AMERICAN INSURED MORTGAGE INVESTORS SERIES 85 L P - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------

For the fiscal year ended December 31, 1999 Commission file number 1-11059

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

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

11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- ---------------------------------- ------------------------
Depositary Units of Limited American Stock Exchange
Partnership Interest

Securities registered pursuant to Section 12(g) of the Act:

None
------------------------------------

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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of February 17, 2000, 12,079,514 depositary units of limited partnership
interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $105,660,748.

Documents incorporated by Reference

None

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

1999 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
----
PART I
------

Item 1. Business......................................................................... 4
Item 2. Properties....................................................................... 5
Item 3. Legal Proceedings................................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.............................. 5

PART II
-------
Item 5. Market for Registrant's Securities and Related Security Holder Matters........... 6
Item 6. Selected Financial Data.......................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 7
Item 7A. Qualitative and Quantitative Disclosures about Market Risk....................... 13
Item 8. Financial Statements and Supplementary Data...................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................... 13

PART III
--------

Item 10. Directors and Executive Officers of the Registrant............................... 14
Item 11. Executive Compensation........................................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 15
Item 13. Certain Relationships and Related Transactions................................... 16

PART IV
-------

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 17

Signatures ................................................................................. 19

PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K,
including, without limitation, statements made under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, (2)
information included or incorporated by reference in future filings by the
Partnership with the Securities and Exchange Commission including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans and (3) information contained in
written material, releases and oral statements issued by or on behalf of, the
Partnership, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans.
Factors which may cause actual results to differ materially from those contained
in the forward-looking statements identified above include, but are not limited
to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in
the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only of the date hereof. The Partnership undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.

Development and Description of Business
- ---------------------------------------
Information concerning the business of American Insured Mortgage Investors
- - Series 85, L.P. (the "Partnership") is contained in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Notes 1, 5, 6, 7 and 8 of the Notes to Financial Statements of
the Partnership (filed in response to Item 8 hereof), all of which are
incorporated by reference herein . See also Schedule IV-Mortgage Loans on Real
Estate, for the table of the Insured Mortgages (as defined below) invested in by
the Partnership as of December 31, 1999, which is hereby incorporated by
reference herein.

Employees
- ---------
The Partnership has no employees. The business of the Partnership is
managed by CRIIMI, Inc. (the "General Partner"), while its portfolio of
mortgages is managed by AIM Acquisition Partners, L.P. (the "Advisor") pursuant
to an advisory agreement (the "Advisory Agreement"). The General Partner is a
wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE").

The general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments,
Inc.(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of
CRIIMI MAE. AIM Acquisition is a Delaware corporation that is primarily owned by
Sun America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.

Competition
- -----------
In disposing of mortgage investments, the Partnership competes with private
investors, mortgage banking companies, mortgage brokers, state and local
government agencies, lending institutions, trust funds, pension funds, and other
entities, some with similar objectives to those of the Partnership and some of
which are or may be affiliates of the Partnership, its General Partner, the
Advisor, CMSLP or their respective affiliates. Some of these entities may have
substantially greater capital resources and experience in disposing of Federal
Housing Administration ("FHA") insured mortgages than the Partnership.

CRIIMI MAE and its affiliates also may serve as general partners, sponsors
or managers of real estate limited partnerships, REITs or other entities in the
future. The Partnership may attempt to dispose of mortgages at or about the same
time that CRIIMI MAE, one or more of the other "AIM Funds" (defined as the
Partnership, American Insured Mortgage Investors ("AIM 84"), American Insured
Mortgage Investors L.P. - Series 86 ("AIM 86") and American Insured Mortgage
Investors L.P. - Series 88 ("AIM 88")), and/or other entities sponsored or
managed by CRIIMI MAE or its affiliates, are attempting to dispose of mortgages.
As a result of market conditions that could limit dispositions, CMSLP and its
affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of. Both CMSLP and the General Partner, however, are
subject to their fiduciary duties in evaluating the appropriate action to be
taken when faced with such conflicts.

ITEM 2. PROPERTIES

Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are non-recourse
first liens on the respective multifamily residential developments or retirement
homes.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings to which the Partnership is a
party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the security holders to be voted on during the
fourth quarter of 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS

Principal Market and Market Price for Units and Distributions
- -------------------------------------------------------------
Since April 8, 1992, the Limited Partnership Units ("Units") have traded on
the American Stock Exchange ("AMEX") with a trading symbol of "AII."

The high and low trade prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1999 and 1998 were as
follows:

Amount of
1999 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- ------------

March 31 $ 12 5/8 $ 11 3/8 $ 0.40 (1)(2)
June 30 11 3/4 10 9/16 0.65 (3)
September 30 11 10 7/16 0.22
December 31 10 7/8 8 1.82(4)
------------
$ 3.09
============

Amount of
1998 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- ------------

March 31 $ 14 1/2 $ 13 9/16 $ 1.07 (5)
June 30 13 3/4 12 7/8 0.58 (6)
September 30 13 3/4 12 13/16 0.53 (7)
December 31 13 5/8 11 5/8 1.27 (8)
------------
$ 3.45
============

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

Type of NetProceeds
Complex Name(s) Disposition Per Unit
- ------------------------------------------------------------------------- ----------- -----------

(1) Gamel & Gamel Apartments Prepayment $0.06
(2) Debenture from Portervillage I Apartments * Assignment 0.10
(3) Nassau Apartments, Walnut Apartments, Kings Villa/ Discovery
Commons, and Quail Creek Apartments Prepayment 0.41
(4) Huntington Apartments, Bowling Brook, Section 1, Lincoln Green,
Ridgecrest Timbers, Holden Court Apartments, and Lakeside Prepayment 1.60
Apartments
(5) Spanish Trace Apartments Prepayment 0.77
(6) Isle of Pines Village Apartments, Emerald Green Apartments, and
Stoney Brook Apartments Prepayment 0.31
(7) Amador Residential, Continental Village, and Bentgrass Hills Prepayment 0.27
Apartments
(8) Northdale Commons, Cedar Bluff, and Wayland Health Center Prepayment 1.00

* During the first quarter of 1998, the assignment proceeds of the mortgage
on Portervillage I Apartments were received in the form of a 9.5%
debenture. The debenture, with a face value of $2,296,098, was issued to
the Partnership, with interest payable semi-annually on January 1 and July
1. In January 1999, net proceeds of approximately $2.3 million were
received upon redemption of these debentures. Since the mortgage on
Portervillage I Apartments was owned 50% by the Partnership and 50% by an
affiliate of the Partnership, American Insured Mortgage Investors ("AIM
84"), approximately $1.1 million of the debenture proceeds was paid to AIM
84.

There are no material legal restrictions upon the Partnership's present or
future ability to make distributions in accordance with the provisions of the
partnership agreement.

Approximate Number of Unitholders
Title of Class as of December 31, 1999
- --------------------------- ---------------------------------
Depositary Units of Limited
Partnership Interest 10,900

ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)

For the Years Ended December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------

Income $ 12,230 $ 14,744 $ 16,761 $ 17,943 $ 18,589
Net gains on mortgage
dispositions/modifications 857 1,403 908 522 36

Net earnings 11,225 13,893 15,137 15,789 15,903

Net earnings per Limited
Partnership Unit - Basic (1) $ 0.89 $ 1.11 $ 1.20 $ 1.26 $ 1.27

Distributions per Limited
Partnership Unit (1)(2) $ 3.09 $ 3.45 $ 2.76 $ 2.25 $ 1.54

As of December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------

Total assets $ 143,470 $ 170,970 $ 203,450 $ 215,951 $ 225,691

Partners' equity 120,445 153,543 187,682 204,687 220,681

(1) Calculated based upon the weighted average number of Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 1999, 1998, 1997, 1996 and 1995, which were paid
subsequent to year end. See Notes 7 and 8 of the Notes to Financial
Statements.

The selected income data presented above for the years ended December 31,
1999, 1998 and 1997, and the balance sheet data as of December 31, 1999 and
1998, are derived from and are qualified by reference to the Partnership's
financial statements which have been included elsewhere in this Form 10-K. The
income data for the years ended December 31, 1996 and 1995 and the balance sheet
data as of December 31, 1997, 1996 and 1995 are derived from audited financial
statements not included in this Form 10-K. This data should be read in
conjunction with the Financial Statements and the Notes thereto.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

General
- -------
The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein and in Item 1 of this Form 10-K that could
cause actual results to differ materially.

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. During the period from March 8, 1985 (the initial closing date
of the Partnership's public offering) through January 27, 1986 (the termination
date of the offering), the Partnership, pursuant to its public offering of
12,079,389 Depository Units of limited partnership interest ("Units") raised a
total of $241,587,780 in gross proceeds. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership and received 125
units of limited partnership interest in exchange therefor.

CRIIMI, Inc. (the "General Partner") holds a partnership interest of 3.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners, L.P. (the "Advisor") serves as the advisor to the
Partnership pursuant to an advisory agreement (the "Advisory Agreement').

The general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.)and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.

