<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                  March 31, 1999
                                      --------------

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  March  31,  1999,   12,079,514   depositary  units  of  limited
partnership interest were outstanding.


<PAGE>2

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

                               INDEX TO FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1999

                                                                 Page
                                                                 ----

PART I.           Financial Information

Item 1.           Financial Statements

                  Balance Sheets - March 31, 1999 (unaudited)
                    and December 31, 1998........................  3

                  Statements of Income and Comprehensive Income -
                    for the three months ended March 31, 1999
                    and 1998 (unaudited) ........................   4

                  Statement of Changes in Partners' Equity -
                    for the three months ended March 31,
                    1999 (unaudited).............................   5

                  Statements of Cash Flows - for the three
                    months ended March 31, 1999 and
                    1998 (unaudited).............................   6

                  Notes to Financial Statements (unaudited)......   7

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

Item 2A.          Qualitative and Quantitative Disclosures about
                    Market Risk..................................  17

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>
                                                                             March 31,                 December 31,
                                                                                1999                       1998
                                                                            ------------               -----------
                                                                            (unaudited)

                                                         ASSETS
<S>                                                                         <C>                        <C>
Investment in FHA-Insured Certificates and GNMA Mortgage- Backed Securities,  at
  fair value:
    Acquired insured mortgages                                              $109,022,291               $110,253,225
    Originated insured mortgages                                              16,563,683                 16,738,030
                                                                            ------------               ------------
                                                                             125,585,974                126,991,255
                                                                            ------------               ------------
Investment in FHA-Insured Loans, at
  amortized cost, net of unamortized
  discount and premium:
    Acquired insured mortgages                                                11,584,952                 11,617,321
    Originated insured mortgages                                              12,789,597                 12,818,519
                                                                            ------------               ------------
                                                                              24,374,549                 24,435,840

Cash and cash equivalents                                                      4,505,783                 15,793,919

Investment in FHA debentures                                                          --                  2,296,098

Receivables and other assets                                                   1,231,308                  1,453,292
                                                                            ------------               ------------
     Total assets                                                           $155,697,614               $170,970,404
                                                                            ============               ============

                                            LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                                       $  5,027,893               $ 15,963,562

Accounts payable and accrued expenses                                            567,967                    184,236

Due to affiliate                                                                  45,631                  1,279,178
                                                                            ------------               ------------
     Total liabilities                                                         5,641,491                 17,426,976
                                                                            ------------               ------------
Partners' equity:
  Limited partners' equity, 15,000,000 units authorized,
    12,079,514 units issued and outstanding                                  149,450,204                151,721,136
  General partner's deficit                                                   (3,766,254)                (3,674,093)
  Accumulated other comprehensive income                                       4,372,173                  5,496,385
                                                                            ------------               ------------
     Total partners' equity                                                  150,056,123                153,543,428
                                                                            ------------               ------------
     Total liabilities and partners' equity                                 $155,697,614               $170,970,404
                                                                            ============               ============
</TABLE>
                                       The   accompanying  notes are an integral
                                             part of these financial statements.


<PAGE>4

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                       For the three months ended
                                                                                  March 31,
                                                                   ---------------------------------
                                                                        1999                 1998
                                                                   -------------       -------------
<S>                                                                <C>                 <C>
Income:
  Mortgage investment income                                       $   3,117,539        $  3,705,898
  Interest and other income                                               48,394             153,206
                                                                   -------------        ------------
                                                                       3,165,933           3,859,104

Expenses:
  Asset management fee to
   related parties                                                       361,907             418,102
General and administrative                                               139,226             144,453
                                                                   -------------        ------------
                                                                         501,133             562,555
                                                                   -------------        ------------

Net earnings before gains on
   mortgage dispositions                                               2,664,800           3,296,549

Net gains on mortgage dispositions                                            --             103,812
                                                                   -------------        ------------

Net earnings                                                       $   2,664,800        $  3,400,361
                                                                   =============        ============
Other comprehensive income                                            (1,124,212)            626,675
                                                                   -------------        ------------
Comprehensive income                                               $   1,540,588        $  4,027,036
                                                                   -------------        ------------

Net earnings allocated to:
  Limited partners - 96.1%                                         $   2,560,873        $  3,267,747
  General partner -   3.9%                                               103,927             132,614
                                                                   -------------        ------------
                                                                   $   2,664,800        $  3,400,361
                                                                   =============        ============

Net earnings per Unit of limited
  partnership interest - Basic                                     $        0.21        $       0.27
                                                                   =============        ============


</TABLE>


<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 three months ended March 31, 1999

