<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] For the fiscal year ended December 31, 1998 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 24, 1999

Documents Incorporated by Reference:  See Item 14

                    Page 1 of 13 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 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>   3

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.

         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



                                       3
<PAGE>   4

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 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 Partners currently intend 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. 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 10 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, the General
Partners or their affiliates may 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.

         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



                                       4
<PAGE>   5

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, 1998, 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.

         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 



                                       5
<PAGE>   6

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 November 1998, a contract was signed listing the Property for sale
with the Crosland Group for the asking price of $8,866,000.

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 forfeit his right to a distribution as
the subordinated Limited Partner, that Mr. Allen withdraw as a General Partner
and transfer his general partnership interest to ISCR, and that Performance
Investments Inc. withdraw as a general partner and transfer its general
partnership interest to ISCR. In 1997 Mr. Allen executed an assignment of his
partnership interests and forfeited his right to subordinated returns.

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

         None.


                                     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 24, 1999, 774 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.



                                       6
<PAGE>   7

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,
                            1998           1997           1996           1995           1994
                            ----           ----           ----           ----           ----
<S>                      <C>            <C>            <C>            <C>            <C>     
Interest and Other       $  2,392       $  2,248       $  2,193       $  2,167       $  2,187
 Income
Expenses                   52,506         44,332         46,116         46,130         84,104
                         --------       --------       --------       --------       --------
Net Loss                  (50,114)       (42,084)       (43,923)       (43,963)       (81,917)
                         ========       ========       ========       ========       ========
Net Loss Allocated
 to Class A limited
 partners                 (50,108)       (42,079)       (43,918)       (43,958)       (81,907)
                         ========       ========       ========       ========       ========
Net Loss Per
 Class A limited
 partnership unit        $  (6.55)      $  (5.45)      $  (5.68)      $  (5.69)      $ (10.60)
                         ========       ========       ========       ========       ========
</TABLE>


SELECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>
                      December 31,    December 31,    December 31,    December 31,    December 31,
                          1998            1997            1996            1995            1994
                          ----            ----            ----            ----            ----
<S>                    <C>             <C>             <C>             <C>             <C>       
Total Assets           $6,572,386      $6,569,272      $6,567,152      $6,565,623      $6,569,579
Total Liabilities         354,534         301,306         257,102         211,650         171,643
                       ----------      ----------      ----------      ----------      ----------
Partner's Capital      $6,217,852      $6,267,966      $6,310,050      $6,353,973      $6,397,936
                       ==========      ==========      ==========      ==========      ==========
</TABLE>


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

Liquidity and Capital Resources

         As of December 31, 1998, the Registrant had $849 cash and cash
equivalents on hand. 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. The General
Partners anticipate that any future funds necessary for the operations of the
Partnership will be provided by ISCR. As of 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. In accordance with the 



                                       7
<PAGE>   8

Partnership Agreement, ISCR is entitled to accrue interest on any loans provided
to the Partnership at the rate of prime plus two percent. The balance of the
note plus accrued interest at December 31, 1998, is $212,301.

Results of Operations

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997

         The Registrant's net loss increased to $50,114 for the year ended
December 31, 1998 compared with $42,084 for the year ended December 31, 1997.

         Legal fees in the amount of $3,962 were incurred from pursuing the
claims referred to in Item 3. Interest expense increased $2,134 to a total of
$15,550. This higher expense was due to the increased borrowings under the note
to ISCR during 1998. General and administrative expense increased $3,323 to a
total of $21,883. Additional costs were incurred in 1998 from separate studies
performed to evaluate the current market value and environmental conditions in
the area.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997, TO THE YEAR ENDED DECEMBER 31,
1996

         The Registrant's net loss decreased to $42,084 for the year ended
December 31, 1997 from $43,923 for the year ended December 31, 1996.

         General and administrative expense, less by $1,940, accounted for the
majority of the decrease. Additional costs were incurred in 1996 in conjunction
with the Registrant changing its investor reporting service. An increase in
interest expense of $643 to $13,416 offset some of the savings. The higher
expense was due to the increased borrowings under the note to ISCR during 1997.

