1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

For the quarter ended March 31, 1996
--------------

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 May 13, 1996, 12,079,389 depositary units of limited partnership
interest were outstanding.

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

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 1996

Page
----

PART I. Financial Information

Item 1. Financial Statements

Balance Sheets - March 31, 1996 (unaudited)
and December 31, 1995 . . . . . . . . . . . 3

Statements of Operations - for the three months
ended March 31, 1996 and 1995
(unaudited) . . . . . . . . . . . . . . . 4

Statement of Changes in Partners' Equity -
for the three months ended March 31,
1996 (unaudited) . . . . . . . . . . . . . 5

Statements of Cash Flows - for the three
months ended March 31, 1996 and
1995 (unaudited) . . . . . . . . . . . . . 6

Notes to Financial Statements (unaudited) . . 7

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

PART II. Other Information

Item 6. Exhibits and Reports on Form 8-K . . . . . . 15

Signature . . . . . . . . . . . . . . . . . . . . . . . 16

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

BALANCE SHEETS

March 31, December 31,
1996 1995
------------- ------------
(unaudited)

ASSETS

Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Acquired insured mortgages $166,508,482 $169,460,375
Originated insured mortgages 22,655,770 22,960,468
------------ ------------
189,164,252 192,420,843

Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,654,102 14,684,828
Originated insured mortgages 13,101,124 13,123,855
------------ ------------
27,755,226 27,808,683

Cash and cash equivalents 3,920,934 3,368,700

Receivables and other assets 1,802,343 1,775,746

Investment in affiliate 317,151 317,151
------------ ------------
Total assets $222,959,906 $225,691,123
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 4,148,012 $ 4,525,104

Accounts payable and accrued expenses 175,632 163,737

Note payable and due to affiliate 329,226 320,920
------------ ------------
Total liabilities 4,652,870 5,009,761
------------ ------------
Partners' equity:
Limited partners' equity 210,631,467 210,842,615
General partner's deficit (1,283,351) (1,274,782)
Net unrealized gains
on investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities 8,958,920 11,113,529
------------ ------------
Total partners' equity 218,307,036 220,681,362
------------ ------------
Total liabilities and partners'
equity $222,959,906 $225,691,123
============ ============

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

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

STATEMENTS OF OPERATIONS

(Unaudited)

For the three months ended
March 31,
---------------------------------
1996 1995
------------ ------------

Income:
Mortgage investment income $ 4,568,155 $ 4,622,524
Interest and other income 43,893 17,923
------------ ------------
4,612,048 4,640,447
------------ ------------
Expenses:
Asset management fee to
related parties 507,990 513,453
General and administrative 100,144 122,032
Mortgage servicing fees 68,647 71,606
Interest expense to affiliate 5,783 5,783
------------ ------------
682,564 712,874
------------ ------------
Net earnings before gain (loss)
on mortgage dispositions 3,929,484 3,927,573

Gain on mortgage disposition -- 52,730
Loss on mortgage disposition (1,189) --
------------ ------------
Net earnings $ 3,928,295 $ 3,980,303
============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 3,775,092 $ 3,825,071
General partner - 3.9% 153,203 155,232
------------ ------------
$ 3,928,295 $ 3,980,303
============ ============
Net earnings per Limited
Partnership Unit $ 0.31 $ 0.32
============ ============

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

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

STATEMENT OF CHANGES IN PARTNERS' EQUITY

For the three months ended March 31, 1996

(Unaudited)

Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partners Mortgages Mortgages Total
------------- ------------- ------------- ------------ -------------

Balance, December 31, 1995 $ (1,274,782) $ 210,842,615 $ 12,159,559 $ (1,046,030) $ 220,681,362

Net earnings 153,203 3,775,092 -- -- 3,928,295

Distributions paid or
accrued of $0.33 per
Unit (161,772) (3,986,240) -- -- (4,148,012)