Year 2000
- ---------
During the transition from 1999 to 2000, the Partnership did not experience
any significant problems or errors in its information technology ("IT") systems
or date-sensitive embedded technology that controls certain systems. Based on
operations since January 1, 2000, the Partnership does not expect any
significant impact to its business, operations, or financial condition as a
result of the Year 2000 issue. However, it is possible that the full impact of
the date change has not been fully recognized. The Partnership is not aware of
any significant Year 2000 problems affecting third parties with which the
Partnership interfaces directly or indirectly.

Mortgage Investments
- --------------------
Prior to the expiration of the Partnership's reinvestment period in
December 1993, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act of 1937, as amended (the
"National Housing Act"). The Partnership is a liquidating partnership and as it
continues to liquidate its mortgage investments and investors receive
distributions of return of capital and taxable gains, investors should expect a
reduction in earnings and distributions due to the decreasing mortgage base. The
partnership agreement states that the Partnership will terminate on December 31,
2009, unless previously terminated under the provisions of the partnership
agreement.

As of December 31, 1999, the Partnership had invested in 58 Insured
Mortgages, with an aggregate amortized cost of approximately $119 million, a
face value of approximately $123 million and a fair value of approximately $120
million, as discussed below.

Investment in Insured Mortgages
- -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to FHA programs
("FHA-Insured Certificates"), mortgage-backed securities guaranteed by 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.

The following is a discussion of the types of the Partnership's mortgage
investments, along with the risks related to each type of investment:

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

December 31,
1999 1998
------------ ------------

Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities(5)(8)(10) 5 8
FHA-Insured Certificates
(1)(2)(3)(4)(6)(7)(9)(11) 39 46
Amortized Cost $ 77,969,011 $104,595,386
Face Value 81,218,457 108,690,257
Fair Value 79,052,484 110,253,225

Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,772,658 $ 16,899,484
Face Value 16,416,058 16,542,867
Fair Value 15,703,179 16,738,030

Listed below is a summary of prepayments on fully Insured Mortgages:

Date Distribution
Net Proceeds Gain/ Dist./ Declaration Payment
Complex name Proceeds Received (Loss) Unit Date Date
------------ -------- -------- ------ ---- ----------- ------------

(1)Nassau Apartments $ 866,000 April 1999 $ (3,500) $ 0.07 May 1999 Aug. 1999
(2)Walnut Apartments 2,604,000 April 1999 363,000 0.21 May 1999 Aug. 1999
(3)Kings Villa/Discovery Commons 1,110,000 April 1999 230,000 0.09 May 1999 Aug. 1999
(4)Quail Creek Apartments 553,000 May 1999 62,000 0.04 June 1999 Aug. 1999
(5)Huntington Apartments 3,060,000 Sept. 1999 134,000 0.24 Oct. 1999 Feb. 2000
(6)Bowling Brook, Section 1 11,820,000 Oct. 1999 (49,000) 0.94 Nov. 1999 Feb. 2000
(7)Lincoln Green 3,085,000 Nov. 1999 (39,000) 0.25 Nov. 1999 Feb. 2000
(8)Ridgecrest Timbers 1,527,000 Nov. 1999 (9,000) 0.12 Dec. 1999 Feb. 2000
(9)Holden Court Apartments 220,000 Nov. 1999 29,000 0.02 Dec. 1999 Feb. 2000
(10)Northwood Apartments 1,641,000 Dec. 1999 72,000 0.13 Jan. 2000 May 2000
(11)Turtle Creek Apartments 1,660,000 Jan. 2000 44,000 0.13 Jan. 2000 May 2000

As of February 25, 2000, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are 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 years ended December 31, 1999, 1998 and 1997, the Partnership
received $0, $76,991, and $51,457, respectively, from the Participations. These
amounts, if any, are included in mortgage investment income on the accompanying
statements of income and comprehensive income.

In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) at the date of default, plus the
unamortized balance of acquisition fees and closing costs of the Insured
Mortgage and the loss of approximately 30 days accrued interest.

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

December 31,
1999 1998
----------- -----------

Fully Insured Acquired Loans:
Number of Loans (1) 9 10
Amortized Cost $11,167,461 $11,617,321
Face Value 13,453,341 14,068,282
Fair Value 13,203,586 14,087,092

Fully Insured Originated Loans:
Number of Loans 3 3
Amortized Cost $12,699,265 $12,818,519
Face Value 12,379,870 12,488,890
Fair Value 12,017,626 12,747,524

(1) In November 1999, the mortgage on Lakeside Apartments was prepaid. The
Partnership received net proceeds of approximately $384,000 and
recognized a gain of approximately $67,000 for the year ended December
31, 1999. A distribution of $0.03 per Unit related to the prepayment
of this mortgage was declared in December 1999 and was paid to
Unitholders in February 2000.

As of February 25, 2000, all of the fully insured FHA-Insured Loans 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 years ended December 31, 1999, 1998 and 1997, the Partnership
received $45,164, $34,553, and $37,766, respectively, from the Participations.
These amounts, if any, are included in mortgage investment income on the
accompanying statements of income and comprehensive income.

PART II

Results of Operations
- ---------------------
1999 versus 1998
- ----------------
Net earnings decreased for 1999 as compared to 1998, primarily due to a
decrease in mortgage investment income and a decrease in net gains from mortgage
dispositions, as discussed below.

Mortgage investment income decreased for 1999 as compared to 1998,
primarily due to the reduction in mortgage base from 11 dispositions during 1999
with an aggregate cost balance of approximately $26.0 million.

Interest and other income decreased for 1999 as compared to 1998, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.

Asset management fees decreased for 1999 as compared to 1998, primarily due
to the reduction in the mortgage base.

Interest expense to affiliate decreased for 1999 as compared to 1998, as a
result of a decrease in interest payable to an affiliate of the Partnership,
American Insured Mortgage Investors ("AIM 84"), on the 9.5% debenture, as
discussed below. In 1998, interest was due to AIM 84 for nine months. In 1999,
no interest was due. The debenture was redeemed on January 4, 1999.

Gains on mortgage dispositions decreased for 1999 as compared to 1998 as a
result of gains recognized on seven mortgage prepayments in 1999, as discussed
above, versus gains recognized on ten mortgage prepayments and one assignment,
as discussed below, in 1998. Losses were recognized on four mortgage prepayments
in 1999, as discussed above, versus a loss recognized on one mortgage prepayment
in 1998.

During 1998, the assignment proceeds of the mortgage on Portervillage I
Apartments were received in the form of a 9.5% debenture. The debenture, with a
face value of $2,296,098, was issued to the Partnership, with interest payable
semi-annually on January 1 and July 1. In January 1999, net proceeds of
approximately $2.3 million were received upon redemption of these debentures.
Since the mortgage on Portervillage I Apartments was owned 50% by the
Partnership and 50% by AIM 84, approximately $1.1 million of the debenture
proceeds was paid to AIM 84.

1998 versus 1997
- ----------------
Net earnings decreased for 1998 as compared to 1997 primarily due to a
decrease in mortgage investment income. Partially offsetting this decrease was
an increase in net gains on mortgage dispositions, as discussed below.

Mortgage investment income decreased for 1998 as compared to 1997,
primarily due to the reduction in mortgage base from 12 dispositions during 1998
with an aggregate cost balance of approximately $29.6 million.

Interest and other income increased for 1998 as compared to 1997, primarily
due to the temporary investment of mortgage disposition proceeds prior to
distribution to Unitholders. During 1998, twelve mortgages were disposed of, as
compared to seven dispositions in 1997.

Asset management fees to related parties decreased for 1998 as compared to
1997 as a result of the reduction in the mortgage base.

Interest expense to affiliate increased for 1998 as compared to 1997, as a
result of interest payable to AIM 84, on the 9.5% debenture, as discussed above.

Net gains from dispositions increased as a result of twelve mortgage
prepayments or assignments in 1998, as discussed above, versus eight prepayments
or assignments in 1997.

Liquidity and Capital Resources
- -------------------------------
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership. Furthermore, the bankruptcy filings could negatively impact CMSLP
which could result in the need to obtain another party to perform the services
currently performed by CMSLP, as subadvisor, pursuant to the Sub-Advisory
Agreement.

On December 23, 1999, CRIIMI MAE and CRIIMI MAE Management, Inc. filed
their Amended Joint Plan of Reorganization and proposed disclosure statement
with the United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court"). The filing of such Amended Joint
Plan of Reorganization and proposed disclosure statement on December 23, 1999
was filed with the full support of the official committee of Equity Security
Holders in the CRIIMI MAE Chapter 11 case, which is a co-proponent of such
Amended Joint Plan of Reorganization. On or about February 11, 2000, the
Official Committee of Unsecured Creditors of CRIIMI MAE filed its own second
amended plan of reorganization and second amended proposed disclosure statement,
which, in general, provides for the liquidation of the assets of CRIIMI MAE. A
hearing has been scheduled for April 25 and April 26, 2000 on the proposed
disclosure statements filed with the Bankruptcy Court. There can be no assurance
at this time that CRIIMI MAE's Amended Joint Plan of Reorganization will be
confirmed and consummated.