                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                  Accumulated
                                                                                      Other
                                               General            Limited        Comprehensive
                                               Partner            Partner            Income            Total
                                             -----------        ------------     -------------     --------------       
<S>                                          <C>                <C>              <C>               <C>

Balance, December 31, 1998                   $(3,674,093)       $151,721,136     $   5,496,385      $ 153,543,428

  Net earnings                                   103,927           2,560,873                --          2,664,800

  Adjustment to unrealized
    losses on investments in
    in insured mortgages                              --                  --        (1,124,212)        (1,124,212)

  Distributions paid or accrued
    of $0.40 per Unit, including
    return of capital of $0.19                  (196,088)        (4,831,805)                --         (5,027,893)
                                             -----------      -------------     --------------      -------------
                                                                                             
Balance, March 31, 1999                      $(3,766,254)     $ 149,450,204        $ 4,372,173      $ 150,056,123
                                             ============     =============      =============      =============

Limited Partnership Units outstanding -
  basic, as of March 31, 1999                                    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 three months ended March 31,
                                                                                   1999             1998
                                                                              ------------     -------------
<S>                                                                           <C>              <C>
Cash flows from operating activities:
  Net earnings                                                                $  2,664,800     $   3,400,361
  Adjustments to reconcile net earnings
    to net cash provided by operating
    activities:
    Net gain on mortgage dispositions                                                   --          (103,812)
    Changes in assets and liabilities:
      Increase (decrease) in accounts payable and
        accrued expenses and due to affiliate                                      298,233          (103,394)
      Decrease in receivables and other assets                                     221,984           250,496
                                                                              ------------     -------------
        Net cash provided by operating activities                                3,185,017         3,443,651
                                                                              ------------     -------------
Cash flows from investing activities:
  Receipt of mortgage principal from
    scheduled payments                                                             342,360           337,939
  Proceeds from mortgage dispositions                                                   --         9,676,521
  Proceeds from redemption of debenture                                          2,296,098                --
  Debenture proceeds due to affiliate                                           (1,148,049)               --
                                                                              ------------     -------------
        Net cash provided by investing activities                                1,490,409        10,014,460
                                                                              ------------     -------------
Cash flows from financing activities:
  Distributions paid to partners                                               (15,963,562)      (15,460,772)
                                                                              ------------     -------------
        Net cash used in financing activities                                  (15,963,562)      (15,460,772)
                                                                              ------------     -------------
Net decrease in cash and cash equivalents                                      (11,288,136)       (2,002,661)

Cash and cash equivalents, beginning of period                                  15,793,919        14,718,103
                                                                              ------------     -------------
Cash and cash equivalents, end of period                                      $  4,505,783     $  12,715,442
                                                                              ============     =============
Non cash investing activity:
9.5% debenture received from HUD in exchange
   for the mortgage on Porter Village I Apartments                            $         --     $   2,296,098
Portion of debenture due to affiliate, AIM 84                                           --        (1,148,049)

</TABLE>


<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).

         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.,  Broad,  Inc. and
CRIIMI  MAE.  Pursuant  to the terms of certain  amendments  to the  Partnership
Agreement, the General Partner is required to receive the consent of the Advisor
prior to taking  certain  significant  actions which affect the  management  and
policies of the Partnership.

         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 a voluntary
petition for reorganization  under Chapter 11 of the U.S.  Bankruptcy Code. As a
debtor-in-possession,  CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy  court. This
restriction  or  potential  loss  of the  availability  of a  potential  capital
resource  could  adversely  affect  the  General  Partner  and the  Partnership;
however,  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.


<PAGE>8


              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)
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
March 31, 1999 and December 31, 1998 and the results of its  operations  for the
three  months  ended  March 31,  1999 and 1998 and its cash  flows for the three
months ended March 31, 1999 and 1998.

         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,  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, 1998.

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

<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
         Fully Insured Mortgage Investments
         ----------------------------------
                  Listed  below is the  Partnership's  aggregate  investment  in
Fully Insured Mortgages:

<TABLE>
<CAPTION>
                                                             March 31,               December 31,
                                                               1999                      1998
                                                          -----------------        -----------------
<S>                                                       <C>                      <C>
Fully Insured Acquired:
  Number of
    GNMA Mortgage-Backed Securities(1)(2)                                 8                        8
    FHA-Insured Certificates                                             46                       46
  Amortized Cost                                               $104,345,147             $104,595,386
  Face Value                                                    108,389,167              108,690,257
  Fair Value                                                    109,022,291              110,253,225

Fully Insured Originated:
  Number of
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                               $ 16,868,654             $ 16,899,484
  Face Value                                                     16,512,037               16,542,867
  Fair Value                                                     16,563,683               16,738,030

</TABLE>
         (1)    In April 1999,  the mortgage on Nassau  Apartments  was prepaid.
                The Partnership received net proceeds of approximately  $866,000
                and expects to recognize a loss of  approximately  $10,000.  The
                Partnership  expects to distribute  approximately $0.07 per Unit
                in August 1999, related to the prepayment of this mortgage.

