<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     September 30,2001
                                        --------------------------------

                                       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

                    September 30, 2001 and December 31, 2000
                    ----------------------------------------

                                     ASSETS

<TABLE>
<CAPTION>
                                                             (Unaudited)
                                                            September 30,   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                             (5,953,280)     (5,694,980)

                  Net investment properties and equipment     13,917,557      14,175,857

OTHER ASSETS:
         Cash and cash equivalents                               796,217         752,060
         Cash held in Indemnification Trust (Note 8)             369,945         356,153
            Property tax escrow                                    7,875               0
            Rents and other receivables                          250,736         530,379
         Deferred rent receivable                                104,569         105,684
         Prepaid insurance                                         1,609          16,091
            Deferred charges                                     289,562         263,407
            Note receivable (Note 3)                              78,500               0

                  Total other assets                           1,899,013       2,023,774

                  Total assets                              $ 15,816,570    $ 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

                    September 30, 2001 and December 31, 2000
                    ----------------------------------------

                        LIABILITIES AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                       (Unaudited)
                                                                      September 30,    December 31,
                                                                          2001             2000
                                                                      -------------    ------------
<S>                                                                   <C>              <C>
LIABILITIES:
         Accounts payable and accrued expenses                         $    102,069    $     40,059
         Property taxes payable                                               7,875               0
         Due to current General Partner                                       1,838           2,667
         Security deposits                                                  109,017         117,850
         Unearned rental income                                              42,121          85,407
                                                                       ------------    ------------

                   Total liabilities                                        262,920         245,983

CONTINGENT LIABILITIES: (Note 7)

PARTNERS' CAPITAL: (Notes 1, 4 and 9)
         Current General Partner -
            Cumulative net income                                           167,689         154,838
            Cumulative cash distributions                                   (69,146)        (64,006)
                                                                       ------------    ------------
                                                                             98,543          90,832
                                                                       ------------    ------------

         Limited Partners (46,280.3 interests outstanding)
            Capital contributions, net of offering costs                 39,358,468      39,358,468
            Cumulative net income                                        22,967,136      21,694,845
            Cumulative cash distributions                               (46,030,268)    (44,350,268)
            Reallocation of former general partners' deficit capital       (840,229)       (840,229)
                                                                       ------------    ------------

                                                                         15,455,107      15,862,816
                                                                       ------------    ------------

                  Total partners' capital                                15,553,650      15,953,648
                                                                       ------------    ------------


                  Total liabilities and partners' capital              $ 15,816,570    $ 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                  Nine Months Ended
                                                                    ------------------                  -----------------
                                                                       September 30,                       September 30,
                                                                       ------------                        ------------
                                                                   2001             2000             2001                2000
                                                                 --------         --------        ----------          ----------
<S>                                                              <C>              <C>             <C>                 <C>
REVENUES:
        Rental income (Note 5)                                   $714,777         $758,089        $1,881,903          $1,920,832
        Interest income                                             9,286           15,558            35,043              45,967
        Lease termination fee (Note 3)                                  0                0           157,000                   0
        Recovery of amount previously written off                       0            1,390             4,172               3,708
        Other income                                                   26               55               344               1,501
                                                                 --------         --------        ----------          ----------
                                                                  724,089          775,092         2,078,462           1,972,008
                                                                 --------         --------        ----------          ----------

EXPENSES:
        Partnership management fees   (Note 6)                     48,561           46,910           144,452             140,073
        Insurance                                                   4,827            4,404            14,482              13,183
        General and administrative                                 20,796           14,141            67,539              76,287
        Advisory Board fees and expenses                            2,188            2,187             8,650              10,172
        Write-off uncollectible receivables                        10,127                0            25,688               6,810
        Ground lease payments  (Note 3)                            17,902           16,511            53,705              74,272
        Expenses incurred due to default by lessee                  8,208              740             9,413               2,130
        Professional services                                      37,484           20,422           167,570              88,093
        Ground Lease Termination Fee  (Note 3)                          0           90,000                 0              90,000
        Loss on Disposal of Assets  (Note 3)                            0          142,591                 0             142,591
        Restoration fees   (Note 6)                                     0               55               167                 148
        Depreciation                                               86,100           88,098           258,300             264,294
        Amortization                                               28,272            2,758            43,354               8,843
                                                                 --------         --------        ----------          ----------
                                                                  264,465          428,817           793,320             916,896
                                                                 --------         --------        ----------          ----------

