<PAGE>

                                    FORM 10-K
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

         For the quarterly period ended    December 31, 2001
                                        ----------------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

         For the transition period from ___________ to ______________


                         Commission file number 0-17686

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

            Wisconsin                                          39-1606834
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                           Identification No.)

           101 W. 11th Street, Suite 1110, Kansas City, Missouri 64105
          (Address of principal executive offices, including zip code)

                                 (816) 421-7444
              (Registrant's telephone number, including area code)

     Securities registered pursuant to Section 12(b) of the Act: None
     Securities registered pursuant to Section 12(g) of the Act: Limited
     Partnership Interests

     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 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]

     The aggregate market value of the voting securities held by nonaffiliates
of the Registrant: The aggregate market value of limited partnership interests
held by nonaffiliates is not determinable since there is no public trading
market for the limited partnership interests.

                    Index to Exhibits located on page:   35-36
                                                       ---------

<PAGE>

                                     PART I

Item 1. Business

Background
----------

The Registrant, DiVall Insured Income Properties 2 Limited Partnership (the
"Partnership"), is a limited partnership organized under the Wisconsin Uniform
Limited Partnership Act pursuant to an Agreement of Limited Partnership dated as
of November 18, 1987, and amended as of November 25, 1987, February 20, 1988,
June 21, 1988, February 8, 1993, May 26, 1993 and June 30, 1994 (collectively,
the "Partnership Agreement"). As of December 31, 2001, the Partnership consisted
of one General Partner and 2,300 Limited Partners owning an aggregate of
46,280.3 Limited Partnership Interests (the "Interests") acquired at a public
offering price of $1,000 per Interest before volume discounts. The Interests
were sold commencing February 23, 1988, pursuant to a Registration Statement on
Form S-11 filed under the Securities Act of 1933 (Registration 33-18794) as
amended. On June 30, 1989, the former general partners exercised their option to
extend the offering period to a date no later than February 22, 1990. On
February 22, 1990, the Partnership closed the offering at 46,280.3 Interests
($46,280,300), providing net proceeds to the Partnership after volume discounts
and offering costs of $39,358,468.

The Partnership is currently engaged in the business of owning and operating its
investment portfolio (the "Properties") of commercial real estate. The
Properties are leased on a triple net basis to, and operated by, franchisors or
franchisees of national, regional and local retail chains under long-term
leases. The lessees consist of primarily fast-food, family style, and
casual/theme restaurants, but also include a video rental store and a child care
center. At December 31, 2001, the Partnership owned 26 properties with specialty
leasehold improvements in 10 of these properties, as more fully discussed in
Item 2. During the Second Quarter of 1998, the General Partner received the
written consent of a majority of the Partners to liquidate the Partnership's
assets and dissolve the Partnership. No buyer was identified for the
Partnership's assets, and Management continued normal operations. During the
Second Quarter of 2001, another consent letter was sent to Limited Partners. The
General Partner did not receive majority approval to sell the assets of the
Partnership for purposes of liquidation. The Partnership will continue to
operate as a going concern.

The Partnership's return on its investment will be derived principally from
rental payments received from its lessees. Therefore, the Partnership's return
on its investment is largely dependent, among other factors, upon the business
success of its lessees. The business success of the Partnership's individual
lessees can be adversely affected on three general levels. First, the tenants
rely heavily on the management contributions of a few key entrepreneurial
owners. The business operations of such entrepreneurial tenants can be adversely
affected by death, disability or divorce of a key owner, or by such owner's poor
business decisions such as an undercapitalized business expansion. Second,
changes in a local market area can adversely affect a lessee's business
operation. A local economy can suffer a downturn with high unemployment.
Socioeconomic neighborhood changes can affect retail demand at specific sites
and traffic patterns may change, or stronger competitors may enter a market.
These and other local market factors can potentially adversely affect the
lessees of Partnership properties. Finally, despite an individual lessee's solid
business plans in a strong local market, the chain concept itself can suffer
reversals or changes in management policy which in turn can affect the
profitability of operations for Partnership properties. Therefore, there can be
no assurance that any specific lessee will have the ability to pay its rent over
the entire term of its lease with the Partnership.

Since over 90% of the Partnership's investment in properties and equipment
involves restaurant tenants, the restaurant market is the major market segment
with a material impact on Partnership operations. It would appear that the
management skill and potential operating efficiencies realized by Partnership
lessees will be a major ingredient for their future operating success in a very
competitive restaurant and food service marketplace.

There is no way to determine, with any certainty, which, if any, tenants will
succeed or fail in their business operations over the term of their respective
leases with the Partnership. It can be reasonably anticipated

                                        2

<PAGE>

that some lessees will default on future lease payments to the Partnership which
will result in the loss of expected lease income for the Partnership. Management
will use its best efforts to vigorously pursue collection of any defaulted
amounts and to protect the Partnership's assets and future rental income
potential by trying to re-lease any properties with rental defaults. External
events which could impact the Partnership's liquidity are the entrance of other
competitors into the market areas of our tenants; liquidity and working capital
needs of the leaseholders; and failure or withdrawal of any of the national
franchises held by the Partnership's tenant. Each of these events, alone or in
combination, would affect the liquidity level of leaseholders resulting in
possible default by the tenant. Since the information regarding plans for future
liquidity and expansion of closely held organizations, which are tenants of the
Partnership, tend to be of a private and proprietary nature, anticipation of
individual liquidity problems is difficult, and prediction of future events is
nearly impossible.

A preliminary investigation during 1992 by the Office of the Commissioner of
Securities for the State of Wisconsin and the Securities and Exchange Commission
(the "Investigation"), revealed that during at least the four years ended
December 31, 1992, two of the former general partners of the Partnership, Gary
J. DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred
substantial cash assets of the Partnership and two affiliated publicly
registered partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall
1") and DiVall Income Properties 3 Limited Partnership ("DiVall 3")
(collectively the "Partnerships") to various other entities previously sponsored
by or otherwise affiliated with DiVall and Magnuson. The unauthorized transfers
were in violation of the respective Partnership Agreements.

Subsequent to discovery, and in response to the regulatory inquiries, a
third-party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed
(effective February 8, 1993) to assume the responsibility for daily operations
and assets of the Partnerships as well as to develop and execute a plan of
restoration to the Partnerships. As reported in the Partnership's report on Form
8-K dated May 26, 1993, effective as of that date, the Limited Partners, by
written consent of a majority of interests, elected the Permanent Manager, TPG,
as General Partner. Additional results of the solicitation included the approval
of the Permanent Manager Agreement ("PMA"), the acceptance of the resignations
of the former general partners, amendments to certain provisions of the
Partnership Agreement pertaining to general partner interests and compensation,
and an amendment of the Partnership Agreement providing for an Advisory Board
(the "Board").

The Permanent Manager Agreement
-------------------------------

The PMA was entered into on February 8, 1993, between the Partnership, DiVall 1
(which was dissolved in December 1998), DiVall 3, the now former general
partners DiVall and Magnuson, their controlled affiliates, and TPG, naming TPG
as the Permanent Manager. The PMA contains provisions allowing the Permanent
Manager to submit the PMA, the issue of electing the Permanent Manager as
General Partner, and the issue of acceptance of the resignations of the former
general partners to a vote of the Limited Partners through a solicitation of
written consents.

TPG, as the new General Partner, has been operating and managing the affairs of
the Partnership in accordance with the provisions of the PMA and the Partnership
Agreement.

Advisory Board
--------------

The concept of the Advisory Board was first introduced by TPG during the
solicitation of written consents for the Partnerships and is the only type of
oversight body known to exist for similar partnerships at this time. The first
Advisory Board was appointed in October 1993, and held its first meeting in
November 1993. The four person Advisory Board is empowered to, among other
functions, review operational policies and practices, review extraordinary
transactions, and advise and serve as an audit committee to the Partnership and
the General Partner. The Advisory Board does not have the authority to direct
management decisions or policies of the Partnership or remove the General
Partner. The powers of the Advisory Board are advisory only. The Advisory Board
has full and free access to the Partnership's books and records, and individual
Advisory Board members have the right to communicate directly with the Limited
Partners

                                        3

<PAGE>

concerning Partnership business. Members of the Advisory Board are compensated
$1,500 annually and $500 for each quarterly meeting attended.

The Advisory Board currently consists of a broker dealer representative, William
Arnold; and Limited Partners from each of the two remaining Partnerships:
Richard Otte and Jesse Small from the Partnership, and Albert Kramer from DiVall
3. For a brief description of each Advisory Board member, refer to Item 10,
Directors and Executive Officers of the Registrant.

The Partnership has no employees.

All of the Partnership's business is conducted in the United States.

Item 2. Properties

The Partnership's Properties are leased under long-term leases, generally with
terms of approximately 20 years. All leases are triple net which require the
tenant to pay all property operating costs including maintenance, repairs,
utilities, property taxes, and insurance. A majority of the leases contain
percentage rent provisions which require the tenant to pay a specified
percentage (6% to 9%) of gross sales above a threshold amount.

The Partnership owned the following Properties (including specialty leasehold
improvements for use in some of these properties) as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                                              Lease
Acquisi-     Property Name                                     Purchase         Rental Per    Expiration    Renewal
tion Date    & Address                     Lessee              Price (1)        Annum         Date          Options
---------    --------------------------    -----------------   ----------       ----------    ----------    -------
<S>          <C>                           <C>                  <C>               <C>         <C>            <C>
03/11/88     Miami Subs                    QSR, Inc.           $  743,625         $60,000     03-30-2016     None
             US-1 Near PGA Blvd
             Palm Beach, FL

06/15/88     Denny's                       Phoenix              1,087,137(2)       90,000     08-31-2009      (3)
             8801 N 7th St                 Restaurant
             Phoenix, AZ                   Group, Inc.

07/15/88     Hooter's                      TWIX, Inc.           1,346,719          95,000     07-15-2008     None
             7669 Grapevine Hwy
             N Richland Hills, TX

08/01/88     Vacant                        Vacant               1,091,190(2)            0             NA       NA
             106 N Chicago Ave
             S Milwaukee, WI

08/15/88     Denny's                       First Foods, Inc.    1,155,965(2)       65,000     10-31-2007     None
             2360 W Northern Ave
             Phoenix, AZ

10/10/88     Kentucky Fried Chicken (4)    KFC National           451,230          60,000     06-30-2018     None
             1014 S St Francis Dr          Management Co.
             Santa Fe, NM

12/22/88     Wendy's                       WenSouth Orlando,      596,781          76,920      11-6-2016     None
             1721 Sam Rittenburg Blvd      Ltd.
             Charleston, SC

12/22/88     Wendy's                       WenSouth Orlando,      649,594          86,160      11-6-2016     None
             3013 Peach Orchard Rd         Ltd.
             Augusta, GA

12/29/88     Popeye's                      Stillman Mgmt.         580,938          77,280     12-31-2009     None
             2562 Western Ave              Co., Inc.
             Park Forest, IL
</TABLE>

                                        4

<PAGE>

<TABLE>
<CAPTION>
                                                                                              Lease
Acquisi-     Property Name                                      Purchase        Rental Per    Expiration    Renewal
tion Date    & Address                     Lessee               Price (1)       Annum         Date          Options
---------    --------------------------    -----------------   ----------       ----------    ----------    -------
<S>          <C>                           <C>                  <C>               <C>         <C>            <C>
02/21/89     Wendy's                       WenSouth Orlando,      776,344          96,780      11-6-2016     None
             1901 Whiskey Rd               Ltd.
             Aiken, SC

02/21/89     Wendy's                       WenSouth Orlando,      728,813          96,780      11-6-2016     None
             1730 Walton Way               Ltd.
             Augusta, GA

02/21/89     Wendy's                       WenSouth Orlando,      528,125          70,200      11-6-2016     None
             347 Folly Rd                  Ltd.
             Charleston, SC

02/21/89     Wendy's                       WenSouth Orlando,      580,938          77,280      11-6-2016     None
             361 Hwy 17 Bypass             Ltd.
             Mount Pleasant, SC

03/14/89     Wendy's                       WenSouth Orlando,      633,750          90,480      11-6-2016     None
             1004 Richland Ave             Ltd.
             Aiken, SC

