<PAGE>
                       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

(Mark one)

[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 2001 or

[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] For the transition period from
                                                             ------------------
to
  -----------------------

                        Commission File Number 33-30312
                                               --------

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
             (Exact name of Registrant as specified in its charter)

    North Carolina                              56-1669199
-------------------------          -----------------------------------
(State of Organization)            (I.R.S. Employer Identification No.)

201 N. Tryon St., Charlotte, North Carolina         28202
-------------------------------------------   ----------------
(Address of principal executive offices)         (Zip Code)

        Registrant's telephone number, including area code (704) 379-9164
                                                           --------------

        Securities Registered Pursuant to Section 12(b) of the Act: NONE
                                                                   ------

        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]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405.) Not applicable as all securities are
non-voting.

Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date

              7,650 limited partnership units as of March 25, 2002

Documents Incorporated by Reference:  See Item 14

                    Page 1 of 13 sequentially numbered pages


<PAGE>


                                     PART I

ITEM 1 - BUSINESS

         Interstate Land Investors II (the "Registrant" or the "Partnership") is
a North Carolina limited partnership organized as of July 27, 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 Securities
Inc. ("WSI"). 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 of Class A
Limited Partnership Interests (the "Units") at $1,000 per Unit pursuant to a
Registration Statement effective September 29, 1989, filed under the Securities
Act of 1933, as amended (the "Act"). As of November 3, 1989, the Registrant had
received aggregate subscriptions for 5,406 Units and 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 expenses. The balance of the gross
proceeds, $4,734,182, was used to purchase Tracts 2 and 3 and 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


                                       2
<PAGE>
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 Partnership 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 (4) 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.

         Under the terms of the new 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 (and it must purchase Tracts
1A and 1D simultaneously). Additionally, if the Registrant had achieved the
Secondary Offering Amount, purchased Tracts 1A and 1D pursuant to the terms of
the new 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.

         The Registrant filed a post effective amendment to the original
prospectus in August, 1990, outlining to the SEC these modifications to the
offering and the amendment to 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 Parcels 1A and 1D on November
30, 1990. The total cost of the November 30, 1990 acquisition of Subtracts 1A
and 1D was $1,908,605 which included a purchase price of $1,906,517, plus
closing costs of $2,088. The Partnership has determined that no further Units
will be offered, sold and issued pursuant to the Prospectus. The Partnership
filed Post-effective Amendment No. 4 for the purpose of deregistering 1,938
Units of unsold Class A Limited Partnership interests.

         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 Registrant intends to accomplish
its objectives through holding the Property and subsequently disposing of it at
an appropriate time.


                                       3
<PAGE>

         The disposition of the Property by the Registrant may result in
substantial fees to the General Partner and its affiliates. 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.

         The Registrant plans to hold the property for future appreciation. 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 General Partner currently intends to dispose
of the Property purchased within ten to twelve years of the purchase. However,
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.)

         The Registrant in seeking to secure purchasers for its Property 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 over 4
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 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 of 2001 to Greenfield Development Company, LLC and Interstate Land Investors
I Limited Partnership 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.


                                       4
<PAGE>
         As of December 31, 2001, the Registrant did not directly employ any
persons in a full-time position. Certain employees 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 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. 16.1 acres of Tract 1 lies 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 telephone 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. If a sale was to occur, Tract
1 zoning would 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. 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. Tracts
1A and 1D are 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.
Additionally, Tract 2 adjoins a common boundary with the 95-acre tract of land
owned by Interstate I. Electricity and telephone 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. If a
sale was to occur, Tract 2 zoning would revert to UDD, urban development
district, by the York 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 the Property is contiguous to the tract owned by
Interstate I. Electricity, telephone, water and sewer are all available to Tract
3. If a sale was to occur, Tract 3 zoning would 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
Development Company, LLC, to sell 97 acres of the 145 acres unimproved land for
$45,000 per acre, subject to adjustments for wetlands acreage. The actual
proceeds from the sale totaled $4,338,360. The


                                       5
<PAGE>
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. Crosland Commercial continues to list and market for sale the remaining
approximate 48 acres of the property consisting of Tract 1A and Tract 1D.

ITEM 3 - LEGAL PROCEEDINGS

         None.

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

         In July 2000, ballots were sent to the limited partners requesting
their vote in favor of the proposed sale of the property to Greenfield
Development Company, LLC. A majority of the limited partners voted their
approval of the proposed sale.

