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, 1997
--------------

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 March 31, 1997, 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, 1997

Page
----

PART I. Financial Information

Item 1. Financial Statements

Balance Sheets - March 31, 1997 (unaudited)
and December 31, 1996 . . . . . . . . . . . 3

Statements of Operations - for the three months
ended March 31, 1997 and 1996
(unaudited) . . . . . . . . . . . . . . . 5

Statement of Changes in Partners' Equity -
for the three months ended March 31,
1997 (unaudited) . . . . . . . . . . . . . 6

Statements of Cash Flows - for the three
months ended March 31, 1997 and
1996 (unaudited) . . . . . . . . . . . . . 7

Notes to Financial Statements (unaudited) . . 8

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,
1997 1996
------------- ------------
(unaudited)
ASSETS

Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Acquired insured mortgages $156,567,336 $159,959,297
Originated insured mortgages 16,230,217 16,646,943
------------ ------------
172,797,553 176,606,240
------------ ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,522,942 14,556,595
Originated insured mortgages 13,005,500 13,030,131
------------ ------------
27,528,442 27,586,726

Cash and cash equivalents 3,997,806 9,716,786

Receivables and other assets 1,766,572 1,727,662

Investment in affiliate 314,072 314,072
------------ ------------
Total assets $206,404,445 $215,951,486
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 4,902,195 $ 10,684,274

Accounts payable and accrued expenses 205,840 198,964

Note payable and due to affiliate 386,660 380,877
------------ ------------
Total liabilities 5,494,695 11,264,115
------------ ------------
Partners' equity:
Limited partners' equity 197,823,449 198,836,652
General partner's deficit (1,803,136) (1,762,017)
Unrealized gain on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities 7,465,987 8,715,942
Unrealized loss on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities (2,576,550) (1,103,206)
------------ ------------
Total partners' equity 200,909,750 204,687,371
------------ ------------
Total liabilities and partners'
equity $206,404,445 $215,951,486
============ ============

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,
---------------------------------
1997 1996
------------ ------------

Income:
Mortgage investment income $ 4,217,068 $ 4,568,155
Interest and other income 57,254 38,173
------------ ------------
4,274,322 4,606,328
------------ ------------
Expenses:
Asset management fee to
related parties 477,893 507,990
General and administrative 147,990 163,071
Interest expense to affiliate 5,783 5,783
------------ ------------
631,666 676,844
------------ ------------
Net earnings before gain (loss)
on mortgage dispositions 3,642,656 3,929,484

Gain on mortgage disposition 205,217 --
Loss on mortgage disposition -- (1,189)
------------ ------------
Net earnings $ 3,847,873 $ 3,928,295
============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 3,697,806 $ 3,775,092
General partner - 3.9% 150,067 153,203
------------ ------------
$ 3,847,873 $ 3,928,295
============ ============
Net earnings per Limited
Partnership Unit $ 0.31 $ 0.31
============ ============

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, 1997

(Unaudited)

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

Balance, December 31, 1996 $ (1,762,017) $ 198,836,652 $ 8,715,942 $ (1,103,206) $ 204,687,371

Net earnings 150,067 3,697,806 -- -- 3,847,873

Distributions paid or
accrued of $0.39 per
Unit (191,186) (4,711,009) -- -- (4,902,195)

Adjustments to unrealized
gains (losses)on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- (1,249,955) (1,473,344) (2,723,299)
------------- ------------- -------------- ------------ -------------
Balance, March 31, 1997 $ (1,803,136) $ 197,823,449 $ 7,465,987 $ (2,576,550) $ 200,909,750
============= ============= ============== ============ =============

Limited Partnership Units
outstanding -March
31, 1997 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,
1997 1996
------------ ------------

Cash flows from operating activities:
Net earnings $ 3,847,873 $ 3,928,295
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Gain on mortgage disposition (205,217) --
Loss on mortgage disposition -- 1,189
Changes in assets and liabilities:
Increase in accounts payable and accrued expenses 6,876 11,895
Decrease (increase) in receivables and other assets 22,195 (26,598)
Increase in note payable and due to affiliate 5,783 8,306
------------ ------------
Net cash provided by operating activities 3,677,510 3,923,087
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 382,892 466,846
Proceeds from mortgage dispositions 904,891 687,405
------------ ------------
Net cash provided by investing activities 1,287,783 1,154,251
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (10,684,273) (4,525,104)
------------ ------------
Net cash used in financing activities (10,684,273) (4,525,104)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (5,718,980) 552,234

Cash and cash equivalents, beginning of period 9,716,786 3,368,700
------------ ------------
Cash and cash equivalents, end of period $ 3,997,806 $ 3,920,934
============ ============

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).

