<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, 1996
                                 ------------------

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

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


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



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



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


     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, 1996, 12,079,389 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, 1996

                                                               Page
                                                               ----

PART I.   Financial Information 

Item 1.   Financial Statements

          Balance Sheets - September 30, 1996 (unaudited)
            and December 31, 1995 . . . . . . . . . . .         3

          Statements of Operations - for the three and 
            nine months ended September 30, 1996 and 1995
            (unaudited)   . . . . . . . . . . . . . . .         4

          Statement of Changes in Partners' Equity - 
            for the nine months ended September 30, 1996
           (unaudited)  . . . . . . . . . . . . . . . .         5

          Statements of Cash Flows - for the nine
            months ended September 30, 1996 and 
            1995 (unaudited)  . . . . . . . . . . . . .         6

          Notes to Financial Statements (unaudited) . .         7

Item 2.   Management's Discussion and Analysis of 
            Financial Condition and Results 
            of Operations . . . . . . . . . . . . . . .        14

PART II.  Other Information

Item 6.   Exhibits and Reports on Form 8-K  . . . . . .        18

Signature . . . . . . . . . . . . . . . . . . . . . . .        19

<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,
                                               1996           1995    
                                          -------------   ------------
                                             (unaudited) 

                                     ASSETS 
<S>                                        <C>            <C>         
Investment in FHA-Insured
  Certificates and GNMA Mortgage-
  Backed Securities, at fair value:
    Acquired insured mortgages             $159,962,605   $169,460,375
    Originated insured mortgages             22,516,685     22,960,468
                                           ------------   ------------
                                            182,479,290    192,420,843
                                                       
Investment in FHA-Insured Loans, at
  amortized cost, net of unamortized
  discount and premium: 
    Acquired insured mortgages               14,590,366     14,684,828
    Originated insured mortgages             13,054,271     13,123,855
                                           ------------   ------------
                                             27,644,637     27,808,683

Cash and cash equivalents                     4,557,028      3,368,700

Receivables and other assets                  1,776,328      1,775,746

Investment in affiliate                         314,073        317,151
                                           ------------   ------------
     Total assets                          $216,771,356   $225,691,123
                                           ============   ============

                        LIABILITIES AND PARTNERS' EQUITY

Distributions payable                      $  5,404,986   $  4,525,104

Accounts payable and accrued expenses           156,718        163,737

Note payable and due to affiliate               386,659        320,920
                                           ------------   ------------
     Total liabilities                        5,948,363      5,009,761
                                           ------------   ------------
Partners' equity:
  Limited partners' equity                  205,593,554    210,842,615
  General partner's deficit                  (1,487,803)    (1,274,782)
  Unrealized gains on
    investment in FHA-Insured 
    Certificates and GNMA Mortgage-
    Backed Securities                         9,074,913     12,159,559
  Unrealized losses on investment
    in FHA-Insured Certificates and
    GNMA Mortgage-Backed Securities          (2,357,671)    (1,046,030)
                                           ------------   ------------
     Total partners' equity                 210,822,993    220,681,362
                                           ------------   ------------
     Total liabilities and partners' 
       equity                              $216,771,356   $225,691,123 
                                           ============   ============
</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 OPERATIONS

                                         (Unaudited)
<TABLE>
<CAPTION>
                                                  For the three months ended        For the nine months ended  
                                                         September 30,                      September 30,
                                                -----------------------------      -----------------------------

                                                     1996             1995             1996             1995    
                                                 ------------     ------------     ------------     ------------
<S>                                              <C>              <C>              <C>              <C>         
Income:
  Mortgage investment income                     $  4,397,124     $  4,555,595     $ 13,434,378     $ 13,854,372
  Interest and other income                            49,868           70,890          154,130          129,701
                                                 ------------     ------------     ------------     ------------
                                                    4,446,992        4,626,485       13,588,508       13,984,073
                                                 ------------     ------------     ------------     ------------
Expenses:
  Asset management fee to related parties             493,214          507,990        1,503,270        1,534,896
  General and administrative                           53,085           96,676          244,346          289,924
  Mortgage servicing fees                              63,980           71,961          202,375          216,661
  Interest expense to affiliate                         5,783            5,784           17,349           17,350
                                                 ------------     ------------     ------------     ------------
                                                      616,062          682,411        1,967,340        2,058,831
                                                 ------------     ------------     ------------     ------------
Net earnings before gain (loss) 
  on mortgage dispositions/
  modifications                                     3,830,930        3,944,074       11,621,168       11,925,242

