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FORM 10-K



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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 fiscal year ended December 31, 2003



OR



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



For the transition period from             to



Commission file number 0-17686



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Wisconsin                                                      |  | 39-1606834                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer 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)



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Securities registered pursuant to Section 12(b) of the
Act: None



Securities registered pursuant to Section
12(g) of the Act: Limited Partnership Interests



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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



Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈No  x



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



Index to Exhibits located on page: 51 - 52



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##### Table of Contents

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, 2003, the Partnership consisted of one General Partner (Management) and 2,142 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 of commercial real estate properties (the Properties.) The Properties are leased on a triple net basis
to, and operated by, primarily franchisors or franchisees of national, regional and local retail chains under long-term leases. The lessees are predominantly fast food, family style, and casual/theme restaurants, but also include a video rental
store and a child-care center. At December 31, 2003, the Partnership owned 21 properties with specialty leasehold improvements in six (6) of these properties, as more fully discussed in Item 2. During the Second Quarter of 2001, a consent
solicitation was circulated, which if approved would have authorized the sale of the Partnerships assets and dissolution of the Partnership (the 2001 Consent). A majority of the Limited Partners did not vote in favor of the 2001
Consent. Another consent solicitation was circulated during the Second Quarter of 2003, which if approved would have authorized the sale of the Partnerships assets and dissolution of the Partnership (the 2003 Consent). A majority
of the Limited Partners did not vote in favor of the 2003 Consent. Therefore, the Partnership continues 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 upon, among other factors, 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.



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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 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 lessees; and failure or withdrawal of any of the national franchises held by the Partnerships tenants. Each of these events, alone or in combination would affect the liquidity level of
the lessees resulting in possible default by a 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 Permanent Management Agreement (PMA) was entered into on February 8, 1993, between the Partnership, DiVall 1 (which was dissolved in December 1998),
DiVall 3 (which was dissolved in December 2003), 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.



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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 has the following rights to, among
other functions, review operational policies and practices, review extraordinary transactions, review internal financial controls and practices, and review the performance of the independent auditors of the Partnership. The Advisory Board powers are
advisory only and the Board does not have the authority to direct management decisions or policies of the Partnership or remove the General Partner. 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 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 the Partnership: Richard Otte, Jesse Small, and Albert Kramer. 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



Original lease terms for the majority of the investment properties are generally 10 - 20
years from their inception. 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 8%) 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, 2003:



|                 |  |                                                  |  |                              |  |                    |           |     |                  |   |                       |  |                 |  |     
|---------------- |  | ------------------------------------------------ |  | ---------------------------- |  | ------------------ | --------- | --- | ---------------- | - | --------------------- |  | --------------- |  | ----
|Acquisition Date |  | Property Name & Address                          |  | Lessee                       |  | Purchase Price (1) |           |     | Rental Per Annum |   | Lease Expiration Date |  | Renewal Options
|03/11/88         |  | Miami Subs (7) US-1 Near PGA Blvd Palm Beach, FL |  | Di Fede Finance Group Corp.  |  | $                  | 743,625   |     |                  | $ | 60,000                |  | 10-31-2012      |  | None
|                 |  |                                                  |  |                              |  |                   
|06/15/88         |  | Chinese Super Buffet 8801 N 7th St Phoenix, AZ   |  | Jun Cheng Pan & Yhen Yan Guo |  |                    | 1,087,137 | (2) |                  |   | 66,000                |  | 12-31-2012      |  | None
|                 |  |                                                  |  |                              |  |                   
|07/15/88         |  | Hooters 7669 Grapevine Hwy N Richland Hills, TX |  | TWIX, Inc.                   |  |                    | 1,346,719 |     |                  |   | 95,000                |  | 07-15-2008      |  | None
|                 |  |                                                  |  |                              |  |                   
|08/15/88         |  | Dennys 2360 W Northern Ave Phoenix, AZ          |  | First Foods, Inc.            |  |                    | 1,155,965 | (2) |                  |   | 65,000                |  | 10-31-2007      |  | None



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|         |  |                                                              |  |                       |  |           |     |  |         |  |            |  |     
|-------- |  | ------------------------------------------------------------ |  | --------------------- |  | --------- | --- |  | ------- |  | ---------- |  | ----
|         |  |                                                              |  |                       |  |          
|10/10/88 |  | Kentucky Fried Chicken (4) 1014 S St Francis Dr Santa Fe, NM |  | Palo Alto, Inc,       |  | 451,230   |     |  | 60,000  |  | 06-30-2018 |  | None
|         |  |                                                              |  |                       |  |          
|12/22/88 |  | Wendys 1721 Sam Rittenburg Blvd Charleston, SC              |  | WenCoast Restaurants  |  | 596,781   |     |  | 76,920  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|12/22/88 |  | Wendys 3013 Peach Orchard Rd Augusta, GA                    |  | WenCoast Restaurants  |  | 649,594   |     |  | 86,160  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|12/29/88 |  | Popeyes (8) 2562 Western Ave Park Forest, IL                |  | Quality Foods I, LLC. |  | 580,938   |     |  | 77,280  |  | 12-31-2009 |  | None
|         |  |                                                              |  |                       |  |          
|02/21/89 |  | Wendys 1901 Whiskey Rd Aiken, SC                            |  | WenCoast Restaurants  |  | 776,344   |     |  | 96,780  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|02/21/89 |  | Wendys 1730 Walton Way Augusta, GA                          |  | WenCoast Restaurants  |  | 728,813   |     |  | 96,780  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|02/21/89 |  | Wendys 347 Folly Rd Charleston, SC                          |  | WenCoast Restaurants  |  | 528,125   |     |  | 70,200  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|02/21/89 |  | Wendys 361 Hwy 17 Bypass Mount Pleasant, SC                 |  | WenCoast Restaurants  |  | 580,938   |     |  | 77,280  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|03/14/89 |  | Wendys 1004 Richland Ave Aiken, SC                          |  | WenCoast Restaurants  |  | 633,750   |     |  | 90,480  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|04/20/89 |  | Daytonas All Sports Cafe (5) 4875 Merle Hay Des Moines, IA  |  | Karl Shaen Valderrama |  | 897,813   | (2) |  | 60,000  |  | 02-28-08   |  | None
|         |  |                                                              |  |                       |  |          
|12/28/89 |  | Panda Buffet (6) 2451 Columbia Rd Grand Forks, ND            |  | Panda Buffet, Inc.    |  | 845,000   | (2) |  | 33,000  |  | 6-30-2013  |  | (3) 
|         |  |                                                              |  |                       |  |          
|12/29/89 |  | Wendys 1717 Martintown Rd N Augusta, SC                     |  | WenCoast Restaurants  |  | 660,156   |     |  | 87,780  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|12/29/89 |  | Wendys 1515 Savannah Hwy Charleston, SC                     |  | WenCoast Restaurants  |  | 580,938   |     |  | 77,280  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|12/29/89 |  | Wendys 3869 Washington Rd Martinez, GA                      |  | WenCoast Restaurants  |  | 633,750   |     |  | 84,120  |  | 11-6-2016  |  | None
|         |  |                                                              |  |                       |  |          
|01/01/90 |  | Sunrise Preschool 4111 E Ray Rd Phoenix, AZ                  |  | Borg Holdings, Inc.   |  | 1,182,735 | (2) |  | 123,318 |  | 05-31-2009 |  | None



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|         |  |                                           |  |                          |  |             |     |  |            |  |            |  |     
|-------- |  | ----------------------------------------- |  | ------------------------ |  | ----------- | --- |  | ---------- |  | ---------- |  | ----
|         |  |                                           |  |                          |  |            
|01/31/90 |  | Blockbuster Video 336 E 12th St Ogden, UT |  | Blockbuster Videos, Inc. |  | 646,425     |     |  | 107,750    |  | 01-31-2006 |  | (3) 
|         |  |                                           |  |                          |  |            
|05/31/90 |  | Applebees 2770 Brice Rd Columbus, OH     |  | Thomas & King, Inc.      |  | 1,434,434   | (2) |  | 135,780    |  | 10-31-2009 |  | None
|         |  |                                           |  |                          |  |             |     |  |            |  |            |  |     
|         |  |                                           |  |                          |  | $16,741,210 |     |  | $1,726,908 |  |            |  |     
|         |  |                                           |  |                          |  |             |     |  |            |  |            |  |     

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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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The lease with Hickory Park, Inc. expired on December 31, 2002. Management allowed Subtenant, Daytonas All Sports Café, a holdover lease for two months and executed a
five (5) year lease directly with Daytonas in March 2003. (See eighth paragraph below.)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | A 10 year lease was executed with Panda Buffet in February 2003 and rent commenced in July 2003. Village Inn had vacated the property in the First Quarter of 2002 and in June 2003 a
settlement and lease termination agreement was executed between Management and Village Inn. (See ninth through eleventh paragraphs below.)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | A sales contract was executed in January 2004 for the sale of the property in the Second Quarter of 2004 at a sales price of $650,000. (See fourth paragraph below.)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Management is pursuing legal remedies to collect Popeyes defaulted 2002 and 2001 percentage rents. Tenant is also in default of 2002 property taxes, which were due and payable
in 2003. (See first through third paragraphs below)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following summarizes significant developments, by property, for properties with such developments.



Popeyes- Park Forest, IL



Through
January 2004, Popeyes is current on its monthly lease obligations, however, the tenant is delinquent on its January 2002 percentage rent billing for 2001 of $72,000 and its February 2003 percentage rent billing for 2002 of $31,500. Management
continues to pursue legal remedies in relation to the collection of the tenants percentage rent past due balance of approximately $103,500, however, due to the uncertainty of collection, the entire amount was fully reserved in the Fourth
Quarter of 2003. In addition, through December 31, 2003 Management has charged Popeyes late fees totaling $52,000 (which includes 2003 and 2002 late fee charges of $35,000 and $17,000, respectively, which have not been recognized as revenue
due to uncertainty of collection) in relation to the percentage rent balances due. The tenant is delinquent on its reporting of it 2003 monthly sales figures and therefore 2003 percentage rents were not accrued by the Partnership at December 31,
2003.



Per the lease and its amendments (Lease), Popeyes is
to timely pay as they come due all taxes charged to the property. However, the tenant failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, IL in 2003, as well as approximately $5,000 in assessed
late fees. In the Fourth Quarter of 2003 the Partnership accrued the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that will be due in 2004. The 2002 property taxes and late fees were paid by the
Partnership in January 2004 and the first installment for the 2003 taxes is anticipated to be paid in the First Quarter of 2004.



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A Landlords 10 Day Notice Of Default (Notice), dated February 9, 2004, was sent to Quality Foods I, LLC
notifying the tenant that payment of the amount due for the 2002 property tax balance is hereby demanded and unless payment is received by the Partnership on or before the expiration of ten (10) days after the date of service of the Notice, then the
Partnership will pursue all legal remedies available which may include an action to recover possession and termination of the Lease. The notice also stated that until such time the Lease is terminated, the tenants other legal obligations
(outstanding percentage rents and future monthly rents) continue in full.



Miami Subs- Palm Beach, FL



During the Fourth Quarter of 2002
the Miami Subs lease with QSR, Inc. was terminated. The lease was set to expire in 2016. A new ten-year lease was executed in the Fourth Quarter of 2002 with Difede Finance Group Corporation and is set to expire in 2012. The property has continued
to be operated as a Miami Subs Restaurant. A sales contract was executed in January 2004 for the anticipated sale of the property in the Second Quarter of 2004 at a sales price of $650,000.



Hardees property- Fond du Lac, WI



During June 2003, Management entered into a contract to sell the Hardees restaurant in
Fond du Lac, WI at a sales price of $720,000. The closing date on the sale of the property was July 30, 2003 and the net sales proceeds totaled $690,000. A net gain on the sale of $80,000 was recognized in the Third Quarter of 2003. Closing and
other sale related costs amounted to $30,000, which included a sales commission totaling $22,000 paid to a General Partner affiliate in the Third Quarter of 2003.



Milwaukee, WI property



In May 2003 Management entered into a contract to sell the Milwaukee, WI property to the tenant at a sales price of $825,000. The property was being operated as Omega
Restaurant. The closing date on the sale of the property was July 28, 2003, and the net sales proceeds totaled $799,000. A net gain on the sale of $9,000 was recognized in the Third Quarter of 2003. Closing costs amounted to $1,000, and a sales
commission of $25,000 was paid to a General Partner affiliate. In the Second Quarter of 2003 the net asset value of the property was written-down by $15,000 to reflect the net estimated sales price, less costs to sell, of the property of
approximately $790,000.



During May 2001, Management negotiated a re-lease of
the vacant Milwaukee, Wisconsin property to Omega Restaurant 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 in the Second Quarter of 2001.



During March 2001,
Hardees Food Systems, Inc. notified Management of its intent to close its restaurant in Milwaukee, Wisconsin. 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 payment schedule included four
(4) equal installments of $39,250. The first payment was received in May 2001 upon the execution of the agreement and the remaining balance represented a Note receivable of $117,750. The first and second Note receivable installments were received in
August and October 2001. The final installment was received in January 2002.



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Grand Forks, ND Property



During February 2003 a new 10-year lease was executed with Panda Buffet, Inc. in relation to the Grand Forks, ND property, formerly occupied by Village Inn. The lease
is set to expire in 2012 and the annual first year base rent is $32,500. Commissions of $18,500 and $3,700 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, in March 2003. HVAC maintenance and
repair expenditures of $18,000 were incurred in the First Quarter of 2003 at the property. The Partnership had incurred expenditures of approximately $27,000 to replace the roof on the property in the Third Quarter of 2002.



During October 2001, the Village Inn Restaurant had notified Management of its intent to
close and vacate its restaurant in Grand Forks, ND, prior to the expiration of the lease term in 2009. In February 2002, Management was notified Village Inn had closed and vacated the restaurant. Rent income was collected from the tenant through
December 2001, however, no rent was collected from Village Inn for the period beginning January 1, 2002. The Partnership did not recognize rental revenue in 2003 related to Village Inn.



In March 2002 and September 2002, the Partnership paid the propertys first and second installments of 2001 real estate taxes. The
Partnership also paid the 2002 real estate taxes in the Fourth Quarter of 2002. During June 2003 a settlement and lease termination agreement was executed between Management and Village Inn. The Partnership received a $50,000 termination fee from
Village Inn. Management had initiated legal action against Village Inn for defaulted rent and real estate taxes, as well as other damages.



South Milwaukee, WI property



In October 2002 Management entered into a contract to sell the vacant South Milwaukee, WI property at a sales price of $450,000. In the Third Quarter of 2002 the net
asset value of the South Milwaukee property was written-down by $98,000 to reflect the estimated fair value of the property at September 30, 2002 of approximately $450,000, shown on the balance sheet as property held for sale at September 30, 2002.
In the First Quarter of 2003 the net asset value of the South Milwaukee property was written-down by an additional $33,000 (to $417,000) to reflect the net estimated sales price, less costs of sale.



The vacant South Milwaukee property was sold in April 2003 and the net proceeds upon the sale
were $417,000. The net asset value of the property at March 31, 2003 was approximately $417,000. Closing costs amounted to $6,000 and sales commissions related to the sale, which were paid to non-affiliated brokers, totaled $27,000.



