<PAGE>   1


                       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 [No Fee Required, Effective October 7, 1996]
         For the fiscal year ended December 31, 1996 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.)

121 W. Trade 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 10, 1997

Documents Incorporated by Reference:  See Item 14

                    Page 1 of 14 sequentially numbered pages


<PAGE>   2




                                     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 consists 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 Interstate/Johnson Lane, Inc. (Allen and
ISCR are hereinafter referred to collectively as the "General Partners.")
Effective January 1, 1992, ISCR and Allen assumed the role of co-managing
general partners (the "Co-Managing General Partner") and PII was converted to a
Class A limited partner.

         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


                                        2


<PAGE>   3



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 additional 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.



                                        3


<PAGE>   4



         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.

         The disposition of the Property by the Registrant may result in
substantial fees to the General Partners and their affiliates. Reference is made
to Item 13 herein for a description of certain transactions between the
Registrant and the General Partners and their affiliates.

         No mortgage indebtedness was incurred in connection with the
acquisition of the Property.

         The Registrant has developed a master land use plan for the Property
and ultimately will sell individual tracts to third-party developers and users
as mixed commercial use parcels. It is anticipated that portions of the Property
will be designated for retail, office, industrial, and possibly hotel use. It is
not contemplated that the Registrant will undertake construction of 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 Partners currently intend to dispose
of the Property purchased within five to ten years of the purchase. However, the
investors have 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 is unable to sell the Property by such date at such price,
Allen is 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. See Item 4 for
further discussion.

         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 Partners.

         The General Partners or their affiliates currently serve as general
partners in over 19 public and private partnerships which currently own various
types of real property. None of the prior partnerships sponsored by the General
Partners or their affiliates now contemplate the acquisition of any additional
properties of the type purchased by the Registrant. However, it is likely that
the General Partners or their affiliates will sponsor additional public or
private partnerships in the future. In addition, the General Partners and their
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.


                                        4


<PAGE>   5




         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 partners as
the Registrant. Interstate I acquired the adjacent property on September 30,
1988 for a purchase price of $4,200,000. Interstate I intends to hold the
adjacent property under the same terms and with the same investment objectives
as the Registrant intends to apply to the Property. The close proximity of these
competing parcels may give rise to conflicts of interest between Allen and ISCR
as General Partners and the Registrant and Interstate I. In addition, conflicts
of interest may arise in connection with the business of each General Partner in
other partnerships, private and public, of which the General Partners are
affiliated at such time as the Registrant attempts to sell or otherwise dispose
of the Property owned by the Registrant.

         The General Partners will devote only so much of their time to the
business of the Registrant as in their judgment and experience is reasonably
required. The General Partners are engaged in other activities which also
require their time and attention.

         As of December 31, 1996, the Registrant did not directly employ any
persons in a full-time position. Certain employees of the General Partners and
affiliates 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 consists 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.



                                        5


<PAGE>   6



         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.

ITEM 3 - LEGAL PROCEEDINGS

         In May, 1996, the Partnership filed a Complaint in the General Court of
Justice, Superior Court Division against William Garith Allen, a General
Partner, seeking in the alternative, damages for Mr. Allen's failure to purchase
the Property at the Put Price or an order, in accordance with the provisions of
the Partnership Agreement, that Mr. Allen has forfeited his right to a
distribution as the subordinated Limited Partner, that Mr. Allen is required to
withdraw as a General Partner and transfer his general partnership interest to
ISCR, and that he is required to cause Performance Investments Inc. to withdraw
as a general partner and transfer its general partnership interest to ISCR. In
the alternative, the Partnership is seeking damages equal to the difference
between the current value of the Property and the Put Price. The lawsuit is in
the preliminary discovery stage. Mr. Allen has not asserted any claims against
the Partnership and the Partnership believes that its claims against Mr. Allen
have merit. Mr. Allen has asserted that he is insolvent and will be unable to
satisfy any award that the Partnership may recover. The Partnership is
investigating that assertion and will continue to evaluate the claim and the
likelihood of any recovery based upon the information received from Mr. Allen.

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

         In accordance with the partnership agreement, by November 1994, upon
approval of 67% of the Class A limited partners and written notice of the
exercise of such option, Mr. Allen is obligated to either purchase the Property
for $11,104,839 (the "Put Price") or sell the Property at the Put Price. In
accordance with the partnership agreement, Mr. Allen was notified by ISCR on
November 1, 1993 of the exercise of the put option. A vote of the limited
partners was solicited on December 13, 1993. The limited partners voted in favor
(77.3%) of the option and directed


                                        6


<PAGE>   7



the Property to be sold. As explained in Item 3 above, the Partnership has taken
action against Mr. Allen.