Gains on mortgage dispositions/
  modifications                                            --               --          658,973           52,730
Losses on mortgage dispositions/
  modifications                                       (40,554)              --         (144,595)         (36,632)
                                                 ------------     ------------     ------------     ------------
Net earnings                                     $  3,790,376      $ 3,944,074     $ 12,135,546     $ 11,941,340
                                                 ============     ============     ============     ============
Net earnings allocated to:
  Limited partners - 96.1%                       $  3,642,552     $  3,790,255     $ 11,662,260     $ 11,475,628
  General partner - 3.9%                              147,824          153,819          473,286          465,712
                                                 ------------     ------------     ------------     ------------
                                                 $  3,790,376     $  3,944,074     $ 12,135,546     $ 11,941,340
                                                 ============     ============     ============     ============
Net earnings per Limited
  Partnership Unit                               $       0.30     $       0.31     $       0.96     $       0.95
                                                 ============     ============     ============     ============
</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, 1996

                                                 (Unaudited)
<TABLE>
<CAPTION>


                                                                     
                                                                     

                                                                      Unrealized          Unrealized
                                                                       Gains on            Losses on
                                                                      Investment          Investment
                                                                    in FHA-Insured      in FHA-Insured
                                                                     Certificates         Certificates            
                                       General         Limited      and GNMA Mortgage-  and GNMA Mortgage-
                                       Partner         Partners     Backed Securities   Backed Securities         Total
                                    -------------    -------------  -----------------   -----------------     -------------
<S>                                 <C>              <C>            <C>                 <C>                   <C>

Balance, December 31, 1995          $  (1,274,782)   $ 210,842,615  $      12,159,559   $      (1,046,030)    $ 220,681,362

  Net earnings                            473,286       11,662,260                 --                  --        12,135,546 

  Distributions paid or 
    accrued of $1.40 per
    Unit                                 (686,307)     (16,911,321)                --                  --       (17,597,628)
    
  Adjustments to unrealized 
    gains (losses) on investments 
    in FHA-Insured Certificates 
    and GNMA Mortgage-Backed
    Securities                                 --               --        (3,084,646)          (1,311,641)       (4,396,287)
                                    -------------    -------------  ----------------    -----------------     -------------
Balance, September 30, 1996         $  (1,487,803)   $ 205,593,554  $      9,074,913    $      (2,357,671)    $ 210,822,993
                                    =============    =============  ================    =================     =============

Limited Partnership Units
    outstanding - September
    30, 1996                                            12,079,514
                                                     =============

</TABLE>



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

<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,
                                                                      1996                   1995    
                                                                  ------------           ------------
<S>                                                               <C>                    <C>         
Cash flows from operating activities:
  Net earnings                                                    $ 12,135,546           $ 11,941,340
  Adjustments to reconcile net earnings
    to net cash provided by operating
    activities:
    Gains on mortgage dispositions/modifications                      (658,973)               (52,730)
    Losses on mortgage dispositions/modifications                      144,595                 36,632
    Changes in assets and liabilities:
      Decrease in accounts payable
        and accrued expenses                                            (7,019)              (105,694)
      Decrease in other receivables and 
        other assets                                                   138,276                 18,084
      Decrease in investment in affiliate                                3,078                     --
      Increase (decrease) in note payable 
        and due to affiliate                                            65,739               (101,955)
                                                                  ------------           ------------
        Net cash provided by operating activities                   11,821,242             11,735,677
                                                                  ------------           ------------
Cash flows from investing activities:
  Receipt of mortgage principal from
    scheduled payments                                               1,190,264                975,618
  Proceeds from mortgage dispositions                                4,894,568              2,314,351
                                                                  ------------           ------------
        Net cash provided by investing activities                    6,084,832              3,289,969
                                                                  ------------           ------------
Cash flows from financing activities:
  Distributions paid to partners                                   (16,717,746)           (13,198,221)
                                                                  ------------           ------------
        Net cash used in financing
          activities                                               (16,717,746)           (13,198,221)
                                                                  ------------           ------------
Net increase in cash and cash 
  equivalents                                                        1,188,328              1,827,425