The Year 2000 Issue

         The Registrant determined that the potential consequences of year 2000
will not have a material effect on business, results of operations, or financial
condition. This conclusion was reached after researching computer programs and
third party vendors that are currently used to manage this limited partnership.
The Registrant is not solely reliant upon outside systems or vendors for record
keeping. Information is on file in our offices which states that existing
computer software is Y2K compliant and that the third party vendor currently
utilized will be Y2K compliant by June 30, 1999. The computer hardware and
peripherals located in the Registrant's offices are also Y2K ready.

         If necessary, the Registrant can revert to manual methods for
bookkeeping, check writing, preparation of financial statements and investor
correspondence. Hard copies of essential information are available and will
continue to be available well into the year 2000.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



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<PAGE>   9


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

         There were no disagreements in connection with the December 31, 1998,
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.

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

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

J. Christopher Boone         Director and President of ISCR. He is 40 years old.

Edward C. Ruff               Director of ISCR. He is 59 years old.

Robert B. McGuire            Treasurer of ISCR. He is 51 years old.

Michael D. Hearn             Director and Secretary of ISCR. He is 46 years old.

Lewis F. Semones, Jr.        Director of ISCR. He is 40 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.

         Edward C. Ruff is Executive Managing Director and Chief Operating
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.

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



                                       9
<PAGE>   10


         Michael D. Hearn has served as Secretary and General Counsel of I/JL
since 1985. He is a Senior Managing Director and a member of the Board of
Directors of I/JL. 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.

         Lewis F. Semones, Jr. is Senior Managing Director and Chief Financial
Officer of I/JL. He is also a director of I/JL. Mr. Semones is a graduate of
Lenoir Rhyne College, a Certified Public Accountant and a graduate of the
Securities Industry Institute at The Wharton School of The University of
Pennsylvania. He was elected as a director of ISCR in September, 1997.

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

         Effective April 1, 1999, Interstate/Johnson Lane will merge into
Wachovia Corporation and will officially change its name to Wachovia Securities,
Inc. The Registrant will be an affiliate of Wachovia Securities, Inc., but not
be part of Wachovia Corporation's banking subsidiary. Personnel and offices will
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, 1998.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         As of March 24, 1999, Begley-Hall owned 5.6% of the limited partnership
interests.

         As of March 24, 1999, none of the individual directors and officers of
the General Partners had subscribed for Units.

                                                     Amount and
                                                      Nature of
                                                     Beneficial
Partner Type                 Name & Address           Ownership           Class
------------                 --------------          -----------          -----
Subordinated Limited     William Garith Allen            $100              100%

General Partner          William Garith Allen               0               50%



                                       10
<PAGE>   11


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%


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the year ended December 31, 1998, there were no related party
transactions in excess of $60,000.

         During the period ended December 31, 1998, ISCR earned $16,209 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.

                  None.

         (c)      Exhibits.

                  27     Financial Data Schedule (for SEC use only)



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<PAGE>   12


                                   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>   13


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                                           March 24, 1999
--------------------------------                               --------------
/S/ J. Christopher Boone           Director and
                                   President of
                                   ISC Realty
                                   Corporation



/S/ Edward C. Ruff                                             March 24, 1999
--------------------------------                               --------------
Edward C. Ruff                     Director of
                                   ISC Realty
                                   Corporation



/S/Michael D. Hearn                                            March 24, 1999
--------------------------------                               --------------
Michael D. Hearn                   Director and
                                   Secretary of
                                   ISC Realty
                                   Corporation



/S/Lewis F. Semones, Jr.                                       March 24, 1999
--------------------------------                               --------------
Lewis F. Semones, Jr.              Director of
                                   ISC Realty
                                   Corporation



                                       13
<PAGE>   14



                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP

                              FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                        DECEMBER 31, 1998, 1997 AND 1996


<PAGE>   15


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                              FINANCIAL STATEMENTS


                                TABLE OF CONTENTS



                                                                           PAGE

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



                                      -i-
<PAGE>   16



               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, 1998 and 1997 and the related statements of operations, partners' capital
and cash flows for the years then ended. 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 audit. The statements of
operations, partners' capital and cash flows of Interstate Land Investors II,
Limited Partnership (a North Carolina limited partnership) for the year ending
December 31, 1996, were audited by other auditors whose report dated January 16,
1997, expressed an unqualified opinion on those financial statements.