                                     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 resales of Units since the Initial Closing on November
3, 1989. As of March 10, 1997, 772 persons were record owners of 7,650 Units.

         The Registrant in each year allocates to the investors and the General
Partners 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 Partners 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.

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,
                          1996          1995          1994           1993           1992
                      ------------   -----------   -----------    ----------     --------

<S>                      <C>           <C>           <C>           <C>            <C>      
Interest and Other
 Income                  $  2,193      $  2,167      $  2,187      $   2,195      $   7,760
Expenses                   46,116        46,130        84,104        127,524        120,869
                         --------      --------      --------      ---------      ---------

Net Loss                  (43,923)      (43,963)      (81,917)      (125,329)      (113,109)
                         ========      ========      ========      =========      =========

Net Loss Allocated
 to Class A limited
 partners                 (43,918)      (43,958)      (81,907)      (125,313)      (113,097)
                         ========      ========      ========      =========      =========

Net Loss Per Class A
 limited partnership
 unit                    $  (5.68)     $  (5.69)     $ (10.60)     $  (16.22)     $  (14.64)
                         ========      ========      ========      =========      =========
</TABLE>



                                        7


<PAGE>   8



SELECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>
                     December 31,    December 31   December 31,  December 31,   December 31,
                        1996            1995          1994           1993           1992

<S>                   <C>            <C>            <C>            <C>            <C>       
Total Assets          $6,567,152     $6,565,623     $6,569,579     $6,614,605     $6,692,021
Total Liabilities        257,102        211,650        171,643        134,752         86,839
                      ----------     ----------     ----------     ----------     ----------

Partner's Capital     $6,310,050     $6,353,973     $6,397,936     $6,479,853     $6,605,182
                      ==========     ==========     ==========     ==========     ==========
</TABLE>


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

Liquidity and Capital Resources


                  Until the Registrant disposes of the Property, its only
sources of additional capital are loans. The Registrant's ability to maintain
cash adequate to meet its needs will be dependent upon the availability of
financing and successful operations of its real estate investment. As of
December 31, 1996, the Registrant had checks written in excess of recorded bank
balance of $95. The General Partners anticipate that any future funds necessary
for the operations of the Partnership will be provided by ISCR. 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. As of May 23,
1995, the General Partner, ISCR, paid off the existing line of credit with First
Citizens Bank and entered into a line of credit agreement in the amount of
$150,000 with the Partnership to provide additional funds as needed. The note
will accrue interest at prime plus 2% and will only be repaid upon the sale of
the property in accordance with Section 8.2 of the Agreement of Limited
Partnership. The balance of the note plus accrued interest at December 31, 1996,
is $147,191.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996, TO THE YEAR ENDED DECEMBER 31,
1995

         The Registrant's net loss decreased from $43,963 for the year ended
December 31, 1995, to $43,923 for the year ended December 31, 1996.

         Amortization expense decreased from $6,627 for the year ended December
31, 1995, to $0 for the year ended December 31, 1996, due to the completion of
amortization of organizational costs during 1995

         Interest expense increased approximately $1,975 due to the increased
borrowings under the note to ISCR during 1996.


                                        8


<PAGE>   9




         General and administrative expense increased by $4,089 due primarily to
additional costs incurred in conjunction with the Registrant changing its
reporting service.


COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995, TO THE YEAR ENDED DECEMBER 31,
1994

         The Registrant's net loss decreased from $81,917 for the year ended
December 31, 1994, to $43,963 for the year ended December 31, 1995.

         Amortization expense decreased from $46,008 for the year ended December
31, 1994 to $6,627 for the year ended December 31, 1995, due to the amortization
of organizational costs during 1995.

         Interest expense increased approximately $3,900 due to the increased
borrowings under the note to ISCR during 1995.

         Property tax expense decreased from $2,213 for the year ended December
31, 1994, to $159 for the year ended December 31, 1995, due to the agricultural
exemption received in 1994 from York County. See Note 6 to the Financial
Statements for further discussion.


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 in connection with the December 31, 1996,
financial statements or changes in accountants during the year ended December
31, 1996.

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.

