##### Table of Contents



FORM 10-K





UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

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

For the fiscal year ended December 31, 2007

OR



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

For the transition period from  to

Commission file number 0-17686





DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

(Exact name
of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Wisconsin                                                      |  | 39-1606834                          
|(State or other jurisdiction of 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)

Securities registered pursuant to Section 12(b) of the Act:

None

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

Limited Partnership Interests





Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 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, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈ |  | Smaller Reporting Company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange 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: 50-51







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##### Table of Contents

PART I

Item 1. Business

Background

The Registrant, DiVall Insured Income Properties 2 Limited Partnership (the Partnership), is a limited partnership organized under the Wisconsin Uniform
Limited Partnership Act pursuant to an Agreement of Limited Partnership dated as of November 18, 1987, and amended as of November 25, 1987, February 20, 1988, June 21, 1988, February 8, 1993, May 26,
1993 and June 30, 1994 (collectively, the Partnership Agreement). As of December 31, 2007, the Partnership consisted of one General Partner (Management) and 1,984 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 of $39,358,468, after volume discounts and offering costs.

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, 2007, the Partnership owned 18 properties with specialty leasehold improvements in five (5) of these properties, as noted in Item 2- Properties. During the
Second Quarters of 2001, 2003, 2005 and 2007, consent solicitations were circulated (the 2001, 2003, 2005 and 2007 Consents, respectively), 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, 2003, 2005 or 2007 Consents. 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 or renegotiate the lease for 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, 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 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.



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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 1a. Risk Factors

General Risks Associated With Real Estate Ownership

The Partnership is subject to all of the general risks associated with the ownership of real estate. In particular, the Partnership faces
the risk that rental revenue from its Properties may be insufficient to cover all operating expenses. Additional real estate ownership risks include:



| |  |  | Adverse changes in general or local economic conditions;
| | - |  | --------------------------------------------------------



| |  |  | Changes in supply of, or demand for, similar or competing properties;
| | - |  | ---------------------------------------------------------------------



| |  |  | Changes in interest rates and operating expenses;
| | - |  | -------------------------------------------------



| |  |  | Competition for tenants;
| | - |  | ------------------------



| |  |  | Changes in market rental rates;
| | - |  | -------------------------------



| |  |  | Inability to lease properties upon termination of existing leases;
| | - |  | ------------------------------------------------------------------



| |  |  | Renewal of leases at lower rental rates;
| | - |  | ----------------------------------------



| |  |  | Inability to collect rents from tenants due to financial hardship, including bankruptcy;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Uninsured property liability;
| | - |  | -----------------------------



| |  |  | Property damage or casualty losses;
| | - |  | -----------------------------------



| |  |  | Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acts of terrorism and war; and
| | - |  | ------------------------------



| |  |  | Acts of God and other factors beyond the control of our management.
| | - |  | -------------------------------------------------------------------



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Risks Related to Tenants

The Partnerships return on its investment will be derived principally from rental payments received from its tenants. Therefore, the Partnerships return on its investment is largely dependent upon the
business success of its tenants. The business success of the Partnerships individual tenants 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 tenant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 tenants of Partnership properties. Finally, despite an individual tenant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 tenant 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.

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-negotiate leases or 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.

Illiquidity of Real Estate Investments

Because real estate investments are relatively
illiquid, the Partnership is limited in its ability to quickly sell one or more Properties in response to changing economic, financial and investment conditions. The real estate market is affected by many forces, such as
general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond the Partnerships control. There is no way to predict whether the Partnership will
be able to sell any property for a price or on terms that would be acceptable to the Partnership. It is also impossible to predict the length of time needed to find a willing purchaser and to close the sale of a
Property.

The Partnership May Be Subject to Unknown Environmental Liabilities

Investments in real property can create a potential for environmental liability. An owner of property can face liability for environmental contamination created by the
presence or discharge of hazardous substances on the property. The Partnership can face such liability regardless of the knowledge of the contamination; the timing or cause of the contamination; or the party
responsible for the contamination of the property.



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The presence of hazardous substances on a property may adversely affect the Partnerships ability to sell
that property and it may incur substantial remediation costs. Although the Partnership leases generally require tenants to operate in compliance with all applicable federal, state and local environmental laws, ordinances and
regulations, and to indemnify the Partnership against any environmental liabilities arising from the tenants activities on the property, the Partnership could nevertheless be subject to strict liability by virtue of its ownership interest.
There also can be no assurance that tenants could or would satisfy their indemnification obligations under their leases. The discovery of environmental liabilities attached to the Partnerships Properties could have an adverse effect on the
Partnerships results of operations, financial condition or ability to make distributions to limited partners.

Item 1b. Unresolved Staff
Comments

None.

Item 2. Properties

Original lease terms for the majority of the investment properties were 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.

The Partnership owned the following Properties (including
specialty leasehold improvements for use in some of these properties and properties held for sale) as of December 31, 2007:



|                   |  |                                                              |  |                              |  |                   |           |     |                 |   |                     |  |                |  |      |  
|------------------ |  | ------------------------------------------------------------ |  | ---------------------------- |  | ----------------- | --------- | --- | --------------- | - | ------------------- |  | -------------- |  | ---- | -
|Acquisi- tion Date |  | Property Name & Address                                      |  | Lessee                       |  | PurchasePrice (1) |           |     | Rental PerAnnum |   | LeaseExpirationDate |  | RenewalOptions | 
|06/15/88           |  | Chinese Super Buffet 8801 N 7th St Phoenix, AZ               |  | Jun Cheng Pan & Yhen Yan Guo |  | $                 | 1,087,137 | (2) |                 | $ | 71,500              |  | 1-20-2013      |  | (3   | )
|08/15/88           |  | Dennys (12) 2360 W Northern Ave Phoenix, AZ                 |  | First Foods, Inc.            |  |                   | 1,155,965 | (2) |                 |   | 72,000              |  | 04-30-2009     |  | 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 (7) 1721 Sam Rittenburg Blvd Charleston, SC          |  | WenCoast Restaurants         |  |                   | 596,781   |     |                 |   | 76,920              |  | 11-6-2016      |  | None |  
|12/22/88           |  | Wendys (6) 3013 Peach Orchard Rd Augusta, GA                |  | Wendgusta, LLC               |  |                   | 649,594   |     |                 |   | 86,160              |  | 11-6-2021      |  | (10  | )
|12/29/88           |  | Popeyes (11) 2562 Western Ave Park Forest, IL               |  | Quality Foods I, LLC.        |  |                   | 580,938   |     |                 |   | 77,280              |  | 12-31-2009     |  | None |  
|02/21/89           |  | Wendys (6) 1901 Whiskey Rd Aiken, SC                        |  | Wendgusta, LLC               |  |                   | 776,344   |     |                 |   | 96,780              |  | 11-6-2021      |  | (10  | )



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|         |  |                                                              |  |                          |  |   |            |     |  |   |           |  |            |  |      |  
|-------- |  | ------------------------------------------------------------ |  | ------------------------ |  | - | ---------- | --- |  | - | --------- |  | ---------- |  | ---- | -
|02/21/89 |  | Wendys (6) 1730 Walton Way Augusta, GA                      |  | Wendgusta, LLC           |  |   | 728,813    |     |  |   | 96,780    |  | 11-6-2021  |  | (10  | )
|02/21/89 |  | Wendys (7) 347 Folly Rd Charleston, SC                      |  | WenCoast Restaurants     |  |   | 528,125    |     |  |   | 70,200    |  | 11-6-2016  |  | None |  
|02/21/89 |  | Wendys (7) 361 Hwy 17 Bypass Mount Pleasant, SC             |  | WenCoast Restaurants     |  |   | 580,938    |     |  |   | 77,280    |  | 11-6-2016  |  | None |  
|03/14/89 |  | Wendys (6) 1004 Richland Ave Aiken, SC                      |  | Wendgusta, LLC           |  |   | 633,750    |     |  |   | 90,480    |  | 11-6-2016  |  | None |  
|04/20/89 |  | Daytonas All Sports Café 4875 Merle Hay Des Moines, IA (13) |  | Karl Shaen Valderrama    |  |   | 897,813    | (2) |  |   | 12,000    |  | 02-28-08   |  | None |  
|12/28/89 |  | Panda Buffet 2451 Columbia Rd Grand Forks, ND                |  | Panda Buffet, Inc.       |  |   | 845,000    | (2) |  |   | 37,000    |  | 6-30-2013  |  | (5   | )
|12/29/89 |  | Wendys (6) 1717 Martintown Rd N Augusta, SC                 |  | Wendgusta, LLC           |  |   | 660,156    |     |  |   | 87,780    |  | 11-6-2021  |  | (10  | )
|12/29/89 |  | Wendys (7) (8) 1515 Savannah Hwy Charleston, SC             |  | WenCoast Restaurants     |  |   | 580,938    |     |  |   | 77,280    |  | 11-6-2016  |  | None |  
|12/29/89 |  | Wendys (6) 3869 Washington Rd Martinez, GA                  |  | Wendgusta, LLC           |  |   | 633,750    |     |  |   | 84,120    |  | 11-6-2016  |  | None |  
|01/31/90 |  | Blockbuster Video (9) 336 E 12th St Ogden, UT                |  | Blockbuster Videos, Inc. |  |   | 646,425    |     |  |   | 108,000   |  | 01-31-2009 |  | None |  
|05/31/90 |  | Applebees 2770 Brice Rd Columbus, OH                        |  | Thomas & King, Inc.      |  |   | 1,434,434  | (2) |  |   | 135,780   |  | 10-31-2009 |  | None |  
|         |  |                                                              |  |                          |  |   |            |     |  |   |           |  |            |  |      |  
|         |  |                                                              |  |                          |  | $ | 13,468,131 |     |  | $ | 1,417,340 |  |            |  |      |  
|         |  |                                                              |  |                          |  |   |            |     |  |   |           |  |            |  |      |  



Footnotes:



|(1) | Purchase price includes all costs incurred to acquire the property.
|--- | -------------------------------------------------------------------

|(2) | Purchase price includes cost of specialty leasehold improvements.
|--- | -----------------------------------------------------------------

|(3) | The tenant has two five year lease renewal options available.
|--- | -------------------------------------------------------------

|(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 tenant has three five year lease renewal options available.
|--- | ---------------------------------------------------------------

|(6) | Six (6) of the 18 properties owned by the Partnership as of December 31, 2007 were leased to Wendgusta, LLC (Wendgusta). Since more than 20% of the
Partnerships properties, both by asset value and number, are leased to Wendgusta, the financial status of the tenant may be considered relevant to investors. Wendgusta was formed during 2007, therefore audited financial statements are not yet
available as of December 31, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Four (4) of the 18 properties owned by the Partnership as of December 31, 2007 were leased to Wencoast Restaurants, Inc. (Wencoast). The most
recent audited financial statements available for Wencoast, prepared by Thompson Dunavant, PLC are for the periods ended January 2, 2006 and December 31,
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 2006. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | A sales contract was executed in August of 2007 for the sale of the property at a sales price of $1.17 million. Management anticipates closing to be during the First Quarter of
2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | A new listing agreement for the sale of the property was executed with an unaffiliated broker in December of 2007 (current asking price is $1,250,000). A one year lease extension
was executed with Blockbuster in February of 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | The tenant has one five year lease renewal option available.
|---- | ------------------------------------------------------------

|(11) | A small strip of the Park Forest, IL land was sold to the Illinois Department of Transportation to be used as street right of way in December of 2007. Net sale proceeds amounted to
approximately $34,000.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | A listing agreement for the sale of the property was executed with an unaffiliated broker in January of 2008 (current asking price is $975,000).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | The lease on the property expires on February 28, 2008. Management is currently negotiating with the tenant to extend the lease.
|---- | --------------------------------------------------------------------------------------------------------------------------------

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

Dennys- Phoenix, Arizona Property

A listing agreement for the sale of the property was executed with an unaffiliated broker in January of 2008 (current asking price is $975,000). The terms of the listing agreement includes a 6% sales commission to be paid at closing, which
includes a 3% commission payable to a General Partner affiliate. The property was reclassified to properties held for sale in January of 2008. The net book value of the property at December 31, 2007, was approximately $606,000, which included
$453,000 related to land, $140,000 related to buildings and improvements, $3,000 related to deferred rent, $10,000 related to rent and other receivables.

The Dennys lease on the Phoenix, AZ property expired on October 31, 2007. During the Fourth Quarter of 2007, Management executed a lease term extension of an additional 18 months. The new lease will expire April 30, 2009 and
the first-year base rent will total $72,000. A leasing commission of approximately $3,200 was paid to a General Partner affiliate during the Fourth Quarter of 2007 in relation to the lease extension.

