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

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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, 2001 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 19, 2002, 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 $87,426,721.

Documents incorporated by Reference

None

2

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

2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
----
PART I

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

PART II

Item 5. Market for Registrant's Securities and Related Security Holder Matters........... 5
Item 6. Selected Financial Data.......................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 7
Item 7A. Qualitative and Quantitative Disclosures about Market Risk....................... 14
Item 8. Financial Statements and Supplementary Data...................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................... 14

PART III

Item 10. Directors and Executive Officers of the Registrant............................... 15
Item 11. Executive Compensation........................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 17
Item 13. Certain Relationships and Related Transactions................................... 18

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 19

Signatures ................................................................................. 21

3
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 Partnership's Insured Mortgages (as defined below)
as of December 31, 2001, 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.

4

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, Inc., a wholly-owned subsidiary 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, Real Estate Investment Trusts
("REIT") 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 a vote of security holders during the fourth
quarter of 2001.

5
PART II

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

Principal Market and Market Price for Units and Distributions
- -------------------------------------------------------------

The Limited Partnership Units ("Units") are traded on the American Stock
Exchange ("AMEX") under the 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 2001 and 2000 were as follows:

Amount of
2001 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------

March 31 $ 8.3125 $ 7.6500 $ 0.68(1)
June 30 7.9000 7.5000 0.37(2)
September 30 7.9800 7.3500 0.71(3)(4)(5)(6)
December 31 8.1000 7.5100 0.15
--------
$ 1.91
========

Amount of
2000 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------

March 31 $ 8.7500 $ 8.0000 $ 0.47(7)(8)
June 30 8.8750 7.8125 0.46(9)(10)(11)
September 30 8.3750 7.8750 0.18
December 31 8.4375 7.7500 0.50(12)
--------
$ 1.61
========

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

Date Net
Proceeds Type of Proceeds
Complex Name(s) Received Disposition Per Unit
--------------- -------- ----------- --------
(1) The Meadows of Livonia Jan 2001 Prepayment $0.53
(2) Gold Key Village Apartments Mar 2001 Prepayment 0.22
(3) Cedar Ridge Apartments Jun 2001 Prepayment 0.21
(4) Carlisle Apartments Jun 2001 Prepayment 0.17
(5) Afton Square Apartments Jul 2001 Prepayment 0.08
(6) Berryhill Apartments Sep 2001 Prepayment 0.10
(7) Northwood Apartments Dec 1999 Prepayment 0.13
(8) Turtle Creek Apartments Jan 2000 Prepayment 0.13
(9) Woodland Hills Apartments Apr 2000 Prepayment 0.06
(10) New Castle Apartments May 2000 Prepayment 0.16
(11) Colony West Apartments May 2000 Prepayment 0.05
(12) Independence Park Oct 2000 Prepayment 0.32

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, 2001
-------------- -----------------------
Depositary Units of Limited
Partnership Interest 9,700

6

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

For the Years Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Income $ 8,526 $ 9,979 $ 12,230 $ 14,744 $ 16,761

Net gains on mortgage
dispositions/modifications 1,785 428 857 1,403 908

Net earnings 8,969 8,866 11,225 13,893 15,137

Net earnings per Limited
Partnership Unit - Basic (1) $ 0.71 $ 0.71 $ 0.89 $ 1.11 $ 1.20

Distributions per Limited
Partnership Unit (1)(2) $ 1.91 $ 1.61 $ 3.09 $ 3.45 $ 2.76

As of December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Total assets $ 98,070 $118,621 $143,470 $170,970 $203,450

Partners' equity 94,828 110,982 120,445 153,543 187,682

(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, 2001, 2000, 1999, 1998 and 1997, which were paid
subsequent to year end. See Notes 8 and 9 of the Notes to Financial
Statements.

The selected income statement data presented above for the years ended
December 31, 2001, 2000 and 1999, and the selected balance sheet data as of
December 31, 2001 and 2000, are derived from, and are qualified by, reference to
the Partnership's financial statements, which are included elsewhere in this
Form 10-K. The selected income statement data for the years ended December 31,
1998 and 1997, and the selected balance sheet data as of December 31, 1999, 1998
and 1997 are derived from audited financial statements not included as part of
this Annual Report on Form 10-K. This data should be read in conjunction with
the financial statements and the notes thereto.

7

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 CMSLP Management Company, a wholly-owned subsidiary of CRIIMI MAE.

8

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 (as discussed
below) 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, 2001, the Partnership had invested in 40 Insured
Mortgages, with an aggregate amortized cost of approximately $82 million, a face
value of approximately $85 million and a fair value of approximately $84
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 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.

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 GNMA
Mortgage-Backed Securities and FHA-Insured Certificates:

December 31,
2001 2000
---- ----

Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (3)(5) 2 4
FHA-Insured Certificates
(1)(2)(4) and (6) through (14) 26 35
Amortized Cost $ 44,640,062 $ 68,440,285
Face Value 46,215,896 71,404,632
Fair Value 45,845,197 70,770,317

9

December 31,
2001 2000
---- ----

Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,132,560 $ 16,311,904
Face Value 16,132,560 16,279,536
Fair Value 15,734,485 15,927,124

The footnotes referred to in the table above correspond to the numbers of
the items listed in the three tables that follow.

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

(Dollars in thousands, except per unit amounts)

Date Distribution
Net Proceeds Dist./ Declaration Payment
Complex Name Proceeds Received Gain Unit Date Date
------------ -------- -------- ---- ---- ---- ----

(1) The Meadows of Livonia $6,653 Jan 2001 $253 $0.53 Jan 2001 May 2001
(2) Gold Key Village Apartments 2,827 Mar 2001 9 0.22 Apr 2001 Aug 2001
(3) Carlisle Apartments 2,120 Jun 2001 47 0.17 Jul 2001 Nov 2001
(4) Cedar Ridge Apartments 2,637 Jun 2001 346 0.21 Jul 2001 Nov 2001
(5) Afton Square Apartments 1,061 Jul 2001 29 0.08 Jul 2001 Nov 2001
(6) The Gatehouse Apartments 2,802 Dec 2001 48 0.22 Jan 2002 May 2002

The two lists below summarize debentures issued for mortgages assigned to
the United States Department of Housing and Urban Development ("HUD") under
Section 221 of the National Housing Act. Interest is payable on the debentures
semi-annually on January 1 and July 1.

