FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


For the quarter ended                     June 30, 2001
                                          --------------

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




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


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

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

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





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

         As of June 30, 2001, 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 JUNE 30, 2001
<TABLE>
<CAPTION>

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

Item 1.       Financial Statements

              Balance Sheets - June 30, 2001  (unaudited) and December 31, 2000                     3

              Statements of Income and Comprehensive Income - for the three and
                 six months ended June 30, 2001  and 2000  (unaudited)                              4

              Statement of Changes in Partners' Equity - for the six months ended
                 June 30, 2001  (unaudited)                                                         5

              Statements of Cash Flows - for the six months ended June 30, 2001
                 and 2000  (unaudited)                                                              6

              Notes to Financial Statements (unaudited)                                             7

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

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

PART II.      Other Information

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

Signature                                                                                          18
</TABLE>

<PAGE>3

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                             June 30,        December 31,
                                                              2001              2000
                                                          -------------     -------------
                                                           (Unaudited)
                        ASSETS

<S>                                                       <C>               <C>
Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                            $  53,612,539     $  70,770,317
    Originated insured mortgages                             15,719,532        15,927,124
                                                          -------------     -------------
                                                             69,332,071        86,697,441


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium:
    Acquired insured mortgages                                9,973,287        10,041,697
    Originated insured mortgages                             12,501,425        12,570,037
                                                          -------------     -------------
                                                             22,474,712        22,611,734

Cash and cash equivalents                                     9,172,305         5,631,117

Receivables and other assets                                  4,129,433         1,319,714

Investment in FHA debenture                                   2,361,381         2,361,381
                                                          -------------     -------------
      Total assets                                        $ 107,469,902     $ 118,621,387
                                                          =============     =============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                     $   4,650,801     $   6,284,867

Accounts payable and accrued expenses                           105,774           112,864

Due to affiliate                                              1,235,104         1,242,107
                                                          -------------     -------------
      Total liabilities                                       5,991,679         7,639,838
                                                          -------------     -------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                 106,179,485       114,254,731
  General partners' deficit                                  (5,522,298)       (5,194,582)
  Accumulated other comprehensive income                        821,036         1,921,400
                                                          -------------     -------------
      Total Partners' equity                                101,478,223       110,981,549
                                                          -------------     -------------
      Total liabilities and partners' equity              $ 107,469,902     $ 118,621,387
                                                          =============     =============
</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      For the six months ended
                                                                  June 30,                        June 30,
                                                        ---------------------------     ---------------------------
                                                           2001            2000            2001            2000
                                                        -----------     -----------     -----------     -----------

<S>                                                     <C>             <C>             <C>             <C>
Income:
  Mortgage investment income                            $ 2,095,647     $ 2,451,412     $ 4,243,346     $ 4,971,756
  Interest and other income                                 120,524         101,784         267,886         257,478
                                                        -----------     -----------     -----------     -----------
                                                          2,216,171       2,553,196       4,511,232       5,229,234
                                                        -----------     -----------     -----------     -----------

Expenses:
  Asset management fee to related parties                   246,080         288,452         506,495         581,969
  General and administrative                                 93,496         103,770         194,597         209,823
                                                        -----------     -----------     -----------     -----------
                                                            339,576         392,222         701,092         791,792
                                                        -----------     -----------     -----------     -----------
Net earnings before gains on
  mortgage dispositions                                   1,876,595       2,160,974       3,810,140       4,437,442

Gains on mortgage dispositions                              722,832         234,936         985,118         278,959
                                                        -----------     -----------     -----------     -----------

Net earnings                                            $ 2,599,427     $ 2,395,910     $ 4,795,258     $ 4,716,401
                                                        ===========     ===========     ===========     ===========

Other comprehensive income (loss)                        (1,675,913)     (1,002,564)     (1,100,364)       (954,891)
                                                        -----------     -----------     -----------     -----------
Comprehensive income                                    $   923,514     $ 1,393,346     $ 3,694,894     $ 3,761,510
                                                        -----------     -----------     -----------     -----------

Net earnings allocated to:
  Limited partners - 96.1%                              $ 2,498,049     $ 2,302,470     $ 4,608,243     $ 4,532,461
  General Partner -  3.9%                                   101,378          93,440         187,015         183,940
                                                        -----------     -----------     -----------     -----------
                                                        $ 2,599,427     $ 2,395,910     $ 4,795,258     $ 4,716,401
                                                        ===========     ===========     ===========     ===========

