"),  the only creditor whose objection to
the Proposed  Disclosure  Statement was before the Bankruptcy  Court,  to submit
additional  legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy  Court
entered an order  overruling  the  objections  raised by Citigroup.  On July 21,
2000, CRIIMI MAE and Citigroup  reached a settlement  regarding the treatment of
Citigroup's  claims  under  the  Plan.  The  settlement   resolved   Citigroup's
objections to the Proposed Disclosure Statement.

     The  Bankruptcy  Court has  scheduled  a hearing  on August  23,  2000 with
respect to the proposed ballots  submitted to the Bankruptcy Court to be sent to
members of all classes of impaired  creditors and all equity security holders in
connection  with the  Plan.  Once the  Proposed  Disclosure  Statement  has been
approved  by the  Bankruptcy  Court,  the Plan  will be sent  together  with the
approved  Disclosure  Statement to members of all classes of impaired  creditors
and all equity  security  holders for  acceptance or rejection.  There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.


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 June 30, 2000 and
December 31, 1999 and the results of its operations for the three and six months
ended June 30,  2000 and 1999 and its cash  flows for the six months  ended June
30, 2000 and 1999.

     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, 1999.


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>                                                        June 30,               December 31,
                                                                  2000                      1999
                                                               ------------             ------------
<S>                                                            <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of
    GNMA Mortgage-Backed Securities                                       5                        5
    FHA-Insured Certificates (1) (2) (3) (4)                             35                       39
  Amortized Cost                                               $ 72,865,678             $ 77,969,011
  Face Value                                                     75,808,063               81,218,457
  Fair Value                                                     73,090,226               79,052,484

Fully Insured Originated Mortgages:
  Number of
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                               $ 16,705,657             $ 16,772,658
  Face Value                                                     16,349,056               16,416,058
  Fair Value                                                     15,540,211               15,703,179

</TABLE>
<PAGE>

     Listed below is a summary of prepayments  on Fully Insured  Mortgages as of
August 1, 2000:
<TABLE>
<CAPTION>
                                                     Date                                           Distribution
                                      Net          Proceeds       Gain/      Dist./    Declaration    Payment
       Complex Name                 Proceeds       Received      (Loss)       Unit        Date          Date
       ------------               ------------    ----------    --------     ------     ---------     ---------
<S>                               <C>             <C>           <C>          <C>        <C>           <C>
(1) Turtle Creek Apartments       $ 1,660,000     Jan. 2000     $ 44,023     $ 0.13     Jan. 2000     May  2000
(2) Woodland Hills Apartments         693,000     April 2000      93,811       0.06     May  2000     Aug. 2000
(3) New Castle Apartments           1,988,000     May 2000         8,158       0.16     May  2000     Aug. 2000
(4) Colony West Apartments            646,000     May 2000       132,967       0.05     June 2000     Aug. 2000
</TABLE>

     As of August 1, 2000, 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 Gold Key Village Apartments,
which is delinquent  with respect to the July payment of principal and interest.
The mortgage on Town Park Apartments,  which was previously delinquent, has been
brought  current.  In addition,  the Partnership has not received  principal and
interest from the mortgages on Fox Run Apartments since May 2000, and Park Place
Apartments and Summit Square Manor since June 2000, as discussed below.

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended,  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 99% of the outstanding  principal
balance, of the applicable mortgage,  as of the insurance application date, plus
accrued  interest at the "going Federal rate".  The Partnership will recognize a
gain or a loss on the  assignment  once the servicer  brings forth a notice from
HUD showing  approval of the assignment.  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.