                                     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 Limited 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
aware of no significant resale of Units since the Initial Closing on November 3,
1989. As of March 25, 2002, 775 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.


                                       6
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)

SELECTED STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                  Year ended          Year ended       Year ended       Year ended      Year ended
                                 December 31,        December 31,     December 31,     December 31,     December 31,
                                     2001                2000             1999             1998            1997
                                     ----                ----             ----             ----            ----
<S>                                <C>               <C>                <C>               <C>             <C>
Revenue from Sale of               $ 4,353,360         $      0          $      0         $      0        $      0
 Property
Interest and Other                      17,424            3,056             2,356            2,392           2,248
 Income
Property write-down                          0                0            84,310                0               0

Extraordinary Gain                     131,561                0                 0                0               0
on Extinguishment
of Liability

Expenses                                36,985           57,177            51,880           52,506          44,332
                                   -----------         --------         ---------         --------        --------

Net Loss                           $  (520,749)        $(54,121)        $(133,834)        $(50,114)        $(42,084)
                                   ===========         ========         =========         ========         ========
Distributions to limited           $ 3,467,974         $      0         $       0         $      0         $      0
                                   ===========         ========         =========         ========         ========
partners
Net Loss Allocated                 $  (520,684)        $(54,115)        $(133,817)        $(50,108)        $(42,079)
                                   ============        ========         =========         ========         ========
 to Class A limited
 partners
Net Loss Per                       $    (68.06)        $  (7.07)        $  (17.49)        $  (6.55)        $  (5.50)
                                   ===========         ========         =========         ========         ========

 Class A limited
 partnership unit
</TABLE>

SELECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                 December 31,        December 31,       December 31,        December 31,        December 31,
                                     2001                2000               1999                1998                1997
                                     ----                ----               ----                ----                ----
<S>                               <C>                 <C>                <C>                 <C>                 <C>
Total Assets                      2,041,174           $6,494,010         $6,492,936          $6,572,386          $6,569,272
Total Liabilities                         0              464,113            408,918             354,534             301,306
                                 ----------           ----------         ----------          ----------          ----------

Partner's Capital                $2,041,174           $6,029,897         $6,084,018          $6,217,852          $6,267,966
                                 ==========           ==========         ==========          ==========          ==========
</TABLE>


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITIONS AND RESULTS OF OPERATIONS

Liquidity and Capital Resources


                                       7
<PAGE>

         On May 11, 2001, the Partnership sold 97 acres of the Property for
$4,338,360. The Partnership sold an additional one-third acre for $15,000 on May
10, 2001. On June 29, 2001, a distribution of $3,467,975 ($453 per unit) was
distributed to the limited partners.

         As of December 31, 2001, the Registrant had $129,674 cash and cash
equivalents on hand which will be retained to pay ongoing partnership expenses.
Until the Registrant disposes of the remaining approximate 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.

         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 Partnership Agreement, ISCR is entitled to
accrue interest on any loans provided to the Partnership at the rate of prime
plus two percent. In May 2001, a portion of the proceeds from the sale of
unimproved land was used to pay in full the debt and accrued interest. (See Note
5 on the attached audited financial statements.)

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000

         The Registrant's net loss increased from $54,121 for the year ended
December 31, 2000, to $520,749 for the year ended December 31, 2001. This loss
is the result of the loss incurred from the sale of a portion of the property in
2001. An extraordinary gain on extinguishment of debt for $131,561 was recorded
by the Partnership in 2001. (See Note 4 of the audited financial statements.)

         Professional and legal fees increased from $16,297 in 2000 to $26,707
in 2001 due to the review of the purchase contract and closing costs. Interest
expense decreased to $8,306 in 2001 from $20,986 in 2001 because the note to
ISCR was paid in full from the proceeds of the sale in May 2001. General and
administrative expense decreased from $19,697 in 2000 to $1,873 due to
discontinuation and forgiveness of Partnership management fees to ISCR. See Note
4 for further disclosure.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999

         The Registrant's net loss decreased to $54,121 for the year ended
December 31, 2000, compared with $133,834 for the year ended December 31, 1999.
The majority of this improvement is attributable to the $84,310 property
write-down in 1999.

