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, 2002
                                                           -------------

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




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


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

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

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





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

     As of June 30, 2002,  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, 2002
<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>           <C>                                                                                  <C>
PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - June 30, 2002  (unaudited) and December 31, 2001                     3

              Statements of Income and Comprehensive Income - for the three and
                 six months ended June 30, 2002  and 2001  (unaudited)                              4

              Statement of Changes in Partners' Equity - for the six months ended
                 June 30, 2002  (unaudited)                                                         5

              Statements of Cash Flows - for the six months ended June 30, 2002
                 and 2001  (unaudited)                                                              6

              Notes to Financial Statements (unaudited)                                             7

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of
                 Operations                                                                        15

Item 3.       Qualitative and Quantitative Disclosures about Market Risk                           20

PART II.      Other Information

Item 6.       Exhibits and Reports on Form 8-K                                                     21

Signature                                                                                          22
</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,
                                                                  2002              2001
                                                              ------------      ------------
                                                              (Unaudited)
                        ASSETS

<S>                                                           <C>               <C>
Investment in FHA-Insured Certificates and GNMA
  Mortgage-Backed Securities, at fair value
    Acquired insured mortgages                                $ 41,973,203      $ 45,845,197
    Originated insured mortgages                                16,069,526        15,734,485
                                                              ------------      ------------
                                                                58,042,729        61,579,682


Investment in FHA-Insured Loans, at amortized cost,
  net of unamortized discount and premium
    Acquired insured mortgages                                   8,848,040         8,914,573
    Originated insured mortgages                                 9,368,632        12,430,002
                                                              ------------      ------------
                                                                18,216,672        21,344,575

Cash and cash equivalents                                        2,463,778         4,366,085

Receivables and other assets                                     4,372,309         8,394,392

Investment in FHA debenture                                              -         2,385,233
                                                              ------------      ------------
      Total assets                                            $ 83,095,488      $ 98,069,967
                                                              ============      ============

           LIABILITIES AND PARTNERS' EQUITY

Distributions payable                                         $  2,639,644      $  1,885,460

Accounts payable and accrued expenses                              147,186           121,659

Due to affiliate                                                         -         1,235,104
                                                              ------------      ------------
      Total liabilities                                          2,786,830         3,242,223
                                                              ------------      ------------
Partners' equity:
  Limited partners' equity, 15,000,000 Units authorized,
    12,079,514 Units issued and outstanding                     85,073,310        99,801,805
  General partner's deficit                                     (6,378,843)       (5,781,121)
  Accumulated other comprehensive income                         1,614,191           807,060
                                                              ------------      ------------
      Total partners' equity                                    80,308,658        94,827,744
                                                              ------------      ------------
      Total liabilities and partners' equity                  $ 83,095,488      $ 98,069,967
                                                              ============      ============
</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,
                                                                      2002            2001            2002           2001
                                                                  ------------    ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>             <C>
Income:
  Mortgage investment income                                      $  1,579,485    $  2,095,647    $  3,199,956    $  4,243,346
  Interest and other income                                             88,082         120,524         194,286         267,886
                                                                  ------------    ------------    ------------    ------------
                                                                     1,667,567       2,216,171       3,394,242       4,511,232
                                                                  ------------    ------------    ------------    ------------

Expenses:
  Asset management fee to related parties                              191,725         246,080         381,506         506,495
  General and administrative                                           123,362          93,496         222,336         194,597
                                                                  ------------    ------------    ------------    ------------
                                                                       315,087         339,576         603,842         701,092
                                                                  ------------    ------------    ------------    ------------
Net earnings before gains on
  mortgage dispositions                                              1,352,480       1,876,595       2,790,400       3,810,140

Gains on mortgage dispositions                                           8,768         722,832       1,177,927         985,118
                                                                  ------------    ------------    ------------    ------------

Net earnings                                                      $  1,361,248    $  2,599,427    $  3,968,327    $  4,795,258
                                                                  ============    ============    ============    ============
Other comprehensive income (loss) - adjustment to
  unrealized gains (losses) on investments in insured mortgages      1,911,262      (1,675,913)        807,131      (1,100,364)
                                                                  ------------    ------------    ------------    ------------

Comprehensive income                                              $  3,272,510    $    923,514    $  4,775,458    $  3,694,894
                                                                  ============    ============    ============    ============

Net earnings allocated to:
  Limited partners - 96.1%                                        $  1,308,159    $  2,498,049    $  3,813,562    $  4,608,243
  General Partner - 3.9%                                                53,089         101,378         154,765         187,015
                                                                  ------------    ------------    ------------    ------------
                                                                  $  1,361,248    $  2,599,427    $  3,968,327    $  4,795,258
                                                                  ============    ============    ============    ============

Net earnings per Unit of limited
  partnership interest - basic                                    $       0.11    $       0.21    $       0.32    $       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, 2002

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                                                                         Other
                                                                    General           Limited         Comprehensive
                                                                    Partner           Partners           Income           Total
                                                                  ------------      ------------      ------------     ------------
<S>                                                               <C>               <C>               <C>              <C>
Balance, December 31, 2001                                        $ (5,781,121)     $ 99,801,805      $    807,060     $ 94,827,744

  Net earnings                                                         154,765         3,813,562                 -        3,968,327