Adjustments to unrealized
gains (losses)on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- (1,334,241) (820,368) (2,154,609)
------------- ------------- -------------- ------------ -------------
Balance, March 31, 1996 $ (1,283,351) $ 210,631,467 $ 10,825,318 $ (1,866,398) $ 218,307,036
============= ============= ============== ============ =============

Limited Partnership Units
outstanding -March
31, 1996 12,079,514
=============

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

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

STATEMENTS OF CASH FLOWS

(Unaudited)

For the three months ended March 31,
1996 1995
------------ ------------

Cash flows from operating activities:
Net earnings $ 3,928,295 $ 3,980,303
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Gain on mortgage disposition -- (52,730)
Loss on mortgage disposition 1,189 --
Changes in assets and liabilities:
Increase (decrease) in accounts payable
and accrued expenses 11,895 (71,563)
Increase in receivables and other assets (26,598) (9,836)
Increase (decrease) in note payable
and due to affiliate 8,306 (114,190)
------------ ------------
Net cash provided by operating activities 3,923,087 3,731,984
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 466,846 318,502
Proceeds from mortgage dispositions 687,405 52,730
------------ ------------
Net cash provided by investing activities 1,154,251 371,232
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (4,525,104) (4,525,104)
------------ ------------
Net cash used in financing
activities (4,525,104) (4,525,104)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 552,234 (421,888)

Cash and cash equivalents, beginning of period 3,368,700 3,462,825
------------ ------------
Cash and cash equivalents, end of period $ 3,920,934 $ 3,040,937
============ ============

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

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION

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

Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE), formerly CRI Insured Mortgage Association, Inc.

AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
and the limited partners include an affiliate of CRIIMI MAE (and through June
30, 1995, an affiliate of C.R.I., Inc. (CRI)). Effective September 6, 1991 and
through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement)
existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the
Partnership's portfolio. In connection with the transaction in which CRIIMI MAE
became a self-administered real estate investment trust (REIT) on June 30, 1995,
CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, acquired
the Sub-advisory Agreement. As a result of this transaction, CRIIMI MAE
Services Limited Partnership manages the Partnership's portfolio. These
transactions had no effect on the Partnership's financial statements.

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). 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 March 31, 1996
and December 31, 1995 and the results of its operations for the three months
ended March 31, 1996 and 1995 and its cash flows for the three months ended
March 31, 1996 and 1995.

These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the General Partner believes that the disclosures
presented are adequate to make the information not misleading, it is suggested
that these financial statements 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,
1995.

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

Fully Insured Mortgage Investments
----------------------------------
As of March 31, 1996 and December 31, 1995, the Partnership's
investment in fully insured Acquired Insured Mortgages, recorded at fair
value, consisted of 66 FHA-Insured Certificates, and nine GNMA Mortgage-
Backed Securities with an aggregate amortized cost of $156,541,954 and
$157,656,694, respectively, an aggregate face value of $163,217,403 and
$164,397,459, respectively, and an aggregate fair value of $166,508,482 and
$169,460,375, respectively.

As of March 31, 1996 and December 31, 1995, the Partnership's
investment in fully insured Originated Insured Mortgages, recorded at fair
value, consisted of one GNMA Mortgage-Backed Security with an amortized
cost of $10,655,161 and $10,666,346, respectively, a face value of
$10,748,953 and $10,760,496, respectively, and a fair value of $10,591,536
and $10,925,754, respectively.

In April 1995, the Partnership filed a Notice of Default and an
Election to Assign with the United States Department of Housing and Urban
Development (HUD) related to the mortgage on El Lago Apartments. On June
22, 1995, the Partnership received approximately $2.1 million, representing
approximately 90% of the assignment proceeds. As discussed in Note 6,
below, in July 1995, the Partnership declared a special distribution of the
proceeds from the assignment, which was paid to Unitholders on November 1,
1995. The remaining proceeds of approximately $210,000 were received on
September 27, 1995. In October 1995, a special distribution of these
remaining assignment proceeds was declared. This distribution of $0.02 per
Unit was paid to Unitholders on February 1, 1996.