     As of August 1, 2000, the  Partnership has received  notification  from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:
                                                     Outstanding
                                                      Principal       Approval
Property Name                   Application Date       Balance          Date
-------------                   ----------------     -----------      --------
Fox Run Apartments                  May  2000          $1,185,000       N/A
Park Place Apartments               June 2000             754,000       N/A
Summit Square Manor                 June 2000           1,903,000       N/A


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>                                                        June 30,               December 31,
                                                                   2000                     1999
                                                               ------------             ------------
<S>                                                            <C>                      <C>
  Fully Insured Acquired Loans:
    Number of Loans                                                       9                        9
    Amortized Cost                                             $ 11,097,147             $ 11,167,461
    Face Value                                                   13,332,495               13,453,341
    Fair Value                                                   12,999,151               13,203,586

  Fully Insured Originated Loans:
    Number of Loans                                                       3                        3
    Amortized Cost                                             $ 12,635,948             $ 12,699,265
    Face Value                                                   12,321,865               12,379,870
    Fair Value                                                   11,819,811               12,017,626
</TABLE>

     As of August 1, 2000, all of the Partnership's  FHA-Insured Loans, recorded
at amortized  cost,  were  current with respect to the payment of principal  and
interest.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying  development  (referred to as Participations).
During the three and six months ended June 30, 2000,  the  Partnership  received
additional  interest of $0 and $21,566,  respectively,  from the Participations.
During the three and six months ended June 30, 1999,  the  Partnership  received
additional   interest   of  $45,164   and   $45,164,   respectively,   from  the
Participations.  These  amounts,  if any,  are  included in mortgage  investment
income on the accompanying Statements of Income and Comprehensive Income.


5.   DISTRIBUTIONS TO UNITHOLDERS

     The  distributions  paid or accrued to  Unitholders on a per Unit basis for
the six months ended June 30, 2000 and 1999 are as follows:

                                                     2000           1999
                                                    ------         ------
              Quarter ended March 31,               $ 0.47(1)(2)   $ 0.40(5)(6)
              Quarter ended June 30,                  0.46(3)(4)     0.65(7)(8)
                                                    ------         ------
                                                    $ 0.93         $ 1.05
                                                    ======         ======

     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) Northwood Apartments                        December 1999      Prepayment       $0.13
      (2) Turtle Creek Apartments                     January 2000       Prepayment        0.13
      (3) Woodland Hills Apartments and New
             Castle Apartments                          May 2000         Prepayment        0.22
      (4) Colony West Apartments                        May 2000         Prepayment        0.05
      (5) Gamel & Gamel Apartments                    December 1998      Prepayment        0.06
      (6) Debenture from Portervillage I
             Apartments *                             January 1999       Assignment        0.10
      (7) Nassau Apartments, Walnut Apartments and
             Kings Villa/Discovery Commons             April 1999        Prepayment        0.37
      (8) Quail Creek Apartments                        May 1999         Prepayment        0.04

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


6.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated  entities,  during the three and
six months  ended June 30,  2000 and 1999,  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         Six months ended
                                                                                   June 30,                   June 30,
                                                                            ----------------------     ----------------------
Name of Recipient                Capacity in Which Served/Item                2000         1999          2000         1999
-----------------                -----------------------------              ---------    ---------     ---------    ---------
<S>                            <C>                                          <C>          <C>           <C>          <C>
CRIIMI, Inc (1).               General Partner/Distribution                 $ 225,501    $ 318,643     $ 455,905    $ 514,731
AIM Acquisition Partners,
   L.P.(2)                     Advisor/Asset Management Fee                   288,452      353,668       581,969      715,575
CRIIMI MAE Management, Inc.    Affiliate of General Partner/Expense
                                  Reimbursement                                12,750       15,046        25,716       22,488
</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 $85,021 and  $171,459  for the three and six months ended June
     30,  2000,  respectively,  and  $104,247 and $210,921 for the three and six
     months ended June 30, 1999, respectively. The limited partner of CMSLP is a
     wholly  owned  subsidiary  of CRIIMI MAE Inc.,  which filed for  protection
     under chapter 11 of the Bankruptcy Code.
<PAGE>

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.

Year 2000
---------

     During the transition from 1999 to 2000, the Partnership did not experience
any  significant  problems or errors in its  information  technology  systems or
date-sensitive  embedded  technology  that controls  certain  systems.  Based on
operations   since  January  1,  2000,  the  Partnership  does  not  expect  any
significant  impact to its  business,  operations,  or financial  condition as a
result of the Year 2000 issue.  However,  it is possible that the full impact of
the date change has not been fully  recognized.  The Partnership is not aware of
any  significant  Year 2000  problems  affecting  third  parties  with which the
Partnership interfaces directly or indirectly.

