UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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



For the quarter ended                                        September 30,2000
                                                             -----------------

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



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


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

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


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




     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. Yes [X] No [ ]

     As  of  September  30,  2000,   12,079,514   depositary  units  of  limited
partnership interest were outstanding.

<PAGE>





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

                               INDEX TO FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000

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

Item 1.       Financial Statements

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

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

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

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

              Notes to Financial Statements (unaudited)                                             8

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

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

PART II.      Other Information

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

Signature                                                                                          18
</TABLE>

<PAGE>

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                             September 30,      December 31,
                                                                 2000              1999
                                                             -------------     -------------
<S>                                                          <C>               <C>
                                                              (Unaudited)
                        ASSETS

Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                               $  73,614,363     $  79,052,484
    Originated insured mortgages                                15,575,163        15,703,179
                                                             -------------     -------------
                                                                89,189,526        94,755,663


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium:
    Acquired insured mortgages                                  11,060,663        11,167,461
    Originated insured mortgages                                12,603,323        12,699,265
                                                             -------------     -------------
                                                                23,663,986        23,866,726

Cash and cash equivalents                                        1,813,981        23,723,644

Receivables and other assets                                     1,032,608         1,123,472
                                                             -------------     -------------
      Total assets                                           $ 115,700,101     $ 143,469,505
                                                             =============     =============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                        $   2,262,552     $  22,876,915

Accounts payable and accrued expenses                              119,027           147,473
                                                             -------------     -------------
      Total liabilities                                          2,381,579        23,024,388
                                                             -------------     -------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                    118,178,411       125,182,237
  General partners' deficit                                     (5,035,349)       (4,751,114)
  Accumulated other comprehensive income                           175,460            13,994
                                                             -------------     -------------
      Total Partners' equity                                   113,318,522       120,445,117
                                                             -------------     -------------
      Total liabilities and partners' equity                 $ 115,700,101     $ 143,469,505
                                                             =============     =============
</TABLE>

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

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                For the three months ended        For the nine months ended
                                                       September 30,                    September 30,
                                               -----------------------------    -----------------------------
                                                   2000            1999             2000            1999
                                               -------------   -------------    -------------   -------------
<S>                                            <C>             <C>              <C>             <C>
Income:
  Mortgage investment income                   $   2,284,389   $   2,987,586    $   7,256,145   $   9,189,820
  Interest and other income                           45,210          59,638          302,688         145,721
                                               -------------   -------------    -------------   -------------
                                                   2,329,599       3,047,224        7,558,833       9,335,541
                                               -------------   -------------    -------------   -------------

Expenses:
  Asset management fee to related parties            283,440         349,290          865,409       1,064,865
  General and administrative                          98,217         117,191          308,040         383,518
                                               -------------   --------------   -------------   -------------
                                                     381,657         466,481        1,173,449       1,448,383
                                               -------------   -------------    -------------   -------------
Net earnings before gains on
  mortgage dispositions                            1,947,942       2,580,743        6,385,384       7,887,158

Net gains on mortgage dispositions                         -         134,433          278,959         785,214
                                               -------------   -------------    -------------   -------------

Net earnings                                   $   1,947,942   $   2,715,176    $   6,664,343   $   8,672,372
                                               =============   =============    =============   =============

Other comprehensive income (loss)                  1,116,357        (233,739)         161,466      (3,714,453)
                                               -------------   -------------    -------------   -------------
Comprehensive income                           $   3,064,299   $   2,481,437    $   6,825,809   $   4,957,919
                                               -------------   -------------    -------------   -------------

Net earnings allocated to:
  Limited partners - 96.1%                     $   1,871,972   $   2,609,284    $   6,404,434   $   8,334,149
  General Partner -   3.9%                            75,970         105,892          259,909         338,223
                                               -------------   -------------    -------------   -------------
                                               $   1,947,942   $   2,715,176    $   6,664,343   $   8,672,372
                                               =============   =============    =============   =============

Net earnings per Unit of limited
  partnership interest - basic                        $ 0.15          $ 0.22           $ 0.53          $ 0.69
                                                      ======          ======           ======          ======
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                    STATEMENT OF CHANGES IN PARTNERS' EQUITY