Wendys- 1515 Savannah Hwy., Charleston, SC Property

A letter of intent to enter into a purchase agreement for the sale of the property was executed in late March of 2007 and the property was reclassified to property held for sale. A sales contract was then executed on
August 21, 2007 for the sale of the property to an unaffiliated party for $1.17 million. Total sales commissions of 6% are anticipated to be paid upon the sale, which includes a 3% commission to a General Partner affiliate. Closing is
anticipated to be during the First Quarter of 2008. The net book value of the property at December 31, 2007, classified as property held for sale in the financial statements, was approximately $420,000, which included $286,000 related to land,
$128,000 related to buildings and improvements, $1,000 related to deferred rent, $16,000 related to deferred charges, and $11,000 related to security deposits and unearned rental income.

The tenant, Wencoast Restaurants, Inc. (Wencoast), ceased operations at the property effective September 30, 2007, but will continue to be liable for its monthly rent obligations per the lease
agreement until the sale of the property.

Blockbuster- Ogden, UT Property

A listing agreement was executed with an unaffiliated broker in May of 2007 and the property was reclassified to property held for sale. Upon termination of the
agreement, a new listing agreement for the sale of the property



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was executed with an unaffiliated broker in December of 2007 (current asking price is $1.25 million). The terms of the listing agreement includes a 6% sales
commission to be paid at closing, which includes a 2-3% commission payable to a General Partner affiliate. The net book value of the property at December 31, 2007, classified as property held for sale in the financial statements, was
approximately $396,000, which included $194,000 related to land, $201,000 related to buildings and improvements (included approximately $21,000 in roofing capital improvements incurred in the Second Quarter of 2007), and $1,000 related to deferred
charges.

The Blockbuster lease on the current 6,000 square foot space previously expired on January 31, 2006. During lease renewal negotiations with
Management, the tenant maintained possession of the property and paid the Partnership holdover rent for February and March of 2006. In April of 2006, Management executed a two-year renewal lease agreement with the tenant, retroactive to
February 1, 2006, with an expiration date of January 31, 2008. The first base year rent totaled approximately $108,000. Commissions related to the lease renewal execution totaled approximately $13,000, ($6,500 paid to a non-affiliated
broker and $6,500 paid to a General Partner affiliate) during the Quarter ended March 31, 2006

In February of 2008, Management executed a one-year
lease extension agreement with Blockbuster. The lease is set to expire on January 31, 2009 and includes annual base rent of $108,000 and a rent abatement of $6,000 for the month of February 2008. Commissions of approximately $5,000 ($2,000 to a
non-affiliated broker and $3,000 to a General Partner affiliate) are anticipated to be paid during the First Quarter of 2008.

Popeyes- Park Forest, IL Property

As of December 31, 2007, the tenant was current on its current rent and property tax escrow
monthly obligations and had a $25,000 property tax escrow cash balance held with the Partnership.

A small strip of the Park Forest, IL land was sold to
the Illinois Department of Transportation to be used as street right of way in December of 2007. Net sale proceeds amounted to approximately $34,000. A net gain on the sale of $25,000 was recognized in the Fourth Quarter of 2007.

In the Second Quarter of 2006, Management defaulted Popeyes for failure to meet its lease obligations, and filed for possession of the Park Forest property in the
Cook County Judicial Court. The Partnership continued the pursuit of all legal remedies available to recover possession and terminate the Lease. However, a Settlement Agreement (Settlement) was executed on May 1, 2007, and it was
agreed to by all parties that Popeyes would pay its past due rent and property taxes escrow obligations. In accordance with the Settlement, the Partnership received a payment for the approximately $10,000 of past due property tax escrow on
May 3, 2007 and the three equal installment payments of $4,233 related to the past due rent obligations on May 8, June 20, 2007, and July 17, 2007. The Settlement reaffirms that Popeyes remains responsible for monthly
rent obligations and property tax through the remainder of its Lease (expires December 31, 2009).

Due to past defaults by Popeyes, the 2004
property tax escrow charges applicable to 2004 property tax were reflected in the financial statements as escrow payments were actually received, and were recorded as a reversal of 2004 property tax expense equal to the amount of payment received.
The Partnership recognized property tax recovery income of approximately $129,000 during 2004, which related to Popeyes reimbursement to the Partnership of defaulted property tax and penalties that had been previously expensed and paid by the
Partnership. During 2005, property tax escrow charges applicable to property tax previously accrued and expensed in 2004, were reflected in the financial statements as escrow payments were actually received, and were recorded as property tax
recovery income equal to the amount of payment received. Property tax recovery income during 2005 totaled approximately $35,000. Due to Popeyes full reimbursement to the Partnership for past property tax paid on the tenants behalf, and
Popeyes agreement to meet billing and escrow obligations, the 2005, 2006 and 2007 estimated property tax were not expensed and accrued as of December 31, 2005, 2006 and 2007, respectively.



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Sunrise Preschool- Phoenix, AZ Property

A listing agreement for the sale of the property was executed in June of 2006. In early January of 2007, a sales contract was executed for the sale of the property for
$1.6 million. Per notice from the Partnership, tenant, Borg Holdings, Inc. (Borg), had 30 days from January 16, 2007, to act upon their right of first refusal to purchase the Phoenix property, since a separate buyer entered into a
real estate contract for the purchase of the property. On January 29, 2007, Borg informed the Partnership that they would be exercising their right to accept the terms of the contract for the sale of the Phoenix, AZ property. The closing date
on the sale of the property was April 23, 2007 and the net sales proceeds totaled approximately $1.49 million. A net gain on the sale of approximately $862,000 was recognized in the Second Quarter of 2007. Closing and other sale related costs
amounted to approximately $111,000 and included a $48,000 sales commission paid to a General Partner affiliate.

Wendys- 1004 Richland Avenue, Aiken, SC Property

The Richland Avenue property lease with Wencoast Restaurants, Inc.
(Wencoast), a franchisee of Wendys restaurants, was assigned to Wendgusta, LLC (Wendgusta), a franchisee of Wendys restaurants on July 2, 2007. The terms of the lease remain the same, including the expiration
date of November 6, 2016.

Wendys- 3869 Washington Road, Martinez, GA Property

The Washington Road property lease with Wencoast was assigned to Wendgusta on July 2, 2007. The terms of the lease remain the same, including the expiration date of
November 6, 2016.

Wendys- 1717 Martintown Road, N Augusta, SC Property

The Martintown Road property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the
assignment agreement, the monetary lease obligations remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible
for making $180,000 in capital improvement expenditures to the property by December 2009. A leasing commission of approximately $13,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Wendys- 1730 Walton Way, Augusta, GA Property

The Walton Way property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the assignment agreement, the monetary lease obligations
remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible for making $180,000 in capital improvement expenditures
to the property by December 2009. A leasing commission of approximately $15,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Wendys- 3013 Peach Orchard, Augusta, GA Property

The Peach Orchard property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the assignment agreement, the monetary lease obligations
remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible for making $180,000 in capital improvement expenditures
to the property by December 2009. A leasing commission of approximately $13,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.



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##### Table of Contents

Wendys- 1901 Whiskey Road, Aiken, SC Property

The Whiskey Road property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the
assignment agreement, the monetary lease obligations remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible
for making $180,000 in capital improvement expenditures to the property by December 2009. A leasing commission of approximately $15,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Daytonas All Sports Café- Des Moines, IA Property

The Daytonas All Sports Café (Daytonas) lease expires on February 28, 2008. Management is currently negotiating with tenant to extend the lease.

Beginning in December of 2005, Management requested that Daytonas escrow its future property tax liabilities with the Partnership on a monthly basis.
Daytonas remains current on its property tax escrow obligations and as of December 31, 2007, escrow payments held by the Partnership totaled approximately $16,000.

Former Miami Subs- Palm Beach, FL Property

The Palm Beach, FL property was sold in June of 2004. 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 property tax as the Partnership paid the propertys delinquent 2003 property tax in June of 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 of 2004.

In
November of 2004, a Settlement Agreement (DiFede Agreement) was executed with DiFede. Per the DiFede 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 DiFede 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 of 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. Throughout 2005 Management continued their pursuit of legal action to collect
the Judgment. In satisfaction of the Judgment (which was recorded in the Circuit Court in March of 2006), the Partnership received $25,000 from Difede in the First Quarter of 2006.

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. Although closing was anticipated to be in the First Quarter of 2006, the sale was not consummated and the sales contract expired in late March of 2006. The original lease,
which is set to expire in 2013, remains effective and includes the tenants option to purchase the property.

Former Hooters- Richland Hills, TX Property

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 of 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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##### Table of Contents

Item 3. Legal Proceedings

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 called 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 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 beginning in the Fourth Quarter of 2003, the Buyer claimed, and the Partnership 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 alleged, among other things that (i) the Partnership 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 sought a judgment awarding it damages to be proven at trial, plus its attorneys fees. Prior to filing suit,
the Buyer 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. The Court set certain deadlines which included the
completion of discovery and the filing of dispositive motions by February 20, 2007.

In September of 2006, Management and the Buyer entered into a
Mutual Release of All Claims Agreement (F2BL Agreement). It is understood and agreed that the F2BL Agreement is a compromise of a doubtful and disputed claim, and that liability is expressly denied by the parties released. Pursuant to
this F2BL Agreement the Partnership paid the Buyer $25,000 in settlement costs. Management believes that it had meritorious defenses to all of the Buyers claims and did not believe that a material recovery by the Buyer was
probable. However, the Partnership determined that the time and cost to vigorously defend such litigation would exceed the cost of the settlement achieved.

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, 2007, there were 1,984 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 2007 and 2006, $2,875,000 and $3,100,000, respectively, were distributed in
the aggregate to the Limited Partners. The General Partner received aggregate distributions of $8,444 and $4,973 in 2007 and 2006, 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, 2007, 2006, 2005, 2004, and 2003



|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                    |  | 2007 |            | 2006 |   | 2005       |  | 2004 |            | 2003
|Total Operating Revenue                             |  | $    | 1,704,4486 |      | $ | 1,681,706  |  | $    | 1,718,858  |      | $ | 1,855,487  |  | $ | 1,738,342 
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Income from Continuing Operations                   |  | $    | 1,028,114  |      | $ | 959,772    |  | $    | 1,016,400  |      | $ | 1,109,572  |  | $ | 686,057   
|Income from Discontinued Operations                 |  | $    | 1,082,888  |      |   | 283,461    |  |      | 1,104,791  |      |   | 683,101    |  |   | 898,275   
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Net Income                                          |  | $    | 2,111,002  |      | $ | 1,243,233  |  | $    | 2,121,191  |      | $ | 1,792,673  |  | $ | 1,584,332 
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Net Income per Limited Partner Interest             |  | $    | 45.16      |      | $ | 26.59      |  | $    | 45.38      |      | $ | 38.35      |  | $ | 33.89     
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Total Assets                                        |  | $    | 9,585,612  |      | $ | 10,325,153 |  | $    | 12,149,329 |      | $ | 11,804,154 |  | $ | 12,398,831
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Total Partners Capital                             |  | $    | 9,286,093  |      | $ | 10,058,535 |  | $    | 11,920,275 |      | $ | 11,537,568 |  | $ | 12,057,066
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           
|Cash Distributions per Limited Partnership Interest |  | $    | 62.12      |      | $ | 66.98      |  | $    | 37.38      |      | $ | 49.81      |  | $ | 104.58    
|                                                    |  |      |            |      |   |            |  |      |            |      |   |            |  |   |           



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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 held by the
Partnership at December 31, 2007 (does not include properties held for sale as of December 31, 2007) were originally purchased at a price, including acquisition costs, of approximately $12,240,768.

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, 2007, the Partnership owned properties containing 17 fully constructed
fast-food restaurants, and a video store, (all of which are owned and operated by entities unaffiliated with the Partnership). The 18 properties are composed of the following: ten (10) Wendys restaurants (the 1515 Savannah Hwy.,
Charleston, SC property was reclassified to property held for sale in March of 2007), 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) Panda Buffet restaurant, one (1) Daytonas- All Sports Café, and one (1) Blockbuster Video store (reclassified to property held for sale in
May of 2007). The 18 properties are located in a total of nine (9) states.

Six (6) of the eighteen (18) properties owned as of
December 31, 2007 were leased to Wendgusta. LLC (Wendgusta). 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. Wendgusta was formed during 2007, therefore audited financial statements are not yet available as of December 31, 2007.