Cash and cash equivalents, beginning of period                       3,368,700              3,462,825
                                                                  ------------           ------------
Cash and cash equivalents, end of period                          $  4,557,028           $  5,290,250
                                                                  ============           ============
</TABLE>


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

<PAGE>7

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          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  will terminate on  December 31,  2009, unless
previously terminated under the provisions of the Partnership Agreement.  

     Effective September 6, 1991,  CRIIMI, Inc. (the General Partner)  succeeded
the  former  general  partners  to  become  the  sole  general  partner  of  the
Partnership.   CRIIMI,  Inc. is  a wholly  owned subsidiary  of CRIIMI  MAE Inc.
(CRIIMI MAE), formerly CRI Insured Mortgage Association, Inc.  

     AIM  Acquisition Partners L.P.  (the Advisor) serves as  the advisor of the
Partnership.  The general partner of the Advisor is AIM  Acquisition Corporation
and the  limited partners include an  affiliate of CRIIMI MAE  (and through June
30, 1995, an  affiliate of C.R.I., Inc. (CRI)).  Effective September 6, 1991 and
through  June 30,  1995, a  sub-advisory agreement (the  Sub-advisory Agreement)
existed  whereby  CRI/AIM Management,  Inc., an  affiliate  of CRI,  managed the
Partnership's portfolio.  In connection with the transaction in which CRIIMI MAE
became a self-administered real estate investment trust (REIT) on June 30, 1995,
CRIIMI  MAE Services Limited Partnership,  an affiliate of  CRIIMI MAE, acquired
the  Sub-advisory  Agreement.   As  a  result  of this  transaction,  CRIIMI MAE
Services  Limited  Partnership  manages  the  Partnership's  portfolio.    These
transactions had no effect on the Partnership's financial statements.

     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).  The  mortgages underlying the FHA-Insured  Certificates, GNMA Mortgage-
Backed  Securities  and  FHA-Insured  Loans  are  non-recourse  first  liens  on
multifamily residential developments or retirement homes.

2.   BASIS OF PRESENTATION

     In the opinion of the General Partner, the accompanying unaudited financial
statements contain all  adjustments of  a normal recurring  nature necessary  to
present fairly the  financial position of  the Partnership  as of September  30,
1996 and December 31, 1995 and the  results of its operations for the three  and
nine months ended  September 30, 1996 and  1995 and its cash flows  for the nine
months ended September 30, 1996 and 1995.

     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 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,  it is suggested
that  these financial  statements  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,
1995. 

<PAGE>8

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)


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

     Fully Insured Mortgage Investments
     ----------------------------------
          As  of  September  30,  1996, the  Partnership's  investment  in fully
     insured  acquired insured mortgages, recorded at fair value consisted of 62
     FHA-Insured Certificates  and nine GNMA Mortgage-Backed  Securities with an
     aggregate  amortized  cost of  $152,161,451,  an  aggregate face  value  of
     $158,241,678, and  an aggregate fair value of $159,962,605.  As of December
     31, 1995,  the Partnership's investment  in fully insured  acquired insured
     mortgages,  recorded at fair value consisted of 66 FHA-Insured Certificates
     and  nine GNMA Mortgage-Backed Securities  with an aggregate amortized cost
     of  $157,656,694, an aggregate face value of $164,397,459, and an aggregate
     fair value of $169,460,375.

          As  of  September  30, 1996,  the  Partnership's  investment  in fully
     insured  originated insured mortgages, recorded at fair value  consisted of
     one GNMA Mortgage-Backed Security  and one FHA-insured certificate  with an
     aggregate  amortized  cost  of  $17,152,798,  an  aggregate  face value  of
     $16,796,183, and  an aggregate fair value  of $16,422,596.   As of December
     31, 1995, the  Partnership's investment in fully insured originated insured
     mortgages,  recorded at fair value   consisted of  one GNMA Mortgage-Backed
     Security with an amortized cost of $10,666,346, a face value of $10,760,496
     and a fair value of $10,925,754.