The following list represents debentures redeemed, subsequent to December
31, 2001, in January 2002. These debentures were issued to Firstar Trust
Company, the initial mortgagee and subsequently transferred to Midland Loan
Services, Inc. ("Midland"), the servicer, in 2001. The net proceed amounts,
which were received in January 2002, listed below are included in receivables
and other assets in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)

Debenture Date of Dist.
Interest Net Application Response Gain Dist./ Declaration Payment
Complex Name Rate Proceeds Date from HUD 2001 Unit Date Date
------------ ---- -------- ---- -------- ---- ---- ---- ----

(7)Summit Square Manor 7.125% $ 1,883 Jun 2000 May 2001 $ 235 $ 0.150 Feb 2002 May 2002
(8)Park Place 7.125% 746 Jun 2000 May 2001 94 0.060 Feb 2002 May 2002
(9)Park Hill Apartments 7.500% 1,721 Sep 2000 Nov 2001 208 0.140 Feb 2002 May 2002
(10)Fairfax House 7.500% 2,109 Sep 2000 Nov 2001 268 0.170 Feb 2002 May 2002
(11)Woodland Villas 7.125% 300 Apr 2001 Nov 2001 56 0.025 Feb 2002 May 2002
------- -------
Total included in receivables and
other assets as of December 31,
2001 $ 6,759 $ 0.545
======= =======

10

In addition, the Partnership received interest on debentures in 2002: (1) a
distribution of approximately $0.02 per unit of interest related to HUD
debentures issued in exchange for the mortgages on Park Hill Apartments, Fairfax
House and Woodland Villas was declared in January 2002, and (2) a distribution
of $0.02 per unit of interest related to HUD debentures issued in exchange for
the mortgages on Summit Square Manor, Park Place, Park Hill Apartments, Fairfax
House and Woodland Villas was declared in February 2002. These distributions are
expected to be paid in May 2002.

The following list represents debentures that were issued, subsequent to
December 31, 2001, in January 2002, to Firstar Trust Company, the initial
mortgagee, and transferred to Midland. The Partnership anticipates the
debentures will be redeemed prior to maturity date. The fair value of these
FHA-Insured Certificates are included in investment in FHA-Insured Certificates
in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)

Debenture Date of Approximate Debenture
Interest Net Application Response Gain Maturity
Complex Name Rate Proceeds Date from HUD 2002 Date
------------ ---- -------- ---- -------- ---- ----

(12) Country Club Terrace
Apts. 7.500% $ 1,425 Sep 2000 Jan 2002 $ 178 Sep 2010
(13) Nevada Hills Apartments 7.500% 1,133 Dec 2000 Jan 2002 154 Dec 2010
(14) Dunhaven Apartments 7.125% 872 Jan 2001 Jan 2002 165 Feb 2011

As of March 1, 2002, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are current with respect to the payment
of principal and interest. The Partnership no longer receives monthly principal
and interest from mortgages that are in the HUD assignment process under the
Section 221 program. The servicer of the mortgage on Fairlawn II filed an
application for insurance benefits under section 221 in September 2000. The face
value of this mortgage was approximately $755,000 as of the insurance
application date. The Partnership has not received approval for the assignment
of this mortgage as of March 1, 2002.

Under Section 221 of the National Housing Act, a mortgagee has the right to
assign a mortgage ("put") to FHA at the expiration of 20 years from the date of
final endorsement if the mortgage is not in default at such time. Any mortgagee
electing to assign an FHA-insured mortgage to FHA will receive, in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the date
of assignment. These HUD debentures will mature 10 years from the date of
assignment and will bear interest at a rate announced semi-annually by HUD in
the Federal Register ("going Federal rate") at such date. This assignment
procedure is applicable to an insured mortgage, which had a firm or conditional
FHA commitment for insurance on or before November 30, 1983. Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable mortgage. The Partnership expects to receive HUD debentures, as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment of the mortgage to the date of issuance of the debenture. The
Partnership will recognize a gain on these assignments upon receipt of HUD
debentures or a loss when it becomes probable that a loss will be incurred. In
general, the Partnership plans to sell the debentures if not called prior to the
Partnership's termination date, December 31, 2009. At that time debenture
proceeds will be distributed to Unitholders.

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, 2001, 2000 and 1999, the Partnership
received $0, $0, and $0, respectively, from the Participations. These amounts,

11

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,
2001 2000
---- ----

Fully Insured Acquired Loans:
Number of Loans (1) 7 8
Amortized Cost $ 8,914,573 $10,041,697
Face Value 10,632,937 12,040,599
Fair Value 10,451,178 12,023,455

Fully Insured Originated Loans:
Number of Loans (2) 3 3
Amortized Cost $12,430,002 $12,570,037
Face Value 12,132,653 12,261,397
Fair Value 12,122,221 12,192,633

(1) In September 2001, the mortgage on Berryhill Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $190,000 for the year ended December 31,
2001. A distribution of approximately $0.10 per Unit related to the
prepayment of this mortgage was declared in September and paid to
Unitholders in November 2001.
(2) In January 2002, the mortgage on Longleaf Lodge was prepaid. The
Partnership received net proceeds of approximately $3.7 million and expects
to recognize a gain of approximately $672,000 in 2002. A distribution of
approximately $0.29 per Unit related to the prepayment of this mortgage was
declared in January 2002 and is expected to be paid in May 2002.

As of March 1, 2002, all of the fully insured FHA-Insured Loans were
current with respect to the payment of principal and interest, except for the
mortgage on Westbrook Apartments, which is delinquent with respect to the
February 2002 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, 2001, 2000 and 1999, the Partnership
received $53,424, $21,566, and $45,164, respectively, from the Participations.
These amounts, if any, are included in mortgage investment income on the
accompanying statements of income and comprehensive income.

Investment in FHA Debenture
- ---------------------------

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

12

Unit related to the redemption of this debenture was declared in January 2002
and is expected to be paid in May 2002.

Results of Operations
- ---------------------
2001 versus 2000
- ----------------

Net earnings increased slightly for 2001 as compared to 2000, primarily due
an increase in net gains from mortgage dispositions, partially offset by a
decrease in mortgage investment income primarily due to the reduction in the
mortgage base. The mortgage base decreased as a result of 17 mortgage
dispositions with an aggregate principal balance of approximately $34 million,
representing an approximate 28% decrease in the aggregate principal balance of
the total mortgage portfolio since March 2000.

Interest and other income increased for 2001 as compared to 2000, primarily
due to the timing of the investment of mortgage proceeds prior to the
distribution to Unitholders.