General
-------

     As of June 30, 2000, the Partnership  had invested in 54 Insured  Mortgages
with an aggregate  amortized cost of  approximately  $113 million,  an aggregate
face  value  of  approximately  $118  million  and an  aggregate  fair  value of
approximately $113 million, as discussed below.

     As of August 1, 2000,  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 Gold Key
Village  Apartments,  which is  delinquent  with  respect to the July payment of
principal  and  interest.  The  mortgage  on Town  Park  Apartments,  which  was
previously  delinquent,  has been brought current. In addition,  the Partnership
has not received principal and interest from the mortgages on Fox Run Apartments
since May 2000,  and Park Place  Apartments  and Summit  Square Manor since June
2000, as discussed below.

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended,  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 99% of the outstanding  principal
balance, of the applicable mortgage,  as of the insurance application date, plus
accrued  interest at the "going Federal rate".  The Partnership will recognize a
gain or a loss on the  assignment  once the servicer  brings forth a notice from
HUD showing  approval of the assignment.  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.

     As of August 1, 2000, the  Partnership has received  notification  from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:

                                                     Outstanding
                                                      Principal       Approval
Property Name                   Application Date       Balance          Date
-------------                   ----------------     -----------      --------
Fox Run Apartments                  May  2000          $1,185,000       N/A
Park Place Apartments               June 2000             754,000       N/A
Summit Square Manor                 June 2000           1,903,000       N/A

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

     Net earnings decreased for the three and six months ended June 30, 2000, as
compared to the  corresponding  periods in 1999,  primarily due to a decrease in
mortgage investment income, as discussed below.

     Mortgage  investment  income  decreased  for the three and six months ended
June 30, 2000, as compared to the corresponding  periods in 1999,  primarily due
to a reduction in the mortgage  base. The mortgage base decreased as a result of
15 mortgage  dispositions  with an aggregate  principal balance of approximately
$32 million, representing an approximate 21% decrease in the aggregate principal
balance of the total mortgage portfolio since March 1999.

     Interest and other income increased for the three and six months ended June
30, 2000, as compared to the corresponding periods in 1999, primarily due to the
timing  of  temporary  investment  of  mortgage  disposition  proceeds  prior to
distribution.

     Asset management fees decreased for the three and six months ended June 30,
2000,  as compared to the  corresponding  periods in 1999,  primarily due to the
reduction in the mortgage asset base.

     General and administrative  expenses decreased for the three and six months
ended June 30, 2000, as compared to the corresponding periods in 1999, primarily
due to a decrease  in  temporary  employment  costs and a decrease  in  mortgage
service fees.

     Net gains on mortgage  dispositions  decreased for the three and six months
ended June 30, 2000, as compared to the  corresponding  periods in 1999.  During
the first six months of 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.
During the first six months of 1999,  the  Partnership  recognized  net gains of
approximately   $651,000  from  the   prepayment  of  the  mortgages  on  Nassau
Apartments,  Walnut Apartments,  Kings  Villa/Discovery  Commons and Quail Creek
Apartments.

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

     On October 5, 1998,  CRIIMI  MAE,  the parent of the General  Partner,  and
CRIIMI  MAE  Management,  Inc.,  an  affiliate  of CRIIMI  MAE and  provider  of
personnel  and  administrative  services  to the  Partnership,  filed  voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy  Code").  Such  bankruptcy  filings could result in certain  adverse
effects to the Partnership.  For example, as a debtor-in-possession,  CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential  capital resource could adversely affect the General
Partner  and the  Partnership,  CRIIMI MAE has not  historically  represented  a
significant  source of capital for the General Partner or the Partnership.  Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management,  Inc. as a provider of personnel and administrative  services to the
Partnership.

