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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, 2005

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.)

1100 Main Street, Suite 1830 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes ̈No  x

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (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: 56 -57



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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, 2005, the Partnership consisted of one General Partner (Management) and 2,073 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 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, 2005, the Partnership owned 19 properties with specialty leasehold improvements in six (6) of these properties, as noted in Item 2- Properties. During the
Second Quarters of 2001 and 2003, consent solicitations were circulated (the 2001 and 2003 Consents), which if approved would have authorized the sale of the Partnerships assets and dissolution of the Partnership. A majority of the
Limited Partners did not vote in favor of either the 2001 or 2003 Consents. Therefore, the Partnership continued to operate as a going concern. Another consent solicitation was circulated during the Second Quarter of 2005, which if approved would
have authorized the sale of the Partnerships assets and dissolution of the Partnership (the 2005 Consent). A majority of the Limited Partners did not vote in favor of the 2005 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 the business success of its lessees. The business success of the Partnerships individual lessees can be adversely affected on three general levels. First, the
tenants rely heavily on the management contributions of a few key entrepreneurial owners. The business operations of such entrepreneurial tenants can be adversely affected by death, disability or divorce of a key owner, or by such owners poor
business decisions such as an undercapitalized business expansion. Second, changes in a local market area can adversely affect a lessees business operation. A local economy can suffer a downturn with high unemployment. Socioeconomic
neighborhood changes can affect retail demand at specific sites and traffic patterns may change, or stronger competitors may enter a market. These and other local market factors can potentially adversely affect the lessees of Partnership properties.
Finally, despite an individual lessees solid business plans in a strong local market, the chain concept itself can suffer reversals or changes in management policy, which in turn can affect the profitability of operations for Partnership
properties. Therefore, there can be no assurance that any specific lessee will have the ability to pay its rent over the entire term of its lease with the Partnership.

Since over 90% of the Partnerships investment in properties 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.



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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 limited 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.

The PMA had an original expiration date of December 31, 2002.
At the end of the original term, it was extended three years by TPG to an expiration date of December 31, 2005. Effective January 1, 2006, the PMA was renewed by TPG for the three year period ending December 31, 2008. The new
expiration date 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



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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.

Advisory Board

The concept of the Advisory Board was first introduced by TPG during the solicitation of written
consents seeking to elect TPG as the substitute general partner, 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. Among other functions, the three person Advisory Board has the following rights: to review operational policies and practices; to review extraordinary transactions; to review internal financial controls and practices; and to 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: 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 5-20 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.



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The Partnership owned the following Properties (including specialty leasehold improvements for use in some of these
properties) as of December 31, 2005:



|                 |  |                                                              |  |                              |  |                    |            |     |                  |   |                       |  |                 |  |     
|---------------- |  | ------------------------------------------------------------ |  | ---------------------------- |  | ------------------ | ---------- | --- | ---------------- | - | --------------------- |  | --------------- |  | ----
|Acquisition Date |  | Property Name & Address                                      |  | Lessee                       |  | Purchase Price (1) |            |     | Rental Per Annum |   | Lease Expiration Date |  | Renewal Options
|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
|                 |  |                                                              |  |                              |  |                   
|08/15/88         |  | Dennys 2360 W Northern Ave Phoenix, AZ                      |  | First Foods, Inc.            |  |                    | 1,155,965  | (2) |                  |   | 65,000                |  | 10-31-2007      |  | None
|                 |  |                                                              |  |                              |  |                   
|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 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 Café 4875 Merle
Hay Des Moines, IA      |  | Karl Shaen Valderrama        |  |                    | 897,813    | (2) |                  |   | 70,000                |  | 02-28-08        |  | None
|                 |  |                                                              |  |                              |  |                   
|12/28/89         |  | Panda Buffet (5) 2451 Columbia Rd Grand Forks, ND            |  | Panda Buffet, Inc.           |  |                    | 845,000    | (2) |                  |   | 35,000                |  | 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
|                 |  |                                                              |  |                              |  |                   
|01/31/90         |  | Blockbuster Video (6) 336 E 12th St Ogden, UT                |  | Blockbuster Videos, Inc.     |  |                    | 646,425    |     |                  |   | 9,250                 |  | 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
|                 |  |                                                              |  |                              |  |                    |            |     |                  |   |                       |  |                 |  |     
|                 |  |                                                              |  |                              |  | $                  | 14,650,866 |     |                  | $ | 1,485,408             |  |                 |  |     
|                 |  |                                                              |  |                              |  |                    |            |     |                  |   |                       |  |                 |  |     

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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.
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|(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 owners of the Panda Buffet Restaurant in Grand Fords, ND gave notice to Management in January of 2006 that they intended to exercise their purchase option in relation to the
property. A sales contract was executed at a sales price of $525,000 and closing on the sale of the property is anticipated to be during the First Quarter of 2006. (See first paragraph below.)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The Blockbuster lease expired as of January 31, 2006, however, Blockbuster has paid holdover rent equal to the previous monthly rent of $9,250. Management is negotiating a
renewal lease agreement with the tenant. (See fifth paragraph below.)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Grand Forks, ND Property

On January 24, 2006, the owners of the Panda Buffet Restaurant in Grand Forks, ND gave notice to Management that they intended to exercise their purchase option in
relation to the property. A sales contract was executed on February 27, 2006 for the sale of the Grand Forks, ND property at a sales price of $525,000. Closing is anticipated to be in the First Quarter of 2006. The net book value of the
property at December 31, 2005 was approximately $470,000, which included $173,000 related to land, $268,000 related to buildings and equipment, and $18,000 related to deferred rents receivable, $16,000 related to deferred charges, net, and
$5,000 related to security deposits.

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 was $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.

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 of 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 property taxes.
The Partnership also paid the 2002 property 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 property taxes, as well as other damages.

Ogden, UT property

The Blockbuster lease on the current 6,000 square foot space expired on January 31, 2006,
however, Blockbuster paid February of 2006 holdover rent to the Partnership equal to the previous monthly rent of $9,250. Management is currently negotiating a renewal lease agreement with the tenant.

Hooters- Richland Hills, TX

A
sales contract was executed in October of 2005 for the sale of the property in the Fourth Quarter of 2005 at a sales price of $1,575,000. The closing date on the sale of the property was December 2005 and the net sales proceeds totaled approximately
$1,505,000. A net gain on the sale of $668,000 was recognized in the Fourth Quarter of 2005. Closing and other sale related costs amounted to $70,000, which included a sales commission paid to a General Partner affiliate totaling $47,250.



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Popeyes- Park Forest, IL

The tenant has remained current on its monthly lease obligations. Per the terms of the original lease for the Popeyes location, the tenant
(Popeyes) was (i) to timely pay as they come due all taxes charged to the property, and (ii) required to pay percentage rents equal to 8% of gross sales in excess of $619,449. Popeyes had accrued approximately
$123,000 of delinquent percentage rent payments in relation to its sales in 2001 through 2003. (Due to the uncertainty of collection, $104,000 was fully reserved in the Fourth Quarter of 2003, and $19,000 was not recognized as revenue in the Fourth
Quarter of 2003 for financial statement purposes.) In addition, the tenant failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, Illinois in 2003, as well as approximately $5,000 in assessed late
fees. In the Fourth Quarter of 2003, the Partnership accrued approximately $86,000 in property taxes, which included the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that were to 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 was paid in February 2004. In March 2004, Management learned that the tenant had also failed to pay the $31,000 second installment
of its 2001 property taxes. The Partnership paid the 2001 delinquent property taxes, as well as approximately $10,000 in assessed late fees, in March 2004. The Partnership was reimbursed in full for the approximately $107,000 in delinquent property
taxes paid by the Partnership on Popeyes behalf (the Partnership received $25,000 in each April, May, June, and July 2004 and received the final payment of approximately $7,000 in September 2004). The second installment of property taxes
related to 2003 was paid by the Partnership in October 2004 through escrow payments received by the Partnership from Popeyes in the Third and Fourth Quarters of 2004.

A Release and Settlement Agreement was executed with Popeyes in November 2004. In settlement of all claims and disputes the following significant items were agreed to: (i) Popeyes is to make monthly
escrow property taxes payments applicable to 2004 and for future property taxes installments due throughout the remaining lease term obligation; (ii) Popeyes gross sales breakpoint was increased to $1,000,000 and therefore, percentage
rent shall be an amount equal to 8% of gross sales in excess of $1,000,000, and (iii) Popeyes delinquent percentage rents were waived.

Due to
past defaults, Popeyes 2004 estimated property taxes were prorated and accrued on a monthly basis by the Partnership. In September 2004, the Partnership began billing Popeyes monthly property taxes escrow charges. Escrow payments of
approximately $8,000 and $56,000 were received by the Partnership in the Fourth Quarter of 2004, and the First through Fourth Quarters of 2005, respectively. These payments resulted in: (i) full coverage of Popeyes 2004 first and second
installments of property taxes paid by the Partnership to the taxing authority in February and October of 2005; and (ii) a December 31, 2005 property taxes escrow cash balance of approximately $14,000 toward the 2005 first estimated
installment of approximately $28,000 which is scheduled to be paid by the Partnership in the First Quarter of 2006 (Popeyes is delinquent on approximately $5,000 of its current escrow billings.)

During 2004, property taxes escrow charges applicable to 2004 property taxes were reflected in the financial statements as escrow payments were actually received, and
were recorded as a reversal of 2004 property taxes expense equal to the amount of payment received. During 2005, property taxes escrow charges applicable to property taxes previously accrued and expensed in 2004, were reflected in the financial
statements as escrow payments were actually received, and were recorded as property taxes recovery income equal to the amount of payment received. Property taxes recovery income during 2005 totaled approximately $35,000. Due to the billing and
escrow arrangements, the 2005 estimated property taxes were not prorated and accrued on a monthly basis by the Partnership.



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4785 Merle Hay Road- Des Moines, IA

In September 2005, the Partnership paid Daytonas- All Sports Cafés (Daytonas) first installment of its 2004 property taxes, which amounted
to approximately $10,000. Daytonas reimbursed the Partnership in the Fourth Quarter of 2005. Beginning in December 2005, Management has requested that Daytonas escrow its future property taxes liabilities with the Partnership on a
monthly basis. As of December 31, 2005, escrow payments held by the Partnership totaled approximately $3,400.

In July 2004, the Partnership paid
Daytonas- All Sports Cafés delinquent 2002 property taxes balance of approximately $15,000. Daytonas reimbursed the Partnership $5,000 in each of August, September and October of 2004. In the Third Quarter of 2004, due to
the property taxes default, Management requested that Daytonas escrow with the Partnership their 2003 property taxes installments which were to be due in the Fourth Quarter of 2004 and the First Quarter of 2005. Escrow payments of
approximately $800 were held by the Partnership at December 31, 2004. Daytonas met its final property taxes escrow requirement in February 2005 and the Partnership paid the property taxes installment in March 2005.

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.

Former Miami Subs- Palm Beach, FL Property

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. The closing date on the sale of the property was June 2004 and the net sales proceeds totaled
approximately $606,000. A net gain on the sale of $211,000 was recognized in the Second Quarter of 2004. Closing and other sale related costs amounted to $44,000, which included sales commissions totaling $39,000, of which $19,500 was paid to a
General Partner affiliate and $19,500 was paid to a non-affiliated broker.

At the time of closing the former tenant, DiFede Finance Group
(DiFede), was delinquent $17,000 in past rent (after the application of a $15,000 security deposit). The former tenant also owed the Partnership approximately $13,360 in real estate taxes as the Partnership paid the propertys
delinquent 2003 real estate taxes in June 2004. Management continued to pursue legal remedies to collect the former tenants total past due balances. Due to the uncertainty of collection, fifty percent (50 %) of the total outstanding receivable
balance was reserved in June 2004.

In November 2004, a Settlement Agreement (Agreement) was executed with DiFede. Per the Agreement the former
tenant agreed to pay the Partnership by December 31, 2004 approximately $36,000 in past due rent, late charges, related attorney and court fees and other miscellaneous items. However, the settlement payment per the Agreement was not received by
the Partnership. Further legal action was taken by the Partnership and the Circuit Court in Broward County, Florida entered a final judgment (the Judgment) against DiFede in early January 2005, awarding approximately $42,000 in damages
to the Partnership. Due to the uncertainty of collection, the remaining fifty percent (50 %) of the total outstanding receivable balance was written-off. The receivable balance and applicable allowance were removed from the balance sheet at
December 31, 2004. As of December 31, 2005, Management continues legal action to collect on the judgment.



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Former Twin Falls, ID property

In August 2004, the Partnership sold a piece of land adjacent to the former Twin Falls property for $5,000. The land had no recorded value.

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.

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.

Former 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.

Former
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.

Former 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. (See Legal Proceedings in Note 10 to Financial Statements and Part I- Item 3 for
additional developments.)



