<PAGE>

                                   FORM 10-Q

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549

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

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

                                            OR

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

     For the transition period from ___________________ to _________________

                        Commission file number 0-17686

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


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


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

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



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

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

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X  No____
                                        ---
<PAGE>

                        PART I - FINANCIAL INFORMATION
                         Item 1.  Financial Statements

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
                                 BALANCE SHEETS

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

                                     ASSETS
<TABLE>
<CAPTION>
                                                        (Unaudited)
                                                         March 31,     December 31,
                                                           2001           2000
                                                        -----------    -----------
<S>                                                     <C>            <C>
INVESTMENT PROPERTIES AND EQUIPMENT: (Note 3)
     Land                                               $ 7,298,596    $ 7,298,596
     Buildings                                           11,902,463     11,902,463
     Equipment                                              669,778        669,778
     Accumulated depreciation                            (5,781,080)    (5,694,980)
                                                        -----------    -----------

          Net investment properties and equipment        14,089,757     14,175,857
                                                        -----------    -----------


OTHER ASSETS:
     Cash and cash equivalents                            1,025,117       7 52,060
     Cash held in Indemnification Trust (Note 8)            362,183        356,153
     Rents and other receivables                            116,156        530,379
     Deferred rent receivable                               103,508        105,684
     Prepaid insurance                                       11,264         16,091
     Deferred charges                                       270,711        263,407
                                                        -----------    -----------
          Total other assets                              1,888,939      2,023,774
                                                        -----------    -----------
          Total assets                                  $15,978,696    $16,199,631
                                                        ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       2
<PAGE>

            DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                                BALANCE SHEETS

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

                       LIABILITIES AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                        (Unaudited)
                                                                         March 31,      December 31,
                                                                           2001            2000
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
LIABILITIES:
     Accounts payable and accrued expenses                              $     36,213   $     40,059
     Due to current General Partner                                            1,300          2,667
     Security deposits                                                       117,850        117,850
     Unearned rental income                                                  120,995         85,407
                                                                        ------------   ------------

          Total liabilities                                                  276,358        245,983
                                                                        ------------   ------------

CONTINGENT LIABILITIES: (Note 7)

PARTNERS' CAPITAL: (Notes 1, 4 and 9)
     Current General Partner -
        Cumulative net income                                                158,088        154,838
        Cumulative cash distributions                                        (65,306)       (64,006)
                                                                        ------------   ------------
                                                                              92,782         90,832
                                                                        ------------   ------------

     Limited Partners (46,280.3 interests outstanding)
        Capital contributions, net of offering costs                      39,358,468     39,358,468
        Cumulative net income                                             22,016,585     21,694,845
        Cumulative cash distributions                                    (44,925,268)   (44,350,268)
        Reallocation of former general partners' deficit capital            (840,229)      (840,229)
                                                                        ------------   ------------

                                                                          15,609,556     15,862,816
                                                                        ------------   ------------
          Total partners' capital                                         15,702,338     15,953,648
                                                                        ------------   ------------

          Total liabilities and partners' capital                       $ 15,978,696   $ 16,199,631
                                                                        ============   ============
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       3
<PAGE>

            DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                             STATEMENTS OF INCOME

                                  (Unaudited)
                                  -----------

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                              ----------------------------
                                                                2001                2000
                                                              --------            --------
<S>                                                           <C>                 <C>
REVENUES:
   Rental income (Note 5)                                      $589,482            $566,813
   Interest income                                               14,173              15,197
   Recovery of amounts previously written off                     2,781               1,391
   Other income                                                     185                 267
                                                               --------            --------
                                                                606,621             583,668
                                                               --------            --------
EXPENSES:
   Partnership management fees (Note 6)                          47,386              46,235
   Restoration fees (Note 6)                                        111                  56
   Insurance                                                      4,827               4,375
   General and administrative                                    29,835              21,258
   Advisory Board fees and expenses                               4,275               4,017
   Ground lease payments (Note 3)                                16,852              31,372
   Professional services                                         89,110              31,664
   Depreciation                                                  86,100              88,098
   Amortization                                                   3,135               3,328
                                                               --------            --------
                                                                281,631             230,403
                                                               --------            --------

NET INCOME                                                     $324,990            $353,265
                                                               ========            ========

NET INCOME - CURRENT GENERAL PARTNER                           $  3,250            $  3,533
NET INCOME - LIMITED PARTNERS                                   321,740             349,732
                                                               --------            --------