04/20/89     Hostetlers, BBQ               Hickory Park, Inc.     897,813(2)       60,000     12-31-2002     None
             4875 Merle Hay
             Des Moines, IA

04/28/89     Hardee's                      Hardee's Food          686,563          64,000     04-30-2009      (3)
             1570 E Sumner St              Systems, Inc.
             Hartford, WI

10/18/89     Omega                         Omega Restaurants    1,421,983(2)       84,840     09-30-2011     None
             4000 S 27th St
             Milwaukee, WI

12/28/89     Village Inn                   Columbia VI,           845,000(2)       96,600     11-30-2009      (3)
             2451 Columbia Rd              L.L.C.
             Grand Forks, ND

12/29/89     Wendy's                       WenSouth Orlando,      660,156          87,780      11-6-2016     None
             1717 Martintown Rd            Ltd.
             N Augusta, SC

12/29/89     Wendy's                       WenSouth Orlando,      580,938          77,280      11-6-2016     None
             1515 Savannah Hwy             Ltd.
             Charleston, SC

12/29/89     Wendy's                       WenSouth Orlando,      633,750          84,120      11-6-2016     None
             3869 Washington Rd            Ltd.
             Martinez, GA

01/01/90     Sunrise Preschool             Sunrise              1,182,735(2)      123,318     05-31-2009     None
             4111 E Ray Rd                 Preschools, Inc.
             Phoenix, AZ

01/05/90     Hardee's                      Hardee's Food        1,140,236(2)       88,000     11-30-2009      (3)
             20 N Pioneer Rd               Systems, Inc.
             Fond du lac, WI

01/31/90     Blockbuster Video             Blockbuster            646,425          99,000     01-31-2006      (3)
             336 E 12th St                 Videos, Inc.
             Ogden, UT

03/21/90     Vacant                        Vacant               1,179,501(2)            0             NA       NA
             688 N Blue Lakes Blvd
             Twin Falls, ID
</TABLE>

                                        5

<PAGE>

<TABLE>
<CAPTION>
                                                                                              Lease
Acquisi-     Property Name                                      Purchase        Rental Per   Expiration    Renewal
tion Date    & Address                     Lessee               Price (1)         Annum        Date          Options
---------    --------------------------    -----------------   -----------      ----------   ----------    -------
<S>          <C>                           <C>                 <C>              <C>          <C>            <C>
05/31/90     Applebee's                    Thomas & King,
             2770 Brice Rd                 Inc.                  1,434,434(2)      135,780   10-31-2009     None
                                                               -----------      ----------
             Columbus, OH

                                                               $22,260,683      $2,042,598
                                                               ===========      ==========
</TABLE>

Footnotes:

(1)  Purchase price includes all costs incurred to acquire the property.
(2)  Purchase price includes cost of specialty leasehold improvements.
(3)  Renewal option available at tenant's option.
(4)  Ownership of lessee's interest under a ground lease. The tenant is
     responsible for payment of all rent obligations under the ground lease.

During March 2001, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurants in South Milwaukee and Milwaukee, Wisconsin. Hardee's
lease on the South Milwaukee property expired on November 30, 2001 and they were
required to continue making rent payments until the lease expiration date. This
lease was not renewed, and therefore, Management is actively marketing new
leasing for the vacant S. Milwaukee property. The Hardee's lease on the
Milwaukee property was not set to expire until 2009. In the Second Quarter of
2001, a lease termination agreement was executed and Hardee's Food Systems
agreed to pay a lease termination fee of $157,000. The former Hardee's
-Milwaukee tenant ceased the payment of rent as of April 30, 2001.

During May 2001, Management negotiated the re-lease of the former
Hardee's-Milwaukee, Wisconsin property to Omega Restaurants, Inc. The ten (10)
year lease is set to expire in 2011. The new tenant took possession of the
property in June 2001 and rent income commenced in October 2001. Commissions of
$50,000 and $9,000 were paid to an unaffiliated leasing agent and to an
affiliate of the General Partner, respectively, upon the execution of the new
lease.

During December 2001, Hardee's Food Systems, Inc. notified Management that it
had vacated its restaurant in Hartford, Wisconsin. Hardee's lease on the
Hartford property expires on April 30, 2009 and they will be required to
continue making rent payments until the lease expiration date or until a lease
termination agreement with Management is entered into.

The Blockbuster Video Store lease expired on January 31, 2001. However, in the
First Quarter of 2001, Management negotiated a five (5) year lease extension to
January 31, 2006. A commission of $10,000 was paid to an unaffiliated leasing
agent upon the negotiated extension of the lease.

During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of
Phoenix Restaurant Group, Inc. ("Phoenix") to reject the lease with the
Partnership at the Twin Falls, Idaho location. Although Phoenix's lease on the
Twin Falls property expires on April 30, 2012, due to bankruptcy proceedings of
Phoenix, the lease was terminated and rent income ceased as of December 2001.
The remaining balance due the Partnership of approximately $29,000 from the
former tenant has been reserved. This amount is included in the Partnership's
filing for damages in Bankruptcy court of approximately $85,000, or one year's
rent, although it is uncertain whether the amount will be collectible. In
addition, since Phoenix rejected the lease, its subtenant, Fiesta Time, has no
rights to the possession of the property. Therefore, Management is in the
process of obtaining possession of the property from Fiesta Time, and then
Management will market the property for lease or sale.

During April 2001, the sub-tenant AMF Corporation notified Management of its
intent to close and vacate its Mulberry Street Grill restaurant in Phoenix,
Arizona. Although the lease on the property expires in 2007, monthly rental and
Common Area Maintenance (CAM) income ceased as of June 1, 2001.

                                       6

<PAGE>

Management is moving forward with all legal remedies to collect the remaining
balance due of approximately $10,000. The entire amount due the Partnership has
been reserved. Due to Management's voluntary surrender of the possession and
keys of the property to the Ground Lease landlord in June, the net asset value
of the property was written-off in the Fourth Quarter of 2001, resulting in a
loss of $157,000. As of December 31, 2001 the Partnership has withheld the
payment of approximately $50,000 in accrued ground lease obligations related to
the property. ( See Legal Proceedings in Item 3.)

During October 2001, the Village Inn Restaurant notified Management of its
intent to close and vacate its restaurant in Grand Forks, North Dakota within
the next few months. The lease on the property expires in 2009. In February
2002, Management was notified Village Inn had closed and vacated its restaurant
in Grand Forks. Rent income was collected from the tenant through December 2001,
however, rent income has not been collected for January and February of 2002.
Management will pursue all legal remedies in relation to the former tenant's
past due balance of approximately $17,000, as well as future lease obligations.
Management is also seeking a new tenant for the vacated property.

Item 3. Legal Proceedings

The Partnership owned the building occupied by the Mulberry Street Grill
restaurant, which was located on a parcel of land where it had entered into a
long-term Ground Lease. The lease was considered an operating lease and the
lease payments were paid by the Partnership and expensed in the periods to which
they applied. During the Second Quarter of 2001, sub-tenant AMF Corporation
("AMF") notified Management of its intent to close its Mulberry Street Grill
restaurant in Phoenix, Arizona. The Partnership ceased collecting the former
tenant's rent and attempted to return possession of the Phoenix, Arizona
property to the Ground Lease Landlord, Centre at 38th Street, L.L.C, ("LLC".) In
addition, beginning in May and through December 2001 the Partnership accrued but
withheld payment of the ground lease obligations and at December 31, 2001 the
total ground lease accrual approximates $50,000. The Ground Lease Landlord, LLC,
has released the property to a new tenant and the Partnership has requested
notification from the Landlord upon any default of the new tenant.

On June 18, 2001, LLC filed a lawsuit in the Maricopa County Superior Court,
against the Partnership and TPG. The Complaint alleges that the Partnership is a
tenant under a Ground Lease with LLC and that the Partnership has defaulted on
its obligations under that lease. The suit names TPG as a defendant because TPG
is the Partnership's general partner. The complaint seeks damages for unpaid
rent, commissions, improvements, and unspecified other damages exceeding
$120,000.

The Partnership and TPG have filed an answer denying any liability to LLC and
intends to defend this matter vigorously. In addition, the Partnership has filed
a third-party complaint against the original tenant, National Restaurant
Group,("National Restaurant'), L.L.C., and its sub-tenant AMF. In the
third-party complaint, the Partnership alleges that National Restaurant and AMF
are liable to the Partnership for breach of the subleases and any damages for
which the Partnership may be held liable to the Ground Lessor, LLC.

Item 4. Submission of Matters to a Vote of Security Holders

None.

                                       7

<PAGE>

                                     PART II

Item 5. Market Price and Dividends on the Registrant's Common Equity and Related
        Stockholder Matters

(a)  Although some Interests have been traded, there is no active public market
     for the Interests, and it is not anticipated that an active public market
     for the Interests will develop.

(b)  As of December 31, 2001 there were 2,300 record holders of Interests in the
     Partnership.

(c)  The Partnership does not pay dividends. However, the Partnership Agreement,
     provides for distributable net cash receipts of the Partnership to be
     distributed on a quarterly basis, 99% to the Limited Partners and 1% to the
     General Partner, subject to the limitations on distributions to the General
     Partner described in the Partnership Agreement. During 2001 and 2000,
     $2,180,000 and $2,635,000, respectively, were distributed in the aggregate
     to the Limited Partners. The General Partner received aggregate
     distributions of $6,935 and $6,887 in 2001 and 2000, respectively.

Item 6. Selected Financial Data

The Partnership's selected financial data included below has been derived from
the Partnership's financial statements. Arthur Andersen LLP's report on the
financial statements, for the years ended December 31, 2001 and 2000, is
included in this annual report on page 15. The financial data selected below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and with the financial
statements and the related notes appearing elsewhere in this annual report.

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
                        (a Wisconsin limited partnership)

                  December 31, 2001, 2000, 1999, 1998, and 1997

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                  2001          2000          1999          1998          1997
--------------------------------------------------------------------------------------------------
<S>                            <C>           <C>           <C>           <C>           <C>
Total Revenue                  $ 2,936,631   $ 2,853,286   $ 3,024,407   $ 3,622,550   $ 3,448,300
--------------------------------------------------------------------------------------------------
Net Income                       1,733,779     1,721,791     2,047,520     1,524,131     2,183,977
--------------------------------------------------------------------------------------------------
Net Income per Limited
Partner Interest                     37.09         36.83         43.80         32.60         46.72
--------------------------------------------------------------------------------------------------
Total Assets                    15,901,934    16,199,631    17,125,388    17,693,852    20,894,198
--------------------------------------------------------------------------------------------------
Total Partners' Capital         15,500,492    15,953,648    16,873,744    17,409,414    20,479,121
--------------------------------------------------------------------------------------------------
Cash Distributions per
Limited Partnership Interest         47.10         56.94         55.64         99.07         99.39
--------------------------------------------------------------------------------------------------
</TABLE>

                                       8

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Liquidity and Capital Resources:
-------------------------------

Investment Properties and Net Investment in Direct Financing Leases
-------------------------------------------------------------------

The Properties, including equipment held by the Partnership at December 31,
2001, were originally purchased at a price, including acquisition costs, of
approximately $22,261,000.

During March 2001, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurants in South Milwaukee and Milwaukee, Wisconsin. Hardee's
lease on the South Milwaukee property expired on November 30, 2001 and they were
required to continue making rent payments until the lease expiration date. This
lease was not renewed, and therefore, Management will market the property for
lease to a new tenant. The Hardee's lease on the Milwaukee property was not set
to expire until 2009. In the Second Quarter of 2001, a lease termination
agreement was executed and the tenant ceased the payment of rent as of April 30,
2001. Hardee's Food Systems agreed to pay a lease termination fee of
approximately two (2) years rent or $157,000. The payments are scheduled to be
received in four (4) equal installments of $39,250. The first payment was
received in May 2001 upon the execution of the agreement, and the subsequent
installments were reflected as Note receivable on the balance sheet. Note
receivable installment were received in August and October 2001. The remaining
installment, which is reflected in the Note receivable on the balance sheet at
December 31, 2001, is scheduled to be received in February 2002.