NET INCOME                                                       $459,624         $346,275        $1,285,142          $1,055,112
                                                                 ========         ========        ==========          ==========

NET INCOME - CURRENT GENERAL PARTNER                             $  4,596         $  3,463        $   12,851          $   10,551
NET INCOME - LIMITED PARTNERS                                     455,028          342,812         1,272,291           1,044,561
                                                                 --------         --------        ----------          ----------

                                                                 $459,624         $346,275        $1,285,142          $1,055,112
                                                                 ========         ========        ==========          ==========

NET INCOME PER LIMITED PARTNERSHIP
  INTEREST, based on 46,280.3 Interests outstanding              $   9.83         $   7.41        $    27.49          $    22.57
                                                                 ========         ========        ==========          ==========
</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>
                                                                                    Nine Months Ended September 30,
                                                                                    ------------------------------
                                                                                           2001           2000
                                                                                           ----           ----
<S>                                                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income                                                                   $ 1,285,142    $ 1,055,112
         Adjustments to reconcile net income to net
              cash from operating activities -
                 Depreciation and amortization                                            301,654        273,137
                 Net loss on disposal of asset                                                  0        142,591
                 Recovery of amounts previously written off                                (4,172)        (3,708)
                 Provision for uncollectible rents and receivables                         25,688          6,810
                 Interest applied to Indemnification Trust account                        (13,792)       (14,639)
                 Lease termination fee                                                   (117,750)             0
                 (Increase)/Decrease in property tax escrow                                (7,875)             0
                 Decrease in rents and other receivables                                  238,122        266,188
                 Decrease in prepaids                                                      14,482         12,930
                 Decrease in deferred rent receivable                                       1,115         19,958
                 (Decrease) in due to current General Partner                                (829)          (583)
                 Increase/(Decrease) in accounts payable and other accrued expenses        69,885         (5,069)
                 Increase/(Decrease) in Security deposits held                              7,000              0
                 (Decrease)/Increase in unearned rental income                            (43,286)         5,260
                                                                                      -----------    -----------

                           Net cash from operating activities                           1,755,384      1,757,987
                                                                                      -----------    -----------

CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
         Payments on note receivable                                                       39,250              0
         Payment of deferred leasing commissions                                          (69,509)             0
         Recoveries from former affiliates                                                  4,172          3,708
                                                                                      -----------    -----------
                           Net cash (used in) from  investing activities                  (26,087)         3,708
                                                                                      -----------    -----------

CASH FLOWS (USED IN) FINANCING ACTIVITIES:
         Cash distributions to Limited Partner                                         (1,680,000)    (2,135,000)
         Cash distributions to current General Partner                                     (5,140)        (4,220)
                                                                                      -----------    -----------

                           Net cash (used in) financing activities                     (1,685,140)    (2,139,220)
                                                                                      -----------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                       44,157       (377,525)

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                            $   796,217    $ 1,009,781
                                                                                      ===========    ===========
</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 September 30, 2001, and the results of operations for the three
and nine-month periods ended September 30, 2001, and 2000, and cash flows for
the nine-month periods ended September 30, 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 September 30, 2001, the Partnership owned 27 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 investments with initial maturities of 90 days or
less.

                                       6

<PAGE>

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

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

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. During the Second Quarter of 2001, another consent letter
was sent to Limited Partners. The General Partner did not receive majority
approval to sell the assets of the Partnership for purposes of liquidation. The
Partnership will continue to operate as a going concern.

No provision for Federal income taxes has been made, as any liability for such
taxes would be that of the individual partners rather than the Partnership. At
December 31, 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 oneach Partnership's pro rata share of the total
misappropriation. Through September 30, 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.