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, are the Partnership's principal sources of cash flows,
and were sufficient during the years ended December 31, 1999, 1998 and 1997 to
meet operating requirements. The Partnership anticipates its cash flows to be
sufficient to meet operating expense requirements for 2000.

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 after paying all
expenses of the Partnership. 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 resulting from monthly mortgage payment receipts 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.

Since the Partnership is obligated to distribute the Proceeds of Mortgage
Prepayments, Sales and Insurance on Insured Mortgages (as defined in the
Partnership Agreement) to its Unitholders, the size of the Partnership's
portfolio will continue to decrease. The magnitude of the decrease will depend
upon the size of the Insured Mortgages which are prepaid, sold or assigned for
insurance proceeds.

Cash flow - 1999 versus 1998
- ----------------------------
Net cash provided by operating activities decreased for 1999 as compared to
1998, primarily due to the reduction in mortgage investment income, as discussed
above.

Net cash provided by investing activities decreased for 1999 as compared to
1998. This decrease is primarily due to a reduction in proceeds received from
the disposition of mortgages, as discussed previously.

Net cash used in financing activities decreased for 1999 as compared to
1998 due to a decrease in the amount of distributions paid to partners.

Cash flow - 1998 versus 1997
- ----------------------------
Net cash provided by operating activities decreased for 1998 as compared to
1997, primarily due to the reduction in mortgage investment income, as discussed
above.

Net cash provided by investing activities increased in 1998 as compared to
1997 due to the increase in proceeds from mortgage dispositions, as discussed
previously.

Net cash used in financing activities increased for 1998 as compared to
1997, as a result of an increase in distributions paid to partners.
Distributions paid to partners in 1998 included proceeds resulting from the
disposition of eleven mortgages during the fourth quarter of 1997 and the first
three quarters of 1998. This compares to distributions paid to partners in 1997
which included proceeds resulting from the disposition of five mortgages during
the fourth quarter of 1996 and the first three quarters of 1997.

ITEM 7A. 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, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of the Partnership's assets.

The table below provides information about the Partnership's Insured
Mortgages, all of which were entered into for purposes other than trading. The
table presents anticipated principal and interest cash flows based upon the
assumptions used in determining the fair value of these securities and the
related weighted average interest rates by expected maturity.

2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------

Insured Mortgages
(in millions) $21.7 $19.4 $17.9 $16.3 $15.9 $95.1 $186.3 $120.0

Average Interest Rate 7.88% 7.89% 7.89% 7.90% 7.90% 8.14% -- --

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is set forth in this Annual Report on
Form 10-K commencing on page 21.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a),(b),(c),(e)

The Partnership has no officers or directors. CRIIMI, Inc. holds a general
partnership interest of 3.9%. The affairs of the Partnership are managed by the
General Partner, which is wholly owned by CRIIMI MAE, a corporation whose shares
are listed on the New York Stock Exchange.

The general partner of the Advisor is AIM Acquisition and the limited
partners include, but are not limited to, AIM Acquisition, The Goldman Sachs
Group, L.P., Sun America Investments, Inc. and CRI/AIM Investment, L.P., an
affiliate of CRIIMI MAE. Pursuant to the terms of certain amendments to the
partnership agreement, 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. CMSLP, an affiliate of
CRIIMI MAE, manages the Partnership's portfolio, pursuant to the Sub-Advisory
Agreement. The general partner of CMSLP is CRIIMI MAE Services, Inc., an
affiliate of CRIIMI MAE.

The General Partner is also the general partner of AIM 84, AIM 86 and AIM
88, limited partnerships with investment objectives similar to those of the
Partnership.

The following table sets forth information concerning the executive
officers and directors of CRIIMI MAE the sole shareholder of the General Partner
as of March 15, 2000:

Name Age Position
- ------- ----- ----------

William B. Dockser 63 Chairman of the Board

H. William Willoughby 53 President, Secretary and Director

Cynthia O. Azzara 40 Senior Vice President,
Chief Financial Officer and
Treasurer

David B. Iannarone 39 Senior Vice President and
General Counsel

Brian L. Hanson 38 Senior Vice President

Garrett G. Carlson, Sr. 62 Director

G. Richard Dunnells 62 Director

Robert Merrick 54 Director

Robert E. Woods 52 Director

William B. Dockser has served as Chairman of the Board of the General
Partner since 1991. Mr. Dockser has been Chairman of the Board of CRIIMI MAE
since 1989 and Chairman of the Board of CRIIMI MAE Financial Corporation since
1995. Mr. Dockser is also the founder of C.R.I., Inc. ("CRI"), serving as its
Chairman of the Board since 1974.

H. William Willoughby has served as President and Secretary of the General
Partner since 1991. Mr. Willoughby has been President of CRIIMI MAE since 1990
and a Director and Secretary of CRIIMI MAE since 1989. He has also served as a
director of CRIIMI MAE Financial Corporation since 1995. Mr. Willoughby has been
a director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President
of CRI since 1990.

Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994. Ms. Azzara has served as Chief Financial Officer of CRIIMI
MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since
1995 and Treasurer of CRIIMI MAE since 1997, Accounting and Finance Departments
of CRI from 1985 to June 1995.

David B. Iannarone has served as Senior Vice President of the General
Partner since March 1998. Mr. Iannarone has served as Senior Vice President of
CRIIMI MAE since March 1998; General Counsel of CRIIMI MAE since July 1996;
Counsel-Securities and Finance for Federal Deposit Insurance
Corporation/Resolution Trust Corporation from 1991 to July 1996.

Brian L. Hanson has served as Senior Vice President of the General Partner
since March 1998. Mr. Hanson has served as Senior Vice President of CRIIMI MAE
since March 1998; Group Vice President of CRIIMI MAE from March 1996 to March
1998; Chief Operating Officer, Director of Asset Operations and Portfolio
Director of JCF Partners, Lanham, Maryland from 1991 to March 1996.

Garrett G. Carlson, Sr. has served as Director of the General Partner since
1989. Mr. Carlson has served as Director of CRIIMI MAE since 1989; President of
Can-American Realty Corp. and Canadian Financial Corp. since 1979 and 1974,
respectively; President of Garrett Real Estate Development since 1982; President
of the Satellite Broadcasting Corporation since 1996; Chairman of the Board of
SCA Realty Holdings Inc. from 1985 to 1995; Vice Chairman of Shelter Development
Corporation Ltd. from 1983 to 1995 and member of the board of Bank Windsor from
1992 to 1994.

G. Richard Dunnells has served as Director of the General Partner since
1991. Mr. Dunnells has served as Director of CRIIMI MAE since 1991; Firm-wide
Hiring Partner of the law firm of Holland & Knight since 1995; Chairman of the
Washington, D.C. law firm of Dunnells & Duvall from 1989 to 1993; Senior Partner
of such law firm from 1973 to 1993; Special Assistant to the Under-Secretary and
Deputy Assistant Secretary for Housing and Urban Renewal and Deputy Assistant
Secretary for Housing Management with the U.S. Department of Housing and Urban
Development from 1969 to 1973; President's Commission on Housing from 1981 to
1982.

Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as Director of CRIIMI MAE since 1997; Chief Credit
Officer and Director of MCG Credit Corporation since February 1998; Executive
Vice President from 1985 and Chief Credit Officer of Signet Banking Corporation
through 1997, also served as Chairman of the Credit Policy Committee and member
of the Asset and Liability Committee and Management Committee; Credit
Officer-Virginia Banking Corporation, an affiliate of Signet Bank/Virginia, from
1980 to 1984; Senior Vice President of Bank of Virginia from 1976 to 1980.

Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing Director and
head of loan syndications for the Americas at Societe Generale, New York since
1997; Managing Director, head of Real Estate Capital Markets and Mortgage-backed
Securities division, Citicorp from 1991 to 1997, Head of Citicorp's
syndications, private placements, money markets and asset-backed businesses from
1985 to 1990.

(d) There is no family relationship between any of the officers and
directors of the General Partner.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

(h) Section 16(a) Beneficial Ownership Reporting Compliance - Based solely
on its review of Forms 3, 4 and 5 and amendments thereto furnished to
the Partnership, and written representations from certain reporting
persons that no Form 5s were required for those persons, the
Partnership believes that all reporting persons have filed on a timely
basis Forms 3, 4 and 5 as required in the fiscal year ended December
31, 1999.

ITEM 11. EXECUTIVE COMPENSATION

The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner received compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated herein by reference herein to Note 7 of the Notes
to Financial Statements of the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) As of December 31, 1999, no person was known by the Partnership to be the
beneficial owner of more than five percent (5%) of the outstanding Units of
the Partnership.

(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of February 17, 2000 by each
director of the General Partner, each named executive officer of the
General Partner, and by affiliates of the Partnership. Unless otherwise
indicated, each Unitholder has sole voting and investment power with
respect to the Units beneficially owned.