Information as to ISCR, one of the current Co-Managing General Partners, is as
follows:





                                        9


<PAGE>   10


                                         Information About Directors
Name                                       and Executive Officers
----                                       ----------------------

J. Christopher Boone       Director and President of ISCR.  He is 38 years old.

Parks H. Dalton            Director of ISCR.  He is 67 years old.

Edward C. Ruff             Director of ISCR.  He is 57 years old.

Robert B. McGuire          Treasurer of ISCR.  He is 49 years old.

Michael D. Hearn           Director of ISCR.  He is 44 years old.

Michael A. Paschall        Vice President of ISCR.  He is 32 years old.

         J. Christopher Boone is a Managing Director of Interstate/Johnson Lane
Corporation ("I/JL"), an affiliate of ISCR and President of ISCR. Prior to
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.

         Parks H. Dalton was a director of Interstate/Johnson Lane, Inc. (the
"Company") from 1985 until his retirement in 1988. He also served as Chief
Executive Officer of I/JL from 1968 to 1988, President from 1968 to 1983, and
Chairman from 1983 to 1988. In November 1990, he was re-elected Chairman and
Chief Executive Officer of I/JL. He was re-elected as a director of the Company
in July 1990 and as Chairman and Chief Executive Officer of the Company in
September 1990. In 1994 he transferred the duties of Chief Executive Officer to
the current President of I/JL and currently remains Chairman. He is a director
of ISCR.

         Edward C. Ruff is Senior Managing Director and Chief Financial Officer
of I/JL.  He also serves as a member of the Board of Directors and Management
Committee of I/JL.  Mr. Ruff has been with I/JL since 1976.  He is a graduate of
the University of San Francisco, with a bachelor's degree in accounting.  He is
a director of ISCR.

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

         Michael D. Hearn has served as Secretary and General Counsel of the
Selling Agent since 1985. He is a Senior Managing Director and a member of the
Board of Directors of I/JL. In May of 1992 he was elected a Director of ISCR.
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 the
Secretary of ISCR.


                                       10


<PAGE>   11




         Michael A. Paschall, Vice President of ISCR since 1996 and Vice
President of I/JL since 1996. Prior to joining I/JL in 1996, Mr. Paschall was
Assistant Vice President and Investment Officer of First Union National Bank of
North Carolina. Mr. Paschall received a Bachelor of Arts degree in English and
Economics from the University of North Carolina at Chapel Hill and a Juris
Doctor from Wake Forest University.

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

         The other Co-Managing General Partner, is William Garith Allen. Allen
is the Chief Executive Officer and sole shareholder of Performance Service &
Finance, Inc., a North Carolina corporation organized in 1974 that is
principally active in the acquisition, financing, development, sales, marketing
and administration of various subdivisions and other real estate investments
sold by Allen. Allen is also the sole shareholder of Performance Consultants,
Inc., a North Carolina corporation organized in 1981 to acquire property and
assist development entities in locating various public and private sources of
funds. In addition, Allen and his father, William G. Allen, Jr., are the sole
shareholders of Investment Brokers, Inc., a North Carolina corporation organized
in 1979. This corporation is primarily involved in the acquisition and sale of
property.

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, 1996.




ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

         As of March 10, 1997, no persons known to the Registrant have
beneficial ownership of more than 5% of the Units.

         As of March 10, 1997, none of the individual directors and officers of
the General Partners had subscribed for Units.

<TABLE>
<CAPTION>
                                                          Amount and
                                                           Nature of
                                                          Beneficial
Partner Type                Name & Address                 Ownership           Class
------------                --------------                 ---------           -----

<S>                         <C>                               <C>               <C> 
Subordinated Limited        William Garith Allen              $100              100%
</TABLE>



                                       11


<PAGE>   12

<TABLE>

<S>                         <C>                               <C>              <C> 
General Partner             William Garith Allen                    0           50%

General Partner             ISC Realty Corporation                  0           50%

Class A Limited Partner     Performance Investments,
                            Inc.                                  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, 1996, there were no related party
transactions in excess of $60,000.

                During the period ended December 31, 1996, ISCR earned $16,208
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% of the cost of the Property. However,
the payment of such administrative fee is deferred until sale of the Property
and return to the investors of their invested capital plus the preferred return.
The deferred portion of this fee may accrue interest at an interest rate of
prime plus 1%.

         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.

                  No reports on Form 8-K have been filed during the last quarter
                  of the period covered by this Report.

         (c)      Exhibits.