                                       7

<PAGE>

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

As of September 30, 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, three (3) Hardee's restaurants, two (2)
Denny's restaurants, one (1) Fiesta Time 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) Omega Restaurant, one (1) Blockbuster Video store, one (1) Sunrise
Preschool, and one (1) vacant property, which was previously operated as a
Mulberry Street Grill restaurant. The 27 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 a $153,000 loss in 2000.

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

During May 2001, Management negotiated the re-lease of the former
Hardee's-Wisconsin property to Omega Restaurants, Inc. The ten (10) year lease
is set to expire in 2011. The new tenant took possession of the property on June
1, 2001 and rent payments will commence in October 2001. Commissions of $50,000
and $9,000 were paid to an unaffiliated leasing agent and to an affiliate of the
General Partner, respectively, upon the execution of the new lease.

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.

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

The Partnership owns two (2) restaurants, Kentucky Fried Chicken and the former
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

                                       8

<PAGE>

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 $72,000
and expire in the year 2008. Due to the Mulberry Street Grill property being
vacant, Management is litigating with the ground lessor to terminate the ground
lease, which would release the Partnership from its ground lease obligations and
would return possession of the property to the ground lessor. The Partnership's
net asset value of the vacant Mulberry Street Grill property is $160,000.
Management has withheld payment of the May through September lease obligations.

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.

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

                                       9

<PAGE>

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 in
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.)

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                        $ 2,136,437
                  2002                          2,139,618
                  2003                          2,098,722
                  2004                          2,127,691
                  2005                          2,033,483
                  Thereafter                   15,807,805
                                              -----------

                                              $26,343,756
                                              ===========

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.

                                       10

<PAGE>

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

Amounts paid to the current General Partner for the nine-month periods ended
September 30, 2001 and 2000 are as follows.

<TABLE>
<CAPTION>
                                              Incurred as of        Incurred as of
Current General Partner                     September 30, 2001    September 30, 2000
-----------------------                     ------------------    ------------------
<S>                                         <C>                   <C>
Management fees                                 $144,452              $140,073

Restoration fees                                     167                    93

Overhead allowance                                11,668                11,313

Reimbursement for out-of-pocket expenses           7,835                 7,992

Leasing Commissions                                8,644                     0

Cash distribution                                  5,140                 4,220
                                                --------              --------

                                                $177,906              $163,691
                                                ========              ========
</TABLE>

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

According to the Partnership Agreement, as amended, the current General Partner
may receive a disposition fee not to exceed 3% of the contract price of the sale
of investment properties. Fifty percent (50%) of all such disposition fees
earned by the current General Partner is to be 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 escrowed amounts will be paid to the current General Partner.
At such time as the recovery exceeds $6,000,000 in the aggregate, the remaining
escrowed disposition fees shall be paid to the current General Partner. If such
levels of recovery are not achieved, the current General Partner will 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 September 30, 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
September 30, 2001. Funds are invested in U.S. Treasury securities. In addition,
$119,945 of earnings have been credited to the Trust as of September 30, 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)

                                       11

<PAGE>

a determination by a court of competent jurisdiction that the Permanent
Manager shall have no liability to any person with respect to a claim which is
subject to indemnification under the PMA. At such time as the indemnity
provisions expire or the full indemnity is paid, any funds remaining in the
Trust will revert back to the general funds of the Partnership.

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

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

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

On June 18, 2001, Centre at 38/th/ Street, L.L.C. ("Landlord') filed a lawsuit
in the Maricopa County Superior Court, Case No. CV2001-010280, against the
Partnership and Provo Group. The Complaint alleges that the Partnership is a
tenant under a lease with Landlord and that the Partnership has defaulted on its
obligations under that lease. The suit names Provo Group as a defendant because
Provo Group is the Partnership's general partner. The complaint seeks damages
for unpaid rent and unspecified other damages exceeding $50,000.