Four (4) of the eighteen (18) properties owned as of December 31, 2007 were 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. At the request of the Partnership, Wencoast provided it with copies of Wencoasts most recent available audited financial
statements for the periods ended January 1, 2006 and December 31, 2006. Those audited financial statements are attached to the December 31, 2007 Annual Report 10-K as Exhibit 99.1. These financial statements were prepared by
Wencoasts auditors. The Partnership has no rights to audit Wencoast and no right to dictate the form of the audited financials provided by Wencoast. The Partnerships auditors have not audited the financial statements received from
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 2007, 2006 and 2005, the
Partnership recognized income from discontinued operations of approximately $1,083,000, $283,000, and $1,105,000, respectively. The 2007, 2006 and 2005 income from discontinued operations is attributable to the reclassification of the Wendys-
1515 Savannah Hwy., Charleston, SC property and the Blockbuster, Ogden, UT property to properties held for sale in the First Quarter and Second Quarters of 2007, respectively. Discontinued operations for 2007, 2006 and 2005 also includes income
related to the Sunrise Preschool, Phoenix, AZ property, which was reclassified to property held for sale in the Second Quarter of 2006



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##### Table of Contents

and sold in April of 2007. The 2007 income from discontinued operations included a Second Quarter net gain on the sale of the Sunrise Preschool property of
approximately $862,000 and a Fourth Quarter net gain of approximately $25,000 on the sale of a small strip of the Popeyes- Park Forest, IL land to the Illinois Department of Transportation to be used as street right of way. The 2005 income
from discontinued operations is also attributable to the sale of the Hooterss- Richland Hills, TX property in December of 2005, which was reclassified to property held for sale in the Fourth Quarter of 2005. 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 components of property
held for sale in the balance sheets as of December 31, 2007 and 2006 are outlined below.



|                         |  |                  |         |   |                  |   |         |  
|------------------------ |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                         |  | December 31,2007 |         |   | December 31,2006 |  
|Balance Sheet:           |  |                  |         |   |                  |   |         |  
|Land                     |  | $                | 480,418 |   |                  | $ | 241,371 |  
|Buildings, net           |  |                  | 329,301 |   |                  |   | 385,840 |  
|Deferred rent receivable |  |                  | 1,462   |   |                  |   | 0       |  
|Deferred charges, net    |  |                  | 16,421  |   |                  |   | 0       |  
|Security deposits        |  |                  | (5,600  | ) |                  |   | (9,945  | )
|Unearned rental income   |  |                  | (5,600  | ) |                  |   | 0       |  
|                         |  |                  |         |   |                  |   |         |  
|Property held for sale   |  | $                | 816,402 |   |                  | $ | 617,266 |  
|                         |  |                  |         |   |                  |   |         |  

The components of discontinued operations included in the statements of income for the years ended
December 31, 2007, 2006 and 2005 are outlined below.



|                                    |  |      |           |      |   |         |  |   |          
|----------------------------------- |  | ---- | --------- | ---- | - | ------- |  | - | ---------
|                                    |  | 2007 |           | 2006 |   | 2005   
|Revenues                            |  |      |           |      |   |         |  |   |          
|Rental Income                       |  | $    | 231,584   |      | $ | 331,023 |  | $ | 501,301  
|                                    |  |      |           |      |   |         |  |   |          
|Total Revenues                      |  | $    | 231,584   |      | $ | 331,023 |  | $ | 501,301  
|                                    |  |      |           |      |   |         |  |   |          
|Expenses                            |  |      |           |      |   |         |  |   |          
|Insurance                           |  |      | 827       |      |   | 827     |  |   | 450      
|Professional services               |  |      | 7,038     |      |   | 4,045   |  |   | 3,499    
|Maintenance and Repair              |  |      | 14,755    |      |   | 2,100   |  |   | 2,110    
|Depreciation                        |  |      | 6,455     |      |   | 34,476  |  |   | 56,531   
|Amortization                        |  |      | 6,480     |      |   | 6,114   |  |   | 2,088    
|                                    |  |      |           |      |   |         |  |   |          
|Total Expenses                      |  |      | 35,555    |      |   | 47,562  |  |   | 64,678   
|                                    |  |      |           |      |   |         |  |   |          
|Net gain on sale of properties      |  |      | 886,859   |      |   | 0       |  |   | 668,168  
|                                    |  |      |           |      |   |         |  |   |          
|Income from Discontinued Operations |  | $    | 1,082,888 |      | $ | 283,461 |  | $ | 1,104,791
|                                    |  |      |           |      |   |         |  |   |          

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



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##### Table of Contents

Dennys- Phoenix, Arizona Property

A listing agreement for the sale of the property was executed with an unaffiliated broker in January of 2008 (current asking price is $975,000). The terms of the listing
agreement includes a 6% sales commission to be paid at closing, which includes a 3% commission payable to a General Partner affiliate. The property was reclassified to properties held for sale in January of 2008. The net book value of the property
at December 31, 2007, was approximately $606,000, which included $453,000 related to land, $140,000 related to buildings and improvements, $3,000 related to deferred rent, $10,000 related to rent and other receivables.

The Dennys lease on the Phoenix, AZ property expired on October 31, 2007. During the Fourth Quarter of 2007, Management executed a lease term extension of an
additional 18 months. The new lease will expire April 30, 2009 and the first-year base rent will total $72,000. A leasing commission of approximately $3,200 was paid to a General Partner affiliate during the Fourth Quarter of 2007 in relation
to the lease extension.

Wendys- 1515 Savannah Hwy., Charleston, SC Property

A letter of intent to enter into a purchase agreement for the sale of the property was executed in late March of 2007 and the property was reclassified to property held
for sale. A sales contract was then executed on August 21, 2007 for the sale of the property to an unaffiliated party for $1.17 million. Total sales commissions of 6% are anticipated to be paid upon the sale, which includes a 3% commission to a
General Partner affiliate. Closing is anticipated to be during the First Quarter of 2008. The net book value of the property at December 31, 2007, classified as property held for sale in the financial statements, was approximately $420,000,
which included $286,000 related to land, $128,000 related to buildings and improvements, $1,000 related to deferred rent, $16,000 related to deferred charges, and $11,000 related to security deposits and unearned rental income.

The tenant, Wencoast Restaurants, Inc. (Wencoast), ceased operations at the property effective September 30, 2007, but will continue to be liable for
its monthly rent obligations per the lease agreement until the sale of the property.

Blockbuster- Ogden, UT Property

A listing agreement was executed with an unaffiliated broker in May of 2007 and the property was reclassified to property held for sale. Upon
termination of the agreement, a new listing agreement for the sale of the property was executed with an unaffiliated broker in December of 2007 (current asking price is $1.25 million). The terms of the listing agreement includes a 6% sales
commission to be paid at closing, which includes a 2-3% commission payable to a General Partner affiliate. The net book value of the property at December 31, 2007, classified as property held for sale in the financial statements, was
approximately $396,000, which included $194,000 related to land, $201,000 related to buildings and improvements (included approximately $21,000 in roofing capital improvements incurred in the Second Quarter of 2007), and $1,000 related to deferred
charges.

The Blockbuster lease on the current 6,000 square foot space previously expired on January 31, 2006. During lease renewal negotiations with
Management, the tenant maintained possession of the property and paid the Partnership holdover rent for February and March of 2006. In April of 2006, Management executed a two-year renewal lease agreement with the tenant, retroactive to
February 1, 2006, with an expiration date of January 31, 2008. The first base year rent totaled approximately $108,000. Commissions related to the lease renewal execution totaled approximately $13,000, ($6,500 paid to a non-affiliated
broker and $6,500 paid to a General Partner affiliate) during the Quarter ended March 31, 2006.

In February of 2008, Management executed a one-year
lease extension agreement with Blockbuster. The lease is set to expire on January 31, 2009 and includes annual base rent of $108,000 and a rent abatement of $6,000 for the month of February 2008. Commissions of approximately $5,000 ($2,000 to a
non-affiliated broker and $3,000 to a General Partner affiliate) are anticipated to be paid during the First Quarter of 2008.



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##### Table of Contents

Popeyes- Park Forest, IL Property

As of December 31, 2007, the tenant was current on its current rent and property tax escrow monthly obligations and had a $25,000 property tax escrow cash balance
held with the Partnership.

A small strip of the Park Forest, IL land was sold to the Illinois Department of Transportation to be used as street right of
way in December of 2007. Net sale proceeds amounted to approximately $34,000. A net gain on the sale of $25,000 was recognized in the Fourth Quarter of 2007.

In the Second Quarter of 2006, Management defaulted Popeyes for failure to meet its lease obligations, and filed for possession of the Park Forest property in the Cook County Judicial Court. The Partnership continued the pursuit of
all legal remedies available to recover possession and terminate the Lease. However, a Settlement Agreement (Settlement) was executed on May 1, 2007, and it was agreed to by all parties that Popeyes would pay its past due rent
and property tax escrow obligations. In accordance with the Settlement, the Partnership received a payment for the approximately $10,000 of past due property tax escrow on May 3, 2007 and the three equal installment payments of $4,233 related
to the past due rent obligations on May 8, June 20, 2007, and July 17, 2007. The Settlement reaffirms that Popeyes remains responsible for monthly rent obligations and property tax through the remainder of its Lease
(expires December 31, 2009).

Due to past defaults by Popeyes, the 2004 property tax escrow charges applicable to 2004 property tax were
reflected in the financial statements as escrow payments were actually received, and were recorded as a reversal of 2004 property tax expense equal to the amount of payment received. The Partnership recognized property tax recovery income of
approximately $129,000 during 2004, which related to Popeyes reimbursement to the Partnership of defaulted property tax and penalties that had been previously expensed and paid by the Partnership. During 2005, property tax escrow charges
applicable to property tax previously accrued and expensed in 2004, were reflected in the financial statements as escrow payments were actually received, and were recorded as property tax recovery income equal to the amount of payment received.
Property tax recovery income during 2005 totaled approximately $35,000. Due to Popeyes full reimbursement to the Partnership for past property tax paid on the tenants behalf, and Popeyes agreement to meet billing and escrow
obligations, the 2005, 2006 and 2007 estimated property tax were not expensed and accrued as of December 31, 2005, 2006 and 2007, respectively.

Sunrise Preschool- Phoenix, AZ Property

A listing agreement for the sale of the property was executed in June of
2006. In early January of 2007, a sales contract was executed for the sale of the property for $1.6 million. Per notice from the Partnership, tenant, Borg Holdings, Inc. (Borg), had 30 days from January 16, 2007, to act upon their
right of first refusal to purchase the Phoenix property, since a separate buyer entered into a real estate contract for the purchase of the property. On January 29, 2007, Borg informed the Partnership that they would be exercising their right
to accept the terms of the contract for the sale of the Phoenix, AZ property. The closing date on the sale of the property was April 23, 2007 and the net sales proceeds totaled approximately $1.49 million. A net gain on the sale of
approximately $862,000 was recognized in the Second Quarter of 2007. Closing and other sale related costs amounted to approximately $111,000 and included a $48,000 sales commission paid to a General Partner affiliate.

Wendys- 1004 Richland Avenue, Aiken, SC Property

The Richland Avenue property lease with Wencoast Restaurants, Inc. (Wencoast), a franchisee of Wendys restaurants, was assigned to Wendgusta, LLC (Wendgusta), a franchisee of Wendys
restaurants on July 2, 2007. The terms of the lease remain the same, including the expiration date of November 6, 2016.



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Wendys- 3869 Washington Road, Martinez, GA Property

The Washington Road property lease with Wencoast was assigned to Wendgusta on July 2, 2007. The terms of the lease remain the same, including the expiration date of
November 6, 2016.

Wendys- 1717 Martintown Road, N Augusta, SC Property

The Martintown Road property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the
assignment agreement, the monetary lease obligations remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible
for making $180,000 in capital improvement expenditures to the property by December 2009. A leasing commission of approximately $13,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Wendys- 1730 Walton Way, Augusta, GA Property

The Walton Way property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the assignment agreement, the monetary lease obligations
remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible for making $180,000 in capital improvement expenditures
to the property by December 2009. A leasing commission of approximately $15,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Wendys- 3013 Peach Orchard, Augusta, GA Property

The Peach Orchard property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the assignment agreement, the monetary lease obligations
remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible for making $180,000 in capital improvement expenditures
to the property by December 2009. A leasing commission of approximately $13,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Wendys- 1901 Whiskey Road, Aiken, SC Property

The Whiskey Road property lease with Wencoast was set to expire on November 6, 2016, however on July 2, 2007 the lease was assigned to Wendgusta. Per the assignment agreement, the monetary lease obligations
remain the same, however, the lease was extended to November 6, 2021 and includes a five year lease option renewal. Per the terms of the assignment agreement, Wendgusta is also responsible for making $180,000 in capital improvement expenditures
to the property by December 2009. A leasing commission of approximately $15,000 was paid to a General Partner affiliate in July of 2007 in relation to the lease extension.