                                                               $324,990            $353,265
                                                               ========            ========

NET INCOME (LOSS) PER LIMITED PARTNERSHIP
  INTEREST, based on 46,280.3 Interests outstanding            $   6.95            $   7.56
                                                               ========            ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       4
<PAGE>

            DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                           STATEMENTS OF CASH FLOWS

                                  (Unaudited)
                                  -----------

<TABLE>
<CAPTION>
                                                                    Three Months Ended March 31,
                                                                    -----------------------------
                                                                           2001         2000
                                                                        ----------   ----------
<S>                                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                           $  324,990   $  353,265
   Adjustments to reconcile net income to net
      cash provided by operating activities -
           Depreciation and amortization                                    89,235       91,426
           Recovery of amounts previously written off                       (2,781)      (1,391)
           Interest applied to Indemnification Trust account                (6,030)      (4,321)
           Decrease in rents and other receivables                         414,223      398,130
           Decrease in prepaids                                              4,827        4,122
           Decrease in deferred rent receivable                              2,176        8,419
           (Decrease) in due to current General Partner                     (1,367)        (190)
           (Decrease) in accounts payable and other                         (3,846)     (15,527)
           Increase in real estate taxes payable                                 0       13,867
           Increase/(Decrease) in unearned rental income                    35,588      (16,460)
                                                                        ----------   ----------

               Net cash from operating activities                          857,015      831,340
                                                                        ----------   ----------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

   Payment of Deferred Leasing Commissions                                 (10,439)           0
   Recoveries from former affiliates                                         2,781        1,391
                                                                        ----------   ----------

               Net cash (used in) from investing activities                 (7,658)       1,391
                                                                        ----------   ----------

CASH FLOWS (USED IN) FINANCING ACTIVITIES:

   Cash distributions to Limited Partners                                 (575,000)    (985,000)
   Cash distributions to current General Partner                            (1,300)      (1,414)
                                                                        ----------   ----------

               Net cash (used in) financing activities                    (576,300)    (986,414)
                                                                        ----------   ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       273,057     (153,683)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           752,060    1,387,306
                                                                        ----------   ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                              $1,025,117   $1,233,623
                                                                        ==========   ==========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       5
<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS


These unaudited interim financial statements should be read in conjunction with
DiVall Insured Income Properties 2 Limited Partnership's (the "Partnership")
2000 annual audited financial statements within Form 10-K.

These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of March 31, 2001, and the results of operations for the three-month
periods ended March 31, 2001, and 2000, and cash flows for the three-month
periods ended March 31, 2001 and 2000.  Results of operations for the periods
are not necessarily indicative of the results to be expected for the full year.


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

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

The Partnership is currently engaged in the business of owning and operating its
investment portfolio (the "Properties") of commercial real estate. The
Properties are leased on a triple net basis to, and operated by, franchisers or
franchisees of national, regional, and local retail chains under long-term
leases.  The lessees consist primarily of fast-food, family style, and
casual/theme restaurants, but also include a video rental store and a child care
center.  At March 31, 2001, the Partnership owned 25 properties with specialty
leasehold improvements in 12 of these properties.

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

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

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

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

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


Cash and cash equivalents include cash on deposit with financial institutions
and highly liquid temporary

                                       6
<PAGE>

investments with initial maturities of 90 days or less.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (and disclosure of
contingent assets and liabilities) at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

The Partnership follows Statement of Financial Accounting Standards No.121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, which requires that all long-lived assets be
reviewed for impairment in value whenever changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.

The Partnership will be dissolved on November 30, 2010, or earlier upon the
prior occurrence of any of the following events:  (a) the disposition of all
properties of the Partnership; (b) the written determination by the General
Partner that the Partnership's assets may constitute "plan assets" for purposes
of ERISA; (c) the agreement of Limited Partners owning a majority of the
outstanding interests to dissolve the Partnership; or (d) the dissolution,
bankruptcy, death, withdrawal, or incapacity of the last remaining General
Partner, unless an additional General Partner is elected previously by a
majority in interest of the Limited Partners.  During the Second Quarter of
1998, the General Partner received the consent of the Limited Partners to
liquidate the Partnership's assets and dissolve the Partnership.  However, a
buyer was not found for the Partnership's assets, and no current liquidation or
dissolution plans are in effect.  Management plans to continue normal operations
for the Partnership for the foreseeable future.

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, 2000, the tax basis of the Partnership's assets exceeded the
amounts reported in the accompanying financial statements by approximately
$8,318,000.

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

A preliminary investigation during 1992 by the Office of Commissioner of
Securities for the State of Wisconsin and the Securities and Exchange Commission
(the "Investigation") revealed that during at least the four years ended
December 31, 1992, the former general partners of the Partnership, Gary J.
DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial
cash assets of the Partnership and two affiliated publicly registered
partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1")
(dissolved effective December 31, 1998) and DiVall Income Properties 3 Limited
Partnership ("DiVall 3") (collectively the "Partnerships") to various other
entities previously sponsored by or otherwise affiliated with DiVall and
Magnuson.  The unauthorized transfers were in violation of the respective
Partnership Agreements and resulted, in part, from material weaknesses in the
internal control system of the Partnerships.

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

In 1993, the current General Partner estimated an aggregate recovery of $3
million for the Partnerships.  At that time, an allowance was established
against amounts due from former general partners and their affiliates reflecting
the estimated $3 million receivable.  This net receivable was allocated among
the Partnerships based on each Partnership's pro rata share of the total
misappropriation.  Through March 31, 2001, $5,794,000 of recoveries have been
received which exceeded the original estimate of $3 million.  As a  result,
since 1996, the Partnership has recognized $1,120,000 as income, which
represents its share of the excess recovery. No further significant recoveries
are anticipated.

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

                                       7
<PAGE>

As of March 31, 2001, the Partnership owned 25 fully constructed fast-food
restaurants, a video store, and a preschool.  The properties are comprised of
the following:  ten (10) Wendy's restaurants, four (4) Hardee's restaurants, two
(2) Denny's restaurants, one (1) Fiesta Time restaurant, one (1) Mulberry Street
Grill restaurant, one (1) Applebee's restaurant, one (1) Popeye's Famous Fried
Chicken restaurant,  one (1) Hooter's restaurant, one (1) Kentucky Fried Chicken
restaurant, one (1) Hostettler's restaurant, one (1) Miami Subs restaurant, one
(1) Village Inn restaurant, one (1) Blockbuster Video store, and one (1) Sunrise
Preschool.  The 25 properties are located in a total of thirteen (13) states.

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

During March 2001, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurants in South Milwaukee and Milwaukee, Wisconsin.  Hardee's
lease on the South Milwaukee property expires on November 30, 2001 and they will
be required to continue making rent payments until that time or until a lease
termination agreement is entered into.  Management will market the property for
lease to a new tenant. Hardee's lease on the Milwaukee property does not expire
until 2009, and Hardee's is required to continue making rent payments until that
time or until a lease termination agreement is entered into.  Management will
market the property for sale or re-lease.

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

During the Fourth Quarter of 2000, Management negotiated the extension of the
leases on the ten (10) Wendy's restaurants from original expirations ranging
from 2008 to 2009, to new expirations dates of November 2016.  A commission of
$190,000 was paid to an affiliate of the General Partner upon the negotiated
extension of the leases.

The Partnership owns two (2) restaurants, Kentucky Fried Chicken and Mulberry
Street Grill restaurant, which are located on parcels of land where it has
entered into long-term ground leases.  One (1) of these leases is paid by the
tenant, Kentucky Fried Chicken, and one (1) is paid by the Partnership.  The
lease paid by the Partnership is considered an operating lease and the lease
payments are expensed in the periods to which they apply.  The lease terms
require aggregate minimum annual payments of approximately $67,000 and expire in
the year 2008.

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

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

The current General Partner receives a fee for managing the Partnership equal to
4% of gross receipts, with a maximum reimbursement for office rent and related
office overhead of $25,000 between the three original affiliated Partnerships as
provided in the Permanent Manager Agreement ("PMA").  Effective March 1, 2001,
the minimum management fee and the maximum reimbursement for office rent and
overhead increased by 3.4% representing the allowable annual Consumer Price
Index adjustment per the PMA.  For purposes of computing the 4% overall fee,
gross receipts includes amounts recovered in connection with the
misappropriation of assets by the former general partners and their affiliates.
TPG has received fees from the Partnership totaling $55,296 to date on the
amounts recovered, which has been offset against the 4% minimum fee.

