FORM 10-KSB-ANNUAL OR TRANSITIONAL REPORT UNDER
                                SECTION 13 OR 15(d)

                                   Form 10-KSB

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 [No Fee Required]

                    For the fiscal year ended December 31, 2000

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [No Fee Required]

               For the transition period from ____________ to ____________

                         Commission file number 0-14458

                    NATIONAL HOUSING  PARTNERSHIP REALTY FUND TWO
       (Exact name of small business issuer as specified in its charter)

            Maryland                                           52-1365317
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                          55 Beattie Place, P.O. Box 1089
                        Greenville, South Carolina 29601
                      (Address of principal executive offices)

                    Issuer's telephone number (864) 239-1000

           Securities registered under Section 12(b) of the Exchange Act:

                                      None

           Securties registered under Section 12(g) of the Exchange Act:

                        18,258 Limited Partnership Units
                                (Title of class)

Check whether the issuer (1) filed all reports  required to be filled by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for 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___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  Partnership's  knowledge  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year.  $55,000

State the aggregate  market value of the voting  partnership  interests  held by
non-affiliates  computed  by  reference  to the price at which  the  partnership
interest  were sold,  or the  average bid and asked  prices of such  partnership
interests as of December 31, 2000. No market exists for the limited  partnership
interests of the Registrant,  and,  therefore,  no aggregate market value can be
determined.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None



<PAGE>



                                     PART I

The  matters  discussed  in this Form  10-KSB  contain  certain  forward-looking
statements  and  involve  risks and  uncertainties  (including  changing  market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained  in this Form 10-KSB and the other  filings  with the  Securities  and
Exchange  Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations,  including  forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation.  Accordingly,
actual   results   could  differ   materially   from  those   projected  in  the
forward-looking  statements as a result of a number of factors,  including those
identified herein.

Item 1.     Business

National Housing  Partnership  Realty Fund Two, a Maryland  Limited  Partnership
(the "Partnership" or the  "Registrant"),  was formed under the Maryland Revised
Uniform  Limited  Partnership Act as of January 22, 1985. On March 15, 1985, the
Partnership commenced offering 18,300 limited partnership interests,  at a price
of $1,000 per interest, through a public offering registered with the Securities
and Exchange  Commission (the  "Offering").  The Offering  terminated on May 22,
1985 with subscriptions for all 18,300 limited partnership interests.

On June 3,  1997,  Apartment  Investment  and  Management  Company,  a  Maryland
corporation  ("AIMCO" and,  together with its  subsidiaries and other controlled
entities, the "AIMCO Group"), acquired all of the issued and outstanding capital
stock of NHP Partners,  Inc., a Delaware  corporation ("NHP Partners"),  and the
AIMCO Group  acquired  all of the  outstanding  interests  in NHP  Partners  Two
Limited  Partnership,  a Delaware limited  partnership ("NHP Partners Two"). NHP
Partners owns all of the outstanding  capital stock of the National  Corporation
for Housing Partnerships,  a District of Columbia corporation ("NCHP"), which is
the general partner of The National Housing Partnership,  a District of Columbia
limited  partnership ("NHP" or the "General  Partner").  Together,  NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions,  the AIMCO
Group acquired control of the general partner of the Registrant and,  therefore,
may be deemed to have acquired control of the Registrant.

The  Partnership's  business is to hold  limited  partnership  interests in nine
limited  partnerships  ("Local  Limited  Partnerships"),  each of which owns and
operates a multi-family  rental housing property  ("Properties")  which receives
one or more forms of assistance from the Federal  Government.  The Partnership's
ownership  interest in six additional Local Limited  Partnerships was foreclosed
upon  during  2000.  One  of  the  nine  properties  was  sold  and  two  of the
Partnership's   ownership  interests  in  the  Local  Limited  Partnership  were
foreclosed  upon  subsequent to December 31, 2000. In each instance,  NHP is the
general  partner of the Local Limited  Partnership  and the  Partnership  is the
principal limited partner. As a limited partner, the Partnership's liability for
obligations of the Local Limited Partnerships is limited to its investment,  and
the  Partnership  does not  exercise  control over the  activities  of the Local
Limited Partnerships in accordance with the partnership agreements. See "Item 6.
Management's  Discussion  and Analysis or Plan of  Operations"  for  information
relating  to  the  Registrant's   rights  and  obligations  to  make  additional
contributions or loans to Local Limited Partnerships.

The Partnership's investment objectives are to:

(1)   preserve and protect Partnership capital;

(2)   provide current tax benefits to Limited  Partners to the extent  permitted
      by law,  including,  but not limited to,  deductions that Limited Partners
      may use to offset otherwise taxable income from other sources;

(3)   provide   capital   appreciation   through   increase   in  value  of  the
      Partnership's   investments,   subject   to   considerations   of  capital
      preservation and tax planning; and

(4)   provide  potential cash  distributions  from sales or  refinancings of the
      Partnership's investments and, on a limited basis, from operations.

The  Partnership  does not have any  employees.  Services are  performed for the
Partnership by the General Partner and agents retained by it.

The  following  is a  schedule  of the  Properties  owned by the  Local  Limited
Partnerships in which the Partnership is a limited partner:

             SCHEDULE OF PROPERTIES OWNED BY LOCAL LIMITED PARTNERSHIPS
      IN WHICH NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO HAS AN INVESTMENT
<TABLE>
<CAPTION>

                                                                              Occupancy
                                                        Units Authorized     Percentage
                                           Financed,       for Rental    for the Year Ended
                                            Insured
   Property Name, Location    Number of  and Subsidized Assistance Under    December 31,
     and Partnership Name       Units        Under        Section 8 (C)     2000     1999

<S>                              <C>                           <C>           <C>      <C>
Anderson Gardens (H)             200          (A)              200           92%      94%
  Anderson, South Carolina
  (Hurbell II Limited
    Partnership)

Caroline Arms                    204          (A)              161           97%      95%
  Jacksonville, Florida
  (Caroline Arms Limited
    Partnership)

Esbro (F)                        100          (A)              100           97%      97%
  Tuscon, Arizona
  (Esbro Limited Partnership)

Harold House                      80          (A)               80          100%     100%
  Jacksonville, Florida
  (Harold House Limited
    Partnership)

Hilltop                          (E)          (E)              (E)          (E)       (E)
  Hickory, North Carolina
  (Hilltop             Limited
Partnership)

Holly Oak                        (E)          (E)              (E)          (E)       (E)
  Shelby, North Carolina
  (Hurbell I Limited
    Partnership)

                                                        Units Authorized     Percentage
                                           Financed,       for Rental    for the Year Ended
                                            Insured
   Property Name, Location    Number of  and Subsidized Assistance Under    December 31,
     and Partnership Name       Units        Under        Section 8 (C)     2000     1999

Kimberton                        (E)          (E)              (E)          (E)       (E)
  Newark, Delaware
  (Kimberton Apartments
    Associates Limited
    Partnership)

Mayfair (F)                      140          (A)              139           99%      99%
  Tucson, Arizona
  (Mayfair Manor Limited
    Partnership)

Meadows                          (D)          (D)              (D)          (D)       (D)
  Sparks, Nevada
  (Meadows Apartments Limited
    Partnership)

Meadows East                     (D)          (D)              (D)          (D)       (D)
  Sparks, Nevada
  (Meadows East Apartments
    Limited Partnership)

Park Avenue West I               (E)          (E)              (E)          (E)       (E)
  Mansfield, Ohio
  (Park Avenue West I Limited
    Partnership)

Park Avenue West II              (E)          (E)              (E)          (E)       (E)
  Mansfield, Ohio
  (Park Avenue West II Limited
    Partnership)

Rodeo Drive                      (E)          (E)              (E)          (E)       (E)
  Victorville, California
  (Rodeo Drive Limited
    Partnership)

Royal Oak Gardens (H)            100          (B)              100           98%      96%
  Kannapolis, North Carolina
  (Hurbell III Limited
    Partnership)

San Juan del Centro              150          (A)              150           99%      98%
  Boulder, Colorado
  (San Juan del Centro Limited
    Partnership)

West Oak Village                 200          (A)              200           88%      94%
  Tulsa, Oklahoma
  (West Oak Village Limited
    Partnership)

Windsor Apartments (G)           169          (A)              169           98%      96%
  Wilmington, Delaware
  (Windsor Apartments
    Associates Limited
    Partnership)
</TABLE>


<PAGE>


(A)   The mortgage is insured by the Federal  Housing  Administration  under the
      provisions of Section 236 of the National Housing Act.

(B)   The mortgage is insured by the Federal  Housing  Administration  under the
      provisions of Section 221(d)(3) of the National Housing Act.

(C) Section 8 of Title II of the Housing and Community Development Act of 1974.

(D)   Property was lost through foreclosure of Partnership interests during year
      ended December 31, 1999.

(E)   Property was lost through foreclosure of Partnership  interests during the
      year ended December 31, 2000.

(F) Noteholder has initiated foreclosure proceedings.

(G) Property was sold in January 2001.

(H)   Partnership's  interest was  transferred  to the  noteholder  in March and
      April 2001, respectively.

Occupancy  decreased  at West Oak Village due to a poor  management  team at the
property. This management team has been replaced.

Ownership Percentages

The  following  details the  Partnership's  ownership  percentages  of the Local
Limited  Partnerships  and  the  cost of  acquisition  of  such  ownership.  All
interests are limited  partner  interests.  Also included is the total  mortgage
encumbrance and notes payable and accrued  interest on each Property for each of
the Local  Limited  Partnerships  as of  December  31, 2000  (dollar  amounts in
thousands):

<TABLE>
<CAPTION>

                                 NHP Realty
                                  Fund Two      Cost of                 Notes Payable
                                 Percentage    Ownership    Mortgage     and Accrued
Partnership                       Ownership     Interest      Notes      Interest (A)
<S>                                 <C>          <C>         <C>           <C>
Caroline Arms L.P.                  94.5%        $ 868       $ 1,721       $ 4,078
Esbro L.P. (D)                      94.5%           569          828         3,054
Harold House L.P.                   94.5%           364          675         1,566
Hurbell II L.P. (C)                 94.5%           787        1,385         3,686
Hurbell III L.P. (C)                94.5%           409          824         1,687
Mayfair Manor L.P. (D)              94.5%           812        1,159         4,262
San Juan del Centro L.P.            94.5%           799        1,432         3,561
West Oak Village L.P.               94.5%         1,058        1,384         4,851
Windsor Apts. Assoc. L.P. (E)       94.5%         2,117        2,133         (B)
</TABLE>

(A)   See "Item 6.  Management's  Discussion and Analysis or Plan of Operations"
      for further details.

(B)   Note  payable  is held by the  Partnership  and not by the  Local  Limited
      Partnership.

(C)   Partnership's  interest was  transferred  to the  noteholder  in March and
      April 2001, respectively.

(D) Noteholder has commenced foreclosure proceedings.

(E) Property sold in January 2001.

Although each Local Limited  Partnership in which the  Partnership  has invested
owns an apartment complex which must compete with other apartment  complexes for
tenants,  government  mortgage  interest and rent  subsidies make it possible to
rent units to eligible tenants at below market rates. In general, this insulates
the Properties from market competition.

Regulation

General

Multifamily  apartment  properties  are subject to various laws,  ordinances and
regulations,  including regulations relating to recreational  facilities such as
swimming  pools,  activity  centers  and other  common  areas.  Changes  in laws
increasing  the potential  liability for  environmental  conditions  existing on
properties or increasing the restrictions on discharges or other conditions,  as
well  as  changes  in  laws  effecting  development,   construction  and  safety
requirements, may result in significant unanticipated expenditures,  which would
adversely  affect  the  properties'  cash flow  from  operating  activities.  In
addition,  future enactment of rent control or rent  stabilization laws or other
laws  regulating  multi-family  housing  may reduce  rental  revenue or increase
operating costs in particular markets.

Regulation of Affordable Housing

The  Federal  Housing  Administration  ("FHA")  has  contracted  with  the  nine
subsidized  rental  projects  under  Section  8 of Title II of the  Housing  and
Community  Development  Act of 1974 to make housing  assistance  payments to the
Local  Limited  Partnerships  on behalf of qualified  tenants.  The terms of the
agreements are one or five years with one year renewal options.

In 1997 and again in 1999,  Congress  enacted new ways to determine  rent levels
for properties  receiving HUD's rental  assistance under Section 8 of the United
States  Housing Act of 1937 ("Section 8") after the expiration of their original
Section 8 contracts. This new legislation will affect 1,299 units, or 97% of the
units in which the Partnership has invested.  On October 27, 1997, the President
signed into law the Multifamily Assisted Housing Reform and Affordability Act of
1997 (the "1997 Housing Act").  Under the 1997 Housing Act,  certain  properties
assisted under expiring  Section 8 contracts and which have been receiving rents
deemed to be above  comparable  market  levels for  unassisted  properties,  and
financed  with  HUD-insured  mortgage  loans,  will  have,  upon the  renewal or
extension of Section 8 contracts,  rents  marked to market  rents.  This will be
accomplished  in  various  ways,  the goal  being to  reduce  Section 8 rents to
comparable  market  levels,  thereby  reducing  the  federal  Section  8 subsidy
obligation,  and (ideally) by simultaneously lowering, or eliminating,  required
debt  service  costs  (and  decreasing  operating  costs)  as  needed  to ensure
financial  viability at the reduced rent levels. The program also incorporates a
requirement  to  perform  any  repair  or  rehabilitation  deemed  necessary  by
depositing  funds to cover the first twelve month's work, and making  sufficient
monthly reserve  deposits to ensure work required in succeeding  years. In 1999,
the Congress  enacted  legislation (the "1999 Housing Act") that expanded on and
clarified  the  provisions  of  the  1997  Housing  Act,  including   permitting
properties whose Section 8 rents were below comparable  market rents to increase
their Section 8 rents to market.

The 1997 and 1999  Housing  Acts  (together,  the  "Housing  Acts")  permit  the
retention of project  based  Section 8 contracts  for most  properties in rental
markets  with a limited  supply of  affordable  housing or where the tenants are
particularly  vulnerable  populations  including the elderly,  disabled or large
families.  In rental markets without a limited supply of affordable housing, the
Housing Acts provide for phasing out project  based  subsidies,  converting  the
assistance to tenant based assistance or vouchers.  Under a tenant based system,
rental  vouchers  would be issued to  qualified  tenants who then could elect to
reside at  properties  of their  choice,  including  the  property in which they
currently  reside.   Voucher  rent  levels  are  established  by  local  housing
authorities  under  guidelines set by HUD. While the Partnership does not expect
the provisions of the Housing Acts to result in a significant  number of tenants
relocating from the properties  owned by the Local Limited  Partnerships,  there
can be no  assurance  that  the  new  legislation  will  not  significantly  and
adversely  affect  the  operations  of  the  properties  of  the  Local  Limited
Partnerships.

All of the  properties  owned by the Local Limited  Partners  receiving  project
based rent subsidies under Section 8 will have their contracts expire during the
year ending  December  31, 2001.  The Housing  Acts provide for several  options
under which a Local Limited Partnership may elect, as appropriate,  to renew its
Section 8 contracts:  (1) marking  rents up to the  comparable  market rent,  if
current  rents are below  market;  (2) renewing  rents at existing  rents at the
current  level,  if the level  does not  exceed  comparable  market  rents,  and
receiving an operating cost adjustment factor (an "OCAF") or a budget based rent
increase,  as long as the  rents do not  exceed  comparable  market  rents;  (3)
marking rents down to comparable  market rents;  (4) marking their rents down to
an  "exception  rent" level,  when  comparable  market rents would be too low to
permit  continued  operation of the property  under the Section 8 program,  even
with full debt  restructuring;  or (5) opting out of the Section 8 program.  For
properties   assisted  by  Section  8,  but  not  subject  to  these  provisions
(including,  but not limited to,  properties  which do not have  underlying  HUD
insured  mortgages,  or which have been financed  through  certain state housing
finance agency or bond-financed  mortgage programs),  rents will be continued at
current  levels,  plus  an OCAF or (in  some  instances)  a  budget  based  rent
increase.  In addition,  properties can opt out of the Section 8 program only if
very strict notice requirements have been met, including a requirement that HUD,
the tenants,  and the local  governing  body, be given twelve months notice of a
Local  Limited  Partnership's  intention  to opt  out of the  program  prior  to
contract termination.

Each of the options  requires an application to HUD, and, to a greater or lesser
extent,  the  fulfillment  of certain  procedural  submission  requirements  and
financial   requirements,   which  must  be  weighed  in  connection   with  the
determination of which option to select.

The Section 8  requirements  are separate  from the  requirements  governing the
underlying  HUD-insured  mortgage  loans,  and any  other  HUD,  state  or local
requirements, all of which must be fulfilled,  irrespective of the option chosen
with regard to the continuation of Section 8 participation.

HUD Approval and Enforcement

A  significant  number of  properties  owned by the  Partnership  are subject to
regulations by HUD. Under its regulations, HUD reserves the right to approve the
owner,  and the manager of HUD-insured and HUD-assisted  properties,  as well as
their  "principals"  (e.g.  general  partners,  stockholders with 10% or greater
interest,  officers and  directors)  in  connection  with the  acquisition  of a
property,  participation in HUD programs or the award of a management  contract.
This approval process is commonly  referred to as "2530 Clearance." HUD monitors
the performance of properties with HUD-insured mortgage loans. HUD also monitors
compliance with applicable regulations and takes performance and compliance into
account in approving the acquisition of management of HUD-assisted properties.

Laws Benefiting Disabled Persons

Under  the  Americans  with  Disabilities  Act of 1990,  all  places  of  public
accommodations  are required to meet  certain  Federal  requirements  related to
access and use by disabled persons. These requirements became effective in 1992.
A  number  of  additional  Federal,  state  and  local  laws  may  also  require
modifications to the Properties,  or restrict certain further renovations of the
Properties, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 requires apartment properties first occupied
after March 13, 1990 to be accessible  to the  handicapped.  Noncompliance  with
these laws  could  result in the  imposition  of fines or an award of damages to
private litigants and also could result in an order to correct any non-complying
feature,  which could result in substantial capital  expenditures.  Although the
Partnership  believes that its properties are  substantially  in compliance with
present requirements,  it may incur unanticipated  expenses to comply with these
laws.

Environmental

Various  Federal,  state and local laws subject  property owners or operators to
liability  for  the  costs  of  removal  or  remediation  of  certain  hazardous
substances  present on a  property.  Such laws often  impart  liability  without
regard to whether the owner or operator  knew of, or was  responsible  for,  the
release of the  hazardous  substances.  The  presence of, or failure to properly
remediate,  hazardous  substances may adversely affect occupancy at contaminated
apartment  communities and the  Partnership's  ability to sell or borrow against
contaminated properties.  In addition to the costs associated with investigation
and  remediation  actions  brought by  governmental  agencies,  the  presence of
hazardous wastes on a property could result in personal injury or similar claims
by  private  plaintiffs.  Various  laws also  impose  liability  for the cost of
removal or remediation of hazardous or toxic substances. These laws often impose
liability  whether or not the person  arranging  for the disposal  ever owned or
operated the disposal facility. In connection with the ownership or operation of
properties,  the Local  Limited  Partnerships  could  potentially  be liable for
environmental  liabilities or costs associated with its properties or properties
it may acquire in the future.

Management believes that the Local Limited Partnerships'  properties are covered
by adequate fire, flood and property insurance  provided by reputable  companies
and with commercially reasonable deductibles and limits.

Item 2.     Properties

See "Item 1. Business" for the real estate owned by the Partnership  through the
ownership of limited partnership interests in Local Limited Partnerships.

Item 3.     Legal Proceedings

In October 1997,  NHP received a subpoena from the Inspector  General  ("IG") of
HUD  requesting  documents  relating to any agreement  whereby NHP or any of its
affiliates provides or has provided compensation to owners (or their affiliates)
of HUD-assisted  properties in connection  with its  management.  Documents were
produced which may have been responsive to the HUD subpoena and submitted to the
HUD Inspector General in 1998.

In July 1999, NHP received a grand jury subpoena  requesting  documents relating
to the same  subject  matter as the HUD IG  subpoenas  and NHP's  operation of a
group  purchasing  program  created  by NHP,  known as Buyers  Access.  To date,
neither the HUD IG nor the grand jury has  initiated  any action  against NHP or
AIMCO, the ultimate controlling entity of NHP or, to NHP's or AIMCO's knowledge,
any owner of a HUD property managed by NHP. AIMCO believes that NHP's operations
and programs are in compliance,  in all material respects,  with all laws, rules
and  regulations  relating to HUD-assisted  or HUD-insured  properties.  NHP and
AIMCO  are  cooperating  with   investigations  and  do  not  believe  that  the
investigations  will result in a material  adverse  impact on their  operations.
However, as with any similar investigation, there can be no assurance that these
will not result in material fines, penalties or other costs.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters were submitted.

                                     PART II

Item 5.  Market  for  the   Registrant's   Partnership   Interests  and  Related
         Partnership Matters

      (a)   Interests in the  Partnership  were sold through a public  offering.
            There is no  established  market  for  resale  of  interests  in the
            Partnership.  Accordingly,  an  investor  may be  unable  to sell or
            otherwise dispose of his interest in the Partnership.

      (b)   As of December  31,  2000,  there were 1,149  registered  holders of
            18,258 limited partnership  interests (in addition to 1133 Fifteenth
            Street Two  Associates  - See "Item 7.  Financial  Statements - Note
            1").

      (c)   No cash  dividends  or  distributions  have been  declared  from the
            inception of the Partnership through December 31, 2000.

Item 6.     Management's Discussion and Analysis or Plan of Operations

This item should be read in conjunction with the financial  statements and other
items contained elsewhere in this report.

Liquidity and Capital Resources

The Properties in which the Partnership has invested, through its investments in
the Local Limited Partnerships, receive one or more forms of assistance from the
Federal  Government.  As a result,  the Local Limited  Partnerships'  ability to
transfer funds either to the Partnership or among themselves in the form of cash
distributions,  loans or advances is generally  restricted  by these  government
assistance programs.  These restrictions could impact the Partnership's  ability
to meet its cash obligations  given the low level of reserves at the Partnership
level.

Cash and cash equivalents  amounted to approximately $1,000 at December 31, 2000
as compared  to  approximately  $2,000 at December  31,  1999.  The  decrease of
approximately $1,000 was due to approximately $39,000 of cash used in operations
which was partially offset by approximately $5,000 of cash provided by investing
activities and approximately  $33,000 of cash provided by financing  activities.
The ability of the Partnership to meet its on-going cash  requirements in excess
of cash on hand at December 31, 2000,  is  dependent on  distributions  received
from the Local Limited  Partnerships  and proceeds from sales or refinancings of
the underlying  Properties.  The  Partnership's  only other form of liquidity is
from  General  Partner  loans.  The General  Partner will  evaluate  lending the
Partnership  additional funds as such funds are needed, but is in no way legally
obligated to make such loans.

Net  cash  used  in  operations  for  the  year  ended  December  31,  2000  was
approximately  $39,000 as compared to  approximately  $66,000 for the year ended
December 31, 1999.  The decrease in cash used in  operations is primarily due to
the  receipt  of   distributions  in  excess  of  investment  in  Local  Limited
Partnerships during 2000 compared to interest income received from Local Limited
Partnerships during 1999 offset by payments of administrative and reporting fees
to the General Partner during 1999.

Distributions  in  excess  of  investment  in  Local  Limited  Partnerships  and
distributions   from  Local  Limited   Partnerships   typically   represent  the
Partnership's  proportionate share of the excess cash available for distribution
from the Local Limited Partnerships. As a result of the use of the equity method
of accounting for the  Partnership's  investment in Local Limited  Partnerships,
certain investments'  carrying values have been reduced to zero. For investments
in  Local  Limited   Partnerships   which  have  been  reduced  to  zero,   cash
distributions  received are recorded in revenues as  distributions  in excess of
investment  in Local  Limited  Partnerships.  For  investments  in Local Limited
Partnerships  which have not been reduced to zero, cash  distributions  received
are recorded as distributions from Local Limited  Partnerships in the statements
of cash  flows and reduce  the  Partnership's  investment  on the  statement  of
financial   position.   Cash  distributions   totaling   approximately   $60,000
(approximately  $55,000 in excess of investment)  and $77,000 were received from
three Local Limited  Partnerships  during the years ended  December 31, 2000 and
1999, respectively. The receipt of distributions in future years is dependent on
the operations of the underlying properties of the Local Limited Partnerships.

Cash  provided by investing  activities  was from  distributions  from the Local
Limited Partnerships. Cash provided by financing activities consists of advances
from the General Partner.

As discussed in Note 6 to the Local  Limited  Partnerships'  combined  financial
statements attached hereto as Exhibit 99.1, each Local Limited Partnership, with
the exception of Windsor Apartments Associates Limited Partnership, in which the
Partnership  currently  holds an interest has a note payable due to the original
owner  of each  Property.  With  the  exception  of  West  Oak  Village  Limited
Partnership, these notes are all past due and are currently in default. West Oak
Village  Limited  Partnership  is  currently  in default due to  non-payment  of
required  annual  interest  payments for 2000 (see  below).  The note related to
Windsor Apartments  Associates of approximately  $1,160,000 is collateralized by
the  Partnership's  interest in this Local  Limited  Partnership  and was due on
October 24, 1999.  Subsequent  to December  31, 2000,  the property was sold and
this note was satisfied.

The West Oak Village Limited  Partnership  note bears interest at the rate of 9%
per annum. The note is nonrecourse and is secured by a security  interest in the
Partnership's  interest  in the Local  Limited  Partnership.  During  1997,  the
noteholders  entered into an  agreement  with the  Partnership,  under which the
maturity date of the note was extended  until  November  2013,  assuming  annual
payments  of  interest  are  made to the  noteholders.  Under  the  terms of the
agreement,  payments  are to be made equal to the annual  interest at a variable
rate based on the prior  year's  interest  rate payment  multiplied  by the most
recent Consumer Price Index rate, with any increase subject to a floor of 2% and
a ceiling of 5%. At any time prior to the note's  maturity,  the Partnership has
the  option  to repay the  acquisition  note at a  discount  equal to 70% of the
property's annual scheduled rent but not less than $700,000. The required annual
installment  of interest for 2000 was not made.  Accordingly,  the Local Limited
Partnership is currently in default and the  Partnership  interest is subject to
foreclosure.  The Local Limited  Partnership is actively  attempting to sell its
property.

Caroline  Arms,  Harold House and San Juan Del Centro Limited  Partnerships  all
have notes which were executed by the respective Local Limited Partnerships with
the  seller as part of the  acquisition  of the  property  by the Local  Limited
Partnership.  The notes were nonrecourse notes secured by a security interest in
all Partnership  interests in the Local Limited Partnership and are subordinated
to the  respective  mortgage  notes on each property for as long as the mortgage
notes are insured by HUD. Any payments due from project  income are payable from
surplus cash, as defined by the HUD  Regulatory  Agreement.  Neither the Limited
Partnership  nor any partners  thereof,  present or future,  assume any personal
liability  for the payment of the notes.  The notes were due  November 15, 1999,
November 15, 1999 and December 20, 1999,  respectively.  Each note is in default
and  the  Local   Limited   Partnership   interests  are  subject  to  potential
foreclosure.  Continuation of the Local Limited Partnerships'  operations in the
present form is  dependent  on its ability to extend the maturity  date of their
respective notes, or to repay or refinance their note. The financial  statements
do not  include  any  adjustments  which  might  result from the outcome of this
uncertainty.  Harold House Local Limited  Partnership is actively  attempting to
sell its net assets.

Esbro  and  Mayfair  Manor  Limited  Partnership  notes  were  executed  by  the
respective Local Limited  Partnership with the seller as part of the acquisition
of the  property by the Local  Limited  Partnership.  The notes are  nonrecourse
notes  secured  by a  security  interest  in all  Partnership  interests  in the
respective  Local Limited  Partnership.  The notes were initially due on October
15, 1997.  Effective  February 16, 1998,  both Esbro and Mayfair  Manor  Limited
Partnerships  executed  Amended and Restated  Promissory Notes for each of their
respective  notes.  The  Amended  Notes  extended  the  maturity of the notes to
October 25, 1999.  Neither the Limited  Partnership  nor any  partners  thereof,
present or future,  assume any personal  liability for the payment of the notes.
Both Local Limited  Partnerships  received  notice of demand for payment and the
commencement  of  foreclosure  proceedings.  Such  foreclosure is subject to HUD
approval, which is pending. Continuation of both the Local Limited Partnerships'
operations in the present form is dependent on the outcome of these proceedings.
The financial  statements do not include any adjustments which might result from
the outcome of this uncertainty.

Meadows  Apartments and Meadows East Apartments  Limited  Partnerships  both had
notes  payable  which  were  due  on  December  12,  1997.   The  Local  Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999,  Meadows  Apartments  and Meadows East  Apartments
Limited Partnership notes were foreclosed. Pursuant to the security agreement of
the note payable, the note holder was substituted as the sole limited partner of
the Local Limited  Partnership in place of the Partnership and the note holder's
assignee  was  substituted  as the  general  partner.  No gain or loss  has been
recorded as a result of the transfer of this partnership interest. With the loss
of the Partnership's  interest in Meadows Apartments and Meadows East Apartments
to the note holders,  the Partnership  will not receive any future benefits from
these Local Limited  Partnerships  and taxable income will be generated and flow
to the  Partnership's  investors  without any  distributable  cash. The specific
impact  of the  tax  consequence  is  dependent  upon  each  specific  partner's
individual tax situation.

Hilltop Apartments, Hurbell I, Park Avenue West I, Park Avenue West II and Rodeo
Drive  Limited  Partnerships  had notes payable which were due November 2, 1999,
December  19, 1999,  December 20, 1999,  December 20, 1999 and December 6, 1997,
respectively.  The Local Limited  Partnerships did not have the resources to pay
the amounts due. On the dates shown in the  following  table,  The Local Limited
Partnerships were foreclosed upon and, pursuant to the security agreement of the
notes,  the note holders were  substituted as sole limited partners of the Local
Limited  Partnerships.  Also, the note holder's  assignee was substituted as the
general partner.

          Partnership                         Foreclosure Date

          Hilltop                              August 9, 2000
          Hurbell I                           October 26, 2000
          Park Avenue West I                  January 17, 2000
          Park Avenue West II                 January 17, 2000
          Rodeo Drive                          January 1, 2000

No  gain or loss  has  been  recorded  as a  result  of the  transfer  of  these
Partnership  interests.  With the loss of the partnership's interest in Hilltop,
Hurbell I, Park  Avenue  West I & II and Rodeo  Drive to the note  holders,  the
Partnership  will not  receive  any future  benefits  from these  Local  Limited
Partnerships and taxable income will be generated and flow to the  Partnership's
investors without distributable cash. The specific impact of the tax consequence
is dependent upon each specific partner's individual tax situation.

On  July  24,  2000,  the  noteholder  foreclosed  on the  note  payable  by the
Partnership  which was  collaterized  by its  interest in  Kimberton  Apartments
Associates  Limited  Partnership.  The holder of the note was NHP,  the  general
partner  of the  Partnership  and an  affiliated  party.  As a  result  of  this
transaction, the Partnership lost its interest in the Local Limited Partnership.
No gain or loss has been recorded as a result of the transfer of this  interest.
With the loss of the Partnership's  interest in Kimberton Apartments  Associates
Limited  Partnership to the note holder,  the  Partnership  will not receive any
future  benefits from the Local Limited  Partnership  and taxable income will be
generated and flow to the Partnership's  investors without  distributable  cash.
The  specific  impact of the tax  consequence  is dependent  upon each  specific
partner's individual tax situation.

Hurbell II and Hurbell III Limited Partnerships had notes payable which were due
November 2, 1999,  and they did not have the  resources  to pay the amounts due.
The Partnerships  interest in these Local Limited  Partnerships  were foreclosed
and,  pursuant to the  security  agreement  of the notes,  the note holders were
substituted as sole limited partners of the Local Limited  Partnerships on April
3, 2001 and March 28, 2001,  respectively.  Also, the note holder's assignee was
substituted as the general partner.  The financial statements do not include any
adjustments which might result from the outcome of these transactions.

On January 31, 2001, Windsor Apartment  Associates Limited  Partnership sold its
investment property to an unaffiliated third party for $4,600,000.  After paying
closing costs, the net proceeds were used to repay the mortgage  encumbering the
property  and the note  payable  and  accrued  interest  thereon to the  General
Partner from the Partnership.  The Partnership paid approximately  $2,027,000 to
satisfy the note and accrued interest.

During 2000, the General Partner advanced the Partnership approximately $33,000.
No advances  were made during  1999.  Interest is charged on  borrowings  at the
Chase  Manhattan Bank prime interest rate plus 2%. During 1999, the  Partnership
repaid approximately $34,000 of advances from the General Partner.

As of December 31, 2000, the Partnership owes the General Partner  approximately
$1,296,000 for administrative and reporting services  performed.  The payment of
the unpaid  administrative  and reporting  fees is predicated on the  operations
and/or sale or  refinancing  of the  underlying  Properties of the Local Limited
Partnerships.

Results of Operations

The  Partnership  originally  invested  as a limited  partner  in Local  Limited
Partnerships which operated  twenty-one rental housing  properties.  At December
31, 2000,  the  Partnership  continued to hold an interest in nine Local Limited
Partnerships.  To the extent  the  Partnership  still has a carrying  basis in a
respective Local Limited  Partnership,  results of operations are  significantly
impacted  by the  Partnership's  share of the  profits  or  losses  in the Local
Limited  Partnership.  These profits or losses include  depreciation and accrued
note payable  interest  expense which are noncash in nature.  As of December 31,
2000,  the  Partnership  had no  carrying  basis  in six  of the  Local  Limited
Partnerships  and therefore  reflected no results of operations for its share of
losses for these Local Limited Partnerships.

The  Partnership  had a net loss of  approximately  $311,000  for the year ended
December 31, 2000, compared to a net profit of approximately $2,000 for the year
ended  December  31,  1999.  Net loss per unit of limited  partnership  interest
decreased to $(16.71)  from net income per interest of $0.11 for the years ended
December 31, 2000 and 1999, respectively.  The decrease in net profit was due to
a decrease in revenues  slightly  offset by a decrease  in total  expenses.  The
decrease in total revenues was due to the recognition of the Partnership's share
of income from the Local Limited  Partnership  and the  recognition  of interest
income  from  Local  Limited   Partnerships  during  1999  partially  offset  by
distributions in excess of investment in Local Limited Partnerships during 2000.

The  decrease in total  expenses  was due to  decreases  in  administration  and
reporting fees and interest on notes payable attributable to foreclosures on six
and two of the Partnership's  investments in Local Limited  Partnerships  during
2000 and 1999,  respectively.  These  decreases  were  offset by an  increase in
operating expenses primarily attributable to increases in professional fees.

The Partnership did not recognize  approximately $707,000 of its allocated share
of losses from ten Local Limited  Partnerships  for the year ended  December 31,
2000,  as  the   Partnership's   net  carrying  basis  in  these  Local  Limited
Partnerships  had been  reduced to zero.  In addition  the  Partnership  did not
recognize  approximately  $27,000 of its allocated  share of profits from one of
the Local  Limited  Partnerships  for the year ended  December 31, 2000,  as the
Partnership  had  cumulative  unrecognized  losses  with  respect  to this Local
Limited  Partnership.  The Partnership's  share of losses from the Local Limited
Partnerships,  if not  limited to its  investment  account  balance,  would have
decreased  approximately $865,000 between periods,  primarily due to the loss of
the  Partnership's  interests in the Hilltop,  Hurbell I, Park Avenue West I and
II,  Kimberton  and Rodeo  Drive  Limited  Partnerships  in 2000 and the Meadows
Apartments and Meadows East Apartments Limited Partnerships in 1999.

Item 7.     Financial Statements

The financial  statements of the Partnership are included on pages 14 through 37
of this report.


<PAGE>


                          Independent Auditors' Report



To The Partners of
National Housing Partnership Realty Fund Two
Indianapolis, Indiana


We have audited the  accompanying  statement  of financial  position of National
Housing  Partnership  Realty Fund Two (the Partnership) as of December 31, 2000,
and the related statements of operations,  partners' deficit, and cash flows for
each of the two years in the period ended  December 31,  2000.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our  audits.  We did  not  audit  the  financial  statements  of  Esbro  Limited
Partnership,  Mayfair Manor Limited Partnership or Windsor Apartment  Associates
Limited  Partnership  (investees of the Partnership) for the year ended December
31,  2000.  We did not audit the  financial  statements  of Rodeo Drive  Limited
Partnership,  Kimberton Apartments  Associates Limited Partnership,  and Windsor
Apartments Associates Limited Partnership (investees of the Partnership) for the
year ended December 31, 1999. The financial  statements of these  investees were
audited by other  auditors  whose  reports  have been  furnished  to us, and our
opinion, insofar as it relates to amounts included for these investees, is based
solely on the reports of the other auditors.

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

In our  opinion,  based upon our audits and the reports of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the financial  position of National  Housing  Partnership  Realty Fund Two as of
December 31, 2000, and the results of its operations and its cash flows for each
of the two years in the  period  ended  December  31,  2000 in  conformity  with
accounting principles generally accepted in the United States.

As discussed in Note 9 to the financial statements,  the due dates of certain of
the Local Partnership's notes payable have expired, and therefore, the notes are
in default.  Subsequent to December 31, 2000, the noteholders for certain of the
Local Limited Partnerships foreclosed on the Partnership interests and, in 2000,
the noteholders for certain other Local Limited  Partnerships  began foreclosure
proceedings  (Notes 2, 4 and 11). These conditions raise substantial doubt about
their ability to continue as a going  concern.  The financial  statements do not
include  any   adjustments   that  might   result  from  the  outcome  of  these
uncertainties.



                                                               Ernst & Young LLP
Indianapolis, Indiana
March 14, 2001, except for Note 11, as to
  which the dates are March 28, 2001 and April 3, 2001


<PAGE>



                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                          (A MARYLAND LIMITED PARTNERSHIP)

                         STATEMENT OF FINANCIAL POSITION

                                December 31, 2000
                          (in thousands, except unit data)



                                     ASSETS
Cash and cash equivalents                                            $ 1
Investments in and advances to Local Limited
  Partnerships (Note 2)                                              2,168
                                                                   $ 2,169


                        LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
  Accrued expenses                                                      43
  Administrative and reporting fees payable to
   General Partner (Note 3)                                          1,296
  Advances from General Partner (Note 3)                                33
  Note payable to General Partner (Note 4)                           1,160
  Accrued interest on note payable to General Partner
   (Note 4)                                                          1,805
                                                                     4,337

Partners' deficit:
  General Partner - The National Housing Partnership
   (NHP)                                                              (177)
  Original Limited Partner - 1133 Fifteenth Street
   Two Associates                                                     (181)
  Other Limited Partners - 18,258 investment units                  (1,810)
                                                                    (2,168)

                                                                   $ 2,169

                   See Accompanying Notes To Financial Statements


<PAGE>


                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                          (A MARYLAND LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS

                          (in thousands, except unit data)

<TABLE>
<CAPTION>

                                                              Years Ended December 31,
                                                                2000           1999
REVENUE:
  Share of profits from Local Limited Partnerships
<S>      <C>                                                    <C>           <C>
   (Note 2)                                                     $ --          $ 293
  Distribution in excess of investment in Local Limited
   Partnership                                                      55            --
  Interest income                                                   --             1
  Interest income from Local Limited Partnership                    --           124
                                                                    55           418

COSTS AND EXPENSES:
  Share of losses from Local Limited Partnerships (Note 3)           2            --
  Administrative and reporting fees to General Partner
   (Note 3)                                                         77           114
  Interest on notes payable to General Partner (Note 5)            185           242
  Interest on partner loans (Note 4)                                --             1
  Other operating expenses                                         102            59
                                                                   366           416

NET (LOSS) PROFIT                                              $ (311)         $ 2

ALLOCATION OF NET (LOSS) PROFIT:
  General Partner - NHP                                         $ (3)          $ --
  Original Limited Partner - 1133 Fifteenth Street Two
   Associates                                                       (3)           --
  Other Limited Partners                                          (305)            2
                                                               $ (311)         $ 2

NET (LOSS) PROFIT PER OTHER LIMITED PARTNERSHIP INTEREST       $(16.71)       $ 0.11


                   See Accompanying Notes To Financial Statements

</TABLE>

<PAGE>


                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                          (A MARYLAND LIMITED PARTNERSHIP)

                         STATEMENTS OF PARTNERS' DEFICIT

                          (in thousands, except unit data)

<TABLE>
<CAPTION>

                                   The National      1133
                                     Housing      Fifteenth       Other
                                   Partnership    Street Two     Limited
                                      (NHP)       Associates     Partners        Total

<S>                <C>                <C>           <C>          <C>            <C>
Deficit at January 1, 1999            $ (182)       $ (186)      $(2,304)       $(2,672)

Net profit for the year ended
   December 31, 1999                      --            --             2              2

Deficit at December 31, 1999            (182)         (186)       (2,302)        (2,670)

Transfer of interest (Note 4)              8             8           797            813

Net loss for the year ended
   December 31, 2000                      (3)           (3)         (305)          (311)

Deficit at December 31, 2000          $ (177)       $ (181)      $(1,810)       $(2,168)

Percentage interest at
   December 31, 2000 and 1999             1%             1%           98%          100%
                                          (A)           (B)           (C)

</TABLE>

(A)   General Partner

(B)   Original Limited Partner

(C)   Consists of 18,258 investment units at December 31, 2000 and 1999.

                   See Accompanying Notes To Financial Statements


<PAGE>


                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                          (A MARYLAND LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

                                   (in thousands)
<TABLE>
<CAPTION>

                                                                     Years Ended December 31,
                                                                        2000         1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>     <C>    <C>    <C>    <C>    <C>    <C>
  Distributions received in excess of investment in
   Local Limited Partnership                                            $ 55         $ --
  Interest received                                                        --             1
  Payment of administrative and reporting fees to
   General Partner                                                         --          (107)
  Operating expenses paid                                                 (94)          (81)
  Interest income received from Local Limited Partnership                  --           124
  Payment of interest on partner loans                                     --            (3)
        Net cash used in operating activities                             (39)          (66)

Cash flows from investing activities:
  Distributions from Local Limited Partnerships                             5            77

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of advances from General Partner                               --           (34)
  Advances from General Partner                                            33            --
        Net cash provided by (used in) financing activities                33           (34)

NET DECREASE IN CASH AND CASH EQUIVALENTS                                  (1)          (23)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              2            25

CASH AND CASH EQUIVALENTS AT END OF YEAR                                $ 1           $ 2

RECONCILIATION OF NET (LOSS) PROFIT TO NET CASH USED IN
  OPERATING ACTIVITIES:
   Net (loss) profit                                                   $ (311)        $ 2
   Adjustments to reconcile net (loss) profit to net
     cash used in operating activities:
      Share of losses (profits) from Local Limited Partnerships             2          (293)
      Increase in accrued interest on deferred
        acquisition notes                                                 186           241
      Decrease in accrued interest on Partner loans                        --            (2)
      Increase in administrative and reporting fees payable                76             7
      Increase (decrease) in other accrued expenses                         8           (21)

        Total adjustments                                                 272           (68)

Net cash used in operating activities                                  $ (39)        $ (66)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
During 2000, notes payable to General Partner, accrued interest on notes payable
to General Partner and investments in and advances to Local Limited Partnerships
were adjusted by a net amount of  approximately  $813,000 which was treated as a
transfer  of  interest  in the  Statement  of  Partners'  Deficit to reflect the
foreclosure on the Partnership's interest in Kimberton Apartment Associates LP.

                   See Accompanying Notes To Financial Statements
</TABLE>


<PAGE>




                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                          (A MARYLAND LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS


(1)   SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

National  Housing   Partnership  Realty  Fund  Two  (the  "Partnership"  or  the
"Registrant") is a limited partnership  organized under the laws of the State of
Maryland under the Maryland  Revised Uniform Limited  Partnership Act on January
22,  1985.  The  Partnership  was formed for the  purpose of raising  capital by
offering and selling limited partnership interests and then investing in limited
partnerships  (Local Limited  Partnerships),  each of which owns and operates an
existing  rental housing  project which is financed  and/or operated with one or
more forms of rental assistance or financial assistance from the U.S. Department
of Housing and Urban Development ("HUD").

The General  Partner was  authorized  to raise  capital for the  Partnership  by
offering  and  selling  to  additional  limited  partners  not more than  18,300
interests at a price of $1,000 per interest.  During 1985, the sale of interests
was closed after the sale of 18,300 interests to limited partners.

During 1985, the  Partnership  acquired 94.5% (98% with respect to allocation of
losses)  of the  limited  partnership  interests  in  twenty-one  Local  Limited
Partnerships.  At December  31,  2000,  the  Partnership  retained an  ownership
interest in nine of the original Local Limited Partnerships.

On June 3,  1997,  Apartment  Investment  and  Management  Company,  a  Maryland
corporation  ("AIMCO" and,  together with its  subsidiaries and other controlled
entities, the "AIMCO Group"), acquired all of the issued and outstanding capital
stock of NHP Partners,  Inc., a Delaware  corporation ("NHP Partners"),  and the
AIMCO Group  acquired  all of the  outstanding  interests  in NHP  Partners  Two
Limited  Partnership,  a Delaware limited  partnership ("NHP Partners Two"). NHP
Partners owns all of the outstanding  capital stock of the National  Corporation
for Housing Partnerships,  a District of Columbia corporation ("NCHP"), which is
the general partner of The National Housing Partnership,  a District of Columbia
limited  partnership ("NHP" or the "General  Partner").  Together,  NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions,  the AIMCO
Group has  acquired  control  of the  general  partner  of the  Registrant  and,
therefore, may be deemed to have acquired control of the Registrant.

The Original  Limited  Partner of the  Partnership is 1133 Fifteenth  Street Two
Associates,  whose  limited  partners were key employees of NCHP at the time the
Partnership was formed and whose general partner is NHP.

Investments  in Local  Limited  Partnerships  are accounted for using the equity
method and thus are  carried at cost less the  Partnership's  share of the Local
Limited  Partnerships'  losses and distributions plus the Partnership's share of
the Local Limited  Partnerships'  profits (see Note 2). An investment account is
maintained for each of the limited  partnership  investments  and losses are not
taken once an investment  account has decreased to zero. Cash  distributions are
limited by the Regulatory  Agreements between the Local Limited Partnerships and
HUD to the extent of surplus cash as defined by HUD. Distributions received from
Local Limited  Partnerships in which the  Partnership's  investment  account has
decreased  to zero  are  recorded  as  revenue  in the  year  received.  Once an
investment account has been reduced to zero, profits reported by a Local Limited
Partnership  are not  recognized  by the  Partnership  until such profits  equal
losses not recognized plus distributions  received and previously  recognized as
revenue. Advances to Local Limited Partnerships are included with Investments in
Local  Limited  Partnerships  to the extent that the advances are not  temporary
advances of working capital.

The  Partnership  considers all highly liquid debt  instruments  purchased  with
original maturities of three months or less to be cash equivalents.

Certain reclassifications of prior years' amounts have been made to conform with
the current year's presentation.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from these estimates.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair  Value  of  Financial  Instruments",  requires  disclosure  of  fair  value
information about significant financial  instruments,  when it is practicable to
estimate that value and excessive  costs would not be incurred.  To estimate the
fair value of the  balances  due to the General  Partner  and  accrued  interest
thereon,  excessive costs would be incurred and, therefore, no estimate has been
made.  The  Partnership  believes  that the carrying  values of other assets and
liabilities  reported on the  statement of financial  position that require such
disclosure approximate fair value.

Segment Reporting

SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information"  established standards for the way that public business enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments in interim financial reports. It also establishes standards for related
disclosures  about products and services,  geographic areas and major customers.
As defined, the Partnership has only one reportable segment. The General Partner
believes that  segment-based  disclosures  will not result in a more  meaningful
presentation than the financial statements as currently presented.

(2)   INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS

During 1985, the Partnership  acquired a 94.5% limited partnership interest (98%
with respect to allocation of losses) in twenty-one Local Limited  Partnerships.
At December  31,  2000,  the  Partnership  continues to hold an interest in nine
Local Limited  Partnerships:  Esbro Limited  Partnership,  Mayfair Manor Limited
Partnership,  Hurbell II Limited  Partnership,  Hurbell III Limited Partnership,
San Juan del Centro  Limited  Partnership,  Caroline  Arms Limited  Partnership,
Harold House Limited  Partnership,  West Oak Village  Limited  Partnership,  and
Windsor   Apartments   Associates   Limited   Partnership.   During  1999,   the
Partnership's  interests  in Meadows East  Apartments  Limited  Partnership  and
Meadows  Apartments  Limited  Partnership were foreclosed,  and during 2000, the
Partnership's  interests  in  Hilltop,  Hurbell  I, Park  Avenue  West I and II,
Kimberton Apartments and Rodeo Drive Limited Partnerships were foreclosed.

Subsequent  to December  31,  2000,  the  Partnership's  interests in Hurbell II
Limited  Partnership and Hurbell III Limited  Partnership were  foreclosed,  and
Windsor Apartments Associates Limited Partnership sold its property. See Note 11
for further details.

Meadows  Apartments and Meadows East Apartments  Limited  Partnerships  both had
notes  payable  which  were  due  on  December  12,  1997.   The  Local  Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999,  Meadows  Apartments  and Meadows East  Apartments
Limited Partnership notes were foreclosed. Pursuant to the security agreement of
the note payable, the note holder was substituted as the sole limited partner of
the Local Limited  Partnership in place of the Partnership and the note holder's
assignee  was  substituted  as the  general  partner.  No gain or loss  has been
recorded as a result of the transfer of this partnership interest. With the loss
of the Partnership's  interest in Meadows Apartments and Meadows East Apartments
to the note holders,  the Partnership  will not receive any future benefits from
these Local Limited  Partnerships  and taxable income will be generated and flow
to the  Partnership's  investors  without any  distributable  cash. The specific
impact  of the  tax  consequence  is  dependent  upon  each  specific  partner's
individual tax situation.

Hilltop Apartments, Hurbell I, Park Avenue West I, Park Avenue West II and Rodeo
Drive  Limited  Partnerships  had notes payable which were due November 2, 1999,
December  19, 1999,  December 20, 1999,  December 20, 1999 and December 6, 1997,
respectively.  The Local Limited  Partnerships did not have the resources to pay
the amounts due. On the dates shown in the  following  table,  The Local Limited
Partnerships  were  foreclosed  and,  pursuant to the security  agreement of the
notes,  the note holders were  substituted as sole limited partners of the Local
Limited  Partnerships.  Also, the note holder's  assignee was substituted as the
general partner.

          Partnership                         Foreclosure Date

          Hilltop                              August 9, 2000
          Hurbell I                           October 26, 2000
          Park Avenue West I                  January 17, 2000
          Park Avenue West II                 January 17, 2000
          Rodeo Drive                          January 1, 2000

No  gain or loss  has  been  recorded  as a  result  of the  transfer  of  these
Partnership  interests.  With the loss of the partnership's interest in Hilltop,
Hurbell I, Park  Avenue  West I & II and Rodeo  Drive to the note  holders,  the
Partnership  will not  receive  any future  benefits  from these  Local  Limited
Partnerships and taxable income will be generated and flow to the  Partnership's
investors without distributable cash. The specific impact of the tax consequence
is dependent upon each specific partner's individual tax situation.

On  July  24,  2000,  the  noteholder  foreclosed  on the  note  payable  by the
Partnership  which was  collaterized  by its  interest in  Kimberton  Apartments
Associates  Limited  Partnership.  The holder of the note was NHP,  the  general
partner  of the  Partnership  and an  affiliated  party.  As a  result  of  this
transaction, The Partnership lost its interest in the Local Limited Partnership.
No gain or loss has been recorded as a result of the transfer of this  interest.
With the loss of the Partnership's  interest in Kimberton Apartments  Associates
Limited  Partnership to the note holder,  the  Partnership  will not receive any
future  benefits from the Local Limited  Partnership  and taxable income will be
generated and flow to the Partnership's  investors without  distributable  cash.
The  specific  impact of the tax  consequence  is dependent  upon each  specific
partner's individual tax situation.

Since the Partnership,  as a limited partner, does not exercise control over the
activities of the Local Limited  Partnerships in accordance with the partnership
agreements,  these investments are accounted for using the equity method.  Thus,
the  investments are carried at cost less the  Partnership's  share of the Local
Limited  Partnerships'  losses and distributions plus the Partnership's share of
Local Limited  Partnerships'  profits.  However,  since the  Partnership  is not
legally liable for the obligations of the Local Limited Partnerships, and is not
otherwise committed to provide additional support to them, it does not recognize
losses once its investment in each of the individual Local Limited  Partnerships
reduced for its share of losses and cash  distributions,  reaches zero.  Once an
investment account has been reduced to zero, profits reported by a Local Limited
Partnership  are not  recognized  by the  Partnership  until such profits  equal
losses not recognized plus distributions  received and previously  recognized as
revenue. As a result, the Partnership did not recognize  approximately  $707,000
and $1,572,000 of losses from ten and eleven Local Limited  Partnerships  during
2000 and 1999,  respectively.  During 2000 and 1999 the  Partnership's  share of
profits in one and three Local Limited Partnerships of approximately $27,000 and
$61,000, respectively,  were offset against prior year losses not recognized. As
of December 31, 2000 and 1999, the Partnership has not recognized  approximately
$12,009,000 and $17,904,000,  respectively, of its allocated cumulative share of
losses from seven and twelve Local Limited  Partnerships in which its investment
has been reduced to zero. The Partnership's allocated cumulative share of losses
in the six Local Limited  Partnerships with a zero investment  balance that were
foreclosed   during  the  year  ended  December  31,  2000,  was   approximately
$6,575,000.

The Partnership made no advances to the Local Limited  Partnerships  during 2000
and  1999.   During  1993  the  Partnership   re-evaluated  the  timing  of  the
collectibility  of the  advances  and  determined,  based on the  Local  Limited
Partnerships' operations, that such advances are not likely to be collected. For
accounting  purposes,  the Partnership treated the advance balance as additional
investments in the Local Limited  Partnerships.  The balance was then reduced to
zero,  with a  corresponding  charge to  operations  to reflect a portion of the
previously unrecognized losses on investments.

Advances  to the  Local  Limited  Partnership  remain  due  and  payable  to the
Partnership.  Interest is calculated at the Chase Manhattan Bank prime rate plus
2%.  Payment of principal  and  interest is  contingent  upon the Local  Limited
Partnerships having available surplus cash, as defined by HUD regulations,  from
operations  or from the sale or  refinancing  of the Local  Limited  Partnership
Properties.  Any future  repayment of advances or interest  will be reflected as
Partnership income when received.

Summaries of the combined financial position of the aforementioned Local Limited
Partnerships as of December 31, 2000 and the combined  results of operations for
the years ended December 31, 2000 and 1999, are as follows:

                      CONDENSED COMBINED FINANCIAL POSITION
                        OF THE LOCAL LIMITED PARTNERSHIPS
                                    (in thousands)
                                                               December 31, 2000
Assets:
  Land                                                               $ 3,074
  Buildings and improvements, net of accumulated
   depreciation of approximately $18,314 and impairment
   losses on rental property of approximately $1,968                  23,071
  Other                                                                4,422

                                                                     $ 30,567
Liabilities:
  Mortgage notes payable                                            $ 11,541
  Notes payable                                                       10,713
  Accrued interest on notes payable                                   16,032
  Other liabilities                                                    3,439

Partners' Deficit:
  National Housing Partnership Realty Fund Two                       (10,256)
  Other partners                                                        (902)
                                                                     (11,158)

                                                                    $ 30,567


                    CONDENSED COMBINED RESULTS OF OPERATIONS
                        OF THE LOCAL LIMITED PARTNERSHIPS
                                    (in thousands)
<TABLE>
<CAPTION>

                                                         Years Ended December 31,
                                                           2000             1999

<S>                                                      <C>              <C>
Revenues                                                 $ 8,978          $12,262

Expenses:
  Operating expenses                                       6,331            8,648
  Financial expenses - primarily interest                    226              327
  Interest on notes payable                                1,353            1,882
  Depreciation and amortization                            1,760            1,899
  Impairment loss on rental property                          --              736
                                                           9,670           13,492

Net loss                                                  $ (692)         $(1,230)
</TABLE>

The combined financial statements of the Local Limited Partnerships are prepared
on the accrual basis of  accounting.  Eight Local Limited  Partnerships  operate
rental housing projects organized under Section 236 of the National Housing Act.
The  remaining  Local Limited  Partnership  operates a project  organized  under
Section  221(d)(3)  of the  National  Housing  Act.  Each of the  Local  Limited
Partnerships  receives some form of rental  assistance from HUD. During the year
ended December 31, 2000 and 1999, the projects received a total of approximately
$5,759,000 and $6,616,000, respectively, of rental assistance from HUD.

Regulation of Affordable Housing

The  Federal  Housing  Administration  ("FHA")  has  contracted  with  the  nine
subsidized  rental  projects  under  Section  8 of Title II of the  Housing  and
Community  Development  Act of 1974 to make housing  assistance  payments to the
Local  Limited  Partnerships  on behalf of qualified  tenants.  The terms of the
agreements are one or five years with one year renewal options.

In 1997 and again in 1999,  Congress  enacted new ways to determine  rent levels
for properties  receiving HUD's rental  assistance under Section 8 of the United
States  Housing Act of 1937 ("Section 8") after the expiration of their original
Section 8 contracts. This new legislation will affect 1,299 units, or 97% of the
units in which the Partnership has invested.  On October 27, 1997, the President
signed into law the Multifamily Assisted Housing Reform and Affordability Act of
1997 (the "1997 Housing Act").  Under the 1997 Housing Act,  certain  properties
assisted under expiring  Section 8 contracts and which have been receiving rents
deemed to be above  comparable  market  levels for  unassisted  properties,  and
financed  with  HUD-insured  mortgage  loans,  will  have,  upon the  renewal or
extension of Section 8 contracts,  rents  marked to market  rents.  This will be
accomplished  in  various  ways,  the goal  being to  reduce  Section 8 rents to
comparable  market  levels,  thereby  reducing  the  federal  Section  8 subsidy
obligation,  and (ideally) by simultaneously lowering, or eliminating,  required
debt  service  costs  (and  decreasing  operating  costs)  as  needed  to ensure
financial  viability at the reduced rent levels. The program also incorporates a
requirement  to  perform  any  repair  or  rehabilitation  deemed  necessary  by
depositing  funds to cover the first twelve month's work, and making  sufficient
monthly reserve  deposits to ensure work required in succeeding  years. In 1999,
the Congress  enacted  legislation (the "1999 Housing Act") that expanded on and
clarified  the  provisions  of  the  1997  Housing  Act,  including   permitting
properties whose Section 8 rents were below comparable  market rents to increase
their Section 8 rents to market.

The 1997 and 1999  Housing  Acts  (together,  the  "Housing  Acts")  permit  the
retention of project  based  Section 8 contracts  for most  properties in rental
markets  with a limited  supply of  affordable  housing or where the tenants are
particularly  vulnerable  populations  including the elderly,  disabled or large
families.  In markets in rental  markets  without a limited supply of affordable
housing,  the Housing  Acts  provide for  phasing out project  based  subsidies,
converting the assistance to tenant based assistance or vouchers. Under a tenant
based  system,  rental  vouchers  would be issued to qualified  tenants who then
could elect to reside at properties  of their choice,  including the property in
which they  currently  reside.  Voucher  rent  levels are  established  by local
housing  authorities under guidelines set by HUD. While the Partnership does not
expect the  provisions of the Housing Acts to result in a significant  number of
tenants relocating from the properties owned by the Local Limited  Partnerships,
there can be no assurance that the new legislation  will not  significantly  and
adversely  affect  the  operations  of  the  properties  of  the  Local  Limited
Partnerships.

All of the  properties  owned by the Local Limited  Partners  receiving  project
based rent subsidies under Section 8 will have their contracts expire during the
year ending  December  31, 2001.  The Housing  Acts provide for several  options
under which a Local Limited Partnership may elect, as appropriate,  to renew its
Section 8 contracts:  (1) marking  rents up to the  comparable  market rent,  if
current  rents are below  market;  (2)  renewing  existing  rents at the current
level, if the level does not exceed  comparable  market rents,  and receiving an
operating cost adjustment factor (an "OCAF") or a budget based rent increase, as
long as the rents do not exceed  comparable market rents; (3) marking rents down
to comparable  market rents; (4) marking their rents down to an "exception rent"
level,  when  comparable  market  rents  would  be too low to  permit  continued
operation  of the  property  under the  Section 8  program,  even with full debt
restructuring;  or (5)  opting  out of the  Section 8  program.  For  properties
assisted by Section 8, but not subject to these provisions  (including,  but not
limited to,  properties which do not have underlying HUD insured  mortgages,  or
which  have been  financed  through  certain  state  housing  finance  agency or
bond-financed  mortgage  programs),  rents will be continued at current  levels,
plus an OCAF or (in some  instances) a budget based rent increase.  In addition,
properties  can opt out of the  Section 8  program  only if very  strict  notice
requirements have been met,  including a requirement that HUD, the tenants,  and
the local  governing  body,  be given twelve  months  notice of a Local  Limited
Partnership's intention to opt out of the program prior to contract termination.

Each of the options  requires an application to HUD, and, to a greater or lesser
extent,  the  fulfillment  of certain  procedural  submission  requirements  and
financial   requirements,   which  must  be  weighed  in  connection   with  the
determination of which option to select.

The Section 8  requirements  are separate  from the  requirements  governing the
underlying  HUD-insured  mortgage  loans,  and any  other  HUD,  state  or local
requirements, all of which must be fulfilled,  irrespective of the option chosen
with regard to the continuation of Section 8 participation.

Depreciation  is calculated  generally using the  straight-line  method over the
estimated useful life of the related assets.

The mortgage  notes  payable are insured by the Federal  Housing  Administration
(FHA) and collateralized by first deeds of trust on the rental  properties.  The
notes  bear  interest  at  rates  ranging  from 3% to 8.5%  per  annum.  For the
remaining  eight rental  housing  projects  insured under Section 236, FHA makes
subsidy payments  directly to the mortgage lender reducing the monthly principal
and interest  payments of the project owner to an effective  interest rate of 1%
over the  forty-year  term of the  notes.  The  liability  of the Local  Limited
Partnerships  under the mortgage notes is limited to the underlying value of the
real estate collateral plus other amounts deposited with lenders.

Notes payable were executed by the Local  Limited  Partnerships  with the former
owners  as  part of the  acquisition  of the  properties  by the  Local  Limited
Partnerships.  These notes bear simple interest at rates of 9% or 10% per annum.
The  notes  are  nonrecourse  notes  secured  by  a  security  interest  in  all
partnership  interests  in the  respective  Local  Limited  Partnership  and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD.  Any  payments  due from  project  income are  payable  from the
respective  Local  Limited   Partnership's  surplus  cash,  as  defined  by  the
respective  HUD  Regulatory  Agreement.  The notes may be prepaid in whole or in
part  at  any  time  without  penalty.  Neither  the  respective  Local  Limited
Partnership  nor any partner  thereof,  present or future,  assumes any personal
liability for the payment of these notes.

These notes mature as follows:
<TABLE>
<CAPTION>

Local Partnership                           Due Date    Note Amount  Accrued Interest

<S>                                         <C>   <C>     <C>             <C>
Esbro Limited Partnership                   10/25/99      $ 1,204         $ 1,850
Mayfair Manor Limited Partnership           10/25/99        1,654           2,608
Hurbell II Limited Partnership              11/02/99        1,502           2,184
Caroline Arms Limited Partnership           11/15/99        1,561           2,517
Harold House Limited Partnership            11/15/99          599             967
Hurbell III Limited Partnership             12/19/99          688             999
San Juan Del Centro Limited Partnership     12/20/99        1,458           2,103

      Total Delinquent                                      8,666          13,228

West Oak Limited Partnership               11/30/2013       2,047           2,804

      Total due                                           $10,713         $16,032
</TABLE>

The West Oak Village Limited  Partnership  note bears interest at the rate of 9%
per annum. The note is nonrecourse and is secured by a security  interest in the
Partnership's  interest  in the Local  Limited  Partnership.  During  1997,  the
noteholders  entered into an  agreement  with the  Partnership,  under which the
maturity date of the note was extended  until  November  2013,  assuming  annual
payments  of  interest  are  made to the  noteholders.  Under  the  terms of the
agreement,  payments  are to be made equal to the annual  interest at a variable
rate based on the prior  year's  interest  rate payment  multiplied  by the most
recent Consumer Price Index rate, with any increase subject to a floor of 2% and
a ceiling of 5%. At any time prior to the note's  maturity,  the Partnership has
the  option  to repay the  acquisition  note at a  discount  equal to 70% of the
property's annual scheduled rent but not less than $700,000. The required annual
installment  of interest for 2000 was not made.  Accordingly,  the Local Limited
Partnership is currently in default and the  Partnership  interest is subject to
foreclosure.  The Local Limited  Partnership is actively  attempting to sell its
net assets.

Caroline  Arms,  Harold House and San Juan Del Centro Limited  Partnerships  all
have notes which were executed by the respective Local Limited Partnerships with
the  seller as part of the  acquisition  of the  property  by the Local  Limited
Partnership.  The notes were nonrecourse notes secured by a security interest in
all Partnership  interests in the Local Limited Partnership and are subordinated
to the  respective  mortgage  notes on each property for as long as the mortgage
notes are insured by HUD. Any payments due from project  income are payable from
surplus cash, as defined by the HUD  Regulatory  Agreement.  Neither the Limited
Partnership  nor any  partners  thereof,  present or future  assume any personal
liability  for the payment of the notes.  The notes were due  November 15, 1999,
November 15, 1999 and December 20, 1999,  respectively.  Each note is in default
and  the  Local   Limited   Partnership   interests  are  subject  to  potential
foreclosure.  Continuation of the Local Limited Partnerships'  operations in the
present form is  dependent  on its ability to extend the maturity  date of their
respective notes, or to repay or refinance their note. The financial  statements
do not  include  any  adjustments  which  might  result from the outcome of this
uncertainty.  Harold House Local Limited  Partnership is actively  attempting to
sell its net assets.

Esbro  and  Mayfair  Manor  Limited  Partnership  notes  were  executed  by  the
respective Local Limited  Partnership with the seller as part of the acquisition
of the  property by the Local  Limited  Partnership.  The notes are  nonrecourse
notes  secured  by a  security  interest  in all  Partnership  interests  in the
respective  Local Limited  Partnership.  The notes were initially due on October
15, 1997.  Effective  February 16, 1998,  both Esbro and Mayfair  Manor  Limited
Partnerships  executed  Amended and Restated  Promissory Notes for each of their
respective  notes.  The  Amended  Notes  extended  the  maturity of the notes to
October 25, 1999.  Neither the Limited  Partnership  nor any  partners  thereof,
present or future  assume any personal  liability  for the payment of the notes.
During  2000,  both Local  Limited  Partnerships  received  notice of demand for
payment and the  commencement of foreclosure  proceedings.  Such  foreclosure is
subject to HUD  approval,  which is pending.  Continuation  of both of the Local
Limited Partnerships' operations in the present form is dependent on the outcome
of these  proceedings.  The financial  statements do not include any adjustments
which might result from the outcome of this uncertainty.

Meadows  Apartments and Meadows East Apartments  Limited  Partnerships  both had
notes  payable  which  were  due  on  December  12,  1997.   The  Local  Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999,  Meadows  Apartments  and Meadows East  Apartments
Limited Partnership notes were foreclosed. Pursuant to the security agreement of
the note payable, the note holder was substituted as the sole limited partner of
the Local Limited  Partnership in place of the Partnership and the note holder's
assignee  was  substituted  as the  general  partner.  No gain or loss  has been
recorded as a result of the transfer of this partnership interest. With the loss
of the Partnership's  interest in Meadows Apartments and Meadows East Apartments
to the note holders,  the Partnership  will not receive any future benefits from
these Local Limited  Partnerships  and taxable income will be generated and flow
to the  Partnership's  investors  without any  distributable  cash. The specific
impact  of the  tax  consequence  is  dependent  upon  each  specific  partner's
individual tax situation.

Hilltop Apartments, Hurbell I, Park Avenue West I, Park Avenue West II and Rodeo
Drive  Limited  Partnerships  had notes payable which were due November 2, 1999,
December  19, 1999,  December  20, 1999,  December 20, 1999 and December 6, 1997
respectively.  The Local Limited  Partnerships did not have the resources to pay
the amounts due. On the dates shown in the  following  table,  The Local Limited
Partnerships were foreclosed upon and, pursuant to the security agreement of the
notes,  the note holders were  substituted as sole limited partners of the Local
Limited  Partnerships.  Also, the note holder's  assignee was substituted as the
general partner.

          Partnership                         Foreclosure Date

          Hilltop                              August 9, 2000
          Hurbell I                           October 26, 2000
          Park Avenue West I                  January 17, 2000
          Park Avenue West II                 January 17, 2000
          Rodeo Drive                          January 1, 2000

No  gain or loss  has  been  recorded  as a  result  of the  transfer  of  these
Partnership  interests.  With the loss of the partnership's interest in Hilltop,
Hurbell I, Park  Avenue  West I & II and Rodeo  Drive to the note  holders,  the
Partnership  will not  receive  any future  benefits  from these  Local  Limited
Partnerships and taxable income will be generated and flow to the  Partnership's
investors without distributable cash. The specific impact of the tax consequence
is dependent upon each specific partner's individual tax situation.

Subsequent to December 31, 2000,  the holder of the notes  relating to Hurbell I
and Hurbell II foreclosed on the Partnership's  interests in these Local Limited
Partnerships  and Windsor  Apartments  Associates  Limited  Partnership sold its
investment   property.   See  Note  11  for  further  details   involving  these
transactions.

SFAS No.  121  "Accounting  for the  Impairment  of  Long-Lived  Assets  and for
Long-Lived  Assets to be Disposed Of" (the  "Statement")  requires an impairment
loss to be  recognized if the sum of estimated  future cash flows  (undiscounted
and  without  interest  charges)  is less  than the  carrying  amount  of rental
property.  The  impairment  loss would be the amount by which the carrying value
exceeds the fair value of the rental  property.  If the rental property is to be
disposed of, fair value is calculated net of costs to sell.

During 1999, Hurbell I Limited Partnership  recognized an impairment loss on its
rental property in the amount of  approximately  $736,000.  This impairment loss
was the result of the net carrying  value of the assets  exceeding the estimated
net  sales  value.  The  Partnership  lost its  interest  in  Hurbell  I through
foreclosure on October 26, 2000.

Additionally, regardless of whether an impairment loss of an individual property
has been  recorded or not, the carrying  value of each of the rental  properties
may still exceed their fair market value as of December 31, 2000. Should a Local
Limited  Partnership  be forced to  dispose of any of its  properties,  it could
incur a loss.

(3)  TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER

The Partnership accrued administrative and reporting fees payable to the General
Partner  of   approximately   $77,000  and   $114,000   during  2000  and  1999,
respectively.   During  1999,   the   Partnership   paid  the  General   Partner
approximately  $107,000  of these fees.  No  payments  were made during 2000 for
these  fees.  The  balance  owed  to the  General  Partner  for  these  fees  is
approximately $1,296,000 as of December 31, 2000.

The accrued  administrative  and reporting  fees payable to the General  Partner
will be paid as cash flow permits or from the sale or refinancing of one or more
of the underlying properties of the Local Limited Partnerships.

During 2000, the General Partner advanced the Partnership approximately $33,000.
No advances were made during 1999. During 1999, the Partnership  repaid advances
of approximately  $34,000 and accrued  interest of  approximately  $3,000 to the
General  Partner.  Interest is charged on borrowings at the Chase Manhattan Bank
prime interest rate plus 2%. Chase Manhattan Bank prime was 9.5% at December 31,
2000. At December 31, 2000, the Partnership had $33,000 in unpaid borrowings due
to the General Partner.

An affiliate of the General  Partner,  NHP Management  Company  ("NHPMC") is the
project  management  agent for the projects  operated by seven and eleven of the
Local Limited Partnerships during 2000 and 1999,  respectively.  NHPMC and other
affiliates  of NCHP earned  approximately  $579,000 and $768,000 for  management
fees and other services provided to the Local Limited  Partnerships  during 2000
and 1999, respectively.

Personnel  working  at the  project  sites,  which are  managed  by  NHPMC,  are
employees of NHPMC.  The projects  reimbursed  NHPMC for the actual salaries and
related benefits of such employees. Total reimbursements earned for salaries and
benefits  for the years ended  December  31, 2000 and 1999,  were  approximately
$973,000 and $1,335,000, respectively.

(4)   NOTE PAYABLE

The note payable by the  Partnership  bears simple interest at a rate of 10% per
annum.  The note is  payable  to NHP in the same  amount and same terms as notes
executed by NHP to former project owners, is nonrecourse,  and is collateralized
by  the  Partnership's   interest  in  Windsor  Apartments   Associates  Limited
Partnership.  The note was due on October 24, 1999.  Subsequent  to December 31,
2000,  Windsor  Apartments  Associates  Limited  Partnership sold its investment
property  and the net  proceeds  were used to satisfy the note.  See Note 11 for
further details.

On  July  24,  2000,  the  noteholder  foreclosed  on the  note  payable  by the
Partnership  which was  collaterized  by its  interest in  Kimberton  Apartments
Associates  Limited  Partnership.  The holder of the note was NHP,  the  general
partner  of the  Partnership  and an  affiliated  party.  As a  result  of  this
transaction, the Partnership lost its interest in the Local Limited Partnership.
No gain or loss has been recorded as a result of the transfer of this  interest.
With the loss of the Partnership's  interest in Kimberton Apartments  Associates
Limited  Partnership to the note holder,  the  Partnership  will not receive any
future  benefits from the Local Limited  Partnership  and taxable income will be
generated and flow to the Partnership's  investors without  distributable  cash.
The  specific  impact of the tax  consequence  is dependent  upon each  specific
partner's individual tax situation.

(5)   INCOME TAXES

The  Partnership  is not taxed on its income.  The  partners  are taxed in their
individual  capacities based upon their  distributive share of the Partnership's
taxable income and are allowed the benefits to be derived from off-setting their
distributive  share of the tax losses against  taxable income from other sources
subject to passive  loss rule  limitations.  The taxable  income or loss differs
from  amounts  included in the  statements  of  operations  because of different
methods used in  determining  the losses of the Local  Limited  Partnerships  as
discussed  below. The tax loss is allocated to partner groups in accordance with
Section  704(b) of the Internal  Revenue Code and  therefore is not  necessarily
proportionate to the interest percentage owned.

A reconciliation follows (in thousands):

                                                  Years Ended December 31,
                                                     2000            1999

Net (loss) profit per financial statements          $ (311)          $ 2

Add (deduct):
  Interest on notes payable                             75             241
  Gain on foreclosure                                  813              --
  Partnership's share of Local Limited
   Partnerships' (loss) profit                      11,272           6,510
  Other                                                 32            (293)

Profit per tax return                              $11,881         $ 6,460

The following is a reconciliation between the Partnership's reported amounts and
the Federal tax basis of net assets at December 31, 2000 (in thousands):

Net deficit as reported                                        $ (2,169)

Add (deduct):
  Investment in Partnerships                                    (19,652)
  Other                                                             308

Net deficit - Federal tax basis                                $(21,513)

(6)  ALLOCATION  OF  RESULTS OF  OPERATIONS,  CASH  DISTRIBUTIONS  AND GAINS AND
     LOSSES FROM SALE OR REFINANCING

Cash received from the sale or  refinancing  of any  underlying  property of the
Local Limited  Partnerships,  after payment of the applicable  mortgage debt and
the payment of all expenses related to the transaction,  is to be distributed in
the following manner:

      First,  to the General  Partner for any unrepaid loans to the  Partnership
      and any unpaid fees (other than disposition and refinancing fees);

      Second,  to the  establishment  of any reserves which the General  Partner
      deems  reasonably  necessary  for  contingent,   unmatured  or  unforeseen
      liabilities or obligations of the Partnership.

      Third, to the Limited Partners, until the Limited Partners have received a
      return of their  capital  contributions,  after  deduction  for prior cash
      distributions  from sales or refinancing,  but without deduction for prior
      cash distribution from operations;

      Fourth, to the Limited  Partners,  until each Limited Partner has received
      an amount equal to a  cumulative  noncompounded  12% annual  return on its
      capital contribution, after deduction of (a) an amount equal to 50% of the
      tax  losses   allocated  to  the  Limited   Partner  and  (b)  prior  cash
      distributions  from operations and prior cash  distributions from sales or
      refinancing;

      Fifth,  to the General  Partner  until the General  Partner has received a
      return of its  capital  contributions,  after  deduction  for  prior  cash
      distributions  from sales or refinancing,  but without deduction for prior
      cash distributions from operations;

      Sixth,  to the  General  Partner for  disposition  and  refinancing  fees,
      including prior  disposition and refinancing  fees which have been accrued
      but are unpaid;

      Seventh, to the partners with positive  capital  accounts  to  bring  such
      accounts to zero; and

      Finally,  85% of the remaining sales proceeds to the Limited  Partners and
      15% to the General Partner.

Net income or loss from  operations of the  Partnership  is allocated 98% to the
Limited  Partners,  1% to the  General  Partner and 1% to the  Original  Limited
Partner.   Cash  distributions   from  operations,   after  payment  of  certain
obligations  (including  reimbursement  on a cumulative basis of direct expenses
incurred by the General  Partner or its  affiliates in managing the  properties)
and  payment  of  annual  cumulative   administrative  and  reporting  fees,  is
distributed 98% to the Limited Partners, 1% to the General Partner and 1% to the
Original Limited Partner.

Gain for Federal income tax purposes realized in the event of dissolution of the
Partnership  or  upon  sale  of  interests  in a Local  Limited  Partnership  or
underlying property will be allocated in the following manner:

      First, to the Limited Partners in an amount up to the negative balances of
      the capital  accounts of Limited  Partners in the same  proportion as each
      Limited  Partner's  negative  capital  account  bears  to  such  aggregate
      negative capital accounts;

      Second, to the General Partner in an  amount up to the  General  Partner's
      negative capital account, if any;

      Third,  to the Limited  Partners,  up to the  aggregate  amount of capital
      contributions  of the Limited  Partners,  after  deduction  for prior cash
      distributions  from sales or refinancing,  but without deduction for prior
      cash  distributions  from  operations,  in the same  proportion  that such
      Limited  Partner's  capital  contribution  bears to the  aggregate  of all
      Limited Partners' capital contributions;

      Fourth,  to the  Limited  Partners,  until each  Limited  Partner has been
      allocated  such an amount equal to a cumulative  noncompounded  12% annual
      return on their  capital  contribution,  after  deduction of (a) an amount
      equal to 50% of the tax losses  allocated  to the Limited  Partner and (b)
      prior cash distributions from operations and prior cash distributions from
      sales or refinancing;

      Fifth,  to the  General  Partner,  up to the  aggregate  amount of capital
      contributions made by the General Partner,  after deduction for prior cash
      distributions  from sales or refinancing,  but without deduction for prior
      cash distributions from operations; and

      Finally,  85% of the remaining gain to the Limited Partners and 15% to the
      General Partner.

Losses for Federal  income tax purposes  realized in the event of dissolution of
the  Partnership  or upon sale of interest  in a Local  Limited  Partnership  or
underlying property will be allocated 85% to the Limited Partners and 15% to the
General Partner.

(7)   ABANDONMENT OF LIMITED PARTNERSHIP UNITS

In 1999, the number of Limited  Partnership  Units  decreased by 42 units due to
limited  partners  abandoning  their  units.  In  abandoning  his or her Limited
Partnership  Unit(s),  a limited  partner  relinquishes  all right,  title,  and
interest in the partnership as of the date of abandonments. However, the limited
partner is allocated  his or her share of net income or loss for that year.  The
profit or loss per Limited  Partnership Unit in the  accompanying  statements of
operations is calculated based on the number of units  outstanding at the end of
the year. There were no such abandonments in 2000.

(8)   LEGAL PROCEEDINGS

In October 1997,  NHP received a subpoena from the Inspector  General  ("IG") of
HUD  requesting  documents  relating to any agreement  whereby NHP or any of its
affiliates provides or has provided compensation to owners (or their affiliates)
of HUD-assisted  properties (the "Transactions").  Documents were produced which
may have been  responsive to the HUD subpoena and submitted to the HUD Inspector
General in 1998.

In July 1999, NHP received a grand jury subpoena  requesting  documents relating
to the same  subject  matter as the HUD IG  subpoenas  and NHP's  operation of a
group  purchasing  program  created  by NHP,  known as Buyers  Access.  To date,
neither the HUD IG nor the grand jury has  initiated  any action  against NHP or
AIMCO, the ultimate controlling entity of NHP or, to NHP's or AIMCO's knowledge,
any owner of a HUD property managed by NHP. AIMCO believes that NHP's operations
and programs are in compliance,  in all material respects,  with all laws, rules
and  regulations  relating to HUD-assisted  or HUD-insured  properties.  NHP and
AIMCO  are  cooperating  with   investigations  and  do  not  believe  that  the
investigations  will result in a material  adverse  impact on their  operations.
However, as with any similar investigation, there can be no assurance that these
will not result in material fines, penalties or other costs.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.

(9)   GOING CONCERN

Certain  of the Local  Partnership's  notes  payable  are past due (see Note 3).
Therefore, there is the possibility that the Partnership will lose its ownership
interest  in  the  Local  Limited   Partnerships   through  foreclosure  by  the
noteholder. Subsequent to December 31, 2000, the note holders for certain of the
Local Limited Partnerships foreclosed on the Partnership interests, and in 2000,
note holders for certain  other Local  Limited  Partnerships  began  foreclosure
proceedings  (see  Notes  2,  4 and  11).  Continuation  of  the  Local  Limited
Partnerships'  operations  in the present form is dependent on their  ability to
extend the maturity date of these notes or to repay or refinance the notes.  The
financial  statements do not include any adjustments which might result from the
outcome of this uncertainty.

(10)  REAL ESTATE AND ACCUMULATED DEPRECIATION OF LOCAL LIMITED PARTNERSHIPS IN
      WHICH NHP REALTY FUND TWO HAS INVESTED

<TABLE>
<CAPTION>

                                                                            Cost
                                                                       Capitalized
                                       Initial Cost                     (Removed)
                                     To Local Limited                   Subsequent
                                        Partnership                   to Acquisition
                                      (in thousands)                  (in thousands)

                                                    Buildings
                                                   and Related
                                                     Personal                Carrying Cost
        Description         Encumbrances   Land      Property   Improvements  Adjustments

Caroline Arms Limited
<S>                             <C>       <C>        <C>          <C>            <C>
  Partnership                   (1)       $ 260      $ 4,497      $ 2,164        $ --
Esbro Limited Partnership       (1)          360       2,566          738          (500)
Harold House Limited
  Partnership                   (1)           80       1,782        1,344            --
Hurbell II Limited
  Partnership                   (1)          240       3,941        1,849            --
Hurbell III Limited
  Partnership                   (1)          150       1,894          828            --
Mayfair Manor Limited
  Partnership                   (1)          450       3,720        1,195        (1,468)
San Juan Del Centro
  Limited Partnership           (1)          725       3,360        1,225            --
West Oak Village Limited
  Partnership                   (1)          400       4,667        1,089            --
Windsor Apartments
  Associated Limited
    Partnership                 (1)          169       5,926          808            --

  Totals                                 $ 2,834     $32,353      $11,240       $(1,968)
</TABLE>

<TABLE>
<CAPTION>

                              Gross Amount At Which
                                    Carried
                             At December 31, 2000
                                (in thousands)

                                    Buildings
                                     And
                                   Related
                                   Personal            Accumulated    Date of     Date   Depreciable
       Description          Land   Property Total(2)  Depreciation  ConstructionAcquired Life-Years
                                               (3)         (3)
                                                      (in thousands)
Caroline Arms Limited
<S>                        <C>     <C>       <C>        <C>            <C>       <C>       <C>
  Partnership              $ 317   $ 6,604   $ 6,921    $ (2,809)      1972      04/85     5-50
Esbro Limited Partnership     375    2,789     3,164      (1,342)      1972      04/85     5-50
Harold House Limited
  Partnership                 123    3,083     3,206      (1,195)      1973      05/85     5-50
Hurbell II Limited
  Partnership                 302    5,728     6,030      (2,352)      1972      04/85     5-50
Hurbell III Limited
  Partnership                 184    2,688     2,872      (1,115)      1973      04/85     5-50
Mayfair Manor Limited
  Partnership                 463    3,434     3,897      (1,771)      1971      04/85     5-50
San   Juan   Del   Centro
Limited
  Partnership                 733    4,577     5,310      (2,040)      1970      04/85     5-50
West Oak Village Limited
  Partnership                 408    5,748     6,156      (2,505)      1972      04/85     5-50
Windsor Apartments
  Associates Limited
    Partnership               169    6,734     6,903      (3,185)      1972      04/85     5-30

  Totals                  $ 3,074  $41,385   $44,459    $(18,314)
</TABLE>



(1)   Schedule of Encumbrances (in thousands)
<TABLE>
<CAPTION>

                                                               Notes
                                                            Payable and
                                               Mortgage       Accrued
Partnership Name                                Notes         Interest       Total

<S>                                            <C>            <C>           <C>
Caroline Arms Limited Partnership              $ 1,721        $ 4,078       $ 5,799
Esbro Limited Partnership                          828          3,054         3,882
Harold House Limited Partnership                   674          1,566         2,240
Hurbell II Limited Partnership                   1,385          3,686         5,071
Hurbell III Limited Partnership                    824          1,687         2,511
Mayfair Manor Limited Partnership                1,160          4,262         5,422
San Juan del Centro Limited Partnership          1,432          3,561         4,993
West Oak Village Limited Partnership             1,384          4,851         6,235
Windsor Apartments Associates Limited
  Partnership                                    2,133             --         2,133

  Total                                        $11,541        $26,745       $38,286
</TABLE>

(2)   The  aggregate  cost of real  estate for  Federal  income tax  purposes at
      December  31,  2000  is   approximately   $46,059,000,   and   accumulated
      depreciation  for Federal  income tax  purposes  at  December  31, 2000 is
      approximately $35,015,000.

(3)   Reconciliation of real estate (in thousands)

                                                 Years Ended December 31,
                                                   2000           1999

Balance at beginning of period                   $ 58,156       $ 63,358
Improvements during the period                      1,319          1,721
Disposals of rental properties                    (15,016)        (6,187)
Impairment losses on rental property                   --           (736)
Balance at end of period                         $ 44,459       $ 58,156


      Reconciliation of accumulated depreciation (in thousands)

                                                   2000           1999

Balance at beginning of period                   $ 23,145       $ 24,333
Depreciation expense for the period                 1,756         1,894
Disposals of rental properties                     (6,587)        (3,082)
Balance at end of period                         $ 18,314       $ 23,145



(11)  SUBSEQUENT EVENTS

Hurbell II and Hurbell III Limited Partnerships had notes payable which were due
November 2, 1999,  and they did not have the  resources  to pay the amounts due.
The Partnership's  interests in these Local Limited Partnerships were foreclosed
and,  pursuant to the  security  agreement  of the notes,  the note holders were
substituted as sole limited partners of the Local Limited  Partnerships on April
3, 2001 and March 28, 2001,  respectively.  Also, the note holder's assignee was
substituted as the general partner.  The financial statements do not include any
adjustments which might result from the outcome of these  transactions.  No gain
or loss was recognized as a result of these transactions.

On January 31, 2001, Windsor Apartment  Associates Limited  Partnership sold its
investment property to an unaffiliated third party for $4,600,000.  After paying
closing costs, the net proceeds were used to repay the mortgage  encumbering the
property  and the note  payable  and  accrued  interest  thereon to the  General
Partner from the Partnership.  The Partnership paid approximately  $2,027,000 to
satisfy the note and accrued  interest.  The remaining  balances  outstanding of
approximately  $980,000  were forgiven  which  resulted in a credit to partners'
deficit for such amount.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

None.


<PAGE>



                                    PART III

Item 9.     Directors and Executive Officers of the Registrant

The Partnership has no directors, executive officers or significant employees of
its own.

The names, ages, business experience and involvement in legal proceedings of the
directors  and   executive   officers  of  National   Corporation   for  Housing
Partnerships   (NCHP),   the  sole  general  partner  of  The  National  Housing
Partnership,  the sole general  partner of the  Partnership,  and certain of its
affiliates, are as follows:

Directors of NCHP

Two  individuals  comprise  the Board of  Directors  of NCHP.  One  director was
appointed  by the  President  of the United  States,  by and with the advice and
consent of the Senate.

Lance J. Graber (39) was appointed  Executive Vice  President - Acquisitions  of
NCHP and AIMCO in October 1999. His principal business function is acquisitions.
Prior to joining  AIMCO,  Mr. Graber was an Associate from 1991 through 1992 and
then a Vice  President  from 1992  through  1994 at Credit  Suisse  First Boston
engaged in real estate financial advisory services and principal  investing.  He
was a Director  there from 1994 to May 1999,  during which time he  supervised a
staff of seven in the making of principal investments in hotel, multi-family and
assisted living  properties.  Mr. Graber received a B.S. and an M.B.A.  from the
Wharton School of the University of Pennsylvania.

Patrick J. Foye (age 43) has been Executive Vice President of NCHP since October
1, 1998 and was appointed  President in September  1999. Mr. Foye is responsible
for acquisitions of partnership securities,  consolidation of minority interests
and  corporate  and other  acquisitions.  Mr. Foye has served as Executive  Vice
President  of AIMCO  since May 1998.  Prior to  joining  AIMCO,  Mr.  Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was  Managing  Partner  of the  firm's  Brussels,  Budapest  and Moscow
offices from 1992  through  1994.  Mr. Foye is also Deputy  Chairman of the Long
Island  Power   Authority  and  serves  as  a  member  of  the  New  York  State
Privatization  Council.  He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.

Executive Officers

The current  executive  officers of NCHP and a  description  of their  principal
occupations in recent years are listed below.

Lance J. Graber (age 39). See "Directors of NCHP."

Patrick J. Foye  (age 43). See "Directors of NCHP."

Steven D. Ira (age 49) has served as Executive Vice President of NCHP since 1997
and of AIMCO since 1994.  From 1987 until July 1994,  he served as  President of
Property Asset Management  ("PAM").  Prior to merging his firm with PAM in 1987,
Mr. Ira acquired extensive experience in property  management.  Between 1977 and
1981 he supervised  the property  management of over 3,000  apartment and mobile
home units in  Colorado,  Michigan,  Pennsylvania  and  Florida,  and in 1981 he
joined with others to form the property management firm of McDermott,  Stein and
Ira.  Mr.  Ira  served  for  several  years on the  National  Apartment  Manager
Accreditation  Board  and  is a  former  president  of  the  National  Apartment
Association  and  the  Colorado  Apartment  Association.  Mr.  Ira is the  sixth
individual elected to the Hall of Fame of the National Apartment  Association in
its 54-year history.  He holds a Certified  Apartment Property Supervisor (CAPS)
and a  Certified  Apartment  Manager  designation  from the  National  Apartment
Association,  a Certified  Property Manager (CPM)  designation from the National
Institute of Real Estate  Management  (IREM) and he is a member of the Boards of
Directors  of  the  National   Multi-Housing  Council,  the  National  Apartment
Association  and the Apartment  Association of Metro Denver.  Mr. Ira received a
B.S. from Metropolitan State College in 1975.

Joel F. Bonder (age 52) was appointed Executive Vice President,  General Counsel
and Secretary of NCHP and AIMCO  effective  December 1997.  Prior to joining the
Company,  Mr. Bonder served as Senior Vice President and General  Counsel of NHP
from April 1994 until  December  1997.  Mr. Bonder served as Vice  President and
Deputy  General  Counsel  of NHP from June 1991 to March  1994 and as  Associate
General  Counsel of NHP  Incorporated  from 1986 to 1991. From 1983 to 1985, Mr.
Bonder practiced with the Washing,  D.C. law firm of Lane & Edson, P.C. and from
1979 to 1983  practiced  with the  Chicago  law firm of Ross and  Hardines.  Mr.
Bonder  received  a B.A.  from  the  University  of  Rochester  and a J.D.  from
Washington University School of Law.

Paul J.  McAuliffe  (age 44) has been Executive Vice President of NCHP and AIMCO
since February 1999 and was appointed Chief  Financial  Officer in October 1999.
Prior to joining the Company,  Mr.  McAuliffe  was Senior  Managing  Director of
Secured  Capital  Corp and prior to that time had been a  Managing  Director  of
Smith  Barney,  Inc.  from  1993 to 1996,  where  he was  senior  member  of the
underwriting  team  that lead  AIMCO's  initial  public  offering  in 1994.  Mr.
McAuliffe  was also a Managing  Director and head of the real estate group at CS
First  Boston from 1990 to 1993 and he was a Principal  in the real estate group
at Morgan Stanley & Co., Inc.  where he worked from 1983 to 1990. Mr.  McAuliffe
received a B.A. from Columbia College and an M.B.A. from University of Virginia,
Darden School.

Martha L. Long (age 41) has been Senior Vice  President  and  Controller  of the
General  Partner since October 1998 as a result of the  acquisition  of Insignia
Financial  Group,  Inc. As of February 2001, Ms. Long was also appointed head of
the service  business for AIMCO.  From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997,  retaining that title until October 1998.  From 1988
to June 1994,  Ms. Long was Senior Vice  President and  Controller for The First
Savings Bank, FSB in Greenville, South Carolina.

There is no family  relationship  between  any of the  foregoing  directors  and
executive officers.

The  executive  officers  and  director  of  the  General  Partner  fulfill  the
obligations  of the Audit  Committee  and  oversee the  Partnership's  financial
reporting  process on behalf of the General Partner.  Management has the primary
responsibility for the financial  statements and the reporting process including
the systems of internal controls. In fulfilling its oversight  responsibilities,
the executive  officers and director of the General Partner reviewed the audited
financial  statements with management including a discussion of the quality, not
just the  acceptability,  of the accounting  principles,  the  reasonableness of
significant  judgments,   and  the  clarity  of  disclosures  in  the  financial
statements.

The  executive  officers and director of the General  Partner  reviewed with the
independent  auditors,  who are  responsible  for  expressing  an opinion on the
conformity  of  those  audited  financial  statements  with  generally  accepted
accounting  principles,  their  judgments  as  to  the  quality,  not  just  the
acceptability, of the Partnership's accounting principles and such other matters
as are required to be discussed with the Audit Committee or its equivalent under
generally  accepted  auditing  standards.   In  addition,  the  Partnership  has
discussed  with  the  independent  auditors  the  auditors'   independence  from
management and the Partnership  including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
non-audit services with the auditors' independence.

The executive  officers and director of the General  Partner  discussed with the
Partnership's  independent auditors the overall scope and plans for their audit.
In  reliance on the reviews and  discussions  referred to above,  the  executive
officers and director of the General  Partner has approved the  inclusion of the
audited financial  statements in the Form 10-KSB for the year ended December 31,
2000 for filing with the Securities and Exchange Commission.

The General Partner has reappointed Ernst & Young LLP as independent auditors to
audit the financial  statements of the  Partnership for the current fiscal year.
Fees for the last  fiscal  year  were  annual  audit of  $39,000  and  non-audit
services (principally tax-related) of $6,000.

Item 10.    Executive Compensation

National Housing  Partnership  Realty Fund Two has no officers or directors.  No
direct form of compensation  or remuneration  was paid by the Partnership to any
officer or director of the General Partner.  However,  reimbursements  and other
payments have been made to the Partnership's General Partner and its affiliates,
as described in "Item 13. Certain Relationships and Related Transactions."

Item 11.    Security Ownership of Certain Beneficial Owners and Management

1133 Fifteenth  Street Two Associates,  a Maryland  Limited  Partnership,  whose
general partner is NHP and whose limited  partners were employees of NCHP at the
time the partnership was formed, owns a 1% interest in the Partnership.

NHP is also  the sole  general  partner  of NHP  Investment  Partners  I and NHP
Investment  Partners III. NHP  Investment  Partners III, a limited  partnership,
holds a 4.5% limited partnership interest (1% with respect to losses) in Hurbell
III Limited Partnership. NHP Investment Partners I, a limited partnership, holds
a 4.5%  limited  partnership  interest  (1% for  allocation  of  losses)  in the
remaining  eight Local  Limited  Partnerships.  Prior to the  admittance  of the
Partnership into the Local Limited  Partnerships,  NHP Investment Partners I and
NHP  Investment  Partners  III held a 1% general  partnership  interest  and 98%
limited partnership interest in the Local Limited Partnerships.

The following table sets forth certain information regarding limited partnership
units  of the  Registrant  owned  by each  person  or  entity  is  known  by the
Registrant to own  beneficially or exercise  voting or dispositive  control over
more than 5% of the Registrant's  limited  partnership  units as of December 31,
2000.

         Name of Beneficial Owner              Number of Units        % of Class

AIMCO and affiliates                                1,149                6.29%
  (affiliates of the General Partner)

The business address of AIMCO is 2000 South Colorado Boulevard, Denver, Colorado
80222.

Subsequent  to December  31,  2000,  AIMCO  acquired an  additional  785 limited
partnership  units,  bringing  its  total to 1,934  units or 10.59% of the total
(18,258) limited partnership units.

Item 12.    Certain Relationships and Related Transactions

The Partnership accrued administrative and reporting fees payable to the General
Partner  of   approximately   $77,000  and   $114,000   during  2000  and  1999,
respectively.   During  1999,   the   Partnership   paid  the  General   Partner
approximately  $107,000  of these fees.  No  payments  were made during 2000 for
these  fees.  The  balance  owed  to the  General  Partner  for  these  fees  is
approximately $1,296,000 as of December 31, 2000.

The accrued  administrative  and reporting  fees payable to the General  Partner
will be paid as cash flow permits or from the sale or refinancing of one or more
of the underlying properties of the Local Limited Partnerships.

During 2000, the General Partner advanced the Partnership approximately $33,000.
No advances were made during 1999. During 1999, the Partnership  repaid advances
of approximately  $34,000 and accrued  interest of  approximately  $3,000 to the
General  Partner.  Interest is charged on borrowings at the Chase Manhattan Bank
prime interest rate plus 2%. Chase Manhattan Bank prime was 9.5% at December 31,
2000. At December 31, 2000, the Partnership had $33,000 in unpaid borrowings due
to the General Partner.

An affiliate of the General  Partner,  NHP Management  Company  ("NHPMC") is the
project  management  agent for the projects  operated by seven and eleven of the
Local Limited Partnerships during 2000 and 1999,  respectively.  NHPMC and other
affiliates  of NCHP earned  approximately  $579,000 and $768,000 for  management
fees and other services provided to the Local Limited  Partnerships  during 2000
and 1999, respectively.

Personnel  working  at the  project  sites,  which are  managed  by  NHPMC,  are
employees of NHPMC.  The projects  reimbursed  NHPMC for the actual salaries and
related benefits of such employees. Total reimbursements earned for salaries and
benefits  for the years ended  December  31, 2000 and 1999,  were  approximately
$973,000 and $1,335,000, respectively.

Item 13.    Exhibits and Reports on Form 8-K

      (a)   Exhibits

            Exhibit 99.1,  Audited  Combined  Financial  Statements of the Local
            Limited  Partnerships  in which the  Partnership  has  invested  are
            included as an exhibit to this report

      (b)   Reports on Form 8-K filed during the fourth quarter of 2000:

            None.


<PAGE>
                                   SIGNATURES



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

                                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
                                  (Registrant)


                                    By:   The National Housing Partnership,
                                          Its sole General Partner


                                    By:   National Corporation for Housing
                                          Partnerships, its sole General Partner


                                    By:   /s/Patrick J. Foye
                                          Patrick J. Foye
                                          President


                                    By:   /s/Martha L. Long
                                          Martha L. Long
                                          Senior Vice President and
                                          Controller


                                    Date:


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


/s/Patrick J. Foye                        Date:
Patrick J. Foye
President


/s/Martha L. Long                         Date:
Martha L. Long
Senior Vice President and
Controller



<PAGE>




                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERS REALTY FUND TWO

                              FINANCIAL STATEMENTS

                   FOR THE YEAR ENDED DECEMBER 31, 2000 AND 1999



<PAGE>



                          Independent Auditors' Report

To The Partners of
National Housing Partnership Realty Fund Two
Indianapolis, Indiana

We have audited the accompanying combined statement of financial position of the
Local Limited Partnerships in which National Housing Partnership Realty Fund Two
(the Partnership) holds a limited partnership  interest as of December 31, 2000,
and the related combined statements of operations,  partners' deficit,  and cash
flows for each of the two years in the period ended  December  31,  2000.  These
combined  financial  statements  are  the  responsibility  of the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We did not audit the  financial  statements of
Esbro  Limited  Partnership,   Mayfair  Manor  Limited  Partnership  or  Windsor
Apartment  Associates  Limited  Partnership  (three of the fifteen Local Limited
Partnerships) for the year ended December 31, 2000 which reflect total assets of
29% of combined  total  assets as of December  31,  2000,  and net losses  which
reflect 53% of combined  net loss for the year then ended.  We did not audit the
financial  statements  of Hurbell I Limited  Partnership,  Rodeo  Drive  Limited
Partnership,  Kimberton  Apartments  Associates  Limited  Partnership or Windsor
Apartment  Associates  Limited  Partnership (four of the seventeen Local Limited
Partnerships) for the year ended December 31, 1999 which reflect total assets of
30% of combined  total  assets as of December  31,  1999,  and net losses  which
reflect  57% of  combined  net loss  for the  year  then  ended.  The  financial
statements of these Local Limited  Partnerships  were audited by other  auditors
whose reports have been furnished to us, and our opinion,  insofar as it relates
to the amounts included for these Local Limited Partnerships, is based solely on
the reports of the other auditors.

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

In our  opinion,  based upon our audits and the reports of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the  combined  financial  position of the Local  Limited  Partnerships  in which
National  Housing  Partnership  Realty  Fund  Two  holds a  limited  partnership
interest as of December 31, 2000, and the combined  results of their  operations
and their cash flows for each of the two years in the period ended  December 31,
2000 in conformity with accounting  principles  generally accepted in the United
States.

As discussed in Notes 6, 11 and 13 to the combined financial statements, the due
dates of certain of the Local  Partnership's  notes  payable have  expired,  and
therefore,  the notes are in default.  Subsequent  to  December  31,  2000,  the
noteholders  for certain of the Local  Limited  Partnerships  foreclosed  on the
Partnership  interests  and, in 2000,  the  noteholders  for certain other Local
Limited  Partnerships  began  foreclosure  proceedings  (Notes 6 and 14).  These
conditions  raise  substantial  doubt about their ability to continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of these uncertainties.


                                                           /s/Ernst & Young LLP
Indianapolis, Indiana
March 14, 2001, except for Note 11 as to
  which the dates are March 28, 2001 and April 3, 2001


<PAGE>


                       REPORT OF FINCH, HAMILTON & CO., LLC.
               INDEPENDENT AUDITORS AND CERTIFIED PUBLIC ACCOUNTANTS
                LICENSED BY THE SOUTH CAROLINA BOARD OF ACCOUNTANCY


To the Partners
Hurbell I Limited Partnership
Shelby, North Carolina

We have audited the accompanying balance sheet of Hurbell I Limited Partnership,
(the Project) FHA Project No.  053-44202-LDP-SUP  (A Limited  Partnership) as of
December 31, 1999,  and the related  statements of income,  changes in partners'
deficit,  and cash flows for the year then ended. These financial statements are
the responsibility of the Project's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

As described in Note A, these  financial  statements were prepared in conformity
with the accounting  practices prescribed or permitted by the U.S. Department of
Housing and Urban  Development,  which is a  comprehensive  basis of  accounting
other than generally accepted accounting principles.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Hurbell I Limited  Partnership
at December 31, 1999,  and the results of its  operations,  changes in partners'
deficit  and cash  flows for the  years  then  ended on the basis of  accounting
described in Note A.

As discussed in Note G to the financial  statements,  the  Partnership has notes
payable that matured on December 19, 1999.  This  condition  raises  substantial
doubt about its ability to continue as a going concern. The financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

In accordance with Government Auditing  Standards,  we have also issued a report
dated February 1, 2000 on our  consideration of Hurbell I Limited  Partnership's
internal  controls and a report dated  February 1, 2000 on its  compliance  with
laws and regulations applicable to the basic financial statements.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The  supplemental  information  included  in this
report  (shown on pages  19-23) is  presented  for the  purposes  of  additional
analysis and is not a required part of the basic financial statements of Hurbell
I Limited  Partnership.  Such  information  has been  subjected  to the auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  is fairly presented in all material  respects in relation to the basic
financial statements taken as a whole.


February 1, 2000



<PAGE>


                          Independent Auditor's Report


Partners
Kimberton Apartments Associates
Indianapolis, IN

We have audited the  accompanying  statement of financial  position of Kimberton
Apartments Associates, FHA Project No.032-44013-LD, A Limited Partnership, as of
December 31, 1999,  and the related  statements  of profit and loss (on HUD Form
No.  92410),  partners'  equity,  and cash flows for the year then ended.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Kimberton Apartments Associates
at December 31, 1999,  and the results of its  operations,  changes in partners'
equity and its cash flows for the year then ended in conformity  with  generally
accepted accounting principles.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial statements taken as a whole. The additional  information,  as referred
to in the Table of Contents,  is presented for purposes of  additional  analysis
and is not a required part of the basic financial statements of the Partnership.
Such  information has been subjected to the auditing  procedures  applied in the
audit of the basic financial  statements and, in our opinion,  is fairly stated,
in all material respects, in relation to the basic financial statements taken as
a whole.



Armacost & Orsborne LLP
Bethesda, Maryland
February 10, 2000


<PAGE>


                          Independent Auditor's Report


To the Partners
Rodeo Drive Limited Partnership
Washington, D.C.

We have audited the accompanying  statement of financial position of Rodeo Drive
Limited  Partnership  (a  California  limited  partnership),   FHA  Project  No.
122-44452-LDP, as of December 31, 1999, and the related statements of profit and
loss (on HUD Form No.  92410),  partners'  deficit,  and cash flows for the year
then  ended.   These  financial   statements  are  the   responsibility  of  the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Rodeo Drive Limited Partnership
as of December 31, 1999,  and the results of its  operations  and its cash flows
for the year  then  ended  in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note 3 to the
financial  statements,  the  Partnership  is in default on its loan agreement at
December 31, 1999, as a result of  nonpayment.  The  Partnership  has reached an
agreement with the lender,  where as in  satisfaction of the loan, the assets of
the  Partnership  will be  transferred to the lender in 2000. As a result of the
transaction, the Partnership will not continue as a going concern. The financial
statements do not include any adjustments that might result from the transfer of
all assets to the lender in 2000.

In accordance  with Government  Auditing  Standards and the  Consolidated  Audit
Guide for Audits of HUD Programs  issued by the U.S.  Department  of Housing and
Urban  Development,  we have  also  issued a report  dated  March 9, 2000 on our
consideration of Rodeo Drive Limited Partnership's  internal control and reports
dated March 9, 2000 on its compliance with specific  requirements  applicable to
major HUD  programs  and specific  requirements  applicable  to Fair Housing and
Non-Discrimination.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements taken as a whole. The additional  information,  as referred to in the
Table of Contents, is presented for purposes of additional analysis and is not a
required part of the basic financial statements.  This additional information is
the  responsibility of the Partnership's  management.  Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion,  is fairly stated, in all material respects,  in
relation to the basic financial statements taken as a whole.


Hansen, Hunter & Kibbee, P.C.
Portland, Oregon
March 9, 2000


<PAGE>


                          Independent Auditor's Report


Partners
Windsor Apartments Associates
Indianapolis, IN

We have audited the  accompanying  statement  of  financial  position of Windsor
Apartments  Associates,   FHA  Project  No.   032-44012-LD-WAH-SUP,   A  Limited
Partnership,  as of December 31, 2000, and the related  statements of profit and
loss, partners' equity (deficit),  and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Windsor Apartments  Associates
at December 31, 2000,  and the results of its  operations,  changes in partners'
equity  (deficit) and its cash flows for the year then ended in conformity  with
generally accepted accounting principles.

As  discussed  in  Note  14 to  the  financial  statements,  the  assets  of the
Partnership were sold January 31, 2001.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial statements taken as a whole. The additional  information,  as referred
to in the Table of Contents,  is presented for purposes of  additional  analysis
and is not a required part of the basic financial statements of the Partnership.
Such  information has been subjected to the auditing  procedures  applied in the
audit of the basic financial  statements and, in our opinion,  is fairly stated,
in all material respects, in relation to the basic financial statements taken as
a whole.


Armacost & Orsborne LLP
Bethesda, Maryland
February 13, 2001




<PAGE>


                          Independent Auditor's Report


Partners
Windsor Apartments Associates
Indianapolis, IN

We have audited the  accompanying  statement  of  financial  position of Windsor
Apartments  Associates,   FHA  Project  No.   032-44012-LD-WAH-SUP,   A  Limited
Partnership,  as of December 31, 1999, and the related  statements of profit and
loss, partners' equity (deficit),  and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Windsor Apartments  Associates
at December 31, 1999,  and the results of its  operations,  changes in partners'
equity  (deficit) and its cash flows for the year then ended in conformity  with
generally accepted accounting principles.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial statements taken as a whole. The additional  information,  as referred
to in the Table of Contents,  is presented for purposes of  additional  analysis
and is not a required part of the basic financial statements of the Partnership.
Such  information has been subjected to the auditing  procedures  applied in the
audit of the basic financial  statements and, in our opinion,  is fairly stated,
in all material respects, in relation to the basic financial statements taken as
a whole.


Armacost & Orsborne LLP
Bethesda, Maryland
February 10, 2000




<PAGE>


                          Independent Auditors' Report



To the Partners
Esbro Limited Partnership
Tucson, Arizona

We have audited the accompanying balance sheet of Esbro Limited Partnership, FHA
Project  Number  123-44038-LDP,  as  of  December  31,  2000,  and  the  related
statements of operations,  changes in partners' capital,  and cash flows for the
year then  ended.  These  financial  statements  are the  responsibility  of the
Project's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Esbro Limited Partnership,  FHA
Project  Number  123-44038-LDP,  as of  December  3,1 2000,  and the  results of
operations, changes in partners' capital, and cash flows for the year then ended
in conformity with generally accepted accounting principles.

In accordance  with Government  Auditing  Standards and the  Consolidated  Audit
Guide for Audits of HUD Programs  issued by the U.S.  Department  of Housing and
Urban  Development,  we have  also  issued a report  dated  March 7, 2001 on our
consideration of Esbro Limited Partnership's  internal control and reports dated
March 7, 2001, on its compliance with specific requirements  applicable to major
HUD programs,  and specific requirements  applicable to major HUD programs,  and
specific requirements applicable to Affirmative Fair Housing.

As discussed in Note F in the financial statements, certain of the Partnership's
notes  payable were due October 25, 1999;  therefore,  the notes are in default.
During 2000, the noteholder commenced foreclosure proceedings on the Partnership
interests of the Partnership.  This condition raises substantial doubt about its
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial   statements  taken  as  a  whole.   The  accompanying   supplementary
information  shown on pages 14 to 18 is  presented  for  purposes of  additional
analysis and is not a required  part of the basic  financial  statements  of the
Esbro Limited  Partnership.  Such information has been subjected to the auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  is fairly stated, in all material  respects,  in relation to the basic
financial statements taken as a whole.

Jon R. Young Company, P.C.
March 7, 2001



<PAGE>


                          Independent Auditors' Report



To the Partners
Mayfair Manor Limited Partnership
Tucson, Arizona

We have  audited  the  accompanying  balance  sheet  of  Mayfair  Manor  Limited
Partnership, FHA Project Number 123-44022-LDP,  as of December 31, 2000, and the
related statements of operations,  changes in partners' capital,  and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Project's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial  position  of  Mayfair  Manor  Limited
Partnership, FHA Project Number 123-44022-LDP,  as of December 3,1 2000, and the
results of operations, changes in partners' capital, and cash flows for the year
then ended in conformity with generally accepted accounting principles.

In accordance  with Government  Auditing  Standards and the  Consolidated  Audit
Guide for Audits of HUD Programs  issued by the U.S.  Department  of Housing and
Urban  Development,  we have  also  issued a report  dated  March 7, 2001 on our
consideration  of Mayfair  Manor  Limited  Partnership's  internal  control  and
reports  dated  March 7, 2001,  on its  compliance  with  specific  requirements
applicable to major HUD programs, and specific requirements  applicable to major
HUD programs, and specific requirements applicable to Affirmative Fair Housing.

As discussed in Note F in the financial statements, certain of the Partnership's
notes  payable were due October 25, 1999;  therefore,  the notes are in default.
During 2000, the noteholder commenced foreclosure proceedings on the Partnership
interests of the Partnership.  This condition raises substantial doubt about its
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial   statements  taken  as  a  whole.   The  accompanying   supplementary
information  shown on pages 14 to 18 is  presented  for  purposes of  additional
analysis and is not a required  part of the basic  financial  statements  of the
Mayfair Manor Limited  Partnership.  Such  information has been subjected to the
auditing procedures applied in the audit of the basic financial  statements and,
in our opinion,  is fairly stated, in all material respects,  in relation to the
basic financial statements taken as a whole.

Jon R. Young Company, P.C.
March 7, 2001


<PAGE>


                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                    COMBINED STATEMENT OF FINANCIAL POSITION

                                   (in thousands)

                                December 31, 2000


                                     ASSETS
Cash and cash equivalents                                           $   863
Accounts receivable, net (Note 2)                                       232
Tenants' security deposits held in trust funds                          201
Prepaid expenses and other assets                                        99
Deferred finance costs                                                   57
Mortgage escrow deposits                                              2,943
Other assets                                                             27
Rental property, net (Notes 4, 5, 10 and 14)                         26,145

                                                                   $ 30,567

                        LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
  Accounts payable and accrued expenses                               1,101
  Accrued real estate taxes                                              76
  Partner loans and accrued interest (Note 7)                         2,071
  Tenants' security deposits payable                                    191
  Notes payable (Note 6)                                             10,713
  Accrued interest on notes payable (Note 6)                         16,032
  Mortgage notes payable (Note 5)                                    11,541
                                                                     41,725

  Partners' deficit                                                 (11,158)

                                                                   $ 30,567

                   See Accompanying Notes To Financial Statements


<PAGE>


                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                        COMBINED STATEMENTS OF OPERATIONS

                                   (in thousands)

<TABLE>
<CAPTION>


                                                              Years Ended December 31,
                                                                  2000         1999
REVENUE:
<S>                   <C>                                       <C>          <C>
  Rental income (Note 3)                                        $ 8,511      $11,556
  Interest income                                                   153          184
  Other income                                                      314          522
                                                                  8,978       12,262
EXPENSES:
  Administrative expenses                                           958        1,050
  Utilities and operating expenses                                2,847        4,066
  Management and other services from related party (Note 9)         579          768
  Salaries and related benefits to related party (Note 9)           973        1,335
  Depreciation and amortization                                   1,760        1,899
  Taxes and insurance                                               909        1,301
  Financial expenses - primarily interest (Note 5)                  226          327
  Interest on notes payable (Notes 6 and 7)                       1,353        1,882
  Annual partnership administrative fees to General Partner
    (Note 7)                                                         65          128
  Impairment loss on rental property (Note 10)                       --          736
                                                                  9,670       13,492

NET LOSS                                                         $ (692)     $(1,230)

                   See Accompanying Notes To Financial Statements
</TABLE>


<PAGE>



                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                    COMBINED STATEMENTS OF PARTNERS' DEFICIT

                                   (in thousands)
<TABLE>
<CAPTION>

                                  National
                                   Housing The
                                Partnership     National       NHP          NHP
                                Realty Fund     Housing    Investment   Investment
                                    Two       Partnership  Partners I  Partners III     Total

<S>                <C>            <C>            <C>         <C>           <C>        <C>
Deficit at January 1, 1999        $(18,300)      $ (383)     $ (755)       $ (65)     $(19,503)

Distributions                          (77)          (1)          (4)          --          (82)

Cumulative unpaid
  distributions                        (43)          --           (2)          --          (45)

Net (loss) profit                   (1,218)         (12)           8           (8)      (1,230)

Transfer of interest
  (Note 11)                          5,533           59          263           --        5,855

Deficit at December 31, 1999       (14,105)        (337)        (490)         (73)     (15,005)

Distributions                          (60)          --           --           --          (60)

Net (loss) profit                     (681)          (7)          (5)           1         (692)

Transfer of interest
  (Note 11)                          4,590           46          (71)          34        4,599

Deficit at December 31, 2000      $(10,256)      $ (298)     $ (566)       $ (38)     $(11,158)

Percentage interest at
  December 31, 2000 and 1999          (A)            (B)         (C)          (D)

(A)   Holds a 94.5% limited partnership interest (98% with respect to allocation
      of losses).

(B)   Holds a 1% general partnership interest in Local Limited Partnerships.

(C)   Holds a 4.5% limited  partnership  interest (1% with respect to allocation
      of losses) in certain Local Limited Partnerships.

(D)   Holds a 4.5% limited  partnership  interest (1% with respect to allocation
      of losses) in certain Local Limited Partnerships.

                   See Accompanying Notes To Financial Statements
</TABLE>


<PAGE>



                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                        COMBINED STATEMENTS OF CASH FLOWS

                                   (in thousands)
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                                                  2000            1999
CASH FLOWS FROM OPERATING ACTIVITIES:
  Receipts:
<S>                                                              <C>            <C>
   Rental receipts                                               $ 8,876        $11,473
   Interest receipts                                                 173            245
   Other operating receipts                                          274            481
   Tenant security deposits                                           41             11
   Transfer of operating liability to new owner                       --             14
   Entity receipts                                                    --              1
            Total receipts                                         9,364         12,225

  Disbursements:
   Administrative                                                   (629)          (943)
   Management fees                                                  (755)          (973)
   Utilities                                                      (1,476)        (1,670)
   Salaries and wages                                             (1,325)        (1,810)
   Operating and maintenance                                        (995)        (1,848)
   Real estate taxes                                                (429)          (591)
   Property insurance                                               (219)          (295)
   Miscellaneous taxes and insurance                                (284)          (428)
   Tenant security deposits                                           --            (11)
   Other operating disbursements                                      --           (151)
   Interest on mortgage                                              (73)          (224)
   Mortgage insurance premium                                        (64)           (79)
   Miscellaneous financial expenses                                   (6)           (13)
   Transfer of operating cash to new owner                          (224)           (36)
   Entity disbursements:
     Interest on notes payable                                        --           (124)
     Miscellaneous disbursements                                    (147)           (92)
            Total disbursements                                   (6,626)        (9,288)

Net cash provided by operating activities                          2,738          2,937

Cash flows from investing activities:
  Change in mortgage escrow accounts                                (864)            49
  Net purchase of fixed assets                                    (1,319)        (1,712)
  Other investing                                                    (61)           (76)

Net cash used in investing activities                             (2,244)        (1,739)


                   See Accompanying Notes To Financial Statements
</TABLE>


<PAGE>


                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                   COMBINED STATEMENTS OF CASH FLOWS (continued)

                                   (in thousands)
<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                                   2000            1999
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                  <C>            <C>
  Mortgage principal payments                                        (659)          (903)
  Proceeds from loans or notes payable                                  8              1
  Principal payments on loans or notes payable                         (8)            --
  Distributions                                                       (60)           (82)
  Other financing                                                      45              7

Net cash used in financing activities                                (674)          (977)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                 (180)           221

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                      1,043            822

CASH AND CASH EQUIVALENTS AT END OF YEAR                           $ 863         $ 1,043

RECONCILIATION OF NET LOSS TO NET CASH USED IN
  OPERATING ACTIVITIES:
   Net loss                                                       $ (692)        $(1,230)
   Adjustments to reconcile net loss to net cash provided
     by operating activities:
      Depreciation and amortization                                 1,760          1,899
      Impairment loss on rental properties                             --            736
      Changes in operating assets and liabilities:
        Net tenant receivables                                        205           (139)
        Accounts receivable - other                                   244           (100)
        Accrued receivables                                            (1)             7
        Prepaid expenses and other assets                              --            (19)
        Cash restricted for tenants' security deposits                 25            (17)
        Accounts payable trade                                         34            (68)
        Accrued liabilities                                          (103)            54
        Accrued interest - notes payable                            1,431          1,663
        Tenant security deposits held in trust                         16             17
        Prepaid revenue                                                (8)            32
        Transfer of operating cash to new owner                      (224)           (22)
        Entity liability accounts                                      53            124
            Total adjustments                                       3,432          4,167

Net cash provided by operating activities                         $ 2,738        $ 2,937

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
  Net write-off of assets and liabilities to reflect
   foreclosures and treated as a transfer of partnership
   interests                                                      $ 4,599        $ 5,855

                   See Accompanying Notes To Financial Statements
</TABLE>


<PAGE>



                                  EXHIBIT 99.1

                    NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO

                           LOCAL LIMITED PARTNERSHIPS

                     NOTES TO COMBINED FINANCIAL STATEMENTS


(1)  SUMMARY OF PARTNERSHIP  ORGANIZATION,  BASIS OF COMBINATION AND SIGNIFICANT
     ACCOUNTING POLICIES

Organization

National  Housing   Partnership  Realty  Fund  Two  (the  "Partnership"  or  the
"Registrant") is a limited partnership  organized under the laws of the State of
Maryland under the Maryland  Revised Uniform Limited  Partnership Act on January
22,  1985.  The  Partnership  was formed for the  purpose of raising  capital by
offering and selling limited partnership interests and then investing in limited
partnerships  (Local Limited  Partnerships),  each of which owns and operates an
existing  rental housing  project which is financed  and/or operated with one or
more forms of rental assistance or financial assistance from the U.S. Department
of Housing and Urban Development ("HUD").

During 1985, the Partnership  acquired 94.5% (98% with respect to losses) of the
limited  partnership  interests in twenty-one Local Limited  Partnerships.  As a
limited partner in these Local Limited  Partnerships,  the Partnership  does not
exercise  control  or  influence  over  the  activities  of  the  Local  Limited
Partnerships in accordance with the partnership  agreements.  As of December 31,
2000 and 1999, the  Partnership  continues to hold interests in nine and fifteen
Local Limited Partnerships, respectively.

On June 3,  1997,  Apartment  Investment  and  Management  Company,  a  Maryland
corporation  ("AIMCO" and,  together with its  subsidiaries and other controlled
entities, the "AIMCO Group"), acquired all of the issued and outstanding capital
stock of NHP Partners,  Inc., a Delaware  corporation ("NHP Partners"),  and the
AIMCO Group  acquired  all of the  outstanding  interests  in NHP  Partners  Two
Limited  Partnership,  a Delaware limited  partnership ("NHP Partners Two"). NHP
Partners owns all of the outstanding  capital stock of the National  Corporation
for Housing Partnerships,  a District of Columbia corporation ("NCHP"), which is
the general partner of The National Housing Partnership,  a District of Columbia
limited  partnership ("NHP" or the "General  Partner").  Together,  NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions,  the AIMCO
Group acquired control of the general partner of the Registrant and,  therefore,
may be deemed to have acquired control of the Registrant.

NHP is also  the sole  general  partner  of NHP  Investment  Partners  I and NHP
Investment  Partners III. NHP  Investment  Partners III, a limited  partnership,
holds a 4.5% limited partnership interest (1% with respect to losses) in Hurbell
I Limited Partnership  (foreclosed in 2000), Hurbell III Limited Partnership and
Hilltop Limited Partnerships  (foreclosed in 2000). NHP Investment Partners I, a
limited  partnership,   holds  a  4.5%  limited  partnership  interest  (1%  for
allocation of losses) in the remaining twelve Local Limited  Partnerships  (four
of which  were  foreclosed  on  during  2000).  Prior to the  admittance  of the
Partnership into the Local Limited  Partnerships,  NHP Investment Partners I and
NHP  Investment  Partners  III held a 1% general  partnership  interest  and 98%
limited partnership interest in the Local Limited Partnerships.

Basis of Combination

The combined financial  statements include the accounts of the following fifteen
and  seventeen  Local  Limited  Partnerships  in which the  Partnership  holds a
limited partnership interest during 2000 and 1999, respectively:

Caroline Arms Limited Partnership
Esbro Limited Partnership
Harold House Limited Partnership
Hilltop Limited  Partnership  (interest lost August 9, 2000)
Hurbell I Limited  Partnership  (interest  lost October 26, 2000)
Hurbell II Limited  Partnership
Hurbell  III  Limited  Partnership
Kimberton  Apartments  Associates  Limited  Partnership  (interest lost July 24,
2000)
Mayfair Manor Limited  Partnership
Meadows  Apartments  Limited  Partnership  (interest  lost  December  1, 1999)
Meadows East  Apartments  Limited  Partnership  (interest lost August 5, 1999)
Park Avenue West I Limited  Partnership  (interest lost January 17, 2000)
Park  Avenue West II Limited  Partnership  (interest  lost  January 17,  2000)
Rodeo  Drive Limited Partnership  (interest lost January 1, 2000)
San Juan del Centro  Limited  Partnership
West Oak Village Limited  Partnership
Windsor Apartments  Associates Limited Partnership

Significant Accounting Policies

The combined financial statements of the Local Limited Partnerships are prepared
on the accrual basis of accounting.  Depreciation of buildings and  improvements
for  fifteen  of  the  Local  Limited   Partnerships   is  computed   using  the
straight-line method assuming a 50-year life from the date of initial occupancy,
whereas  depreciation  of  buildings  and  improvements  is  computed  using the
straight-line  method,  assuming a 30-year  life and 30%  salvage  value for one
Local Limited  Partnership.  Depreciation  for one Local Limited  Partnership is
computed using the straight-line method,  assuming a 40-year life.  Depreciation
of equipment is calculated using accelerated methods over estimated useful lives
of five to 27 years. Cash distributions are limited by the Regulatory Agreements
between  the  partnerships  and HUD to the extent of surplus  cash as defined by
HUD.  Undistributed  amounts are cumulative and may be distributed in subsequent
years  if  future   operations   provide  surplus  cash  in  excess  of  current
requirements.  Deferred  finance costs are amortized over the  appropriate  loan
period on a straight-line basis.

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 Local  Limited  Partnerships  consider  all highly  liquid debt  instruments
purchased  with  initial   maturities  of  three  months  or  less  to  be  cash
equivalents.

Certain reclassifications of prior years' amounts have been made to conform with
the current year's presentation.

(2)   ACCOUNTS RECEIVABLE

At  December  31,  2000,  accounts  receivable  consist  of  the  following  (in
thousands):

Tenant receivables, net                               $  47
Housing assistance receivable (see Note 3)               78
Reserve releases receivable                              59
Other receivables                                        48

Accounts receivable, net                              $ 232

(3)   HOUSING ASSISTANCE AGREEMENTS

The  Federal  Housing  Administration  (FHA) has  contracted  with eight  rental
projects  under Section 8 of Title II of the Housing and  Community  Development
Act of 1974, to make housing assistance payments to the respective Local Limited
Partnerships  on behalf of  qualified  tenants  during 2000.  The Local  Limited
Partnerships  received  approximately  $5,759,000  and $6,616,000 in the form of
housing  assistance  payments  during  2000  and  1999,  respectively,  which is
included in "Rental Income" on the combined statements of operations.

Regulation of Affordable Housing

The  Federal  Housing  Administration  ("FHA")  has  contracted  with  the  nine
subsidized  rental  projects  under  Section  8 of Title II of the  Housing  and
Community  Development  Act of 1974 to make housing  assistance  payments to the
Local  Limited  Partnerships  on behalf of qualified  tenants.  The terms of the
agreements are one or five years with one year renewal options.

In 1997 and again in 1999,  Congress  enacted new ways to determine  rent levels
for properties  receiving HUD's rental  assistance under Section 8 of the United
States  Housing Act of 1937 ("Section 8") after the expiration of their original
Section 8 contracts. This new legislation will affect 1,299 units, or 97% of the
units in which the Partnership has invested.  On October 27, 1997, the President
signed into law the Multifamily Assisted Housing Reform and Affordability Act of
1997 (the "1997 Housing Act").  Under the 1997 Housing Act,  certain  properties
assisted under expiring  Section 8 contracts and which have been receiving rents
deemed to be above  comparable  market  levels for  unassisted  properties,  and
financed  with  HUD-insured  mortgage  loans,  will  have,  upon the  renewal or
extension of Section 8 contracts,  rents  marked to market  rents.  This will be
accomplished  in  various  ways,  the goal  being to  reduce  Section 8 rents to
comparable  market  levels,  thereby  reducing  the  federal  Section  8 subsidy
obligation,  and (ideally) by simultaneously lowering, or eliminating,  required
debt  service  costs  (and  decreasing  operating  costs)  as  needed  to ensure
financial  viability at the reduced rent levels. The program also incorporates a
requirement  to  perform  any  repair  or  rehabilitation  deemed  necessary  by
depositing  funds to cover the first twelve month's work, and making  sufficient
monthly reserve  deposits to ensure work required in succeeding  years. In 1999,
the Congress  enacted  legislation (the "1999 Housing Act") that expanded on and
clarified  the  provisions  of  the  1997  Housing  Act,  including   permitting
properties whose Section 8 rents were below comparable  market rents to increase
their Section 8 rents to market.

The 1997 and 1999  Housing  Acts  (together,  the  "Housing  Acts")  permit  the
retention of project  based  Section 8 contracts  for most  properties in rental
markets  with a limited  supply of  affordable  housing or where the tenants are
particularly  vulnerable  populations  including the elderly,  disabled or large
families.  In markets in rental  markets  without a limited supply of affordable
housing,  the Housing  Acts  provide for  phasing out project  based  subsidies,
converting the assistance to tenant based assistance or vouchers. Under a tenant
based  system,  rental  vouchers  would be issued to qualified  tenants who then
could elect to reside at properties  of their choice,  including the property in
which they  currently  reside.  Voucher  rent  levels are  established  by local
housing  authorities under guidelines set by HUD. While the Partnership does not
expect the  provisions of the Housing Acts to result in a significant  number of
tenants relocating from the properties owned by the Local Limited  Partnerships,
there can be no assurance that the new legislation  will not  significantly  and
adversely  affect  the  operations  of  the  properties  of  the  Local  Limited
Partnerships.

All of the  properties  owned by the Local Limited  Partners  receiving  project
based rent subsidies under Section 8 will have their contracts expire during the
year ending  December  31, 2001.  The Housing  Acts provide for several  options
under which a Local Limited Partnership may elect, as appropriate,  to renew its
Section 8 contracts:  (1) marking  rents up to the  comparable  market rent,  if
current  rents are below  market;  (2)  renewing  existing  rents at the current
level, if the level does not exceed  comparable  market rents,  and receiving an
operating cost adjustment factor (an "OCAF") or a budget based rent increase, as
long as the rents do not exceed  comparable market rents; (3) marking rents down
to comparable  market rents; (4) marking their rents down to an "exception rent"
level,  when  comparable  market  rents  would  be too low to  permit  continued
operation  of the  property  under the  Section 8  program,  even with full debt
restructuring;  or (5)  opting  out of the  Section 8  program.  For  properties
assisted by Section 8, but not subject to these provisions  (including,  but not
limited to,  properties which do not have underlying HUD insured  mortgages,  or
which  have been  financed  through  certain  state  housing  finance  agency or
bond-financed  mortgage  programs),  rents will be continued at current  levels,
plus an OCAF or (in some  instances) a budget based rent increase.  In addition,
properties  can opt out of the  Section 8  program  only if very  strict  notice
requirements have been met,  including a requirement that HUD, the tenants,  and
the local  governing  body,  be given twelve  months  notice of a Local  Limited
Partnership's intention to opt out of the program prior to contract termination.

Each of the options  requires an application to HUD, and, to a greater or lesser
extent,  the  fulfillment  of certain  procedural  submission  requirements  and
financial   requirements,   which  must  be  weighed  in  connection   with  the
determination of which option to select.

The Section 8  requirements  are separate  from the  requirements  governing the
underlying  HUD-insured  mortgage  loans,  and any  other  HUD,  state  or local
requirements, all of which must be fulfilled,  irrespective of the option chosen
with regard to the continuation of Section 8 participation.

(4)   RENTAL PROPERTY

At December 31, 2000 rental property consists of the following (in thousands):

Land                                             $ 3,074
Buildings and improvements                        41,385
                                                  44,459
Less accumulated depreciation                    (18,314)

Rental property, net                            $ 26,145

(5)   MORTGAGE NOTES PAYABLE

The mortgage notes payable are insured by FHA and  collateralized by first deeds
of trust on the rental properties. The notes bear interest at rates ranging from
3% to 8.5% per annum.  However,  FHA, under an interest  reduction contract with
the eight  Section  236  properties,  makes  subsidy  payments  directly  to the
mortgage  lender  reducing the monthly  principal  and interest  payments of the
project owner to an effective  interest rate of 1% over the forty-year  terms of
the notes.  The liability of the Local Limited  Partnerships  under the mortgage
notes is limited to the  underlying  value of the real estate  collateral,  plus
other amounts deposited with the lenders.

Under   agreements  with  the  mortgage  lenders  and  FHA,  the  Local  Limited
Partnerships are required to make monthly escrow deposits for taxes,  insurance,
and  reserves  for  the  replacement  of  project  assets  and  are  subject  to
restrictions as to operating policies,  rental charges,  operating expenditures,
and distributions to partners.

Approximate  maturities  of mortgage  notes payable for the next five years and,
thereafter, are as follows (in thousands):

          2001                 $ 611
          2002                    660
          2003                    712
          2004                    769
          2005                    830
       Thereafter               7,959

                              $11,541

(6)   NOTES PAYABLE

Notes payable were executed by the Local  Limited  Partnerships  with the former
owners  as  part of the  acquisition  of the  properties  by the  Local  Limited
Partnerships.  These notes bear simple interest at rates of 9% or 10% per annum.
The  notes  are  nonrecourse  notes  secured  by  a  security  interest  in  all
partnership  interests  in the  respective  Local  Limited  Partnership  and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD.  Any  payments  due from  project  income are  payable  from the
respective  Local  Limited   Partnership's  surplus  cash,  as  defined  by  the
respective  HUD  Regulatory  Agreement.  The notes may be prepaid in whole or in
part  at  any  time  without  penalty.  Neither  the  respective  Local  Limited
Partnership  nor any partner  thereof,  present or future,  assumes any personal
liability for the payment of these notes.

These notes mature as follows:
<TABLE>
<CAPTION>

Local Partnership                           Due Date    Note Amount  Accrued Interest

<S>                                         <C>   <C>     <C>             <C>
Esbro Limited Partnership                   10/25/99      $ 1,204         $ 1,850
Mayfair Manor Limited Partnership           10/25/99        1,654           2,608
Hurbell II Limited Partnership              11/02/99        1,502           2,184
Caroline Arms Limited Partnership           11/15/99        1,561           2,517
Harold House Limited Partnership            11/15/99          599             967
Hurbell III Limited Partnership             12/19/99          688             999
San Juan Del Centro Limited Partnership     12/20/99        1,458           2,103

      Total Delinquent                                      8,666          13,228

West Oak Limited Partnership               11/30/2013       2,047           2,804

      Total due                                           $10,713         $16,032
</TABLE>

The West Oak Village Limited  Partnership  note bears interest at the rate of 9%
per annum. The note is nonrecourse and is secured by a security  interest in the
Partnership's  interest  in the Local  Limited  Partnership.  During  1997,  the
noteholders  entered into an  agreement  with the  Partnership,  under which the
maturity date of the note was extended  until  November  2013,  assuming  annual
payments  of  interest  are  made to the  noteholders.  Under  the  terms of the
agreement,  payments  are to be made equal to the annual  interest at a variable
rate based on the prior  year's  interest  rate payment  multiplied  by the most
recent Consumer Price Index rate, with any increase subject to a floor of 2% and
a ceiling of 5%. At any time prior to the note's  maturity,  the Partnership has
the  option  to repay the  acquisition  note at a  discount  equal to 70% of the
property's annual scheduled rent but not less than $700,000. The required annual
installment  of interest for 2000 was not made.  Accordingly,  the Local Limited
Partnership is currently in default and the  Partnership  interest is subject to
foreclosure.  The Local Limited  Partnership is actively  attempting to sell its
net assets.

Caroline  Arms,  Harold House and San Juan Del Centro Limited  Partnerships  all
have notes which were executed by the respective Local Limited Partnerships with
the  seller as part of the  acquisition  of the  property  by the Local  Limited
Partnership.  The notes were nonrecourse notes secured by a security interest in
all Partnership  interests in the Local Limited Partnership and are subordinated
to the  respective  mortgage  notes on each property for as long as the mortgage
notes are insured by HUD. Any payments due from project  income are payable from
surplus cash, as defined by the HUD  Regulatory  Agreement.  Neither the Limited
Partnership  nor any  partners  thereof,  present or future  assume any personal
liability  for the payment of the notes.  The notes were due  November 15, 1999,
November 15, 1999 and December 20, 1999,  respectively.  Each note is in default
and  the  Local   Limited   Partnership   interests  are  subject  to  potential
foreclosure.  Continuation of the Local Limited Partnerships'  operations in the
present form is  dependent  on its ability to extend the maturity  date of their
respective notes, or to repay or refinance their note. The financial  statements
do not  include  any  adjustments  which  might  result from the outcome of this
uncertainty.  Harold House Local Limited  Partnership is actively  attempting to
sell its net assets.

Esbro  and  Mayfair  Manor  Limited  Partnership  notes  were  executed  by  the
respective Local Limited  Partnership with the seller as part of the acquisition
of the  property by the Local  Limited  Partnership.  The notes are  nonrecourse
notes  secured  by a  security  interest  in all  Partnership  interests  in the
respective  Local Limited  Partnership.  The notes were initially due on October
15, 1997.  Effective  February 16, 1998,  both Esbro and Mayfair  Manor  Limited
Partnerships  executed  Amended and Restated  Promissory Notes for each of their
respective  notes.  The  Amended  Notes  extended  the  maturity of the notes to
October 25, 1999.  Neither the Limited  Partnership  nor any  partners  thereof,
present or future  assume any personal  liability  for the payment of the notes.
During 2000,  Local Limited  Partnerships  received notice of demand for payment
and the commencement of foreclosure proceedings.  Such foreclosure is subject to
HUD  approval,  which is  pending.  Continuation  of both of the  Local  Limited
Partnerships'  operations  in the present  form is  dependent  on the outcome of
these proceedings. The financial statements do not include any adjustments which
might result from the outcome of this uncertainty.

(7)   DUE TO PARTNERS

The Local Limited  Partnerships  accrued annual partnership  administration fees
payable to the General Partner,  of  approximately  $65,000 and $128,000 for the
years ended December 31, 2000 and 1999, respectively. Payments of these fees are
made to the General  Partner  without  interest from surplus cash  available for
distribution to partners pursuant to HUD regulations.  During 2000 and 1999, the
Local   Limited   Partnerships   paid   approximately   $267,000  and  $145,000,
respectively.  The balance owed to NHP for these fees was approximately $455,000
at December 31, 2000.

During 2000 and 1999,  the General  Partner  advanced  approximately  $8,000 and
$1,000 to one Local Limited  Partnership.  During 2000 approximately  $8,000 was
paid by the Local  Limited  Partnerships.  No payments were made during 1999. At
December 31, 2000,  approximately  $2,071,000 of loans and accrued interest were
owed to the General  Partner.  Interest is charged at the Chase  Manhattan prime
interest rate plus 2%.

(8)   FEDERAL AND STATE INCOME TAXES

The Local Limited  Partnerships are not taxed on their income.  The partners are
taxed in their individual  capacities upon their distributive share of the Local
Limited  Partnerships' taxable income and are allowed the benefits to be derived
from  offsetting  their  distributive  share of the tax losses  against  taxable
income from other sources subject to passive loss rule limitations.  The taxable
income or loss  differs  from amounts  included in the  statement of  operations
primarily because of different methods used in determining  depreciation expense
for tax purposes. The tax loss is allocated to partner groups in accordance with
Section  704(b) of the Internal  Revenue Code and  therefore is not  necessarily
proportionate to the interest percentage owned.

(9)   RELATED PARTY TRANSACTIONS

An affiliate of the General  Partner,  NHP Management  Company  ("NHPMC") is the
project  management  agent for the projects  operated by seven and eleven of the
Local Limited Partnerships during 2000 and 1999,  respectively.  NHPMC and other
affiliates  of NCHP earned  approximately  $579,000 and $768,000 for  management
fees and other services provided to the Local Limited  Partnerships  during 2000
and 1999, respectively.

Personnel  working  at the  project  sites,  which are  managed  by  NHPMC,  are
employees of NHPMC.  The projects  reimbursed  NHPMC for the actual salaries and
related benefits of such employees. Total reimbursements earned for salaries and
benefits  for the years ended  December  31, 2000 and 1999,  were  approximately
$973,000 and $1,335,000, respectively.

(10)  IMPAIRMENT LOSS ON RENTAL PROPERTY

The  Financial  Accounting  Standards  Board  Statement of Financial  Accounting
Standards  ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived  Assets
and for Long-Lived  Assets To Be Disposed Of" requires an impairment  loss to be
recognized if the sum of estimated future cash flows  (undiscounted  and without
interest  charges)  is less than the  carrying  amount of rental  property.  The
impairment loss would be the amount by which the carrying value exceeds the fair
value of the rental property.  If the rental property is to be disposed of, fair
value is calculated net of costs to sell.

During 1999, Hurbell I Limited Partnership  recognized an impairment loss on its
rental  property in the amount of  approximately  $736,000  based on the General
Partner's  estimated net sales value (estimated selling price of the net assets,
less an estimated cost of  disposition).  The  Partnership  lost its interest in
Hurbell I through foreclosure on October 26, 2000.

Additionally, regardless of whether an impairment loss of an individual property
has been  recorded or not, the carrying  value of each of the rental  properties
may still exceed their fair market value as of December 31, 2000. Should a Local
Limited  Partnership  be forced to  dispose of any of its  properties,  it could
incur a loss.

(11)  DISPOSALS OF RENTAL PROPERTIES

Meadows  Apartments and Meadows East Apartments  Limited  Partnerships  both had
notes  payable  which  were  due  on  December  12,  1997.   The  Local  Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999,  Meadows  Apartments  and Meadows East  Apartments
Limited Partnership notes were foreclosed. Pursuant to the security agreement of
the note payable, the note holder was substituted as the sole limited partner of
the Local Limited  Partnership in place of the Partnership and the note holder's
assignee  was  substituted  as the  general  partner.  No gain or loss  has been
recorded as a result of the transfer of this partnership interest. With the loss
of the Partnership's  interest in Meadows Apartments and Meadows East Apartments
to the note holders,  the Partnership  will not receive any future benefits from
these Local Limited  Partnerships  and taxable income will be generated and flow
to the  Partnership's  investors  without any  distributable  cash. The specific
impact  of the  tax  consequence  is  dependent  upon  each  specific  partner's
individual tax situation.

Hilltop Apartments, Hurbell I, Park Avenue West I, Park Avenue West II and Rodeo
Drive  Limited  Partnerships  had notes payable which were due November 2, 1999,
December  19, 1999,  December  20, 1999,  December 20, 1999 and December 6, 1997
respectively.  The Local Limited  Partnerships did not have the resources to pay
the amounts due. In accordance with the dates shown in the following  table, The
Local Limited  Partnerships  were foreclosed upon and,  pursuant to the security
agreement  of the notes,  the note  holders  were  substituted  as sole  limited
partners of the Local Limited Partnerships. Also, the note holder's assignee was
substituted as the general partner.

          Partnership                         Foreclosure Date

          Hilltop                              August 9, 2000
          Hurbell I                           October 26, 2000
          Park Avenue West I                  January 17, 2000
          Park Avenue West II                 January 17, 2000
          Rodeo Drive                          January 1, 2000

No  gain or loss  has  been  recorded  as a  result  of the  transfer  of  these
Partnership  interests.  With the loss of the partnership's interest in Hilltop,
Hurbell I, Park  Avenue  West I & II and Rodeo  Drive to the note  holders,  the
Partnership  will not  receive  any future  benefits  from these  Local  Limited
Partnerships and taxable income will be generated and flow to the  Partnership's
investors without distributable cash. The specific impact of the tax consequence
is dependent upon each specific partner's individual tax situation.

On July 24, 2000, the holder  foreclosed on the note payable by the  Partnership
which was  collaterized  by its  interest  in  Kimberton  Apartments  Associates
Limited Partnership.  The holder of the note was NHP, the general partner of the
Partnership  and an  affiliated  party.  As a result  of this  transaction,  the
Partnership lost its interest in the Local Limited Partnership.  No gain or loss
has been recorded as a result of the transfer of the interest.  With the loss of
the  Partnership's   interest  in  Kimberton   Apartments   Associates   Limited
Partnership  to the note  holder,  the  Partnership  will not receive any future
benefits from the Local Limited Partnership.

(12)  FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial  Instruments," requires
disclosure of fair value  information  about financial  instruments,  when it is
practicable  to estimate that value.  For the notes payable and related  accrued
interest,  a  reasonable  estimate  of fair  value  could  not be  made  without
incurring  excessive  costs. The carrying amount of other assets and liabilities
reported on the  statement of financial  position  that require such  disclosure
approximates fair value.

(13)  GOING CONCERN

Certain  of the Local  Partnership's  notes  payable  are past due (see Note 6).
Therefore, there is the possibility that the Partnership will lose its ownership
interest  in the Local  Limited  Partnerships  through  foreclosure  by the note
holders.  Subsequent to December 31, 2000,  the  noteholders  for certain of the
Local Limited Partnerships foreclosed on the Partnership interests and, in 2000,
the  noteholders  for  certain  other  Local  Limited  Partnerships  have  begun
foreclosure  proceedings.  Continuation of the Local Partnerships' operations in
the present  form is  dependent  on its ability to extend the  maturity  date of
these notes, or to repay or to refinance the notes. The financial  statements do
not  include  any  adjustments  which  might  result  from the  outcome  of this
uncertainty.

(14)  SUBSEQUENT EVENTS

Hurbell II and Hurbell III Limited Partnerships had notes payable which were due
November 2, 1999,  and they did not have the  resources  to pay the amounts due.
Pursuant to the  security  agreement of the notes,  the note  holders  initiated
foreclosure  proceedings  and were  substituted as sole limited  partners of the
Local Limited  Partnerships  on April 3, 2001 and March 28, 2001,  respectively.
Also, the note holder's  assignee was  substituted as the general  partner.  The
financial  statements do not include any adjustments which might result from the
outcome of these transactions.

On January 31, 2001, Windsor Apartment  Associates Limited  Partnership sold its
investment property to an unaffiliated third party for $4,600,000.  After paying
closing costs, the net proceeds were used to repay the mortgage  encumbering the
property  and the note  payable  and  accrued  interest  thereon to the  General
Partner from the Partnership.