         Professional and legal fees increased to $16,297 in 2000 from $15,214
due to the review of purchase contracts. Interest expense increased to $20,986
in 2000 from $18,144 in 1999. This higher expense was due to the increased
borrowing under the note to ISCR during 2000. General and administrative expense
increased to $19,697 for 2000 from $18,333 for 1999 due to higher database
expenses incurred by the Partnership.


                                       8
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this Item is submitted as a separate section of this
report.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         There were no disagreements concerning the December 31, 2001, financial
statements.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         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.

         Information as to ISCR, the current Managing General Partner, is as
follows:

<TABLE>
<CAPTION>
                                              Information About Directors
Name                                            and Executive Officers
----                                            ----------------------
<S>                                 <C>
J. Christopher Boone                Director and President of ISCR. He is 43 years old.

Robert B. McGuire                   Treasurer of ISCR. He is 54 years old.

Michael D. Hearn                    Director and Secretary of ISCR. He is 50 years old.
</TABLE>

         J. Christopher Boone is a Managing Director of Wachovia Securities,
Inc. (WSI), an affiliate of ISCR and President of ISCR. Before joining the
Selling Agent in 1984, Mr. Boone was a tax specialist for Coopers & Lybrand. He
received a bachelor's degree in business administration with an emphasis in
accounting from the University of North Carolina at Chapel Hill.

         Robert B. McGuire is Treasurer of ISC Realty Corporation. In addition,
he is Senior Vice President and Treasurer of WSI. Mr. McGuire received a B.A. in
Business Administration from Furman University and a Masters in Business
Administration from Emory University.


                                       9
<PAGE>

         Michael D. Hearn has served as Secretary and General Counsel of WSI
since 1985. He is a Senior Managing Director of WSI. Mr. Hearn received a
Bachelor of Science degree in Business Administration and a Juris Doctor from
the University of North Carolina at Chapel Hill. He is Secretary of ISCR. In May
of 1992 he was elected a Director of ISCR.

         Each officer and director holds office until his death, resignation,
retirement, removal, disqualification or his successor is elected and qualified.

         On April 1, 1999, ISC Realty Corporation's parent, Interstate/Johnson
Lane, Inc., merged into Wachovia Corporation and on September 1, 2001, Wachovia
Corporation and First Union Corporation merged. The new organization functions
under the name Wachovia Corporation. Personnel and offices continue to operate
as usual.

ITEM 11 - EXECUTIVE COMPENSATION

         No remuneration was paid or accrued for the account of any partner,
officer or director of the General Partner during the Partnership fiscal year
ended December 31, 2001.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

         MANAGEMENT

         As of March 25, 2002, Begley-Hall owned 6.87% of the limited
partnership interests.

         As of March 25, 2002, none of the individual directors and officers of
the General Partner had subscribed for Units.

<TABLE>
<CAPTION>
                                                                                 Amount and
                                                                                 Nature of
                                                                                 Beneficial
Partner Type                                 Name & Address                      Ownership            Class
<S>                                      <C>                                     <C>                  <C>
Subordinated Limited                     ISC Realty Corporation                     $100              100%
General Partner                          ISC Realty Corporation                        0              100%
Class A Limited Partner                  ISC Realty Corporation                      100              <.1%
Class A Limited Partner                  ISC Realty Corporation                  150,000              2.0%
</TABLE>

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the year ended December 31, 2001, there was an extraordinary
gain on extinguishment of liability - related party transaction for $131,561.
(See Note 1 - Organization and Syndication Costs of the audited financial
statements.)

         During the years ended December 31, 2000 and 1999, ISCR earned $16,200
for monitoring the operations of the Registrant on behalf of the investors and
performing certain administrative functions. ISCR is entitled to receive an
annual administrative fee equal to 0.25%


                                       10
<PAGE>

of the cost of the Property. However, the liability was forgiven in 2001 and is
included in the extraordinary item as extinguishment of debt. (See Note 4 of the
audited financial statements.)

                                     PART IV

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

         (a)      Financial Statements and Schedules.

                  See Index to Financial Statements included in Appendix A to
                  this Form 10-K. 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. On May 11, 2001, Form 8-K was filed for
                  the sale of 97 acres of the property to Greenfield Development
                  Company LLC.

         (c)      Exhibits.
                  None.