  Adjustment to unrealized gains on
     investments in insured mortgages                                        -                 -           807,131          807,131

  Distributions paid or accrued of $1.535 per Unit,
     including return of capital of $1.215 per Unit                   (752,487)      (18,542,057)                -      (19,294,544)
                                                                  ------------      ------------      ------------     ------------

Balance, June 30, 2002                                            $ (6,378,843)     $ 85,073,310      $  1,614,191     $ 80,308,658
                                                                  ============      ============      ============     ============

Limited Partnership Units outstanding - basic, as
  of June 30, 2002                                                                    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,
                                                                                                   2002              2001
                                                                                               ------------      ------------
<S>                                                                                            <C>               <C>
Cash flows from operating activities:
   Net earnings                                                                                $  3,968,327      $  4,795,258
   Adjustments to reconcile net earnings to net cash provided by operating activities:
      Net gains on mortgage dispositions                                                         (1,177,927)         (985,118)
      Changes in assets and liabilities:
         Decrease (increase) in receivables and other assets                                        694,138          (140,586)
         Increase (decrease) in accounts payable and accrued expenses                                25,527            (7,090)
         Decrease in due to affiliate                                                               (42,487)           (7,003)
                                                                                               ------------      ------------

            Net cash provided by operating activities                                             3,467,578         3,655,461
                                                                                               ------------      ------------

Cash flows from investing activities:
   Proceeds from disposition of mortgages                                                         4,834,522        14,197,935
   Proceeds received from Midland                                                                 6,759,242                 -
   Proceeds from redemption of debenture                                                          2,385,233                 -
   Debenture proceeds paid to affiliate                                                          (1,192,617)                -
   Receipt of mortgage principal from scheduled payments                                            384,095           520,078
                                                                                               ------------      ------------

            Net cash provided by investing activities                                            13,170,475        14,718,013
                                                                                               ------------      ------------

Cash flows used in financing activities:
   Distributions paid to partners                                                               (18,540,360)      (14,832,286)
                                                                                               ------------      ------------


Net (decrease) increase in cash and cash equivalents                                             (1,902,307)        3,541,188

Cash and cash equivalents, beginning of period                                                    4,366,085         5,631,117
                                                                                               ------------      ------------

Cash and cash equivalents, end of period                                                       $  2,463,778      $  9,172,305
                                                                                               ============      ============

Non-cash investing activity:
   Portion of HUD debentures due from Midland in exchange
      for the mortgages on Country Club Terrace Apartments,
      Nevada Hills Apartments and Dunhaven Apartments                                          $  3,431,297                 -
</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  terminated
earlier under the provisions of the Partnership Agreement.

     CRIIMI, Inc. (the "General  Partner"),  a wholly owned subsidiary of CRIIMI
MAE Inc. ("CRIIMI MAE"),  holds a partnership  interest of 3.9%. AIM Acquisition
Partners L.P. (the "Advisor") serves as the advisor to the Partnership  pursuant
to certain advisory agreements (collectively, the "Advisory Agreements") between
the  Advisor  and 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  Agreements,  the  Advisor  renders  services  to  the
Partnership, including but not limited to, the management and disposition of the
Partnership's  portfolio of  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.  The Advisor is permitted to delegate the  performance  of services
pursuant  to a  submanagement  agreement  (the  "Sub-Advisory  Agreement").  The
delegation of such  services  does 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., a wholly owned subsidiary 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.


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, 2002 and
December 31, 2001,  the results of its  operations  for the three and six months
ended June 30, 2002 and 2001,  and its cash flows for the six months  ended June
30, 2002 and 2001.


<PAGE>8

     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
("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, 2001.


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,
                                                                   2002                     2001
                                                               ------------             ------------
<S>                                                            <C>                      <C>
Fully Insured Acquired Mortgages:
  Number of:
    GNMA Mortgage-Backed Securities                                       2                        2
    FHA-Insured Certificates (1)(2)(3)                                   22                       26
  Amortized Cost                                               $ 40,373,633             $ 44,640,062
  Face Value                                                     41,418,152               46,215,896
  Fair Value                                                     41,973,203               45,845,197

Fully Insured Originated Mortgages:
  Number of:
    GNMA Mortgage-Backed Securities                                       1                        1
    FHA-Insured Certificates                                              1                        1
  Amortized Cost                                               $ 16,054,904             $ 16,132,560
  Face Value                                                     16,054,903               16,132,560
  Fair Value                                                     16,069,526               15,734,485
</TABLE>

(1)  In April 2002,  the mortgage on Garden Court  Apartments  was prepaid.  The
     Partnership  received  net  proceeds  of  approximately  $1.2  million  and
     recognized a gain of approximately $9,000 for the six months ended June 30,
     2002.  A  distribution  of  approximately  $0.09  per Unit  related  to the
     prepayment of this  mortgage was declared in April and paid to  Unitholders
     in August 2002.
(2)  In January 2002,  three mortgages were approved for assignment to HUD under
     the Section 221 Program, as discussed below.
(3)  In July 2002,  one mortgage was  approved for  assignment  to HUD under the
     Section 221 Program, as discussed below.

     As of August 1, 2002, all of the fully insured FHA-Insured Certificates and
GNMA  Mortgage-Backed  Securities  are  current  with  respect to the payment of
principal and interest.