Amount and Nature
of Units Percentage of Units
Name Beneficially Owned Outstanding
- ---- ------------------ -------------------
William B. Dockser 11,000 (1) *
CRIIMI MAE 4,000 *

(1) Includes 4,000 Units held by Mr. Dockser's wife
* Less than 1%

(c) There are no arrangements known to the Partnership, the operation of which
may at any subsequent date result in a change in control of the
Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

Note 7 of the Notes to Financial Statements of the Partnership
contains a discussion of the amounts, fees and other compensation
paid or accrued by the Partnership to the directors and executive
officers of the General Partner and their affiliates, and is
hereby incorporated by reference herein.

(b) Certain business relationships.

Other than as set forth in Item 11 of this report which is hereby
incorporated by reference herein, the Partnership has no business
relationship with entities of which the current. General Partner
of the Partnership are officers, directors or equity owners.

(c) Indebtedness of management.

None.

(d) Transactions with promoters.

Not applicable.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a)(1) Financial Statements:

Page
Number
Description ------
-----------

Balance Sheets as of December 31, 1999 and 1998.................................................22

Statements of Income and Comprehensive Income for the years ended December 31, 1999,
1998, and 1997 ..............................................................................23

Statements of Changes in Partners' Equity for the years ended December 31, 1999, 1998
and 1997.....................................................................................24

Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997...................25

Notes to Financial Statements...................................................................26

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate.....................................................36

All other schedules have been omitted because they are
inapplicable, not required, or the information is included in the
Financial Statements or Notes thereto.

(a)(3) Exhibits:

4.0 Amended and Restated Certificates of Limited Partnership are
incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-11 (No. 2-93294) dated
January 28, 1985 (such Registration Statement, as amended,
is referred to herein as the "Registration Statement").

4.1 Second Amended and Restated Partnership Agreement is
incorporated by reference to Exhibit 3 to the Registration
Statement.

4.2 Amendment No. 1 to the Second Amended and Restated
Partnership Agreement is incorporated by reference to
Exhibit 4(a) to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1986.

4.3 Amendment No. 2 to the Second Amended and Restated
Partnership Agreement is incorporated by reference to
exhibit 4(b) to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1986.

4.4 Amendment No. 3 dated February 12, 1990, to the Second
Amended and Restated Agreement of Limited Partnership of the
Partnership incorporated by reference to Exhibit 4(c) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989.

10.0 Escrow Agreement, dated January 14, 1985, among the
Partnership, the Managing General Partner and Integrated
Resources Marketing, Inc., incorporated by reference to
Exhibit 10(a) to the Registration Statement.

10.1 Amended and Restated Origination and Acquisition Services
Agreement, dated as of January 8, 1985, between the
Partnership and IFI, incorporated by reference to Exhibit
10(b) to the Registration Statement.

10.2 Amended and Restated Management Services Agreement, dated as
of January 8, 1985, between the Partnership and IFI,
incorporated by reference to Exhibit 10(c) to the
Registration Statement.

10.3 Amended and Restated Disposition Services Agreement, dated
as of January 8, 1985, between the Partnership and IFI,
incorporated by reference to Exhibit 10(d) to the
Registration Statement.

10.4 Agreement, dated as of January 8, 1985, among the former
managing general partner, the former associate general
partner and Integrated Resources, Inc., incorporated by
reference to Exhibit 10(e) to the Registration Statement.

10.5 Reinvestment Plan, incorporated by reference to the
Prospectus contained in the Registration Statement.

10.6 Declaration of Trust and Pooling Servicing Agreement dated
as of July 1, 1982 as to Pass-Through Certificates, is
incorporated by reference to Exhibit 10(h) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.

10.7 Pages A-1 - A-5 of the Partnership Agreement of Registrant,
incorporated by reference to Exhibit 28 to the Partnership's
Annual Report on Form 10-K for the year ended December 31,
1990.

10.8 Purchase Agreement among AIM Acquisition, the former
managing general partner, the former corporate general
partner, IFI and Integrated dated as of December 13, 1990,
as amended January 9, 1991, incorporated by reference
Exhibit 28(a) to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1990.

10.9 Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the
former managing general partner, the former corporate
general partner, IFI and Integrated dated as of December 13,
1990 and executed as of March 1, 1991, incorporated by
reference to Exhibit 28(b) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.

10.10 Amendment to Partnership Agreement dated September 4, 1991,
incorporated by reference to Exhibit 28(c), to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.

10.11 Sub-Management Agreement by and between AIM Acquisition and
CRI/AIM Management, Inc., dated as of March 1, 1991,
incorporated by reference to Exhibit 28(f) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1992.

10.12 Expense Reimbursement Agreement by and among Integrated
Funding Inc. and the Partnership, American Insured Mortgage
Investors L.P. - Series 86, and American Insured Mortgage
Investors L.P. - Series 88, effective December 31, 1992,
incorporated by reference to Exhibit 28(g) to the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1991.

10.13 Non-negotiable promissory note to American Insured Mortgage
Investors L.P. - Series 88 in the amount of $319,074.67
dated April 1, 1994, incorporated by reference to Exhibit
10(q) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1994.

10.14 Amendment No. 1 to Reimbursement Agreement by and among
Integrated Funding Inc. and the Partnership, American
Insured Mortgage Investors L.P. - Series 86, and American
Insured Mortgage Investors L.P. - Series 88, effective April
1, 1994, incorporated by reference to Exhibit 10(r) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994.

10.15 Amendment No. 2 to Reimbursement Agreement by Integrated
Funding, Inc., and American Insured Mortgage Investors
L.P.-Series 86, and American Insured Mortgage Investors
L.P.-Series 88, effective April 1, 1997, incorporated by
reference to Exhibit 10.15 to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997.

27. Financial Data Schedule (filed herewith).

(b) Reports on Form 8-K filed during the last quarter of the fiscal
year: None.

All other items are not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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

/s/ March 1, 2000 /s/ William B. Dockser
- --------------------------- ---------------------------
DATE William B. Dockser
Chairman of the Board

/s/ March 1, 2000 /s/ H. William Willoughby
- --------------------------- ---------------------------
DATE H. William Willoughby
President and Secretary

/s/ March 1, 2000 /s/ Cynthia O. Azzara
- --------------------------- ---------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer

/s/ March 1, 2000 /s/ Garrett G. Carlson, Sr.
- --------------------------- ---------------------------
DATE Garrett G. Carlson, Sr.
Director

/s/ March 1, 2000 /s/ G. Richard Dunnells
- --------------------------- ---------------------------
DATE G. Richard Dunnells
Director

/s/ March 1, 2000 /s/ Robert J. Merrick
- --------------------------- ---------------------------
DATE Robert J. Merrick
Director

/s/ March 1, 2000 /s/ Robert E. Woods
- --------------------------- ---------------------------
DATE Robert E. Woods
Director

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

Financial Statements

as of December 31, 1999 and 1998

and for the Years Ended

December 31, 1999, 1998, and 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of American Insured Mortgage Investors - Series 85, L.P.:

We have audited the accompanying balance sheets of American Insured
Mortgage Investors - Series 85, L.P. (the "Partnership") as of December 31, 1999
and 1998, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 1999, 1998
and 1997. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1999, 1998 and 1997 in conformity with
accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate
as of December 31, 1999 is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic financial statements. The information in this schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

Arthur Andersen LLP
Vienna, VA
March 6, 2000

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

BALANCE SHEETS

December 31, December 31,
1999 1998
------------- -------------
ASSETS

Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 79,052,484 $ 110,253,225
Originated insured mortgages 15,703,179 16,738,030
------------- -------------
94,755,663 126,991,255
------------- --------------
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Acquired insured mortgages 11,167,461 11,617,321
Originated insured mortgages 12,699,265 12,818,519
------------- -------------
23,866,726 24,435,840

Cash and cash equivalents 23,723,644 15,793,919

Receivables and other assets 1,123,472 1,453,292

Investment in FHA debentures - 2,296,098
------------- -------------
Total assets $ 143,469,505 $ 170,970,404
============= =============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 22,876,915 $ 15,963,562

Accounts payable and accrued expenses 147,473 184,236

Due to affiliate - 1,279,178
------------- -------------
Total liabilities 23,024,388 17,426,976
------------- -------------

Partners' equity:
Limited partners' equity, 15,000,000 Units
authorized, 12,079,514 Units issued and outstanding 125,182,237 151,721,136
General partner's deficit (4,751,114) (3,674,093)
Accumulated other comprehensive income 13,994 5,496,385
------------- -------------
Total partners' equity 120,445,117 153,543,428
------------- -------------
Total liabilities and partners' equity $ 143,469,505 $ 170,970,404
============= =============

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

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

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the years ended December 31,
1999 1998 1997
------------ ------------ ------------

Income:
Mortgage investment income $ 11,846,964 $ 14,067,956 $ 16,350,497
Interest and other income 382,860 675,768 410,839
------------ ------------ ------------
12,229,824 14,743,724 16,761,336
------------ ------------ ------------

Expenses:
Asset management fee to related parties 1,382,904 1,617,625 1,873,563
General and administrative 479,113 550,640 652,511
Interest expense to affiliate - 85,565 5,783
------------ ------------ ------------
1,862,017 2,253,830 2,531,857
------------ ------------ ------------

Earnings before gains (losses)
on mortgage dispositions 10,367,807 12,489,894 14,229,479