The Partnership and Provo Group have filed an answer denying any liability to
Landlord. In addition, the Partnership has filed a third-party complaint against
National Restaurant Group, L.L.C. ("National Restaurant'), and AMF, Inc.
("AMF"). In the third-party complaint, the Partnership alleges that National
Restaurant, as a subtenant under the lease, and AMF, as the assignee of National
Restaurant's interest under the lease, are liable to the Partnership for breach
of the lease and any damages for which the Partnership may be held liable to
Landlord.

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

On November 15, 2001, the Partnership will make distributions to the Limited
Partners for the Third Quarter of 2001 of $500,000 amounting to approximately
$10.80 per limited partnership interest.

During October 2001, the Village Inn Restaurant notified Management of its
intent to close and vacate its restaurant in Grand Forks, North Dakota within
the next few months. The lease on the property expires in 2009. Management will
work with the tenant to negotiate unresolved business issues relative to the
mitigation of Village Inn's future obligations and to seek new leasing for the
property.

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
September 30, 2001, were originally purchased at a price, including acquisition
costs, of approximately $23,295,000.

                                       12

<PAGE>

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 a $153,000 loss in 2000.

During April 2001, the former Mulberry Street Grill Restaurant notified
Management of its intent to close and vacate its restaurant in Phoenix, Arizona.
Although the lease on the property expires in 2007, monthly rental and Common
Area Maintenance (CAM) charges ceased as of June 1, 2001. In the Third Quarter
2001, management applied the former tenant's security deposit to the outstanding
receivable balance due the Partnership. Management is moving forward with all
legal remedies to collect the remaining balance due of approximately $10,000.
The entire amount due the Partnership has been reserved against.

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 the lease expiration date.
This lease is not expected to be renewed, and therefore, Management will market
the property for lease to a new tenant. The Hardee's lease on the Milwaukee
property was not set to expire until 2009. In the Second Quarter of 2001, a
lease termination agreement was executed and the tenant ceased the payment of
rent as of April 30, 2001.

During May 2001, Management negotiated the re-lease of the former
Hardee's-Wisconsin property to Omega Restaurants, Inc. The ten (10) year lease
is set to expire in 2011. The new tenant took possession of the property on June
1, 2001 and rent payments will commence in October 2001.

The Blockbuster Video Store lease expired on January 31, 2001. However, in the
First Quarter of 2001, gement negotiated a five (5) year extension to January
31, 2006.

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 $796,000 at September 30, 2001,
compared to $752,000 at December 31, 2000. The Partnership designated cash of
$500,000 to fund the Third Quarter 2001 distributions to Limited Partners,
$237,000 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 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.

                                       13

<PAGE>

Property tax escrow at September 30, 2001, in the amount of $7,875, represented
four (4) months of 2001 real estate taxes for the former Hardee's- Wisconsin
property paid by Hardee's Food Systems, Inc. upon the lease termination
agreement with Management.

The Note receivable balance at September 30, 2001 was $78,500. In the Second
Quarter of 2001, a lease termination agreement was executed with Hardee's Food
Systems upon the closing of its restaurant in Milwaukee, Wisconsin. Hardee's
Food Systems will pay a lease termination fee of approximately two (2) years
rent or $157,000. The payments are scheduled to be received in four (4) equal
installments of $39,250. The first payment was received in May 2001 upon the
execution of the agreement, and the subsequent installments were reflected as
Note receivable on the balance sheet. The first Note receivable installment was
received in August 2001. The remaining installments, which are reflected in the
Note receivable on the balance sheet at September 30, 2001, are scheduled to be
received in November 2001 and February 2002.

Deferred charges totaled approximately $290,000 and $263,000, net of
amortization, at September 30, 2001 and December 31, 2000, respectively.
Deferred charges represent leasing commissions paid when properties are leased
or upon the negotiated extension of a lease. Leasing commissions are capitalized
and amortized over the life of the lease. During the Second Quarter of 2001,
commissions of $50,000 and $9,000 were paid to an unaffiliated leasing agent and
to an affiliate of the General Partner, respectively, upon the execution of the
new Omega Restaurant lease. During the First Quarter of 2001, a commission of
$10,000 was paid to an unaffiliated leasing agent upon the negotiated extension
of the lease with Blockbuster Video. During the Fourth Quarter of 2000, a
commission of $190,000 was paid to an affiliate of the General Partner upon the
negotiated extension of the leases on the ten (10) Wendy's restaurants.