Daytonas All Sports Café- Des Moines, IA Property

The Daytonas All Sports Café (Daytonas) lease expires on February 28, 2008. Management is currently negotiating with tenant to extend the lease.

Beginning in December of 2005, Management requested that Daytonas escrow its future property tax liabilities with the Partnership on a monthly basis.
Daytonas remains current on its property tax escrow obligations and as of December 31, 2007, escrow payments held by the Partnership totaled approximately $16,000.



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Former Miami Subs- Palm Beach, FL Property

The Palm Beach, FL property was sold in June of 2004. 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 property tax as the Partnership paid the propertys delinquent 2003 property tax in June of 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 of 2004.

In November of 2004, a Settlement Agreement (DiFede Agreement) was executed with DiFede. Per the DiFede 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 DiFede 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 of 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. Throughout 2005 Management continued their pursuit of legal action to collect the Judgment. In satisfaction of the Judgment (which was recorded in the Circuit Court in March of 2006), the Partnership received $25,000 from
Difede in the First Quarter of 2006.

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. Although closing was anticipated to be in the First Quarter of 2006, the sale was not
consummated and the sales contract expired in late March of 2006. The original lease, which is set to expire in 2013, remains effective and includes the tenants option to purchase the property.

Former Hooters- Richland Hills, TX Property

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 of 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.

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.

At December 31, 2007, the tenant 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 original lease, which is set to expire in 2013, remains effective and includes the tenants option to purchase the property. 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.



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Other Assets

Cash and cash equivalents held by the Partnership totaled approximately $677,000 at December 31, 2007, compared to $626,000 at December 31, 2006. Cash of $375,000 is anticipated to be used to fund the Fourth Quarter of 2007
distributions to Limited Partners in February of 2008, and cash of $99,000 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.

The book value of properties held for sale at December 31, 2007 amounted to approximately $816,000
and included the Wendys- 1515 Savannah Hwy., Charleston, SC property (the Wendys Property) and the Blockbuster, Ogden, UT property (the Blockbuster Property). A letter of intent to enter into a purchase agreement
for the sale of the Wendys Property was executed in late March of 2007 and a sales contract was executed on August 21, 2007 for the sale of the Wendys Property to an unaffiliated party for $1.17 million. The book value of the
Wendys Property held for sale at December 31, 2007 amounted to approximately $420,000, and included $286,000 related to land, $128,000 related to buildings and improvements, $1000 related to deferred rent, $16,000 related to deferred
charges, and $11,000 related to security deposits and unearned rental income. A new listing contract for the sale of the Blockbuster Property (asking price of $1.25 million) was executed in December of 2007 (original listing in May of 2007). The
book value of the Blockbuster Property held for sale at December 31, 2007 amounted to approximately $396,000, and included $194,000 related to land, $201,000 related to buildings and improvements (included approximately $21,000 in roofing
capital improvements incurred in the Second Quarter of 2007), and $1,000 related to deferred charges. (For further disclosure see Investment Properties in Part I- Item 2, and Part II- Item 7.)

Property tax cash escrow amounted to approximately $41,000 and $30,000 at December 31, 2007 and December 31, 2006, respectively. Daytonas property tax
cash escrow balance as of December 31, 2006 was approximately $18,000 and payments of approximately $19,000 were received by the Partnership from Daytonas during 2007. The Partnership paid the tenants 2005 second property tax
installment of approximately $11,000 in the First Quarter of 2007 and the 2006 first property tax installment of approximately $11,000 in the Third Quarter of 2007. Daytonas property tax cash escrow balance as of December 31, 2007 was
approximately $16,000. Daytonas 2006 second property tax installment of approximately $11,000 is scheduled to be due in the First Quarter of 2008. (For further disclosure see Investment Properties in Part I- Item 2, and Part II-
Item 7.) Popeyes property tax escrow cash balance as of December 31, 2006 was $12,000 and payments of approximately $67,000 were received by the Partnership from Popeyes during 2007 (including $10,000 in past due balances). The
Partnership paid the tenants first 2006 property tax installment of approximately $27,000 in the First Quarter of 2007 and the second 2006 property tax installment of approximately $27,000 in the Fourth Quarter of 2007. Popeyes property
tax cash escrow balance held with the Partnership as of December 31, 2007 totaled approximately $25,000. The tenants 2007 first property tax installment is scheduled to be due during the First Quarter of 2008. (For further disclosure see
Investment Properties in 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 approximately $425,000 at December 31, 2007, compared to
$432,000 as of December 31, 2006. As of December 31, 2006, Popeyes- Park Forest was delinquent on two monthly lease obligations totaling approximately $13,000. The Partnership received from Popeyes three equal installments of
$4,333 related to the past due lease obligations in May, June and July of 2007, respectively. As



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of December 31, 2007, Popeyes- Park Forest was current on its monthly lease obligations. For further disclosure see Investment Properties in Part
I- Item 2, and Part II- Item 7.) At December 31, 2007, rents and other receivables primarily included approximately $425,000 in 2007 percentage rental income accrued in the Second, Third and Fourth Quarters of 2007 for tenants who had
reached their sales breakpoint. These percentage rents included $9,000 which was billed to a tenant in the Fourth Quarter of 2007 and $415,000 which were not billed to or owed by the tenants until the First Quarter of 2008. At
December 31, 2006, rents and other receivables also included $417,000 in rental income accrued during 2006 for tenants who had reached their individual sales breakpoints. These percentage rents included $18,000 which were billed to
tenants in the Fourth Quarter of 2006 and $399,000 which were not billed to or owed by the tenants until the First Quarter of 2007. As of December 31, 2007 the 2006 percentage rental income had been collected in full.

Property tax receivable at December 31, 2007 and December 31, 2006 totaled approximately $1,000 and $11,000, respectively. The December 31, 2006 balance
primarily represented property tax escrow charges due from Popeyes- Park Forest. (For further disclosure see Investment Properties in Part I- Item 2, and Part II- Item 7.)

Prepaid Insurance amounted to approximately $29,000 at December 31, 2007 compared to $32,000 at December 31, 2006. The December 31, 2007 and 2006 balances
represented approximately ten months of prepaid insurance paid by the Partnership.

Deferred charges totaled approximately $268,000 and $244,000, net of
accumulated amortization, at December 31, 2007 and December 31, 2006, respectively. Deferred charges represent leasing commissions paid when properties are leased or upon the negotiated extension of a lease. Leasing commissions totaling
approximately $58,000 were paid in 2007 and included a $55,125 leasing commission paid in July of 2007 in relation to the lease term extension of the four Wendys properties that were assigned from Wencoast to Wendgusta and a $3,240 leasing
commission paid in December of 2007 in relation to the lease extension of the Dennys- Northern, Phoenix, AZ property (for further discussion see Investment Properties in Part I- Item 2, and Part II- Item 7). Leasing commissions of
approximately $16,000 related to the Wendys- 1515 Savannah Hwy., Charleston, SC property and approximately $500 related to the Blockbuster, Ogden, UT property are included in properties held for sale at December 31, 2007. For further
disclosure see Investment Properties in Part I- Item 2, and Part II- Item 7.)Leasing commissions are capitalized and amortized over the life of the lease.

Liabilities

Accounts
payable and accrued expenses at December 31, 2007, and December 31, 2006 amounted to approximately $99,000 and $89,000, respectively, and primarily represented the year-end accruals of auditing, tax and data processing fees.

Property tax payable at December 31, 2007 and December 31, 2006, totaled approximately $42,000 and $41,000, respectively. The balances primarily represented
Popeyes- Park Forests and Daytonas property tax escrow charges related to the tenants property tax which are scheduled to be due in 2008. (For further disclosure see Investment in Properties in Part I- Item 2, and Part
II- Item 7.)

The amounts Due to the Current General Partner were $2,339 at December 31, 2007, and primarily represented the
General Partners portion of the Fourth Quarter 2007 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.



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Cash distributions paid to the Limited Partners and to the General Partner during 2007 of $2,875,000 and $8,444,
respectively, have also been made in accordance with the Partnership Agreement. The Fourth Quarter of 2007 Limited Partner distributions totaling $375,000 were paid February 15, 2008.

Results of Operations

The Partnership reported income
from continuing operations for the year ended December 31, 2007, in the amount of $1,028,000 compared to income from continuing operations for the years ended December 31, 2006 and 2005 of $960,000 and $1,016,000, respectively. The
variance in income from continuing operations in 2007 compared to 2006 and 2005 is due primarily to: (i) increase in monthly Partnership management fees as of March 1 each year based on allowable consumer price index adjustment;
(ii) higher percentage rental income accruals for 2007; (iii) higher interest earnings during the Second and Third Quarter of 2007 due to higher interest yields and increased average cash balances due to the sale of the Sunrise Preschool
property; (iv) lower investor communication expenditures, such as printing during 2007; (v) an unexpected insurance premium adjustment payment in the Second Quarter of 2006 of approximately $12,000 related to the 04/05 policy year, and
Second through Fourth Quarter of 2006 accruals and First through Fourth Quarter of 2007 accruals totaling $14,000, and $10,000, respectively for estimated insurance premium adjustments related to the 05/06 and 06/07 policy years; (vi) the March
of 2006 receipt of $25,000 from DiFede in satisfaction of the Judgment recorded in the Broward County, Florida Circuit Court in January of 2005; (vii) higher income tax expenditures in the First through Third Quarters of 2006 related to the
2005 South Carolina tax return and the 2006 South Carolina estimated tax payments ; (viii) a settlement payment of $25,000 paid in the Third Quarter of 2006 to the Buyer of the former South Milwaukee property (For further discussion see Legal
Proceedings Part I- Item 3.); (ix) the First through Third Quarter of 2005 total collections and revenue recognition of approximately $35,000 in property tax recoveries from Popeyes and (x) a Third Quarter 2005 income tax
liability accrual, payable to the City of Columbus, Ohio for the tax years 1999 through 2004.

Discontinued Operations

Income from discontinued operations was approximately $1,083,000, $283,000 and $1,105,000 for the years ended December 31, 2007, 2006, and 2005, 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 2007, 2006 and
2005 income from discontinued operations is attributable to the reclassification of the Wendys- 1515 Savannah Hwy., Charleston, SC property and the Blockbuster, Ogden, UT property to properties held for sale in the First Quarter and Second
Quarters of 2007, respectively. Discontinued operations for 2007, 2006 and 2005 also includes income related to the Sunrise Preschool, Phoenix, AZ property, which was reclassified to property held for sale in the Second Quarter of 2006 and sold in
April of 2007. The 2007 income from discontinued operations included a Second Quarter net gain on the sale of the Sunrise Preschool property of approximately $862,000 and a Fourth Quarter net gain of approximately $25,000 on the sale of a small
strip of the Popeyes- Park Forest, IL land to the Illinois Department of Transportation to be used as street right of way. The 2005 income from discontinued operations is also attributable to the sale of the Hooterss- Richland Hill, TX
property in December of 2005, which was reclassified to property held for sale in the Fourth Quarter of 2005. 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.

Revenues

Total operating revenues were $1,704,000, $1,682,000, and $1,719,000, for the years ended December 31, 2007, 2006, and 2005, respectively. During 2005 the Partnership received payments from Popeyes totaling
$35,000 relating to 2004 property tax recoveries. (For further disclosure see Investment Properties in Part I- Item 2, and Part II- Item 7.)



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As of December 31, 2007, total base operating rent revenues should approximate $1,230,000 for the year 2008 based on
leases currently in place (does not include the Wendys or Blockbuster properties, which were reclassified to property held for sale in the First and Second Quarters of 2007, respectively, but does include Dennys, which was reclassified
to property held for sale in the First Quarter of 2008.) Future operating rent revenues may decrease with tenant defaults and/or the reclassification of Properties as held for sale. They may also increase with additional rents due from tenants, if
those tenants experience sales levels, which require the payment of additional rent to the Partnership.

Expenses

For the years ended December 31, 2007, 2006, and 2005 total operating expenses amounted to approximately 45%,
47% and 43%, of total operating revenues, respectively.

