<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, 2004
                                          --------------

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 [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

     As of March 31, 2004,  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, 2004

                                                                          Page

PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - March 31, 2004 (unaudited) and
                 December 31, 2003                                          3

              Statements of Income and Comprehensive Income - for the
                 three months ended March 31, 2004 and 2003 (unaudited)     4

              Statement of Changes in Partners' Equity - for the
                 three months ended March 31, 2004 (unaudited)              5

              Statements of Cash Flows - for the three months ended
                 March 31, 2004 and 2003 (unaudited)                        6

              Notes to Financial Statements (unaudited)                     7

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

Item 3.       Qualitative and Quantitative Disclosures about Market Risk   16

Item 4.       Controls and Procedures                                      16

PART II.      Other Information

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

Signature                                                                  18

<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,
                                                             2004               2003
                                                        ----------------   ---------------
                                                           (Unaudited)
<C>                                                     <S>                <S>
                        ASSETS

Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value                $ 35,012,537      $ 35,147,430

Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium                             -        10,628,077

Investment in debentures, at fair value                       1,741,873        10,335,670

Cash and cash equivalents                                    25,442,346        11,345,058

Receivables and other assets                                    294,315         1,592,192
                                                          -------------      ------------
      Total assets                                        $  62,491,071      $ 69,048,427
                                                          =============      ============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                      $ 25,265,165       $ 2,513,947

Accounts payable and accrued expenses                            83,225            73,460

Due to affiliate                                                      -         5,319,243
                                                          -------------      ------------
      Total liabilities                                      25,348,390         7,906,650
                                                          -------------      ------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                  44,902,350        67,926,439
  General partner's deficit                                  (8,009,089)       (7,074,710)
  Accumulated other comprehensive income                        249,420           290,048
                                                          -------------      ------------
      Total partners' equity                                 37,142,681        61,141,777
                                                          -------------      ------------
      Total liabilities and partners' equity              $  62,491,071      $ 69,048,427
                                                          =============      ============
</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,
                                                                2004              2003
                                                               ------            -------
<C>                                                            <S>               <S>
Income:
  Mortgage investment income                                $   804,511       $ 1,321,225
  Interest and other income                                      64,782            24,024
                                                            -----------       -----------
                                                                869,293         1,345,249
                                                            -----------       -----------

Expenses:
  Asset management fee to related parties                       106,629           163,451
  General and administrative                                     88,288           107,091
                                                            -----------       -----------
                                                                194,917           270,542
                                                            -----------       -----------
Net earnings before gains on
  mortgage dispositions                                         674,376         1,074,707

Gains on mortgage dispositions                                  632,327           452,826
                                                            -----------       -----------
Net earnings                                                $ 1,306,703       $ 1,527,533
                                                            ===========       ===========

Other comprehensive loss - adjustment to
  unrealized gains on investments in insured mortgages          (40,628)         (309,312)
                                                            -----------       -----------

Comprehensive income                                        $ 1,266,075       $ 1,218,221
                                                            ===========       ===========

Net earnings allocated to:
  Limited partners - 96.1%                                  $ 1,255,742       $ 1,467,959
  General Partner -   3.9%                                       50,961            59,574
                                                            -----------       -----------
                                                            $ 1,306,703       $ 1,527,533
                                                            ===========       ===========
Net earnings per Unit of limited
  partnership interest - basic                              $      0.10       $      0.12
                                                            ===========       ===========
</TABLE>
        The accompanying notes are an integral part
              of these financial statements.



<PAGE>5

PART I.           FINANCIAL INFORMATION
ITEM 1.           FINANCIAL STATEMENTS


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

                    STATEMENT OF CHANGES IN PARTNERS' EQUITY

                    For the three months ended March 31, 2004

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                       Accumulated
                                                                                          Other
                                                      General          Limited        Comprehensive
                                                      Partner         Partners           Income            Total
                                                    ------------      ------------    --------------     ------------
<C>                                                 <S>               <S>             <S>                <S>
Balance, December 31, 2003                          $ (7,074,710)     $ 67,926,439         $ 290,048     $ 61,141,777

  Net earnings                                            50,961         1,255,742                 -        1,306,703

  Adjustment to unrealized gains on
     investments in insured mortgages                          -                 -           (40,628)         (40,628)

  Distributions paid or accrued of $2.01 per Unit,
     including return of capital of $1.91 per Unit      (985,340)      (24,279,831)                -      (25,265,171)
                                                    ------------      ------------         ---------     ------------