         (2)    In April 1999,  the  mortgages  on Walnut  Apartments  and Kings
                Villa/Discovery  Commons were prepaid.  The Partnership received
                net proceeds,  from the two  mortgages,  of  approximately  $3.7
                million  and  expects  to  recognize   an   aggregate   gain  of
                approximately  $593,000.  The Partnership  expects to distribute
                approximately  $0.30 per Unit related to the prepayment of these
                mortgages in August 1999.

                As of  May  3,  1999,  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
         mortgages on Country Club Terrace Apartments and Quail Creek Apartments
         which  are  delinquent  with  respect  to the  March  1999  payment  of
         principal and interest.


<PAGE>10

      AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

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>
                                                              March 31,              December 31,
                                                                 1999                    1998
                                                          -----------------        -----------------
<S>                                                       <C>                      <C>
  Fully Insured Acquired:
    Number of Loans                                                      10                       10
    Amortized Cost                                             $ 11,584,952             $ 11,617,321
    Face Value                                                   14,011,145               14,068,282
    Fair Value                                                   14,030,310               14,087,092

  Fully Insured Originated:
    Number of Loans                                                       3                        3
    Amortized Cost                                             $ 12,789,597             $ 12,818,519
    Face Value                                                   12,462,479               12,488,890
    Fair Value                                                   12,596,058               12,747,524
</TABLE>


                  As of May 3, 1999, 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 months ended March
         31, 1999 and 1998, the Partnership  received  additional interest of $0
         and $34,553, respectively,  from the Participations.  These amounts, if
         any, are  included in mortgage  investment  income on the  accompanying
         Statements of Income and Comprehensive Income.


<PAGE>11


              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)


5.       DISTRIBUTIONS TO UNITHOLDERS

         The  distributions  paid or accrued to  Unitholders on a per Unit basis
for the three months ended March 31, 1999 and 1998 are as follows:

                                             1999                      1998
                                           --------                  --------
         Quarter ended March 31,           $ 0.40(1)(2)              $ 1.07(3)
                                           ------                    ------
                                           $ 0.40                    $ 1.07
                                           ======                    ======

(1)      This amount  includes  approximately  $0.06 per Unit  representing  net
         proceeds  from  the  prepayment  of  the  mortgage  on  Gamel  &  Gamel
         Apartments (Brown Gable Apartments).

(2)      This amount  includes  approximately  $0.10 per Unit  representing  net
         proceeds received from the redemption of the FHA debenture.  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.

(3)      This amount  includes  approximately  $0.77 per Unit  representing  net
         proceeds from the prepayment of the mortgage on Spanish Trace 
         Apartments.


         The basis for paying  distributions to Unitholders is net proceeds from
mortgage  dispositions,  if any, and cash flow from  operations,  which includes
regular  interest  income and  principal  from Insured  Mortgages.  Although the
Insured  Mortgages yield a fixed monthly  mortgage  payment once purchased,  the
cash  distributions paid to the Unitholders will vary during each quarter due to
(1) the  fluctuating  yields in the  short-term  money  market where the monthly
mortgage  payment  receipts  are  temporarily  invested  prior to the payment of
quarterly  distributions,  (2) the  reduction  in the  asset  base  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.


<PAGE>12

              AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

6.       TRANSACTIONS WITH RELATED PARTIES


         The General Partner and certain affiliated  entities,  during the three
months  ended  March 31,  1999 and  1998,  earned or  received  compensation  or
payments for services from the Partnership as follows:

<TABLE><CAPTION>

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

                                                                         For the three months
                          Capacity in Which                               ended  March 31,
Name of Recipient            Served/Item                                  1999          1998
-----------------       ----------------------                        -----------   ----------
<S>                   <C>                                             <C>           <C>
CRIIMI, Inc.          General Partner/Distribution                    $   196,088   $  524,535

AIM Acquisition       Advisor/Asset Management Fee                        361,907      418,102
  Partners, L.P.(1)

CRIIMI MAE            Affiliate of General Partner/                         7,443       16,183
Management, Inc.        Expense Reimbursement

</TABLE>

(1)      The Advisor, pursuant to the Partnership Agreement,  effective June 26,
         1984,  is entitled to an Asset  Management  Fee equal to 0.95% of Total
         Invested Assets (as defined in the Partnership  Agreement).  CRIIMI MAE
         Services   Limited   Partnership   (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 $106,674 and $123,236 for the three months
         ended March 31,  1999 and 1998,  respectively.  The limited  partner of
         CMSLP is a wholly-owned  subsidiary of CRIIMI MAE Inc., which filed for
         protection under Chapter 11 of the U.S.
         Bankruptcy Code.