The variance in operating expenditures are due to: (i) increase in monthly Partnership
management fees as of March 1 each year based on allowable consumer price index adjustment; (ii) lower investor communication expenditures, such as printing during 2007; (iii) an unexpected insurance premium adjustment payment in the
Second Quarter of 2006 of approximately $12,000 related to the 04/05 policy year, and Second through Fourth Quarter of 2006 accruals and First through Fourth Quarter of 2007 accruals totaling $14,000, and $10,000, respectively for estimated
insurance premium adjustments related to the 05/06 and 06/07 policy years; (iv) a settlement payment of $25,000 paid in the Third Quarter of 2006 to the Buyer of the former South Milwaukee property (For further discussion see Legal Proceedings
in Part I- Item 3.); and (v) a Third Quarter 2005 income tax liability accrual, payable to the City of Columbus, Ohio for the tax years 1999 through 2004.

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, 2007, 2006 and 2005. Such write-offs would primarily
be the result of tenant defaults.

Other Income

For the years ended December 31, 2007, 2006 and 2005 the Partnership did generate other income of approximately $90,000, $73,000 and $37,000, respectively. During 2007, the Partnership received approximately $13,000, in investor
service fees related to the voiding and reissuance of old outstanding limited partner distribution checks. During March of 2006, the Partnership received $25,000 from DiFede in satisfaction of the Judgment recorded in the Broward County, Florida
Circuit Court in January of 2005. (See Investment Properties- Former Miami Subs- Palm Beach, FL Property in Part I- Item 2, and Part II- Item 7.)

During 2007, 2006 and 2005 revenues were generated from interest earnings and small recoveries from former General Partners. Higher interest yields were recognized in 2007 due to higher interest rates and higher average cash balances
(Sunrise Preschool Property sold in April of 2007 and net sale proceeds distributed in August of 2007). 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 26% of operating rental income for 2007 (does not include operating income from properties held for sale or sold during 2007). If
inflation causes operating margins to deteriorate for lessees, or if expenses grow faster than revenues, then, inflation may well negatively impact the portfolio through tenant defaults.



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##### Table of Contents

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

Critical Accounting Policies

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

Depreciation methods and lives- Depreciation of the properties is provided on a straight-line basis over
31.5 years, which is the estimated useful life of the buildings and improvements. While the Partnership believes 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.



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data

DIVALL INSURED INCOME PROPERTIES 2 LIMITED
PARTNERSHIP

(A Wisconsin limited partnership)

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



|                                                                                      |  |       
|------------------------------------------------------------------------------------- |  | ------
|                                                                                      |  | Page  
|Reports of Independent Registered Public Accounting Firms                             |  | 26 -27
|                                                                                      | 
|Balance Sheets, December 31, 2007 and 2006                                            |  | 28 -29
|                                                                                      | 
|Statements of Income for the Years Ended December 31, 2007, 2006, and 2005            |  | 30    
|                                                                                      | 
|Statements of Partners Capital for the Years Ended December 31, 2007, 2006, and 2005 |  | 31    
|                                                                                      | 
|Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005        |  | 32    
|                                                                                      | 
|Notes to Financial Statements                                                         |  | 33 -43
|                                                                                      | 
|Schedule IIIReal Estate and Accumulated Depreciation, December 31, 2007              |  | 52 -53



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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
balance sheets of DiVall Insured Income Properties 2 Limited Partnership (a Wisconsin limited partnership) as of December 31, 2007 and 2006 and the related statements of income, partners' capital, and cash flows for the years then ended. Our
audits also included the 2007 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by 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, 2007 and 2006, and the results of its operations and its cash flows for the year 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.

We were not engaged to examine management's assertion about the effectiveness of DiVall Insured Income Properties 2 Limited
Partnership's internal control over financial reporting as of December 31, 2007 included in the accompanying Management's Report on Internal Control Over Financial Reporting and, accordingly, we do not express as opinion thereon.

/s/ MCGLADREY & PULLEN, LLP

Chicago, Illinois

March 11, 2008



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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 statements of income, partners' capital and cash flows of DiVall Insured Income Properties 2 Limited Partnership (a
Wisconsin limited partnership) for the year ended December 31, 2005. 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, the financial statements referred to above 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, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois

February 15, 2006, except as to Note 3

as to which the date is February 27, 2006



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##### Table of Contents

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

BALANCE SHEETS

December 31, 2007 and 2006

ASSETS



|                                            |  |                  |            |   |                  |   |            |  
|------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | ---------- | -
|                                            |  | December 31,2007 |            |   | December 31,2006 |  
|INVESTMENT PROPERTIES:(Note 3)              |  |                  |            |   |                  |   |            |  
|Land                                        |  | $                | 4,239,917  |   |                  | $ | 4,728,785  |  
|Buildings                                   |  |                  | 6,829,763  |   |                  |   | 7,576,708  |  
|Accumulated depreciation                    |  |                  | (4,239,573 | ) |                  |   | (4,470,221 | )
|                                            |  |                  |            |   |                  |   |            |  
|Net investment properties                   |  | $                | 6,830,107  |   |                  | $ | 7,835,272  |  
|                                            |  |                  |            |   |                  |   |            |  
|OTHER ASSETS:                               |  |                  |            |   |                  |   |            |  
|Cash and cash equivalents                   |  | $                | 677,411    |   |                  | $ | 625,592    |  
|Cash held in Indemnification Trust (Note 8) |  |                  | 438,055    |   |                  |   | 417,860    |  
|Property held for sale (Note 3)             |  |                  | 816,402    |   |                  |   | 617,266    |  
|Property tax cash escrow                    |  |                  | 40,693     |   |                  |   | 30,197     |  
|Rents and other receivables                 |  |                  | 425,282    |   |                  |   | 432,440    |  
|Property tax receivable                     |  |                  | 1,203      |   |                  |   | 10,703     |  
|Deferred rent receivable                    |  |                  | 59,621     |   |                  |   | 80,657     |  
|Prepaid insurance                           |  |                  | 28,614     |   |                  |   | 31,626     |  
|Deferred charges, net                       |  |                  | 268,224    |   |                  |   | 243,540    |  
|                                            |  |                  |            |   |                  |   |            |  
|Total other assets                          |  | $                | 2,755,505  |   |                  | $ | 2,489,881  |  
|                                            |  |                  |            |   |                  |   |            |  
|Total assets                                |  | $                | 9,585,612  |   |                  | $ | 10,325,153 |  
|                                            |  |                  |            |   |                  |   |            |  

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,
2007 and 2006

LIABILITIES AND PARTNERS CAPITAL



|                                                         |  |                  |             |   |                  |   |             |  
|-------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                         |  | December 31,2007 |             |   | December 31,2006 |  
|LIABILITIES:                                             |  |                  |             |   |                  |   |             |  
|Accounts payable and accrued expenses                    |  | $                | 98,603      |   |                  | $ | 89,318      |  
|Property tax payable                                     |  |                  | 41,897      |   |                  |   | 40,900      |  
|Due to General Partner                                   |  |                  | 2,339       |   |                  |   | 2,380       |  
|Security deposits                                        |  |                  | 99,040      |   |                  |   | 104,640     |  
|Unearned rental income                                   |  |                  | 57,640      |   |                  |   | 29,380      |  
|                                                         |  |                  |             |   |                  |   |             |  
|Total liabilities                                        |  | $                | 299,519     |   |                  | $ | 266,618     |  
|                                                         |  |                  |             |   |                  |   |             |  
|CONTINGENCIES AND COMMITMENTS (Notes 7 and 8)            |  |                  |             |   |                  |   |             |  
|                                                         |  |                 
|PARTNERS CAPITAL: (Notes 1, 4 and 9)                    |  |                  |             |   |                  |   |             |  
|Current General Partner -                                |  |                  |             |   |                  |   |             |  
|Cumulative net income                                    |  | $                | 276,053     |   |                  | $ | 254,943     |  
|Cumulative cash distributions                            |  |                  | (113,076    | ) |                  |   | (104,632    | )
|                                                         |  |                  |             |   |                  |   |             |  
|                                                         |  | $                | 162,977     |   |                  | $ | 150,311     |  
|                                                         |  |                  |             |   |                  |   |             |  
|Limited Partners (46,280.3 interests outstanding)        |  |                  |             |   |                  |   |             |  
|Capital contributions, net of offering costs             |  | $                | 39,358,468  |   |                  | $ | 39,358,468  |  
|Cumulative net income                                    |  |                  | 33,695,145  |   |                  |   | 31,605,253  |  
|Cumulative cash distributions                            |  |                  | (63,090,268 | ) |                  |   | (60,215,268 | )
|Reallocation of former general partners deficit capital |  |                  | (840,229    | ) |                  |   | (840,229    | )
|                                                         |  |                  |             |   |                  |   |             |  
|                                                         |  | $                | 9,123,116   |   |                  | $ | 9,908,224   |  
|                                                         |  |                  |             |   |                  |   |             |  
|Total partners capital                                  |  | $                | 9,286,093   |   |                  | $ | 10,058,535  |  
|                                                         |  |                  |             |   |                  |   |             |  
|Total liabilities and partners capital                  |  | $                | 9,585,612   |   |                  | $ | 10,325,153  |  
|                                                         |  |                  |             |   |                  |   |             |  

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, 2007, 2006, and 2005



|                                                                           |  |      |           |      |   |           |  |   |          
|-------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                                                           |  | 2007 |           | 2006 |   | 2005     
|OPERATING REVENUES:                                                        |  |      |           |      |   |           |  |   |          
|Rental income (Note 5)                                                     |  | $    | 1,704,486 |      | $ | 1,681,706 |  | $ | 1,684,038
|Property tax reimbursements and recoveries (Note 3)                        |  |      | 0         |      |   | 0         |  |   | 34,820   
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OPERATING REVENUES                                                   |  | $    | 1,704,486 |      | $ | 1,681,706 |  | $ | 1,718,858
|                                                                           |  |      |           |      |   |           |  |   |          
|EXPENSES:                                                                  |  |      |           |      |   |           |  |   |          
|Partnership management fees (Note 6)                                       |  | $    | 225,657   |      | $ | 218,523   |  | $ | 211,567  
|Restoration fees (Note 6)                                                  |  |      | 497       |      |   | 497       |  |   | 509      
|Insurance                                                                  |  |      | 46,522    |      |   | 61,564    |  |   | 38,450   
|General and administrative                                                 |  |      | 92,973    |      |   | 91,308    |  |   | 101,151  
|Advisory Board fees and expenses                                           |  |      | 9,500     |      |   | 11,375    |  |   | 14,000   
|Professional services                                                      |  |      | 174,778   |      |   | 170,261   |  |   | 158,083  
|Personal property taxes                                                    |  |      | 820       |      |   | 820       |  |   | 820      
|Settlement expense (Note 10)                                               |  |      | 0         |      |   | 25,000    |  |   | 0        
|Depreciation                                                               |  |      | 201,832   |      |   | 201,831   |  |   | 201,831  
|Amortization                                                               |  |      | 10,780    |      |   | 10,705    |  |   | 10,705   
|Other expenses                                                             |  |      | 3,031     |      |   | 2,704     |  |   | 2,603    
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OPERATING EXPENSES                                                   |  | $    | 766,390   |      | $ | 794,588   |  | $ | 739,719  
|                                                                           |  |      |           |      |   |           |  |   |          
|OTHER INCOME                                                               |  |      |           |      |   |           |  |   |          
|Interest income                                                            |  | $    | 64,213    |      | $ | 32,347    |  | $ | 18,538   
|Judgment claim (Note 3)                                                    |  |      | 0         |      |   | 25,000    |  |   | 0        
|Other income                                                               |  |      | 13,377    |      |   | 2,878     |  |   | 6,000    
|Recovery of amounts previously written off (Note 2)                        |  |      | 12,428    |      |   | 12,429    |  |   | 12,723   
|                                                                           |  |      |           |      |   |           |  |   |          
|TOTAL OTHER INCOME                                                         |  | $    | 90,018    |      | $ | 72,654    |  | $ | 37,261   
|                                                                           |  |      |           |      |   |           |  |   |          
|INCOME FROM CONTINUING OPERATIONS                                          |  | $    | 1,028,114 |      | $ | 959,772   |  | $ | 1,016,400
|INCOME FROM DISCONTINUED OPERATIONS (Note 3)                               |  |      | 1,082,888 |      |   | 283,461   |  |   | 1,104,791
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME                                                                 |  | $    | 2,111,002 |      | $ | 1,243,233 |  | $ | 2,121,191
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME- CURRENT GENERAL PARTNER                                        |  | $    | 21,110    |      | $ | 12,432    |  | $ | 21,212   
|NET INCOME- LIMITED PARTNERS                                               |  |      | 2,089,892 |      |   | 1,230,801 |  |   | 2,099,979
|                                                                           |  |      |           |      |   |           |  |   |          
|                                                                           |  | $    | 2,111,002 |      | $ | 1,243,233 |  | $ | 2,121,191
|                                                                           |  |      |           |      |   |           |  |   |          
|PER LIMITED PARTNERSHIP INTEREST, Based on 46,280.3 interests outstanding: |  |      |           |      |   |           |  |   |          
|INCOME FROM CONTINUING OPERATIONS                                          |  | $    | 21.99     |      | $ | 20.53     |  | $ | 25.67    
|INCOME FROM DISCONTINUED OPERATIONS                                        |  |      | 23.17     |      |   | 6.06      |  |   | 19.71    
|                                                                           |  |      |           |      |   |           |  |   |          
|NET INCOME PER LIMITED PARTNERSHIP INTEREST                                |  | $    | 45.16     |      | $ | 26.59     |  | $ | 45.38    
|                                                                           |  |      |           |      |   |           |  |   |          