     The Section 221 Program
     -----------------------

     Under  Section 221 program of the National  Housing Act of 1937, as amended
(the  "Section  221  Program"),  a mortgagee  has the right to assign a mortgage
("put") to the United States Department of Housing and Urban Development ("HUD")
at the expiration of 20 years from the date of final  endorsement  ("Anniversary
Date") if the  mortgage  is not in  default  at such  time.  The  mortgagee  may
exercise  its  option  to put the  mortgage  to HUD one year  subsequent  to the
Anniversary  Date.  This  assignment  procedure  is  applicable  to  an  Insured
Mortgage,  which had a firm or conditional commitment for HUD insurance benefits

<PAGE>9

on or before  November 30,  1983.  Any  mortgagee  electing to assign an Insured
Mortgage to HUD receives,  in exchange  therefor,  HUD debentures having a total
face value equal to (i) the then  outstanding  principal  balance of the Insured
Mortgage  (ii) plus accrued  interest on the mortgage to the date of  assignment
("Debenture Issuance Date"). These HUD debentures generally mature 10 years from
the date of assignment  and bear interest at a rate announced  semi-annually  by
HUD in the Federal Register ("going Federal rate") at such date. Generally,  the
Partnership is not the named mortgagee for the FHA-Insured Certificates. In this
case, the HUD debentures are generally  issued to an unrelated  third party that
is the named mortgagee.  The servicer of the applicable  mortgage is responsible
for  delivering  to the  Partnership  all  HUD  insurance  claim  proceeds.  The
debenture interest is paid to the Partnership in the month it is received by the
servicer.  The debenture  proceeds are paid to the  Partnership in the month the
debenture is redeemed by HUD or sold by the servicer.

     Once the  servicer of a mortgage  has filed an  application  for  insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly  principal and interest on the  applicable  mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date);  however,  the  debentures  are not  transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General  Partner's  experience,  HUD's  assignment  process is generally  six to
eighteen  months.  After HUD  completes its  assignment  process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued interest on the debentures at the going Federal rate,
from the  Debenture  Issuance  Date to the most current  interest  payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest  payment  dates of January 1 and July 1. The going Federal rate for HUD
debentures issued under the Section 221 Program for the period January 1 through
June  30,  2002 was  6.375%.  The  Partnership  will  recognize  a gain on these
assignments  at the time it receives  notification  that the assignment has been
approved.  This is generally  when HUD transfers the debentures to the mortgagee
and/or  when the  Partnership  receives  cash for the  accrued  interest  on the
debentures.  A loss is recognized  when it becomes  probable that a loss will be
incurred.  The  gain or loss  recognized  is  equal  to net  proceeds,  less the
amortized cost of the Insured Mortgage.

     a.  Redemption of HUD Debentures
         ----------------------------

     The following list  represents  HUD  debentures  redeemed in July 2002. The
aggregate gain of $497,000 was recognized in the first quarter of 2002, when the
Partnership  received,  in cash,  approximately  $286,000 of accrued interest on
these  HUD  debentures.  A  distribution,  related  to  this  accrued  debenture
interest, of approximately $0.02 per Unit was declared in March 2002 and paid in
May 2002. Net proceeds  represent (i) the Partnership's  beneficial  interest in
the face  value of the HUD  debenture,  plus  (ii)  interest  earned  on the HUD
debenture during the HUD assignment process; less net mortgage investment income
due on the applicable mortgage during the HUD assignment process.  The aggregate
face  value  of the  Partnership's  beneficial  interest  in the  debentures  is
included in receivables and other assets in the  Partnership's  balance sheet as
of June 30, 2002.

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>

                                Debenture                 Face                     Gain                              Dist.
                                Interest       Net      Value of      HUD put    1st Qtr.   Dist/     Declaration   Payment
Complex Name                      Rate      Proceeds    Debenture      Date        2002     Unit         Date        Date
------------                     ------     --------    ---------    --------      -----    -----      --------     --------
<S>                              <C>         <C>         <C>         <C>           <C>      <C>        <C>          <C>
Country Club Terrace Apts.       7.500%      $ 1,425     $ 1,444     Sep 2000      $ 178    $0.12      Aug 2002     Nov 2002
Nevada Hills Apartments          7.500%        1,134       1,147     Dec 2000        154     0.09      Aug 2002     Nov 2002
Dunhaven Apartments              7.125%          872         890     Jan 2001        165     0.07      Aug 2002     Nov 2002
                                             -------     -------                   -----    -----
                                             $ 3,431     $ 3,481                   $ 497    $0.28
                                             =======     =======                   =====    =====
</TABLE>

<PAGE>10

     b.  Issuance of HUD Debenture
         -------------------------

     In July 2002,  HUD  transferred  assignment  proceeds in the form of a 7.5%
debenture  for the mortgage on Fairlawn II. The debenture has a maturity date of
September 20, 2010 and pays interest  semi-annually  on January 1 and July 1. In
July 2002, the Partnership received  approximately  $100,000 in cash, of accrued
interest  on  this  HUD  debenture.   The  Partnership   expects  to  declare  a
distribution,  related to this accrued debenture  interest, of $0.01 per Unit in
August 2002,  which is expected to be paid in November 2002.  The  Partnership's
beneficial  interest  in this  HUD  debenture  is  approximately  $758,000.  The
Partnership  expects to recognize a gain of  approximately  $95,000 in the third
quarter 2002. The  Partnership  expects the HUD debenture will be redeemed prior
to its maturity date and expects to declare a  distribution  of the net proceeds
at that time. The servicer of this mortgage  filed an application  for insurance
benefits under the Section 221 Program in September 2000. The fair value of this
mortgage  is  included  in  Investment  in  FHA-Insured  Certificates  and  GNMA
Mortgage-Backed  Securities,  at fair value,  acquired insured  mortgages in the
Partnership's balance sheet as of June 30, 2002.