During May 2001, Management negotiated the re-lease of the former Hardee's-
Milwaukee, Wisconsin property to Omega Restaurants, Inc. The ten (10) year lease
is set to expire in 2011. The new tenant took possession of the property in June
2001 and rent income commenced in October 2001. Commissions of $50,000 and
$9,000 were paid to an unaffiliated leasing agent and to an affiliate of the
General Partner, respectively, upon the execution of the new lease.

During December 2001, Hardee's Food Systems, Inc. notified Management that it
had vacated its restaurant in Hartford, Wisconsin. Hardee's lease on the
Hartford property expires on April 30, 2009 and they will be required to
continue making rent payments until the lease expiration date or until a lease
termination agreement with Management is entered into.

The Blockbuster Video Store lease expired on January 31, 2001. However, in the
First Quarter of 2001, Management negotiated a five (5) year lease extension to
January 31, 2006. A commission of $10,000 was paid to an unaffiliated leasing
agent upon the negotiated extension of the lease.

During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of
Phoenix Restaurant Group, Inc. ("Phoenix") to reject the lease with the
Partnership at the Twin Falls, Idaho location. Although Phoenix's lease on the
Twin Falls property expires on April 30, 2012, due to bankruptcy proceedings of
Phoenix, the lease was terminated and rent income ceased as of December 2001.
The remaining balance due the Partnership of approximately $29,000 from the
former tenant has been reserved. This amount is included in the Partnership's
filing for damages in Bankruptcy court of approximately $85,000, or one year's
rent, although it is uncertain whether the amount will be collectible. In
addition, since Phoenix rejected the lease, its subtenant, Fiesta Time, has no
rights to the possession of the property. Therefore, Management is in the
process of obtaining possession of the property from Fiesta Time, and then
Management will market the property for lease or sale.

During April 2001, the sub-tenant AMF Corporation notified Management of its
intent to close and vacate its Mulberry Street Grill restaurant in Phoenix,
Arizona. Although the lease on the property expires in 2007, monthly rental and
Common Area Maintenance (CAM) income ceased as of June 1, 2001. Management is
moving forward with all legal remedies to collect the remaining balance due of
approximately $10,000. The entire amount due the Partnership has been reserved.
Due to Management's

                                       9

<PAGE>

attempt to return possession of the property to the Ground Lease landlord, the
net asset value of the property was written-off in the Fourth Quarter of 2001,
resulting in a loss of $157,000. As of December 31, 2001 the Partnership has
withheld the payment of approximately $50,000 in accrued ground lease
obligations related to the property. ( See Legal Proceedings in Item 3.)

During October 2001, the Village Inn Restaurant notified Management of its
intent to close and vacate its restaurant in Grand Forks, North Dakota within
the next few months. The lease on the property expires in 2009. In February
2002, Management was notified Village Inn had closed and vacated its restaurant
in Grand Forks. Rent income was collected from the tenant through December 2001,
however, rent income has not been collected for January and February of 2002.
Management will pursue all legal remedies in relation to the former tenant's
past due balance of approximately $17,000, as well as future lease obligations.
Management is also seeking a new tenant for the vacated property.

The tenant of the Red Apple Restaurant in Cedar Rapids, Iowa, vacated the
property during 1998 and ceased paying rent. Management sold the property during
the Fourth Quarter of 1999 for $450,000 at a gain of approximately $26,000.

Phoenix Restaurant Group, Inc. ("Phoenix") did not formally extend its lease on
the Denny's property on Camelback Road in Phoenix, Arizona, when it expired on
January 30, 1998, but continued to operate the restaurant and pay rent through
December 31, 1999. During January 2000, Phoenix notified Management that it had
vacated the premises and ceased paying rent. Management entered into a
termination agreement with the ground lessor of the property during 2000, which
resulted in a one-time payment of $90,000 in exchange for a release of all
future obligations. Possession of the property was returned to the ground
lessor, resulting in a $153,000 loss in 2000.

During the Fourth Quarter of 2000, Management negotiated the extension of the
leases on the ten (10) Wendy's restaurants from original expirations ranging
from 2008 to 2009, to new expiration dates of November 2016.

Other Assets
------------

Cash and cash equivalents, held by the Partnership, totaled approximately
$819,000 at December 31, 2001, compared to $752,000 at December 31, 2000. The
Partnership designated cash of $485,000 to fund the Fourth Quarter 2001
distributions to Limited Partners paid in February 2002, $112,000 for the
payment of year-end accounts payable and accrued expenses, and the remainder
represents reserves deemed necessary to allow the Partnership to operate
normally. Cash generated through the operations of the Partnership's Properties
and sales of Properties will provide the sources for future fund liquidity and
Limited Partner distributions.

The Partnership established an Indemnification Trust (the "Trust") during the
Fourth Quarter of 1993, deposited $100,000 in the Trust during 1993 and
completed funding of the Trust with $150,000 during 1994. The provision to
establish the Trust was included in the Permanent Manager Agreement for the
indemnification of TPG, in the absence of fraud or gross negligence, from any
claims or liabilities that may arise from TPG acting as Permanent Manager. The
Trust is owned by the Partnership. For additional information regarding the
Trust refer to Note 8 to the financial statements included in Item 8 of this
report.

Property tax escrow at December 31, 2001, in the amount of $7,875, represented
four (4) months of 2001 real estate taxes for the former Hardee's- Milwaukee
tenant paid by Hardee's Food Systems, Inc. upon the lease termination agreement
with Management.

Property tax receivable at December 31, 2001, in the amount of $31,000
represented 2001 real estate taxes due from the former Hardee's- S. Milwaukee
property and new tenant, Omega Restaurants. In addition, 2000 property taxes
paid by the Partnership are due from the Village Inn property.

The Note receivable balance at December 31, 2001 was $39,250. In the Second
Quarter of 2001, a lease termination agreement was executed with Hardee's Food
Systems upon the closing of its restaurant in

                                       10

<PAGE>

Milwaukee, Wisconsin. Hardee's Food Systems agreed to pay a lease termination
fee of approximately two (2) years rent or $157,000. The payments were scheduled
to be received in four (4) equal installments of $39,250. The first payment was
received in May 2001 upon the execution of the agreement, and the subsequent
installments were reflected as Note receivable on the balance sheet in the
Second Quarter of 2001. Note receivable installments were received in August and
October 2001. The remaining installment, which is reflected in the Note
receivable on the balance sheet at December 31, 2001, is scheduled to be
received in February 2002.

Deferred charges totaled approximately $286,000 and $263,000, net of
amortization, at December 31, 2001 and December 31, 2000, respectively. Deferred
charges represent leasing commissions paid when properties are leased or upon
the negotiated extension of a lease. Leasing commissions are capitalized and
amortized over the life of the lease. During the Second Quarter of 2001,
commissions of $50,000 and $9,000 were paid to an unaffiliated leasing agent and
to an affiliate of the General Partner, respectively, upon the execution of the
new Omega Restaurant lease. During the First Quarter of 2001, a commission of
$10,000 was paid to an unaffiliated leasing agent upon the negotiated extension
of the lease with Blockbuster Video. During the Fourth Quarter of 2000, a
commission of $190,000 was paid to an affiliate of the General Partner upon the
negotiated extension of the leases on the ten (10) Wendy's restaurants. Also,
during 2001 deferred charges relating to the former Hardee's- Milwaukee and
Mulberry Street Grill properties were written-off.

Liabilities
-----------

Accounts payable and accrued expenses at December 31, 2001, in the amount of
$93,000, primarily represented the year-end accruals of auditing, tax and data
processing fees, and May through December ground lease rent related to the
former Mulberry Street Grill Property.

Property taxes payable at December 31, 2001, in the amount of $25,000,
represented 2001 real estate taxes due for the Omega Restaurant property, and
the vacant S. Milwaukee, Wisconsin and Twin Falls, Idaho properties.

Due to the Current General Partner amounted to $1,800 at December 31, 2001,
representing the General Partner's portion of the Fourth Quarter 2001
distribution.

Partners' Capital:
-----------------

Net income for the year was allocated between the General Partner and the
Limited Partners, 1% and 99%, respectively, as provided in the Partnership
Agreement as discussed more fully in Note 4 of the financial statements included
in Item 8 of this report. The former general partners' deficit capital account
balance was reallocated to the Limited Partners at December 31, 1993. Refer to
Note 9 to the financial statements included in Item 8 of this report for
additional information regarding the reallocation.

Cash distributions paid to the Limited Partners and to the General Partner
during 2001 of $2,180,000 and $6,935, respectively, have also been in accordance
with the Partnership Agreement. The Fourth Quarter 2001 distribution of $485,000
is scheduled to be paid to the Limited Partners on February 15, 2002.

Results of Operations:
---------------------

The Partnership reported net income for the year ended December 31, 2001, in the
amount of $1,734,000 compared to net income for the years ended December 31,
2000 and 1999, of $1,722,000 and $2,048,000, respectively. Results for all three
years were different than would be expected from "normal" operations, primarily
because of tenant defaults, non-cash write-offs, ground lease termination fees,
real estate taxes on vacant properties, and property valuation costs. Results
were also impacted by gains or losses on the disposition of properties and the
reversal of a portion of the former general partner receivable write-off. In
addition, net income in 2001 included a $157,000 lease termination fee upon the
termination of the Hardee's -Milwaukee property in the Second Quarter of 2001.

                                       11

<PAGE>

Revenues
--------

Total revenues were $2,937,000, $2,853,000, and $3,024,000, for the years ended
December 31, 2001, 2000, and 1999, respectively. A decrease in fixed rents
resulted from tenant turnover, disposal of property, and modified leases.
Revenue in 2001 included a $157,0000 lease termination fee upon the termination
of the Hardee's- Milwaukee property lease in the second Quarter of 2001. During
1999, a gain of $26,000 was recorded on the sale of the Red Apple Restaurant
property, and recoveries totaled $85,000. Recoveries received during 2001 and
2000, totaled $7,000 and $4,000, respectively.

Total revenues should approximate $2,043,000 annually based on leases currently
in place. Future revenues may decrease with tenant defaults and/or sales of
Properties. They may also increase with additional rents due from tenants, if
those tenants experience sales levels which require the payment of additional
rent to the Partnership.

Expenses
--------

For the years ended December 31, 2001, 2000, and 1999, cash expenses amounted to
approximately 20%, 21%, and 18%, of total revenues, respectively. Total
expenses, including non-cash items, amounted to approximately 41%, 40% and 32%,
of total revenues for the years ended December 31, 2001, 2000, and 1999,
respectively. Items negatively impacting expenses during the last three years
include expenses incurred primarily in relation to non-cash write-offs, and real
estate taxes. In addition, during 2001, the Partnership obtained appraisals of
all the Partnership properties at a cost of $63,000. Also during 2001, the
Partnership incurred the non-cash write-off of the Mulberry Street Grill
property resulting in a loss of $157,000. During 2000, the Partnership paid a
one-time $90,000 fee to terminate a ground lease. Also during 2000, in
connection with the termination, the property was returned to the ground lessor,
resulting in a $153,000 loss.

Charge-offs of uncollectible, non-cash disposal of assets, depreciation, and
amortization are non-cash items and do not affect current operating cash flow of
the Partnership or distributions to the Limited Partners.

Write-offs for uncollectible rents and receivables amounted to $53,500, $6,800,
and $3,400, at December 31, 2001, 2000, and 1999, respectively. The write-offs
are the result of defaults as well as modifications to several property leases
since inception of the Partnership.

The 1999 selling commission was a result of the sale of the Red Apple Restaurant
property.

Selected Quarterly Financial Information (unaudited)
----------------------------------------------------

                                        Quarter Ended
                       March 31,    June 30,    September 30,    December 31,
                         2001         2001         2001             2001
                       --------     --------    -------------    ------------
Revenues               $606,620     $747,753      $724,089         $858,169

Net Income             $324,989     $500,529      $459,624         $448,637
Net Income Per Unit    $   6.95     $  10.71      $   9.83         $   9.60

                                        Quarter Ended
                       March 31,    June 30,    September 30,    December 31,
                         2000         2000          2000            2000
                       --------     --------    -------------    ------------
Revenues               $583,668     $613,248      $775,092         $881,278

Net Income             $353,265     $355,572      $346,275         $666,679
Net Income Per Unit    $   7.56     $   7.61      $   7.41         $  14.25

                                       12

<PAGE>

Inflation:
---------

Inflation has a minimal effect on operating earnings and related cash flows from
a portfolio of triple net leases. By their nature, such leases a ctually fix
revenues and are not impacted by rising costs of maintenance, insurance, or real
estate taxes. Although the majority of the Partnership's leases have percentage
rent clauses, revenues from percentage rents represented only 22% of rental
income for 2001. If inflation causes operating margins to deteriorate for
lessees, if expenses grow faster than revenues, then, inflation may well
negatively impact the portfolio through tenant defaults.