                  For the nine months ended September 30, 2000

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                          Accumulated
                                                                                            Other
                                                            General         Limited      Comprehensive
                                                            Partner         Partner         Income           Total
                                                         -------------   -------------   -------------   -------------
<S>                                                      <C>             <C>             <C>             <C>

Balance, December 31, 1999                               $  (4,751,114)  $ 125,182,237   $      13,994   $ 120,445,117

  Net Earnings                                                 259,909       6,404,434               -       6,664,343

  Adjustment to unrealized gains on
     investments in insured mortgages                                -               -         161,466         161,466

  Distributions paid or accrued of $1.11 per Unit,
     including return of capital of $0.58 per Unit            (544,144)    (13,408,260)              -     (13,952,404)
                                                          ------------   -------------   -------------   -------------

Balance, September 30, 2000                              $  (5,035,349)  $ 118,178,411   $     175,460   $ 113,318,522
                                                         =============   =============   =============   =============

Limited Partnership Units outstanding - basic, as
  of September 30, 2000                                                     12,079,514
                                                                            ==========
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.
<PAGE>


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                             STATEMENTS OF CASH FLOWS

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                           For the nine months ended
                                                                                                  September 30,
                                                                                              2000             1999
                                                                                          -------------   -------------
<S>                                                                                       <C>              <C>
Cash flows from operating activities:
   Net earnings                                                                           $   6,664,343   $   8,672,372
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gain on mortgage dispositions                                                        (278,959)       (785,214)
      Changes in assets and liabilities:
         Decrease in receivables and other assets                                                90,864         243,443
         Decrease in accounts payable and accrued expenses                                      (28,446)       (126,480)
                                                                                          -------------   -------------

            Net cash provided by operating activities                                         6,447,802       8,004,121
                                                                                          -------------   -------------

Cash flows from investing activities:
   Receipt of mortgage principal from scheduled payments                                        898,307       1,008,486
   Proceeds from mortgage dispositions                                                        5,310,995       8,190,810
   Proceeds from redemption of debenture                                                              -       2,296,098
   Debenture proceeds due to affiliate                                                                -      (1,148,049)
                                                                                          -------------   -------------

            Net cash provided by investing activities                                         6,209,302      10,347,345
                                                                                          -------------   -------------

Cash flows from financing activities:
   Distributions paid to partners                                                           (34,566,767)    (29,161,784)
                                                                                          -------------   -------------

            Net cash used in financing activities                                           (34,566,767)    (29,161,784)
                                                                                          -------------   -------------

Net decrease in cash and cash equivalents                                                   (21,909,663)    (10,810,318)

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

Cash and cash equivalents, end of period                                                  $   1,813,981   $   4,983,601
                                                                                          =============   =============

</TABLE>

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


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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

1.   ORGANIZATION

     American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform  Limited  Partnership Act of the state of California on
June 26, 1984. The Partnership Agreement  ("Partnership  Agreement") states that
the  Partnership  will  terminate  on  December  31,  2009,   unless  previously
terminated under the provisions of the Partnership Agreement.

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

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

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

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

     The  United  States  Bankruptcy  Court for the  District  of  Maryland,  in
Greenbelt,  Maryland (the "Bankruptcy  Court") held a hearing on August 23, 2000
with respect to the proposed  ballots  submitted to the  Bankruptcy  Court to be
sent to members of all classes of impaired creditors and equity security holders
in connection  with the Third Amended Joint Plan of  Reorganization  (as amended
and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and
21, 2000, the "Plan"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented  by praecipes  filed with the Bankruptcy  Court on July 13, 21, and
August 18, 2000, the  "Disclosure  Statement")  and other proposed  solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November  15,  2000 and set  September  5, 2000 as the  voting  record  date for
determining the holders of common stock,  preferred stock,  9-1/8 percent senior
notes and general unsecured  creditors  entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed  Disclosure  Statement and other solicitation  materials  including
ballots  during the week of  September  10,  2000 to  members of all  classes of
impaired  creditors and all equity security holders for acceptance or rejection.
The votes by impaired  classes of creditors  and  shareholders  on the Plan have
been  tabulated.   All  impaired  classes,   which  voted  on  the  Plan,  voted
overwhelmingly  to accept the Plan. An affidavit  certifying  the voting results
was filed with the  Bankruptcy  Court on November 3, 2000.  On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan.  Discussions  are continuing in an effort to resolve those  objections
before  the  November  15,  2000  confirmation  hearing  date.  There  can be no
assurance  that  CRIIMI  MAE will  reach a mutually  acceptable  agreement  with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.