                                       11
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the 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
                         A NORTH CAROLINA LIMITED PARTNERSHIP

                         BY:      ISC REALTY CORPORATION
                                  GENERAL PARTNER




                         BY:      /S/ J. CHRISTOPHER BOONE
                                 ---------------------------
                                  J. CHRISTOPHER BOONE
                                  PRESIDENT


                                       12
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:

<TABLE>
<CAPTION>
                       Signature                                   Title                              Date
                       ---------                                   -----                              ----
<S>                                                       <C>                                  <C>
/S/ J. Christopher Boone                                                                           March 25, 2002
--------------------------------                                                              --------------
J. Christopher Boone                                      Director and
                                                          President of
                                                          ISC Realty
                                                          Corporation



/S/Michael D. Hearn                                                                            March 25, 2002
-------------------                                                                            --------------
Michael D. Hearn                                          Director and
                                                          Secretary of
                                                          ISC Realty
                                                          Corporation
</TABLE>


                                       13
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP

                              FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 2001 AND 2000
                          AND FOR THE THREE YEARS ENDED
                        DECEMBER 31, 2001, 2000 AND 1999













                           FAULKNER AND THOMPSON, P.A.

                          CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>






                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP

                              FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 2001 AND 2000
                          AND FOR THE THREE YEARS ENDED
                        DECEMBER 31, 2001, 2000 AND 1999
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                              FINANCIAL STATEMENTS



                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                     PAGE
<S>                                                                                                  <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................................1

BALANCE SHEETS..........................................................................................2

STATEMENTS OF OPERATIONS................................................................................3

STATEMENT OF PARTNERS' CAPITAL..........................................................................4

STATEMENTS OF CASH FLOWS................................................................................5

NOTES TO FINANCIAL STATEMENTS...........................................................................6
</TABLE>


                                      -i-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Partners of
Interstate Land Investors II, Limited Partnership
Charlotte, North Carolina

         We have audited the balance sheets of Interstate Land Investors II,
Limited Partnership (a North Carolina limited partnership) as of December 31,
2001 and 2000 and the related statements of operations, partners' capital and
cash flows for each of the three years in the period ended December 31, 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, 2001 and 2000 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with U.S. generally accepted accounting principles.



Charlotte, North Carolina
February 7, 2002
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                                 BALANCE SHEETS
                                  DECEMBER 31,


<TABLE>
<CAPTION>
                                     ASSETS

                                                                                2001                      2000
                                                                       -----------------         -----------------
<S>                                                                    <C>                       <C>
Unimproved land held for sale                                          $       1,911,500         $       6,450,000
Cash and cash equivalents                                                        129,674                     1,649
Accounts receivable - related party                                                   -                     17,427
Interest receivable - related party                                                   -                     24,934
                                                                         ---------------           ---------------

                                                                       $       2,041,174         $       6,494,010
                                                                        ================          ================



                        LIABILITIES AND PARTNERS' CAPITAL


LIABILITIES
     Line-of-credit payable - related party                            $              -          $         175,000
     Advance from related party                                                       -                     37,754
     Administrative fees payable - related party                                      -                    174,651
     Interest payable - related party                                                 -                     76,708
                                                                         ---------------           ---------------
                                                                                      -                    464,113
                                                                         ---------------           ---------------

PARTNERS' CAPITAL
     Class A limited partners' interest
         (authorized, 9,588 units; issued
         and outstanding, 7,650 units)                                         2,041,315                 6,029,973
     Subordinated limited partner's interest                                          71                        84
     General partners' capital deficiency                              (             212 )       (             160 )
                                                                         ---------------           ---------------
                                                                               2,041,174                 6,029,897
                                                                         ---------------           ---------------

                                                                       $       2,041,174         $       6,494,010
                                                                        ================          ================
</TABLE>

                       See Notes to Financial Statements.


                                      - 2 -
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                            STATEMENTS OF OPERATIONS
                     FOR THE THREE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                    2001                   2000                 1999
                                                              ---------------        -------------        --------------

<S>                                                           <C>                    <C>                   <C>
INCOME
    Sale of real estate                                       $    4,353,360         $          -          $          -
    Interest                                                          17,424                3,056                 2,356
                                                                 -----------          -----------            ----------
                                                                   4,370,784                3,056                 2,356
                                                                 -----------            ---------            ----------

OPERATING EXPENSES
    Cost of real estate sold                                       4,986,109                     -                    -
    Professional fees                                                 26,707               16,297                15,214
    Property tax                                                          99                  197                   189
    Interest expense                                                   8,306               20,986                18,144
    General and administrative                                         1,873               19,697                18,333
    Write-down of land held for sale                                      -                     -                84,310
                                                                 -----------            ---------            ----------
                                                                   5,023,094               57,177               136,190
                                                                 -----------            ---------            ----------