                  27. Financial Data Schedule (for SEC use only)



                                       12


<PAGE>   13



                                   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


                                       13


<PAGE>   14




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:

        Signature                     Title                         Date
        ---------                     -----                         ----



J. Christopher Boone               Director and                 March 25, 1997
------------------------------     President of   
/S/ J. Christopher Boone           ISC Realty     
                                   Corporation    
                                                  
                                                  
                                                  
                                                  
                                                  
Edward C. Ruff                     Director of                  March 25, 1997
------------------------------     ISC Realty     
/S/ Edward C. Ruff                 Corporation    
                                                  
                                                  
                                                  
                                                  
                                                  
Parks H. Dalton                    Director of                  March 25, 1997
------------------------------     ISC Realty     
/S/ Parks H. Dalton                Corporation    
                                                  
                                                  
                                                  
                                                  
                                                  
Michael D. Hearn                   Director of                  March 25, 1997
------------------------------     ISC Realty     
/S/ Michael D. Hearn               Corporation    
                                   
                                   




                                       14



<PAGE>   15


                                                                      APPENDIX A


                          INTERSTATE LAND INVESTORS II
                               LIMITED PARTNERSHIP

                              Financial Statements
                               for the years ended
                        December 31, 1996, 1995 and 1994






<PAGE>   16





                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP


                                    Contents


                                                                           Page

Report of Independent Certified Public Accountants..................        2

Balance Sheets......................................................        3

Statements of Partners' Capital.....................................        4

Statements of Operations............................................        5

Statements of Cash Flows............................................        6

Notes to Financial Statements.......................................     7-11





<PAGE>   17






               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The Partners
Interstate Land Investors II Limited Partnership
Charlotte, North Carolina


We have audited the balance sheets of Interstate Land Investors II Limited
Partnership as of December 31, 1996 and 1995 and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1996, 1995 and 1994. These financial statements are the responsibility of the
Managing General Partner (see Note 1). Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.




                                      /s/ Cherry Bekaert & Holland, L.L.P.




Charlotte, North Carolina
January 16, 1997


<PAGE>   18



                                                                               3

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                                 Balance Sheets
                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                     ASSETS
                                                                  1996              1995
                                                               -----------       -----------

<S>                                                            <C>               <C>        
Land held for appreciation ..............................      $ 6,534,310       $ 6,534,310
Cash and cash equivalents ...............................             --                 591
Account receivable-related party ........................           17,427            17,427
Interest receivable-related party .......................           15,415            13,295
                                                               -----------       -----------

                                                               $ 6,567,152       $ 6,565,623
                                                               ===========       ===========



                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities
    Checks written in excess of recorded bank balance ...      $        95       $      --
    Advance from related party ..........................          127,656           111,280
    Accrued administrative fee - related party ..........          109,816            93,608
    Accrued interest - related party ....................           19,535             6,762
                                                               -----------       -----------

                                                                   257,102           211,650

Partners' capital
    Class A limited partners' interest (authorized
       9,588 units, issued and outstanding 7,650 units) .        6,310,092         6,354,010
    Subordinated limited partner's interest .............               90                91
    General partners' capital deficiency ................             (132)             (128)
                                                               -----------       -----------
                                                                 6,310,050         6,353,973
                                                               -----------       -----------
                                                               $ 6,567,152       $ 6,565,623
                                                               ===========       ===========
</TABLE>



See notes to financial statements.


<PAGE>   19



                                                                               4

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                         Statements of Partners' Capital
                  Years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                              Class A         
                                         Limited Partners      Subordinated      
                                      -------------------        Limited     General                              
                                      Units        Amount        Partner     Partners        Total
                                      -----        ------        -------     --------        -----

<S>                                   <C>        <C>               <C>        <C>         <C>        
Partners' capital (deficiency) -
    December 31, 1993 ..........      7,650      $ 6,479,875       $ 94       $(116)      $ 6,479,853

Net loss, year ended
    December 31, 1994 ..........       --            (81,907)        (2)         (8)          (81,917)
                                      -----      -----------       ----       -----       -----------

Partners' capital (deficiency) -
    December 31, 1994 ..........      7,650        6,397,968         92        (124)        6,397,936

Net loss, year ended
    December 31, 1995 ..........       --            (43,958)        (1)         (4)          (43,963)
                                      -----      -----------       ----       -----       -----------

Partners' capital (deficiency)
    December 31, 1995 ..........      7,650        6,354,010         91        (128)        6,353,973

Net loss, year ended
    December 31, 1996 ..........       --            (43,918)        (1)         (4)          (43,923)
                                      -----      -----------       ----       -----       -----------

Partners' capital (deficiency) -
    December 31, 1996 ..........      7,650      $ 6,310,092       $ 90       $(132)      $ 6,310,050
                                      =====      ===========       ====       =====       ===========
</TABLE>






See notes to financial statements.