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

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

<PAGE>9 

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

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

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

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

          In October  1995, the  Partnership filed a  Notice of  Default and  an
     Election to Assign with the  United States Department of Housing  and Urban
     Development  (HUD) related to the  mortgage on Woodland Village Apartments.
     On August  30, 1996, the  Partnership received approximately  $1.4 million,
     representing approximately 90% of the  assignment proceeds.  The  remaining
     proceeds of approximately  $139,000 are included  in receivables and  other
     assets on  the accompanying balance  sheet as of  September 30, 1996.   The
     Partnership  recognized a loss of approximately $41,000 as of September 30,
     1996.   A  distribution of $0.10  per unit  related to  this assignment was
     declared in September 1996 and was paid to Unitholders on November 1, 1996.

          As  of  October  31,  1996,  all  of  the  fully  insured  FHA-Insured
     Certificates and  GNMA Mortgage-Backed Securities are  current with respect
     to the payment of principal and interest, except for the mortgage on Meadow
     Park Apartments I, which was assigned  in October 1996, as discussed below,
     and  Country Club Terrace Apartments  and Colony West  Apartments which are
     delinquent  with respect  to the  September 1996  payment of  principal and
     interest.   The Partnership expects to receive the payments on Country Club
     Terrace Apartments and  Colony West Apartments.   On October 11,  1996, the
     servicer of  the mortgage on  Meadow Park  Apartments I filed  a Notice  of
     Default and Election  to Assign  the mortgage  with HUD.   The  Partnership
     expects to recognize a gain of approximately $130,000 on  the assignment of
     this mortgage.

     Coinsured Mortgage Investments
     ------------------------------
          As discussed in the Partnership's  Annual Report on Form 10-K for  the
     year ended  December 31, 1995, under the  HUD coinsurance program, both HUD
     and  the coinsurance  lender are  responsible for paying  a portion  of the
     insurance benefits if  a mortgagor defaults and the sale of the development
     collateralizing the  mortgage produces  insufficient net proceeds  to repay
     the  mortgage  obligation. In  such case,  the  coinsurance lender  will be
     liable to  the Partnership for the first part of  such loss in an amount up
     to 5% of the  outstanding principal balance of the mortgage  as of the date
     foreclosure proceedings are instituted or  the deed is acquired in  lieu of
     foreclosure.  For any  loss greater  than 5%  of the  outstanding principal
     balance, the responsibility for paying the insurance benefits will be borne
     on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender. 

<PAGE>10 

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

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

     Coinsured by affiliate
     ----------------------
          As of September  30, 1996 and December  31, 1995, the  Partnership had
     invested in one and two, respectively, FHA-Insured Certificate secured by a
     coinsured mortgage where the coinsurance lender is Integrated Funding  Inc.
     (IFI).  On April 30, 1996,  one of the coinsured mortgages, Waterford Green
     Apartments,  was  converted from  a  coinsured  mortgage to  fully  insured
     mortgage, as discussed above.  The coinsured mortgage investments were made
     by the  former managing general partner  on behalf of the  Partnership.  As
     structured  by the  former managing  general partner,  with respect  to the
     remaining coinsured  mortgage, Westlake Village, the  Partnership bears the
     risk of loss upon  default for IFI's portion of the  coinsurance loss.  The
     General Partner believes there is adequate collateral  value underlying the
     Westlake  Village mortgage.  Accordingly, no loan losses were recognized on
     this investment during the nine months ended September 30, 1996 and 1995.

          As of October 31, 1996, the mortgage on Westlake Village  shown in the
     table below  was  current with  respect  to the  payment  of principal  and
     interest.   As of September  30, 1996,  this mortgage had  a fair  value of
     $6,094,089.    As of  December 31,  1995,  two coinsured  mortgages  had an
     aggregate fair  value of  $12,034,714, respectively.   The  following table
     summarizes this information as of September 30, 1996 and December 31, 1995.