           Net loss before extraordinary item                   (    652,310 )         (   54,121 )         (   133,834 )

EXTRAORDINARY GAIN ON EXTINGUISHMENT
    OF LIABILITY - RELATED PARTY                                     131,561                     -                    -
                                                                 -----------            ---------            ----------

           Net loss                                           $(     520,749 )       $(    54,121 )       $(    133,834 )
                                                                 ===========            =========            ==========


NET LOSS ALLOCATED TO
    Class A limited partners                                  $(     520,684 )       $(    54,115 )       $(    133,817 )
    Subordinated limited partner                               (          13 )        (         1 )        (          3 )
    General partners                                           (          52 )        (         5 )        (         14 )
                                                                  ----------            ---------            ----------

                                                              $(     520,749 )       $(    54,121 )       $(    133,834 )
                                                                 ===========            =========            ==========

Weighted average Class A limited
    partnership units outstanding                                      7,650                7,650                 7,650
                                                                 ===========            =========            ==========

Net loss per weighted average Class A
    limited partnership unit                                  $(       68.06 )       $(      7.07 )       $(      17.49 )
                                                                 ===========            =========            ==========
</TABLE>

                       See Notes to Financial Statements.


                                      - 3 -
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                         STATEMENT OF PARTNERS' CAPITAL
           FOR THE THREE YEARS ENDED DECEMBER 31, 2001, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                                     SUBORDINATED
                                                CLASS A LIMITED PARTNERS        ----------------------
                                                ------------------------         LIMITED     GENERAL
                                                 UNITS         AMOUNT            PARTNER     PARTNERS             TOTAL
                                               -------       -----------         -------     --------         --------------
<S>                                            <C>        <C>                  <C>          <C>               <C>
Partners' capital (deficiency) -
    December 31, 1998                            7,650    $    6,217,905       $      88    $(     141 )      $    6,217,852

    Net loss, year ended
    December 31, 1999                                -     (     133,817 )      (      3 )   (      14 )      (      133,834 )
                                               -------       -----------          ------       -------          ------------

Partners' capital (deficiency) -
    December 31, 1999                            7,650         6,084,088              85    (      155 )           6,084,018

    Net loss, year ended
    December 31, 2000                                -     (      54,115 )      (      1 )   (       5 )       (      54,121 )
                                               -------       -----------          ------       -------           -----------

Partners' capital (deficiency) -
    December 31, 2000                            7,650         6,029,973              84     (     160 )           6,029,897

    Net loss, year ended
    December 31, 2001                                -     (     520,684 )      (     13 )   (      52 )       (     520,749 )

    Distributions to partners                        -     (   3,467,974 )      (      - )   (       - )       (   3,467,974 )
                                               -------       -----------          -------      -------           -----------

Partners' capital (deficiency) -
    December 31, 2001                            7,650    $    2,041,315       $      71    $(     212 )      $    2,041,174
                                               =======       ===========          =======      =======           ===========
</TABLE>

                       See Notes to Financial Statements.


                                      - 4 -
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                            STATEMENTS OF CASH FLOWS
                     FOR THE THREE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                       2001                  2000                 1999
                                                                --------------        --------------       --------------
<S>                                                             <C>                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                    $(    520,749 )       $(     54,121 )      $(    133,834 )
    Adjustments to reconcile net loss to net cash
        used for operating activities
           Write-down of land held for sale                                 -                     -               84,310
           Loss on sale of unimproved land held for sale              632,749
           (Increase) decrease in interest receivable -
              related party                                            42,361         (       2,868 )        (     2,266 )
           Increase (decrease) in accrued liabilities - related
              party                                              (    165,570 )              37,195               30,285
           Net proceeds from sale of unimproved land                3,592,208                     -                    -
                                                                  -----------           ------------         ------------

                Net cash provided by (used for) operating
                   activities                                       3,580,999         (      19,794 )        (    21,505 )
                                                                  -----------          ------------            ---------

CASH FLOWS FROM FINANCING ACTIVITIES
    Increase in line-of-credit - related party                         15,000                18,000               24,099
    Distributions to partners                                    (  3,467,974 )                   -                    -
                                                                   ----------           ------------         ------------