Balance, March 31, 2004                             $ (8,009,089)     $ 44,902,350         $ 249,420     $ 37,142,681
                                                    ============      ============         =========     ============

Limited Partnership Units outstanding - basic, as
  of and for the three months ended March 31, 2004 and 2003             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,
                                                                                       2004              2003
                                                                                     --------          --------
<C>                                                                                  <S>                <S>
Cash flows from operating activities:
   Net earnings                                                                     $  1,306,703      $ 1,527,533
   Adjustments to reconcile net earnings to
      net cash provided by operating activities:
      Gains on mortgage dispositions                                                    (632,327)        (452,826)
      Changes in assets and liabilities:
         Decrease in receivables and other assets                                        487,217           91,375
         Increase in accounts payable and accrued expenses                                 9,765          169,234
         (Decrease) increase in due to affiliate                                        (151,408)          14,447
                                                                                    ------------      -----------

            Net cash provided by operating activities                                  1,019,950        1,349,763
                                                                                    ------------      -----------

Cash flows from investing activities:
   Proceeds from redemption of debentures                                             11,146,330          744,159
   Debenture proceeds paid to affiliate                                               (5,167,835)               -
   Receipt of mortgage principal from scheduled payments                                  78,153          167,199
   Proceeds from mortgage prepayments and sales                                        9,534,643          949,721
   Proceeds from mortgage assignments                                                          -        1,469,078
                                                                                    ------------      -----------

            Net cash provided by investing activities                                 15,591,291        3,330,157
                                                                                    ------------      -----------

Cash flows used in financing activities:
   Distributions paid to partners                                                     (2,513,953)     (10,181,484)
                                                                                    ------------      -----------

Net increase (decrease) in cash and cash equivalents                                  14,097,288       (5,501,564)

Cash and cash equivalents, beginning of period                                        11,345,058       10,448,516
                                                                                    ------------      -----------

Cash and cash equivalents, end of period                                            $ 25,442,346       $4,946,952
                                                                                    ============      ===========

Non-cash investing activity:
   Debentures received from HUD in exchange for assigned mortgages                    $1,741,873       $1,812,914
   Portion of debentures due to an affiliate                                                   -         (906,456)
   9% of proceeds due from HUD for the mortgage on Westbrook Apartments                        -          149,566

</TABLE>

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


<PAGE>7
              AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

1.   ORGANIZATION

     American Insured Mortgage  Investors - Series 85, L.P. (the  "Partnership")
was  formed   pursuant  to  a  limited   partnership   agreement,   as  amended,
("Partnership Agreement") under the Uniform Limited Partnership Act of the state
of  California  on June 26,  1984.  During  the  period  from March 8, 1985 (the
initial closing date of the  Partnership's  public offering) through January 27,
1986 (the  termination date of the offering),  the Partnership,  pursuant to its
public offering of 12,079,389  Depository Units of limited partnership  interest
("Units")  raised a total of $241,587,780 in gross  proceeds.  In addition,  the
initial limited partner  contributed $2,500 to the capital of the Partnership in
exchange for 125 units of limited partnership interest.

     CRIIMI, Inc., a wholly-owned  subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General  Partner (the  "General  Partner") for the  Partnership  and
holds a partnership  interest of 3.9%. The General Partner  provides  management
and  administrative  services  on behalf  of the  Partnership.  AIM  Acquisition
Partners  L.P.  serves as the advisor (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, The
Goldman Sachs Group, L.P., Sun America  Investments,  Inc.  (successor to Broad,
Inc.) and CRI/AIM  Investment,  L.P.,  a  subsidiary  of CRIIMI MAE,  over which
CRIIMI  MAE  exercises  100%  voting  control.  AIM  Acquisition  is a  Delaware
corporation  that is primarily  owned by Sun America  Investments,  Inc. and The
Goldman Sachs Group, L.P.

     Pursuant  to the terms of certain  origination  and  acquisition  services,
management services and disposition  services agreements between the Advisor and
the Partnership  (collectively the "Advisory  Agreements"),  the Advisor renders
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 are 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  (collectively  the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership  ("CMSLP"),  a subsidiary of
CRIIMI  MAE,   pursuant  to  a  sub-management   agreement  (the   "Sub-Advisory
Agreement").  The general partner and limited partner of CMSLP are  wholly-owned
subsidiaries  of CRIIMI MAE. The  delegation  of such services by the Advisor to
CMSLP does not relieve the Advisor of its  obligation to perform such  services.
Furthermore the Advisor has retained its Consent Rights.