Mortgage dispositions
Gains 956,150 1,499,412 907,923
Losses (99,399) (96,262) -
------------ ------------ ------------
Net earnings $ 11,224,558 $ 13,893,044 $ 15,137,402
============ ============ ============

Other comprehensive income (5,482,391) (4,666,238) 2,549,887
----------- ----------- ------------
Comprehensive income $ 5,742,167 $ 9,226,806 $ 17,687,289
----------- ----------- ------------

Net earnings allocated to:
Limited partners - 96.1% $ 10,786,800 $ 13,351,215 $ 14,547,043
General partner - 3.9% 437,758 541,829 590,359
------------ ------------ ------------
$ 11,224,558 $ 13,893,044 $ 15,137,402
============ ============ ============

Net earnings per Limited
Partnership Unit - Basic $ 0.89 $ 1.11 $ 1.20
============ ============ ============

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

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

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 1999, 1998, 1997

Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------ ------------- ------------- -------------

Balance, January 1, 1997 $ (1,762,017) $ 198,836,652 $ 7,612,736 $ 204,687,371

Net Earnings 590,359 14,547,043 - 15,137,402
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 2,549,887 2,549,887
Distributions paid or accrued of $2.76 per Unit,
including return of capital of $1.56 per Unit (1,353,007) (33,339,452) - (34,692,459)
----------- ------------- ------------- -------------
Balance, December 31, 1997 (2,524,665) 180,044,243 10,162,623 187,682,201

Net Earnings 541,829 13,351,215 - 13,893,044
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (4,666,238) (4,666,238)
Distributions paid or accrued of $3.45 per Unit,
including return of capital of $2.34 per Unit (1,691,257) (41,674,322) - (43,365,579)
----------- ------------ ------------ -------------
Balance, December 31, 1998 (3,674,093) 151,721,136 5,496,385 153,543,428

Net Earnings 437,758 10,786,800 - 11,224,558
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (5,482,391) (5,482,391)
Distributions paid or accrued of $3.09 per Unit,
including return of capital of $2.20 per Unit (1,514,779) (37,325,699) - (38,840,478)
------------ ------------- ------------ -------------
Balance, December 31, 1999 $ (4,751,114) $ 125,182,237 $ 13,994 $ 120,445,117
============ ============= ============ =============

Limited Partnership Units outstanding - Basic, as of
December 31, 1999, 1998 and 1997 12,079,514
==========

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

AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS

For the years ended December 31,
1999 1998 1997
----------- ----------- -----------

Cash flows from operating activities:
Net earnings $11,224,558 $13,893,044 $15,137,402
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Losses on mortgage dispositions 99,399 96,262 -
Gains on mortgage dispositions (956,150) (1,499,412) (907,923)
Changes in assets and liabilities:
Decrease in receivables and other assets 329,820 222,729 51,641
(Decrease) increase in accounts payable and accrued expenses (36,763) (122,476) 107,751
(Decrease) increase in due to affiliate (131,129) 131,129 (66,805)
----------- ----------- -----------
Net cash provided by operating activities 10,529,735 12,721,276 14,322,066
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposition of mortgages 26,870,388 29,895,275 18,996,279
Receipt of mortgage principal from scheduled payments 1,308,678 1,322,056 1,598,933
Proceeds from redemption of debenture 2,296,098 - -
Debenture proceeds due to affiliate (1,148,049) - -
----------- ----------- -----------
Net cash provided by investing activities 29,327,115 31,217,331 20,595,212
----------- ----------- -----------
Cash flows from financing activities:
Distributions paid to partners (31,927,125) (42,862,791) (29,915,961)
----------- ----------- -----------
Net increase in cash and cash equivalents 7,929,725 1,075,816 5,001,317

Cash and cash equivalents, beginning of year 15,793,919 14,718,103 9,716,786
----------- ----------- -----------
Cash and cash equivalents, end of year $23,723,644 $15,793,919 $14,718,103
=========== =========== ===========
Non-cash investing activity:
9.5% debenture received from HUD in exchange for
the mortgage on Portervillage I Apartments $ - $ 2,296,098 $ -

Portion of debenture due to affiliate, AIM 84 - (1,148,049) -

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

AMERICAN MORTGAGE INVESTORS - SERIES 85, L.P.

NOTES TO FINANCIAL STATEMENTS

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.

CRIIMI, Inc. (the "General Partner") holds a partnership interest of 3.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners L.P. (the "Advisor") serves as the advisor to the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
("AIM Acquisition") and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(sussessor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.

Prior to the expiration of the Partnership's reinvestment period in
December 1993, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the partnership agreement.

On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership. Furthermore, the bankruptcy filings could negatively impact CMSLP
which could result in the need to obtain another party to perform the services
currently performed by CMSLP, as subadvisor, pursuant to the Sub-Advisory
Agreement.

On December 23, 1999, CRIIMI MAE and CRIIMI MAE Management, Inc. filed
their Amended Joint Plan of Reorganization and proposed disclosure statement
with the United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court"). The filing of such Amended Joint
Plan of Reorganization and proposed disclosure statement on December 23, 1999
was filed with the full support of the official committee of Equity Security
Holders in the CRIIMI MAE Chapter 11 case, which is a co-proponent of such
Amended Joint Plan of Reorganization. On or about February 11, 2000, the
Official Committee of Unsecured Creditors of CRIIMI MAE filed its own second
amended plan of reorganization and second amended proposed disclosure statement,
which, in general, provides for the liquidation of the assets of CRIIMI MAE. A
hearing has been scheduled for April 25 and April 26, 2000 on the proposed
disclosure statements filed with the Bankruptcy Court. There can be no assurance
at this time that CRIIMI MAE's Amended Joint Plan of Reorganization will be
confirmed and consummated.

2. SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------
The Partnership's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Reclassification
----------------
Certain amounts in the financial statements for the year ended
December 31, 1997 have been reclassified to conform to the 1998 and 1999
presentation.

Investment in Insured Mortgages
-------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest
in government insured multifamily mortgages issued or sold pursuant to 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.

Payments of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans are insured by the United States Department of Housing
and Urban Development ("HUD") pursuant to Title 2 of the National Housing
Act. Payments of principal and interest on GNMA Mortgage-Backed Securities
are guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

As of December 31, 1999, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and
FHA-Insured Certificates is approximately 28 years. However, the
Partnership Agreement states that the Partnership will terminate in
approximately 10 years, on December 31, 2009, unless previously terminated
under the provisions of the Partnership Agreement. As the Partnership is
anticipated to terminate prior to the weighted average remaining term of
its investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, the Partnership does not have the ability or intent, at this
time, to hold these investments to maturity. Consequently, the General
Partner believes that the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates should be included in the Available
for Sale category. Although the Partnership's investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates are classified as
Available for Sale for financial statement purposes, the General Partner
does not intend to voluntarily sell these assets other than those which may
be sold as a result of a default or those which are eligible to be put to
FHA at the expiration of 20 years from the date of the final endorsement.

In connection with this classification, as of December 31, 1999 and
1998, all of the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are recorded at fair value, with
the net unrealized gains and losses on these assets reported as other
comprehensive income and as a separate component of partners' equity.
Subsequent increases or decreases in the fair value of GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, classified as Available for Sale,
will be included as a separate component of partners' equity. Realized
gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, classified as Available for Sale, will continue to be
reported in earnings. The amortized cost of the investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates in this category is
adjusted for amortization of discounts and premiums to maturity. Such
amortization is included in mortgage investment income.

As of December 31, 1999 and 1998, Investment in FHA-Insured Loans is
recorded at amortized cost.

Gains from dispositions of mortgage investments are recognized upon
the receipt of cash or HUD debentures.

Losses on dispositions of mortgage investments are recognized when it
becomes probable that a mortgage will be disposed of and that the
disposition will result in a loss. In the case of Insured Mortgages fully
insured by HUD, the Partnership's maximum exposure for purposes of
determining the loan losses would generally be an assignment fee charged by
HUD representing approximately 1% of the unpaid principal balance of the
Insured Mortgage at the date of default, plus the unamortized balance of
acquisition fees and closing costs paid in connection with the acquisition
of the Insured Mortgage and the loss of approximately 30 days accrued
interest.

Investment in FHA Debenture
---------------------------
From time to time, the Partnership assigns defaulted loans to HUD in
order to collect the amount of delinquent principal and interest. HUD
determines if the claim will be settled in cash or by the issuance of
debentures. Debentures are obligations of the mortgage insurance funds and
are unconditionally guaranteed by the United States. The term of the
debentures is 20 years and the rate is set based upon the rate in effect at
the commitment date to provide insurance or at the final endorsement date,
whichever ever is greater. AIM 85 classifies its Investment in FHA
Debentures as Available for Sale debt securities with changes in fair value
recorded as an adjustment to equity and other comprehensive income.

Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time and
demand deposits, commercial paper and repurchase agreements with original
maturities of four months or less.

Income Taxes
------------
No provision has been made for Federal, state or local income taxes in
the accompanying statements of income and comprehensive income since they
are the personal responsibility of the Unitholders.