                Net cash provided by (used for)
                   financing activities                         (   3,452,974 )              18,000               24,099
                                                                  -----------           -----------          -----------

                Net increase (decrease) in cash and cash
                  equivalents                                         128,025         (       1,794 )              2,594

CASH AND CASH EQUIVALENTS, BEGINNING
    OF YEAR                                                             1,649                 3,443                  849
                                                                 ------------          ------------         ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                          $     129,674         $       1,649        $       3,443
                                                                 ============          ============         ============


SUPPLEMENTAL CASH FLOW INFORMATION

        Interest expense paid                                   $      85,014         $           -        $       4,069
                                                                 ============          ============         ============

SUPPLEMENTAL SCHEDULE FOR NONCASH
    FINANCING ACTIVITIES

        Debt and accrued interest to related party paid
           at closing of sale on unimproved land                $     313,543         $           -        $          -
                                                                 ============          ============         ===========

        Closing and related costs paid at closing of sale
           of unimproved land                                   $     447,609         $           -        $          -
                                                                 ============          ============         ===========
</TABLE>

                       See Notes to Financial Statements.


                                      - 5 -
<PAGE>
                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                          NOTES TO FINANCIAL STATEMENTS

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.

         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 fee was
         written-off as uncollectible and reported as an extraordinary gain on
         extinguishment of debt.

        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, 2001 and 2000,
         the Partnership's cash consisted of monies deposited through Wachovia
         Securities, Inc. (a related company to ISCR) in a money market fund.

        UNIMPROVED LAND HELD FOR SALE

         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. In the fourth quarter of 1999,
         the Partnership recorded a write-down of the carrying amount of their
         property of approximately $84,000 to reflect the general partner's
         estimate of the property's estimated realizable value.


                                      - 6 -
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

        UNIMPROVED LAND HELD FOR SALE, CONTINUED

         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.

        ORGANIZATIONAL AND SYNDICATION COSTS

         Various expenses and fees paid in connection with organizing the
         Partnership (including an organizational fee paid to ISCR amounting to
         $159,000 in 1990 and an additional $66,000 in 1991) have been
         capitalized and amortized using the straight-line method over a
         60-month period. These costs have been fully amortized in prior years.
         Other fees and expenses related to the sale of limited partnership
         interests in the Partnership have been classified as syndication costs
         and include sales commissions paid to Interstate/Johnson Lane
         Corporation, a related company to ISCR, of $377,644 in connection with
         the initial offering in 1989 and $116,305 in connection with the
         secondary offering in 1990. These costs were charged directly against
         partners' capital.

        INCOME TAXES

         Items of income or loss of the Partnership are included in the income
         tax returns of the partners. Accordingly, the Partnership makes no
         provision for federal and state income taxes.

        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 without giving
         consideration to the conversion of PII's general partner interest (see
         Note 7).

        DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used to estimate the fair
         value of each class of financial instruments for which it is practical
         to estimate the value.

              Cash,Cash Equivalents, Receivables, Accounts Payable and Accrued
                   Expenses - The carrying amount approximates fair value
                   because of the short-term nature of these instruments.

              Line-of-Credit Payable - In the general partner's opinion, the
                  fair value of the Partnership's long-term debt approximates
                  its carrying value.

        ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities 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.


                                     - 7 -
<PAGE>
NOTE 2 - UNIMPROVED LAND HELD FOR APPRECIATION

        PROVISION FOR WRITE-DOWN OF UNIMPROVED LAND

         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. During the fourth quarter of 1999, the Partnership recorded a
         non-cash charge of approximately $84,000, or approximately $11 per
         limited partnership unit, to write-down its unimproved land to its
         estimated realizable value. This charge was reflected in the basis of
         the property sold in 2001. Management deems that the market value of
         the land held for sale at December 31, 2001 is in excess of its cost.


NOTE 3 - 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.


NOTE 4 - 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 (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
         Investment Associates' (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.

         At December 31, 2001 and 2000, the Partnership had an accounts
         receivable from PII of $0 and $17,427 plus accrued interest receivable
         of $0 and $24,934, respectively, related to the reimbursement of
         certain costs incurred in connection with organizing the Partnership
         and with organization of the property. In connection with the consent
         entered into during November 1991 (see Note 1), the amount will be
         offset against any amounts due PII or Mr. Allen in connection with the
         sale of the property. This receivable was written-off as uncollectible
         in 2001 and is netted against the liabilities of ISCR, which were
         forgiven in 2001 and included in the extraordinary item as an
         extinguishment of debt.