     The Plan and Disclosure Statement has the support of the Official Committee
of Equity  Security  Holders  in the  CRIIMI  MAE  Chapter  11 case,  which is a
co-proponent  of the Plan.  Subject to the  completion  of  mutually  acceptable
documentation,  evidencing the secured financing to be provided by the unsecured
creditors,  the  Official  Committee  of  Unsecured  Creditors of CRIIMI MAE has
agreed to support  confirmation of the Plan. The Official Committee of Unsecured
Creditors  had  previously  filed its own plan of  reorganization  and  proposed
disclosure statement,  but has asked the Bankruptcy Court, subject to completion
of mutually  acceptable debt  documentation,  to defer consideration of its plan
and proposed disclosure statement. CRIIMI MAE, CRIIMI MAE Management,  Inc., the
Official  Committee of Equity Security  Holders,  and the Official  Committee of
Unsecured  Creditors are now all proceeding  jointly toward  confirmation of the
Plan.  There can be no  assurance  at this time that  CRIIMI  MAE's Plan will be
confirmed and consummated.


2.   BASIS OF PRESENTATION

     In the opinion of the General Partner, the accompanying unaudited financial
statements  contain all adjustments of a normal  recurring  nature  necessary to
present  fairly the financial  position of the  Partnership  as of September 30,
2000 and December 31, 1999 and the results of its  operations  for the three and
nine months  ended  September  30, 2000 and 1999 and its cash flows for the nine
months ended September 30, 2000 and 1999.

     These unaudited  financial  statements  have been prepared  pursuant to the
rules  and  regulations  of the  Securities  and  Exchange  Commission.  Certain
information  and  note  disclosures   normally   included  in  annual  financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed or omitted.  While the General  Partner  believes  that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the financial statements
and the notes to the financial  statements included in the Partnership's  Annual
Report filed on Form 10-K for the year ended December 31, 1999.


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

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

     Listed below is the  Partnership's  aggregate  investment  in Fully Insured
Mortgages:
<TABLE>
<CAPTION>                                                       September 30,           December 31,
                                                                   2000                     1999
                                                                -----------              -----------
<S>                                                             <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of
    GNMA Mortgage-Backed Securities (5)                                   5                        5
    FHA-Insured Certificates (1) (2) (3) (4)                             35                       39
  Amortized Cost                                                $72,667,082              $77,969,011
  Face Value                                                     75,568,266               81,218,457
  Fair Value                                                     73,614,363               79,052,484

Fully Insured Originated Mortgages:
  Number of
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                                $16,346,984              $16,772,658
  Face Value                                                     16,314,617               16,416,058
  Fair Value                                                     15,575,163               15,703,179

</TABLE>


     Listed below is a summary of prepayments  on Fully Insured  Mortgages as of
November 1, 2000:
 <TABLE>
<CAPTION>
                                                      Date                                        Distribution
                                        Net         Proceeds      Gain/    Dist./   Declaration     Payment
       Complex Name                   Proceeds      Received     (Loss)     Unit       Date          Date
       ------------                  ----------    ----------   --------   ------   -----------   ------------
   <S>                               <C>           <C>          <C>        <C>      <C>           <C>
   (1) Turtle Creek Apartments       $ 1,660,000   Jan. 2000    $ 44,023   $ 0.13   Jan. 2000      May 2000
   (2) Woodland Hills Apartments         693,000   April 2000     93,811     0.06   May 2000       Aug. 2000
   (3) New Castle Apartments           1,988,000   May 2000        8,158     0.16   May 2000       Aug. 2000
   (4) Colony West Apartments            646,000   May 2000      132,967     0.05   June 2000      Aug. 2000
   (5) Independence Park Apartments*   3,997,000   Oct. 2000     (39,820)    0.32   Oct. 2000      Feb. 2001

         *  Fourth quarter 2000 transaction
</TABLE>

     As of November 1, 2000, all of the fully insured  FHA-Insured  Certificates
and GNMA  Mortgage-Backed  Securities are current with respect to the payment of
principal and interest,  except for the mortgages on Gold Key Village Apartments
and Waterford Green Apartments, which are delinquent with respect to the October
payment of principal  and  interest.  In  addition,  the  Partnership  no longer
receives  monthly  principal and interest from the mortgages that are in the HUD
assignment process under Section 221, as discussed below.