Statements of Cash Flows
------------------------
No cash payments were made for interest expense during the years ended
December 31, 1999, 1998 and 1997. Since the statements of cash flows are
intended to reflect only cash receipt and cash payment activity, the
statements of cash flows do not reflect operating activities that affect
recognized assets and liabilities while not resulting in cash receipts or
cash payments.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.

As of December 31, 1999 As of December 31, 1998
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------ -------------

Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities:
Acquired insured mortgages $ 77,969,011 $ 79,052,484 $ 104,595,386 $ 110,253,225
Originated insured mortgages 16,772,658 15,703,179 16,899,484 16,738,030
------------- ------------- ------------- -------------
$ 94,741,669 $ 94,755,663 $ 121,494,870 $ 126,991,255
============= ============= ============= ============
Investment in FHA-Insured Loans:
Acquired insured mortgages $ 11,167,461 $ 13,203,586 $ 11,617,321 $ 14,087,092
Originated insured mortgages 12,699,265 12,017,626 12,818,519 12,747,524
------------- -------------- ------------- -------------
$ 23,866,726 $ 25,221,212 $ 24,435,840 $ 26,834,616
============= ============= ============= =============

Cash and cash equivalents $ 23,723,644 $ 23,723,644 $ 15,793,919 $ 15,793,919
============= ============ ============= =============
Accrued interest receivable $ 853,861 $ 853,861 $ 1,180,042 $ 1,180,042
============ ============= ============= =============
Investment in FHA Debenture $ -- $ -- $ 2,296,098 $ 2,296,098
=========== ============= ============= =============

The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:

Investment in FHA-Insured Certificates, GNMA Mortgage-Backed Securities,
FHA-Insured Loans and FHA Debentures
---------------------------------------------------------------------------

The fair value of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans is based on quoted market prices from an
investment banking institution which trades these instruments as part of
its day-to-day activities. The fair value of the FHA Debenture is based
upon the prices of other comparable securities that trade in the market.

Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of the short
maturity of these instruments.

4. COMPREHENSIVE INCOME

Comprehensive Income includes net earnings as currently reported by
the Partnership adjusted for other comprehensive income. Other
comprehensive income for the Partnership is changes in unrealized gains and
losses related to the Partnership's mortgages accounted for as available
for sale. The table below breaks out other comprehensive income for the
periods presented into the following two categories: (1) the change to
unrealized gains and losses that relate to mortgages which were disposed of
during the period with the resulting realized gain or loss reflected in net
earnings (reclassification adjustments) and (2) the change in the
unrealized gain or loss related to those investments that were not disposed
of during the period.

1999 1998 1997
----------- ----------- -----------

Reclassification adjustment for (gains) losses
included in net income $(1,213,550) $(1,944,214) $ (780,085)
Unrealized holding (losses) gains arising during
the period (4,268,841) (2,722,024) 3,329,972
----------- ----------- -----------
Net adjustment to unrealized gains (losses) on mortgages $(5,482,391) $(4,666,238) $ 2,549,887
=========== =========== ===========

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

GNMA Mortgage-Backed Securities and Fully Insured FHA-Insured Certificates
--------------------------------------------------------------------------

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

December 31,
1999 1998
------------ ------------

Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities(5)(8)(10) 5 8
FHA-Insured Certificates
(1)(2)(3)(4)(6)(7)(9)(11) 39 46
Amortized Cost $ 77,969,011 $104,595,386
Face Value 81,218,457 108,690,257
Fair Value 79,052,484 110,253,225

Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,772,658 $ 16,899,484
Face Value 16,416,058 16,542,867
Fair Value 15,703,179 16,738,030

Listed below ia s summary of prepayments on fully Insured Mortgages:

Date Distribution
Net Proceeds Gain/ Dist./ Declaration Payment
Complex name Proceeds Received (Loss) Unit Date Date
------------ -------- -------- ------ ---- ----------- ------------

(1)Nassau Apartments $ 866,000 April 1999 $ (3,500) $ 0.07 May 1999 Aug. 1999
(2)Walnut Apartments 2,604,000 April 1999 363,000 0.21 May 1999 Aug. 1999
(3)Kings Villa/Discovery Commons 1,110,000 April 1999 230,000 0.09 May 1999 Aug. 1999
(4)Quail Creek Apartments 553,000 May 1999 62,000 0.04 June 1999 Aug. 1999
(5)Huntington Apartments 3,060,000 Sept. 1999 134,000 0.24 Oct. 1999 Feb. 2000
(6)Bowling Brook, Section 1 11,820,000 Oct. 1999 (49,000) 0.94 Nov. 1999 Feb. 2000
(7)Lincoln Green 3,085,000 Nov. 1999 (39,000) 0.25 Nov. 1999 Feb. 2000
(8)Ridgecrest Timbers 1,527,000 Nov. 1999 (9,000) 0.12 Dec. 1999 Feb. 2000
(9)Holden Court Apartments 220,000 Nov. 1999 29,000 0.02 Dec. 1999 Feb. 2000
(10)Northwood Apartments 1,641,000 Dec. 1999 72,000 0.13 Jan. 2000 May 2000
(11)Turtle Creek Apartments 1,660,000 Jan. 2000 44,000 0.13 Jan. 2000 May 2000

As of February 25, 2000, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are 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 years ended December 31, 1999, 1998 and 1997, the Partnership
received $0, $76,991, and $51,457, respectively, from the Participations. These
amounts, if any, are included in mortgage investment income on the accompanying
statements of income and comprehensive income.

In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) at the date of default, plus the
unamortized balance of acquisition fees and closing costs of the Insured
Mortgage and the loss of approximately 30 days accrued interest.

6. INVESTMENT IN FHA-INSURED LOANS

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

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

December 31,
1999 1998
----------- -----------

Fully Insured Acquired Mortgages:
Number of Loans (1) 9 10
Amortized Cost $11,167,461 $11,617,321
Face Value 13,453,341 14,068,282
Fair Value 13,203,586 14,087,092

Fully Insured Originated Mortgages:
Number of Loans 3 3
Amortized Cost $12,699,265 $12,818,519
Face Value 12,379,870 12,488,890
Fair Value 12,017,626 12,747,524

(1) In November 1999, the mortgage on Lakeside Apartments was prepaid. The
Partnership received net proceeds of approximately $384,000 and recognized
a gain of approximately $67,000 for the year ended December 31, 1999. A
distribution of $0.03 per Unit related to the prepayment of this mortgage
was declared in December 1999 and was paid to Unitholders in February 2000.

As of February 25, 2000, all of the fully insured FHA-Insured Loans 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 years ended December 31, 1999, 1998 and 1997, the Partnership
received $45,164, $34,553, and $37,766, respectively, from the Participations.
These amounts, if any, are included in mortgage investment income on the
accompanying statements of income and comprehensive income.

7. TRANSACTIONS WITH RELATED PARTIES

The principal officers of the General Partner for the years ended December
31, 1999, 1998 and 1997 did not receive fees for serving as officers of the
General Partner, nor are any fees expected to be paid to the officers in the
future.

The General Partner, CMSLP and certain affiliated entities have, during the
years ended December 31, 1999, 1998 and 1997, earned or received compensation or
payments for services from the Partnership as follows:

COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the year ended December 31,
Name of Recipient Capacity in Which Served/Item 1999 1998 1997
----------------- ----------------------------- ---------- ---------- ----------

CRIIMI, Inc.(1) General Partner/Distribution $1,514,779 $1,691,257 $1,353,007

AIM Acquisition Partners,L.P.(2) Advisor/Asset Management Fee 1,382,904 1,617,625 1,873,563

CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense 43,624 54,497 62,274

American Insured Mortgage Affiliate of Partnership/
Investors - Series 85, L.P. Share of FHA Debenture -- 1,202,581 --

(1) The General Partner, pursuant to amendments to the Partnership Agreement,
effective September 6, 1991, is entitled to receive 3.9% of the
Partnership's income, loss, capital and distributions, including, without
limitation, the Partnership's adjusted cash from operations and proceeds of
mortgage prepayments, sales or insurance (both as defined in the
partnership agreement).
(2) The Advisor, pursuant to the Partnership Agreement, effective October 1,
1991, is entitled to an Asset Management Fee equal to 0.95% of Total
Invested Assets (as defined in the Partnership Agreement). CMSLP is
entitled to a fee equal to 0.28% of Total Invested Assets from the Advisors
Asset Management Fee. Of the amounts paid to the Advisor, CMSLP earned a
fee equal to $407,699, $476,800, and $552,222 for the years ended December
31, 1999, 1998, and 1997, respectively. The limited partner of CMSLP is a
wholly-owned subsidiary of CRIIMI MAE Inc., which filed for protection
under Chapter 11 of the U.S. Bankruptcy Code.

8. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1999, 1998 and 1997 are as follows:

1999 1998 1997
-------- -------- --------

Quarter ended March 31, $ 0.40(1)(2) $ 1.07(5) $ 0.39(9)(10)
Quarter ended June 30, 0.65(3) 0.58(6) 0.30
Quarter ended September 30, 0.22 0.53(7) 0.84(11)(12)
Quarter ended December 31, 1.82(4) 1.27(8) 1.23(13)
-------- -------- --------
$ 3.09 $ 3.45 $ 2.76
======== ======== ========

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

Net
Type of Proceeds
Complex Name(s) Disposition Per Unit
--------------- ----------- --------

(1) Gamel & Gamel Apartments Prepayment $0.06

(2) Debenture from Portervillage I Apartments * Assignment 0.10

(3) Nassau Apartments, Walnut Apartments, Kings
Villa/ Discovery Commons, and Quail
Creek Apartments Prepayment 0.41

(4) Huntington Apartments, Bowling Brook,
Section 1, Lincoln Green, Ridgecrest
Timbers, Holden Court Apartments, and
Lakeside Apartments Prepayment 1.60

(5) Spanish Trace Apartments Prepayment 0.77

(6) Isles of Pines Village Apartments, Emerald
Green Apartments, and Stoney Brook Apartments Prepayment 0.31

(7) Amador Residential, Continental
Village, and Bentgrass Hills Apartments Prepayment 0.27

(8) Northdale Commons, Cedar Bluff, and
Wayland Health Center Prepayment 1.00

(9) Meadow Park Apartments Assignment 0.05

(10) Security Apartments Prepayment 0.02

(11) Pine Tree Lodge Final Settlement 0.02

(12) Peachtree Place North Prepayment 0.52

(13) Ashford Place Apartments, Fleetwood Village
Apartments, Silverwood Village Apartments,
and Maryland Meadows Prepayment 0.92

* During the first quarter of 1998, the assignment proceeds of the mortgage
on Portervillage I Apartments were received in the form of a 9.5%
debenture. The debenture, with a face value of $2,296,098, was issued to
the Partnership, with interest payable semi-annually on January 1 and July
1. In January 1999, net proceeds of approximately $2.3 million were
received upon redemption of these debentures. Since the mortgage on
Portervillage I Apartments was owned 50% by the Partnership and 50% by an
affiliate of the Partnership, American Insured Mortgage Investors ("AIM
84"), approximately $1.1 million of the debenture proceeds was paid to AIM
84.

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 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.

9. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE

Integrated Funding, Inc. ("IFI"), an affiliate of the Partnership, was the
coinsurance lender for coinsured mortgages previously held by the Partnership.
In order to capitalize IFI with sufficient net worth under HUD regulations, in
April 1994, American Insured Mortgage Investors L.P. - Series 88 ("AIM 88"), an
affiliate of the Partnership, transferred a GNMA mortgage-backed security in the
amount of $2.0 million to IFI. The Partnership and American Insured Mortgage
Investors L.P. - Series 86 ("AIM 86"), an affiliate of the Partnership, each
issued a demand note payable to AIM 88 and recorded an investment in IFI through
an affiliate ("AIM Mortgage, Inc.") in proportion to each entity's coinsured
mortgages for which IFI was mortgagee of record as of April 15, 1994. Interest
expense on the note payable was based on an interest rate of 7.25% per annum.

IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 86 and AIM 88 (collectively the "AIM Funds") whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net income or loss, substantially equals the mortgage principal and
interest on the GNMA mortgage-backed security transferred to IFI.

The final coinsured mortgages held by the Partnership were prepaid in late
1996. As a result, the aforementioned demand note payable to AIM 88 and the
expense reimbursement agreement from IFI were cancelled as of April 1, 1997.

10. PARTNERS' EQUITY

Depositary Units representing economic rights in limited partnership
interests ("Units") were issued at a stated value of $20. A total of 12,079,389
Units were issued for an aggregate capital contribution of $241,587,780. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.

11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1999, 1998 and 1997.

(In Thousands, Except Per Unit Data)

1999
Quarter ended
March 31 June 30 September 30 December 31
---------- ----------- ------------ -----------

Income $ 3,166 $ 3,122 $ 3,047 $ 2,895
Net gains from
mortgage dispositions -- 651 134 72
Net earnings 2,665 3,292 2,715 2,553
Net earnings per Limited
Partnership Unit - Basic 0.21 0.26 0.22 0.20

1998
Quarter ended
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------

Income $ 3,859 $ 3,751 $ 3,521 $ 3,613
Net gains from mortgage
dispositions 104 858 202 239
Net earnings 3,400 4,055 3,236 3,202
Net earnings per Limited
Partnership Unit - Basic 0.27 0.32 0.26 0.26

1997
Quarter ended
March 31 June 30 September 30 December 31
----------- ---------- ------------ -----------

Income $ 4,274 $ 4,318 $ 4,123 $ 4,046
Net gains from mortgage
dispositions 205 -- -- 703
Net earnings 3,848 3,675 3,480 4,134
Net earnings per Limited
Partnership Unit - Basic 0.31 0.29 0.28 0.32

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

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

December 31, 1999

Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date(1) (5)(9) Mortgage(3) (3)(11)(12) Interest)(9)(10)
- ------------------------- -------- ------ -------- ----------- -------------- ---------------

ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates (carried at fair value)

The Executive House, Dayton, OH 8/21 12/01 7.5% $ 842,019 $ 826,453 $ 78,855 (4)
Woodland Hills Apts., Auburn, AL 10/19 6/99 7.5% 693,447 680,880 68,044 (4)
Fairlawn II, Waterbury, CT 6/20 5/00 7.5% 765,618 751,599 73,364 (4)
Willow Dayton, Chicago, IL 8/19 12/00 7.5% 1,019,728 1,001,201 99,489 (4)
Cedar Ridge Apts., Richton Park, IL 4/20 2/01 7.5% 2,731,968 2,682,020 262,699 (4)
Park Hill Apts., Lexington, KY 3/19 3/00 7.5% 1,764,887 1,732,955 173,845 (4)
Fairfax House, Buffalo, NY 11/19 5/00 7.5% 2,160,391 2,121,044 209,608 (4)
Country Club Terrace Apts., Holidaysburg, PA 8/19 6/00 7.5% 1,460,960 1,434,416 142,537 (4)
Summit Square Manor, Rochester, MN 8/19 5/99 7.5% 1,921,473 1,886,562 187,467 (4)
Park Place, Rochester, MN 3/20 10/99 7.5% 761,096 747,245 73,980 (4)
Nevada Hills Apts., Reno, NV 2/21 8/00 7.5% 1,167,109 1,145,619 110,345 (4)
Colony West Apts., Chico, CA 7/20 12/00 7.5% 651,970 640,023 62,365 (6)
Dunhaven Apts., Section I, Baltimore County, MD 1/20 12/99 7.5% 904,402 887,905 87,429 (6)
Steeplechase Apts., Aiken, SC 9/18 N/A 7.5% 508,688 499,551 50,921 (6)
Walnut Hills Apts., Plainfield, IN 9/19 3/00 7.5% 489,750 480,844 47,692 (6)
Woodland Villas, Jasper, AL 8/19 3/00 7.5% 312,292 306,618 30,468 (6)
Ashley Oaks Apts., Carrollton, GA 3/22 4/02 7.5% 564,300 553,823 52,292 (7)
Highland Oaks Apts., Phase III, Wichita Falls, TX 2/21 4/02 7.5% 949,180 931,702 89,741 (7)
Magnolia Place Apts., Franklin, TN 5/20 4/02 7.5% 320,911 315,039 30,804 (7)
Rainbow Terrace Apts., Milwaukee, WI 7/22 4/02 7.5% 321,064 315,089 29,581 (7)
Rock Glen Apts., Baltimore, MD 1/22 4/02 7.5% 1,069,223 1,049,395 99,375 (7)
Stonebridge Apts., Phase I, Montgomery, AL 4/20 4/02 7.5% 1,030,864 1,012,017 99,125 (7)
Village Knoll Apts., Harrisburg, PA 4/20 4/02 7.5% 1,070,281 1,050,713 102,914 (7)
Executive Tower, Toledo, OH 3/27 N/A 8.75% 2,849,389 2,765,990 275,283
New Castle Apts., Austin, TX 3/18 N/A 8.75% 1,990,590 1,934,481 219,143
Turtle Creek Apts., San Antonio, TX 4/16 N/A 8.95% 1,608,730 1,612,421 188,596
Sangnok Villa, Los Angeles, CA 1/30 N/A 10.25% 900,425 896,296 96,825
The Meadows of Livonia, Livonia, MI 9/34 N/A 9.40% 6,419,087 6,389,002 627,836
Eaglewood Villa Apts., Springfield, OH 2/27 N/A 8.875% 2,710,626 2,631,244 264,707
Gold Key Village Apts., Englewood, OH 6/27 N/A 9.00% 2,865,491 2,781,463 282,030
Stafford Towers, Baltimore, MD 8/16 N/A 9.50% 352,169 351,161 42,613
Garden Court Apts., Lexington, KY 8/27 N/A 8.60% 1,165,617 1,131,478 110,583
Northwood Place, Meridian, MS 6/34 N/A 8.75% 4,481,163 4,348,375 412,635
Cheswick Apts., Indianapolis, IN 9/27 N/A 8.75% 3,076,904 2,986,724 295,736
The Gate House Apts., Lexington, KY 2/28 N/A 8.55% 2,806,505 2,724,247 264,092
Bradley Road Nursing, Bay Village, OH 5/34 N/A 8.875% 2,506,847 2,432,542 233,708
Franklin Plaza, Cleveland, OH 5/23 N/A 8.175% 5,241,707 4,978,934 503,183
Heritage Heights Apts., Harrison, AZ 4/32 N/A 9.50% 414,315 412,404 41,313
Pleasant View Nursing Home, Union, NJ 6/29 N/A 7.75% 7,445,317 7,068,954 643,311
------------ ------------
Total FHA-Insured Certificates -
Acquired Insured Mortgages, carried at fair value $ 70,316,503 $ 68,498,429
------------ ------------
ACQUIRED INSURED MORTGAGES
- --------------------------
GNMA Mortgage-Backed Securities
(carried at fair value)