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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 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 $140,000 cash bond to the Partnership in April 2003.
(See Legal Proceedings in Note 10 to Financial Statements and Part I- Item 3.)

Item 3. Legal Proceedings

Former Mulberry Street Grill property- Phoenix, AZ

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, following such notification the Partnership received no rent from the former tenant and elected to return
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 were liable to the



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Partnership for breach of the subleases and any damages for which the Partnership might be held liable pursuant to the
Ground Lease. Due to the bankruptcy filing by AMF the Partnership was prevented from proceeding against them. The Partnership was unable to proceed with the claim against National Restaurant due to the failure to locate such defendant.

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.

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 included 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.

DeDan bankruptcy

During January 2004, the Partnership received a one-time payment of approximately $25,000 from the Bankruptcy Court in relation to bankruptcy litigation. In the late
1980s, the Partnership leased properties to DeDan, Inc., and the leases were guaranteed by Dan Fore, the owner of DeDan, Inc. These leases went into default in the early 1990s and the Partnership obtained possession of the
properties and re-leased them to various entities. The original lessee, DeDan, Inc. and Dan Fore, filed for bankruptcy and the Partnership filed a claim in the Bankruptcy Court for damages incurred due to the lease defaults. The payment
received was the result of extended litigation in the Bankruptcy Court. No additional payments are anticipated.

Phoenix Foods Preference Claim

The trustee in the Phoenix Foods bankruptcy made a claim seeking to recover from the Partnership alleged
preferential payments by Phoenix Foods to the Partnership in the amount of approximately $16,500. The payments the trustee sought to recover were rent payments received in the ordinary course of business prior to Phoenix Foods
bankruptcy. The Partnership did not believe such payments were preferential under the Bankruptcy Code and vigorously contested such characterization. A verbal settlement of this claim was reached in November 2004 and the Partnership finalized such
settlement in April 2005. The settlement calls for the bankruptcy trustee to release its preference claims and the Partnership to release its claims as an unsecured creditor in the Phoenix Foods bankruptcy. Although the Partnership believes its
claims are valid, the Partnership determined that the time and cost of pursuing such claims exceeded the likely recovery given the bankrupts lack of assets from which to satisfy unsecured claims.



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##### Table of Contents

Former South Milwaukee, WI property

The Partnership sold real property and improvements located at 106 N. Chicago Avenue, South Milwaukee, Wisconsin to F2BL, LLC (the Buyer) on
April 17, 2003 pursuant to a Real Estate Purchase Agreement dated October 10, 2002 (the Contract). In October of 2003, the Buyer notified the Partnership that an underground storage tank (UST) and
petroleum release had been discovered on this Property. Since that time, the Buyer has removed the UST and remediated the petroleum release. A substantial amount of the costs incurred in such efforts were paid by the Wisconsin Petroleum
Environmental Clean Up Fund (the PECUF). In sporadic correspondence since the fourth quarter of 2003, the Buyer has claimed, and the Partnership has denied, that the Partnership was responsible for payment of those costs not
reimbursed by the PECUF.

On January 23, 2006, the Buyer initiated a lawsuit against the Partnership by filing a Complaint with the Milwaukee County
Circuit Court. The Complaint alleges, among other things that (i) the Borrower breached its representation in the Contract that, to the best of the Partnerships knowledge, the Partnership was in compliance with all environmental laws, and
(ii) the Partnership failed to deliver to Buyer a Phase I Environmental Assessment of the Property which had been performed in 1998. The Buyer is seeking a judgment awarding it damages as it may prove at trial, plus its attorneys fees.
Prior to filing suit, the Buyer had alleged approximately $100,000 of actual unreimbursed damages incurred in the removal of the UST and remediation of the petroleum release and alleged consequential damages of $190,000.

Management believes that it has meritorious defenses to all of the Buyers claims and intends to defend the lawsuit vigorously. At this point of investigating
the Buyers claims, Management does not believe that a material recovery by the Buyer is probable. As of the date of the financials, the Partnership has not recorded a provision for this lawsuit.

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, 2005, there were 2,073 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 2005 and 2004, $1,730,000 and $2,305,000, respectively, were distributed in
the aggregate to the Limited Partners. The General Partner received aggregate distributions of $8,484 and $7,171 in 2005 and 2004, 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, 2005, 2004, 2003, 2002, and 2001



|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                    |  | 2005 |            | 2004 |   | 2003       |  | 2002 |            | 2001
|Total Operating Revenue                             |  | $    | 2,052,026  |      | $ | 2,191,573  |  | $    | 2,085,630  |      | $ | 2,108,363  |  | $ | 2,114,381 
|Income from Continuing Operations                   |  | $    | 1,297,584  |      | $ | 1,395,571  |  | $    | 981,954    |      | $ | 1,128,969  |  | $ | 1,100,074 
|Income from Discontinued Operations                 |  | $    | 823,607    |      | $ | 397,102    |  | $    | 602,378    |      | $ | 406,336    |  | $ | 633,705   
|Net Income                                          |  | $    | 2,121,191  |      | $ | 1,792,673  |  | $    | 1,584,332  |      | $ | 1,535,305  |  | $ | 1,733,779 
|Net Income per Limited Partner Interest             |  | $    | 45.38      |      | $ | 38.35      |  | $    | 33.89      |      | $ | 32.84      |  | $ | 37.09     
|Total Assets                                        |  | $    | 12,149,329 |      | $ | 11,804,154 |  | $    | 12,398,831 |      | $ | 15,746,665 |  | $ | 15,839,599
|Total Partners Capital                             |  | $    | 11,920,275 |      | $ | 11,537,568 |  | $    | 12,057,066 |      | $ | 15,319,264 |  | $ | 15,500,492
|Cash Distributions per Limited Partnership Interest |  | $    | 37.38      |      | $ | 49.81      |  | $    | 104.58     |      | $ | 36.95      |  | $ | 47.10     



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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, 2005, were originally purchased at a price, including acquisition costs, of approximately $14,650,866.

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, 2005, the Partnership owned 17 fully constructed fast-food restaurants, a video store, and a preschool. The 19
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) Kentucky Fried
Chicken restaurant, (1) Chinese Super Buffet restaurant, one (1) Blockbuster Video store (the Blockbuster lease expired January 31, 2006-see Investment Properties in Note 3 to Financial Statements and Part I- Item 2), one
(1) Sunrise Preschool, one (1) Panda Buffet restaurant, and one (1) Daytonas- All Sports Café. The 19 properties are located in a total of nine (9) states.

Ten (10) of the nineteen (19) properties are leased to Wencoast Restaurants, Inc. (Wencoast). Since more than 20% of the Partnerships
properties, both by asset value and number, are leased to a single tenant, the financial status of the tenant may be considered relevant to investors. The Partnership has requested that Wencoast provide it with copies of Wencoasts audited
financial statements. The most recent audited financial statements available are attached to this report as Exhibit 99.1. The Partnership has no rights to audit Wencoast and no right to dictate the form of audited financial statements provided by
Wencoast. The Partnership has no reason to believe the Wencoast financial statements do not accurately reflect the financial position of Wencoast.

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 2005, 2004 and 2003, the
Partnership recognized income from discontinued operations of approximately $824,000, $397,000, and $602,000, respectively. The 2005, 2004, and 2003 income from discontinued operations is attributable to the Hooters restaurant property (which
was sold in December 2005), the Miami Subs property (which was sold in June 2004), the vacant South Milwaukee, WI property (which was sold in April 2003), the Milwaukee, WI property and the Hardees restaurant property in Fond du Lac, WI (which
were both sold in July 2003), and the vacant Twin Falls, ID property (which was sold in August 2003). The 2005 income from discontinued operations includes a Fourth Quarter net gain on the sale of the Hooters restaurant property of
approximately $668,000. The 2004 income from discontinued operations includes a Second Quarter net gain on the sale of the Miami Subs property of approximately $211,000, a Third Quarter net gain on the sale of a parcel of land located adjacent to
the former vacant Twin Falls, ID property of $5,000 (the land had no recorded value), and Second and Fourth Quarter provisions for non-collectible rents and other receivables related to the Miami Subs property. 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.



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##### Table of Contents

There were no components of property held for sale included in the balance sheets for the years ended December 31,
2005 and 2004.

The components of discontinued operations included in the statements of income for the years ended December 31, 2005, 2004 and 2003
are outlined below.



|                                          |  |      |         |      |   |         |  |   |        
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |  | 2005 |         | 2004 |   | 2003   
|Revenues                                  |  |      |         |      |   |         |  |   |        
|Rental Income                             |  | $    | 168,133 |      | $ | 224,165 |  | $ | 393,964
|                                          |  |      |         |      |   |         |  |   |        
|Total Revenues                            |  |      | 168,133 |      |   | 224,165 |  |   | 393,964
|                                          |  |      |         |      |   |         |  |   |        
|Expenses                                  |  |      |         |      |   |         |  |   |        
|Property Write-down                       |  |      | 0       |      |   | 0       |  |   | 48,027 
|Depreciation                              |  |      | 9,194   |      |   | 12,258  |  |   | 30,836 
|Amortization                              |  |      | 0       |      |   | 0       |  |   | 4,261  
|Appraisals                                |  |      | 3,500   |      |   | 0       |  |   | 0      
|Real Estate Taxes                         |  |      | 0       |      |   | 0       |  |   | 4,435  
|Management Services                       |  |      | 0       |      |   | 0       |  |   | 8,400  
|Provision for Non-collectible Receivables |  |      | 0       |      |   | 30,359  |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Total Expenses                            |  |      | 12,694  |      |   | 42,617  |  |   | 95,959 
|Net Gain on Sale of Properties            |  |      | 668,168 |      |   | 215,554 |  |   | 304,373
|                                          |  |      |         |      |   |         |  |   |        
|Income from Discontinued Operations       |  | $    | 823,607 |      | $ | 397,102 |  | $ | 602,378
|                                          |  |      |         |      |   |         |  |   |        

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

Grand Forks, ND Property

On
January 24, 2006, the owners of the Panda Buffet Restaurant in Grand Forks, ND gave notice to Management that they intended to exercise their purchase option in relation to the property. A sales contract was executed on February 27, 2006
for the sale of the Grand Forks, ND property at a sales price of $525,000. Closing is anticipated to be in the First Quarter of 2006. The net book value of the property at December 31, 2005 was approximately $470,000, which included $173,000
related to land, $268,000 related to buildings and equipment, and $18,000 related to deferred rents receivable, $16,000 related to deferred charges, net, and $5,000 related to security deposits.

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 was $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.

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.



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In March 2002 and September 2002, the Partnership paid the propertys first and second installments of 2001 property
taxes. The Partnership also paid the 2002 property 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 property taxes, as well as other damages.

Ogden, UT property

The Blockbuster lease on the current 6,000 square foot space expired on January 31, 2006,
however, Blockbuster paid February of 2006 holdover rent to the Partnership equal to the previous monthly rent of $9,250. Management is currently negotiating a renewal lease agreement with the tenant.

Hooters- Richland Hills, TX

A
sales contract was executed in October of 2005 for the sale of the property in the Fourth Quarter of 2005 at a sales price of $1,575,000. The closing date on the sale of the property was December 2005 and the net sales proceeds totaled approximately
$1,505,000. A net gain on the sale of $668,000 was recognized in the Fourth Quarter of 2005. Closing and other sale related costs amounted to $70,000, which included a sales commission paid to a General Partner affiliate totaling $47,250.

Popeyes- Park Forest, IL

The tenant has remained current on its monthly lease obligations. Per the terms of the original lease for the Popeyes location, the tenant (Popeyes) was (i) to timely pay as they come due
all taxes charged to the property, and (ii) required to pay percentage rents equal to 8% of gross sales in excess of $619,449. Popeyes had accrued approximately $123,000 of delinquent percentage rent payments in relation to its sales in
2001 through 2003. (Due to the uncertainty of collection, $104,000 was fully reserved in the Fourth Quarter of 2003, and $19,000 was not recognized as revenue in the Fourth Quarter of 2003 for financial statement purposes.) In addition, the tenant
failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, Illinois in 2003, as well as approximately $5,000 in assessed late fees. In the Fourth Quarter of 2003, the Partnership accrued approximately
$86,000 in property taxes, which included the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that were to 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 was paid in February 2004. In March 2004, Management learned that the tenant had also failed to pay the $31,000 second installment of its 2001 property taxes. The Partnership paid the 2001 delinquent
property taxes, as well as approximately $10,000 in assessed late fees, in March 2004. The Partnership was reimbursed in full for the approximately $107,000 in delinquent property taxes paid by the Partnership on Popeyes behalf (the
Partnership received $25,000 in each April, May, June, and July 2004 and received the final payment of approximately $7,000 in September 2004). The second installment of property taxes related to 2003 was paid by the Partnership in October 2004
through escrow payments received by the Partnership from Popeyes in the Third and Fourth Quarters of 2004.