     As of November 1, 2000, the Partnership has received  notification from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:
<TABLE>
<CAPTION>
                                                                  Outstanding
                                                                   Principal      Approval
           Property Name                     Application Date       Balance         Date
           -------------                     ----------------     -----------     --------
           <S>                                  <C>               <C>               <C>
           Fox Run Apartments                   May 2000          $ 1,185,000       N/A
           Park Place Apartments                June 2000             754,000       N/A
           Summit Square Manor                  June 2000           1,903,000       N/A
           Park Hill Apartments                 Sept. 2000          1,737,000       N/A
           Fairfax House                        Sept. 2000          2,128,000       N/A
           Country Club Terrace Apts.           Sept. 2000          1,439,000       N/A
           Fairlawn II                          Sept. 2000            755,000       N/A
</TABLE>

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended,  a mortgagee  has the right to assign a mortgage  ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in  default  at such  time.  Any  mortgagee  electing  to assign an  FHA-insured
mortgage to FHA will receive,  in exchange  therefor,  HUD  debentures  having a
total  face  value  equal  to the  then  outstanding  principal  balance  of the
FHA-insured mortgage plus accrued interest to the date of assignment.  These HUD
debentures  will  mature  10 years  from the date of  assignment  and will  bear
interest  at a rate  announced  semi-annually  by HUD  in the  Federal  Register
("going Federal rate") at such date. This assignment  procedure is applicable to
an  insured  mortgage,  which  had a firm  or  conditional  FHA  commitment  for
insurance on or before  November  30, 1983.  Once the servicer of a mortgage has
filed an application  for insurance  benefits under Section 221, the Partnership
will no longer  receive the monthly  principal  and  interest on the  applicable
mortgage.  The Partnership  expects to receive 99% of the outstanding  principal
balance, of the applicable mortgage,  as of the insurance application date, plus
accrued  interest at the "going Federal rate".  The Partnership will recognize a
gain or a loss on the  assignment  once the servicer  brings forth a notice from
HUD showing  approval of the assignment.  In general,  the Partnership  plans to
hold the debentures until called or date of maturity,  whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.

<PAGE>

4.   INVESTMENT IN FHA-INSURED LOANS

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

     Listed  below is the  Partnership's  aggregate  investment  in  FHA-Insured
Loans:
<TABLE>
<CAPTION>                                                       September 30,            December 31,
                                                                   2000                     1999
                                                                -----------              -----------
<S>                                                             <C>                      <C>
  Fully Insured Acquired Loans:
    Number of Loans                                                       9                        9
    Amortized Cost                                              $11,060,663              $11,167,461
    Face Value                                                   13,270,356               13,453,341
    Fair Value                                                   13,115,754               13,203,586

  Fully Insured Originated Loans:
    Number of Loans                                                       3                        3
    Amortized Cost                                              $12,603,323              $12,699,265
    Face Value                                                   12,291,945               12,379,870
    Fair Value                                                   11,870,655               12,017,626
</TABLE>

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

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


5.   DISTRIBUTIONS TO UNITHOLDERS

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

                                               2000          1999
                                              ------        ------
        Quarter ended March 31,               $ 0.47(1)(2)  $ 0.40(5)(6)
        Quarter ended June 30,                  0.46(3)(4)    0.65(7)(8)
        Quarter ended September 30,             0.18          0.22
                                              ------        ------
                                              $ 1.11        $ 1.27
                                              ======        ======