               We conducted our audit in accordance with 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 audit provides a
reasonable basis for our opinion.

               In our opinion, the 1998 and 1997 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, 1998 and 1997 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.




Charlotte, North Carolina
February 26, 1999


<PAGE>   17


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                                 BALANCE SHEETS
                                  DECEMBER 31,



<TABLE>
<CAPTION>
                                     ASSETS


                                                                   1998              1997
                                                               -----------       -----------
<S>                                                            <C>               <C>        
Unimproved land held for appreciation                          $ 6,534,310       $ 6,534,310
Cash and cash equivalents                                              849              --
Accounts receivable - related party                                 17,427            17,427
Interest receivable - related party                                 19,800            17,535
                                                               -----------       -----------

                                                               $ 6,572,386       $ 6,569,272
                                                               ===========       ===========



                        LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
     Line-of-credit payable - related party                    $   170,655       $   142,331
     Administrative fees payable - related party                   142,233           126,025
     Interest payable - related party                               41,646            32,950
                                                               -----------       -----------
                                                                   354,534           301,306
                                                               -----------       -----------

PARTNERS' CAPITAL
     Class A limited partners' interest
         (authorized, 9,588 units; issued
         and outstanding, 7,650 units)                           6,217,905         6,268,013
     Subordinated limited partner's interest                            88                89
     General partners' capital deficiency                             (141)             (136)
                                                               -----------       -----------

                                                                 6,217,852         6,267,966
                                                               -----------       -----------

                                                               $ 6,572,386       $ 6,569,272
                                                               ===========       ===========
</TABLE>


                       See Notes to Financial Statements.


                                      -2-
<PAGE>   18


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                            STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,



<TABLE>
<CAPTION>
                                             1998           1997           1996
                                           --------       --------       --------
<S>                                        <C>            <C>            <C>     
INCOME
    Interest                               $  2,392       $  2,248       $  2,193
                                           --------       --------       --------

EXPENSES
    Professional fees                        14,886         12,176         12,668
    Property tax                                187            180            175
    Interest expense                         15,550         13,416         12,773
    General and administrative               21,883         18,560         20,500
                                           --------       --------       --------
                                             52,506         44,332         46,116
                                           --------       --------       --------

           Net loss                        $(50,114)      $(42,084)      $(43,923)
                                           ========       ========       ========

NET LOSS ALLOCATED TO
    Class A limited partners               $(50,108)      $(42,079)      $(43,918)
    Subordinated limited partner                 (1)            (1)            (1)
    General partners                             (5)            (4)            (4)
                                           --------       --------       --------

                                           $(50,114)      $(42,084)      $(43,923)
                                           ========       ========       ========

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

Net loss per weighted average Class A
    limited partnership unit               $  (6.55)      $  (5.45)      $  (5.68)
                                           ========       ========       ========
</TABLE>


                       See Notes to Financial Statements.


                                      -3-
<PAGE>   19


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                         STATEMENT OF PARTNERS' CAPITAL
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                                     SUBORDINATED
                                     CLASS A  LIMITED PARTNERS   -------------------
                                     -------------------------    LIMITED   GENERAL
                                      UNITS          AMOUNT      PARTNERS   PARTNERS         TOTAL
                                      -----      -------------   --------   --------      -----------
<S>                                   <C>        <C>             <C>        <C>           <C>        
Partners' capital (deficiency) -
    January 1, 1996                   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

Net loss, year ended
    December 31, 1997                  --            (42,079)        (1)         (4)          (42,084)
                                      -----      -----------       ----       -----       -----------

Partners' capital (deficiency) -
    December 31, 1997                 7,650        6,268,013         89        (136)        6,267,966

Net loss, year ended
    December 31, 1998                  --            (50,108)        (1)         (5)          (50,114)
                                      -----      -----------       ----       -----       -----------

Partners' capital (deficiency) -
    December 31, 1998                 7,650      $ 6,217,905       $ 88       $(141)      $ 6,217,852
                                      =====      ===========       ====       =====       ===========
</TABLE>


                       See Notes to Financial Statements.