It would be misleading to associate inflation with asset appreciation for real
estate, in general, and the Partnership's portfolio, specifically. Due to the
"triple net" nature of the property leases, asset values generally move
inversely with interest rates.

New Accounting Pronouncement:
----------------------------

In October 2001, Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" (FAS 144) was issued. FAS
144 supercedes Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (FAS 121). FAS 144 primarily addresses issues relating to the implementation
of FAS 121 and develops a single accounting model for long-lived assets to be
disposed of, whether previously held and used or newly acquired. The provisions
of FAS 144 will be effective for fiscal years beginning after December 15, 2001.
The Company adopted FAS 144 on January 1, 2002 with no impact on financial
statements.

Critical Accounting Policies:
----------------------------

The Partnership believes that its most significant accounting policies deal
with:

Depreciation methods and lives- Depreciation of the properties is provided on a
straight-line basis over 31.5 years, which is the estimated useful life of the
buildings and improvements. While the Partnership believes these are the
appropriate lives and methods, use of different lives and methods could result
in different impacts on net income. Additionally, the value of real estate is
typically based on market conditions and property performance, so depreciated
book value of real estate may not reflect the market value of real estate
assets.

Revenue recognition- Rental revenue from investment properties is recognized on
the straight-line basis over the life of the respective lease. Percentage rents
are accrued only when the tenant has reached the breakpoint stipulated in the
lease.

The Partnership periodically reviews its long-lived assets, primarily real
estate, for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The Partnership's
review involves comparing current and future operating performance of the
assets, the most significant of which is undiscounted operating cash flows, to
the carrying value of the assets. Based on this analysis, a provision for
possible loss is recognized, if any.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

None.

                                       13

<PAGE>

Item 8. Financial Statements and Supplementary Data

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
             ------------------------------------------------------

                        (a Wisconsin limited partnership)
                        ---------------------------------

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
                   -------------------------------------------

                                                                   Page
                                                                   -----
Report of Independent Public Accountants        .................     15

Balance Sheets, December 31, 2001 and 2000      .................  16-17

Statements of Income for the Years
Ended December 31, 2001, 2000, and 1999         .................     18

Statements of Partners' Capital for the
Years Ended December 31, 2001, 2000, and 1999   .................     19

Statements of Cash Flows for the Years
Ended December 31, 2001, 2000, and 1999         .................     20

Notes to Financial Statements                   .................  21-30

Schedule III--Real Estate and Accumulated
Depreciation                                    .................  37-38

                                       14

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Divall Insured Income Properties 2 Limited Partnership:

We have audited the accompanying balance sheets of Divall Insured Income
Properties 2 Limited Partnership (the Partnership), as of December 31, 2001 and
2000, and the related statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Divall Insured Income
Properties 2 Limited Partnership, as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.


/s/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 8, 2002

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                                 BALANCE SHEETS

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       December 31,    December 31,
                                                                           2001            2000
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
INVESTMENT PROPERTIES AND EQUIPMENT: (Note 3)

   Land                                                                $  7,296,406    $  7,298,596
   Buildings                                                             11,561,307      11,902,463
   Equipment                                                                669,778         669,778
   Accumulated depreciation                                              (5,854,938)     (5,694,980)
                                                                       ------------    ------------
         Net investment properties and equipment                         13,672,553      14,175,857
                                                                       ------------    ------------
OTHER ASSETS:

   Cash and cash equivalents                                                818,606         752,060
   Cash held in Indemnification Trust (Note 8)                              372,167         356,153
   Property tax escrow                                                        7,875               0
   Rents and other receivables (Net of allowance of $37,977 in
     2001)                                                                  546,771         530,379
   Property tax receivable                                                   30,977               0
   Deferred rent receivable                                                 105,633         105,684
   Prepaid insurance                                                         22,035          16,091
   Deferred charges                                                         286,067         263,407
   Note receivable                                                           39,250               0
                                                                       ------------    ------------
         Total other assets                                               2,229,381       2,023,774
                                                                       ------------    ------------
         Total assets                                                  $ 15,901,934    $ 16,199,631
                                                                       ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       16

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                                 BALANCE SHEETS

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

                        LIABILITIES AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                             December 31,    December 31,
                                                                                 2001            2000
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
LIABILITIES:
   Accounts payable and accrued expenses                                     $     92,802    $     40,059
   Property taxes payable                                                          25,105               0
   Due to General Partner                                                           1,795           2,667
   Security deposits                                                              109,017         117,850
   Unearned rental income                                                         172,723          85,407
                                                                             ------------    ------------
         Total liabilities                                                        401,442         245,983
                                                                             ------------    ------------

CONTINGENT LIABILITIES: (Note 7)

PARTNERS' CAPITAL: (Notes 1, 4 and 9)
   Current General Partner -
      Cumulative net income                                                       172,176         154,838
      Cumulative cash distributions                                               (70,941)        (64,006)
                                                                             ------------    ------------
                                                                                  101,235          90,832
                                                                                             ------------
   Limited Partners (46,280.3 interests outstanding)
      Capital contributions, net of offering costs                             39,358,468      39,358,468
      Cumulative net income                                                    23,411,286      21,694,845
      Cumulative cash distributions                                           (46,530,268)    (44,350,268)
      Reallocation of former general partners' deficit capital                   (840,229)       (840,229)
                                                                             ------------    ------------
                                                                               15,399,257      15,862,816
                                                                             ------------    ------------
         Total partners' capital                                               15,500,492      15,953,648
                                                                             ------------    ------------
         Total liabilities and partners' capital                             $ 15,901,934    $ 16,199,631
                                                                             ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       17

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                              STATEMENTS OF INCOME

              For the Years Ended December 31, 2001, 2000, and 1999
              -----------------------------------------------------

<TABLE>
<CAPTION>
                                                                     2001         2000         1999
                                                                  ----------   ----------   ----------
<S>                                                               <C>          <C>          <C>
REVENUES:
   Rental income (Note 5)                                         $2,731,813   $2,786,584   $2,768,242
   Interest income                                                    40,019       61,221       56,938
   Lease Termination Fee (Note 3)                                    157,000            0            0
   Other income                                                          847        1,773       88,139
   Recovery of amounts previously written off (Note 2)                 6,952        3,708       85,380
   Net gain on disposal of assets                                          0            0       25,708
                                                                  ----------   ----------   ----------
                                                                   2,936,631    2,853,286    3,024,407
                                                                  ----------   ----------   ----------
EXPENSES:
   Partnership management fees (Note 6)                              192,902      187,038      183,074
   Restoration fees (Note 6)                                             278          148          260
   Appraisal fees                                                     62,857            0            0
   Insurance                                                          21,418       17,864       22,770
   General and administrative                                         73,674       81,814       71,574
   Advisory Board fees and expenses                                   10,837       12,360       11,425
   Selling Commissions - Non-affiliate                                     0            0       15,750
   Loss on Disposal of property (Note 3)                             156,714      153,159       12,699
   Real estate taxes                                                  14,330            0       10,032
   Ground lease payments (Note 3)                                     71,606       92,182      125,840
   Expenses incurred due to default by lessee                         10,243        2,520        8,995
   Professional services                                             143,223      125,497      101,440
   Ground lease termination fee (Note 3)                                   0       90,000            0
   Depreciation                                                      344,401      350,394      369,989
   Amortization                                                       46,831       11,709       39,639
   Provision for uncollectible rents and other receivables            53,538        6,810        3,400
                                                                  ----------   ----------   ----------
                                                                   1,202,852    1,131,495      976,887
                                                                  ----------   ----------   ----------
NET INCOME                                                        $1,733,779   $1,721,791   $2,047,520
                                                                  ==========   ==========   ==========

NET INCOME - CURRENT GENERAL PARTNER                              $   17,338   $   17,218   $   20,475
NET INCOME - LIMITED PARTNERS                                      1,716,441    1,704,573    2,027,045
                                                                  ----------   ----------   ----------
                                                                  $1,733,779   $1,721,791   $2,047,520
                                                                  ==========   ==========   ==========
NET INCOME PER LIMITED PARTNERSHIP
  INTEREST, based on 46,280.3 Interests outstanding               $    37.09   $    36.83   $    43.80
                                                                  ==========   ==========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       18

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                         STATEMENTS OF PARTNERS' CAPITAL

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

<TABLE>
<CAPTION>
                                           Current General Partner
                                    --------------------------------------
                                    Cumulative    Cumulative
                                       Net           Cash
                                     Income      Distributions    Total
                                    ----------   -------------   --------
<S>                                  <C>           <C>           <C>
BALANCE AT DECEMBER 31, 1998         $117,145      $(48,929)     $ 68,216
Cash Distributions
  ($55.64 per limited partnership
  interest)                                          (8,190)       (8,190)
Net Income                             20,475                      20,475
                                     --------      --------      --------
BALANCE AT DECEMBER 31, 1999         $137,620      $(57,119)     $ 80,501
Cash Distributions
  ($56.94 per limited partnership
  interest)                                          (6,887)       (6,887)
Net Income                             17,218                      17,218
                                     --------      --------      --------
BALANCE AT DECEMBER 31, 2000         $154,838      $(64,006)     $ 90,832
Cash Distributions
  ($47.10 per limited partnership
  interest)                                          (6,935)       (6,935)
Net Income                             17,338                      17,338
                                     --------      --------      --------
BALANCE AT DECEMBER 31, 2001         $172,176      $(70,941)     $101,235
                                     ========      ========      ========

<CAPTION>
                                                               Limited Partners
                                    ------------------------------------------------------------------------
                                       Capital
                                    Contributions,
                                        Net of                      Cumulative
                                       Offering      Cumulative        Cash
                                        Costs        Net Income    Distribution   Reallocation      Total
                                    --------------   -----------   ------------   ------------   -----------
<S>                                   <C>            <C>           <C>             <C>           <C>
BALANCE AT DECEMBER 31, 1998          $39,358,468    $17,963,227   $(39,140,268)   $(840,229)    $17,341,198
Cash Distributions
  ($55.64 per limited partnership
  interest)                                                          (2,575,000)                  (2,575,000)
Net Income                                             2,027,045                                   2,027,045
                                      -----------    -----------   ------------    ---------     -----------
BALANCE AT DECEMBER 31, 1999          $39,358,468    $19,990,272   $(41,715,268)   $(840,229)    $16,793,243
Cash Distributions
  ($56.94 per limited partnership
  interest)                                                          (2,635,000)                  (2,635,000)
Net Income                                             1,704,573                                   1,704,573
                                      -----------    -----------   ------------    ---------     -----------
BALANCE AT DECEMBER 31, 2000          $39,358,468    $21,694,845   $(44,350,268)   $(840,229)    $15,862,816
Cash Distributions
  ($47.10 per limited partnership
  interest)                                                          (2,180,000)                  (2,180,000)
Net Income                                             1,716,441                                   1,716,441
                                      -----------    -----------   ------------    ---------     -----------
BALANCE AT DECEMBER 31, 2001          $39,358,468    $23,411,286   $(46,530,268)   $(840,229)    $15,399,257
                                      ===========    ===========   ============    =========     ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       19

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
                            STATEMENTS OF CASH FLOWS