Asset management fees decreased for 2001 as compared to 2000, primarily due
to the reduction in the mortgage base.

Gains on mortgage dispositions increased for 2001 as compared to 2000 as a
result of gains recognized on seven mortgage prepayments and five mortgage
assignments in 2001, as discussed above, compared to gains recognized on four
mortgage prepayments and one assignment in 2000. No losses were recognized in
2001 compared to loss recognized on one mortgage prepayment in 2000.

2000 versus 1999
- ----------------

Net earnings decreased for 2000 as compared to 1999, 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 2000 as compared to 1999,
primarily due to the reduction in the mortgage base. The mortgage base decreased
as a result of 17 mortgage dispositions with an aggregate principal balance of
approximately $37 million, representing an approximate 24% decrease in the
aggregate principal balance of the total mortgage portfolio since March 1999.

Asset management fees decreased for 2000 as compared to 1999, primarily due
to the reduction in the mortgage base.

General and administration expense decreased for 2000 as compared to 1999,
primarily due to a decrease in temporary employment costs and a decrease in
mortgage service fees.

Gains on mortgage dispositions decreased for 2000 as compared to 1999 as a
result of gains recognized on four mortgage prepayments and one assignment in
2000, as discussed above, compared to gains recognized on seven mortgage
prepayments in 1999. Losses were recognized on one mortgage prepayment in 2000,
as discussed above, compared to losses recognized on four mortgage prepayments
in 1999.

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"). On November 22, 2000, the United States Bankruptcy Court for

13

the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. emerged from
bankruptcy.

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 for the years ended December 31, 2001, 2000 and 1999 to meet
operating expense requirements. The Partnership anticipates its cash flows to be
sufficient to meet operating expense requirements for 2002.

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 - 2001 versus 2000
- ----------------------------

Net cash provided by operating activities decreased in 2001 compared to
2000, primarily due to the reduction in mortgage investment income, as discussed
above.

Net cash provided by investing activities increased in 2001 compared to
2000. This increase is primarily due to an increase in proceeds received from
the disposition of mortgages.

Net cash used in financing activities decreased in 2001 compared to 2000
due to a reduction in the amount of distributions paid to partners in 2001
compared to 2000.

Cash flow - 2000 versus 1999
- ----------------------------

Net cash provided by operating activities decreased in 2000 as compared to
1999, primarily due to the reduction in mortgage investment income, as discussed
above.

Net cash provided by investing activities decreased in 2000 as compared to
1999. This decrease is primarily due to a reduction in proceeds received from
the disposition of mortgages, a decrease in net debenture proceeds, as discussed
previously, and a decrease in the receipt of mortgage principal from scheduled
payments.

Net cash used in financing activities increased in 2000 as compared to 1999
due to an increase in the amount of distributions paid to partners in 2000
compared to 1999.

14

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.

Fair
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----

Insured Mortgages
(in millions) $16.2 $14.5 $13.7 $12.4 $11.4 $62.0 $130.2 $84.2

Average Interest Rate 7.87% 7.87% 7.86% 7.82% 7.81% 7.99% 7.87% --

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 22.

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

None.

15

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. (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. 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 CMSLP Management
Company, Inc., a wholly-owned subsidiary 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 February 19, 2002:

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

William B. Dockser 64 Chairman of the Board

H. William Willoughby 55 President, Secretary and Director

David B. Iannarone 41 Executive Vice President

Cynthia O. Azzara 42 Senior Vice President,
Chief Financial Officer and
Treasurer

Brian L. Hanson 40 Senior Vice President

John R. Cooper 54 Director

Alan M. Jacobs 53 Director

Robert J. Merrick 56 Director

Robert E. Woods 54 Director

16

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. 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. Mr. Willoughby has been a
director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President of
CRI since 1990.

David B. Iannarone has served as Executive Vice President of the General
Partner since December 2000. Mr. Iannarone has served as Executive Vice
President CRIIMI MAE since December 2000; as Senior Vice President and General
Counsel of CRIIMI MAE from March 1998 to December 2000; and as Vice President
and General Counsel of CRIIMI MAE from July 1996 to March 1998.

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.

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; and as Group Vice President of CRIIMI MAE from March 1996 to
March 1998.

John R. Cooper has served as Director of the General Partner since April
2001. Mr. Cooper has served as Director of CRIIMI MAE since April 2001. Mr.
Cooper is Senior Vice President, Finance, of PG&E National Energy Group, Inc. He
has been with PG&E National Energy Group, Inc. and its predecessor, U.S.
Generating Company, since its inception in 1989.

Alan M. Jacobs has served as Director of the General Partner since April
2001. Mr. Jacobs has served as Director of CRIIMI MAE since April 2001;
President of AMJ Advisors LLC, since September 1999; and founding member and
Senior Partner of Ernst and Young LLP's restructuring and reorganization
practice through September 1999. Mr. Jacobs is the Plan Administrator and
Litigation Trust Trustee for T&W Financial Corporation, the Chapter 11 Trustee
for Apponline.com, Inc., the Chapter 11 Trustee for Sharp International Corp.,
the Chapter 7 Trustee for Edison Brothers Stores, Inc. and was formerly the
co-chairman and co-chief executive officer of West Coast Entertainment
Corporation. Mr. Jacobs serves as a director of The Singer Sewing Company. Mr.
Jacobs was an executive officer of West Coast Entertainment Corporation at the
time such corporation filed a petition under the federal bankruptcy laws in
March 2000.

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 Capital 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.

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.

17

(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, 2001.

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 by reference herein to Note 8 of the Notes to
Financial Statements of the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) As of February 19, 2002, 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 19, 2002 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.

18
PART III

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

Note 8 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 Annual Report on Form 10-K 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.

19
PART IV

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

(a)(1) Financial Statements:

Page
Description Number
----------- ------
Balance Sheets as of December 31, 2001 and 2000.................................................24

Statements of Income and Comprehensive Income for the years ended December 31, 2001,
2000, and 1999 ..............................................................................25

Statements of Changes in Partners' Equity for the years ended December 31, 2001, 2000
and 1999.....................................................................................26

Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...................27

Notes to Financial Statements...................................................................28

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate.....................................................39

All other schedules have been omitted because they are not applicable, 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.

20

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.

99.0 Letter to Securities and Exchange Commission from the Partnership
dated March 22, 2002 regarding the representations received from
Arthur Andersen LLP in performing the audit of the December 31, 2001
financial statements(filed herewith).

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

All other items are not applicable.

21
PART IV

SIGNATURES

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William B. Dockser and H. William
Willoughby, jointly and severally, his attorney-in-fact, each with the power of
substitution for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

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

March 12, 2002 /s/ William B. Dockser
- -------------- ---------------------------------
DATE William B. Dockser
Chairman of the Board

March 12, 2002 /s/ H. William Willoughby
- -------------- ---------------------------------
DATE H. William Willoughby
President, Secretary and Director

March 22, 2002 /s/ Cynthia O. Azzara
- -------------- ---------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer

March 12, 2002 /s/ John R. Cooper
- -------------- ---------------------------------
DATE John R. Cooper
Director

March 12, 2002 /s/ Alan M. Jacobs
- -------------- ---------------------------------
DATE Alan M. Jacobs
Director

March 14, 2002 /s/ Robert J. Merrick
- -------------- ---------------------------------
DATE Robert J. Merrick
Director

March 11, 2002 /s/ Robert E. Woods
- -------------- ---------------------------------
DATE Robert E. Woods
Director

22

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

Financial Statements

as of December 31, 2001 and 2000

and for the Years Ended

December 31, 2001, 2000, and 1999

23

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, 2001
and 2000, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 2001, 2000
and 1999. 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, 2001 and 2000, and the results of its operations and its cash flows
for the years ended December 31, 2001, 2000 and 1999 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, 2001 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.

/s/Arthur Andersen LLP
Vienna, Virginia
March 4, 2002

24

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

BALANCE SHEETS

December 31, December 31,
2001 2000
------------ ------------

ASSETS

Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 45,845,197 $ 70,770,317
Originated insured mortgages 15,734,485 15,927,124
------------ ------------

61,579,682 86,697,441

Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Acquired insured mortgages 8,914,573 10,041,697
Originated insured mortgages 12,430,002 12,570,037
------------ ------------
21,344,575 22,611,734

Cash and cash equivalents 4,366,085 5,631,117

Receivables and other assets 8,394,392 1,319,714

Investment in FHA debenture 2,385,233 2,361,381
------------ ------------

Total assets $ 98,069,967 $118,621,387
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 1,885,460 $ 6,284,867

Accounts payable and accrued expenses 121,659 112,864

Due to affiliate 1,235,104 1,242,107
------------ ------------

Total liabilities 3,242,223 7,639,838
------------ ------------

Partners' equity:
Limited partners' equity, 15,000,000 Units
authorized, 12,079,514 Units issued and outstanding 99,801,805 114,254,731
General partner's deficit (5,781,121) (5,194,582)
Accumulated other comprehensive income 807,060 1,921,400
------------ ------------

Total partners' equity 94,827,744 110,981,549
------------ ------------

Total liabilities and partners' equity $ 98,069,967 $118,621,387
============ ============

The accompanying notes are an integral part
of these financial statements.
25

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

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the years ended December 31,
2001 2000 1999
------------ ------------ ------------

Income:
Mortgage investment income $ 7,983,600 $ 9,597,605 $ 11,846,964
Interest and other income 541,979 380,932 382,860
------------ ------------ ------------

8,525,579 9,978,537 12,229,824

Expenses:
Asset management fee to related parties 959,934 1,142,121 1,382,904
General and administrative 382,296 397,713 479,113
------------ ------------ ------------

1,342,230 1,539,834 1,862,017
------------ ------------ ------------

Earnings before gains (losses)
on mortgage dispositions 7,183,349 8,438,703 10,367,807

Mortgage dispositions
Gains 1,785,376 467,414 956,150
Losses - (39,819) (99,399)
------------ ------------ ------------

Net earnings $ 8,968,725 $ 8,866,298 $ 11,224,558
============ ============ ============

Other comprehensive (loss) income (1,114,340) 1,907,406 (5,482,391)
------------ ------------ ------------

Comprehensive income $ 7,854,385 $ 10,773,704 $ 5,742,167
============ ============ ============

Net earnings allocated to:
Limited partners - 96.1% $ 8,618,945 $ 8,520,512 $ 10,786,800
General partner - 3.9% 349,780 345,786 437,758
------------ ------------ ------------

$ 8,968,725 $ 8,866,298 $ 11,224,558
============ ============ ============

Net earnings per Limited
Partnership Unit - Basic $ 0.71 $ 0.71 $ 0.89
============ ============ ============

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

26

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

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 2001, 2000, 1999

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

Balance, January 1, 1999 $ (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

Net Earnings 345,786 8,520,512 - 8,866,298
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 1,907,406 1,907,406
Distributions paid or accrued of $1.61 per Unit,
including return of capital of $0.90 per Unit (789,254) (19,448,018) - (20,237,272)
------------ ------------ ------------ ------------

Balance, December 31, 2000 (5,194,582) 114,254,731 1,921,400 110,981,549

Net Earnings 349,780 8,618,945 - 8,968,725
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (1,114,340) (1,114,340)
Distributions paid or accrued of $1.91 per Unit,
including return of capital of $1.20 per Unit (936,319) (23,071,871) - (24,008,190)
------------ ------------ ------------ ------------

Balance, December 31, 2001 $ (5,781,121) $ 99,801,805 $ 807,060 $ 94,827,744
============ ============ ============ ============

Limited Partnership Units outstanding - Basic, as of
December 31, 2001, 2000 and 1999 12,079,514
==========

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

27

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

STATEMENTS OF CASH FLOWS

For the years ended December 31,
2001 2000 1999
------------ ------------ ------------

Cash flows from operating activities:
Net earnings $ 8,968,725 $ 8,866,298 $ 11,224,558
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Losses on mortgage dispositions - 39,819 99,399
Gains on mortgage dispositions (1,785,376) (467,414) (956,150)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets (315,436) (196,242) 329,820
Increase (decrease) in accounts payable and accrued expenses 8,795 (34,609) (36,763)
Decrease in due to affiliate (7,003) - (131,129)
------------ ------------ ------------

Net cash provided by operating activities 6,869,705 8,207,852 10,529,735
------------ ------------ ------------

Cash flows from investing activities:
Proceeds from disposition of mortgages 19,316,901 9,346,682 26,870,388
Receipt of mortgage principal from scheduled payments 955,959 1,182,259 1,308,678
Proceeds from redemption of debenture - - 2,296,098
Debenture proceeds due to affiliate - - (1,148,049)
------------ ------------ ------------

Net cash provided by investing activities 20,272,860 10,528,941 29,327,115
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (28,407,597) (36,829,320) (31,927,125)
------------ ------------ ------------

Net (decrease) increase in cash and cash equivalents (1,265,032) (18,092,527) 7,929,725

Cash and cash equivalents, beginning of year 5,631,117 23,723,644 15,793,919
------------ ------------ ------------

Cash and cash equivalents, end of year $ 4,366,085 $ 5,631,117 $ 23,723,644
============ ============ ============

Non-cash investing activity:

7.125% debenture received from HUD in exchange for
the mortgage on Fox Run Apartments - $ 2,385,233 -
Portion of debenture due to affiliate, AIM 84 - (1,242,107) -
Portion of HUD debentures due from Midland in exchange
for the mortgages on Summit Square Manor, Park Place,
Park Hill Apartments, Fairfax House, and Woodland Villas $ 6,759,242 - -

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

28
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.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, a wholly-owned subsidiary 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 of 1937, as amended (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"). On November 22, 2000, the United States Bankruptcy Court for
the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. emerged from
bankruptcy.

29

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 ("GAAP").
The preparation of financial statements in conformity with GAAP 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.

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 Federal
Housing Administration ("FHA") programs ("FHA-Insured Certificates"),
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities") and FHA-insured
mortgage loans ("FHA-Insured Loans"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or retirement
homes.

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, 2001, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 26 years. However, the partnership agreement
states that the Partnership will terminate in approximately 8 years on December
31, 2009, unless terminated earlier 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 under Section 221 of the National Housing Act (the
"Section 221 program"), as discussed in Note 5.

In connection with this classification, as of December 31, 2001 and 2000,
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.

30

As of December 31, 2001 and 2000, Investment in FHA-Insured Loans is
recorded at amortized cost.

The amortized cost of the investments in GNMA Mortgage-Backed Securities,
FHA-Insured Certificates and FHA-Insured Loans is adjusted for amortization of
discounts and premiums to maturity. Such amortization is included in mortgage
investment income.

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. In addition,
mortgages are assigned to HUD under the Section 221 program, as discussed in
Note 5. 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
are usually more than 9 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 is greater. The Partnership classifies its Investment in FHA Debenture
as an available for sale debt security 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
three 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
responsibility of the Unitholders.

Statements of Cash Flows
- ------------------------

No cash payments were made for interest expense during the years ended
December 31, 2001, 2000 and 1999. 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 all operating activities that affect recognized
assets and liabilities while not resulting in cash receipts or cash payments.

31

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, 2001 As of December 31, 2000
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- -------------- ------------- --------------

Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities:
Acquired insured mortgages $ 44,640,062 $ 45,845,197 $ 68,440,285 $ 70,770,317
Originated insured mortgages 16,132,560 15,734,485 16,311,904 15,927,124
------------- -------------- ------------- --------------

$ 60,772,622 $ 61,579,682 $ 84,752,189 $ 86,697,441
============= ============== ============= ==============

Investment in FHA-Insured Loans:
Acquired insured mortgages $ 8,914,573 $ 10,451,178 $ 10,041,697 $ 12,023,455
Originated insured mortgages 12,430,002 12,122,221 12,570,037 12,192,633
------------- -------------- ------------- --------------

$ 21,344,575 $ 22,573,399 $ 22,611,734 $ 24,216,088
============= ============== ============= ==============

Cash and cash equivalents $ 4,366,085 $ 4,366,085 $ 5,631,117 $ 5,631,117
============= ============== ============= ==============

Investment in FHA Debenture $ 2,385,233 $ 2,385,233 $ 2,385,233 $ 2,361,381
============= ============== ============= ==============

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 Debenture
- --------------------------------------------------------------------

The fair value of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans is priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair value; the cash flows were
discounted using a discount rate that, in the Partnership's view, was
commensurate with the market's perception of risk and value. The Partnership
used a variety of sources to determine its discount rate including: (i)
institutionally-available research reports, and (ii) communications with dealers
and active insured mortgage security investors regarding the valuation of
comparable securities. The fair value of the FHA Debenture is based upon the
prices of other comparable securities that trade in the market. The fair value
is equal to its face value upon redemption of the debenture.

Cash and cash equivalents
- -------------------------

The carrying amount approximates fair value because of the short maturity
of these instruments.

32

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 consists of changes in unrealized gains and losses related
to the Partnership's mortgages and debenture 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 gains or
losses related to those investments that were not disposed of during the period.

2001 2000 1999
---- ---- ----

Reclassification adjustment for (gains) losses
included in net income $ (1,149,729) $ 114,365 $ (1,213,550)
Unrealized holding gains (losses) arising during
the period 35,389 1,793,041 (4,268,841)
------------ ------------ ------------

Net adjustment to unrealized (losses) gains $ (1,114,340) $ 1,907,406 $ (5,482,391)
============ ============ ============

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

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

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

December 31,
2001 2000
---- ----
Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (3)(5) 2 4
FHA-Insured Certificates
(1)(2)(4) and (6) through (14) 26 35
Amortized Cost $ 44,640,062 $ 68,440,285
Face Value 46,215,896 71,404,632
Fair Value 45,845,197 70,770,317

Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 16,132,560 $ 16,311,904
Face Value 16,132,560 16,279,536
Fair Value 15,734,485 15,927,124

The footnotes referred to in the table above correspond to the numbers of
the items listed in the three tables that follow.

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

(Dollars in thousands, except per unit amounts)

Date Distribution
Net Proceeds Dist./ Declaration Payment
Complex Name Proceeds Received Gain Unit Date Date
------------ -------- -------- ---- ---- ---- ----

(1) The Meadows of Livonia $6,653 Jan 2001 $253 $0.53 Jan 2001 May 2001
(2) Gold Key Village Apartments 2,827 Mar 2001 9 0.22 Apr 2001 Aug 2001
(3) Carlisle Apartments 2,120 Jun 2001 47 0.17 Jul 2001 Nov 2001
(4) Cedar Ridge Apartments 2,637 Jun 2001 346 0.21 Jul 2001 Nov 2001
(5) Afton Square Apartments 1,061 Jul 2001 29 0.08 Jul 2001 Nov 2001
(6) The Gatehouse Apartments 2,802 Dec 2001 48 0.22 Jan 2002 May 2002

33

The two lists below summarize debentures issued for mortgages assigned to
HUD under the Section 221 program. Interest is payable on the debentures
semi-annually on January 1 and July 1.

The following list represents debentures redeemed, subsequent to December
31, 2001, in January 2002. These debentures were issued to Firstar Trust
Company, the initial mortgagee and subsequently transferred to Midland Loan
Services, Inc. ("Midland"), the servicer, in 2001. The net proceed amounts,
which were received in January 2002, listed below are included in receivables
and other assets in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)

Debenture Date of Dist.
Interest Net Application Response Gain Dist./ Declaration Payment
Complex Name Rate Proceeds Date from HUD 2001 Unit Date Date
------------ ---- -------- ---- -------- ---- ---- ---- ----

(7)Summit Square Manor 7.125% $ 1,883 Jun 2000 May 2001 $ 235 $ 0.150 Feb 2002 May 2002
(8)Park Place 7.125% 746 Jun 2000 May 2001 94 0.060 Feb 2002 May 2002
(9)Park Hill Apartments 7.500% 1,721 Sep 2000 Nov 2001 208 0.140 Feb 2002 May 2002
(10)Fairfax House 7.500% 2,109 Sep 2000 Nov 2001 268 0.170 Feb 2002 May 2002
(11)Woodland Villas 7.125% 300 Apr 2001 Nov 2001 56 0.025 Feb 2002 May 2002
------- -------
Total included in receivables and
other assets as of December 31,
2001 $ 6,759 $ 0.545
======= =======

In addition, the Partnership received interest on debentures in 2002: (1) a
distribution of approximately $0.02 per unit of interest related to HUD
debentures issued in exchange for the mortgages on Park Hill Apartments, Fairfax
House and Woodland Villas was declared in January 2002, and (2) a distribution
of $0.02 per unit of interest related to HUD debentures issued in exchange for
the mortgages on Summit Square Manor, Park Place, Park Hill Apartments, Fairfax
House and Woodland Villas was declared in February 2002. These distributions are
expected to be paid in May 2002.

The following list represents debentures that were issued, subsequent to
December 31, 2001, in January 2002, to Firstar Trust Company, the initial
mortgagee, and transferred to Midland. The Partnership anticipates the
debentures will be redeemed prior to maturity date. The fair value of these
FHA-Insured Certificates are included in investment in FHA-Insured Certificates
in the Partnership's balance sheet as of December 31, 2001.

(Dollars in thousands, except per unit amounts)

Debenture Date of Approximate Debenture
Interest Net Application Response Gain Maturity
Complex Name Rate Proceeds Date from HUD 2002 Date
------------ ---- -------- ---- -------- ---- ----

(12) Country Club Terrace
Apts. 7.500% $ 1,425 Sep 2000 Jan 2002 $ 178 Sep 2010
(13) Nevada Hills Apartments 7.500% 1,133 Dec 2000 Jan 2002 154 Dec 2010
(14) Dunhaven Apartments 7.125% 872 Jan 2001 Jan 2002 165 Feb 2011

As of March 1, 2002, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are current with respect to the payment
of principal and interest. The Partnership no longer receives monthly principal
and interest from mortgages that are in the HUD assignment process under the
Section 221 program. The servicer of the mortgage on Fairlawn II filed an
application for insurance benefits under section 221 in September 2000. The face
value of this mortgage was approximately $755,000 as of the insurance
application date. The Partnership has not received approval for the assignment
of this mortgage as of March 1, 2002.

34

Under the Section 221 program, a mortgagee has the right to assign a
mortgage ("put") to FHA at the expiration of 20 years from the date of final
endorsement if the mortgage is not in default at such time. Any mortgagee
electing to assign an FHA-insured mortgage to FHA will receive, in exchange
therefor, HUD debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the date
of assignment. These HUD debentures will mature 10 years from the date of
assignment and will bear interest at a rate announced semi-annually by HUD in
the Federal Register ("going Federal rate") at such date. This assignment
procedure is applicable to an insured mortgage, which had a firm or conditional
FHA commitment for insurance on or before November 30, 1983. Once the servicer
of a mortgage has filed an application for insurance benefits under Section 221,
the Partnership will no longer receive the monthly principal and interest on the
applicable mortgage. The Partnership expects to receive HUD debentures, as
discussed above, plus accrued interest at the "going Federal rate", from date of
assignment of the mortgage to the date of issuance of the debenture. The
Partnership will recognize a gain on these assignments upon receipt of HUD
debentures or a loss when it becomes probable that a loss will be incurred. In
general, the Partnership plans to sell the debentures if not called prior to the
Partnerships termination date. At that time debenture proceeds will be
distributed to Unitholders.

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, 2001, 2000 and 1999, the Partnership
received $0, $0, and $0, 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.

35

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,
2001 2000
---- ----
Fully Insured Acquired Loans:
Number of Loans (1) 7 8
Amortized Cost $ 8,914,573 $10,041,697
Face Value 10,632,937 12,040,599
Fair Value 10,451,178 12,023,455

Fully Insured Originated Loans:
Number of Loans (2) 3 3
Amortized Cost $12,430,002 $12,570,037
Face Value 12,132,653 12,261,397
Fair Value 12,122,221 12,192,633

(1) In September 2001, the mortgage on Berryhill Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $190,000 for the year ended December 31,
2001. A distribution of approximately $0.10 per Unit related to the
prepayment of this mortgage was declared in September and paid to
Unitholders in November 2001.
(2) In January 2002, the mortgage on Longleaf Lodge was prepaid. The
Partnership received net proceeds of approximately $3.7 million and expects
to recognize a gain of approximately $672,000 in 2002. A distribution of
approximately $0.29 per Unit related to the prepayment of this mortgage was
declared in January 2002 and is expected to be paid in May 2002.

As of March 1, 2002, all of the fully insured FHA-Insured Loans were
current with respect to the payment of principal and interest, except for the
mortgage on Westbrook Apartments, which is delinquent with respect to the
February 2002 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, 2001, 2000 and 1999, the Partnership
received $53,424, $21,566, and $45,164, respectively, from the Participations.
These amounts, if any, are included in mortgage investment income on the
accompanying statements of income and comprehensive income.

36

7. INVESTMENT IN FHA DEBENTURE

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

8. TRANSACTIONS WITH RELATED PARTIES

The principal officers of the General Partner for the years ended December
31, 2001, 2000 and 1999 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, 2001, 2000 and 1999, 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 2001 2000 1999
- ----------------- ----------------------------- ---- ---- ----

CRIIMI, Inc.(1) General Partner/Distribution $ 936,319 $ 789,254 $1,514,779

AIM Acquisition Partners,
L.P.(2) Advisor/Asset Management Fee 959,934 1,142,121 1,382,904

CRIIMI MAE Management, Inc. Affiliate of General
Partner/Expense 44,951 42,074 43,624

(1) The General Partner 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 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
Advisor's asset management fee. Of the amounts paid to the Advisor, CMSLP
earned a fee equal to $282,943, $336,565, and $407,699 for the years ended
December 31, 2001, 2000, and 1999, respectively. The general partner and
limited partner of CMSLP are wholly-owned subsidiaries of CRIIMI MAE.

37

9. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 2001, 2000 and 1999 are as follows:

2001 2000 1999
---- ---- ----

Quarter ended March 31, $ 0.68(1) $ 0.47(7)(8) $ 0.40(13)(14)
Quarter ended June 30, 0.37(2) 0.46(9)(10)(11) 0.65(15)(16)
Quarter ended September 30, 0.71(3)(4)(5)(6) 0.18 0.22
Quarter ended December 31, 0.15 0.50(12) 1.82(17)(18)(19)
-------- ------- --------
$ 1.91 $ 1.61 $ 3.09
======== ======= ========

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

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

(1) The Meadows of Livonia Jan 2001 Prepayment $0.53
(2) Gold Key Village Apartments Mar 2001 Prepayment 0.22
(3) Cedar Ridge Apartments Jun 2001 Prepayment 0.21
(4) Carlisle Apartments Jun 2001 Prepayment 0.17
(5) Afton Square Apartments Jul 2001 Prepayment 0.08
(6) Berryhill Apartments Sep 2001 Prepayment 0.10
(7) Northwood Apartments Dec 1999 Prepayment 0.13
(8) Turtle Creek Apartments Jan 2000 Prepayment 0.13
(9) Woodland Hills Apartments Apr 2000 Prepayment 0.06
(10) New Castle Apartments May 2000 Prepayment 0.16
(11) Colony West Apartments May 2000 Prepayment 0.05
(12) Independence Park Oct 2000 Prepayment 0.32
(13) Gamel & Gamel Apartments Dec 1998 Prepayment 0.06
(14) Debenture from Portervillage I Apartments * Jan 1999 Assignment 0.10
(15) Nassau Apartments, Walnut Apartments and
Kings Villa/Discovery Commons Apr 1999 Prepayment 0.37
(16) Quail Creek Apartments May 1999 Prepayment 0.04
(17) Huntington Apartments Sep 1999 Prepayment 0.24
(18) Bowling Brook, Section 1 Oct 1999 Prepayment 0.94
(19) Lincoln Green, Ridgecrest Timbers, Holden Court
Apartments, and Lakeside Apartments Nov 1999 Prepayment 0.42

* 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 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.

38

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, 2001, 2000 and 1999.

(In Thousands, Except Per Unit Data)

2001
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 2,295 $ 2,216 $ 2,044 $ 1,971
Net gains from
mortgage dispositions 262 723 219 581
Net earnings 2,196 2,599 1,940 2,234
Net earnings per Limited
Partnership Unit - Basic 0.17 0.21 0.15 0.18

2000
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 2,676 $ 2,553 $ 2,330 $ 2,420
Net gains from
mortgage dispositions 44 235 -- 149
Net earnings 2,320 2,396 1,948 2,202
Net earnings per Limited
Partnership Unit - Basic 0.18 0.19 0.15 0.19

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

39
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

December 31, 2001

Interest Annual Payment
Rate on Face Net (Principal and
Maturity Put Mortgage Value of Carrying Value Interest)
Development Name/Location Date Date (1) (7)(11) Mortgage (5) (5)(11)(14) (11)(12)
- ------------------------- ---- -------- -------- ------------ -------------- --------------

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

The Executive House, Dayton, OH 8/21 12/01 7.5% $ 808,247 $ 794,570 $ 78,855(6)
Fairlawn II, Waterbury, CT (2) 6/20 5/00 7.5% 731,333 725,538 73,364(6)
Willow Dayton, Chicago, IL 8/19 N/A 7.5% 970,244 954,218 99,489(6)
Country Club Terrace Apts., Holidaysburg, PA 8/19 6/00 7.5% 1,390,067 1,393,237 142,537(6)
Nevada Hills Apts., Reno, NV 2/21 8/00 7.5% 1,118,050 1,120,244 110,345(6)
Dunhaven Apts., Section I, Baltimore County, MD 1/20 12/99 7.5% 862,253 864,138 87,429(8)
Steeplechase Apts., Aiken, SC 9/18 N/A 7.5% 481,226 473,406 50,921(8)
Walnut Hills Apts., Plainfield, IN 9/19 N/A 7.5% 466,177 458,468 47,692(8)
Ashley Oaks Apts., Carrollton, GA 3/22 4/02 7.5% 542,861 533,620 52,292(9)
Highland Oaks Apts., Phase III, Wichita Falls, TX 2/21 4/02 7.5% 909,283 893,980 89,741(9)
Magnolia Place Apts., Franklin, TN 5/20 4/02 7.5% 306,425 301,314 30,804(9)
Rainbow Terrace Apts., Milwaukee, WI 7/22 4/02 7.5% 309,233 303,953 29,581(9)
Rock Glen Apts., Baltimore, MD 1/22 4/02 7.5% 1,027,968 1,010,499 99,375(9)
Stonebridge Apts., Phase I, Montgomery, AL 4/20 4/02 7.5% 983,961 967,565 99,125(9)
Village Knoll Apts., Harrisburg, PA 4/20 4/02 7.5% 1,021,586 1,004,563 102,914(9)
Executive Tower, Toledo, OH 3/27 N/A 8.75% 2,792,870 2,788,849 275,283
Sangnok Villa, Los Angeles, CA 1/30 N/A 10.25% 890,415 895,190 96,825
Eaglewood Villa Apts., Springfield, OH 2/27 N/A 8.875% 2,658,011 2,654,134 264,707
Stafford Towers, Baltimore, MD 8/16 N/A 9.50% 332,087 336,044 42,613
Garden Court Apts., Lexington, KY 8/27 N/A 8.60% 1,143,141 1,141,464 110,583
Northwood Place, Meridian, MS 6/34 N/A 8.75% 4,436,462 4,428,041 412,635
Cheswick Apts., Indianapolis, IN 9/27 N/A 8.75% 3,019,197 3,014,698 295,736
Bradley Road Nursing, Bay Village, OH 5/34 N/A 8.875% 2,482,378 2,477,643 233,708
Franklin Plaza, Cleveland, OH 5/23 N/A 8.175% 5,080,054 4,983,771 503,183
Heritage Heights Apts., Harrison, AZ 4/32 N/A 9.50% 410,031 413,973 41,313
Pleasant View Nursing Home, Union, NJ 6/29 N/A 7.75% 7,302,391 7,160,019 643,311
------------ ------------

Total FHA-Insured Certificates -
Acquired Insured Mortgages, carried at fair value $ 42,475,951 $ 42,093,139
------------ ------------

40

Interest Annual Payment
Rate on Face Net (Principal and
Maturity Put Mortgage Value of Carrying Value Interest)
Development Name/Location Date Date (1) (7)(11) Mortgage (5) (5)(11)(14) (11)(12)
- ------------------------- ---- -------- -------- ------------ -------------- --------------

GNMA Mortgage-Backed Securities (carried at fair value)
- -------------------------------------------------------

Pine Tree Lodge, Pasadena, TX 12/33 N/A 9.50% $ 1,995,736 $ 2,055,323 $ 194,399
Stone Hedge Village Apts., Farmington, NY 11/27 N/A 7.00% 1,744,209 1,696,735 143,481
------------ ------------

Total GNMA Mortgage-Backed Securities -
Acquired Insured Mortgages, carried at fair value $ 3,739,945 $ 3,752,058
------------ ------------

Total investment in Acquired Insured Mortgages, carried at fair value $ 46,215,896 $ 45,845,197
------------ ------------

ORIGINATED INSURED MORTGAGES
GNMA Mortgage-Backed Security (carried at fair value)
- ----------------------------------------------------

Oak Forest Apts. II, Ocoee, FL 12/31 11/09(3) 8.25% $ 10,316,699 $ 10,032,150 840,860

FHA-Insured Certificate (carried at fair value)
- -----------------------------------------------

Waterford Green Apts., South St. Paul, MN (11) 11/30 12/04(3) 7.25% 5,815,861 5,702,335 481,564
------------ ------------

Total investment in Originated Insured Mortgages, carried at fair value $ 16,132,560 $ 15,734,485
------------ ------------

Total investment in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities, carried at fair value $ 62,348,456 $ 61,579,682
------------ ------------

41

Interest Annual Payment
Rate on Face Net (Principal and
Maturity Put Mortgage Value of Carrying Value Interest)
Development Name/Location Date Date (1) (7)(11) Mortgage (5) (5)(11)(14) (11)(12)
- ------------------------- ---- -------- -------- ------------ -------------- --------------

ACQUIRED INSURED MORTGAGES
FHA-Insured Loans (carried at amortized cost) (4)
- -------------------------------------------------

Bay Pointe Apts., Lafayette, IN 2/23 10/02 7.5% $ 1,930,145 $ 1,626,867 $ 185,272(10)
Baypoint Shoreline Apts., Duluth, MN 1/22 10/01 7.5% 909,960 763,287 87,967(10)
Brougham Estates II, Kansas City, KS 11/22 3/02 7.5% 2,429,784 2,031,069 230,860(10)
College Green Apts., Wilmington, NC 3/23 12/02 7.5% 1,307,892 1,092,182 123,455(10)
Kaynorth Apts., Lansing, MI 4/23 9/02 7.5% 1,775,422 1,481,993 167,318(10)
Town Park Apts., Rockingham, NC 10/22 10/02 7.5% 595,874 498,707 56,755(10)
Westbrook Apts., Kokomo, IN 11/22 9/02 7.5% 1,683,860 1,420,468 163,177(10)
------------ ------------

Total investment in Acquired Insured Mortgages,
FHA-Insured Loans, carried at amortized cost $ 10,632,937 $ 8,914,573
------------ ------------

ORIGINATED INSURED MORTGAGES
FHA-Insured Loans (carried at amortized cost) (4)
- -------------------------------------------------

Cobblestone Apts., Fayetteville, NC (11) 3/28 12/02(3) 8.50% $ 4,850,163 $ 4,981,180 462,703
Longleaf Lodge, Hoover, AL (11) 7/26 -- 8.25% 2,972,222 3,006,873 282,958
The Plantation, Greenville, NC (11) 4/28 4/03(3) 8.25% 4,310,268 4,441,949 402,046
------------ ------------

Total investment in Originated Insured Mortgages,
FHA-Insured Loans, carried at amortized cost $ 12,132,653 $ 12,430,002
------------ ------------

Total investment in FHA-Insured Loans $ 22,765,590 $ 21,344,575
------------ ------------

TOTAL INVESTMENT IN INSURED MORTGAGES $ 85,114,046 $ 82,924,257
============ ============

43
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 2001

(1) Under the Section 221 program of the National Housing Act of 1937, as
amended (the "Section 221 program"), a mortgagee has the right to assign 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 an 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.
Certain of the Partnership's Insured Mortgages may have the right of
assignment under this program. The Partnership has initiated its request to
put these mortgages to FHA as they become due.

(2) Applications for insurance benefits under the Section 221 program have been
filed for this mortgage. The Partnership is currently awaiting approval
from HUD for this application.

(3) Certain mortgages that do not qualify under the Section 221 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.

(4) Inclusive of closing costs and acquisition fees.

(5) 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.

(6) 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.

(7) 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.

(8) 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.

42

(9) 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.

(10) 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.

(11) 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, 2001, 2000 and 1999, the
Partnership received additional interest of $53,424, $21,566, and $45,164,
respectively, from the Participations.

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

(13) A reconciliation of the carrying value of Insured Mortgages for the years
ended December 31, 2001 and 2000, is as follows:

2001 2000
---- ----

Beginning balance $109,309,175 $118,622,389

Principal receipts on mortgages (955,959) (1,182,259)

Proceeds from disposition of Mortgages (19,316,901) (10,489,808)(a)

Net gains on mortgage dispositions 1,785,376 427,595

Portion of HUD debentures due from Midland in exchange
for the Mortgages on Summit Square Manor, Park Place,
Park Hill Apartments, Fairfax House, and Woodland Villas (6,759,242) -

Increase (decrease) to unrealized gains on
Investments in Insured Mortgages (1,138,192) 1,931,258
------------ ------------

Ending balance $ 82,924,257 $109,309,175
============ ============

(a) This amount represents cash proceeds of $9,346,682 and net non-cash
proceeds of $1,143,126 (as reflected in the Statements of Cash Flows).

(14) As of December 31, 2001 and 2000, the tax basis of the Insured Mortgages
was approximately $80.7 million and $105.4 million, respectively.