4785 Merle Hay Road- Des Moines, IA



The lease on the property in Des Moines, IA expired on December 31, 2002. In October 2002
Hickory Park, Inc. informed Management that they would not be renewing the property lease. However, in January 2003 Management was notified that the sub-tenant, Daytonas- All Sports Cafe, did not vacate the Des Moines property and was
continuing to operate the property as a restaurant. Management allowed the sub-tenant a holdover lease for two months, and the Partnership received the January and February 2003 rent payments from Daytonas applicable to the holdover lease. In
March 2003 Management executed a five (5) year direct lease with Daytonas, which is set to expire in 2008. The first year base rent was $60,000. A leasing commission of $9,700 was paid to an affiliate of the General Partner in March 2003 upon
the execution of the lease.



Twin Falls, ID property



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. The lease was terminated



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and rent income ceased in the Fourth Quarter of 2001. Although Phoenix had rejected the lease, its subtenant, Fiesta
Time, maintained possession of the property. Management, therefore, took legal action to evict Fiesta Time from the Twin Falls property. In the Fourth Quarter of 2002, a judgment was entered in Magistrate Court evicting Fiesta Time. However, Fiesta
Time appealed the action to District Court and the Court upheld the judgment in February 2003. The Partnership then received $30,000 in past rent that the court had required Fiesta Time to escrow during the court proceedings.



In February 2003 Management entered into a purchase and sale agreement to sell the vacant
Twin Falls property at a sales price of $565,000. The closing date on the sale of the property was August 22, 2003 and the net sales proceeds totaled $530,000. A net gain of $215,000 was recognized in the Third Quarter of 2003 upon the sale. Closing
and other sale related costs amounted to $35,000, which included sales commissions of $22,000 to a non-affiliated broker and $11,000 to a General Partner affiliate in the Third Quarter of 2003.



Hardees property- Hartford, WI



During the Second Quarter of 2002, Management entered into a contract to sell the vacant
Hardees restaurant in Hartford, WI at a sales price of $618,000. 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
was set to expire on April 30, 2009 and they continued making rent payments until the closing date of October 2002. The net asset value of the property at closing was approximately $470,000 and the net gain on the sale of the property in October
2002 was approximately $124,000. A sales commission of $18,500 was paid by the Partnership to an affiliate of the General Partner in the Fourth Quarter of 2002.



North 7thStreet property- Phoenix,
AZ



During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of Lessee, Phoenix Restaurant Group, Inc. (Phoenix), to reject the lease with the Partnership at the N. 7thStreet, Phoenix, Arizona location. Following the rejection of this lease by Phoenix, the Mountain Range Restaurants (Phoenixs subtenant) declined the
Partnerships offer to lease the property directly to them. Therefore, the property was vacated and rent ceased as of May 31, 2002.



During August 2002, a ten (10) year lease, with annual first year base rent of $64,000, was negotiated with new tenant, Jun Cheng Pan, at the vacant N. 7thStreet property in Phoenix, Arizona. The new tenant took possession of the property in August 2002 and rent commenced in
January 2003. The restaurant is operated as a Chinese Super Buffet. Commissions of $34,500 and $13,800 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new lease in the
Third Quarter of 2002.



Former Mulberry Street Grill property- Phoenix,
AZ



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 was not set to expire until 2007, monthly rental and Common Area Maintenance (CAM) income ceased as of June 1, 2001. The
past due amount of $10,000 was reserved in the Fourth Quarter of 2001, due to its uncertainty of collection. Management moved forward with all legal remedies to collect the balances due from AMF, however, Management learned in the Third Quarter of
2002 that AMF had filed for bankruptcy and that the bankruptcy court had released AMF from all of its debts. The Partnership owned the building in Phoenix, Arizona occupied by the Mulberry Street Grill restaurant, however, the land upon which the
building was located was leased (the Ground Lease) to the Partnership by the Ground Lease Landlord, Centre at 38thStreet, L.L.C, (Centre.)



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During the Second Quarter of 2001 Management returned possession of the property to Centre and as such the net asset
value of the property was written-off in the Fourth Quarter of 2001, resulting in a loss of $157,000.



Beginning in May 2001 and through December 2001 the Partnership accrued but withheld payment of the ground lease obligations to Centre, and on December 31, 2001 the total ground lease accrual approximated $50,000. In
the Second Quarter of 2001, Centre filed suit against the Partnership and TPG (as General Partner) seeking possession of the property and damages for breach of the Ground Lease. In April 2002, an additional $43,000 was accrued as payable to Centre,
due to the Courts granting a summary judgment of $93,000 against the Partnership. In June 2002 the Partnership filed an appeal with respect to this judgment. In September 2002, the Partnership was required to escrow a $140,000 cash bond at the
clerk of the court during the appeal process. A Settlement Agreement and Mutual Release (the Agreement) was made and entered into as of February 1, 2003. According to the terms of the Agreements the Partnership was required to pay Centre
$115,000 (the Settlement) to discharge all claims of Centre against the Partnership and TPG (except for violations of environmental laws.) The court returned the $140,0000 cash bond to the Partnership in April 2003. (See Legal
Proceedings in Note 10 and Part I- Item 3.)



Item 3. Legal
Proceedings



The Partnership owned the building in Phoenix,
Arizona occupied by the Mulberry Street Grill restaurant, which was located on a parcel of land leased to the Partnership pursuant to a long-term ground lease (the Ground Lease.) The Ground 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. Although the sub-lease had not expired, since such notification the Partnership had received no rent from the former tenant and had returned possession of the Phoenix, Arizona property to the Ground Lease Landlord, Centre at
38thStreet, L.L.C., (Centre.) Beginning in May 2001 and through December 2001 the Partnership accrued
but withheld payment of the ground lease obligations and on December 31, 2001 the total ground lease accrual approximated $50,000. On June 12, 2001 Centre leased the property to a new tenant.



On June 18, 2001, Centre filed a lawsuit (the Complaint) in the Maricopa County,
Arizona, Superior Court, against the Partnership and TPG. The Complaint alleged that the Partnership was a tenant under a Ground Lease with Centre and that the Partnership defaulted on its obligations under that lease. The suit named TPG as a
defendant because TPG is the Partnerships general partner. The Complaint sought damages for unpaid rent, commissions, improvements, and unspecified other damages exceeding $120,000.



The Partnership and TPG filed an answer denying any liability to Centre. In addition, the Partnership filed a third-party complaint against
the National Restaurant Group, (National Restaurant), L.L.C., and its sub-tenant AMF. In the third-party complaint, the Partnership alleged 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 pursuant to the Ground Lease. Due to the bankruptcy filing by AMF the Partnership was prevented from proceeding against them. Although the Partnership had difficulty locating National
Restaurant, the lawsuit against them continues.



On April 10, 2002 the Maricopa
County Superior Court granted Centres motion for summary judgment against the Partnership and TPG. The Court entered a final judgment (the Judgment) on May 22, 2002, awarding approximately $93,000 in damages to Centre, as well as
attorneys fees and court costs in the amount of $16,000. As of December 31, 2001 the Partnership had accrued $50,000 in ground lease obligations payable to Centre and the remaining summary judgment balance of $43,000 was accrued in April 2002.



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##### Table of Contents

On June 20, 2002 the Partnership and TPG filed a Notice of Appeal (the Appeal) with respect to such Judgment.
Both parties filed briefs with the Court of Appeals, and the Court set oral argument for March 5, 2003. In order to prevent Centre from enforcing the judgment while the Appeal was pending, in August 2002, the Partnership deposited a $140,000
cashiers check with the Clerk of the Maricopa County Superior Court to serve as a bond. By law, the amount of the bond must be sufficient to cover the amount of the judgment, plus interest, and any additional costs that may be incurred during
the appeal.



In early January 2003, Centre informed the Partnership that the
replacement tenant had vacated the premises. In February 2003 the Partnership made an offer to Centre to settle the lawsuit and terminate the Ground Lease. In February 2003 a Settlement Agreement and Mutual Release (Agreement) was
executed between Centre, the Partnership and TPG. The Agreement included a February 28, 2003 settlement payment of $115,000 (the Settlement) from the Partnership to Centre in satisfaction of any and all obligations the Partnership and
TPG has now, or may have in the future, to Centre, whether in connection with the Complaint, the Judgment, the Ground Lease, or otherwise, except for any liability for violations of environmental law for which the Partnership is liable. In addition,
the Agreement includes the termination of the Ground Lease, dismissal of the Partnerships Appeal, and the mutual liability release of all parties relating to or arising out of the Ground Lease, the Complaint, the Judgment, and the Appeal,
except for violations of environmental laws.



Upon filing the Agreement with
the Court, the $140,000 cash bond was returned from the clerk of the court to the Partnership in April 2003.



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



None.



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##### Table of Contents

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, 2003 there were 2,142 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 2003 and 2002, $4,840,000 and $1,710,000, respectively, were distributed in
the aggregate to the Limited Partners. The General Partner received aggregate distributions of $6,530 and $6,533 in 2003 and 2002, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 6. Selected Financial Data



The Partnerships selected financial data included below has been derived from the Partnerships financial statements. 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)



As of and for the years ended



December 31, 2003, 2002, 2001, 2000, and 1999



|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                    |  | 2003 |            | 2002 |   | 2001       |  | 2000 |            | 1999
|Total Operating Revenue                             |  | $    | 2,271,241  |      | $ | 2,306,490  |  | $    | 2,302,081  |      | $ | 2,360,784  |  | $ | 2,339,474 
|Income from Continuing Operations                   |  | $    | 1,155,307  |      | $ | 1,314,838  |  | $    | 1,275,516  |      | $ | 1,375,890  |  | $ | 1,697,159 
|Income from Discontinued Operations                 |  | $    | 429,025    |      | $ | 220,467    |  | $    | 458,263    |      | $ | 345,901    |  | $ | 350,361   
|Net Income                                          |  | $    | 1,584,332  |      | $ | 1,535,305  |  | $    | 1,733,779  |      | $ | 1,721,791  |  | $ | 2,047,520 
|Net Income per Limited Partner Interest             |  | $    | 33.89      |      | $ | 32.84      |  | $    | 37.09      |      | $ | 36.83      |  | $ | 43.80     
|Total Assets                                        |  | $    | 12,398,831 |      | $ | 15,746,665 |  | $    | 15,839,599 |      | $ | 16,132,289 |  | $ | 17,125,388
|Total Partners Capital                             |  | $    | 12,057,066 |      | $ | 15,319,264 |  | $    | 15,500,492 |      | $ | 15,953,648 |  | $ | 16,873,744
|Cash Distributions per Limited Partnership Interest |  | $    | 104.58     |      | $ | 36.95      |  | $    | 47.10      |      | $ | 56.94      |  | $ | 55.64     



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##### Table of Contents

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 and
properties held for sale at December 31, 2003, were originally purchased at a price, including acquisition costs, of approximately $16,741,000.



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.



As of December 31, 2003,
the Partnership owned 19 fully constructed fast-food restaurants, a video store, and a preschool. The 21 properties are composed of the following: ten (10) Wendys restaurants, one (1) Dennys restaurant, 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) Chinese Super Buffet restaurant, one (1) Miami Subs restaurant, one (1) Blockbuster Video store,
one (1) Sunrise Preschool, one (1) Panda Buffet Restaurant, and one (1) Daytonas- All Sports Café. The 21 properties are located in a total of eleven (11) states.



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, current and historical results from operations for disposed properties and assets classified as held for sale that occur subsequent to January 1, 2002 are reclassified separately as discontinued operations.



During 2003, 2002 and 2001 the Partnership recognized income from discontinued operations of
$429,000, $220,000 and $458,000, respectively. The 2003, 2002 and 2001 income from discontinued operations is attributable to the Hartford, WI property (which was sold in October 2002), the vacant South Milwaukee, WI property (which was sold in
April 2003), the property in Milwaukee, WI and the Hardees restaurant in Fond du Lac, WI (which were sold in July 2003), the vacant Twin Falls, ID property (which was sold in August 2003) and the reclassification of the Miami Subs restaurant
property to property held for sale in the Fourth Quarter of 2003. The 2003 income from discontinued operations includes a First Quarter write-down of $33,000 related to the South Milwaukee property, a Second Quarter property write-down of $15,000
related to the Milwaukee, WI property, and Third Quarter net gains of $9,000, $80,000 and $215,000, which are related to the sales of the Milwaukee, WI property, Hardees- Fond du Lac and Twin Falls properties, respectively. The 2002 income
from discontinued operations includes a net gain of $124,000 related to the sale of the Hartford property, and a Third Quarter write-down of $98,000 related to the South Milwaukee property. The 2001 income from discontinued operations includes a
Second Quarter $157,000 lease termination fee related to the Milwaukee, WI property, and a Fourth Quarter write-off of Dennys- Twin Falls receivable balances.



The components of discontinued operations for the years ended December 31, 2003, 2002 and 2001 are outlined below.



|                                          |  |      |         |      |   |         |  |   |        
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |  | 2003 |         | 2002 |   | 2001   
|Revenues                                  |  |      |         |      |   |         |  |   |        
|Rental Income                             |  | $    | 208,353 |      | $ | 292,840 |  | $ | 586,732
|Other income                              |  |      | 0       |      |   | 479     |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Total Revenues                            |  |      | 208,353 |      |   | 293,319 |  |   | 586,732
|                                          |  |      |         |      |   |         |  |   |        
|Expenses                                  |  |      |         |      |   |         |  |   |        
|Property Write-down                       |  |      | 48,027  |      |   | 98,000  |  |   | 0      
|Depreciation                              |  |      | 18,578  |      |   | 63,080  |  |   | 75,514 
|Amortization                              |  |      | 4,261   |      |   | 15,447  |  |   | 14,128 
|Real Estate Taxes                         |  |      | 4,435   |      |   | 20,566  |  |   | 9,798  
|Management Services                       |  |      | 8,400   |      |   | 0       |  |   | 0      
|Provision for non-collectible Receivables |  |      | 0       |      |   | 158     |  |   | 29,029 
|                                          |  |      |         |      |   |         |  |   |        
|Total Expenses                            |  |      | 83,701  |      |   | 197,251 |  |   | 128,469
|                                          |  |      |         |      |   |         |  |   |        
|Net Gain on Sale of Properties            |  |      | 304,373 |      |   | 124,399 |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Income from Discontinued Operations       |  | $    | 429,025 |      | $ | 220,467 |  | $ | 458,263
|                                          |  |      |         |      |   |         |  |   |        





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The following summarizes significant developments, by property, for properties with such developments.



Popeyes- Park Forest, IL



Through January 2004, Popeyes is current on its monthly lease obligations, however,
the tenant is delinquent on its January 2002 percentage rent billing for 2001 of $72,000 and its February 2003 percentage rent billing for 2002 of $31,500. Management continues to pursue legal remedies in relation to the collection of the
tenants percentage rent past due balance of approximately $103,500, however, due to the uncertainty of collection, the entire amount was fully reserved in the Fourth Quarter of 2003. In addition, through December 31, 2003 Management has
charged Popeyes late fees totaling $52,000 (which includes 2003 and 2002 late fee charges of $35,000 and $17,000, respectively, which have not been recognized as revenue due to uncertainty of collection) in relation to the percentage rent
balances due. The tenant is delinquent on its reporting of its 2003 monthly sales figures and therefore 2003 percentage rents were not accrued by the Partnership at December 31, 2003.



Per the lease and its amendments (Lease), Popeyes is to timely pay as they come due all taxes charged to the property.
However, the tenant failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, IL in 2003, as well as approximately $5,000 in assessed late fees. In the Fourth Quarter of 2003 the Partnership accrued
the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that will be due in 2004. The 2002 property taxes and late fees were paid by the Partnership in January 2004 and the first installment for the 2003 taxes
is anticipated to be paid in the First Quarter of 2004.