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

Accounts payable and accrued expenses at September 30, 2001, in the amount of
$102,000, primarily represent the accrual of auditing fees, leasing commissions
and May through September ground lease rent.

Property taxes payable at September 30, 2001, in the amount of $7,875,
represented four (4) months of 2001 real estate taxes for the former Hardee's-
Wisconsin property paid by Hardee's Food Systems, Inc. upon the lease
termination agreement with Management.

Due to the Current General Partner amounted to $1,838 at September 30, 2001,
representing the General Partner's portion of the Third 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 $1,680,000 and $5,140, respectively, have also been in accordance
with the amended Partnership Agreement. The Third Quarter 2001 distribution of
$500,000 will be paid to the Limited Partners on November 15, 2001.

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

                                       14

<PAGE>

The Partnership reported net income for the quarter ended September 30, 2001, in
the amount of $460,000 compared to net income for the quarter ended September
30, 2000, of $346,000. For the nine months ended September 30, 2001 and 2000,
net income totaled $1,285,000 and $1,055,000, respectively.

Revenues
--------

Total revenues were $724,000 and $775,000, for the quarters ended September 30,
2001 and 2000, respectively, and were $2,078,000 and $1,972,000 for the nine
months ended September 30, 2001 and 2000, respectively.

The increase in revenues is primarily due to the $157,000 lease termination fee
charged to Hardee's Food Systems, Inc. upon the lease termination of the
Hardee's- Wisconsin lease in the Second Quarter of 2001.

As of September 30, 2001 total revenues should approximate $2,149,000 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.

Expenses
--------

For the quarters ended September 30, 2001 and 2000, cash expenses amounted to
approximately 19% and 25%, of total revenues, respectively. For the nine months
ended September 30, 2001 and 2000, cash expenses totaled 22% and 25%,
respectively. Total expenses, including non-cash items, amounted to
approximately 37% and 55%, of total revenues for the quarters ended September
30, 2001 and 2000, respectively, and totaled 38% and 46% for the nine months
ended September 30, 2001 and 2000, respectively.

The increase in professional services is primarily due to appraisals being
performed in the First Quarter of 2001 on all the Partnership properties. The
decrease in total expenses is primarily due to the termination of the ground
lease on the Denny's property in Phoenix, Arizona in the Third Quarter of 2000.

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.

                                       15

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

On June 18, 2001, Centre at 38th Street, L.L.C. ("Landlord') filed a lawsuit in
the Maricopa County Superior Court, Case No. CV2001-010280, against the
Partnership and Provo Group. The Complaint alleges that the Partnership is a
tenant under a lease with Landlord and that the Partnership has defaulted on its
obligations under that lease. The suit names Provo Group as a defendant because
Provo Group is the Partnership's general partner. The complaint seeks damages
for unpaid rent and unspecified other damages exceeding $50,000.

The Partnership and Provo Group have filed an answer denying any liability to
Landlord. In addition, the Partnership has filed a third-party complaint against
National Restaurant Group, L.L.C. ("National Restaurant'), and AMF, Inc.
("AMF"). In the third-party complaint, the Partnership alleges that National
Restaurant, as a subtenant under the lease, and AMF, as the assignee of National
Restaurant's interest under the lease, are liable to the Partnership for breach
of the lease and any damages for which the Partnership may be held liable to
Landlord.

Items 2-5.

Not Applicable.

Item 6.  Exhibits and Reports on Form 8-K

(a)   Listing of Exhibits:

      99.0 Correspondence to the Limited Partners dated November 15, 2001,
           regarding the Third 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.

                                       16

<PAGE>

                                   SIGNATURES

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

DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP

By:      The Provo Group, Inc., General Partner

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

Date:    November 12, 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:   November 12, 2001


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

Date:    November 12, 2001

                                       17