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, 2007, 2006 and 2005



|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|------------------------------------------------------------ |  | ----------------------- | ------- | --------------------------- | ---------------- | -------- | ----- |  | - | ----------------------------------------- | - | -------------------- | - | -------------------------- |  | - | ------------ |  | - | ----------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                             |  | Current General Partner |         |                             | Limited Partners |         
|                                                             |  | CumulativeNetIncome     |         | CumulativeCashDistributions |                  |          | Total |  |   | CapitalContributions,Net ofOffering Costs |   | CumulativeNet Income |   | CumulativeCashDistribution |  |   | Reallocation |  |   | Total       |  
|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 |  
|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|Cash Distributions ($66.98 per limited partnership interest) |  |                         |         |                             | $                | (4,973   | )     |  | $ | (4,973                                    | ) |                      |   |                            |  |   |              |  | $ | (3,100,000  | ) |  |   |          |   |  | $ | (3,100,000 | )
|Net Income                                                   |  | $                       | 12,432  |                             |                  |          |       |  |   | 12,432                                    |   |                      |   |                            |  | $ | 1,230,801    |  |   |             |   |  |   |          |   |  |   | 1,230,801  |  
|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2006                                 |  | $                       | 254,943 |                             | $                | (104,632 | )     |  | $ | 150,311                                   |   |                      | $ | 39,358,468                 |  | $ | 31,605,253   |  | $ | (60,215,268 | ) |  | $ | (840,229 | ) |  | $ | 9,908,224  |  
|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|Cash Distributions ($62.12 per limited partnership interest) |  |                         |         |                             | $                | (8,444   | )     |  | $ | (8,444                                    | ) |                      |   |                            |  |   |              |  | $ | (2,875,000  | ) |  |   |          |   |  | $ | (2,875,000 | )
|Net Income                                                   |  | $                       | 21,110  |                             |                  |          |       |  |   | 21,110                                    |   |                      |   |                            |  | $ | 2,089,892    |  |   |             |   |  |   |          |   |  |   | 2,089,892  |  
|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2007                                 |  | $                       | 276,053 |                             | $                | (113,076 | )     |  | $ | 162,917                                   |   |                      | $ | 39,358,468                 |  | $ | 33,695,145   |  | $ | (63,090,268 | ) |  | $ | (840,229 | ) |  | $ | 9,123,116  |  
|                                                             |  |                         |         |                             |                  |          |       |  |   |                                           |   |                      |   |                            |  |   |              |  |   |             |   |  |   |          |   |  |   |            |  

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, 2007, 2006, and 2005



|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                            |  | 2007 |            |   | 2006 |   |            | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                  |  | $    | 2,111,002  |   |      | $ | 1,243,233  |      |  | $ | 2,121,191  |  
|Adjustments to reconcile net income to net cash from operating activities - |  |      |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                               |  |      | 225,547    |   |      |   | 253,126    |      |  |   | 271,155    |  
|Recovery of amounts previously written off                                  |  |      | (12,429    | ) |      |   | (12,429    | )    |  |   | (12,723    | )
|Provision for non-collectible rents and other receivables                   |  |      | 0          |   |      |   | 0          |      |  |   | 0          |  
|Net gain on disposal of assets                                              |  |      | (886,859   | ) |      |   | 0          |      |  |   | (668,168   | )
|Interest applied to Indemnification Trust account                           |  |      | (20,195    | ) |      |   | (19,161    | )    |  |   | (11,312    | )
|Decrease (Increase) in rents and other receivables                          |  |      | 7,158      |   |      |   | (1,322     | )    |  |   | 77,046     |  
|Increase in property tax cash escrow                                        |  |      | (10,496    | ) |      |   | (12,930    | )    |  |   | (8,945     | )
|Decrease (Increase) in prepaid insurance                                    |  |      | 3,012      |   |      |   | 937        |      |  |   | (176       | )
|Decrease in prepaid fees                                                    |  |      | 0          |   |      |   | 0          |      |  |   | 19,183     |  
|Decrease in deferred rent receivable                                        |  |      | 19,573     |   |      |   | 17,349     |      |  |   | 6,349      |  
|Decrease (Increase) in property tax receivable                              |  |      | 9,500      |   |      |   | (4,023     | )    |  |   | (1,512     | )
|(Decrease) Increase in due to current General Partner                       |  |      | (41        | ) |      |   | (2,869     | )    |  |   | 2,596      |  
|Increase (Decrease) in accounts payable and other accrued expenses          |  |      | 9,284      |   |      |   | 30,610     |      |  |   | (4,658     | )
|Decrease in security deposits                                               |  |      | (9,945     | ) |      |   | 0          |      |  |   | 0          |  
|Increase (Decrease) in property tax payable                                 |  |      | 997        |   |      |   | 16,953     |      |  |   | (24,363    | )
|Increase (Decrease) in unearned rental income                               |  |      | 33,860     |   |      |   | 2,815      |      |  |   | (11,107    | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash from operating activities                                          |  | $    | 1,479,968  |   |      | $ | ,1512,289  |      |  | $ | 1,754,556  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:                             |  |      |            |   |      |   |            |      |  |   |            |  
|Proceeds from sale of investment properties                                 |  | $    | 1,522,521  |   |      | $ | 0          |      |  | $ | 1,505,426  |  
|Investment in Building Improvements                                         |  |      | (21,290    | ) |      |   | 0          |      |  |   | 0          |  
|Payment of leasing commissions                                              |  |      | (58,365    | ) |      |   | (12,960    | )    |  |   | 0          |  
|Recoveries from former General Partner affiliates                           |  |      | 12,429     |   |      |   | 12,429     |      |  |   | 12,723     |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash (used in) from investing activities                                |  | $    | 1,455,295  |   |      | $ | (531       | )    |  | $ | 1,518,149  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH FLOWS USED IN FINANCING ACTIVITIES:                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Cash distributions to Limited Partners                                      |  | $    | (2,875,000 | ) |      | $ | (3,100,000 | )    |  | $ | (1,730,000 | )
|Cash distributions to current General Partner                               |  |      | (8,444     | ) |      |   | (4,973     | )    |  |   | (8,484     | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in financing activities                                       |  | $    | (2,883,444 | ) |      | $ | (3,104,973 | )    |  | $ | (1,738,484 | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | $    | 51,819     |   |      | $ | (1,593,215 | )    |  | $ | 1,534,221  |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              |  |      | 625,592    |   |      |   | 2,218,807  |      |  |   | 684,586    |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                    |  | $    | 677,411    |   |      | $ | 625,592    |      |  | $ | 2,218,807  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |            |  

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, 2007, 2006 AND 2005

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, 2007, the Partnership owned 18 properties with specialty leasehold improvements in five (5) of these properties.

Significant Accounting Policies

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, 2007 and 2006, 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.

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 tax, 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).

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises
financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Partnerships adoption of FIN 48, effective January 1, 2007, did not have a material impact on its financial statements.

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, (No adjustment was required at December 31, 2007.



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Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. This Statement is effective for fiscal years beginning after
November 15, 2007. [SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements
on a nonrecurring basis for which delayed application is permitted until fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 is not expected to have a material impact on the Partnerships financial position,
results of operations or cash flows.

In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No.159 permits companies to elect to follow fair value accounting for certain financial assets and liabilities in an
effort to mitigate volatility in earnings without having to apply complex hedge accounting provisions. The standard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is not expected to have a material impact on the Partnerships
financial position, results of operations or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R),
Business Combinations (FAS 141(R)). This Statement provides greater consistency in the accounting and financial reporting for business combinations. FAS 141(R) establishes new disclosure requirements and, among other things,
requires the acquiring entity in a business combination to record contingent consideration payable, to expense transaction costs, and to recognize all assets acquired and liabilities assumed at acquisition-date fair value. This standard is effective
for the beginning of the Partnerships first fiscal year beginning after December 15, 2008. FAS 141(R) will have a significant impact on the accounting for any future business combinations after the effective date and will impact financial
statements both on the acquisition date and subsequent periods.

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, Noncontrolling Interests in Consolidated Financial Statements (FAS 160). FAS 160 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and
reporting standards for the minority or noncontrolling interests in a subsidiary or variable interest entity and for the deconsolidation of a subsidiary or variable interest entity. Minority interests will be recharacterized as noncontrolling
interests and classified as a component of equity. It also establishes a single method of accounting for changes in a parents ownership interest in a subsidiary and requires expanded disclosures. FAS 160 is effective for the beginning of the
Partnerships first fiscal year beginning after December 15, 2008, and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. Since the Partnership owns 100% of the Properties, the
Partnership does not expect the adoption of this standard to have a material impact on its financial position or results of operations.

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)



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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, 2003, 2005 and 2007, consent solicitations were
circulated (the 2001, 2003, 2005 and 2007 Consents, respectively), 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, 2003, 2005 or 2007 Consents. 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, 2007, the tax basis of the Partnerships assets exceeded the amounts reported in the accompanying
financial statements by approximately $6,843,857.

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



|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                  |  | 2007 |           |   | 2006 |   |           | 2005 | 
|Net income, per statements of income              |  | $    | 2,111,002 |   |      | $ | 1,243,233 |      |  | $ | 2,121,191 |  
|Book to tax depreciation difference               |  |      | (46,470   | ) |      |   | (37,070   | )    |  |   | (33,560   | )
|Tax over (under) Book gain from asset disposition |  |      | 7,271     |   |      |   | 0         |      |  |   | (59,817   | )
|Straight line rent adjustment                     |  |      | 19,573    |   |      |   | 17,349    |      |  |   | 6,350     |  
|Prepaid rent                                      |  |      | 33,860    |   |      |   | 2,816     |      |  |   | (11,107   | )
|Other, net                                        |  |      | 0         |   |      |   | 0         |      |  |   | 13        |  
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Net income for tax reporting purposes             |  | $    | 2,125,236 |   |      | $ | 1,226,328 |      |  | $ | 2,023,070 |  
|                                                  |  |      |           |   |      |   |           |      |  |   |           |  

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.



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

In 1993, the current General Partner estimated an aggregate recovery of $3 million for the Partnerships. At that time, an allowance was established against amounts due
from former general partners and their affiliates reflecting the estimated $3 million receivable. This net receivable was allocated among the Partnerships based on each Partnerships pro rata share of the total misappropriation, and restoration
costs and recoveries have been allocated based on the same percentage. Through December 31, 2007, $5,873,000 of recoveries have been received which exceeded the original estimate of $3 million. As a result, from January 1, 1996 through
December 31, 2007, the Partnership has recognized a total of $1,185,000 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, 2007, the Partnership owned properties containing 17 fully constructed fast-food restaurants, and a video store, (all of
which are owned and operated by entities unaffiliated with the Partnership). The 18 properties are composed of the following: ten (10) Wendys restaurants (the 1515 Savannah Hwy., Charleston, SC property was reclassified to property held
for sale in March of 2007), 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) Panda Buffet restaurant, one (1) Daytonas- All Sports Café, and one (1) Blockbuster Video store (reclassified as property held for sale in May of 2007). The 18 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.