A Release and Settlement Agreement was
executed with Popeyes in November 2004. In settlement of all claims and disputes the following significant items were agreed to: (i) Popeyes is to make monthly escrow property taxes payments applicable to 2004 and for future
property taxes installments due throughout the remaining lease term obligation; (ii) Popeyes gross sales breakpoint was increased to $1,000,000 and therefore, percentage rent shall be an amount equal to 8% of gross sales in excess of
$1,000,000, and (iii) Popeyes delinquent percentage rents were waived.



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Due to past defaults, Popeyes 2004 estimated property taxes were prorated and accrued on a monthly basis by the
Partnership. In September 2004, the Partnership began billing Popeyes monthly property taxes escrow charges. Escrow payments of approximately $8,000 and $56,000 were received by the Partnership in the Fourth Quarter of 2004, and the First
through Fourth Quarters of 2005, respectively. These payments resulted in: (i) full coverage of Popeyes 2004 first and second installments of property taxes paid by the Partnership to the taxing authority in February and October of 2005;
and (ii) a December 31, 2005 property taxes escrow cash balance of approximately $14,000 toward the 2005 first estimated installment of approximately $28,000 which is scheduled to be paid by the Partnership in the First Quarter of 2006
(Popeyes is delinquent on approximately $5,000 of its current escrow billings.)

During 2004, property taxes escrow charges applicable to 2004
property taxes were reflected in the financial statements as escrow payments were actually received, and were recorded as a reversal of 2004 property taxes expense equal to the amount of payment received. During 2005, property taxes escrow charges
applicable to property taxes previously accrued and expensed in 2004, were reflected in the financial statements as escrow payments were actually received, and were recorded as property taxes recovery income equal to the amount of payment received.
Property taxes recovery income during 2005 totaled approximately $35,000. Due to the billing and escrow arrangements, the 2005 estimated property taxes were not prorated and accrued on a monthly basis by the Partnership.

4785 Merle Hay Road- Des Moines, IA

In September 2005, the Partnership paid Daytonas- All Sports Cafés (Daytonas) first installment of its 2004 property taxes, which amounted to approximately $10,000. Daytonas reimbursed the Partnership in
the Fourth Quarter of 2005. Beginning in December 2005, Management has requested that Daytonas escrow its future property taxes liabilities with the Partnership on a monthly basis. As of December 31, 2005, escrow payments held by the
Partnership totaled approximately $3,400.

In July 2004, the Partnership paid Daytonas- All Sports Cafés delinquent 2002 property taxes
balance of approximately $15,000. Daytonas reimbursed the Partnership $5,000 in each of August, September and October of 2004. In the Third Quarter of 2004, due to the property taxes default, Management requested that Daytonas escrow
with the Partnership their 2003 property taxes installments which were to be due in the Fourth Quarter of 2004 and the First Quarter of 2005. Escrow payments of approximately $800 were held by the Partnership at December 31, 2004.
Daytonas met its final property taxes escrow requirement in February 2005 and the Partnership paid the property taxes installment in March 2005.

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.

Former Miami Subs- Palm Beach, FL Property

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. The closing date on the sale of the property was June 2004 and the net sales proceeds totaled approximately $606,000. A net gain on the sale of $211,000 was recognized in the
Second Quarter of 2004. Closing and other sale related costs amounted to $44,000, which included sales commissions totaling $39,000, of which $19,500 was paid to a General Partner affiliate and $19,500 was paid to a non-affiliated broker.



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At the time of closing the former tenant, DiFede Finance Group (DiFede), was delinquent $17,000 in past rent
(after the application of a $15,000 security deposit). The former tenant also owed the Partnership approximately $13,360 in real estate taxes as the Partnership paid the propertys delinquent 2003 real estate taxes in June 2004. Management
continued to pursue legal remedies to collect the former tenants total past due balances. Due to the uncertainty of collection, fifty percent (50 %) of the total outstanding receivable balance was reserved in June 2004.

In November 2004, a Settlement Agreement (Agreement) was executed with DiFede. Per the Agreement the former tenant agreed to pay the Partnership by
December 31, 2004 approximately $36,000 in past due rent, late charges, related attorney and court fees and other miscellaneous items. However, the settlement payment per the Agreement was not received by the Partnership. Further legal action
was taken by the Partnership and the Circuit Court in Broward County, Florida entered a final judgment (the Judgment) against DiFede in early January 2005, awarding approximately $42,000 in damages to the Partnership. Due to the
uncertainty of collection, the remaining fifty percent (50 %) of the total outstanding receivable balance was written-off. The receivable balance and applicable allowance were removed from the balance sheet at December 31, 2004. As of
December 31, 2005, Management continues legal action to collect on the judgment.

Former Twin Falls, ID property

In August 2004, the Partnership sold a piece of land adjacent to the former Twin Falls property for $5,000. The land had no recorded value.

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.

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.

Former 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.

Former
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



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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.

Former 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. (See Legal Proceedings in Note 10 to
Financial Statements and Part I- Item 3 for additional developments.)

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 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
$140,000 cash bond to the Partnership in April 2003. (See Legal Proceedings in Note 10 to Financial Statements and Part I- Item 3.)

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.



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At December 31, 2005, the owners of the Panda Buffet property had an option to purchase the property at a price,
which (i) exceeded the original cost of the property less accumulated depreciation and (ii) was not less than the fair market value of the property at the time the option was granted. The General Partner is not aware of any unfavorable
purchase options in relation to the original cost or fair market value of the property at the time the option was granted, contained in any of the Partnerships existing leases. On January 24, 2006, the owners of the Panda Buffet
Restaurant in Grand Forks, ND gave notice to Management that they intended to exercise their purchase option in relation to the property. A sales contract was executed on February 27, 2006 for the sale of the Grand Forks, ND property at a sales
price of $525,000 which is in excess of the original cost of the property less accumulated depreciation. Closing on the property is anticipated to be during the First Quarter of 2006.

Other Assets

Cash and cash equivalents held by the Partnership totaled approximately $2,219,000 at
December 31, 2005, compared to $685,000 at December 31, 2004. Cash of $2,000,000 is anticipated to be used to fund the Fourth Quarter 2005 distributions to Limited Partners in February 2006, and cash of $88,000 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.

Property tax cash escrow amounted to approximately $17,000 at December 31, 2005. A property tax escrow payment of approximately $3,000 was received by the
Partnership from Daytonas in the Fourth Quarter of 2005 toward their property tax installment due in the First Quarter of 2006. (For further disclosure see Investment Properties in Note 3 to Financial Statements, Part I- Item 2, and Part
II- Item 7.) In the Fourth Quarter of 2005 the Partnership received approximately $14,000 from Popeyes in relation to their first 2005 property tax installment due in the First Quarter of 2006. (For further disclosure see Investment
Properties in Note 3 to Financial Statements, Part I- Item 2, and Part II- Item 7.)

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 Financial Statements- PMA Indemnification Trust.)

Rents and other receivables amounted to $431,000 at December 31, 2005, compared to
$508,000 as of December 31, 2004. The balances primarily represented 2005 quarterly percentage rent accruals for tenants who had exceeded their gross sales breakpoints as of December 31, 2005.

Property taxes receivable at December 31, 2005 totaled approximately $7,000. The balance primarily represented property taxes escrow charges due from Popeyes
 Park Forest applicable to its 2005 property taxes due in 2006.

Prepaid Insurance amounted to approximately $33,000 at December 31, 2005, which
represented ten months of prepaid insurance paid by the Partnership.

Prepaid fees at December 31, 2004 totaled approximately $19,000. The balance
primarily represented January 2005 Management Fees and overhead allowances paid by the Partnership to TPG in December 2004.

Deferred charges totaled
approximately $247,000 and $260,000, net of accumulated amortization, at December 31, 2005 and December 31, 2004, 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.



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Liabilities

Accounts payable and accrued expenses at December 31, 2005, and December 31, 2004 amounted to approximately $59,000 and $63,000, respectively, and primarily
represented the year-end accruals of auditing, tax and data processing fees.

Property taxes payable at December 31, 2005, in the amount of $24,000,
primarily represented Popeyes- Park Forests property taxes escrow charges related to its first installment of 2005 taxes. The estimated first installment of approximately $28,000 will be due in the First Quarter of 2006. Property taxes
payable at December 31, 2004, in the amount of $48,000, represented 2004 property taxes due for the Popeyes- Park Forest property. These taxes were paid in the First and Third Quarters of 2005. (For further disclosure see Investment
Properties in Note 3 to Financial Statements, Part I- Item 2, and Part II- Item 7.)

Due to the Current General Partner amounted to $5,249 at
December 31, 2005, and primarily represented the General Partners portion of the Fourth Quarter 2005 distribution.

Partners Capital

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

Cash distributions paid to the Limited Partners and to the General Partner during 2005 of $1,730,000 and $8,484, respectively, have also been made in accordance with the
Partnership Agreement. The Fourth Quarter 2005 Limited Partner distributions totaling $2,000,000 were paid February 15, 2006.

Results of
Operations

The Partnership reported income from continuing operations for the year ended December 31, 2005, in the amount of $1,298,000
compared to income from continuing operations for the years ended December 31, 2004 and 2003 of $1,396,000 and $982,000, respectively. The variance in income from continuing operations in 2005 compared to 2004 and 2003 is due primarily to:
(i) the First through Third Quarter of 2005 collections and revenue recognition of approximately $35,000 in property tax recoveries from Popeyes, compared to the Second through Fourth Quarter of 2004 collections and revenue recognition of
$129,000 in property tax recoveries from Popeyes (see Note 3- Investment Properties for further discussion; (ii) lower 2005 operating percentage rent accruals compared to 2004 and 2003; (iii) increased general and administrative
expenditures related to investor communication, and increased professional expenditures, due to the 2005 Consent mailing in the Second Quarter of 2005; (iv) the Third Quarter of 2005 accrual of City of Columbus earnings tax and related interest
and penalties for the tax years 1999-2004; (v) higher income tax expenditures in the First through Third Quarters of 2005 related to the 2004 South Carolina tax return and the 2005 South Carolina estimated tax payments; (vi) the March 2004
payment of Popeyes 2001 property taxes second installment and related penalties due to tenant default; and (vii) a one-time settlement payment of approximately $25,000 from the Bankruptcy Court in relation to the DeDan bankruptcy
litigation was received in January 2004. (viii) the write-off of Popeyes 2002 and 2001 percentage rent billings in the Fourth Quarter of 2003 due to the uncertainty of collection; (ix) the Fourth Quarter 2003 accrual of Popeyes
2003 and 2002 property taxes due to tenant default; (x) increased legal expenditures in 2003 due to tenant defaults and court proceedings related to the former Mulberry Street Grill property; (xi) increased audit fees in 2003;
(xii) increased insurance premiums in 2003 and an insurance



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premium adjustment in the First Quarter of 2003; (xiii) 1989 personal property taxes paid in the First Quarter of
2003 in relation to the Dennys- Phoenix, AZ property; (xiv) the Mulberry Street Grill settlement payment in February of 2003; (xv) a lease termination fee from Village Inn in the Second Quarter of 2003 related to the Grand Forks, ND
property; and (xvi) increased maintenance expenditures at the Grand Forks, ND property in 2003.

Discontinued Operations

Income from discontinued operations was approximately $824,000, $397,000 and $602,000 for the years ended December 31, 2005, 2004, and
2003, 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 2005, 2004, and 2003 income from discontinued operations is attributable to the Hooters restaurant property (which was sold in December 2005), the Miami Subs property (which was sold in June 2004), the vacant South Milwaukee,
WI property (which was sold in April 2003), the Milwaukee, WI property and the Hardees restaurant property in Fond du Lac, WI (which were both sold in July 2003), and the vacant Twin Falls, ID property (which was sold in August 2003. The 2005
income from discontinued operations included a Fourth Quarter net gain on the sale of the Hooters restaurant property of approximately $668,000. The 2004 income from discontinued operations included a Second Quarter net gain on the sale of the
Miami Subs property of approximately $211,000, a Third Quarter net gain on the sale of a parcel of land located adjacent to the former vacant Twin Falls, ID property of $5,000 (the land had no recorded value), and Second and Fourth Quarter
provisions for non-collectible rents and other receivables related to the Miami Subs property. The 2003 income from discontinued operations included 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 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 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.

Revenues

Total
operating revenues were $2,052,000, $2,192,000, and $2,086,000, for the years ended December 31, 2005, 2004, and 2003, respectively. During 2005 the Partnership received payments from Popeyes totaling $35,000 relating to 2004 property tax
recoveries. During 2004 the Partnership received payments from Popeyes totaling $129,000 relating to property tax reimbursements and recoveries. During June of 2003 the Partnership received a lease termination fee of $50,000 from defaulted
former tenant Village Inn upon a settlement and lease termination agreement related to the Grand Forks, ND property. (For further disclosure see Investment Properties in Note 3 to Financial Statements, Part I- Item 2, and Part II- Item 7.)