A Landlords 10
Day Notice Of Default (Notice), dated February 9, 2004, was sent to Quality Foods I, LLC notifying the tenant that payment of the amount due for the 2002 property tax balance is hereby demanded and unless payment is received by the
Partnership on or before the expiration of ten (10) days after the date of service of the Notice, then the Partnership will pursue all legal remedies available which may include an action to recover possession and termination of the Lease. The
notice also stated that until such time the Lease is terminated, the tenants other legal obligations (outstanding percentage rents and future monthly rents) continue in full.



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Miami Subs- Palm Beach, FL



During the Fourth Quarter of 2002 the Miami Subs lease with QSR, Inc. was terminated. The lease was set to expire in 2016. A new ten-year
lease was executed in the Fourth Quarter of 2002 with Difede Finance Group Corporation and is set to expire in 2012. The property has continued to be operated as a Miami Subs Restaurant. A sales contract was executed in January 2004 for the
anticipated sale of the property in the Second Quarter of 2004 at a sales price of $650,000. The net asset value of the property at December 31, 2003 was approximately $391,000, classified as property held for sale, which included $325,000 related
to land, $49,000 related to buildings and equipment, and $17,000 related to deferred rent.



Hardees property- Fond du Lac, WI



During June 2003, Management entered into a contract to sell the Hardees restaurant in Fond du Lac, WI at a sales price of $720,000. The closing date on the sale of the property was July 30, 2003 and the net sales proceeds totaled
$690,000. A net gain on the sale of $80,000 was recognized in the Third Quarter of 2003. Closing and other sale related costs amounted to $30,000, which included a sales commission totaling $22,000 paid to a General Partner affiliate in the Third
Quarter of 2003.



Milwaukee, WI property



In May 2003 Management entered into a contract to sell the Milwaukee, WI property to the
tenant at a sales price of $825,000. The property was being operated as Omega Restaurant. The closing date on the sale of the property was July 28, 2003, and the net sales proceeds totaled $799,000. A net gain on the sale of $9,000 was recognized in
the Third Quarter of 2003. Closing costs amounted to $1,000, and a sales commission of $25,000 was paid to a General Partner affiliate. In the Second Quarter of 2003 the net asset value of the property was written-down by $15,000 to reflect the net
estimated sales price, less costs to sell, of the property of approximately $790,000.



During May 2001, Management negotiated a re-lease of the vacant Milwaukee, Wisconsin property to Omega Restaurant 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 in the Second Quarter of 2001.



During March 2001, Hardees Food Systems, Inc. notified Management of its intent to close its restaurant in Milwaukee, Wisconsin. 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 payment schedule included four (4) equal installments of $39,250. The first payment was received in May 2001 upon the execution of the agreement and the remaining balance
represented a Note receivable of $117,750. The first and second Note receivable installments were received in August and October 2001. The final installment was received in January 2002.



Grand Forks, ND Property



During February 2003 a new 10-year lease was executed with Panda Buffet, Inc. in relation to the Grand Forks, ND property, formerly occupied by Village Inn. The lease is
set to expire in 2012 and the annual first year base rent is $32,500. Commissions of $18,500 and $3,700 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, in March 2003. HVAC maintenance and repair
expenditures of $18,000 were incurred in the First Quarter of 2003 at the property. The Partnership had incurred expenditures of approximately $27,000 to replace the roof on the property in the Third Quarter of 2002.



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During October 2001, the Village Inn Restaurant had notified Management of its intent to close and vacate its restaurant
in Grand Forks, ND, prior to the expiration of the lease term in 2009. In February 2002, Management was notified Village Inn had closed and vacated the restaurant. Rent income was collected from the tenant through December 2001, however, no rent was
collected from Village Inn for the period beginning January 1, 2002. The Partnership did not recognize rental revenue in 2003 related to Village Inn.



In March 2002 and September 2002, the Partnership paid the propertys first and second installments of 2001 real estate taxes. The Partnership also paid the 2002
real estate taxes in the Fourth Quarter of 2002. During June 2003 a settlement and lease termination agreement was executed between Management and Village Inn. The Partnership received a $50,000 termination fee from Village Inn. Management had
initiated legal action against Village Inn for defaulted rent and real estate taxes, as well as other damages.



South Milwaukee, WI property



In October 2002 Management entered into a contract to sell the vacant South Milwaukee, WI property at a sales price of $450,000. In the Third Quarter of 2002 the net
asset value of the South Milwaukee property was written-down by $98,000 to reflect the estimated fair value of the property at September 30, 2002 of approximately $450,000, shown on the balance sheet as property held for sale at September 30, 2002.
In the First Quarter of 2003 the net asset value of the South Milwaukee property was written-down by an additional $33,000 (to $417,000) to reflect the net estimated sales price, less costs of sale.



The vacant South Milwaukee property was sold in April 2003 and the net proceeds upon the sale
were $417,000. The net asset value of the property at March 31, 2003 was approximately $417,000. Closing costs amounted to $6,000 and sales commissions related to the sale, which were paid to non-affiliated brokers, totaled $27,000.



4785 Merle Hay Road- Des Moines, IA



The lease on the property in Des Moines, IA expired on December 31, 2002. In
October 2002 Hickory Park, Inc. informed Management that they would not be renewing the property lease. However, in January 2003 Management was notified that the sub-tenant, Daytonas- All Sports Cafe, did not vacate the Des Moines property and
was continuing to operate the property as a restaurant. Management allowed the sub-tenant a holdover lease for two months, and the Partnership received the January and February 2003 rent payments from Daytonas applicable to the holdover lease.
In March 2003 Management executed a five (5) year direct lease with Daytonas, which is set to expire in 2008. The first year base rent was $60,000. A leasing commission of $9,700 was paid to an affiliate of the General Partner in March 2003
upon the execution of the lease.



Twin Falls, ID property



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. The lease was terminated and rent income ceased in the Fourth Quarter of
2001. Although Phoenix had rejected the lease, its subtenant, Fiesta Time, maintained possession of the property. Management, therefore, took legal action to evict Fiesta Time from the Twin Falls property. In the Fourth Quarter of 2002, a judgment
was entered in Magistrate Court evicting Fiesta Time. However, Fiesta Time appealed the action to District Court and the Court upheld the judgment in February 2003. The Partnership then received $30,000 in past rent that the court had required
Fiesta Time to escrow during the court proceedings.



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In February 2003 Management entered into a purchase and sale agreement to sell the vacant Twin Falls property at a sales
price of $565,000. The closing date on the sale of the property was August 22, 2003 and the net sales proceeds totaled $530,000. A net gain of $215,000 was recognized in the Third Quarter of 2003 upon the sale. Closing and other sale related costs
amounted to $35,000, which included sales commissions of $22,000 to a non-affiliated broker and $11,000 to a General Partner affiliate in the Third Quarter of 2003.



Hardees property- Hartford, WI



During the Second Quarter of 2002, Management entered into a contract to sell the vacant Hardees restaurant in Hartford, WI at a sales
price of $618,000. 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 was set to expire on April 30, 2009 and they
continued making rent payments until the closing date of October 2002. The net asset value of the property at closing was approximately $470,000 and the net gain on the sale of the property in October 2002 was approximately $124,000. A sales
commission of $18,500 was paid by the Partnership to an affiliate of the General Partner in the Fourth Quarter of 2002.



North 7thStreet property- Phoenix, AZ



During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of Lessee, Phoenix Restaurant Group, Inc. (Phoenix), to reject the lease with the
Partnership at the N. 7thStreet, Phoenix, Arizona location. Following the rejection of this lease by Phoenix, the
Mountain Range Restaurants (Phoenixs subtenant) declined the Partnerships offer to lease the property directly to them. Therefore, the property was vacated and rent ceased as of May 31, 2002.



During August 2002, a ten (10) year lease, with annual first year base rent of $64,000, was
negotiated with new tenant, Jun Cheng Pan, at the vacant N. 7thStreet property in Phoenix, Arizona. The new tenant
took possession of the property in August 2002 and rent commenced in January 2003. The restaurant is operated as a Chinese Super Buffet. Commissions of $34,500 and $13,800 were paid to an unaffiliated leasing agent and to an affiliate of the General
Partner, respectively, upon the execution of the new lease in the Third Quarter of 2002.



Former Mulberry Street Grill property- Phoenix, AZ



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 was not set to expire until 2007, monthly rental and Common Area Maintenance (CAM) income ceased as of June 1, 2001. The past due amount of $10,000 was reserved in the Fourth Quarter of 2001,
due to its uncertainty of collection. Management moved forward with all legal remedies to collect the balances due from AMF, however, Management learned in the Third Quarter of 2002 that AMF had filed for bankruptcy and that the bankruptcy court had
released AMF from all of its debts. The Partnership owned the building in Phoenix, Arizona occupied by the Mulberry Street Grill restaurant, however, the land upon which the building was located was leased (the Ground Lease) to the
Partnership by the Ground Lease Landlord, Centre at 38thStreet, L.L.C, (Centre.) During the Second
Quarter of 2001 Management returned possession of the property to Centre and as such the net asset value of the property was written-off in the Fourth Quarter of 2001, resulting in a loss of $157,000.



Beginning in May 2001 and through December 2001 the Partnership accrued but withheld payment
of the ground lease obligations to Centre, and on December 31, 2001 the total ground lease accrual approximated $50,000. In the Second Quarter of 2001, Centre filed suit against the Partnership and TPG (as General Partner)



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seeking possession of the property and damages for breach of the Ground Lease. In April 2002, an additional $43,000 was
accrued as payable to Centre, due to the Courts granting a summary judgment of $93,000 against the Partnership. In June 2002 the Partnership filed an appeal with respect to this judgment. In September 2002, the Partnership was required to
escrow a $140,000 cash bond at the clerk of the court during the appeal process. A Settlement Agreement and Mutual Release (the Agreement) was made and entered into as of February 1, 2003. According to the terms of the Agreements the
Partnership was required to pay Centre $115,000 (the Settlement) to discharge all claims of Centre against the Partnership and TPG (except for violations of environmental laws.) The court returned the $140,0000 cash bond to the
Partnership in April 2003. (See Legal Proceedings in Note 10 and Part I- Item 3.)



Blockbuster Video Property- Ogden, UT



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.



Other Investment in Properties Information



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 were invested in the Partnerships properties.



As of December 31, 2002 two of the Partnerships property leases, where the Partnership is the lessor, contained purchase option provisions. The owner of the Omega
Restaurant in Milwaukee, WI exercised his purchase option and entered into a purchase agreement to buy the Milwaukee, WI property for $825,000 which was in excess of the original cost of the property less accumulated depreciation. Closing on the
property was in July 2003. At December 31, 2003 the owners of the Panda Buffet property have an option to purchase the property at a price, which approximates the original cost of the property less accumulated depreciation. The current General
Partner is not aware of any unfavorable purchase options in relation to the original cost.



Other Assets



As of
December 31, 2003 the property held for sale amounted to $391,000 (which included $325,000 related to land, $49,000 related to buildings and equipment, and $17,000 related to deferred rent), as a result of the classification of the Miami Subs
property in Palm Beach, Florida as held for sale in the Fourth Quarter of 2003. A sales contract was executed in January 2004 for the anticipated sale of the property in the Second Quarter of 2004. As of December 31, 2002 the property held for sale
amounted to $450,000 (which included $275,000 related to land and $175,000 related to buildings and equipment), as a result of the classification of the vacant South Milwaukee, WI property as held for sale in the Fourth Quarter of 2002. The South
Milwaukee closing date was in the Second Quarter of 2003.



Cash and cash
equivalents held by the Partnership totaled approximately $673,000 at December 31, 2003, compared to $1,369,000 at December 31, 2002. Cash of $325,000 is anticipated to be used to fund the Fourth Quarter 2003 distributions to Limited Partners in
February 2004, and cash of $183,000 is anticipated to be used for the payment of year-end accounts payable and accrued expenses, and the remainder represents amounts 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.



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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 condensed financial statements included in
Item 1 of this report.



Deposit- Clerk of the Court amounted to $140,000 at
December 31, 2002. In September 2002, the Partnership was required to escrow a $140,000 cash bond at the clerk of the Maricopa County Superior Court during the appeal process related to the Phoenix, Arizona property. Upon the execution of the
Settlement and Mutual Release Agreement in the First Quarter of 2003, the $140,000 cash bond was returned to the Partnership in April 2003. (See Legal Proceedings in Part I. - Item 3 and Note 10.)



Rents and other receivables amounted to $510,000 (net of allowance of $104,000) as of
December 31, 2003, compared to $598,000 (net of allowance of $135,000) as of December 31, 2002. The tenant Popeyes- Park Forest is delinquent on its January 2002 percentage rent billing for 2001 of $72,000 and its February 2003 percentage rent
billing for 2002 of $31,500. Management continues to pursue legal remedies in relation to the collection of the tenants percentage rent past due balance of approximately $103,500, however, due to the uncertainty of collection, the entire
amount was fully reserved in the Fourth Quarter of 2003. In addition, Management has charged Popeyes late fees totaling $52,000 (which includes 2003 and 2002 late fee charges of $35,000 and $17,000, respectively, which have not been recognized
as revenue due to uncertainty of collection) in relation to the percentage rent balances due. Village Inn in Grand Forks, ND was in default in relation to its January 2002 through June 2003 lease payments. The Partnership did not recognize revenue
in 2003 related to Village Inn. Management initiated legal action against Village Inn for past due rents of approximately $137,000, as well as other damages. Due to the uncertainty of collection, the past due 2002 rents totaling approximately
$97,000 were fully reserved in the year 2002. In the year 2002 Management charged Village Inn late fees totaling $3,400 (which were not recognized as revenue due to uncertainty of collection) in relation to the 2002 past due rents. During June 2003
the Partnership recovered $50,000 in past rent due from Village Inn pursuant to the execution of a settlement and lease termination agreement. The remaining past due rents and allowances were removed from the balance sheet in June 2003.



Property tax receivable at December 31, 2002 totaled $5,000 (net of allowance of $30,000).
The balance primarily represented 2001 and 2002 property taxes paid by the Partnership, which were due from the defaulted tenant Village Inn. The $30,000 due from Village Inn was fully reserved in 2002 due to the uncertainty of collection. The
remaining past due property tax receivable and allowances in relation to Village Inn were removed from the balance sheet in June 2003, subsequent to the settlement and lease termination agreement. A portion of the amount also represented a property
tax receivable due from the new tenant, Chinese Super Buffet, for its portion of 2002 real estate taxes. With the consent of Management, Chinese Super Buffet made monthly payments in 2003 toward its balance due at December 31, 2002.



Deferred charges totaled approximately $273,000 and $313,000, net of accumulated
amortization, at December 31, 2003 and December 31, 2002, 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 First Quarter of 2003, commissions of $18,500 and $3,700 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new Panda Buffet lease,
and a commission of $9,700 was paid to an affiliate of the General Partner upon the execution of the new Daytonas- All Sports Café lease. Deferred charges totaling $56,000 related to the



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Milwaukee, WI and Hardees- Fond du Lac properties were written-off when the two properties were sold in the Third
Quarter of 2003. During the Third Quarter of 2002, commissions of $34,500 and $13,800 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new Chinese Super Buffet lease.
Deferred charges relating to the Hardees- Hartford property were written-off during the Fourth Quarter of 2002 due to the sale of the Property in October 2002. 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 Milwaukee, WI 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. 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, 2003, in the amount of $93,000,
primarily represented the year-end accruals of auditing, tax and data processing fees.