As of May 10, 1996, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment
of principal and interest except for the mortgages on Country Club
Apartments, which is delinquent with respect to the April 1996 payment of
principal and interest, and the mortgage on Woodland Village Apartments,
for which payments of principal and interest have been received through
September 1995. On October 31, 1995, the General Partner instructed the
servicer of the mortgage on Woodland Village Apartments to file a Notice of
Default and Election to Assign the mortgage with HUD. The Partnership
expects to receive 90% of the proceeds by the end of the second quarter of
1996 with the remaining balance to be received prior to the end of 1996.
The General Partner does not anticipate a material adverse impact on the
Partnership's financial statements as a result of this delinquency or
assignment.

During March 1996, one of the investors in the Harbor View Estates
loan, exercised its right to purchase the participation interests with
respect to this insured mortgage after a notice of default was filed with
HUD. The Partnership received net proceeds of approximately $693,000 from
this prepayment in March 1996. A distribution of $0.07 per Unit related to
this prepayment was declared in April 1996 and will be distributed to
investors in August 1996.

AMERICAN INSURED INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

Coinsured Mortgage Investments
------------------------------
As discussed in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1995, under the HUD coinsurance program, both HUD
and the coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net proceeds to repay
the mortgage obligation. In such case, the coinsurance lender will be
liable to the Partnership for the first part of such loss in an amount up
to 5% of the outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is acquired in lieu of
foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne
on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.

Coinsured by affiliate
----------------------
As of March 31, 1996 and December 31, 1995, the Partnership had
invested in two FHA-Insured Certificates secured by coinsured mortgages
where the coinsurance lender is Integrated Funding, Inc. On April 30,
1996, one of the consured mortgages, Waterford Green Apartments, was
converted from a coinsured mortgage to a fully insured mortgage, as
discussed further below. The coinsured investments were made by the former
managing general partner on behalf of the Partnership. As structured by
the former managing general parter, with respect to the remaining
coinsured mortgage, Westlake Village, the Partnership bears the risk of
loss upon default for IFI's portion of the coinsurance loss. The General
Partner believes there is adequate collateral value underlying the Westlake
Village mortgage. Accordingly, no loan losses were recognized on this
investment during the three months ended March 31, 1996 and 1995.

As of May 10, 1996, the two mortgage investments shown in the table
below were current with respect to the payment of principal and interest.
As of March 31, 1996 and December 31, 1995, these two mortgages had an
aggregate fair value of $12,064,235 and $12,034,714, respectively.

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

Amortized Face Amortized Face
Cost Value Cost Value
March 31, March 31, December 31, December 31,
1996 1996 1995 1995
------------- ------------- ------------ ------------

Westlake Village $ 6,464,826 $ 6,462,895 $ 6,473,072 $ 6,471,133
Waterford Green Apts.(1) $ 6,542,919 $ 6,557,754 $ 6,511,202 $ 6,526,094

(1) In December 1992, the Partnership entered into a modification agreement
with the mortgagor of Waterford Green Apartments. This agreement effectively
lowered the interest rate on the mortgage from 8.5% to 6.5% for a period
continuing through November 1995. The mortgagor assumed an additional note for
the difference between the interest due under the principal mortgage and the
modified interest paid under the agreement. On April 30, 1996, the mortgage on
Waterford Green was restated under the HUD 223(a)(7) program converting this
mortgage from a coinsured to fully insured status at a fixed rate of 7.25%.
Payments due under the new mortgage begin June 1, 1996. As part of prior
workout arrangements with the borrower, a portion of the interest due under the
original note had been deferred temporarily. At the same time the borrower had
deferred a portion of its management fees. Concurrent with this HUD
modification, the deferred interest and deferred management fees are now
evidenced in the form of cash surplus notes in the amount of $356,600 for
interest and $103,573 for management fees. Surplus cash, as defined by HUD,
will be split 50/50 in repayment of deferred interest and management fees. Once
all deferred management fees have been repaid, 100% of surplus cash will be
applied against the remaining deferred interest obligation. Upon repayment of
both of these obligations, surplus cash will be distributed based upon the terms
of the participation agreement. The General Partner currently does not believe
this modification will have a material adverse impact on the Partnership's
financial statements.

5. INVESTMENT IN FHA-INSURED LOANS

Fully Insured Mortgage Investments
----------------------------------
As of March 31, 1996 and December 31, 1995 the Partnership's
investment in fully insured Acquired Insured Mortgages, recorded at
amortized cost, consisted of 12 FHA-Insured Loans with an aggregate
amortized cost of $14,654,102 and $14,684,828, respectively, an aggregate
face value of $17,573,571 and $17,627,453, respectively, and an aggregate
fair value of $17,987,520 and $18,388,288, respectively.

As of March 31, 1996 and December 31, 1995, the Partnership's
investment in fully insured Originated Insured Mortgages, recorded at
amortized cost, consisted of three FHA-Insured Loans with an aggregate
amortized cost of $13,101,124 and $13,123,855, respectively, an aggregate
face value of $12,745,906 and $12,766,486, respectively, and an aggregate
fair value of $13,199,161 and $13,160,443, respectively.

As of May 10, 1996, all of the Partnership's mortgage investments,
recorded at amortized cost, were current with respect to the payment of
principal and interest.

AMERICAN INSURED MORTGAGE INVESTORS L.P. SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

5. INVESTMENT IN FHA-INSURED LOANS - Continued

In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred
to as Participations). During the three months ended March 31, 1996 and
1995, the Partnership received additional interest of $0 and $64,676,
respectively, from the Participations. These amounts, if any, are included
in mortgage investment income on the accompanying statements of operations.

6. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the three months ended March 31, 1996 and 1995 are as follows:

1996 1995
------ ------

Quarter ended March 31, $ 0.33 $ 0.36
====== ======

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.

7. TRANSACTIONS WITH RELATED PARTIES

The General Partner and certain affiliated entities, during the three
months ended March 31, 1996 and 1995, earned or received compensation or
payments for services from the Partnership as follows:

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

7. TRANSACTIONS WITH RELATED PARTIES - Continued

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

For the
three months ended
Capacity in Which March 31,
Name of Recipient Served/Item 1996 1995
- ----------------- ---------------------------- ---------- ----------

CRIIMI, Inc. General Partner/Distribution $ 161,773 $ 176,478

AIM Acquisition Advisor/Asset Management Fee 507,990 513,453
Partners, L.P.(1)

CRI(2) Affiliate of General Partner/ -- 31,587
Expense Reimbursement

CRIIMI MAE Affiliate of General Partner/ 15,242 --
Management, Inc.(2) Expense Reimbursement

<FN>
(1) Of the amounts paid to the Advisor, the sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of .28% of Total
Invested Assets. CRI/AIM Management, Inc., which through June 30, 1995 acted as the Sub-advisor, earned a fee equal to $0 and
$151,341 for the three months ended March 31, 1996 and 1995, respectively. Effective June 30, 1995, CRIIMI MAE Services
Limited Partnership now serves as the Sub-advisor. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited Partnership
earned a fee equal to $149,730 and $0, for the three months ended March 31, 1996 and 1995, respectively.