Pine Tree Lodge, Pasadena, TX 12/33 N/A 9.50% $ 2,013,534 $ 2,014,205 $ 194,357
Stone Hedge Village Apts., Farmington, NY 11/27 N/A 7.00% 1,788,076 1,718,181 143,375
Afton Square Apts., Portsmouth, VA 12/28 N/A 7.25% 1,049,411 1,008,288 81,544
Carlisle Apts., Houston, TX 12/28 N/A 7.125% 2,096,147 2,014,047 166,042
Independence Park, Largo, FL 9/29 N/A 7.75% 3,954,786 3,799,334 331,030
------------ ------------
Total GNMA Mortgage-Backed Securities $ 10,901,954 $ 10,554,055
------------ ------------
Total investment in Acquired Insured
Mortgages, carried at fair value $ 81,218,457 $ 79,052,484
------------ ------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
GNMA Mortgage-Backed Security
(carried at fair value)

Oak Forest Apts. II, Ocoee, FL 12/31 11/09 8.25% $ 10,488,963 $ 10,075,773 $ 840,446

FHA-Insured Certificate
(carried at fair value)

Waterford Green Apts., South St. Paul, MN (11) 11/30 12/04 7.25% 5,927,095 5,627,406 481,564
----------- ------------
Total investment in Originated Insured
Mortgages, carried at fair value $ 16,416,058 $ 15,703,179
------------ ------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities $ 97,634,515 $ 94,755,663
------------ ------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Loans
(carried at amortized cost)(2)

Bay Pointe Apts., Lafayette, IN 2/23 11/00 7.5% $ 2,005,166 $ 1,670,039 $ 185,272 (8)
Baypoint Shoreline Apts., Duluth, MN 1/22 8/00 7.5% 946,479 785,283 87,967 (8)
Berryhill Apts., Grass Valley, CA 1/21 8/99 7.5% 1,223,861 1,018,636 115,899 (8)
Brougham Estates II, Kansas City, KS 11/22 8/00 7.5% 2,519,834 2,084,426 230,860 (8)
College Green Apts., Wilmington, NC 3/23 6/01 7.5% 1,354,862 1,119,860 123,455 (8)
Fox Run Apts., Dothan, AL 10/19 12/97 7.5% 1,194,069 998,684 116,242 (8)
Kaynorth Apts., Lansing, MI 4/23 3/01 7.5% 1,838,685 1,519,204 167,318 (8)
Town Park Apts., Rockingham, NC 10/22 6/01 7.5% 618,215 512,016 56,755 (8)
Westbrook Apts., Kokomo, IN 11/22 12/00 7.5% 1,752,170 1,459,313 163,177 (8)
------------ ------------
Total investment in Acquired Insured
Mortgages, carried at amortized cost $ 13,453,341 $ 11,167,461
------------ ------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
Fully Insured Mortgages
- -----------------------
FHA-Insured Loans
(carried at amortized cost)(2) - Continued

Cobblestone Apts., Fayetteville, NC 3/28 12/02 8.50% $ 4,942,632 $ 5,084,936 $ 462,703
Longleaf Lodge, Hoover, AL 7/26 -- 8.25% 3,041,602 3,078,723 282,958
The Plantation, Greenville, NC 4/28 4/03 8.25% 4,395,636 4,535,606 402,046
------------ ------------
Total investment in Originated Insured
Mortgages, carried at amortized cost $ 12,379,870 $ 12,699,265
------------ ------------
Total investment in FHA-Insured Loans $ 25,833,211 $ 23,866,726
------------ ------------
TOTAL INVESTMENT IN INSURED MORTGAGES $123,467,726 $118,622,389
============ ============

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

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

(1) Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign an Insured Mortgage ("put") to
FHA at the expiration of 20 years from the date of final endorsement, if
the Insured Mortgage is not in default at such time. Any mortgagee electing
to assign a FHA-insured mortgage to FHA will receive, in exchange
therefore, HUD debentures having a total face value equal to the then
outstanding principal balance of the FHA-insured mortgage plus accrued
interest to the date of assignment. These HUD debentures will mature 10
years from the date of assignment and will bear interest at the "going
Federal rate" at such date. This assignment procedure is applicable to an
Insured Mortgage which had a firm or conditional FHA commitment for
insurance on or before November 30, 1983 and, in the case of a mortgage
sold in a GNMA auction, was sold in an auction prior to February 1984. The
Partnership has initiated its request to put these mortgages to FHA as they
become due. Certain of the Partnership's Insured Mortgages may have the
right of assignment under this program. Certain mortgages that do not
qualify under this program possess a special assignment option, in certain
Insured Mortgage documents, which allow the Partnership, anytime after this
date, the option to require payment by the borrower of the unpaid principal
balance of the Insured Mortgages. At such time, the borrowers must make
payment to the Partnership, or the Partnership, at its option, may cancel
the FHA insurance and institute foreclosure proceedings.

(2) Inclusive of closing costs and acquisition fees.

(3) The mortgages underlying the Partnership's investments in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments and
retirement homes. Prepayment of these Insured Mortgages would be based upon
the unpaid principal balance at the time of prepayment.

(4) In April and July 1985, and February 1986, the Partnership purchased
pass-through certificates representing undivided fractional interests of
157/537, 69/537 and 259/537, respectively, in a pool of 19 FHA-insured
mortgages. In July 1986 and October 1987, the Partnership sold undivided
fractional interests of 67/537 and 40/537, respectively, in this pool.
Accordingly, the Partnership now owns an undivided fractional interest
aggregating 378/537, or approximately 70.4%, in this pool. For purposes of
illustration only, the amounts shown in this table represent the
Partnership's current share of these items as if an undivided interest in
each mortgage was acquired.

(5) In addition, the servicer or the sub-servicer of the Insured Mortgage,
primarily unaffiliated third parties, is entitled to receive compensation
for certain services rendered.

(6) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 317/392 and
11/392, respectively, in a pool of 13 FHA-insured mortgages. In January and
February 1988, the Partnership sold undivided fractional interests of
100/392 and 104/392, respectively, in this pool. Accordingly, the
Partnership now owns an undivided fractional interest aggregating 124/392,
or approximately 31.6%, in this pool. For purposes of illustration only,
the amounts shown in this table represent the Partnership's share of these
items as if an undivided interest in each mortgage was acquired.

(7) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 200/341 and
101/341, respectively, in a pool of 12 FHA-insured mortgages. In October
1987, the Partnership sold undivided fractional interests of 200/341 in
this pool. Accordingly, the Partnership now owns an undivided fractional
interest aggregating 101/341, or approximately 29.6%, in this pool. For
purposes of illustration only, the amounts shown in this table represent
the Partnership's share of these items as if an undivided interest in each
mortgage was acquired.

(8) These amounts represent the Partnership's 50% interest in these mortgages.
The remaining 50% interest was acquired by American Insured Mortgage
Investors, an affiliate of the Partnership.

(9) This represents the base interest rate during the permanent phase of these
Insured Mortgages. Additional interest (referred to as "Participations")
measured as a percentage of the net cash flow from the development and the
net proceeds from the sale, refinancing or other disposition of the
underlying development (as defined in the Participation Agreements), will
also be due. During the years ended December 31, 1999, 1998 and 1997, the
Partnership received additional interest of $45,164, $111,544, and $89,223,
respectively, from the Participations.

(10) Principal and interest are payable at level amounts over the life of the
mortgages.

(11) A reconciliation of the carrying value of Insured Mortgages for the years
ended December 31, 1999 and 1998, is as follows:

1999 1998
-------------- --------------

Beginning balance $ 151,427,095 $ 187,055,564

Principal receipts on mortgages (1,308,678) (1,322,056)

Proceeds from disposition of Mortgages (26,870,388) (31,043,325)(1)

Net gains on mortgage dispositions 856,751 1,403,150

Decrease to unrealized gains on
Investments in Insured Mortgages (5,482,391) (4,666,238)
-------------- --------------
Ending balance $ 118,622,389 $ 151,427,095
============== ==============

(1) This amount represents cash proceeds of $29,895,275 (as reflected in the
Statements of Cash Flows) and non-cash proceeds of $1,148,050.

(12) As of December 31, 1999 and 1998, the tax basis of the Insured Mortgages
was approximately $116.3 million and $143.5 million, respectively.