              For the Years Ended December 31, 2001, 2000, and 1999
              -----------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2001           2000          1999
                                                                          -----------   -----------   -----------
<S>                                                                       <C>           <C>           <C>
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:
   Net income                                                             $ 1,733,779   $ 1,721,791   $ 2,047,520
      Adjustments to reconcile net income loss to net
         cash from (used in) operating activities -
            Depreciation and amortization                                     391,232       362,103       409,628
            Recovery of amount previously written off                          (6,952)       (3,708)      (22,790)
            Provision for uncollectible rents and other receivables            53,538         6,810         3,400
            Lease Termination Fee                                            (117,750)            0             0
            Net loss(gain) on disposal of assets                              156,714       153,159       (13,009)
            Interest applied to Indemnification Trust account                 (16,014)      (20,308)      (14,638)
            (Increase) in rents and other receivables                         (85,763)      (47,777)     (123,097)
            Deposits for payment of real estate taxes                          (7,875)            0         4,404
            (Increase) Decrease in prepaids                                    (5,944)       (1,699)        5,500
            Decrease in deferred rent receivable                                   51        28,379           836
            Increase in Property Tax receivable                               (30,977)            0             0
            (Decrease)/Increase in due to current General Partner                (872)          699          (755)
            Increase/ (Decrease) in accounts payable and other                 52,743       (10,227)        5,236
            Increase in security deposits                                       7,000             0        15,833
            Increase/ (Decrease) in property taxes payable                     25,105             0       (73,469)
            Increase in unearned rental income                                 87,316         3,867        20,361
                                                                          -----------   -----------   -----------
            Net cash from operating activities                              2,235,331     2,193,089     2,264,960
                                                                          -----------   -----------   -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
   Principal payments received on  note receivable                             78,500             0             0
   Principal payments received on direct financing leases                           0             0        16,301
   Proceeds from sale of investment properties                                  2,189             0       471,505
   Investment in investment properties                                              0             0       (13,800)
   Payment of leasing commissions                                             (69,491)     (190,156)      (33,441)
   Recoveries from former G.P. affiliates                                       6,952         3,708         6,489
   Principal receipts from unsecured notes                                          0             0         2,317
                                                                          -----------   -----------   -----------
            Net cash from (used in) investing activities                       18,150      (186,448)      449,371
                                                                          -----------   -----------   -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
   Cash distributions to Limited Partners                                  (2,180,000)   (2,635,000)   (2,575,000)
   Cash distributions to current General Partner                               (6,935)       (6,887)       (8,190)
                                                                          -----------   -----------   -----------
            Net cash used in financing activities                          (2,186,935)   (2,641,887)   (2,583,190)
                                                                          -----------   -----------   -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           66,546      (635,246)      131,141
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                752,060     1,387,306     1,256,165
                                                                          -----------   -----------   -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                  $   818,606   $   752,060   $ 1,387,306
                                                                          ===========   ===========   ===========
</TABLE>

         The accompanying notes are an integral part of these statements

                                       20

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999

1.   ORGANIZATION AND BASIS OF ACCOUNTING:
     ------------------------------------

DiVall Insured Income Properties 2 Limited Partnership (the "Partnership") was
formed on November 18, 1987, pursuant to the Uniform Limited Partnership Act of
the State of Wisconsin. The initial capital which was contributed during 1987,
consisted of $300, representing aggregate capital contributions of $200 by the
former general partners and $100 by the Initial Limited Partner. The minimum
offering requirements were met and escrowed subscription funds were released to
the Partnership as of April 7, 1988. On January 23, 1989, the former general
partners exercised their option to increase the offering from 25,000 interests
to 50,000 interests and to extend the offering period to a date no later than
August 22, 1989. On June 30, 1989, the general partners exercised their option
to extend the offering period to a date no later than February 22, 1990. The
offering closed on February 22, 1990, at which point 46,280.3 interests had been
sold, resulting in total offering proceeds, net of underwriting compensation and
other offering costs, of $39,358,468.

The Partnership is currently engaged in the business of owning and operating its
investment portfolio (the "Properties") of commercial real estate. The
Properties are leased on a triple net basis to, and operated by, franchisors or
franchisees of national, regional, and local retail chains under long-term
leases. The lessees consist primarily of fast-food, family style, and
casual/theme restaurants, but also include a video rental store and a child care
center. At December 31, 2001, the Partnership owned 26 properties with specialty
leasehold improvements in 10 of these properties.

Rental revenue from investment properties is recognized on the straight-line
basis over the life of the respective lease. Percentage rents are only accrued
when the tenant has reached the breakpoint stipulated in the lease.

The Partnership considers its operations to be in only one segment and therefore
no segment disclosure is made.

Depreciation of the properties is provided on a straight-line basis over 31.5
years, which is the estimated useful lives of the buildings and improvements.
Equipment is depreciated on a straight-line basis over the estimated useful
lives of 5 to 7 years.

Deferred charges represent leasing commissions paid when properties are leased
and upon the negotiated extension of a lease. Leasing commissions are
capitalized and amortized over the life of the lease.

Real estate taxes on the Partnership's investment properties are the
responsibility of the tenant. However, when a tenant fails to make the required
tax payments or when a property becomes vacant, the Partnership makes the
appropriate payment to avoid possible foreclosure of the property. Taxes are
accrued in the period in which the liability is incurred.

Cash and cash equivalents include cash on deposit with financial institutions
and highly liquid temporary investments with initial maturities of 90 days or
less.

                                       21

<PAGE>

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.

The Partnership follows Statement of Financial Accounting Standards No.121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires that all long-lived assets
be reviewed for impairment in value whenever changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In October 2001,
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144) was issued. FAS 144
supercedes Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(FAS 121). FAS 144 primarily addresses issues relating to the implementation of
FAS 121 and develops a single accounting model for long-lived assets to be
disposed of, whether previously held and used or newly acquired. The provisions
of FAS 144 will be effective for fiscal years beginning after December 15, 2001.
The Company adopted FAS 144 on January 1, 2002 with no impact on financial
statements.

The Partnership will be dissolved on November 30, 2010, or earlier upon the
prior occurrence of any of the following events: (a) the disposition of all
properties of the Partnership; (b) the written determination by the General
Partner that the Partnership's assets may constitute "plan assets" for purposes
of ERISA; (c) the agreement of Limited Partners owning a majority of the
outstanding interests to dissolve the Partnership; or (d) the dissolution,
bankruptcy, death, withdrawal, or incapacity of the last remaining General
Partner, unless an additional General Partner is elected previously by a
majority of the Limited Partners. During the Second Quarter of 1998, the General
Partner received the consent of the Limited Partners to liquidate the
Partnership's assets and dissolve the Partnership. No buyer was identified for
the Partnership's assets, and Management continued normal operations. During the
Second Quarter of 2001, another consent letter was sent to Limited Partners. The
General Partner did not receive majority approval to sell the assets of the
Partnership for purposes of liquidation. The Partnership will continue to
operate as a going concern.

No provision for Federal income taxes has been made, as any liability for such
taxes would be that of the individual partners rather than the Partnership. At
December 31, 2001, the tax basis of the Partnership's assets exceeded the
amounts reported in the accompanying financial statements by approximately
$7,858,785.

                                       22

<PAGE>

The following represents a reconciliation of net income as stated on the
Partnership statements of income to net income for tax reporting purposes:

<TABLE>
<CAPTION>
                                               2001           2000            1999
                                            -----------    -----------    -----------
<S>                                         <C>            <C>            <C>
Net income, per statements of income        $ 1,733,779    $ 1,721,791    $ 2,047,520

Book to tax depreciation difference             (12,338)       (43,538)       (65,606)
Book over tax gain from asset disposition      (142,785)       (30,231)      (148,113)
Straight line rent adjustment                        52         28,379            836
Prepaid rent                                     87,316              0              0
Bad debt reserve/expense                         39,636        (44,535)         3,060
Book valuation of property write-downs         (172,643)             0              0
Other, net                                           (1)         3,879         20,584
                                            -----------    -----------    -----------
   Net income for tax reporting
    purposes                                $ 1,533,016    $ 1,635,745    $ 1,858,281
                                            ===========    ===========    ===========
</TABLE>

2.   REGULATORY INVESTIGATION:
     ------------------------

A preliminary investigation during 1992 by the Office of Commissioner of
Securities for the State of Wisconsin and the Securities and Exchange Commission
(the "Investigation") revealed that during at least the four years ended
December 31, 1992, the former general partners of the Partnership, Gary J.
DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial
cash assets of the Partnership and two affiliated publicly registered
partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1") and
DiVall Income Properties 3 Limited Partnership ("DiVall 3") (collectively the
"Partnerships") to various other entities previously sponsored by or otherwise
affiliated with DiVall and Magnuson. The unauthorized transfers were in
violation of the respective Partnership Agreements and resulted, in part, from
material weaknesses in the internal control system of the Partnerships.

Subsequent to discovery, and in response to the regulatory inquiries, a
third-party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed
(effective February 8, 1993) to assume responsibility for daily operations and
assets of the Partnerships as well as to develop and execute a plan of
restoration for the Partnerships. Effective May 26, 1993, the Limited Partners,
by written consent of a majority of interests, elected the Permanent Manager,
TPG, as General Partner. TPG terminated the former general partners by accepting
their tendered resignations.

In 1993, the current General Partner estimated an aggregate recovery of $3
million for the Partnerships. At that time, an allowance was established against
amounts due from former general partners and their affiliates reflecting the
estimated $3 million receivable. This net receivable was allocated among the
Partnerships based on each Partnership's pro rata share of the total
misappropriation, and restoration costs and recoveries have been allocated based
on the same percentage, Through December 31, 2001, $5,803,000 of recoveries have
been received which exceeded the original estimate of $3 million. As a result,
in 1996, 1997, 1999, 2000 and 2001, the Partnership has recognized $1,125,000 as
income, which represents its share of the excess recovery. There were no
restoration activities or recoveries in 1998. The current General Partner
continues to pursue recoveries of the misappropriated funds, however, no further
significant recoveries are anticipated.

                                       23

<PAGE>

3.   INVESTMENT PROPERTIES:
     ---------------------

As of December 31, 2001, the Partnership owned 24 fully constructed fast-food
restaurants, a video store, and a preschool. The properties are composed of the
following: ten (10) Wendy's restaurants, two (2) Hardee's restaurant, two (2)
Denny's restaurants, one (1) Applebee's restaurant, one (1) Popeye's Famous
Fried Chicken restaurant, one (1) Hooter's restaurant, one (1) Kentucky Fried
Chicken restaurant, one (1) Hostetler's restaurant, one (1) Miami Subs
restaurant, one (1) Village Inn restaurant, one (1) Omega restaurant, one (1)
Blockbuster Video store, one (1) Sunrise Preschool, and two (2) vacant
properties, (which were previously operated as a Fiesta Time restaurant and a
Hardee's restaurant.) The 26 properties are located in a total of thirteen (13)
states.

During March 2001, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurants in South Milwaukee and Milwaukee, Wisconsin. Hardee's
lease on the South Milwaukee property expired on November 30, 2001 and they were
required to continue making rent payments until the lease expiration date. This
lease was not renewed, and therefore, Management will market the property for
lease to a new tenant. The Hardee's lease on the Milwaukee property was not set
to expire until 2009. In the Second Quarter of 2001, a lease termination
agreement was executed and the tenant ceased the payment of rent as of April 30,
2001. Hardee's Food Systems agreed to pay a lease termination fee of
approximately two (2) years rent or $157,000. The payments are scheduled to be
received in four (4) equal installments of $39,250. The first payment was
received in May 2001 upon the execution of the agreement, and the subsequent
installments were reflected as Note receivable on the balance sheet in the
Second Quarter of 2001. Note receivable installments were received in August and
October 2001. The remaining installment, which is reflected in the Note
receivable on the balance sheet at December 31, 2001, is scheduled to be
received in February 2002.

During May 2001, Management negotiated the re-lease of the former
Hardee's-Milwaukee, Wisconsin property to Omega Restaurant in June 2001 and rent
income commenced in October 2001. Commissions of $50,000 and $9,000 were paid to
an unaffiliated leasing agent and to an affiliate of the General Partner,
respectively, upon the execution of the new lease.

During December 2001, Hardee's Food Systems, Inc. notified Management that it
had vacated its restaurant in Hartford, Wisconsin. Hardee's lease on the
Hartford property expires on April 30, 2009 and they will be required to
continue making rent payments until the lease expiration date or until a lease
termination agreement with Management is entered into.

The Blockbuster Video Store lease expired on January 31, 2001. However, in the
First Quarter of 2001, Management negotiated a five (5) year lease extension to
January 31, 2006. A commission of $10,000 was paid to an unaffiliated leasing
agent upon the negotiated extension of the lease.