                                       8
<PAGE>

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

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

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

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

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

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

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

                                       9
<PAGE>

5.   LEASES:
     -------

Lease terms for the majority of the investment properties are 20 years from
their inception.  The leases generally provide for minimum rents and additional
rents based upon percentages of gross sales in excess of specified breakpoints.
The lessee is responsible for occupancy costs such as maintenance, insurance,
real estate taxes, and utilities.  Accordingly, these amounts are not reflected
in the statements of income except in circumstances where, in management's
opinion, the Partnership will be required to pay such costs to preserve its
assets (i.e., payment of past-due real estate taxes).  Management has determined
that the leases are properly classified as operating leases; therefore, rental
income is reported when earned and the cost of the property, excluding the cost
of the land, is depreciated over its estimated useful life.

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

               Year ending
               December 31,
               2001                                  $ 2,118,563
               2002                                    2,098,296
               2003                                    2,050,756
               2004                                    2,074,663
               2005                                    2,085,617
               Thereafter                             15,627,591
                                                     -----------
                                                     $26,055,486
                                                     ===========

Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of
Wendy's restaurants. Wensouth base rents accounted for 37% of total base rents
for 2000.

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

Amounts paid to the current General Partner for the three-month periods ended
March 31, 2001 and 2000 are as follows.

                                            Incurred as of  Incurred as of
Current General Partner                     March 31, 2001  March 31, 2000
-----------------------                     --------------  --------------

Management fees                                    $47,386         $46,235
Restoration fees                                       111              56
Overhead allowance                                   3,832           3,735
Reimbursement for out-of-pocket expenses             4,137           4,186
Cash distribution                                    1,300           1,414
                                                   -------         -------
                                                   $56,766         $55,626
                                                   =======         =======

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 in escrow 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 escrow amounts will be paid to the current General Partner.
At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining
escrow

                                       10
<PAGE>

disposition fees shall be paid to the current General Partner.  If such
levels of recovery are not achieved, the current General Partner will contribute
the amounts in escrow towards the recovery.  In lieu of an escrow, 50% of all
such disposition fees have been paid directly to the restoration account and
then distributed among the three Partnerships.  Fifty percent (50%) of the total
amount paid to the recovery was refunded to the current General Partner during
March 1996 after surpassing the recovery level of $4,500,000.  The remaining
amount allocated to the Partnership may be owed to the current General Partner
if the $6,000,000 recovery level is met.  As of March 31, 2001, the Partnership
may owe the current General Partner $16,296, which is currently reflected as a
recovery, if the $6,000,000 recovery level is achieved, which is considered
unlikely.


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 March
31, 2001.  Funds are invested in U.S. Treasury securities.  In addition,
$112,183 of earnings have been credited to the Trust as of March 31, 2001.  The
rights of the Permanent Manager to the Trust shall be terminated upon the
earliest to occur of the following events:  (i) the written release by the
Permanent Manager of any and all interest in the Trust; (ii) the expiration of
the longest statute of limitations relating to a potential claim which might be
brought against the Permanent Manager and which is subject to indemnification;
or (iii) a determination by a court of competent jurisdiction that the Permanent
Manager shall have no liability to any person with respect to a claim which is
subject to indemnification under the PMA.  At such time as the indemnity
provisions expire or the full indemnity is paid, any funds remaining in the
Trust will revert back to the general funds of the Partnership.

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

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

10.  SUBSEQUENT EVENTS:
     ------------------

On May 15, 2001, the Partnership will make distributions to the Limited Partners
for the First Quarter of 2001 of $540,000 amounting to approximately $11.67 per
limited partnership interest.

During April 2001, Mulberry Street Grill Restaurant notified Management of its
intent to close and vacate its restaurant in Phoenix, Arizona.  The lease on the
property expires in 2007 and they will be required to continue making rent
payments until that time or until a lease termination agreement is entered into.
Management is moving forward with all legal remedies.

                                       11
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
     of Operations

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

Investment Properties
---------------------

The investment properties, including equipment held by the Partnership at March
31, 2001, were originally purchased at a price, including acquisition costs, of
approximately $23,295,000.

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

During April 2001, Mulberry Street Grill Restaurant notified Management of its
intent to close and vacate its restaurant in Phoenix, Arizona.  The lease on the
property expires in 2007 and they will be required to continue making rent
payments until that time or until a lease termination agreement is entered into.
Management is moving forward with all legal remedies.