     Prior to December  1993,  the  Partnership  was engaged in the  business of
originating   and  acquiring   government   insured   mortgage  loans  ("Insured
Mortgages").  In accordance  with the terms of the  Partnership  Agreement,  the
Partnership is no longer  authorized to originate or acquire  Insured  Mortgages
and, consequently,  its primary objective is to manage its portfolio of mortgage
investments,  all of which are insured under Section 221(d)(4) or Section 231 of
the National  Housing Act of 1937, as amended (the "National  Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2009, unless terminated earlier under the provisions thereof. The Partnership is
required,  pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.

     As the  Partnership  continues to liquidate  its mortgage  investments  and
Unitholders  receive  distributions  of return of  capital  and  taxable  gains,
Unitholders  should expect a reduction in earnings and  distributions due to the
decreasing   mortgage  base.   Upon  the  termination  and  liquidation  of  the
Partnership,  on or before December 31, 2009,  distributions to Unitholders will
be made in  accordance  with the  terms of the  Partnership  Agreement.  A final
distribution  to Unitholders  will be based on the  Partnership's  remaining net
assets,  and such distribution to Unitholders is likely to be substantially less
than the amount  referenced  in  limited  partners' equity  in the Partnership's
financial statements.


2. BASIS OF PRESENTATION

     The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting  principles  generally  accepted in the
United States  ("GAAP").  The preparation of financial


<PAGE>8

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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

statements in conformity  with GAAP requires  management to make  estimates
and  assumptions  that affect the reported  amounts of assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

     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, 2004,
and the results of its  operations and its cash flows for the three months ended
March 31, 2004 and 2003.

     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 GAAP 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 on Form 10-K for the year
ended December 31, 2003.


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

     Listed   below  is  the   Partnership's   aggregate   investment   in  GNMA
Mortgage-Backed Securities and FHA-Insured Certificates:

                                             March 31,             December 31,
                                               2004                    2003
                                           ------------           ------------

  Number of:
    GNMA Mortgage-Backed Securities                  2                      2
    FHA-Insured Certificates                        10                     10
  Amortized Cost                           $34,763,117            $34,857,381
  Face Value                                34,829,625             34,926,078
  Fair Value                                35,012,537             35,147,430

     As of  May  1,  2004,  all  of  the  GNMA  Mortgage-Backed  Securities  and
FHA-Insured  Certificates  are current  with respect to the payment of principal
and interest.


<PAGE>9

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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

4. INVESTMENT IN FHA-INSURED LOANS

     Listed  below is the  Partnership's  aggregate  investment  in  FHA-Insured
Loans:

                                           March 31,            December 31,
                                            2004                     2003
                                         ------------          -------------

    Number of Loans (1) (2)                        -                      3
    Amortized Cost                               $ -           $ 10,628,077
    Face Value                                     -             10,652,222
    Fair Value                                     -             11,278,741

(1)    In January 2004, HUD transferred assignment proceeds to the Partnership
       in the form of a 5.75% debenture, with a face value of approximately $3.5
       million, in exchange for the mortgage on Kaynorth Apartments. Since the
       mortgage on Kaynorth Apartments was beneficially owned 50% by the
       Partnership and 50% by American Insured Mortgage Investors ("AIM 84"),
       approximately $1.7 million of the debenture face value was due to AIM 84.
       See further discussion in Note 5.
(2)    In February 2004, the mortgages on Cobblestone Apartments and The
       Plantation were sold, with the consent of the Advisor. The Partnership
       received aggregate net proceeds of approximately $9.6 million and
       recognized aggregate gains of approximately $386,000 for the three months
       ended March 31, 2004. The aggregate distribution of approximately $0.76
       per Unit related to the sale of these two mortgages was declared in
       February 2004 and paid to Unitholders in May 2004.