As of December 31, 2005, total base operating rent revenues should approximate $1,485,000 annually, based on leases currently in place. (This amount
includes the January of 2006 rent of $9,250 for the Blockbuster lease which expired January 31, 2006. Management is currently negotiating a renewal lease agreement with the tenant- see Investment Properties in Note 3 to Financial Statements and
Part I- Item 2.) 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, 2005, 2004, and 2003 total operating expenses amounted to approximately 39%, 39% and 54%, of total operating revenues, respectively.



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The variance in operating expenditures are due to: (i) increased general and administrative expenditures related to
investor communication, and increased professional expenditures, due to the 2005 Consent mailing in the Second Quarter of 2005; (ii) higher income tax expenditures in the First through Third Quarters of 2005 related to the 2004 South Carolina
tax return and the 2005 South Carolina estimated tax payments; (iii) the Third Quarter of 2005 accrual of City of Columbus earnings tax and related interest and penalties for the tax years 1999-2004 (iv) the March 2004 payment of
Popeyes 2001 property taxes second installment and related penalties due to tenant default; and (v) 2004 monthly property tax accruals in relation to Popeyes (property tax accruals related to the property are not being recorded in
2005); (vi) increased legal expenditures due to tenant defaults and court proceedings related to the former Mulberry Street Grill property; (vii) the accrual of Popeyes 2003 and 2002 property taxes due to tenant default in the Fourth
Quarter of 2003; (viii) higher insurance premiums in 2003 and an insurance premium adjustment in the First Quarter of 2003; (ix) 1989 personal property taxes paid in the First Quarter of 2003 in relation to Dennys- Phoenix, AZ;
(x) the Mulberry Street Grill settlement payment in February 2003; and (xi) the write-off of Popeyes 2002 and 2001 percentage rent billings in the Fourth Quarter of 2003 due to the uncertainty of collection; (xii) increased
audit fees in 2003; and (xiv) increased maintenance expenditures at the Grand Forks, ND property in 2003.

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

There were no operating write-offs for
non-collectible rents and receivables for the years ended December 31, 2005. Operating write-offs for non-collectible rents and receivables amounted to $106,100 for the years ended December 31, 2003. The write-offs are the result of tenant
defaults.

Other Income

For the years
ended December 31, 2005, 2004, and 2003 the Partnership did generate other income of approximately $37,000, $48,000 and $20,000, respectively. During January 2004 the Partnership received a one-time settlement payment of approximately $25,000
from the Bankruptcy Court in relation to the DeDan bankruptcy litigation. In the late 1980s, the Partnership leased some properties to DeDan, Inc., and the leases were guaranteed by the owner of DeDan, Dan Fore. These leases went into
default in the early 1990s and the Partnership obtained possession of the properties and re-leased them to various entities. The original lessee, DeDan and Dan Fore, filed for bankruptcy and the Partnership filed a claim in the
Bankruptcy Court for damages incurred due to the lease defaults. (See Legal Proceedings in Note 10 to Financial Statements and Part I- Item 3.)

During 2005, 2004 and 2003, revenues were generated from interest earnings and small recoveries from former General Partners. Management anticipates that such revenue types may continue to be generated until Partnership dissolution.

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 operating percentage rents represented only 22% of operating rental income for 2005. 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.



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Critical Accounting Policies

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

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

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

Impairment- 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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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  
|Reports of Independent Registered Public Accounting Firms                             |  | 26 -27
|                                                                                      | 
|Balance Sheets, December 31, 2005 and 2004                                            |  | 28 -29
|                                                                                      | 
|Statements of Income for the Years Ended December 31, 2005, 2004, and 2003            |  | 30    
|                                                                                      | 
|Statements of Partners Capital for the Years Ended December 31, 2005, 2004, and 2003 |  | 31    
|                                                                                      | 
|Statements of Cash Flows for the Years Ended December 31, 2005, 2004, and 2003        |  | 32    
|                                                                                      | 
|Notes to Financial Statements                                                         |  | 33 -50
|                                                                                      | 
|Schedule IIIReal Estate and Accumulated Depreciation, December 31, 2005              |  | 58 -59



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

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, 2005 and 2004 and the related statements of income, partners capital, and cash flows for the years
then ended. Our audits also included the 2005 and 2004 financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Partnerships management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Divall Insured Income Properties 2 Limited Partnership at December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then
ended, in conformity with U.S. generally accepted accounting principles. 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.

ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois

February 15, 2006, except for Note 3

as to which the date is February 27, 2006



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying statements of income (not presented herein), partners capital and cash
flows of Divall Insured Income Properties 2 Limited Partnership (a Wisconsin limited partnership) for the year ended December 31, 2003. These financial statements are the responsibility of the Partnerships management. Our responsibility
is to express an opinion on these financial statements based on our audit.

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

In our opinion, such financial statements present fairly, in all
material respects, the results of the Partnerships operations, its changes in partners capital and its cash flows for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States
of America.

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, 2005 and 2004

ASSETS



|                                            |  |                   |            |   |                   |   |            |  
|------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                            |  | December 31, 2005 |            |   | December 31, 2004 |  
|INVESTMENT PROPERTIES:(Note 3)              |  |                   |            |   |                   |   |            |  
|                                            |  |                  
|Land                                        |  | $                 | 4,970,156  |   |                   | $ | 5,632,736  |  
|Buildings                                   |  |                   | 8,419,840  |   |                   |   | 8,899,963  |  
|Accumulated depreciation                    |  |                   | (4,691,206 | ) |                   |   | (4,738,289 | )
|                                            |  |                   |            |   |                   |   |            |  
|Net investment properties                   |  |                   | 8,698,790  |   |                   |   | 9,794,410  |  
|                                            |  |                   |            |   |                   |   |            |  
|                                            |  |                  
|OTHER ASSETS:                               |  |                   |            |   |                   |   |            |  
|                                            |  |                  
|Cash and cash equivalents                   |  | $                 | 2,218,807  |   |                   |   | 684,586    |  
|Cash held in Indemnification Trust (Note 8) |  |                   | 398,699    |   |                   |   | 387,387    |  
|Property taxes cash escrow                  |  |                   | 17,267     |   |                   |   | 8,322      |  
|Rents and other receivables                 |  |                   | 431,118    |   |                   |   | 508,164    |  
|Property taxes receivable                   |  |                   | 6,680      |   |                   |   | 5,168      |  
|Deferred rent receivable                    |  |                   | 98,006     |   |                   |   | 104,355    |  
|Prepaid insurance                           |  |                   | 32,563     |   |                   |   | 32,387     |  
|Prepaid fees                                |  |                   | 0          |   |                   |   | 19,183     |  
|Deferred charges, net                       |  |                   | 247,399    |   |                   |   | 260,192    |  
|                                            |  |                   |            |   |                   |   |            |  
|Total other assets                          |  |                   | 3,450,539  |   |                   |   | 2,009,744  |  
|                                            |  |                   |            |   |                   |   |            |  
|Total assets                                |  | $                 | 12,149,329 |   |                   | $ | 11,804,154 |  
|                                            |  |                   |            |   |                   |   |            |  

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



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

BALANCE SHEETS

December 31,
2005 and 2004

LIABILITIES AND PARTNERS CAPITAL



|                                                         |  |                   |             |   |                   |   |             |  
|-------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                         |  | December 31, 2005 |             |   | December 31, 2004 |  
|LIABILITIES:                                             |  |                   |             |   |                   |   |             |  
|Accounts payable and accrued expenses                    |  | $                 | 58,708      |   |                   | $ | 63,366      |  
|Property taxes payable                                   |  |                   | 23,947      |   |                   |   | 48,310      |  
|Due to General Partner                                   |  |                   | 5,249       |   |                   |   | 2,653       |  
|Security deposits                                        |  |                   | 114,585     |   |                   |   | 114,585     |  
|Unearned rental income                                   |  |                   | 26,565      |   |                   |   | 37,672      |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total liabilities                                        |  |                   | 229,054     |   |                   |   | 266,586     |  
|                                                         |  |                   |             |   |                   |   |             |  
|CONTINGENT LIABILITIES: (Note 7)                         |  |                   |             |   |                   |   |             |  
|PARTNERS CAPITAL: (Notes 1, 4 and 9)                    |  |                   |             |   |                   |   |             |  
|Current General Partner -                                |  |                   |             |   |                   |   |             |  
|Cumulative net income                                    |  |                   | 242,511     |   |                   |   | 221,299     |  
|Cumulative cash distributions                            |  |                   | (99,659     | ) |                   |   | (91,175     | )
|                                                         |  |                   |             |   |                   |   |             |  
|                                                         |  |                   | 142,852     |   |                   |   | 130,124     |  
|                                                         |  |                   |             |   |                   |   |             |  
|Limited Partners (46,280.3 interests outstanding)        |  |                   |             |   |                   |   |             |  
|Capital contributions, net of offering costs             |  |                   | 39,358,468  |   |                   |   | 39,358,468  |  
|Cumulative net income                                    |  |                   | 30,374,452  |   |                   |   | 28,274,473  |  
|Cumulative cash distributions                            |  |                   | (57,115,268 | ) |                   |   | (55,385,268 | )
|Reallocation of former general partners deficit capital |  |                   | (840,229    | ) |                   |   | (840,229    | )
|                                                         |  |                   |             |   |                   |   |             |  
|                                                         |  |                   | 11,777,423  |   |                   |   | 11,407,444  |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total partners capital                                  |  |                   | 11,920,275  |   |                   |   | 11,537,568  |  
|                                                         |  |                   |             |   |                   |   |             |  
|Total liabilities and partners capital                  |  | $                 | 12,149,329  |   |                   | $ | 11,804,154  |  
|                                                         |  |                   |             |   |                   |   |             |  

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



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

STATEMENTS OF INCOME

For the Years Ended December 31, 2005, 2004, and 2003



|                                                                           |  |      |           |      |   |           |  |   |          
|-------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                                                           |  | 2005 |           | 2004 |   | 2003     
|OPERATING REVENUES:                                                        |  |      |           |      |   |           |  |   |          
|Rental income (Note 5)                                                     |  | $    | 2,017,206 |      | $ | 2,062,558 |  | $ | 2,035,630
|Lease termination fee (Note 3)                                             |  |      | 0         |      |   | 0         |  |   | 50,000   
|Property taxes reimbursements and recoveries (Note 3)                      |  |      | 34,820    |      |   | 129,015   |  |   | 0        
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OPERATING REVENUES                                                   |  |      | 2,052,026 |      |   | 2,191,573 |  |   | 2,085,630
|                                                                           |  |      |           |      |   |           |  |   |          
|EXPENSES:                                                                  |  |      |           |      |   |           |  |   |          
|Partnership management fees (Note 6)                                       |  |      | 211,567   |      |   | 206,149   |  |   | 202,049  
|Restoration fees (Note 6)                                                  |  |      | 509       |      |   | 537       |  |   | 261      
|Insurance                                                                  |  |      | 38,900    |      |   | 40,030    |  |   | 44,656   
|General and administrative                                                 |  |      | 101,151   |      |   | 80,891    |  |   | 74,067   
|Advisory Board fees and expenses                                           |  |      | 14,000    |      |   | 14,000    |  |   | 10,215   
|Real estate taxes                                                          |  |      | 0         |      |   | 67,802    |  |   | 82,716   
|Professional services                                                      |  |      | 158,082   |      |   | 159,860   |  |   | 270,390  
|Maintenance and repair expenses                                            |  |      | 2,110     |      |   | 4,117     |  |   | 25,330   
|Personal property taxes                                                    |  |      | 820       |      |   | 820       |  |   | 15,316   
|Expenses incurred due to default by lessee or vacancy                      |  |      | 0         |      |   | 0         |  |   | 4,704    
|Settlement expense (Note 3)                                                |  |      | 0         |      |   | 0         |  |   | 22,134   
|Depreciation                                                               |  |      | 249,168   |      |   | 249,169   |  |   | 249,169  
|Amortization                                                               |  |      | 12,793    |      |   | 12,794    |  |   | 12,100   
|Provision for non-collectible rents and other receivables                  |  |      | 0         |      |   | 0         |  |   | 106,104  
|Other expenses                                                             |  |      | 2,603     |      |   | 8,705     |  |   | 4,932    
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OPERATING EXPENSES                                                   |  |      | 791,703   |      |   | 844,874   |  |   | 1,124,143
|                                                                           |  |      |           |      |   |           |  |   |          
|OTHER INCOME                                                               |  |      |           |      |   |           |  |   |          
|Interest income                                                            |  |      | 18,538    |      |   | 10,512    |  |   | 13,908   
|Bankruptcy claim (Note 10)                                                 |  |      | 0         |      |   | 24,271    |  |   | 0        
|Other income                                                               |  |      | 6,000     |      |   | 660       |  |   | 45       
|Recovery of amounts previously written off (Note 2)                        |  |      | 12,723    |      |   | 13,429    |  |   | 6,514    
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OTHER INCOME                                                         |  |      | 37,261    |      |   | 48,872    |  |   | 20,467   
|                                                                           |  |      |           |      |   |           |  |   |          
|INCOME FROM CONTINUING OPERATIONS                                          |  |      | 1,297,584 |      |   | 1,395,571 |  |   | 981,954  
|                                                                           |  |      |          
|INCOME FROM DISCONTINUED OPERATIONS                                        |  |      | 823,607   |      |   | 397,102   |  |   | 602,378  
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME                                                                 |  | $    | 2,121,191 |      | $ | 1,792,673 |  | $ | 1,584,332
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME- CURRENT GENERAL PARTNER                                        |  | $    | 21,212    |      | $ | 17,927    |  | $ | 15,843   
|NET INCOME- LIMITED PARTNERS                                               |  |      | 2,099,979 |      |   | 1,774,746 |  |   | 1,568,489
|                                                                           |  |      |           |      |   |           |  |   |          
|                                                                           |  | $    | 2,121,191 |      | $ | 1,792,673 |  | $ | 1,584,332
|                                                                           |  |      |           |      |   |           |  |   |          
|PER LIMITED PARTNERSHIP INTEREST, Based on 46,280.3 interests outstanding: |  |      |           |      |   |           |  |   |          
|INCOME FROM CONTINUING OPERATIONS                                          |  | $    | 27.76     |      | $ | 29.85     |  | $ | 21.00    
|INCOME FROM DISCONTINUED OPERATIONS                                        |  |      | 17.62     |      |   | 8.50      |  |   | 12.89    
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME PER LIMITED PARTNERSHIP INTEREST                                |  | $    | 45.38     |      | $ | 38.35     |  | $ | 33.89    
|                                                                           |  |      |           |      |   |           |  |   |          