During March 2001, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurants in South Milwaukee and Milwaukee, Wisconsin.  Hardee's
lease on the South Milwaukee property expires on November 30, 2001 and they will
be required to continue making rent payments until that time or until a lease
termination agreement is entered into.  Management will market the property for
lease to a new tenant.  Hardee's lease on the Milwaukee property does not expire
until 2009, and Hardee's is required to continue making rent payments until that
time or until a lease termination agreement is entered into.  Management will
market the property for sale or re-lease.

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

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

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

Cash and cash equivalents were approximately $1,025,000 at March 31, 2001,
compared to $752,000 at December 31, 2000.  The Partnership designated cash of
$540,000 to fund the First Quarter 2001 distributions to Limited Partners,
$431,000 for the payment of accounts payable and accrued expenses, and the
remainder represents reserves deemed necessary to allow the Partnership to
operate normally.  Cash generated through the operations of the Partnership's
investment properties and sales of investment properties will provide the
sources for future fund liquidity and Limited Partner distributions.

The Partnership established an Indemnification Trust (the "Trust") during the
Fourth Quarter of 1993, deposited $100,000 in the Trust during 1993 and
completed funding of the Trust with $150,000 during

                                       12
<PAGE>

1994. The provision to establish the Trust was included in the PMA for the
indemnification of TPG, in the absence of fraud or gross negligence, from any
claims or liabilities that may arise from TPG acting as Permanent Manager. The
Trust is owned by the Partnership. For additional information regarding the
Trust refer to Note 8 to the financial statements.

Deferred charges totaled approximately $271,000 and $263,000, net of
amortization, at March 31, 2001 and December 31, 2000, respectively.  Deferred
charges represent leasing commissions paid when properties are leased or upon
the negotiated extension of a lease.  Leasing commissions are capitalized and
amortized over the life of the lease.  During the First Quarter of 2001, a
commission of $10,000 was paid to an unaffiliated leasing agent upon the
negotiated extension of the lease with Blockbuster Video.  During the Fourth
Quarter of 2000, a commission of $190,000 was paid to an affiliate of the
General Partner upon the negotiated extension of the leases on the ten (10)
Wendy's restaurants.

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

Accounts payable and accrued expenses at March 31, 2001, in the amount of
$36,000, primarily represent the accrual of auditing fees.

Due to the Current General Partner amounted to $1,300 at March 31, 2001,
representing the General Partner's portion of the First Quarter 2001
distribution.

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

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

Cash distributions paid to the Limited Partners and to the General Partner
during 2001 of $575,000 and $1,300, respectively, have also been in accordance
with the amended Partnership Agreement.  The First Quarter 2001 distribution of
$540,000 will be paid to the Limited Partners on May 15, 2001.

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

The Partnership reported net income for the quarter ended March 31, 2001, in the
amount of $325,000 compared to net income for the quarter ended March 31, 2000,
of $353,000.

Revenues
--------

Total revenues were $607,000 and $584,000, for the quarters ended March 31, 2001
and 2000, respectively.

Total revenues should approximate $2,100,000 annually, based on leases currently
in place.  Future revenues may decrease with tenant defaults and/or sales of
Partnership properties.  They may also increase with additional rents due from
tenants, if those tenants experience sales levels which require the payment of
additional rent to the Partnership.

                                       13
<PAGE>

Expenses
--------

For the quarters ended March 31, 2001 and 2000, cash expenses amounted to
approximately 32% and 24%, of total revenues, respectively. Total expenses,
including non-cash items, amounted to approximately 46% and 39%, of total
revenues for the quarters ended March 31, 2001 and 2000, respectively.

The increase in total expenses is primarily due to appraisals being performed in
the First Quarter of 2001 on all the Partnership properties.

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.  If inflation causes operating margins to deteriorate for lessees
if expenses grow faster than revenues, then, inflation may well negatively
impact the portfolio through tenant defaults.

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


Item 3.   Quantitative and Qualitative Disclosure About Market Risk

None.

                                       14
<PAGE>

                          PART II - OTHER INFORMATION


Items 1 - 5.

Not Applicable.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Listing of Exhibits:

     99.0 Correspondence to the Limited Partners dated May 15, 2001, regarding
          the First Quarter 2001 distribution.

(b)  Reports on Form 8-K:

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

                                       15
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, there unto 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:  May 15, 2001


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



By:  The Provo Group, Inc., General Partner


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


Date:  May 15, 2001



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

Date:  May 15, 2001

                                       16