<PAGE>   20



                                                                               5

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                            Statements of Operations
                  Years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                               1996           1995           1994
                                             --------       --------       --------

<S>                                          <C>            <C>            <C>     
INCOME
   Interest ...........................      $  2,193       $  2,167       $  2,187
                                             --------       --------       --------

EXPENSES
   Professional fees ..................        12,668         12,135         12,192
   Amortization of organizational costs          --            6,627         46,008
   Property tax .......................           175            159          2,213
   Interest expense ...................        12,773         10,798          6,875
   General and administrative .........        20,500         16,411         16,816
                                             --------       --------       --------
                                               46,116         46,130         84,104
                                             --------       --------       --------

      NET LOSS ........................      $(43,923)      $(43,963)      $(81,917)
                                             ========       ========       ========

NET LOSS ALLOCATED TO:
   Class A limited partners ...........      $(43,918)      $(43,958)      $(81,907)
   Subordinated limited partner .......            (1)            (1)            (2)
   General partners ...................            (4)            (4)            (8)
                                             --------       --------       --------

                                             $(43,923)      $(43,963)      $(81,917)
                                             ========       ========       ========


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

Net loss per weighted average Class A
   limited partnership unit ...........      $  (5.68)      $  (5.69)      $ (10.60)
                                             ========       ========       ========
</TABLE>




See notes to financial statements.


<PAGE>   21



                                                                               6

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                            Statements of Cash Flows
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>

                                                        1996           1995           1994
                                                      --------       --------       --------

<S>                                                   <C>            <C>            <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss ....................................      $(43,923)      $(43,963)      $(81,917)
   Adjustments to reconcile net loss to net
      cash used for operating activities:
      Amortization of organizational costs .....          --            6,627         46,008
      Interest expense transferred to advance ..          --            4,037           --
      Increase in interest receivable ..........        (2,120)        (2,120)        (2,120)
      Increase in checks written
         in excess of recorded book balance ....            95           --             --
      Increase (decrease) in accrued liabilities        28,981         22,970        (25,652)
                                                      --------       --------       --------
         NET CASH USED FOR OPERATING ACTIVITIES        (16,967)       (12,449)       (63,681)
                                                      --------       --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in advance from related party ......        16,376         13,000         62,543
                                                      --------       --------       --------

         NET INCREASE (DECREASE) IN CASH AND
             CASH EQUIVALENTS ..................          (591)           551         (1,138)

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR ....................................           591             40          1,178
                                                      --------       --------       --------

CASH AND CASH EQUIVALENTS AT END OF YEAR .......      $   --         $    591       $     40
                                                      ========       ========       ========


SUPPLEMENTAL CASH FLOW INFORMATION

   Cash paid during the year for interest ......      $   --         $   --         $  6,875
                                                      ========       ========       ========
</TABLE>





See notes to financial statements.


<PAGE>   22



                                                                               7

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                          Notes to Financial Statements
                        December 31, 1996, 1995 and 1994


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 27, 1989, to acquire for
investment, hold for appreciation and ultimately dispose, without substantial
improvements, undeveloped land in York County, South Carolina. The Partnership
acquired 97 acres of such land in November 1989, and acquired an additional 48
acres in November 1990.

Until January 1, 1992, the Managing General Partner was Performance Investments,
Inc. (PII) (see Note 6), 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. Mr. Allen also holds all of the Subordinated Limited
Partner interest, which may be assigned to one of his affiliates at any time.

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%. However, because of the uncertainty as to the ultimate
collection of this interest, ISCR has elected not to accrue such interest in the
Partnership's financial statements.

CASH EQUIVALENTS

For 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, 1995 and 1994, substantially all of the
Partnership's cash consisted of monies deposited through Interstate/Johnson
Lane, Inc. (a related company to ISCR) in a money market fund invested in United
States Government obligations.

CAPITALIZATION POLICIES

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.



<PAGE>   23



                                                                               8

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                    Notes to Financial Statements (continued)
                        December 31, 1996, 1995 and 1994


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. Other fees and expenses related to
the sale of limited partnership interests in the Partnership have been
classified as syndication costs and charged directly against partners' capital.
These syndication costs 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.