         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.


                                     - 8 -
<PAGE>
NOTE 4 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED

         The Partnership incurred expense of approximately $16,200 in 2000 and
         1999 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
         this is included in the extraordinary item as an extinguishment of
         debt.

         See Note 1 for fees paid to ISCR and its affiliates in connection with
         organizing the Partnership and the subsequent sale of limited
         partnership interests.

         The Partnership has the same general partners of and owns land adjacent
         to Interstate Land Investors I, Limited Partnership (Interstate I). The
         property owned by Interstate I is in direct competition with the
         Partnership's property. No financial statement transactions have
         occurred between these Partnerships. During 2001, all land held by
         Interstate I was sold and the entity was subsequently dissolved.


NOTE 5 - LINE-OF-CREDIT FROM RELATED PARTY

         On May 23, 1995, the Partnership obtained a line-of-credit from ISCR to
         utilize as needed. Interest was charged on this line-of-credit at 2%
         above the announced prime-lending rate of Bank of America, resulting in
         a rate of 11.5% and 10.25% at December 31, 2000 and 1999, respectively.
         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.

         During the years ended December 31, 2001, 2000 and 1999, interest
         expense of $85,014, $0 and $4,069, respectively, was paid to ISCR.


NOTE 6 - SALE OF UNIMPROVED LAND HELD FOR SALE

         On June 29, 2000, the Partnership entered into a contract to sell 97
         acres of the Partnership's 145 acres of unimproved land held for sale.
         A majority of the limited partners approved the sale of unimproved land
         on August 7, 2000.


                                     - 9 -
<PAGE>
NOTE 6 - SALE OF UNIMPROVED LAND HELD FOR SALE, CONTINUED

         Subsequently, on May 11, 2001, the Partnership sold the 97 acres of
         unimproved land held for sale related to this contract. The Partnership
         realized a loss related to this sale calculated as follows:

<TABLE>
              <S>                                                                     <C>
              Sales proceeds                                                          $    4,353,360
                Less:  Carrying value of acreage sold                                   (  4,538,500 )
                Less:  Selling costs                                                    (    447,609 )
                                                                                          ----------

                  Loss on sale                                                        $ (    632,749 )
                                                                                          ==========
</TABLE>
         In 1999, the Partnership recorded an impairment loss in order to
         reflect management's expected cash flow from its land held for sale.
         Management believes the expected cash flow from the remaining 48 acres
         of unimproved land held for sale will be greater that the carrying
         value.

NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT NET LOSS TO TAXABLE LOSS

         A reconciliation of financial statement net loss and taxable loss is as
follows:

<TABLE>
<CAPTION>
                                                                        2001                 2000               1999
                                                                ----------------      -------------       -------------
              <S>                                               <C>                   <C>                 <C>
              Financial statement net loss                      $(     520,749  )     $(    54,121 )      $(   133,834 )
                Less: Temporary non-taxable
                      income from related party                              -         (     2,868 )       (     2,266 )
                Less: Expenses deductible for tax
                         purposes in excess of book              (     128,151  )                -                   -
                Less: Tax loss on sale of property in
                         excess of book loss                     (      84,310  )                -                   -
                Less: Excludable gain for tax purposes
                         on extinguishments of debt from
                         related party                           (     131,561  )                -                   -
                Plus: Temporary non-deductible
                         expenses to related party                           -              37,195              30,284
                Plus: Write-down of land held for
                         sale                                                -                   -              84,310
                                                                 --------------         ----------          ----------

                  Taxable loss                                  $(     864,771  )     $(    19,794 )      $(    21,506 )
                                                                   ===========          ==========          ==========

</TABLE>


NOTE 8 - NEW ACCOUNTING PRONOUNCEMENT

         Statement of Financial Accounting Standards No. 144 (SFAS No. 144),
         "Accounting for the Impairment or Disposal of Long-Lived Assets", is
         effective for the Partnership as of January 1, 2002. This accounting
         standard pertains to the carrying amount of long-lived assets,
         including the recognition of impairment losses and the related
         disclosures. Management has not fully determined the effect of the
         implementation of SFAS No. 144 but does assert that they do not expect
         it to have a material impact on the Partnership's financial statements.


                                     - 10 -