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 March 31, 1997
and December 31, 1996 and the results of its operations for the three months
ended March 31, 1997 and 1996 and its cash flows for the three months ended
March 31, 1997 and 1996.

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,
1996.

New Accounting Standards
------------------------
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS
128"). FAS 128 changes the requirements for calculation and disclosure of
earnings per share. This statement eliminates the calculation of primary
earnings per share and requires the disclosure of basic earnings per share
and diluted earnings per share. There will be no impact to the earnings
per Unit of limited partnership interest.

During 1997, FASB issued SFAS No. 129 "Disclosure of Information about
Capital Structure" ("FAS 129"). FAS 129 continues the existing
requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

2. BASIS OF PRESENTATION - Continued

companies subject to portions of its requirements. The Partnership does
not anticipate an impact to its current disclosures.

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:

March 31, December 31,
1997 1996
------------ ------------

Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates (1)(2) 60 62
Amortized Cost $150,808,032 $151,866,819
Face Value 156,556,800 157,889,594
Fair Value 156,567,336 159,959,297

Fully Insured Originated Insured:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 17,100,084 $ 17,126,685
Face Value 16,743,468 16,770,069
Fair Value 16,230,217 16,646,943

(1) On October 11, 1996, the servicer of the mortgage on Meadow Park Apartments
I filed a Notice of Default and Election to Assign the mortgage with HUD.
On January 24, 1997, the Partnership received approximately $628,000
representing approximately 90% of the assignment proceeds. The Partnership
recognized a gain of approximately $139,000 for the three months ended
March 31, 1997. A distribution of $0.05 per Unit related to this
assignment was declared in February 1997 and was paid to Unitholders in May
1997.

(2) In late February 1997, the mortgage on Security Apartments was prepaid.
The partnership received net proceeds of approximately $304,000, and
recognized a gain of approximately $66,000 for the three months ended March
31, 1997. A distribution of approximately $0.02 per Unit related to this
prepayment was declared in April 1997 and was paid to Unitholders in May
1997. The remaining 9% due on assignment is expected to be received.

As of May 1, 1997, 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 Portervillage I
Apartments, which has been delinquent since January 1997, as discussed
below, and Country Club Terrace Apartments, which is delinquent with

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

respect to the March 1997 payment of principal and interest. The
Partnership expects to receive the payment on Country Club Terrace
Apartments. In May 1997, the General Partner instructed the servicer of
the mortgage on Portervillage I Apartments to file an Election to Assign
the mortgage with HUD. The face value of this mortgage was approximately
$1.2 million at December 31, 1996. The Partnership expects to receive 99%
of this amount plus accrued interest.

4. INVESTMENT IN FHA-INSURED LOANS

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

March 31, December 31,
1997 1996
------------ ------------

Fully Insured Acquired Insured:
Number of Loans 12 12
Amortized Cost $ 14,522,942 $ 14,556,595
Face Value 17,346,773 17,405,640
Fair Value 17,282,002 17,706,486

Fully Insured Originated Insured:
Number of Loans 3 3
Amortized Cost $ 13,005,500 $ 13,030,131
Face Value 12,659,167 12,681,532
Fair Value 12,904,175 12,969,589

As of May 1, 1997, all of the Partnership's FHA-Insured Loans,
recorded at amortized cost, were current with respect to the payment of
principal and interest.

In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred
to as Participations). During the three months ended March 31, 1997 and
1996, the Partnership did not receive additional interest from the
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of operations.

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

5. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the three months ended March 31, 1997 and 1996 are as follows:

1997 1996
------ ------
Quarter ended March 31, $ 0.39(1) $ 0.33
====== ======

(1) This amount includes approximately $0.07 per Unit return of capital
and gain from the disposition of the following mortgages: Meadow Park
Apartments I $0.05 and Security Apartments $0.02.