Net earnings per Unit of limited
  partnership interest - basic                          $      0.21     $      0.19     $      0.38     $      0.38
                                                        ===========     ===========     ===========     ===========
</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 six months ended June 30, 2001

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                      Other
                                                               General            Limited         Comprehensive
                                                               Partner            Partner             Income             Total
                                                            --------------     --------------     --------------     --------------
<S>                                                         <C>                <C>                <C>                <C>
Balance, December 31, 2000                                  $   (5,194,582)    $  114,254,731     $    1,921,400     $  110,981,549

  Net Earnings                                                     187,015          4,608,243                  -          4,795,258

  Adjustment to unrealized gains on
     investments in insured mortgages                                    -                  -         (1,100,364)        (1,100,364)

  Distributions paid or accrued of $1.05 per Unit,
     including return of capital of $0.67 per Unit                (514,731)       (12,683,489)                 -        (13,198,220)
                                                            --------------     --------------     --------------     --------------

Balance, June 30, 2001                                      $   (5,522,298)    $  106,179,485     $      821,036     $  101,478,223
                                                            ==============     ==============     ==============     ==============

Limited Partnership Units outstanding - basic, as
  of June 30, 2001                                                                 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 six months ended
                                                                                                   June 30,
                                                                                             2001            2000
                                                                                         ------------    ------------
<S>                                                                                      <C>             <C>
Cash flows from operating activities:
   Net earnings                                                                          $  4,795,258    $  4,716,401
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gain on mortgage dispositions                                                      (985,118)       (278,959)
      Changes in assets and liabilities:
         (Increase) decrease in receivables and other assets                                 (140,586)        194,983
         Decrease in accounts payable and accrued expenses                                     (7,090)        (23,352)
         Decrease in due to affiliate                                                          (7,003)              -
                                                                                         ------------     -----------

            Net cash provided by operating activities                                       3,655,461       4,609,073
                                                                                         ------------     -----------

Cash flows from investing activities:
   Proceeds from disposition of mortgages                                                  14,197,935       4,986,762
   Receipt of mortgage principal from scheduled payments                                      520,078         596,163
                                                                                         ------------     -----------

            Net cash provided by investing activities                                      14,718,013       5,582,925
                                                                                         ------------     -----------

Cash flows used in financing activities:
   Distributions paid to partners                                                         (14,832,286)    (28,784,690)
                                                                                         ------------     -----------


Net increase (decrease) in cash and cash equivalents                                        3,541,188     (18,592,692)

Cash and cash equivalents, beginning of period                                              5,631,117      23,723,644
                                                                                         ------------    ------------

Cash and cash equivalents, end of period                                                 $  9,172,305    $  5,130,952
                                                                                         ============    ============

Non-cash investing activity:
   Portion of HUD debentures due from Midland in exchange for the Mortgages              $  2,669,133    $          -
   on Summit Square Manor and Park Place Apartments
</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 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 CMSLP Management Company, 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"). On November 22, 2000, the United States Bankruptcy Court for
the  District of Maryland,  in  Greenbelt,  Maryland  (the  "Bankruptcy  Court")
confirmed  CRIIMI MAE's and CRIIMI MAE  Management,  Inc.'s Third  Amended Joint
Plan of Reorganization  (as amended and supplemented by praecipes filed with the
Bankruptcy  Court on July 13, 14 and 21, and  November 22,  2000).  On April 17,
2001,  CRIIMI MAE and CRIIMI MAE  Management,  Inc.  announced the completion of
their confirmed joint plan of reorganization  and emerged from bankruptcy.  This
marks the conclusion of CRIIMI MAE's and CRIIMI MAE Management, Inc.'s financial
reorganization.


<PAGE>8

2.   BASIS OF PRESENTATION

     In the opinion of the General Partner, the accompanying unaudited financial
statements  contain all adjustments of a normal  recurring  nature  necessary to
present fairly the financial position of the Partnership as of June 30, 2001 and
December 31, 2000 and the results of its operations for the three and six months
ended June 30,  2001 and 2000 and its cash  flows for the six months  ended June
30, 2001 and 2000.

     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, 2000.

Comprehensive Income
--------------------

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


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

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

     Listed below is the Partnership's aggregate investment in Fully Insured
Mortgages:

<TABLE>
<CAPTION>
                                                                 June 30,                December 31,
                                                                   2001                     2000
                                                                -----------              -----------
<S>                                                             <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of
    GNMA Mortgage-Backed Securities (5) (7)                               3                        4
    FHA-Insured Certificates (1) (2) (3) (4) (6)                         30                       35
  Amortized Cost                                                $52,247,412              $68,440,285
  Face Value                                                     54,423,755               71,404,632
  Fair Value                                                     53,612,539               70,770,317

Fully Insured Originated Mortgages:
  Number of
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                                $16,239,771              $16,311,904
  Face Value                                                     16,207,404               16,279,536
  Fair Value                                                     15,719,532               15,927,124
</TABLE>

<PAGE>9

     Listed below is a summary of prepayments on fully Insured Mortgages as of
August 1, 2001:
<TABLE>
<CAPTION>

                                                    Date                                               Distribution
                                        Net       Proceeds                  Dist./     Declaration       Payment
       Complex name                  Proceeds     Received        Gain       Unit         Date            Date
       ------------                  --------     --------      --------    ------      ---------       ---------
<S>                                <C>            <C>           <C>         <C>         <C>             <C>
(1) The Meadows of Livonia         $6,653,000     Jan. 2001     $253,434    $0.53       Jan. 2001       May  2001
(2) Gold Key Village Apartments     2,827,000     Mar. 2001        8,852     0.22       Apr. 2001       Aug. 2001
(3) Summit Square Manor             1,883,000     May  2001      235,496        *
(4) Park Place Apartments             746,000     May  2001       94,435        *
(5) Carlisle Apartments             2,120,000     Jun. 2001       46,704     0.17       Jul. 2001       Nov. 2001
(6) Cedar Ridge Apartments          2,637,000     Jun. 2001      346,198     0.21       Jul. 2001       Nov. 2001
(7) Afton Square Apartments **      1,061,000     Jul. 2001       29,341     0.08       Jul. 2001       Nov. 2001
</TABLE>

*    In May 2001,  HUD  issued  assignment  proceeds  in the form of two  7.125%
     debentures  for the  mortgages  on  Summit  Square  Manor  and  Park  Place
     Apartments. The debentures,  with face values of $2,715,930 and $1,075,951,
     for the  mortgages  on  Summit  Square  Manor  and Park  Place  Apartments,
     respectively,  were issued to Firstar Trust Company,  with interest payable
     semi-annually  on January 1 and July 1. Firstar Trust Company,  the initial
     mortgagee,  signed the  debentures  over to  Midland  Loan  Services,  Inc.
     ("Midland"), the third party servicer. Midland will sell the debentures and
     distribute  the  proceeds  as soon as  practical.  A  distribution  will be
     declared at that time.  The mortgages on Summit Square Manor and Park Place
     Apartments were owned approximately 70% by the Partnership. The Partnership
     expects to receive net proceeds of approximately  $1.8 million and $746,000
     for the  mortgages  on  Summit  Square  Manor  and Park  Place  Apartments,
     respectively.  The net  proceeds  due the  Partnership  are included on the
     balance  sheet in  Receivables  and  other  assets.  The  servicer  of this
     mortgage filed an application for insurance  benefits under the Section 221
     program of the National Housing Act of 1937 in June 2000.
**   Third quarter 2001 transaction.

     As of August 1, 2001, all of the fully insured FHA-Insured Certificates and
GNMA  Mortgage-Backed  Securities  are  current  with  respect to the 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 August 1, 2001, the  Partnership has received  notification  from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:

                                      Date last principal       Outstanding
                                         and interest            Principal
Property Name                           payment received          Balance
-------------                         ------------------        -----------
Park Hill Apartments                      Sept. 2000            $ 1,737,000
Fairfax House                             Sept. 2000              2,128,000
Country Club Terrace Apts.                Sept. 2000              1,439,000
Fairlawn II                               Sept. 2000                755,000
Nevada Hills Apts.                         Dec. 2000              1,146,000
Dunhaven Apartments, Section I             Jan. 2001                884,000
Woodland Villas                           April 2001                303,000

     Under  the  Section  221  program,  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
<PAGE>10

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 HUD  debentures,  as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment  of the  mortgage  to the  date of  issuance  of the  debenture.  The
Partnership  will  recognize  a gain on these  assignments  upon  receipt of HUD
debentures or a loss when it becomes  probable that a loss will be incurred.  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.


4.   INVESTMENT IN FHA-INSURED LOANS

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

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

                                              June 30,              December 31,
                                               2001                    2000
                                            -----------             -----------
Fully Insured Acquired Loans:
  Number of Loans                                     8                       8
  Amortized Cost                            $ 9,973,287             $10,041,697
  Face Value                                 11,924,976              12,040,599
  Fair Value                                 11,825,879              12,023,455

Fully Insured Originated Loans:
  Number of Loans                                     3                       3
  Amortized Cost                            $12,501,425             $12,570,037
  Face Value                                 12,198,363              12,261,397
  Fair Value                                 12,037,026              12,192,633

     As of August 1, 2001, all of the Partnership's  FHA-Insured Loans, recorded
at amortized  cost,  were  current with respect to the payment of principal  and
interest.

     In addition to base interest payments under Originated  Insured  Mortgages,
the Partnership is entitled to additional  interest based on a percentage of the
net cash flow from the underlying  development  (referred to as Participations).
During the three and six months ended June 30, 2001,  the  Partnership  received
additional   interest   of  $53,423   and   $53,423,   respectively,   from  the
Participations.  During  the three  and six  months  ended  June 30,  2000,  the
Partnership received additional interest of $0 and $21,566,  respectively,  from
the  Participations.  These amounts, if any, are included in mortgage investment
income on the accompanying Statements of Income and Comprehensive Income.

<PAGE>11


5.  INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a face
value  of  $2,385,233  and a  fair  value  of  $2,361,381,  was  issued  to  the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run  Apartments was owned 50% by the  Partnership  and 50% by an
affiliate of the Partnership,  American  Insured Mortgage  Investors ("AIM 84").
Upon disposition of the debenture 50% of the proceeds will be payable to AIM 84.
The Partnership  expects to receive net proceeds of approximately  $1.2 million.
The  net  proceeds  due  AIM 84 are  included  on the  balance  sheet  in due to
affiliate.  In  general,  the  Partnership  will  hold the  debenture  until its
maturity  date  of  June  1,  2010 or when  called,  whichever  comes  first.  A
distribution  will be declared at that time. The servicer of this mortgage filed
an  application  for  insurance  benefits  under the  Section 221 program of the
National Housing Act of 1937 in May 2000.


6.   DISTRIBUTIONS TO UNITHOLDERS

      The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2001 and 2000 are as follows:

                                               2001          2000
                                               -----         ----
         Quarter ended March 31,               $0.68(1)      $0.47(3)(4)
         Quarter ended June 30,                 0.37(2)       0.46(5)(6)
                                               -----         -----
                                               $1.05         $0.93
                                               =====         =====

     The following disposition proceeds are included in the distributions listed
above:

                                                                         Net
                                        Declaration       Type of     Proceeds
        Complex Name(s)                    Date         Disposition   Per Unit
        ---------------                  ---------      -----------   --------
(1) The Meadows of Livonia               Jan. 2001       Prepayment    $0.53
(2) Gold Key Village Apartments          Apr. 2001       Prepayment     0.22
(3) Northwood Apartments                 Jan. 2000       Prepayment     0.13
(4) Turtle Creek Apartments              Jan. 2000       Prepayment     0.13
(5) Woodland Hills Apartments and
      New Castle Apartments              May 2000        Prepayment     0.22
(6) Colony West Apartments               Jun. 2000       Prepayment     0.05

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


<PAGE>12


7.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated  entities,  during the three and
six months  ended June 30,  2001 and 2000,  earned or received  compensation  or
payments for services from the Partnership as follows:

                 COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
                 -----------------------------------------------
<TABLE>
<CAPTION>
                                                                                       For the                  For the
                                                                                  three months ended        six months ended
                                                                                       June 30,                 June 30,
                                                                                 ---------------------    ---------------------
    Name of Recipient                     Capacity in Which Served/Item            2001        2000         2001        2000
    -----------------                     -----------------------------          ---------   ---------    ---------   ---------
<S>                                    <C>                                       <C>         <C>          <C>         <C>
CRIIMI, Inc. (1)                       General Partner/Distribution              $ 181,381   $ 225,501    $ 514,731   $ 455,905

AIM Acquisition Partners, L.P.(2)      Advisor/Asset Management Fee                246,080     288,452      506,495     581,969

CRIIMI MAE Management, Inc.            Affiliate of General Partner/
                                         Expense Reimbursement                      11,706      12,750       23,675      25,716

American Insured Mortgage              Affiliate of Partnership/ Share of FHA
  Investors (3)                          Debenture And interest                     21,243           -       42,487           -
</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 $72,535 and  $149,294  for the three and six months ended June
     30,  2001,  respectively,  and $85,021 and  $171,459  for the three and six
     months ended June 30, 2000, respectively. The limited partner of CMSLP is a
     wholly owned subsidiary of CRIIMI MAE Inc.

(3)  In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
     debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a
     face value of $2,385,233 and a fair value of $2,361,381,  was issued to the
     Partnership,  with interest payable  semi-annually on January 1 and July 1.
     The mortgage on Fox Run Apartments was owned 50% by the Partnership and 50%
     by an affiliate of the Partnership,  American  Insured  Mortgage  Investors
     ("AIM 84").  Upon  disposition of the debenture 50% of the proceeds will be
     payable to AIM 84.

<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  "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 June 30, 2001, the Partnership  had invested in 46 Insured  Mortgages
with an aggregate amortized cost of approximately $91 million, an aggregate face
value of approximately  $95 million and an aggregate fair value of approximately
$93 million, as discussed below.

     As of August 1, 2001, all of the fully insured FHA-Insured Certificates and
GNMA  Mortgage-Backed  Securities  are  current  with  respect to the 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 August 1, 2001, the  Partnership has received  notification  from the
respective  servicers  that HUD  applications  for insurance  benefits have been
filed for the following mortgages:

                                      Date last principal       Outstanding
                                         and interest            Principal
Property Name                           payment received          Balance
-------------                         ------------------        -----------
Park Hill Apartments                      Sept. 2000            $ 1,737,000
Fairfax House                             Sept. 2000              2,128,000
Country Club Terrace Apts.                Sept. 2000              1,439,000
Fairlawn II                               Sept. 2000                755,000
Nevada Hills Apts.                         Dec. 2000              1,146,000
Dunhaven Apartments, Section I             Jan. 2001                884,000
Woodland Villas                           April 2001                303,000

<PAGE>14

     Under  the  Section  221  program,  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 HUD  debentures,  as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment  of the  mortgage  to the  date of  issuance  of the  debenture.  The
Partnership  will  recognize  a gain on these  assignments  upon  receipt of HUD
debentures or a loss when it becomes  probable that a loss will be incurred.  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.

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
debenture for the mortgage on Fox Run  Apartments.  The  debenture,  with a face
value  of  $2,385,233  and a  fair  value  of  $2,361,381,  was  issued  to  the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run  Apartments was owned 50% by the  Partnership  and 50% by an
affiliate of the Partnership,  American  Insured Mortgage  Investors ("AIM 84").
Upon disposition of the debenture 50% of the proceeds will be payable to AIM 84.
The Partnership  expects to receive net proceeds of approximately  $1.2 million.
The  net  proceeds  due  AIM 84 are  included  on the  balance  sheet  in due to
affiliate.  In  general,  the  Partnership  will  hold the  debenture  until its
maturity  date  of  June  1,  2010 or when  called,  whichever  comes  first.  A
distribution will be declared at that time.

     In May 2001,  HUD  issued  assignment  proceeds  in the form of two  7.125%
debentures  for the mortgages on Summit Square Manor and Park Place  Apartments.
The debentures, with face values of $2,715,930 and $1,075,951, for the mortgages
on Summit Square Manor and Park Place Apartments,  respectively,  were issued to
Firstar Trust Company, with interest payable semi-annually on January 1 and July
1. Firstar Trust Company,  the initial mortgagee,  signed the debentures over to
Midland Loan Services, Inc. ("Midland"),  the third party servicer. Midland will
sell  the  debentures  and  distribute  the  proceeds  as soon as  practical.  A
distribution will be declared at that time. The mortgages on Summit Square Manor
and Park Place Apartments were owned  approximately 70% by the Partnership.  The
Partnership  expects to receive net proceeds of  approximately  $1.8 million and
$746,000  for the  mortgages on Summit  Square Manor and Park Place  Apartments,
respectively.  The net proceeds due the  Partnership are included on the balance
sheet in Receivables and other assets.

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

     Net earnings increased for the three and six months ended June 30, 2001, as
compared to the corresponding  periods in 2000,  primarily due to an increase in
gains on mortgage dispositions and a decrease in asset management fee to related
parties, as discussed below. This increase was partially offset by a decrease in
mortgage investment income, as discussed below.

     Mortgage  investment  income  decreased  for the three and six months ended
June 30, 2001, as compared to the corresponding  periods in 2000,  primarily due
to a reduction in the mortgage  base. The mortgage base decreased as a result of
nine mortgage  dispositions with an aggregate principal balance of approximately
$21 million, representing an approximate 17% decrease in the aggregate principal
balance of the total mortgage portfolio since March 2000.

<PAGE>15


     Interest and other income increased for the three and six months ended June
30, 2001, as compared to the corresponding periods in 2000, primarily due to the
timing of temporary investment of mortgage disposition proceeds prior to
distribution.

     Asset  management  fee to related  parties  decreased for the three and six
months ended June 30, 2001,  as compared to the  corresponding  periods in 2000,
primarily  due to the  reduction  in the  mortgage  asset  base,  as  previously
discussed.

     General and administrative  expenses decreased for the three and six months
ended June 30, 2001, as compared to the corresponding periods in 2000, primarily
due to  decreases  in mortgage  service  fees and  administrative  expenses as a
result of the decreased mortgage base, as previously discussed.

     Gains on mortgage dispositions increased for the three and six months ended
June 30, 2001, as compared to the corresponding  periods in 2000. During the six
months ended June 30, 2001, the Partnership  recognized  gains of  approximately
$655,000 from the  prepayment  of the mortgages on The Meadows of Livonia,  Gold
Key Village  Apartments,  Carlisle  Apartments  and Cedar Ridge  Apartments.  In
addition,  during the first six months of 2001, the Partnership recognized gains
of approximately  $330,000 from the assignment of the mortgages on Summit Square
Manor and Park Place Apartments.  During the six months ended June 30, 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.

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

     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term  investments,  were sufficient during the first six months of 2001 to
meet operating  requirements.  The basis for paying distributions to Unitholders
is net  proceeds  from  mortgage  dispositions,  if  any,  and  cash  flow  from
operations,  which includes  regular  interest income and principal from Insured
Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment
once purchased,  the cash distributions paid to the Unitholders will vary during
each quarter due to (1) the  fluctuating  yields in the short-term  money market
where the monthly mortgage payments  received are temporarily  invested prior to
the payment of quarterly distributions,  (2) the reduction in the asset base and
monthly mortgage  payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default  of  Insured  Mortgages  and  professional  fees and  foreclosure  costs
incurred in connection  with those Insured  Mortgages and (4)  variations in the
Partnership's  operating expenses. As the Partnership continues to liquidate its
mortgage  investments and investors  receive  distributions of return of capital
and  taxable  gains,  investors  should  expect  a  reduction  in  earnings  and
distributions due to the decreasing mortgage base.

     Net cash  provided by  operating  activities  decreased  for the six months
ended June 30, 2001, as compared to the corresponding  period in 2000, primarily
due to the reduction in the mortgage base, as previously discussed and due to an
increase  in the  change  in  receivables  and other  assets.  The  increase  in
receivables  and other assets is primarily  due to the accrual of principal  and
interest  on the  mortgages  awaiting  assignment  proceeds  from HUD  under the
section 221 program, as previously discussed.

     Net cash  provided by  investing  activities  increased  for the six months
ended June 30,  2001,  as compared  to the  corresponding  period in 2000.  This
increase  is  primarily  due  to an  increase  in  proceeds  received  from  the
disposition of mortgages.

     Net cash used in financing  activities  decreased  for the six months ended
June 30,  2001,  as  compared  to the  corresponding  period  in 2000,  due to a
decrease in the amount of distributions paid to partners in the first six months
of 2001 versus the same period in 2000.

<PAGE>16

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. The Partnership will experience  fluctuations
in the market value of its assets  related to changes in the  interest  rates of
U.S.  Treasury  bonds as well as increases in the spread  between U.S.  Treasury
bonds and the Partnership's Insured Mortgages.  As of June 30, 2001, the average
treasury rate used to price the Partnership's Insured Mortgages had increased by
approximately 30 basis points compared to December 31, 2000.


     Management has determined  that there has not been a material  change as of
June 30,  2001,  in market  risk  from  December  31,  2000 as  reported  in the
Partnership's Annual Report on Form 10-K as of December 31, 2000.


<PAGE>17

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

     No  reports  on Form  8-K  were  filed  with the  Securities  and  Exchange
Commission during the quarter ended June 30, 2001.



<PAGE>18

SIGNATURE

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

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

                                                    By: CRIIMI, Inc.
                                                        General Partner


August 6, 2001                                      /s/ Cynthia O. Azzara
--------------                                      ---------------------------
DATE                                                Cynthia O. Azzara
                                                    Senior Vice President,
                                                    Chief Financial Officer and
                                                    Treasurer