     The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
                                                              Date                            Net
                                                            Proceeds          Type of      Proceeds
               Complex Name(s)                              Received        Disposition    Per Unit
               ---------------                              --------        -----------    --------
      <S>                                                 <C>               <C>             <C>
      (1) Northwood Apartments                            December 1999     Prepayment      $0.13
      (2) Turtle Creek Apartments                         January 2000      Prepayment       0.13
      (3) Woodland Hills Apartments and New
                 Castle Apartments                        May 2000          Prepayment       0.22
      (4) Colony West Apartments                          May 2000          Prepayment       0.05
      (5) Gamel & Gamel Apartments                        December 1998     Prepayment       0.06
      (6) Debenture from Portervillage I Apartments *     January 1999      Assignment       0.10
      (7) Nassau Apartments, Walnut Apartments and
               Kings Villa/Discovery Commons              April 1999        Prepayment       0.37
      (8) Quail Creek Apartments                          May 1999          Prepayment       0.04

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

     The basis for paying  distributions  to  Unitholders  is net proceeds  from
mortgage  dispositions,  if any, and cash flow from  operations,  which includes
regular  interest  income and  principal  from Insured  Mortgages.  Although the
Insured  Mortgages yield a fixed monthly  mortgage  payment once purchased,  the
cash  distributions paid to the Unitholders will vary during each quarter due to
(1) the  fluctuating  yields in the  short-term  money  market where the monthly
mortgage  payment  receipts  are  temporarily  invested  prior to the payment of
quarterly  distributions,  (2) the  reduction  in the  asset  base  and  monthly
mortgage payments  resulting from monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default  of  Insured  Mortgages  and  professional  fees and  foreclosure  costs
incurred in connection  with those Insured  Mortgages and (4)  variations in the
Partnership's  operating expenses. As the Partnership continues to liquidate its
mortgage  investments and investors  receive  distributions of return of capital
and  taxable  gains,  investors  should  expect  a  reduction  in  earnings  and
distributions due to the decreasing mortgage base.


6.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated  entities,  during the three and
nine months ended September 30, 2000 and 1999,  earned or received  compensation
or payments for services from the Partnership as follows:

<TABLE>
<CAPTION>
                 COMPENSATION PAID OR ACCRUED TO RELATED PARTIES

                                                                                       For the                  For the
                                                                                  three months ended        nine months ended
                                                                                    September 30,             September 30,
                                                                               -----------------------   -----------------------
Name of Recipient                   Capacity in Which Served/Item                 2000        1999          2000         1999
-----------------                   -----------------------------              ----------   ----------   ----------   ----------
<S>                                 <C>                                        <C>          <C>          <C>          <C>
CRIIMI, Inc (1).                    General Partner/Distribution               $   88,240   $  107,848   $  544,144   $  622,580

AIM Acquisition Partners, L.P.(2)   Advisor/Asset Management Fee                  283,440      349,290      865,409    1,064,865

CRIIMI MAE Management, Inc.         Affiliate of General Partner/Expense
                                       Reimbursement                                9,424       10,141       35,140       32,629
</TABLE>
(1)  The General Partner,  pursuant to the Partnership Agreement, is entitled to
     receive 3.9% of the Partnership's  income, loss, capital and distributions,
     including,   without  limitation,  the  Partnership's  adjusted  cash  from
     operations and proceeds of mortgage  prepayments,  sales or insurance (both
     as defined in the Partnership Agreement).

(2)  The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
     Management Fee equal to 0.95% of Total  Invested  Assets (as defined in the
     Partnership  Agreement).  CMSLP,  the  sub-advisor to the  Partnership,  is
     entitled  to a fee of 0.28% of Total  Invested  Assets  from the  Advisor's
     Asset  Management  Fee. Of the amounts paid to the Advisor,  CMSLP earned a
     fee equal to  $83,544  and  $255,003  for the three and nine  months  ended
     September 30, 2000,  respectively,  and $102,957 and $313,878 for the three
     and nine months ended September 30, 1999, respectively. The limited partner
     of CMSLP is a wholly owned  subsidiary of CRIIMI MAE Inc.,  which filed for
     protection under chapter 11 of the Bankruptcy Code.
<PAGE>

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

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

General
-------

     As of  September  30,  2000,  the  Partnership  had  invested in 54 Insured
Mortgages with an aggregate  amortized cost of  approximately  $113 million,  an
aggregate face value of  approximately  $117 million and an aggregate fair value
of approximately $114 million, as discussed below.