5. INVESTMENTS IN DEBENTURES, DUE TO AFFILIATE AND OTHER

     The Partnership, as the mortgagee, had the right to assign mortgages to the
United  States  Department  of Housing and Urban  Development  ("HUD") under the
Section  221(g)(4)  program  of the  National  Housing  Act  (the  "Section  221
Program.")  at the  expiration  of 20 years  from the date of final  endorsement
("Anniversary  Date").  The  Partnership,  as the mortgagee,  could exercise its
option to put a mortgage  to HUD during the one year  period  subsequent  to the
Anniversary  Date.  This  assignment  procedure  was  applicable  to an  Insured
Mortgage which had a firm or conditional  commitment for HUD insurance  benefits
on or before  November  30,  1983.  A  mortgagee  electing  to assign an Insured
Mortgage to HUD received,  in exchange therefore,  a debenture.  As of March 31,
2004,  the  Partnership  no  longer  holds  mortgage  investments  eligible  for
assignment  to HUD under the Section 221 program.  The following is a discussion
of  debentures  received in  exchange  for  mortgages  assigned to HUD under the
Section 221 Program:

Debenture and due to affiliate
------------------------------

     Listed  below  are  debentures   redeemed  by  HUD  in  January  2004.  The
Partnership  received aggregate proceeds of approximately  $10.6 million,  which
included the face value of the debentures, plus accrued interest. The debentures
paid interest  semi-annually on January 1 and July 1. Since the mortgages listed
were  beneficially  owned 50% by the Partnership and 50% by AIM 84, an affiliate
of the Partnership  which shared the same General  Partner,  approximately  $5.3
million  of  the  proceeds  were  transferred  to  AIM  84.  A  distribution  of
approximately  $0.42  per  Unit  was  declared  in  January  2004  and  paid  to
Unitholders in May 2004.


<PAGE>10

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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

     (Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                                                                  Face Value   Face Value      Date
                                Redemption   Interest   Face        Due to     Due to the   Debenture
    Debenture for mortgage on:     Date       Rate      Value     Affiliate    Partnership  Received
    -------------------------   -----------  --------   ------    ---------    -----------  --------
    <C>                         <C>          <C>        <C>       <C>          <C>          <C>
    Baypoint Shoreline
      Apartments                01/01/2004    6.375%    $ 1,813       $ 906        $ 906     Feb-03

    College Green Apartments    01/01/2004    5.750%      2,571       1,286        1,286     Jul-03

    Brougham Estates II         01/01/2004    5.750%      4,774       2,387        2,387     Aug-03

    Town Park Apartments        01/01/2004    5.750%      1,178         589          589     Aug-03
                                                       --------      ------       ------
    Total debentures                                    $10,336      $5,168       $5,168
                                                       ========      =======      ======
</TABLE>

     In  January  2004,  HUD  issued a 5.75%  debenture  to the  Partnership  in
exchange  for the  mortgage  on  Kaynorth  Apartments.  The  face  value  of the
debenture  was  approximately  $3.5 million and pays interest  semi-annually  on
January  1 and  July 1.  The  Partnership  recognized  a gain  of  approximately
$246,000 in the first quarter of 2004 related to this assignment.  This mortgage
was  beneficially  owned 50% by the  Partnership  and 50% by AIM 84. In February
2004,  the  Partnership,  with the  consent  of the  Advisor,  sold AIM 84's 50%
interest in this debenture and subsequently transferred the cash proceeds, which
included  the  face  value  of  the  debenture,   plus  accrued   interest,   of
approximately  $1.8  million  to AIM 84. The fair  value of this  debenture,  of
approximately  $1.7  million,  was included in  Investment  in Debentures on the
Partnership's balance sheet as of March 31, 2004.

Other
-----

     In January 2004, HUD also redeemed a 6.375% debenture held by a third party
beneficiary.  The  debenture  was issued by HUD in May 2003, in exchange for the
assignment  of the mortgage on The Executive  House.  The  Partnership  received
proceeds of approximately  $836,000 which included the Partnership's  portion of
the face value of the  debenture,  plus  accrued  interest.  A  distribution  of
approximately  $0.065  per  Unit  was  declared  in  February  2004  and paid to
Unitholders  in May 2004.  Since the  Partnership  only owned  70.39% of the FHA
insured  certificate  secured by the  mortgage  on The  Executive  House and the
remainder  was held by unrelated  third  parties,  the  debenture was held by an
unrelated  third  party and the face  amount  of  approximately  $811,000,  plus
accrued  interest,  due to the Partnership was included in Receivables and Other
Assets on the Partnership's balance sheet as of December 31, 2003.



<PAGE>11

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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

6. DISTRIBUTIONS TO UNITHOLDERS

     The  distributions  paid or accrued to  Unitholders on a per Unit basis for
the three months ended March 31, 2004 and 2003 are as follows:

                                      2004           2003
                                      -----          ----

Quarter ended March 31                $2.01 (1)      $0.31 (2)
                                      -----          -----
                                      $2.01          $0.31
                                      =====          =====

     The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
                                                                           Date                       Net
                                                                         Proceeds       Type of     Proceeds
      Name of property to which mortgage was held                        Received     Disposition   Per Unit
      -------------------------------------------                        --------     -----------   --------
      <C>                                                                <S>          <S>           <S>
      (1) Quarter ended March 31, 2004:
           Pleasant View Nursing Home                                    Dec 2003     Prepayment      $0.570
           Stone Hedge Village Apartments                                Dec 2003     Prepayment       0.135
           Baypoint Shoreline Apts., College Green Apts., Brougham
             Estates II and Town Park Apts. (redemption of debentures)   Jan 2004     Assignments      0.420
           The Executive House (redemption of debenture)                 Jan 2004     Assignment       0.065
           Cobblestone Apts. and The Plantation                          Feb 2004        Sale          0.760
      (2) Quarter ended March 31, 2003:
           Walnut Hills                                                  Dec 2002     Prepayment       0.040
           Westbrook Apartments                                          Jan 2003     Assignment       0.120
           Fairlawn II (redemption of 7.5% debenture)                    Jan 2003     Assignment       0.060
</TABLE>

     The basis for paying  distributions  to  Unitholders  is net proceeds  from
mortgage and/or debenture  dispositions,  if any, and cash flow from operations,
which includes regular interest income and principal from Insured  Mortgages and
interest on  debentures.  Although  the Insured  Mortgages  pay a fixed  monthly
mortgage payment and the debentures have a fixed  semi-annual  interest payment,
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 and debenture  interest 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  and  debenture   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  Unitholders  receive
distributions of return of capital and taxable gains,  Unitholders should expect
a reduction in earnings and distributions  due to the decreasing  mortgage base.
Upon the termination and liquidation of the  Partnership,  on or before December
31, 2009, distributions to Unitholders will be made in accordance with the terms
of the Partnership  Agreement. A final distribution to Unitholders will be based
on the Partnership's  remaining net assets, and such distribution to Unitholders
is likely  to be  substantially  less  than the  amount  referenced  in  limited
partners' equity in the Partnership's financial statements.


<PAGE>12

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

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

7. TRANSACTIONS WITH RELATED PARTIES

     The  General  Partner and certain  affiliated  entities  earned or received
compensation or payments for services from the Partnership as follows:

                 COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
                 -----------------------------------------------
<TABLE>
<CAPTION>
                                                                                       For the
                                                                                 three months ended
                                                                                      March 31,
       Name of Recipient                 Capacity in Which Served/Item            2004        2003
       -----------------                 -----------------------------            -----       ----
<C>                                      <S>                                     <S>         <S>
CRIIMI, Inc. (1)                         General Partner/Distribution          $ 985,340   $ 151,968

AIM Acquisition Partners, L.P.(2)        Advisor/Asset Management Fee            106,629     163,451

                                         Affiliate of General Partner/Expense
CRIIMI MAE Management, Inc.(3)           Reimbursement                            16,519      18,235
</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 (as
     defined in the Partnership Agreement).

(2)  The Advisor is entitled to an asset management fee equal to 0.95% of total
     invested assets (as defined in the Partnership Agreement). CMSLP 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 $31,424 and $48,172 for the three months ended March 31, 2004
     and 2003, respectively. The general partner and limited partner of CMSLP
     are wholly owned subsidiaries of CRIIMI MAE.

(3)  CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
     reimbursed for personnel and administrative services on an actual cost
     basis.

<PAGE>13


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

FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "believe," "anticipate," "expect," "contemplate," "may," "will," 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 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 prior and future filings by
the Partnership (defined below) with the Securities and Exchange Commission
("SEC") 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, (v) defaulted mortgages, (vi) errors in servicing defaulted mortgages
and (vii) sales of mortgage investments below fair market value. 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
-------

     The Partnership's  business consists of holding government insured mortgage
investments  ("Insured  Mortgages") primarily on multifamily housing properties,
and  distributing  the  payments of  principal  and  interest  on such  mortgage
investments,  including  debentures  issued by the United  States  Department of
Housing and Urban  Development  ("HUD") in exchange for such  mortgages,  to the
holders   of   its   depository   units   of   limited   partnership   interests
("Unitholders").  CRIIMI,  Inc., a  wholly-owned  subsidiary  of CRIIMI MAE Inc.
("CRIIMI  MAE"),  acts as the General  Partner (the  "General  Partner") for the
Partnership and holds a partnership interest of 3.9%. The Partnership's  primary
source  of  revenue  and cash is  mortgage  interest  income  from  its  Insured
Mortgages.