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

6. TRANSACTIONS WITH RELATED PARTIES

The General Partner and certain affiliated entities, during the three
months ended March 31, 1997 and 1996, 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)

6. 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 1997 1996
- ----------------- ---------------------------- ---------- ----------

CRIIMI, Inc. General Partner/Distribution $ 191,186 $ 161,773

AIM Acquisition Advisor/Asset Management Fee 477,893 507,990
Partners, L.P.(1)

CRIIMI MAE Affiliate of General Partner/ 16,943 15,242
Management, Inc. Expense Reimbursement

<FN>
(1) The Advisor, pursuant to the Partnership Agreement, effective June 26, 1984, is entitled to an Asset Management Fee equal to
0.95% of Total Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE Services Limited Partnership, the sub-
advisor to the Partnership (the Sub-advisor) is entitled to a fee of 0.28% of Total Invested Assets. Of the amounts paid to
the Advisor, the Sub-advisor earned a fee equal to $140,856 and $149,730 for the three months ended March 31, 1997 and 1996,
respectively. The Sub-advisor is an affiliate of CRIIMI MAE.
</FN>

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

Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties
as discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially.

General
- -------
As of March 31, 1997, the Partnership had invested in 86 insured mortgages
with an aggregate amortized cost of approximately $195 million, an aggregate
face value of approximately $203 million and an aggregate fair value of
approximately $203 million, as discussed below.

As of May 1, 1997, all of the Insured Mortgages are current with respect to
the payment of principal and interest except for the mortgages on Portervillage
I Apartments, which has been delinquent since January 1997, as discussed below,
and Country Club Terrace Apartments, which is delinquent with respect to the
March 1997 payment of principal and interest. The Partnership expects to
receive the payment on Country Club Terrace Apartments. In May 1997, the
General Partner instructed the servicer of the mortgage on Portervillage I
Apartments to file an Election to Assign the mortgage with HUD. The face value
of this mortgage was approximately $1.2 million at December 31, 1996. The
Partnership expects to receive 99% of this amount plus accrued interest.

Results of Operations
- ---------------------
Net earnings for the three months ended March 31, 1997 decreased slightly
as compared to the corresponding period in 1996. This decrease was primarily
the result of a reduction in mortgage investment income due to the disposition
of six mortgages since March 31, 1996. The decrease was offset by an increase
in gain on mortgage dispositions, as discussed below.

Interest and other income increased for the three months ended March 31,
1997, as compared to the corresponding period in 1996 primarily due to the
investment of proceeds received in December 1996 from the prepayment of the
mortgage on Westlake Village Apartments and distributed in February 1996.

Asset management fees decreased for the three months ended March 31, 1997,
as compared to the corresponding period in 1996 resulting from the reduction in
the asset base.

General and administrative expenses decreased for the three months ended
March 31, 1997, as compared to the corresponding period in 1996, due to a
reduction in payroll expense and payroll-related expenses resulting from a
smaller mortgage base.

Gain on mortgage dispositions increased for the three months ended March
31, 1997, as compared to the corresponding period in 1996. Loss on mortgage
dispositions decreased for the three months ended March 31, 1997, as compared to
the corresponding period in 1996. During the first quarter of 1997, the
Partnership recognized gains of approximately $66,000 from the prepayment of the
mortgage on Security Apartments in February 1997, and approximately $139,000
from the assignment of the mortgage on Meadow Park Apartments I in January 1997.
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.

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

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 1997 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 decreased for the three months
ended March 31, 1997, as compared to the corresponding period in 1996 primarily
due to the decrease in net earnings, as discussed above.

Net cash provided by investing activities increased for the three months
ended March 31, 1997, as compared to the corresponding period in 1996 due to the
increase in proceeds from dispositions from the prepayment of two mortgages, as
discussed above. This increase was partially offset by a decrease in receipt of
mortgage principal from scheduled payments due to the normal amortization of
mortgages and the disposition of mortgages.

Net cash used in financing activities increased for the three months ended
March 31, 1997, as compared to the corresponding period in 1996. This increase
was due to the distribution of net proceeds received from the mortgage on
Westlake Village.

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 March 31, 1997.

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 15, 1997 /s/ Cynthia O. Azzara
- ------------ -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer