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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K 
 (Mark one) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 or [  ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period
from to Commission File Number 33-30312 INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP  North Carolina
    
    56-1669199(State of Organization)
    
    (I.R.S. Employer Identification No.)
 Wachovia Securities, NC0170
301 S. College St.  17th Floor Charlotte, NC
    
    28288-0170(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (704) 532-3320 Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: Units of
Class A limited partnership interest 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] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [  ]  No [X] Upon the sale of the remaining property, the estimated aggregate market value
of the units of Class A limited partnership interest (Units) held by
non-affiliates of the registrant would be approximately $1,872,500 based on a
price of approximately $250 per Unit. On March 18, 2004, there were 7,650 Units outstanding.




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TABLE OF CONTENTS  PART IITEM 1  BUSINESSITEM 2  PROPERTYITEM 3  LEGAL PROCEEDINGSITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5  MARKET FOR REGISTRANTS SECURITIES AND RELATED SECURITY HOLDER MATTERSITEM 6  SELECTED FINANCIAL DATA (AUDITED)ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A  CONTROLS AND PROCEDURESPART IIIITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11  EXECUTIVE COMPENSATIONITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MATTERSITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14   PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESIndex to Financial StatementsIndependent Auditors ReportREPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSBALANCE SHEETSSTATEMENTS OF OPERATIONSSTATEMENTS OF PARTNERS CAPITALSTATEMENTS OF CASH FLOWSNOTES TO FINANCIAL STATEMENTSINDEX TO EXHIBITSEX-10.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  FORWARD-LOOKING STATEMENTS Statements in this Annual Report on Form 10-K include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the Securities Act) and Section 21E of the Securities Exchange Act
of 1934, as amended (the Exchange Act). Forward-looking statements include
statements concerning our plans, objectives, goals, strategies, future events,
future revenues or performance, capital expenditures, financing needs, plans or
intentions relating to acquisitions, our competitive strengths and weaknesses,
our business strategy and the trends we anticipate in the industry and
economies in which we operate and other information that is not historical
information. You can identify a forward-looking statement by our use of the
words anticipate, estimate, expect, intend, plan, may, will,
continue, believe, objective, projection, forecast, goal, and
similar expressions. No assurance can be given that actual results or events
will not differ materially from those projected, estimated, assumed or
anticipated in any such forward-looking statements. 
 PART I 
 ITEM 1 - BUSINESS Interstate Land Investors II Limited Partnership (the Registrant or the
Partnership) is a North Carolina limited partnership organized as of July 26,
1989 to acquire for investment and dispose of three tracts of undeveloped land
located in York County, South Carolina (the Property). The Property
originally consisted of Tract 1 (which was subdivided as discussed below), an
approximately 91.64 acre tract fronting on Interstate 77 and Gold Hill Road;
Tract 2, an adjoining (but non-contiguous) approximately 76.74 acre tract
with frontage entirely on Interstate 77; and Tract 3, an approximately 20
acre tract located on U.S. Highway 21 and contiguous to Tract 2. The General
Partners of the Registrant were Performance Investments, Inc., a North Carolina
corporation (PII), William Garith Allen (Allen) and ISC Realty Corporation,
a North Carolina corporation (ISCR). Allen is the President, a director and a
50% shareholder of PII. ISCR is a North Carolina corporation wholly owned by
Wachovia Corporation. Effective January 1, 1992, ISCR and Allen assumed the
role of co-managing general partner and PII was converted to a Class A limited
partner. In 1997, Allen executed an assignment of his partnership interests and
forfeited his right to subordinated returns by transferring his interest and
PIIs interest to ISCR. The Registrant offered (the Offering) a minimum of 5,406 units of Class
A limited partnership interests and a maximum of 9,588 units (the Maximum
Offering Amount) of Class A limited partnership interests (the Units) at
$1,000 per Unit pursuant to a registration statement (the Registration
Statement) effective September 29, 1989, filed under the Securities Act of
1933, as amended. As of November 3, 1989, the Registrant had received
aggregate subscriptions for 5,406 Units. Accordingly, on November 3, 1989,
subscriptions for 5,406 Units were accepted and the initial closing occurred
under the Offering, and 527 investors were admitted to the Partnership as
limited partners. Of the $5,402,640 in gross proceeds received in connection
with the initial closing (which amount equals subscription payments for 5,406
Units at $1,000 each less discounts on the purchase of certain Units as
described in the Registration Statement), $668,458 had been applied to sales
commissions and to organization and offering 1




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expenses. The balance of the gross proceeds, $4,734,182, was used to purchase
Tracts 2 and 3 and to provide working capital. Tract 2 was acquired by the Registrant pursuant to an Option Agreement
that was originally obtained by Performance Service and Finance, Inc. (PSF)
from unaffiliated individuals. This Option Agreement was subsequently assigned
by PSF to PII and then assigned by PII to the Registrant. Tract 2 was acquired
from unrelated individuals for a purchase price of $2,855,223. In addition, the
Partnership reimbursed PII $116,000 for its carrying costs associated with the
Option Agreement and paid PII $181,363 in additional consideration as an
assignment fee. The total amount paid by the Registrant for Tract 2 was
$3,152,586, not including certain miscellaneous closing costs. The Registrant acquired Tract 3 pursuant to an Option Agreement that was
originally obtained by Gold Hill Investment Associates (Gold Hill). The
Option Agreement was subsequently assigned by Gold Hill to the Registrant. The
Registrant acquired Tract 3 from an unaffiliated unrelated entity for a
purchase price of $1,400,000. In addition, the Registrant
reimbursed Gold Hill $10,750 for its carrying costs associated with the Option
Agreement and an additional $14,094 in consideration as an assignment fee. The
total amount paid by the Registrant for Tract 3 was $1,424,844, not including
certain miscellaneous closing costs. Gold Hill is a North Carolina partnership of which Gold Hill Limited
Partnership, an affiliate of Allen, is a partner. Tract 1 was purchased by Gold
Hill from an unrelated entity in December 1986 for a purchase price of
$1,800,000. Gold Hill Limited Partnership had an option, until June 30, 1990,
to acquire the partnership interests of the remaining unrelated entities in
Gold Hill, and thus become the sole owner of Tract 1. The Registrant had
secured an option (see discussion below) to purchase Tract 1 from Gold Hill at
a purchase price of $3,622,500. During July 1990, the Registrant requested and received approval from the
limited partners to extend the Offering from July 31, 1990 until December 31,
1990. During July and August 1990, the Registrant requested and received
limited partner approval to subdivide Tract 1 into four separate parcels and to
allow the Registrant to acquire a portion of the property in the event proceeds
from investor subscriptions were not sufficient to acquire all of Tract 1. In
addition, the seller of Tract 1 had agreed to extend the option to purchase
Tract 1 from September 30, 1990 until December 31, 1990 (the Option). Under the terms of the Option, in the event the Registrant was unable to
sell the Maximum Offering Amount by December 31, 1990, but the Registrant had
sold a minimum of 7,620 Units (the Secondary Offering Amount), then the
Registrant could purchase Tracts 1A and 1D (Tracts 1A and 1D are required to be
purchased simultaneously). Additionally, if the Registrant had achieved the
Secondary Offering Amount, purchased Tracts 1A and 1D pursuant to the terms of
the Option and had sold a minimum of 8,721 Units (the Tertiary Offering
Amount) prior to December 31, 1990, then the Registrant could purchase Tract
1B. Finally, if the Registrant achieved the Tertiary Offering Amount, and
purchased Tracts 1A, 1B and 1D as herein above provided, and had sold a minimum
of 9,588 Units prior to December 31, 1990, then the Registrant could purchase
Tract 1C. 2




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The Registrant filed a post-effective amendment in August, 1990 to the
original prospectus contained in the Registration Statement, outlining to the
SEC these modifications to the Offering and the amendment to the Registrants
partnership agreement (the Partnership Agreement). On November 14, 1990, the Partnership received formal approval from the
SEC on the post-effective amendment filed in August, 1990. Therefore, ISCR took
additional subscriptions and was able to close on Tracts 1A and 1D on November
30, 1990. The total cost of the November 30, 1990 acquisition of Tracts 1A and
1D was $1,908,605 which included a purchase price of $1,906,517, plus closing
costs of $2,088. At that time, the Partnership determined that no further Units
would be offered, sold and issued pursuant to the prospectus. The Partnership
filed post-effective amendment No. 4 to the Registration Statement for the
purpose of deregistering 1,938 unsold Units. The Registrants principal investment objectives are to: (1) preserve and
protect capital invested in the Registrant, (2) provide a relatively low-risk
real estate investment through debt-free ownership of the Property, (3) provide
long-term appreciation in the value of the Property,
and (4) provide protection for investors against inflation. The disposition of the Property by the Registrant may result in a
substantial sales commission to the general partner (General Partner) or
their affiliates. The General Partner or their affiliates may receive a sales
commission up to 3% of the sales price of the Property. In the event an
outside sales broker is engaged by the Partnership, the total amount paid to
the General Partner or their affiliates and such outside broker shall not
exceed 6% of the sales price. However, the payment of this 3% will be
subordinate to the investors receiving a return of their invested capital plus
the preferred return. The disposition of the Property will not result in the
payment of a cumulative management fee, as this has been waived by the General
Partner. Reference is made to Item 13 herein for a description of certain
transactions between the Registrant and the General Partner and its affiliates. No mortgage indebtedness was incurred in connection with the acquisition
of the Property. It is not contemplated that the Registrant will undertake
construction or substantial improvements on the Property. Upon the sale of all or a portion purchased (i.e., Tracts 2, 3, 1A, and
1D) of the Property by the Registrant, the proceeds of the sale will be
distributed to the investors. The investors had a one-time right to direct the
Registrant to dispose of the Property upon the fifth anniversary of the Closing
of the Offering (November 1994) for a price not less than $11,104,839, reduced
by the net proceeds to the Registrant from the sale of other parcels within the
Property by the Registrant. If the Registrant was unable to sell the Property
by such date at such price, Allen was obligated to either (i) purchase the
Property at such price or (ii) forfeit his entire subordinated Limited Partner
interest and transfer the remaining General Partner interest to the Limited
Partners. In 1997, Mr. Allen executed an assignment transferring his
partnership interest to ISCR. (See Note 1 of the audited financial statements.) 3




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The Registrant is seeking to secure purchasers for its Property and will
be competing with many other real estate investment partnerships as well as
individuals, insurance companies, banks and other entities engaged in real
estate investment activities including, perhaps, certain affiliates of the
General Partner. The General Partner currently serves as general partner in several public
and private partnerships, which currently own various types of real property.
None of the prior partnerships sponsored by the General Partner or its
affiliates now contemplate the acquisition of any additional properties of the
type purchased by the Registrant. However, the General Partner or its
affiliates may sponsor additional public or private partnerships in the future.
In addition, the General Partner and its affiliates are and will continue to be
engaged in the business of real estate investment, development and management
apart from their involvement in the Registrant. Located immediately adjacent to the Property is an approximately 96.74
acre tract which was owned by Interstate Land Investors I Limited Partnership
(Interstate I), a North Carolina limited partnership having the same general
partner as the Registrant. Interstate I acquired the adjacent property on
September 30, 1988, for a purchase price of $4,200,000. Interstate I sold the
adjacent property in May 2001 to Greenfield Development Company, LLC
(Greenfield) and Interstate I was liquidated in 2001. The General Partner will devote only so much of its time to the business
of the Registrant as in their judgment and experience is reasonably required.
The General Partner is engaged in other activities that also require its time
and attention. As of December 31, 2003, the Registrant did not directly employ any
persons in a full-time position. Certain employees of Wachovia Corporation, the
parent of the General Partner, performed services for the Registrant during the
year. 
 ITEM 2 - PROPERTY The Property is located approximately 12 miles south of the Central
Business District of Charlotte, North Carolina along the I-77 corridor and
approximately 8 miles north of Rock Hill, South Carolina. While the Property
is located in northeastern York County, South Carolina, the Property is
considered a part of the Charlotte Metropolitan Service Area (MSA). The
Property originally consisted of three separate tracts, all of which are zoned
for agricultural use, more particularly described as follows: Tract 1 (which was subdivided  See Item 1) is an approximately 91.64 acre
tract located in the northeast quadrant of I-77 and Gold Hill Road in York
County, South Carolina (the County). 16.1 acres of Tract 1 lie in a
floodplain and the remaining 76.03 acres are usable and free of rights-of-way.
Tract 1 has approximately 2,200 feet of frontage along Gold Hill Road and 3,600
feet of frontage along I-77. Electricity and telephones are available to Tract
1. Municipal water and sewer has been brought to the edge of the Property and
would be made available if the Property were developed. Upon the sale of the
Tract, Tract 1 zoning was to revert to BD-2 and BD-3 under the York County
Zoning Ordinance. The BD-2 classification is designed to provide for the
development of office and institutional parks in areas free of general
commercial activity. 4




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The BD-3 classification is designed to provide for retail establishments, such
as department stores and variety stores. Tract 1 was subdivided into four
Tracts. Tract 1A is approximately 17.0 acres; Tract 1B, approximately 24.33
acres; Tract 1C, approximately 19.08 acres; and Tract 1D, approximately 31.23
acres. After the sale of a portion of the Property as described below, Tracts
1A and 1D are currently owned by the Registrant. Tract 2 consists of approximately 76.74 acres. Tract 2 has 2,819 feet of
frontage on I-77 and is located north of Tract 1. Tract 2 is not contiguous to
Tract 1. Access to Tract 2 is through Tract 3 to U.S. Highway 21. Electricity
and telephones are available to Tract 2. Water is currently available to Tract
2 by extension through Tract 3. Water and sewer will be provided by a private
utility company with facilities located west of Tract 2 on the west side of
I-77. In addition, Tract 2 can be serviced by the water and sewer facilities
serving the Charlotte Knights baseball stadium. Upon the sale of the Tract,
Tract 2 zoning was to revert to UDD, urban development district, by the York
County, South Carolina County Council. The purpose of this district is to
permit maximum flexibility in response to market demands in specific areas of
the County. Permitted uses range from residential to business development and
industrial. Tract 3 consists of approximately 20 acres of land fronting approximately
400 feet on U.S. Highway 21 and being contiguous to Tract 2. Additionally, a
portion of Tract 3 is contiguous to the tract that was owned by Interstate I.
Electricity, telephone, water and sewer are
all available to Tract 3. Upon the sale of the Tract, Tract 3 zoning was to
revert to UDD, urban development district, by the York County, South Carolina
County Council. In June 2000, the Partnership entered into a contract with Greenfield to
sell 97 acres of the 145 acres of unimproved Property currently held by the
Registrant for $45,000 per acre, subject to adjustments for wetlands acreage.
The actual proceeds from the sale totaled $4,353,360. The purchaser deposited
$50,000 earnest money with a title agency. Under the terms of the contract, the
purchaser had until November 6, 2000, to complete their due diligence.
However, Greenfield requested two 90-day extensions of the closing date to
provide them time to obtain a wetlands permit from the U.S. Army Corps of
Engineers which permit was necessary to allow the proposed development. An
additional $25,000 earnest money was deposited with the title agency for the
first extension and $50,000 was deposited for the second extension. The first
extension expired on March 6, 2001, and the sale was consummated on May 11,
2001. The
remaining approximately 48 acres of the Property consisting of Tract 1A
and Tract 1D is listed and being marketed for sale at an average price of
$56,959 per acre by Grubb & Ellis/Bissell Patrick, LLC (Bissell Patrick). 
 ITEM 3 - LEGAL PROCEEDINGS The Partnership is not a party to any legal proceedings. 
 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the
fourth quarter of 2003. 5




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PART II 
  ITEM 5 -
    MARKET FOR REGISTRANTS SECURITIES AND RELATED SECURITY HOLDER MATTERS Transfer of the Units is subject to certain restrictions contained in the
Partnership Agreement. There is no established market for the Units and it is
not anticipated that any will occur in the future. The Registrant is not aware
of any significant resale of Units since the initial closing on November 3,
1989. As of March 18, 2004, 776 persons were record owners of 7,650 Units. The Registrant in each year allocates to the investors and the General
Partner any net profit prior to a sale of the Property. Such allocations to the
investors are credited against the preferred return due to them on their
invested capital. Net losses for each year are also allocated to the investors
and the General Partner in accordance with their respective capital accounts.
The Registrant does not intend to make any distributions of available cash
prior to the sale of all or a portion of the Property. Allocations to the
investors are subject to the limitations of the Partnership Agreement. 
 ITEM 6 - SELECTED FINANCIAL DATA (AUDITED) SELECTED STATEMENTS OF OPERATIONS DATA The following selected financial data for the five years ended December
31, 2003, have been derived from audited financial statements. The audited
financial statements for each of the three years ended December 31, 2003, and
the accompanying notes and independent auditors report, are contained
elsewhere in this report. All of the data set forth below are qualified by
this reference to, and should be read in conjunction with, the Partnerships
audited financial statements (including the notes thereto), and Managements
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this report.


Year ended
    
    Year ended
    
    Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Revenue from Sale
of Property
    
    $
    0
    
    
    $
    0
    
    
    $
    4,353,360
    
    
    $
    0
    
    
    $
    0Interest and Other
Income
    
    $
    252
    
    
    $
    1,313
    
    
    $
    17,424
    
    
    $
    3,056
    
    
    $
    2,356Property write-down
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    84,310Cost of Real Estate
Sold
    
    
    0
    
    
    
    0
    
    
    
    4,986,109
    
    
    
    0
    
    
    
    0Expenses
    
    
    42,966
    
    
    
    33,446
    
    
    
    36,985
    
    
    
    57,177
    
    
    
    51,880


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Year ended
    
    Year ended
    
    Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Extraordinary Gain
on Extinguishment
of Liability
    
    
    0
    
    
    
    0
    
    
    
    131,561
    
    
    
    0
    
    
    
    0Net Loss
    
    $
    (42,714
    )
    
    $
    (32,133
    )
    
    $
    (520,749
    )
    
    $
    (54,121
    )
    
    $
    (133,834
    )Distributions to
limited partners
    
    $
    0
    
    
    $
    439
    
    
    $
    3,467,974
    
    
    $
    0
    
    
    $
    0Net Loss Allocated
to Class A limited
partners
    
    $
    (42,709
    )
    
    $
    (32,129
    )
    
    $
    (520,684
    )
    
    $
    (54,115
    )
    
    $
    (133,817
    )Net Loss Per
Class A limited
partnership unit
    
    $
    (5.58
    )
    
    $
    (4.20
    )
    
    $
    (68.06
    )
    
    $
    (7.07
    )
    
    $
    (17.49
    )
 SELECTED BALANCE SHEET DATA December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Total Assets
    
    $
    1,971,761
    
    
    $
    2,008,978
    
    
    $
    2,041,174
    
    
    $
    6,494,010
    
    
    $
    6,492,936Total Liabilities
    
    
    5,873
    
    
    
    376
    
    
    
    0
    
    
    
    464,113
    
    
    
    408,918Partners Capital
    
    $
    1,965,888
    
    
    $
    2,008,602
    
    
    $
    2,041,174
    
    
    $
    6,029,897
    
    
    $
    6,084,018
 
  ITEM 7 -
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates We prepare our financial statements in accordance with GAAP, which
requires us to make estimates and assumptions. We believe that the following
critical accounting policies involve our more significant judgments and
estimates used in the preparation of our financial statements. Impairment of Long-Lived AssetsUnimproved land held for appreciation is
recorded at cost unless considered impaired. If events or circumstances
indicate that the carrying amount of a property may be impaired, we make an
assessment of its recoverability by estimating the undiscounted future cash
flows of the property. If the carrying amount exceeds the aggregate
undiscounted future cash flows, we recognize an impairment loss to the extent
the carrying amount exceeds the estimated fair value of the property. 7




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Unimproved land is subject to varying degrees of risk. Several factors may
adversely affect the economic performance and value of our unimproved land.
These factors include:  
    
    the general economic climate;  
    
    competition from other unimproved land;  
    
    changes in governmental regulations and the related cost of
compliance; and  
    
    the relative illiquidity of such investments. Any adverse changes in these factors could cause an impairment in our
long-lived assets. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements at this time. Contractual Obligations At this time, we do not have any material contractual obligations of the
nature required to be disclosed pursuant to Item 303(a)(5) of Regulation S-K. Liquidity and Capital Resources The Partnership sold one-third acre of the Property for $15,000 on May 10,
2001. On May 11, 2001, the Partnership sold 97 acres of the Property for
$4,353,360. On June 29, 2001, a distribution of $3,467,974 ($453 per unit) was
made to the limited partners. In 2001, there was a significant year-end
adjustment related to the cost basis of the properties sold. The original
second quarter 2001 filing utilized an average cost basis on the properties
sold. However, a year-end adjustment totaling approximately $209,000 increased
the cost basis of the property sold as the Partnership utilized the specific
identification method on the properties sold which was more reflective of the
proper cost. As of December 31, 2003, the Registrant had $60,261 in cash and cash
equivalents on hand which will be retained to pay ongoing partnership expenses.
Until the Registrant disposes of the remaining approximately 48 acres of the
Property, its only sources of additional capital are from General Partner
advances or other borrowings. The General Partner anticipates that any future
additional funds necessary for the operations of the Partnership will be
provided by ISCR; however, there is no line of credit agreement in place with
ISCR at this time. On May 23, 1995, the General Partner, ISCR, entered into a line of credit
agreement in the amount of $150,000 with the Partnership to provide additional
funds as needed. In July of 1998, the line of credit amount was increased to
$175,000 and in August of 1999, the amount was increased to $250,000. In
accordance with the terms of the Partnership Agreement, ISCR is entitled to
accrue interest on any loans provided to the Partnership at the rate of prime
plus two 8




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percent. In May 2001, a portion of the proceeds from the sale of 97 acres of
the Property was used to pay in full the outstanding debt and accrued interest
under the line of credit agreement with ISCR. The line of credit was
terminated in May 2001. Results of Operations Comparison of the year ended December 31, 2003 to the year ended December 31,
2002 The Registrants net loss increased from $32,133 for the year ended
December 31, 2002, to $42,714 for the year ended December 31, 2003. The loss in
2003 is the result of regular and ongoing partnership expenses that were higher
for 2003 when compared to the loss incurred in 2002. Professional and legal fees increased from $28,034 in 2002 to $39,514 in
2003 reflecting extra charges incurred by auditors and tax preparers for new
electronic filing requirements mandated by the Internal Revenue Service
(IRS). General and administrative expenses decreased from $5,392 in 2002 to
$3,246 in 2003. The difference is due primarily to an approximate $3,800
one-time fee paid in 2002 for a real estate brokers opinion of value and
database management fees incurred also for the new IRS electronic filing
requirements. Comparison of the year ended December 31, 2002 to the year ended December 31,
2001 The Registrants net loss decreased from $520,749 for the year ended
December 31, 2001, to $32,133 for the year ended December 31, 2002. With the
exception of an approximately $3,800 fee for a real estate brokers opinion of
value, the loss in 2002 is the result of regular and ongoing partnership
expenses, compared to the loss incurred from the sale of a portion of the
property in 2001. An extraordinary gain in the amount of $131,561 on
extinguishment of debt was recorded by the Partnership in 2001. Professional and legal fees increased from $26,707 in 2001 to $28,034 in
2002 reflecting extra charges incurred by auditors and tax preparers for new
electronic filing requirements mandated by the IRS. Interest expense was zero
in 2002 compared to $8,306 in 2001 because the note to ISCR was paid in full
from the proceeds of the sale in May 2001. General and administrative expenses
increased from $1,873 in 2001 to $5,392 in 2002 due to additional database
management fees incurred also for the new IRS electronic filing requirements. Selected Quarterly Financial Data The table below shows excerpted results from our quarterly Reports on Form
10-Q filed in the years ended December 31, 2003 and 2002: 2003 (unaudited)
    
    2002 (unaudited)1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    Total
    
    1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    TotalTotal Revenues
    
    $
    120
    
    
    
    53
    
    
    
    13
    
    
    
    66
    
    
    
    252
    
    
    
    367
    
    
    
    284
    
    
    
    286
    
    
    
    376
    
    
    
    1,313Total Expenses
    
    $
    14,399
    
    
    
    10,637
    
    
    
    12,346
    
    
    
    5,584
    
    
    
    42,966
    
    
    
    10,882
    
    
    
    6,882
    
    
    
    10,273
    
    
    
    5,409
    
    
    
    33,446
 9




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##### Table of Contents



2003 (unaudited)
    
    2002 (unaudited)1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    Total
    
    1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    TotalNet Income (Loss)
    
    ($
    14,279
    )
    
    
    (10,584
    )
    
    
    (12,334
    )
    
    
    (5,517
    )
    
    
    (42,714
    )
    
    
    (10,515
    )
    
    
    (6,598
    )
    
    
    (9,987
    )
    
    
    (5,033
    )
    
    
    (32,133
    )Net
Income (Loss) Allocated to:General Partners
    
    ($
    143
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    140
    
    
    
    (5
    )
    
    
    (105
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    103
    
    
    
    (4
    )Class A Limited
Partners
    
    ($
    14,136
    )
    
    
    (10,583
    )
    
    
    (12,332
    )
    
    
    (5,658
    )
    
    
    (42,709
    )
    
    
    (10,410
    )
    
    
    (6,597
    )
    
    
    (9,986
    )
    
    
    (5,136
    )
    
    
    (32,129
    )Net Income (Loss)
Per Class A Limited
Partnership Unit
    
    ($
    1.85
    )
    
    
    (1.38
    )
    
    
    (1.61
    )
    
    
    (0.74
    )
    
    
    (5.58
    )
    
    
    (1.36
    )
    
    
    (0.86
    )
    
    
    (1.31
    )
    
    
    (0.67
    )
    
    
    (4.20
    )
 
 ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership does not hold any financial instruments with market risk
exposure. 
 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Financial Statements Index beginning on Page F-1
below to this Annual Report on Form 10-K. 
  ITEM 9 -
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements concerning either the December 31, 2003,
financial statements or the December 31, 2002, financial statements. On November 7, 2003, Faulkner & Thompson, P.A. resigned as the
Registrants independent auditors (See Item 15). On March 11, 2004, KPMG LLP
was engaged as Registrants new independent auditors. Forms 8-K were filed on
both of the above-referenced dates reporting these changes. 
 ITEM 9A - CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. The General Partner (our
principal executive officer and principal financial officer), acting through
its Senior Vice President, has concluded, based on its evaluation as of
December 31, 2003 , that the Partnerships disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and include controls and
procedures designed to ensure that information 10




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##### Table of Contents



required to be disclosed by us in such reports is accumulated and communicated
to the Partnerships management, including the General Partners Senior Vice
President, as appropriate to allow timely decisions regarding required
disclosure. Changes in internal controls.There were no changes in the Partnerships
internal controls over financial reporting or in other factors in the fourth
quarter of 2003 that have materially affected, or are reasonably likely to
materially affect, these controls. 
 PART III 
 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT General Partner.The Registrant has no directors or executive officers.
PII, the former managing general partner, filed for relief from creditors under
Chapter 11 of the Bankruptcy Code during 1991. Effective January 1, 1992, the
general partner interest of PII was converted to that of a Class A limited
partner retaining the same interest in the Partnerships net profit, losses and
distributions as it had as a general partner subject to the same priority of
the other Class A limited partners. In 1997, Allen executed an assignment of
his partnership interests and forfeited his right to subordinated returns by
transferring his interest and PIIs interest to ISCR. Because the Registrant
has no directors or executive officers and because, to the Registrants
knowledge no person owns more than 10% of the Units, there is no disclosure
pursuant to Item 405 of Regulation S-K contained in this report. Because we are a limited partnership, ISCR, as our General Partner,
functions as our board of directors. Because we do not have a board of
directors, we do not have an audit committee or a financial expert, as
defined in Item 401(h) of the SECs Regulation S-K. ISCR serves as the General
Partner, Principal Executive Officer, Principal Financial Officer and Principal
Accounting Officer of the Partnership. Jeffrey K. Harpel, age 51, is Senior Vice President of ISCR and Senior
Vice President of Wachovia Securities, LLC (Wachovia Securities), an
affiliate of ISCR. Wachovia Securities is a broker-dealer which is 62%
indirectly owned by Wachovia Corporation, ISCRs parent company and a large
financial holding company and bank holding company based in Charlotte, North
Carolina. Before joining Wachovia Securities in 1998, Mr. Harpel was
Controller & Managing Director at Wheat First Securities, Inc. He received his
B.S. degree from Pennsylvania State University. Code of Conduct & Ethics.We have adopted the Code of Conduct & Ethics
adopted by Wachovia Corporation, the parent company of ISCR. The Code of
Conduct & Ethics includes guidelines relating to the ethical handling of actual
or potential conflicts of interest, compliance with laws, accurate financial
reporting, and procedures for promoting compliance with, and reporting
violations of, the code. A copy of the Code of Conduct & Ethics is available
on Wachovia Corporations website (www.wachovia.com) under the tab Inside
Wachovia-Investor Relations and then under the heading Corporate Governance -
Code of Conduct & Ethics. Wachovia intends to post any amendments to or
waivers of the Code of Conduct & Ethics (to the 11




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##### Table of Contents



extent applicable to Wachovias Chief Executive Officer, Chief Financial
Officer or Principal Accounting Officer) at this location on its website. In
addition, a copy may be obtained, without charge, by writing to Jeffrey K.
Harpel, Senior Vice President, ISC Realty Corporation, 901 E. Byrd Street,
Richmond, Virginia 23019. 
 ITEM 11 - EXECUTIVE COMPENSATION No remuneration from the Partnership was paid or accrued for the account
of any partner, officer or director of the General Partner during the
Partnerships fiscal year ended December 31, 2003. 
  ITEM 12 -
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MATTERS As of March 18, 2004, Begley-Hall, P.O. Box 1027, Mount Airy, NC 27030, an
investment partnership, beneficially owned 6.87% of the limited partnership
interests or 525.6 Units. As of March 18, 2004, none of the individual directors and officers of the
General Partner beneficially owned any Units. ISCR has sole investment and
voting power with respect to the securities indicated in the table below. The
address of ISCR is 901 E. Byrd St., Richmond, VA 23019. Amount andNature ofBeneficial
    
    Percent ofPartner Type
    
    Name & Address
    
    Ownership
    
    ClassSubordinated limited partner
    
    ISC Realty Corporation
    
    0 Units
    
    
    100
    %General Partner
    
    ISC Realty Corporation
    
    0 Units
    
    
    100
    %Class A limited partner
    
    ISC Realty Corporation
    
    160.65 Units
    
    
    2.1
    %
 The Partnership does not have any equity compensation plans. 
 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The
remaining approximately 48 acres of the Property is listed for sale with
Bissell Patrick. Should a sale of the property occur from this contractual
listing agreement, the past president of ISCR, J. Christopher Boone, may
receive a sales commission through a separate agreement between Mr. Boone and
Bissell Patrick. As the purchase price of the Property is not known, the
Partnership is unable to determine the amount of the sales commission, if any,
that Mr. Boone may receive. 
 ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES The following table shows the amount of audit, audit-related, tax, and
other service fees paid by the Registrant to its independent auditors, Faulkner
& Thompson, P.A., and KPMG LLP, for calendar years ended December 31, 2002 and
2003, respectively: 12




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##### Table of Contents



2002
    
    2003Audit Fees (1)
    
    $8,600
    
    $14,112Audit-Related Fees (2)
    
    -0-
    
    -0-Tax Fees (3)
    
    -0-
    
    -0-All Other Fees
    
    -0-
    
    -0-
 (1) Audit Fees:This category consists of fees for the audit of our annual
financial statements, review of the financial statements included in our
quarterly reports on Form 10-Q, and services that are normally provided by the
independent auditors in connection with statutory and regulatory filings or
engagements for those fiscal years. This category also includes: services
associated with SEC registration statements, other documents filed with the
SEC, and documents issued in connection with securities offerings (e.g.,
comfort letter and consents); and advice on audit and accounting matters that
arose during, or as a result of, the audit or the review of financial
statements. (2) Audit-Related Fees:This category consists of assurance and related
services by our independent auditor that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under Audit Fees. The services for the fees disclosed under
this category include other accounting consulting related to acquisitions and
dispositions, internal control reviews, and general assistance with
implementation of SEC rules and regulations promulgated under the
Sarbanes-Oxley Act of 2002. (3) Tax Fees:This category consists of professional services rendered by
our independent auditor for tax compliance and tax planning. The services for
the fees disclosed under this category include technical tax advice. Generally, before an independent auditor is engaged by us to render audit
or non-audit services, the engagement is approved early each calendar year by
ISCR, as our General Partner. Any subsequent changes in audit, audit-related,
tax, or other services to be provided by our independent auditor due to changes
in scope of work, terms, conditions, or fees of the engagement must be
pre-approved by ISCR. ISCR may delegate its pre-approval authority to its
executive officers. This delegation of pre-approval authority extends to audit
and non-audit services not proscribed by applicable laws and regulations to be
rendered by our independent auditor. Non-audit services can only be approved
under this delegation of authority for services of a scope and for fees
comparable to those described above with respect to 2003. Such officers shall
promptly inform ISCR of any pre-approval decisions. For calendar years 2002
and 2003, ISCR delegated this authority to Jeffrey K. Harpel, its Senior Vice
President. Requests or applications to provide services that require specific
approval by the General Partner will be submitted to ISCR by the independent
auditor and must be consistent with applicable SEC regulations regarding
auditor independence. 13




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##### Table of Contents



PART IV 
 ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  (a)
    
    Financial Statements and Schedules.See the Financial Statements Index beginning on Page F-1 below to
this Annual Report on Form 10-K. Some schedules are omitted
because they are not applicable, not required or because the
requested information is included in the Financial Statements or
notes thereto.(b)
    
    Reports on Form 8-K.A current report on Form 8-K was filed on November 7, 2003,
reporting that Faulkner & Thompson, P.A., the Registrants
independent auditors, had resigned and a replacement firm was being
sought.(c)
    
    Exhibits.See the Exhibit Index attached below to this Annual Report on Form 10-K. 14




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP By:
    
    ISC Realty CorporationAs Principal Executive Officer,Principal Financial Officer,Principal Accounting Officer andGeneral PartnerOf the Registrant
 By:
    
    /s/ Jeffrey K. HarpelName: Jeffrey K. HarpelTitle: Senior Vice President
 Date: April 9, 2004 15




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##### Table of Contents



Interstate Land Investors II Limited Partnership
Index to Financial Statements PagesIndependent Auditors Report (KPMG LLP)
    
    
    F-1Independent Auditors Report (Faulkner & Thompson, P.A.)
    
    
    F-2Financial Statements:Balance Sheets
    
    
    F-3Statements of Operations
    
    
    F-4Statements of Partners Capital
    
    
    F-5Statements of Cash Flows
    
    
    F-6Notes to Financial Statements
    
    F-7 to F-10




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##### Table of Contents



Independent Auditors Report The Partners of
Interstate Land Investors II, Limited Partnership: We have audited the accompanying balance sheet of Interstate Land
Investors II Limited Partnership (the Company) as of December 31, 2003, and
the related statements of operations, partners capital and cash flows for
the year then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2003 financial statements referred to above present
fairly, in all material respects, the financial position of Interstate Land
Investors II Limited Partnership as of December 31, 2003, and the results of
its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. /s/ KPMG LLP Charlotte, North Carolina
March 31, 2004 F-1




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##### Table of Contents



Faulkner and Thompson, P.A.
Certified Public Accountants
Post Office Box 2456
Rock Hill, South Carolina 29732-4456 
 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of
Interstate Land Investors II, Limited Partnership
Charlotte, North Carolina We have audited the balance sheet of Interstate Land Investors II, Limited
Partnership (a North Carolina limited partnership) as of December 31, 2002 and
the related statements of operations, partners capital and cash flows for the
years ended December 31, 2002 and 2001. These financial statements are the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted
auditing standards. 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 the managing general partner, 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 Interstate Land Investors
II, Limited Partnership (a North Carolina limited partnership) as of December
31, 2002 and the results of its operations and its cash flows for the years
ended December 31, 2002 and 2001 in conformity with U.S. generally accepted
accounting principles. /s/ Faulkner and Thompson, P.A. Charlotte, North Carolina
February 6, 2003 F-2




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##### Table of Contents



INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(a North Carolina limited partnership) 
 BALANCE SHEETS December 31, 2003 and 2002 December 31,2003
    
    2002ASSETSUnimproved land held for investment purposes
    
    $
    1,911,500
    
    
    
    1,911,500Cash and cash equivalents
    
    
    60,261
    
    
    
    97,478Total assets
    
    $
    1,971,761
    
    
    
    2,008,978LIABILITIES AND PARTNERS CAPITALLiabilitiesAccrued expenses
    
    
    5,873
    
    
    
    376Total liabilities
    
    
    5,873
    
    
    
    376Partners CapitalClass A limited partners interest
(authorization, 9,588 units; issued
and outstanding, 7,650 units in 2003
and 2002)
    
    
    1,966,038
    
    
    
    2,008,747Subordinated limited partner interest
    
    
    69
    
    
    
    70General partners capital deficiency
    
    
    (219
    )
    
    
    (215
    )Total partners capital
    
    
    1,965,888
    
    
    
    2,008,602Total liabilities and partners capital
    
    $
    1,971,761
    
    
    
    2,008,978
 See accompanying notes to financial statements. F-3




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##### Table of Contents



INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(a North Carolina limited partnership) 
 STATEMENTS OF OPERATIONS Years Ended December 31, 2003, 2002 and 2001 Years Ended December 31,2003
    
    2002
    
    2001OPERATING INCOMESale of real estate
    
    $
    
    
    
    
    
    
    
    
    4,353,360Interest
    
    
    252
    
    
    
    1,313
    
    
    
    17,424Total operating income
    
    
    252
    
    
    
    1,313
    
    
    
    4,370,784OPERATING EXPENSECost of real estate sold
    
    
    
    
    
    
    
    
    
    
    4,986,109Professional fees
    
    
    39,514
    
    
    
    28,034
    
    
    
    26,707Property tax
    
    
    206
    
    
    
    20
    
    
    
    99Interest expense
    
    
    
    
    
    
    
    
    
    
    8,306General and administrative
    
    
    3,246
    
    
    
    5,392
    
    
    
    1,873Total operating expense
    
    
    42,966
    
    
    
    33,446
    
    
    
    5,023,094Net loss before extraordinary item
    
    
    (42,714
    )
    
    
    (32,133
    )
    
    
    (652,310
    )Extraordinary gain on extinguishment of
liability - related party
    
    
    
    
    
    
    
    
    
    
    131,561Net loss
    
    $
    (42,714
    )
    
    
    (32,133
    )
    
    
    (520,749
    )NET LOSS ALLOCATED TOClass A limited partners
    
    $
    (42,709
    )
    
    
    (32,129
    )
    
    
    (520,684
    )Subordinated limited partner
    
    
    (1
    )
    
    
    (1
    )
    
    
    (13
    )General partners
    
    
    (4
    )
    
    
    (3
    )
    
    
    (52
    )Net loss
    
    $
    (42,714
    )
    
    
    (32,133
    )
    
    
    (520,749
    )Weighted average Class A limited partnership
units outstanding
    
    
    7,650
    
    
    
    7,650
    
    
    
    7,650Net loss per weighted average Class A limited
partnership unit
    
    $
    (5.58
    )
    
    
    (4.20
    )
    
    
    (68.06
    )
 See accompanying notes to financial statements. F-4




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##### Table of Contents



INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(a North Carolina limited partnership) 
 STATEMENTS OF PARTNERS CAPITAL Years Ended December 31, 2003, 2002 and 2001 Class A LimitedPartners
    
    SubordinatedLimited
    
    GeneralUnits
    
    Capital
    
    Partner
    
    Partners
    
    TotalPartners capital (deficiency)December 31, 2000
    
    
    7,650
    
    
    $
    6,029,973
    
    
    
    84
    
    
    
    (160
    )
    
    
    6,029,897Net loss
    
    
    
    
    
    
    (520,684
    )
    
    
    (13
    )
    
    
    (52
    )
    
    
    (520,749
    )Distribution to partners
    
    
    
    
    
    
    (3,467,974
    )
    
    
    
    
    
    
    
    
    
    
    (3,467,974
    )Partners capital (deficiency)December 31, 2001
    
    
    7,650
    
    
    
    2,041,315
    
    
    
    71
    
    
    
    (212
    )
    
    
    2,041,174Net loss
    
    
    
    
    
    
    (32,129
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (32,133
    )Distribution to partners
    
    
    
    
    
    
    (439
    )
    
    
    
    
    
    
    
    
    
    
    (439
    )Partners capital (deficiency)December 31, 2002
    
    
    7,650
    
    
    
    2,008,747
    
    
    
    70
    
    
    
    (215
    )
    
    
    2,008,602Net loss
    
    
    
    
    
    
    (42,709
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (42,714
    )Partners capital (deficiency)December 31, 2003
    
    
    7,650
    
    
    $
    1,966,038
    
    
    
    69
    
    
    
    (219
    )
    
    
    1,965,888
 See accompanying notes to financial statements. F-5




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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(a North Carolina limited partnership) 
 STATEMENTS OF CASH FLOWS Years Ended December 31, 2003, 2002 and 2001 Years Ended December 31,2003
    
    2002
    
    2001OPERATING ACTIVITIESNet loss
    
    $
    (42,714
    )
    
    
    (32,133
    )
    
    
    (520,749
    )Adjustments to reconcile net loss to net cash
provided (used) by operating activitiesLoss on sale of unimproved land held
for investment purposes
    
    
    
    
    
    
    
    
    
    
    632,749Decrease in interest receivable -
related party
    
    
    
    
    
    
    
    
    
    
    42,361Increase (decrease) in accrued expenses
    
    
    5,497
    
    
    
    376
    
    
    
    (251,359
    )Proceeds from sale of unimproved land
(net of closing costs of $447,609)
    
    
    
    
    
    
    
    
    
    
    3,905,751Net cash provided (used) by operating activities
    
    
    (37,217
    )
    
    
    (31,757
    )
    
    
    3,808,753FINANCING ACTIVITIESIncrease (decrease) in cash realized fromAdvance from related party
    
    
    
    
    
    
    
    
    
    
    15,000Distributions to partners
    
    
    
    
    
    
    (439
    )
    
    
    (3,467,974
    )Payment on line of credit - related party
    
    
    
    
    
    
    
    
    
    
    (175,000
    )Payment on advance from related party
    
    
    
    
    
    
    
    
    
    
    (52,754
    )Net cash used in financing activities
    
    
    
    
    
    
    (439
    )
    
    
    (3,680,728
    )Increase (decrease) in cash and cash equivalents
    
    
    (37,217
    )
    
    
    (32,196
    )
    
    
    128,025Cash and cash equivalents, beginning of year
    
    
    97,478
    
    
    
    129,674
    
    
    
    1,649Cash and cash equivalents, end of year
    
    $
    60,261
    
    
    
    97,478
    
    
    
    129,674
 See accompanying notes to financial statements. F-6




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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP  
 NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Interstate Land Investors II Limited Partnership (the Partnership) is a
North Carolina limited partnership formed on July 26, 1989 to acquire for
investment, hold for appreciation and ultimately dispose of, without
substantial improvements, undeveloped land in York County, South Carolina. The
Partnership acquired 97 acres of such land in November 1989 and an additional
48 acres in November 1990. The Partnership shall continue its existence
without interruption subject to the terms and conditions set forth in the
partnership agreement and the provisions of the Revised Uniform Limited
Partnership Act of the State of North Carolina. Generally, the liability for Partnership debts, liabilities and
obligations will be limited to the amounts contributed and agreed to contribute
to the capital of the Partnership, together with the share of undistributed
profits, if any. Until January 1, 1992, the managing general partner was Performance
Investments, Inc. (PII), which is 100% owned by Mr. William Garith Allen and
a family member. Mr. Allen and ISC Realty Corporation (ISCR) are also
general partners in the Partnership and effective January 1, 1992, assumed the
role of co-managing partners. In November 1991, PII consented to the
conversion of its interest to that of a Class A limited partner, to become
effective January 1, 1992. PII, however, retains the same interest in the
Partnerships net profit, losses and distributions as it had as a general
partner subject to the same priority of the other Class A limited partners. In
December 1993, upon the approval of 67% of the Class A limited partners
interest and upon meeting certain conditions in the partnership agreement, the
partners exercised their one-time right to direct the general partners to sell
the property at a price no less than $11,104,839, reduced by the proceeds from
any previous sales. The property was to be sold by November 1994, or at that
time Mr. Allen would agree to either (i) purchase the property from the
Partnership on such date at the purchase price or, (ii) elect not to purchase
the property at the purchase price but instead forfeit his right to receive
subordinated returns, withdraw as a general partner and transfer his general
partnership interest to ISCR. In 1997, Mr. Allen executed an assignment of his
partnership interests and forfeited his right to subordinated returns by the
transfer of his interest and PIIs interest to ISCR. The general partners are solely responsible for the day-to-day management
and operation of the property. ISCR is responsible for certain administrative
functions of the Partnership and beginning in November 1989, is entitled to an
annual administrative fee equal to .25% of the cost of the property acquired.
Payment of such administrative fee is deferred until the sale of the property
and the return of the Class A limited partners invested capital plus their
preferred return, as defined. Any such deferred fee will accrue interest at
the prime rate plus 1%. In 2001, management of ISCR determined that this fee
would never be paid. Accordingly, the accrued liability for the fee was
reversed and reported as an extraordinary gain on extinguishment of liability. CASH EQUIVALENTS For the purposes of the statements of cash flows, the Partnership
considers all highly liquid investments having maturities of three months or
less to be cash equivalents. At December 31, 2003 and 2002, the Partnerships
cash consisted of monies deposited through Wachovia Securities, LLC (an
affiliate of ISCR) in a money market fund. F-7
    (Continued)




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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP  NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 UNIMPROVED LAND HELD FOR INVESTMENT PURPOSES The costs of acquiring land, including related closing and predevelopment
costs, are capitalized and will be allocated to cost of sales as sales of the
property occur. Market value is evaluated based on independent appraisals and
comparable market offers. Land is recorded at the lower of cost or market less
costs to sell. On May 11, 2001, the Partnership sold 97 acres of unimproved land held by
the Partnership for $4,338,360. The Partnership sold an additional one-third
acre of unimproved land as right-of-way for $15,000 on May 10, 2001. ACCRUED EXPENSES Accrued expenses consist primarily of accrued legal expenses, amounts due
to the general partner and other payables. Accrued legal expenses were $2,496
and $0 at December 31, 2003 and 2002, respectively. INCOME TAXES The Company is treated as a partnership subject to the provisions of
Chapter 1, Subchapter K of the Internal Revenue Code of 1986, as amended.
Generally partnerships are not subject to entity-level federal or state income
taxation and, as such, the Company is not required to provide for income taxes
under Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. The Companys taxable income is reported in the tax returns of
it partners. NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT Net loss per weighted average Class A limited partnership unit is
calculated based on the loss allocated to such partners. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, cash equivalents, receivables, accounts
payable and accrued expenses approximates fair value because of the short-term
nature of these instruments. ESTIMATES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent 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. NOTE 2: ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES Under the terms of the partnership agreement, net profit and distributions
of available cash in each year prior to a sale of the property will be
allocated 99% to the Class A limited partners and 1% to the general partners.
Net losses shall be allocated among all partners in accordance with their
respective capital accounts. Special allocations are provided for any gains or
losses arising from the sale of the property and for the related cash
distributions. F-8
    (Continued)




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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP  NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 NOTE 3: RELATED PARTIES AND RELATED PARTY TRANSACTIONS In connection with the initial acquisition of the property in 1989, the
Partnership paid PII and Gold Hill Investment Associates (Gold Hill) (a
partnership of Gold Hill Limited Partnership and an affiliate of Mr. Allen) a
total of $322,207 for the assignment of options to acquire the two tracts of
land which comprise the property and for reimbursement of Gold Hill and PIIs
holding costs in the options (which totaled approximately $126,750). The total
cost, along with legal and other acquisition expenses, is included in the land
on the accompanying balance sheets. In connection with the consent entered into in November 1991 (see Note 1),
certain receivables due from PII were offset against amounts due PII or Mr.
Allen in connection with the sale of the property. The receivable was
written-off as uncollectible in 2001 and is netted against the liabilities of
ISCR, which were forgiven in 2001 and reported as an extraordinary gain on
extinguishment of liability. In November 1990, the Partnership acquired approximately 48 acres of
property from Gold Hill at a purchase price of $1,906,517. The partners of
Gold Hill agreed to accept, as part of the purchase price, 533 units of Class A
limited partner interests and granted a credit on the purchase price of
$495,690, which represents the cost of 533 units at $1,000 per unit less
selling commissions. In 1989, ISCR purchased 106 units of Class A limited partner interests at
the full offering price ($1,000 a unit). In 1990, ISCR contributed two-thirds
of its fee received for additional organizational costs to purchase 44 Class A
limited partner interests at $1,000 per unit. These units are included in
Class A limited partners interest on the balance sheets. Also, the general
partners, their affiliates and their employees purchased units of Class A
limited partner interests at 3.5% discount. The total discounts amounted to
$385 in 1990 and $3,360 in 1989, representing 11 and 66 units, respectively. The Partnership incurred expense of approximately $16,200 in 2000 for
services rendered by ISCR in connection with certain administrative functions
of the Partnership. Since payment of these fees is deferred as described in
Note 1, they are included in accrued administrative fees in the accompanying
balance sheets, and as general and administrative expenses in the accompanying
statements of operations. The accompanying liability was forgiven by ISCR in
2001 and reported as an extraordinary gain on extinguishment of liability. ISCR pays expenses on behalf of the Partnership and is subsequently
reimbursed. At December 31, 2003 and 2002, the Partnership had payables due to
ISCR of $1,991 and $356, respectively. As noted, ISCR has not charged the
Partnership administrative fees for providing these services since 2000. NOTE 4: LINE-OF-CREDIT FROM RELATED PARTY On May 23, 1995, the Partnership obtained a line of credit from ISCR to
utilize as needed. The line of credit had a zero balance at December 31, 2003
and 2002. Interest is charged on any funded portion of this line of credit at
2% above the then current prime-lending rate. ISCR received a mortgage and
assignment of rents and leases on the property as security. Interest accrued
on this line of credit which would be paid along with the outstanding principal
balance on the earlier of:  
    
    sale or disposition of all or any portion or part of the
property securing the mortgage instrument;
    
    the date ISCR is removed as managing general partner of the Partnership; or
    
    the date the Partnership terminates its legal existence. A portion of the proceeds from the sale of unimproved land on May 11,
2001, totaling $313,543, was used to pay the line of credit and accrued
interest. In 2003, 2002 and 2001, interest expense of $0, $0 and $85,014,
respectively, was paid to ISCR. F-9
    (Continued)




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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP  NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 NOTE 5: UNIMPROVED LAND HELD FOR INVESTMENT PURPOSES On May 11, 2001, the Partnership sold 97 acres of unimproved land held for
investment purposes. The Partnership realized a loss related to this sale
calculated as follows: 2001Sales proceeds
    
    $
    4,353,360Less: Carrying value of acreage sold
    
    
    (4,538,500
    )Less: Selling costs
    
    
    (447,609
    )Loss on sale
    
    $
    (632,749
    )
 Management believes the expected cash flow from the remaining 48 acres of
unimproved land held for investment will be greater than the carrying value. The general partner periodically reviews the recorded value of its
long-lived assets to determine if the future cash flows to be derived from
these assets will be sufficient to recover the recorded asset values. In
managements opinion, the market value of the land held for investment purposes
at December 31, 2003, is in excess of its cost. NOTE 6: RECONCILIATION OF FINANCIAL STATEMENT NET LOSS TO TAXABLE LOSS A reconciliation of financial statement net loss and taxable loss is as
follows: Years Ended December 31,2003
    
    2002
    
    2001Financial statement net loss
    
    $
    (42,714
    )
    
    
    (32,133
    )
    
    
    (520,749
    )Less: Temporary non-taxable income from related party
    
    
    
    
    
    
    
    
    
    
    (128,151
    )Tax loss on sale of property in excess of book loss
    
    
    
    
    
    
    
    
    
    
    (84,310
    )Excludable gain for tax purposes on extinguishment of
liability from related party
    
    
    
    
    
    
    
    
    
    
    (131,561
    )Taxable loss
    
    $
    (42,714
    )
    
    
    (32,133
    )
    
    
    (864,771
    )
 F-10




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INDEX TO EXHIBITS Exhibit No.3.1*
    
    Partnership Agreement dated July 27, 1989 (incorporated by
reference to Exhibit A to Amendment Number 3 to the
Partnerships registration statement on Form S-11 filed on
September 28, 1989 (File 33-30312 )).10.1
    
    Brokerage listing agreement dated February 21, 2003 between
Grubb & Ellis / Bissell Patrick, LLC and the Registrant31.1
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
   *
    
    Previously filed