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, 2005, 2004 and 2003



|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|------------------------------------------------------------- |  | ----------------------- | ------- | ----------------------------- | ---------------- | ------- | ----- |  | - | -------------------------------------------- | - | --------------------- | - | ---------------------------- |  | - | ------------ |  | - | ----------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                              |  | 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, 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 |  
|Cash Distributions ($49.81 per limited partnership interest)  |  |                         |         |                               |                  | (7,171  | )     |  |   | (7,171                                       | ) |                       |   |                              |  |   |              |  |   | (2,305,000  | ) |  |   |          |   |  |   | (2,305,000 | )
|Net Income                                                    |  |                         | 17,927  |                               |                  |         |       |  |   | 17,927                                       |   |                       |   |                              |  |   | 1,774,746    |  |   |             |   |  |   |          |   |  |   | 1,774,746  |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2004                                  |  | $                       | 221,299 |                               | $                | (91,175 | )     |  | $ | 130,124                                      |   |                       | $ | 39,358,468                   |  | $ | 28,274,473   |  | $ | (55,385,268 | ) |  | $ | (840,229 | ) |  | $ | 11,407,444 |  
|Cash Distributions ($37.38 per limited partnership interest)  |  |                         |         |                               |                  | (8,484  | )     |  |   | (8,484                                       | ) |                       |   |                              |  |   |              |  |   | (1,730,000  | ) |  |   |          |   |  |   | (1,730,000 | )
|Net Income                                                    |  |                         | 21,212  |                               |                  |         |       |  |   | 21,212                                       |   |                       |   |                              |  |   | 2,099,979    |  |   |             |   |  |   |          |   |  |   | 2,099,979  |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2005                                  |  | $                       | 242,511 |                               | $                | (99,659 | )     |  | $ | 142,852                                      |   |                       | $ | 39,358,468                   |  | $ | 30,374,452   |  | $ | (57,115,268 | ) |  | $ | (840,229 | ) |  | $ | 11,777,423 |  
|                                                              |  |                         |         |                               |                  |         |       |  |   |                                              |   |                       |   |                              |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  

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, 2005, 2004, and 2003



|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                            |  | 2005 |            |   | 2004 |   |            | 2003 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                  |  | $    | 2,121,191  |   |      | $ | 1,792,673  |      |  | $ | 1,584,332  |  
|                                                                            |  |      |           
|Adjustments to reconcile net income to net cash from operating activities - |  |      |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                               |  |      | 271,155    |   |      |   | 274,221    |      |  |   | 296,366    |  
|Recovery of amounts previously written off                                  |  |      | (12,723    | ) |      |   | (13,429    | )    |  |   | (6,514     | )
|Provision for non-collectible rents and other receivables                   |  |      | 0          |   |      |   | 30,359     |      |  |   | 106,104    |  
|Property write-down                                                         |  |      | 0          |   |      |   | 0          |      |  |   | 48,027     |  
|Net gain on disposal of assets                                              |  |      | (668,168   | ) |      |   | (215,554   | )    |  |   | (304,373   | )
|Interest applied to Indemnification Trust account                           |  |      | (11,312    | ) |      |   | (5,065     | )    |  |   | (3,597     | )
|Decrease in Deposit- Clerk of the Court                                     |  |      | 0          |   |      |   | 0          |      |  |   | 140,000    |  
|Decrease (Increase) in rents and other receivables                          |  |      | 77,046     |   |      |   | (28,064    | )    |  |   | (15,530    | )
|(Increase) in property taxes cash escrow                                    |  |      | (8,945     | ) |      |   | (8,322     | )    |  |   | 0          |  
|(Increase) Decrease in prepaid insurance                                    |  |      | (176       | ) |      |   | (29,320    | )    |  |   | 25,872     |  
|Decrease (Increase) in prepaid fees                                         |  |      | 19,183     |   |      |   | (19,183    | )    |  |   | 0          |  
|Decrease (Increase) in deferred rent receivable                             |  |      | 6,349      |   |      |   | 850        |      |  |   | (47,850    | )
|(Increase) Decrease in property taxes receivable                            |  |      | (1,512     | ) |      |   | (5,168     | )    |  |   | 2,595      |  
|Increase (Decrease) in due to current General Partner                       |  |      | 2,596      |   |      |   | 669        |      |  |   | (1,085     | )
|(Decrease) in accounts payable and other accrued Expenses                   |  |      | (4,658     | ) |      |   | (29,802    | )    |  |   | (64,980    | )
|(Decrease) in security deposits                                             |  |      | 0          |   |      |   | (15,000    | )    |  |   | (7,000     | )
|(Decrease) Increase in property taxes payable                               |  |      | (24,363    | ) |      |   | (19,338    | )    |  |   | 70,809     |  
|(Decrease) Increase in unearned rental income                               |  |      | (11,107    | ) |      |   | 8,292      |      |  |   | (83,380    | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash from operating activities                                          |  |      | 1,754,556  |   |      |   | 1,698,819  |      |  |   | 1,739,796  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Proceeds from sale of investment properties                                 |  |      | 1,505,426  |   |      |   | 611,367    |      |  |   | 2,436,034  |  
|Payment of leasing commissions                                              |  |      | 0          |   |      |   | 0          |      |  |   | (31,920    | )
|Recoveries from former General Partner affiliates                           |  |      | 12,723     |   |      |   | 13,429     |      |  |   | 6,514      |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash from investing activities                                          |  |      | 1,518,149  |   |      |   | 624,796    |      |  |   | 2,410,628  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS USED IN FINANCING ACTIVITIES:                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Cash distributions to Limited Partners                                      |  |      | (1,730,000 | ) |      |   | (2,305,000 | )    |  |   | (4,840,000 | )
|Cash distributions to current General Partner                               |  |      | (8,484     | ) |      |   | (7,171     | )    |  |   | (6,530     | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in financing activities                                       |  |      | (1,738,484 | ) |      |   | (2,312,171 | )    |  |   | (4,846,530 | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        |  |      | 1,534,221  |   |      |   | 11,444     |      |  |   | (696,106   | )
|                                                                            |  |      |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              |  |      | 684,586    |   |      |   | 673,142    |      |  |   | 1,369,248  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                    |  | $    | 2,218,807  |   |      | $ | 684,586    |      |  | $ | 673,142    |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  

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, 2005, 2004 AND 2003

1. ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES:

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

The Partnership is currently engaged in the business of owning and operating its investment portfolio of commercial real estate properties (the Properties.)
The Properties are leased on a triple net basis to, and operated by, franchisors or franchisees of national, regional, and local retail chains under long-term leases. The lessees are primarily fast food, family style, and casual/theme restaurants,
but also include a video rental store and a pre-school. At December 31, 2005, the Partnership owned 19 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 term of the respective lease. Percentage rents are only accrued when the
tenant has reached the sales breakpoint stipulated in the lease.

Tenant accounts receivable are comprised of billed but uncollected amounts due for
monthly rents and other charges, and amounts due for scheduled rent increases for which rentals have been earned and will be collected in the future under the terms of the leases. Receivables are recorded at managements estimate of the amounts
that will be collected.

As of December 31, 2005 and 2004, there were no recorded values for allowance for doubtful accounts based on an analysis of
specific accounts and historical experience.

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 term of the lease.



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Property 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. Such 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.

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

Financial instruments that potentially subject the Partnership to significant concentrations of
credit risk consist principally of cash investments. The Partnership generally maintains cash and cash equivalents in federally insured accounts.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 2005, 2004 and 2003, the Partnership recognized income from discontinued operations of approximately $824,000, $397,000 and
$602,000, respectively. The 2005, 2004, and 2003 income from discontinued operations is attributable to the Hooters restaurant property (which was sold in December 2005), the Miami Subs property (which was sold in June 2004), the vacant South
Milwaukee, WI property (which was sold in April 2003), the Milwaukee, WI property and the Hardees restaurant property in Fond du Lac, WI (which were both sold in July 2003), and the vacant Twin Falls, ID property (which was sold in August
2003).

There were no components of property held for sale in the balance sheets for the years ended December 31,
2005 and 2004.

The components of discontinued operations included in the statements of income for the years ended December 31, 2005, 2004 and 2003
are outlined below.



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|                                          |  |      |         |      |   |         |  |   |        
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |  | 2005 |         | 2004 |   | 2003   
|Revenues                                  |  |      |         |      |   |         |  |   |        
|                                          |  |      |        
|Rental Income                             |  | $    | 168,133 |      | $ | 224,165 |  | $ | 393,964
|                                          |  |      |         |      |   |         |  |   |        
|Total Revenues                            |  |      | 168,133 |      |   | 224,165 |  |   | 393,964
|                                          |  |      |         |      |   |         |  |   |        
|Expenses                                  |  |      |         |      |   |         |  |   |        
|                                          |  |      |        
|Property Write-down                       |  |      | 0       |      |   | 0       |  |   | 48,027 
|                                          |  |      |        
|Depreciation                              |  |      | 9,194   |      |   | 12,258  |  |   | 30,836 
|                                          |  |      |        
|Amortization                              |  |      | 0       |      |   | 0       |  |   | 4,261  
|                                          |  |      |        
|Appraisals                                |  |      | 3,500   |      |   | 0       |  |   | 0      
|                                          |  |      |        
|Real Estate Taxes                         |  |      | 0       |      |   | 0       |  |   | 4,435  
|                                          |  |      |        
|Management Services                       |  |      | 0       |      |   | 0       |  |   | 8,400  
|                                          |  |      |        
|Provision for Non-collectible Receivables |  |      | 0       |      |   | 30,359  |  |   | 0      
|                                          |  |      |         |      |   |         |  |   |        
|Total Expenses                            |  |      | 12,694  |      |   | 42,617  |  |   | 95,959 
|                                          |  |      |        
|Net Gain on Sale of Properties            |  |      | 668,168 |      |   | 215,554 |  |   | 304,373
|                                          |  |      |         |      |   |         |  |   |        
|Income from Discontinued Operations       |  | $    | 823,607 |      | $ | 397,102 |  | $ | 602,378
|                                          |  |      |         |      |   |         |  |   |        

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 Quarters of 2001 and 2003, consent solicitations were circulated (the 2001 and 2003 Consents), which if approved would have authorized the sale of the
Partnerships assets and dissolution of the Partnership. A majority of the Limited Partners did not vote in favor of either the 2001 or 2003 Consents. Therefore, the Partnership continued to operate as a going concern. Another consent
solicitation was circulated during the Second Quarter of 2005, which if approved would have authorized the sale of the Partnerships assets and dissolution of the Partnership (the 2005 Consent). A majority of the Limited Partners
did not vote in favor of the 2005 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, 2005, the tax basis of the Partnerships assets exceeded the amounts reported in the accompanying financial
statements by approximately $6,877,000.