     The General  Partner is required to receive the consent of AIM  Acquisition
Partners L.P., the advisor (the "Advisor") to the  Partnership,  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 (collectively the "Consent Rights").

     As the  Partnership  continues to liquidate  its mortgage  investments  and
Unitholders  receive  distributions  of return of  capital  and  taxable  gains,
Unitholders  should expect a reduction in earnings and  distributions due to the
decreasing  mortgage  base.  The  magnitude of the decrease will depend upon the
size of the Insured Mortgages which are prepaid,  sold or assigned for insurance
proceeds.

Mortgage Investments
--------------------

     As of March 31, 2004, the Partnership had invested in 12 Insured  Mortgages
and one  debenture  with an  aggregate  amortized  cost of  approximately  $36.5
million, an aggregate face value of approximately $36.6 million and an aggregate
fair value of approximately $36.8 million.


<PAGE>14

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


     Four  debentures  held by the  Partnership as of December 31, 2003, with an
aggregate  face value of  approximately  $10.3  million were  redeemed by HUD on
January 1, 2004. The debentures  were issued in exchange for mortgages that were
held jointly by American Insured Mortgage  Investors ("AIM 84"), an affiliate of
the  Partnership  which shared the same General  Partner,  and the  Partnership,
therefore 50% of the debenture proceeds were paid to AIM 84 in January 2004. The
distribution  of  approximately  $0.42  per  Unit  related  to  these  debenture
redemptions was declared in January 2004 and paid to Unitholders in May 2004.

     In January 2004, HUD also redeemed a 6.375% debenture held by a third party
beneficiary.  The  debenture  was issued by HUD in May 2003, in exchange for the
assignment  of the mortgage on The Executive  House.  The  Partnership  received
proceeds of approximately $836,000,  which included the Partnership's portion of
the face value of the  debenture,  plus  accrued  interest.  A  distribution  of
approximately  $0.065  per  Unit  was  declared  in  February  2004  and paid to
Unitholders in May 2004.

     In January 2004, HUD transferred  assignment proceeds to the Partnership in
the form of a 5.75% debenture,  with a face value of approximately $3.5 million,
in exchange  for the  mortgage on Kaynorth  Apartments,  which was  beneficially
owned 50% by the Partnership and 50% by AIM 84. In February 2004,  approximately
$1.7  million  of the  debenture  face value was sold,  with the  consent of the
Advisor, and paid to AIM 84. The Partnership  recognized a gain of approximately
$246,000 in the first quarter of 2004 related to this assignment.

     In  February  2004,  the  mortgages  on  Cobblestone   Apartments  and  The
Plantation were sold, with the consent of the Advisor.  The Partnership received
aggregate net proceeds of  approximately  $9.6 million and recognized  aggregate
gains of  approximately  $386,000 for the three months ended March 31, 2004. The
aggregate  distribution of  approximately  $0.76 per Unit related to the sale of
these two mortgages was declared in February 2004 and paid to Unitholders in May
2004.

     As of May 1, 2004, all of the Insured Mortgages are current with respect to
the payment of principal and interest.

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

     Net earnings decreased by approximately $221,000 for the three months ended
March 31, 2004, as compared to the corresponding  period in 2003,  primarily due
to a decrease in mortgage  investment  income partially offset by an increase in
gains on mortgage dispositions.

     Mortgage  investment  income  decreased by  approximately  $517,000 for the
three months ended March 31, 2004,  as compared to the  corresponding  period in
2003,  primarily  due to a reduction in the  mortgage  base.  The mortgage  base
decreased as a result of 14 mortgage  dispositions  with an aggregate  principal
balance of approximately $27.7 million, representing an approximate 44% decrease
in the aggregate  principal balance of the total mortgage  portfolio since March
2003.

     Interest and other income increased by approximately  $41,000 for the three
months ended March 31, 2004,  as compared to the  corresponding  period in 2003,
primarily due to an increase in debenture  interest and due to variations in the
amounts  and the timing of the  temporary  investment  of  mortgage  disposition
proceeds prior to distribution.