<PAGE>11 

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

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

<TABLE>
<CAPTION>
                                             Amortized        Face           Amortized        Face     
                                                Cost          Value            Cost           Value    
                                            September 30,  September 30,    December 31,   December 31,
                                                1996           1996             1995           1995    
                                            -------------  -------------    ------------   ------------
<S>                                         <C>            <C>              <C>            <C>         
            Westlake Village                $   6,447,799  $   6,445,886    $  6,473,072   $  6,471,133
            Waterford Green Apts.(1)        $          --  $          --    $  6,511,202   $  6,526,094

     (1)  On April  30, 1996, the coinsured  mortgage on Waterford  Green Apartments, was converted  from a coinsured mortgage  to a
          fully insured mortgage, as discussed above.
</TABLE> 

<PAGE>12

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)


4.   INVESTMENT IN FHA-INSURED LOANS

          As  of  September 30,  1996 and  December  31, 1995  the Partnership's
     investment  in  fully  insured  acquired  insured  mortgages,  recorded  at
     amortized  cost,  consisted  of  12 FHA-Insured  Loans  with  an  aggregate
     amortized cost  of $14,590,366 and $14,684,828,  respectively, an aggregate
     face value  of $17,462,682 and $17,627,453, respectively,  and an aggregate
     fair value of $17,750,909 and $18,388,369, respectively.

          As  of September  30, 1996  and December  31, 1995,  the Partnership's
     investment  in  fully insured  originated  insured  mortgages, recorded  at
     amortized  cost, consisted  of three  FHA-Insured  Loans with  an aggregate
     amortized cost  of $13,054,271 and $13,123,855,  respectively, an aggregate
     face value of  $12,703,439 and $12,766,486, respectively,  and an aggregate
     fair value of $12,964,852 and $13,160,443, respectively. 

          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, 1996, the Partnership  received additional interest of $0  and $42,417,
     respectively,  from the Participations.   During the three  and nine months
     ended September 30,  1995, the Partnership received  additional interest of
     $0  and $64,676, respectively, from the Participations.  These amounts, are
     included in mortgage  investment income on  the accompanying statements  of
     operations.

          As of October 31, 1996, all of the FHA-insured loans were current with
     respect to the payment of principal and interest.

5.   DISTRIBUTIONS TO UNITHOLDERS

     The distributions paid or accrued to Unitholders on a per Unit basis for 
the nine months ended September 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                         1996           1995 
                                        ------         ------
<S>                                     <C>            <C>
     Quarter ended March 31,            $ 0.33         $ 0.36
     Quarter ended June 30,             $ 0.64(1)      $ 0.33
     Quarter ended September 30,        $ 0.43(2)      $ 0.49
                                        ------         ------
                                        $ 1.40         $ 1.18
                                        ======         ======
</TABLE>

(1)  This amount includes approximately $0.31 per Unit representing net proceeds
from  the  prepayment of  the  mortgages  on  Harbor  View Estates,  Bear  Creek
Apartments II and Cambridge Arms Apartments.

(2)  This amount includes approximately $0.10 per unit representing net proceeds
from the assignment of the mortgage on Woodland Village Apartments.

     The  basis for  paying distributions  to Unitholders  is net  proceeds from
mortgage dispositions, if  any, and  cash flow from  operations, which  includes

<PAGE>13 

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

5.   DISTRIBUTIONS TO UNITHOLDERS - Continued

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.

6.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and  certain affiliated entities, during the  three and
nine months ended  September 30, 1996 and 1995, earned  or received compensation
or payments for services from the Partnership as follows: 

<PAGE>14 

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

6.   TRANSACTIONS WITH RELATED PARTIES - Continued

<TABLE>
<CAPTION>

                                           COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
                                           -----------------------------------------------

                                                                     For the                      For the
                                                                 Three months ended          Nine months ended
                                  Capacity in Which                 September 30,              September 30,
Name of Recipient                    Served/Item                 1996       1995             1996          1995   
-----------------           ----------------------------      ---------- ----------       ----------     ----------
<S>                         <C>                               <C>        <C>              <C>            <C>       
CRIIMI, Inc.(1)             General Partner/Distribution      $  210,794 $  240,209       $  686,307     $  578,461

AIM Acquisition             Advisor/Asset Management Fee         493,214    507,990        1,503,270      1,534,896
  Partners, L.P.(2)

CRI(3)                      Affiliate of General Partner/             --      9,224               --         71,129
                              Expense Reimbursement

CRIIMI MAE                  Affiliate of General Partner/          1,687     11,519           67,360         11,519
Management, Inc.(3)           Expense Reimbursement

<FN>
(1)  The General Partner, pursuant to  amendments to the Partnership Agreement, effective September 6,  1991, is entitled to receive
     3.9% of  the Partnership's income,  loss, capital and distribution,  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 .95% of  Total Invested
     Assets (as defined in the Partnership Agreement).  The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of
     0.28% of Total Invested Assets.  Of the amounts paid to the Advisor, CRIIMI  MAE Services Limited Partnership, the Sub-advisor,
     earned  a fee equal  to $145,373  and $443,080, for  the three  and nine  months ended September  30, 1996,  respectively, and,
     $149,730 for the three  and nine months  ended September 30, 1995.   CRI/AIM Management, Inc.,  which acted as the  Sub-advisor
     through June 30, 1995, earned a fee equal $302,682. 

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

<PAGE>15

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

General
-------
     As  of  September 30,  1996, the  Partnership  had invested  in  89 insured
mortgages with an  aggregate amortized  cost of approximately  $203 million,  an
aggregate face value of approximately  $212 million and an aggregate fair  value
of approximately $213 million. 

     As of October  31, 1996, all of the Partnership's mortgage investments were
current  with respect to  the payment of  principal and interest  except for the
fully  insured  mortgages on  Meadow Park  Apartments I,  which was  assigned in
October 1996, as discussed below, and Country Club Terrace Apartments and Colony
West Apartments which are delinquent with respect to the September 1996  payment
of  principal and interest.  The Partnership  expects to receive the payments on
Country Club  Terrace Apartments  and Colony  West Apartments.   On October  11,
1996, the servicer of the mortgage on Meadow Park Apartments I filed a Notice of
Default  and Election to Assign the mortgage  with HUD.  The Partnership expects
to recognize a gain of approximately $130,000 on the assignment of this 
mortgage.

Results of Operations
---------------------
     Net earnings for  the three months ended  September 30, 1996, decreased  as
compared to  the corresponding  period  in 1995  primarily as  a  result of  the
reduction in  the mortgage  base due  to the dispositions  that occurred  in the
second quarter  of 1996, as discussed  below.  Net earnings for  the nine months
ended September 30, 1996  increased as compared to  the corresponding period  in
1995 primarily  due to the  increase in net  gains on mortgage  dispositions and
modifications, as discussed below.

     Mortgage  investment income decreased for  the three and  nine months ended
September 30, 1996, as compared to  the corresponding periods in 1995  primarily
due to the reduction in the mortgage base during 1995 and 1996.

     Interest  and other income decreased  for the three  months ended September
30, 1996, as compared to  the corresponding period in 1995 due to a reduction in
the mortgage  base.   Interest and  other income increased  for the  nine months
ended  September  30, 1996,  as compared  to  the corresponding  period  in 1995
primarily  due to the receipt of net  disposition proceeds in the second quarter
of 1996 which were invested  short-term prior to distribution to Unitholders  in
August 1996.

     Asset management fees to related parties  decreased for the three and  nine
months ended  September 30, 1996,  as compared  to the corresponding  periods in
1995 as a result of mortgage dispositions, as discussed below.

     General and administrative expenses decreased for the three and nine months
ended September  30, 1996,  as compared  to the corresponding  periods in  1995,
primarily  due to  decreases  in certain  costs  related to  investor  services,
resulting from  a reduction in the  number of registered holders.   In addition,
payroll related  expenses have  decreased  as a  result of  a  reduction in  the
mortgage base.

     Mortgage  servicing  fees decreased  for the  three  and nine  months ended
September 30, 1996, as  compared to the corresponding periods in 1995 due to the
reduction in the mortgage base.

     Gains or losses on mortgage dispositions are based on carrying amounts  and
proceeds  for  mortgage  investments disposed  of  during  the  period.   Losses
increased for the three months ended September 30, 1996, as compared to the same
period in  1995, due to  a loss recognized  by the Partnership  of approximately
$41,000 as a result of the assignment to HUD of the mortgage on Woodland Village

<PAGE>16

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

Apartments.  Net gains  on mortgage dispositions  increased for the nine  months
ended  September 30,  1996, as  compared to  the  corresponding period  in 1995.
During the  second  quarter  of  1996,  the Partnership  recognized  a  gain  of
approximately  $659,000 as  a  result of  prepayments of  the  mortgages on  the
Cambridge Arms Apartments and Bear  Creek Apartments II and the modification  of
the  Oak  Forest loan.    During  the first  quarter  of  1996, the  Partnership
recognized a loss of approximately  $1,100 as a result of the  prepayment on the
Harbor View Estates loan in March 1996.  During the second quarter of  1996, the
Partnership  recognized a  loss of  approximately $103,000  as a  result of  the
modification of the  mortgage on Waterford Green  Apartments.  During the  first
quarter of 1995, the Partnership recognized a gain of approximately $53,000 as a
result of the final settlement  of the disposition of the mortgage  on Dearborne
Place Apartments.  During the second quarter of 1995, the Partnership recognized
a  loss of approximately  $37,000 as a  result of  the assignment to  HUD of the
mortgage on El Lago Apartments.

Liquidity and Capital Resources
-------------------------------
     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on insured mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first  nine months of 1996 to
meet operating requirements.  

     The  basis for  paying distributions  to Unitholders  is net  proceeds from
mortgage dispositions, if  any, and  cash flow from  operations, which  includes
regular  interest income  and principal  from insured  mortgages.   Although the
insured mortgages yield  a fixed  monthly mortgage payment  once purchased,  the
cash distributions paid to the Unitholders will vary during each  quarter due to
(1)  the fluctuating  yields in  the short-term money  market where  the monthly
mortgage  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.

     Net cash provided by  operating activities increased slightly for  the nine
months  ended September  30, 1996, as  compared to  the corresponding  period in
1995.   This increase was primarily due to the reduction in note payable and due
to  affiliate during  1995 resulting  from  the prepayment  of  the mortgage  on
Richardson Road  Apartments underlying  the GNMA Mortgage-Backed  Security which
had been  transferred to IFI to  meet IFI's minimum net  worth requirement which
resulted in  lower net  cash provided  by operations for  the nine  months ended
September 30, 1995.  Also contributing  to the increase in net cash provided  by
operating  activities  was an  increase  in Due  from  HUD  as a  result  of the
assignment  of  the  Woodland Village  mortgage.    The  balance represents  the
remaining proceeds, plus interest due from HUD.

     Net cash provided  by investing  activities increased for  the nine  months
ended September 30, 1996, as compared to the corresponding period in 1995 due to
the increase in  proceeds from mortgage dispositions.   In addition,  receipt of
mortgage  principal from scheduled payments increased for the nine months ending
September 30, 1996, as compared to  the corresponding period in 1995 due  to the
partial principal prepayment on the Cambridge mortgage prior to disposition.

     Net cash  used in financing activities increased for the nine months ending
September 30, 1996, as compared to the corresponding period in 1995, as a result
of  an increase  in  distributions  paid to  partners.    Distributions paid  to
partners  for the  nine  months  ended  September  30,  1996,  included   

<PAGE>17

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

special distributions  resulting from  the prepayment  of the  mortgages on  
Harbor View Estates, Cambridge Arms Apartments and Bear Creek Apartments II. 

<PAGE>18

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, 1996.

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

          Exhibit No.               Description
          -----------         -----------------------
             27               Financial Data Schedule 

<PAGE>19

                                    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


                              /s/ Cynthia O. Azzara
---------------               -------------------------
DATE                          Cynthia O. Azzara
                              Principal Financial and 
                                Accounting Officer<PAGE>