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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:



|                                          |  |      |           |   |      |   |           |      |  |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                          |  | 2005 |           |   | 2004 |   |           | 2003 | 
|Net income, per statements of income      |  | $    | 2,121,191 |   |      | $ | 1,792,673 |      |  | $ | 1,584,332 |  
|                                          |  |      |          
|Book to tax depreciation difference       |  |      | (33,560   | ) |      |   | (34,084   | )    |  |   | (37,618   | )
|                                          |  |      |          
|Book over tax gain from asset disposition |  |      | (59,817   | ) |      |   | (219,126  | )    |  |   | (261,355  | )
|                                          |  |      |          
|Straight line rent adjustment             |  |      | 6,350     |   |      |   | 850       |      |  |   | (47,850   | )
|                                          |  |      |          
|Prepaid rent                              |  |      | (11,107   | ) |      |   | 8,291     |      |  |   | (147,163  | )
|                                          |  |      |          
|Bad debt reserve/expense                  |  |      | 0         |   |      |   | (155,822  | )    |  |   | (30,589   | )
|                                          |  |      |          
|Book valuation of property write-downs    |  |      | 0         |   |      |   | 0         |      |  |   | 48,027    |  
|                                          |  |      |          
|Accrued judgment payable                  |  |      | 0         |   |      |   | 0         |      |  |   | (92,866   | )
|                                          |  |      |          
|Penalties                                 |  |      | 0         |   |      |   | 0         |      |  |   | 4,932     |  
|                                          |  |      |          
|Other, net                                |  |      | 13        |   |      |   | 13        |      |  |   | 64        |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Net income for tax reporting purposes     |  | $    | 2,023,070 |   |      | $ | 1,392,795 |      |  | $ | 1,019,914 |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |  

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 limited 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, 2005, $5,849,000 of recoveries have been received which exceeded the original estimate of $3 million. As
a result, from January 1, 1996 through December 31, 2005, the Partnership has recognized a total of $1,161,000 as income, which represents its share of the excess recovery. 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, 2005, the Partnership owned 17 fully constructed fast-food restaurants, a
video store, and a preschool. The 19 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) Kentucky Fried Chicken restaurant, one (1) Chinese Super Buffet restaurant, one (1) Blockbuster Video store (the Blockbuster lease expired January 31, 2006- see below and Part I- Item 2), one
(1) Sunrise Preschool, one (1) Panda Buffet restaurant, and one (1) Daytonas- All Sports Café. The 19 properties are located in a total of nine (9) 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.

Income from discontinued operations was approximately $824,000, $397,000 and $602,000 for the years ended December 31, 2005, 2004, and 2003, respectively. The 2005,
2004, and 2003 income from discontinued operations is attributable to the Hooters restaurant property (which was sold in December 2005), the Miami Subs property (which was sold in June 2004), the vacant South Milwaukee, WI property (which was
sold in April 2003), the Milwaukee, WI property and the Hardees restaurant property in Fond du Lac, WI (which were both sold in July 2003), and the vacant Twin Falls, ID property (which was sold in August 2003. The 2005 income from
discontinued operations included a Fourth Quarter net gain on the sale of the Hooters restaurant property of approximately $668,000. The 2004 income from discontinued operations included a Second Quarter net gain on the sale of the Miami Subs
property of approximately $211,000, a Third Quarter net gain on the sale of a parcel of land located adjacent to the former vacant Twin Falls, ID property of $5,000 (the land had no recorded value), and Second and Fourth Quarter provisions for
non-collectible rents and other receivables related to the Miami Subs property. The 2003 income from discontinued operations included 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 Second Quarter 2003 income from discontinued operations included a lease termination fee of $50,000 related to the Grand Forks, ND property and a $15,000 property write-down of
the Milwaukee, WI property to reflect the net estimated sales price, less costs to sell. 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.



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##### Table of Contents

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

Grand Forks, ND Property

On January 24, 2006, the owners of the Panda Buffet Restaurant in Grand Forks, ND gave notice to Management that they intended to exercise their purchase option in relation to the property. A sales contract was
executed on February 27, 2006 for the sale of the Grand Forks, ND property at a sales price of $525,000. Closing is anticipated to be in the First Quarter of 2006. The net book value of the property at December 31, 2005 was approximately
$470,000, which included $173,000 related to land, $268,000 related to buildings and equipment, and $18,000 related to deferred rents receivable, $16,000 related to deferred charges, net, and $5,000 related to security deposits.

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 was $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.

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 of 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 property taxes. The Partnership also paid the 2002
property 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 property taxes, as well as other damages.

Ogden, UT
property

The Blockbuster lease on the current 6,000 square foot space expired on January 31, 2006, however, Blockbuster paid February of 2006
holdover rent to the Partnership equal to the previous monthly rent of $9,250. Management is currently negotiating a renewal lease agreement with the tenant.

Hooters- Richland Hills, TX

A
sales contract was executed in October of 2005 for the sale of the property in the Fourth Quarter of 2005 at a sales price of $1,575,000. The closing date on the sale of the property was December 2005 and the net sales proceeds totaled approximately
$1,505,000. A net gain on the sale of $668,000 was recognized in the Fourth Quarter of 2005. Closing and other sale related costs amounted to $70,000, which included a sales commission paid to a General Partner affiliate totaling $47,250.



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Popeyes- Park Forest, IL

The tenant has remained current on its monthly lease obligations. Per the terms of the original lease for the Popeyes location, the tenant
(Popeyes) was (i) to timely pay as they come due all taxes charged to the property, and (ii) required to pay percentage rents equal to 8% of gross sales in excess of $619,449. Popeyes had accrued approximately
$123,000 of delinquent percentage rent payments in relation to its sales in 2001 through 2003. (Due to the uncertainty of collection, $104,000 was fully reserved in the Fourth Quarter of 2003, and $19,000 was not recognized as revenue in the Fourth
Quarter of 2003 for financial statement purposes.) In addition, the tenant failed to pay the 2002 property taxes of approximately $40,000, which were due and payable to Cook County, Illinois in 2003, as well as approximately $5,000 in assessed late
fees. In the Fourth Quarter of 2003, the Partnership accrued approximately $86,000 in property taxes, which included the 2002 property taxes and associated late fees, as well as the estimated 2003 property taxes that were to 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 was paid in February 2004. In March 2004, Management learned that the tenant had also failed to pay the $31,000 second installment
of its 2001 property taxes. The Partnership paid the 2001 delinquent property taxes, as well as approximately $10,000 in assessed late fees, in March 2004. The Partnership was reimbursed in full for the approximately $107,000 in delinquent property
taxes paid by the Partnership on Popeyes behalf (the Partnership received $25,000 in each April, May, June, and July 2004 and received the final payment of approximately $7,000 in September 2004). The second installment of property taxes
related to 2003 was paid by the Partnership in October 2004 through escrow payments received by the Partnership from Popeyes in the Third and Fourth Quarters of 2004.

A Release and Settlement Agreement was executed with Popeyes in November 2004. In settlement of all claims and disputes the following significant items were agreed to: (i) Popeyes is to make monthly
escrow property taxes payments applicable to 2004 and for future property taxes installments due throughout the remaining lease term obligation; (ii) Popeyes gross sales breakpoint was increased to $1,000,000 and therefore, percentage
rent shall be an amount equal to 8% of gross sales in excess of $1,000,000, and (iii) Popeyes delinquent percentage rents were waived.

Due to
past defaults, Popeyes 2004 estimated property taxes were prorated and accrued on a monthly basis by the Partnership. In September 2004, the Partnership began billing Popeyes monthly property taxes escrow charges. Escrow payments of
approximately $8,000 and $56,000 were received by the Partnership in the Fourth Quarter of 2004, and the First through Fourth Quarters of 2005, respectively. These payments resulted in: (i) full coverage of Popeyes 2004 first and second
installments of property taxes paid by the Partnership to the taxing authority in February and October of 2005; and (ii) a December 31, 2005 property taxes escrow cash balance of approximately $14,000 toward the 2005 first estimated
installment of approximately $28,000 which is scheduled to be paid by the Partnership in the First Quarter of 2006 (Popeyes is delinquent on approximately $5,000 of its current escrow billings.)

During 2004, property taxes escrow charges applicable to 2004 property taxes were reflected in the financial statements as escrow payments were actually received, and
were recorded as a reversal of 2004 property taxes expense equal to the amount of payment received. During 2005, property taxes escrow charges applicable to property taxes previously accrued and expensed in 2004, were reflected in the financial
statements as escrow payments were actually received, and were recorded as property taxes recovery income equal to the amount of payment received. Property taxes recovery income during 2005 totaled approximately $35,000. Due to the billing and
escrow arrangements, the 2005 estimated property taxes were not prorated and accrued on a monthly basis by the Partnership.



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4785 Merle Hay Road- Des Moines, IA

In September 2005, the Partnership paid Daytonas- All Sports Cafés (Daytonas) first installment of its 2004 property taxes, which amounted
to approximately $10,000. Daytonas reimbursed the Partnership in the Fourth Quarter of 2005. Beginning in December 2005, Management has requested that Daytonas escrow its future property taxes liabilities with the Partnership on a
monthly basis. As of December 31, 2005, escrow payments held by the Partnership totaled approximately $3,400.

In July 2004, the Partnership paid
Daytonas delinquent 2002 property taxes balance of approximately $15,000. Daytonas reimbursed the Partnership $5,000 in each of August, September and October of 2004. In the Third Quarter of 2004, due to the property taxes default,
Management requested that Daytonas escrow with the Partnership their 2003 property taxes installments which were to be due in the Fourth Quarter of 2004 and the First Quarter of 2005. Escrow payments of approximately $800 were held by the
Partnership at December 31, 2004. Daytonas met its final property taxes escrow requirement in February 2005 and the Partnership paid the property taxes installment in March 2005.

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, 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.

Former Miami Subs- Palm Beach, FL Property

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. The closing date on the sale of the property was June 2004 and the net sales proceeds totaled
approximately $606,000. A net gain on the sale of $211,000 was recognized in the Second Quarter of 2004. Closing and other sale related costs amounted to $44,000, which included sales commissions totaling $39,000, of which $19,500 was paid to a
General Partner affiliate and $19,500 was paid to a non-affiliated broker.

At the time of closing the former tenant, DiFede Finance Group
(DiFede), was delinquent $17,000 in past rent (after the application of a $15,000 security deposit). The former tenant also owed the Partnership approximately $13,360 in real estate taxes as the Partnership paid the propertys
delinquent 2003 real estate taxes in June 2004. Management continued to pursue legal remedies to collect the former tenants total past due balances. Due to the uncertainty of collection, fifty percent (50 %) of the total outstanding receivable
balance was reserved in June 2004.

In November 2004, a Settlement Agreement (Agreement) was executed with DiFede. Per the Agreement the former
tenant agreed to pay the Partnership by December 31, 2004 approximately $36,000 in past due rent, late charges, related attorney and court fees and other miscellaneous items. However, the settlement payment per the Agreement was not received by
the Partnership. Further legal action was taken by the Partnership and the Circuit Court in Broward County, Florida entered a final judgment (the Judgment) against DiFede in early January 2005, awarding approximately $42,000 in damages
to the



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Partnership. Due to the uncertainty of collection, the remaining fifty percent (50 %) of the total outstanding receivable
balance was written-off. The receivable balance and applicable allowance were removed from the balance sheet at December 31, 2004. As of December 31, 2005, Management continues legal action to collect on the judgment.

Former Twin Falls, ID property

In
August 2004, the Partnership sold a piece of land adjacent to the former Twin Falls property for $5,000. The land had no recorded value.

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.

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.

Former 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.

Former 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.

Former 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



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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. (See Legal
Proceedings in Note 10 and Part I- Item 3 for additional developments.)

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 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
$140,000 cash bond to the Partnership in April 2003. (See Legal Proceedings in Note 10 to Financial Statements and Part I- Item 3.)

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.



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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, 2005, the owners of the Panda Buffet property had an option to purchase the property at a price, which (i) exceeded the original cost of
the property less accumulated depreciation and (ii) was not less than the fair market value of the property at the time the option was granted. On January 24, 2006, the owners of the Panda Buffet Restaurant in Grand Forks, ND gave notice
to Management that they intended to exercise their purchase option in relation to the property. A sales contract was executed on February 27, 2006 for the sale of the Grand Forks, ND property at a sales price of $525,000 which was in excess of
the original cost of the property less accumulated depreciation. Closing on the property is anticipated to be during the First Quarter of 2006.

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.

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.



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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 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.