     Asset  management  fees  decreased by  approximately  $57,000 for the three
months ended March 31, 2004,  as compared to the  corresponding  period in 2003,
primarily due to the reduction in the mortgage base, as previously discussed.


<PAGE>15

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


     General and administrative  expenses decreased by approximately $19,000 for
the three months ended March 31, 2004, as compared to the  corresponding  period
in 2003,  primarily  due to the  reduction in the mortgage  base,  as previously
discussed.

     Gains on mortgage dispositions  increased by approximately $180,000 for the
three months ended March 31, 2004,  as compared to the  corresponding  period in
2003. During the three months ended March 31, 2004, the Partnership recognized a
gain of approximately  $246,000 from the assignment of one mortgage and gains of
approximately  $386,000 from the sale of two  mortgages.  During the first three
months of 2003, the Partnership  recognized a gain of approximately $93,000 from
the  prepayment  of one mortgage and gains of  approximately  $359,000  from the
assignment of two mortgages.

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

     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on Insured  Mortgages,  interest on  debentures  and cash
receipts from interest on short-term  investments,  were  sufficient  during the
three months ended March 31, 2004 to meet operating requirements.  The basis for
paying  distributions  to  Unitholders  is net  proceeds  from  mortgage  and/or
debenture  dispositions,  if any, and cash flow from operations,  which includes
regular  interest  income and principal  from Insured  Mortgages and interest on
debentures.  Although the Insured Mortgages pay a fixed monthly mortgage payment
and  the  debentures  have  a  fixed  semi-annual  interest  payment,  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 and debenture interest 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
and debenture 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 Unitholders receive  distributions of
return of capital and taxable  gains,  Unitholders  should expect a reduction in
earnings  and  distributions  due to the  decreasing  mortgage  base.  Upon  the
termination and liquidation of the Partnership,  on or before December 31, 2009,
distributions  to Unitholders  will be made in accordance  with the terms of the
Partnership  Agreement. A final distribution to Unitholders will be based on the
Partnership's  remaining net assets,  and such  distribution  to  Unitholders is
likely to be substantially  less than the amount referenced in limited partners'
equity in the Partnership's financial statements.

     Net cash  provided  by  operating  activities  decreased  by  approximately
$330,000  for the  three  months  ended  March  31,  2004,  as  compared  to the
corresponding period in 2003, primarily due to a decrease in mortgage investment
income,  partially  offset by decreases in asset  management fee and general and
administrative expenses.

     Net cash provided by investing  activities increased by approximately $12.3
million  for  the  three  months  ended  March  31,  2004,  as  compared  to the
corresponding  period in 2003,  primarily due to increases in proceeds  received
from mortgage  prepayments  and sales and net debenture  redemptions,  partially
offset by a decrease in mortgage assignments.

     Net cash used in  financing  activities  decreased  by  approximately  $7.7
million  for  the  three  months  ended  March  31,  2004,  as  compared  to the
corresponding  period in 2003, due to a decrease in the amount of  distributions
paid to partners in the first three  months of 2004  compared to the same period
in 2003.


<PAGE>16

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

Critical Accounting Policies
----------------------------

     The  preparation of financial  statements in conformity  with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses during the reporting periods. The Partnership continually evaluates the
estimates used to prepare the financial statements,  and updates those estimates
as  necessary.  In  general,  management's  estimates  are  based on  historical
experience,  on information  from third parties,  and other various  assumptions
that are believed to be  reasonable  under the facts and  circumstances.  Actual
results could differ materially from those estimates.

     Management considers an accounting estimate to be critical if:

     o it requires  assumptions  to be made that were  uncertain at the time the
       estimate was made; and
     o changes in the estimate or different estimates that could have been
       selected and could have a material  impact on the  Partnership's
       results of operations or financial condition.