During 2007, 2006 and 2005, the Partnership recognized income from discontinued operations of approximately $1,083,000, $283,000, and
$1,105,000, respectively. The 2007, 2006 and 2005 income from discontinued operations is attributable to the reclassification of the Wendys- 1515 Savannah Hwy., Charleston, SC property and the Blockbuster, Ogden, UT property to properties held
for sale in the First Quarter and Second Quarters of 2007, respectively. Discontinued operations for 2007, 2006 and 2005 also includes income related to the Sunrise Preschool, Phoenix, AZ property, which was reclassified to property held for sale in
the Second Quarter of 2006 and sold in April of 2007. The 2007 income from discontinued operations included a Second Quarter net gain on the sale of the Sunrise Preschool property of approximately $862,000 and a Fourth Quarter net gain of
approximately $25,000 on the sale of a small parcel of the Popeyes- Park Forest, IL property to the Illinois Department of Transportation for highway



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improvements. The 2005 income from discontinued operations is also attributable to the sale of the Hooterss- Richland Hills, TX property in December of
2005, which was reclassified to property held for sale in the Fourth Quarter of 2005. 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 components of property held for sale in the balance sheets as of December 31, 2007 and 2006 are outlined below.



|                         |  |                  |         |   |                  |   |         |  
|------------------------ |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                         |  | December 31,2007 |         |   | December 31,2006 |  
|Balance Sheet:           |  |                  |         |   |                  |   |         |  
|Land                     |  | $                | 480,418 |   |                  | $ | 241,371 |  
|Buildings, net           |  |                  | 329,301 |   |                  |   | 385,840 |  
|Deferred rent receivable |  |                  | 1,462   |   |                  |   | 0       |  
|Deferred charges, net    |  |                  | 16,421  |   |                  |   | 0       |  
|Security deposits        |  |                  | (5,600  | ) |                  |   | (9,945  | )
|Unearned rental income   |  |                  | (5,600  | ) |                  |   | 0       |  
|                         |  |                  |         |   |                  |   |         |  
|Property held for sale   |  | $                | 816,402 |   |                  | $ | 617,266 |  
|                         |  |                  |         |   |                  |   |         |  

The components of discontinued operations included in the statements of income for the years ended
December 31, 2007, 2006 and 2005 are outlined below.



|                                    |  |      |           |      |   |         |  |   |          
|----------------------------------- |  | ---- | --------- | ---- | - | ------- |  | - | ---------
|                                    |  | 2007 |           | 2006 |   | 2005   
|Revenues                            |  |      |           |      |   |         |  |   |          
|Rental Income                       |  | $    | 231,584   |      | $ | 331,023 |  | $ | 501,301  
|                                    |  |      |           |      |   |         |  |   |          
|Total Revenues                      |  | $    | 231,584   |      | $ | 331,023 |  | $ | 501,301  
|                                    |  |      |           |      |   |         |  |   |          
|Expenses                            |  |      |           |      |   |         |  |   |          
|Insurance                           |  | $    | 827       |      | $ | 827     |  | $ | 450      
|Professional services               |  |      | 7,038     |      |   | 4,045   |  |   | 3,499    
|Maintenance and Repair              |  |      | 14,755    |      |   | 2,100   |  |   | 2,110    
|Depreciation                        |  |      | 6,455     |      |   | 34,476  |  |   | 56,531   
|Amortization                        |  |      | 6,480     |      |   | 6,114   |  |   | 2,088    
|                                    |  |      |           |      |   |         |  |   |          
|Total Expenses                      |  | $    | 35,555    |      | $ | 47,562  |  | $ | 64,678   
|                                    |  |      |           |      |   |         |  |   |          
|Net gain on sale of properties      |  | $    | 886,859   |      | $ | 0       |  | $ | 668,168  
|                                    |  |      |           |      |   |         |  |   |          
|Income from Discontinued Operations |  | $    | 1,082,888 |      | $ | 283,461 |  | $ | 1,104,791
|                                    |  |      |           |      |   |         |  |   |          



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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.

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. Certain leases provide the tenant with the option to
acquire the property occupied by the tenant.

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.

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



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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 5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.

As of December 31, 2007, the aggregate minimum operating lease payments to be received
under the current operating leases for the Partnerships properties are as follows (does not include $786,000 related to the Wendys- 1515 Savannah Hwy., Charleston, SC and the Blockbuster, Ogden, UT properties which were classified as
properties held for sale at December 31, 2007, but does include $72,000 related to the Dennys- Northern, Phoenix, AZ property that was reclassified to properties held for sale in January of 2008).



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|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |   |           
|2008                     |  | $ | 1,232,060 
|2009                     |  |   | 1,150,930 
|2010                     |  |   | 937,500   
|2011                     |  |   | 938,500   
|2012                     |  |   | 939,500   
|Thereafter               |  |   | 5,143,053 
|                         |  |   |           
|                         |  | $ | 10,341,543
|                         |  |   |           

Percentage rentals included in rental income from operations in 2007, 2006, and 2005 were approximately $444,000,
$423,000, and $425,000, respectively. The variance is due to the fluctuation of tenant sales. At December 31, 2007, rents and other receivables included $9,000 of unbilled and $415,000 of unbilled percentage rents. At December 31, 2006,
rents and other receivables included $18,000 of billed and $399,000 of unbilled percentage rents.

As of July 2, 2007, six (6) of the properties
are leased to Wendgusta, LLC (Wendgusta), a franchisee of Wendys restaurants. In addition, three (3) of the properties (does not include the 1515 Savannah Hwy., Charleston, SC property, which was reclassified to property held
for sale in March of 2007) are leased to Wencoast Restaurants, Inc. (Wencoast), a franchisee of Wendys restaurants. Wendgusta and Wencoast operating base rents accounted for 42% and 18%, respectively, of the total 2007 operating
base rents. In each case, the percentage calculation does not include income from properties held for sale or sold during 2006 and 2007.

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, 2007, the minimum annual Base Fee and the maximum Expense reimbursement increased by 3.23%, which represents the allowable annual Consumer Price Index adjustment per the PMA. Therefore, as of March 1, 2007, the minimum
monthly Base Fee paid by the Partnership was raised to $18,945 and the maximum monthly Expense reimbursement was raised to $1,528.

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 $57,899 to date on the
amounts recovered, which includes 2007, 2006 and 2005 fees of $497, $497 and $509, respectively. The fees received from the Partnership on the amounts recovered reduce the 4% minimum fee by that same amount.



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Amounts paid to the current General Partner and its affiliates for the years ended December 31, 2007, 2006, and
2005, are as follows:



|                                         |  |                                            |         |                                            |   |                                            |  |   |        
|---------------------------------------- |  | ------------------------------------------ | ------- | ------------------------------------------ | - | ------------------------------------------ |  | - | -------
|Current General Partner                  |  | Incurred for theYear
endedDecember 31,2007 |         | Incurred for theYear
endedDecember 31,2006 |   | Incurred for theYear
endedDecember 31,2005
|Management fees                          |  | $                                          | 225,657 |                                            | $ | 218,523                                    |  | $ | 194,279
|Restoration fees                         |  |                                            | 497     |                                            |   | 497                                        |  |   | 509    
|Overhead allowance                       |  |                                            | 18,246  |                                            |   | 17,670                                     |  |   | 15,716 
|Sales commission                         |  |                                            | 48,000  |                                            |   | 0                                          |  |   | 47,250 
|Leasing commissions                      |  |                                            | 58,365  |                                            |   | 6,480                                      |  |   | 0      
|Reimbursement for out-of-pocket expenses |  |                                            | 7,250   |                                            |   | 6,832                                      |  |   | 9,324  
|Cash distribution                        |  |                                            | 8,444   |                                            |   | 4,973                                      |  |   | 8,484  
|                                         |  |                                            |         |                                            |   |                                            |  |   |        
|                                         |  | $                                          | 366,459 |                                            | $ | 254,975                                    |  | $ | 275,562
|                                         |  |                                            |         |                                            |   |                                            |  |   |        

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. The Trust has been fully funded with Partnership assets as of December 31, 2007. Funds are invested in U.S.
Treasury securities. In addition, $188,055 of earnings has been credited to the Trust as of December 31, 2007. 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.



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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. SUBSEQUENT EVENTS:

On February 15,
2008, the Partnership made distributions to the Limited Partners of $375,000, which amounted to $8.10 per Interest.

Blockbuster- Ogden, UT Property

In February of 2008, Management executed a one-year lease extension agreement with Blockbuster. The lease
is set to expire on January 31, 2009 and includes annual base rent of $108,000 and a rent abatement of $6,000 for the month of February 2008. Commissions of approximately $5,000 ($2,000 to a non-affiliated broker and $3,000 to a General Partner
affiliate) are anticipated to be paid during the First Quarter of 2008.

Wendys- Savannah Hwy, Charleston
Property

On February 29, 2008, the Partnership received a Notice of Termination of Contract (Contract) in relation to the sale of the
property. The Buyer was unable to procure the necessary City building permits in the manner desired. On March 3, 2008, in accordance with the terms of the sales contract, the Partnership received the $25,000 in earnest money held with the Title
Company. Management intends to continue to hold the property as held for sale and will pursue other options for its potential sale.

Daytonas All Sports Café- Des Moines, IA Property

The Daytonas All Sports Café
(Daytonas) lease expired on February 28, 2008. Management is currently negotiating with tenant to extend the lease.

Dennys- Phoenix, AZ Property

A listing agreement for the sale of the property was executed with an
unaffiliated broker in January of 2008 (current asking price is $975,000). The terms of the listing agreement includes a 6% sales commission to be paid at closing, which includes a 3% commission payable to a General Partner affiliate. The property
was reclassified to properties held for sale in January of 2008. The net book value of the property at December 31, 2007, was approximately $606,000, which included $453,000 related to land, $140,000 related to buildings and improvements,
$3,000 related to deferred rent, $10,000 related to rent and other receivables.

A sales contract was executed on March 5, 2008 for the sale of the
Dennys- Phoenix, AZ property to an unaffiliated party for $935,000. Total sales commissions of 6% are anticipated to be paid upon the sale, which includes a 2% commission to a General Partner affiliate. Closing is anticipated to be during the
Second Quarter of 2008.



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##### Table of Contents

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

The Company engaged Altschuler, Melvoin and Glasser LLP (AM&G) as its new independent auditor as of November 15, 2004. During the
two most recent fiscal years prior to 2004 and through the interim period ending November 15, 2004, the Company had not consulted with AM&G 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 auditor, Deloitte and
Touche.

On November 27, 2006, the Partnership was notified that a majority of the partners of AM&G, the Partnerships auditor, had become
partners of McGladrey and Pullen, LLP, (M&P) and, as a consequence, that AM&G was compelled to resign and would no longer be the auditor of the Partnership. M&P was appointed as the Partnerships new auditor as of
November 27, 2006.

The reports of AM&G 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 two most recent fiscal years
prior to 2006 and through the interim period ending November 27, 2006, the Company had not consulted with M&P 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 auditor, AM&G.

Item 9a. Control and Procedures

Controls and Procedures

As of December 31, 2007, the Partnerships Chief Executive Officer and Chief Financial Officer, have concluded
that the Partnerships controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective based on the evaluation of these controls and procedures required by paragraph
(b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, as amended.

Managements Report on
Internal Control over Financial Reporting

The Partnerships management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Partnerships management assessed the effectiveness of the internal control over financial reporting as of December 31, 2007. In
making this assessment, the Partnerships management used the criteria set forth by the Securities and Exchange Commission in Release No. 34-55959 and the interpretive guidance issued thereunder (as permitted in Rules 13a-15(c) and
15d-15(c) under the Securities Exchange Act of 1934, as amended). The Partnerships management has concluded that, as of



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December 31, 2007, the internal control over financial reporting is effective based on these criteria. Further, there were no changes in the
Partnerships controls over financial reporting during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

The Partnerships management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures of the
internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have been detected.

This Form 10-K does not include an attestation report of
the Partnerships registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Partnerships registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Partnership to provide only managements report in this Annual Report.



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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 as amemded (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 57 -
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 five 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, 2007, the following person is known to beneficially own 5% or more of the outstanding Interests as follows:



|                              |  |                                                     |  |                            |  |                                      |  
|----------------------------- |  | --------------------------------------------------- |  | -------------------------- |  | ------------------------------------ | -
|Title of Class                |  | Name and Address of Beneficial Owner                |  | InterestsBeneficiallyOwned |  | Percentage ofInterests ofOutstanding |  
|Limited Partnership Interests |  | Jesse Small 401 NW 10thTerrace Hallandale, FL 33009 |  | 3,711                      |  | 8.02                                 | %

(b.) As of December 31, 2007, 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



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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 Consumer
Price Index (CPI) for the immediately preceding calendar year. Effective March 1, 2007, the minimum annual Base Fee and the maximum Expense reimbursement increased by 3.23%, which represents the allowable annual Consumer Price Index
adjustment per the PMA. Therefore, as of March 1, 2007 the minimum monthly Base Fee paid by the Partnership was raised to $18,945 and the maximum monthly Expense reimbursement was raised to $1,528. 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, 2007 the Partnership had fully funded the Trust.