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As of December 31, 2005, the aggregate minimum operating lease payments to be received under the leases for the
Partnerships properties are as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |   |           
|2006                     |  | $ | 1,485,408 
|2007                     |  |   | 1,468,325 
|2008                     |  |   | 1,361,158 
|2009                     |  |   | 1,255,593 
|2010                     |  |   | 1,014,780 
|Thereafter               |  |   | 5,617,800 
|                         |  |   |           
|                         |  | $ | 12,203,064
|                         |  |   |           

The 2006 amount above includes the collected January of 2006 rent of $9,250 for the Blockbuster lease which
expired January 31, 2006. Management is currently negotiating a renewal lease agreement with the tenant- see Investment Properties in Note 3 and Part I- Item 2.

Percentage rentals included in rental income from operations in 2005, 2004, and 2003 (does not include income from the Hooters restaurant property sold in December 2005) were $444,298, $492,964, and $474,484,
respectively. The variance in percentage rental income is due to the fluctuation of tenant sales. At December 31, 2005 and 2004, rents and other receivables included $430,000 and $507,000, respectively, of unbilled percentage rents.

Ten (10) of the properties are leased to Wencoast Restaurants, Inc. (Wencoast), a franchisee of Wendys restaurants. Wencoast base rents
accounted for 54% of total operating base rents (does not include properties sold for 2005). The most recent audited financial statements available for Wencoast prepared by Thompson Dunavant, PLC are for the periods ended December 29, 2003 and
January 2, 2005. Those audited financial statements are attached as Exhibit 99.1 to the Report of which these Financial Statements are a part. Such audited financial statements were prepared on behalf of Wencoast and may be considered relevant
to an investor because Wencoast leases more than 20% of the Partnerships properties, both by number and asset value.

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 (Expense) of $25,000, as provided in the
Permanent Manager Agreement (PMA). The Base Fee and the Expense reimbursement are subject to increases due to increases in the Consumer Price Index. The current General Partner receives a Base Fee for managing the Partnership equal to 4%
of gross receipts and the Partnership is only responsible for its allocable share of such minimum and maximum annual amounts as indicated above (originally $159,000 minimum annual Base Fee and $13,250 Expense reimbursement). Effective March 1,
2005, the minimum annual Base Fee and the maximum Expense reimbursement increased by 2.67%, which represents the allowable annual Consumer Price Index adjustment per the PMA. Therefore, as of March 1, 2005, the minimum monthly Base Fee paid by
the Partnership was raised to $17,750 and the maximum monthly Expense reimbursement was raised to $1,432.



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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 $56,905 to date on the amounts recovered, which includes 2005, 2004 and 2003 fees of $509, $537 and $261,
respectively. The fees received from the Partnership on the amounts recovered reduce the 4% minimum fee by that same amount.

Amounts paid and or accrued
to the current General Partner and its affiliates for the years ended December 31, 2005, 2004, and 2003, are as follows. (Management fees and overhead allowances included January 2005 fees which were prepaid in December 2004 for the year ended
December 31, 2004.):



|                                         |  |                                               |         |                                               |   |                                               |  |   |        
|---------------------------------------- |  | --------------------------------------------- | ------- | --------------------------------------------- | - | --------------------------------------------- |  | - | -------
|Current General Partner                  |  | Incurred for the Year ended December 31, 2005 |         | Incurred for the Year ended December 31, 2004 |   | Incurred for the Year ended December 31, 2003
|Management fees                          |  | $                                             | 194,279 |                                               | $ | 223,437                                       |  | $ | 202,049
|Restoration fees                         |  |                                               | 509     |                                               |   | 537                                           |  |   | 261    
|Overhead allowance                       |  |                                               | 15,716  |                                               |   | 18,071                                        |  |   | 16,322 
|Sales commission                         |  |                                               | 47,250  |                                               |   | 19,500                                        |  |   | 58,000 
|Leasing commissions                      |  |                                               | 0       |                                               |   | 0                                             |  |   | 13,420 
|Reimbursement for out-of-pocket expenses |  |                                               | 9,324   |                                               |   | 8,032                                         |  |   | 5,920  
|                                         |  |                                               |        
|Cash distribution                        |  |                                               | 8,484   |                                               |   | 7,171                                         |  |   | 6,530  
|                                         |  |                                               |         |                                               |   |                                               |  |   |        
|                                         |  | $                                             | 275,562 |                                               | $ | 276,748                                       |  | $ | 302,502
|                                         |  |                                               |         |                                               |   |                                               |  |   |        

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 toward 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.



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The Trust has been fully funded with Partnership assets as of December 31, 2005. Funds are invested in U.S. Treasury
securities. In addition, $148,699 of earnings has been credited to the Trust as of December 31, 2005. The rights of the Permanent Manager to the Trust will be terminated upon the earliest to occur of the following events: (i) the written
release by the Permanent Manager of any and all interest in the Trust; (ii) the expiration of the longest statute of limitations relating to a potential claim which might be brought against the Permanent Manager and which is subject to
indemnification; or (iii) a determination by a court of competent jurisdiction that the Permanent Manager shall have no liability to any person with respect to a claim which is subject to indemnification under the PMA. At such time as the
indemnity provisions expire or the full indemnity is paid, any funds remaining in the Trust will revert back to the general funds of the Partnership.

9. FORMER GENERAL PARTNERS CAPITAL ACCOUNTS:

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

10. LEGAL PROCEEDINGS:

Former Mulberry Street Grill property

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. The Partnership was unable to proceed with the claim against National Restaurant due to the failure to locate such defendant.



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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.

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.

DeDan bankruptcy

During January
2004, the Partnership received a one-time payment of approximately $25,000 from the Bankruptcy Court in relation to bankruptcy litigation. In the late 1980s, the Partnership leased properties to DeDan, Inc., and the leases were guaranteed by
Dan Fore, the owner of DeDan, Inc. These leases went into default in the early 1990s and the Partnership obtained possession of the properties and re-leased them to various entities. The original lessee, DeDan, Inc. and Dan
Fore, filed for bankruptcy and the Partnership filed a claim in the Bankruptcy Court for damages incurred due to the lease defaults. The payment received was the result of extended litigation in the Bankruptcy Court. No additional payments are
anticipated.

Phoenix Foods Preference Claim

The trustee in the Phoenix Foods bankruptcy made a claim seeking to recover from the Partnership alleged preferential payments by Phoenix Foods to the Partnership in the amount of approximately $16,500.
The payments the trustee sought to recover were rent payments received in the ordinary course of business prior to Phoenix Foods bankruptcy. The Partnership did not believe such payments were preferential under the Bankruptcy Code and
vigorously contested such characterization. A verbal settlement of this



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claim was reached in November 2004 and the Partnership finalized such settlement in April 2005. The settlement calls for
the bankruptcy trustee to release its preference claims and the Partnership to release its claims as an unsecured creditor in the Phoenix Foods bankruptcy. Although the Partnership believes its claims are valid, the Partnership determined that the
time and cost of pursuing such claims exceeded the likely recovery given the bankrupts lack of assets from which to satisfy unsecured claims.

Former South Milwaukee, WI property

The Partnership sold real property and improvements located at 106 N. Chicago
Avenue, South Milwaukee, Wisconsin to F2BL, LLC (the Buyer) on April 17, 2003 pursuant to a Real Estate Purchase Agreement dated October 10, 2002 (the Contract). In October of 2003, the Buyer notified
the Partnership that an underground storage tank (UST) and petroleum release had been discovered on this Property. Since that time, the Buyer has removed the UST and remediated the petroleum release. A substantial amount of the
costs incurred in such efforts were paid by the Wisconsin Petroleum Environmental Clean Up Fund (the PECUF). In sporadic correspondence since the fourth quarter of 2003, the Buyer has claimed, and the Partnership has denied, that
the Partnership was responsible for payment of those costs not reimbursed by the PECUF.

On January 23, 2006, the Buyer initiated a lawsuit against
the Partnership by filing a Complaint with the Milwaukee County Circuit Court. The Complaint alleges, among other things that (i) the Borrower breached its representation in the Contract that, to the best of the Partnerships knowledge,
the Partnership was in compliance with all environmental laws, and (ii) the Partnership failed to deliver to Buyer a Phase I Environmental Assessment of the Property which had been performed in 1998. The Buyer is seeking a judgment awarding it
damages as it may prove at trial, plus its attorneys fees. Prior to filing suit, the Buyer had alleged approximately $100,000 of actual unreimbursed damages incurred in the removal of the UST and remediation of the petroleum release and
alleged consequential damages of $190,000.

Management believes that it has meritorious defenses to all of the Buyers claims and intends to defend
the lawsuit vigorously. At this point of investigating the Buyers claims, Management does not believe that a material recovery by the Buyer is probable. As of the date of the financials, the Partnership has not recorded a provision
for this lawsuit.

11. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

Quarter Ended



|                                           |  |                |         |               |   |                    |  |                   |         |  |   |          
|------------------------------------------ |  | -------------- | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | ---------
|                                           |  | March 31, 2005 |         | June 30, 2005 |   | September 30, 2005 |  | December 31, 2005
|Total Operating Revenues                   |  | $              | 406,321 |               | $ | 429,686            |  | $                 | 566,757 |  | $ | 649,262  
|Income from Continuing Operations          |  | $              | 221,604 |               | $ | 223,955            |  | $                 | 368,706 |  | $ | 483,319  
|Income (Loss) From Discontinued Operations |  | $              | 20,969  |               | $ | 23,385             |  | $                 | 63,595  |  | $ | 715,658  
|Net Income                                 |  | $              | 242,573 |               | $ | 247,340            |  | $                 | 432,301 |  | $ | 1,198,977
|Net Income per Unit                        |  | $              | 5.19    |               | $ | 5.29               |  | $                 | 9.25    |  | $ | 25.65    



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Quarter Ended



|                                           |  |                |         |               |   |                    |  |                   |         |  |   |        
|------------------------------------------ |  | -------------- | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | -------
|                                           |  | March 31, 2004 |         | June 30, 2004 |   | September 30, 2004 |  | December 31, 2004
|Total Operating Revenues                   |  | $              | 396,957 |               | $ | 500,769            |  | $                 | 619,345 |  | $ | 674,502
|Income from Continuing Operations          |  | $              | 190,253 |               | $ | 279,782            |  | $                 | 427,616 |  | $ | 497,920
|Income (Loss) From Discontinued Operations |  | $              | 38,499  |               | $ | 233,906            |  | $                 | 72,710  |  | $ | 51,987 
|Net Income                                 |  | $              | 228,752 |               | $ | 513,688            |  | $                 | 500,326 |  | $ | 549,907
|Net Income per Unit                        |  | $              | 4.89    |               | $ | 10.99              |  | $                 | 10.70   |  | $ | 11.77  

Quarter Ended



|                                           |  |                |         |               |   |                    |  |                   |         |  |   |        
|------------------------------------------ |  | -------------- | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | -------
|                                           |  | March 31, 2003 |         | June 30, 2003 |   | September 30, 2003 |  | December 31, 2003
|Total Operating Revenues                   |  | $              | 389,419 |               | $ | 437,244            |  | $                 | 599,361 |  | $ | 659,606
|Income from Continuing Operations          |  | $              | 51,215  |               | $ | 204,097            |  | $                 | 428,407 |  | $ | 298,235
|Income (Loss) from Discontinued Operations |  | $              | 63,555  |               | $ | 59,120             |  | $                 | 395,253 |  | $ | 84,450 
|Net Income                                 |  | $              | 114,770 |               | $ | 263,217            |  | $                 | 823,660 |  | $ | 382,685
|Net Income per Unit                        |  | $              | 2.45    |               | $ | 5.63               |  | $                 | 17.62   |  | $ | 8.19   

12. SUBSEQUENT EVENTS:

On February 15, 2006, the Partnership made distributions to the Limited Partners of $2,000,000 amounting to $43.21 per Interest.



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

On November 15, 2004, the registrant, Divall Insured Income Properties 2 Limited Partnership (the Company), upon approval of the
Companys general partner, The Provo Group, Inc., dismissed Deloitte & Touche LLP (D&T) as its independent auditors.

The
reports of D&T on the financial statements of the Company for the last two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the Companys two most recent fiscal years and the subsequent interim period through November 15, 2004, there have been no disagreements with D&T
on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of D&T, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports on the financial statements of the Company.

The Company engaged Altschuler, Melvoin and Glasser LLP
(AMG) as its new independent auditors as of November 15, 2004. During the two most recent fiscal years and through November 15, 2004, the Company has not consulted with AMG regarding: (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Companys financial statements, and neither a written report nor oral advice was provided to the Company concluding
there was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, or a reportable event with the
Partnerships former auditors D&T.

Item 9a. Control and Procedures

As of the end of the period covered by 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 III

Item 10. Directors and Executive Officers of the Registrant

TPG is an Illinois corporation with its principal office at 1100 Main Street, Suite 1830, in 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 55 - 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.