                                      -4-
<PAGE>   20


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                            STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,


<TABLE>
<CAPTION>
                                                                  1998           1997           1996
                                                                --------       --------       --------
<S>                                                             <C>            <C>            <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                    $(50,114)      $(42,084)      $(43,923)
    Adjustments to reconcile net loss to net cash
        used for operating activities
           Increase in interest receivable - related party        (2,265)        (2,120)        (2,120)
           Increase in accrued liabilities - related party        24,904         29,624         29,076
                                                                --------       --------       --------

                Net cash used for operating activities           (27,475)       (14,580)       (16,967)
                                                                --------       --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Increase in line-of-credit - related party                    28,324         14,580         16,376
                                                                --------       --------       --------

                Net increase (decrease) in cash and
                  cash equivalents                                   849           --             (591)

CASH AND CASH EQUIVALENTS, BEGINNING
    OF YEAR                                                         --             --              591
                                                                --------       --------       --------

CASH AND CASH EQUIVALENTS, END OF YEAR                          $    849       $   --         $   --   
                                                                ========       ========       ========
</TABLE>


                       See Notes to Financial Statements.


                                      -5-
<PAGE>   21


                          INTERSTATE LAND INVESTORS II,
                               LIMITED PARTNERSHIP
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998



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,
           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.
           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
           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.

           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 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.

        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. Additionally, management
           deems that the market value of the land is not below its historical
           cost.


                                      -6-
<PAGE>   22


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. 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.

        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.


NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS

        In connection with the initial acquisition of the property in 1989, the
        Partnership paid PII and Gold Hill Investment Associates (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.


                                      -7-
<PAGE>   23


NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED

        At December 31, 1998 and 1997, the Partnership had an account receivable
        from PII of $17,427 plus accrued interest receivable of $19,800 and
        $17,535, 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 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.

        In November 1990, the Partnership acquired approximately 48 acres of
        property from Gold Hill at a purchase price of $1,906,517. The partners
        of Gold Hill agreed to accept, as part of the purchase price, 533 units
        of Class A limited partner interests and granted a credit on the
        purchase price of $495,690, which represents the cost of 533 units at
        $1,000 per unit less selling commissions.

        In 1989, ISCR purchased 106 units of Class A limited partner interests
        at the full offering price ($1,000 a unit). In 1990, ISCR contributed
        two-thirds of its fee received for additional organizational costs to
        purchase 44 Class A limited partner interests at $1,000 per unit. These
        units are included in Class A limited partners' interest on the balance
        sheets. Also, the general partners, their affiliates and their employees
        purchased units of Class A limited partner interests at 3.5% discount.
        The total discounts amounted to $385 in 1990 and $3,360 in 1989,
        representing 11 and 66 units, respectively.

        The Partnership incurred expense of approximately $16,200 in 1998, 1997
        and 1996 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 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.


NOTE 4 - LINE-OF-CREDIT FROM RELATED PARTY

        On May 23, 1995, the Partnership obtained a line-of-credit from ISCR for
        which the borrowings cannot exceed $175,000. Interest is charged on this
        line-of-credit at 2% above the announced prime lending rate of Bank of
        America, resulting in a rate of 9.75%, 10.5% and 10.25% at December 31,
        1998, 1997 and 1996, respectively. ISCR has received a mortgage and
        assignment of rents and leases on the property as security. Interest
        shall accrue on this line-of-credit 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, 

        -- the date ISCR is removed as managing general partner of the 
           Partnership, or

        -- the date the Partnership terminates its legal existence.

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

NOTE 5 - PROPERTY TAXES



                                      -8-
<PAGE>   24

        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 as commercial zoning and the 1994, 1995, 1996 and 1997
        assessments as agricultural zoning, the potential reduction in sales
        proceeds would be approximately $183,200 if the property were sold in
        1998. Any reduction in sales proceeds, if the property were sold beyond
        1998 but still during the period of five years from the 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

       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).


NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT LOSS TO TAXABLE LOSS

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

<TABLE>
           <S>                                                                        <C>      
           Financial statement net loss                                               $(50,114)
           Less:  Temporary non-taxable interest income from  related party             (2,266)
           Plus:  Temporary non-deductible expenses to related party                    24,904
                                                                                      --------

              Taxable loss                                                            $(27,476)
                                                                                      ========
</TABLE>


                                      -9-