During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of
Phoenix Restaurant Group, Inc. ("Phoenix") to reject the lease with the
Partnership at the Twin Falls, Idaho location. Although Phoenix's lease on the
Twin Falls property expires on April 30, 2012, due to bankruptcy proceedings of
Phoenix, the lease was terminated and rent income ceased as of December 2001.
The remaining balance due the Partnership of approximately $29,000 from the
former tenant has been reserved. This amount is included in the Partnership's
filing for damages in Bankruptcy court of approximately $85,000, or one year's
rent, although it is uncertain whether the amount will be collectible. In
addition, since Phoenix rejected the lease, its subtenant, Fiesta Time, has no
rights to the possession of the property. Therefore,

                                       24

<PAGE>

Management is in the process of obtaining possession of the property from Fiesta
Time, and then Management will market the property for lease or sale.

During April 2001, the sub-tenant AMF Corporation notified Management of its
intent to close and vacate its Mulberry Street Grill restaurant in Phoenix,
Arizona. Although the lease on the property expires in 2007, monthly rental and
Common Area Maintenance (CAM) income ceased as of June 1, 2001. Management is
moving forward with all legal remedies to collect the remaining balance due of
approximately $10,000. The entire amount due the Partnership has been reserved.
Due to Management's attempt to return possession of the property to the Ground
Lease landlord, the net asset value of the property was written-off in the
Fourth Quarter of 2001, resulting in a loss of $157,000. As of December 31, 2001
the Partnership has withheld the payment of approximately $50,000 in accrued
ground lease obligations related to the property. ( See Legal Proceedings in
Note 10.)

During October 2001, the Village Inn Restaurant notified Management of its
intent to close and vacate its restaurant in Grand Forks, North Dakota within
the next few months. The lease on the property expires in 2009. In February
2002, Management was notified Village Inn had closed and vacated its restaurant
in Grand Forks. Rent income was collected from the tenant through December 2001,
however, rent income has not been collected for January and February of 2002.
Management will pursue all legal remedies in relation to the former tenant's
past due balance of approximately $17,000, as well as future lease obligations.
Management is also seeking a new tenant for the vacated property.

The tenant of the Red Apple Restaurant in Cedar Rapids, Iowa, vacated the
property during 1998 and ceased paying rent. The uncollected rent was written
off as uncollectible, because the tenant could not be located. Management sold
the property during the Fourth Quarter of 1999 for $450,000 at a gain of
approximately $26,000.

The tenant operating a Denny's restaurant on Camelback Road in Phoenix, Arizona,
did not formally exercise its option to extend its lease which expired on
January 30, 1998, but continued to operate the restaurant and pay rent through
December 31, 1999. During January 2000, the tenant notified Management that it
had vacated the premises and ceased paying rent. Management entered into a
termination agreement with the ground lessor of the property during 2000, which
resulted in a one-time payment of $90,000 in exchange for a release of all
future obligations. Possession of the property was returned to the ground
lessor, resulting in a $153,000 loss in the Third Quarter of 2000.

The total cost of the investment properties and specialty leasehold improvements
includes the original purchase price plus acquisition fees and other capitalized
costs paid to an affiliate of the former general partners.

According to the Partnership Agreement, the former general partners were to
commit 80% of the original offering proceeds to investment in properties. Upon
the close of the offering, approximately 75% of the original proceeds was
invested in the Partnership's properties.

The current General Partner receives a fee for managing the Partnership equal to
4% of the gross receipts, with a maximum reimbursement for office rent and
related office overhead of $25,000 between the three original affiliated
Partnerships. Effective March 1, 2001, the minimum management fee and the
maximum reimbursement for office rent and overhead increased by 3.4%
representing the allowable annual Consumer Price Index adjustment per the
Permanent Manager Agreement ("PMA"). For purposes of computing the 4% overall
fee, gross receipts includes amounts recovered in connection with the
misappropriation of assets

                                       25

<PAGE>

by the former general partners and their affiliates. TPG has received fees from
the Partnership totaling $55,463 to date on the amounts recovered, which has
been offset against the 4% minimum fee.

Prior to December 31, 2001 the Partnership owned two (2) restaurants, Kentucky
Fried Chicken and Mulberry Street Grill restaurant, which are located on parcels
of land where it has entered into long-term ground leases. One (1) of these
leases is paid by the tenant, Kentucky Fried Chicken, and one (1) is paid by the
Partnership. The lease paid by the Partnership is considered an operating lease
and the lease payments are expensed in the periods to which they apply. The
lease requires aggregate minimum annual payments of approximately $72,000 and
expires in the year 2008. Due to the Mulberry Street Grill property being
vacant, Management is litigating with the ground lessor to terminate the ground
lease, which would release the Partnership from its ground lease obligations and
would return possession of the property to the ground lessor. Management has
withheld payment of the May through December lease obligations totaling
approximately $50,000. Due to the ground lessor obtaining it's own tenant, the
Partnership wrote-off the net asset value of the vacant Mulberry Street Grill
property at a loss of $157,000 in the Fourth Quarter of 2001. In addition,
Management has requested notification from the ground lessor upon any default
from the new tenant. (See Note 10.)

During the Fourth Quarter of 2000, Management negotiated the extension of the
leases on the ten(10) Wendy's restaurants from original expirations ranging from
2008 to 2009, to new expiration dates of November 2016.

Several of the Partnership's property leases contain purchase option provisions
with stated purchase prices in excess of the original cost of the properties.
The current General Partner is not aware of any unfavorable purchase options in
relation to original cost.

4.   PARTNERSHIP AGREEMENT:
     ---------------------

The Partnership Agreement, prior to an amendment effective May 26, 1993,
provided that, for financial reporting and income tax purposes, net profits or
losses from operations were allocated 90% to the Limited Partners and 10% to the
general partners. The Partnership Agreement also provided for quarterly cash
distributions from Net Cash Receipts, as defined, within 60 days after the last
day of the first full calendar quarter following the date of release of the
subscription funds from escrow, and each calendar quarter thereafter, in which
such funds were available for distribution with respect to such quarter. Such
distributions were to be made 90% to Limited Partners and 10% to the former
general partners, provided, however, that quarterly distributions were to be
cumulative and were not to be made to the former general partners unless and
until each Limited Partner had received a distribution from Net Cash Receipts in
an amount equal to 10% per annum, cumulative simple return on his or her
Adjusted Original Capital, as defined, from the Return Calculation Date, as
defined.

Net Proceeds, as originally defined, were to be distributed as follows: (a) to
the Limited Partners, an amount equal to 100% of their Adjusted Original
Capital; (b) then, to the Limited Partners, an amount necessary to provide each
Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative
simple return on Adjusted Original Capital from the Return Calculation date
including in the calculation of such return all prior distributions of Net Cash
Receipts and any prior distributions of Net Proceeds under this clause; and (c)
then, to Limited Partners, 90% and to the General Partners, 10%, of the
remaining Net Proceeds available for distribution.

                                       26

<PAGE>

On May 26, 1993, pursuant to the results of a solicitation of written consents
from the Limited Partners, the Partnership Agreement was amended to replace the
former general partners and amend various sections of the agreement. The former
general partners were replaced as General Partner by The Provo Group, Inc., an
Illinois corporation. Under the terms of the amendment, net profits or losses
from operations are allocated 99% to the Limited Partners and 1% to the current
General Partner. The amendment also provided for distributions from Net Cash
Receipts to be made 99% to Limited Partners and 1% to the current General
Partner provided, that quarterly distributions will be cumulative and will not
be made to the current General Partner unless and until each Limited Partner has
received a distribution from Net Cash Receipts in an amount equal to 10% per
annum, cumulative simple return on his or her Adjusted Original Capital, as
defined, from the Return Calculation Date, as defined, except to the extent
needed by the General Partner to pay its federal and state income taxes on the
income allocated to it attributable to such year. Distributions paid to the
General Partner are based on the estimated tax liability resulting from
allocated income. Subsequent to the filing of the General Partner's income tax
returns, a true-up with actual distributions is made.

The provisions regarding distribution of Net Proceeds, as defined, were also
amended to provide that Net Proceeds are to be distributed as follows: (a) to
the Limited Partners, an amount equal to 100% of their Adjusted Original
Capital; (b) then, to the Limited Partners, an amount necessary to provide each
Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative
simple return on Adjusted Original Capital from the Return Calculation Date
including in the calculation of such return on all prior distributions of Net
Cash Receipts and any prior distributions of Net Proceeds under this clause,
except to the extent needed by the General Partner to pay its federal and state
income tax on the income allocated to its attributable to such year; and (c)
then, to Limited Partners, 99%, and to the General Partner, 1%, of remaining Net
Proceeds available for distribution.

Additionally, per the amendment of the Partnership Agreement dated May 26, 1993,
the total compensation paid to all persons for the sale of the investment
properties shall be limited to a competitive real estate commission, not to
exceed 6% of the contract price for the sale of the property. The General
Partner may receive up to one-half of the competitive real estate commission,
not to exceed 3%, provided that the General Partner provides a substantial
amount of services in the sales effort. It is further provided that a portion of
the amount of such fees payable to the General Partner is subordinated to its
success in recovering the funds misappropriated by the former general partners.
(See Note 7.)

Effective June 1, 1993, the Partnership Agreement was amended to (i) change the
definition of "Distribution Quarter" to be consistent with calendar quarters,
and (ii) change the distribution provisions to subordinate the General Partner's
share of distributions from Net Cash Receipts and Net Proceeds, except to the
extent necessary for the General Partner to pay its federal and state income
taxes on Partnership income allocated to the General Partner. Because these
amendments do not adversely affect the rights of the Limited Partners, pursuant
to section 10.2 of the Partnership Agreement, the amendments were made by the
General Partner without a vote of the Limited Partners.

5.   LEASES:
     ------

Lease terms for the majority of the investment properties are 20 years from
their inception. The leases generally provide for minimum rents and additional
rents based upon percentages of gross sales in excess of specified breakpoints.
The lessee is responsible for occupancy costs such as maintenance, insurance,
real estate taxes, and utilities. Accordingly, these amounts are not reflected
in the statements of income except in circumstances where, in management's
opinion, the Partnership will be required to pay such costs to

                                       27

<PAGE>

preserve its assets (i.e., payment of past-due real estate taxes). Management
has determined that the leases are properly classified as operating leases;
therefore, rental income is reported when earned and the cost of the property,
excluding the cost of the land, is depreciated over its estimated useful life.

Aggregate minimum lease payments to be received under the leases for the
Partnership's properties are as follows:

      Year ending
      December 31,
      2002                                  $ 2,042,598
      2003                                    2,001,092
      2004                                    2,030,311
      2005                                    2,040,603
      2006                                    1,964,133
      Thereafter                             13,131,949
                                            -----------
                                            $23,210,686
                                            ===========

Percentage rentals included in rental income in 2001, 2000, and 1999 were
$588,818, $548,180, and $522,924, respectively. The increase in percentage
rental income is a result of increased tenant sales.

Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of
Wendy's restaurants. Wensouth base rents accounted for 40% of total base rents
for 2001.

6.   TRANSACTIONS WITH CURRENT GENERAL PARTNER:
     -----------------------------------------

Amounts incurred to the current General Partner for the years ended December 31,
2001, 2000, and 1999, are as follows:

<TABLE>
<CAPTION>
                                       Incurred             Incurred             Incurred
                                  for the year ended   for the year ended   for the year ended
Current General Partner           December 31, 2001    December 31, 2000    December 31, 1999
-----------------------           ------------------   ------------------   ------------------
<S>                               <C>                  <C>                 <C>
Management fees                         $192,902             $187,038            $183,074
Restoration fees                             278                  148                 260
Overhead allowance                        15,586               15,102              14,791
Leasing Commissions                        8,644              190,156               6,319
Reimbursement for out-of-pocket
expenses                                   9,690                9,983               8,119
Cash distribution                          6,935                6,887               8,190
                                        --------             --------            --------
                                        $234,035             $409,314            $220,753
                                        ========             ========            ========
</TABLE>

7.   CONTINGENT LIABILITIES:
     ----------------------

According to the Partnership Agreement, as amended, the current General Partner
may receive a disposition fee not to exceed 3% of the contract price of the sale
of investment properties. Fifty percent (50%) of all such disposition fees
earned by the current General Partner is to be escrowed until the aggregate
amount of recovery of the funds misappropriated from the Partnerships by the
former general partners is greater than $4,500,000. Upon reaching such recovery
level, full disposition fees will thereafter be payable and fifty percent (50%)
of the previously escrowed amounts will be paid to the current General Partner.
At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining
escrowed disposition fees shall be paid to the current General Partner. If such
levels of recovery are not achieved, the current General Partner will

                                       28

<PAGE>

contribute the amounts escrowed towards the recovery. In lieu of an escrow, 50%
of all such disposition fees have been paid directly to a restoration account
and then distributed among the three original Partnerships. Fifty percent (50%)
of the total amount paid to the recovery was refunded to the current General
Partner during 1996 after exceeding the recovery level of $4,500,000. The
remaining amount allocated to the Partnership may be owed to the current General
Partner if the $6,000,000 recovery level is met. As of December 31, 2001, the
Partnership may owe the current General Partner $16,296, which has been
reflected as a recovery, if the $6,000,000 recovery level is achieved.
Management believes it is unlikely that such a recovery level will be achieved.