Judgment Payable at December 31, 2002, in the amount of $93,000 represented the accrual of the summary judgment against the Partnership in relation to the former Mulberry Street Grill property. As of December 31, 2001 the Partnership had
withheld the May through December 2001 accrued ground lease obligations totaling approximately $50,000 related to the property. In the Second Quarter of 2001, the Ground Lease landlord filed suit against the Partnership and TPG (as General Partner)
seeking possession of the property and damages for breach of the Ground Lease. In April 2002, an additional $43,000 was accrued as payable to the Ground Lease landlord, due to the Courts granting a summary judgment of $93,000 against the
Partnership. In February 2003 a Settlement Agreement and Mutual Release (the Agreement) was executed. According to the terms of the Agreement the Partnership was required to pay directly to Centre a settlement payment of $115,000 (the
Settlement). (See Legal Proceedings in Part I- Item 3 and Note 10.)



Property taxes payable at December 31, 2003, in the amount of $88,000, primarily represented 2003 and 2002 real estate taxes due for the Popeyes- Park Forest property. Since the tenant is delinquent on payment of these taxes to Cook
County, IL, the Partnership will pay the amount due in 2004 and will pursue legal remedies to collect reimbursement from the tenant. Property taxes payable at December 31, 2002, in the amount of $17,000, represented 2002 real estate taxes due for
the Chinese Super Buffet property, the vacant South Milwaukee, Wisconsin and Twin Falls, Idaho properties, which were paid in 2003.



Due to the Current General Partner amounted to $2,000 at December 31, 2003, and primarily represented the General Partners portion of the Fourth Quarter 2003
distribution.



Security deposits amounted to $130,000 and $137,000 at December
31, 2003 and December 31, 2002, respectively. The variance is due to a $5,000 purchase deposit being relinquished upon the sale of the South Milwaukee property in April 2003, and a $7,000 rent security deposit being returned upon the sale of the
Milwaukee, WI property in July 2003. However, a $5,000 security deposit was received from the new tenant Panda Buffet in the First Quarter of 2003.



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.



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Cash distributions paid to the Limited Partners and to the General Partner during 2003 of $4,840,000 and $6,530,
respectively, have also been made in accordance with the Partnership Agreement. The Fourth Quarter 2003 Limited Partner distributions totaling $325,000 were paid February 13, 2004.



Results of Operations



The Partnership reported income from continuing operations for the year ended December 31, 2003, in the amount of $1,155,000 compared to income from continuing operations
for the years ended December 31, 2002 and 2001 of $1,315,000 and $1,276,000, respectively. The variance in income from continuing operations in 2003 compared to 2002 and 2001 is due primarily to: (i) Popeyes 2001 and 2002 percentage rent
billing defaults, and the failure of the tenant to report its 2003 sales resulted in no percentage rent being accrued in the Fourth Quarter of 2003 in relation to the tenant; (ii) the write-off of Popeyes 2002 and 2001 percentage rent billings
in the Fourth Quarter of 2003 due to the uncertainty of collection; (iii) the accrual of Popeyes 2003 and 2002 property taxes due to tenant default; (iv) increased legal expenditures in 2003 and 2002 due to tenant defaults, eviction
proceedings at the Twin Falls property, and court proceedings related to the former Mulberry Street Grill property; (v) increased audit fees in 2003; (vi) increased insurance premiums in 2003 and an insurance premium adjustment in the First Quarter
of 2003; (vii) 1989 personal property taxes paid in the First Quarter of 2003; (viii) increased maintenance expenditures at the Grand Forks, ND property in 2002; (ix) the Mulberry Street Grill settlement payment in February 2003 and an accrual
adjustment in April 2002; (x) $50,000 lease termination fee from Village Inn in the Second Quarter of 2003; (xi) the bankruptcy rejections of the North 7thStreet lease in the Fourth Quarter of 2001; and (xii) the non-cash disposal of the former Mulberry Street Grill Restaurant in the Fourth Quarter of 2001 which resulted in a loss of $157,000.



Discontinued Operations



Income from discontinued operations was $429,000, $220,000 and $458,000 for the years ended
December 31, 2003, 2002, and 2001, respectively. In accordance with SFAS 144, discontinued operations represent the operations of properties disposed of or classified as held for sale subsequent to January 1, 2002 as well as any gain or loss
recognized in their disposition. The Hardees- Hartford property was sold in October 2002, the vacant South Milwaukee property was classified as held for sale in the Fourth Quarter of 2002 and sold in April 2003, the vacant Twin Falls property
was classified as held for sale in the First Quarter of 2003 and sold in August 2003, the Hardees- Fond du Lac and Milwaukee, WI properties were classified as held for sale in the Second Quarter of 2003 and sold in July 2003, and the Miami
Subs property was classified as held for sale in the Fourth Quarter of 2003 and has an anticipated closing date in the First Quarter of 2004. Therefore the operating results of these properties are reflected as income from discontinued operations
for the years ended December 31, 2003, 2002 and 2001. The 2003 income from discontinued operations includes Third Quarter net gains of $9,000, $80,000 and $215,000, which are related to the sale of the Milwaukee, WI, Hardees- Fond du Lac and
Twin Falls properties, respectively. The First Quarter 2003 income from discontinued operations included a $33,000 property write-down of the South Milwaukee property to reflect the net estimated sales price, less costs to sell. The Second Quarter
2003 income from discontinued operations included a $15,000 property write-down of the Milwaukee, WI property to reflect the net estimated sales price, less costs to sell. The 2002 income from discontinued operations includes a Third Quarter $98,000
property write-down of the South Milwaukee property to reflect its estimated market value, and a Fourth Quarter gain of $124,000 related to the sale of the Hardees- Hartford property. The 2001 income from discontinued operations includes a
Second Quarter $157,000 lease termination fee related to the Milwaukee, WI property, and a Fourth Quarter write-off of Dennys- Twin Falls receivable balances.



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##### Table of Contents

Revenues



Total operating revenues were $2,271,000, $2,306,000, and $2,302,000, for the years ended December 31, 2003, 2002, and 2001, respectively. During June 2003 the
Partnership received a lease termination fee of $50,000 from defaulted former tenant Village Inn upon a settlement and lease termination agreement.



As of December 31, 2003 total base operating rent revenues (excluding properties held for sale) should approximate $1,667,000 annually based on leases currently in place.
Future operating 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 percentage rent to the
Partnership.



Expenses



For the years ended December 31, 2003, 2002, and 2001, total operating expenses amounted to
approximately 50%, 44% and 40%, of total operating revenues, respectively.



The
variance in operating expenditures are due to: (i) increased 2003 and 2002 legal expenditures due to tenant defaults, eviction proceedings at the Twin Falls property, and court proceedings related to the former Mulberry Street Grill property; (ii)
increased 2003 audit fees; (iii) the accrual of Popeyes 2003 and 2002 property taxes due to tenant default; (iv) higher insurance premiums in 2003 and an insurance premium adjustment in the First Quarter of 2003; (v) 1989 personal property
taxes paid in the First Quarter of 2003; (v) the Mulberry Street Grill settlement payment in February 2003; (vi) the write-off of Popeyes 2002 and 2001 percentage rent billings in the Fourth Quarter of 2003 due to the uncertainty of
collection; (vii) increased maintenance expenditures at the Grand Forks, ND property in 2002; (viii) Mulberry Street Grill additional judgment accrual in the Second Quarter of 2002; (ix) the write-off of defaulted Village Inns receivable
balances in 2002; and (x) Appraisals of all the Partnership properties at a cost of $63,000 during 2001.



Depreciation and amortization are non-cash items and do not affect current operating cash flow of the Partnership or distributions to the Limited Partners.



Operating write-offs for non-collectible rents and receivables amounted to $106,100, $128,600, and $24,500, for the years ended December 31,
2003, 2002, and 2001, respectively. The write-offs are the result of tenant defaults.



Other Income



For the years ended December 31,
2003, 2002, and 2001 the Partnership did generate other income of approximately $20,000, $30,000 and $48,000, respectively. These revenues came primarily from interest earnings and small recoveries from former General Partners. Management
anticipates that such revenue types may continue to be generated until Partnership dissolution.



Loss on Disposition of Assets, net



For the year ended December 31, 2001 the net loss on the disposition of assets totaled approximately $157,000. This loss related to the disposition of the former Mulberry Street Grill property. (See Note 3- Investment
Properties.)



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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 actually 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 25% of operating rental income
for 2003. 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.



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 that 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 sales 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



The Partnership is not subject to market risk.



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data



DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



(A Wisconsin limited partnership)



INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



|                                                                                      |  |        
|------------------------------------------------------------------------------------- |  | -------
|                                                                                      |  | Page   
|Independent Auditors Report                                                          |  | 25     
|                                                                                      | 
|Balance Sheets, December 31, 2003 and 2002                                            |  | 26 - 27
|                                                                                      | 
|Statements of Income for the Years Ended December 31, 2003, 2002, and 2001            |  | 28     
|                                                                                      | 
|Statements of Partners Capital for the Years Ended December 31, 2003, 2002, and 2001 |  | 29     
|                                                                                      | 
|Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001        |  | 30     
|                                                                                      | 
|Notes to Financial Statements                                                         |  | 31 - 46
|                                                                                      | 
|Schedule IIIReal Estate and Accumulated Depreciation, December 31, 2003              |  | 53 - 54



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##### Table of Contents

INDEPENDENT AUDITORS REPORT



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 (a Wisconsin limited partnership) as of December 31, 2003 and 2002 and the related statements of income, partners capital, and cash flows for each of the
three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.



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



In our opinion, such financial statements present fairly, in all material respects, the
financial position of the Partnership at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



DELOITTE & TOUCHE LLP

Chicago, Illinois

February 26, 2004



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##### Table of Contents

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



BALANCE SHEETS



December 31, 2003 and 2002



ASSETS



|                                                                                         |  |                   |            |   |                   |   |            |  
|---------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                                                         |  | December 31, 2003 |            |   | December 31, 2002 |  
|INVESTMENT PROPERTIES AND EQUIPMENT: (Note 3)                                            |  |                   |            |   |                   |   |            |  
|                                                                                         |  |                  
|Land                                                                                     |  | $                 | 5,632,736  |   |                   | $ | 6,820,054  |  
|Buildings                                                                                |  |                   | 8,899,963  |   |                   |   | 10,543,064 |  
|Equipment                                                                                |  |                   | 431,143    |   |                   |   | 669,778    |  
|Accumulated depreciation                                                                 |  |                   | (4,908,005 | ) |                   |   | (5,702,845 | )
|                                                                                         |  |                   |            |   |                   |   |            |  
|Net investment properties and equipment                                                  |  |                   | 10,055,837 |   |                   |   | 12,330,051 |  
|                                                                                         |  |                   |            |   |                   |   |            |  
|OTHER ASSETS:                                                                            |  |                   |            |   |                   |   |            |  
|                                                                                         |  |                  
|Property held for sale (Note 3)                                                          |  |                   | 391,313    |   |                   |   | 449,936    |  
|Cash and cash equivalents                                                                |  |                   | 673,142    |   |                   |   | 1,369,248  |  
|Cash held in Indemnification Trust (Note 8)                                              |  |                   | 382,322    |   |                   |   | 378,725    |  
|Deposit- Clerk of the Court                                                              |  |                   | 0          |   |                   |   | 140,000    |  
|Rents and other receivables (Net of allowance of $103,509 and $134,578 in 2003 and 2002) |  |                   | 510,459    |   |                   |   | 598,438    |  
|Property tax receivable (Net of allowance of $29,929 in 2002)                            |  |                   | 0          |   |                   |   | 5,191      |  
|Deferred rent receivable                                                                 |  |                   | 109,705    |   |                   |   | 133,017    |  
|Prepaid insurance                                                                        |  |                   | 3,067      |   |                   |   | 28,939     |  
|Deferred charges, net                                                                    |  |                   | 272,986    |   |                   |   | 313,120    |  
|                                                                                         |  |                   |            |   |                   |   |            |  
|Total other assets                                                                       |  |                   | 2,342,994  |   |                   |   | 3,416,614  |  
|                                                                                         |  |                   |            |   |                   |   |            |  
|Total assets                                                                             |  | $                 | 12,398,831 |   |                   | $ | 15,746,665 |  
|                                                                                         |  |                   |            |   |                   |   |            |  



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



BALANCE SHEETS



December 31, 2003 and 2002



LIABILITIES AND PARTNERS CAPITAL



|                                                         |  |                   |             |   |                   |   |             |  
|-------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                         |  | December 31, 2003 |             |   | December 31, 2002 |  
|LIABILITIES:                                             |  |                   |             |   |                   |   |             |  
|Accounts payable and accrued expenses                    |  | $                 | 93,168      |   |                   | $ | 65,282      |  
|Judgment Payable                                         |  |                   | 0           |   |                   |   | 92,866      |  
|Property taxes payable                                   |  |                   | 87,648      |   |                   |   | 16,839      |  
|Due to General Partner                                   |  |                   | 1,984       |   |                   |   | 3,069       |  
|Security deposits                                        |  |                   | 129,585     |   |                   |   | 136,585     |  
|Unearned rental income                                   |  |                   | 29,380      |   |                   |   | 112,760     |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total liabilities                                        |  |                   | 341,765     |   |                   |   | 427,401     |  
|                                                         |  |                   |             |   |                   |   |             |  
|CONTINGENT LIABILITIES: (Note 7)                         |  |                   |             |   |                   |   |             |  
|                                                         |  |                  
|PARTNERS CAPITAL: (Notes 1, 4 and 9)                    |  |                   |             |   |                   |   |             |  
|Current General Partner-                                 |  |                   |             |   |                   |   |             |  
|Cumulative net income                                    |  |                   | 203,372     |   |                   |   | 187,529     |  
|Cumulative cash distributions                            |  |                   | (84,004     | ) |                   |   | (77,474     | )
|                                                         |  |                   |             |   |                   |   |             |  
|                                                         |  |                   | 119,368     |   |                   |   | 110,055     |  
|                                                         |  |                   |             |   |                   |   |             |  
|Limited Partners (46,280.3 interests outstanding)        |  |                   |             |   |                   |   |             |  
|Capital contributions, net of offering costs             |  |                   | 39,358,468  |   |                   |   | 39,358,468  |  
|Cumulative net income                                    |  |                   | 26,499,727  |   |                   |   | 24,931,238  |  
|Cumulative cash distributions                            |  |                   | (53,080,268 | ) |                   |   | (48,240,268 | )
|Reallocation of former general partners deficit capital |  |                   | (840,229    | ) |                   |   | (840,229    | )
|                                                         |  |                   |             |   |                   |   |             |  
|                                                         |  |                   | 11,937,698  |   |                   |   | 15,209,209  |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total partners capital                                  |  |                   | 12,057,066  |   |                   |   | 15,319,264  |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total liabilities and partners capital                  |  | $                 | 12,398,831  |   |                   | $ | 15,746,665  |  
|                                                         |  |                   |             |   |                   |   |             |  