     On April 25, 2000,  CRIIMI MAE and CRIIMI MAE Management,  Inc. filed their
Third  Amended  Joint Plan of  Reorganization  (as amended and  supplemented  by
praecipes  filed  with the  Bankruptcy  Court on July 13, 14 and 21,  2000,  the
"Plan")  and  proposed  Second  Amended  Disclosure  Statement  (as  amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21,
2000, the "Proposed  Disclosure  Statement")  with the United States  Bankruptcy
Court for the District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy
Court").  The Plan and Proposed Disclosure Statement were filed with the support
of the Official  Committee of Equity Security  Holders in the CRIIMI MAE Chapter
11 case,  which is a  co-proponent  of the Plan.  Subject to the  completion  of
mutually  satisfactory  unsecured  debt  documentation,  the  Plan  also has the
support of the Official  Committee of Unsecured  Creditors of CRIIMI MAE,  which
was previously  pursuing its own plan of reorganization.  CRIIMI MAE, CRIIMI MAE
Management,  Inc., the Official  Committee of Equity Security  Holders,  and the
Official Committee of Unsecured  Creditors are now all proceeding jointly toward
confirmation of the Plan.

     Beginning  on April 25,  2000,  the  Bankruptcy  Court  held a  hearing  on
approval of the Proposed Disclosure Statement filed by CRIIMI MAE and CRIIMI MAE
Management, Inc. At the conclusion of the hearing, the Bankruptcy Court directed
CRIIMI MAE and Salomon Smith Barney Inc./Citicorp Securities,  Inc. and Citicorp
Real Estate, Inc. (together  "Citigroup"),  the only creditor whose objection to
the Proposed  Disclosure  Statement was before the Bankruptcy  Court,  to submit
additional  legal briefs by May 9, 2000. On July 12, 2000, the Bankruptcy  Court
entered an order  overruling  the  objections  raised by Citigroup.  On July 21,
2000, CRIIMI MAE and Citigroup  reached a settlement  regarding the treatment of
Citigroup's  claims  under  the  Plan.  The  settlement   resolved   Citigroup's
objections to the Proposed Disclosure Statement.

     The  Bankruptcy  Court has  scheduled  a hearing  on August  23,  2000 with
respect to the proposed ballots  submitted to the Bankruptcy Court to be sent to
members of all classes of impaired  creditors and all equity security holders in
connection  with the  Plan.  Once the  Proposed  Disclosure  Statement  has been
approved  by the  Bankruptcy  Court,  the Plan  will be sent  together  with the
approved  Disclosure  Statement to members of all classes of impaired  creditors
and all equity  security  holders for  acceptance or rejection.  There can be no
assurance at this time that CRIIMI MAE's Plan will be confirmed and consummated.

     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 six months of 2000 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 six months
ended June 30, 2000, as compared to the corresponding  period in 1999, primarily
due to the reduction in the mortgage base.

     Net cash  provided by  investing  activities  decreased  for the six months
ended June 30,  2000,  as compared  to the  corresponding  period in 1999.  This
decrease  is  primarily  due  to  a  decrease  in  proceeds  received  from  the
disposition of mortgages and a decrease in net debenture proceeds.

     Net cash used in financing  activities  increased  for the six months ended
June 30,  2000,  as  compared  to the  corresponding  period in 1999,  due to an
increase in the amount of distributions paid to partners in the first six months
of 2000 versus the same period in 1999.

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

PART I.    FINANCIAL INFORMATION
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,  which  coupled with the related  spread to
treasury investors required for the Partnership's Insured Mortgages,  will cause
fluctuations in the market value of Partnership's assets.

     Management has determined  that there has not been a material  change as of
June 30,  2000,  in market  risk  from  December  31,  1999 as  reported  in the
Partnership's Annual Report on Form 10-K as of December 31, 1999.
<PAGE>

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 June 30, 2000.

     The exhibits filed as part of this report are listed below:

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

                      27                Financial Data Schedule
<PAGE>

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


August 11, 2000                                      /s/ Cynthia O. Azzara
---------------                                      ---------------------
DATE                                                 Cynthia O. Azzara
                                                     Senior Vice President,
                                                     Chief Financial Officer and
                                                     Treasurer