8.   PMA INDEMNIFICATION TRUST:
     -------------------------

The Permanent Manager Agreement ("PMA") provides that the Permanent Manager will
be indemnified from any claims or expenses arising out of or relating to the
Permanent Manager serving in such capacity or as substitute general partner, so
long as such claims do not arise from fraudulent or criminal misconduct by the
Permanent Manager. The PMA provides that the Partnership fund this
indemnification obligation by establishing a reserve of up to $250,000 of
Partnership assets which would not be subject to the claims of the Partnership's
creditors. An Indemnification Trust ("Trust") serving such purposes has been
established at United Missouri Bank, N.A. The Trust has been fully funded with
Partnership assets as of December 31, 2001. Funds are invested in U.S. Treasury
securities. In addition, $122,167 of earnings have been credited to the Trust as
of December 31, 2001. The rights of the Permanent Manager to the Trust shall be
terminated upon the earliest to occur of the following events: (i) the written
release by the Permanent Manager of any and all interest in the Trust; (ii) the
expiration of the longest statute of limitations relating to a potential claim
which might be brought against the Permanent Manager and which is subject to
indemnification; or (iii) a determination by a court of competent jurisdiction
that the Permanent Manager shall have no liability to any person with respect to
a claim which is subject to indemnification under the PMA. At such time as the
indemnity provisions expire or the full indemnity is paid, any funds remaining
in the Trust will revert back to the general funds of the Partnership.

9.   FORMER GENERAL PARTNERS' CAPITAL ACCOUNTS:
     -----------------------------------------

The capital account balance of the former general partners as of May 26, 1993,
the date of their removal as general partners pursuant to the results of a
solicitation of written consents from the Limited Partners, was a deficit of
$840,229. At December 31, 1993, the former general partners' deficit capital
account balance in the amount of $840,229 was reallocated to the Limited
Partners.

10.  LEGAL PROCEEDINGS:
     -----------------

The Partnership owned the building occupied by the Mulberry Street Grill
restaurant, which was located on a parcel of land where it had entered into a
long-term Ground Lease. The lease was considered an operating lease and the
lease payments were paid by the Partnership and expensed in the periods to which
they applied. During the Second Quarter of 2001, sub-tenant AMF Corporation
("AMF") notified Management of its intent to close its Mulberry Street Grill
restaurant in Phoenix, Arizona. The Partnership ceased collecting the former
tenant's rent and attempted to return possession of the Phoenix, Arizona
property to the Ground Lease Landlord, Centre at 38th Street, L.L.C, ("LLC".) In
addition, beginning in May and through December 2001 the Partnership accrued but
withheld payment of the ground lease obligations and at December 31, 2001 the
total ground lease accrual approximates $50,000. The Ground Lease Landlord, LLC,
has released the property to a new tenant and the Partnership has requested
notification from the Landlord upon any default of the new tenant.

                                       29

<PAGE>

On June 18, 2001, LLC filed a lawsuit in the Maricopa County Superior Court,
against the Partnership and TPG. The Complaint alleges that the Partnership is a
tenant under a Ground Lease with LLC and that the Partnership has defaulted on
its obligations under that lease. The suit names TPG as a defendant because TPG
is the Partnership's general partner. The complaint seeks damages for unpaid
rent, commissions, improvements, and unspecified other damages exceeding
$120,000.

The Partnership and TPG have filed an answer denying any liability to LLC and
intends to defend this matter vigorously. In addition, the Partnership has filed
a third-party complaint against the original tenant, National Restaurant
Group,("National Restaurant'), L.L.C., and its sub-tenant AMF. In the
third-party complaint, the Partnership alleges that National Restaurant and AMF
are liable to the Partnership for breach of the subleases and any damages for
which the Partnership may be held liable to the Ground Lessor, LLC.

11.  SUBSEQUENT EVENTS:
     -----------------

In February 2002, the Village Inn Restaurant notified Management that its
restaurant in Grand Forks, North Dakota was closed and vacated as of February
2002. The lease on the property is set to expire in 2009. Rent income was
collected from the tenant through December 2001, however, rent income has not
been collected for January and February of 2002. Management will pursue all
legal remedies in relation to the former tenant's past due balance of
approximately $17,000, as well as future lease obligations. Management is also
seeking a new tenant for the vacated property.

In January 2002, the Partnership received the final installment of the Note
Receivable due from Hardee's Food Systems in relation to the lease termination
agreement executed in the Second Quarter of 2001.

On February 15, 2001, the Partnership made distributions to the Limited Partners
of $485,000 amounting to $10.48 per Interest.

Item 9. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure

None

                                       30

<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

TPG is an Illinois corporation with its principal office at 101 West 11th
Street, Suite 1110, Kansas City, Missouri 64105. TPG was elected General Partner
by vote of the Limited Partners effective on May 26, 1993. Prior to such date,
TPG had been managing the Partnership since February 8, 1993, under the terms of
the Permanent Manager Agreement ("PMA"), which remains in effect. TPG also
serves as the corporate general partner for DiVall 3. See Items 1 and 13 hereof
for additional information about the PMA and the election of TPG as General
Partner.

The executive officers and director of the General Partner who control the
affairs of the Partnership are as follows:

     Bruce A. Provo, Age 51 - President, Founder and Director. Mr. Provo has
     been involved in the management of real estate and other asset portfolios
     since 1979. Since he founded the company in 1985, Mr. Provo has been
     President of TPG. From 1982 to 1986, Mr. Provo served as President and
     Chief Operating Officer of the North Kansas City Development Company
     ("NKCDC"), North Kansas City, Missouri. NKCDC was founded in 1903 and the
     assets of the company were sold in December, 1985 for $102,500,000. NKCDC
     owned commercial and industrial properties, including an office park and a
     retail district, as well as apartment complexes, motels, recreational
     facilities, fast food restaurants, and other properties. NKCDC's holdings
     consisted of over 100 separate properties and constituted approximately 20%
     of the privately held real property in North Kansas City, Missouri (a four
     square mile municipality). Following the sale of the company's real estate,
     Mr. Provo served as the President, Chief Executive Officer and Liquidating
     Trustee of NKCDC from 1986 to 1991.

     Mr. Provo graduated from Miami University, Oxford, Ohio in 1972 with a B.S.
     in Accounting. He became a Certified Public Accountant in 1974 and was a
     manager in the banking and financial services division of Arthur Andersen
     LLP prior to joining Rubloff Development Corporation in 1979. From 1979
     through 1985, Mr. Provo served as Vice President - Finance and then as
     President of Rubloff Development Corporation. Mr. Provo has previously
     served on the Board of Directors of the National Realty committee, a
     legislative "watchdog" organization for the commercial real estate industry
     headquartered in Washington, DC.

     Diane R. Conley, Age 40- Controller- Divall Properties. Ms. Conley joined
     TPG in November 1986 to become Controller for four limited partnerships
     managed by TPG. Ms. Conley graduated with a B.S. in Accounting from
     Rochester Institute of Technology in Rochester, New York in 1984 and became
     a Certified Public Accountant in 1986. Ms. Conley was an independent
     auditor with Coopers and Lybrand for three years and supervised audit staff
     on a variety of engagements. Prior to joining TPG she provided financial
     consulting services for clients of varied industries.

                                       31

<PAGE>

The Advisory Board, although its members are not "Directors" or "Executive
Officers" of the Partnership, provides advisory oversight to management of the
Partnership and consists of:

     William Arnold - Investment Broker. Mr. Arnold works as a financial planner
     and investment advisor at his company, Arnold & Company. Mr. Arnold
     graduated with a Master's Degree from the University of Wisconsin and is a
     Certified Financial Planner.

     Jesse Small - Self Employed. Mr. Small is the President of a small
     Accounting Firm. In addition to being a CPA, he has a Master's Degree in
     Economics. Mr. Small is a Limited Partner representing DiVall 2.

     Richard W. Otte - Editorial Writer. Mr. Otte is in his seventh year as an
     Editorial Board Member and editorial writer for The Volusion, a DeLand,
     Florida, subsidiary of the News-Journal Corporation in Daytona Beach,
     Florida. Mr. Otte retired in 1988 after 34 years with the Dispatch Printing
     Co., serving his last eight years as Managing Editor of the Columbus
     Dispatch and as a member of its Operating Committee. He previously was the
     executive sports editor of the newspaper in Ohio's capital city. Mr. Otte's
     49 years in professional journalism also include news reporting, editing
     and sports assignments with the Daytona Journal Herald and Springfield
     News-Sun. Mr. Otte is a Limited Partner representing DiVall 2.

     Albert Kramer - Retired. Mr. Kramer is now retired, but previously worked
     as Tax Litigation Manager for Phillips Petroleum Company. His education
     includes undergraduate and MBA degrees from Harvard and a J.D. Degree from
     South Texas College of Law. Mr. Kramer is a Limited Partner representing
     DiVall 3.

Item 11. Executive Compensation

The Partnership has not paid any "executive compensation" to the corporate
General Partner or to the directors and officers of the General Partner. The
General Partner's participation in the income of the Partnership is set forth in
the Partnership Agreement, which is filed as Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
hereto. The current General Partner received management fees and expense
reimbursements during the year.

See Item 13, below, and Note 6 to the financial statements in Item 8 hereof for
further discussion of payments by the Partnership to the General Partner and the
former general partners.

Item 12. Security Ownership of Certain Beneficial Owners and Management

(a) As of December 31, 2001, no one person or group is known by the Partnership
to own beneficially more than 5% of the outstanding Interests of the
Partnership.

(b) As of December 31, 2001, neither the General Partner nor any of their
affiliates owned any Interests in the Partnership.

Item 13. Certain Relationships and Related Transactions

The compensation to be paid to TPG is governed by the Partnership Agreement, as
amended by vote of the Limited Partners to reflect the terms of the PMA. TPG's
compensation includes a base fee equal to 4% of the Partnership's gross
collected receipts, subject to a minimum of $159,000 per year. For this purpose,
"gross collected receipts" means all cash revenues arising from operations and
reserves of the Partnerships,

                                       32

<PAGE>

including any proceeds recovered with respect to the obligations of the former
general partners. The portion of such fee resulting from recoveries from former
general partners is designated as restoration fees. TPG is also entitled to
reimbursement for office rent and utilities not to exceed $13,250 per year. TPG
is entitled to reimbursement of reasonable direct costs and expenses, such as
travel, lodging, overnight delivery and postage, but has no right to be
reimbursed for administrative expenses such as payroll, payroll taxes,
insurance, retirement and other benefits, base phone and fax charges, office
furniture and equipment, copier rent, and the like. Between the Partnerships,
TPG is entitled to an aggregate minimum base management fee of $300,000 per year
and reimbursement for office rent in the maximum amount of $25,000 per year. The
Partnership shall only be responsible for its allocable share of such minimum
and maximum amounts as indicated above ($159,000 minimum base fee and $13,250
maximum rent reimbursement). TPG is entitled to an annual increase in the
minimum base management fee and maximum office overhead reimbursement in an
amount not to exceed the percentage increase in the Consumer Price Index ("CPI")
for the immediately preceding calendar year. Effective March 1, 2001, the
minimum management fee and the maximum reimbursement for office rent and
overhead increased by 3.4% representing the allowable annual CPI adjustments.
Additionally, TPG is allowed up to one-half of the Competitive Real Estate
Commission, not to exceed 3% upon the disposition of assets. The payment of a
portion of such fees is subordinated to TPG's success at recovering the funds
misappropriated by the former general partners.