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

STATEMENTS OF INCOME

For the Years Ended December 31, 2003, 2002, and 2001



|                                                                          |  |      |           |      |   |           |  |   |           |  
|------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | -
|                                                                          |  | 2003 |           | 2002 |   | 2001      | 
|OPERATING REVENUES:                                                       |  |      |           |      |   |           |  |   |           |  
|Rental income (Note 5)                                                    |  | $    | 2,221,241 |      | $ | 2,306,490 |  | $ | 2,302,081 |  
|Lease Termination Fee (Note 3)                                            |  |      | 50,000    |      |   | 0         |  |   | 0         |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|TOTAL OPERATING REVENUES                                                  |  |      | 2,271,241 |      |   | 2,306,490 |  |   | 2,302,081 |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|EXPENSES:                                                                 |  |      |           |      |   |           |  |   |           |  
|Partnership management fees (Note 6)                                      |  |      | 202,049   |      |   | 198,639   |  |   | 192,902   |  
|Restoration fees (Note 6)                                                 |  |      | 261       |      |   | 135       |  |   | 278       |  
|Appraisal fees                                                            |  |      | 0         |      |   | 0         |  |   | 62,857    |  
|Insurance                                                                 |  |      | 44,656    |      |   | 27,823    |  |   | 21,418    |  
|General and administrative                                                |  |      | 74,067    |      |   | 79,583    |  |   | 73,674    |  
|Advisory Board fees and expenses                                          |  |      | 10,215    |      |   | 9,799     |  |   | 10,837    |  
|Real estate taxes                                                         |  |      | 82,716    |      |   | 1,961     |  |   | 4,532     |  
|Ground lease expenses (Note 3)                                            |  |      | 0         |      |   | 0         |  |   | 71,606    |  
|Professional services                                                     |  |      | 270,390   |      |   | 207,463   |  |   | 143,223   |  
|Maintenance and repair expenses                                           |  |      | 25,330    |      |   | 43,619    |  |   | 9,883     |  
|Personal property taxes                                                   |  |      | 15,316    |      |   | 0         |  |   | 0         |  
|Expenses incurred due to default by lessee or vacancy                     |  |      | 4,704     |      |   | 11,738    |  |   | 360       |  
|Settlement expense                                                        |  |      | 22,134    |      |   | 0         |  |   | 0         |  
|Judgment expense                                                          |  |      | 0         |      |   | 45,128    |  |   | 0         |  
|Depreciation                                                              |  |      | 261,427   |      |   | 261,426   |  |   | 268,887   |  
|Amortization                                                              |  |      | 12,100    |      |   | 5,800     |  |   | 32,703    |  
|Provision for non-collectible rents and other receivables                 |  |      | 106,104   |      |   | 128,597   |  |   | 24,509    |  
|Other expenses                                                            |  |      | 4,932     |      |   | 0         |  |   | 0         |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|TOTAL OPERATING EXPENSES                                                  |  |      | 1,136,401 |      |   | 1,021,711 |  |   | 917,669   |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|OTHER INCOME                                                              |  |      |           |      |   |           |  |   |           |  
|Interest income                                                           |  |      | 13,908    |      |   | 18,208    |  |   | 40,019    |  
|Other income                                                              |  |      | 45        |      |   | 8,474     |  |   | 847       |  
|Recovery of amounts previously written off (Note 2)                       |  |      | 6,514     |      |   | 3,377     |  |   | 6,952     |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|TOTAL OTHER INCOME                                                        |  |      | 20,467    |      |   | 30,059    |  |   | 47,818    |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|(LOSS) ON DISPOSITION OF ASSETS, NET                                      |  |      | 0         |      |   | 0         |  |   | (156,714  | )
|                                                                          |  |      |           |      |   |           |  |   |           |  
|INCOME FROM CONTINUING OPERATIONS                                         |  |      | 1,155,307 |      |   | 1,314,838 |  |   | 1,275,516 |  
|                                                                          |  |      |          
|INCOME FROM DISCONTINUED OPERATIONS                                       |  |      | 429,025   |      |   | 220,467   |  |   | 458,263   |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|NET INCOME                                                                |  | $    | 1,584,332 |      | $ | 1,535,305 |  | $ | 1,733,779 |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|NET INCOME- CURRENT GENERAL PARTNER                                       |  | $    | 15,843    |      | $ | 15,353    |  | $ | 17,338    |  
|NET INCOME- LIMITED PARTNERS                                              |  |      | 1,568,489 |      |   | 1,519,952 |  |   | 1,716,441 |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|                                                                          |  | $    | 1,584,332 |      | $ | 1,535,305 |  | $ | 1,733,779 |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|PER LIMITED PARTNERSHIP INTEREST,based on 46,280.3 Interests outstanding: |  |      |           |      |   |           |  |   |           |  
|INCOME FROM CONTINUING OPERATIONS                                         |  | $    | 24.71     |      | $ | 28.12     |  | $ | 27.29     |  
|INCOME FROM DISCONTINUED OPERATIONS                                       |  |      | 9.18      |      |   | 4.72      |  |   | 9.80      |  
|                                                                          |  |      |           |      |   |           |  |   |           |  
|NET INCOME PER LIMITED PARTNERSHIP INTEREST                               |  | $    | 33.89     |      | $ | 32.84     |  | $ | 37.09     |  
|                                                                          |  |      |           |      |   |           |  |   |           |  



The accompanying notes
are an integral part of these financial statements.





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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



STATEMENTS OF PARTNERS CAPITAL



For the years ended December 31, 2003, 2002 and 2001



|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|------------------------------------------------------------- |  | ----------------------- | ------- | ----------------------------- | ---------------- | ------- | ----- |  | - | -------------------------------------------- | - | --------------------- | - | ---------------------------- |  | - | ------------ |  | - | ----------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                              |  | Current General Partner |         |                               | Limited Partners |        
|                                                              |  | Cumulative Net Income   |         | Cumulative Cash Distributions |                  |         | Total |  |   | Capital Contributions, Net of Offering Costs |   | Cumulative Net Income |   | Cumulative Cash Distribution |  |   | Reallocation |  |   | Total       |  
|BALANCE AT DECEMBER 31, 2000                                  |  | $                       | 154,838 |                               | $                | (64,006 | )     |  | $ | 90,832                                       |   |                       | $ | 39,358,468                   |  | $ | 21,694,845   |  | $ | (44,350,268 | ) |  | $ | (840,229 | ) |  | $ | 15,862,816 |  
|Cash Distributions ($47.10 per limited partnership interest)  |  |                         |         |                               |                  | (6,935  | )     |  |   | (6,935                                       | ) |                       |   |                              |  |   |              |  |   | (2,180,000  | ) |  |   |          |   |  |   | (2,180,000 | )
|Net Income                                                    |  |                         | 17,338  |                               |                  |         |       |  |   | 17,338                                       |   |                       |   |                              |  |   | 1,716,441    |  |   |             |   |  |   |          |   |  |   | 1,716,441  |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2001                                  |  | $                       | 172,176 |                               | $                | (70,941 | )     |  | $ | 101,235                                      |   |                       | $ | 39,358,468                   |  | $ | 23,411,286   |  | $ | (46,530,268 | ) |  | $ | (840,229 | ) |  | $ | 15,399,257 |  
|Cash Distributions ($36.95 per limited partnership interest)  |  |                         |         |                               |                  | (6,533  | )     |  |   | (6,533                                       | ) |                       |   |                              |  |   |              |  |   | (1,710,000  | ) |  |   |          |   |  |   | (1,710,000 | )
|Net Income                                                    |  |                         | 15,353  |                               |                  |         |       |  |   | 15,353                                       |   |                       |   |                              |  |   | 1,519,952    |  |   |             |   |  |   |          |   |  |   | 1,519,952  |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2002                                  |  | $                       | 187,529 |                               | $                | (77,474 | )     |  | $ | 110,055                                      |   |                       | $ | 39,358,468                   |  | $ | 24,931,238   |  | $ | (48,240,268 | ) |  | $ | (840,229 | ) |  | $ | 15,209,209 |  
|Cash Distributions ($104.58 per limited partnership interest) |  |                         |         |                               |                  | (6,530  | )     |  |   | (6,530                                       | ) |                       |   |                              |  |   |              |  |   | (4,840,000  | ) |  |   |          |   |  |   | (4,840,000 | )
|Net Income                                                    |  |                         | 15,843  |                               |                  |         |       |  |   | 15,843                                       |   |                       |   |                              |  |   | 1,568,489    |  |   |             |   |  |   |          |   |  |   | 1,568,489  |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2003                                  |  | $                       | 203,372 |                               | $                | (84,004 | )     |  | $ | 119,368                                      |   |                       | $ | 39,358,468                   |  | $ | 26,499,727   |  | $ | (53,080,268 | ) |  | $ | (840,229 | ) |  | $ | 11,937,698 |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  



The accompanying notes
are an integral part of these financial statements.





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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS



For the Years Ended December 31, 2003, 2002, and 2001



|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                           |  | 2003 |            |   | 2002 |   |            | 2001 | 
|CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                 |  | $    | 1,584,332  |   |      | $ | 1,535,305  |      |  | $ | 1,733,779  |  
|                                                                           |  |      |           
|Adjustments to reconcile net income to net cash from operating activities- |  |      |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                              |  |      | 296,366    |   |      |   | 345,753    |      |  |   | 391,232    |  
|Recovery of amount previously written off                                  |  |      | (6,514     | ) |      |   | (3,377     | )    |  |   | (6,952     | )
|Provision for non-collectible rents and other receivables                  |  |      | 106,104    |   |      |   | 128,755    |      |  |   | 53,538     |  
|Lease termination fee                                                      |  |      | 0          |   |      |   | 0          |      |  |   | (117,750   | )
|Property write-down                                                        |  |      | 48,027     |   |      |   | 98,000     |      |  |   | 0          |  
|Net (gain) loss on disposal of assets                                      |  |      | (304,373   | ) |      |   | (124,399   | )    |  |   | 156,714    |  
|Interest applied to Indemnification Trust account                          |  |      | (3,597     | ) |      |   | (6,558     | )    |  |   | (16,014    | )
|Decrease (Increase) Deposit- Clerk of the Court                            |  |      | 140,000    |   |      |   | (140,000   | )    |  |   | 0          |  
|(Increase) in rents and other receivables                                  |  |      | (15,530    | ) |      |   | (212,828   | )    |  |   | (90,770    | )
|Decrease (Increase) in deposits for payment of real estate taxes           |  |      | 0          |   |      |   | 7,875      |      |  |   | (7,875     | )
|Decrease (Increase) in prepaid expenses                                    |  |      | 25,872     |   |      |   | (6,904     | )    |  |   | (5,944     | )
|(Increase) Decrease in deferred rent receivable                            |  |      | (47,850    | ) |      |   | (27,384    | )    |  |   | 51         |  
|Decrease (Increase) in Property Tax receivable                             |  |      | 2,595      |   |      |   | (4,143     | )    |  |   | (30,977    | )
|(Decrease) Increase in due to current General Partner                      |  |      | (1,085     | ) |      |   | 1,274      |      |  |   | (872       | )
|(Decrease) Increase in accounts payable and other                          |  |      | (64,980    | ) |      |   | 65,346     |      |  |   | 52,743     |  
|(Decrease) Increase in security deposits                                   |  |      | (7,000     | ) |      |   | 27,568     |      |  |   | 7,000      |  
|Increase (Decrease) in property taxes payable                              |  |      | 70,809     |   |      |   | (8,266     | )    |  |   | 25,105     |  
|(Decrease) Increase in unearned rental income                              |  |      | (83,380    | ) |      |   | 2,372      |      |  |   | 92,323     |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash from operating activities                                         |  |      | 1,739,796  |   |      |   | 1,678,389  |      |  |   | 2,235,331  |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:                            |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                           |  |      |           
|Principal payments received on note receivable                             |  |      | 0          |   |      |   | 39,250     |      |  |   | 78,500     |  
|Proceeds from sale of investment properties                                |  |      | 2,436,034  |   |      |   | 594,459    |      |  |   | 2,189      |  
|Payment of leasing commissions                                             |  |      | (31,920    | ) |      |   | (48,300    | )    |  |   | (69,491    | )
|Recoveries from former General Partner affiliates                          |  |      | 6,514      |   |      |   | 3,377      |      |  |   | 6,952      |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash from (used in) investing activities                               |  |      | 2,410,628  |   |      |   | 588,786    |      |  |   | 18,150     |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS USED IN FINANCING ACTIVITIES:                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Cash distributions to Limited Partners                                     |  |      | (4,840,000 | ) |      |   | (1,710,000 | )    |  |   | (2,180,000 | )
|                                                                           |  |      |           
|Cash distributions to current General Partner                              |  |      | (6,530     | ) |      |   | (6,533     | )    |  |   | (6,935     | )
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in financing activities                                      |  |      | (4,846,530 | ) |      |   | (1,716,533 | )    |  |   | (2,186,935 | )
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                       |  |      | (696,106   | ) |      |   | 550,642    |      |  |   | 66,546     |  
|                                                                           |  |      |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                             |  |      | 1,369,248  |   |      |   | 818,606    |      |  |   | 752,060    |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                   |  | $    | 673,142    |   |      | $ | 1,369,248  |      |  | $ | 818,606    |  
|                                                                           |  |      |            |   |      |   |            |      |  |   |            |  



The accompanying notes
are an integral part of these financial statements.





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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



NOTES TO FINANCIAL STATEMENTS



DECEMBER 31, 2003, 2002 AND 2001



1. ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES:



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
engaged in the business of owning and operating its investment portfolio of commercial real estate properties (the Properties.) The Properties are leased on a triple net basis to, and operated by, primarily franchisors or franchisees of
national, regional, and local retail chains under long-term leases. The lessees are predominantly fast food, family style, and casual/theme restaurants, but also include a video rental store and a child-care center. At December 31, 2003, the
Partnership owned 21 properties with specialty leasehold improvements in six (6) 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 accrued only when the tenant has reached the breakpoint stipulated in the
lease.



The Partnership considers its operations to be in only one segment, the
operation of a portfolio of commercial real estate leased on a triple net basis, and therefore no segment disclosure is made.



Depreciation of the properties and improvements are provided on a straight-line basis over 31.5 years, which are 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 original lease term.



Real estate taxes, insurance and
ground rent 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, insurance and ground rent are accrued in the period in which the liability is incurred. The Partnership owns one (1) restaurant, which is located on a parcel of land where it has entered into a
long-term ground lease. The tenant, Kentucky Fried Chicken, is responsible for the $3,400 per month ground lease payment.



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



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States 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.



Assets disposed of or deemed to be classified as held for sale require the reclassification of current and previous years operations
to discontinued operations in accordance with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).



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.



During 2003, 2002 and 2001 the Partnership recognized income from discontinued operations of $429,000, $220,000 and $458,000, respectively. The 2003, 2002 and 2001 income
from discontinued operations is attributable to the Hartford, WI property (which was sold in October 2002), the vacant South Milwaukee, WI property (which was sold in April 2003), the property in Milwaukee, WI and the Hardees restaurant in
Fond du Lac, WI (which were sold in July 2003), the vacant Twin Falls, ID property (which was sold in August 2003) and the reclassification of the Miami Subs restaurant property to property held for sale in the Fourth Quarter of 2003.