     c.  Mortgages in the HUD assignment process
         ---------------------------------------

     The  mortgage on The  Executive  House was put to HUD under the Section 221
Program by the  servicer  in April  2002.  The face value of this  mortgage  was
approximately  $805,000  as of the HUD  put  date.  The  Partnership  no  longer
receives monthly principal and interest from mortgages that are put to HUD under
the Section 221 Program.  The monthly  principal and interest is sent to HUD and
the Partnership will earn semi-annual  interest on debentures  issued by HUD, as
discussed  above.  As of  August  1,  2002,  the  Partnership  has not  received
notification  that this  assignment  has been approved by HUD. The fair value of
this  mortgage is included in Investment in  FHA-Insured  Certificates  and GNMA
Mortgage-Backed  Securities,  at fair value,  acquired insured  mortgages in the
Partnership's balance sheet as of June 30, 2002.

     d.  Remaining mortgages eligible for assignment
         -------------------------------------------

     The   Partnership's   mortgage   portfolio   includes   seven   FHA-Insured
Certificates  under the Section 221 Program  with an  Anniversary  Date of April
2002. The Partnership  does not expect these mortgages to be put to HUD since it
owns less than 50%, or approximately  31.6%, of these FHA-Insured  Certificates.
The other  certificate  holders  have not yet elected to put these  mortgages to
HUD. In order to assign a mortgage to HUD,  there must be a minimum  vote of 50%
of  the  mortgagees.   The  Partnership  does  not  own  any  other  FHA-Insured
Certificates or GNMA Mortgage-backed Securities eligible to be put to HUD.


     Please refer to the  Partnership's  Annual Report on Form 10-K for the year
ended December 31, 2001, for more information on the  Partnership's  FHA-Insured
Certificates and GNMA Mortgage-Backed Securities.

<PAGE>11


4.   INVESTMENT IN FHA-INSURED LOANS

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

     Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
<TABLE>
<CAPTION>
                                                                 June 30,               December 31,
                                                                   2002                     2001
                                                               ------------             ------------
<S>                                                            <C>                      <C>
  Fully Insured Acquired Loans:
    Number of Loans                                                       7                        7
    Amortized Cost                                             $  8,848,040             $  8,914,573
    Face Value                                                   10,522,559               10,632,937
    Fair Value                                                   10,533,229               10,451,178

  Fully Insured Originated Loans:
    Number of Loans (1)                                                   2                        3
    Amortized Cost                                             $  9,368,632             $ 12,430,002
    Face Value                                                    9,111,133               12,132,653
    Fair Value                                                    9,383,785               12,122,221
</TABLE>

(1)  In  January  2002,  the  mortgage  on  Longleaf  Lodge  was  prepaid.   The
     Partnership  received  net  proceeds  of  approximately  $3.7  million  and
     recognized a gain of  approximately  $672,000 for the six months ended June
     30, 2002. A  distribution  of  approximately  $0.29 per Unit related to the
     prepayment of this mortgage was declared in January and paid to Unitholders
     in May 2002.

     As of August 1,  2002,  all of the  Partnership's  FHA-Insured  Loans  were
current with respect to the payment of principal  and  interest,  except for the
mortgage on Westbrook  Apartments,  which is delinquent with respect to the July
2002 payment of principal and interest.

     In addition to interest payments under  FHA-Insured  Loans, the Partnership
is entitled to additional  interest on three of the FHA-Insured Loans based on a
percentage  of the net cash flow from the operation of the  underlying  property
development  (referred  to as  Participations).  During the three and six months
ended June 30, 2002, the Partnership  received additional interest of $5,168 and
$8,396, respectively, from such 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.  These amounts are included in
mortgage  investment  income  on  the  accompanying  Statements  of  Income  and
Comprehensive Income.

      The Section 221 Program
      -----------------------

      a.   Mortgages in the HUD assignment process
           ---------------------------------------

     The  mortgage on  Baypoint  Shoreline  Apartments  was put to HUD under the
Section  221  Program  by the  servicer  in June  2002.  The face  value of this
mortgage was  approximately  $902,000 as of the HUD put date. The Partnership no
longer  receives  monthly  principal and interest from mortgages that are put to
HUD under the Section 221 Program. The monthly principal and interest is sent to
HUD and the Partnership will earn semi-annual  interest on debentures  issued by
HUD, as discussed  above. As of August 1, 2002, the Partnership has not received
notification  that this  assignment has been approved by HUD. The amortized cost
of this mortgage is included in Investment in  FHA-Insured  Loans,  at amortized
cost,  acquired insured mortgages in the Partnership's  balance sheet as of June
30, 2002.