     The  Partnership's  primary  critical  accounting  estimate  relates to the
determination of fair values for Insured  Mortgages.  The Partnership  estimates
the fair value of its  Insured  Mortgages  internally.  The  Partnership  uses a
discounted cash flow  methodology to estimate the fair value.  This requires the
Partnership  to make certain  estimates  regarding  discount  rates and expected
prepayments.  The cash flows were discounted  using a discount rate that, in the
Partnership's  view, was commensurate  with the market's  perception of risk and
value.  The Partnership used a variety of sources to determine its discount rate
including: (i)  institutionally-available  research reports, (ii) communications
with  dealers and active  insured  mortgage  security  investors  regarding  the
valuation of comparable  securities and (iii) recent transactions.  Increases in
the  discount  rate  used  by  the  Partnership  would  generally  result  in  a
corresponding decrease in the fair value of the Partnership's insured mortgages.
Decreases in the discount rate used by the Partnership would generally result in
a  corresponding  increase  in  the  fair  value  of the  Partnership's  insured
mortgages.   The  Partnership  also  makes  certain  assumptions  regarding  the
prepayment speeds of its Insured Mortgages.  In a low interest rate environment,
mortgages  are more likely to prepay even if the  mortgage  contains  prepayment
penalties.  In general,  if the  Partnership  increases  its assumed  prepayment
speed, the fair value of the Insured Mortgages will decrease. If the Partnership
decreases its assumed  prepayment speed, the fair value of the Insured Mortgages
will increase.


ITEM 3.       QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     Management has determined  that there has not been a material  change as of
March 31, 2004, in market risk from the information  provided as of December 31,
2003 in the Partnership's Annual Report on Form 10-K as of December 31, 2003.


ITEM 4.      CONTROLS AND PROCEDURES

     The General  Partner  carried out an evaluation,  under the supervision and
with the  participation  of the  General  Partner's  management,  including  the
General  Partner's  Chairman of the Board and Chief Executive  Officer (CEO) and
the Chief  Financial  Officer  (CFO),  of the  effectiveness  of its  disclosure
controls  and  procedures  as defined  in Rule  13a-15(e)  under the  Securities
Exchange  Act of  1934,  as  amended.  Based  on that  evaluation,  the  General
Partner's CEO and CFO concluded that its disclosure controls and procedures were
effective as of the end of the period covered by this report. There have been no
significant  changes in the General  Partner's  internal controls over financial
reporting  that  occurred  during  the most  recent  fiscal  quarter  that  have
materially affected, or are likely to materially affect,  internal controls over
financial reporting.


<PAGE>17


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

     (a) Exhibits

         Exhibit No.                        Purpose
         -----------                        -------

             10.1                 Loan Sale Agreement dated and effective as of
                                  February 10, 2004, by and between American
                                  Insured Mortgage Investors - Series 85, L.P.
                                  and Greystone Servicing Corporation, Inc.
                                  (Filed herewith).

             31.1                 Certification pursuant to the Exchange Act
                                  Rule 13a-14(a) from Barry S. Blattman,
                                  Chairman of the Board and Chief Executive
                                  Officer of the General Partner (Filed
                                  herewith).

             31.2                 Certification pursuant to the Exchange Act
                                  Rule 13a-14(a) from Cynthia O. Azzara,
                                  Executive Vice President, Chief Financial
                                  Officer and Treasurer of the General Partner
                                  (Filed herewith).

             32.1                 Certification pursuant to Section 906 of the
                                  Sarbanes-Oxley Act of 2002 from Barry S.
                                  Blattman, Chairman of the Board and Chief
                                  Executive Officer of the General Partner
                                  (Furnished herewith).

             32.2                 Certification pursuant to Section 906 of the
                                  Sarbanes-Oxley Act of 2002 from Cynthia O.
                                  Azzara, Executive Vice President, Chief
                                  Financial Officer and Treasurer of the General
                                  Partner (Furnished herewith).
         Date
         ----

     (b) Reports on Form 8-K


         January 22, 2004        To report a press release issued on
                                 January 21, 2004 announcing the January
                                 2004 distribution to the Partnership's
                                 Unitholders.

         February 20, 2004       To report a press release issued on
                                 February 18, 2004 announcing the February
                                 2004 distribution to the Partnership's
                                 Unitholders.

         March 23, 2004          To report a press release issued on
                                 March 19, 2003 announcing the
                                 Partnership's fourth quarter financial results.

         March 25, 2004          To report a press release issued on
                                 March 22, 2004 announcing the March 2004
                                 distribution to the Partnership's
                                 Unitholders.



<PAGE>18

                                    SIGNATURE

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  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


May 7, 2004                /s/Cynthia O. Azzara
-----------                ----------------------------------------
DATE                       Cynthia O. Azzara
                           Executive Vice President,
                           Chief Financial Officer and
                           Treasurer (Principal Accounting Officer)