     In October 2000, the mortgage on Independence  Park Apartments was prepaid.
The Partnership received net proceeds of approximately $4 million and expects to
recognize a loss of approximately $40,000. The Partnership expects to distribute
approximately $0.32 per Unit in February 2001, related to the prepayment of this
mortgage.

     As of November 1, 2000, all of the fully insured FHA-Insured  Certificates,
GNMA  Mortgage-Backed  Securities and FHA-Insured Loans are current with respect
to the payment of principal and  interest,  except for the mortgages on Gold Key
Village  Apartments and Waterford  Green  Apartments,  which are delinquent with
respect to the October  payment of principal  and  interest.  In  addition,  the
Partnership no longer receives monthly principal and interest from the mortgages
that are in the HUD assignment process under Section 221, as discussed below.

     As of November 1, 2000, the Partnership has received  notification from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:
<TABLE>
<CAPTION>
                                                                  Outstanding
                                                                   Principal      Approval
           Property Name                     Application Date       Balance         Date
           -------------                     ----------------     -----------     --------
           <S>                                  <C>               <C>               <C>
           Fox Run Apartments                   May 2000          $ 1,185,000       N/A
           Park Place Apartments                June 2000             754,000       N/A
           Summit Square Manor                  June 2000           1,903,000       N/A
           Park Hill Apartments                 Sept. 2000          1,737,000       N/A
           Fairfax House                        Sept. 2000          2,128,000       N/A
           Country Club Terrace Apts.           Sept. 2000          1,439,000       N/A
           Fairlawn II                          Sept. 2000            755,000       N/A
</TABLE>

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended,  a mortgagee  has the right to assign a mortgage  ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in  default  at such  time.  Any  mortgagee  electing  to assign an  FHA-insured
mortgage to FHA will receive,  in exchange  therefor,  HUD  debentures  having a
total  face  value  equal  to the  then  outstanding  principal  balance  of the
FHA-insured mortgage plus accrued interest to the date of assignment.  These HUD
debentures  will  mature  10 years  from the date of  assignment  and will  bear
interest  at a rate  announced  semi-annually  by HUD  in the  Federal  Register
("going Federal rate") at such date. This assignment  procedure is applicable to
an  insured  mortgage,  which  had a firm  or  conditional  FHA  commitment  for
insurance on or before  November  30, 1983.  Once the servicer of a mortgage has
filed an application  for insurance  benefits under Section 221, the Partnership
will no longer  receive the monthly  principal  and  interest on the  applicable
mortgage.  The Partnership  expects to receive 99% of the outstanding  principal
balance, of the applicable mortgage,  as of the insurance application date, plus
accrued  interest at the "going Federal rate".  The Partnership will recognize a
gain or a loss on the  assignment  once the servicer  brings forth a notice from
HUD showing  approval of the assignment.  In general,  the Partnership  plans to
hold the debentures until called or date of maturity,  whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.

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

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

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

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

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

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

     Net gains on mortgage dispositions  decreased for the three and nine months
ended  September  30, 2000,  as compared to the  corresponding  periods in 1999.
During  the first  nine  months of 2000,  the  Partnership  recognized  gains of
approximately  $279,000  from the  prepayment  of the  mortgages on Turtle Creek
Apartments,  Woodland Hills  Apartments,  New Castle  Apartments and Colony West
Apartments. During the first nine months of 1999, the Partnership recognized net
gains of  approximately  $785,000 from the prepayment of the mortgages on Nassau
Apartments,  Walnut  Apartments,  Kings  Villa/Discovery  Commons,  Quail  Creek
Apartments and Huntington Apartments. There were no mortgage dispositions during
the three months ended  September  30, 2000,  versus  approximately  $134,000 in
gains recognized during the same period in 1999.