<PAGE>13

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

Introduction
------------
         The  Partnership's  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations  contains  statements that may be considered
forward looking. These statements contain a number of risks and uncertainties as
discussed  herein  and  in  the  Partnership's  other  reports  filed  with  the
Securities  and Exchange  Commission  that could cause actual  results to differ
materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report on Form 10-K for the year ended  December 31, 1998,  for a more  detailed
discussion of such risks and uncertainties.

         On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner,
and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of
personnel  and  administrative  services  to the  Partnership,  filed  voluntary
petitions for  reorganization  under  Chapter 11 of the  Bankruptcy  Code.  Such
bankruptcy  filings could result in certain  adverse  effects to the Partnership
including  without  limitation,  the  potential  loss of  CRIIMI  MAE Inc.  as a
potential source of capital, as discussed under Liquidity and Capital Resources,
and the potential need to replace CRIIMI MAE  Management,  Inc. as a provider of
personnel and administrative services to the Partnership.

Year 2000
---------
         The Year 2000  issue is a  computer  programming  issue that may affect
many electronic  processing  systems.  Until  relatively  recently,  in order to
minimize the length of data fields, most date-sensitive  programs eliminated the
first two digits of the year.  This issue could  affect  information  technology
("IT")  systems and date sensitive  embedded  technology  that controls  certain
systems (such as  telecommunications  systems,  security systems,  etc.) leaving
them unable to properly  recognize or  distinguish  dates in the  twentieth  and
twenty-first   centuries.   This   treatment   could   result   in   significant
miscalculations when processing critical date-sensitive  information relating to
dates after December 31, 1999.

         The  General  Partner is  currently  in the  process of  assessing  and
testing Year 2000 compliance of its IT systems,  which include  software systems
to administer and manage mortgage assets and for internal accounting purposes. A
majority  of the IT  systems  used by the  Partnership  is  licensed  from third
parties.  These third parties have either provided  upgrades to existing systems
or have  indicated  that their  systems  are Year 2000  compliant.  The  General
Partner  has  applied  upgrades  and  has  completed  a  substantial  amount  of
compliance testing as of May 10, 1999. There can be no assurance,  however, that
the Partnership's IT systems will be Year 2000 compliant by December 31, 1999.


<PAGE>14


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


         The  Year  2000   issue  may  also   affect   the   General   Partner's
date-sensitive   embedded  technology,   which  controls  systems  such  as  the
telecommunications  systems, security systems, etc. The General Partner does not
believe that the cost to modify or replace such  technology to make it Year 2000
compliant  will be  material.  The  failure of any such  systems to be Year 2000
compliant could be material to the Partnership.

         The  potential  impact of the Year 2000 issue  depends  not only on the
corrective  measures the General Partner has undertaken and will undertake,  but
also on the ways in which the Year 2000 issue is addressed by third parties with
whom the  Partnership  directly  interfaces  or  whose  financial  condition  or
operations  are  important to the  Partnership.  The  Partnership  has initiated
communications  with third parties with which it directly interfaces to evaluate
the risk of their failure to be Year 2000  compliant and the extent to which the
Partnership  may be vulnerable to such failure.  There can be no assurance  that
the systems of these third  parties will be Year 2000  compliant by December 31,
1999. The failure of these third parties to be Year 2000 compliant  could have a
material adverse effect on the operations of the Partnership.

         The  Partnership  believes  that its greatest  risk with respect to the
Year 2000 issue relates to failures by third parties to be Year 2000  compliant.
In  addition  to  risks  posed by  third  parties  with  which  the  Partnership
interfaces  directly,  risks are created by third parties providing  services to
large  segments  of  society.  The  failure  of third  parties  to be Year  2000
compliant could,  among other things,  cause disruptions in the capital and real
estate  markets and borrower  defaults on real estate loans and  mortgage-backed
securities as well as the pools of mortgage loans  underlying  such  securities.
The Partnership  believes that its greatest  internal  exposure to the Year 2000
issue involves the loan servicing operations of an affiliate of the Partnership.
CMSLP currently services  approximately 21% of the total mortgage investments in
the AIM Funds.  CMSLP has applied a vendor upgrade and has completed  compliance
testing on the upgrade.