<PAGE>12


     b.  Remaining mortgages eligible for assignment
         -------------------------------------------

     The Partnership's  mortgage  portfolio includes six FHA-Insured Loans under
the Section 221 Program with Anniversary  Dates from March 2002 through December
2002. The Partnership expects these mortgages to be put to HUD, if not otherwise
disposed, by the respective servicers.

     Please refer to the  Partnership's  Annual Report on Form 10-K for the year
ended December 31, 2001 for more  information on the  Partnership's  FHA-Insured
Loans.


5.   INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
HUD debenture for the mortgage on Fox Run Apartments.  The HUD debenture, with a
face  value, as  of  December  31,  2001,  of  $2,385,233,  was  issued  to  the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run Apartments was beneficially owned 50% by the Partnership and
50% by an affiliate,  American Insured Mortgage Investors ("AIM 84"). In January
2002, net proceeds of  approximately  $2.4 million were received upon redemption
of this HUD debenture. Since the Partnership was the record owner and AIM 84 was
the 50 % beneficial  owner of the mortgage on Fox Run Apartments,  approximately
$1.2 million of the  debenture  proceeds was paid to AIM 84. A  distribution  of
approximately $0.09 per Unit related to the redemption of this HUD debenture was
declared in January 2002 and paid to Unitholders in May 2002.


<PAGE>13


6.   DISTRIBUTIONS TO UNITHOLDERS

     The  distributions  paid or accrued to  Unitholders on a per Unit basis for
the six months ended June 30, 2002 and 2001 are as follows:

                                       2002          2001
                                      ------        ------

Quarter ended March 31,               $1.325(1)     $0.680(3)
Quarter ended June 30,                 0.210(2)      0.370(4)
                                      ------        ------
                                      $1.535        $1.050
                                      ======        ======

     The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
                                                                         Date                       Net
                                                                       Proceeds       Type of     Proceeds
           Complex Name(s)                                             Received     Disposition   Per Unit
           ---------------                                             --------     -----------   --------
      <S>                                                              <C>          <C>            <C>
      (1) Quarter ended March 31, 2002:
           The Gate House Apartments                                   Dec 2001     Prepayment     $0.220
           Longleaf Lodge                                              Jan 2002     Prepayment      0.290
           Fox Run Apartments                                          Jan 2002     Assignment      0.090
           Interest on debentures related to mortgages on Summit
              Square Manor, Park Place, Park Hill Apts, Fairfax
              House, Woodland Villas, Country Club Terrace Apts,       Jan - Feb
              Dunhaven Apts and Nevada Hills Apts                        2002       Assignment      0.060
           Summit Square Manor                                         Jan 2002     Assignment      0.150
           Park Place                                                  Jan 2002     Assignment      0.060
           Park Hill Apartments                                        Jan 2002     Assignment      0.140
           Fairfax House                                               Jan 2002     Assignment      0.170
           Woodland Villas                                             Jan 2002     Assignment      0.025
      (2) Quarter ended June 30, 2002:
           Garden Court Apartments                                     Apr 2002     Prepayment      0.090
      (3) Quarter ended March 31, 2001:
           The Meadows of Livonia                                      Jan 2001     Prepayment      0.530
      (4) Quarter ended June 30, 2001:
           Gold Key Village Apartments                                 Apr 2001     Prepayment      0.220
</TABLE>

     The basis for paying  distributions  to  Unitholders  is net proceeds  from
mortgage  dispositions,  if any, and cash flow from  operations,  which includes
regular  interest  income and  principal  from Insured  Mortgages.  Although the
Insured Mortgages pay a fixed monthly mortgage 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  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,   the  timing  of  receipt  of  HUD
debentures,  the interest rate on HUD debentures,  debenture redemptions 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.

<PAGE>14


7.   TRANSACTIONS WITH RELATED PARTIES

     The General Partner and certain affiliated entities have earned or received
compensation for services or received  distributions from the Partnership during
the three and six months ended June 30, 2002 and 2001 as follows:

<TABLE>
<CAPTION>
                                                                                       For the                    For the
                                                                                  three months ended         six months ended
                                                                                       June 30,                   June 30,

  Name of Recipient               Capacity in Which Served/Item                   2002         2001          2002         2001
  -----------------               -----------------------------                   ----         ----          ----         ----
<S>                             <C>                                            <C>          <C>           <C>          <C>
CRIIMI, Inc. (1)                General Partner/Distribution                   $  102,946   $  181,381    $  752,487   $  514,731

AIM Acquisition Partners,       Advisor/Asset Management Fee                      191,725      246,080       381,506      506,495
L.P.(2)

CRIIMI MAE Management, Inc.     Affiliate of General Partner/Expense
                                  Reimbursement                                    14,592       11,706        29,934       23,675
</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, 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 $56,503 and  $112,448  for the three and six months ended June
     30,  2002,  respectively,  and $72,535 and  $149,294  for the three and six
     months ended June 30, 2001,  respectively.  The general partner and limited
     partner of CMSLP are wholly owned subsidiaries of CRIIMI MAE.