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 6).

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.


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. In
no event, shall the portion of any item of partnership income, gain, loss,
deduction or credit allocated to the original


<PAGE>   24



                                                                               9

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                    Notes to Financial Statements (continued)
                        December 31, 1996, 1995 and 1994


NOTE 2 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES (CONTINUED)

General Partners (see Note 6) be less than 1%. Mr. Allen, as the Subordinated
Limited Partner, may be entitled to a subordinated return of $776,935 arising
from the sale of the property, assuming sufficient proceeds exist after the
return of the Class A Limited Partners' invested capital plus their preferred
return, as defined, and after payment to the General Partners of any deferred
fees plus interest owed. Additionally, as Subordinated Limited Partner, Mr.
Allen may, under certain circumstances, as defined, receive an additional
distribution arising from the sale of the property equal to 5% of the net sale
proceeds after deducting the distributions described above to the Class A
Limited Partners, General Partners and Subordinated Limited Partner.

In December 1993, upon the approval of the holders of 67% of the Class A Limited
Partner interests and upon meeting certain conditions in the partnership
agreement, these 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. In accordance with this vote, the property
was to be sold by November 1994, or at that time, Mr. Allen (see Note 1) became
obligated to purchase the property at the stipulated price. Because the required
date of purchase expired, the Partnership investigated the legal remedies
available that would best benefit the Partnership in 1994. In 1996 and 1995, no
further events have occurred regarding the Partnership's planned course of
action.


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 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's 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 land on the accompanying balance sheet.

At December 31, 1996 and 1995, the Partnership had an account receivable from
PII of $17,427 plus accrued interest receivable of $15,415 and $13,295,
respectively, related to the reimbursement of certain costs incurred in
connection with organizing the Partnership and with the organization of the
property. In connection with the consent entered into in November 1991 (see Note
6), the amount will be offset against any amounts due PII or Mr. Allen in
connection with the sale of the property.



<PAGE>   25



                                                                              10

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                    Notes to Financial Statements (continued)
                        December 31, 1996, 1995 and 1994


NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

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 organization 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 a 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 1996, 1995, and
1994 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.

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 as 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.


NOTE 4 - ADVANCE FROM RELATED PARTY

On May 23, 1995, the Partnership obtained an advance from ISCR. Interest is
charged on this advance at 2% above the announced prime lending rate of
NationsBank, N.A. (Carolinas), resulting in a rate of 10.25% and 10.5% at
December 31, 1996 and 1995, respectively. ISCR has received a mortgage and
assignment of rents and leases on the property as security. Interest shall
accrue on this advance and shall 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,




<PAGE>   26


                                                                              11

                INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP

                    Notes to Financial Statements (continued)
                        December 31, 1996, 1995 and 1994


NOTE 4 - ADVANCE FROM RELATED PARTY (CONTINUED)

-        The date ISCR is removed as Managing General Partner of the
         Partnership, or

-        The date the Partnership terminates its legal existence.

The agreement with ISCR requires that the Partnership comply with certain
covenants, which are not financial in nature.


NOTE 5 - PROPERTY TAXES

Based upon efforts and studies performed in 1993, the property was rezoned from
commercial property to agricultural property effective with the 1994 tax
assessment. However, if the property is sold within five years from the
reclassification date, then the property resumes its status as commercial
property and the Partnership becomes liable for the annual difference between
the commercial property tax and the tax with the agricultural exemption. If this
occurs, this liability will be treated as a selling expense at the time of sale.
Based upon the 1993 assessment at commercial zoning and the 1994, 1995 and 1996
assessments at agricultural zoning, the potential reduction in sales proceeds
would be approximately $137,350 if the property were sold in 1997. Any reduction
in sales proceeds, if the property were sold beyond 1997 but still during the
period of five years from reclassification date, would depend on the tax rates
and assessed values in effect during this period.

If it were to be determined that the Partnership was not adequately meeting the
requirements to maintain its agricultural exemption, then the Partnership could
become liable for the annual difference between the commercial property tax and
the tax with the agricultural exemption.


NOTE 6 - OTHER MATTER

PII is currently seeking relief under Chapter 11 of the United States Bankruptcy
Code. The provisions of the partnership agreement stipulate that the filing of a
bankruptcy petition by PII automatically causes its interest to be converted
from that of a general partner to that of a Class A Limited Partner. 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 (see Note 1).