The components of discontinued operations for the years ended December 31, 2003, 2002 and
2001 are outlined below.



|                         |  |      |          |   |      |   |          |  
|------------------------ |  | ---- | -------- | - | ---- | - | -------- | -
|                         |  | 2003 |          |   | 2002 |  
|Balance Sheet:           |  |      |          |   |      |   |          |  
|Land                     |  | $    | 325,487  |   |      | $ | 274,749  |  
|Buildings                |  |      | 163,257  |   |      |   | 435,283  |  
|Accumulated depreciation |  |      | (113,931 | ) |      |   | (260,096 | )
|Deferred rent receivable |  |      | 16,500   |   |      |   | 0        |  
|                         |  |      |          |   |      |   |          |  
|Property held for sale   |  | $    | 391,313  |   |      | $ | 449,936  |  
|                         |  |      |          |   |      |   |          |  



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|                                          |  |      |         |      |   |         |  |   |        
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |  | 2003 |         | 2002 |   | 2001   
|Statements of Income:                     |  |      |         |      |   |         |  |   |        
|Revenues:                                 |  |      |         |      |   |         |  |   |        
|Rental Income                             |  | $    | 208,353 |      | $ | 292,840 |  | $ | 586,732
|Other income                              |  |      | 0       |      |   | 479     |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Total Revenues                            |  |      | 208,353 |      |   | 293,319 |  |   | 586,732
|                                          |  |      |         |      |   |         |  |   |        
|Expenses:                                 |  |      |         |      |   |         |  |   |        
|Property Write-down                       |  |      | 48,027  |      |   | 98,000  |  |   | 0      
|Depreciation                              |  |      | 18,578  |      |   | 63,080  |  |   | 75,514 
|Amortization                              |  |      | 4,261   |      |   | 15,447  |  |   | 14,128 
|Real Estate Taxes                         |  |      | 4,435   |      |   | 20,566  |  |   | 9,798  
|Management Services                       |  |      | 8,400   |      |   | 0       |  |   | 0      
|Provision for non-collectible Receivables |  |      | 0       |      |   | 158     |  |   | 29,029 
|                                          |  |      |         |      |   |         |  |   |        
|Total Expenses                            |  |      | 83,701  |      |   | 197,251 |  |   | 128,469
|                                          |  |      |         |      |   |         |  |   |        
|Net Gain on Sale of Properties            |  |      | 304,373 |      |   | 124,399 |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Income from Discontinued Operations       |  | $    | 429,025 |      | $ | 220,467 |  | $ | 458,263
|                                          |  |      |         |      |   |         |  |   |        



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 2001, a consent solicitation was circulated, which if approved would have authorized the sale
of the Partnerships assets and dissolution of the Partnership (the 2001 Consent). A majority of the Limited Partners did not vote in favor of the 2001 Consent. Another consent solicitation was circulated during the Second Quarter
of 2003, which if approved would have authorized the sale of the Partnerships assets and dissolution of the Partnership (the 2003 Consent). A majority of the Limited Partners did not vote in favor of the 2003 Consent. Therefore,
the Partnership continues 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, 2003, the tax basis of the Partnerships assets exceeded the amounts reported in the
accompanying financial statements by approximately $7,346,000.



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



|                                          |  |      |           |   |      |   |           |      |  |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                          |  | 2003 |           |   | 2002 |   |           | 2001 | 
|Net income, per statements of income      |  | $    | 1,584,332 |   |      | $ | 1,535,305 |      |  | $ | 1,733,779 |  
|Book to tax depreciation difference       |  |      | (37,618   | ) |      |   | (38,193   | )    |  |   | (12,338   | )
|Book over tax gain from asset disposition |  |      | (261,355  | ) |      |   | (8,661    | )    |  |   | (142,785  | )
|Straight line rent adjustment             |  |      | (47,850   | ) |      |   | (27,384   | )    |  |   | 52        |  
|Prepaid rent                              |  |      | (147,163  | ) |      |   | 3,820     |      |  |   | 87,316    |  
|Bad debt reserve/expense                  |  |      | (30,589   | ) |      |   | 146,776   |      |  |   | 39,636    |  
|Book valuation of property write-downs    |  |      | 48,027    |   |      |   | 98,000    |      |  |   | (172,643  | )
|Accrued judgment payable                  |  |      | (92,866   | ) |      |   | 45,128    |      |  |   | 0         |  
|Penalties                                 |  |      | 4,932     |   |      |   | 0         |      |  |   | 0         |  
|Other, net                                |  |      | 64        |   |      |   | 115       |      |  |   | (1        | )
|                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Net income for tax reporting purposes     |  | $    | 1,019,914 |   |      | $ | 1,754,906 |      |  | $ | 1,533,016 |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |  



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.



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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, 2003, $5,823,000 of recoveries have been received which exceeded the original estimate of $3 million. As a
result, in 1996, 1997, 1999, 2000, 2001, 2002, and 2003 the Partnership has recognized a total of $1,135,000 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.



3.INVESTMENT PROPERTIES:



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.



As of December 31, 2003,
the Partnership owned 19 fully constructed fast-food restaurants, a video store, and a preschool. The 21 properties are composed of the following: ten (10) Wendys restaurants, one (1) Dennys restaurant, 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) Chinese Super Buffet restaurant, one (1) Miami Subs restaurant, one (1) Blockbuster Video store,
one (1) Sunrise Preschool, one (1) Panda Buffet Restaurant, and one (1) Daytonas- All Sports Café. The 21 properties are located in a total of eleven (11) states.



On January 1, 2002, the Partnership adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement requires current and historical results from operations for disposed properties and assets classified as held for sale that occur subsequent to January 1, 2002 to be reclassified separately as discontinued operations.



During 2003, 2002 and 2001 the Partnership recognized income from discontinued operations of
$429,000, $220,000 and $458,000, respectively. The 2003, 2002 and 2001 income from discontinued operations is attributable to the Hartford, WI property (which was sold in October 2002), the vacant South Milwaukee, WI property (which was sold in
April 2003), the property in Milwaukee, WI and the Hardees restaurant in Fond du Lac, WI (which were sold in July 2003), the vacant Twin Falls, ID property (which was sold in August 2003) and the reclassification of the Miami Subs restaurant
property to property held for sale in the Fourth Quarter of 2003. The 2003 income from discontinued operations includes a First Quarter write-down of $33,000 related to the South Milwaukee property, a Second Quarter property write-down of $15,000
related to the Milwaukee, WI property, and Third Quarter net gains of $9,000, $80,000 and $215,000, which are related to the sales of the Milwaukee, WI property, Hardees- Fond du Lac and Twin Falls properties, respectively. The 2002 income
from discontinued operations includes a net gain of $124,000 related to the sale of the Hartford property, and a Third Quarter write-down of $98,000 related to the South Milwaukee property. The 2001 income from discontinued operations includes a
Second Quarter $157,000 lease termination fee related to the Milwaukee, WI property, and a Fourth Quarter write-off of Dennys- Twin Falls receivable balances.



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The following summarizes significant developments, by property, for properties with such developments.



Popeyes- Park Forest, IL



Through January 2004, Popeyes is current on its monthly lease obligations, however,
the tenant is delinquent on its January 2002 percentage rent billing for 2001 of $72,000 and its February 2003 percentage rent billing for 2002 of $31,500. Management continues to pursue legal remedies in relation to the collection of the
tenants percentage rent past due balance of approximately $103,500, however, due to the uncertainty of collection, the entire amount was fully reserved in the Fourth Quarter of 2003. In addition, In addition, through December 31, 2003
Management has charged Popeyes late fees totaling $52,000 (which includes 2003 and 2002 late fee charges of $35,000 and $17,000, respectively, which have not been recognized as revenue due to uncertainty of collection) in relation to the
percentage rent balances due. The tenant is delinquent on its reporting of its 2003 monthly sales figures and therefore 2003 percentage rents were not accrued by the Partnership at December 31, 2003.



Per the lease and its amendments (Lease), Popeyes is to timely pay as they
come due all taxes charged to the property. However, the tenant failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, IL in 2003, as well as approximately $5,000 in assessed late fees. In the
Fourth Quarter of 2003 the Partnership accrued the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that will be due in 2004. The 2002 property taxes and late fees were paid by the Partnership in January
2004 and the first installment for the 2003 taxes is anticipated to be paid in the First Quarter of 2004.



A Landlords 10 Day Notice Of Default (Notice), dated February 9, 2004, was sent to Quality Foods I, LLC notifying the tenant that payment of the amount due for the 2002 property tax balance is hereby
demanded and unless payment is received by the Partnership on or before the expiration of ten (10) days after the date of service of the Notice, then the Partnership will pursue all legal remedies available which may include an action to recover
possession and termination of the Lease. The notice also stated that until such time the Lease is terminated, the tenants other legal obligations (outstanding percentage rents and future monthly rents) continue in full.



Miami Subs, FL Property



During the Fourth Quarter of 2002 the Miami Subs lease with QSR, Inc. was terminated. The lease was set to expire in 2016. A new ten-year
lease was executed in the Fourth Quarter of 2002 with Difede Finance Group Corporation and is set to expire in 2012. The property has continued to be operated as a Miami Subs Restaurant. A sales contract was executed in January 2004 for the
anticipated sale of the property in the Second Quarter of 2004 at a sales price of $650,000. The net asset value of the property at December 31, 2003, classified as property held for sale, was approximately $391,000, which included $325,000 related
to land, $49,000 related to buildings and equipment, and $17,000 related to deferred rent.



Hardees property- Fond du Lac, WI



During June 2003, Management entered into a contract to sell the Hardees restaurant in Fond du Lac, WI at a sales price of $720,000. The closing date on the sale of the property was July 30, 2003 and the net sales proceeds totaled
$690,000. A net gain on the sale of $80,000 was recognized in the Third Quarter of 2003. Closing and other sale related costs amounted to $30,000, which included a sales commission totaling $22,000 paid to a General Partner affiliate in the Third
Quarter of 2003.



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Milwaukee, WI property



In May 2003 Management entered into a contract to sell the Milwaukee, WI property to the tenant at a sales price of $825,000. The property was being operated as Omega
Restaurant. The closing date on the sale of the property was July 28, 2003, and the net sales proceeds totaled $799,000. A net gain on the sale of $9,000 was recognized in the Third Quarter of 2003. Closing costs amounted to $1,000, and a sales
commission of $25,000 was paid to a General Partner affiliate. In the Second Quarter of 2003 the net asset value of the property was written-down by $15,000 to reflect the net estimated sales price, less costs to sell, of the property of
approximately $790,000.



During May 2001, Management negotiated a re-lease of
the vacant Milwaukee, Wisconsin property to Omega Restaurant 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 in the Second Quarter of 2001.



During March 2001,
Hardees Food Systems, Inc. notified Management of its intent to close its restaurant in Milwaukee, Wisconsin. 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 payment schedule included four
(4) equal installments of $39,250. The first payment was received in May 2001 upon the execution of the agreement and the remaining balance represented a Note receivable of $117,750. The first and second Note receivable installments were received in
August and October 2001. The final installment was received in January 2002.



Grand Forks, ND Property



During February 2003 a new 10-year
lease was executed with Panda Buffet, Inc. in relation to the Grand Forks, ND property, formerly occupied by Village Inn. The lease is set to expire in 2012 and the annual first year base rent is $32,500. Commissions of $18,500 and $3,700 were paid
to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, in March 2003. HVAC maintenance and repair expenditures of $18,000 were incurred in the First Quarter of 2003 at the property. The Partnership had incurred
expenditures of approximately $27,000 to replace the roof on the property in the Third Quarter of 2002.



During October 2001, the Village Inn Restaurant had notified Management of its intent to close and vacate its restaurant in Grand Forks, ND, prior to the expiration of the lease term in 2009. In February 2002,
Management was notified Village Inn had closed and vacated the restaurant. Rent income was collected from the tenant through December 2001, however, no rent was collected from Village Inn for the period beginning January 1, 2002. The Partnership did
not recognize rental revenue in 2003 related to Village Inn.



In March 2002 and
September 2002, the Partnership paid the propertys first and second installments of 2001 real estate taxes. The Partnership also paid the 2002 real estate taxes in the Fourth Quarter of 2002. During June 2003 a settlement and lease termination
agreement was executed between Management and Village Inn. The Partnership received a $50,000 termination fee from Village Inn. Management had initiated legal action against Village Inn for defaulted rent and real estate taxes, as well as other
damages.



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South Milwaukee, WI property



In October 2002 Management entered into a contract to sell the vacant Hardees- South Milwaukee, WI property at a sales price of
$450,000. In the Third Quarter of 2002 the net asset value of the South Milwaukee property was written-down by $98,000 to reflect the estimated fair value of the property at September 30, 2002 of approximately $450,000, shown on the balance sheet as
property held for sale at September 30, 2002. In the First Quarter of 2003 the net asset value of the South Milwaukee property was written-down by an additional $33,000 (to $417,000) to reflect the net estimated sales price, less costs of sale.



The vacant South Milwaukee property was sold in April 2003 and the net
proceeds upon the sale were $417,000. The net asset value of the property at March 31, 2003 was approximately $417,000. Closing costs amounted to $6,000 and sales commissions related to the sale, which were paid to non-affiliated brokers, totaled
$27,000.



4785 Merle Hay Road- Des Moines, IA



The lease on the property in Des Moines, IA expired on December 31, 2002. In October 2002
Hickory Park, Inc. informed Management that they would not be renewing the property lease. However, in January 2003 Management was notified that the sub-tenant, Daytonas- All Sports Cafe, did not vacate the Des Moines property and was
continuing to operate the property as a restaurant. Management allowed the sub-tenant a holdover lease for two months, and the Partnership received the January and February 2003 rent payments from Daytonas applicable to the holdover lease. In
March 2003 Management executed a five (5) year direct lease with Daytonas, which is set to expire in 2008. The first year base rent was $60,000. A leasing commission of $9,700 was paid to an affiliate of the General Partner in March 2003 upon
the execution of the lease.



Twin Falls, ID property



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. The lease was terminated and rent income ceased in the Fourth Quarter of 2001. Although Phoenix had rejected the lease, its
subtenant, Fiesta Time, maintained possession of the property. Management, therefore, took legal action to evict Fiesta Time from the Twin Falls property. In the Fourth Quarter of 2002, a judgment was entered in Magistrate Court evicting Fiesta
Time. However, Fiesta Time appealed the action to District Court and the Court upheld the judgment in February 2003. The Partnership then received $30,000 in past rent that the court had required Fiesta Time to escrow during the court proceedings.



In February 2003 Management entered into a purchase and sale agreement to sell
the vacant Twin Falls property at a sales price of $565,000. The closing date on the sale of the property was August 22, 2003 and the net sales proceeds totaled $530,000. A net gain of $215,000 was recognized in the Third Quarter of 2003 upon the
sale. Closing and other sale related costs amounted to $35,000, which included sales commissions of $22,000 to a non-affiliated broker and $11,000 to a General Partner affiliate in the Third Quarter of 2003.



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Hardees property- Hartford, WI



During the Second Quarter of 2002, Management entered into a contract to sell the vacant Hardees restaurant in Hartford, WI at a sales
price of $618,000. 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 was set to expire on April 30, 2009 and they
continued making rent payments until the closing date of October 2002. The net asset value of the property at closing was approximately $470,000 and the net gain on the sale of the property in October 2002 was approximately $124,000. A sales
commission of $18,500 was paid by the Partnership to an affiliate of the General Partner in the Fourth Quarter of 2002.



North 7thStreet property- Phoenix,
AZ



During the Fourth Quarter of 2001, the Bankruptcy court granted the motion of Lessee, Phoenix Restaurant Group, Inc. (Phoenix), to reject the lease with the Partnership at the N. 7thStreet, Phoenix, Arizona location. Following the rejection of this lease by Phoenix, the Mountain Range Restaurants (Phoenixs subtenant) declined the
Partnerships offer to lease the property directly to them. Therefore, the property was vacated and rent ceased as of May 31, 2002.



During August 2002, a ten (10) year lease, with annual first year base rent of $64,000, was negotiated with new tenant, Jun Cheng Pan, at the vacant N. 7thStreet property in Phoenix, Arizona. The new tenant took possession of the property in August 2002 and rent commenced in
January 2003. The restaurant is operated as a Chinese Super Buffet. Commissions of $34,500 and $13,800 were paid to an unaffiliated leasing agent and to an affiliate of the General Partner, respectively, upon the execution of the new lease in the
Third Quarter of 2002.