The Partnership paid and/or accrued
the following to management and its affiliates in 2007.

The Provo Group, Inc.:



|                           |  |   |        
|-------------------------- |  | - | -------
|Management Fees            |  | $ | 225,657
|Restoration Fees           |  |   | 497    
|Sales Commission           |  |   | 48,000 
|Leasing Commission         |  |   | 58,365 
|Office Overhead Allowance  |  |   | 18,246 
|Direct Cost Reimbursements |  |   | 7,250  
|Cash Distributions         |  |   | 8,444  
|                           |  |   |        
|2007 Total                 |  | $ | 366,459
|                           |  |   |        



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Item 14. Principal Accounting Firm Fees and Services

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 was replaced with a similar relationship with RSM. AM&G managed and supervised the audit and audit
staff, and was exclusively responsible for the opinion rendered in connection with its examination. Effective November 27, 2006, the Partnership was notified that a majority of the partners of AM&G, the Partnerships auditor, had
become partners of McGladrey and Pullen, LLP, (M&P) and, as a consequence, that AM&G was compelled to resign and would no longer be the auditor of the Partnership. M&P was appointed as the Partnerships new auditors as
of November 27, 2006.

Aggregate fees for audit services provided by the Partnerships principal accounting firm, M&P, to the Partnership for
the year ended December 31, 2007, amounted to $47,500. Aggregate fees for audit services provided by the Partnerships principal accounting firm, M&P, to the Partnership for the year ended December 31, 2006, amounted to $36,625.

Aggregate fees for interim review services provided by the Partnerships principal accounting firm, M&P, to the Partnership for the year ended
December 31, 2007, amounted to $11,850. Aggregate fees for audit and interim review services provided by the Partnerships previous principal accounting firm, AM&G, to the Partnership for the year ended December 31, 2006, amounted
to $11,550.

Tax compliance services for 2007 and 2006 were provided by RSM, for which fees amounted to $21,000 and $18,400, respectively.

For the year ended December 31, 2007 and 2006, M&P, AM&G and RSM 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 year
ended December 31, 2006 amounted to $2,000 (represented the fee for the 2004 opinion reissue.)



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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, 2007 and 2006

Statements of Income for the Years Ended December 31, 2007, 2006, and 2005

Statements of Partners Capital for the Years
Ended December 31, 2007, 2006, and 2005

Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005

Notes to Financial Statements



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

Schedule III - Real Estate
and Accumulated Depreciation, December 31, 2007



| | 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, 2008 regarding the Fourth Quarter 2007 distribution.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | 99.1 | Audited Financial Statements of Wencoast Restaurants, Inc. for the fiscal years
| | ---- | -------------------------------------------------------------------------------

Ended January 1, 2006 and December 31, 2006, 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

The Registrant filed Form 8-K on November 30, 2006

The Registrant filed Form 8-K/A on December 21, 2006



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION

DECEMBER 31, 2007



|                              |  |              |   |                             |   |                         |  |                                             |           |      |   |                          |  |       |           |                                                                            |   |                     |  |              |            |  |   |           |  |      |  |          |  |     
|----------------------------- |  | ------------ | - | --------------------------- | - | ----------------------- |  | ------------------------------------------- | --------- | ---- | - | ------------------------ |  | ----- | --------- | -------------------------------------------------------------------------- | - | ------------------- |  | ------------ | ---------- |  | - | --------- |  | ---- |  | -------- |  | ----
|                              |  |              |   | Initial Cost to Partnership |   |                         |  | Gross Amount at whichCarried at End of Year |           |      |   |                          |  |       |           | Life on whichDepreciationin lateststatementof operationsis computed(years)
|Property                      |  | Encumbrances |   | Land                        |   | BuildingandImprovements |  | CostsCapitalizedSubsequentto Acquisitions   |           | Land |   | Building andImprovements |  | Total |           | AccumulatedDepreciation                                                    |   | Date ofConstruction |  | DateAcquired |           
|Phoenix, Arizona              |  |              |  |                             | $ | 444,224                 |  | $                                           | 421,676   |      |   |                         |  | $     | 444,224   |                                                                            | $ | 421,676             |  | $            | 865,900    |  | $ | 285,905   |  |     |  | 6/15/88  |  | 31.5
|Phoenix, Arizona (1)          |  |              |  |                             |   | 482,383                 |  |                                             | 490,343   |      |   |                         |  |       | 453,433   |                                                                            |   | 428,676             |  |              | 882,109    |  |   | 289,083   |  |     |  | 8/15/88  |  | 31.5
|Santa Fe, New Mexico          |  |              |  |                             |   |                        |  |                                             | 451,230   |      |   |                         |  |       |          |                                                                            |   | 451,230             |  |              | 451,230    |  |   | 275,778   |  |     |  | 10/10/88 |  | 31.5
|Augusta, Georgia (2)          |  |              |  |                             |   | 215,416                 |  |                                             | 434,178   |      |   |                         |  |       | 213,226   |                                                                            |   | 434,177             |  |              | 647,403    |  |   | 272,313   |  |     |  | 12/22/88 |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,619                 |  |                                             | 323,162   |      |   |                         |  |       | 273,619   |                                                                            |   | 323,162             |  |              | 596,781    |  |   | 202,685   |  |     |  | 12/22/88 |  | 31.5
|Park Forest, Illinois (3)     |  |              |  |                             |   | 187,900                 |  |                                             | 393,038   |      |   |                         |  |       | 179,450   |                                                                            |   | 393,038             |  |              | 572,488    |  |   | 246,511   |  |     |  | 12/22/88 |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 402,549                 |  |                                             | 373,795   |      |   |                         |  |       | 402,549   |                                                                            |   | 373,795             |  |              | 776,344    |  |   | 233,236   |  |     |  | 2/21/89  |  | 31.5
|Augusta, Georgia              |  |              |  |                             |   | 332,154                 |  |                                             | 396,659   |      |   |                         |  |       | 332,154   |                                                                            |   | 396,659             |  |              | 728,813    |  |   | 247,502   |  |     |  | 2/21/89  |  | 31.5
|Mt. Pleasant, South Carolina  |  |              |  |                             |   | 286,060                 |  |                                             | 294,878   |      |   |                         |  |       | 286,060   |                                                                            |   | 294,878             |  |              | 580,938    |  |   | 183,994   |  |     |  | 2/21/89  |  | 31.5
|Charleston, South Carolina    |  |              |  |                             |   | 273,625                 |  |                                             | 254,500   |      |   |                         |  |       | 273,625   |                                                                            |   | 254,500             |  |              | 528,125    |  |   | 158,800   |  |     |  | 2/21/89  |  | 31.5
|Aiken, South Carolina         |  |              |  |                             |   | 178,521                 |  |                                             | 455,229   |      |   |                         |  |       | 178,521   |                                                                            |   | 455,229             |  |              | 633,750    |  |   | 284,048   |  |     |  | 3/14/89  |  | 31.5
|Des Moines, Iowa (1)          |  |              |  |                             |   | 164,096                 |  |                                             | 448,529   |      | $ | 287,991                  |  |       | 161,996   |                                                                            |   | 551,057             |  |              | 713,053    |  |   | 364,726   |  | 1989 |  | 8/1/89   |  | 31.5
|North Augusta, South Carolina |  |              |  |                             |   | 250,859                 |  |                                             | 409,297   |      |   |                         |  |       | 250,859   |                                                                            |   | 409,297             |  |              | 660,156    |  |   | 240,722   |  |     |  | 12/29/89 |  | 31.5
|Martinez, Georgia             |  |              |  |                             |   | 266,175                 |  |                                             | 367,575   |      |   |                         |  |       | 266,175   |                                                                            |   | 367,575             |  |              | 633,750    |  |   | 216,184   |  |     |  | 12/29/89 |  | 31.5
|Grand Forks, North Dakota     |  |              |  |                             |   | 172,701                 |  |                                             | 566,674   |      |   |                         |  |       | 172,701   |                                                                            |   | 566,674             |  |              | 739,375    |  |   | 333,281   |  |     |  | 12/28/89 |  | 31.5
|Columbus, Ohio                |  |              |  |                             |   | 351,325                 |  |                                             | 708,141   |      |   |                         |  |       | 351,325   |                                                                            |   | 708,140             |  |              | 1,059,465  |  |   | 404,805   |  |     |  | 6/1/90   |  | 31.5
|                              |  |              |   |                             |   |                         |  |                                             |           |      |   |                          |  |       |           |                                                                            |   |                     |  |              |            |  |   |           |  |      |  |          |  |     
|                              |  | $            | 0 |                             | $ | 4,281,607               |  | $                                           | 6,788,904 |      | $ | 287,991                  |  | $     | 4,239,917 |                                                                            | $ | 6,829,763           |  | $            | 11,069,680 |  | $ | 4,239,573 |  |      |  |          |  |     
|                              |  |              |   |                             |   |                         |  |                                             |           |      |   |                          |  |       |           |                                                                            |   |                     |  |              |            |  |   |           |  |      |  |          |  |     



|(1) | This property was written down to its estimated net realizable value at December 31, 1998. In January of 2008, a listing agreement was executed for the sale of the property.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 the Fourth Quarter of 2007, a small strip of the land was purchased from the Partnership by the Illinois Department of Transportation to be used as street right of way.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2007

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



|                                                           |  |                            |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|---------------------------------------------------------- |  | -------------------------- | ---------- | - | -------------------------- | - | ---------- | ------------------------ |  | ---------------------------------------------------------- |  | - | -------------------------- | - |  | - | --------- | -
|Investment in Real Estate                                  |  | Year EndedDecember 31,2007 |            |   | Year EndedDecember 31,2006 |   |            | Accumulated Depreciation |  | Year EndedDecember 31,2007                                 |  |   | Year EndedDecember 31,2006 |  
|Balance at beginning of year                               |  | $                          | 12,305,493 |   |                            | $ | 13,389,996 |                          |  | Balance at beginning of year                               |  | $ | 4,470,221                  |   |  | $ | 4,691,206 |  
|Additions: Blockbuster- Ogden, UT (5)                      |  |                            | 21,290     |   |                            |   |            |                          |  | Additions charged to costs and expenses                    |  |   | 208,287                    |   |  |   | 236,307   |  
|Deletions: Sunrise Preschool- Phoenix, AZ Reclassified (1) |  |                            |            |   |                            |   | (1,084,503 | )                        |  | Sunrise Preschool- Phoenix, AZ Reclassified (1)            |  |   |                            |   |  |   | (457,292  | )
|Wendys- 1515 Savannah Hwy, Charleston, SC Reclassifed (2) |  |                            | (580,938   | ) |                            |   |            |                          |  | Wendys- 1515 Savannah Hwy, Charleston, SC Reclassifed (2) |  |   | (166,677                   | ) |  |   |           |  
|Blockbuster- Ogden, UT Reclassified (3)                    |  |                            | (667,715   | ) |                            |   |            |                          |  | Blockbuster- Ogden, UT Reclassified (2)                    |  |   | (272,258                   | ) |  |   |           |  
|Popeyes- Park Forest, IL (4)                              |  |                            | (8,450     | ) |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|                                                           |  |                            |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  
|Balance at end of year                                     |  | $                          | 11,069,680 |   |                            | $ | 12,305,493 |                          |  | Balance at end of year                                     |  | $ | 4,239,573                  |   |  | $ | 4,470,221 |  
|                                                           |  |                            |            |   |                            |   |            |                          |  |                                                            |  |   |                            |   |  |   |           |  



|(1) | This property was reclassified to property held for sale in the Second Quarter of 2006 and sold in the Second Quarter of 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(2) | This property was reclassified to property held for sale in the First Quarter of 2007.
|--- | --------------------------------------------------------------------------------------

|(3) | This property was reclassified to property held for sale in the Second Quarter of 2007.
|--- | ---------------------------------------------------------------------------------------

|(4) | A small strip of land was sold to the Illinois Department of Transportation to be used for street right of way in the Fourth Quarter of 2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Capitalized roofing expenditures were incurred at the Blockbuster, Ogden, UT property in the Second Quarter of 2007.
|--- | --------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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 11, 2008

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 11, 2008



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