         Currently the Partnership estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.

         Although  the  General   Partner  has   substantially   completed   its
organizational compliance testing and remediation,  it is also in the process of
developing  contingency plans for the risks of the failure of the Partnership or
third parties to be Year 2000 compliant. The General Partner intends to complete
contingency  plans for the Year 2000 issue by mid 1999.  Due to the inability to
predict all of the  potential  problems that may arise from the Year 2000 issue,
there can be no assurance that all contingencies will be adequately addressed by
such plans.

<PAGE>15

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

General
-------
         As of March 31,  1999,  the  Partnership  had  invested  in 69  Insured
Mortgages with an aggregate  amortized cost of approximately  $145.6 million, an
aggregate face value of approximately $151.4 million and an aggregate fair value
of approximately $152.2 million, as discussed below.

         In April 1999, the mortgages on Nassau  Apartments,  Walnut Apartments,
and  King  Villa/Discovery   Commons  were  prepaid.  The  Partnership  received
aggregate net proceeds of approximately $4.6 million and expects to recognize an
aggregate  net  gain of  approximately  $583,000.  The  Partnership  expects  to
distribute  approximately  $0.37  per  Unit  in  August  1999,  related  to  the
prepayment of these mortgages.

         As of May 3, 1999,  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  mortgages  on  Country  Club  Terrace
Apartments and Quail Creek Apartments,  which are delinquent with respect to the
March 1999 payment of principal and interest.

Results of Operations
---------------------
         Net earnings  for the three  months  ended March 31, 1999  decreased as
compared to the  corresponding  period in 1998,  primarily  due to a decrease in
mortgage  investment  income as a result of the  disposition of eight  mortgages
since April 1998, and due to a decrease in net gains from mortgage  dispositions
as discussed below.

         Interest  and other income  decreased  for the three months ended March
31, 1999, as compared to the corresponding  period in 1998, primarily due to the
timing of temporary  investment  of proceeds  received from the  disposition  of
mortgages, prior to distribution.

         Asset  management  fees  decreased for the three months ended March 31,
1999,  as  compared  to the  corresponding  period in 1998,  primarily  from the
reduction in the mortgage asset base.

<PAGE>16

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


         Net gains on mortgage dispositions decreased for the three months ended
March 31, 1999,  as compared to the  corresponding  period in 1998.  No gains or
losses on mortgage  dispositions  were  recognized for the first three months of
1999.  During the first three months of 1998, the Partnership  recognized a gain
of approximately $200,000 from the assignment of the mortgage on Portervillage I
Apartments and recognized a loss of approximately $96,000 from the prepayment of
the mortgage on Spanish Trace Apartments.  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.

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 three months of 1999 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 three
months ended March 31, 1999,  as compared to the  corresponding  period in 1998,
primarily due to the decrease in earnings  before  mortgage  dispositions  as it
relates to the reduction in mortgage base.

<PAGE>17

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

         Net cash  provided  by  investing  activities  decreased  for the three
months ended March 31, 1999,  as compared to the  corresponding  period in 1998.
This  decrease is  primarily  due to a decrease in  proceeds  received  from the
disposition of mortgages and a decrease in debenture  proceeds due to affiliate,
as  discussed  previously.  This  decrease was offset by an increase in proceeds
from redemption of debenture, as discussed previously.

         On October 5, 1998, CRIIMI MAE, the parent of the General Partner,  and
CRIIMI  MAE  Management,  Inc.,  and  affiliate  of CRIIMI MAE and  provider  of
personnel  and  administrative  services to the  Partnership,  filed a voluntary
petition for reorganization  under Chapter 11 of the U.S.  Bankruptcy Code. As a
debtor-in possession,  CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy  court. This
restriction  or  potential  loss  of the  availability  of a  potential  capital
resource  could  adversely  affect  the  General  Partner  and the  Partnership;
however,  CRIIMI MAE has not  historically  represented a significant  source of
capital for the General Partner or the Partnership. Such bankruptcy filing could
also result in the potential  need to replace CRIIMI MAE  Management,  Inc. as a
provider of personnel and administrative services to the Partnership.

ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         The  Partnership's  principal  market  risk is  exposure  to changes in
interest rates in the US 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 March 31,  1999,  in market  risk from  December  31, 1998 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 1998.



<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 March 31, 1999.

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/ May 17, 1999                                     /s/ Cynthia O. Azzara
-------------------                                  -------------------------
DATE                                                 Cynthia O. Azzara
                                                       Principal Financial and
                                                       Accounting Officer