Former Mulberry Street Grill property- Phoenix,
AZ



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 was not set to expire until 2007, monthly rental and Common Area Maintenance (CAM) income ceased as of June 1, 2001. The
past due amount of $10,000 was reserved in the Fourth Quarter of 2001, due to its uncertainty of collection. Management moved forward with all legal remedies to collect the balances due from AMF, however, Management learned in the Third Quarter of
2002 that AMF had filed for bankruptcy and that the bankruptcy court had released AMF from all of its debts. The Partnership owned the building in Phoenix, Arizona occupied by the Mulberry Street Grill restaurant, however, the land upon which the
building was located was leased (the Ground Lease) to the Partnership by the Ground Lease Landlord, Centre at 38thStreet, L.L.C, (Centre.) During the Second Quarter of 2001 Management returned possession of the property to Centre and as such the net asset value of the property was written-off in the Fourth Quarter of 2001, resulting
in a loss of $157,000.



Beginning in May 2001 and through December 2001 the
Partnership accrued but withheld payment of the ground lease obligations to Centre, and on December 31, 2001 the total ground lease accrual approximated $50,000. In the Second Quarter of 2001, Centre filed suit against the Partnership and TPG (as
General Partner) seeking possession of the property and damages for breach of the Ground Lease. In April 2002, an additional $43,000 was accrued as payable to Centre, due to the Courts granting a summary judgment of $93,000 against the
Partnership. In June 2002 the Partnership filed an appeal with respect to this judgment. In September 2002, the Partnership was required to escrow a $140,000 cash bond at the clerk of



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the court during the appeal process. A Settlement Agreement and Mutual Release (the Agreement) was made and
entered into as of February 1, 2003. According to the terms of the Agreements the Partnership was required to pay Centre $115,000 (the Settlement) to discharge all claims of Centre against the Partnership and TPG (except for violations
of environmental laws.) The court returned the $140,0000 cash bond to the Partnership in April 2003. (See Legal Proceedings in Note 10 and Part I- Item 3.)



Blockbuster Video Property- Ogden, UT



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.



Other Investment In Properties Information



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 were invested in the Partnerships properties.



As of December 31, 2002 two of the Partnerships property leases, where the Partnership is the lessor, contained purchase option provisions. The owner of the Omega Restaurant in Milwaukee, WI exercised his
purchase option and entered into a purchase agreement to buy the Milwaukee, WI property for $825,000 which was in excess of the original cost of the property less accumulated depreciation. Closing on the property was in July 2003. At December 31,
2003 the owners of the Panda Buffet property have an option to purchase the property at a price, which approximates the original cost of the property less accumulated depreciation. The current General Partner is not aware of any unfavorable purchase
options in relation to the 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.



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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 are cumulative and are not to 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 it 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 is 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 General Partner made the amendments without a vote of the Limited Partners.



5. LEASES:



Original lease terms for the majority of the investment properties are generally 10 - 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



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statements of income except in circumstances where, in managements opinion, the Partnership will be required to pay
such costs to 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 on a straight-line basis and the
cost of the property, excluding the cost of the land, is depreciated over its estimated useful life.



As of December 31, 2003 the aggregate minimum operating lease payments to be received under the leases (does not include Miami Subs as it was classified as held for sale in the Fourth Quarter of 2003) for the
Partnerships properties are as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |  
|2004                     |  | $ | 1,666,908 
|2005                     |  |   | 1,670,908 
|2006                     |  |   | 1,580,408 
|2007                     |  |   | 1,563,325 
|2008                     |  |   | 1,416,575 
|Thereafter               |  |   | 7,888,173 
|                         |  |   |           
|                         |  | $ | 15,786,297
|                         |  |   |           



Percentage rentals included in rental
income in 2003, 2002, and 2001 were $565,095, $599,591, and $588,818, respectively. The decrease in percentage rental income in 2003 is primarily a result of no percentage rent billing for 2003 for Popeyes, due to its 2002 and 2001 percentage
rent billing defaults and the tenants failure to report its 2003 sales. Due to the uncertainty of collection, the 2002 and 2001 percentage rents charged to Popeyes were fully reserved in the Fourth Quarter of 2003.



Ten (10) of the properties are leased to WenCoast Restaurants, a franchisee of Wendys
restaurants.



WenCoast base rents accounted for 52% of total operating base
rents for 2003 (excluding properties sold or held for sale in 2003.)



6.
TRANSACTIONS WITH CURRENT GENERAL PARTNER AND ITS AFFILIATES:



The
current General Partner was to receive a management fee (Base Fee) for managing the three original affiliated Partnerships equal to 4% of gross receipts, subject to a minimum of $300,000 annually, and a maximum annual reimbursement for
office rent and related office overhead of $25,000, as provided in the Permanent Manager Agreement (PMA). The current General Partner receives a Base Fee for managing the Partnership equal to 4% of gross receipts and the Partnership
shall only be responsible for its allocable share of such minimum and maximum annual amounts as indicated above ($159,000 minimum annual Base Fee and $13,250 maximum annual office rent and related office overhead reimbursement). Effective March 1,
2003, the minimum annual Base Fee and the maximum annual reimbursement for office rent and overhead increased by 1.58%, representing the allowable annual Consumer Price Index adjustment per the PMA. Therefore, as of March 1, 2003 the minimum monthly
Base Fee paid by the Partnership was raised to $16,903.



For purposes of
computing the 4% overall fee, gross receipts includes amounts recovered in connection with the misappropriation of assets by the former general partners and their affiliates. TPG has received fees from the Partnership totaling $55,859 to date on the
amounts recovered, which includes 2003, 2002 and 2001 fees of $261, $135 and $278, respectively. The fees received from the Partnership on the amounts recovered reduce the 4% minimum fee by that same amount.



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Amounts paid and or accrued to the current General Partner and its affiliates for the years ended December 31, 2003,
2002, and 2001, are as follows:



|                                         |  |                                              |         |                                              |   |                                               |  |   |        
|---------------------------------------- |  | -------------------------------------------- | ------- | -------------------------------------------- | - | --------------------------------------------- |  | - | -------
|Current General Partner                  |  | Incurred for the Year endedDecember 31, 2003 |         | Incurred for the Year endedDecember 31, 2002 |   | Incurred for the Year ended December 31, 2001
|Management fees                          |  | $                                            | 202,049 |                                              | $ | 198,639                                       |  | $ | 192,902
|Restoration fees                         |  |                                              | 261     |                                              |   | 135                                           |  |   | 278    
|Overhead allowance                       |  |                                              | 16,322  |                                              |   | 16,037                                        |  |   | 15,586 
|Sales commission                         |  |                                              | 58,000  |                                              |   | 18,540                                        |  |   | 0      
|Leasing commissions                      |  |                                              | 13,420  |                                              |   | 13,800                                        |  |   | 8,644  
|Reimbursement for out-of-pocket expenses |  |                                              | 5,920   |                                              |   | 7,726                                         |  |   | 9,690  
|Cash distribution                        |  |                                              | 6,530   |                                              |   | 6,533                                         |  |   | 6,935  
|                                         |  |                                              |         |                                              |   |                                               |  |   |        
|                                         |  | $                                            | 302,502 |                                              | $ | 261,410                                       |  | $ | 234,035
|                                         |  |                                              |         |                                              |   |                                               |  |   |        



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 will be paid to the current General Partner. If such levels of recovery are not
achieved, the current General Partner will 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 March 1996 after exceeding the recovery level of $4,500,000. The General Partner does not expect any future refunds, as the
possibility of achieving the $6,000,000 recovery threshold appears remote.



8. PMA INDEMNIFICATION TRUST:



The 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, 2003. Funds are invested in U.S. Treasury
securities. In addition, $132,322 of earnings has been credited to the Trust as of December 31, 2003. The rights of the Permanent Manager to the Trust will be terminated upon the earliest to occur



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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 in Phoenix, Arizona occupied by the Mulberry Street Grill restaurant, which was located on a parcel of land leased to the Partnership
pursuant to a long-term ground lease (the Ground Lease.) The Ground 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. Although the sub-lease had not expired, since such notification the Partnership had received no rent from the
former tenant and had returned possession of the Phoenix, Arizona property to the Ground Lease Landlord, Centre at 38thStreet, L.L.C., (Centre.) Beginning in May 2001 and through December 2001 the Partnership accrued but withheld payment of the ground lease obligations, and on December 31, 2001 the total ground lease accrual approximated
$50,000. On June 12, 2001 Centre leased the property to a new tenant.



On June
18, 2001, Centre filed a lawsuit (the Complaint) in the Maricopa County, Arizona, Superior Court, against the Partnership and TPG. The Complaint alleged that the Partnership was a tenant under a Ground Lease with Centre and that the
Partnership defaulted on its obligations under that lease. The suit named TPG as a defendant because TPG is the Partnerships general partner. The Complaint sought damages for unpaid rent, commissions, improvements, and unspecified other
damages exceeding $120,000.



The Partnership and TPG filed an answer denying
any liability to Centre. In addition, the Partnership filed a third-party complaint against the National Restaurant Group, (National Restaurant), L.L.C., and its sub-tenant AMF. In the third-party complaint, the Partnership alleged 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 pursuant to the Ground Lease. Due to the bankruptcy filing by AMF the Partnership was prevented from
proceeding against them. Although the Partnership had difficulty locating National Restaurant, the lawsuit against them continues.



On April 10, 2002 the Maricopa County Superior Court granted Centres motion for summary judgment against the Partnership and TPG. The Court entered a final judgment
(the Judgment) on May 22, 2002, awarding approximately $93,000 in damages to Centre, as well as attorneys fees and court costs in the amount of $16,000. As of December 31, 2001 the Partnership had accrued $50,000 in ground lease
obligations payable to Centre and the remaining summary judgment balance of $43,000 was accrued in April 2002.



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On June 20, 2002 the Partnership and TPG filed a Notice of Appeal (the Appeal) with respect to such Judgment.
Both parties filed briefs with the Court of Appeals, and the Court set oral argument for March 5, 2003. In order to prevent Centre from enforcing the judgment while the Appeal was pending, in August 2002, the Partnership deposited a $140,000
cashiers check with the Clerk of the Maricopa County Superior Court to serve as a bond. By law, the amount of the bond must be sufficient to cover the amount of the judgment, plus interest, and any additional costs that may be incurred during
the appeal.



In early January 2003, Centre informed the Partnership that the
replacement tenant had vacated the premises. In February 2003 the Partnership made an offer to Centre to settle the lawsuit and terminate the Ground Lease. In February 2003 a Settlement Agreement and Mutual Release (Agreement) was
executed between Centre, the Partnership and TPG. The Agreement included a February 28, 2003 settlement payment of $115,000 (the Settlement) from the Partnership to Centre in satisfaction of any and all obligations the Partnership and
TPG has now, or may have in the future, to Centre, whether in connection with the Complaint, the Judgment, the Ground Lease, or otherwise, except for any liability for violations of environmental law for which the Partnership is liable. In addition,
the Agreement includes the termination of the Ground Lease, dismissal of the Partnerships Appeal, and the mutual liability release of all parties relating to or arising out of the Ground Lease, the Complaint, the Judgment, and the Appeal,
except for violations of environmental laws.



Upon filing the Agreement with
the Court, the $140,000 cash bond was returned from the clerk of the court to the Partnership in April 2003.



11. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):



|                                           |  |                |         |               |   |                    |  |                   |         |  |   |        
|------------------------------------------ |  | -------------- | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | -------
|                                           |  | Quarter Ended 
|                                           |  | March 31, 2003 |         | June 30, 2003 |   | September 30, 2003 |  | December 31, 2003
|Total Operating Revenues                   |  | $              | 411,157 |               | $ | 460,994            |  | $                 | 668,432 |  | $ | 730,658
|Income from Continuing Operations          |  | $              | 69,888  |               | $ | 224,783            |  | $                 | 494,414 |  | $ | 366,222
|Income (Loss) From Discontinued Operations |  | $              | 44,882  |               | $ | 38,434             |  | $                 | 329,246 |  | $ | 16,463 
|Net Income                                 |  | $              | 114,770 |               | $ | 263,217            |  | $                 | 823,660 |  | $ | 382,685
|Net Income per Unit                        |  | $              | 2.45    |               | $ | 5.63               |  | $                 | 17.62   |  | $ | 8.19   



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|                                           |  |                |         |               |   |                    |  |   |                   |   |  |   |        
|------------------------------------------ |  | -------------- | ------- | ------------- | - | ------------------ |  | - | ----------------- | - |  | - | -------
|                                           |  | Quarter Ended 
|                                           |  | March 31, 2002 |         | June 30, 2002 |   | September 30, 2002 |  |   | December 31, 2002
|Total Operating Revenues                   |  | $              | 428,986 |               | $ | 450,124            |  | $ | 670,254           |   |  | $ | 757,126
|Income from Continuing Operations          |  | $              | 241,576 |               | $ | 153,389            |  | $ | 413,144           |   |  | $ | 506,729
|Income (Loss) from Discontinued Operations |  | $              | 56,417  |               | $ | 57,632             |  | $ | (40,771           | ) |  | $ | 147,189
|Net Income                                 |  | $              | 297,993 |               | $ | 211,021            |  | $ | 372,373           |   |  | $ | 653,918
|Net Income per Unit                        |  | $              | 6.37    |               | $ | 4.51               |  | $ | 7.97              |   |  | $ | 13.99  



|                                    |  |                |         |               |   |                    |  |                   |         |  |   |        
|----------------------------------- |  | -------------- | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | -------
|                                    |  | Quarter Ended 
|                                    |  | March 31, 2001 |         | June 30, 2001 |   | September 30, 2001 |  | December 31, 2001
|Total Operating Revenues            |  | $              | 481,532 |               | $ | 474,227            |  | $                 | 601,428 |  | $ | 744,894
|Income from Continuing Operations   |  | $              | 237,081 |               | $ | 268,792            |  | $                 | 366,040 |  | $ | 403,603
|Income From Discontinued Operations |  | $              | 87,908  |               | $ | 231,737            |  | $                 | 93,584  |  | $ | 45,034 
|Net Income                          |  | $              | 324,989 |               | $ | 500,529            |  | $                 | 459,624 |  | $ | 448,637
|Net Income per Unit                 |  | $              | 6.95    |               | $ | 10.71              |  | $                 | 9.83    |  | $ | 9.60   



12. SUBSEQUENT EVENTS:



On February 13, 2004, the Partnership made distributions to the Limited
Partners of $325,000 amounting to $7.02 per Interest.



|
|

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



None.



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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. 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 53 - 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.



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, real estate broker, 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  CPA.Mr. Small has been a well-known,
respected tax and business consultant in Hallandale, FL for more than 30 years. Mr. Small has a Masters Degree in Economics. On the first of this year he merged his highly personalized service with



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Bianchi & Company, P.A. of Boca Raton, to form the firm of Small & Bianchi P.A., with its
corporate office to remain in Hallandale. Mr. Small is a Limited Partner representing DiVall 2.



Richard W. Otte - Retired. 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 53 years in professional
journalism also include news reporting, editing and sports assignments with the Dayton, (OH)- Journal Herald and Springfield News-Sun and as an editorial writer for the Daytona Beach (FL) News- Journal Corporation. 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 2.