<PAGE>15

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
prior and 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) the timing of the receipt
of HUD debentures issued in exchange for mortgages put to HUD, (ii) the interest
rate on HUD debentures,  (iii) the timing of redemption of HUD debentures,  (iv)
the timing of mortgage prepayments,  if any, (v) the reinvestment rate earned on
mortgage  disposition  proceeds  and  regular  cash  flow  distributions,   (vi)
regulatory  and  litigation  matters,  (vii) trends in the  economy,  and (viii)
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, 2002, the Partnership  had invested in 35 Insured  Mortgages
with an aggregate  amortized cost of approximately  $74.6 million,  an aggregate
face  value of  approximately  $77.1  million  and an  aggregate  fair  value of
approximately $78.0 million.

     As of August 1, 2002,  all of the fully insured  FHA-Insured  Certificates,
GNMA  Mortgage-Backed  Securities and FHA-Insured Loans are current with respect
to the payment of principal  and  interest  except for the mortgage on Westbrook
Apartments,  which is  delinquent  with  respect  to the July  2002  payment  of
principal and interest.

     The Section 221 Program
     -----------------------

     Under the  Section  221 program of the  National  Housing  Act of 1937,  as
amended  (the  "Section  221  Program"),  a mortgagee  has the right to assign a
mortgage  ("put")  to  the  United  States   Department  of  Housing  and  Urban
Development  ("HUD")  at the  expiration  of 20  years  from  the  date of final
endorsement ("Anniversary Date") if the mortgage is not in default at such time.
The  mortgagee  may  exercise  its  option to put the  mortgage  to HUD one year
subsequent to the Anniversary  Date. This assignment  procedure is applicable to
an  Insured  Mortgage,  which  had a firm  or  conditional  commitment  for  HUD
insurance  benefits on or before  November 30, 1983.  Any mortgagee  electing to
assign an Insured Mortgage to HUD receives, in exchange therefor, HUD debentures
having a total face value equal to (i) the then outstanding principal balance of
the Insured  Mortgage (ii) plus accrued  interest on the mortgage to the date of
assignment ("Debenture Issuance Date"). These HUD debentures generally mature 10
years  from  the  date of  assignment  and  bear  interest  at a rate  announced
semi-annually  by HUD in the Federal  Register  ("going  Federal  rate") at such
date. Generally,  the Partnership is not the named mortgagee for the FHA-Insured

<PAGE>16

Certificates.  In this  case,  the HUD  debentures  are  generally  issued to an
unrelated  third  party  that  is  the  named  mortgagee.  The  servicer  of the
applicable  mortgage is responsible  for delivering to the  Partnership  all HUD
insurance claim proceeds.  The debenture  interest is paid to the Partnership in
the month it is received by the servicer. The debenture proceeds are paid to the
Partnership  in the  month  the  debenture  is  redeemed  by HUD or  sold by the
servicer.

     Once the  servicer of a mortgage  has filed an  application  for  insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly  principal and interest on the  applicable  mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date);  however,  the  debentures  are not  transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General  Partner's  experience,  HUD's  assignment  process is generally  six to
eighteen  months.  After HUD  completes its  assignment  process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued interest on the debentures at the going Federal rate,
from the  Debenture  Issuance  Date to the most current  interest  payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest  payment  dates of January 1 and July 1. The going Federal rate for HUD
debentures issued under the Section 221 Program for the period January 1 through
June  30,  2002 was  6.375%.  The  Partnership  will  recognize  a gain on these
assignments  at the time it receives  notification  that the assignment has been
approved.  This is generally  when HUD transfers the debentures to the mortgagee
and/or  when the  Partnership  receives  cash for the  accrued  interest  on the
debentures.  A loss is recognized  when it becomes  probable that a loss will be
incurred.  The  gain or loss  recognized  is  equal  to net  proceeds,  less the
amortized cost of the Insured Mortgage.

     a.  Redemption of HUD Debentures
         ----------------------------

     The following list  represents  HUD  debentures  redeemed in July 2002. The
aggregate gain of $497,000 was recognized in the first quarter of 2002, when the
Partnership  received,  in cash,  approximately  $286,000 of accrued interest on
these  HUD  debentures.  A  distribution,  related  to  this  accrued  debenture
interest, of approximately $0.02 per Unit was declared in March 2002 and paid in
May 2002. Net proceeds  represent (i) the Partnership's  beneficial  interest in
the face  value of the HUD  debenture,  plus  (ii)  interest  earned  on the HUD
debenture during the HUD assignment process; less net mortgage investment income
due on the applicable mortgage during the HUD assignment process.  The aggregate
face  value  of the  Partnership's  beneficial  interest  in the  debentures  is
included in receivables and other assets in the  Partnership's  balance sheet as
of June 30, 2002.

(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
                               Debenture                 Face                     Gain                              Dist.
                                Interest       Net      Value of      HUD put    1st Qtr.   Dist/     Declaration   Payment
Complex Name                      Rate      Proceeds    Debenture      Date        2002     Unit         Date        Date
------------                     ------     --------    ---------    --------      -----    -----      --------     --------
<S>                              <C>         <C>         <C>         <C>           <C>      <C>        <C>          <C>
Country Club Terrace Apts.       7.500%      $ 1,425     $ 1,444     Sep 2000      $ 178    $0.12      Aug 2002     Nov 2002
Nevada Hills Apartments          7.500%        1,134       1,147     Dec 2000        154     0.09      Aug 2002     Nov 2002
Dunhaven Apartments              7.125%          872         890     Jan 2001        165     0.07      Aug 2002     Nov 2002
                                             -------     -------                   -----    -----
                                             $ 3,431     $ 3,481                   $ 497    $0.28
                                             =======     =======                   =====    =====
</TABLE>

<PAGE>17

     d.  Issuance of HUD Debenture
         -------------------------

     In July 2002,  HUD  transferred  assignment  proceeds in the form of a 7.5%
debenture  for the mortgage on Fairlawn II. The debenture has a maturity date of
September 20, 2010 and pays interest  semi-annually  on January 1 and July 1. In
July 2002, the Partnership received  approximately  $100,000 in cash, of accrued
interest  on  this  HUD  debenture.   The  Partnership   expects  to  declare  a
distribution,  related to this accrued debenture interest,  of $0.01 per Unit in
August 2002,  which is expected to be paid in November 2002.  The  Partnership's
beneficial  interest  in this  HUD  debenture  is  approximately  $758,000.  The
Partnership  expects to recognize a gain of  approximately  $95,000 in the third
quarter 2002. The  Partnership  expects the HUD debenture will be redeemed prior
to its maturity date and expects to declare a  distribution  of the net proceeds
at that time. The servicer of this mortgage  filed an application  for insurance
benefits under the Section 221 Program in September 2000.

     e.  Mortgages in the HUD assignment process
         ---------------------------------------

     The mortgages on The Executive House and Baypoint Shoreline Apartments were
put to HUD under the Section 221 Program by the  respective  servicers  in April
2002 and June 2002,  respectively.  The aggregate face value of these  mortgages
was approximately $1.7 million as of the HUD put date. The Partnership no longer
receives monthly principal and interest from mortgages that are put to HUD under
the Section 221 Program.  The monthly  principal and interest is sent to HUD and
the Partnership will earn semi-annual  interest on debentures  issued by HUD, as
discussed  above.  As of  August  1,  2002,  the  Partnership  has not  received
notification that these assignments have been approved by HUD.

     d.  Remaining mortgages eligible for assignment
         -------------------------------------------

     The   Partnership's   mortgage   portfolio   includes   seven   FHA-Insured
Certificates  under the Section 221 Program  with an  Anniversary  Date of April
2002. The Partnership  does not expect these mortgages to be put to HUD since it
owns less than 50%, or approximately  31.6%, of these FHA-Insured  Certificates.
The other  certificate  holders  have not yet elected to put these  mortgages to
HUD. In order to assign a mortgage to HUD,  there must be a minimum  vote of 50%
of  the  mortgagees.   The  Partnership  does  not  own  any  other  FHA-Insured
Certificates or GNMA  Mortgage-backed  Securities  eligible to be put to HUD. In
addition,  the Partnership's  mortgage  portfolio includes six FHA-Insured Loans
under the Section 221 Program  with  Anniversary  Dates from March 2002  through
December 2002. The Partnership  expects these mortgages to be put to HUD, if not
otherwise disposed, by the respective servicers.

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

     Net earnings  decreased by approximately  $1.2 million and $827,000 for the
three and six months  ended June 30,  2002,  respectively,  as  compared  to the
corresponding  periods  in 2001.  The  decrease  for the three  month  period is
primarily due to decreases in mortgage  investment  income and gains on mortgage
dispositions, as discussed below. The six month period decrease is primarily due
to the decrease in mortgage  investment income,  partially offset by an increase
in gains on mortgage dispositions, as discussed below.

     Mortgage  investment  income decreased by  approximately  $516,000 and $1.0
million  for the three and six months  ended  June 30,  2002,  respectively,  as
compared to the corresponding  periods in 2001,  primarily due to a reduction in
the mortgage base.  The mortgage base decreased as a result of sixteen  mortgage
dispositions with an aggregate principal balance of approximately $26.9 million,
representing an approximate 26% decrease in the aggregate  principal  balance of
the Partnership's  total mortgage portfolio since March 2001 as compared to June
2002.

<PAGE>18

     Interest and other income  decreased by  approximately  $32,000 and $74,000
for the three and six months ended June 30, 2002,  respectively,  as compared to
the  corresponding  periods in 2001,  primarily  due to the timing of  temporary
investment of mortgage disposition proceeds prior to distribution.

     Asset management fees decreased by  approximately  $54,000 and $125,000 for
the three and six months ended June 30, 2002,  respectively,  as compared to the
corresponding  periods in 2001,  primarily  due to the reduction in the mortgage
asset base.

     General and administrative  expenses increased by approximately $30,000 and
$28,000  for the three and six months  ended  June 30,  2002,  respectively,  as
compared  to the  corresponding  periods  in  2001,  primarily  due to the  cost
structure of certain expenses.

     Gains on mortgage dispositions  decreased by approximately $714,000 for the
three months ended June 30, 2002,  and increased by  approximately  $193,000 for
the six months ended June 30, 2002, as compared to the corresponding  periods in
2001. During the three months ended June 30, 2002, the partnership  recognized a
gain of  approximately  $9,000 for the  prepayment of one  mortgage.  During the
first  quarter  of 2002,  the  Partnership  recognized  a gain of  approximately
$672,000 from the prepayment of one mortgage and gains of approximately $497,000
from the assignment of three  mortgages.  During the three months ended June 30,
2001  the  Partnership  recognized  gains  of  approximately  $393,000  from the
prepayment  of two  mortgages  and  gains  of  approximately  $330,000  from the
assignment of two mortgages.  During the first quarter of 2001, the  Partnership
recognized gains of approximately $262,000 from the prepayment of two mortgages.

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

     The  Partnership's  operating  cash  receipts,  derived  from  payments  of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first three months of 2002 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  received from
Insured  Mortgages.  Although the Insured Mortgages pay a fixed monthly mortgage
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  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,  the timing of receipt of
HUD debentures,  the interest rate on HUD debentures, and debenture redemptions,
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.

     Net cash  provided  by  operating  activities  decreased  by  approximately
$188,000  for  the  six  months  ended  June  30,  2002,   as  compared  to  the
corresponding  period in 2001, primarily due to lower mortgage investment income
resulting from a reduction in the mortgage base,  partially offset by a decrease
in receivables and other assets. The decrease in receivables and other assets is
primarily due to the receipt of principal and interest previously accrued on the
mortgages  awaiting  assignment  from HUD under the Section  221 Program  during
2002, as previously discussed.

<PAGE>19

     Net cash provided by investing  activities  decreased by approximately $1.5
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001.  This  decrease  is  primarily  due to a  decrease  in  proceeds
received  from the  prepayment of  mortgages,  partially  offset by increases in
proceeds  received  from Midland and the net  proceeds  from the  debenture,  as
discussed below.

     During 2001, HUD issued  assignment  proceeds in the form of HUD debentures
in  exchange  for  mortgages  put to HUD  under the  Section  221  Program.  The
debentures were transferred to the mortgagee for each of the mortgages on Summit
Square  Manor,  Park Place,  Park Hill  Apartments,  Fairfax  House and Woodland
Villas.  In January 2002,  the  Partnership  received  aggregate net proceeds of
approximately  $6.8 million for the redemption of the HUD  debentures  that were
previously  issued by HUD.  A  distribution  of  approximately  $0.545  per Unit
related to the redemption of these  debentures was declared in February and paid
to Unitholders in May 2002.

     In December  2000, HUD issued  assignment  proceeds in the form of a 7.125%
HUD debenture for the mortgage on Fox Run Apartments.  The HUD debenture, with a
face  value  as  of  December  31,  2001,  of  $2,385,233,  was  issued  to  the
Partnership,  with interest  payable  semi-annually on January 1 and July 1. The
mortgage on Fox Run Apartments was beneficially owned 50% by the Partnership and
50% by an affiliate,  American Insured Mortgage Investors ("AIM 84"). In January
2002, net proceeds of  approximately  $2.4 million were received upon redemption
of this HUD debenture. Since the Partnership was the record owner and AIM 84 was
the 50% beneficial  owner of the mortgage on Fox Run  Apartments,  approximately
$1.2 million of the  debenture  proceeds was paid to AIM 84. A  distribution  of
approximately $0.09 per Unit related to the redemption of this HUD debenture was
declared in January 2002 and paid to Unitholders in May 2002.

     Net cash used in  financing  activities  increased  by  approximately  $3.7
million for the six months ended June 30, 2002, as compared to the corresponding
period  in 2001,  due to an  increase  in the  amount of  distributions  paid to
partners in the first six months of 2002 compared to the same period in 2001.

<PAGE>20

PART I.  FINANCIAL INFORMATION
ITEM 3.  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 (i) changes in the interest  rates
of U.S.  Treasury  securities,  (ii) changes in the spread  between the interest
rates on U.S.  Treasury  securities and the interest rates on the  Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages,  determined by reviewing the  attributes of the Insured  Mortgages in
relation to the current market interest rates.  The weighted average life of the
Insured  Mortgages  decreased as of June 30, 2002 compared to December 31, 2001,
due to the lower market interest rates and other attributes of the Partnership's
Insured Mortgages.

     The  General  Partner  has  determined  that  there has not been a material
change as of June 30, 2002, in market risk from December 31, 2001 as reported in
the Partnership's Annual Report on Form 10-K as of December 31, 2001.



<PAGE>21

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

(a)  Exhibits

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

             99.1                       Certifications Pursuant to the Section
                                        906 of the Sarbanes-Oxley Act of 2002.

(b)  Reports on Form 8-K

         Date
         ----

     May 10, 2002                       To report the General Partner's decision
                                        to dismiss the Partnership's independent
                                        auditors, Arthur Andsersen LLP.

     June 7, 2002                       To report: (1) the General Partner's
                                        selection of Ernst & Young LLP as the
                                        independent auditors for the
                                        Partnership's consolidated financial
                                        statements for the year ending on
                                        December 31, 2002, and (2) the
                                        resignation of Alan M. Jacobs from the
                                        Board of Directors of the General
                                        Partner.

<PAGE>22

PART II.  OTHER INFORMATION

                                    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 - SERIES 85, L.P.
                                                     (Registrant)

                                                     By:  CRIIMI, Inc.
                                                          General Partner


August 14, 2002                                      /s/ Cynthia O. Azzara
---------------                                      ---------------------------
DATE                                                 Cynthia O. Azzara
                                                     Senior Vice President,
                                                     Chief Financial Officer and
                                                     Treasurer