(2) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred prior to
June 30, 1995 on behalf of the General Partner and the Partnership. The transaction in which CRIIMI MAE became a
self-administered REIT has no impact on the payments required to be made by the Partnership, other than that the
expense reimbursements previously paid by the Partnership to CRI in connection with the provision of services by the Sub-
advisor are, effective June 30, 1995, paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.
</FN>

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

General
- -------
As of March 31, 1996, the Partnership had invested in 93 insured mortgages
with an aggregate amortized cost of approximately $208 million, an aggregate
face value of approximately $217 million and an aggregate fair value of
approximately $220 million, as discussed below. As of March 31, 1996, the
Partnership had committed approximately $142,000 for additional advances on
construction loans.

As of May 10, 1996, all of the Partnership's mortgage investments were
current with respect to the payment of principal and interest except for the
fully insured mortgage on Woodland Village Apartments, which was delinquent with
respect to the September 1995 payment of principal and interest. On October 31,
1995, the General Partner instructed the servicer of Woodland Village Apartments
to file a Notice of Default and an Election to Assign the mortgage with HUD.
The General Partner does not anticipate a material adverse impact on the
Partnership's financial statements as a result of these delinquencies.

On April 30, 1996, one of the FHA-Insured Certificates secured by a
coinsured mortgage, Waterford Green, was converted from a coinsured mortgage to
a fully insured mortgage. This conversion should not materially impact the
financial statements.

Results of Operations
- ---------------------
Net earnings for the three months ended March 31, 1996 decreased slightly
as compared to the corresponding period in 1995 primarily due to the reduction
in gain on mortgage disposition, as discussed below.

Mortgage investment income decreased for the three months ended March 31,
1996, as compared to the corresponding period in 1995 primarily due to the
assignment to HUD of El Lago Apartments in June 1995.

Interest and other income increased for the three months ended March 31,
1996, as compared to the corresponding period in 1995 primarily due to an
increase in short term investment income.

General and administrative expenses decreased for the three months ended
March 31, 1996, as compared to the corresponding period in 1995, due to a
reduction in payroll expense and investor service expenses.

Mortgage servicing fees and asset management fees decreased for the three
months ended March 31, 1996, as compared to the corresponding period in 1995 due
to the reduction in the asset base.

Gain on mortgage disposition decreased for the three months ended March 31,
1996, as compared to the corresponding period in 1995. Loss on mortgage
disposition increased for the three months ended March 31, 1996, as compared to
the corresponding period in 1995. Gains or losses on mortgage dispositions are
based on the number, carrying amounts and proceeds for mortgage investments
disposed of during the period. During the first quarter of 1996, the
Partnership recognized a loss of $1,189 as a result of the prepayment on the
Harbor View Estates loan in March 1996. During the first quarter of 1995, the
Partnership recognized a gain of $52,730 as a result of the final settlement of
the disposition of the mortgage on Dearborne Place 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

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

short-term investments, were sufficient during the first three months of 1996 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.

Net cash provided by operating activities increased for the three months
ended March 31, 1996, as compared to the corresponding period in 1995. This
increase was due to the reduction in note payable and due to affiliate during
1995 resulting from the prepayment of the mortgage on Richardson Road Apartments
underlying the GNMA Mortgage-Backed Security which had been transferred to IFI
to meet IFI's minimum net worth requirement which resulted in lower net cash
provided by operations for the quarter ended March 31, 1995. In addition, there
was a reduction in mortgage servicing fees during 1995 which resulted in a
decrease in accounts payable further reducing net cash provided by operations
for the quarter ended March 31, 1995.

Net cash provided by investing activities increased for the three months
ended March 31, 1996, as compared to the corresponding period in 1995 due to the
increase in proceeds from dispositions due to the prepayment of the Harbor View
Estates loan during 1996. In addition, receipt of mortgage principal from
scheduled payments increased for the three months ending March 31, 1996, as
compared to the corresponding period in 1995 due to the partial prepayment on
the Cambridge mortgage.

Net cash used in financing activities was unchanged for the three months
ending March 31, 1996, as compared to the corresponding period in 1995.

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

No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1995.

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

Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule

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

May 14, 1995 /s/ Cynthia O. Azzara
- ------------ -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer