<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, 2002
                                        ----------------------------------------

                                       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, 2002 and December 31, 2001
                      ------------------------------------

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                (Unaudited)
                                                                                  March 31,         December 31,
                                                                                    2002               2001
                                                                                   ------             ------
<S>                                                                             <C>                <C>
INVESTMENT PROPERTIES AND EQUIPMENT: (Note 3)

         Land                                                                   $  7,296,406       $  7,296,406
         Buildings                                                                11,561,307         11,561,307
         Equipment                                                                   669,778            669,778
         Accumulated depreciation                                                 (5,939,174)        (5,854,938)
                                                                                ------------       ------------

              Net investment properties and equipment                             13,588,317         13,672,553
                                                                                ------------       ------------

OTHER ASSETS:

         Cash and cash equivalents                                                 1,073,967            818,606
           Cash held in Indemnification Trust (Note 8)                               373,768            372,167
           Property tax escrow                                                             0              7,875
           Rents and other receivables (Net of allowance of $39,878
             and $39,636, respectively)                                              116,830            546,771
         Property tax receivable                                                       8,293             30,977
           Deferred rent receivable                                                  106,692             05,633
           Prepaid insurance                                                          15,425             22,035
         Deferred charges                                                            282,763            286,067
         Note receivable                                                                   0             39,250
                                                                                ------------       ------------

              Total other assets                                                   1,977,738          2,229,381
                                                                                ------------       ------------

              Total assets                                                      $ 15,566,055       $ 15,901,934
                                                                                ============       ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        2

<PAGE>

             DIVALL INSURED INCOME PROPERTIES 2 LIMITED PARTNERSHIP
                                 BALANCE SHEETS

                      March 31, 2002 and December 31, 2001
                      ------------------------------------

                        LIABILITIES AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                                 (Unaudited)
                                                                                  March 31,       December 31,
                                                                                    2002             2001
                                                                                   ------           ------
<S>                                                                             <C>              <C>
LIABILITIES:
         Accounts payable and accrued expenses                                  $     93,863     $      92,802
        Property taxes payable                                                         3,735            25,105
         Due to General Partner                                                        2,987             1,795
         Security deposits                                                           109,017           109,017
         Unearned rental income                                                       44,160           172,723
                                                                                ------------     -------------

                  Total liabilities                                                  253,762           401,442
                                                                                ------------     -------------

CONTINGENT LIABILITIES: (Note 7)

PARTNERS' CAPITAL: (Notes 1, 4 and 9)
         Current General Partner -
                  Cumulative net income                                              175,156           172,176

                  Cumulative cash distributions                                      (72,133)          (70,941)
                                                                                ------------     -------------
                                                                                     103,023           101,235
         Limited Partners (46,280.3 interests outstanding)
                  Capital contributions, net of offering costs                    39,358,468        39,358,468
                  Cumulative net income                                           23,706,299        23,411,286
                  Cumulative cash distributions                                  (47,015,268)      (46,530,268)
                  Reallocation of former general partners' deficit capital          (840,229)         (840,229)
                                                                                ------------     -------------

                                                                                  15,209,270        15,399,257
                                                                                ------------     -------------

                           Total partners' capital                                15,312,293        15,500,492
                                                                                ------------     -------------

                           Total liabilities and partners' capital              $ 15,566,055     $  15,901,934
                                                                                ============     =============
</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,
                                                                      ----------------------------
                                                                          2002             2001
                                                                      -------------   ------------
<S>                                                                   <C>             <C>
REVENUES:

       Rental income (Note 5) .....................................        $506,385       $589,482
       Interest income ............................................           4,013         14,173
       Recovery of amounts previously written off .................               0          2,781
       Other income ...............................................           8,059            185
                                                                           --------       --------
                                                                            518,457        606,621
                                                                           --------       --------
EXPENSES:

       Partnership management fees (Note 6) .......................          49,014         47,386
       Restoration fees (Note 6) ..................................               0            111
       Insurance ..................................................           6,611          4,827
       General and administrative .................................          21,551         29,835
       Advisory Board fees and expenses ...........................           3,736          4,275
       Ground lease payments (Note 3) .............................               0         16,852
       Professional services ......................................          49,995         89,110
       Provision for uncollectible rents and other receivables ....           2,017              0
       Depreciation ...............................................          84,236         86,100
       Amortization ...............................................           3,304          3,135
                                                                           --------       --------
                                                                            220,464        281,631
                                                                           --------       --------
NET INCOME ........................................................        $297,993       $324,990
                                                                           ========       ========

NET INCOME - CURRENT GENERAL PARTNER ..............................        $  2,980       $  3,250
NET INCOME - LIMITED PARTNERS .....................................         295,013        321,740
                                                                           --------       --------

                                                                           $297,993       $324,990
                                                                           ========       ========

NET INCOME PER LIMITED PARTNERSHIP
  INTEREST, based on 46,280.3 Interests outstanding ...............        $   6.37       $   6.95
                                                                           ========       ========
</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,
                                                                           ----------------------------
                                                                              2002              2001
                                                                           ----------        ----------
<S>                                                                        <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income .......................................................       $297,993          $324,990
    Adjustments to reconcile net income to net
       cash from operating activities -
          Depreciation and amortization ..............................         87,540            89,235
          Recovery of amounts previously written off .................              0            (2,781)
        Provision for uncollectible rents and other receivables ......          2,017                 0
          Interest applied to Indemnification Trust account ..........         (1,601)           (6,030)
          Decrease in rents and other receivables ....................        450,608           414,223
        Decrease in property tax escrow ..............................          7,875                 0
          Decrease in prepaids .......................................          6,610             4,827
          (Increase) Decrease in deferred rent receivable ............         (1,059)            2,176
          Increase (Decrease) in due to current General Partner ......          1,192            (1,367)
          Increase (Decrease) in accounts payable and other accrued
              expenses ...............................................          1,061            (3,846)
          (Decrease) in real estate taxes payable ....................        (21,370)                0
          (Decrease) Increase in unearned rental income ..............       (128,563)           35,588
                                                                           ----------        ----------

             Net cash from operating activities ......................        702,303           857,015
                                                                           ----------        ----------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
    Payment of  note receivable ......................................         39,250                 0
    Payment of deferred leasing commissions ..........................              0           (10,439)
    Recoveries from former affiliates ................................              0              2,781
                                                                           ----------        ----------

             Net cash from (used in) investing activities ............         39,250            (7,658)
                                                                           ----------        ----------

CASH FLOWS (USED IN) FINANCING ACTIVITIES:
    Cash distributions to Limited Partners ...........................       (485,000)         (575,000)
    Cash distributions to current General Partner ....................         (1,192)           (1,300)
                                                                           ----------        ----------

             Net cash (used in) financing activities .................       (486,192)         (576,300)
                                                                           ----------        ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................        255,361           273,057
CASH AND CASH EQUIVALENTS AT BEGINNING OF  PERIOD ....................        818,606           752,060
                                                                           ----------        ----------
CASH AND CASH EQUIVALENTS AT END OF  PERIOD ..........................     $1,073,967        $1,025,117
                                                                           ==========        ==========
</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")
2001 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, 2002, and the results of operations for the three-month
periods ended March 31, 2002, and 2001, and cash flows for the three-month
periods ended March 31, 2002 and 2001. 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, 2002, the Partnership owned 26 properties with specialty
leasehold improvements in 10 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.

                                       6

<PAGE>

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.

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 previously followed Statement of Financial Accounting Standards
No.121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", which required that all long-lived assets
be reviewed for impairment in value whenever changes in circumstances indicated
that the carrying amount of an asset may not be recoverable. In October 2001,
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144") was issued. FAS 144
supercedes FAS 121. FAS 144 primarily addresses issues relating to the
implementation of FAS 121 and develops a single accounting model for long-lived
assets to be disposed of, whether previously held and used or newly acquired.
The provisions of FAS 144 became effective for fiscal years beginning after
December 15, 2001. The Company adopted FAS 144 on January 1, 2002 with no impact
on financial statements.

The Partnership will be dissolved on November 30, 2010, or earlier upon the
prior occurrence of any of the following events: (a) the disposition of all
properties of the Partnership; (b) the written determination by the General
Partner that the Partnership's assets may constitute "plan assets" for purposes
of ERISA; (c) the agreement of Limited Partners owning a majority of the
outstanding interests to dissolve the Partnership; or (d) the dissolution,
bankruptcy, death, withdrawal, or incapacity of the last remaining General
Partner, unless an additional General Partner is elected previously by a
majority of the Limited Partners. During the Second Quarter of 1998, the General
Partner received the consent of the Limited Partners to liquidate the
Partnership's assets and dissolve the Partnership. No buyer was identified for
the Partnership's assets, and Management continued normal operations. 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, 2001, the tax basis of the Partnership's

                                       7

<PAGE>
assets exceeded the amounts reported in the accompanying financial statements by
approximately $7,859,000.

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, 2002, $5,803,000 of recoveries has been
received which exceeded the original estimate of $3 million. As a result, since
1996, the Partnership has recognized $1,125,000 as income, which represents its
share of the excess recovery. No further significant recoveries are anticipated.

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

As of March 31, 2002, the Partnership owned 24 fully constructed fast-food
restaurants, a video store, and a preschool. The properties are composed of the
following: ten (10) Wendy's restaurants, one (1) Hardee's restaurant, two (2)
Denny's restaurants, 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) Hostetler's restaurant, one (1) Miami Subs
restaurant, one (1) Omega restaurant, one (1) Blockbuster Video store, one (1)
Sunrise Preschool, and four (4) vacant properties, (which were previously
operated as a Village Inn restaurant, a Fiesta Time restaurant and two (2)
Hardee's restaurants.) The 26 properties are located in a total of thirteen (13)
states.

During March 2002, Hardee's Food Systems, Inc. notified Management of its
intent to close its restaurant in Fond du Lac, Wisconsin in April 2002. Hardee's
lease on the Fond du Lac property is set to expire on September 30, 2009 and
they will be required to continue making rent payments until the lease
expiration date or until a lease termination agreement with Management is
entered into.

                                       8

<PAGE>

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 expired on November 30, 2001 and they were
required to continue making rent payments until the lease expiration date. This
lease was not renewed, and therefore, Management continues to market the
property for sale or lease to a new operator. The Hardee's lease on the
Milwaukee property was not set to expire until 2009. In the Second Quarter of
2001, a lease termination agreement was executed and the tenant ceased the
payment of rent as of April 30, 2001. Hardee's Food Systems agreed to pay a
lease termination fee of approximately two (2) years rent or $157,000. The
payments were 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 in the Second Quarter of 2001. Note receivable installments
were received in August and October 2001. The final installment, which is
reflected in the Note receivable on the balance sheet at December 31, 2001, was
received in January 2002.

During May 2001, Management negotiated the re-lease of the former
Hardee's-Milwaukee, Wisconsin property to Omega Restaurant in June 2001 and rent
income commenced in October 2001. Commissions of $50,000 and $9,000 were paid to
an unaffiliated leasing agent and to an affiliate of the General Partner,
respectively, upon the execution of the new lease in the Second Quarter of 2001.

During December 2001, Hardee's Food Systems, Inc. notified Management that it
had vacated its restaurant in Hartford, Wisconsin. Hardee's lease on the
Hartford property expires on April 30, 2009 and they will be required to
continue making rent payments until the lease expiration date or until a lease
termination agreement with Management is entered into.

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 2001, the Bankruptcy court granted the motion of
Phoenix Restaurant Group, Inc. ("Phoenix") to reject the lease with the
Partnership at the Twin Falls, Idaho location. Although Phoenix's lease on the
Twin Falls property expires on April 30, 2012, due to bankruptcy proceedings of
Phoenix, the lease was rejected and rent income ceased as of December 2001. The
remaining balance due the Partnership of approximately $29,000 from the former
tenant has been reserved. This amount is included in the Partnership's filing
for damages in Bankruptcy court of approximately $85,000, or one year's rent,
although it is uncertain whether the amount will be collectible. In addition,
since Phoenix rejected the lease, its subtenant, Fiesta Time, presumably has no
rights to the possession of the property. Therefore, Management is in the
process of evicting and obtaining possession of the property from Fiesta Time,
and then Management will market the property for lease or sale.

During April 2001, the sub-tenant AMF Corporation notified Management of its
intent to close and vacate its Mulberry Street Grill restaurant in Phoenix,
Arizona. Although the lease on the property expires in 2007, monthly rental and
Common Area Maintenance (CAM) income 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.
Due to Management's
attempt to return possession of the property to the Ground Lease landlord, the
net asset value of the property was written-off in the Fourth Quarter of 2001,
resulting in a loss of $157,000. As of December 31, 2001 the Partnership has
withheld the payment of approximately $50,000 in accrued ground lease


                                       9

<PAGE>
obligations related to the property. In April 2002, an additional $43,000 will
be accrued as payable to the Ground Lease Land landlord, due to the Court's
granting a summary judgment against the Partnership. (See Legal Proceedings in
Note 10.)

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. In February
2002, Management was notified Village Inn had closed and vacated the restaurant.
Rent income was collected from the tenant through December 2001, however; rent
income has not been collected for January through April of 2002. Management will
pursue all legal remedies in relation to the former tenant's past due balance of
approximately $34,000, as well as future lease obligations. Management is also
seeking a new tenant for the vacated property.

Prior to December 31, 2001 the Partnership owned 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 requires aggregate minimum annual payments of approximately $72,000 and
expires 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. Management has
accrued, but has withheld payment of the May through December 2001 lease
obligations totaling approximately $50,000. Due to the ground lessor obtaining
it's own tenant, the Partnership wrote-off the net asset value of the vacant
Mulberry Street Grill property at a loss of $157,000 in the Fourth Quarter of
2001. In April 2002, an additional $43,000 will be accrued as payable to the
Ground Lease Land landlord due to the Court's granting of a summary judgment
against the Partnership. (See Legal Proceedings in Note 10.)

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 were 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, 2002,
the minimum management fee and the maximum reimbursement for office rent and
overhead increased by 2.8% 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 $55,463 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.

                                       10

<PAGE>
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 it attributable to such year. Distributions paid to the
General Partner are based on the estimated tax liability resulting from
allocated income. Subsequent to the filing of the General Partner's income tax
returns, a true-up with actual distributions is made.

The provisions regarding distribution of Net Proceeds, as defined, were also
amended to provide that Net Proceeds are to be distributed as follows: (a) to
the Limited Partners, an amount equal to 100% of their Adjusted Original
Capital; (b) then, to the Limited Partners, an amount necessary to provide each
Limited Partner a Liquidation Preference equal to a 13.5% per annum, cumulative
simple return on Adjusted Original Capital from the Return Calculation Date
including in the calculation of such return on all priordistributions 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.

                                       11

<PAGE>

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:

DIIP2march01.10Q

Year ending
December 31,

2002                                               $2,042,598
2003                                                2,001,092
2004                                                2,030,311
2005                                                2,040,603
2006                                                1,964,133
Thereafter                                         13,131,949
                                                   ----------

                                                  $23,210,686
                                                  ===========
Ten (10) of the properties are leased to Wensouth Orlando, a franchisee of
Wendy's restaurants. Wensouth base rents accounted for 40% of total base rents
for 2001.

                                       12

<PAGE>

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

Amounts paid to the current General Partner for the three-month periods ended
March 31, 2002 and 2001 are as follows.

                                           Incurred as of       Incurred as of
Current General Partner                    March 31, 2002       March 31, 2001
-----------------------                   ---------------       --------------

Management fees                                    $49,014           $47,386
Restoration fees                                         0               111
Overhead allowance                                   3,954             3,832
Reimbursement for out-of-pocket expenses             1,625             4,137
Cash distribution                                    1,192             1,300
                                                     -----             -----
                                                   $55,785           $56,766
                                                   =======           =======


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 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, 2002, 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, 2002. Funds are invested in U.S. Treasury securities. In addition, $123,768
of earnings have been credited to the Trust as of March 31, 2002. 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

                                       13

<PAGE>

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

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

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

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

The Partnership owned the building occupied by the Mulberry Street Grill
restaurant, which was located on a parcel of land where it had entered into a
long-term Ground Lease. The lease was considered an operating lease and the
lease payments were paid by the Partnership and expensed in the periods to which
they applied. During the Second Quarter of 2001, sub-tenant AMF Corporation
("AMF") notified Management of its intent to close its Mulberry Street Grill
restaurant in Phoenix, Arizona. The Partnership ceased collecting the former
tenant's rent and attempted to return possession of the Phoenix, Arizona
property to the Ground Lease Landlord, Centre at 38th Street, L.L.C, ("LLC".)
Beginning in May and through December 2001 the Partnership accrued but withheld
payment of the ground lease obligations, and at March 31, 2002 and December 31,
2001 the total ground lease accrual approximates $50,000. The Ground Lease
Landlord, LLC, has re-leased the property to a new tenant.

On June 18, 2001, LLC filed a lawsuit in the Maricopa County Superior Court,
against the Partnership and TPG. The Complaint alleges that the Partnership is a
tenant under a Ground Lease with LLC and that the Partnership has defaulted on
its obligations under that lease. The suit names TPG as a defendant because TPG
is the Partnership's general partner. The complaint sought damages for unpaid
rent, commissions, improvements, and unspecified other damages exceeding
$120,000.

The Partnership and TPG filed an answer denying any liability to LLC and
intended to defend this matter vigorously. In addition, the Partnership has
filed a third-party complaint against the original tenant, National Restaurant
Group,("National Restaurant'), L.L.C., and its sub-tenant AMF. In the
third-party complaint, the Partnership alleges that National Restaurant and AMF
are liable to the Partnership for breach of the subleases and any damages for
which the Partnership may be held liable to the Ground Lessor, LLC.

On April 10, 2002 the Maricopa County Superior Court granted the motion for
summary judgment against the Partnership and TPG. The Court granted that as of
April 10, 2002 LLC is due damages in the amount of $93,000. The Partnership and
TPG intends to appeal this summary judgment. As of March 31, 2002 the
Partnership has accrued $50,000 in ground lease obligations payable to LLC and
the remaining summary judgment balance of $43,000 will be accrued in April 2002.

                                       14

<PAGE>

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

On May 15, 2002, the Partnership is scheduled to make distributions to the
Limited Partners for the First Quarter of 2002 of $500,000 amounting to
approximately $10.80 per limited partnership interest.

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, 2002, were originally purchased at a price, including acquisition costs, of
approximately $22,261,000.

During March 2002, Hardee's Food Systems, Inc. notified Management of its intent
to close its restaurant in Fond du Lac, Wisconsin in April 2002. Hardee's lease
on the Fond du Lac property is set to expire on September 30, 2009 and they will
be required to continue making rent payments until the lease expiration date or
until a lease termination agreement with Management is entered into.

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 expired on November 30, 2001 and they were
required to continue making rent payments until the lease expiration date. This
lease was not renewed, and therefore, Management continues to market the
property for sale or lease to a new operator. The Hardee's lease on the
Milwaukee property was not set to expire until 2009. In the Second Quarter of
2001, a lease termination agreement was executed and the tenant ceased the
payment of rent as of April 30, 2001. Hardee's Food Systems agreed to pay a
lease termination fee of approximately two (2) years rent or $157,000. The
payments were 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. Note receivable installments were received in August and
October 2001. The final installment, which is reflected in the Note receivable
on the balance sheet at December 31, 2001, was received in January 2002.

During May 2001, Management negotiated the re-lease of the former Hardee's-
Milwaukee, 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 in June
2001 and rent income commenced in October 2001. Commissions of $50,000 and
$9,000 were paid to an unaffiliated leasing agent and to an affiliate of the
General Partner, respectively, upon the execution of the new lease.

During December 2001, Hardee's Food Systems, Inc. notified Management that it
had vacated its restaurant in Hartford, Wisconsin. Hardee's lease on the
Hartford property expires on April 30, 2009 and they will be required to
continue making rent payments until the lease expiration date or until a lease
termination agreement with Management is entered into.

                                       15

<PAGE>

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 2001, the Bankruptcy court granted the motion of
Phoenix Restaurant Group, Inc. ("Phoenix") to reject the lease with the
Partnership at the Twin Falls, Idaho location. Although Phoenix's lease on the
Twin Falls property expires on April 30, 2012, due to bankruptcy proceedings of
Phoenix, the lease was rejected and rent income ceased as of December 2001. The
remaining balance due the Partnership of approximately $29,000 from the former
tenant has been reserved. This amount is included in the Partnership's filing
for damages in Bankruptcy court of approximately $85,000, or one year's rent,
although it is uncertain whether the amount will be collectible. In addition,
since Phoenix rejected the lease, its subtenant, Fiesta Time, presumably has no
rights to the possession of the property. Therefore, Management is in the
process of obtaining possession of the property from Fiesta Time, and then
Management will market the property for lease or sale.

During April 2001, the sub-tenant AMF Corporation notified Management of its
intent to close and vacate its Mulberry Street Grill restaurant in Phoenix,
Arizona. Although the lease on the property expires in 2007, monthly rental and
Common Area Maintenance (CAM) income 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.
Due to Management's attempt to return possession of the property to the Ground
Lease landlord, the net asset value of the property was written-off in the
Fourth Quarter of 2001, resulting in a loss of $157,000. As of March 31, 2002
the Partnership has withheld the payment of approximately $50,000 in accrued
ground lease obligations related to the property. In April 2002, an additional
$43,000 will be accrued as payable to the Ground Lease Land landlord due to the
Court's granting of a summary judgment against the Partnership. (See Legal
Proceedings in Part II- Item 1.)

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. In February
2002, Management was notified Village Inn had closed and vacated its restaurant
in Grand Forks. Rent income was collected from the tenant through December 2001,
however, rent income has not been collected for January through April of 2002.
Management will pursue all legal remedies in relation to the former tenant's
past due balance of approximately $34,000, as well as future lease obligations.
Management is also seeking a new tenant for the vacated property.

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

Cash and cash equivalents were approximately $1,074,000 at March 31, 2002,
compared to $818,606 at December 31, 2001. The Partnership designated cash of
$500,000 to fund the First Quarter 2002 distributions to Limited Partners,
$524,000 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

<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.

Property tax escrow at December 31, 2001, in the amount of $7,875, represented
four (4) months of 2001 real estate taxes for the former Hardee's- Milwaukee
tenant paid by Hardee's Food Systems, Inc. upon the lease termination agreement
with Management. The property taxes were paid by the Partnership in January
2002.

Property tax receivable at March 31, 2002, in the amount of $8,300 represents
2001 property taxes paid by the Partnership, which are due from the vacant
Village Inn property. Property tax receivable at December 31, 2001, in the
amount of $31,000 represented 2001 real estate taxes due from the former
Hardee's- S. Milwaukee property and new tenant, Omega Restaurants and 2000
property taxes due from the Village Inn property.

The Note receivable balance at December 31, 2001 was $39,250. 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 agreed to pay a lease termination fee of approximately two (2)
years rent or $157,000. The payments were 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. Note receivable installments were
received in August and October 2001. The final installment, which is reflected
in the Note receivable on the balance sheet at December 31, 2001, was received
in January 2002.

Deferred charges totaled approximately $283,000 and $286,000, net of
amortization, at March 31, 2002 and December 31, 2001, 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. Also, during the Second Quarter and Fourth
Quarters of 2001 deferred charges relating to the former Hardee's- Milwaukee and
Mulberry Street Grill properties, respectively, were written-off.

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

Accounts payable and accrued expenses at March 31, 2002, in the amount of
$94,000, primarily represent the accrual of auditing, tax, legal and data
processing fees, and May through December 2001 ground lease rent related to the
former Mulberry Street Grill property.

Due to the Current General Partner amounted to $2,987 at March 31, 2002, which
represents the General Partner's portion of the Fourth Quarter 2001and First
Quarter 2002 distributions, which amounted to $1,192 and $1,795, respectively.

                                       17

<PAGE>

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 2002 of $485,000 and $1,192, respectively, have also been in accordance
with the amended Partnership Agreement. The First Quarter 2002 distribution of
$500,000 is scheduled to be paid to the Limited Partners on May 15, 2002.

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

The Partnership reported net income for the quarter ended March 31, 2002, in the
amount of $298,000 compared to net income for the quarter ended March 31, 2001,
of $325,000.

Revenues
--------

Total revenues were $518,000 and $607,000, for the quarters ended March 31, 2002
and 2001, respectively. The decrease in revenue in 2002 is due primarily to
decreased rental income, upon the expired lease of the Hardee's- S. Milwaukee
property in the Fourth Quarter of 2001, and both the rejection of the Denny's-
Twin Falls lease and the non-cash disposal of the former Mulberry Street Grill
Restaurant in the Fourth Quarter of 2001.

Total revenues should approximate $2,043,000 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 March 31, 2002 and 2001, cash expenses amounted to
approximately 25% and 32%, of total revenues, respectively. Total expenses,
including non-cash items, amounted to approximately 43% and 46%, of total
revenues for the quarters ended March 31, 2002 and 2001, respectively.

The decrease in total expenses in 2002 is primarily due to appraisals being
performed in the First Quarter of 2001 on all the Partnership properties. In
addition, the accrual of the ground lease obligations relating to the former
Mulberry Street Grill Restaurant ceased as of December 2001.

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

                                       18

<PAGE>

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.

New Accounting Pronouncement:
-----------------------------

In October 2001, Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" (FAS 144) was issued. FAS
144 supercedes Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (FAS 121). FAS 144 primarily addresses issues relating to the implementation
of FAS 121 and develops a single accounting model for long-lived assets to be
disposed of, whether previously held and used or newly acquired. The provisions
of FAS 144 are effective for fiscal years beginning after December 15, 2001. The
Company adopted FAS 144 on January 1, 2002 with no impact on financial
statements.

Critical Accounting Policies:
-----------------------------

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

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

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

The Partnership periodically reviews its long-lived assets, primarily real
estate, for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The Partnership's
review involves comparing current and future operating performance of the
assets, the most significant of which is undiscounted operating cash flows, to
the carrying value of the assets. Based on this analysis, a provision for
possible loss to write down the asset to its fair value is recognized, if any.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

None.

                                       19

<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Partnership owned the building occupied by the Mulberry Street Grill
restaurant, which was located on a parcel of land where it had entered into a
long-term Ground Lease. The lease was considered an operating lease and the
lease payments were paid by the Partnership and expensed in the periods to which
they applied. During the Second Quarter of 2001, sub-tenant AMF Corporation
("AMF") notified Management of its intent to close its Mulberry Street Grill
restaurant in Phoenix, Arizona. The Partnership ceased collecting the former
tenant's rent and attempted to return possession of the Phoenix, Arizona
property to the Ground Lease Landlord, Centre at 38th Street, L.L.C, ("LLC".)
Beginning in May and through December 2001 the Partnership accrued but withheld
payment of the ground lease obligations, and at March 31, 2002 and December 31,
2001 the total ground lease accrual approximates $50,000. The Ground Lease
Landlord, LLC, has re-leased the property to a new tenant.

On June 18, 2001, LLC filed a lawsuit in the Maricopa County Superior Court,
against the Partnership and TPG. The Complaint alleges that the Partnership is a
tenant under a Ground Lease with LLC and that the Partnership has defaulted on
its obligations under that lease. The suit names TPG as a defendant because TPG
is the Partnership's general partner. The complaint sought damages for unpaid
rent, commissions, improvements, and unspecified other damages exceeding
$120,000.

The Partnership and TPG filed an answer denying any liability to LLC and
intended to defend this matter vigorously. In addition, the Partnership has
filed a third-party complaint against the original tenant, National Restaurant
Group,("National Restaurant'), L.L.C., and its sub-tenant AMF. In the
third-party complaint, the Partnership alleges that National Restaurant and AMF
are liable to the Partnership for breach of the subleases and any damages for
which the Partnership may be held liable to the Ground Lessor, LLC.

On April 10, 2002 the Maricopa County Superior Court granted the motion for
summary judgment against the Partnership and TPG. The Court granted that as of
April 10, 2002 LLC is due damages in the amount of $93,000. The Partnership and
TPG intends to appeal this summary judgment. As of March 31, 2002 the
Partnership has accrued $50,000 in ground lease obligations payable to LLC and
the remaining summary judgment balance of $43,000 will be accrued in April 2002.

Items 2 - 5.

Not Applicable.

                                       20

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a)      Listing of Exhibits:

         99.0  Correspondence to the Limited Partners dated May 15, 2002,
               regarding the First Quarter 2002 distribution.

(b)      Reports on Form 8-K:

         The Registrant filed no reports on Form 8-K during the first quarter of
fiscal year 2002.

                                       21

<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 8, 2002


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 8, 2002



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

Date:    May 8, 2002