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, 2003, 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, 2003, 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 management fee (Base Fee) for managing the Partnership equal to 4% of the Partnerships gross collected receipts. Between the
Partnerships, TPG is entitled to an aggregate minimum Base Fee of $300,000 per year. For this purpose, gross collected receipts means all cash revenues arising from operations and reserves of the Partnerships, including any
proceeds recovered with respect to the obligations of the former general partners. The portion of such Base Fees resulting from recoveries from former general partners is designated as restoration fees. Between the Partnerships, TPG is also entitled
to reimbursement for office rent and related office overhead in the maximum amount of $25,000 per year. The Partnership shall only be



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responsible for its allocable share of such minimum and maximum amounts as indicated above ($159,000 minimum annual Base
Fee and $13,250 maximum office rent and related office overhead reimbursement). 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. TPG is entitled to an annual increase in the minimum Base Fee
and maximum office rent and related 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, 2003 the minimum
management fee and the maximum reimbursement for office rent and overhead increased by 1.58% representing the allowable annual CPI adjustments. Therefore, as of March 1, 2003 the minimum monthly Base Fee was increased to $16,903. 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 had an original expiration date of December 31,
2002, and was extended three years by the General Partner, TPG, in the First Quarter of 2003. The new expiration date is December 31, 2005, but could 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, officers liability or similar insurance coverage, at no cost to TPG. In addition, TPG is granted the right to establish an Indemnification Trust in an original 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, 2003 the Partnership had fully funded the Trust.



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The Partnership paid and/or accrued the following fees and reimbursements to management and its affiliates in 2003:



The Provo Group, Inc.:



|                           |  |   |        
|-------------------------- |  | - | -------
|Management Fees            |  | $ | 202,049
|Restoration Fees           |  |   | 261    
|Sales Commission           |  |   | 58,000 
|Leasing Commissions        |  |   | 13,420 
|Office Overhead Allowance  |  |   | 16,322 
|Direct Cost Reimbursements |  |   | 5,920  
|                           |  |   |        
|2003 Total                 |  | $ | 295,972
|                           |  |   |        



Item 14. Control and Procedures



Within the 90-day period prior to the filing of this report, the
Partnership carried out an evaluation, under the supervision and with the participation of the Partnerships management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of the Companys disclosure controls and procedures. Based on that evaluation the CEO and the CFO have concluded that the Partnerships disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Partnership in the reports it processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.



There have been no significant changes in the Partnerships internal controls or in
other factors that could significantly affect internal controls subsequent to the date of the evaluation referred to above.



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PART IV



Item 15. Exhibits, Financial Statement Schedule, 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:
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Independent Auditors Report                                                                                                 
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Balance Sheets, December 31, 2003 and 2002                                                                                   
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Statements of Income for the Years Ended December 31, 2003, 2002, and 2001                                                   
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Statements of Partners Capital for the Years Ended December 31, 2003, 2002, and 2001                                        
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001                                               
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Notes to Financial Statements                                                                                                
|   |   | 
|   |   |  | 2.                                                                                                                                                                                                                                    |  | Financial Statement Schedule                                                                                                 
|   |   | 
|   |   |  |                                                                                                                                                                                                                                       |  | Schedule III - Real Estate and Accumulated Depreciation, December 31, 2003                                                   
|   |  
|   |   |  | All other schedules for which provision is made in the applicable accounting regulation of the Securities andExchange Commission are not required under the related instruction or
are inapplicable and, therefore, havebeen 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.                                                                              



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| |  |  |  |      |  |                                                                                                                                                                                                           
| |  |  |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | 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.
| |  |  | 
| |  |  |  | 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.                                                               
| |  |  | 
| |  |  |  | 31.1 |  | 302 Certifications.                                                                                                                                                                                       
| |  |  | 
| |  |  |  | 32.1 |  | Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350                                                                                                                             
| |  |  | 
| |  |  |  | 99.0 |  | Correspondence to the Limited Partners dated February 13, 2004 regarding the Fourth Quarter 2003 distribution.                                                                                            



|(b) | Reports on Form 8-K:
|--- | --------------------



The Registrant filed Form 8-K on August 14, 2002.



The Registrant filed Form 8-K/A on August 27, 2002.



The Registrant filed Form 8-K on January 6, 2003.



The Registrant filed Form 8-K/A on January
17, 2003.



Item 16. Principal Accounting Firm Fees and Services



Aggregate fees billed to the Partnership for the years ended December 31,
2003 and 2002 by the Partnerships principal accounting firm, Deloitte & Touche LLP were as follows:



|           |  |      |         |      |   |       
|---------- |  | ---- | ------- | ---- | - | ------
|           |  | 2003 |         | 2002
|Audit Fees |  | $    | 94,905  |      | $ | 48,835
|Tax Fees   |  |      | 14,250  |      |   | 14,250
|           |  |      |         |      |   |       
|Total Fees |  | $    | 109,155 |      | $ | 63,085
|           |  |      |         |      |   |       





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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION

DECEMBER 31, 2003



|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     
|----------------------------- |  | ------------ | - | --------------------------- | - | ------------------------- |  | -------------------------------------------- | --------- | ---- | - | ------------------------- |  | ----- | --------- | ------------------------ | - | -------------------- |  | ------------- | ---------- | -------------------------------------------------------------------------------- | - | --------- |  | ---- |  | -------- |  | ----
|                              |  |              |   | Initial Cost to Partnership |   |                           |  | Gross Amount at which Carried at End of Year |           |      |   |                           |  |       |           |                         
|Property                      |  | Encumbrances |   | Land                        |   | Building and Improvements |  | Costs Capitalized Subsequent to Acquisitions |           | Land |   | Building and Improvements |  | Total |           | Accumulated Depreciation |   | Date of Construction |  | Date Acquired |            | Life on which Depreciation in latest statement of operations is
computed (years)
|Phoenix, Arizona              |  |              |  |                             |   | 444,224                   |  |                                              | 421,676   |      |   |                          |  |       | 444,224   |                          |   | 421,676              |  |               | 865,900    |                                                                                  |   | 240,332   |  | -    |  | 6/15/88  |  | 31.5
|N. Richland Hills, Texas (1)  |  |              |  |                             |   | 762,580                   |  |                                              | 584,139   |      |   |                          |  |       | 662,580   |                          |   | 480,123              |  |               | 1,142,703  |                                                                                  |   | 283,994   |  | -    |  | 7/15/88  |  | 31.5
|Phoenix, Arizona (1)          |  |              |  |                             |   | 482,383                   |  |                                              | 490,343   |      |   |                          |  |       | 453,433   |                          |   | 428,676              |  |               | 882,109    |                                                                                  |   | 242,872   |  | -    |  | 8/15/88  |  | 31.5
|Santa Fe, New Mexico          |  |              |  |                             |   |                          |  |                                              | 451,230   |      |   |                          |  |       |          |                          |   | 451,230              |  |               | 451,230    |                                                                                  |   | 218,875   |  | -    |  | 10/10/88 |  | 31.5
|Augusta, Georgia (2)          |  |              |  |                             |   | 215,416                   |  |                                              | 434,178   |      |   |                          |  |       | 213,226   |                          |   | 434,178              |  |               | 647,403    |                                                                                  |   | 220,517   |  | -    |  | 12/22/88 |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,619                   |  |                                              | 323,162   |      |   |                          |  |       | 273,619   |                          |   | 323,162              |  |               | 596,781    |                                                                                  |   | 164,132   |  | -    |  | 12/22/88 |  | 31.5
|Park Forest, Illinois         |  |              |  |                             |   | 187,900                   |  |                                              | 393,038   |      |   |                          |  |       | 187,900   |                          |   | 393,038              |  |               | 580,938    |                                                                                  |   | 199,622   |  | -    |  | 12/22/88 |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 402,549                   |  |                                              | 373,795   |      |   |                          |  |       | 402,549   |                          |   | 373,795              |  |               | 776,344    |                                                                                  |   | 188,555   |  | -    |  | 2/21/89  |  | 31.5
|Augusta, Georgia              |  |              |  |                             |   | 332,154                   |  |                                              | 396,659   |      |   |                          |  |       | 332,154   |                          |   | 396,659              |  |               | 728,813    |                                                                                  |   | 200,088   |  | -    |  | 2/21/89  |  | 31.5
|Mt. Pleasant, South Carolina  |  |              |  |                             |   | 286,060                   |  |                                              | 294,878   |      |   |                          |  |       | 286,060   |                          |   | 294,878              |  |               | 580,938    |                                                                                  |   | 148,747   |  | -    |  | 2/21/89  |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,625                   |  |                                              | 254,500   |      |   |                          |  |       | 273,625   |                          |   | 254,500              |  |               | 528,125    |                                                                                  |   | 128,378   |  | -    |  | 2/21/89  |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 178,521                   |  |                                              | 455,229   |      |   |                          |  |       | 178,521   |                          |   | 455,229              |  |               | 633,750    |                                                                                  |   | 229,663   |  | -    |  | 3/14/89  |  | 31.5
|Des Moines, Iowa (1)          |  |              |  |                             |   | 164,096                   |  |                                              | 448,529   |      |   | 287,991                   |  |       | 161,996   |                          |   | 551,056              |  |               | 713,052    |                                                                                  |   | 306,649   |  | 1989 |  | 8/1/89   |  | 31.5
|North Augusta, South Carolina |  |              |  |                             |   | 250,859                   |  |                                              | 409,297   |      |   |                          |  |       | 250,859   |                          |   | 409,297              |  |               | 660,156    |                                                                                  |   | 190,774   |  | -    |  | 12/29/89 |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 286,068                   |  |                                              | 294,870   |      |   |                          |  |       | 286,068   |                          |   | 294,870              |  |               | 580,938    |                                                                                  |   | 137,440   |  | -    |  | 12/29/89 |  | 31.5
|Martinez, Georgia             |  |              |  |                             |   | 266,175                   |  |                                              | 367,575   |      |   |                          |  |       | 266,175   |                          |   | 367,575              |  |               | 633,750    |                                                                                  |   | 171,327   |  | -    |  | 12/29/89 |  | 31.5
|Grand Forks, North Dakota     |  |              |  |                             |   | 172,701                   |  |                                              | 566,674   |      |   |                          |  |       | 172,701   |                          |   | 566,674              |  |               | 739,375    |                                                                                  |   | 264,127   |  | -    |  | 12/28/89 |  | 31.5
|Phoenix, Arizona              |  |              |  |                             |   | 241,371                   |  |                                              | 843,132   |      |   |                          |  |       | 241,371   |                          |   | 843,133              |  |               | 1,084,503  |                                                                                  |   | 392,985   |  | -    |  | 1/1/90   |  | 31.5
|Ogden, Utah                   |  |              |  |                             |   | 194,350                   |  |                                              | 452,075   |      |   |                          |  |       | 194,350   |                          |   | 452,075              |  |               | 646,425    |                                                                                  |   | 230,196   |  | -    |  | 1/31/90  |  | 31.5
|Columbus, Ohio                |  |              |  |                             |   | 351,325                   |  |                                              | 708,141   |      |   |                          |  |       | 351,325   |                          |   | 708,140              |  |               | 1,059,466  |                                                                                  |   | 317,619   |  | -    |  | 6/1/90   |  | 31.5
|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     
|                              |  | $            | 0 |                             | $ | 5,765,976                 |  | $                                            | 8,963,120 |      | $ | 287,991                   |  | $     | 5,632,736 |                          | $ | 8,899,963            |  | $             | 14,532,699 |                                                                                  | $ | 4,476,862 |  |      |  |          |  |     
|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     

---

|(1) | This property was written down to its estimated net realizable value at December 31, 1998
|--- | -----------------------------------------------------------------------------------------

|(2) | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------





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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP



SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2003

(B) Reconciliation of Real Estate and Accumulated Depreciation:



|                                               |  |                              |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|---------------------------------------------- |  | ---------------------------- | ---------- | - | -------------------------- | - | ---------- | ------------------------ |  | ---------------------------------------------------------- |  | - | -------------------------- | - |  | - | --------- | -
|Investment in Real Estate                      |  | Year Ended December 31, 2003 |            |   | Year EndedDecember 31,2002 |   |            | Accumulated Depreciation |  | Year Ended December 31, 2003                               |  |   | Year EndedDecember 31,2002 |  
|Balance at beginning of year                   |  | $                            | 17,363,118 |   |                            | $ | 18,857,713 |                          |  | Balance at beginning of year                               |  | $ | 5,033,067                  |   |  | $ | 5,185,160 |  
|Additions:                                     |  |                              | 0          |   |                            |   | 0          |                          |  | Additions charged to costs and expenses                    |  |   | 280,005                    |   |  |   | 324,506   |  
|                                               |  |                              |            |   |                           
|Deletions:                                     |  |                              |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|Milwaukee, WI property written-down (1)        |  |                              | (15,189    | ) |                            |   | 0          |                          |  |                                                            |  |   |                            |   |  |   |           |  
|Sale of Milwaukee, WI property (1)             |  |                              | (967,825   | ) |                            |   | 0          |                          |  | Deletion due to sale of Milwaukee, WI property             |  |   | (280,826                   | ) |  |   | 0         |  
|Sale of Fond du Lac property (2)               |  |                              | (849,768   | ) |                            |   | 0          |                          |  | Deletion due to sale of Fond du Lac, WI property           |  |   | (247,621                   | ) |  |   | 0         |  
|Sale of Twin Falls, ID property (3)            |  |                              | (508,892   | ) |                            |   |            |                          |  | Deletion due to sale of Twin Falls, ID property            |  |   | (193,832                   | ) |  |   | 0         |  
|Palm Beach, FL property held for sale (4)      |  |                              | (488,745   | ) |                            |   | 0          |                          |  | Deletion due to Palm Beach, FL held for sale               |  |   | (113,931                   | ) |  |   | 0         |  
|South Milwaukee, WI property written-down (5)  |  |                              | 0          |   |                            |   | (98,000    | )                        |  |                                                            |  |   |                            |   |  |   |           |  
|South Milwaukee, WI property held for sale (5) |  |                              | 0          |   |                            |   | (710,032   | )                        |  | Deletion due to South Milwaukee, WI property held for sale |  |   | 0                          |   |  |   | (260,096  | )
|Sale of Hartford, WI property (6)              |  |                              | 0          |   |                            |   | (686,563   | )                        |  | Deletion due to sale of Hartford, WI property              |  |   | 0                          |   |  |   | (216,503  | )
|                                               |  |                              |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|Balance at end of year                         |  | $                            | 14,532,699 |   |                            | $ | 17,363,118 |                          |  | Balance at end of year                                     |  | $ | 4,476,862                  |   |  | $ | 5,033,067 |  
|                                               |  |                              |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  

---

|(1) | This property was written-down to its estimated fair value of $790,000 at June 30, 2003 and was sold in July 2003
|--- | -----------------------------------------------------------------------------------------------------------------

|(2) | This property was sold in July 2003.
|--- | ------------------------------------

|(3) | This property was sold in August 2003.
|--- | --------------------------------------

|(4) | This property was reclassified as held for sale in the Fourth Quarter of 2003 as a contract was executed for the anticipated sale of the property in the Second Quarter of 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | This property was written-down to its estimated fair value of $450,000 at September 30, 2002 and was reclassified as held for sale in the Fourth Quarter of 2002 as a contract was
executed for the anticipated sale of the property in the First Quarter of 2003. The property was sold in April 2003 at a sales price of $450,000.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | This property was sold in October 2002.
|--- | ---------------------------------------



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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 4, 2004



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



|    |  |                                                                               
|--- |  | ------------------------------------------------------------------------------
|By: |  | The Provo Group, Inc., General Partner                                        
|    | 
|By: |  | /s/ Bruce A. Provo                                                            
|    |  | Bruce A. Provo, President, Chief Executive Officer and Chief Financial Officer



Date:
March 4, 2004



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