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

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

     The  United  States  Bankruptcy  Court for the  District  of  Maryland,  in
Greenbelt,  Maryland (the "Bankruptcy  Court") held a hearing on August 23, 2000
with respect to the proposed  ballots  submitted to the  Bankruptcy  Court to be
sent to members of all classes of impaired creditors and equity security holders
in connection  with the Third Amended Joint Plan of  Reorganization  (as amended
and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and
21, 2000, the "Plan"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented  by praecipes  filed with the Bankruptcy  Court on July 13, 21, and
August 18, 2000, the  "Disclosure  Statement")  and other proposed  solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November  15,  2000 and set  September  5, 2000 as the  voting  record  date for
determining the holders of common stock,  preferred stock,  9-1/8 percent senior
notes and general unsecured  creditors  entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed  Disclosure  Statement and other solicitation  materials  including
ballots  during the week of  September  10,  2000 to  members of all  classes of
impaired  creditors and all equity security holders for acceptance or rejection.
The votes by impaired  classes of creditors  and  shareholders  on the Plan have
been  tabulated.   All  impaired  classes,   which  voted  on  the  Plan,  voted
overwhelmingly  to accept the Plan. An affidavit  certifying  the voting results
was filed with the  Bankruptcy  Court on November 3, 2000.  On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan.  Discussions  are continuing in an effort to resolve those  objections
before  the  November  15,  2000  confirmation  hearing  date.  There  can be no
assurance  that  CRIIMI  MAE will  reach a mutually  acceptable  agreement  with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.

     The Plan and Disclosure Statement has the support of the Official Committee
of Equity  Security  Holders  in the  CRIIMI  MAE  Chapter  11 case,  which is a
co-proponent  of the Plan.  Subject to the  completion  of  mutually  acceptable
documentation,  evidencing the secured financing to be provided by the unsecured
creditors,  the  Official  Committee  of  Unsecured  Creditors of CRIIMI MAE has
agreed to support  confirmation of the Plan. The Official Committee of Unsecured
Creditors  had  previously  filed its own plan of  reorganization  and  proposed
disclosure statement,  but has asked the Bankruptcy Court, subject to completion
of mutually  acceptable debt  documentation,  to defer consideration of its plan
and proposed disclosure statement. CRIIMI MAE, CRIIMI MAE Management,  Inc., the
Official  Committee of Equity Security  Holders,  and the Official  Committee of
Unsecured  Creditors are now all proceeding  jointly toward  confirmation of the
Plan.  There can be no  assurance  at this time that  CRIIMI  MAE's Plan will be
confirmed and consummated.

     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments,  were sufficient during the first nine months of 2000 to
meet operating  requirements.  The basis for paying distributions to Unitholders
is net  proceeds  from  mortgage  dispositions,  if  any,  and  cash  flow  from
operations,  which includes  regular  interest income and principal from Insured
Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment
once purchased,  the cash distributions paid to the Unitholders will vary during
each quarter due to (1) the  fluctuating  yields in the short-term  money market
where the monthly mortgage payments  received are temporarily  invested prior to
the payment of quarterly distributions,  (2) the reduction in the asset base and
monthly mortgage  payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default  of  Insured  Mortgages  and  professional  fees and  foreclosure  costs
incurred in connection  with those Insured  Mortgages and (4)  variations in the
Partnership's  operating expenses. As the Partnership continues to liquidate its
mortgage  investments and investors  receive  distributions of return of capital
and  taxable  gains,  investors  should  expect  a  reduction  in  earnings  and
distributions due to the decreasing mortgage base.

     Net cash  provided by operating  activities  decreased  for the nine months
ended  September  30,  2000,  as compared to the  corresponding  period in 1999,
primarily due to the reduction in the mortgage base.

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

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

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


PART I.   FINANCIAL INFORMATION
ITEM 2A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     The Partnership's  principal market risk is exposure to changes in interest
rates in the U.S.  Treasury  market,  which  coupled with the related  spread to
treasury investors required for the Partnership's Insured Mortgages,  will cause
fluctuations in the market value of Partnership's assets.

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

<PAGE>

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

     No  reports  on Form  8-K  were  filed  with the  Securities  and  Exchange
Commission during the quarter ended September 30, 2000.

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

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

                      27               Financial Data Schedule
<PAGE>

PART II.  OTHER INFORMATION

SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                     AMERICAN INSURED MORTGAGE
                                                     INVESTORS L.P. - SERIES 85
                                                       (Registrant)

                                                     By:  CRIIMI, Inc.
                                                          General Partner


November 14, 2000                                    /s/ Cynthia O. Azzara
-----------------                                    ---------------------------
DATE                                                 Cynthia O. Azzara
                                                     Senior Vice President,
                                                     Chief Financial Officer and
                                                     Treasurer