The PMA has an expiration date of December 31, 2002, but may be terminated
earlier (a) by a vote at any time by a majority in interest of the Limited
Partners, (b) upon the dissolution and winding up of the Partnership, (c) upon
the entry of an order of a court finding that the Permanent Manager has engaged
in fraud or other like misconduct or has shown itself to be incompetent in
carrying out its duties under the Partnership Agreement, or (d) upon sixty (60)
days written notice from the Permanent Manager to the Limited Partners of the
Partnership. Upon termination of the PMA, other than by the voluntary action of
TPG, TPG shall be paid a termination fee of one month's Base Fee allocable to
the Partnership, subject to a minimum of $13,250. In the event that TPG is
terminated by action of a substitute general partner, TPG shall also receive, as
part of this termination fee, 4% of any proceeds recovered with respect to the
obligations of the former general partners, whenever such proceeds are
collected.

Under the PMA, TPG shall be indemnified by the Partnership, DiVall and Magnuson,
and their controlled affiliates, and shall be held harmless from all claims of
any party to the Partnership Agreement and from any third party including,
without limitation, the Limited Partners of the Partnership, for any and all
liabilities, damages, costs and expenses, including reasonable attorneys' fees,
arising from or related to claims relating to or arising from the PMA or its
status as Permanent Manager. The indemnification does not extend to claims
arising from fraud or criminal misconduct of TPG as established by court
findings. To the extent possible, the Partnership is to provide TPG with
appropriate errors and omissions, officers liability or similar insurance
coverage, at no cost to TPG. In addition, TPG is granted the right to establish
the Trust in an amount, not to exceed $250,000, solely for the purpose of
funding such indemnification obligations. Once a determination has been made
that no such claims can or will be made against TPG, the balance of the Trust
will become unrestricted cash of the Partnership. At December 31, 2001 the
Partnership had fully funded the Trust.

                                       33

<PAGE>

The Partnership paid the following fees and reimbursements to management in
2001:

      The Provo Group, Inc.
      ---------------------

      Management Fees                                        $192,902
      Restoration Fees                                            278
      Leasing Commissions                                       8,644
      Office Overhead Allowance                                15,586
      Direct Cost Reimbursements                                9,690
                                                             --------

      2001 Total                                             $227,100
                                                             ========

                                       34

<PAGE>

                                     PART IV

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

(a)  1.   Financial Statements

          The following financial statements of DiVall Insured Income Properties
          2 Limited Partnership are included in Part II, Item 8:

          Report of Independent Public Accountants

          Balance Sheets, December 31, 2001 and 2000

          Statements of Income for the Years Ended December 31, 2001, 2000, and
          1999

          Statements of Partners' Capital for the Years Ended December 31, 2001,
          2000, and 1999

          Statements of Cash Flows for the Years Ended December 31, 2001, 2000,
          and 1999

          Notes to Financial Statements

     2.   Financial Statement Schedules

          Schedule III - Real Estate and Accumulated Depreciation

     All other schedules for which provision is made in the applicable
     accounting regulation of the Securities and Exchange Commission are not
     required under the related instruction or are inapplicable and, therefore,
     have been omitted.

     3.   Listing of Exhibits

          3.1  Agreement of Limited Partnership dated as of November 18, 1987,
               amended as of November 25, 1987, and February 20, 1988, filed as
               Exhibit 3A to Amendment No. 1 to the Partnership's Registration
               Statement on Form S-11 as filed on February 22, 1988, and
               incorporated herein by reference.

          3.2  Amendments to Amended Agreement of Limited Partnership dated as
               of June 21, 1988, included as part of Supplement dated August 15,
               1988, filed under Rule 424(b)(3), incorporated herein by
               reference.

          3.3. Amendment to Amended Agreement of Limited Partnership dated as of
               February 8, 1993, filed as Exhibit 3.3 to the Partnership's 10-K
               for the year ended December 31, 1992, and incorporated herein by
               reference.

          3.4  Amendment to Amended Agreement of Limited Partnership dated as of
               May 26, 1993, filed as Exhibit 3.4 to the Partnership's 10-K for
               the year ended December 31, 1993, and incorporated herein by
               reference.

                                       35

<PAGE>

          3.5  Amendment to Amended Agreement of Limited Partnership dated as of
               June 30, 1994, filed as Exhibit 3.5 to the Partnership's 10-K for
               the year ended December 31, 1994 and incorporated herein by
               reference.

          10.0 Permanent Manager Agreement filed as an exhibit to the Current
               Report on Form 8-K dated January 22, 1993, incorporated herein by
               reference.

          99.0 Correspondence to the Limited Partners dated February 15, 2002
               regarding the Fourth Quarter 2001 distribution.

(b)  Reports on Form 8-K:

     The Registrant filed no reports on Form 8-K during the fourth quarter of
     fiscal year 2001.

                                       36

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                            Initial cost to Partnership
                                            ----------------------------
                                                                              Costs
                                                                           capitalized
                                                              Building      subsequent
                                                                and             to
       Property                Encumbrances      Land       Improvements   acquisitions
---------------------------------------------------------------------------------------
<S>                                <C>        <C>           <C>            <C>
Palm Gardens, Florida (1)          $ -       $   495,237    $   248,388    $        -
Phoenix, Arizona                     -           444,224        421,676             -
N. Richland Hills, Texas (2)         -           762,580        584,139             -
South Milwaukee, Wisconsin           -           274,749        454,064        79,219
Phoenix, Arizona (2)                 -           482,383        490,343             -
Santa Fe, New Mexico                 -                 -        451,230             -
Augusta, Georgia (3)                 -           215,416        434,178             -
Charleston, South Carolina           -           273,619        323,162             -
Park Forest, Illinois                -           187,900        393,038             -
Aiken, South Carolina                -           402,549        373,795             -
Augusta, Georgia                     -           332,154        396,659             -
Mt. Pleasant, South Carolina         -           286,060        294,878             -
Charleston, South Carolina           -           273,625        254,500             -
Aiken, South Carolina                -           178,521        455,229             -
Des Moines, Iowa (2)                 -           164,096        448,529       287,991
Hartford, Wisconsin                  -           201,603        484,960             -
Milwaukee, Wisconsin (2)             -           409,143        600,902             -
North Augusta, Georgia               -           250,859        409,297             -
Charleston, South Carolina           -           286,068        294,870             -
Martinez, Georgia                    -           266,175        367,575             -
Grand Forks, North Dakota            -           172,701        566,674             -
Phoenix, Arizona                     -           241,371        843,132             -
Ogden, Utah                          -           194,350        452,075             -
Fond du Lac, Wisconsin               -           297,418        552,349             -
Twin Falls, Idaho (2)                -           155,269        483,763        60,000
Columbus, Ohio                       -           351,325        708,141             -
                               -------------------------------------------------------
                                   $ 0        $ 7,599,395    $11,787,546    $  427,210
                               =======================================================

<CAPTION>
                                         Gross amount at which                                                     Life on which
                                       carried at end of year (A)                                                  depreciation
                               ----------------------------------------                                                 in
                                                                                                                     in latest
                                                                                                                     statement
                                                                                                                   of operations
                                             Building and                 Accumulated      Date of        Date      is computed
        Property                  Land       Improvements      Total      depreciation   construction   acquired      (years)
--------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>            <C>           <C>           <C>                <C>        <C>            <C>
Palm Gardens, Florida (1)      $   325,487    $   163,258   $   488,745   $  107,634            -        3/11/88       31.5
Phoenix, Arizona                   444,224        421,676       865,900      217,545            -        6/15/88       31.5
N. Richland Hills, Texas (2)       662,580        480,123     1,142,703      259,477            -        7/15/88       31.5
South Milwaukee, Wisconsin         274,749        533,283       808,032      248,301         1986         8/1/88       31.5
Phoenix, Arizona (2)               453,433        428,676       882,109      219,767            -        8/15/88       31.5
Santa Fe, New Mexico                     -        451,230       451,230      190,423            -       10/10/88       31.5
Augusta, Georgia (3)               213,227        434,178       647,404      194,618            -       12/22/88       31.5
Charleston, South Carolina         273,619        323,162       596,781      144,856            -       12/22/88       31.5
Park Forest, Illinois              187,900        393,038       580,938      176,178            -       12/22/88       31.5
Aiken, South Carolina              402,549        373,795       776,344      166,214            -        2/21/89       31.5
Augusta, Georgia                   332,154        396,659       728,813      176,381            -        2/21/89       31.5
Mt. Pleasant, South Carolina       286,060        294,878       580,938      131,123            -        2/21/89       31.5
Charleston, South Carolina         273,625        254,500       528,125      113,168            -        2/21/89       31.5
Aiken, South Carolina              178,521        455,229       633,750      202,425            -        3/14/89       31.5
Des Moines, Iowa (2)               161,996        551,056       713,052      277,610         1989         8/1/89       31.5
Hartford, Wisconsin                201,603        484,960       686,563      210,430            -        4/28/89       31.5
Milwaukee, Wisconsin (2)           409,143        573,871       983,014      256,990            -         8/2/89       31.5
North Augusta, Georgia             250,859        409,297       660,156      165,800            -       12/29/89       31.5
Charleston, South Carolina         286,068        294,870       580,938      119,447            -       12/29/89       31.5
Martinez, Georgia                  266,175        367,575       633,750      148,899            -       12/29/89       31.5
Grand Forks, North Dakota          172,701        566,674       739,375      229,551            -       12/28/89       31.5
Phoenix, Arizona                   241,371        843,133     1,084,503      341,540            -         1/1/90       31.5
Ogden, Utah                        194,350        452,075       646,425      204,958            -        1/31/90       31.5
Fond du Lac, Wisconsin             297,418        552,349       849,767      223,748            -         1/5/90       31.5
Twin Falls, Idaho (2)              155,269        353,622       508,891      184,050            -        3/21/90       31.5
Columbus, Ohio                     351,325        708,140     1,059,466      274,027            -         6/1/90       31.5
                               -------------------------------------------------------
                               $ 7,296,406    $11,561,307   $18,857,713    5,185,160
                               =======================================================
</TABLE>

     (A)  Approximates aggregate costs for federal income tax purposes.

     (1)  This property was written down to its estimated net realizable value
          of $400,000 at December 31, 1995.

     (2)  This property was written down to its estimated net realizable value
          at December 31, 1998

     (3)  In the Fourth Quarter of 2001 a portion of the land was purchased from
          the Partnership by the County Commission for utility and maintenance
          easement.

                                       37

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                DECEMBER 31, 2001

(B)  Reconciliation of "Real Estate and Accumulated Depreciation":

<TABLE>
<CAPTION>
                                Year Ended     Year Ended                                      Year Ended     Year Ended
                               December 31,   December 31,                                    December 31,   December 31,
Investment in Real Estate          2001           2000       Accumulated Depreciation             2001           2000
----------------------------   ------------   ------------   ------------------------------   ------------   ------------
<S>                            <C>             <C>           <C>                               <C>            <C>
Balance at beginning of year   $19,201,059     $19,496,809   Balance at beginning of year      $5,025,202     $4,817,399
                                                             Additions charged to costs and
Additions                                0               0   expenses                             344,401        350,394

Deletions:
Phoenix, AZ building and                                     Deletion due to real estate
improvements disposition          (341,157)       (295,750)  disposition                         (184,443)      (142,591)
                                                                                               ----------     ----------
Augusta, GA land disposition        (2,189)              0
                               -----------     -----------
Balance at end of year         $18,857,713     $19,201,059   Balance at end of year            $5,185,160     $5,025,202
                               ===========     ===========                                     ==========     ==========
</TABLE>

                                       38

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP


By:      The Provo Group, Inc., General Partner


By:      /s/Bruce A. Provo
         -----------------
         Bruce A. Provo, President

Date:    March 26, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


By:      The Provo Group, Inc., General Partner


By:      /s/Bruce A. Provo
         -----------------
         Bruce A. Provo, President

Date:    March 26, 2002


By:      /s/Diane Conley
         ---------------
         Diane Conley
         Controller

Date:    March 26, 2002

                                       39