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. He serves as a board representative for the brokerage community.

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. Mr. Small is a Limited Partner representing DiVall 2. During the past four years
after retiring from the accounting profession, Mr. Small has been developing property on the east and west coast of Florida.



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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, 2005, 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, 2005, 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. Originally, the PMA was to govern TPGs relationship with the Partnership, DiVall Insured Income Fund Limited Partnership and DiVall Income Properties 3 Limited
Partnership (collectively, The Partnerships). Since both DiVall Insured Income Fund Limited Partnership and DiVall Income Properties 3 Limited Partnership have been dissolved, only the Partnership remains. 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 was 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 was also entitled to reimbursement for office rent and related office overhead (Expense) in the
maximum amount of $25,000 per year. The Partnership shall only be responsible for its allocable share of such minimum and maximum amounts as indicated above ($159,000 minimum annual Base Fee and $13,250 Expense 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 Expense reimbursement in an amount not to exceed the percentage increase in the



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Consumer Price Index (CPI) for the immediately preceding calendar year. Effective March 1, 2005, the
minimum annual Base Fee and the maximum Expense reimbursement increased by 2.67%, which represents the allowable annual Consumer Price Index adjustment per the PMA. Therefore, as of March 1, 2005 the minimum monthly Base Fee paid by the
Partnership was raised to $17,750 and the maximum monthly Expense reimbursement was raised to $1,432. 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 to a new expiration date of December 31, 2005. TPG extended the PMA expiration date an additional three
years in the First Quarter of 2006. The new expiration date is December 31, 2008, 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 property of the Partnership. At December 31, 2005 the Partnership had fully funded the Trust.

The Partnership paid and/or accrued the following fees and reimbursements to management and its affiliates in 2005. (Management fees and overhead allowances do not include January 2005 fees which were prepaid in
December 2004.):

The Provo Group, Inc.:



|                           |  |   |        
|-------------------------- |  | - | -------
|Management Fees            |  | $ | 194,279
|Restoration Fees           |  |   | 509    
|Sales Commission           |  |   | 47,250 
|Office Overhead Allowance  |  |   | 15,716 
|Direct Cost Reimbursements |  |   | 9,324  
|                           |  |   |        
|2005 Total                 |  | $ | 267,078
|                           |  |   |        



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Item 14. Principal Accounting Firm Fees and Services

Aggregate fees for audit and interim review services provided by the Partnerships principal accounting firm, AM&G, to the Partnership for the years ended
December 31, 2005 and 2004, amounted to $44,885 and $35,979, respectively.

AM&G had a relationship with American Express Tax and Business
Services, Inc. (TBS) from which it leased auditing staff who were full time, permanent employees of TBS and through which its partners provided non-audit services. As a result of this arrangement, AM&G had no full time employees and therefore,
none of the audit services performed were provided by permanent full-time employees of AM&G. Effective October 1, 2005, TBS was acquired by RSM McGladrey, Inc. (RSM) and AM&Gs relationship with TBS has been replaced with a similar
relationship with RSM. AM&G manages and supervises the audit and audit staff, and is exclusively responsible for the opinion rendered in connection with its examination.

Tax compliance services for 2004 were provided by TBS for which fees amounted to $19,000. Tax compliance services for 2005 were provided by RSM, for which fees amounted to $22,200.

For the years ended December 31, 2005 and 2004, AM&G, RSM and TBS did not perform any management consulting services for the Partnership.

Aggregate fees for audit and/or interim review services provided by the Partnerships previous principal accounting firm, D&T, to the Partnership for the years
ended December 31, 2005 and 2004, amounted to $1,500 and $21,000, respectively. (The year ended 2005 represented the fee for the 2003 opinion reissue and the year-ended 2004 represented the fee for the audit 2003 and 2002 opinion reissue and
the 2004 interim reviews.)



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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:

Report of Independent Registered Public Accounting Firm

Independent Auditors Report

Balance Sheets, December 31, 2005 and 2004

Statements of Income for the Years Ended December 31, 2005, 2004, and 2003

Statements of Partners Capital for the Years Ended December 31, 2005, 2004, and 2003

Statements of Cash Flows for the Years Ended December 31, 2005, 2004, and 2003

Notes to Financial Statements



|2. | Financial Statement Schedule
|-- | ----------------------------

Schedule III - Real Estate and Accumulated Depreciation, December 31, 2005

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



|3. | Listing of Exhibits
|-- | -------------------



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



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



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



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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 15, 2006 regarding the Fourth Quarter 2005 distribution.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | 99.1 | Audited Financial Statements of Wencoast Restaurants, Inc. for the fiscal years Ended December 28, 2003 and January 2, 2005, prepared by Thompson Dunavant PLC.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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.

The Registrant filed Form 8-K on
November 19, 2004

The Registrant filed Form 8-K/A on December 2, 2004



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION

DECEMBER 31, 2005



|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     
|----------------------------- |  | ------------ | - | --------------------------- | - | ------------------------- |  | -------------------------------------------- | --------- | ---- | - | ------------------------- |  | ----- | --------- | ------------------------ | - | -------------------- |  | ------------- | ---------- | -------------------------------------------------------------------------------- | - | --------- |  | ---- |  | -------- |  | ----
|                              |  |              |   | 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    |                                                                                  | $ | 263,119   |  |     |  | 6/15/88  |  | 31.5
|Phoenix, Arizona (1)          |  |              |  |                             |   | 482,383                   |  |                                              | 490,343   |      |   |                          |  |       | 453,433   |                          |   | 428,676              |  |               | 882,109    |                                                                                  |   | 265,978   |  |     |  | 8/15/88  |  | 31.5
|Santa Fe, New Mexico          |  |              |  |                             |   |                          |  |                                              | 451,230   |      |   |                          |  |       |          |                          |   | 451,230              |  |               | 451,230    |                                                                                  |   | 247,327   |  |     |  | 10/10/88 |  | 31.5
|Augusta, Georgia (2)          |  |              |  |                             |   | 215,416                   |  |                                              | 434,178   |      |   |                          |  |       | 213,226   |                          |   | 434,177              |  |               | 647,403    |                                                                                  |   | 246,415   |  |     |  | 12/22/88 |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,619                   |  |                                              | 323,162   |      |   |                          |  |       | 273,619   |                          |   | 323,162              |  |               | 596,781    |                                                                                  |   | 183,409   |  |     |  | 12/22/88 |  | 31.5
|Park Forest, Illinois         |  |              |  |                             |   | 187,900                   |  |                                              | 393,038   |      |   |                          |  |       | 187,900   |                          |   | 393,038              |  |               | 580,938    |                                                                                  |   | 223,066   |  |     |  | 12/22/88 |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 402,549                   |  |                                              | 373,795   |      |   |                          |  |       | 402,549   |                          |   | 373,795              |  |               | 776,344    |                                                                                  |   | 210,895   |  |     |  | 2/21/89  |  | 31.5
|Augusta, Georgia              |  |              |  |                             |   | 332,154                   |  |                                              | 396,659   |      |   |                          |  |       | 332,154   |                          |   | 396,659              |  |               | 728,813    |                                                                                  |   | 223,795   |  |     |  | 2/21/89  |  | 31.5
|Mt. Pleasant, South Carolina  |  |              |  |                             |   | 286,060                   |  |                                              | 294,878   |      |   |                          |  |       | 286,060   |                          |   | 294,878              |  |               | 580,938    |                                                                                  |   | 166,370   |  |     |  | 2/21/89  |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,625                   |  |                                              | 254,500   |      |   |                          |  |       | 273,625   |                          |   | 254,500              |  |               | 528,125    |                                                                                  |   | 143,588   |  |     |  | 2/21/89  |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 178,521                   |  |                                              | 455,229   |      |   |                          |  |       | 178,521   |                          |   | 455,229              |  |               | 633,750    |                                                                                  |   | 256,841   |  |     |  | 3/14/89  |  | 31.5
|Des Moines, Iowa (1)          |  |              |  |                             |   | 164,096                   |  |                                              | 448,529   |      |   | 287,991                   |  |       | 161,996   |                          |   | 551,056              |  |               | 713,052    |                                                                                  |   | 335,687   |  | 1989 |  | 8/1/89   |  | 31.5
|North Augusta, South Carolina |  |              |  |                             |   | 250,859                   |  |                                              | 409,297   |      |   |                          |  |       | 250,859   |                          |   | 409,297              |  |               | 660,156    |                                                                                  |   | 215,748   |  |     |  | 12/29/89 |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 286,068                   |  |                                              | 294,870   |      |   |                          |  |       | 286,068   |                          |   | 294,870              |  |               | 580,938    |                                                                                  |   | 155,431   |  |     |  | 12/29/89 |  | 31.5
|Martinez, Georgia             |  |              |  |                             |   | 266,175                   |  |                                              | 367,575   |      |   |                          |  |       | 266,175   |                          |   | 367,575              |  |               | 633,750    |                                                                                  |   | 193,756   |  |     |  | 12/29/89 |  | 31.5
|Grand Forks, North Dakota (3) |  |              |  |                             |   | 172,701                   |  |                                              | 566,674   |      |   |                          |  |       | 172,701   |                          |   | 566,674              |  |               | 739,375    |                                                                                  |   | 298,704   |  |     |  | 12/28/89 |  | 31.5
|Phoenix, Arizona              |  |              |  |                             |   | 241,371                   |  |                                              | 843,132   |      |   |                          |  |       | 241,371   |                          |   | 843,133              |  |               | 1,084,503  |                                                                                  |   | 444,431   |  |     |  | 1/1/90   |  | 31.5
|Ogden, Utah                   |  |              |  |                             |   | 194,350                   |  |                                              | 452,075   |      |   |                          |  |       | 194,350   |                          |   | 452,075              |  |               | 646,425    |                                                                                  |   | 255,433   |  |     |  | 1/31/90  |  | 31.5
|Columbus, Ohio                |  |              |  |                             |   | 351,325                   |  |                                              | 708,141   |      |   |                          |  |       | 351,325   |                          |   | 708,140              |  |               | 1,059,466  |                                                                                  |   | 361,212   |  |     |  | 6/1/90   |  | 31.5
|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     
|                              |  | $            | 0 |                             | $ | 5,003,396                 |  | $                                            | 8,378,981 |      | $ | 287,991                   |  | $     | 4,970,156 |                          | $ | 8,419,840            |  | $             | 13,389,996 |                                                                                  | $ | 4,691,206 |  |      |  |          |  |     
|                              |  |              |   |                             |   |                           |  |                                              |           |      |   |                           |  |       |           |                          |   |                      |  |               |            |                                                                                  |   |           |  |      |  |          |  |     

---

|(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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | In January of 2006 the owners of the Panda Buffet restaurant notified Management that they intended to exercise their purchase option related to the Grand Forks, ND property. A
sales contract was executed in February of 2006 at a sales price of $525,000 and closing is anticipated to be in the First Quarter of 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2005

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



|                                                |  |                              |            |   |                              |   |                          |  |                                                |  |   |                              |   |  |   |          
|----------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | - | ------------------------ |  | ---------------------------------------------- |  | - | ---------------------------- | - |  | - | ---------
|Investment in Real Estate                       |  | Year Ended December 31, 2005 |            |   | Year Ended December 31, 2004 |   | Accumulated Depreciation |  | Year Ended December 31, 2005                   |  |   | Year Ended December 31, 2004
|Balance at beginning of year                    |  | $                            | 14,532,699 |   |                              | $ | 14,532,699               |  | Balance at beginning of year                   |  | $ | 4,738,289                    |   |  | $ | 4,476,862
|                                                |  |                              |            |   |                             
|Additions:                                      |  |                              | 0          |   |                              |   | 0                        |  | Additions charged to costs and expenses        |  |   | 258,362                      |   |  |   | 261,427  
|                                                |  |                              |            |   |                             
|Deletions:                                      |  |                              |            |   |                              |   |                          |  |                                                |  |   |                              |   |  |   |          
|                                                |  |                              |            |   |                             
|Hooters- N. Richland Hills, Texas Disposal (1) |  |                              | (1,142,703 | ) |                              |   | 0                        |  | Hooters-N. Richland Hills, Texas Disposal (1) |  |   | (305,445                     | ) |  |   | 0        
|                                                |  |                              |            |   |                              |   |                          |  |                                                |  |   |                              |   |  |   |          
|Balance at end of year                          |  | $                            | 13,389,996 |   |                              | $ | 14,532,699               |  | Balance at end of year                         |  | $ | 4,691,206                    |   |  | $ | 4,738,289
|                                                |  |                              |            |   |                              |   |                          |  |                                                |  |   |                              |   |  |   |          

---

|(1) | This property was sold in December of 2005.
|--- | -------------------------------------------



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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 22, 2006                        

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 22, 2006                                                                



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